Health Care Reform Update & Review of Tax

Implications

Monday, October 22, 20122:30 p.m. CDT

Bernard DiFiorePresident and

Chief Executive OfficerCompuPay, A BenefitMall Company

CompuPay is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org.

Housekeeping

Course Level: BasicPrerequisites: None requiredAdvanced Preparation: None required

Instructional Delivery Method: Group Internet based

CPE Credits: 50-60 minutes. One (1) credit hour is available for this session.

QuestionsEvaluation

Webinar Overview

Attendees will learn about

Part I: PPACA Background and

Supreme Court Ruling

Part II: How will employers be impacted and what can employers

do to prepare for the future?

Part III: Summary of Key Points

Part I:PPACA Background and Supreme Court Ruling

PPACA Background

• The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010

• Various portions of the law began being implemented in 2010 and will continue until 2018. Many key changes will occur in 2014.

• Federal and state governments are largely implementing these provisions

• Several federal agencies are assuming pivotal roles• U.S. Department of Health and Human Services • U.S. Department of Labor• U.S. Department of Treasury• U.S. Department of Homeland Security

PPACA Goals

• Covering the uninsured and underinsured population

• Improving the transparency and ease of purchasing health insurance

• Increasing insurance accountability

• Creating national standards

• Standardizing benefit packages

• Reducing medical and insurance

costs/Paying for Programs

32 million more Americans

The Exchange System

Medical Loss Ratio (MLR)

Essential Health Benefits (EHBs)

Summary of Benefits (SOB)

Addressing financing issues

Individual Mandate

Picture Credit: Texas Enterprise ; Univ of Texas at Austin

• The Individual Mandate is an integral part of PPACA to ensure full participation by all U.S. citizens, unless they are exempted.

• Effective January 1, 2014

• Most employers also must participate, either through offering coverage or by paying a penalty

• Individuals who do not obtain health insurance will be assessed a tax they must pay along with their regular federal tax return

• The amount of the tax penalty for individuals in 2014 (reported in 2015), will be $95, or 1 percent of income, whichever is greater.

• The penalty would subsequently rise in 2016, reaching $695, or 2.5 percent of income, whichever is greater.

• For families: the health insurance non-compliance penalty is capped at $285 per family, or 1% of income, whichever is greater.

• By 2016, it will jump sharply to $2,085 per family, or 2.5% of income, whichever is greater.

• In theory, this will help spread the risk and make sure everyone is participating in the insurance system.

Exceptions to the Individual Mandate

Applies to everyone except the following:

• Who already have minimum essential coverage through an employer-

sponsored plan

• Who have individual qualified coverage

• Who are enrolled in a Medicaid, Medicare, Tricare, or similar program

• Who are permanently incarcerated

• Who are members of Indian tribes

• Who express religious objection

• Who are without coverage for less than three months

• Who would be contributing more than eight percent of their household

income as a “required contribution,”

• Whom the Secretary of HHS determines that obtaining coverage would

constitute an extreme hardship

Individual Mandate: What are the tax penalties for non-compliance?

The annual tax (formerly known as a penalty) for not obtaining minimum essential coverage will be the greater of a flat dollar tax amount per individual or a percentage of the individual’s taxable income.

The applicable flat dollar amount for 2014 for a tax filer with no dependents will be $95 and the amount for 2015 will increase to $325. This amount will increase over the years, rising to $695 in 2016, and will be further revised in 2017 according to the changes in cost-of-living.  

Each adult will pay the rate of an individual, and then you need to add the dependent at the 50% rate. For example, in 2016 a couple with one child under 18 would be assessed a flat dollar penalty of $1,737.50 (two adults x $695 plus one child at $347.50 -- one half of adult penalty).

A family of four (one couple with two children over 18) would only be required to pay the 300% cap in 2016. Three hundred percent of the $695 flat amount for 2016 is equal to $2,085. This amount is less than the flat amount that could be charged if the cap were not in place (two adults + two children over 18 = $695 x 4 = $2,780).

