Oklahoma Legislative Updates

Transcription

1 A.D.Banker&Company Oklahoma Legislative Updates A.D.Banker&Company

2 Leesa

3 TABLE OF CONTENTS Oklahoma Legislative Updates Introduction... 1 CHAPTER 1 Oklahoma Changes... 3 Administrative Rules... 3 Oklahoma Statutes... 5 Chapter 1 Review Questions... 6 CHAPTER 2 Flood Insurance... 7 Introduction... 7 Flood Insurance Terms... 8 Homeowner Flood Insurance Affordability Act of 2014 (HFIAA)... 8 Senate Bill 487 Surplus Lines and Flood Insurance Chapter 2 Review Questions CHAPTER 3 Patient Protection and Affordable Care Act (ACA) Introduction Major Provisions and Terms of the ACA Oklahoma Legislative Changes, per the ACA Chapter 3 Review Questions Review Questions Answer Key A.D.Banker&Company i

4 Copyright 2016 A.D. Banker & Company, L.L.C. All rights reserved. No part of the material protected by this copyright notice may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission from the copyright owner. Disclaimer: This course, seminar, or publication provides general information regarding the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. The publisher hereby expressly excludes all warranties. The information in this text is current as of the date of publication 0116 ii

5 Introduction Insurance company operations are foreign to most consumers, as are the functions of underwriting, rating, and claim processing. Because they do not understand the technical aspects of the insurance industry and its products, consumers rely on their agents and insurers to provide them with the information and education they need to protect themselves. Insurance regulation creates a framework within which insurance companies and agents are able to transact insurance in a meaningful way one that does not harm consumers. Insurance laws also establish guidelines that oversee competition within the industry, ensuring that all activities involving insurance sales, marketing, advertising, and claim settlement are fair to consumers, policyholders, and all companies transacting the business of insurance in this state. The state of the economy, society, and Mother Nature are always evolving and they present Oklahomans with many challenges. Legislation at the state and federal levels must also evolve to keep pace with the ordeals we Oklahomans face. This course reviews some of the changes in state and federal insurance laws, rules, and statutes that occurred during calendar years 2015 and

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7 1 Oklahoma Changes Administrative Rules Life, Accident, and Health Life Insurance Advertising 1 Oklahoma Insurance Code contains rules about life insurance advertising and certain terms are defined. Specifically, the term advertisement is defined. This legislative changed added social media in the definition of advertisement: (A) Advertisement shall include: (i) printed and published material, audiovisual material, and descriptive literature of an insurer or insurance producer used in direct mail, newspapers, magazines, radio and television scripts, social media, billboards, and similar displays; It is important for all producers to understand that if they post comments of a business nature to their social media accounts, those comments will be considered advertisements. The homeowners, CGL, and professional liability policies contain specific language both granting coverage and exclusionary concerning advertising injury. Producers should be sure their personal and business insurance policies are endorsed to address the potential for liability claims arising from the use of social media. Property and Casualty Insurance Insurer Rate and Form Filings 2 Changes in language to these two rules were made to eliminate the word paper because the Oklahoma Insurance Department intends for all filings to be submitted electronically in the future. This change only affects property and casualty insurance and not life, accident, and health insurance. Continuing Education, Earthquake Category 3 In August 2014, the Oklahoma Insurance Department enacted an emergency rule change to the Oklahoma Administrative Code with respect to insurance continuing education for licensed agents, adjusters, and customer service representatives. This emergency rule change requires resident licensees with a property line of authority to complete one hour of approved continuing education under the new Earthquake course category in each license renewal cycle. This one-hour requirement is included in the 24 hours for agents and adjusters and the 13 hours for customer service representatives. The emergency rule change was effective January 1, OAC 365: ; effective September 15, OAC 365: and ; effective September 15, OAC 365: and ; effective September 15,

8 CHAPTER ONE Life, Accident, and Health Insurance Pharmacy Benefits Manager Licensing 4 Until recently, pharmacy benefits managers (PBMs) were not regulated by the states in the same fashion pharmacies were regulated. New sections of insurance code (O.S. 357 to 360) were enacted in 2014, emergency administrative rules were enacted in 2014, and final administrative rules were enacted in 2015 to regulate PBMs in Oklahoma. A pharmacy benefits manager (PBM) is a third-party administrator (TPA) of a prescription drug program. Its primary responsibility is to develop and maintain the program s drug formulary, contract with pharmacies, negotiate discounts and rebates with drug manufacturing companies, and process and pay prescription drug insurance claims. Most PBMs work directly with selfinsured entities and government programs that have a goal of keeping the costs of their drug benefits under control. Examples of major PBMs in the United States are Express Scripts, CVS/ Caremark, and SXC Health Solutions. Over time, PBMs have become more popular than retail pharmacies as the chosen method for patients to receive delivery of their prescription drugs. The Oklahoma House of Representatives has reported that research shows patients follow their doctors orders more closely with respect to prescription drug use when they obtain those prescriptions from local pharmacies than they do when they receive them through the mail especially relating to conditions such as hypertension, diabetes, and asthma. 5 Before a PBM may be licensed in Oklahoma, it is required to obtain a surety bond; that bond must be maintained until it expires or is otherwise cancelled. The minimum required bond limits are $1,000,000 per occurrence and $5,000,000 annual aggregate; coverage must be provided to secure the performance of the administrator in accordance with the PBM laws, rules, and regulations of Oklahoma. The bond must contain a provision that prohibits any party from canceling it without at least 30 days advance written notice to the bond s principal (i.e., insured) and the Commissioner. PMB license applications must include: The identity of the PBM and any controlling entity The name and address of all corporate officers, directors, members, managers, and partners Payment of a $1,000 license fee Submission of a Certificate of Incorporation or comparable organizational document issued by the PBM s state of domicile If the PBM is domiciled outside Oklahoma, a certificate that it is in good standing in its state of domicile A report that includes the details of any suspensions, sanctions, penalties, or other disciplinary actions taken against the PBM and/or its officers and directors The name and address of the agent of record for service of process in Oklahoma The number of all individuals served under all of the PBM s service contracts and agreements in the state of Oklahoma Financial statements for the PBM and its controlling entity for the most recently concluded fiscal year; these statements must have been audited by an independent certified public accountant under generally accepted accounting principles (GAAP) in the U.S. A certificate signed by an executive officer of the PBM attesting to the accuracy of all information contained in the license filing The term of a PBM license is one year and the renewal fee is $500. If a PBM fails to reinstate the license when due, it may reinstate the license for up to one year from the expiration date of the 4 New Rule, Subchapter 29, OAC 365: to 11; effective September 15, A.D.Banker&Company

9 license; the reinstatement fee is $1,000. Licensure is contingent upon specific requirements for the contracts between PBMs and providers related to Maximum Allowable Cost (MAC) lists and MAC appeals. The new law defines the term, doing pharmacy benefits management business in this state as any one of the following acts in Oklahoma: As a PBM, making or proposing to enter into a contract with a covered entity for the provision of PBM services to residents of Oklahoma who are covered individuals Providing PBM services directly to covered individuals who are residents of Oklahoma Acting as an agent for or on behalf of a PBM, directly or indirectly, to: Solicit, negotiate, procure, or effect PBM contracts Transact matters related to a PBM contract after issuance Represent or assist any party to a transaction of the business of PBM services Violation of Oklahoma statutes or rules subjects the PBM to a license revocation or suspension and/or a fine of between $500 and $5,000 for each violation. Oklahoma Statutes Proton Therapy 6 This new law stipulates that health plans providing for cancer therapy are prohibited from holding proton radiation therapy to a higher standard of clinical evidence for coverage decisions than it requires for any other type of radiation therapy treatment. Texting While Driving 7 This new law outlaws texting while driving, which includes composing, sending, or reading text messages on a hand-held electronic communication device while driving a motor vehicle on any street or highway in Oklahoma. If convicted of a violation, which is considered a primary violation, a fine up to $100 may be imposed per violation, It should be noted that such conviction will not appear on the driver s motor vehicle traffic record maintained by the Department. An exception exists for the use of a cellular telephone or other electronic communication device for the sole purpose of communication with the following relating to an imminent emergency situation: Emergency response operator Hospital, doctor s office, or health clinic Provider of ambulance or fire-fighting services Law enforcement agency OKLAHOMA CHANGES The law defines compose, send, or read to mean the manual entry, sending, or retrieval of a text message to communicate with any person or device. The term text message includes text-based messages, instant messages, electronic messages, photos, videos, and . Title Insurance 8 If the holder of a mortgage (mortgagee) does not provide the mortgage company with a signed mortgage release within 60 days after the last payment is made on the mortgage, a title insurance company may execute and record an affidavit with the county stating the mortgage has been paid off. The affidavit must contain specific information and any person who knowingly files an affidavit that contains false information is subject to the greater of any applicable criminal penalties, any penalties for filing a false affidavit, or actual damage of $5, House Bill 1515; 36 O.S b; effective November 1, House Bill 1965; 47 O.S d; effective November 1, Senate Bill 443; 36 O.S. 5008; effective November 1, 2015 A.D.Banker&Company 5

