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Church Benefits Association Annual Meeting Jean Hemphill – Ballard Spahr LLP

HealthCare Reform Post-Election: A Church Alliance Update. Church Benefits Association Annual Meeting Jean Hemphill – Ballard Spahr LLP Andy Hendren – The United Methodist Church November 28, 2012. Agenda. Upcoming Provisions –Review and Update 2014 Market Reforms

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Church Benefits Association Annual Meeting Jean Hemphill – Ballard Spahr LLP

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  1. HealthCare Reform Post-Election: A Church Alliance Update Church Benefits Association Annual Meeting Jean Hemphill – Ballard Spahr LLP Andy Hendren – The United Methodist Church November 28, 2012

  2. Agenda • Upcoming Provisions –Review and Update • 2014 Market Reforms • Review of Main Provisions • Implementation Uncertainty • Recent Guidance (November 2012)

  3. Affordable Care Act (ACA) • Patient Protection and Affordable Care Act (PPACA or ACA)—March 23, 2010 • Incremental changes: 2010-2013 • Major reforms: 2014 • Supreme Court upholds ACA in NFIB v. Sebelius—June 28, 2012 • 2012 election outcome minimizes political uncertainty • Implementation uncertainty remains

  4. ACA Near-Term Provisions 1 Initially in Fall 2012 annual enrollment materials 2 Fees apply to self-insured plans

  5. Summary of Benefits and Coverage (SBC) • Plan must provide an SBC for each plan option to each plan member beginning 9/23/2012 • Calendar year plans: January 1, 2013 • Annual Enrollment—fall 2012 • Upon initial enrollment, at renewal (at least 30 days prior) and upon request (within 7 days) • Must use HHS uniform template and include specific content and examples, in specified order and format

  6. SBC Final Rule • 4 pages: benefits, cost-sharing, exclusions • “Good faith reasonable best efforts” • Penalties unlikely first few years • Plan, employer, insurer orTPA • 60 days advance notice of plan changes • Penalty for failure: $1,000 per incident • Final Rule: • http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=25818

  7. SBC Rule Language Access Requirements • Must provide translated form in HHS designated counties • Navajo, Spanish, Chinese & Tagalog templates and glossary are available http://cciio.cms.gov/resources/other/index.html#sbcug • Non-English language services must be made available

  8. FSA Limit Notice 2012-40: $2,500 limit on employee contributions to health flexible spending accounts (FSAs) • Effective for plan years beginning after December 31, 2012 • Final Rule: http://www.irs.gov/pub/irs-drop/n-12-40.pdf • If in compliance, may amend plan as late as December 31, 2014

  9. Notice of Exchanges • March 1, 2013 • employers will be required to provide their employees with notice about the availability of the exchanges. • Fair Labor Standards Act (FLSA) amendment – applies to employers • No guidance yet on Notice form or content • Guidance/template Notice expected soon

  10. Effectiveness Research Fee Comparative effectiveness research fee to fund Patient-Centered Outcomes Research Institute (PCORI) • Applies to insured self-funded plans • Applies to plan years ending after October 1, 2012 and before October 1, 2019 • $2.00 per covered life ($1.00 in first year) • Information Return (Form 720) and payment due by July 31 of following year

  11. PCORI Fee • Applies to retiree plans; not to excepted benefits (e.g., vision, dental, EAP) • Plan sponsors may aggregate self-funded plans (if same plan year) to pay one Fee • If plan sponsor maintains self-funded and full-insured plans, Fee will apply to both • PCORI Proposed Regulations • http://www.gpo.gov/fdsys/pkg/FR-2012-04-17/pdf/2012-9173.pdf

  12. Quality of Care Reporting • Health plans will be required to report on measures they have taken to plan design to improve health outcomes, prevent medical errors, improve patient safety and health promotion activities. • No guidance yet (due 3/23/2012) on reporting requirements

  13. Preventive Care Rule • Plan must cover preventive services with no cost-sharing • Including women’s preventive services • Effective plan years on or after August 1, 2012, plans must provide contraceptive services to women without cost-sharing • Regulations exempt certain “religious employers” from this requirement

  14. Preventive Care Rule “Religious employer” for purposes of exemption must: • have the inculcation of religious values as its purpose • primarily employ persons who share its religious tenets • primarily serve persons who share its religious tenets • be a church or integrated auxiliary of a church Note: There is no explicit exemption for a church

  15. Preventive Care Rule Temporary Enforcement Safe Harbor One year delay in effective date of rule for “religious organizations” not entitled to the exemption. “Religious organization” must meet all of following: • Must be non-profit entity • From 2/10/2012 onward, must not have provided some or all of the contraceptive coverage otherwise required at any time because of religious beliefs of organization; • Must provide notice to participants • Must self-certify the above requirements

