1. FCCMA
June 1, 2012
ESB

2. Weathering the Health Care Reform Storm
What You Need to Know Today About Health Care Reform
ESB
Read slide
I’m [ name], [title], at American Fidelity Assurance Company.
Today, I’m going to provide a high-level summary of the major provisions affecting plan sponsors, and help you create an action plan for the requirements that take effect in the near term and also some suggestions to begin looking at your plan sponsorship options long-term.
[May want to provide participants with a copy of our timeline – the sections of this presentation are coordinate with the color coding of the timeline. Good leave behind options are a HCR summary brochure or most recent version of the checklist]
This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.

3. Objectives Provide a road map for Health Care Reform
Gain a high level familiarity with key provisions affecting plan sponsors
Develop an immediate action plan and begin looking at plan sponsorship options long-term
ESB
HCR created a number of challenges and compliance action items for plan sponsors. This presentation is designed to give employers a road map for health reform - a way to organize the rules into categories.
We’re also going to go over the key provisions impacting plan sponsors
Finally, I’m going to help you develop an action plan for what you really need to know right now and then also share some thoughts to help you begin looking at plan sponsorship options long-term.
Before we begin, I would note that American Fidelity does not provide tax or legal advice. While we’re happy to provide you with this general information about the Health Care Reform rules, given the complexity of these rules, we encourage you to contact your tax or legal counsel about how the new requirements apply to your specific plans or situation.

4. Setting the Stage
1,000 pages of legislation drafted and enacted very quickly
Rules are still being developed
Federal agency guidance
Role of states
ESB
I want to take a moment to help set the stage because it helps explain why there are so many open questions and such confusion. The Health Care Reform law is made up of over 1,000 pages of legislation that was drafted and enacted very quickly, and as a result includes a lot of issues like drafting glitches that are contributing to people’s confusion.
What’s more, the rules are still being developed – most of Health Care Reform is not yet on the page. Three federal agencies share jurisdiction over the Health Care Reform provisions impacting employers – the Departments of Treasury, Labor, and Health and Human Services (or HHS). Those agencies are actively drafting regulations, starting with the provisions that take effect first. The states also have direct responsibility over implementing certain provisions, such as building the state Exchanges. With effective dates ranging from 2010 to as late as 2018, it will be years before all of our questions are answered.
In many cases, since Health Care Reform was signed into law in March 2010, the agencies have issued guidance on a number of issues and then, on a few of them, have already issued more guidance changing their initial rules. You can see that Health Care Reform is really in a continuous state of development.
As one final caveat, all of these changes mean that my presentation today is based on our best understanding of the current rules, but those interpretations could change, particularly as the agencies continue to issue additional guidance. For the most recent summary of the rules, visit our website at HCReducation.com.

5. Phased Implementation
Only a portion of the rules impact plan sponsors
Only a portion of those take effect in the near future
Recommended path
ESB
The good news is that only a portion of the Health Care Reform provisions impact employers that sponsor health plans and only a portion of those take effect in the near future. Therefore, employers may want to focus on the provisions with upcoming effective dates and begin thinking about what to do with their health plans long term.

6. HCR ROADMAP Plan design mandates Health FSA/HRA/HSA provisions
Administrative requirements
Plan sponsorship provisions
ESB
One way to organize the Health Care Reform provisions impacting employers is into four main categories:
The group health plan design mandates are the provisions impacting eligibility and benefit terms of your major medical plan
The next category includes the tax provisions impacting Health Flexible Spending Accounts, Health Reimbursement Arrangements, and Health Savings Accounts.
Third are the administrative requirements affecting employers. These provisions aren’t getting much press and I’m finding that many employers are surprised to learn what’s required.
The final category includes the provisions that impact an employer’s role as a plan sponsor. We’re going to look at each of these in turn.

7. ESB
If you downloaded a copy of our timeline, you’ll see that it’s color coded to correspond to those four categories. The information in this presentation and the summaries on our website are also organized into these categories.

8. Plan design mandate exceptions
Truly stand alone retiree plans
HSAs
HIPAA excepted benefits
ESB
The Plan Design Mandates included in the Health Care Reform law are the provisions that impact eligibility and benefit terms of your major medical plan. Using the one page timeline, the Plan Design Mandates are the provisions in blue.
Before we get started, as a general rule, all group health plans are subject to the plan design mandates, including non-ERISA plans. There are several types of plans that are exempt from the plan design mandates. The following are examples:
Stand alone retiree plans are exempt. These are group health plans that do not cover at least two current employees (such as plans in which only retirees participate).
Health Savings Accounts are not subject to these rules because they are not considered group health plans. Although the high deductible health plan that is required to be offered in conjunction with an HSA will typically be treated as a major medical plan and subject to the plan design mandates.
Finally, when Congress first implemented HIPAA, they recognized that many types of employer-sponsored welfare programs do not provide benefits in the nature of medical care. As such, they were excepted from the HIPAA requirements. Similarly, these "HIPAA excepted benefits" are exempt from the Health Care Reform plan design mandates. These include benefits such as disability, accident only, AD&D, dental, vision, long-term care, Health FSAs, specified disease (such as cancer or critical illness), and hospital indemnity insurance.
These benefits must satisfy certain requirements in order to qualify as HIPAA excepted. For more information, please contact your legal counsel.
ESB
Copyright 2012 American Fidelity Assurance Company

