Health Care Reform: What s In Store for Employer Health Plans? April 21, 2010 Presented by: Sue O. Conway sconway@wnj.com (616) 752-2153 Norbert F. Kugele nkugele@wnj.com (616) 752-2186 Copyright 2010 by Warner Norcross & Judd LLP All Rights Reserved (Materials included in the following outline are not intended to provide legal advice and are for seminar use only.)
What Is Health Care Reform? Patient Protection and Affordable Care Act (PPACA) March 23, 2010, as amended by Health Care and Education Reconciliation Act (Reconciliation Act) Over 2,400 pages Legal challenges/repeal efforts Voluminous regulations to come
30,000 Foot View Health Plan Changes (aka Insurance Reform). New mandates and features including bans on pre-existing condition exclusions and plan dollar limits, expanded dependent coverage, etc. Individual mandate ( Individual Responsibility ). Individuals subject to tax if they don t purchase coverage Employer mandate ( Play or Pay or Employer Responsibility ). Larger employers (50+ FTEs) pay tax if they don t make affordable health coverage available to employees Health Benefit Exchanges. State-established electronic marketplace where individuals and employers can purchase health insurance coverage
Today s Presentation Early retiree health plan reinsurance program Small employer tax credits Year-by-year analysis of changes for group health plans Health Plan Exchanges and the shared responsibility requirements
Employer Implementation Timeline Immediate health care reform Incentives for providing health care Changes for plan years beginning on or after September 23, 2010 Changes effective in 2011 Changes effective in 2012 Changes effective in 2013 Changes effective in 2014 Changes effective in 2018 Grandfather: Exempt
Immediate Changes Small Employer Tax Credit Purpose: encourage small business to offer or continue employee health coverage Tax credit for small business and tax-exempt employers Fewer than 25 FTEs Average annual FTE wages below $50,000 Employer pays at least 50% of cost of employee single coverage Maximum credit 35% of premiums (for-profit), 25% (non-profit) Increases to 50%, 35% in 2014 Credit highest if 10 or fewer FTEs and average pay is $25,000 or less Effective for 2010 tax year
Immediate Changes Early Retiree Medical Reinsurance June 21, 2010 Purpose: Encourage employers to continue retiree medical for pre- Medicare retirees until Exchanges available Reimburse 80% of participant s claims between $15,000 and $90,000 during plan year Applies to retirees 55-64 not eligible for Medicare (also spouse, dependent, surviving spouse) Can use only to reduce premium costs, retiree contributions or out-ofpocket expenses Cost savings program in place for high cost/chronic conditions $5 billion in funding Temporary begins June 21, 2010 and ends January 1, 2014 or, if earlier, when money runs out HHS application available in June
Immediate Changes Temporary High Risk Pool Established by June 21, 2010 National high risk health insurance pool to provide health insurance for individuals with pre-existing medical condition until Exchanges established Directly or through contracts with states or private non-profit Uninsured for 6 months with pre-existing condition Subsidized premiums $5 billion Expires January 1, 2014 Penalty (must reimburse employee s medical expenses) if employer encourages disenrollment in employer plan to join high risk pool
Plan Years Beginning on or after 9/23/2010
Grandfathered Plans President Obama: You will be able to keep the health plan that you have through your employer PPACA: A group health plan in which an individual is enrolled on the date of enactment does not have to comply with all of the new requirements Such a plan is grandfathered
Grandfathered plans Requirements for being Grandfathered: Plan had individuals enrolled on March 23, 2010. Do not lose grandfathering if: Re-enrollment of employees/families Enrollment of new employees/families Addition of dependents for currently enrolled employees If plan is grandfathered: Certain requirements do not apply at all. Some are delayed. Non-grandfathered plans must comply with all requirements
Grandfathered Plans How long does grandfathering last? Collectively bargained plans: until last collective bargaining agreement ratified prior to 3/23/2010 expires All other plans: not clear Grandfathering not intended to last forever Substantial modification? Is being a grandfathered plan crucial?
