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FMI Independent Operators
Patient Protection and Affordable Care Act: Plan Impact
Coverage Mandates and Employer Requirements
Groom Law Group
December 7, 2010
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Overview The Patient Protection and Affordable Care Act (“ACA” or “Act”) was effective March 23, 2010
2010 Changes
Small employers will be eligible for tax credits for providing health coverage, if they employ no more than 25 full-time equivalent employees
2011 Changes
For plan years beginning on or after 9/23/2010, plans will be required to comply with coverage mandates for all employees (including part-time employees) covered under the plan
OTC medicines and drugs reimbursable only with a prescription
2014 Changes
Employers may be penalized if an employee receives federal assistance to purchase health coverage in an Exchange, if they employ at least 50 full-time equivalent employees
Individuals will be required to have health care coverage and will be eligible for federal assistance to purchase health coverage, if meet certain criteria
Additional coverage mandates take effect
State-based Exchanges will be established through which individuals and small businesses may purchase health insurance coverage
Various other ACA provisions will go into effect over the next eight years
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Key ConceptsCoverage Mandates
Shorthand for the new benefit requirements and prohibitions imposed on group health plans (like the prohibition on lifetime limits and waiting periods longer than 90 days).
Employers are not required to include part-time employees in a plan, but if the employer does, the coverage mandates apply to part-time employees also.
Play or Pay Requirement
In 2014, large employers must provide “minimum essential coverage” to full-time employees or may be penalized. The play or pay requirement applies regardless of grandfathered status.
Minimum Essential Coverage
Minimum essential coverage must be (1) affordable and (2) cover at least 60% of the benefit costs offered. Minimum essential coverage is different than essential health benefits.
Minimum essential coverage does not require any particular benefits be provided.
Certain benefits, like dental and vision coverage, do not qualify as minimum essential coverage.
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Key ConceptsGrandfathered Plans
Shorthand for plans that were in existence on 3/23/2010 that do not make any of the six prohibited changes
Generally, the prohibited changes are when a plan makes a change that decreases employee benefits or increases employee costs
Grandfathered plans do not have to comply with some of the coverage mandates, but are subject to all of the ACA’s other requirements, like play or pay
Insured collectively bargained plans are subject to a special rule, under which a prohibited change will not result in loss of grandfathered status until date last CBA terminates
Essential Health Benefits
A list of categories of benefits in the ACA
Plans may not impose lifetime limits on essential health benefits
Plans may only impose “restricted” annual limits on essential health benefits until 2014, when annual limits are prohibited
Annual limits waiver program available
Essential health benefits are not minimum essential coverage
In 2014, small insured plans must provide essential health benefits
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Essential Health Benefits Secretary to define, but must include categories listed below.
Ambulatory patient
services
Emergency services
Hospitalization
Maternity & newborn care
Mental health and substance use disorder services
Prescription drugs
Rehabilitative & habilitative services & devices
Laboratory services
Preventive & wellness services and chronic disease management
Pediatric services, including oral & vision care
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What Plans Must Comply with Coverage Mandates?
Group health plans (insured and self-insured) & health insurance issuers offering coverage to group health plans
Enforced through the PHSA, ERISA and the Code
ACA does not apply to HIPAA Excepted Benefits
Retiree-only plans (stand-alone)
Accident, life, disability, long-term care
Limited scope dental & vision
Specified disease (cancer policy)
Fixed indemnity
Supplemental plan
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Key Coverage Mandates for Group Health Plans
2011 2014
Applies to all plans, including grand-fathered plans
No lifetime limits on essential health benefits
Restricted annual limits on essential health benefits
No preexisting condition exclusions for enrollees under age 19
Extension of coverage to adult children to age 26
No rescissions unless fraud
No annual limits on essential health benefits
No preexisting condition exclusions for any enrollee
Waiting periods cannot exceed 90 days
Applies only to non-grand-fathered plans
Must cover preventive care (including immunizations) without cost-sharing
Must provide internal appeals and external review
Must allow emergency services without preauthorization and treat as in-network
Must follow cost-sharing and deductible limits
Insured plans in the small group market must cover the essential health benefits
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Costs and Benefits of Maintaining Grandfather Status
Costs BenefitsMay not eliminate all or substantially all benefits for a particular condition
May not increase coinsurance above the 3/23/2010 level
May not increase a deductible/out of pocket limit by more than medical inflation + 15%
May not increase a copayment by greater of med. inflation+15%, or $5+med. Inflation
May not decrease an employer contribution by more than 5% below rate on 3/23/2010 (but may pass along premium increases)
May not make certain changes to annual limits
Avoid application of certain coverage mandates (see coverage mandate table above)
Avoid application of new “rating” rules (insured plans only)
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Key Coverage Mandates - 2011
Coverage Mandate Impact
No lifetime limits permitted and only restricted annual limits on essential health benefits
Must remove all lifetime limits on essential health benefits and must raise annual limits to $750,000 (or apply for a waiver) for 2011 calendar year plans
Coverage of children to age 26 Must cover children for an additional length of time
No pre-existing condition limitation exclusions (for under 19 in 2011-2013)
Cannot use pre-existing condition limitation exclusions to manage increased costs caused by elimination of lifetime limits and restrictions on annual limits
No rescissions except in the case of fraud or intentional misrepresentation
Employment, dependent and other coverage audits must comply with this new requirement; plans may have to cancel coverage only prospectively
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Key Coverage Mandates - 2011
Coverage Mandate Impact
Nongrandfathered plans may not discriminate in favor of highly compensated individuals in insured coverage
Must analyze any executive health insurance policies for compliance
Nongrandfathered plans must allow individuals to choose providers and allow female participants access to OB/GYN without a referral
Likely minimal as most plans already comply
Nongrandfathered plans must treat emergency services the same in and out of network and allow services without preauthorization
Potentially higher out-of-network emergency costs
Nongrandfathered plans must provide more extensive internal claims procedures and must also provide external review
External review may be costly and external review decisions are binding on the plan
Nongrandfathered plans must cover immunization and preventive care with no cost sharing
May be costly, depending on current benefit structure
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Restrictions on OTC medicine or drug reimbursements
Effective for expenses incurred after 12/31/10
Regardless of plan year or any grace period
OTC medicines and drugs reimbursable only with a prescription
Written or electronic order meeting legal requirements in state in which expense incurred
Issued by individual legally authorized to issue prescription in state
Restrictions do not apply to OTC items that are not medicines or drugs
OTC Drug Changes
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Debit cards generally may not be used to purchase OTC medicines or drugs
Transition relief through 1/15/11
90% pharmacies
Could affect debit card purchases of prescription-only drugs
OTC Drug Changes
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W-2 Changes Requires employers to report the
aggregate cost of applicable employer-sponsored health coverage on employee's W-2
Aggregate cost determined under rules similar to COBRA valuation rules
Voluntary for 2011
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FSAs, HRAs and HSAs Restrictions on the reimbursement of
over-the-counter (“OTC”) drugs from FSA, HRA and HSA, effective 2011.