  16. Preventive Care Rule • Advanced notice of proposed rulemaking issued March 2012 • New regulations expected soon • Many lawsuits filed challenging the religious conscience exemption • Many dismissed on ripeness/standing • Several preliminary injunctions issued (mainly private employers)

  17. Non-discrimination Rule • Section 105(h) • Has long applied to self-funded plans • ACA made applicable to insured plans • Highly compensated employee (HCE) defined differently than in IRC 414(q): • 5 highest paid officers • Highest paid 25 percent of all employees (including the 5 highest paid officers)

  18. Non-discrimination Rule • Penalties for non-compliance different • Self-funded = benefits of HCE are taxable • Insured = an excise tax ($100/day per HCE), civil money penalty, or a civil action to compel it to provide nondiscriminatory benefits • Enforcement of Section 105(h) currently on hold pending further guidance

  19. Wellness Program Expansion • New Guidance expands HIPAA’s bone fide wellness program exception to prohibition on varying benefits based on health status • http://www.ofr.gov/OFRUpload/OFRData/2012-28361_PI.pdf • Similar to 2006 Guidance but with expanded rewards from 20% to 30% of the value of ER + EE contributions.

  20. Changes Ahead 1 Applies to self-insured plans 2 Earliest possible: January 2014 Form W-2 for 2013 tax year (self-insured church plans and small employer) under Notice 2011-28 2014 2017 • Exchanges, subsidies and market reforms • Risk-adjustment fees1for exchanges • Report health coverage value on Form W-22 Exchanges for large employers (100+) 2018 Cadillac plan tax 2015 Large employer (200+) auto-enrollment

  21. Transitional Reinsurance Program • Three year assessment (2014-2016) to fund reinsurance programs for state and federally-facilitated exchanges • Applies to all insured and self-funded group health plans (either directly or through their TPAs) • To be based on a percentage of aggregate premiums and self-insured plan "premiums equivalents "   • No regulations yet but industry rumors are ($60 to $100 per covered life) • .95% for 2014, • .60% for 2015 • .35% for 2016.    

  22. Reinsurance Program • Final Regulations: • http://www.regulations.gov/#!documentDetail;D=HHS-OS-2011-0022-0692

  23. W-2 Reporting Beginning with W-2 for 2012 tax year (January 2013), most employers must annually report the aggregate cost of employer-sponsored health coverage provided to each employee • Form W-2 • Box 12 • Code DD • Amount determined on basis of COBRA rules.

  24. W-2 Reporting • Excepted Plans/Employers (not exhaustive)                             • Self-insured church plans (not subject to COBRA) • Small employer exemption: employers who furnish fewer than 250 W-2 forms for calendar year are exempt • HSAs and Archer MSAs   • Health FSAs (salary reduction contributions only) • HRAs                                                               • Stand-alone dental and vision plans                  • Long term care plans • Multiemployer plans (Taft-Hartley Union plans) • Governmental plans for military personnel

  25. W-2 Reporting • IRS Notice 2012-9 (restating and clarifying IRS Notice 2011-28) • http://www.irs.gov/pub/irs-drop/n-12-09.pdf

  26. Auto-enrollment • Large employers (200 or more full-time employees) will be required to enroll each new full-time employee automatically in one of its plans. • Technical Release 2012-01 indicated delay until 2015 and further guidance forthcoming by 2014. • http://www.dol.gov/ebsa/newsroom/tr12-01.html

  27. 2014: Near-Universal Coverage • Individual Mandate • Individual insurance market reforms • Health Insurance Exchanges • Government assistance for modest income →premium tax credits (PTCs) • Employer Shared Responsibility • “Pay or play” or employer mandate • Expanded Medicaid

  28. Medicaid Expansion • ACA expands traditional Medicaid to cover all individuals at or above 133% of federal poverty level (FPL) • Traditional Medicaid varies by state • Expansion intended to cover most Americans below the PTC threshold (100% FPL) • Supreme Court ruling: Penalty on states for refusing to expand Medicaid “overly coercive” • Result: States can refuse Medicaid expansion

  29. Medicaid Expansion Gap States that opt-out of Medicaid expansion → risk of gap in ACA’s universal coverage goal

  30. Mandate and Market Reforms • “Minimum essential coverage” (MEC) or pay excise tax • 2014: Greater of $95 or 1% of income • 2015: Greater of $325 or 2% of income • 2016: Greater of $695 or 2.5% of income • Indexed after 2016 • Does not apply to those with income below $9,350 (single) or $18,700 (married, filing jointly)

  31. Mandate and Market Reforms • Guaranteed Issue: Insurers cannot deny or cancel coverage due to health condition or pre-existing conditions • Community-rating: Oldest, sickest covered person cannot be charged more than three times the premium for youngest, healthiest covered person