Pre-Existing Condition Exclusions Plan cannot impose a pre-existing condition exclusion on coverage for children under age 19 Applies to all plans (even grandfathered plans) What To Do Determine whether change required Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary
Coverage of Dependent Children Must provide coverage to children of covered employees until child reaches age 26 For grandfathered plans: until 1/1/14, need not cover adult child who is eligible for coverage under another employer s plan Non-grandfathered plans: must cover all adult children until age 26 What To Do Tax Code revised to allow coverage through end of year child turns age 26 Does not require coverage of child s dependents Review Plan s eligibility rules Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary
Rescission of Coverage Group health plans may not rescind coverage except in cases of fraud or intentional misrepresentation of material fact as prohibited by terms of plan What To Do Review termination of coverage provisions in plan documents, SPDs, etc. and revise if necessary Review terminations on case-by-case basis
Lifetime Limits Plan may not impose lifetime dollar caps on essential plan benefits. What To Do Essential plan benefits are: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder benefits (including behavioral health treatment) Prescription drugs Rehabilitative and habilitative services and devices Prevent and wellness services and chronic disease management Pediatric services, including oral and vision care Can have lifetime dollar limits per beneficiary on specific benefits that are not essential plan benefits. Applies to all plans (including grandfathered plans) Identify lifetime limits currently imposed and determine whether change required Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary
Annual Limits Until 2014, no unreasonable annual limits for essential plan benefits Department of Health & Human Services will issue guidance on permitted restrictions Can continue to impose annual limits on non-essential plan benefits What To Do Compare annual limits with guidance to determine whether change required Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary PYB: 9/23/2010
Nondiscrimination Insured plans will be subject to nondiscrimination rules that currently apply only to self-funded plans What To Do Cannot discriminate in favor of highly compensated employees in terms of eligibility and benefits Eligibility tests apply Benefits provided to highly compensated employees must also be provided to nonhighly compensated employees Applies only to non-grandfathered plans Determine if plan is grandfathered If not grandfathered, determine if discrimination may be an issue If there is an issue, consider alternatives Confirm changes with insurance company Revise plan documents, SPDs, enrollment materials, etc. as necessary Grandfather: Exempt PYB: 9/23/2010
Preventive Care Coverage Must provide coverage without cost-sharing for certain immunizations and other preventive care Based on recommendations by: United States Preventive Services Task Force Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention Health Resources and Services Administration What To Do May cover more than these minimum requirements Does NOT apply to grandfathered plans Determine if plan is grandfathered If not grandfathered, determine whether change required Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary Grandfather: Exempt PYB: 9/23/2010
Appeals Process Claims appeals must be subject to internal and external review What To Do ERISA claims procedures will still apply to internal reviews External reviews now also required Uniform External Review Model Act provisions promulgated by the National Association of Insurance Commissioners; or Standards issued by HHS Only applies to non-grandfathered plans Determine if plan is grandfathered If not grandfathered, determine whether current process meets requirements If changes are necessary, confirm with claims administrators Revise plan documents, SPDs, enrollment materials, etc. as necessary including form letters used with claims appeals Grandfather: Exempt PYB: 9/23/2010
Coverage of Emergency Services For emergency services covered under plan: What To Do No pre-authorization requirement No requirement that treating physician be a participating provider Out-of-network cost-sharing must be the same as in-network Does not apply to grandfathered plans Determine if plan is grandfathered If not grandfathered, determine whether change required Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary Grandfather: Exempt PYB: 9/23/2010
Designation of Primary Care Providers If plan requires or allows for designation of a primary care provider, then each participant, beneficiary or enrollee must be allowed to: What To Do Designate any participating primary care physician who is available For child, designation may be a pediatrician For female, designation may be OB/GYN (and test or procedures ordered by non-pcp OB/GYN treated as though ordered by PCP) Does not apply to grandfathered plans Determine if plan is grandfathered If not grandfathered, determine whether change required Confirm changes with insurance company or TPA Revise plan documents, SPDs, enrollment materials, etc. as necessary Grandfather: Exempt PYB: 9/23/2010
