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THE PATIENT PROTECTION AND AFFORDABLE CARE ACT

PREPARING FOR HEALTH CARE REFORM

FOR: Construction Financial Management Association August 19, 2010

Julie A. PaceThe Cavanagh Law [email protected]

Heidi Nunn-GilmanThe Cavanagh Law [email protected]

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Health Care DemographicsThere are approximately 300 million Americans

Julie A. Pace The Cavanagh Law Firm, P.A. 602.322.4046 [email protected]

177 million w/ employer based coverage (59%)

26 million w/ individual private insurance (9%)

83 million w/ Medicare, Medicaid, or Military (28%)

46 million are uninsured (15%)

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The Big Picture


Health care reform enacted in two separate billsIndividuals must “enroll or pay”

Individuals will have access to basic health coverage through: Employer-sponsored group health plans Individual insurance policies offered through an Exchange Government plan (Medicare, Medicaid, Veterans’ or CHIP)

Employers must “pay or play” - offer coverage or pay taxes

Array of Federal subsidies for small businesses and lower income individuals

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Employer Options - Now & In the Future


March 23, 2010-January 1, 2014:

Continue coverage that existed as of 3/23/2010 (Grandfathered Plan)

Other employer group plan

InsuredSelf-fundedNo coverage

Post January 1, 2014:Continue

Grandfathered PlanEmployer insured

group planEmployer self-funded

planProvide Exchange

supportOffer Exchange plan

(when available)No coverage

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Grandfathered Health Plan


Grandfathered health plan’’ is defined as any group health plan or individual health insurance coverage in which an individual was enrolled on the date of

enactmentFamily members may enroll, if such

enrollment was permitted under the terms in effect as of March 23, 2010

“New employees” and their families may enroll

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Requirements for Grandfathered Plans


For plan years beginning on or after 9/23/2010 Grandfathered Plans No pre-existing condition provisions may apply to children <

19 Cannot have dollar value limits on lifetime or annual benefits Must extend benefits to children up to age 26 Must provide uniform benefits summary information May not have a waiting period in excess of 90 days May not rescind coverage, other than for fraud

Other market reforms and Exchange requirements do not apply to Grandfathered Plans (before or after 2014)

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Coverage of Adult Children


For plan years after September 23, 2010, GHP, including Grandfathered Plans, that provide dependent coverage must “Continue to make such coverage available” for an adult child Until the child (unmarried or married) turns 26 years of age

Not required to cover a child of a child receiving coverageCode amended to exclude expanded coverage from

income taxPrior to January 1, 2014, coverage for older dependent

only required if child is not eligible to enroll in an eligible employer-sponsored health plan other than the grandfathered plan

Secretary to promulgate regulations

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Collectively Bargained Agreements (CBAs)


CB Plans ratified before the enactment date are grandfathered until the date on which the last of the CBAs relating to the coverage terminates Coverage requirements applicable to other

Grandfathered Plans, including dependent coverage, do not apply

Any CBA coverage amendment which amends coverage solely to conform to any requirement added by the Act shall not be treated as a termination of such CBA

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Non-Grandfathered GHPs


Employers may offer health plans other than “grandfathered plans” before and after 2014

All non-grandfathered GHP, including self-insured plans, are subject to additional coverage improvement and reporting requirements

Most become effective for plan years after September 23, 2010, unless otherwise noted

After January 1, 2014, employer-sponsored coverage must meet minimum essential benefit requirements to qualify under individual and employer play or pay provisions

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Additional Coverage Improvements


In addition to the coverage requirements that apply to Grandfathered Plans, GHP coverage must: Cover preventive health services without cost-sharing

requirements Satisfy appeal process requirements Quality reporting annually to Health & Human

Services (HHS) Secretary Insured plans must account for claims/non-claim costs

and rebate to enrollees if non-claims costs too high

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Preventive Health Benefits


GHP must cover, without any cost-sharing requirements, Evidence-based items and services (currently

recommended by U.S. Preventive Services Task Force) Immunizations Pediatric preventive care and screenings Women’s health preventive care and screenings

including breast cancer screening, mammography

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Market Reforms


Effective for plan years after January 1, 2014 Prohibition on discrimination on the basis of health

status Health and Wellness Program safe harbor Allow incentives of up to 30% of premium

