Implementing Health Care Reform National Association of Health Underwriters May 27, 2010

Confused – Implementation Overload!! DON’T PANIC!! No need to memorize this! We are at the end of the beginning — 7 to 10 years of rule making and changes

Recap on Legislation President signed Patient Protection and Affordable Care Act (PPACA) on March 23 Reconciliation bill signed on March 30 Interpretation of legislation now requires examining multiple sources: – Senate-passed bill, H.R (now P.L ) – Manager’s amendment to the Senate bill – Reconciliation bill, H.R Very important: Check all three sources when considering how the bill works

Recap on Legislation What is the size of a small employer in the new law? – Two to 50 – One to 100 – One to 200 What is a full time employee in the new law? – Thirty hours a week – Forty hours a week

PPACA Overview Makes significant statutory changes affecting the regulation of and payment for many types of private health insurance – many insurance market reforms Will require almost all private sector employers to evaluate the health benefits they currently offer and consider whether they are compliant For those without access to employer coverage, new individual mandate to purchase and maintain minimum coverage in 2014

Grandfathered Plans Essentially all plans in effect on date of PPACA enactment (March 23, 2010) are “grandfathered” What does this mean? – Grandfather plans exempt from some, but not all, of PPACA requirements Is this is a big deal? Law does not address whether a plan that is amended on or after March 23, 2010 can still retain grandfather status – Eligible family members of existing employee plan OK, as well as new employees and their eligible family members

2010 Issues Small business tax credit Medicare Part D subsides are not taxable High risk pool for the uninsured with pre- existing conditions Early retiree reinsurance program New federal insurance plan requirements

PPACA in 2010 Eligible small businesses are eligible for phase one of the small business premium tax credit. – Small employers with fewer than 25 employees may receive a maximum credit, based on number of employees, of up to 35% of premiums until Employer must contribute at least 50% of the total premium cost. Businesses do not have to have a tax liability to be eligible Non-profits are eligible Average salary must be $50,000 or less (owner income exempted) – Note: the credit reduces amount of premiums that can be deducted – This may or may not be helpful.

PPACA in 2010 Owner’s benefits and income generally not included in the credit calculation. IRS has a Q and A section and helpful information on its website. Not all questions are answered at this point.

PPACA in 2010 Deductibility for Part D subsidies is eliminated in 2013, but this results in an immediate accounting impact. – AT&T, Caterpillar, Verizon and other large corporations reported the fiscal impact immediately

PPACA in 2010 Creates high-risk pool coverage for people who cannot obtain current individual coverage due to preexisting conditions. – Employers cannot put people in the pool—would pay penalty – Eligibility: Uninsured for 6 mos and denied coverage for a pre-existing condition This national program can work with existing state high- risk pools and will end on January 1, 2014, once the Exchanges become operational and the other preexisting condition and guarantee issue provisions take effect Financed by a one-time $5 billion appropriation

PPACA in 2010 New Hampshire will participate in the program – Federal gov’t will operate the pools in about 20 states CMS Actuary says $5B could be exhausted by as early as – Further appropriations to fund the program? Pool should be operational around June 23, 2010.

PPACA in 2010 Establishes federal review of health insurance premium rates. Secretary of HHS, in conjunction with the states, will have new authority to monitor health insurance carrier premium increases beginning in 2010 to prevent unreasonable increases and publicly disclose such information. In addition, $250 Million is appropriated for state grants to increase their review and approval process of health insurance carrier premium rate increases.

PPACA in Reinsurance Program for employer “early retiree” health benefits (age 55-64) provides for subsidies up to 80 percent of the insurance costs (claim corridor of $15- 90K) IF they invest the difference in wellness and chronic care management programs, among other things – Regulations were issued two weeks ago. – The program becomes effective June 23, – Self-funded and fully insured plans eligible.

PPACA in 2010 Payments are retroactive for a plan year, so employers and early retirees will be able to take advantage of them for costs incurred from the date the program is established. Payments will be made to employer-sponsored health plans on behalf of an early retiree. To receive assistance, plans must apply, document claims, and implement programs and procedures to generate cost savings for participants with chronic and high-cost conditions. Savings for enrollees: Plans must use these proceeds to lower health costs for enrollees (e.g., premium contributions, copayments, deductibles, etc.)

