steam ahead on health care reform.ppt...medicare tax increase • current medicare (hi) tax of 1.45%...

Full Steam Ahead onHealth Care ReformJuly 12, 2012

Moderator: Jennifer Kraft

Speakers: Diane DygertBen Conley

2 | © 2012 Seyfarth Shaw LLP

Roadmap

• 2012-2013 Changes

►SBC Requirement

►Advance Notice of MaterialModifications

►W-2 Reporting

►Medical Loss Ratio Rebates

►Nondiscrimination Requirements

►Essential Health Benefits

►Patient-Centered OutcomesResearch Fee

►FSA Cap

►Medicare Tax

►Taxation of Medicare Part DSubsidy

►Exchange Notice Requirements

• Overview of 2014 Health Care System

• 2014 Changes

►90 Day Waiting Period

►Pre-Existing Conditions

►Clinical Trials

►Cost Sharing Requirements

►Wellness Program Incentives

►Exchanges

►Annual Reporting

►Employer Mandate

• Later Changes

►Automatic Enrollment

►Large Employer Exchange Eligibility

►Cadillac Tax

2012-2013 Changes


Summary of Benefits & Coverage

• Effective – Plan Years on or after September 23, 2012• When must the SBC be distributed?

►Prior to any enrollment period• Open Enrollment

• New Hires

►Upon participant request (within 7 business days)

►Within 90 days following special enrollment

►Following changes to the SBC

• What are the penalties for failure to provide the SBC?►$1,000 per willful failure

►Possible additional penalties of $100 per day, per affectedparticipant



• An SBC must be provided for each “benefit package”• Excludes excepted benefits

►stand alone dental and vision, and

►most FSAs and HSAs

• May combine multiple coverage tiers in a single SBC►If cost-sharing is different, use single coverage and note it



• What is included?►Description of the plan’s costs

• Deductible, coinsurance and copay requirements

• Premium costs not required

• Total cost of coverage

►Limitations on coverage

►Coverage examples (diabetes and delivery of baby)

►Information on whether the plan provides “minimum essentialcoverage” (not until 2014)

►Contact info:• Telephone number & website for more info

• Information on how to obtain a list of providers (if applicable)

• Information on how to obtain prescription drug details (ifapplicable)



• Must follow the instructions included in the template

►Replicate all symbols, formatting, bolding, colors and shading exactly

►When listing items, use words such as “and”, “or”, or “plus” rather thanusing a semi-colon

►Never answer with only one word (i.e., “No, there are no deductibles”rather than “No”)

►For excluded services, items must be listed in alphabetical order

• May modify slightly for plans with unique designs (such as a buildyour own design with multiple choices for co-pays, deductibles, etc.)

• Must be culturally and linguistically appropriate

►Participants in counties where 10% of the population is literate in thesame non-English language, may receive SBC in that language

►Must contain a statement saying it is available in that language uponrequest



• Production and Distribution Logistics:►Electronic v. Paper Distribution

• Current enrollees –• follows DOL e-disclosure safe harbor

• Eligible, but not enrolled –• may be electronic if accessible and a paper copy is available upon

request

• if e-disclosure is a website posting, must advise in paper form providingthe website and notifying of right to receive paper

►May be combined with SPD/SMM, as long as prominentlydisplayed at the beginning

►Single SBC to participant and covered beneficiaries at the sameaddress

►Only need provide for the coverage in which enrolled• But individuals may request others



• Plan Sponsor Considerations

►How many different versions of the SBC do you need?

►Informal guidance by agencies suggests that the SBCs must becombined

• Who will draft combined SBCs?

• For more information on SBCs, please see Issues 24, 30, 33 and 37 of ourHealth Care Reform Management Alert Series at www.seyfarth.com


Advance Notice of MaterialModifications

• Starting with plan years beginning on or afterSeptember 23, 2012, plans must provide participantswith 60 days’ advance notice prior to any materialmodification that would impact terms of an SBC

• This requirement only applies to mid-year changes

• No notification required for premium changes

• Changes during annual renewal require a new SBC:►With enrollment materials, or

►30 days in advance, for automatic re-enrollees


Advance Notice of MaterialModifications


►Sponsor initiated changes may be planned in advance oroccur at beginning of plan year