  32. Market Reforms 2014 • New Guidance November 20, 2012 • http://www.ofr.gov/OFRUpload/OFRData/2012-28428_PI.pdf

  33. Exchanges • Competitive, regulated marketplaces for individuals and small employers (through SHOP Exchanges) to obtain health insurance • 3 Options • State Exchange • Federally-Facilitated Exchange • Legal challenges to validity of employer penalty and PTCs for federal exchanges • Partnership Exchange

  34. Status of State Exchanges November 20, 2012

  35. Health Insurance Exchanges • State-based (or regional) single risk pool • Only “insurance companies” may offer coverage • HHS Final Exchange Rule: suggests future guidancemay cover church plans • Church Alliance effort →allow church plans(October 31, 2011 comment letter) • Follow-up meeting with HHS October 2012 • http://www.gpo.gov/fdsys/pkg/FR-2012-03-27/pdf/2012-6125.pdf

  36. Health Insurance Exchanges • Market reforms: guaranteed issue, no pre-existing condition denials • Premium rate variation limits • Age: 3:1; Tobacco use: 1.5:1; Family size; Geography • Essential Health Benefits • Actuarial Value of Qualified Health Plans or QHPs • Platinum: 90% • Gold: 80% • Silver: 70% • Bronze: 60%

  37. Essential Health Benefits • New guidance on Essential Health Benefits and Actuarial Value of Exchange Plans • http://www.ofr.gov/OFRUpload/OFRData/2012-28362_PI.pdf • EHB Benchmark Plan – 3 State Options • Largest plan by enrollment in small group market* (default) • Top 3 state employee health benefit plan • Top 3 FEHBP options

  38. Actuarial Value Second-lowest cost silver plan used to determine any government PTCs through the exchanges

  39. Who Can Access Exchanges? • U.S. citizens and legal residents (not incarcerated) • Small employers1 (<100 employees) • Large employers1 (100+ employees) • After 2017 • At state discretion 1 Employees of employers adopting exchange plans as group plans are not PTC-eligible.

  40. Who Qualifies for PTCs? Individuals purchasing a qualified health plan (QHP) on a State or federally-facilitated exchange who: • Have household income* between 100% of FPL and 400% of FPL • Household Income = modified adjusted gross income (MAGI) • MAGI excludes housing/parsonage

  41. MAGI • MAGI is defined under Code §36B as a taxpayer’s adjusted gross income (AGI) as defined under Code §62, increased by three components: • (1) any amount excluded from gross income under Code §911 (i.e., foreign earned income); • (2) any amount of tax-exempt interest received or accrued by the taxpayer during the tax year; and • (3) the amount of the taxpayer’s Social Security benefits that are excluded from gross income under Code §86 for the tax year. • In general, AGI can be found on the last line (line 37) of Page 1 of taxpayers’ Form 1040.

  42. Who is Excluded from PTCs? Individuals: • Covered by Medicare or Medicaid • Covered by other government coverage, e.g., CHIP, TRICARE, VA, etc. • Offered an affordable employer plan that covers minimum value • Enrolled in an employer plan (even if not an “affordable” plan) • Married filing taxes separately • MAGI > 400% FPL • MAGI <100% FPL (Medicaid)

  43. Minimum Value Employer plan must pay 60% of total costs of plan (actuarial determination) • IRS Notice 2012-40 • http://www.irs.gov/pub/irs-drop/n-12-40.pdf Employees whose employer plan does not cover minimum value can opt out andseek PTCs for exchange coverage.

  44. ‘Affordable’ Coverage • Employee’s required contribution (share of premium) for participant-only (single) coverage under employer plan cannot exceed9.5% of household income* (MAGI) • Safe harbor (Notice 2012-58): Employer may use W-2 compensation—only for purposes of employer mandate • If employee contribution exceeds 9.5% of household income, employee can opt out; choose exchange coverage and PTC • Uncertainty remains: rule for dependent coverage * Employers often have no information about employees’ household income

  45. Premium Tax Credits • Premium Assistance Tax Credits Final Rule: • http://www.gpo.gov/fdsys/pkg/FR-2012-05-23/pdf/2012-12421.pdf

  46. Premium Tax Credits • Households* with MAGI 100-400% of FPL receive PTC to purchase exchange coverage * PTCs not available to employees of plan sponsors adopting exchange plans (SHOP Exchange) as employers

  47. Premium Tax Credits • Premium paid by individual/household limited to 2% to 9.5% (“applicable percentage”) of household income • Regardless of actual total premium for exchange plan coverage • Subsidies are a “premium tax credit”

  48. Illustrative Exchange Premiums $650 $1,950

  49. PTCs are Unique • Refundable if exceeds federal income taxes • Timing/cash flow issue for those needing the assistance • Advanceable during tax year (up to 16 months before tax return is filed) • Assignable—payable directly to health insurance company or exchange plan

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