Employers and Health Care Reform Ruselle W. Robinson, Esquire Posternak Blankstein & Lund, LLP Boston, MA (617)

Posternak Blankstein & Lund, LLP2 Employers and Health Care Reform Contents Background 3 Insurance Reform—Group Health Plans 9 Small Business Tax Credit17 W-2 Reporting Changes19 Medicare Payroll Tax Increase20 Employer Responsibilities—January 1, Individual Mandate22 State Insurance Exchanges23 Employer Responsibilities—January 1, Cost Control Measures30 Quality Improvement Measures31

Posternak Blankstein & Lund, LLP3 Employers and Health Care Reform Background  Why Now For Health Care Reform?  Implementation Rollout

Posternak Blankstein & Lund, LLP4 Employers and Health Care Reform Why Now?  US has the most expensive health care system in the world, measured on a cost per capita basis. In 2007, the US spent an estimated $7,290 per person on health care. Australia was a distant second at $3,357 per person.  US health care spending is projected to rise from 16% of GDP in 2007 to 25% in  The Federal Government’s share of health care expenditures is projected to exceed 50% of all health care expenditures in 2012 as public expenditures are rising at a more rapid rate than the private health care market.  The US economy cannot afford the current rate of growth in health care expenditures.

Posternak Blankstein & Lund, LLP5 Employers and Health Care Reform Other Problems With the U.S. System  The number of uninsured Americans is estimated to be more than 50 million in 2010, or more than 16% of the population. The uninsured have worse health outcomes because they lack regular access to the health care system.  US trails other countries in measurable health care outcomes. CIA World Factbook (2009) placed the US 49 th in overall life expectancy and 46 th in infant mortality.  Our large health care expenditures do not lead to overall better health outcomes. In other words, we don’t get what we pay for.

Posternak Blankstein & Lund, LLP6 Employers and Health Care Reform Other Countries Have Met the Challenge of Providing Universal Coverage and Controlling Costs 1. England:Government Provides Direct Health Care 2. Canada:Single Payer System 3. Germany:Regulation of Health Insurance Each of these countries has developed a health care system with universal coverage and reasonable costs based upon its history and culture.

Posternak Blankstein & Lund, LLP7 Employers and Health Care Reform Goals of US Health Care Reform  Retain Structure of Present Health Care Insurance and Delivery System  Keep Present Players in the System: Employers, Employees, Health Insurers, Government, Medical Providers  Reduce Number of Uninsured Through Insurance Reform  Increase Affordability of Health Insurance for Individuals  Reduce Overall Costs  Improve Quality of Care Within the Health Care Delivery System

Posternak Blankstein & Lund, LLP8 Employers and Health Care Reform Implementation  Implemented in stages beginning January 1, 2010 and continuing into 2018  Major Dates are September 23, 2010 and January 1, 2014

Posternak Blankstein & Lund, LLP9 Employers and Health Care Reform Primary Focus: Insurance Reform  Gives Incentives to Employers to Retain Health Insurance Benefit; Penalizes those Employers That Don’t Offer a Health Insurance Benefit  Expands Government Programs to Include Individuals Who Meet New Income Guidelines  Sets up Insurance Exchanges for People Who Either do not Have or Cannot Afford Employer-based Insurance and Are Not Eligible for Government-Sponsored Health Insurance. Premiums Set on A Sliding Scale Based on Income  Individuals Required to Have Health Insurance (Individual Mandate)

Posternak Blankstein & Lund, LLP10 Employers and Health Care Reform Group Health Plans  Many of the mandates imposed by health care reform are imposed through Group Health Plan coverage requirements. A Group Health Plan is a program maintained by an employer or employee organization (e.g., a union) established and maintained to provide medical care to employees and their dependents. Includes fully-insured and self-insured plans.  The definition does not include stand-alone supplemental health insurance plans, such as dental or vision plans, and does not include retiree-only health insurance plans because retirees are not employees.  Group health plans in effect on March 23, 2010 grandfathered from many of health care reform mandates

Posternak Blankstein & Lund, LLP11 Employers and Health Care Reform Grandfathered Group Health Plans  Group Health Plans in effect on March 23, 2010 are grandfathered from some, but not all, health care reform mandates. A group health plan must stay basically unchanged in the benefits it offers in order to remain grandfathered.  A grandfathered health plan must disclose its status in all plan materials describing plan benefits to participants and beneficiaries.  All grandfathered health plans must maintain records that verify the plan complies with the rules to remain grandfathered.  Special grandfather rules apply to fully-insured Group Health Plans maintained pursuant to collective bargaining agreements.

