mcbloom@msn.com 10/7/2010

Health Reform and Risk Management - The impact on your income statement

Mark Bloom4 Degrees Benefits ConsultingHamline University School of Business

Health Reform – The Impact on You

• Patient Protection and Affordable Care

Act" (H.R. 3590)

• 10 Considerations

• Implementation Grid

Top 10 Considerations for Employers

The Changing Landscape – Health Reform

- Grandfathering - Lifetime and Annual Limit Prohibitions - Coverage for Preventive Services - Coverage for Dependents up to Age 26 - Prohibitions on Denied Coverage for Pre- existing Conditions - Requirements for Appeals Processes - Prohibition on Coverage Rescissions

Top 10 Employer Considerations – Under Health Reform

1. Exchanges2. State High Risk Pools for Individuals with Preexisting

Conditions3. Plan Design Changes (Within First Year After Enactment)

4. Plan Design Changes (Effective by 2014)5. New Administrative Rules and Reporting Requirements

6. Employer Mandate

7. Tax on High Cost Health Plans - “Cadillac Health Plans”

8. Changes to FSAs, HRAs and HSAs

9. "Free Choice Vouchers"

10. Repeal of Tax Exclusion for Medicare Part D Subsidy

Things to considerEmployers should consider whether employer-sponsored coverage meets the minimum essential coverage and affordability requirements – if not, employers may be penalized if employees receive federal subsidies to purchase coverage through a state Exchange.

 1.  Exchanges•  State-regulated Exchanges will be created to allow individuals and small employers to purchase health insurance coverage •  States may allow large employers to purchase coverage through an Exchange beginning in 2017 •  If an employee purchases coverage through an Exchange and receives a federal subsidy, the employer may be penalized •  Employers may be required to provide vouchers to certain employees for whom the employer coverage is considered unaffordable, to help pay for Exchange coverage•  The reconciliation bill added requirements that each Exchange provide information to the Secretary of the Treasury and taxpayer. This newly required information includes 1) the period of coverage, 2) the premium paid, 3) identification of each individual covered under the plan, and 4) information on eligibility for tax credits.

Things to consider

Employers may not encourage, through any financial incentives or otherwise, employees with preexisting conditions to drop employer-sponsored coverage in favor of coverage through the high-risk pool program.

2.  State High Risk Pools for Individuals with Pre-existing Conditions

-   Pools will be created to insure individuals with preexisting conditions 

Things to consider

Employers will need to assess whether plan amendments are needed for 2011 and how these changes affect costs to plans.

NOTE: Items marked with an asterisk (*) indicate provisions that will now apply to grandfathered plans; both insured and self insured, pursuant to the reconciliation bill.

3.  Plan Design Changes (Within First Year After Enactment):

•  * Coverage of dependents to age 26•  * No lifetime or unreasonable annual limits on the dollar value of "essential benefits" • * No pre-existing condition limitations for children under age 19•  Mandatory coverage of certain preventive care without cost-sharing •  Ability to designate pediatrician as primary care provider for children•  No requirements for referrals to go to OB-GYN•  No requirements for prior authorization for emergency care •  New claim appeals procedures

Things to considerEmployers will need to monitor future guidance and make plan design changes, including possible plan amendments, accordingly.

NOTE: Items marked with an asterisk (*) indicate provisions that will now apply to grandfathered plans; both insured and self insured, pursuant to the reconciliation bill.

4.  Plan Design Changes (Effective by 2014):

•  No preexisting condition exclusions•  No discrimination based on health•  Annual cost-sharing limits cannot exceed HDHP limits•  Deductible limitation for small groups ($2,000 individual / $4,000 family, which may be increased by maximum amount reimbursed under FSA)•  * Limits waiting periods to no more than 90 days•  Expansion of coverage for clinical trials

Things to consider

Employers will need to examine existing procedures to ensure compliance.  To facilitate these new administrative rules, plans may need to contract for external review services.

5.  New Administrative Rules and Reporting Requirements

•  New disclosures applicable to insured and self-funded plans•  New Health Plan Identifier requirement•  W-2 reporting of the value of health benefits•  New Standard for Electronic Funds Transfer•  New Operating Rules for Standard Transactions•  New Certification of Compliance with Transaction Rules•  Employers subject to the Fair Labor Standards Act must give notice of coverage options to employees

Things to consider

Employers offering coverage must evaluate if that coverage meets the minimum standards, including affordability.

