AN EMPLOYER S GUIDE TO HEALTH CARE REFORM Gary Bottoms, CLU, ChFC President David Bottoms, CFP, RHU, REBC, CLU, ChFC Vice President The Bottoms Group, LLC 180 Cherokee Street NE Marietta, Georgia 30060-1610 770.425.9989 www.thebottomsgroup.com Securities offered through Registered Representatives of NFP Securities, Inc., a Broker/Dealer and Member FINRA/SIPC. Investment Advisory Services offered through Investment Advisory Representatives of NFP Securities, Inc. a Federally Registered Investment Adviser. Not all of the individuals using this material are registered to offer Securities products through NFP Securities, Inc. The Bottoms Group, LLC is a member of PartnersFinancial, a division of NFP Insurance Services, Inc.,whichisasubsidiary of National Financial Partners Corp., the parent company of NFP Securities, Inc. 1
First Some History 1942 Stabilization Act Employer-provided p health insurance system 1954 Internal Revenue Code Employer contributions to employee health plans exempt from taxable income 1965 Medicare Enacted Physician reimbursement based upon usual, customary and reasonable rate Doctors bll bill patients directly 1983 Medicare Payments Based Upon Fee Schedule Cost shift 1986 Consolidated Omnibus Budget Reconciliation Act (COBRA) 2
National Health Expenditures per Capita and Their Share of Gross Domestic Product, 1960-2008 Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/nationalhealthexpenddata/ (see Historical; NHE summary including share of GDP, CY 1960-2008; file nhegdp08.zip). 3
Average Annual Premiums for Single and Family Coverage, 1999-2009 *Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009. 4
Social Security Number of Years Until Depleted Source: Office of the Chief Actuary Social Security Administration 5
Medicare Number of Years Until Depleted Source: Office of the Chief Actuary Social Security Administration 6
Medicare s Unfunded d Liability (Over 75 Years) Source: 2009 Medicare Trustees Report 7
Social Security/Medicare Unfunded Liability (Over 75 Years) Sources: 2009 Social Security Trustees Report & 2009 Medicare Trustees Report 8
If something cannot go on forever, it will stop. Herb Stein, Economist U.S. Deficits are not sustainable. Ben Bernanke, Federal Reserve Chairman 9
Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA) Reasons for Reform Legislative Overview Employer & Coverage Implications Tax Provisions Effective Dates Questions 10
Reasons for Reform Social agenda mandates universal availability of coverage Risk pooling necessitates all in Budgeting requires revenue sources Inefficiencies are perceived as part of problem with the current system 11
Legislative Overview Universal Health Care Coverage by 2014 Individual Mandate : all individuals must maintain coverage or pay a penalty Employer Mandate : all employers must provide affordable coverage or pay a penalty State-Based Health Insurance Exchanges provide alternatives and enhance competitiveness and efficiency Temporary High-Risk Insurance Pool provides interim coverage for uninsurable individuals Common limits (lifetime maximums; pre-existing existing condition exclusions; cutoff of dependents at emancipation) eliminated or modified 12
Tax on High Wage Earners Health Industry Fees Tax on Individuals Who Fail to Obtain Coverage Tax on High Cost Health Plans Revenue Sources Sources: (New IRC 3101(b)), 1411 [PPACA 9015, 10906;HCEARA 1402]; [PPACA 9008; HCEARA 1404]]; (New IRC 4191) [HCEARA 1405]; [PPACA 9010, 10905; HCEARA 1406]; New IRC 4980I) [PPACA 9001; HCEARA 1401] 13
Disallowed Deduction for Certain Retiree Prescription Drug Plans Amend Itemized Deduction for Medical Expenses OTC Restrictions on Account Based Plans Tax on Indoor Tanning Revenue Sources (continued) Sources: (New IRC 139A) [PPACA 9012; HCEARA 1407]; (New IRC 213) [PPACA 9013]; (New IRC 223(d)(2)(A); 220(d)(2)(A); 106(f)) [PPACA 9003]; (New IRC 5000B) [PPACA 10907] 14
Efficiency Measures Competition through State-Based Exchanges Focus on Prevention and Wellness Comparative Effectiveness Research/Awareness Efforts Medical Loss Ratios and Premium Reviews Modified Community Rating Requirements Sources: (New PHSA 2718(c)) [PPACA 1001] ; (New PHSA 2794)[PPACA 1003]; (New PHSA 2718(b)) [PPACA 1001, 10101(f)] (New PHSA 2706) [PPACA 1201] 15
