1. © 2011 McNees Wallace & Nurick LLC Key Compliance Issues for School Districts March 17, 2011 YEAR #2 OF HEALTHCARE REFORM: Eric N. AtheyJennifer E. Will Co-Chair, Labor & EmploymentMember 717.581.3708717.237.5418 eathey@mwn.comjwill@mwn.com

2. © 2011 McNees Wallace & Nurick LLC PPACA AT A GLANCE  Patient Protection and Affordable Care Act Passed 3/23/10  Some Near-Term Highlights: Unpaid breaks for nursing mothers (2010) Dependent care extended to age 26 (2010-11) Pre-existing condition exclusions phased out (2010- 14) Lifetime & Annual Maximum Benefit Limits phased out (2010-14) FSA/HRA/HSAs: OTC reimbursements nixed (2011) Extension of nondiscrimination rules to fully insured plans (unknown) 2

3. © 2011 McNees Wallace & Nurick LLC PPACA AT A GLANCE  PPACA Long-Term Requirements (2014) Free Rider Penalty: Up to $2085 annual penalty for families who don't have coverage No Coverage Penalty for Employers: $2000/yr per employee Unaffordable Coverage Penalty for Employers: $3000 per subsidized employee Free Choice Vouchers Cadillac Tax (2018)  Issue: How much of PPACA will survive the 2012 elections? 3

4. © 2011 McNees Wallace & Nurick LLC PPACA COMPLIANCE AND YOUR CBA: WHERE TO BEGIN?  Determine whether your plan is grandfathered ("GF")  Determine cost/benefits of maintaining GF status  Determine timing & costs of PPACA mandates 4

5. © 2011 McNees Wallace & Nurick LLC PPACA COMPLIANCE AND YOUR CBA: WHERE TO BEGIN?  Develop a bargaining strategy that ensures compliance without breaking the bank (i.e. what does district get in exchange for new benefits)  Develop a bargaining strategy that complies with bargaining obligations 5

6. © 2011 McNees Wallace & Nurick LLC GRANDFATHERING AND COLLECTIVE BARGAINING AGREEMENTS (CBA S )  General Rule: ALL collectively bargained plans must comply with PPACA requirements when they become effective BUT fully-insured CBA plans may retain grandfathered status longer than non-CBA plans  Fully Insured collectively bargained plans in effect before 3/23/10 remain grandfathered until expiration of CBA  Issue: Scope of "binding contract" exception? 6

7. © 2011 McNees Wallace & Nurick LLC GRANDFATHERING AND COLLECTIVE BARGAINING AGREEMENTS (CBA S )  Once CBA expires, any post-3/23/10 changes to fully-insured collectively bargained plans will be analyzed under general GF rules  Change of carriers or of TPA during current term does not eliminate grandfathered status  Grandfathered status determined on a benefit package level rather than plan- wide 7

8. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 1:  CBA (July 1, 2009-June 30, 2012)  Employee Health Contributions Per Month: 2009-10: $100 2010-11: $110 2011-12: $120  Still Grandfathered? 8

9. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 2:  CBA (July 1, 2008-June 30, 2012)  Employee Health Contributions Per Month: 2008-09: 7% 2009-10: 8% 2010-11: 9% 2011-12: 10%  Still Grandfathered? 9

10. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 3:  CBA (July 1, 2008-June 30, 2011)  Employee Health Contributions Per Month: 2008-09: $100 2009-10: $100 2010-11: The % equivalent of $100  Still Grandfathered? 10

11. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 4:  CBA (July 1, 2008-June 30, 2012)  No changes in cost-sharing – but indemnity plan option is eliminated in 2010-11  Still Grandfathered? 11

12. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 5:  CBA (July 1, 2008-June 30, 2012)  No changes in cost-sharing or benefits – but plan moves from self- insured to fully insured in 2010-11  Still Grandfathered? 12

13. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 6:  CBA (July 1, 2008-June 30, 2013)  The following cost-sharing changes are implemented during the CBA – which ones defeat GF status: 7/1/08: Exclude benefits for treatment of morbid obesity 7/1/09: Reduce "supplemental insurance" pool from $300 to $200 per year 13

14. © 2011 McNees Wallace & Nurick LLC APPLYING THE GRANDFATHERING RULES TO CBA S Hypothetical 6 (cont'd): 7/1/10: Annual Deductible increased from $200 to $400 7/1/11: Office visit co-pay increase from $10 to $20 7/1/12: District decreases its contribution to indemnity plan premium from 90% to 75% 14

15. © 2011 McNees Wallace & Nurick LLC BARGAINING CONSIDERATIONS FOR PRE-2014 REQUIREMENTS  How important is GF status to your District?  Should you renegotiate (or delay) concessions to maintain GF status?  What is the cost of losing GF status relative to desired cost-sharing concessions? 15

16. © 2011 McNees Wallace & Nurick LLC PROJECTED PPACA COMPLIANCE COSTS  Extension of Dependent Coverage to Age 26: 0-3% premium increase  Elimination of Lifetime Limits and Gradual Elimination of Annual Limits: 0-1.5% premium increase  Remaining Requirements Effective for Plan Years Beginning on or after 9/23/10: No anticipated impact * Source: Aetna, "Impact of Health Care Reform in 2010 16

