Implementing Health Care Reform

Vince Phillips

PPACA: What’s On Time

• Minimum essential benefits (Aetna 3.4 POS)• Guidance FT versus FTE and penalties (12/12)• Safe harbor versus household income• First-dollar benefits (except for contraceptive lawsuits)

09/10 and 08/12• Patient Bill of Rights (09/10): No recissions: access to ER,

primary care physician, etc.• Medical Loss Ratio (08/12)• Summary Benefits Coverages (03/12)

05/13/2013

PPACA: What’s On Time (cont.)

• H S A changes (01/11)• FSA contribution limits (01/13)• Taxes on tanning (07/10); medical device

manufacturers (01/13) pending form 720 or congressional action; brand name Rx taxes (10-11); health insurer tax (01/14 based on 2013 premiums)

• Small Business health premium tax credit (altho impacted by sequestration)

PPACA: What’s On Time (cont.)

• Rate review – Act 134 (12/11)• No medical underwriting for under 19 children• Dependent young adult thru age 25 (09/10)• No yearly or lifetime caps on benefits (altho

yearly still phasing in until 2014)• Rule on Navigators (04/13)• Rule on agents and Exchanges (04/13)

PPACA: What’s Delayed

• Employer Notice re Exchanges must done by October 1, 2013; Template released 05/13

• 105(h) indefinite• Full SHOP delayed until 01/15 • Expatriot employees indefinite

PPACA Pending

• Comparative effectiveness research $1 to $2 until 2019• Medicare tax hikes for 200k/250k income• Full details on federally-facilitated Exchanges• Medicaid expansion in PA?• 2014 Auto-enroll rules for over 200 EEs delayed

Pending/Upcoming

• MLR Rebates (Each August)• Navigator regulation at state level?• Adequate funding for PA Insurance

Department – dedicated fund• Deductible limits 2014 ($2000/$4000)

affecting HDHPs unless there is actuarial value determination

PPACA: What’s Gone

• Risk Pool no new PA enrollees (03/13); Dispute with HHS re close-out (05/13)

• CLASS employer long-term care plan repealed (01/13)

• No new CO-OP Exchange funding (01/13)• Early Retiree Reinsurance Program out of money

(05/11); Claims requests close-out by 08/13• 1099 reporting requirement repealed (04/11)

PPACA: Next Battles in Congress

• Elimination of 2.3% medical device manufacturers tax

• Elimination of Medicare independent board• Obama’s Budget proposal for HHS (04/13)• Cuts in wellness programs; diverted by HHS to

other PPACA programs

PPACA Specific Areas

• The 50 Threshold• The “Shared Responsibility” aka Penalties• Individual Mandate• The Exchanges• Plan particulars in 2014 • Taxes

How Big Are You? Are You at 50?

• Employers with 50 or more full-time (or full-time equivalent) employees must offer coverage to 95% of full-time employees or pay a $2,000 per employee fine (after the first 30)

• Employee is one who receives a W2, not a 1099.

• This is called the threshold. Those under the threshold are not subject to the employer penalty (called “Shared Responsibility” by the government)

Cont.: Are You at 50?• Core guidance is December 28, 2012 from IRS (www.irs.gov)• Measurement or look-back period of 12 months, for example 2012

calendar year or make it coincide with health plan year.• For each month in that year, add full-time permanent employees. How

many? 50? If so, you’re there.• Separately, add the hours worked by your part-time and seasonal

employees for a month in that period and divide by 120 to get full-time equivalent or FTEs.

• Why 120? Because the law counts 30 hours a week as full time • Do this for every month for the base period.• NOTE: Must include sick time, vacation, personal; Teachers are counted as

FT even though they may have the summer off.

Cont.: Are You at 50?

January1)How many worked more than 30 hours per week? Assume 30. 2)How many worked less than 30 hours per week? Assume 40 who worked 25 hours per week and 20 who worked 20. Add their hours.3)40 x 25=800 total hours; 20 x 20 = 400 (800 plus 400 = 1,200)4)And divide by 120 to get full-time equivalent or FTE (1,200 divided by 120 = 105)For January, you had 30 FT plus 10 FTE =40, below the 50 threshold BUT

Cont.: Are You at 50?

