Health Care Reform 2010: The Basics

1. Health Care Reform 2010: The Basics Current as of: September 23, 2010 Prepared By Karen J.W. Breitnauer, JD M3 Insurance Solutions for Business

2. Agenda • Legislative Overview • 2010 Provisions • The Future • Resources • Questions?

3. Legislative Overview • Patient Protection and Affordable Care Act (“PPACA”) (P.L. 111-148) • Passed by Congress on March 21, 2010 • Signed into law on March 23, 2010 • Subject to the “fix-it” provisions of the Reconciliation Act

4. Legislative Overview • Health Care and Education Reconciliation Act of 2010 (“Reconciliation Act”) (HR 4872) • Passed by Congress on March 25, 2010 • Signed into Law on March 30, 2010 • Addresses concerns that members of the House had with the PPACA but did not believe they could rectify through the normal legislative process because of the loss of the “filibuster proof majority”

5. Provisions in Effect in 2010 - ERRP • Early Retiree Reinsurance Program (ERRP): • Temporary retiree reinsurance program • Limited funding - $5 billion • Effective date: June 1, 2010 • Interim final rules (clarification) released May 5, 2010 • A temporary program offering reimbursements of up to 80% for claims between $15K and $90K to qualified employers offering coverage for retirees 55-64 • Application process: Application available June 10 on www.hhs.gov

6. Provisions in Effect in 2010 - ERRP • ERRP (continued) • Reimbursements must be used to lower costs in the employer’s plan (reduce premium contributions, co-payments, deductibles and other out of pocket costs) and not used as employer’s general revenue • Effective until 2014…or until funds are depleted • Opportunity for employers who provide retiree benefits to recoup some of the expense for offering such benefits • Plan must satisfy application and submission rules to qualify.

7. Provisions in Effect in 2010 – Small Business Tax Credit • Tax Credits for Small Employers (Effective for tax years beginning after December 31, 2009): • Tax credit is available to “qualified small employers” that provide health care coverage to their employees through a “qualifying arrangement”. • “Qualified Small Employers” are employers who: • Have no more than 25 FTEs for the tax year • Average annual wages of no more than $50K annually per FTE • Employer pays premiums under a “qualifying arrangement”

8. Provisions in Effect in 2010 – Small Business Tax Credit • Tax Credits for Small Employers (continued) • “Qualifying arrangement” means the employer pays a uniform percentage of premiums (but not less than 50%) for each employee enrolled in health care coverage offered by the employer. • Credit may be up to 35% of employer’s portion of premium cost: • Full 35% credit is allowed for qualified small employers with 10 or less employees and average annual wages of less than $25,000 • Credit is reduced for qualified small employers with more than 10 employees and average annual wages greater than $25,000 • IRS Notice 2010-44 provides further guidance

9. Provisions in Effect in 2010 • Health Plan Mandates • Apply to fully insured and self-funded plans • Distinguishes between “grandfathered plans” and “non-grandfathered plans” • “Grandfathered plans” are plans that were in existence on or before March 23, 2010 • The “grandfathered plans” protection status clearly applies where there is no change to existing coverage and a plan will retain the status even if family members or new employees are allowed to join • However, what other changes will cause a plan to lose grandfathered status….

10. Provisions in Effect in 2010 • Health Plan Mandates • Grandfathered vs. Non-Grandfathered Plans – Regulations issued June 14, 2010 • “Grandfathered plans” are plans that were in existence on or before March 23, 2010. Any policies sold in the group or individual markets to new entities or individuals after March 23, 2010 will not be grandfathered. • Plans must include a disclosure statement in the policy or certificate of coverage if the plan believes it is a “grandfathered plan”, along with contact information regarding complaints. • Plans are required to maintain records documenting terms of the plan or coverage in effect on March 23, 2010 if they wish to maintain grandfathered status.