Limits on fair health insurance premiums Guaranteed availability and renewability

(individuals over age 19) Comprehensive coverage requirements to be

established

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Premium Variation Limits


Limit variation in premium rates based on Family structure Age (3:1) Tobacco use (1.5:1) Geographic rating area

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Post-2014 Options


Continue Grandfather PlanQualified health plan (through an Exchange or

otherwise) Exchanges available for small employers beginning 2014 Available for largest of employers beginning 2017 Employer may provide support for a coverage level

Any employer* or individual may enroll in a health plan offered outside an Exchange (non-qualified health plan) Subject to State insurance law mandates May be subject to “pay or play” penalties if plan does not meet

minimum essential coverage requirements

* Congress and its staff may only enroll in an Exchange plan

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How to Stay a GHP


Regulations define the changes that may be made and still be considered a GHP

Prohibit major cuts in benefitsProhibit significant cost increasesPermits “routine changes”

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“Routine Changes” to GHP Permitted


Cost adjustments in line with medical inflation

Addition of new benefitsModest adjustments to existing benefitsAdoption of consumer protections under

PPACAChanges to comply with federal or state law

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“Significant” Changes Threaten GHP Status


Cannot significantly cut or reduce benefitsCannot raise coinsurance chargesCannot significantly raise copayment charges

Increases less than or equal to the greater of medical inflation + 15% or $5.00 are permitted

E.g., medical inflation 4%, increase of 19% permittedCannot significantly raise deductibles

Increases less than or equal to medical inflation + 15% okayCannot reduce % of employer contributions by more

than 5%Cannot add or reduce annual limitsCannot change insurance companies

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Requirement that Individuals Enroll or Pay Fine


To avoid a penalty, individuals must have acceptable coverage from one of the following sources: Employer-sponsored plan (including a

grandfathered plan) An individual policy (purchased through a private

insurer or through an Exchange) Government program (Medicare, Medicaid,

Veterans, CHIP)

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Requirement that Individuals Enroll or Pay Fine


Those without coverage face the greater of a dollar penalty or a percentage of household income penalty Dollar penalty equals ½ of the amount listed below for

each uninsured dependent under the age of 18 Total dollar penalty for a family is capped at 300% of

the normal penaltyPenalties phased in

2014 $95 or 1.0% Income 2015 $325 or 2.0% Income 2016 (and after) $695 (indexed) or 2.5% Income

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Employers Pay or Play


Large ERs (=50 EEs) that do not offer health coverage and have at least one

FT EE who receives premium tax credit must pay a penalty $2,000 per FT EE (excludes the first 30 EEs)

that offer health coverage and have at least one FT EE who receives a premium tax credit because employment-related health coverage is not adequate or affordable (plan covers less than 60% of costs or EE’s contribution to ER coverage > 9.5% of household income) must pay the lesser of $3,000 per employee who is receiving a premium tax credit $2,000 for each FT EE

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Employers Pay or Play


Small ERs (< 50 EEs) are exempt from penalties

For “pay or play” purposes, employees are FT EEs (30 or more hours/week) FT Equivalent Employees (total monthly part-time

hours / 120)ER assessments are not tax deductible Vouchers for EE at less than 400% of federal

poverty level who choose Exchange

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Incentives for Small Employers to Provide EE Benefits


ER criteria for tax credits ER must pay at least 50% of EE health care coverage ER must have no more than 25 FT Equivalent EEs

Maximum credit for ERs with 10 or fewer FT Equivalent EEs ER must pay average wage < $50K/year

Maximum credit for ERs that pay average wage < $25,000

Amount of tax credits Phase I (2011- 2013)

Credit up to 35% of ER contribution toward EE’s health insurance premium

Phase II (2014 and later) Credit up to 50% of ER contribution toward EE’s health insurance

premium

Tax exempt entities are eligible for FICA credits

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Health Care Exchanges


What is an Exchange? A marketplace of health insurance issuers (traditional, for-

profit insurance companies and non-profit cooperatives) that will offer QHPs to individuals/small ERs Exchanges will be operational by January 1, 2014 Large ERs may be eligible to purchase coverage through Exchanges in

2017

Who creates an Exchange? Each state must create an Exchange (funded by $6 billion in

federal grants)What is the goal of an Exchange?