9. grandfathering
Available for plans providing coverage on March 23, 2010
Changes to benefits or contributions
Value of grandfathering
Notice/recordkeeping requirements
Special rule for insured collectively-bargained plans
ESB
One quick note about grandfathering. Plans that were in effect on March 23, 2010 may be eligible for grandfathered status. However, making certain changes to benefit offerings, plan design, or employer contributions toward the cost of coverage will cause grandfathered status to end.
Grandfathered plans do not have to comply with several plan design mandates imposed by Health Care Reform. However, all of the requirements in the other categories on our roadmap do apply to grandfathered plans. The plan sponsor of a grandfathered plan must comply with specific notice and recordkeeping requirements.
There is an additional delay for insured collectively bargained plans, but not self-funded plans. The coverage is grandfathered until the date of the agreement that was in effect on March 23, 2010 terminates.
ESB
Copyright 2012 American Fidelity Assurance Company

10. 2010 mandates All plans must comply Preexisting conditions
Lifetime limits
Annual limits
Adult children
Rescissions
ESB
The plan design mandates come in two categories: those that take effect for plan years beginning on or after September 23, 2010 and those that take effect for plan years beginning on or after January 1, The requirements are then further subdivided into those that apply to all plans (regardless of grandfathered status) and those that only apply to non-grandfathered plans.
The provisions on this slide are those that apply to all plans for plan years beginning on or after Sept 23, All plans should already have incorporated these changes.
[Note to presenter- you probably don’t want to spend much time reviewing the mandates on this slide.]
Plans may not impose any preexisting condition exclusions for enrollees under age 19.
Plans may not impose any lifetime limits on the dollar value of essential health benefits.
Plans are restricted in the annual dollar limits on essential health benefits they may impose as specified by regulations.
Plans that cover children must offer coverage to adult children up to age 26 (regardless of marital status, student status, residency, or parental support). Coverage does not have to be provided to spouses or children of the adult children. A grandfathered plan is not required to extend coverage to an adult child who is eligible for other employer sponsored coverage until 2014.
Plans may not retroactively terminate or rescind coverage except in limited circumstances such as for an individual who commits fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan. Even in cases where permitted, plans must provide 30 days written notice before coverage is retroactively terminated. This often comes up in the context of dependent eligibility reviews. It used to be the case that if you found out an employee was covering his niece, for example, you could unwind the coverage retroactively and require the employee to reimburse the plan for claims paid. Now you are much more limited in your ability to cancel the coverage retroactively, but can still cancel coverage going forward. What that means is that it’s in your best interest to perform dependent eligibility reviews more frequently to ensure the plan is only covering individuals you intended to be eligible – once they incur a claim, the plan will likely be required to pay it.
ESB
Copyright 2012 American Fidelity Assurance Company

11. 2010 Mandates Additional requirements for non-grandfathered plans
Insured plan nondiscrimination
Preventive care
Provider access
Internal/external review claims procedures
ESB
For plan years beginning on or after Sept. 23, 2010, non-grandfathered plans have to comply with the provisions on the previous slide and these. If your plan is not grandfathered, you should already have incorporated these requirements.
Fully-insured non-grandfathered plans may not discriminate in favor of highly compensated individuals. Self-funded plans are currently subject to similar nondiscrimination rules whether grandfathered or non-grandfathered. Note that IRS has delayed enforcement of this provision until after regulations are published.
Plans cannot require cost sharing such as co-pays or deductibles for preventive care services that are specified by the federal government including immunizations.
Participants must be permitted to designate any primary care physician or pediatrician participating in plan’s provider network. Benefit summaries must include notice of this right.
Plans cannot require females to receive preauthorization for ob/gyn services. Benefit summaries must include notice of this right.
Plans cannot require preauthorization for emergency services, limit coverage to only in network providers or impose higher cost sharing for emergency services from out of network providers. And,
Plans must comply with new claims procedures including improved internal claims procedures and a new requirement for external review.
ESB

