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PATIENT PROTECTION AFFORDABLE CARE ACT
(PPACA)
Implementation of Health Care Reform
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DisclaimerDisclaimer
This presentation and the information contained herein, is not intended to provide legal, accounting or tax advice. This discussion is of a general nature and should not be specifically applied.
Please contact competent legal, accounting and tax professionals in pursuit of your corporate and personal goals and objectives. Federal, state and local laws and regulations are subject to change.
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The Patients Protection and Affordable Care Act (PPACA), aka The Affordable Care Act (ACA), contains 2000+ pages and will ultimately create 159 new offices, agencies and programs. It is estimated that the current law in its present form may ultimately contain 50-100,000 pages of regulations, guidelines and directives.
Are we in Good Hands?Are we in Good Hands?
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Office of Personnel Management (OPM) Federal Drug Administration (FDA) Health Resources & Service
Administration (HRSA) Indian Health Service (IHS) U.S. Prevention Services Task Force
(USPSTF) National Association of Insurance
Commissioners (NAIC) Department of Insurance (States) Congressional Committee
Department of Health & Human Services (HHS)
Department of Labor (DOL) Internal Revenue Service (IRS) Department of Treasury General Accounting Office (GAO) Center for Medicare & Medicaid Services
(CMS) Agency for Healthcare Research & Quality
(AHRQ) National Institute of Health (NIH)
Driving the TrainDriving the Train
Here are the Major Conductors who will be “driving the (Health Reform) train”:
There are many other professional and trade organizations, unions and advocacy groups who will have at least a voice in this massive undertaking.
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Impact of Health Care ReformImpact of Health Care Reform
The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010.
Certain provision of the act became effective within months of the enactment.
Some of the major provisions became effective for plan years beginning on or after September 23, 2010.
Implementation of the other provisions will occur over the next 4-6 years.
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Impact of Health Care ReformImpact of Health Care Reform
Biggest Concerns - Pending “Final Interim Regulations”
How “essential benefits” are defined? How “actuarial value” is defined? How “medical loss ratio” is defined?
How will subsidies and mandates impact how people receive and purchase health care in the future?
If the government ultimately requires everyone to buy health insurance, what is the least expensive product on the market?
Income-base subsidies will be tied to the 2nd least costly plan type (Silver plan) in the Exchange.
People can only get the maximum subsidy if they choose this plan or the less expensive one (Bronze plan).
Will employers continue to offer coverage?
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Impact of Health Care ReformImpact of Health Care Reform
The entire small group market may be eventually replaced by state insurance exchanges.
- Essentially a robust “individual choice” market may result that is combined with the current individual market and uninsured population.
Once the employees (not the employer) are choosing their own health insurance benefits, many of them may gravitate to the lower costs plans.
What impact will the Health Exchanges ultimately have on Health Care?
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Change in the Definition of a “Qualified Medical Expense” for/ FSAs, HSAs & HRAs
Expenses incurred for over-the-counter (OTC) medications will no longer be eligible for payment or reimbursement from any of the health care accounts unless obtained with a prescription
Effective 1/1/2011
New (Higher) Penalty for Non-Qualified HSA Withdrawals
The tax penalty on HSA (and Archer MSA) withdrawals that are not used for qualified medical, dental, and optical expenses will increase to 20% in lieu of the current 10% assessment
Effective 1/1/2011
Impact of Health Care ReformImpact of Health Care Reform
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New (Lower) FSA Contribution Limits
Contributions to health care FSAs limited to $2,500 annually
Limit indexed annually for inflation
Dependent care accounts are not affected
This provision could result in more people choosing HRA and/or HSA options
Effective 1/1/2013
New (Lower) FSA Contribution Limits
Contributions to health care FSAs limited to $2,500 annually
Limit indexed annually for inflation
Dependent care accounts are not affected
This provision could result in more people choosing HRA and/or HSA options
Effective 1/1/2013
New (Higher) Threshold for Medical Deduction
When itemizing deductions (Form 1040, Schedule A) the threshold for deducting qualified medical expense will increase from 7.5% of Adjusted Gross Income (AGI) to 10% of AGI
Only amount exceeding 10% is deductible