Enhance consumer choice Creation of single risk pools “Apples to apples” comparison of health insurance coverage

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Health Insurance Exchanges


What are the features of an Exchange? Issuers must be certified by the Exchange Rating system based on quality and price Enrollee satisfaction system Premium rate limits

Age (3:1), tobacco use (1.5:1), family structure and geographic area

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Health Insurance Exchanges


Multi-tier with different levels of coverage Every tier covers essential benefits % of covered benefits costs ranges 60% to 100% Out-of-Pocket limit for all tiers capped at $5,950

(individual)/$11,900 (family) Tiers labeled Bronze, Silver, Gold, Platinum, and Catastrophic

Essential benefits include Preventive care Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse Prescription drugs

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Subsidies for Individuals


Modest income individuals (between 100% and 400% of the federal poverty level) are eligible for subsidies to pay premiums

Family of 4 - 400% of poverty level is $88,2000

Modest income individuals in Exchanges eligible for three subsidies Limits on amount of

income paid for premiums

Cost-sharing (copays, deductibles, etc) limits

Out-of-pocket spending limits

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Excise Tax on “Cadillac Plans” (2018)


Tax = 40% of “excess benefit”Excess benefit is the aggregate cost of the benefit

in excess of: $10,200 for single-only coverage (as adjusted) $27,500 for family coverage (as adjusted)

For qualified retirees and those in high-risk jobs threshold is $11,850/$30,950

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Other Changes to Plan Design and Operation


Medicare Part D No ER deduction for retiree drug subsidy beginning

2013 Closing the “Donut Hole” on prescription coverage

Nondiscrimination in favor of highly compensated in insured health coverage

New administrative fee for employer-sponsored health plans

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Other Changes to Plan Design and Operation


Reinsurance for Early Retirees Reimbursed 80% of costs between $15,000 and

$90,000 for employer sponsored retiree health plan Program runs only through 2013

HSA and Health FSA changes FSA contribution limited to $2,500 beginning 2013 OTC drugs no longer covered effective 2011 Excise tax on non-medical HSA distributions increased

from 10% to 20%

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Notice to Employees


Employers subject to FLSA must provide written notice to current and new employees Identify the Exchange and how to contact If employer’s health plan is not sufficiently valuable,

notify of the existence of premium subsidies and cost-sharing reductions

If the employee enrolls in an Exchange plan, indicate that the employee may lose any employer subsidy in the employer plan

Effective March 1, 2013

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Auto Enrollment


Large employers (200+ FTEs) must automatically enroll new employees if the employer offers a health plan

Employees may opt out; advance notice required

Effective for the 2014 plan year

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Taxes on High Income Individuals


Increases the health insurance (HI) portion of the FICA tax from 1.45% to 2.35% on wages in excess of $200,000 ($250,000 for a joint return) Same rule for SECA (and no deduction for the additional

tax)Additional 3.8% tax on lesser of:

net investment income (interest, dividends, royalties, rents, passive income)

Modified adjusted gross income in excess of $200,000 ($250,000 for a joint return)

Both provisions are effective in 2013

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Other Provisions


Medicaid expanded to cover people at less than 133% of the federal poverty level

Creation of temporary (through 2014) “high risk” insurance pools for individuals denied other coverage because of preexisting condition

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Other Provisions


Amends the FLSA to require ER to furnish “reasonable break time for an employee to express breast milk for her nursing child” up to one year – breaks provided “as needed” be EE

ER must also provide a place where the EE can express breast milk The place must be somewhere other than a bathroom and must be

“shielded from view and free from intrusion from coworkers and the public” ER with less than 50 Ees exempt if compliance would impose

undue hardship Applies only to non-exempt employees Breaks may be unpaid Effective March 23, 2010 Does not preempt state law more favorable to EE Awaiting DOL regulations to clarify requirements

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QUESTIONS??


Julie A. PaceThe Cavanagh Law Firm1850 N. Central Avenue, #2400Phoenix, Arizona [email protected]

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