10 CHAPTER ONE QUESTIONS 1. Under a new OK administrative rule, if a producer posts comments of a business nature to his social media accounts, those posts will be considered which of the following? a. An advertisement b. Prohibited c. A violation of insurance code d. Slander 2. Under new OK legislation, producers, adjusters, and customer service representatives with a property line of authority are required to complete how many hours of CE on the topic of earthquake during every license renewal period? a. One b. Two c. Three d. Four 3. Which of the following is a third-party administrator of a prescription drug program? a. Pharmacist b. Benefits Manager c. Pharmacy Benefits Manager d. Pharmacy 6 A.D.Banker&Company

11 2 Flood Insurance Introduction The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) was enacted on March 21, 2014 to modify the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). Congress enacted BW-12 to reform the National Flood Insurance Program (NFIP) and extend it for five years. BW-12 also made sweeping changes to the NFIP, including changes that affect flood insurance, flood hazard mapping, federal grants, and floodplain management. The primary purpose of BW-12 was twofold: Stabilize the NFIP s financial position Make certain flood insurance rates reflect the true risk of flooding Prior to enactment of BW-12, approximately 20% of all NFIP flood insurance policies had been issued with subsidized rates. A policy with subsidized rates charges a premium that does not reflect the full actuarial rate for the true flood risk posed by the insured property; in essence, it charges discounted premium rates. The majority of the NFIP s subsidized policies were issued on connection with the NFIP s grandfathering rule, which allows certain policies to receive a discount if the property they insured was remapped into a higher flood zone after being insured. The provisions of BW-12 were to be phased in over several years beginning in However, due to public outcry about how BW-12 eliminated premium subsidies (i.e., discounts), the HFIAA was signed into law to repeal and modify certain provisions of BW-12. In addition, the HFIAA made changes to the NFIP that were not addressed by BW-12. Some of the major provisions of BW-12 that were affected by the HFIAA include: Elimination of subsidies for newly purchased property, lapsed policies, and property being insured by flood insurance for the first time Phasing out of subsidies for businesses, severe repetitive loss properties, and property that sustained flood damage where claim payments exceeded the fair market value of the property The Reserve Fund assessment Property located in Special Flood Hazard Areas (SFHAs), or high risk flood zones, that are not elevated and were constructed before the community s first Flood Insurance Rate Map (FIRM) was adopted; these properties are referred to as pre-firm 1 Homeowner Flood Insurance Affordability Act of 2014 (Public Law ); Biggert-Waters Flood Insurance Reform Act of 2012 (Public Law ); and 36 O.S. 1102, , and pdf 9 7

12 CHAPTER TWO Flood Insurance Terms An Elevation Certificate verifies the elevation data of a specific building with respect to the ground level. An elevated building is a building that has no basement and has its lowest elevated floor raised above the ground level by foundation walls, shear walls, posts, piers, pilings, or columns. Grandfathering is a process that grants a rate subsidy to certain property based on conditions that existed before the adoption of a flood insurance rate map for pre-firm property, or at the start of construction for post-firm property. A pre-firm building was built or substantially improved on or before 12/31/74 or before the effective date of the community s first flood insurance rate map (FIRM). A post-firm building was built or substantially improved on or after 12/31/74 or after the effective date of the community s first flood insurance rate map (FIRM). A severe repetitive loss property is a residential property covered by an NFIP policy under which: At least four NFIP claim payments were made, each claim payment was more than $5,000, and the total of all four payments exceeded $20,000 (this applies to payments for building and contents) The total amount of at least two of its claim payments for the building (not the contents) exceeded the market value of the building At least two of the four claim payments occurred within any 10-year period and were issued at least 10 days apart Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) As FEMA implements the HFIAA, it encourages all NFIP policyholders to keep their policies in force because cancelling them will not only leave them uninsured in the event of flooding, it may also cause them to lose important discounts if they choose to reinstate their policies in the future. The HFIAA accomplishes the following tasks: Lowers recent rate increases on some policies Prevents some future rate increases Implements a surcharge on all NFIP flood insurance policies Repeals certain rate increases that have already gone into effect and calls for refunds of excess premiums charged for the increases that were repealed Authorizes additional resources so the National Academy of Sciences (NAS) is able to complete an affordability study The follow particulars of the HFIAA will be discussed: BW-12 s major provisions affected by the HFIAA HFIAA refunds HFIAA premium rates for subsidized NFIP policies New surcharge on all NFIP policies HFIAA grandfathering rules Flood insurance advocate Miscellaneous provisions of the HFIAA Flood mapping April 2015 changes to premiums Changes to the Oklahoma Statutes with respect to flood insurance 8 A.D.Banker&Company

13 FLOOD INSURANCE Major Provisions of BW-12 Affected by the HFIAA The NFIP was established in 1968 because most standard property insurance policies excluded the peril of flood and, when property owners sustained flood damage, federal disaster assistance was the only means available to help them recover from financial devastation. As could be expected, the lack of any other formal mechanism to help offset the increasing financial consequences of flooding created a burden on the NFIP, which has suffered tremendous fiscal challenges in recent years. BW-12 was enacted to address these fiscal challenges, and specifically, to: Modify the process of allowing rate subsidies (premium discounts) Assess a Reserve Fund charge Adjust premium rates to reflect a property s true risk of flooding, called the full-risk rate Modify coverages Modify claims handling processes; and Conduct studies pertaining to affordability, privatization, and reinsurance BW-12 had little effect on flood insurance policies insuring property that is NOT located in a high-risk flood zone (a Special Flood Hazard Area, or SFHA) especially if the property is elevated and was constructed after a community adopted its first flood insurance rate map (FIRM). In other words, BW- 12 had little or no effect on post-firm property located in flood zones other than A or V. The policies most affected by BW-12 were those insuring property in SFHAs if they were built before the community s first flood insurance rate map (FIRM) was adopted and they are not elevated. The reason these policies were most affected is that many of them received subsidized rates. BW-12 eliminated all rate subsidies for property that is not a primary residence. This means subsidies were eliminated for all flood policies issued to businesses and for residential property other than a primary residence. In addition, BW-12 eliminated subsidies for one- to four-family residences (including primary residences) that experienced severe repetitive losses and any building that sustained flood damage where the claim payments exceeded the fair market value of the property. If a policy s subsidies were eliminated, BW-12 called for its premiums to increase by 25% per year until the full-risk rate is achieved. Example Anna s home was built in 1960 before the NFIP was established and flood insurance rate maps (FIRMS) were created. She purchased her first flood insurance policy in 1970 and received subsidized rates because she met eligibility requirements at that time. Anna has continuously renewed her flood insurance policy without lapse since she purchased it. If Anna s dwelling is her primary residence (and a 1- to 4-family dwelling), Biggert-Waters DID NOT eliminate her subsidized rates. However, if Anna s dwelling is any of the following types of dwelling, Biggert-Waters DID eliminate her subsidized rates and her premiums would have increased by 25% per year until the entire subsidy was done away with: (a) secondary or seasonal residential dwelling, (b) dwelling rented to others or a commercial building, (c) ANY dwelling that is a severe repetitive loss property. BW-12 began using the term full-risk rate and defined it to mean the policy s premium reflects the full range of potential flood losses, including rare and catastrophic floods. The full-risk rate takes into account the expected average claims payment by the NFIP as well as all administrative expenses. The most accurate method of determining a property s full-risk rate is to obtain an Elevation Certificate, which shows how high the building s elevation is above the base flood elevation (BFE) shown on the flood insurance rate map (FIRM). A.D.Banker&Company 9