Effective date delayed for seniors (65 & over) to 1/1/2017
Effective 1/1/2013
Impact of Health Care ReformImpact of Health Care Reform
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New Mandated Health Care Provisions/Requirements
Coverage of children up to age 26
First dollar coverage of preventive care
No pre-ex limitations for dependents under age 19
Tiered contract maximums/no lifetime maximums
Annual limits of “out-of-pocket” expenses
Minimum “actuarial value”
Medical loss ratios
Limits on deductibles for small business plans
*Effective dates vary by law
New RequirementsNew Requirements
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“First-dollar” coverage of preventive care effective plan years starting 9-23-2010
All insurance policies are required to provide first dollar coverage for a wide array of preventive services
Effective 1-1-2014 for all “grandfathered plans”
Services must be covered without any cost sharing whatsoever, i.e. no copays, deductibles or co-insurance may apply
Some current HDHP’s provide first dollar coverage, but not all do
The newly issued guidelines are much more comprehensive in scope
The Secretary of HHS recently issued “final interim regulations” based on recommendations made by the U.S. Preventive Services Task Force (USPSTF)
Preventive CarePreventive Care
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New Regulations effective 9/23/2010Easier Access To Services Graded “A” or “B” By The U.S. Preventive Services Task Force (USPSTF)
It’s not as though we’re dying, it’s though we kill ourselves” – Dr. Kenneth Cooper
• Routine Vaccinations• Many Cancer Screenings • Pre-Natal Care
•Blood Pressure •Diabetes •Cholesterol Testing
► Chronic diseases, such as heart disease, cancer, and diabetes, are responsible for 7 of 10 deaths among Americans each year
► Account for 75 percent of the nation’s health spending – and often are preventable
► Cost sharing, including deductibles, coinsurance, or copayments, has been found to reduce the likelihood that preventive services will be used
► Nationally, Americans use preventive services at about half the recommended rate.
► An estimated 11 million children and 59 million adults have private insurance that does not adequately cover immunization, for instance.
Requires new private health plans to cover evidence-based preventive services and eliminatecost sharing requirements for such services.
• Regular Wellness Visits for Infants and Children
Preventive ServicesPreventive Services
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Minimum “Actuarial Value”
All insurance policies must provide a minimum 60% actuarial value for the benefits covered effective Date 1/1/2014
Bronze Plan 60%Silver Plan 70%Gold Plan 80%Platinum Plan 90%
“Actual value” is defined as a percentage of covered benefits paid by the insurance plan relative to a zero cost-sharing i.e. no deductibles, co-insurance nor co-pays
Actuarial ValueActuarial Value
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Current assumption is that an average or “standard” population would enroll in the plan instead of taking into account self-selection that may occur as a result of alternate plan design features
Current proposed guidelines are unclear whether a specific plan’s actuarial value will include HRA/HSA contributions
Many current CDHPs/HDHPs have actuarial values below 60%
Including contributions in the actuarial value calculation could increase a plan’s value by 10-20% or more, depending on the size of contributions
The American Academy of Actuaries and Congressional Budget Office (CBO) recommends including contributions in the final regulations
Actuarial ValueActuarial Value
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New Minimum Medical Loss Ratios
Carriers must provide rebates to enrollees if the insurer does not spend a minimum percentage of premium revenues on medical claims related expenses
80% for small group and individual policies
85% for large groups
Effective 2011 (Final interim regulations pending)
The impact on CDHPs/HDHPs is unknown
CDHPs/HDHPs are generally not designed to pay such a high percentage of medical claims
The allowable expenses that will ultimately be included in the “MLR” will dramatically affect the governing regulations and its corresponding impact
Medical Loss Ratios (MLR)Medical Loss Ratios (MLR)
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Additional grace period issued for appeals implementation
On September 20, 2010, the Department of Labor issued Technical Release 2010-02, which enforced a grace period for compliance with certain new provisions in respect to internal claims and appeals until July 1, 2011. However, the Departments intend to issue an amendment to the 2010 interim final regulations in the near future which will make modifications to certain provisions of the 2010 interim final regulations. To avoid enforcing standards that the Departments intend to modify, the Departments issued Technical Release 2011-01 on April 18, 2011. This release modifies and extends the enforcement grace period and is intended to act as a bridge until an amendment to the 2010 interim final regulations is issued.
