Politics, PPACA and Self-funding (A Supreme Court Update)

1. Politics, PPACA and Self-funding (A Supreme Court Update) • UAHU Presentation • September 2012

2. Recap on Supreme Court Decision The Supreme Court upheld the constitutionality of PPACA and the individual mandate Although the mandate was deemed not constitutional under the Commerce Clause, it was deemed to be a tax. Such taxation to encourage certain citizen behaviors or actions was deemed allowable under the constitution. In the Court’s analysis of the Medicaid expansion, it held that it would be unconstitutional for the federal government to withhold all Medicaid funding in order to force states to comply.So States have the ability to choose.

3. Health Reform and the Supreme Court

4. Supreme Court Outcome • Any attempt to undo provisions of this law that have been already implemented law would have been messy. • Certain provisions are already in effect and dollars have been spent in implementation that can’t be rolled back. • Agents are going to be turned to by their clients no matter what the outcome. It is imperative that you are a source of guidance and information. • Both individual and employer clients will require extensive counsel regarding decisions that are needed. • The election may have a major impact, depending on the outcome.

5. Presidential and Congressional DilemmaRepeal/ Replace vs. Fix It!

6. Major Coverage Expansion Provisions • The ACA aims to expand coverage in 2014 through a series of provisions: • Individual Mandate: Mandates that all Americans maintain a minimum level of health coverage or face a tax penalty • Insurance Exchanges: Creates state-based health insurance Exchanges and provides federal premium tax credits and cost-sharing subsidies to assist low- and moderate-income individuals without affordable employer-sponsored insurance in obtaining health coverage • Medicaid expansion: Expands Medicaid up to 133% of federal poverty level • Employer mandate: Mandates, for the first time, that employers with 50 or more full-time employees offer coverage or pay tax penalties

7. Immediate Insurance/Benefit Change Timeline for Employers

8. Immediate Insurance/Benefit Change Timeline for Employers

9. The Big Year - 2014

10. PPACA in 2016-2018

11. Current Compliance Issues for Employers • Enforcement delayed on 105 (h) non-discrimination rules for all fully insured non-grandfathered plans • IRS solicited comments in March 2011 • No word on when new guidance will be issued/enforcement could begin • Enforcement likely to be prospective and with a grace period • Auto-Enrollment for groups of 200+ delayed • Effective date of this provision is unclear in the statute • The Administration has notified employers that the guidance on auto-enrollment will not be published before 2014. • Auto-enrollment is not effective, until guidance is issued. Consequently, no auto-enrollment before 2014!

12. Current Compliance Issues • Employers need to be addressing the following compliance issues right now: • Reporting on W-2s the value of employer provided health insurance is required for 2012 • MLR rebates issued • Preventive care requirements for women begin on August 1, 2012 • Summary of benefit requirements begin on plan years beginning on or after September 23, 2012

13. W-2 Reporting • Employers will be required to include the value of group health plan coverage on W-2s issued after 1/1/2013. • Reporting for 2011 is voluntary. • The new reporting requirements do not change the tax treatment of employer-provided health coverage. The reporting is for informational purposes only. • Small Employer Exception • Employers issuing fewer than 250 Forms W-2 in the preceding calendar year are exempt from the reporting requirement. • May be on an entity rather than control group basis • Note- this is not the total number of employees, but the total number for Forms W-2 • Applies to all employers who provide applicable employer sponsored coverage

14. What to Report • Employers are required to report the value of all “applicable employer-sponsored coverage”. Generally, group health plans, including: • Major medical • Mini-meds • On-site medical clinics • Medicare supplemental coverage • Health FSA contributions (employer) • Employee assistance & wellness programs (with separate COBRA rates) • Optional Reporting • IRS guidance permits employers to report the cost of coverage that is not required to be reported (e.g. multiemployer, HRA) if reported coverage is otherwise applicable employer sponsored coverage

15. How to Report: Determining the “Aggregate Cost” • Must report the “aggregate cost” • Include pre-tax and post-tax coverage • Include employer and employee contributions (e.g. employer premium contribution or employee cafeteria plan contributions) • Multiple methodologies for determining aggregate cost. • General Rule: Use cost of COBRA premium

16. Women’s Preventive Care • Based upon Institute of Medicine Recommendations to HHS • Effective for the first plan year on or after August 1, 2012 • Screening for gestational diabetes • Human Papillomavirus (HPV) testing • Annual counseling and screening on STDs & HIV • All FDA approved contraceptives, sterilization procedures, and counseling • Lactation support and equipment rental • Screening and counseling for domestic violence • At least one well-woman preventive visit annually • Per HHS: • Religious based, non profits, have until August 1, 2013 to comply • New accommodation “Insurance Carriers must provide, not Employer” • Grandfathered plans will need not comply unless they adopted initial set preventive rules

