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CareFirst BlueCross BlueShield

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1 CareFirst BlueCross BlueShield
Healthcare Reform: It’s Not Over Yet—What Your Company Needs to Know for 2015 Presented by: Venable LLP CareFirst BlueCross BlueShield and Allegis Group, Inc.

2 State of Private Insurance
Individual Market Changes in the Employer Market Private Exchanges

3 Purchasing Individual Health Insurance: before and after the ACA
Harder to compare benefit options and premiums Pre-existing condition exclusion Individual Mandate Consumer Protections Access to Insurance Affordability

4 Individual Mandate Generally, absent a few limited exceptions, all Americans must have health insurance after January 1, 2014 Individuals who fail to obtain coverage will be subject to a tax penalty 2014: $95.00 or 1.0% of income (whichever is greater) 2015: $ or 2.0% of income

5 Consumer Protections 10 Essential Health Benefits
Standardization of health care plans No more pre-existing conditions/gender-based denials Coverage until age 26 Guaranteed issue and renewability Eliminating lifetime and annual limits

6 Essential Health Benefits
Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services/behavioral health treatment Prescription drugs Rehabilitative services and devices Laboratory services/testing Preventative services Pediatric dental and vision

7 Standardization of Health Care Plans
Expense Paid by Metal Plans (Actuarial Value)

8 Access to Insurance Exchanges Open Enrollment Period (OEP)
Federally Facilitated Exchange (FFE) State-Based Exchange (SBE) Partnership Exchange Open Enrollment Period (OEP) 2014 OEP was October 1, 2013 to March 31, 2014 2015 OEP is November 15, 2014 to February 15, 2015 Special Enrollment Period (SEP)

9 Affordability Premium subsidies (APTC): 139%-400% FPL
Cost-sharing subsidies (CSR): 139%-250% FPL FPL (2014) Income (Midpoint of Range) Premium Cap as % of Income Estimated Subsidy for Individual Individual Family of 4 138%-150% $16,500 $33,900 3.65% ~ 80% 150%-200% $20,100 $41,200 5.15% ~ 60% 200%-250% $25,900 $53,000 7.18% ~ 40% 250%-300% $31,600 $64,800 8.78% 0% 300%-400% $40,200 $82,400 9.5% * Subsidy percentage varies by actual premium.

10 Changes in the Employer Market
Employer Mandate – Large employers must offer affordable coverage that has minimum essential value Penalty for: Failure to offer minimum essential coverage $2,000 per year times the total number of full-time employees (not counting the first 30) Failure to offer affordable or minimum value coverage $3,000 per year times the number of full-time employees who are certified to receive, and purchase, subsidized individual health insurance through an Exchange

11 Small Business Health Options Program (SHOP)
Open to small businesses with fewer than 50 full-time employees Tax credit for small businesses with fewer than 25 employees Definition of small employer will change to full-time employees on January 1, 2016

12 Market Shifts Between Fully Insured and Self-Insured for Employers
Employers are dropping coverage because: no penalty for small employers providing coverage offers no mutual benefit decreases expenses and reduces burden Employers are shifting to self-insured plans with stop- loss coverage which: decreases expenses creates reliance on stop-loss

13 Private Exchanges Managed insurance marketplace for large employer groups Employer establishes amount it will pay toward healthcare for its employees Employee uses the established credit from employer to shop from a list of standard health plans from different carriers E.g., Mercer and Aon Hewitt

14 Where Are We Headed? Multiple court challenges pending
Proposed changes through legislation Changes in political landscape over the next several years

15 ACA Program Integrity Provisions
ACA, “Financial Integrity”: §1313; 42 USC §18033 (2010) Apply to Exchanges and/or Issuers Accounting for Expenditures General - (a)(1) Investigations – (a)(2) Audits – (a)(3) Pattern of Abuse – (a)(4) Protections Against Fraud and Abuse – (a)(5) Application of the False Claims Act – (a)(6)

16 ACA Program Integrity Provisions
General Exchanges required to keep accurate records Investigations Exchanges subject to investigations by IG, HHS Audits Exchanges subject to HHS annual audit Pattern of Abuse Exchanges or States may be subject to HHS payment withholds if engaged in serious misconduct or noncompliance

17 ACA Program Integrity Provisions
Protections Against Fraud and Abuse Secretary: ensures efficient and non-discriminatory administration of Exchanges implements measures/procedures within authorities to reduce fraud and abuse as determined appropriate