Changes for 2011
Effective January 1, 2011 Over-the-Counter Meds - Expenses incurred on or after January 1, 2011 for over-the-counter drugs and medications (except insulin) without doctor s prescription not a qualified medical expense for FSA, HRA, HSA Affects open enrollment materials in 2010 Reporting on W-2 Employer must report aggregate cost of employer-provided coverage beginning with 2011 W-2 issued in January 2012 HSA penalty tax upped - Tax on HSA distributions not used for qualified medical expense increases from 10% to 20% What To Do Revise plan documents, SPDs, enrollment materials as necessary for OTC meds Prepare for W-2 reporting
CLASS Act (Community Living Assistance Services and Support) January 1, 2011 Voluntary federal long-term care insurance for active employees Employer and employee participation voluntary Age-related premiums Determined by HHS Paid by payroll deduction 5-year vesting period for benefit eligibility $50/day minimum benefit
Simple Cafeteria Plans Effective January 1, 2011 Safe harbor from complex nondiscrimination requirements Eligible employer: 100 or fewer employees during either of two preceding years Control group rules apply (substituting 50% for 80%) All non-excludable employees with 1,000 hours of service preceding year must be eligible Minimum employer contribution requirement Partners, sole proprietors, 2%-plus shareholders of S-corp still excluded
Medicare Part D Effective January 1, 2011 Donut hole begins closing May affect Creditable Coverage for Medicare Part D Prescription Drug Notices
Changes for 2012
Uniform Explanation of Coverage by March 23, 2012 HHS to develop uniform terms and formats for summaries of health benefits and coverage Plan sponsor (self-insured plans) or insurer (insured plans) must provide before March 23, 2012 to enrollees, re-enrollees and applicants Not more than 4 pages or smaller than 12 point font Culturally and linguistically appropriate with understandable terminology Paper or electronic $1,000 per enrollee for willful failure to comply! Applies to Grandfather Plans
Advance Notice of Modifications Material modification to terms of plan or coverage Not later than 60 days prior to date modification is effective Applies to grandfather plans 3/23/2012
Annual Reporting Requirements Required annual reports to HHS and participants regarding health care quality and wellness initiatives Regulations due by March 2011 Does not apply to grandfathered plans Grandfather: Exempt
Annual Fees Annual fees begin to apply to insured and self-insured benefit plans to fund patientcentered outcomes research $2 per average number covered lives ($1 for 2013 fiscal year) Applies for plan years ending after 9/30/2012) Will be paid as a tax
Additional HIPAA Transactions Regulations due for unique health plan identifier and electronic funds transfers Health plans will have to certify compliance May require amendment of business associate agreement with TPAs
Changes for 2013
Notification of Exchange Must notify employees of availability of insurance through Exchange Applies to all plans beginning March 1, 2013 Give to: New employees upon being hired Existing employees not later than 3/1/13 HHS to publish regulations
FSA Limits Limits annual health FSA contributions to $2,500 Applies January 1, 2013 Limit is indexed to inflation for following years Applies to all plans (including grandfathered plans)
Taxation of Medicare Part D Subsidy Currently, employers who sponsor retiree health benefits that provide creditable prescription drug coverage may get a taxfree federal subsidy Starting in 2013, the subsidy becomes taxable Consider whether there is an immediate impact on income statements
Changes for 2014
Additional Changes Plan Year on or after January 1, 2014 No annual limits on dollar value of coverage Cover all children up to age 26 No pre-existing condition exclusions or limitations for adults (under 19 already covered) Waiting period cannot exceed 90 days Increased wellness program maximum incentive (for achieving health standard) 20% to 30% of premium cost Regulators can increase to 50% All above changes apply to grandfather plans
Additional Changes Plan Year on or after January 1, 2014 Cost Sharing Limits Out-of-pocket expenses cannot exceed HSA out-of-pocket maximum Currently $5,950 single, $11,900 family Deductible cannot exceed $2,000 single, $4,000 family (indexed) Clinical trials Must cover routine patient costs in connection with clinical trial Grandfather: Exempt
Play or Pay Requirements
Health Plan Exchanges Each state required to have in place either: American Health Benefits Exchange; or Similar market approved by HHS Market for: Individual/family insurance policies. Small employer policies Small employer if 1-100 employees in prior calendar year Beginning 2017, states may allow large employers (101 or more employees) to purchase through Exchange
