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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.