Modified Community Rti Rating Requirements Relates to individual id plans, fully insured group policies with less than 100 employees, and larger groups purchasing coverage through h the Exchange Premium Variations: Age (3:1) Tobacco Use (1.5:1) Family Composition Geographic regions to be defined by the States Notes: Data is from the MEPS Household and Medical Provider Components and includes direct payments for care provided, including out-of-pocket payments and payment by private insurance, Medicare, Medicare, and other sources; it does not include payment for health insurance premiums, over-the-counter drugs, or indirect payments not related to specific medical events (e.g., Medicaid Disproportionate Share and Medicare Direct Medical Education payments). Includes individuals without any spending in 2007. Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2007. 16
Enrollment Employer Provisions Automatic Enrollment for Large Employers (200+ Employees) 90-Day Limit on Waiting Period Prohibition on Rescissions No Preexisting Condition Exclusions Adult Dependent Coverage (Expansion of Eligibility Up to Age 26) Sources: (New FLSA 18A) [PPACA 1511]; (New PHSA 2711) [PPACA 1001, 10101]; (New PHSA 2704) [PPACA 120]; [PPACA 1101]; [HCEARA 2301(a)] [HCEARA 1004(d)]; (New PHSA 2709) [PPCAC 10103] 17
Minimum Essential Coverage Minimum Essential Coverage Free Rider Penalty Plan Must Cover 60% of Costs Coverage Must be Affordable (Employee Portion Must be Less than 9.5% of Income) If Any Employee Receives a Subsidy through the Exchange, Penalty Applies Employee Free Choice Vouchers 400% Federal Poverty Level Employee s Portion of Cost Between 8% and 9.8% of Income Employee Gets Refund of Excess Voucher Amount No Lifetime Limits/Only Reasonable Annual Limits on Essential Benefits Changes to Health Flex-Spending Account Rules Sources: [PPACA 1302] ; [PPACA 1302(b)(5)]; [PPACA 1303]; [PPACA 1302(b)]; [PPACA 1302(f)] 18
No Coverage Employer Mandate Companies with more than 50 Full Time Employees (FTE s) Must Provide Qualified and Affordable Coverage If an employer does not provide coverage and at least one employee receives a tax credit through h the Exchange: Fine will be equal to $2,000 per employee annually, but the first 30 employees are not counted. Fine does not go to the employees for use in the Exchange. Source: (New IRC 4980H) [PPACA 1513, 10106(e); HCEARA 1003] 19
Employer Mandate Source: (New IRC 36B) [PPACA 1401] Insufficient Coverage If an employer does provide coverage and at least one employee receives a tax credit through the Exchange: Fine will be the lesser of f$ $3,000 for each employee receiving a tax credit or $2,000 per employee annually, but the first 30 employees are not counted. An individual who has access to employer coverage and has family income up to 400% of Federal Poverty Level (FPL) is eligible for a tax credit through the Exchange if: The actuarial value of the employer s coverage is less than the minimum standard, or The employer requires the employee to contribute more than 9.5% of the employee s family income toward the cost of coverage. 20
Free Choice Vouchers Employer Mandate If an employer does provide coverage, they must provide free-choice vouchers to each employee who is required to contribute between 8.0% and 9.8% of the employees household income toward the cost of coverage, if: The employee s household income is less than 400% of FPL, and The employee does not enroll in the plan sponsored by the employer. The voucher must be equal to the amount the employer would have provided for coverage in the employer plan, adjusted for age. The employee can keep amounts of the voucher in excess of the cost of coverage selected on a taxfree basis. Source: (New IRC 139D) [PPACA 10108] 21
Employer Provisions Emergency Care Required In-Network Coverage Preventative Care Required First Dollar Coverage for Preventive Care Increased Wellness Incentives Threshold h Retiree Insurance Retiree Reinsurance Program Tax on Retiree Medicare Part D Prescription Drug Subsidy Revenue Provisions Cadillac Tax on High Cost Health Plans Sources: (New PHSA 2713) [PPACA 1001]; (New PHSA 2705) [PPACA 1201] (New PHSA 2706) [PPACA 1201]; [PPACA 1102] 22