►Need to watch for bargained changes, which may occur mid-year

• Educate labor negotiators


W-2 Reporting

• Reporting required for 2012 calendar year (reportedJanuary of 2013)

• Optional for 2012 for small employers (fewer than 250)• Informational only – benefits are not taxable• Use COBRA Rate (minus 2%), Report in Box 12

►Include:• Medical

• Bundled dental & vision

• Some employer contributions to FSA

►Exclude:• HIPAA excepted benefits

(e.g. stand-alone dental/vision)

• HRA

• FSA salary reduction elections


W-2 Reporting

• Reporting EAPs, Wellness Programs and On-site Clinics

►Report if:

• (1) the benefit is subject to COBRA (or state continuation ofcoverage laws), and

• (2) the employer assesses a COBRA premium for the benefit

• Report value of coverage as of 12/31 (disregardretroactive changes made after the end of the year)

• Post-termination reporting

►Optional for COBRA coverage and retiree coverage in the yearof termination

►Only required for retiree coverage after the year of termination ifthe retiree would otherwise be entitled to a Form W-2


W-2 Reporting


W-2 Reporting


►Determine which plans must be reported

►Determine which employees and former employees must beincluded (e.g., retirees receiving W-2 for life insurance)

►Determine costs to report

►Provide explanation to employees/former employees

• For more information on W-2 Reporting, please see Issues 19 and 31 of ourHealth Care Reform Management Alert Series at www.seyfarth.com


Medical Loss Ratio Rebates

• What is a Medical Loss Ratio?

►Insurers must apply a certain percentage of premiumcontributions received toward health benefits

►Excess premiums must be refunded to insured individual orgroup health plan sponsor

►Only impacts plan sponsors offering fully insured groupcoverage


Medical Loss Ratio Rebates


►Sponsors will receive the rebate

• May be by August 1, 2012

►Must determine:

• Are the funds plan assets?

• If so, how should the funds be allocated?

• This decision is governed by general standards of fiduciary conduct

• For more information on Medical Loss Ratios, please see Issue 35 of ourHealth Care Reform Management Alert Series at www.seyfarth.com


Nondiscrimination Requirements

• Nondiscrimination Rules Extended to Insured Plans►Insured plans may not discriminate in favor of highly-

compensated employees

►Prior to PPACA, Code Section 105(h) applied to self-fundedplans

• No discrimination in (1) eligibility or (2) benefits

►Post-PPACA, similar rules apply to fully insured plans, BUT

►Penalty is different

• $100 per day per non-highly compensated employee

• Civil action to enjoin noncompliance (or to seek appropriateequitable relief)

• No imputed income penalty for highly compensated employee

(doesn’t apply to grandfathered plans)


Nondiscrimination Requirements


►IRS Notice 2011-1: Compliance not required until furtherguidance issued

►Evaluate plan design, especially executive arrangements

• Fully insured executive arrangements will be impacted

• Impact on self-insured arrangements unclear until regulationsissued

• For more information on Nondiscrimination Requirements, please seeIssues 14 and 16 of our Health Care Reform Management Alert Series atwww.seyfarth.com


Essential Health Benefits – AnnualLimits

• Group health plans may not impose an annual dollar limiton “essential health benefits”

• Originally:

►“Essential Health Benefits” determination was subject to a good-faith interpretation standard

• Now:

►Plan sponsors must choose a “benchmark” option and adjustdollar limits according to that benchmark


Essential Health Benefits – AnnualLimits


►When is the new standard effective?

►What are the available benchmarks?

• For more information on Annual Limits and Essential Health Benefits,please see Issues 7 and 36 of our Health Care Reform Management AlertSeries at www.seyfarth.com


Patient-Centered Outcomes ResearchFee

• Plans are subject to an annual patient-centered outcomes researchfee (previously referred to as the Comparative Effectiveness Fee)

• Imposed for each plan year ending after September 30, 2012

• The fee does not apply to plan years ending after September 30,2019

• Amount of fee:

►For plan years ending during the period of October 1, 2012, throughSeptember 30, 2013, the fee is $1 x the average number of coveredlives

►For each plan year ending after September 30, 2013, the fee is equalto $2 x the average number of covered lives under the policy

►Beginning in 2014, the amount of the fee is subject to adjustment forprojected increases in the National Health Expenditures (estimatedincrease of 6.6%-7%)