Posternak Blankstein & Lund, LLP12 Employers and Health Care Reform Grandfathered Group Health Plans, Continued  Examples of changes a grandfathered group health plan can make and remain grandfathered: Renew an insurance policy in effect on March 23, 2010 Renew an insurance policy in effect on March 23, 2010 Change premium rates Change premium rates Change third-party administrator Change third-party administrator Add family members of an individual employee Add family members of an individual employee Enroll new employees Enroll new employees Change insurance carriers (without substantial changes to the existing plan) Change insurance carriers (without substantial changes to the existing plan)  Examples of changes that cause loss of grandfathered status: Significantly increase costs or reduce benefits under the plan Significantly increase costs or reduce benefits under the plan Eliminate substantially all of the benefits to treat a particular condition Eliminate substantially all of the benefits to treat a particular condition Increase percentage cost-sharing requirements (e.g., co-pays) Increase percentage cost-sharing requirements (e.g., co-pays) Decrease the premium contribution rate of employer by more than 5% Decrease the premium contribution rate of employer by more than 5% Introduce or reduce an annual limit on benefits Introduce or reduce an annual limit on benefits

Posternak Blankstein & Lund, LLP13 Employers and Health Care Reform September 23, 2010 New Requirements Affecting All Group Health Plans  Apply to both fully-insured and self-insured plans  No lifetime limits on benefits  No annual limits on benefits phased in  Prohibition on denying coverage or enrollment because of pre-existing conditions now for under-19; for everyone January 1, 2014  Dependent children must be covered until the child turns 26. Children under 26 not presently enrolled must be given opportunity to enroll

Posternak Blankstein & Lund, LLP14 Employers and Health Care Reform September 23, 2010 New Requirements Affecting All Group Health Plans, continued  No rescission of existing coverage unless due to fraud or misrepresentation of material fact  Health insurance issuers must spend at least 85% of premium revenue (large group market/employers with 100 or more employees) as reimbursement for clinical services or for activities that improve the quality of health care and (80% in small group market/employers with less than 100 employees), or provide a rebate to each enrollee if the medical loss ratio is less (effective as of January 1, 2011)  Limited benefit plans can apply for waivers through 2013

Posternak Blankstein & Lund, LLP15 Employers and Health Care Reform September 23, 2010 New Requirements That Apply Only to Non-Grandfathered Plans  Fully-insured plans cannot discriminate in favor of highly-paid employees when determining eligibility to participate or the level of benefits under the plan (self-insured plans already prohibited from discrimination by ERISA). Penalty for fully-insured plan is fine of $100 per day per employee discriminated against. Maximum penalty is $500,000. Employee taxed on value of excess benefit Employee taxed on value of excess benefit “Highly compensated” includes 5 highest paid officers, holder of 10% or more of company’s stock and highest paid 25% of all employees “Highly compensated” includes 5 highest paid officers, holder of 10% or more of company’s stock and highest paid 25% of all employees In general, the employer must offer the same benefits to all employees on the financial same terms (employee premium contribution, co-pays, deductibles) In general, the employer must offer the same benefits to all employees on the financial same terms (employee premium contribution, co-pays, deductibles) Some companies are considering charging higher premiums to highly compensated individuals Some companies are considering charging higher premiums to highly compensated individuals NOTE: IRS has postponed effective date of this requirement while it sorts out definition of “discrimination”.  “First Dollar” coverage required for immunizations, “evidence-based” preventive care for children and adolescents and for preventive care and screenings for women (e.g., mammograms). “First dollar” means no deductibles or co-pays for the service. Intended to encourage the practice of preventive medicine.

Posternak Blankstein & Lund, LLP16 Employers and Health Care Reform September 23, 2010 Non-Grandfathered Plans, continued  Plans must establish internal claims and appeals process and have an external review process.  Patients must have right to choose primary care physicians from within a network, to access obstetrical and gynecological services without a referral or authorization from another physician, and to access emergency services without prior authorization.

