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The Impact of National Health Reform and How it May Affect Your Business
Thursday, April 8, 201010:00 am – 11:00 am
Today’s Speakers
Joe DiBella
Conner Strong Companies Inc.
Executive Vice President of the Health & Welfare Practice
Phyllis Saraceni, Esq.
Conner Strong Companies Inc.
Senior Vice President and Compliance & Audit Practice Leader
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Agenda
A Visual Time Line
National Health Insurance Reform - Overview
Immediate and Short Term Changes
Beyond the Immediate and Short Term Changes
Key Next Steps for Employers
Help from Conner Strong and Resources
Q&A
An Important Visual Time Line
Things were off to good start…
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…and while some began to get
concerned…
…the details were still being
hammered out…
…but concern over government
intervention began to set in….
...and with a difficult economy, some
began to get concerned with possible cost…
...and so in the summer recess, town hall
meetings were held to get the pulse of the public…
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...and after that, the public option seemed
to be off the table…
…plus, concern with the legislative process
caught the nation’s attention…
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…but there was still hope for a
bill for the holidays…
...but the special election in MA
presented new hurdles…
…and political reality set in…
…so the major players
decided to re-group …
…and then it passed…
…and the beat goes on…
National Health Insurance Reform - Overview
Important Opening Comments
1) Our focus has and continues to be how the new law will impact employers and
plan sponsors
- Focus for today is major overview of what you need to know and immediate
changes
2) Many of the major aspects of the law do not take effect for 4 years from now
3) There remain several challenges to certain areas of the law that will continue to
unfold
4) There remain many questions and open issues that shall be addressed in the
coming weeks and months
5) Conner Strong is committed to providing factual information to help our clients
make informed decisions and ensure their plans comply with the law
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Historic Changes
New law to be added to the Public Health Service Act and incorporated by
reference into ERISA and the Internal Revenue Code
- Affects how every American will access, receive, and pay for care
- Drastically changes the way providers and insurance companies conduct
business
- The health reform law will have the most significant impact on employer‘s role
in health benefits since the enactment of ERISA over 30 years ago
- Many considerations for employers with respect to offering group health
plans
- Employers will be required to take immediate action to examine the changes
and how they impact their plans and their organizations
- No employer mandate but intended to maintain employer based system
Employer considerations will be our main focus today
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The New Laws
The two monumental laws will dramatically overhaul the nation‘s health care system
and impact both employer provided self-insured and fully-insured group health plans:
- Senate Bill: Patient Protection and Affordable Care Act (PPACA)
- Reconciliation Bill: Health Care and Education Affordability Reconciliation Act
of 2010
House passes Senate bill and package of amendments: 3/21/2010
Senate passes amendments from the House: 3/25/2010
House re-passes bill to address procedural changes: 3/25/2010
President signs bill into law: 3/30/2010
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General Overview
Major aspects will not take effect until 2014
Until then:
- some reforms take effect immediately or within a short period of time
- other reforms are effective for plan years that begin six months after the
enactment date (January 1, 2011 for calendar year plans and as soon as this
year for plans that have a plan year beginning October 1 or later this year)
There is no "public option" or government run health plan
Special rule for "grandfathered health plans", including coverage offered under a
collective-bargaining agreement
Health insurance exchanges to be established by 2014 that will offer deeply
subsidized government funding to help individuals pay for premiums
Universal coverage aspects begin in 2014 - individuals will be required to purchase
health insurance coverage or pay an income tax penalty (enrollment in an employer
group health plan will satisfy this individual mandate)
Immediate and Short Term Changes
Immediate Changes
The package contains several provisions that take effect immediately:
- Small-Business Tax Credit - up to 35% of the employer's contribution to
purchase health insurance established for "qualified small employers" defined
as an employer that has no more than 25 full-time equivalent employees for
the taxable year—and the average annual wages of those employees do not
exceed $40,000 (will increase to 50% in 2014 once exchanges are
established)
- Medicare Part D - provides a $250 rebate check for all Part D enrollees who
enter the "donut hole― coverage gap (between $2,830 and $6,440 in total
drug spending by Part D enrollees)
- Adoption Tax Credit - increases the adoption tax credit and adoption
assistance exclusion to $13,170), makes it refundable, and extends the credit
through 2011.