18 ACA Program Integrity Provisions
Application of the False Claims Act (FCA) To payments made “by, through or in connection with” an Exchange subject if any Federal funds Includes payments to issuers: Advance premium tax credits Advance cost-sharing reduction payments Risk adjustment, reinsurance and risk corridor payments (“3 Rs”)

19 ACA Program Integrity Provisions
Application of the False Claims Act (FCA) Compliance with issuer Exchange participation requirements is a material condition for entitlement to receive payments, “including payments of premium tax credits and cost-sharing reductions,” through the Exchange Participation requirements include: data reporting to Exchange, HHS, State state insurance marketing regulation compliance enrollment, coverage effective date and disenrollment compliance

20 ACA Program Integrity Provisions
CMS issued 2 key program integrity regulations: 78 Fed. Reg (Aug. 30, 2013) 78 Fed. Reg (Oct. 30, 2013) Includes provisions on exchange oversight requirements, premium tax credits, cost-sharing subsidies, 3 Rs, administrative enforcement authorities, etc.

21 Key Federal Health Care Regulators
U.S. Department of Health and Human Services (“HHS”) Centers for Medicare and Medicaid Services (“CMS”) HHS Office of Inspector General (“OIG”) Internal Revenue Service (“IRS”) U.S. Government Accountability Office (“GAO”)

22 Program Integrity CMS Center for Program Integrity
Focus is protecting government funds spent on federal health care programs (e.g., Medicare, Medicaid, CHIP) and now the Exchanges OIG Oversight and Enforcement #1 priority regarding oversight and enforcement of Exchanges is payment accuracy (2014 OIG Work Plan) Other priorities include eligibility systems, contracts, and security of data and consumer information

23 How QHP Issuers Are Paid on Exchanges
Premium payments from enrollees Premium tax credit and cost-sharing subsidies Premium Stabilization Program payments

24 Premium Payments from Enrollees
Individuals pay premiums to QHP issuers based on level of coverage (bronze, silver, gold or platinum) More comprehensive QHPs have higher premiums, but lower out-of-pocket costs Premiums may vary based on age and geographic location

25 Premium Tax Credit Tax credit available to enrollees in QHP on an Exchange with income between 100% and 400% of FPL Tax credit available through tax return or can be paid directly to QHP issuer

26 Advance Payment of Premium Tax Credit
QHP issuers receive periodic advance payments for premium tax credits QHP issuer must reduce premium charged to enrollee by amount of advance payment of tax credit Reporting obligations in billing statement to enrollee Notification and refund obligations if QHP issuer does not reduce premium accurately Potential liability under Exchange enforcement authorities and False Claims Act

27 Cost-Sharing Subsidies
Subsidies available to enrollees in QHP on an Exchange with income between 100% and 250% of FPL Government provides subsidies directly to QHP issuer QHP issuer applies lower cost-sharing amounts when administering enrollee’s benefit

28 Cost-Sharing Subsidies
QHP issuer must ensure that enrollee pays the lower cost-sharing amounts Notification, reassignment and refund obligations if QHP issuer assigns enrollee to wrong plan variation Annual reconciliation of advance payments of cost-sharing subsidies with CMS Potential liability under Exchange enforcement authorities and False Claims Act

29 Premium Stabilization Programs
3 interrelated programs: Risk Adjustment Program Reinsurance Program Risk Corridors Program Work together to stabilize insurance market by redistributing funds from high-performing issuers to low-performing issuers Issuers report certain data to CMS, CMS then calculates necessary subsidies and payments Potential liability under Exchange enforcement authorities and False Claims Act

30 Additional Compliance Obligations for QHP Issuers on FFE
Establish effective compliance plan Issuer attestations in QHP issuer application (potentially used for FCA liability) Oversight of downstream and delegated entities Above requirements are similar to those in Medicare Advantage/Prescription Drug programs Potential liability under Exchange enforcement authorities and False Claims Act

31 Oversight and Enforcement
QHP issuers on all Exchanges subject to audit and oversight by HHS and OIG QHP issuers on FFE subject to compliance reviews by HHS and OIG risk of administrative enforcement actions (i.e., civil money penalties (CMPs) and decertification for non-compliance with Exchange standards) Potential for False Claims Act liability (including as a new target for qui tam actions)