First Polling Question

According to the White House website, PPACA is aimed at:

A)strengthening consumerrights and protectionsB) providing affordable coverageC) improving access to careD) strengthening MedicaidE) All the above

Image Source: progressillinois.com

U.S. Supreme Court - PPACA Legal Issues•The Question of

Legal Standing and the Applicability of the Anti-Injunction Act

•The Constitutionality of the Individual Mandate

•The Missing Severability Clause

•The Medicaid Expansion Provisions

Issues being considered by

the Court were:

U.S. Supreme Court Ruling

•The Court found that jurisdiction and timing was proper, and rejected the argument that the Anti-Injunction Act prohibited the case from being heard•The Court found that the Commerce Clause does not grant Congress the authority to regulate inactivity, but that the Individual Mandate is constitutional under Congress’s ability to levy and collect taxes.•Court noted that the missing Severability Clause was not relevant to this case. •The Court upheld most of the Medicaid Expansion Provisions but narrowed the financial obligations of the state

Findings by the U.S. Supreme Court

Reactions to the Decision

• Prior to the Supreme Court’s decision, less than half of the country was moving forward to implement the various provisions of PPACA

• Now that the Supreme Court has issued their ruling, 60% of states have made progress towards complying with PPACA

• The remaining 40% of states are still waiting for November 6th to see what the election brings before they move forward

• What is clear is that the election will be the next big litmus test

• Additional litigation challenging PPACA will likely occur depending on the election outcomes

Second Polling Question

What issue was not considered by the Court in the Affordable Care Act decision?

A) Rule Against Perpetuities

B) Medicare expansion provisions

C) Constitutionality of the Individual Mandate

D) Lack of severability clause

Part II: How will employers be impacted and what can

employers do to prepare for the future?

Exchange Overview

• The Exchange concept will take individuals and small group

employers into large risk pools that will give them better

purchasing power and could result in lower premiums

• Exchanges will serve as the platform that will allow individuals

to determine if they are eligible for government coverage or

insurance premium subsidies

• Exchanges will also facilitate the ability of individuals to

compare benefit plans that meet minimum coverage

requirements on a standardized basis

Exchange Challenges

• Setting up the governance and operational infrastructure,

including the

IT platforms

• Promoting efficiency and flexibility while keeping costs for

participants

down (e.g., for small businesses and individuals)

• Avoiding adverse selection by pooling a mix of the healthy

and the

unhealthy

• Becoming financially self-sustaining

• Complying with PPACA standards for public accountability,

transparency, and reporting

• Private Exchanges will exist and compete with them

Qualified Health Plans

• A QHip is a “qualified health plan” is a health plan that:

• Is certified by each Exchange through which it is offered

• Provides the essential benefits package

• An issuer must offer plans that meet the following 4 standards:

• Licensed and in good standing in each state in which it is offered

• Agrees to offer at least one silver plan and one gold plan

• Agrees to charge the same premium whether the plan is sold through the Exchange or outside the Exchange

• Complies with other requirements of the Secretary of HHS and the Exchange

Source: NAIC

Essential Health Benefits

Beginning in 2014, PPACA requires health insurance plans offered to individuals and small businesses to include health benefit services in each of ten categories, called essential health benefits (EHBs).

• HHS has established a rule that allows state regulators several options to define their state’s EHBs. State regulators may choose any of the following:• One of the three largest small group plans in the state by enrollment • One of the three largest state employee health plans by enrollment • One of the three largest federal employee health plan options by enrollment, or • The largest health maintenance organization (HMO) plan offered.

Policy Goal: "It is important to find a successful balance between providing affordable coverage while establishing a reasonable level of benefit protection. If we continue to increase the cost by mandating a comprehensive set of essential benefits, we place further unwanted burdens on the business owner and their employees."

Sec. 1302. Essential Health Benefits Requirements

• (A) Ambulatory patient services.• (B) Emergency services.• (C) Hospitalization.• (D) Maternity and newborn care.• (E) Mental health and substance use disorder

services, including behavioral health treatment.

