Update on Health Care Reform

Sherry P. Porter500 West Jefferson Street Suite 2800 Louisville, KY 40202 (502) 562-7560

Disclaimer

The information in the following slides represents only an overview of the law, and is not intended to cover all the fine points with respect to any particular portion of the law or its application to any particular person. Accordingly, it is not intended to be legal advice, which should always be obtained in direct consultation with an attorney.

Backdrop of Health Care Reform The U.S. has 47.9 million people who are completely

uninsured and another 25 million people who are inadequately insured*

More than three-quarters of the uninsured are in a working family*

Medicare projected to be bankrupt by 2016 Healthcare spending as percentage of gross domestic

product in U.S. is almost twice that of most other countries. If continues at same rate, the Congressional Budget Office (CBO) projects it will be close to 100% of GDP by 2082

*Source: Kaiser Family Foundation, Health Coverage & the Uninsured, www.kff.org (last visited 3-30-13)

History of Health Care Reform

On March 23, 2010, the Patient Protection and Affordable Care Act was signed by President Barack Obama*

Amended by the Health Care and Education Reconciliation Act one week later.**

Jointly called the “Affordable Care Act.”

*Public Law 111-148, available from Government Printing Office (GPO) at: http://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf **Public Law 111-152, available from GPO at: http://www.gpo.gov/fdsys/pkg/PLAW-111publ152/pdf/PLAW-111publ152.pdf

Goals of ACA

Three overriding goals: Expanding the population of Americans covered by health

insurance and/or public health care coverage, improving the health care delivery system, and controlling the rising cost of health care.

The CBO estimates the new health reform law will provide coverage to an additional 32 million people when fully implemented in 2019.

Making Law is Like . . .

2,500 Pages

More than 500,000 words

Phasing in over 10 years

Thousands of regulatory decisions left for the future

“We have to pass the bill so you can find out what’s in it” -- Nancy Pelosi

Affordable Care Act’s Expanded Coverage

Affordable Care Act’s Expanded Coverage

Expanded Healthcare Coverage

Two Decisions Face State Government

Expand Medicaid?

Create health benefit exchange?

Medicaid Expansion

ACA expands Medicaid to all non-Medicare eligible individuals under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% FPL (actually 138%)

All newly eligible adults will be guaranteed a benchmark benefit package that meets the essential health benefits available through the Exchanges

Supreme Court ruling gave states option whether to expand Medicaid, but States mixed on whether will expand

Medicaid Expansion

Map:

Health Insurance ExchangeState can create exchange or default to federal exchangeEach state can create an American Health Benefit Exchange and a Small Business Health Options Program (SHOP) Exchange for individuals and small businessesStates must establish an office of health insurance consumer assistance or an ombudsman program to serve as an advocate for people with private coverage in the individual and small group marketsFederal grants available

Nationwide Health Insurance ExchangesExchanges

Individual Requirements under ACAU.S. citizens and legal residents must have qualifying health coverage. Called the “Individual Mandate”Individual Mandate upheld by the Supreme Court and, after most recent election, is here to stayMust maintain “minimum essential coverage”There are some exceptions:

low incomerequired contribution for self-only coverage for a calendar year exceeds 8% of household incomehardshipreligious exemption. . . .

Penalties Under Individual MandateThose without coverage pay a tax penalty of the greater of:

Flat Dollar Amount ($95 in 2014, $325 in 2015, and $695 in 2016 and adjusted for inflation after that, up to a maximum of three times that amount per family)

Percentage of Household Income (1% of household income in 2014, 2% in 2015, and 2.5% thereafter)

The penalty for noncompliance cannot exceed what it would have cost to obtain insurance.

Individual Subsidies

Limited availability of premium credits and cost-sharing subsidies through the Exchanges to U.S. citizens and legal immigrants who meet income limitsPremium and cost-sharing credits are available to those with income between 133-400% of the federal poverty levelPremium credits may be used to purchase insurance through the Exchanges.Set on a sliding scale based on income.

Easier for Individuals to Obtain and Keep Coverage

Dependents covered until their 26th birthday

No discrimination based on health status

Guaranteed issue

No pre-existing condition exclusions

Limited rescissions

Eligibility waiting periods longer than 90 days prohibited

Reviews on premiums charged

Additional Services Covered by Plans

Full coverage for certain preventative care

E.g., high blood pressure, diabetes and cholesterol screenings, routine immunizations, and evidence-based preventive care and screenings for women

Abolishes annual and lifetime coverage caps for medical care

“Grandfathered” Plans

Plans that existed on March 23, 2010 are exempt from some of the law’s consumer protections.