32 Oversight and Enforcement
GAO Report – “Preliminary Results of Undercover Testing of Enrollment Controls for Health Care Coverage and Consumer Subsidies Provided Under the Act”, GAO T, July 23, 2014 Subsidies and other costs represent a “significant, long-term fiscal commitment of the Federal government” “CMS must rely on health insurance issuers to self-report enrollment data reflecting individuals for whom CMS owes the issuers the income-based subsidies arising from obtaining coverage through the Marketplace”

33 Key Actions for QHP Issuers
Institute internal controls to ensure accurate reporting of data to CMS, record retention, documentation Report and return identified overpayments Anticipate and plan for future government audits Incorporate new requirements and risks into corporate compliance programs Incorporate lessons from MA-PD program oversight activities regarding compliance plans, oversight of delegated and downstream entities, etc.

34 Employer Mandate (Generally Effective January 1, 2015)
A one-year delay; originally effective January 1, 2014 Special rules for fiscal year plans The ACA imposes a mandate on large employers to offer minimum essential coverage to their full-time employees and their dependent children (up to age 26) or pay a penalty tax In addition, if that minimum essential coverage is not affordable or does not provide minimum value, the employer is subject to a penalty tax

35 Penalty Tax Trigger A penalty tax is due for any month in which at least one full-time employee is certified to the employer as having purchased health insurance through an Exchange with a premium subsidy from the government for that coverage But an individual is NOT eligible for a premium subsidy offered through the Exchange if he or she is eligible for employer-sponsored coverage that is affordable and provides minimum value

36 Applicable Large Employer
Applies to “applicable large employers,” defined as “an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees (“FTEs”)) on business days during the preceding calendar year” Determined on a controlled group basis Full-time means an average of 30 hours/week or 130 hours/month Common law test used for identifying employees Note – Special Transition Rule for 2015 – At Least 100 Full-Time employees (including FTEs)

37 The “No Coverage” Penalty
Penalty for Failure to Provide Coverage If more than 5% of full-time employees are not offered coverage (that includes dependent children) and even ONE full-time employee obtains a subsidy through an Exchange  the no coverage penalty is triggered Note – Special Transitional Rule for 2015 – if more than 30% (not 5%)

38 The “No Coverage” Penalty
Penalty for Failure to Provide Coverage Penalty = $2,000/year * TOTAL number of full-time employees Assessed on a monthly basis ($166.67/employee/month) First 30 (80 for 2015) full-time employees are disregarded Penalty applies on an employer-by-employer basis and not on a controlled group basis Be careful not to play AND pay

39 The “Unaffordability” Penalty
Penalty for not providing affordable/minimum value coverage Applies if: Employee’s share of the premium for lowest-cost employee-only coverage would exceed 9.5% of the employee’s income, or the affordable plan does not provide minimum value—pay at least 60% of the allowed costs under the plan, AND The employee receives a subsidy through an Exchange

40 The “Unaffordability” Penalty
Penalty for Providing “Unaffordable” coverage Penalty = $3,000/year/employee Assessed on a monthly basis ($250/employee/month) Applies only to employees who actually receive a premium subsidy for coverage on an Exchange

41 The “Unaffordability” Penalty
Safe harbors for determining if the cost of coverage exceeds 9.5% of employee’s income Form W-2 compensation Rate of pay Federal poverty limit Minimum value Safe harbor plan designs Minimum value calculator Actuarial analysis

42 Transitional Reinsurance Program Fees
Three year fee-to-fund transitional reinsurance pool ( ) Uniform contribution rate of $63/year/covered life for 2014 ($44/year/covered life for 2015) To be collected in two installments: Plan provides notice to HHS of the numbered of covered lives by November 15 of each calendar year Each installment will be due within 30 days of HHS’ notice of the amount of fee owed Notice that first installment due – HHS expected to provide this notice in December of each year Notice that second installment due – HHS expected to provide this notice during the 4th quarter of each year following the year for which payment is being made

43 “Cadillac” Tax First applies in 2018
40% non-deductible tax on “excess benefits” Excess benefit = benefits provided in excess of annual limit ($10,200/$27,500 for 2018)

44 Overview – Code Sections 6055 and 6056
Calendar year basis (regardless of plan year) Effective for 2015, with initial reports due in early 2016 Two overlapping sets of reporting requirements Code Section 6055 – Health insurance issuer/self-funded plan sponsor – to facilitate compliance with the individual mandate provisions Code Section 6056 – Employers subject to the coverage mandate – to facilitate compliance with the Employer Mandate and premium subsidies Our focus today is on the latter – Reports satisfying the latter will also satisfy the former