12. 2014 Mandates All plans must comply Waiting periods
Annual limit prohibition
Preexisting condition limits
Adult children – grandfathered plans
Wellness incentives (optional)
ESB
For plan years beginning on or after January 1, 2014, all plans must comply with these provisions:
Plans may not impose an eligibility waiting period of greater than 90 days. This rule applies to any individuals who are eligible for the plan, including part-time employees and seasonal workers.
Plans may impose restricted annual limits prior to 2014, but may not impose any annual dollar limits on essential benefits for plan years beginning on or after January 1, 2014.
Prior to 2014, pre-existing condition limits are prohibited for children. For plan years beginning on or after January 1, 2014, plans may not impose pre-existing condition limits for any enrollees.
Grandfathered plans must provide coverage for adult children up to age 26 regardless of eligibility for other employer-sponsored coverage.
Under the HIPAA wellness rules, an employer may currently offer financial incentives to participate in wellness programs up to 20% of the cost of health plan coverage.  Beginning in 2014, the 20% cap is increased to 30% with federal agency discretion to increase it to 50%.
ESB

13. 2014 Mandates Additional requirements for non-grandfathered plans
Essential health benefits (insured small group plans)
Clinical trials
Limits on deductibles
Limits on out-of-pocket maximums
Provider nondiscrimination
ESB
Finally, non-grandfathered plans have to comply with the provisions on the previous slide and these in 2014.
Insured small group plans must provide coverage for all essential health benefits to be defined by state regulations.
With respect to individuals who participate in clinical trials, non-grandfathered plans may not deny participation in a clinical trial, limit coverage for routine items and services typically covered for individuals who are not enrolled in clinical trials, or discriminate against individuals based on their participation in clinical trials. Plans do not have to pay for the investigational item, device, or service itself.
Plans may not impose deductibles higher than $2,000 for individual coverage or $4,000 for family coverage (indexed for inflation).
Plans may not require a participant to pay cost-sharing (such as deductibles, co-pays, co-insurance) in excess of the out-of-pocket maximum that applies to HSA-compatible high deductible health plans. In 2012, those numbers are $6,050 for individual coverage and $12,100 for family coverage, which are indexed annually for inflation.
Plans may not discriminate against health care providers acting within the scope of their licenses. For example, this could prevent a plan from denying benefits solely because a doctor prescribed a drug for an off-label purpose or provided a service outside the doctor’s typical specialty area (assuming both acts were within the scope of the doctor’s license).
ESB
Copyright 2012 American Fidelity Assurance Company

14. action plan Grandfathered plans Plans losing grandfathered status
Reassess eligibility and value
Gather documentation
Plans losing grandfathered status
– Adopt additional plan design mandates
– Revise employee communications
Watch for nondiscrimination guidance
ESB
This is your action plan in connection with the plan design mandates
If you have a grandfathered plan, reassess whether it is still eligible for grandfathered status and whether grandfathering continues to be valuable to you.
If so, remember that all summaries describing the plan benefits must include the required notice of grandfathered status. You will also need to gather any necessary documentation to demonstrate that your plan continues to be eligible for grandfathering.
If you have a plan option that will no longer be grandfathered, you’ll want to talk to your health insurer or TPA about implementing required plan design changes. You may also need to update plan documents and SPDs and communicate plan changes to employees
Finally, you’ll want to watch for nondiscrimination guidance. The nondiscrimination regulations may require plan sponsor to perform testing. To get a sense of what may be included, a plan sponsor may want to review the current nondiscrimination rules that apply for self-funded health plans.
ESB
Copyright 2012 American Fidelity Assurance Company

15. HCR ROADMAP Plan design mandates Health FSA/HRA/HSA provisions
Administrative requirements
Plan sponsorship issues
ESB
So turning to our roadmap, this concludes our high level overview of the Health Care Reform Plan Design Mandates. In the next section we are going to review the tax provisions impacting Health Flexible Spending Accounts, Health Reimbursement Arrangements, and Health Savings Accounts. If you printed the one-page timeline from our website at HCReducation.com these are the provisions in green.