• Fee is imposed on the “plan sponsor” for self-insuredplans, and “insurer” for fully insured plans

• Fee assessed against “group health plans”

►Excludes excepted benefits

►Includes retiree coverage

• New guidance on calculating covered lives:

►Actual count

►Snapshot count

►Form 5500 count




►Must determine number of “covered lives” to calculate fee

►For multiemployer plans and VEBAs, further guidance isexpected to address whether fee may be paid out of the plantrust

►Plan sponsors may have to accrue for this liability

• For more information on this Fee, please see Issue 39 of our Health CareReform Management Alert Series at www.seyfarth.com


Cap on Health FSA Deferrals

• Effective plan years beginning on or after January 1,2013

• An employee may not contribute more than $2,500 totheir healthcare flexible spending account

• The cap applies per participant, per tax reporting year(likely a calendar year)

• The cap does not apply to employer contributions to aHealth FSA


Cap on Health FSA Deferrals


►Advanced participant communication is essential (even thoughcafeteria plan amendment deadline is December 31, 2014)

►Be sure to monitor Congressional efforts to remove the cap

• For more information on the cap on Health FSA Deferrals, please seeIssues 4 and 40 of our Health Care Reform Management Alert Series atwww.seyfarth.com


Medicare Tax Increase

• Current Medicare (HI) tax of 1.45% on all wages

• Effective January 1, 2013

►0.9% additional HI tax for wages over $250,000 (joint);$200,000 (single)

►3.8% additional tax on unearned income (dividends, interest,annuities, royalties, rents and capital gains) over $250,000(joint); $200,000 (single)


Medicare Tax Increase


►Employers must withhold on the additional HI tax for wagesover $200,000

►BUT, additional withholding applies only to employee portion ofHI tax, not employer portion


Taxation of Medicare Part D Subsidy

• Employers may no longer take a deduction for thesubsidy received for providing prescription drug benefitsequivalent to Medicare Part D coverage►Many employers already recognized this liability in 2010


Taxation of Medicare Part D Subsidy


►Plan sponsors may consider using an Employer Group WaiverPlan (EGWP) approach rather than participating in the CMSRetiree Drug Subsidy Program

• EGWP is a method of contracting with carriers who have a contractwith CMS

►Some employers with retiree VEBAs are considering pre-funding prescription drug coverage now to take the deductionbefore 2013

• Be sure to discuss the implications of this strategy with youraccountant and legal counsel


Exchange Notification Requirement

• Employers must provide written notice to employees atthe time of hiring (or for current employees, not later thanMarch 1, 2013) informing employees:

►About the existence of a local Health Benefit Exchange,including a description of and contact information for theExchange, and

►If the employer’s share of the costs of coverage is less than60%, that the employee may be eligible for a tax credit or a cost-sharing reduction to purchase health insurance through a localExchange


Exchange Notification Requirement


►Exchanges may not be up and running in a given state

• Information on Federally-operated exchange information giveninstead

►Must determine whether plan provides “minimum value”

• For more information on minimum value, please see Issue 38 of our HealthCare Reform Management Alert Series at www.seyfarth.com

Overview of 2014Health Care System

United States of Americaestimated population = 311 millionEmployer-

ProvidedCoverage


Overview of 2014 Health Care System

Medicare

Medicaid

TRICARE

IndividualPolicy

Uninsured =50 million people

(16% of population)


Overview of 2014 Health Care System

Exchanges

GuaranteedIssue/

CommunityRating

MedicaidExpansion

IndividualMandate

EmployerMandate

2014 Changes


90-Day Waiting Period

• Waiting periods limited to 90 days for new hires

►Applies to all group health plans, regardless of grandfatheredstatus

►Employers can apply other eligibility criteria, as long as thecriteria are not designed to evade the 90-day waiting periodlimit

►No employer “Play or Pay” penalty for the first 90 days


90-Day Waiting Period


►Plan must be amended by end of 2013

►Plans with a 3-month wait, may not satisfy 90-day requirement

• Could be 92 days

►Could be a consideration in multiemployer plans or certainindustries with a high rate of turnover (e.g., retail)

• For more information on the 90-Day Waiting Period, please see Issues 20and 34 of our Health Care Reform Management Alert Series atwww.seyfarth.com