Updates on Health Care ReformUpdates on Health Care Reform
Internal/External AppealsInternal/External Appeals
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This release provides health insurers a longer implementation time period for some of the key elements within the 2010 interim final rules. Based on the latest guidance from the Department of Labor, health insurers and group health plans have until plan years beginning on or after January 1, 2012, to implement new requirement related to: Including diagnosis and procedure codes on denial notices;Providing notices to consumers in languages other than English;Shortening the time period for prior approval of an urgent care claim; andGiving claimants the right to bypass internal appeals and go to external appeal or litigation if the insurer or plan fails to “strictly comply” with the rule. Technical Release 2011-01 does not change interim final rules that require adverse benefit determinations (for example, denial notices, explanation of benefit forms, etc.) to include the amount and date of the claim, service provider and reason for denial. Health insurers are still required to include the enhanced description of internal/external appeals process and state-specific contact information, if applicable, for the state’s office of health insurance consumer assistance. All of these requirements will still apply for plan years beginning on or after July 1, 2011.
Internal/External Appeals – ContinuedInternal/External Appeals – Continued
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Annual limits on Out-of-Pocket expenses
All policies must apply Out-of-Pocket limits
$5,950 for individuals and $11,900 for families (adjusted annually from 2010 thresholds for inflation)
Effective 1/1/2014
Out-of-Pocket LimitsOut-of-Pocket Limits
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New “Cadillac” Plan Tax
An excise tax of 40% will be applied to employer-sponsored coverage that has a benefit value in excess of $10,200 for single coverage and $27,500 for family coverage
FSA, HRA & HSA contributions are included in the benefit value
Tax would be imposed on insurance companies, employers and plan administrators
This may influence more companies to switch to CDHPs/HDHPs
Effective 1/1/2018
Impact of Health Care ReformImpact of Health Care Reform
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•Provides first dollar coverage for three(3) primary care office visits but no other coverage until the individual reaches current HSA cost-sharing limits
•Policies are not HSA qualified
•May defeat the very essence of insurance protectionPolicies initially limited to:Individuals 30 years or youngerIndividuals exempt from the individual mandate due to affordability or hardship
Insuring the “Young Invincibles”Insuring the “Young Invincibles”
New Young Invincible Policy An affordable “Bare Bones” approach?
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Employer ResponsibilitiesEmployer Responsibilities
Setting the Course for Responsible Health Care ReformSetting the Course for Responsible Health Care Reform
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Effective starting January 1, 2014
Employer must count all full-time employees and part-time employees – on a full-time equivalent basis – in determining if they have 50 or more employees Certain seasonal workers are not counted in determining if employer has
50 workers Full-time = 30 or more hours per week, determined on a monthly basis
Penalties assessed for “no coverage” or coverage that is not “affordable”
Employer ResponsibilitiesEmployer Responsibilities
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If an employer fails to provide its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage,” and
One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction, then
Employer penalty = $2,000 for each of its full-time employees in the workforce
NO CoverageNO Coverage
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If employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, and
One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost sharing reduction because
The employee’s share of the premium exceed 9.5% of income, or
The actuarial value of the coverage was less than 60%, then
Employer penalty = $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction
Unaffordable CoverageUnaffordable Coverage
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Requires employers to provide a voucher to use in the exchange instead of participating in the employer-provided plan in limited circumstances
Employees must be ineligible for subsidies
Employees share of premium must be more than 8% to 9.8% of family income that is less than 400% of FPL
Employee can keep amounts of the voucher in excess of the cost of coverage
Repealed April 14,2011-Federal Funding Bill
Free Choice VouchersFree Choice Vouchers
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Summary of Potential Employer Penalties under PPACA, Cong. Research Service May 14, 2010
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Employers must automatically enroll “new full-time employees” in employer-sponsored coverage
Must provide adequate notice and opportunity to opt out
Applies to employers with “more than 200 full-time employees”
No effective date specified, but must be “in accordance with regulations promulgated by the Secretary (of DOL)…” (so presumably not effective until regulations are issued)
Notice to current employees and new hires about exchange and subsidies
Existence of exchange, services and how to obtain assistance
Availability of premium assistance if plan value below 60%
Loss of employer contribution and tax exclusion for contribution
Effective March 1, 2013
Other ResponsibilitiesOther Responsibilities
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What is the Cost of Reform?What is the Cost of Reform?