16. HEALTH FSA/HRA/ HSA PROVISIONS
Coverage/reimbursement for adult children
Over-the-counter drugs require a prescription
Supplies and insulin – no prescription needed
Restrictions on use of debit cards
HSA non-qualified withdrawal penalty
ESB
Coverage and reimbursement under employer sponsored health plans is tax free for adult children until the end of the calendar year in which the child turns age 26. Participants in Health FSAs or HRAs may be reimbursed for medical expenses incurred for these individuals. The rules regarding eligibility for reimbursement for HSA qualified medical expenses were not changed. Only expenses incurred by tax qualified dependents may be reimbursed on a tax free basis from an HSA.
Over-the-counter drugs or medicines purchased on or after January 1, 2011, require a medical practitioner’s prescription in order to be reimbursed. The new rule does not apply to insulin or to medical expenses that are not OTC drugs and
medicines, such as bandages, carpal tunnel wrist supports, contact solution or crutches. One tip for determining whether an item is a drug or medicine is to look for a drug facts panel on the package. If it has one, then the item will require a prescription in order to be reimbursed.
For participants whose employer offers a flex debit card, there was a significant change in how the card works. The general rule is that Health FSA debit cards may not be used to purchase drugs or medicines over-the-counter. However, if a pharmacist dispenses a drug or medicine “behind-the-counter” pursuant to a prescription (even if it’s a drug that may be purchased over-the-counter), the charge will be coded as a prescription drug, which the card should allow the customer to purchase. Alternatively, the participant can manually submit the receipt, voucher and medical practitioner’s prescription to be reimbursed.
Effective January 1, 2011, withdrawals from HSAs not used for qualified medical expenses are subject to a 20% excise tax, which is an increase from 10% under prior law. It’s important to remember that the rules did not change for qualified distributions for medical expenses – the increased penalty only applies if the account-holder uses HSA funds for something other than reimbursing qualified medical expenses.

17. HEALTH FSA/HRA/ HSA PROVISIONS (Cont’d)
Health FSA limit
Employee contributions are limited to $2,500
Effective January 1, 2013
ESB
Finally, effective January 1, 2013, the amount employees may contribute to a Health FSA is capped at $2,500 per year indexed for inflation. Currently, the law does not limit the amount of employee pre-tax contributions to a Health FSA although most employers specify limits as part of their Health FSA plan design. Only employee, not employer contributions are subject to the new limit. Unless guidance is issued to the contrary, the January 1, 2013 date applies regardless of plan year. From a practical standpoint, that means that non-calendar year plans that currently allow employees to contribute more than $2,500 may want to begin complying with the limit for the plan year beginning in 2012.
For participants whose employer offers a flex debit card, there was a significant change in how the card works. The IRS’s general rule is that Health FSA debit cards may not be used to purchase drugs or medicines over-the-counter. However, if a pharmacist dispenses a drug or medicine “behind-the-counter” pursuant to a prescription (even if it’s a drug that may be purchased over-the-counter), the charge will be coded as a prescription drug, which the card should allow the customer to purchase.
Alternatively, the participant can manually submit the receipt, voucher and medical practitioner’s prescription to be reimbursed.
Effective January 1, 2011, withdrawals from HSAs not used for qualified medical expenses are subject to a 20% excise tax, which is an increase from 10% under prior law. It’s important to remember that the rules did not change for qualified distributions for medical expenses – the increased penalty only applies if the account-holder uses HSA funds for something other than reimbursing qualified medical expenses.
Effective January 1, 2013, the amount employees may contribute to a Health FSA is capped at $2,500 per year indexed for inflation. Currently, the law does not limit the amount of employee pre-tax contributions to a Health FSA although many employers specify limits as part of their Health FSA plan design. Only employee, not employer contributions are subject to the new limit. Unless guidance is issued to the contrary, the January 1, 2013 date applies regardless of plan year. From a practical standpoint, that means that non-calendar year plans that currently allow employees to contribute more than $2,500 may want to begin complying with the limit as early as February 2012.

18. ACTION PLAN
Remind participants about changes for over-the-counter drugs
Amend plan, if necessary, to comply with the $2,500 limit on employee contributions to a Health FSA
ESB
Your action plan in connection with the provisions affecting Health FSAs/HRAs/HSAs is to remind participants about the change in over-the-counter drug reimbursement and debit card rules that took effective January 1, 2011.
If you currently allow employees to contribute more than $2,500 to a health FSA, you’ll need to determine when your plan will need to comply with the new contribution limit and amend your Section 125 plan, if necessary. In the absence of agency guidance, non-calendar year plans may want to begin complying with this limit for the 2012 plan year.

19. HCR ROADMAP Plan design mandates Health FSA/HRA/HSA provisions
Administrative requirements
Plan sponsorship provisions
ESB
Looking at our roadmap, we’ve now reviewed the Plan design mandates, and the Provisions affecting the various savings accounts.
Let’s turn to the new administrative requirements[If you provided a timeline: “On your timeline, these are the provisions in yellow.”]