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Immediate Changes
Early Retiree Medical Reinsurance Program - establishes a temporary $5
million dollar early retiree reinsurance program for employer plans to begin by
June 21, 2010 and runs through December 31, 2013, or until the funds are
exhausted, reimbursing participating employment-based plans for a portion of the
cost of providing health insurance coverage to early retirees (aged 55 through 64)
Immediate Recognition of the Changed Tax Treatment on Financial
Statements for Retiree Drug Subsidy Taxation
- in 2014 the new law eliminates the tax deduction for the subsidy that some
employers receive for continuing their retiree prescription drug program
- accounting rules may require an immediate recognition of the changed tax
treatment on an employer‘s financial statements
- possible employer responses include terminating retiree drug programs
(elimination of the ―donut hole‖ from the Medicare Part D program, will make
Part D programs more attractive)
Tanning Service Tax – Effective July 1, 2010, a 10% tax on indoor tanning
services that use ultraviolet lamps
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Key Short Term Changes
Four main changes effective for plan years that begin following six months after
enactment (i.e., September 23, 2010 or later):
1. Adult child coverage
2. Lifetime/annual maximums
3. Preexisting conditions
4. Plan rescissions
For calendar-year plans, compliance is required on January 1, 2011 – plan years that
begin in the fourth quarter of 2010 will face effective dates earlier than January 2011.
―Retiree-only‖ plans that meet certain conditions under ERISA and the Internal
Revenue Code may be excused from compliance with these four group health plan
mandates
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Adult Child Coverage
1. Adult Child Coverage
- Must offer coverage to adult children up to age 26
- Any health plan providing dependent coverage must continue to make that
coverage available until the child turns 26 years of age, if the child does not
have access to other health coverage
- Starting with plan years beginning six months after the date of enactment
- No marriage restriction
- Coverage for adult children is tax-free.
- Note that a few states mandate coverage until later ages (some up to age 31
like in NJ)
- Could raise costs for companies and could potentially result in higher
premiums for employees overall
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Elimination of Maximums
2. Prohibition on Annual and Lifetime Maximums
- No lifetime dollar limits
> Eliminates all lifetime caps/maximums on essential benefits (ok for
nonessential)
> Many plans have lifetime maximum limits on insurance of $1M or $2M
that must be eliminated
> Effective for plan years beginning six months after enactment
- Annual maximum limits
> Effective for plan years beginning six months after enactment
> No annual limits on essential benefits
> Cannot impose any annual limits for plan years beginning after
December 31, 2013
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Preexisting Conditions
3. Prohibition on Preexisting Limits:
- Plans must remove preexisting condition exclusions on children under age
19
> applies to plan years beginning six months after enactment
> Will apply as of January 1, 2010 for most plans
- Plans must remove all preexisting condition exclusions for participants of all
ages beginning on or after January 1, 2014
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No More Plan Rescissions
4. Prohibition on Coverage Rescission
- Health plans are prohibited from rescinding/terminating health coverage once
an individual is covered under the plan
- Exception for certain limited reasons (e.g., fraud or misrepresentation)
- Remains to be seen how this will impact individuals who are mistakenly
enrolled in a plan
- Effective for plan years beginning six months after enactment
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Grandfathered Plans
- Special rule for "grandfathered health plans―
- Several provisions are effective for plan years beginning six months after
enactment
- But some provisions will not apply to ―grandfathered plans‖ in which an individual
was enrolled on March 23, 2010 (date of enactment)
- Grandfather rules apparently apply forever to individuals who were enrolled as of
March 23, 2010 and also allow family members and new employees to
subsequently join a plan without ending the protection
- Grandfather rules end on the date the last related collective bargaining
agreement expires for collectively bargained agreements ratified prior to the
March 23, 2010
- Future guidance expected, but in the interim, employers should be careful about
changing existing health plans and possibly losing this ―grandfather‖ treatment.