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Impact on Health Insurance Rates
Assumptions: “Non-grandfathered”; Not Eligible For Small Business Tax CreditBased on the following Health Reform mandates:
•Dependent Age to 26 •Preventive Care 100%•Mental Health Parity
•Elimination of Pre-ex (children under 19)•Unlimited lifetime (“essential”) benefits
A large national consulting firm recently noted that as a result of new insurance reforms, employers face new pressures to control costs, expand eligibility, comply with new contribution requirements and absorb new fees
This firm assumes that in the near term, employers will absorb an additional4-6% increase above current health care cost trends
Insurance Carrier Low Range High Range Median Range
Anthem 2.00% 4.00% 3.00%
UHC/UMR 1.00% 8.70% 4.85%
Ingenix 2.50% 6.00% 4.25%
Average 1.80% 6.20% 4.00%
Potential Cost ImpactPotential Cost Impact
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System Overload/Longer Waits
Lack of Providers
Lower Quality
Fewer Plan Designs to Choose
More Concierge Doctors
Fewer Primary Care Doctors
Increasing National Debt and Deficit
Single Payer Health System
Significant Rationing of Care
Destabilization of Private Insurance Market
Immediate Increase in Health Insurance Costs
Higher taxes for Individuals making less than $200K
More Employers Dropping Coverage Altogether
More Employers Hiring/Maintaining Part-time Employees
Outsourcing Personnel in or out of the USA
Increased Pressures on State Government Budgets
Companies Offsetting Earnings Due To Loss of Part D Subsidies
Unintended ConsequencesUnintended Consequences
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Includes Eligible Employer Paid Health, Vision & Dental Premiums
Eligibility RulesProviding health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Maximum Credit
The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Small Business Tax CreditSmall Business Tax Credit
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Health Care Reform TimelineHealth Care Reform Timeline
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Dependent coverage for adult children up to age 26
(some states have additional guidelines for coverage )
No lifetime limits
100% coverage for Preventive services*
No annual limits.
(Restricted annual limits permitted until 2014)
Emergency Services
(cost sharing and OON ER services) *
No Pre-Existing exclusions for children under age 19
Early Retiree Reinsurance Program
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Non Discrimination Testing in favor of highly compensated employees prohibited**
Revised Appeals Process (Some requirements are to be implemented on 7/1/11 regardless of plan year;
some have been delayed)**
Medical Loss Ratio – Fully Insured -85% (Reporting and rebates in 2012)
No pretax reimbursements for HSA’s for “nonprescribed” OTC’s
20% tax for nonqualified HSA withdrawals
Automatic enrollment in Long-term care program (CLASS Program)***
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Reporting the value on employer sponsored coverage on W-2’s
(optional in 2012; required for 2013; some exceptions for small groups)
Uniform explanation of coverage***
Pre-enrollment document sent to employees explaining benefits and exclusions***
60- day notice for material modifications, if not provided in uniform EOB***
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Employee notification of exchanges, premium subsidies etc**
FSA contributions limited to $2500/year
Fees for comparative effectiveness research agency for fiscal year 2013***
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Individual mandate*** Guaranteed issue*** Employer requirement to offer minimum essential coverage (50+ employees)***
Penalty for No Coverage ( $2000 for each full time employee in workforce) Penalty for each Full time employee who enrolls in exchange due to unaffordable coverage (
$300 for each FTE who received a tax credit or cost-sharing reduction)
HIPAA nondiscrimination rules on Wellness Programs*** 30% Incentive Cap for Wellness Programs*** Large groups required to auto-en roll employees into Health benefits (200
employees)*** Small group redefined as 1-100 (states may defer to 2016)*** New fee on FI coverage*** 90 – day limit on waiting periods for coverage*** Coverage of routine patients costs for clinical trials of life threatening diseases***
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40% excise tax on high-cost “Cadillac” plans
*The law does not require grandfathered plans to comply with this provision
**Dates may change based on additional guidance /requirements from HHS
***To Be Determined
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2011 Recent Changes to PPACA2011 Recent Changes to PPACA
Additional guidance on W-2 reporting in regard to employer sponsored healthcare coverage.