11. Provisions in Effect in 2010 • Health Plan Mandates • Loss of “Grandfathered” Status: • Elimination of all or substantially all benefits to diagnose or treat a particular condition • Any increase in percentage cost-sharing • Any increase in fixed amount cost-sharing requirements (deductible, out-of-pocket limit) that is greater than the maximum percentage increase, defined as medical inflation plus 15 percentage points • Any increase in fixed copayment amounts if the increase exceeds the greater of $5 (adjusted annually for medical inflation) OR a percentage equal to medical inflation plus 15 percentage points

12. Provisions in Effect in 2010 • Health Plan Mandates • Loss of “Grandfather” Status (continued): • Decrease of employer contribution amounts by more than 5 percent below contribution rate on March 23, 2010 • Changing insurance companies • Plan forces consumers to switch to another grandfathered plan that has less benefits or higher cost sharing as a means of avoiding new consumer protections • Plan is bought by or merges with another plan to avoid complying with the law

13. Provisions in Effect in 2010 • Health Plan Mandates • Changes NOT causing loss of “Grandfathered”status • Changes to premium • Changes to comply with federal or state legal requirements • Changes to voluntarily comply with the PPACA • Changing TPAs • Adding family members • Adding new hires or new enrollees

14. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Grandfathered Plans Must: • Provide dependent coverage to age 26 • Child does not have to be unmarried to qualify. • Prior to 1/1/14, provision applies only if the adult child is not eligible to enroll in employer-sponsored health plan. • IRS Notice 2010-38 states intent of IRS to amend regulations105 and 106 to allow for tax exempt treatment of adult child’s coverage: effective March 30, 2010. • Eliminate preexisting condition exclusions for children under age 19 (eliminate entirely by 1/1/14)

15. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Grandfathered Plans Must: • Eliminate annual limits, however: • plans may establish “restricted annual limits” on essential health benefits until 1/1/14 ($750,000 (2010-2011), $1.25 million (2011-2012) and $2 million (2012-2013); no limit thereafter • annual limits allowed on non-essential health benefits

16. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Grandfathered Plans Must: • “Essential Health Benefits”: • May use definition in the PPACA until further clarification. Includes: • Ambulatory patient services • Emergency services and hospitalization • Maternity, newborn care and pediatrics (oral and vision) • Mental health and substance use disorder services • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory services • Preventive and wellness services • Chronic disease management

17. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Grandfathered Plans Must: • Allow rescission only in cases of fraud • Eliminate lifetime limits • Must allow those who have reached the limit to re-enroll in the plan

18. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Non-Grandfathered Plans Must: • Cover emergency services without prior authorization and as if services were provided in-network • Cost sharing requirements imposed for out of network emergency services cannot exceed the in-network cost sharing requirements • Out of network providers may balance bill patients

19. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Non-Grandfathered Plans Must: • Implement a new appeals process • Plans and issuers must implement an effective internal claims and appeals process • If a state mandates an external review process that at a minimum contains the consumer protections of the NAIC Uniform Model Act, then issuer may comply with that process • If the state does not mandate an external process, plans or issuers must comply with the Federal external review process • Minimum standards are included in the regulations

20. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Non-Grandfathered Plans Must: • Permit Choice of Health Care Professional: • If plan requires designation of a primary care provider, plan must permit designation of any participating primary care provider if provider participates in network and is accepting patients • If plan requires designation of a primary care provider for a child, plan must permit designation of a physician who specializes in pediatrics as the child’s primary care provider if the provider participates in network and is accepting patients • If plan provides OB-GYN care and requires designation of a primary care provider, plan may not require an authorization or referral for OB-GYN care

21. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Non-Grandfathered Plans Must: (continued) • Cover preventive services without cost-sharing • Evidence based items that have a rating of A or B in the current recommendations of the US Preventive Services Task Force • Immunizations for routine use in children and adults as recommended by the CDC • For children and women, evidence informed care and screenings as supported by the Health Resources and Services Administration • May apply cost-sharing for services provided out of network • Plans may use medical management to determine frequency, method, setting, etc to extent not specified in guidelines.

22. Provisions in Effect in 2010 • Effective for Renewal Dates after September 23, 2010, Non-Grandfathered Plans Must: (continued) • Apply non-discrimination rules (fully insured plans) – different coverage for highly-compensated employees may not be allowed.