20. enrollment 30-day open enrollment Automatic enrollment ESB-714-0512
There are two new enrollment requirements.
For the first plan year beginning on or after September 23, 2010 plans were required to offer a minimum of 30 days for open enrollment. The purpose was to provide an adequate opportunity to enroll for individuals who were previously excluded from the plan due to the imposition of lifetime limits or age. Notice requirements also applied. The Health Care Reform regulations do not require you to offer 30 days for annual enrollments in future years.
In addition, plan sponsors with more than 200 full-time employees must automatically enroll newly eligible full-time employees in the employer’s health plan subject to any permissible waiting period. Plan sponsors must provide notice and employees may opt out. The effective date for this requirement is expected to be established by regulations.

21. REPORTING W-2 reporting of value of health coverage Quality reporting
Coverage and workforce reporting
Cadillac Tax reporting
ESB
There are several new reporting obligations.
Most plan sponsors must report the cost of employer-sponsored health coverage on employee W-2 Forms beginning with the 2012 tax year, which are the W-2 Forms that are generally required to be provided by January 31, Employers that were required to file fewer than 250 W-2 Forms during the previous calendar year are not required to report the information. The W-2 reporting obligation does not make employer sponsored health coverage taxable for employees. Detailed information including a worksheet is available on our website at reporting.
Plan sponsors of non-grandfathered plans must report on plan benefits and reimbursement structures that provide certain quality-related programs like disease management.  Reports must be issued annually to HHS and to employees during open enrollment. HHS must develop guidance by March 23, 2013, and is likely to establish the effective date in that guidance.
Effective January 1, 2014 employers with 50 or more full time employees must submit reports to the IRS with extensive details about the employer’s health coverage and workforce. Certain reporting is also required for plan sponsors that provide minimum essential coverage, even if the employer has fewer than 50 employees. An employer must also provide a written statement to each full-time employee named in the return.
Effective January 1, 2018 the Health Care Reform law imposes a 40% non deductible excise tax on high cost health plans (sometimes called the Cadillac Tax). The tax is imposed on the amount by which the value of the plans exceeds specified threshold amounts, and must be paid by insurers or third party administrators. Plan sponsors are required to calculate on a per employee per month basis, the value of coverage that each employee selects and, if coverage for any individual exceeds the applicable threshold, to notify the entity required to pay the tax and the IRS.

22. Notice and disclosures
Notice of grandfathered status
Patient protection notices
Transparency disclosures
Summary of Benefits & Coverage (SBC)
60 day notice of plan changes
Employee educational information for new hires
ESB
Finally, the Health Care Reform law imposes several new notice and disclosure obligations.
Grandfathered plans must include notice of grandfathered status in all benefit summaries provided to participants.
Regulations required plan sponsors to send notices and comply with special-enrollment rules for individuals in connection with lifetime limits and adult child eligibility for plan years beginning on or after September 23, Those should all have been sent by now. Beginning that year and going forward, all employee plan materials describing benefits must include notice about a participant’s right to select a primary care physician for females to have direct access to ob/gyns without prior authorization.
Non-grandfathered plans must make transparency disclosures to HHS and the public including information such as claims payment policies and data, enrollment data, data on rating policies, financial disclosures, information on cost-sharing and payments with respect to out-of-network coverage, and information on participants' rights under Health Care Reform. Those regulations have not yet been published.
Plan sponsors or insurers must provide a Summary of Benefits and Coverage (SBC) and Uniform Glossary to plan participants. If the plan is fully insured the plan sponsor shares responsibility with the insurer for distributing the SBC. Sponsors of self-funded plans must fill in the template with the required information for their plan(s) and are to begin distributing the SBC at the first open enrollment beginning on or after September 23, For participants and beneficiaries who enroll in their group health plan other than through an open enrollment period, the SBC effective date is the first day of the first plan year that begins on or after September 23, 2012.
Also effective September 23, 2012, if any material modifications in health plan coverage, such as increases in cost-sharing or benefit reductions, are made that are not reflected in the most recently distributed Summary of Benefits an Coverage (SBC), the plan sponsor must send notice of the changes to plan participants at least 60 days before the modifications become effective. The plan sponsor may satisfy this requirement by providing an updated SBC.
 And by March 1, 2013 and for all subsequent new hires, employers must provide information about the state Exchanges. If the actuarial value of the employer’s plan is less than 60%, the notice must also describe the availability of a federal premium tax credit and cost-sharing reductions.

23. action plan
Create a plan for complying with the W-2 reporting requirements
Complete/obtain and prepare to send Summary of Benefits and Coverage
ESB
Your action plan in connection with the Health Care Reform administrative requirements is to develop a plan for complying with the W-2 reporting requirements, perhaps in conjunction with your payroll administrator.
You’ll also need to complete the Summary of Benefits and Coverage template and be prepared to provide a copy to participants upon request and during enrollments after September 23, 2012.