• BUT, it’s the entire measurement period. What were your FTs and FTEs in January, February, March, April, May June, etc.?

• Suppose the numbers of FT and FTE were Jan 40, Feb. 60, March 70, April 70, May 50, June 60 etc. That number divided by 12 (base period) will tell you if you have crossed the threshold.

Cont.: Are You at 50?

• What about seasonal employees?- Must calculate separately- If the seasonals’ hours make the difference and push the

employer over 50, they can be backed out. An example would be a Christmas store with high seasonal hours for two months of the year.

- A seasonal is someone who works four months (120 days), either consecutive or not, and is not limited to agriculture or retail workers.

- Does not have to be consecutive months

Cont.: Are You at 50?

• Aggregation (controlled group) where one entity has controlling interest/ownership of several businesses- not a new IRS rule. IRC 414 (b),(c ),(m), (o)

• There may be a waiver opportunity (check with accountant)

• FT and FTEs for all are counted together towards the 50 threshold

• Each firm is subject separately to penalties for non-compliance. If one firm is non-compliant, it pays but the other firms would not be fined.

Cont.: Are You at 50?

• Transition relief for smaller employers which may base their threshold calculation on six months in 2013

• Effective date is 01/1/14 unless plan year begins later in 2014

• Gray area is moving renewal to 12/2013 so as to gain almost a year under pre-PPACA terms

Measurement & Stability Periods: Confused yet?

• What if the employer cannot determine whether an employee will be full-time?

- IRS Notice 2012-58: Look-back period of 3-12 months measures actual hours to see if specific EE is full-time; If so, employee must be offered health insurance in 2014 in so-called stability periods which must equal the look-back period

- Ongoing measurement period every year

Measurement & Stability Periods

Another Period to Know About: Optional Administration Period between measurement period and stability period to determine which employees are eligible and to enroll them-Cannot exceed 90 days-For ongoing employees must overlap stability period-May not extend measurement or coverage period

Measurement & Stability Periods

• Periods may differ if:- Collective bargaining versus non-union- Salaried versus hourly- Employees of different business if there is

aggregation (controlling interest)- Employees in different states

Measurement & Stability Periods

• New employees have an initial measurement period based on date of hire (not to be confused with 90-day window for health insurance to be offered)

• For newly hired variable hour or seasonal employees, combined length of initial measurement period and optional administrative period cannot extend beyond last day of first month after anniversary date (13 months)

Measurement & Stability Periods

• Example: New Hire- Hired April 1, 2014: Initial measurement period begins thru March 31,

2015- Administrative period April 1, 2015 – April 30, 2015- Stability period May 1, 2015 – April 30, 2016

• Example: Ongoing Employee- Assume plan year begins October 1, 2014; Measurement period Oct 1,

2014 – Sept. 30, 2015- Administrative period October 1, 2015 – December 31, 2015- Stability period October 1, 2015 – December 31, 2015

“Shared Responsibility”

• To avoid penalties, a large (over 50) must offer insurance to 95% of FT employees which:

- Includes PPACA benefit mandates (no caps; first-dollar preventive care, etc.) Has a bronze level actuarial value

- Does not require more than a 9.5% of household income (or W2)employee contribution

- Covers dependents (up to age 26) but this mandated offering does not include spouse

- NOTE: minimum essential benefits (Aetna 3.4 POS) applies to groups under 50

“Shared Responsibility”: $2,000

• If an employer fails to offer 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 the 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, first 30 exempted

“Shared Responsibility”: $3,000• 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 household income, (W2) 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 from the Exchange

• NOTE: If an employer plan is compliant and an employee opts for the Exchange, there is no employer penalty.

• NOTE: Amount of $3,000 penalty may not exceed cost if employer offered no insurance and had to pay a $2,000 penalty.

“Shared Responsibility”• Actuarial value = the portion of allowable medical costs paid by plan.

(Guidance November 2012 and February 2013)

• Penalties assessed on a monthly basis.

• No penalties apply to part-time employees.

