UPDATE ON HOT ISSUES IN HEALTH CARE – WHAT’S AN EMPLOYER TO DO?

1. UPDATE ON HOT ISSUES INHEALTH CARE – WHAT’S AN EMPLOYER TO DO? Alice E. Helle BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA 50309-2510 Telephone: 515-242-2407 Facsimile: 515-323-8507 E-mail: helle@brownwinick.com

2. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT Small Employer Tax Credits Dependent Benefits for Adult Children (up to age 26)

3. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT No Lifetime Limits on Essential Health Benefits Restricted Annual Limit on Essential Health Benefits (no less than $750,000 for 2011)

4. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT • 100% Coverage Preventative Services and immunizations – No Cost Sharing • N/A to Grandfathered Plans (but grandfathered plans may adopt)

5. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT Rescissions of Coverage Not Allowed Absent Fraud, Misrepresentation or Nonpayment of Premiums No Pre-Existing Condition Limitations for Children Under Age 19

6. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT • Internal and External Appeals Provisions • N/A to Grandfathered Plans • OTC Drugs Not Reimbursable by HSA/FSA/HRA Absent a Prescription • Exception for Insulin

7. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT • Simple Cafeteria Plans • Deemed to Satisfy Nondiscrimination Requirements of IRC § 125 • Limited to Employers w/ Fewer than 100 Employees

8. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • Nondiscrimination Rules – IRC § 105(h)(2) – DELAYED • Previously applied only to self-insured health plans • Generally prohibit discrimination in favor of top 25% of employees • Excise tax of $100/day/employee • N/A to Grandfathered Plans • Rules were to be effective for plan years beginning after 9/23/10 • Delayed indefinitely for regulations • Comment period expired in March of 2011

9. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • Reporting on Form 1099 – REPEALED • Would have greatly expanded 1099 reporting requirements • Reporting on Form W-2 – DELAYED • Value of employer-provided health insurance to be reported on Form W-2 (informational only) • Originally effective for 2011 • Now effective for 2012 for employers who issue 250+ W-2s • Effective for 2013 for smaller employers • IRS recently issued Notice 2012-9

10. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • Automatic Enrollment – DELAYED • Employers w/ 200+ employees will be required to automatically enroll new employees • Delayed indefinitely for regulations • Not likely to take effect prior to 2014

11. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • Small Business Wellness Grants – DELAYED • Grants totaling $200 million over 5 years • Employers with fewer than 100 employees and no existing wellness program eligible for grants • Was to be available 2011 • Delayed indefinably – Congress did not fund

12. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • CLASS1 Program – SUSPENDED • Voluntary long-term care insurance program for working adults • Championed by Senator Kennedy • Would have provided up to $50/day for nursing home care or home health care after years of paying monthly premiums • No employer obligation, but employers permitted to provide for participation by payroll deduction _______________ 1Community Living Assistance Services and Supports

13. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • Statute required program to be affordable, self-sustainable and actuarially sound for at least 75 years • Administration analysts determined that basic CLASS insurance plan might cost $235 - $391/mo for $50/day benefit • Program suspended due to concern that not enough people would enroll to make it sustainable

14. KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED • Free-Choice Vouchers – REPEALED • Would have been effective in 2014 for employers of 50+ employees

15. PREVIEWS OF COMING ATTRACTIONS • Summary of Benefits and Coverage (SBC) • Uniform summary of benefits in format specified in regulations • 12-point font • No more than 4 duplexed pages • Must include a uniform glossary of terms • Must include at least three different coverage examples to illustrate common scenarios under which coverage would be provided • Template provided with Notice of Proposed Rulemaking – Copy is included in your materials • Purpose is to help participants better understand their health coverage and other coverage options • Tentative effective date is March 23, 2012

16. PREVIEWS OF COMING ATTRACTIONS • Continued Phase-In of Annual Limit Rule – Essential Health Benefits • 09/23/11 - $1,250,000 • 09/23/12 - $2,000,000 • 2014 – no annual limits permitted

17. PREVIEWS OF COMING ATTRACTIONS • Limits on Health Flexible Spending Arrangements (FSAs) • Contributions limited to $2,500/year effective 2013

18. PREVIEWS OF COMING ATTRACTIONS • FICA Medicare Tax Rate Increase for Certain Employees • Effective 2013 • The Medicare tax rate is increased from 1.45% to 2.35% for earnings over the threshold of $200,000 for an individual or $250,000 for a married couple filing jointly • The employer’s portion of the tax is not affected • The employer will be responsible for collecting the additional Medicare tax due from the employee • Employers are not responsible for determining a spouse’s earnings

19. PREVIEWS OF COMING ATTRACTIONS • Plan Amendments – 2014 • No pre-existing condition limitations • No waiting periods over 90 days • No out-of-pocket limits greater than the limits for high-deductible health plans (currently $5,950/11,900) • N/A to grandfathered plans • Wellness program rewards based on satisfaction of health standards can’t exceed 30% of the cost of employee-only coverage (currently 20%) • N/A to grandfathered plans • Expanded coverage of clinical trials • N/A to grandfathered plans