24. HCR ROADMAP Plan design mandates Health FSA/HRA/HSA provisions
Administrative requirements
Plan sponsorship provisions
ESB
That concludes the summary of administrative requirements. We’ve already reviewed the plan design mandates and provisions affecting various savings accounts.
In this final section we will review the fourth category of Health Care Reform provisions impacting employers which we refer to as the Plan Sponsorship Provisions. [If you provided a timeline: “On your timeline, these are the provisions in red.”]

25. 2014 Cornerstone year of Health Care Reform State Exchanges
Individual mandate
Federal premium tax credit to purchase Exchange coverage
“Employer responsibility”
ESB
The Plan Sponsorship Provisions are the provisions impacting an employer’s role as a plan sponsor including an employer’s responsibilities and choices about continuing to sponsor a major medical plan and what that plan might look like.
2014 is really the cornerstone year of Health Care Reform. One of the primary goals for the Health Care Reform legislation was to increase health care coverage. Several provisions work together beginning in 2014 to help achieve that goal.
To help enhance the individual and small group insurance markets, by January 1, 2014, States must establish Health Insurance Exchanges to offer private insurance choices to individuals and small employers (generally with 100 or fewer employees). Effective 2017, it is possible larger employee groups will be able to participate in the Exchanges as well. You can think of an Exchange like an online marketplace for individuals to shop for insurance coverage. A variety of plans will be available, such as bronze, silver, gold, and platinum level options. The federal government is responsible for establishing the rules that will apply to the Exchanges and the states are responsible for building and operating the Exchanges. If a state does not establish an Exchange, the federal government will operate an Exchange in that state. Generally, all individuals who live in the United States and are not incarcerated may enroll in Exchange coverage. The coverage is guaranteed to be available regardless of health condition, may not exclude coverage for preexisting conditions, and has premium rates that will vary only based on age, gender, tobacco use, and family size, but no medical underwriting is permitted.
In order for insurance companies to be able to offer these coverage guarantees, Congress adopted the individual mandate to ensure all individuals were in the risk pool. As such, beginning January 2, 2014, all individuals must obtain minimum essential coverage or pay a penalty. The penalty is applied for each month during which an individual doesn’t have minimum essential coverage. There are exceptions if coverage is unaffordable (costs more than 8% of household income), for low income tax payers, and for short coverage gaps.
Because Congress was going to require all individuals to purchase coverage, they adopted a federal premium tax credit to help certain individuals with household income up to 400% of the federal poverty level to purchase Exchange coverage. Individuals who are eligible for adequate and affordable employer-sponsored coverage (which we’ll discuss in a minute), or are eligible for government provided coverage (such as Medicare or Medicaid) are not eligible for a tax credit.
Finally, employers are encouraged to offer health coverage primarily through the application of the Free Rider Penalty.

26. Free rider penalty Penalty may apply if:
No coverage offered to full-time employees and dependents
Coverage is “unaffordable” or “inadequate”
Employee receives federal premium tax credit for Exchange coverage
ESB
Effective Jan. 1, 2014, large employers that do not offer health coverage to full-time employees and their dependents, or offer coverage that is “unaffordable” or “inadequate”, and have at least one employee enroll in Exchange coverage and qualify for a federal premium tax credit, must pay a Free Rider Penalty. The idea is that an employer does not have to offer coverage, but if the employer doesn’t provide adequate and affordable coverage, and instead the employee receives a tax credit to purchase coverage, then the employer is viewed as “free riding” on the back of the tax payers and has to pay a penalty.

27. FREE RIDER PENALTY (cont’d)
Definitions:
Large employer
Full-time employee
Inadequate
Unaffordable
ESB
There are a number of definitions it’s important to understand in connection with the Free Rider Penalty
A large employer is one with 50 or more full-time equivalent employees, which you calculate by adding
- the number of full-time employees working 30 or more hours per week and
- the hours worked by part-time employees during the month divided by 120
Penalties are only owed for full-time employees working 30 or more hours per week
Coverage is inadequate if the actuarial value of the coverage is less than 60%. In other words, when you look at the total negotiated cost (after network discounts) of eligible benefits expected to be incurred by plan participants, and you subtract participant cost sharing (such as deductibles, copayments, and coinsurance), does the plan pay at least 60% of the costs? As a benchmark, a high deductible health plan offered with an HSA often has an actuarial value around 65%.
Coverage is unaffordable if the employee must pay more than 9.5% of W-2 income for employee-only coverage in at least one employer-sponsored coverage option.
If coverage is both affordable and adequate and the employee opts out, there is no penalty.
[Note: regulations offer a safe harbor for the measuring of affordability in connection with the Free Rider Penalty to W-2 income, as opposed to household income. The determination of affordability for purposes of qualifying for a premium tax credit remains tied to household income.]