Employer Provisions New Reporting/ Disclosure Requirements Form W-2 Reporting of the Value of Benefits Provided Certification of Health Care Coverage Uniform Explanation of Coverage ( Mini-SPD* ) 60-Day Advanced Notice of Benefit Modifications Employee Notice of Exchange Information Miscellaneous Insured Plans Subject to Nondiscrimination Requirements Revised Appeals Process *Summary Plan Description Sources: (New IRC 4980I)[PPACA 9002]; (New IRC 6056) [PPACA 1514]; (New PHSA 2715) [PPACA 1001]; (New FLSA 18B) [PPACA 1512]; (New PHSA 2719) [PPACA 1001, 10101] 23
Small Business Provisions Coverage Available Through Exchanges Tax Credits for Providing Health Care Coverage Simplified Cafeteria Plan Rules Grants for Creating Wellness Programs 24
Small Business Provisions Small Business Tax Credit Eligible small businesses are eligible for phase one of the small business premium tax credit. Small employers with less than 25 employees may be eligible for a tax credit on a sliding scale based on number of employees and average payroll, of up to 50% of premiums for up to 2 years if the employer contributes at least 50% of the total premium cost. Average salary must be $50,000 or less. Businesses with no tax liability and non-profits are eligible for the credit. Source: (New IRC 45R)[PPACA 1421; 10105] 25
Changes to Taxation Employee Provisions Changes to Health Flexible- Spending Account Rules No Reimbursement for Non-Prescription Over the Counter Drugs $2,500 Cap on Employee Contributions Changes to Health Savings Account Taxation Increased Medicare Tax for High Income Employees CLASS Act Sources: (New IRC 223(d)(2)(A); 220(d)(2)(A); 106(f)) [PPACA 9003]; (New IRC 223(f)(4)(A); 220(f)(4)(A)) [PPACA 9004]; (New IRC 125(i)) [PPACA 9005, 10902; HCEARA 1403] 26
Employer Implications Reporting Form W-2 Reporting of Value of Health Benefits Expanded 1099 Reporting Employee Misclassifications Employee Communications Nursing Mothers Amendment to Fair Labor Standards Act (FLSA) Wellness Consumer-Driven Initiatives Sources: [PPACA 1311(j)]; ((New FLSA 207) [PPACA 4207]; New PHSA 2705) [PPACA 1201](New PHSA 2706) [PPACA 1201] 27
Employer Implications Collectively l Bargained Group Health Plans Grandfathering Exempt until last of collective bargaining agreements expire Medicare Part D Prescription Drug Coverage Tax deduction eliminated January 1, 2013 Accounting rules require reporting changes this year Cadillac Tax 40% Excise Tax effective 2018 Thresholds: $10,200 single/$27,500 family Sources: [PPACA 1251(d)]; [PPACA 1251; 10103(d); HCEARA 2301]; [PPACA 1251(d)] 28
Individual Mandate Minimum Essential Coverage Requires all American citizens and legal residents to purchase qualified health insurance coverage. Penalty for non compliance to either a flat dollar amount per person or a percentage of the individual s income, whichever is higher. Capped at the value of a Bronze Level premium in the Exchange. Bronze Level coverage is defined a providing coverage for a minimum of 60% of the expected actuarial value of claims. Source: ([PPACA 1501; New IRC 5000A] & New IRC 5000A)[PPACA 1501; 10106] 29
Individual Mandate Penalty for Noncompliance In 2014, the percentage of income determining the fine amount will be 1%, then 2% in 2015, with the maximum fine of 2.5% of taxable (gross) household income capped at the average bronze-level insurance premium (60% actuarial) rate for the person s s family beginning in 2016. The alternative is a fixed dollar amount that phases in beginning with $325 per person in 2015 to $695 in 2016. Source: [PPACA 1501, 10106;HCEARA 1002] 30
Individual Mandate Tax Credits Creates sliding scale credits for non- Medicaid eligible individuals with incomes up to 400% of FPL to buy coverage through the Exchange. Employer penalties for noncompliance do not serve as credits for employee purchase of coverage. Beginning in 2019, a failsafe mechanism is in place to ensure subsidies do not exceed 0.504 percent of Gross Domestic Product (GDP). Source: [New IRC 36B) [PPACA 1401, 10105, HCEARA 1001(a)] 31
