Health Care Reform Update & Review of Tax Implications

Transcription

1 Health Care Reform Update & Review of Tax Implications Bernard DiFiore President and Chief Executive Officer CompuPay, A BenefitMall Company Thursday, September 20 4:00 p.m. EDT

2 CompuPay is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website:

3 Housekeeping Course Level: Basic Prerequisites: None required Advanced Preparation: None required Instructional Delivery Method: Group Internet based CPE Credits: minutes. One (1) credit hour is available for this session. Questions Evaluation

4 Webinar Overview

5 Part I: PPACA Background and Supreme Court Ruling

6 PPACA Background The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010 Various portions of the law began being implemented in 2010 and will continue until Many key changes will occur in Federal and state governments are largely implementing these provisions Several federal agencies are assuming pivotal roles U.S. Department of Health and Human Services U.S. Department of Labor U.S. Department of Treasury U.S. Department of Homeland Security

7 PPACA Goals Covering the uninsured and underinsured population Improving the transparency and ease of purchasing health insurance Medical Loss Ratio (MLR) Creating national standards Summary of Benefits (SOB) Reducing medical and insurance costs/paying for Programs 32 million more Americans The Exchange System Increasing insurance accountability Essential Health Benefits (EHBs) Standardizing benefit packages Addressing financing issues

8 Individual Mandate The Individual Mandate is an integral part of PPACA to ensure full participation by all U.S. citizens, unless they are exempted. Effective January 1, 2014 Most employers also must participate, either through offering coverage or by paying a penalty Individuals who do not obtain health insurance will be assessed a tax they must pay along with their regular federal tax return The amount of the tax penalty for individuals in 2014 (reported in 2015), will be $95, or 1 percent of income, whichever is greater. The penalty would subsequently rise in 2016, reaching $695, or 2.5 percent of income, whichever is greater. For families: the health insurance non-compliance penalty is capped at $285 per family, or 1% of income, whichever is greater. By 2016, it will jump sharply to $2,085 per family, or 2.5% of income, whichever is greater. In theory, this will help spread the risk and make sure everyone is participating in the insurance system. Picture Credit: Texas Enterprise ; Univ of Texas at Austin

9 Exceptions to the Individual Mandate Applies to everyone except the following: Who already have minimum essential coverage through an employer-sponsored plan Who have individual qualified coverage Who are enrolled in a Medicaid, Medicare, Tricare, or similar program Who are permanently incarcerated Who are members of Indian tribes Who express religious objection Who are without coverage for less than three months Who would be contributing more than eight percent of their household income as a required contribution, Whom the Secretary of HHS determines that obtaining coverage would constitute an extreme hardship

10 Individual Mandate: What are the tax penalties for non-compliance?

11 First Polling Question According to the White House website, PPACA is aimed at: A)strengthening consumer rights and protections B) providing affordable coverage C) improving access to care D) strengthening Medicaid E) All the above Image Source: progressillinois.com

12 U.S. Supreme Court - PPACA Legal Issues

13 U.S. Supreme Court Ruling

14 Reactions to the Decision Prior to the Supreme Court s decision, less than half of the country was moving forward to implement the various provisions of PPACA Now that the Supreme Court has issued their ruling, 60% of states have made progress towards complying with PPACA The remaining 40% of states are still waiting for November 6 th to see what the election brings before they move forward What is clear is that the election will be the next big litmus test Additional litigation challenging PPACA will likely occur depending on the election outcomes

15 Second Polling Question What issue was not considered by the Court in the Affordable Care Act decision? A) Rule Against Perpetuities B) Medicare expansion provisions C) Constitutionality of the Individual Mandate D) Lack of severability clause

16 Part II: How will employers be impacted and what can employers do to prepare for the future?

17 Exchange Overview The Exchange concept will take individuals and small group employers into large risk pools that will give them better purchasing power and could result in lower premiums Exchanges will serve as the platform that will allow individuals to determine if they are eligible for government coverage or insurance premium subsidies Exchanges will also facilitate the ability of individuals to compare benefit plans that meet minimum coverage requirements on a standardized basis

18 Exchange Challenges Setting up the governance and operational infrastructure, including the IT platforms Promoting efficiency and flexibility while keeping costs for participants down (e.g., for small businesses and individuals) Avoiding adverse selection by pooling a mix of the healthy and the unhealthy Becoming financially self-sustaining Complying with PPACA standards for public accountability, transparency, and reporting Private Exchanges will exist and compete with them

19 Source: NAIC Qualified Health Plans A QHip is a qualified health plan is a health plan that: Is certified by each Exchange through which it is offered Provides the essential benefits package An issuer must offer plans that meet the following 4 standards: Licensed and in good standing in each state in which it is offered Agrees to offer at least one silver plan and one gold plan Agrees to charge the same premium whether the plan is sold through the Exchange or outside the Exchange Complies with other requirements of the Secretary of HHS and the Exchange

20 Essential Health Benefits

21 Sec Essential Health Benefits Requirements

22 EHB Challenges Embracing state flexibility especially for multi-state employers Customizing EHB standard packages for each state Keeping EHB levels affordable Addressing variability in mandated benefits at state level Understanding additional variations in benefit designs Defining Medical Necessity when interpreting applicability of EHBs How will EHBs be addressed in Federally-Facilitated Exchanges

23 Summary of Benefits and Coverage Effective September 23, 2012, insurers and group benefit plans must issue a Summary of Benefits and Coverage (SBC) SBC should detail in plain language, simple and consistent information about health plan benefits and coverage that will help consumers better understand the coverage they have. NAIC provided recommendations that were adopted by the federal government Should include coverage examples that illustrate benefits provided under the plan or coverage, detail out-of-pocket costs, provide examples of coverage for a simple delivery and a Type II diabetic care, and explain any coverage exclusions for common benefits Person requesting an SBC must be provided with the document within seven (7) business days Upon renewal, must be provided to both participants and beneficiaries as part of any written enrollment application materials Experts differ as to when updated SBCs need to be issued after September 23 or after new policy year