28. Free rider penalty (cont’d)
Monthly penalty for no coverage:
1/12th x $2,000 per month/per employee (after 1st 30 employees)
Penalty for unaffordable/inadequate coverage:
1/12th x $3,000 per month/per employee with federal premium tax credit
ESB
The amount of the monthly Free Rider Penalty varies depending on whether the employer offers no coverage, or offers coverage that is either inadequate or unaffordable.
If the employer does not offer any coverage, the monthly penalty is 1/12th times $2,000 per employee after the first 30 employees (assuming at least one employee opt out and receives federal premium tax credit to purchase Exchange coverage).
If the employer offers coverage that is inadequate or unaffordable, the monthly penalty is 1/12th times $3,000 per employee who enrolls in an Exchange and qualifies for a federal premium tax credit, capped at the penalty amount that would apply if the employer offered no coverage.
Note that if the coverage is considered unaffordable but the employee still chooses to be covered by the employer’s plan, or the employee opts out and enrolls in other non-Exchange coverage (such as coverage offered by a spouse’s employer), no penalty is owed.

29. Cadillac tax Effective 2018: 40% non-deductible excise tax
Imposed on aggregate value of health coverage that exceeds threshold amounts
ESB
As I mentioned earlier, beginning in 2018, a 40% non-deductible excise tax is imposed to the extent the aggregate value of specified employer-sponsored health coverage exceeds certain threshold amounts. Although the excise tax generally will be paid by insurers and/or third party administrators, the amount of the tax is expected to be passed through to the employer sponsoring the high cost plans.
The value for determining whether an employee’s coverage exceeds the relevant thresholds is to be calculated under rules that apply for COBRA coverage. The value includes both employer and employee, pre-tax and after-tax contributions toward health coverage. Health coverage includes, for example, major medical, health FSAs, HRAs, and HSAs. Stand alone dental and vision plans are excluded.

30. Cadillac tax (cont’d) General thresholds: Indexed for inflation
$10,200 individual coverage
$27,500 family coverage
Indexed for inflation
Applies for specified health coverage
ESB
The general thresholds are $10,200 for individual coverage and $27,500 for family coverage. Adjustments to the general thresholds are available for certain individuals and all thresholds will be indexed to the Consumer Price Index for All Urban Consumers (or CPI-U). Because CPI increases more slowly than medical inflation (3-4% per year compared to 7-10% per year), more employers are expected to become subject to the Cadillac tax each year

31. 2. Assess health costs ESB-714-0512
It’s also important to note that the thresholds are 2018 numbers. We provide a Cadillac Tax calculator on our website where you can enter the total cost of your coverage today, choose an inflation rate, and receive an estimate of the amount of tax that could be owed in 2018 and beyond.
ESB
Copyright 2012 American Fidelity Assurance Company

32. fees Comparative Effectiveness Research (CER) Fee
Exchange Reinsurance Fees
Indirect Fees
Prescription drug manufacturer annual fee
Medical device excise tax
Health insurance company annual fee
ESB
There are several Health Care Reform provisions that may directly or indirectly increase a plan sponsor’s costs.
First, plan sponsors of self-funded plans and insurers of insured plans must pay a fee to help fund federal comparative effectiveness research based on the average number of covered lives participating in the plan. The fee is $1 per individual for the first plan year beginning after September 30, 2011 and $2 per individual for each subsequent year, continuing to increase by the cost of inflation until expiring after 2019.
The fee must be paid by the following July 31st by filing tax form 720.
For three years beginning in 2014, health insurance issuers and third party administrators on behalf of group health plans will be required pay reinsurance fees to state-established Exchange reinsurance entities. The purpose of the fee is to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation.
Effective January 1, 2011, brand name prescription drug manufacturers must pay an annual fee based on their prescription drug sales.
Effective January 1, 2012, medical device manufacturers, producers, or importers must pay an excise tax equal to 2.3% of the sale price on the sale of certain medical devices.
Effective January 1, 2014, health insurance companies must pay an annual fee based on the amount of premiums they receive.
All three of these fees could raise health care costs for plan sponsors.

33. MEDICAL LOSS RATIO (mlr)
Insurers must provide rebates to enrollees if target loss ratios are not achieved
Individual & small group markets – MLR 80%
Large group market – MCR 85%
Employers must allocate rebates to employees
Rebates may be in the form of a premium credit, check, or by pre-paid debit card
ESB
The Health Care Reform law establishes medical loss ratio (MLR) targets for health insurance offered in the individual, small group, and large group markets.  If a health insurer does not achieve the target MLR, it must provide rebates to enrollees in that market.  Reporting began in 2011, rebating in 2012.
For policies offered in the individual and small group markets, the target MLR is 80%. For policies offered in the large group market, the target MLR is 85%. Rebates are  based on the amount by which the target MLR is missed.  For example, if a health insurer’s MLR in the large group market is 83%, the insurer will be required to rebate 2% of premiums.
Employers that receive a rebate must allocate to employees a sum that is proportionate to their individual premium contribution. Rebates may be in the form of a premium credit, check, or by pre-paid debit card.