23. Provisions in Effect in 2010 • Important Employer Disclosures Model language: www.dol.gov/ebsa • Adult Child • All plans; must be provided no later than the first day of the first plan year after 9/23/10 • Grandfathered Status: • Plans maintaining grandfathered status; must be provided in any plan materials describing benefits

24. Provisions in Effect in 2010 • Important Employer Disclosures Model language: www.dol.gov/ebsa • No Lifetime Limit/Enrollment Opportunity • All Plan; must be provided no later than the first day of the first plan year beginning on or after 9/23/10 • Patient Protection • Non-grandfathered plans; must be provided no later than the first day of the first plan year beginning on or after 9/23/10 • For plans that require a designation of a primary care provider or a primary care provider for a child • For plans that provide OB/GYN coverage and require a designation of a primary care provider • Additional Appeals Notices

25. Provisions in Effect in 2010 • Miscellaneous 2010 Provisions • Wellness plans may not require participants to answer questions on lawful firearm or ammunition ownership, storage or use. (Effective for renewal dates after September 23, 2010.) • Rebates for Medicare Part D “Donut Hole”: $250 rebate check for all who enter the donut hole (coverage gap between $2,830 and $6,440 in total drug spending). • Indoor tanning services tax: 10% tax on indoor sun tanning services.

26. The Future: 2011 2011 Community Living Assistance Services and Supports (CLASS) Program • Long-term care program effective 1/1/11 – HHS has until 10/12 to work out details • Employees of companies that chose to participate will be auto-enrolled unless they “opt-out” • Employees must pay premiums for 5 years before eligible for benefits • Premiums may average $150-240/month- based on age • Benefit average: $50-$75/day

27. The Future: 2011 2011 • Health insurance issuers will report on medical loss ratios – National Association of Insurance Commissioners (NAIC) is assisting HHS with rules for this requirement. • Employers required to disclose value of health insurance on W-2s.

28. The Future: 2011 2011 • Costs for over-the-counter medications will not be reimbursed under an HSA, FSA or HRA without a prescription. • IRS Notice 2010-59 issued on September 3, 2010 • Expenses for medicines or drugs are reimbursable under a plan (including a health FSA, HRA or HSAs) only if prescribed (including over-the-counter) or are for insulin • Does not apply to items that are not medicine or drugs, including equipment such as bandages or crutches and diagnostic devices such as blood sugar test kits • FSA or HRA debit cards may not be used after January 1, 2011 for over the counter drugs as the current system is not capable of recognizing whether drugs or medicines were prescribed (grace period until January 15 – must provide substantiation after January 15)

29. The Future: 2011 2011 Simple Cafeteria Plans – Tax-Free Benefits • Small Employers: 100 or fewer employees during preceding two years • Exempt from non-discrimination requirements if contribution, participation and eligibility requirements are met • Employer contribution: must be equal to a uniform percentage of not less than 2 percent of employee’s compensation OR 200 percent match of employee contributions up to 6 percent of employee’s compensation for the plan year. Rates must be consistent. • Sole proprietors, members of LLCs, partners in partnerships and more than 2 percent shareholders still precluded from participation

30. The Future: 2011 2011 – Miscellaneous • HHS will develop standards for providing a summary of benefits and coverage explanation • HHS will establish a set of operating rules for eligibility and health claim status transactions • Increase tax to 20% on HSA withdrawals that are not used for qualified medical expenses 2012 – Not much! • Plans will begin using uniform summary of benefits and coverage explanation (March 23, 2012)

31. The Future: 2013 2013 • Medical FSA contributions limited to $2,500 annually • Employer Medicare Part D subsidy (RDS) (employers who maintain prescription drug plans for Part D eligible retirees) eliminated • Health plans must file a statement with HHS certifying data and information systems are in compliance with applicable standards (ETFs, eligibility, claim status, payments, etc.) by December 31, 2013

32. The Future: 2013 • 2013 • Taxes: • Individuals: Additional employee share of Medicare (HI) payroll tax of .9% on earned income over $200,000 individual/$250,000 joint; PLUS • Individuals: Unearned income tax of 3.8% on the lesser of (1) net investment income or (2) the excess of modified AGI over the threshold amount ($200,000 single or HOH/$250,000 joint or surviving spouse) • Businesses: 2.3% excise tax on medical devices sales (eye glasses, contact lenses, hearing aids, and devices “generally purchased by the public at retail for individual use” are excepted)

33. The Future: 2014 • 2014 • Individual Mandate • Individuals required to maintain “minimum essential coverage” or pay a penalty. “Minimum essential coverage” would include enrollment in an employer-sponsored plan. • Penalty starts at $95 and increases each year up to $695 in 2016. • Families will pay half the penalty amount each year for children.