14 CHAPTER TWO BW-12 also eliminated subsidies on policies that were reinstated after lapse and on policies that insured property that was later sold to another person and the policy was assigned to the new owner. BW-12 called for all lapsed policies to be reinstated at the full-risk rate and for all policies transferred to the new owner to be rated with full-risk rates effective the date of the sale of the property. HFIAA Refunds The HFIAA revoked certain rate increases required by BW-12 and mandated that refunds be issued for the excess premiums charged to policyholders after BW-12 was implemented. A very small percentage of NFIP policyholders are eligible for these refunds: Refunds DO Apply to: Refunds MAY Apply to: Refunds DO NOT Apply to: NEW flood policies issued on or after July 6, 2012 that were charged the full-risk rate for property located in a SFHA Policies that renewed after March 21, 2014 (the date the HFIAA was enacted) IF the premium increased more than 18% Policies that paid a 25% premium increase for a pre-firm subsidized: Non-primary residence Businesses Severe repetitive loss property Building that was substantially damaged or improved Policies with a full-risk rate that is LESS than the pre-firm subsidized premium Policies that were not overcharged HFIAA Premium Rates for Subsidized Policies One of the goals of the HFIAA was to implement gradual rate increases to policies that lost subsidies rather than phasing in the full-risk rate at a rapid pace. FEMA must increase the premiums for most subsidized policies by no less than 5% per year, and no more than 18% per year, until the full-risk rate is achieved. Remember: only 20% of the NFIP s policies had subsidized rates. This means 80% of the NFIP s policies were charging full-risk rates at the time BW-12 and the HFIAA were enacted. In other words, 80% of all flood policies WERE NOT AFFECTED BY THE ELIMINATION OF PREMIUM SUBSIDIES. The following exceptions exist to the 18% premium increase cap, meaning rate increases may be charged up to 25% per year for policies insuring: Older business properties with subsidized rates Older non-primary residences with subsidized rates Severe repetitive loss properties with subsidized rates Pre-FIRM buildings that were substantially damaged or improved At present, FEMA is still developing guidelines about how to implement certain provisions of the HFIAA. Until those guidelines are finalized, new purchasers of property currently insured with subsidized rates will be able to assume the prior owner s policy and retain the subsidized rates. In addition, lapsed policies will be able to be reinstated with the former subsidized rates until FEMA announces changes. 10 A.D.Banker&Company

15 FLOOD INSURANCE New Surcharge on all NFIP Policies The HFIAA established a surcharge that will be applied to all NFIP policies until all pre-firm subsidies are eliminated. This surcharge is intended to offset policies that continue in force with subsidies and to achieve BW-12 s goals to achieve financial soundness in the future. Policies insuring primary residences will be surcharged $25; all other policies will be surcharged $250. HFIAA Grandfathering Rules If a flood insurance rate map change occurs, the NFIP allows a rating option referred to as grandfathering. This rate exemption permits certain property owners to receive premium subsidies (i.e., discounts) to alleviate a premium increase when the remapping places their property in a highrisk flood zone (SFHA). Property owners who are eligible for grandfathering are those who: Have flood insurance in place when a flood insurance rate map becomes effective and maintain coverage continuously thereafter, OR Constructed their buildings in compliance with the flood insurance rate maps in effect at the time of construction. The HFIAA repeals a provision in BW-12 that required FEMA to eliminate the granting of rate subsidies and requires FEMA to phase in premium increases over five years, by 20% per year, on the effective date of any new or updated flood insurance rate map. In addition, the HFIAA establishes first year premiums for newly mapped property to be set at the same rate offered to property located outside of SFHAs; these are the preferred risk policy (PRP) rates. Premium increases are now capped at 18%, with certain exceptions that were noted previously. Flood Insurance Advocate The HFIAA requires FEMA to designate a Flood Insurance Advocate (Advocate) to promote the fair treatment of NFIP policyholders. The Advocate is responsible for: Educating policyholders and property owners about individual flood risks, flood mitigation, measures that can reduce flood rates based on mitigation, the flood insurance rate map review and amendment process, and changes in the NFIP that result from newly enacted laws Helping policyholders and property owners understand requirements pertaining to the procedures for appealing preliminary FIRMs and implementing measures to mitigate evolving flood risks Assisting with regional responses to consumer concerns about FIRM amendments and revisions Coordinating outreach and education with local officials and community leaders in geographical areas affected by proposed FIRM amendments and revisions Helping prospective policyholders obtain and verify accurate rate information when purchasing or renewing NFIP policies Miscellaneous Provisions of the HFIAA Other provisions of the HFIAA include: Residential basement floodproofing must be considered when developing the full-risk rate after a map change that increases the base flood elevation (BFE) in an area where basement floodproofing is permitted FEMA must develop an installment plan for flood insurance premiums that are not escrowed; this mandate requires changes to the Standard Flood Insurance Policy contract and certain NFIP regulations Maximum deductibles were increased from $5,000 to $10,000 for residential properties that are one- to 4-family buildings A.D.Banker&Company 11

16 CHAPTER TWO Flood Mapping According to FEMA s website, The Technical Mapping Advisory Council (TMAC) is a federal advisory committee established to review and make recommendations to FEMA on matters related to the national flood mapping program authorized under the Biggert-Waters Flood Insurance Reform Act of The HFIAA requires the TMAC to review BW-12 s national flood mapping program and certify in writing to Congress that FEMA is using technically credible data and mapping methods. It is expected that the TMAC will provide viable recommendations to FEMA about how it can best comply with federal legislation pertaining to the identification of residual risk areas, coastal flooding information, land subsidence, erosion, expected flood hazard changes over time, etc. Along with other requirements, the HFIAA made the following changes with respect to flood mapping: The $250,000 limit on the amount FEMA can spend to reimburse homeowners for successful map appeals was eliminated; however, federal rules must be established to implement this provision FEMA is now accountable for reconstruction and improvements of flood protection, in addition to new construction Premium Changes Effective April 2015 The HFIAA calls for revisions to flood insurance rates, as well as other changes, to begin on April 1, The changes taking place at this time include: Tate increases for most NFIP policies An increase in the Reserve Fund assessment An additional deductible option ($10,000) Granting of PRP rates for one year to certain PRP EE properties The implementation of the annual surcharge on all NFIP flood policies Rate tables for buildings that have been substantially damaged or improved; and An increase in the Federal Policy Fee Annual Rate Changes Increases for individual premiums are limited to 18% and increases and are limited to 15% for average rate classes. The mandatory changes for premium increases to certain subsidized policies under BW-12 will be implemented if they were not changed or eliminated by the HFIAA. Reserve Fund Assessment BW-12 established a Reserve Fund to help pay for the costs associated with claims that exceed premiums collected by the NFIP. In 2013, FEMA began collecting the assessment to build up the Reserve Fund, which initially only applied to policies that were not preferred risk policies (PRPs). In 2015, assessments will increase and PRPs will also be assessed. The following chart shows the fees as a percentage of the policy premium: Policy 2014 Fee 2015 Fee Preferred Risk Polices (PRPs) 0% 10% Property newly mapped into a SFHA (Previous PRP Eligibility Extension properties) 0% 15% All other policies 5% 15% 12 A.D.Banker&Company