24 Medical Loss Ratio Tracking Medical Loss Ratio began January 2011 January 2011, insurers had to comply with MLR ratio rules Large Group (defined as 100 or more employees) 85% clinical services and qualified quality programs 15% administrative Small Group (defined as 2 to 100 employees)) and nongroup 80% clinical services and qualified quality programs 20% administrative Calculations are based by legal entity, state and line of business Current Rebate Process MLR reports filed to HHS June 1st each year If a health plan or insurer meets or exceeds the MLR, notices will be issued with the first plan document after July 1, 2012 If 80/85% percentage not achieved, notices and rebate checks must be distributed to employers by August 1 st the following year Three month requirement from August 1 to take action on the MLR rebate options Most rebate checks for 2011 have been issued

25 Employer MLR Distribution Rebate Options DOL Technical Release

26 Small Employer Tax Credits

27 Large Employer Tax Penalties

28 How is the Tax Penalty Triggered?

29 What are the tax penalties for large employers who do not offer coverage? The monthly penalty a large employer is obligated to pay for not offering any coverage is equal to $2,000 divided by 12, multiplied by the difference of the number of full-time employees employed during the applicable month minus the first 30 full-time employees. Only full-time employees (not full-time equivalents) are counted for purposes of determining the penalty. (Number of Full-Time Employees) 30 x (2,000/12) For example, a firm with 51 employees would be subject to: x (2,000/12) = total monthly penalty $3,500 per month

30 Which Employers will face these Penalties? Employers with at least 50 Employees will face penalties if one or more of their full-time employees obtains a premium credit through an Exchange. How does the law define 50 Employees? PPACA refers to full-time equivalents A subsequent rule expanded on this definition to include both full and part time workers Guidance issued by DOL expanded the definition to include employees of a controlled group of corporations, employees, partnerships, proprietorships, etc., that are under common control

31 How can an Employer determine if it is a Large Employer? Both full and part time employees are included in the calculation Full time employees: work 30 or more hours per week Seasonal employees who work for fewer than 120 days per year are not considered to be full time employees Part time employees: include hours worked by taking the total number of hours worked by individuals who work less than 30 hours per week and dividing the total by 120 If an employer has more than 50 employees for 120 days or less in the preceding year, the employer will NOT be considered a large employer

32 Employee Calculations: an Example A firm has 35 full time employees who work at least 30 hours a week. In addition, the firm has 10 part time employees who all work 24 hours per week (for a total of 96 hours per month) 10 employees x 96 hours = 960 total hours 960 hours / 120 = 8 The part time employees would be counted as 8 full time employees 35 full time employees + 8 = 43 Employees

33 Who can potentially obtain a premium credit? Individuals can obtain a premium assistance credit if: They are not eligible for Medicare, Medicaid, or other similar programs They are not offered employer-sponsored health benefit coverage Their family income is between 138% and 400% of the federal poverty level If an individual is offered employer sponsored health benefits, but these health benefits are unaffordable, that individual can obtain a premium assistance credit. Benefits are unaffordable if: The individual s required contribution toward the plan premium for self-only coverage exceeds 9.5% of their household income, OR The plan pays for less than 60%, on average, of covered health care expenses.

34 What are the tax penalties for large employers who offer coverage that is not affordable? A large employer who offers coverage that does not satisfy the minimum value threshold or minimum affordability threshold is assessed a monthly penalty of $3,000 divided by 12 times the number of employees that qualify for the tax credit. For example, a firm with 51 employees of whom 5 qualify for the tax credit would be subject to a penalty of: 5 x (3,000/12) = $1,250 per month

35 Employer W2 Reporting Requirements

36 Excise Tax on Cadillac Health Plans

37 Medicare Tax Increase PPACA includes a provision that will create a new tax for certain Americans. Specifically, section 1411 of PPACA imposes an additional tax of 3.8% if certain conditions are met as described below. Currently, individuals pay a Medicare tax of 2.9% of their wages. The new tax is in addition to the current Medicare taxes, and expands the definition of income subject to Medicare taxes. The tax also applies to trusts and estates. The tax applies to taxable years beginning after December 31, 2012 The tax will apply to single taxpayers with a modified adjusted gross income of $200,000 or higher and married taxpayers with a modified adjusted gross income of $250,000 or over. The tax also will apply to a married person filing separately whose modified gross adjusted income exceeds $125,000

38 Polling Question 3 What is the Medical Loss Ratio percentage for large group insurers? A) 85% B) 40% C) 65% D) 90%

39 Part III: Summary of Key Points

40 PPACA Impact: Challenges Health care spending is over 17% of the U.S. GDP CBO now estimates that PPACA will cost over $1.76 trillion States cannot afford to build, support and maintain many of PPACA s requirements MLR premium rebates are an administrative burden Young subsidize the old, and males subsidizes the females Premium increases due to increased benefits PPACA law is 2,700 pages and regulations are over 9,000 pages. Radical changes to current health plan offerings will likely create some disruptions to the market

41 Polling Question 4 What are the main challenges when implementing PPACA going forward? A) Coordinating state and federal oversight of the future insurance offerings B) Funding the new exchange system to offer qualified health plans C) Interpreting the thousand of pages of federal regulations D) Understanding the full array of employer responsibilities E) All of the above

42 Questions & Answers For additional health care Reform updates, please monitor: careexchange.com