Effective Plan Years on/after Sep. 23 – All Plans, Including Grandfathered Restrictions on annual limits – Plans may impose only “restricted annual limits” on the dollar value of “essential benefits.” HHS to establish annual limits on the dollar value of essential benefits. On and after January 1, 2014, no annual limits will be permitted No lifetime limits – Plans may not impose lifetime limits on dollar value of “essential benefits”

Effective Plan Years on/after Sep. 23 – All Plans, Including Grandfathered New strictures on “rescissions” – Plans may not rescind coverage unless person commits fraud or makes a material misrepresentation prohibited under the terms of the plan Pre-Ex Restrictions – Plans may not impose any preexisting condition restriction on children under the age of 19. After January 1, 2014, plans may not impose preexisting condition restrictions on anyone

Effective Plan Years on/after Sep. 23 – All Plans, Including Grandfathered Coverage for dependents to age 26 – If a plan offers dependent coverage of children, such coverage must extend to a child until the child reaches age 26 – Some carriers are implementing this change early – For grandfathered plans, this requirement applies before January 1, 2014 only if the adult child is not eligible to enroll in another plan – Point of confusion: the legislation increased the IRS definition of dependent up to age 27

Effective for Plan Years on/after Sep. 23, 2010 (Grandfathered Exempt) Nondiscrimination rules under IRS Code 105(h) applies to fully-insured plans Preventive care without cost sharing on services that receive an “A” or “B” rating from the US Preventive Services Task Force New appeals process rules for coverage determinations and claims Certain new patient protections

New Patient Protections (Grandfathered Plans Exempt) For all group and individual plans, including self- insured plans, emergency services covered in- network regardless of provider Enrollees may designate any in-network primary care physician as their primary care physician New coverage appeal process

2011 Issues New requirements for insurance plans Payroll deduction for a new long-term care program Federal wellness grants for small businesses without wellness programs

PPACA in 2011 Minimum loss ratio requirements will be established for insurers in all markets. How will this affect coverage? The MLR is 85% for large group plans and 80% for individual and small group plans (100 and below). – May impact provisions that reduce claims cost, such as pay for performance, nurse lines, disease management, etc. – May result in fewer carriers offering coverage in some areas, particularly rural, resulting in less consumer choice. Carriers will have to issue a premium rebate to individuals when MLR is too low.

PPACA in 2011 Creates a new public long-term care program. Premiums could be collected as early as January 1, – Unknown what the premium will be but CMS actuary estimates premium as high as $240/mo. with 2% enrolled Benefits won’t be known until October Cannot make a claim for 5 years so earliest would be 2015, but more likely Must be attached to work to be eligible.

PPACA in 2011 Employers are expected to auto-enroll employees – Employees can opt-out. In order to meet actuarial requirements, the price of the plan will have to be very high. Administrative burden on employers.

PPACA in 2011 – Beginning in 2011, $200 million over 5 years in grants for employees of small businesses to participate in comprehensive workplace wellness programs Eligible employers are those 100 employees who work 25 hours or more per week, and did not have a workplace wellness program as of March 23, 2010 First-come, first-serve – Grants to allow state and local health departments to design community-based public health interventions and screenings for people age 55-64; and – $25 million child obesity demonstration project

PPACA in 2011 and 2012 All employers must include on their W2s the aggregate cost of employer-sponsored health benefits If employee receives health insurance coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage, – Excludes all contributions to HSAs and Archer MSAs and salary reduction contributions to FSAs – Applies to benefits provided during taxable years after December 31, 2010 A new federal tax on fully insured and self-funded group plans, equal to $2 per ee/yr, takes effect to fund federal comparative effectiveness research takes effect in 2012

PPACA in 2013 FSA contribution limits of $2,500 Additional 0.9% Medicare Hospital Insurance tax on self- employed individuals and employees with respect to earnings and wages received during the year above $200,000 for individuals and above $250,000 for joint filers (not indexed) – Self-employed individuals are not permitted to deduct any portion of the additional tax Reconciliation measure levied a new 3.8% additional Medicare contribution on certain unearned income from individuals with AGI over $200,000 ($250,000 for joint filers) – The “House tax”

2014 Issues Individual mandate Employer mandate Other significant changes: – Modified community rating – Individual market guaranteed issue – Subsides available – New taxes on fully-insured plans

PPACA in 2014 Imposes new annual taxes / fees (non-deductible) on private health insurers based on net premiums – $8.1 billion annually beginning in 2014 and rising to $14.3 billion by 2018 (and indexed for medical inflation thereafter) – Small businesses and employees could be disproportionately affected because tax only applies to fully insured health benefits (self-funded plans exempt)

PPACA in 2014 Coverage must be offered on a guarantee issue basis in all markets and be guarantee renewable Exclusions based on preexisting conditions would be prohibited in all markets Full prohibition on any annual limits or lifetime limits in all group (even self-funded plans) or individual plans Redefines small group coverage as employees. – States may also elect to reduce this number to 50 for plan years prior to January 1, 2016

PPACA in 2014 Creates sliding-scale tax credits for non-Medicaid eligible individuals with incomes up to 400% of FPL to buy coverage through the exchange. The requirement that the subsidies are only available through the exchange is a significant problem. It is a particular threat to employer plans due to other provisions that allow employees to opt out of employer sponsored coverage.

