March 25, 2010 Health Care Reform Law: What Employers Need to Know Now

1. March 25, 2010 Health Care Reform Law: What Employers Need to Know Now with Craig J. Davidson, CEBS

2. Agenda Review Health Insurance Reform Act that would impact employer-sponsored health insurance. Timelines Fines Why this may not all be over just yet

3. Health Care Reform Roll Out: 2010-2020 Recent Health Care Reform legislation approved Sunday, March 21, 2010. Many provisions included in legislation will not take place immediately, but along a ten-year timeline through 2020. Source: 2010 http://www.nahu.org

4. 2010:Effective Immediately Eventual elimination of employer deductible subsidy under Medicare Part D (January 1, 2011) would have immediate impact on employers’ liability and income statements. Source: 2010 http://www.nahu.org

5. 2010:Effective within six months No lifetime limits on health plan coverage. Raises age of dependent for health plan coverage to 26. Restricts rescissions of health plan coverage in all insurance markets. Federal review of health insurance premium rates. High-risk pool coverage for people who cannot obtain current individual coverage due to preexisting conditions. Creates temporary reinsurance program for employer health plans providing coverage for non-Medicare eligible retirees aged 55-64 and their families. Medicare "doughnut hole“ (beneficiaries to pay full cost of their prescription drugs) begins narrowing by providing $250 rebate to those in gap. Starts this year after they have spent $2,830. Fully closes by 2020. Indoor tanning has a 10% sales tax. Source: 2010 http://www.nahu.org

6. 2010:Effective within three to six months of enactment Creates temporary reinsurance program for employers providing health insurance coverage to retirees over 55 who are not eligible for Medicare. Annual benefit limits on coverage limited to DHHS-defined non-essential benefits. Mandated coverage of: Specific preventive services with no cost sharing. Emergency services at in-network level regardless of provider. Allows enrollees to designate any in-network doctor their primary care physician (including OB/GYN and pediatrician). Prohibits discrimination in coverage or premium based on salary. Requires plans to have coverage appeals processes. Requires summary of coverage be provided to applicants and enrollees. Requires States & Secretary of DHHS to develop information portal options for state residents to obtain uniform information on sources of affordable coverage (Website). Information must be provided on private health coverage options, Medicaid, CHIP, the new high-risk pool coverage and existing state high-risk pool options. Makes available tax credits for qualified small employer contributions to purchase coverage for employees. Applies to small employers (that purchase health insurance for their employees) with fewer than 25 employees and average annual wages of less than $40,000. Source: 2010 http://www.nahu.org

7. January 1, 2011 Minimum loss ratio requirements for insurers in all markets. Creates grants for small employer-based wellness programs. Mandatory federal study on impact market reforms will have on large group market. Prohibits over-the-counter drugs as eligible expense in HSA’s, HRA’s, and FSA’s. Increases tax on distributions from HSA’s that are not used for qualified medical expenses to 20% (from 10%). Limits FSA contributions for medical expenses to $2,500. Annual fees on private health insurers based on net premiums written after December 31, 2008 and third party agreement fees received after December 31, 2008 begin. $2 billion in 2011, $4 billion in 2012, $7 billion in 2013, $9 billion in 2014-2016, and $10 billion in 2017 and thereafter. Does NOT apply to self-insured plans. Freezes threshold for income-related Medicare Part B premiums for 2011-2019, and reduces the Medicare Part D premium subsidy for those with incomes above $85,000/individual and $170,000/couple. Employers must start reporting value of health benefits on W-2 forms. Medicare 50% discount on brand name prescription drugs given to beneficiaries reaching Medicare doughnut hole. 10% Medicare bonus will be provided to primary care physicians/general surgeons practicing in underserved areas (inner cities and rural communities). Medicare Advantage plans begin to have payments frozen (to be lowered in 2012). Plans would have to spend at least 85 cents out of every dollar on medical costs, while leaving 15 cents for plan operations, including overhead and salaries. Reductions would be phased in over next three-seven years. Source: 2010 http://www.nahu.org

8. January 1, 2012 New federal premium tax on fully-insured and self-insured group health plans to fund comparative effectiveness research program begins. Nonprofit insurance co-ops will be created to compete with commercial insurers. Hospitals, physicians, and payers would be encouraged to band together in "accountable care organizations." Hospitals with high rates of preventable readmissions would face reduced Medicare payments. Source: 2010 http://www.nahu.org

9. January 1, 2013 Implement 40% excise tax on insurers of employer-sponsored health plans (both fully-insured and self-insured) with aggregate values that exceed $8,500 for individual coverage and $23,000 for family coverage (indexed annually by CPI plus 1%). Values of health plans include reimbursements from FSA’s, HRA’s and employer contributions to HSA’s. Also includes coverage for dental, vision, and other supplementary health insurance coverage. Threshold for itemized deduction for unreimbursed medical expenses would increase from 7.5% of AGI to 10% of AGI for regular tax purposes. Increase waived for individuals age 65 and older for tax years 2013 through 2016. Individuals making $200,000/year or couples making $250,000/year would have higher Medicare payroll tax of 2.35%—up from current 1.45%. New tax of 3.8% on unearned income (i.e. dividends and interest) also added. Medical expense contributions to tax sheltered flexible spending accounts (FSA’s) limited to $2,500 a year (indexed for inflation). Thresholds for claiming itemized tax deduction for medical expenses rises from 7.5% to 10% of income. People age 65 or older can still deduct medical expenses above 7.5% of income through 2016. Medicare device makers have 2.3% sales tax on medical devices. Eyeglasses, contact lenses, and hearing aids exempt. Source: 2010 http://www.nahu.org