20. PREVIEWS OF COMING ATTRACTIONS • Exchange Notice • Notice deadline is March 31, 2013 • Notice must inform employees of: • The existence of the exchanges • The services provided • How to contact the exchanges to request assistance. • The availability of premium assistance if the employer’s share of the cost of benefits is less than 60% The circumstances under which the employee loses employer contributions to the health plan and explaining that tax-free employer contributions may be lost when an employee enrolls in an exchange plan

21. PREVIEWS OF COMING ATTRACTIONS • State Insurance Exchanges – 2014 • “Marketplace” where individuals and small employers (under 50 employees) may purchase health insurance • Must offer four levels of coverage with different benefit levels and actuarial values • To participate, insurers must agree to charge the same premium for each Qualified Health Plan regardless of whether it is offered inside or outside the exchange • Plans must offer plans similar in scope to “typical” employer-sponsored plans

22. PREVIEWS OF COMING ATTRACTIONS • Reporting Requirements – 2014 • Coverage – IRC § 6055 • Plans providing “minimum essential coverage” to an individual must file report with IRS with info re covered persons • Plans must also provide statement to individuals who were listed on report filed with IRS • Additional Reporting – Large Employers – IRC § 6056 • Applies to employers subject to § 4980H (50+ employees) • Must file report that includes info re premiums and contributions

23. PREVIEWS OF COMING ATTRACTIONS • Individual Mandate – Effective 2014 • Individuals required to have health coverage or pay a penalty • 2014 – greater of $95 or 1% of household income • 2015 – greater of $325 or 2% of income • 2016 - greater of $695 or 2.5% of income • Subsidies • Premium assistance tax credits for individuals with income between 100% and 400% of the federal poverty level • Cost-sharing subsidies for individuals with income up to 250% of the federal poverty level to reduce out-of-pocket costs for plans purchased through an exchange

24. PREVIEWS OF COMING ATTRACTIONS • Large Employer Mandate (50+) • Must offer “minimum essential coverage” or pay a tax penalty • If employer does not offer coverage, penalty is $2,000 per employee, except that number of employees is reduced by 30 in calculating the penalty • If the employer offers coverage but doesn’t meet affordability and value tests, penalty is $3,000 for each full-time employee who receives premium assistance through an exchange

25. STATUS OF CONSTITUTIONAL CHALLENGES • More Than 20 Lawsuits Challenging ACA Filed In The Federal District Courts To Date • 6 courts have ruled the law constitutional • 3 courts ruled at least part of the law unconstitutional • 9 cases dismissed on procedural grounds

26. STATUS OF CONSTITUTIONAL CHALLENGES • 8 Cases Have Reached The Federal Courts Of Appeals • 2 are still pending • 4 ruled against plaintiffs on various procedural grounds • 2 ruled on the constitutionality of the Act • 6th Circuit Court of Appeals found the law constitutional on 06/29/11 • Thomas More Law Center v. Obama • 11th Circuit Court of Appeals found the individual mandate to be unconstitutional on 08/12/11 • Florida v. HHS

27. STATUS OF CONSTITUTIONAL CHALLENGES • Thomas More Law Center v. Obama • Plaintiffs argued that the Commerce Clause doesn’t permit the government to compel people to buy health insurance because that would be regulating “inactivity.” • District Court (E. D. Michigan) rejected that argument – decision not to buy insurance has an impact on health care providers and taxpayers and therefore is an activity that “substantially affects interstate commerce.” • The 6th Cir. affirmed, ruling that Congress had a rational basis to impose the individual mandate. • 2-1 ruling • Plaintiffs appealed to the Supreme Court on July 27

28. STATUS OF CONSTITUTIONAL CHALLENGES • Florida v. HHS • District Court (N. D. Florida) determined that the individual mandate was unconstitutional under the Commerce Clause • Also found that it was not severable from the remainder of the Act, so struck down the entire Affordable Care Act • The 11th Cir. found the individual mandate unconstitutional (by a 2-1 vote) but determined that it is severable from the rest of the Act, which is “legally operative.” • The government appealed to the Supreme Court on September 28

29. STATUS OF CONSTITUTIONAL CHALLENGES • Supreme Court has accepted and will hear arguments in March • 3/26 – 1 hour on whether the Anti-Injunction Act blocks a challenge prior to 2014 • 3/27 – 2 hours on the constitutionality of the individual mandate • 3/28 – 2½ hours on the severability of the individual mandate and the constitutionality of the Medicaid expansion • Decision expected in June or July

30. Website: www.brownwinick.com Toll Free Phone Number: 1-888-282-3515 OFFICE LOCATIONS: 666 Grand Avenue, Suite 2000 Des Moines, Iowa 50309-2510 Telephone: (515) 242-2400 Facsimile: (515) 283-0231 616 Franklin Place Pella, Iowa 50219 Telephone: (641) 628-4513 Facsimile: (641) 628-8494 DISCLAIMER: No oral or written statement made by BrownWinick attorneys should be interpreted by the recipient as suggesting a need to obtain legal counsel from BrownWinick or any other firm, nor as suggesting a need to take legal action. Do not attempt to solve individual problems upon the basis of general information provided by any BrownWinick attorney, as slight changes in fact situations may cause a material change in legal result.