Agent/Broker Issues Individual, small group and large group coverage will be available inside and outside of the exchanges Agents and brokers are included in the legislation Commissions will be a state-level or carrier issue Exchange will contract with “Navigators” to promote exchanges, tax credits and subsidies and send consumers to new consumer advocates called “ombudsmen” – Massachusetts did something similar: contract with groups to enroll the uninsured in Medicaid – Large Medicaid expansion in 2014

PPACA in % excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for singles and from $27,500 for families takes effect in Arbitrary numbers and lack of adequate indexing make this a very unfair tax. Many people will be impacted due to the way the bill defines what is included in the premium calculation. – Dental and vision not included

Employer Responsibilities

Key Concepts – Only employers with 50 or more full-time (or full-time equivalent) employees must offer coverage – Unlike original House bill (approved last November), large employers are not required to meet minimum benefit requirements (applicable to individual and small groups) or make minimum contributions to premiums – The requirement is to offer essential coverage to full-time employees Essential coverage = minimal benefits. The Secretary of Health and Human Services will determine what “essential coverage” is.

Employer Responsibilities Do these employers required to offer coverage? If so, to whom? – Employer A: 40 full-time employees and 10 part-time employees (60 hours/month) – Employer B: 20 full-time employees and 20 part-time employees (100 hours/month) – Employer C: 10 full-time employees and 100 part-time employees (60 hours/month) – Employer D: 30 full-time employees and 30 seasonal employees (120 hours/month for fewer than 120 days)

Employer Responsibilities Effective starting January 1, 2014 Employer must count all full-time employees and part-time employees – on a full-time equivalent basis – in determining if they have 50 or more employees – Certain seasonal workers are not counted in determining if employer has 50 workers – Full-time = 30 or more hours per week, determined on a monthly basis. Aggregate part-time hours and divide by 120. – Reconciliation repealed the construction industry mandate (5+) Penalties assessed for “no coverage” or coverage that is not “affordable”

No Coverage If an employer fails to provide its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage,” and One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction, then Employer penalty = $2,000 for each of its full-time employees in the workforce, first 30 exempted

No Coverage Employer of 60 full-time employees and 20 part-time employees (20 hours a week) does not offer coverage. What is the fine? – = 30 – $2,000 X 30 = $60,000

No Coverage In 2014, all Americans will be required to have health insurance that meets minimal benefits standards Penalties for noncompliance – $95 in 2014 – $225 in 2015 – $695 in 2016

Unaffordable Coverage If employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, and One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost sharing reduction because – The employee’s share of the premium exceed 9.5% of income, or – The actuarial value of the coverage was less than 60%, then Employer penalty = $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction

Unaffordable Coverage What is 9.5% of income? – $15,000 = $1425 – $25,000 = $2375 – $40,000 = $3800 – $60,000 = $5700 So how will this work? The employer is only required to offer coverage to full time employees

Additional Details Actuarial value = the portion of allowable costs paid by plan. Penalties assessed on a monthly basis. No penalties apply to part-time employees. No penalties for waiting periods (if any), not exceeding 90 days. Total “affordability” penalty is capped. May not exceed penalty for “no coverage.” Employer does not determine if employee is eligible for premium tax credit based on household income, but is notified by the exchange if full-time employee qualifies.

Other Responsibilities Employers must automatically enroll “new full-time employees” in employer-sponsored coverage – Must provide adequate notice and opportunity to opt out – Applies to employers with “more than 200 full-time employees” – No effective date specified, but must be “in accordance with regulations promulgated by the Secretary (of DoL)…” (so presumably not effective until regulations are issued) Notice to current employees and new hires about exchange and subsidies – Existence of exchange, services and how to obtain assistance – Availability of premium assistance if plan value below 60% – Loss of employer contribution and tax exclusion for contribution – Effective March 1, 2013

Health & Wellness

For services performed on or after July 1, 2010: o New 10% excise tax on amounts paid for indoor tanning services, whether or not insurance policy covers service. Service provider to asses tax on customer

Health & Wellness HHS tasked with coordination among all Federal agencies with respect to prevention, wellness, and health promotion practices – Public Health. Beginning FY2010, administer the Prevention & Public Health Fund to expand and sustain national investment in prevention and public health programs Wellness Programs – HHS to enforce employer wellness provisions for group market and work with DOL and Treasury to implement a 10-state pilot program to apply wellness program provisions to the individual market

Health & Wellness Within 2 years after enactment, HHS will develop reporting requirements for use by group health plans designed to: – Improve health outcomes – Implement activities to prevent hospital discharge readmissions – Implement activities to improve patient safety and reduce medical errors – Implement and design wellness programs.

What can you do? Working with NAHU members in addressing questions to regulatory agencies — Those of you with “practical” business knowledge give a unique perspective Talk with your clients, your payroll vendors and tax advisors Will be updating as more information is available

Discussion and Questions Adam Brackemyre Director of Federal Affairs (703)