6.  Employer Mandate

•  Employers offering health coverage that meets or exceeds the minimum essential requirements will only be subject to penalties if employees do not enroll in the employer coverage and instead receive federal subsidies to purchase coverage through a state Exchange; the amount of the penalty for each such employee will be up to $3,000 per year.•  Employers offering health coverage that is not minimum essential coverage, or that do not offer any healthy coverage, will be subject to a penalty if even one employee receives a federal subsidy for purchase of coverage through a state Exchange; the penalty will be up to $2,000 per year for each full time employee. However, the first 30 full time employees are excluded.•  Employers with more than 200 employees that offer coverage must automatically enroll and renew coverage, subject to notice and opt-out requirements  

Things to consider

Employers will need to determine whether the benefit package they provide to employees results in an excess benefit that will be subject to the tax. However the new effective date reduces the urgency to change your plan design immediately. 

7.  Tax on High Cost Health Plans - “Cadillac Health Plans”

•  A 40 percent excise tax will be imposed on the health benefits provided by an employer for the value of the benefit over $10,200 for single coverage and $27,500 for a family coverage (higher dollar thresholds may apply)•  Dollar limitation is increased based on the increase in cost of health insurance for federal employees from 2010 to 2018.•  The new effective date is January 1, 2018.•  Employer-sponsored health coverage subject to the tax now excludes separate dental and vision coverage.

Things to consider

Employers should consider whether plan amendments and communications are necessary.

8.  Changes to FSAs, HRAs and HSAs

•  Beginning in 2013, employee contributions to health care flexible spending accounts (FSAs) will be limited to $2,500•  Coverage based on salary reductions for health FSAs, and employer contributions to health savings accounts (HSAs) and health reimbursement arrangements (HRAs) are included in the calculation of health plan costs for purposes of the "Cadillac Plan Tax" •  Penalty on HSA distributions for non-qualified medical expenses is increased from 10% to 20%•  Distributions from FSAs, HSAs or HRAs for over-the-counter (OTC) medicine or drug purchases are no longer deemed a qualified medical expense, unless the purchase was pursuant to a prescription or is for insulin

No additional considerations

9.  "Free Choice Vouchers“

•  Employers who offer minimum coverage must provide a voucher to "qualified employees" who meet household income requirements and whose premium contribution is considered “unaffordable” relative to their salary. The voucher will be available for use in purchasing coverage through an Exchange; the voucher’s value is the amount the employer would have contributed under the employer-sponsored plan •  Employers will not be subject to the employer shared responsibility penalty for those employees who use vouchers to purchase Exchange coverage

No additional considerations

10.  Repeal of Tax Exclusion for Medicare Part D Subsidy

•  Regarding retiree prescription drug plans, repeals the current federal income tax deduction for an employer’s Medicare Part D subsidized expenses beginning in 2013, although there is an immediate financial statement impact in the first quarter of 2010.

The surtax applies to individuals (including taxpayers with passive trade or business interests in Partnerships, LLCs and S Corporations). The dollar thresholds are not adjusted for inflation. Because the tax applies a “lesser-of” formula tied to MAGI, individuals with MAGI less than the applicable dollar threshold will not have to pay the tax even if they have net investment income. Net investment income includes income from interest, dividends, annuities, royalties, rents, and capital gains, but excludes distributions from a qualified pension plan, 403(a) or 403(b) annuity plan, IRA, Roth IRA and 457(b) deferred compensation plan. Employees seeking tax shelters might begin to demand a Roth feature for their retirement plan.

Two New Taxes on the Horizon

A final issue you may want to consider are two new taxes on those who are considered "high-income."  Beginning in 2013, individuals with wages or self-employment income above $200,000, or joint filers with wages or self-employment income above $250,000 ($125,000 for married separate filers) will be required to pay an additional 0.9% hospital insurance tax. In addition, there is a new 3.8% surtax on the lesser of net investment income or the excess of the modified adjusted gross income (MAGI) over $200,000 for individual filers, $125,000 for married filing separate filers, and $250,000 for joint filers effective as of January 1, 2013.

Next Steps

• Analytics and Strategies

• Healthcare Expenditures - Three (3) Year claims history- Medical and Pharmacy Benefits Claims- Benchmarks – How do you compare?- Know your data (VBBD)

• Strategies to improve your income statement.

Thank you