17 Deductible Changes FLOOD INSURANCE The HFIAA authorized a maximum deductible of $10,000 for one- to four-family residential dwellings. If a policy has a $10,000 deductible, it must apply to both building and contents; separate deductibles do not apply. Policies insuring one-family dwellings with a $10,000 deductible will receive a discount up to 40% of the base premium. It is important to keep in mind that lenders and mortgagees may not permit policyholders to elect a $10,000 deductible. PRP EE and PRP Rates Current PRP extension eligible policies, and policies for insured buildings that are newly mapped into SFHAs from low or moderate risk areas, are eligible to receive PRP rates for one year after the revised flood insurance rate map becomes effective. The Federal Policy Fee for these policies will increase to $45. Rate Tables for Buildings that are Substantially Damaged or Improved A new rate table applies to pre-firm buildings that have been substantially damaged or improved and will show annual rate increases of 25%. However, if these structures are repaired, they must comply with current building codes; as a result, they will generally receive a lower rate by using post-firm rate tables. HFIAA Surcharge To compensate for the manner in which the HFIAA slowed BW-12 s subsidy phase-out and amended most BW-12 provisions requiring polices to transition immediately to full-risk rate, it implemented a surcharge at the policy level. The surcharge is flat fee that will be charged on all NFIP policies based on the occupancy of the building insured by the policy, including policies that only insure contents. The surcharge is NOT associated with the property s flood zone or date of construction. Occupancy Type Annual Surcharge Single-family residences and condo units that are primary residences $25 Single-family residences and condo units that are NOT primary residences $250 Multi-family residential buildings of all types $250 All non-residential buildings $250 Senate Bill 487 Surplus Lines and Flood Insurance 10 The Oklahoma Insurance Department believes the NFIP is a broken system that is not being fixed. As a result, the OID is encouraging flood insurance to be written in this state in the private surplus lines market. To stimulate the issuance of surplus lines flood insurance, the Department now allows flood insurance to be: Placed with a surplus lines insurance company without first requiring the producer to conduct a due diligence search Exempt from any surplus line premium tax if it insures property in Oklahoma O.S. 1102, , and 1115; effective November 1, 2015 A.D.Banker&Company 13

18 CHAPTER TWO QUESTIONS 1. Which of the following was one of the primary purposes of the Biggert-Waters Flood Insurance Reform Act of 2012? a. Financial solvency of the NFIP b. To offer flood insurance discounts c. To eliminate flood insurance d. To establish the NFIP 2. Which of the following terms is used to define that the flood insurance policy s premium reflects the full range of potential flood losses, including rare and catastrophic floods? a. Grandfathered b. Elevated c. Full-risk rate d. True flood rate 3. What percentage of the NFIP s policies were being charged subsidized rates when Biggert-Waters and the HFIAA were enacted? a. 100% b. 80% c. 50% d. 20% 4. The HFIAA increased the minimum annual flood insurance deductible on residential dwellings to what amount? a. $2,500 b. $5,000 c. $10,000 d. $25, Elmo s flood insurance policy provides coverage for his commercial building. What annual surcharge amount will apply to his policy under the HFIAA? a. $25 b. $250 c. $50 d. $ A.D.Banker&Company

19 3 Patient Protection and Affordable Care Act (ACA) Introduction The Patient Protection and Affordable Care Act (ACA) was signed into law by President Barack Obama on March 23, 2010 and changed the landscape of the health care system in the United States. Despite the White House s assurances that health care reform will benefit America by providing stronger consumer rights and protections, make health insurance more affordable, provide better access to health care, and strengthen the Medicare system, opponents are still concerned about the Act s lawfulness. Immediately upon enactment of the Affordable Care Act, the state of Florida filed a lawsuit in federal court that challenged the constitutionality of two portions of the ACA: the individual mandate and the expansion of Medicaid. Twenty-five (25) other states joined Florida in the lawsuit, 13 additional states and the District of Columbia supported the litigation, and 12 states took no position in the litigation. (Two states both supported and challenged the ACA because their governors and attorney generals took opposing positions in the litigation.) The National Federation of Independent Businesses (NFIB) and several other parties jointly filed a similar lawsuit also in the state of Florida. The Supreme Court considered both cases at the same time. The Supreme Court ruling, which was issued on June 28, 2012, held that the individual mandate was constitutional because it is an implementation of Congress power to tax. Although the individual mandate requires Americans to purchase health insurance or pay a penalty (called a shared responsibility payment in the legislation s text), the Court confirmed that the failure to purchase health insurance is not, and will not be, considered an unlawful act. The Court emphasized the Internal Revenue Service is prohibited by the ACA from using criminal prosecution as a means to collect the shared responsibility payment. The Court s ruling also found that the Medicaid expansion provision of the ACA was unconstitutional and cited two reasons: 1. The states were not given enough time to voluntarily consent to the provision; and 2. The Secretary of Health and Human Services had the power to withhold existing Medicaid funds if a state chose not to comply with the Medicaid expansion. The Supreme Court ruling allows all provisions of the ACA s individual mandate to be carried out and effectively allows the provisions of the Medicaid expansion to be optional for the states. Federal funding for Medicaid expansion benefits may be withheld in the future; however, the Secretary of Health and Human Services may not withhold any of a state s other Medicaid funding should it opt out of future Medicaid expansion. In September 2012, two new lawsuits were filed that challenge different provisions contained in the ACA. College of the Ozarks in Point Lookout, MO filed litigation against the Departments of Labor, Treasury, and Health and Human Services concerning the contraceptive mandate. The attorney general of the state of Oklahoma filed an amended complaint in Oklahoma federal court that challenged a number of provisions in the ACA, including an IRS rule. 15

20 CHAPTER THREE Final regulations were issued in July 2013 by the Internal Revenue Service and the Departments of Labor and Health and Human Services concerning exemptions for contraception and sterilization services for non-profit religious organizations. A religious organization must meet four specific criteria to obtain the exemption; it must: 1. Be and operate, as a non-profit organization 2. Hold itself out as a religious organization 3. Oppose the provision of some or all of the services listed in Section 2713 of the PHSA; and 4. Certify that it meets criteria 1-3 above It should also be noted that because of the financial and administrative burden of some of the provisions contained in the Employer Mandate, the IRS postponed three reporting requirements. IRS Notice was issued to provide transitional relief for the following three requirements: 1. Reporting requirements for insurers, self-insuring employers, and certain providers of minimum essential coverage (MEC) 2. Reporting requirements for large employers; and 3. Provisions of the employer shared responsibility payment This transitional relief did NOT change any of the provisions of the employer mandate; it simply defers implementation of the preceding three requirements for The tax penalty is not tax-deductible. In 2014, the Oklahoma Attorney General initiated a lawsuit about the legality of health insurance premium subsidies in states in which the federal marketplace operates. Subsequently, federal judge in Oklahoma ruled that premium subsidies cannot be issued by the federal marketplace; this means that only state-run marketplaces may grant premium subsidies. However, in June 2015, the Supreme Court issued a ruling that upheld subsidies in all states, without regard to whether the marketplace is run by the state or federal government this verdict overruled the lower court s decision. 1 Major Provisions and Terms of the ACA 2 Many aspects of health insurance have remained the same since the enactment of the ACA; however, other characteristics have changed dramatically. The majority of the significant provisions in the ACA were implemented in 2010, immediately after enactment, and on January 1, Implementation of the remaining provisions continues through In addition to changing certain aspects of health insurance and its delivery to consumers and businesses, enactment of the ACA created a number of rights and protections: The expansion of dependent coverage on a parent s plan until children reach their 26th birthday Restrictions on underwriting and rate-setting The elimination of lifetime and annual coverage limits for essential health benefits The provision of first-dollar coverage for certain preventive and wellness services (i.e., no costsharing can apply) Premium assistance in the form of tax credits for eligible individuals and small businesses Implementation of medical loss ratios that require 80% to 85% of all premium dollar collected to be spent on the provision of benefits The expansion of Medicaid in states that adopted it (Oklahoma did not) The requirement for uniform description and definition of benefits on the Summary of Benefits and Coverage (SBC) The implementation of programs to prevent, detect, and eliminate fraud, waste, and abuse in the U.S. health care system Patient Protection and Affordable Care Act (Public Law ) 16 A.D.Banker&Company