Can lose grandfathered status if: Eliminates all or substantially all benefits to diagnose or treat a

particular condition Increases participant's percentage cost-sharing requirement Increases co-payments by more than certain amounts

In order to maintain such status, plans must continually disclose to participants that it believes it is a grandfathered plan and keep documentation of this

Medical Loss Ratios (MLRs)

Insurers must spend a certain percentage of premium dollars on eligible expenses instead of overhead or profits to shareholders

Otherwise, it must pay a rebate

An incentive to health insurers to either keep premiums low or increase coverage

Delayed until 2015Employer “Pay or Play” Mandates

General Rule.

The ACA imposes penalties on applicable large employers who:

fail to offer minimum essential coverage to 95% of their full time employees; or

provide coverage that is either:

“insufficient” (i.e., the employer pays less than 60% of the cost), or

“unaffordable”

resulting in employees choosing their own coverage and receiving government subsidies.

What Is an Applicable Large Employer?

50 or more full time equivalent employeesFull time is defined as 30 or more hours per weekTo calculate total FTEs, add the following: All employees who works at least 30 hours per week (full time);

PLUS Total number of hours worked in a month by part time

employees (<30 hours per week) divided by 120.

If 50 or more FTEs, then must offer coverage, but only to full time employees If less than 50 FTEs, then no obligation to offer coverageTip: Retain documentation of calculations

Penalties for No Coverage

An applicable large employer who offers no health coverage will be subject to a penalty equal to $2,000 per year per employee after the first 30 employees

Penalties for Insufficient or Unaffordable Coverage

Insufficient Coverage means employer does not pay at least 60% of the total allowed cost under the plan

Unaffordable Coverage means the employee’s required contribution is more than 9.5% of the employee’s household income and the employee’s household income is under 400% of FPL

Penalties for Insufficient or Unaffordable Coverage The penalty for inadequate

coverage is $3,000 per year for every employee who opts out of the employer’s plan and gets government subsidized coverage under the exchange plan subject to a cap.

The cap: The total penalty for the employer cannot exceed the overall penalty that would apply if the employer offered no coverage at all

Variable EmployeesDo not have to offer coverage to:

Seasonal employees

Temps

Leased employees

Most issues arise with variable hour employeesMeasurement (“Look Back”) Period

between 3 and 12 months

defined by employer

Stability Periodat least 6 months

cannot be shorter than Measurement Period

Administrative Periodoptional 90-day “time out” after the Measurement Period

Important Points Regarding Penalties

There is no penalty for these failures if you are not a large employer

The penalties are not tax deductible

Employer will be notified if any of its employees are determined to be eligible for premium assistance or cost sharing reduction

AT&T Analysis

2009 Medical Costs

for 283,000 Employees:

$2.4 billion

Penalties if workers

uninsured:

$600 million

90-Day Waiting Periods

ACA says no more than 90 days before an individual is eligible to be covered for benefit under group health insurance (employee can choose to wait more than 90 days)

Model Notices

Employers must provide notice of health insurance marketplace by October 1, 2013 (within 14 days for new hires)

Sample notices from Department of Labor

Cannot just print and send to employees – need specific employer information on notice

COBRA notice also revised

Available on DOL website

Non-DiscriminationHealth plan cannot favor highly-compensated employees Penalties:

Inadvertent Violations: The employer is subject to an excise tax of $100 per non-highly paid employee per day. Calculated for each day the plan fails testing. Cap of the lesser of $500,000 or 10% of the premium for the prior plan yearWillful Violations: Excise taxes plus additional civil penalties

Enforcement for self-insured plans by DOLHowever, regulations defining such “discrimination” have not been released; thus, this particular anti-discrimination provision won’t likely be enforced in 2014

Small Business Tax Credit (25 or fewer employees) Certain small employers were eligible

for tax credit if they contribute at least 50% toward their employees health insurance.

Available for small businesses that are both for-profit (35% credit) and non-profit (25% credit).

NOTE: Due to the “sequester,” effective 3/1/13, small businesses, “tax exempt” under IRC § 45R, will have an 8.7% reduction in their refundable small business tax credit through at least 9/30/13.