Posternak Blankstein & Lund, LLP17 Employers and Health Care Reform January 1, 2010 Small Business Tax Credit  Transitional credit effective beginning with 2010 tax year. Phased out when State Insurance Exchanges come on line.  Available to employers with fewer than 25 full-time equivalent employees with average wages of less than $50,000. A full-time equivalent equals 2,080 payroll hours.  The tax credit is on a sliding scale beginning with employers with 10 or fewer employees and average wages of less than $25,000.  In 2010 through 2013, the employer can receive a tax credit of up to 35% of their premium contribution to the company’s group health plan.  Beginning in 2014, the employer may qualify for two years for a tax credit of up to 50% of their premium contribution to the company’s group health plan.

Posternak Blankstein & Lund, LLP18 Employers and Health Care Reform January 1, 2010 Small Business Tax Credit, continued  To qualify in , Employer must offer “qualified health plan” (not defined as of yet) and contribute at least 50% of the premium cost of the plan. In 2014, a “qualified health plan” will be a plan offered through an Exchange.

Posternak Blankstein & Lund, LLP19 Employers and Health Care Reform January 1, 2011 W-2 Reporting  Affects Grandfathered and Non-Grandfathered Plans  Beginning with 2011 tax year, every employer may voluntarily report the aggregate cost (employer plus employee share) of the employer’s health insurance benefits on employee Form W-2s. Reporting is required for most employers beginning January 1, Effective date for employers issuing fewer than 250 W-2s in 2011 will be later.  For fully-insured plans, total cost is total premium paid. For self-insured plans, total cost is determined using formula similar to rules used for calculating COBRA premiums. Includes medical insurance, dental and vision plans.

Posternak Blankstein & Lund, LLP20 Employers and Health Care Reform January 1, 2013 Medicare Payroll Tax Increase  Medicare Hospital Payroll tax increases by.9% on individuals that earn over $200,000 and joint filers that earn over $250,000 (no indexing for inflation).  New Medicare tax of 3.8% on investment income for individuals that earn over $200,000 and joint filers that earn over $250,000 (no indexing for inflation)  Flexible spending account limited to $2,500 annually (indexed for inflation)

Posternak Blankstein & Lund, LLP21 Employers and Health Care Reform January 1, 2013 Employer Responsibilities  Employer must notify employee of existence of State Insurance Exchanges and federal premium subsidies (both take effect January 1, 2014)  Open enrollment for State Insurance Exchanges

Posternak Blankstein & Lund, LLP22 Employers and Health Care Reform January 1, 2014 Individual Mandate  Individual must have minimum essential coverage for themselves and their dependents.  Insurance can be obtained through Employer, an Exchange, or a government program such as Medicare and Medicaid.  Individuals who don’t have insurance will pay a penalty.

Posternak Blankstein & Lund, LLP23 Employers and Health Care Reform January 1, 2014 State Insurance Exchanges  Each state is required to establish an Exchange by this date. Federal government will set it up if a state fails to act.  A health insurer seeking to participate in an Exchange must be approved by that state as meeting certain criteria, including providing a set of defined benefits and meeting cost-sharing requirements (i.e., deductibles and co-pays).  The states generally will not regulate the premiums charged by insurers listed on their Exchanges.

Posternak Blankstein & Lund, LLP24 Employers and Health Care Reform January 1, 2014 State Insurance Exchanges, continued  Eligibility for the Exchanges will be limited to : Employees of companies with fewer than 100 employees Employees of companies with fewer than 100 employees Employees of companies that do not provide health insurance Employees of companies that do not provide health insurance Self-employed Self-employed Unemployed Unemployed Retired, but not eligible for Medicare Retired, but not eligible for Medicare Small businesses Small businesses All business eligible after January 1, 2017 All business eligible after January 1, 2017

Posternak Blankstein & Lund, LLP25 Employers and Health Care Reform January 1, 2014 State Insurance Exchanges, continued  Policies available on a sliding scale for individuals and families with subsidies available for households with income equal to % of federal poverty level (400% of federal poverty level=$88,000 for a family of 4)