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Grandfathered Plans
Grandfathered health plans need not comply with the following requirements
(which would otherwise be effective for plan years beginning six months after
enactment):
- Nondiscrimination rules for fully insured plans
- Preventive care coverage requirements
- Appeals and reviews process
- Provider selection
- Plan disclosures
- Wellness reporting
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Other Immediate Changes
- No reimbursement for over-the-counter drugs - applicable for amounts
paid or expenses incurred for tax years beginning after December 31, 2010.
- Higher penalty for misusing Health Savings Accounts - tax penalty on
nonmedical withdrawals will double to 20% for distributions made after
December 31, 2010.
- CLASS Act - a new national employee-funded long-term care benefit known
as the ―Community Living Assistance Services and Supports Act‖ (the
CLASS Act), under which involvement is voluntary, but employers are
encouraged to adopt automatic enrollment rules that default employees into
the CLASS Act, starting January 1, 2011.
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Beyond the Immediate and Short Term Changes
What to Expect Through 2013
Report Health Coverage on W-2 Forms - applies to tax years beginning after
December 31, 2010. Employers must begin Form W-2 disclosure of the total
value of each employee‘s employer-subsidized health coverage, except health
FSA and HSA, i.e., on the Form W-2 issued in January 2012 for the preceding
year.
New plan summary - In 2012, plan administrators must begin distributing new
summary of health plan coverage to all applicants/enrollees at initial enrollment
and annually in addition to the summary plan description (SPD)
Quality of care - Effective in 2012, plans must begin disclosing to HHS and
enrollees plan benefits that improve health, case management, disease
management and wellness; HHS to develop annual reporting standards.
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What to Expect Through 2013
Cap on Flexible Spending Account contributions - For tax years beginning after
December 31, 2012, the new law will limit employee salary deferral contributions to
health FSAs to $2,500 a year.
Medicare payroll tax - Medicare Hospital Insurance (HI) tax rate rises from 1.45% to
2.35% on employees‘ earned income above $200,000 (single return) or $250,000
(joint return); affects only employee-paid portion of payroll tax (no employer match
payment required on 0.9% increment).
Personal medical deduction - The threshold for claiming medical expenses on
itemized tax returns is raised to 10% from 7.5% of income. The threshold remains at
7.5% for the elderly through 2016.
·
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Pay or Play – 2014 and Beyond
State health insurance exchanges for small businesses and individuals open
(initially to individuals and small employers with 100 or fewer employees, unless
the state opts to limit this to organizations with 50 or fewer employees). Beginning
in 2017, states would have the option to expand the exchange to larger
employers.
Most people will be required to obtain health insurance coverage or pay a fine if
they don't - increasing tax penalties for noncompliance equal to greater of flat
dollar amount (e.g., $95 in 2014) or percent of income (e.g., 1.0% in 2014).
Employer government reporting begins on employee health coverage to enforce
individual and pay-or-play mandates.
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Pay or Play – 2014 and Beyond
In 2014, some businesses will be required to ―play or pay‖ – either provide a
certain level of health coverage to each employee or pay a penalty fee if any full-
time employee receives the federal premium assistance tax credit
Larger employers that don't offer coverage or offer substandard coverage will face
penalties if their workers get subsidized coverage through the exchange.
Employers with 50 or more full-time equivalent employees that don‘t offer
coverage in 2014 will have to pay an assessment ($2,000 for each full-time
employee) to help offset the cost of health insurance if their employees are
receiving help from the federal government to purchase insurance.