21 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) In this section, we discuss how some of the new health insurance concepts and changes affect consumers and producers. Health Plans Health Insurance Marketplace Under the ACA, a health insurance marketplace (formerly referred to by the ACA as an exchange) is a resource for use by individuals, families, and small businesses to learn about health insurance options and compare, choose, and enroll in qualified health plans. Marketplaces also provide information about programs that help consumers with low to moderate income pay for insurance. Marketplaces are run by the state, the federal government, or a partnership between a state and the federal government. Oklahoma opted to participate in the federal marketplace rather than establish a state marketplace on its own or partner with the federal government. The federal marketplace can be found online at Qualified Health Plan (QHP) A qualified health plan (QHP) is certified by the marketplace in which it is offered to provide essential health benefits, follows established cost-sharing limits with respect to deductibles, copayments, and out-of-pocket maximum amounts, and meets other requirements. The qualified health plans offered through a Marketplace are separated into four major categories (referred to as metal tiers) based on what percentage of average overall benefit costs a plan pays for essential health benefits. This is not the same as coinsurance. Bronze Plan Pays for an average of 60% of the plan s covered costs Silver Plan Pays for an average of 70% of the plan s covered costs Gold Plan Pays for an average of 80% of the plan s covered costs Platinum Plan Pays for an average of 90% of the plan s covered costs A fifth category of health plan that meets the requirements of a qualified health plan except with respect to benefits covered by the plan. A catastrophic plan only insures three primary care visits per year before the plan deductible is met. The premium is usually lower than the premiums for other qualified health plans but the out-of-pocket costs are higher (i.e., costs for deductibles, copayments, and coinsurance). The only individuals eligible for catastrophic health plans are those who are under age 30 OR eligible for a hardship exemption because they cannot afford health insurance offered by a Marketplace. A grandfathered health plan was issued or purchased on or before the date the ACA went into law (March 23, 2010) and is exempt from some of the ACA s provisions. A plan may lose its status as a grandfathered plan if it makes significant changes that reduce its benefits or increase its costs. All grandfathered health plans must disclose to insured persons their status as a grandfathered plan and how consumers can contact the Departments of Labor or Health and Human Services with any questions. Navigator A navigator is a person or an organization trained and able to help individuals, families, small employers, and the employees of small businesses who seek information or insurance from a marketplace. A navigator s responsibilities include completing eligibility and enrollment forms and offering unbiased services without charging a fee. A.D.Banker&Company 17

22 CHAPTER THREE Open Enrollment Period An open enrollment period is the length of time during which any eligible person may enroll in a qualified health plan offered through a marketplace. Beginning in 2015, open enrollment periods begin on November 15th before the benefit year and end of February 15th of the benefit year. Special Enrollment Period A special enrolment period is the length of time during which a person may enroll in a qualified health plan outside of open enrollment if he or she meets special eligibility requirements pertaining to qualifying life events. In the individual marketplace, a special enrollment period lasts 60 days from the date of the qualifying life event. In the SHOP Marketplace, the special enrollment period is only 30 days. Qualifying Life Event A qualifying life event is a life change that makes a person eligible to enroll in a qualified health plan during a special enrollment period. Qualifying life events include changes such as moving to a new state, marriage or divorce, the birth or adoption of a child, acquiring or losing a dependent, and certain changes in income. Federal Poverty Level The federal poverty level (FPL) is a measurement of income level used to determine an individual s eligibility for state and federal programs and benefits (i.e. SoonerCare) and premium tax credits for health insurance purchased from the marketplace. The FPL is issued by the Department of Health and Human Services (HHS) on an annual basis, usually during the month of February. Minimum Essential Coverage (MEC) Minimum essential coverage is health insurance that complies with the individual mandate of the ACA. It is defined as health insurance coverage under: Medicare Part A Medicaid (SoonerCare) Children s Health Insurance Program (CHIP) TRICARE for Life Program (coverage for active and retired members of the military) Veteran s Association Health Care Program Peace Corps Program Federal Employees Health Benefits Program (FEHBP) Any local, state, or federal government plan Any Indian tribal government plan Any plan offered in the individual or group market A grandfathered plan Any other plan recognized by the U.S. Department of Health and Human Services The following types of insurance are NOT considered minimum essential coverage: Medicare or TRICARE supplements, long-term care insurance, any limited benefit plan, standalone dental or vision coverage, disability income, workers compensation, liability insurance, credit-only, accident-only, and hospital indemnity. Essential Health Benefits (EHBs) Essential health benefits (EHBs) are ten specific types of benefits defined by the ACA; they must be included in qualified health plans. CMS uses benchmarks to determine essential health benefits by taking from each of the states their small group plan that had the most membership or enrollments. 18 A.D.Banker&Company

23 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) EHBs are required of all fully insured small group plans both inside and outside the marketplaces beginning January 1, Specific exceptions exist with respect to EHBs for self-insured and large group plans. Essential health benefits are NOT the same as minimum essential coverage. An essential health benefits package is required to provide coverage for at least one of the four metal tier levels of coverage (i.e., bronze, silver, gold, or platinum). If a marketplace offers an essential health benefits package, it must offer at least silver and gold plans. In an essential health benefits package, the insured s level of cost sharing may not exceed the annual threshold that applies to high deductible health plans (HDHPs). The health insurance benefits of an essential health benefits package must provide coverage, at a minimum, for the following services: Ambulatory patient services Behavioral health treatment Emergency services Hospitalization Laboratory services Maternity care Mental health services Newborn care Pediatric services, including dental and vision care Prescription drugs Preventive, wellness, and chronic disease management Rehabilitative and habilitative services and devices; and Substance use disorder services Affordable Coverage Affordability is a factor of an individual s eligibility for premium tax credits. Employer-sponsored health insurance is considered affordable if the employee s share of the premium for employeeonly coverage is no more than 9.66%* of the employee s annual household income in An employee who is offered employer-sponsored health insurance that is affordable and provides minimum value is not eligible for a premium tax credit. (*Percentage subject to annual adjustment in future years.) Actuarial Value The actuarial value of a health plan is the percentage of total average costs for covered benefits paid by the plan. If a health plan had an average actuarial value of 80%, the plan will pay, on average, 80% of the costs of covered benefits and policyholders will pay, on average, 20% of the costs of covered benefits. It is important to keep in mind that each insured person may actually be responsible for a higher percentage of the total costs of covered services based on their individual health care needs and policy terms. Minimum Value Beginning in 2014, if an employer-sponsored health plan is affordable and offers minimum value, employees who are offered coverage are not eligible for a premium tax credit. A health plan meets minimum value requirements if it is designed to pay at least 60% of the total costs of medical services for the standard population. 3 A.D.Banker&Company 19

24 CHAPTER THREE Coverage for Young Adults The ACA expanded dependent coverage on parents health insurance policies to include children until they turn age 26. Originally, some restrictions applied; however, young adults may now be included on their parents policies with their parents consent or be added to those policies even if the child: Is married; however, coverage does NOT extend to the child s spouse or children Does not live with a parent Does not attend school or college Is not financially dependent upon a parent Is eligible for employer-sponsored health insurance Restrictions on Underwriting and Rating Although the rate-setting process for health insurance has undergone changes with the enactment of the ACA, insurance companies are still permitted to establish their rates with the approval of the state insurance departments subject to requirements of the ACA. A health insurer that offers coverage in the individual or small group markets must offer all approved products in the applicable market to all eligible applicants. However, insurers may limit their offer of health insurance to specific enrollment periods. In addition, and as previously discussed, health insurers are not permitted to charge higher rates or decline to issue coverage based on pre-existing medical conditions. The ACA defines a pre-existing condition under employer-sponsored coverage as one for which medical advice, treatment, care, or diagnosis was sought or received within the six-month period before enrollment in the group plan. An exception to the pre-existing condition restriction pertains to individual health plans that are also grandfathered plans. If an individual is insured by such a grandfathered plan, he or she may cancel the grandfathered plan and purchase new coverage through a marketplace. When rating health insurance, insurers are limited to certain guidelines when establishing premium rates. Specifically, insurers may only rate health insurance using four criteria: 1. Age 2. Tobacco use 3. Family composition (i.e., individual or family enrollment) 4. Geographical rating area When establishing rates based on age, older people may be charged higher rates than younger people are charged. The oldest person covered by a health plan may not be charged any more than three times the rate charged to the youngest person. This 3:1 variance assumes the youngest person is age 21 and the oldest person is age 64. States may use the federal age curve or their own age curve. The three federal age bands are: Ages 0 to 20 One-year bands for people between the ages of 21 and 63 People age 64 and older When establishing rates based on tobacco use, insurers may only charge the higher rate to individuals who use tobacco. This means that if a family is enrolled in a health plan, the family members who do not use tobacco must be charged a lower rate than the family members who use tobacco. Health plans in the small group market can avoid a tobacco surcharge if they participate in a tobacco cessation program. Insurers may not charge tobacco users a rate that is more than 50% higher than the rate charged to individuals who do not use tobacco. However, insurers may vary the premium based on age such as tobacco users under age 35 will be charged a lower rate that tobacco users over age 35 are charged. 20 A.D.Banker&Company