Increases additional tax on distributions from HSAs that are not used for qualifying medical expenses from 10% to 20% of the distribution, effective 2011.
Employee salary reduction contributions to FSAs limited to $2,500, indexed to CPI-U, effective 2013.
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Changes in 2012 and 2013 Summary of Benefits document
The Department of Health and Human Services will issue a template
Must summarize benefits in 4 pages, 12 pt. font
Auto-enrollment for Large Employers
Employers with more than 200 full-time employees must automatically enroll new full-time employees in coverage and continue enrollment of current employees
Inform employees about the existence of the Exchange and eligibility for federal subsidies
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Key Coverage Mandates - 2014
Coverage Mandate Impact
Waiting periods cannot be longer than 90 days Cannot manage increased costs caused by elimination of annual/lifetime limits and other mandates through waiting periods
Can continue to impose different waiting periods on part-time and full-time, but cannot impose any period longer than 90 days
Cost-sharing limits Nongrandfathered plans cannot impose cost-sharing that exceeds a deductible limit of $2,000 individual / $4,000 family and an out-of-pocket limit of $5,950 individual / $11,900 family. This further limits the plan’s ability to control costs.
Required coverage of essential health benefits (insurance in the individual and small group market)
Small group health insurance costs will likely rise in response
No preexisting condition limitations permitted for any enrollee
Cannot use pre-existing condition limitation exclusions to manage increased costs caused by shorter waiting periods and elimination of annual/lifetime limits
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Play or Pay - 2014 Grandfather status does not affect play or pay requirement. Large Employer = at least 50 Full-Time Equivalent (FTE) employees Insufficient minimum essential coverage is not “affordable” or does not provide “minimum
value”
Large Employer does not offer minimum essential coverage
Large Employer offers insufficient minimum essential coverage
Large Employer offers sufficient minimum essential coverage
Full-time (avg. at least 30 hours per week for any month)
Penalty
If at least one FT employee whose family income is less than $88,000 purchases coverage with a federal subsidy through an exchange, the employer must pay a yearly penalty of $2000 x the number of full-time employees (minus the first 30)
Penalty
If at least one FT employee whose family income is less than $88,000 purchases coverage with a federal subsidy through an exchange, the employer must pay a yearly penalty of $3000 x the number of full-time employees who receive subsidies
No penalty
Part-time
No penalty No penalty No penalty
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Play or Pay – Insufficient Minimum Essential Coverage
Minimum essential coverage must be
“Affordable” - which means it costs 9.5% or less of an employee’s gross income, and
Provide “minimum value” - which means that the plan’s share of the costs of benefits under the plan is 60% or more
If employer-sponsored coverage does not meet this threshold (if not “affordable” or does not provide “minimum value”), the employee may go to the Exchange to purchase coverage and may be eligible to receive a federal subsidy
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Play or Pay –Free Choice Vouchers
Employers must provide free choice vouchers to employees whose contribution for coverage through the employer’s plan is between 8% to 9.8% of the employee’s income and whose family income is less than $88,000.
Amount of the Voucher: The most generous amount the employer would have contributed for self-only (or family, if applicable) coverage under the employer’s plan.
This provision does not specify that a qualified employee must be full-time. Guidance could require that employers provide free choice vouchers to part-time employees.
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“Cadillac Plan” Tax – 2018 40% excise tax on health insurers and/or persons
administering self-insured plans on amounts in excess of high cost health plan limits
High cost = $10,200/single; $27,500/family (increased by a “health cost adjustment percentage”)
Tax imposed on amounts in excess of limit
Limits indexed based on CPI-U (not medical inflation)
Higher limits for “qualified retirees” and “high risk” professions
Limits may be increased by age and gender characteristics
Likely to be passed through to employers
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“Cadillac Plan” Tax – 2018 40% excise tax on high cost plans (continued)
Include employee-paid portion in valuation
Include FSAs, HSAs, HRAs
Tax imposed on insurer, employer, or person administering plan benefits
Employer required to calculate excess benefit amounts and allocable share of each provider and notify provider and IRS.
Dental, vision, LTC, accident/disability, and fixed indemnity plans paid with after tax-dollars are excluded.
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