Employers that offer substandard or unaffordable plans may also face penalties if
their employees are receiving federal subsidies (as much as $3,000 for each full-
time worker who gets a tax credit for coverage through the exchange).
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Pay or Play – 2014 and Beyond
―Substandard" coverage - a policy that doesn't cover at least 60% of an
employee's total medical costs or whose premiums cost more than 9.5% of the
worker's income.
Average employer-sponsored plan covers more than 60% of costs.
Mini-medical benefit plans probably won‘t meet the requirement. Employees could
drop existing "mini-med" plans (grandfathered under the law), and seek coverage
through the exchange, triggering a penalty for the employer.
Employers may still impose a waiting period for coverage without being subject to
a penalty, but this waiting period may not exceed 90 calendar days.
Certain employers must provide qualified low and moderate income employees
with ―free choice vouchers‖ to be used to purchase qualified health care plans on
an exchange. Qualified employees are those not eligible for government premium
subsidies if employee plan contributions are too costly relative to total household
income. No pay-or-pay penalty applies to employers for those who receive a
voucher.
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Pay or Play – 2014 and Beyond
High-cost plan excise tax in 2018
- Nondeductible excise tax of 40% imposed on plan administrators (including
self-insured plans) for certain high cost plans
- Applies to plans where the combined annual employer/employee premiums
exceed the threshold of $10,200 for self-only coverage and $27,500 for family
coverage.
- Tax applies to the amount of the premium in excess of the threshold so the
first $27,500 of a family plan and $10,200 for individual coverage is exempt
from the tax.
- Additional threshold amount of $1,650 for singles and $3,450 for families is
available for retired individuals over the age of 55 and for plans that cover
employees engaged in high-risk professions (e.g., law-enforcement
professionals, EMTs, construction and mining).
- Dental and vision coverage is excluded when calculating this excise tax, but
other health coverage is aggregated including PPO, HMO, HDHP, HSA, FSA,
HRA, etc.
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Key Next Steps for Employers
Key Next Steps for Employers
Take immediate action to examine the changes and how they impact your
particular group health plan.
Determine your plan year – immediate changes to plans will take effect for plan
years that begin following six months after enactment.
Consider whether your plans are grandfathered and which provisions will not
apply to those grandfathered plans.
Begin to address the number of reforms that are effective for plan years that
begin six months after the enactment date. This generally means January 1, 2011
for calendar year plans and as soon as this year for plans that have a plan year
beginning October 1 or later this year.
May want to wait and see before making any immediate tweaks to plans, other
than incorporating a few of the federally mandated changes by open enrollment
time late in 2010.
Prepare for the Form W-2 disclosure of the total value of each employee‘s
employer-subsidized health coverage (due in 2012 for the 2011 year).
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Key Next Steps for Employers
Make changes to plan design and communication and plan materials as needed
prior to next open enrollment to address: adult child coverage, lifetime/annual
maximums, preexisting condition exclusions, the prohibition on rescissions, the
restriction on reimbursement for over-the-counter drugs, and the higher penalty
for misusing health savings accounts.
Address employee and stakeholder communications as issues are addressed.
To tackle the challenge of health care reform, consider forming cross-functional
teams and mapping how the reform process will affect your organization.
Keep an eye on emerging regulatory interpretations and longer-term strategic
changes.
Stay informed on major aspects of health care reform that will take effect in 2014.