34. action plan Distribute applicable MLR rebates that may be received
May want to begin considering cost-management strategies or changes in health coverage
ESB
Your first potential compliance issue in the plan sponsorship category will be distributing any Medical Loss Ratio rebates that you may receive. Insurance companies are required to pay rebates by August 1, 2012.
Other provisions of Health Care Reform are expected to increase health plan costs. Therefore, at some point you may want to begin considering cost-management strategies or changes in health coverage

35. HCR ROADMAP Plan design mandates Health FSA/HRA/HSA provisions
Administrative requirements
Plan sponsorship issues
ESB
So that concludes our summary of the four main categories of Health Care Reform provisions impacting plan sponsors.
In this final section we are going to review your short term action steps then review your long term sponsorship options.

36. Next steps
Plan design mandates – reassess grandfathering, implement any new changes, watch for nondiscrimination guidance
FSA/HRA/HSAs – plan for $2,500 FSA limit
Administrative – address W-2 compliance, complete and prepare to send Summary of Benefits and Coverage
ESB
In the first category, the plan design mandates, if you have a grandfathered plan, reassess whether it is still eligible for grandfathered status and whether grandfathering continues to be valuable to you. If you have a plan option that will no longer be grandfathered, you want to talk to your health insurer or TPA about implementing any required plan design changes. You may also need to update plan documents and SPDs, and communicate plan changes to employees. You’ll also want to watch for the agencies to publish nondiscrimination regulations and guidance.
With regard to the health accounts, the most important issue is to determine when your health FSA plan document will need to be amended to comply with the $2,500 employee contribution limit if your employees are currently allowed to contribute more than that. In the absence of agency guidance, non-calendar year plans may want to begin complying with this limit for the plan year beginning in 2012.
With regard to the new administrative requirements, you’ll need to make a plan for how to comply with the W-2 reporting requirements. You’ll also need to prepare to distribute the Summary of Benefits and Coverage for open enrollments beginning on or after September 23, 2012.

37. Next steps (cont’d) Next steps (cont’d) Fix slide template
Plan sponsorship – distribute MLR rebates if applicable, consider whether to begin reducing cost via plan design changes and explore other expense management
Communicate plans and changes to employees
Plan sponsorship – consider whether to begin reducing cost via plan design changes
Communicate plans and changes to employees
ESB
In the plan sponsorship category, you need make sure you understand the rules and have a plan for distributing any Medical Loss Ratio rebates that you may receive. You may also want to consider whether to try to reduce cost via some plan design changes, performing a dependent eligibility review, or other expense management solutions.
And finally, you’ll want to communicate all of these plan changes to employees.
ESB
Copyright 2012 American Fidelity Assurance Company

38. Looking ahead
ESB
Looking ahead, many employers have questions about how Health Care Reform will impact them, how they’re going to understand and manage all of their new compliance obligations. Really the bottom line, though, is, “What do you do with your health plan now?”
Long term you really have four options for providing health coverage for your employees (or not), particularly after First you could maintain your current plan without significant changes. Second, you could transition to a lower cost design, such as a high deductible health plan paired with HRAs or HSAs. Third, you could choose to sponsor a state Exchange plan if you are an eligible employer under the terms of your state’s Exchange. Or fourth you could choose not to sponsor a plan any more and instead help employees purchase their own coverage through the state Exchanges.
We would be happy to meet with you to explore those options and suggest some decision-making and implementation matters to consider

39. ESB
That concludes our presentation.
You now should have a roadmap of key Health Care Reform provisions impacting employers and a high level understanding of the provisions in the four main categories: the group health Plan Design Mandates; the tax provisions impacting Health FSAs, HSAs, and HRAs; the Administrative Requirements; and the Plan Sponsorship Issues.
Hopefully you also have an action plan. For more information we encourage you to check back often at HCReducation.com, which we will continue to update as the Health Care Reform agencies publish additional guidance. We also provide more detailed summaries of the rules, calculators, compliance check lists, and more. Be sure to sign up for our VIP s, which we send when the agencies publish new guidance or we're approaching a significant deadline.
We look forward to working with you over the months and years ahead and hope to become your primary Health Care Reform resource. Please let us know if we can be of assistance. Thank you.
Thank you!
This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations.  All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.