Pre-Existing Conditions

• Group health plans may not impose any pre-existingcondition exclusions or limitations for plan yearsbeginning on or after January 1, 2014►Currently may not impose pre-existing condition exclusions on

covered persons under age 19

• For more information on Pre-Existing Condition Exclusions, please seeIssue 7 of our Health Care Reform Management Alert Series atwww.seyfarth.com


Clinical Trials

• Effective for plan years beginning on or after January 1,2014►Group health plans that provide coverage to an individual

eligible to participate in an approved clinical trial

• May not deny or limit coverage of routine costs for items andservices associated with participation in the clinical trial

• May not discriminate against someone for participating in the trial



Cost-Sharing Limitations

• Fully insured group health plans may not have annualcost-sharing requirements (e.g., maximum deductiblesand out-of-pocket costs) that exceed the new AffordableCare Act limitations

• The annual out-of-pocket maximums cannot exceed theindividual and family limits for high-deductible healthplans that are in effect at that time



Wellness Programs

• Permissible penalty/reward for HIPAA wellnessprograms increased to 30% of employee’s healthprogram cost

►Currently 20%

►HHS has authority to go up to 50%

►Cost is based on COBRA premium


Wellness Programs


►Should still be cautious about other applicable laws under:

• GINA

• HIPAA

• ADA


Health Benefit Exchanges

• State-Based Health Benefit Exchanges►Private and non-profit insurers

►Offer coverage for small employers (up to 100 employees)and individuals

►Coverage offered for “essential health benefits”

►Qualifying individuals can receive advanced tax credits andcost-sharing subsidies to help pay for coverage


Health Benefit Exchanges


►Only 14 states have established or are taking steps toestablish a state exchange

• Employers should monitor their state’s progress now that theAffordable Care Act has been declared constitutional

►If state does not establish an exchange or make sufficientprogress toward exchange by January 2013, Federalgovernment will step in and establish one for the state

• If a state is waiting for November 2012 elections, this will leavelittle time to make sufficient progress by January 2013

►Look to Massachusetts Connector for realistic example of astate exchange

Annual Reporting

• Large employers must report certain health insurancecoverage information to both full-time employees and theIRS►Information will be used to determine:

• whether the employees obtained health coverage through theiremployer (which would satisfy their obligation under the individualmandate), and

• whether the employer provided minimum essential coverage(which is required to avoid the play or pay penalty)

• For more information on the 2014 annual reporting requirements, pleasesee Issue 38 of our Health Care Reform Management Alert Series atwww.seyfarth.com



Employer Mandate

• Employer “Shared Responsibility”

►If:

• Employer has 50 or more full-time equivalent employees

►Then:

• The employer is required to provide affordable “minimumessential coverage” to all full-time employees

►Or else:

• The employer will be assessed a penalty


Employer Mandate

• Employer “Shared Responsibility”— Penalties►One of Two Penalties Could Apply

• Failure to Provide MinimumEssential Coverage (“No CoveragePenalty”)

• Failure to Provide AffordableCoverage (“Inadequate CoveragePenalty”)


Employer Mandate – No Coverage

• Employer Fails to Provide Minimum EssentialCoverage►At least one employee receives a tax credit or subsidy through

a state-based exchange

►Penalty = $2,000 X # of Full-time Employees

• Subtract first 30 full-time employees when calculating thepenalty



• Failure to Provide Minimum Essential Coverage—Example

►Employer employs 55 full-time equivalent employees, 45 ofwhich are full-time employees. The employer chooses not tooffer health insurance coverage and an employee purchasescoverage through Exchange. The employer will be assesseda penalty of $30,000 ((45-30) X $2,000).



• What is a Full-Time Employee?

►Statute says those who work, on average, 30 hours per week

• IRS Guidance says full-time employees are those who work 130hours per month

►Statute says full-time status determined on a monthly basis

• IRS Guidance says full-time status calculated using “look-back &stability period”

• Look-back (measuring) period could range between 3-12 months

• Stability period must be at least as long as the look-back periodand can be no shorter than 6 months

• For new hires, employers will have to provide coverage to full-timeemployees within either 3 or 6 months, depending on facts andcircumstances at time of hire



• Full–Time Employee—Example

►Employer chooses a one-year look back period followed by aone-year stability period. John Q. Employee is hired for a full-time position. He works 130 hours on average during his firstthree months, and 1,600 hours during the course of his yearone of employment (1,560/12 = 133 hours per month).Employer would be required to offer John health benefitsbeginning no later than three months following his date of hire.Employer would also be required to offer coverage throughoutyear two, regardless of whether he dips below full-time status.