10. January 1, 2014 All individual health insurance policies and fully-insured group policies to abide by strict modified community rating standards. Premium variations only allowed for age (3:1), tobacco use (1.5:1), family composition and geographic regions (to be defined by states). Experience rating would be prohibited. Wellness discounts allowed for group plans under specific circumstances. Coverage must be offered on guarantee issue basis in all markets and be guaranteed renewable. Exclusions based on preexisting conditions & policy rescissions would be prohibited in all markets. Prohibits any annual limits or lifetime limits in group or individual plans. Redefines small group coverage as 1-100 employees. States may also elect to reduce this number to 50 for plan years prior to January 1, 2016. Individuals and employer group plans that wish to keep current policy on a grandfathered basis would be able to do so if the only plan changes made were to add or delete new employees/dependents. Exception is made for employers that have scheduled plan changes as result of collective bargaining agreement. Requires each state to create Exchange to facilitate sale of qualified benefit plans to individuals, including federally administered multi-state plans and non-profit co-operative plans. A catastrophic-only policy would be available for those 30 and younger. States must create “SHOP Exchanges” to help small employers purchase such coverage. State can either create one exchange to serve both individual and group market or they can create a separate individual market exchange and group SHOP exchange. States can also apply for a modification waiver from DHHS. Source: 2010 http://www.nahu.org

11. January 1, 2014 – continued Employers must give voucher to use in individual market or exchange to lower-income employees who would normally be ineligible to purchase subsidized coverage through the exchange instead of participating in the employer-provided plan. Value of vouchers adjusted for age. Vouchers used in exchanges to purchase coverage that would otherwise be unsubsidized. Employee can keep amounts of voucher in excess of cost of coverage elected in an exchange without being taxed on the excess amount. Establishes standards for qualified coverage, including mandated benefits, cost-sharing requirements, out-of pocket. Limits and a minimum actuarial value of 60%. Allows catastrophic-only policies for those 30 and younger. Creates sliding-scale premium assistance tax credits for non-Medicaid eligible individuals with incomes up to 400% of FPL to buy coverage through the exchange. Medicaid eligibility level is increased to 150% FPL. Requires states offer premium assistance and Medicaid wrap-around benefits to Medicaid beneficiaries who are offered employer-sponsored coverage if cost effective to do so (under terms outlined in current law). Gives states option of establishing federally-funded non-Medicaid state plan for people between 133-200% FPL who do not have access to affordable employer sponsored coverage and would otherwise be eligible for subsidized coverage through a state-based exchange. Funding for program will come from subsidy dollars. Allows states to apply for waiver for up to 5 years of requirements relating to qualified health plans, exchanges, cost-sharing reductions, tax credits, the individual responsibility requirement, and shared responsibility for employers, provided that they create their own programs meeting specified standards. Source: 2010 http://www.nahu.org

12. January 1, 2014 – continued Employers do not have to offer coverage. However, if they employ more than 50 full-time employees they must pay a fine of $750 per year for each full time employee they don’t cover. Coverage must meet essential benefits requirements in order to be considered compliant with mandate. For construction industry only, responsibility requirement to provide affordable coverage applies to employers of more than 5 people with annual payrolls of more than $250,000. Employers with more than 50 full-time employees that requires a waiting period before an employee can enroll in health care coverage will pay $600 for any full-time employee subject to more than a 60-day waiting period. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving premium assistance tax credit will pay lesser of $3,000 for each employee receiving tax credit or $750 for each full-time employees total. Requires all American citizens & legal residents to purchase qualified health insurance coverage. Exceptions provided for religious objectors, individuals not lawfully present, incarcerated individuals, those who cannot afford coverage, taxpayers with income under 100 percent of poverty, members of Indian tribes, those who have received a hardship waiver and those who were not covered for a period of less than three months during the year. Violators subject to an excise tax penalty of up to $750/person or up to 2 percent of income (capped at the annual cost of the average bronze level premium plan offered through the exchanges). Source: 2010 http://www.nahu.org

13. January 1, 2014 – continued Health plans, including self-funded employer plans and public programs, must provide coverage documentation to both covered individuals and the IRS. Employers of 200 or more employees must auto enroll all new employees into any available employer sponsored health insurance plan. Waiting periods in existing law can apply. Employees may opt out if they have another source of coverage. Employers must provide notice to employees informing them of existence of an Exchange. Employers must report value of health benefits on W2 forms. Businesses that receive subsidies for providing prescription drug plans valued at as much as Medicare Part D for their retirees no longer would be allowed to exclude subsidy payments from gross income under the bill. Codifies and improves upon HIPAA bona fide wellness program rules and increases value of workplace wellness incentives to 50% of premiums. Establishes a 10-state pilot program to apply rules to HIPAA bona fide wellness program rules the individual market in 2014-2017 with potential expansion to all states after 2017. New federal study on wellness program effectiveness and cost savings. Source: 2010 http://www.nahu.org

14. 2015 Children’s Health Insurance Program (CHIP) program must be reauthorized. 2017 States may choose to allow large groups (over 100) to purchase coverage through the exchanges. 2018 Tax would be imposed on employer sponsored health insurance worth more than $10,200 for individual coverage, and $27,500 for a family plan. Tax is 40% of the value of the plan above the thresholds, indexed for inflation. 2020 Doughnut hole coverage gap in Medicare prescription benefit is phased out. Seniors continue to pay standard 25% of drug costs until they reach the threshold for Medicare catastrophic coverage. Source: 2010 http://www.nahu.org

15. Questions