• Penalties for waiting periods exceeding 90 calendar days; Latest DOL update March 18, 2013

• Employers will have to report that its group plan provides “minimum essential coverage”, coverage documentation to IRS means that IRS has trip wire if employee is approved for Exchange subsidy (includes self-insured plans)

• Individual application form (02/13) includes an employer page re employer-offered coverage that HHS/IRS can cross check

Employer Reporting Requirements

• Employers with 250+ W-2s report aggregate cost of employer-offered coverage (but not employer contributions to HSAs and FSAs -2012 reportable in 2013)

• 1/31/15 to IRS coverage information (includes self-insured)

• 1/31/15 large employers certification that a compliant plan was offered, number of FT employees

2014 Market Changes

• No medical underwriting• Age rate band 3:1; Tobacco 1.5:1; family

composition, geographic regions• Guaranteed issue (in and out)• Exchanges subsidies up to 400% FPL using

Qualified Health Plans (QHPs)• Essential benefit requirements• Minimum value standard 60% medical costs

covered (Bronze); Latest from IRS 05/13

Individual Mandate• In 2014, all Americans will be required to have health

insurance that meets minimal benefits standards

• Penalties for noncompliance – $95 in 2014 or 1% AGI up to

– $695 in 2016 or 2.5% AGI

– Uncertain re enforcement mechanism since many Americans do not pay federal taxes or file income tax returns

– IRS lacks compliance club

Employer Responsibilities• Over 200 EE employers must automatically enroll “new full-

time employees” in employer-sponsored coverage starting in 2014– Must provide adequate notice and opportunity to opt out

– 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)

Exchanges• PA said no to a state-based exchange in

December 2012, citing unanswered questions re implementation, state’s role and cost to PA

• We will be under a federally-facilitated exchange…rules pending

• Excellent basic resource is Federal Register March 16, 2012 as to US’ thinking

Exchanges• Although not definitely conclusive, here are some basic parameters:

- There are two types of Exchanges, Individual and SHOP (SHOP is for businesses under 50 employees)

- NOTE: 50 includes FT and PT…warm bodies with W2s

- Individuals get tax subsidies when enrolling (up to 400% of FPL); Employees enrolled through a group plan do not.

- It is an Internet-based system where an individual (or employee in a SHOP plan) chooses between certain insurance options, called Qualifying Health Plans.

- In PA, the HHS will set criteria for a Qualified Health Plan although it is uncertain as to PA Insurance Department authority to review for solvency, rate review etc.

Exchanges- For individuals or employees under SHOP, the plan selection process is

similar.

- But the employer contracts with the SHOP Exchange and then employees can select their option. (NOTE: Employee choice delayed until 2015)

- Result will be several different Qualified Health Plans under one employer.

- HR issues: Different plans will have different claims processes even though the plan designs will all be similar. This underscores role of broker since in a sense you have several individual policies under the employer plan/SHOP umbrella.

- Employer pays one premium invoice.

- Penalties are triggered for over 50 full-time employee firms if one or more employees enroll individually and receive the tax subsidy; not so with SHOP employers since they are under 50 FT.

Exchanges

• Unanswered question: If an employee goes into the Exchange, how will that affect my participation rate per the carrier?

• Notice to current employees and new hires about Exchange and subsidies: Was March 1, 2013; Now by October 1– Existence of Exchange, services and how to obtain assistance

– Availability of premium assistance if plan value below 60%

– Template issued by US Dept. Labor (05/13)

Questions for Employers

• Strategies: self-funded; defined contribution and private exchanges; HDHPs?

• Increase pay and send to Exchange?• Don’t increase pay and send to Exchange?• Advantages/disadvantages re dropping

coverage?

Should I Drop Insurance: Factors to Consider

• Cost• Type of employee: skilled, semi-skilled?• What my competitors are doing• Fines not deductible• Will dropping insurance have a gov’t

procurement impact – “Have you ever…”• Are there other options like self insured or

defined contribution/private exchanges?

Employer Questions cont.

• EPLI/EBLI re compliance issues?• Summary of Benefits & Coverages (Sept. 2012)

distribution documented?• Do I know what to do if there is an MLR rebate?• Will some PPACA requirements for 1/1/2014 allow

for plan year versus calendar year? (Transition Relief)• How will I know if I am non-compliant?