State Based Exchanges Variety of Carriers/Plans: Bronze Plan: 60% Actuarial Value of Minimum Coverage Silver Plan: 70% Actuarial Value of Minimum Coverage Gold Plan: 80% Actuarial Value of Minimum Coverage Platinum Plan: 90% Actuarial Value of Minimum Coverage Catastrophic Only Plan: Available to those 30 and younger Deductible Limits: $2,000 Individual; $4,000 Family Out of Pocket Limits: $5,950 Individual; $11,900 Family Sources: [PPACA 1311]; [HCEARA 1204; PPACA 1323]; [PPACA 1301(a)(1); 1311(d)(2), (3)]; [PPACA 1302(e)] [PPACA 1304(b), 1311,1312(f)] 32
Health Care Provisions Quality of Care and Cost Initiatives Accountable Care Organizations Hospital Value-Based Purchasing Program Payment Reform Demonstration Projects Disclosure and Transparency Pharmaceutical and Medical Device Manufacturers Physician Ownership and Self-Referrals Imaging Services Nursing Homes 33
Health Care Provisions Increase Fraud and Abuse Enforcement Compliance Plans Disclosures of Financial Relationships among Health Care Providers Whistleblower Actions Non-Profit Hospitals Sources: (New IRC 501(r)) [PPACA 9007, 10903]; (New IRC 4959) [PPACA 9007] Community Needs Assessment Every Three Years Implementation Strategy Financial i Assistance Policy $50,000 Penalty 34
Health Care Provisions Bottom Line Effects Reimbursement will provide incentives for providers to consolidate Reimbursement cuts unless quality and cost control measures are implemented Incentives related to integrated delivery service models Tighter scrutiny on referrals, compliance, and fraud and abuse Disclosure and transparency requirements 35
Tax Provisions OTC Drug Exclusion from Account-Based Plans FSA Contributions Limited to $2,500 Tax on Brand-Name Drug Prescription Drug Manufacturers Tax on Group Health Plans to Fund Comparative Effectiveness Research Elimination of Employer Subsidy for Medicare Part D Premiums Medical Expense Tax Deduction Increased to 10% of AGI Tax on Private Health Insurance Premiums Tax on Cadillac Plans 36
Tax Provisions - Medicare Medicare Premium Changes/Subsidy Reductions Reduce Medicare Reimbursements to Providers Medicare Payroll Tax Increase 0.9% Medicare Hospital Insurance (HI) 3.8% Medicare Contribution Net Investment t Income or The excess of the taxpayers AGI over thresholds 37
Effective Dates Effective immediately Limit on Deductibility of Executive Compensation for Health Insurance Companies Increased Adoption Assistance Exclusion Automatic Enrollment? Three Months from Enactment Retiree Reinsurance Program: Lasts until 2014 (or when funding runs out) Temporary High Risk Insurance Pool 38
Effective Dates Plan Years Beginning on or after September 23, 2010 Prohibition on Lifetime Limits Limitations on Annual Limits Adult Dependent Coverage Elimination of Preexisting Exclusions for Dependents No Rescissions Transparency Disclosures No Cost-Sharing for Preventative Coverage* Nondiscrimination Rules Apply to Insured Plans* Revised Appeals Process* *Does not Apply to Grandfathered Plans 39
Effective Dates Tax Years Beginning January 1, 2011 No reimbursement for OTC Medication CLASS Act Automatic Opt-in Form W-2 Reporting Requirement Increased HSA Non-Medical Withdrawal Assessment Tax Years Beginning January 1, 2012 Corporate Service Provider Reporting Requirement Uniform Explanation of Coverage (March 23, 2012) Modification Notice (March 23, 2012) Tax Years Beginning January 1, 2013 Medicare portion of FICA tax increases for high earning employees Cap on Health FSA Contributions Employer Taxed on Retiree Drug Subsidy Comparative Effectiveness Fee Employer Notification to Employees Regarding Exchange (March 1, 2013) 40
Effective Dates Tax Years Beginning January 1, 2014 Creation of State-Based Exchanges Ban on All Preexisting Condition Exclusions Ban on Annual Limits Free Rider Penalty Free Choice Vouchers Out of Pocket Limits* Required Coverage for Clinical Trials for Life-Threatening Diseases Certification of Coverage Individual Mandate Limit on Waiting Periods Increased Wellness Program Incentives Retiree Reinsurance Program Ends (unless funding runs out sooner) Temporary High Risk Insurance Pool Ends *Does not Apply to Grandfathered Plans 41
Effective Dates Tax Years Beginning i January 1, 2018 Cadillac Tax 42
QUESTIONS??? 43