17. © 2011 McNees Wallace & Nurick LLC NEGOTIATING THE RIGHT LANGUAGE  Minimize changes to CBA; Address Amendments in Plan Document/SPDs  Annual/Lifetime Limits – OK in CBA with proper context language  Can you charge more for older dependents – No. 17

18. © 2011 McNees Wallace & Nurick LLC NEGOTIATING THE RIGHT LANGUAGE  What if older dependents have other coverage – Irrelevant unless GF plan  Amend FSAs, HSAs and HRAs to eliminate OTC  Amend FSAs to implement $2500 limit 18

19. © 2011 McNees Wallace & Nurick LLC NEGOTIATING THE RIGHT LANGUAGE  Preventive Health Services – Avoid listing in CBA  Appeals Procedure – Avoid listing in CBA  Reopener language as needed for compliance 19

20. © 2011 McNees Wallace & Nurick LLC BARGAINING CONSIDERATIONS FOR 2014/2018 REQUIREMENTS  What are the 2014/2018 requirements?  Will the 2014/2018 requirements be repealed?  How will they impact school districts?  What are the key bargaining considerations? 20

21. © 2011 McNees Wallace & Nurick LLC WHAT ARE THE 2014/2018 REQUIREMENTS?  Free rider penalty for employees  No coverage penalty: $2,000 x [# of FTEs – 30]  Unaffordable coverage penalty: $3,000 x # of subsidized FTEs [if employee cost of coverage exceeds 9.8% of gross household income] 21

22. © 2011 McNees Wallace & Nurick LLC WHAT ARE THE 2014/2018 REQUIREMENTS?  Free choice vouchers [for employees earning less that 400% FPL and cost of coverage is b/t 8%-9.8% of gross household income]  Cadillac Tax [Eff. 2018 – 40% excise tax on plan costs over $10,200/$27,500] NOTE: $27,500 is threshold amount for all levels of coverage under multi- employer plan 22

23. © 2011 McNees Wallace & Nurick LLC WILL THE 2014/2018 REQUIREMENTS BE REPEALED?  20 State Attorney Generals sue to block 2014 Provisions  6 States pass laws purporting to reject 2014 Provisions  Republicans now control House  Who will act first, Congress or the Supreme Court?  In the meantime, we must address the 2011 requirements 23

24. © 2011 McNees Wallace & Nurick LLC GENERAL BARGAINING STRATEGIES FOR THE UNKNOWN  Short-term CBAs expiring pre-2014  Long-term CBAs with salary/benefit reopeners pre-2014  "Me too" provisions to match administrative or support staff (with a floor)  Negotiate waiver of duty to bargain as necessary to comply and/or avoid penalties 24

25. © 2011 McNees Wallace & Nurick LLC SPECIFIC 2014/2018 STRATEGIES Free Rider Penalties  Strategy: Negotiate provision prohibiting waiver of coverage or allowing waiver only with proof of other coverage No Coverage Penalty  Strategy: Compare current coverage to plans on Exchange  Consider sharing of savings if elimination of coverage is feasible 25

26. © 2011 McNees Wallace & Nurick LLC SPECIFIC 2014/2018 STRATEGIES Unaffordable Coverage Penalty  Strategy: Knowing gross household income (GHI) will be key to avoidance  Implement GHI reporting requirement  Mutually explore benefit of eliminating coverage  Tighten up opt-out payments 26

27. © 2011 McNees Wallace & Nurick LLC SPECIFIC 2014/2018 STRATEGIES Free Choice Vouchers  Strategy: Control cost-sharing to stay below 8% of GHI  Monitor cost/benefits of exchange plans  Consider negotiating elimination of coverage  Trigger elimination of coverage on threshold number of employees seeking vouchers? 27

28. © 2011 McNees Wallace & Nurick LLC SPECIFIC 2014/2018 STRATEGIES Cadillac Tax (eff. 2018)  Reopener provision to avoid imposition of tax  Elimination of benefits triggered by imposition of tax  Unilateral reduction of benefits provision to avoid imposition of tax  Greater employee contributions triggered by imposition of tax  Union/Employee indemnification if tax imposed 28

29. © 2011 McNees Wallace & Nurick LLC WILL THE CADILLAC TAX BE DRIVING YOUR DISTRICT IN 2018?  2010 Avg. District Pseudo Rate*: Employee Only: $6996/yr or 68.5 of $10,200 Family: $16,344/yr or 60% of $27,500 Avg. % Premium Increase for Districts since 2006: 10.65%  Where will the avg. pseudo rate be in 2018? *Source: Lancaster County School District Data 29

30. © 2011 McNees Wallace & Nurick LLC ANTICIPATED AVERAGE PSEUDO- RATE FOR 2018:  Assuming 10.65% increase per year Employee Only: $15,719 Excess of $5,519/yr subject to 40% tax (or $2,207 tax per employee per year) Family: $36,726 Excess of $9,226/yr subject to 40% tax (or $3,690 tax per employee per year) 30

31. © 2011 McNees Wallace & Nurick LLC QUESTIONS Visit our blog at: http://www.palaborandemploymentblog.com/ 31