• (F) Prescription drugs.• (G) Rehabilitative and Rehabilitative services

and devices.• (H) Laboratory services.• (I) Preventive and Wellness services and

Chronic Disease Management.• (J) Pediatric services, including oral and vision

care

Sec. 1302(b)(1) services covered

include:

EHB Challenges

• Embracing state flexibility especially for multi-state employers

• Customizing EHB standard packages for each state

• Keeping EHB levels affordable

• Addressing variability in mandated benefits at state level

• Understanding additional variations in benefit designs

• Defining Medical Necessity when interpreting applicability of EHBs

• How will EHBs be addressed in Federally-Facilitated Exchanges

Summary of Benefits and Coverage

• Effective September 23, 2012, insurers and group benefit plans must issue a Summary of Benefits and Coverage (SBC)

• SBC should detail “in plain language, simple and consistent information about health plan benefits and coverage that…will help consumers better understand the coverage they have.“

• NAIC provided recommendations that were adopted by the federal government

• Should include coverage examples that illustrate benefits provided under the plan or coverage, detail out-of-pocket costs, provide examples of coverage for a simple delivery and a Type II diabetic care, and explain any coverage exclusions for common benefits

• Person requesting an SBC must be provided with the document within seven (7) business days

• Upon renewal, must be provided to both participants and beneficiaries as part of any written enrollment application materials

• Experts differ as to when updated SBCs need to be issued – after September 23 or after new policy year

Medical Loss Ratio

Tracking Medical Loss Ratio began January 2011

Current Rebate Process

•MLR reports filed to HHS June 1st each year•If a health plan or insurer meets or exceeds the MLR, notices will be issued with the first plan document after July 1, 2012•If 80/85% percentage not achieved, notices and rebate checks must be distributed to employers by August 1st the following year•Three month requirement from August 1 to take action on the MLR rebate options•Most rebate checks for 2011 have been issued

•January 2011, insurers had to comply with MLR ratio rules•Large Group (defined as 100 or more employees)

• 85% clinical services and qualified quality programs

• 15% administrative •Small Group (defined as 2 to 100 employees)) and nongroup

• 80% clinical services and qualified quality programs

• 20% administrative •Calculations are based by legal entity, state and line of business

Employer MLR Distribution Rebate OptionsDOL Technical 2011-04 Release

• Distribute rebates to current (and, if desired, former) participants

• Enhance benefits provided to plan participants by additional benefits or wellness programs

• Pay reasonable plan expenses• Reduce future premiums for current

plan participants

Based upon already established ERISA principles, the DOL guidance provides

employers with four options. An employer

may:

Small Employer Tax Credits

Under PPACA, small employers offering health insurance

coverage to employees enjoy several benefits, including a

new income tax credit

Eligible small employers are defined as those employing 25 or fewer full-time equivalent

employees with average annual wages of less than $50,000 and

contributing to employees’ qualified health care coverage a

uniform percentage, no less than 50%, of the premium cost

Large Employer Tax Penalties

Under PPACA, a premium subsidy program is NOT established for a large

employer. In fact, a tax penalty may be assessed against a

large employer

Large employers MUST offer medical coverage to its full-time employees beginning in 2014. If a large employer fails to offer

appropriate coverage, that employer may be liable for a tax

penalty.

How is the Tax Penalty Triggered?

• If the employer does not offer coverage, and at least one of its full-time employees claims the premium tax assistance tax credit, or

• The employer does offer coverage, but the coverage fails to meet the minimum essential coverage threshold and one full-time employee is certified to claim the premium tax credit

The tax penalty can be triggered in one of two

ways:

What are the tax penalties for large employers who do not offer coverage?

The monthly penalty a large employer is obligated to pay for not offering any

coverage is equal to $2,000 divided by 12, multiplied by the difference of the

number of full-time employees employed during the applicable month minus

the first 30 full-time employees. Only full-time employees (not full-time

equivalents) are counted for purposes of determining the penalty.

(Number of Full-Time Employees) – 30 x (2,000/12)

For example, a firm with 51 employees would be subject to:

51-30 x (2,000/12) = total monthly penalty

$3,500 per month

Which Employers will face these Penalties?

• Employers with at least 50 Employees will face penalties if one or more of

their full-time employees obtains a premium credit through an Exchange.

• How does the law define 50 Employees?

• PPACA refers to “full-time equivalents”

• A subsequent rule expanded on this definition to include both full and part

time workers

• Guidance issued by DOL expanded the definition to include employees of

a “controlled group” of corporations, employees, partnerships,

proprietorships, etc., that are under common control

How can an Employer determine if it is a “Large Employer”?

• Both full and part time employees are included in the calculation

• Full time employees: work 30 or more hours per week

• Seasonal employees who work for fewer than 120 days per year are not

considered to be full time employees

• Part time employees: include hours worked by taking the total number of

hours worked by individuals who work less than 30 hours per week and

dividing the total by 120

• If an employer has more than 50 employees for 120 days or less in the

preceding year, the employer will NOT be considered a large employer

Employee Calculations: an Example

• A firm has 35 full time employees who work at least 30 hours a

week.