Qualified Health Plans Creates standards for health plans to be sold through state Exchanges Essential health benefits Deductible and out-of-pocket limits Various levels of coverage: Bronze (60% coverage) Silver (70% coverage) Gold (80% coverage) Platinum (90% coverage) Catastrophic-only plans for: Those under age 30 ( Young Invincibles ) Those exempt from individual responsibility requirement
Individual Mandates Individuals generally required to maintain minimum essential coverage beginning 2014 Exempts those at or under the tax filing threshold Penalty for failing to maintain coverage: 2014: greater of $95 or 1% of income 2015: greater of $325 or 2% of income 2016: greater of $695 or 2.5% of income Penalty will not be more than average cost of bronze plan for individual s family size
Assistance for Individuals Refundable tax credits for individuals who purchase qualified health plans Incomes must be between 100 to 400 percent of federal poverty line (approx. $88,000 for a family of four) Credits not available if eligible for coverage under employer health plan, unless: Employee s premiums for single coverage would exceed 9.5% of income; or Benefits paid under plan are less than 60% of the costs Reduced cost-sharing for those under 400 percent of federal poverty line (tiered) Out-of-pocket amounts reduced Increased percentage of costs covered
Employer Responsibilities Employers with more than 50 FTEs who do not offer affordable coverage to all full-time employees will likely pay penalties full-time means employees working an average of at least 30 hours per week/120 hours per month affordable means: Employee contribution does not exceed 9.5% of household income; and Plan covers at least 60% of actuarial value of total allowed costs
Employer Responsibilities Penalties for employers with more than 50 FTEs Triggered if at least one qualified individual : enrolls in coverage through exchange; and qualifies for premium tax reduction or cost-sharing reduction qualified individual means employee with household income of less than 400% of federal poverty level household income of less than $43,320 for individual, or less than $88,200 for family of four (2009 levels)
Responsibility of Employers with more than 50 FTEs if employer does not offer health plan coverage: pay penalty of $2000 per year per full time employees (reduced by 30). Monthly pro rata is $166.67 per month If employer s health plan coverage is not affordable coverage: $3000 per per year per full time employee who enrolls in Exchange coverage and qualifies for premium tax reduction or cost-sharing reduction Penalty does not apply of free choice voucher applies
Free Choice Vouchers Employer offers affordable coverage, but employee coverage costs more than 8% and less than 9.8% of household income Employee does not participate in plan but chooses to enroll in an Exchange plan Voucher amount equals employer s contribution to employer s health plan If multiple plans, the plan to which the employer contributes the largest portion of the cost Same amount employer would contribute toward single or family coverage under employer s plan
Changes for 2018
Cadillac Plan Tax January 1, 2018 40% excise tax on excess benefit under employer plan Excess benefit = annual value of coverage above $10,200/individual and $27,600 family; $11,850/$30,950 for post-55 retirees and high-risk industries (indexed after 2018) Includes Employee contributions FSA and HRA and employer-paid HSA contributions Non-work related coverage provided at onsite medical Excludes stand-alone dental, vision, disease specific, long-term care Value determined similarly to COBRA premiums Includes grandfather plans
Who Pays Cadillac Tax? Tax imposed on coverage provider Insured plan insurer Self-insured person that administers the plan defined as the plan sponsor if the plan sponsor administers plan benefits Tax will likely be passed on to employers/employees If more than one plan, allocated among coverage providers
Other Issues
Automatic Enrollment Effective Date Not Clear Employers with more than 200 employees Must automatically enroll new full-time employees in one of health plans it offers (subject to waiting period) Employees may opt out Effective date likely delayed until regulations issued
What Happens If Your Plan Loses Grandfather Status? If plans become un-grandfathered, it becomes subject to all rules that apply to group health plans, including Coverage of preventive services without cost-sharing New annual reports to government Cost-sharing limitations External claims procedures Cannot limit choice of primary care provider Coverage of certain emergency services Access to pediatric and ob/gyn care Coverage of individuals in clinical trials Nondiscrimination rules apply to insured plans
Conclusion Basic overview of mandates for employers, new plan design and administrative requirements and other provision that affect employer health plans Still many unanswered questions Future webinars as guidance issued will keep you updated Meanwhile call us or e-mail us if we can help
Health Care Reform: What s In Store for Employer Health Plans? April 21, 2010 Presented by: Sue O. Conway sconway@wnj.com (616) 752-2153 Norbert F. Kugele nkugele@wnj.com (616) 752-2186