45 Overview – Code Section 6056
Defined terms and concepts from the Employer Mandate Each entity within a controlled group reports separately IRS will issue forms for reporting: Form 1095-C (one form for each full-time employee) Form 1094-C (aggregated data for all full-time employees of the reporting entity) These forms (and their instructions) will fill in gaps left in the regulations No 2015 reporting exemption for employers with between 50 and 99 full-time employees who qualify for the 2015 special transitional rule

46 Content of Report to IRS (Primary Method)
Name, address and EIN of the reporting employer Name and phone number of contact person at the reporting employer (or its third-party reporting agent) Calendar year to which report pertains For each full-time employee, certification of whether the full-time employee (and dependents) were offered minimum essential coverage (MEC), by calendar month For each full-time employee, months during the calendar year for which MEC was available For each full-time employee, the full-time employee’s cost share for the lowest cost monthly premium for self-only coverage providing minimum value, by calendar month

47 Content of Report to IRS (Primary Method)
The number of full-time employees for each month during the calendar year Name, address and TIN of each full-time employee during the year, and the months, if any, during which the full-time employee was covered Information about whether the coverage offered provides minimum value and whether spouses were eligible The total number of employees, by month Whether an employee was subject to a permissible waiting period, by month Whether the employer had no employees or otherwise credited any hours of service during any particular month, by month

48 Content of Report to IRS (Primary Method)
Whether the reporting employer is a member of a controlled group, and, if so, the name and EIN of each controlled group member Certain additional information for governmental plans, multiemployer plans and third-party reporting entities Any other information required by the Instructions to the Forms 1094-C and 1095-C (to be determined)

49 Timing of Report to IRS Must be filed by March 31 following the calendar year, if filed electronically Must be filed by February 28 following the calendar year, if filed on paper

50 Statement to Participant (Primary Method)
Must provide a Form 1095-C to each full-time employee reported to the IRS All of the information reported to the IRS with respect to such full-time employee By January 31 following the calendar year to which it pertains

51 Alternative Reporting Methods
Method #1: “Qualifying Offers” Coverage offer to one or more full-time employees Offer covers all months in the calendar year for which the individual was a full-time employee (except months for which there is a Section 4980H penalty exemption) Coverage provides minimum value Employee cost of employee-only coverage does not exceed 9.5% of the mainland single federal poverty level (which is $1, – or 9.5% of $11,670, for 2014) Offer extends to dependents and spouse

52 Alternative Reporting Methods
Method #1: “Qualifying Offers” Each full-time employee who received a “qualifying offer” for all 12 months in the calendar year is eligible to be reported using an abbreviated Form 1095-C Other full-time employees (who did not receive “qualifying offers”) are reported using the “primary method”

53 Alternative Reporting Methods
Method #2: “98% Offers” Reporting employer certifies that it offered coverage qualifying for Section 4980H(b) penalty relief (i.e., minimum value, affordable, to employee and dependents) to at least 98% of its employees who were full-time at any time during the calendar year (and are therefore subject to Section 6056 reporting) Exempts the employer from identifying in its Section 6056 reporting whether a particular employee is a full-time employee for one or more months during the year Exempts the employer from reporting its total number of full-time employees for the year

54 Penalties for Non-Compliance
$100 per late or incorrect return filed (or not filed) with IRS (Code Section 6721) $100 per late or incorrect statement provided (or not provided) to a participant (Code Section 6722) IRS may choose to waive penalties upon a showing of reasonable cause

55 Contingent Workforce and PPACA
Contingent workforce allows companies to have flexibility in workforce Leaves and other absences Seasonal fluctuations and market fluctuations Skill shortages How should you think about your contingent workforce as it relates to PPACA and your interactions with staffing firms?