• In addition, the firm has 10 part time employees who all work 24

hours per week (for a total of 96 hours per month)

10 employees x 96 hours = 960 total hours

960 hours / 120 = 8

The part time employees would be counted as 8 full time

employees

•35 full time employees + 8 = 43 “Employees”

Who can potentially obtain a premium credit?

• Individuals can obtain a premium assistance credit if:

• They are not eligible for Medicare, Medicaid, or other similar programs

• They are not offered employer-sponsored health benefit coverage

• Their family income is between 138% and 400% of the federal poverty level

If an individual is offered employer sponsored health benefits, but these

health benefits are unaffordable, that individual can obtain a premium

assistance credit.

• Benefits are unaffordable if:

• The individual’s required contribution toward the plan premium for self-only

coverage exceeds 9.5% of their household income, OR

• The plan pays for less than 60%, on average, of covered health care

expenses.

What are the tax penalties for large employers who offer coverage that is not affordable?

A large employer who offers coverage that does not satisfy the minimum

value threshold or minimum affordability threshold is assessed a monthly

penalty of $3,000 divided by 12 times the number of employees that qualify

for the tax credit.

For example, a firm with 51 employees of whom 5 qualify for the tax credit

would be subject to a penalty of:

5 x (3,000/12) = $1,250 per month

Employer W2 Reporting Requirements

• Applicable to all employers that provide group health plans, including federal, state, and local governments, and religious organizations.

Employers need to report the cost of employer-sponsored health care

coverage on employees’ W-2 forms for all tax years starting on or after January

1, 2011.

• The employer was required to file fewer than 250 W-2 Forms for the preceding calendar year, or

• The employer is a federally recognized Indian tribal government

An employer need not report if:

Excise Tax on “Cadillac” Health Plans

In an effort to penalize employers who offer excessively rich health benefit plans, PPACA includes a new excise tax on high-cost health plans, called “Cadillac” health arrangements.

This is a new non-deductible 40% excise tax that some experts have estimated will affect more than half of large employers’ active health plans by 2018.

Medicare Tax Increase

•PPACA includes a provision that will create a new tax for certain Americans.

•Specifically, section 1411 of PPACA imposes an additional tax of 3.8% if certain conditions are met as described below.

•Currently, individuals pay a Medicare tax of 2.9% of their wages. The new tax is in addition to the current Medicare taxes, and expands the definition of income subject to Medicare taxes. The tax also applies to trusts and estates.

•The tax applies to taxable years beginning after December 31, 2012

•The tax will apply to single taxpayers with a modified adjusted gross income of $200,000 or higher and married taxpayers with a modified adjusted gross income of $250,000 or over. The tax also will apply to a married person filing separately whose modified gross adjusted income exceeds $125,000

Polling Question 3

What is the Medical Loss Ratio percentage for large group insurers?A) 85%B) 40%C) 65%D) 90%

Part III: Summary of Key Points

and Actions Plan

PPACA Impact: Challenges

• Health care spending is over 17% of the U.S. GDP

• CBO now estimates that PPACA will cost over $1.76 trillion

• States cannot afford to build, support and maintain many of PPACA’s

requirements

• MLR premium rebates are an administrative burden

• Young subsidize the old, and males subsidizes the females

• Premium increases due to increased benefits

• PPACA law is 2,700 pages and regulations are over 9,000 pages.

• Radical changes to current health plan offerings will likely create some

disruptions to

the market

PPACA Action Plan

• Provide insurance or not

• If yes, purchase through private or public means

• If yes, select a trusted Advisor to guide you through

the

purchase

• If yes or no, understand the impacts and

dependencies of

health benefits on payroll, taxes, employee

communications,

and benefit administration.

Polling Question 4

What are the main challenges when implementing PPACA going forward?

A) Coordinating state and federal oversight of the future insurance offeringsB) Funding the new exchange system to offer qualified health plansC) Interpreting the thousand of pages of federal regulations D) Understanding the full array of employer responsibilitiesE) All of the above

Questions & Answers

For additional health care Reform updates, please monitor:

• www.benefitmall.com• www.health careexchange.com