Smaller employers can participate in State Exchanges. Once eligible, employer remains eligible regardless of number of employees. (After 2017, states may permit larger employers in exchanges.)

Employer Subsidies

Retaliation Protections for Employees & Whistleblowers

Employees may not be subjected to retaliation for: Reporting violations of the ACA’s consumer protections, or

cooperating in investigation or prosecution of such violations Note: it could be an employer or insurer that violates this protection

Receiving premium tax credits that expose their employer to tax assessments for failing to provide affordable or sufficient health coverage

A violation of these non-discrimination, anti-retaliation provisions are treated as violative of the FLSA

Employee complaints must be brought within 180 days before OSHA

Query: will employer’s ACA-evasive conduct be compliant?  

How Are We Going To Pay For This?

Increase Medicare payroll tax for incomes that exceed $200,000/$250,000

40% excise tax on “Cadillac” plans (exceeds $10,200 / $27,500)

Reduce Medicare Advantage overpayments

Reduce Medicaid drug cost

Increase Medicare premiums for the wealthy

How Are We Going To Pay For This? Cont.

In 2014, annual fee on plans based on an insurer’s net premiums (self-insured plans exempt)Industry feesAdjust payments to Medicare providersReduce special payments to hospitalsEmployee and individual penalties Tanning bed taxes

Legal Challenges to ACANFIB v. Sebelius, Sec’y of HHS(decided 6/28/12) NIFB’s Bottom Line: ACA is mostly constitutional

Individual Mandate Upheld (5 to 4)“Taxing” power sustains it (5 to 4)“Interstate commerce” does not (4 of 9)

Only unconstitutional part - “coercive” Medicaid expansion (7 to 2)

Remedy (fractured opinions):Strikes ACA’s enforcement that threatens loss of Medicaid funding if States don’t expand (5 to 4)Sustains ACA’s “offer” of enhanced Medicaid funding if States do expand (5 to 4)

Legal Challenges to ACA: Tax Subsidy Challenges in States Refusing to Set up an Exchange

Loophole in ACA

Challenge to Federal Tax Subsidies for individuals purchasing coverage in federally run Exchanges

Could go to the SCOTUS in 2014; not likely until 2015

Result: not likely to cause “repeal” of the law

Legal Challenges to ACA: Contraception “Mandate”

Numerous challengesChurches/denominational hierarchies

Religious-affiliated, non-profit/tax-exempt employers

For-profit businesses with owners having strong religious objections

Religious Objections to: abortifacients & anti-contraception meds

Legal Challenges to ACA: Contraception “Mandate” Cont.

New Regulations “accommodate” churches & religious-affiliated employers

Catholic Bishops still dissatisfied

New Regulations do not “accommodate” for-profit businesses

Will likely go to SCOTUS, but maybe not before 2015

If successful, result: not likely to strike the law, only carve out religious objector exemption

Other Interesting Legal Challenges

Pacific Legal Foundation’s Challenge to the ACA as a violation of the Constitution’s “Origination” Clause The “guts” of the ACA were constructed

in the Senate, and “substituted” for a House bill (HR 3590) related to other topics

“Origination” clause requires “tax” bills to start in the House

Kentucky Health Benefit Exchange – New “Tea Party” challenge to Gov. Beshear’s establishing by executive order an exchange for Ky.

Health Care Reform is Here to Stay

President Obama Re-Elected

ACA (mostly) upheld in the Supreme Court

More than 30 attempts to repeal all or part of the law in Congress have failed

Additional Resources

Business Lexington articles on the Affordable Care Act by Doug McSwain and Business First article by Sherry Porter http://wyattfirm.com/news-publications-civic-detail/the-latest-on-the-

affordable-care-act http://wyattfirm.com/news-publications-civic-detail/encouraging-health-

care-competition-through-the-aca http://wyattfirm.com/news-publications-civic-detail/managing-the-acas-

increased-demand-for-health-care-services http://wyattfirm.com/uploads/178/doc/ACA_What%20Employers

%20Need%20to%20Know%20Before%202014000000.pdf

Margaret Levi’s book on the Affordable Care Act, The Impact of Health Care Reform on Kentucky Employers, is available at the Kychamber.com/bookstore

Questions?

THANK YOU!

Sherry P. PorterWyatt, Tarrant & Combs, LLP500 West Jefferson Street, Suite 2800Louisville, KY 40202(502) 562-7560