25 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) Rates based on family composition must charge separate premiums for each family member based on each person s age and tobacco use. Family members who are contained in the rating include: One or two parents Up to three family members under the age of 21; meaning the insurer cannot charge for more than three children under age 21) All dependent children age 21 and older A health plan s rating area is based on geography. In the individual market, it is based on the insured s home address; in the small group market, it is based on the employer s primary place of business. Once health insurance coverage has been issued, it is guaranteed renewable unless one of the following exceptions applies: Nonpayment of premium. The insured individual or plan sponsor commits a fraudulent act with respect to coverage or makes a material misrepresentation on the insurance application In a group plan participation and/or contribution requirements are not met, meaning the required number of employees do not enroll or the plan sponsor does not make the minimum premium payments as required An insured person moves outside the health plan s coverage area A health insurer withdraws the health plan from the individual and/or small group market in compliance with law and after providing at least 180 days advance notice A health insurer withdraws all products from the individual and/or small group market in a state (in this case, the insurer may not sell health plans in that market for at least five years after the last policy is nonrenewed Before enactment of the ACA, health insurers were permitted to limit the amount they paid for covered benefits and services during a calendar year and the insured person s lifetime. Now, insurers cannot impose lifetime coverage limits for essential health benefits under any type of plan, including grandfathered plans. With respect to annual limits, restrictions apply to most types of health plans but do NOT apply to grandfathered plans. However, all health plans may impose lifetime and annual limits on services and care that are NOT essential health benefits. Premium Tax Credits for Individuals and Small Businesses Under the ACA, certain individuals and small businesses are eligible for premium assistance in the form of tax credits if they enroll in coverage through a marketplace. Individuals and small businesses that purchase health insurance outside the marketplaces are NOT eligible for premium tax credits or financial assistance. Advanced Premium Tax Credit (ATPC) or Premium Tax Credit One of the goals of the ACA is to provide certain consumers with premium assistance when they purchase health insurance through the marketplace. Premium tax credits help individuals lower their monthly health insurance premiums right away. Individuals must meet certain eligibility requirements and the premium tax credits only apply to health insurance purchased through a marketplace. The individual chooses how much of the premium tax credit to apply to the monthly insurance premium, up to a maximum amount. If the amount received for the year is less than the tax credit an individual is due, the difference will be paid as a refundable credit on the individual s federal income tax return. If the amount received is more than tax credit due, the excess must be paid on the tax return for that calendar year. A.D.Banker&Company 21

26 CHAPTER THREE Small Business Tax Credit Certain small business employers may be eligible to receive a tax credit equal to 50% of their contributions toward their employee s group health insurance premiums. The tax credit is available for two consecutive years and, in most cases, the employer must purchase a qualified health plan through the Small Business Health Options Program (SHOP Marketplace). Eligibility requirements include: 4 The business must have fewer than 25 full-time equivalent employees The average annual wages of employees must be less than $50,000 The employer must pay at least 50% of the employee-only cost of health insurance for all employees Small employers who are exempt under IRS Sections 501 (a) and 501(c) are also eligible for the tax credit. The maximum credit available for these eligible business is 35% and is limited to the amount of the employer s payroll taxes withheld during the taxable calendar year. Medical Loss Ratios (MLRs) In an effort to ensure that premiums reflect the direct cost of health care and are not excessive, the ACA requires all health plans to achieve certain medical loss ratios or refund premium dollars to their policyholders. A medical loss ratio is a financial computation that illustrates how much of the premiums an insurer charged for health insurance were used to pay for the costs of health care expenses rather than being allocated as profits or to pay administrative costs. Medical loss ratios are not computed on each separate policy; instead, they are computed on a statewide basis by each insurer for each of the markets in which health plans are issued. For example, if a health insurer issues health plans in the individual, small group, and large group markets, the MLRs for the health plans in each of those markets will be computed separately. If a health plan has a medical loss ratio of 82%, it is using 82 cents of every premium dollar it collects to pay claims and improve the quality of care. The remaining 18% is spent on administrative costs (i.e., salaries, expenses) and, perhaps, allocated as profit. The ACA has established the following minimum MLR standards: Individual market 80% Small group market 80% Large group market 85% If an insurer fails to meet medical loss ratio requirements of the ACA in any year, it will be required to refund sufficient premiums to its policyholders, on a pro-rata basis, in order to achieve those requirements. The major reasons an insurer fails to meet MLR requirements are because its premiums are too high or it is paying too few claims. Expansion of Medicaid and Chip The principal partnership for health care between the federal and state governments is Medicaid. The ACA simplified Medicaid eligibility standards and enrollment and allows each of the states to expand their Medicaid programs. The expansion allows eligibility to all adults between the ages of 19 and 64 if their household modified adjusted gross income (MAGI) is at or below 138% of the FPL. This expansion offers eligibility to some adults who were not previously afforded this opportunity. It should be noted that even if the states that did NOT expand their Medicaid programs (such as Oklahoma), pregnant women and children with household MAGIs above the poverty level will still be A.D.Banker&Company

27 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) covered. In certain circumstances, children with household MAGIs at levels several times that of the FPL may even be eligible for coverage under the Children s Health Insurance Program (CHIP). If a person is eligible for Medicaid, he or she does not need to purchase health insurance, either privately or in a marketplace. The cost of health insurance, even in a marketplace, will be more expensive than the cost of Medicaid and usually will not provide more comprehensive coverage or benefits. In addition, Medicaid-eligible individuals cannot receive premium tax credits. For more details about the Oklahoma Health Care Authority (OHCA) and SoonerCare, visit its website at Individual Mandate The individual mandate is one of the most contentious provisions of the ACA and applies to most Americans. For those individuals and their dependent who are not exempt under the Act, failure to have and maintain health insurance in place that met ACA requirements will generate a financial penalty. The ACA calls the individual mandate the requirement to maintain minimum essential coverage and the penalty is called a shared responsibility payment. The Individual Mandate requires all Americans, unless specifically exempt under the ACA, to maintain minimum essential coverage or pay a shared responsibility payment with the filing of their federal income tax returns. This requirement applies to all members of a family. The following circumstances exempt an individual from paying the shared responsibility payment: Being uninsured for fewer than three months of the year In 2016, the lowest priced health insurance available costs more than 8.13%* of the individual s annual household income. (*Percentage subject to annual adjustment in future years.) 5 The filing of a federal income tax return is not required because an individual s annual income is too low Membership in a federally recognized Indian tribe or eligibility for services through an Indian health care provider Membership in a health care sharing ministry Membership in a religious sect that has religious objections to receiving insurance, including Social Security and Medicare Being incarcerated while not awaiting the disposition of charges Being present in the United States unlawfully Eligibility for a hardship exemption (i.e., being homeless, being a victim of domestic violence, individual plan was cancelled and ma rketplace coverage is unaffordable, death of a close family member, facing eviction or foreclosure, etc.) Individuals and their dependents who were insured for an entire calendar year under one or more of the following programs are considered to have complied with the individual mandate: Medicare, Medicaid, CHIP, or TRICARE; Veteran s health program; any employer- sponsored health plan; personal health insurance at the Bronze level or greater; and grandfathered health plans. Penalties will not be imposed until an individual has been without health insurance for 90 days. When assessed, penalties will be pro-rated by the number of months without coverage beginning in the fourth month without coverage, meaning no penalty applies for the first 90 days a person is uninsured. Penalties will be charged per person (with a family maximum) OR a percentage of household income whichever is greater. After 2016, the penalty amounts will be adjusted by annual cost of living increases. 5 A.D.Banker&Company 23