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Help from Conner Strong and Resources
Help from Conner Strong
Conner Strong will assist clients with mapping out what they need to do to amend
their plans and implement the immediate changes
- Most carriers and TPAs will cooperate and assist in making plan changes
Employers will need to:
- Inventory changes to be made
- Communicate changes to employees
- Ensure insurers and administrators have installed changes
- Begin planning for bigger ticket changes beyond 2011
Upcoming updates and material for clients
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Other Resources from Conner Strong
Additional Webinars
- Web-based presentations on health care legislation, regulations and innovative
ideas
Email Alerts and Updates
- High level, quickly produced articles about emerging issues intended to alert
clients to legislative and regulatory developments
- Historic library available on line
Perspectives
- Thought pieces intended to identify trends and issues, helping clients anticipate
challenges
Conner Strong Health Reform Page on Website
- Special section providing information and tools you can use to review the major
aspects of the law, what they mean, when they will take effect and what steps
need to be taken to ensure compliance
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Resources
http://www.connerstrong.com/healthcare_reform
- Daily news updates
- On Line library of client updates and alerts
- Summary of Major Provisions of the new law
- Detailed Year by Year Timeline of changes
- Outline of all aspects of the new law
Patient Protection and Affordable Care Act: http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3590enr.txt.pdf
Reconciliation Bill: http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4872eh.txt.pdf
White House Web site for employers and individuals with information about the new
reform law: http://healthreform.gov/
Call Conner Strong at 877- 861–3220
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Q & A
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Appendix:Year by Year
2010 (within 6 months)
- Closes the Medicare D pharmacy donut hole
- Gives businesses with no more than 25 employees and wages of $40,000 tax credits; 35% of employer
contributions if employer pays 50% of premium
- Extended dependent coverage
- Prohibits rescinding coverage for health reasons
- Eliminates annual and lifetime maximums
- Prohibits pre-existing condition exclusions for plan members 19 and less
- Creates $5 billion temporary high risk insurance pool to cover people with pre-existing conditions without
insurance for 6 months
- Requires insurers to cover preventive screenings like immunizations for kids and cancer screening for
women
2011
- Begin assessing fees on pharmacy companies worth an estimated $30 billion over 10 years
- Requires insurers to provide rebates to customers if the insurer spends less than 85% of the premium
dollars they collect on claims
- Over the counter medications are no longer eligible under FSA, HSA or HRA plans
55
Year by Year
2012 – 2013
- Medicare D tax employer tax exemption is eliminated
- Begin assessing fees on durable medical equipment manufacturers worth an estimated $20 billion over 10
years
- Increases the Medicare payroll tax by an additional 0.9% on workers making more than $200,000 and
couples earning more than $250,000. Unearned income – now exempt from payroll taxes – shall be subject
to new 3.8% tax
- New limit of $2,500 on flexible spending account contributions
2014
- Mandates that all Americans have health insurance or pay annual penalty of $95 or 1% of income,
whichever is greater
- Imposes penalty on employers who do not offer health benefits. Penalty is $2,000 per FT worker. Pertains to
employers that have 50 workers or more. The first 30 employees are exempt from the penalty
- Total pre-existing condition ban in place, regardless of age
- Start of new ―state health insurance exchanges‖ take effect. Individuals with no coverage from their
employers will be able to shop for plans on the exchange. Individuals with incomes below $43,320 and
families with income below $88,000 will qualify for tax credits/federal subsidies
- Federal government will pay all costs for covering newly eligible Medicaid beneficiaries (2014 to 2016)
- Requires plans to offer ―essential benefits‖ for individuals and small groups
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Year by Year
2014, continued
- Begin assessing fees on health insurers worth an estimated $70 billion over 10 years
- Wellness incentives may be increased from 20% to 30%
- Plan ‗out of pocket‘ maximums must be indexed to HSA Plans and annual deductibles may be no more than
$2,000/$4,000 (as indexed)
- Plans may not impose a waiting period of more than 90 days
- There will be a new excise tax on employers that impose any waiting periods
- New automatic enrollment requirements take effect; employers with 200 or more FT employees must
automatically enroll new employees in their health plan
2015 - 2016
- Raises the penalty for not having insurance to $325 or 2% of income, whichever is greater in 2015 and to
$695 or 2.5% of income, whichever is greater in 2016
2017 – 2018
- Imposition of a new 40% excise or ―cadillac tax‖ on expensive health plans; $27,000 for a family plan and
$10,200 for an individual
- States may begin to allow employers of any size to offer coverage through the exchanges