Posternak Blankstein & Lund, LLP26 Employers and Health Care Reform January 1, 2014 Employer Responsibilities  No legal obligation to provide health insurance  “Large” employer can be penalized for not offering health care insurance benefit; for offering a health insurance benefit that does not include “minimum essential coverage” (still to be defined”); or for offering a health insurance benefit that is not affordable to its employees. Large employer means 50 or more full-time equivalent employees Large employer means 50 or more full-time equivalent employees Full-time is 30 hours or more per week on average Full-time is 30 hours or more per week on average

Posternak Blankstein & Lund, LLP27 Employers and Health Care Reform January 1, 2014 Employer Responsibilities, continued  Employers with more than 200 employees must automatically enroll their eligible employees in a health insurance coverage option when they become eligible. Employer must give employee a notice of enrollment and opportunity to opt-out. The effective date for this requirement may be delayed while the Department of Labor works on defining key terms (e.g., full-time employee).  Health Insurance enrollment waiting period cannot exceed 90 days.  Employers begin reporting of individual health insurance coverage to Internal Revenue Service. Purpose is for enforcement of individual mandate.

Posternak Blankstein & Lund, LLP28 Employers and Health Care Reform January 1, 2014 Employer Penalty  Employer liable for penalty if does not offer health insurance benefit, or if offered benefit does not meet certain standards.  Penalty if no health insurance benefit or insurance benefit does not provide “minimum essential coverage”: If one or more employees enrolls in an insurance exchange and qualifies for government subsidized policy If one or more employees enrolls in an insurance exchange and qualifies for government subsidized policy Then, employer penalty equals $2,000 for each of its full-time employees (first 30 employees are exempt) Then, employer penalty equals $2,000 for each of its full-time employees (first 30 employees are exempt)  Penalty if health insurance benefit is not affordable: Employer offers health insurance benefit with minimum essential coverage, and Employer offers health insurance benefit with minimum essential coverage, and If one or more employees enrolls in insurance exchange and qualifies for government subsidized policy because employee’s share of the premium for employer’s benefit exceeded 9.5% of household income, or If one or more employees enrolls in insurance exchange and qualifies for government subsidized policy because employee’s share of the premium for employer’s benefit exceeded 9.5% of household income, or the employer’s plan does not cover at least 60% of health care expenses the employer’s plan does not cover at least 60% of health care expenses Then, employer penalty equals $3,000 for each full-time employee who receives a government subsidy Then, employer penalty equals $3,000 for each full-time employee who receives a government subsidy

Posternak Blankstein & Lund, LLP29 Employers and Health Care Reform January 1, 2014 Employer Penalty, Continued  Employer can avoid penalty if: The Employer provides a health care benefit with “minimum essential coverage” The Employer provides a health care benefit with “minimum essential coverage” The Employer pays 60% or more of the cost of health care under its health insurance plan, and The Employer pays 60% or more of the cost of health care under its health insurance plan, and The employee premium contribution does not exceed 9.5% of the employee’s household income The employee premium contribution does not exceed 9.5% of the employee’s household income  The Employer is not penalized unless an employee enrolls in an insurance exchange and qualifies for subsidized coverage

Posternak Blankstein & Lund, LLP30 Employers and Health Care Reform Cost Control Measures Reducing health care costs is a process that will take years to implement. Cost control elements of health care reform include the following:  Contains measures against Medicare Fraud and Abuse  Promotes electronic health care records, which reduce medical errors and improve coordination of patient care  Changes payment formulas for complex imaging studies to reduce payments  Reduces subsidies for Medicare Advantage Plans (Part C)  Imposes excise tax on “Cadillac” health insurance plans (2018)  Promotes integrated, patient-centered care model to reduce excesses of fee-for- service payment system  Funds research into “evidence-based care” so that patient care becomes more standardized; goal is to reduce care that does not produce results

Posternak Blankstein & Lund, LLP31 Employers and Health Care Reform Quality Improvement Measures  Modifies payment system for hospitals and physicians to reward quality  Creates incentives to reduce hospital-acquired medical conditions  Creates incentives for hospitals to reduce readmissions for the same condition  Sets up reporting requirements for quality data, and offers financial incentives to cooperating providers  Funds pilot program to create financial incentives to promote integrated patient care model with a bundled payment  Orders creation of program offering shared savings for accountable care organizations with primary care physicians at the center