28 CHAPTER THREE and later Per adult $325 $695 Per child $ $ Family maximum $975 $2,085 % of household income 2% 2.5% The shared responsibility payment is a tax, and is included in the federal income tax return. If not paid, the tax is subject to Chapter 68, Subtitle B of Internal Revenue Code with respect to assessing and collecting penalties. However, special rules apply; specifically, no taxpayer will be subject to criminal prosecution or penalty with respect to any failure to pay the shared responsibility payment. In addition, no liens or levies may be attached to any property owned by a taxpayer who fails to pay any required shared responsibility payment. If Oklahomans are not eligible for SoonerCare and are not offered employer-sponsored health insurance coverage, they may be eligible for health insurance premium tax credits if their household income falls between 100% and 400% of the FPL. (In states that opted to expand Medicaid, household income eligibility limits are between 138% and 400% of the FPL.) In addition, these individuals cannot be enrolled in their employer s health insurance plan and, if they were enrolled, their individual contribution to the employer-sponsored coverage (for employee coverage only) would exceed 9.66%* of their household income in 2016 or the plan would pay for less than 60% of covered healthcare expenses. (*Percentage subject to annual adjustment in future years.) Individual Premium Tax Credit Individuals are only eligible for premium tax credits if they purchase health insurance through a marketplace. When eligible for a premium tax credit, the individual s tax credit reduces the cost of health insurance for the person and his or her dependents (as defined by IRS guidelines). The individual may opt to have the premium tax credit applied directly to the monthly cost of insurance on an advance basis or wait to receive it as a refund on his or her federal income tax return the following year. If someone chooses an advance premium tax credit, the marketplace will submit a monthly payment directly to the qualified health plan on the individual s behalf. If someone chooses to receive the premium tax credit on the federal income tax return, he or she cannot use the Married Filing Separately filing status. It should be noted that as a result of the Defense of Marriage Act (DOMA), the same eligibility rules for the premium tax credit that apply to opposite-sex spouses also apply to same-sex spouses. Eligibility for an individual premium tax credit is based on the person s projected annual household income, the size of his or her family, and eligibility for other minimum essential coverage. Eligible individuals in Oklahoma, as stated previously, will have annual household incomes between 100% and 400% of the federal poverty level (FPL) for the previous year. In order to be eligible for an individual premium tax credit, an individual cannot be eligible for other minimum essential coverage, such as Medicare, Medicaid, or affordable employer-sponsored coverage. Employer Mandate The ACA does not require employers to provide health insurance to their employees; however, beginning January 1, 2014, if certain employers provide health insurance, they must comply with requirements. Employers for whom requirements have been mandated are referred to in legislation as large employers. This term will be defined shortly. 24 A.D.Banker&Company

29 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) Beginning in 2016, the employer mandate imposes an employer shared responsibility payment on large employers that do not offer health insurance to at least 95% of their full-time employees and the dependents of those employees. (In 2015, this figure was 70%.) In addition, some large employers that do offer insurance to their employees may be subject to the employer shared responsibility payment if the plans they offer are not affordable or if they do not offer minimum value. Full-time Employee The ACA defines a full-time employee as an employee who works an average of at least 30 hours per week. Full-time Equivalent Employee (FTE) A full-time equivalent employee is not a person, it is a term used by the ACA to quantify the total number of hours of service for which wages were paid by the employer to employees during the taxable year and dividing that number by 2,080. 2,080 hours per year represents the sum of 40 hours per week for 52 weeks. Mathematically, the hours worked by both full-time and part-time employees are used in this calculation. For example, if an employer had 45 full-time employees who each worked 37.5 hours per week and 10 part-time employees who each worked 10 hours per week, the employer would have 44 full-time equivalent employees: 37.5 hours x 52 = 1,950 hours per year, per full-time employee 45 employees x 1,950 hours = 87,750 hours for all full-time employees 10 hours x 52 = 520 hours per year, per part-time employee 10 employees x 520 hours = 5,200 hours for all full-time employees 92,950 total hours divided by 2,080 = 44 full-time equivalent employees (rounded down) Although the hours worked by part-time employees are included in the calculation of full-time equivalent employees, the actual part-time employees themselves are not considered when assessing any applicable employer shared responsibility payment. Large Employers Large employers are subject to the employer shared responsibility provisions of the ACA and are defined by both the ACA and the IRS as, generally, one that has 50 or more full-time or full-time equivalent employees. In 2015, a large employer was defined as having more than 100 employees A person is a full-time employee in a calendar month if he or she works an average of 30 hours per week or 130 hours per calendar month. Employers must apply hour and equivalency rules on a consistent basis and payroll periods can be used instead of calendar months. The following individuals are not considered employees: Bona fide volunteers An individual working under a Federal Work-Study Program, or a similar state program A member of a religious order subject to a vow of poverty, and Those earning income outside the U.S A.D.Banker&Company 25

30 CHAPTER THREE Large employers are subject to the employer shared responsibility provisions of the ACA if they meet one of the following two criteria: The employer does not offer affordable health insurance to at least 95% of full-time employees (including their dependents) and at least one employee purchases a qualified health plan on a Marketplace and receives a premium tax credit. In 2015, this percentage was 70%. The employer does offer health insurance to at least 95% of its full-time employees (70% in 2015), however, at least one employee purchases a qualified health plan on a marketplace and receives a premium tax credit BECAUSE: The employer did not offer insurance to that employee The health insurance was not affordable, OR The health insurance did not provide minimum value Most employer shared responsibility provisions applied beginning in 2015; however, they do not apply until 2016 to employers with 50 to 100 full-time employees if the employer provides a required certification. Furthermore, the ACA requires employers with 200 or more employees that offer at least one health plan to enroll automatically all new employees, and to renew automatically all existing employees. Employees are permitted to decline coverage. Large employers will not be able to purchase health insurance through a SHOP Marketplace until Small Employers Small employers are NOT subject to the employer shared responsibility provisions of the ACA; however, they are eligible to purchase health insurance for their employees through the Small Business Health Options Program, or SHOP marketplace. Eligibility for the purchase of a small group health plan in the SHOP Marketplace has specific requirements: The employer s primary place of business must be located in the SHOP s service area (which is usually an entire state) The employer must have at least one common-law employee on the payroll; this eligibility excludes the employer s owners and sole-proprietors, including their spouses and dependents, although these individuals may enroll in coverage The IRS defines a common-law employee as an employee who performs services if the employer can control what will be done and how it will be done Sole-proprietors reporting on IRS Schedule C cannot form a group health plan without having a common-law employee An eligible group cannot consist solely of S corporation shareholders or their spouses The employer must have no more than 50 full-time equivalent employees on the payroll: Federal marketplace size determinations include part-timers but discount seasonal employees working fewer than 120 days per year State marketplace size determinations had some flexibility in calendar years 2014 and 2015 HealthCare.gov offers the SHOP FTE Calculator to help agents, brokers, and small businesses determine eligibility for the purchase of small group health plans on the SHOP Marketplace The employer must offer coverage to ALL full-time employees (i.e., those working an average of 30 hours per week or 130 hours per calendar month) 26 A.D.Banker&Company

31 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) Small employers may be eligible for the Small Business Health Care Tax Credit to provide assistance with premium payments for group health insurance purchased through the SHOP marketplace. To qualify for a tax credit, a small employer must: Have an average of fewer than 25 full-time equivalent employees based on a 40-hour work week and excluding owners, the family members of owners, and seasonal employees Average annual wages of employees must be below $50,000 the salaries of business owners are NOT included Pay a uniform amount of the premiums for employee-only coverage that is at least 50% The maximum tax credit is 50% of employer contributions toward employee health insurance premiums and it is only paid for two consecutive years. The SHOP Tax Credit Estimator tool is available at to give employers an estimate of what their health care tax credit could be if they are eligible. Self-employed Business Owners Under the ACA, self-employed individuals with no employees are not considered employers. As such, if they wish to purchase health insurance from the marketplace, they may only do so from an individual marketplace. However, if a self-employed individual has employees for whom he or she reports income on form W-2, that individual is considered an employer and may purchase coverage for the employees and himself or herself in a SHOP marketplace. 8 Employer Shared Responsibility Payment As stated previously, large employers are required to offer health insurance to a certain percentage of full-time employees and their dependents to avoid a tax penalty. Under certain circumstances, a large employer will be subject to penalties even if it does offer health insurance coverage to its employees. Penalties will be assessed against full-time employees in excess of 30, meaning it only applies to employers with 31 or more full-time employees; penalties will not apply against part-time workers. For employers NOT offering health insurance to employees, the annual penalty is $2,000 per fulltime employee after 30. For example, if an employer has 50 full-time employees and 10 part-time employees, the penalty will be $2,000 x 20, or $40, FT employees 30 FT employees = 20 employees against whom the tax is imposed The penalty will be indexed by a premium adjustment percentage for each calendar year beginning in For employers that DO offer health insurance to employees, the annual penalty is $3,000 per employee receiving a tax credit; it cannot exceed the penalty applied when an employer does not offer coverage. It will also be calculated on a monthly basis and indexed by a premium adjustment percentage for each calendar year beginning in Two safe harbors exist for employers: 1. The affordability test, which is based on 9.66% (percentage subject to annual adjustment in future years) of the employee s household income in 2016; it appears in Box 1 on the employee s Form W-2 2. The employee is eligible for Medicaid (i.e., SoonerCare) It should be noted that employers are NOT entitled to the employee s taxpayer income return, per ACA Section 1411(f)(2)(B). It is expected that some issues concerning the applicability of the penalty, and safe harbors, will arise in light of the fact that employers will not know if their health plans are affordable until after an employee s tax return is filed. For this reason, employers will be permitted to appeal tax penalties that are imposed based on an employee s adjusted gross income. 8 A.D.Banker&Company 27