Repeal of form 1099 reporting
Repeal of free Choice Vouchers
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On Friday, July 22 the Department of Health and Human Services (HHS) gave Kentucky additional time for health insurers in their state to comply with the Medical Loss Ratio (MLR) requirement. Under the PPACA’s Medical Loss Ratio provision, health insurers selling individual or small business are required to spend at least 80% of premium revenue on medical care and/or quality improvements beginning this year, or return the excess to the insured.
However, states were allowed to apply for waivers if they could show that meeting the 80% target would create instability in the individual insurance market and create risk that would result in insurers leaving the state or stop offering health coverage.
Sharon Clark, Insurance Commissioner for Kentucky, requested the waiver asking HHS to cut the 80% requirement to 65% this year, 70% in 2012 and 75% in 2013. Although a waiver was awarded by the HHS, Kentucky only received a one year break on the 80% requirement with a 75% requirement for this year, going to the full 80% in 2012.
The spending requirement, “Medical Loss Ratio” applies to all health plans, except those offered by self-insured employers. The exceptions (waivers) requested by the states affect only individual policies which are purchased by people who do not have available coverage through their employers. There are approximately 9 million Americans with individual policies and group plans that could be eligible for rebates under the MLR provision.
On Friday, July 22 the Department of Health and Human Services (HHS) gave Kentucky additional time for health insurers in their state to comply with the Medical Loss Ratio (MLR) requirement. Under the PPACA’s Medical Loss Ratio provision, health insurers selling individual or small business are required to spend at least 80% of premium revenue on medical care and/or quality improvements beginning this year, or return the excess to the insured.
However, states were allowed to apply for waivers if they could show that meeting the 80% target would create instability in the individual insurance market and create risk that would result in insurers leaving the state or stop offering health coverage.
Sharon Clark, Insurance Commissioner for Kentucky, requested the waiver asking HHS to cut the 80% requirement to 65% this year, 70% in 2012 and 75% in 2013. Although a waiver was awarded by the HHS, Kentucky only received a one year break on the 80% requirement with a 75% requirement for this year, going to the full 80% in 2012.
The spending requirement, “Medical Loss Ratio” applies to all health plans, except those offered by self-insured employers. The exceptions (waivers) requested by the states affect only individual policies which are purchased by people who do not have available coverage through their employers. There are approximately 9 million Americans with individual policies and group plans that could be eligible for rebates under the MLR provision.
HHS extends Medical Loss Ratio (MLR) Requirement for KentuckyHHS extends Medical Loss Ratio (MLR) Requirement for Kentucky
Health Care Reform Update - KentuckyHealth Care Reform Update - Kentucky
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Exchange Update – KentuckyExchange Update – Kentucky
As of July, 2011, more than a third of states have begun laying the foundations for exchanges that meet the requirements outlined in the PPACA. Although Kentucky has received the $1,000,000 planning grant, as of the end of the 2011 Legislative Session they had not proposed any legislation regarding the establishment of Health Care Exchange in the state.
By January 2013, the federal Department of Health and Human Services (HHS) will evaluate states to identify those that have not made sufficient progress toward establishing a “fully operational” state-based exchange. This 2013 deadline poses a potential challenge for many states, particularly those that have not yet taken significant steps to establish an exchange.
Source: The Kaiser Family Foundation/State Health Facts
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Exchange Update – IndianaExchange Update – Indiana
On January 14, 2011, Governor Daniels signed an Executive Order to conditionally establish and operate the Indiana Insurance Market, Inc., a non-profit corporation to serve as the Indiana health benefit exchange.
Indiana is among the first three states to be awarded a federal Level One Exchange Establishment Grant of $6.9 million to update their information technology systems and provide project management; legal, actuarial, and financial expertise; and general policy support to assist with implementing the exchange. Indiana also received a federal Exchange Planning Grant of $1 million in September 2010.
Indiana has engaged subcontractors to assist in researching the state’s health care market and potential users of the Exchange. The state also continues to collect stakeholder insight through questionnaires and meetings and to establish collaborative partnerships. Information collected in this next phase of planning will be used to define the legal structure, governance, and operations of the Exchange. The Governor’s office continues to work with the Indiana Family and Social Services Administration and Department of Insurance to assess existing IT resources and to investigate strategies for integrating the Exchange with existing programs.
Source: The Kaiser Family Foundation/State Health Facts
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ConclusionConclusion