Employer Mandate – InadequateCoverage

• “Free Rider Penalty”

►Employer offers health insurance coverage, but not affordablecoverage that provides minimum value

• Affordable – Cost of coverage no more than 9.5% of householdincome

• Minimum value – Covers at least 60% of actuarial value ofhealth costs

►Any employee receives a tax credit or subsidy through a state-based exchange

• Penalty = the lesser of:

►$2,000 X Total # of full-time employees or

►$3,000 X # of full-time employees receiving a credit/subsidythrough an exchange



• Free Rider Penalty—Example

►Employer employs 55 full-time equivalent employees, 45 ofwhich are full-time employees. Employer offers healthinsurance but only covers 50% of costs. Five employeesreceive a credit through the exchange. The employer will beassessed a penalty of $15,000 (5 X $3,000).



• What is Minimum Value?

►Defined as a plan that covers at least 60% of the actuarialvalue of health costs.

►Calculated in one of three ways:

• HHS Calculator

• Actuarial Certification

• Safe Harbor Checklist

►Employee premium does not factor into minimum valuecalculation (but, it does factor into affordability calculation)

• Strategies for Achieving Minimum Value

►Reduce participant cost-sharing

►Add benefits

►Add HRA/HSA component



• What is Affordable Coverage?

►General rule: Employee premium cost cannot exceed 9.5% ofhousehold income

►Affordability will be measured based on the cost of theemployee-only premium rather than the cost of the premiumfor the coverage the employee actually elects (e.g., employee+ one, family coverage, etc.)

• For example, assume an employee has $30,000 a year inhousehold income. The employer covers at least 60% of theactuarial value of coverage. Employees must pay a premium of$2,400 for employee-only coverage (8% of household income)and $3,000 for family coverage (10% of household income).The employer will be deemed to have offered the employeeaffordable coverage, even if the employee elects familycoverage.



►Safe harbor: Employers will not be penalized if the employeepremium is below 9.5% of W-2 income, even if employeereceives a tax credit or subsidy.

• For example, assume an employer knows the lowest-paid full-time employee makes $30,000 in W-2 wages per year. If theemployer:

• (a) covers at least 60% of the actuarial value of coverage, and

• (b) sets the employee-only premium for health coverage at $2,850(i.e., 9.5% of W-2 wages), then

no employee will ever become eligible for tax credits through theexchanges, and the employer will not be liable for the play orpay penalty.


Employer Mandate


►Does the employer have 50 or more full-time equivalentemployees

• Is the employer offering minimum essential coverage

• Is the employer offering affordable coverage – providesminimum value

►Does employer want to comply, or be subject to the penalty

• For more information on the Employer Mandate, please see Issues 20, 26and 38 of our Health Care Reform Management Alert Series atwww.seyfarth.com

Later Changes


Automatic Enrollment

• Employers with more than 200 employees

►Must automatically enroll all full-time employees as soon asthey are eligible for coverage

►“In accordance with DOL regulations”


Automatic Enrollment


►DOL has indicated this guidance will not be ready to takeeffect by 2014

• Will need to know how to determine full time employee amongother things

• For more information on Automatic Enrollment, please see Issues 20 and34 of our Health Care Reform Management Alert Series atwww.seyfarth.com


Large Employer Exchange Eligibility

• Beginning in 2017, each state may allow largeemployers to obtain group health coverage through theexchanges►“Large employer” is an employer with more than 100

employees

►Generally, employees enrolled in a group health plan on theexchange sponsored by an employer will not qualify for taxcredits


Cadillac Tax

• Cadillac Tax►Excise Tax on High-Cost Health Plans

►Threshold:

• Individual Coverage - $10,200

• Family Coverage - $27,500

• Thresholds indexed to inflation and adjustedfor high-risk or elderly employee populations

►Tax = 40% X amounts of coverage inexcess of threshold

• Applies to the aggregate value of coverage(i.e., fully-loaded)

• Tax assessed against provider of coverage

Questions?

[email protected]@[email protected]

steam ahead on health care reform.ppt...medicare tax increase • current medicare (hi) tax of 1.45%...

Documents