W2s• All employers over 250 W2s must report on their W2s the

aggregate cost of employer-sponsored health benefits

• If employee receives health insurance coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage, – Excludes all contributions to HSAs and Archer MSAs and

salary reduction contributions to FSAs – Applies to benefits provided during taxable years after

December 31, 2010

W2s

• Employers must factor in:- Major medical- On-site clinics (depends)- Medigap- Employer FSA contributions- Employee assistance & wellness (depends)- Employer premium contribution or EE cafeteria plan

contributions

Health & Wellness• HHS tasked with coordination among all Federal agencies with

respect to prevention, wellness, and health promotion practicesPublic Health. Beginning FY2010, administer the Prevention &

Public Health Fund to expand and sustain national investment in prevention and public health programs ($500 billion)

•  Wellness Programs– HHS to enforce employer wellness provisions for group

market and work with DOL and Treasury to implement a 10-state pilot program to apply wellness program provisions to the individual market

– Employer-sponsored wellness plans under HIPAA incentives up to 50% at HHS’ discretion

Taxes

There are numbers of new taxes and increases on existing:• Indoor tanning tax 10% 7/1/2010• $4.8 billion tax on brand name drugs starting 2011 on 2010 sales• Per enrollee tax dedicated to comparative effectiveness research

first plan year after 9/30/2012, ending after 9/30/2019: NOTE IRS Form 720 does not include a space for that

• Tax on medical devices 2.3% gross sales starting 1/1/2013• Tax on health insurance carriers starting at $8 billion in 2014

going up to $14.3 billion by 2018. This is in addition to state premium taxes.

Taxes 2013

• Individual EE Medicare tax increase 0.9% if earning $200K plus or $250K joint filers – does not affect employer contribution 1/1/2013

• Same income trigger: 3.8% Medicare tax on unearned income• Individual schedule A medical deduction increases to 10%

adjusted gross income 2013 (was 7.5% AGI)• Health insurer premium taxes after 12/1/2012 starting at $8

billion up to $14.2 billion in 2018, then indexed to amount of premium growth (not self-insured plans)

Taxes• FSA contributions for medical expenses are limited to $2,500

starting 1/1/2013• 2018 Cadillac Tax of 40% on employer sponsored health plans

with aggregate values exceeding $10,200 for individual coverage and $27,500 for family coverage

- Value includes FSA, H R A reimbursements and employer contribution to HSAs

- Stand alone dental and vision excluded as well as LTC, accident, disability, and specific disease coverage

• Reinsurance fee of $63 per enrollee to fund federally-facilitated exchanges and perhaps struggling state-based exchanges

Taxes

• Increases penalty for H S A use to 20% for non-approved medical expenditures such as OTC

• Health insurer executive compensation deductibility limited to $500,000 2013 (officers, employees, directors)

Non-Health Provisions• This law is filled with non-health provisions as well including

such things as environmental tax credits, changing the student loan program etc.

• Of greatest employer interest are Fair Labor Standards Act rules regarding nursing mothers at work effective March 23, 2010 for businesses. Businesses must provide:

- Reasonable break time for mothers to express milk- A private are safe from intrusion- This area may NOT be a bathroom- Already litigation

Medicare

• This law is filled with non-insurance provisions dealing with health care generally, workforce development in health care, Medicare changes designed to reduce Medicare Advantage program; This is where $701 billion cut in Medicare came in as political issue

• April 2013: HHS move to cut 2.2% from Medicare Advantage blunted

• Eliminate so-called Medicare ‘donut hole’, expand Medicaid program etc.

• Lots of Medicare coverage changes such as type of wheelchair that can be purchased vs. rented

• Resource for health, Medicare, Medicaid provisions are best found at Kaiser Family Foundation (www.kff.org)

• MLR applies to Medigap policies

Discussion and Questions

National Association of Health Underwriters

(NAHU)

www.nahu.org

Vince PhillipsPHILLIPS ASSOCIATES(717) 346-1063 Office

xenobun@aol.com vince@vphillipsassoc.com

vphillipsassoc.com