56 Contingent Workforce Concerns
Concern that contingent workers will be considered “employees” of client and since no offer of coverage is made by client, client triggers “A” penalty (bigger issue when coverage level is 95% in 2016) Staffing firms have always taken the position they are the common law employer of the employees they assign to clients

57 Common Law Employer Multi-factor test
There can only be one (for tax and benefits purposes, no such thing as “co-employment or “joint employment”) Right to direct and control (does not have to be actual) Origins of common law test are in tort law (basis of recovery from the master for torts committed by servant during servant’s employment)

58 Common Law Employer – Staffing Firms
Staffing firms typically: Recruit and screen potential employees Hire employees and remit withholdings Responsible for worker’s compensation and benefits Right to control: Right to hire, discipline and fire; right to assign and re-assign Behavior of the client and staffing firm are important

59 Dos and Don’ts – Staffing Firms/Clients
Tell staffing firm you are “ending the assignment” Let staffing firm handle discipline and performance issues Let staffing firm recruit and screen (with limited client input) DON’T: “Terminate” a contingent worker Discipline contingent worker or address performance issues without involving staffing firm Act like the employer (e.g., evaluate screening results, dictate wages or benefits)

60 PPACA Final Rules – Discussion of Staffing Firms
Section in preamble regarding “temporary staffing firms” which discusses such staffing firms making an offer of coverage to its “employees” Preamble seems to use “temporary staffing firm” to mean a firm that places employees in short-term, high-turnover assignments A “staffing firm” can be construed to mean any staffing firm that does not place temporary workers (e.g., direct permanent placement services, pay-rolling) Final rules also use “professional employer organization” and “staffing firm” in section on offers of coverage (no explicit definitions given for any of these terms)

61 Staffing Industry – Staffing Firms and PEOs
Traditional staffing firms: Historically have always been viewed as the common law employer of employees they assign to clients Recruit employees PEOs (Professional Employer Organization): IRS Notice : PEO retirement plans are multiple employer plans (client is the common law employer) 3/1/06 DOL Information Letter: PEO welfare plan is a MEWA Generally do not recruit employees

62 PPACA Final Rules – Offers of Coverage on Behalf of Other Entities (Treas. Reg §54.4980H-4(b)(2))
This section was meant to cover multi-employer, single-employer Taft-Hartley, MEWAs and “other similar arrangements” “If certain conditions are met, an offer of coverage to an employee performing services for an employer that is a client of a professional employer organization or other staffing firm (in the typical case in which the professional employer organization or staffing firm is not the common law employer of the individual)…made by the staffing firm on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer for purposes of 4980H….only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan”

63 Offer of Coverage by Other Entities - Issues
Troubling that the Final Rules included “or other staffing firm,” as it creates confusion Many clients want to pay something more to staffing firms only for those employees who get benefits in case the clients gets deemed the common law employer to avoid the “A” penalty issue This means the client is saying they are the common law employer, which likely isn’t the case Creates MEWA issue for staffing firm

64 Risks of Paying Extra for Health Care Per Employee
Disfavoring employees who elect benefits because the cost is higher (not in line with spirit of PPACA) Privacy issues Client typically hasn’t acted as the common law employer for payroll taxes or otherwise acted as the common law employer – inconsistent to say client is the common law employer MEWA issue for staffing firms (staffing firms are not treating plans as MEWAs because they view all employees as employees of staffing firm and not the clients)

65 What should clients do? Require staffing firms to comply with PPACA and get an indemnity for the staffing firm’s failure to comply (staffing firm may exclude claims where client’s actions lead to claim – i.e., client taking steps to cause client to be the common law employer) Make sure contracts with staffing firms state the staffing firm reserves the right to control and direct the employees assigned (and expressly state staffing firm is common law employer)

66 What should clients do? Consider whether you want to require in contract that staffing firm must provide Minimum Value and Affordable Coverage (PPACA requires pay or play, so why require play?). Keep in mind: Some smaller staffing firms may not have to provide Minimum Value, Affordable Coverage or may decide it’s in best interests of employees to not provide it so employees can get subsidies on exchanges Limits the accessible talent pool Make sure both client and staffing firm are following the right steps for staffing firm to be the common law employer – coupled with indemnity, should be sufficient to cover risk

67 Staffing Firms – Costs of PPACA
Many staffing firms may need to pass on the costs associated with PPACA to clients Traditionall, staffing firms were not providing any subsidies toward coverage (costs to make coverage affordable) Obtaining coverage for contingent workforce employees is difficult and expensive (underwriting is a challenge- unpredictable workforce, high turnover) Many staffing firms were providing mini-meds or similar-type limited indemnity plans that are no longer allowed under PPACA, but they were significantly cheaper than plans that comply with PPACA

68 Thank you. Contact Information: Meryl Burgin, Executive Vice President, General Counsel & Corporate Secretary, CareFirst BlueCross BlueShield Maureen Dry-Wasson, Assistant General Counsel, Allegis Group, Inc. Thora Johnson, Partner, Venable LLP Brenda Tranchida, Counsel, Venable LLP

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