17. Medical Loss Ratio Rebates • Applies to fully insured medical plans only • Carrier calculation based on calendar year • First applicable CY 2011 • First checks to be issued by August 1, 2012 • Probably arrived in July • Carrier to send participants and group policyholder notification • Group policyholder to be issued rebate • May be in the form of a future premium credit

18. Medical Loss Ratio Rebates • Headlines estimate $1.3 billion in rebates • What does the really mean to consumers? Not the windfall some predicted • $14-127 average annual rebate for 2011 • Individual market consumers will receive the most • The vast majority of insured consumers are not entitled to any rebate at all

19. Medical Loss Ratio – Rebates • Rebates to be distributed proportionate to CY 2011 employer contribution structure • Chasing down former participants is not necessarily required (but many carriers sent letters to former employees) • No guidance from IRS (yet) • ERISA Plans can hold rebate funds in trust for the betterment of the plan • Rebates are taxable to employees if paid with pre-tax dollars – IRS FAQ revised April 2012

20. Summary of Benefits Requirements • All insurers and self-funded employers will have to give people who apply for or enroll in individual or employer-sponsored coverage a standardized summary of benefits and coverage that includes: • Four page coverage summary • Coverage terms glossary • Coverage examples of two set medical scenarios • Customer service and website information • Intent is to give consumers standardized information for comparative purposes • Effective date has been delayed to on or after the plan year that begins on or after September 23, 2012 • Applies to all plans, including grandfathered plans and self-funded plans. • HIPAA excepted benefit plans (e.g., stand-alone dental, specific diseases, etc.) do not have to comply

21. More Looming Issues • Essential Benefits – metal levels and actuarial value • Minimum value calculation for larger plans • Valuation for CDHC plans • Small employer deductible • Market reforms – modified community rating • Employer mandate • 90 day waiting period • Other reporting by employer • Exchanges in each state

23. Links to Guidance • Definition of full-time employee • http://www.irs.ustreas.gov/pub/irs-drop/n-12-17.pdf • http://www.irs.ustreas.gov/pub/irs-drop/n-11-36.pdf • Affordability • http://www.irs.utreas.gov/pub/irs-drop/n-11-73.pdf • Minimum value • http://www.irs.ustreas.gov/pub/irs-drop/n-12-31.pdf

24. Why Self-funding – Why Now • Self-funding is a smart long-term strategy • Self-funding is a plan in which the employer assumes financial liability of their employee claims. • Dental, vision, RX, STD, and medical can all be self-funded. • Stop loss coverage is purchased for excessive risk

25. Started 1967 Taft Hartley Plan • 1974 ERISA put control of self-funded plans in the hands for the Federal Government • Self-funded plans escape most state mandates. PPACA does effect self-funded plans but not to the extent of fully funded plans

26. Self-Funded vs Fully Insured • Self-Funded • Administered by an ASO or TPA • Subject to ERISA & PPACA • Claims paid by employer funds • Highly customizable plans • Employer has access to plan data • Employer keeps profits • Pay premium taxes on only the stop-loss premium

27. Self-Funded vs Fully Insured • Fully Insured • Administered by an insurance company • Subject to Federal and State laws • Claims paid from insurer • Choose from a selection of plans • Very limited access to plan information • Insurer keeps profits • Premium taxes are collected on full amount of premium

28. Benefits of Self-Funding • Elimination of much of the premium taxes • Lower administrative costs • Profit margin goes to employer • Ability to avoid State Mandates for most plans • Enhanced data and reporting • Control

29. Disadvantages • Requires diligent monitoring • Legal and financial responsibilities of the employer • Large claim liability (lasers) • Higher degree of involvement in the health plan (however this can be a plus) • The maximum claims liability can be higher than fully insured premium, so should be considered, but aggregate claims are not common • Starting in 2012, employers sponsoring group health plans must pay $1 per participant. The fee increases to $2 per participant in 2013, then to an amount indexed to national health expenditures thereafter. Currently phased out by 2019

30. Dispel the Myths • Self-funding for group of 500 + (it can actually be a good option for down to even a 25 life group) • It’s too much work • Everyone has heard at least one nightmare story • Don’t have to follow the rules • Must have a significant Specific Deductible. NAIC model is $20,000 currently but they are looking at raising that

31. Why Self-Fund Now? • MLR does not apply (at this time) • Ability to craft plans (can even avoid some of the PPACA requirements) • Self-funded plans are not required to provide coverage with minimum essential benefits • Self-funded plans are exempt from participating in a risk-adjustment system, but individual and small group are required to participate • Self-funded plans are not subject to provision that are intended to limit insurer earnings (medical loss ratio and review of premium increases) • In 2014, health insurers are required to pay an annual fee to be calculated by the Secretary, but self-funded plans do not have to pay this fee • Gain immediate control of your health plan

32. Contact Information:Lynns@wmimutual.com801 263-8000, ext. 113 • Recognition and thanks to NAHU and their Washington Council Ernst & Young for providing much of the information in this presentation.