34. The Future: 2014 • 2014 • Employer Penalties: • PPACA does not mandate an employer to offer health insurance to employees • Penalties may apply to an employer with at least 50 full-time equivalents (FTEs): • Full-time employees (30+ hours per week) • Part-time employees (total monthly hours divided by 120) • Excluding full-time seasonal employees who work less than 120 days during the year • *

35. The Future: 2014 • 2014 • Employer Penalties – Apply if: • No coverage offered to full-time employees and at least one full-time employee receives a premium credit. • Coverage offered to full-time employees, but at least one full-time employee receives a premium credit. Premium Credit: A full-time employee receives premium credits in an exchange plan because his/her required contribution exceeds 9.5% of his/her household income or employer pays less than 60% of covered health care expenses.

36. The Future: 2014 • 2014 • Employer Penalties – Amounts: • No coverage offered: $2,000 per number of full-time employees minus 30 (monthly assessment). • Coverage offered: $3,000 per each full-time employee who receives the premium credit OR $2,000 per total number of full-time employees minus 30, whichever is less. • No penalties imposed on an employer with respect to any employee who is provided a free choice voucher.

37. The Future: 2014 • 2014 • Vouchers • Employers offering minimum essential coverage who pay any portion of the costs of the plan will provide free choice vouchers to “qualified employees”. • “Qualified employee”: Employee’s contribution is between 8-9.5% of household income for a tax year AND employee’s household income is not greater than 400% of the federal poverty level AND employee does not participate in the employer’s plan.

38. The Future: 2014 • 2014 • Vouchers • Amount of voucher equal to amount employer would have paid for self-only or family coverage as elected by employee. • Employee can credit voucher towards cost of exchange provided coverage (employer pays amounts to exchange). • Any excess amounts are paid to the employee. • Voucher value is not taxable to employee; deductible by employer.

39. The Future: 2014 • 2014 • American Health Benefit Exchanges • Exchanges established in each state – not insurers, but access to insurers’ qualified health plans (Travelocity or Expedia). • Individuals and small employers – states can define small employers as 100 or fewer or 50 or fewer. • Large employers may be allowed into the exchanges in 2017 (not required). • Participating employers may limit employees’ choice of plans to a benefit level, employees then choose any available plan at that level.

40. The Future: 2014 • 2014: Additional Health Insurance Reform • Health insurance companies are not allowed to: • Refuse to sell or renew policies based on health status • Exclude coverage for pre-existing conditions • Charge higher rates due to health status, gender and other factors (premiums can vary based on age, geography, family size, and tobacco use) • Impose annual limits • Drop coverage because an individual chooses to participate in a clinical trial for cancer or other life-threatening diseases or deny coverage for routine care that they would otherwise normally provide just because an individual is enrolled in a clinical trial

41. The Future: 2014 • 2014: Additional Health Insurance Reform • Limits on waiting periods: plan cannot impose any waiting period that exceeds 90 days • Plans cannot impose any pre-existing exclusion • Cost-sharing subsidies: • Individuals eligible for premium credits and are enrolled in a “silver tier” plan will also be eligible for assistance in paying cost-sharing • Subsidies based on HDHP limits for HSAs • 2/3 reduction for individuals between 100%-200% of federal poverty level, 1/2 for 201%-300% and 1/3 for 301-400% - Secretary makes periodic payments to insurers for the subsidies

42. The Future: 2014 • 2014: Taxes and Fees • Premium tax credits available through exchanges • Credits available for people with incomes above Medicaid eligibility and below 400% of poverty level who are not eligible for or offered other coverage • Credits apply to premiums and cost-sharing • Small Business Tax Credit • Second Phase: Employers can receive a credit for contributions to purchase health insurance for employees up to 50% of the premium • Health Insurance Provider Fee: does not apply to companies whose net premiums are $25 million or less

43. The Future: 2018 • 2018 • Cadillac Tax: • 40% nondeductible excise tax on high cost employer-sponsored health insurance plans • Annual limit (inflation-adjusted): $10,200 for individuals and $27,500 for other than individual coverage • Higher limit for high-risk professions and Non-Medicare retirees age 55 and older

44. Resources • Websites • http://healthreform.kff.org/

45. The End…. For NOW • Questions? • Comments? • Concerns?