32 CHAPTER THREE Employers that have more than 200 full-time employees to whom they offer health insurance must enroll new full-time employees in a health plan automatically. They must also continue enrollment of current employees. Automatic enrollment programs will have other requirements. Because of the financial and administrative burden of some of the provisions contained in the Employer Mandate, the IRS postponed three reporting requirements. IRS Notice was issued to provide transitional relief for the following three requirements: 1. Reporting requirements for insurers, self-insuring employers, and certain provides of MEC 2. Reporting requirements for large employers 3. Provisions of the employer shared responsibility payment This transitional relief did NOT change any of the provisions of the employer mandate; it simply deferred implementation of the preceding three requirements for The tax penalty is not taxdeductible. PACE Act In October 2015, the Protecting Affordable Coverage for Employees (PACE) Act became law and amends the section of the ACA that defines small employer. 9 The PACE Act contains a general definition of small employer as one with an average of 1-50 employees on business days during the preceding calendar year. However, PACE permits the states to extend the definition of small employer to include employers with up to 100 employees. Per Bulletin LH , the Oklahoma Insurance Department clarified that the Small Employer Health Insurance Reform Act continues to apply to small employers that insured 2-50 eligible employees (36 O.S. 6512(26). 10 Any insurers that filed rates to extend the definition to 100 employees were required to amend their rate filings. Oklahoma Legislative Changes, per the ACA 11 Navigators This legislation amended requirements concerning inspection of health insurance navigators in Oklahoma. The law allows the OID to conduct on-site inspections of navigator operations and records; it also requires reports requested by the Commissioner to exclude personally identifiable information (PII). In addition, if navigators or navigator entities receive a request from the OID, they must verify the name, contact information, and date of contact for the individuals they assist. Repealed Rules 12 State laws were enacted to comply with federal provisions of the ACA and, during the 2015 legislative session, two Oklahoma administrative rules were repealed: Because all high-risk pools created by the ACA were eliminated, the Oklahoma Health Insurance High Risk Pool and the Oklahoma Temporary High Risk Pool were also eliminated. The rule requiring health insurance companies to notify applicants who were denied coverage in the standard market that they may be eligible for coverage in either pool was repealed. Because the ACA prohibits insurers from refusing to issue health insurance to any applicant based on a pre-existing condition, the rule that outlawed the practice of refusing to issue health insurance to a single applicant under the age of 19 (i.e., the child only rule ) was repealed. 9 url=https%3a%2f%2fwww.cms.gov%2fcciio%2fresources%2ffact-sheets-and-faqs%2fdownloads%2ffaq-on-the-impact-of-the- PACE-Act-on-State-Small-Group-Expansion.pdf&usg=AFQjCNEmKLxuI4YpMTF2u_J4CcQtRJ5unw&bvm=bv ,d.cWw 10 https%3a%2f%2fwww.ok.gov%2foid%2fdocuments%2f101315_bulletin%2520no%2520%2520lh% pdf&usg=afqjcn H6JpafBGW0SL9IaZRBiIyL0N2lFA&bvm=bv ,d.cWw 11 Senate Bill 236, Navigators; 36 O.S and ; effective November 1, OAC 365: and ; effective September 15, A.D.Banker&Company

33 PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA) New Rules 13 This new rule was enacted to comply with the ACA relating to the registration and oversight of navigators and navigator entities. If a navigator entity wishes to conduct business in Oklahoma, it must file an electronic registration form and pay a nonrefundable fee of $50. If an individual wishes to be a navigator in Oklahoma, he or she must file an electronic registration form along with a nonrefundable fee of $25 and a criminal background check report from the Oklahoma State Bureau of Investigation (OSBI). Non-residents are permitted to submit a criminal background check report from the states in which they reside. Criminal background check reports cannot be dated more than 30 days before the date of application. The term of registration for navigators and navigator entities is 12 months from the month in which it was issued. Renewal applications must be filed no later than the last day of month in which the original application was filed and be accompanied by a renewal fee of $25 for individuals and $50 for navigator entities. The fee may be paid by the navigator or the navigator entity that employs the navigator. Failure of a navigator or navigator entity to file a renewal application or pay the appropriate renewal fee by the last day of the month will result in automatic expiration of the registration. No registration reinstatements are issued; navigators and navigator entities that allowed their registrations to expire must apply for a new registration as if they had never been registered. This new rule imposes the following requirements on individual navigators: Once authorized to provide assistance to an individual or a group, a navigator must provide a signed disclaimer form and record the contact information and date of contact for the consumer or group; information must be supplied to the navigator entity within three days Navigators must permit their enrollment and assistance operations and records to be available for inspection by the Department upon request Navigators must submit to the Department, upon request, a report detailing the contact information for all individuals and groups to whom he or she provided a disclaimer form This new rule imposes the following requirements on navigator entities: Maintain records for a minimum of three years following the last date of employment or oversight for all navigators employed or overseen Maintain all required records for at least three years and allow the Department to inspect their operations and records as a navigator entity Submit to the Department, upon request, a report detailing the contact information for all individuals and groups to whom any of their navigators provided a disclaimer form Submit with its application a list of all navigators they employ or oversee at the time of application, along with those for whom they had oversight during the previous year Report to the Department any navigator terminations for failing to comply with any requirement of insurance code 13 Navigators and Navigator Entities, Subchapter 31, OAC 365: to 7; effective September 15, 2015 A.D.Banker&Company 29

34 CHAPTER THREE QUESTIONS 1. Which of the following is NOT one of the major provisions of the ACA? a. Medicaid expansion b. Premium tax credits c. Underwriting and rating restrictions d. Elimination of dependent coverage 2. Under the ACA, dependent children may be covered on their parents health plans until what age? a. 18 b. 21 c. 26 d Which of the following is NOT one of the four criteria insurers may use when rating health insurance? a. Age b. Tobacco use c. Geographical area d. Gender 4. What type of employer may be eligible to receive a tax credit equal to 50% of their contributions towards employee health insurance if it purchases coverage on the SHOP marketplace? a. Large employer b. Small employer c. Grandfathered employer d. Any employer 5. Under the ACA, what is the requirement to maintain minimum essential coverage? a. Employer mandate b. Individual mandate c. Medical loss ratio d. A grandfathered plan 30 A.D.Banker&Company

35 REVIEW QUESTIONS ANSWER KEY Chapter 1 1. A Recent Oklahoma legislation added social media to the definition of advertisement. 2. A Resident licensees with a property line of authority are required to complete one hour of approved continuing education under the new Earthquake course category in each license renewal cycle. 3. C A pharmacy benefits manager (PBM) is a third-party administrator (TPA) of a prescription drug program. Chapter 2 1. A The primary purpose of BW-12 was to stabilize the NFIP s financial position and make certain flood insurance rates reflect the true risk of flooding. 2. C The full risk rate reflects the property s full range of potential flood losses, including rare and catastrophic floods. 3. D 20% of the NFIP s policies had subsidized rates. 4. C The HFIAA authorized a maximum deductible of $10,000 for 1 to 4-family residential dwellings. 5. C The annual surcharge is $250 for all policies EXCEPT singly-family primary residences. Chapter 3 1. D The Oklahoma Tax Commission is authorized to prohibit the issuance of any replacement tag if the original tag was confiscated by law enforcement officials because the vehicle was driven without having required insurance. 2. C The ACA expanded dependent coverage on a parent s plan until children reach their 26th birthday. 3. D The four rating criteria permitted by the ACA are age, tobacco use, family composition, and geographical area. 4. B Certain small businesses may be eligible to receive a tax credit equal to 50% of their contributions toward their employees group health insurance premiums. 5. A The ACA s individual mandate is the requirement to maintain minimum essential coverage. A.D.Banker&Company 31

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