APA Jersey Shore Chapter

1. APA Jersey Shore Chapter Health Care Reform – One Year Later Ellen Feeney and Meg Ferrero March 24, 2011

2. Session Objectives • Provide an overview of where we are with Health Care Reform one year after its enactment • Review HCR timeline • Status of legislative and court challenges • Regulatory update • Facilitate an open discussion around Health Care Reform concerns and business challenges • What rule changes are employers most concerned about? • How does this impact your bottom line? • What options are available to help you address the impact of HCR?

3. One Year Later - Health Care Reform is Still Law Patient Protection and Affordable Coverage Act (PPACA): • Signed into law March 23, 2010 • Reconciliation modifications March 30, 2010 • Many regulations have been issued and many more to follow over the next few years • Outcome of the last Congressional election may have a big impact on HCR going forward

4. One Year Later – Confusion Still Exists

5. U.S. Health Care Reform Overview • Overall the U.S. Health Care Reform attempts to make changes to the following areas: • Health Insurance market reforms • Individual responsibility • Employer responsibility • High cost coverage tax • Employer group health plan related issues • A large portion of the health care reform law is not effective until 2014 and beyond. • There are a number of provisions in effect now • Some provisions are effective for plan years that began on or after September 23, 2010 • A number of tax provisions have varying effective dates

6. The Timeline – What’s In Effect Now? • Employers must now provide reasonable unpaid breaks to nursing mothers – Effective March 23, 2010 • Tax Exclusion for Adult Child who has not attained age 27 as of the end of the employee’s taxable year – Effective March 30, 2010 • Allowing States to Cover More People on Medicaid - Effective April 1, 2010 • Medicare Prescription Drug “Donut Hole” – First checks mailed in June, 2010 with monthly continuation throughout 2010 • Expanding coverage for early retirees - Applications for employers to participate in the program available June 1, 2010 • Providing Access to Insurance for the Uninsured with Pre-Existing Conditions - National program established July 1, 2010 • Putting Information Online - Effective July 1, 2010 2010 2011 2012 2013 2014 2018

7. The Timeline – First Plan Year after September 23, 2010? • Insured and self-insured plans must: • Offer extended dependent coverage to age 26 for covered employee’s child(ren) – regardless of whether tax dependent, student, married, or residing with the employee • Generally, no lifetime dollar limits • Restricts annual dollar limits on essential health benefits • No pre-existing coverage exclusion for children up to age 19 • Prohibition on retroactive rescissions of coverage except in cases of fraud or failure to pay required premiums 2010 2011 2012 2013 2014 2018

8. The Timeline – First Plan Year after September 23, 2010? • Insured and self-insured plans must: • Provide mandated preventive services with no cost sharing • Establish and provide notice of internal and external appeals procedures • Insured plans cannot discriminate in favor of highly compensated individuals (significant implications for insured executive medical plans) 2010 2011 2012 2013 2014 2018

9. The Timeline – For Plan Years Beginning in 2011 • Over-the-counter medicines and drugs only reimbursable under HCFSA, HRA, and HSA if prescribed or is insulin • Increased penalty for non-qualified HSA distributions • Penalty for using HSA funds for non-qualified medical expenses, including over-the-counter drugs, will increase to 20% • Medicare Part D premium increases for high-income individuals • Medicare Advantage plan payments for 2011 will be frozen at 2010 levels; reductions will be phased in starting in 2012 2010 2011 2012 2013 2014 2018

10. The Timeline – For Plan Years Beginning in 2012 • Inclusion of the value of certain employer-sponsored health coverage on Form W-2 (changed from a 2011 effective date) • Employers may choose to offer employees voluntary long term care insurance program - Community Living Assistance Services and Support Act (CLASS) • Group health plans fee • $1 per participant, increasing to $2 for the second year and then a formula thereafter, to fund federal research on comparative effectiveness • Sunsets in 2019 • Uniform benefit summary • Employers must provide a 4-page uniform benefit summary at initial enrollment and annual enrollment • Includes information about covered benefits, exclusions, cost-sharing and continuation coverage • In addition to SPD and other currently required disclosures 2010 2011 2012 2013 2014 2018

11. The Timeline – For Plan Years Beginning in 2013 • Annual employee pre-tax salary contributions to health FSA capped at $2,500 • Adjusted annual for increases in the cost of living beginning with 2014 tax year • Employers must notify new hires about health insurance exchanges: • Eligibility for federal assistance to buy exchange-based coverage if employer’s plan pays less than 60% of covered benefits • New Medicare taxes for high-income households • Retiree drug subsidy tax treatment changes 2010 2011 2012 2013 2014 2018

12. 2014 – Everyone into the Pool!

13. The Timeline – For Plan Years Beginning in 2014 • No waiting periods greater than 90 days • Auto enroll employees in a plan (effective date unclear – applies to employers with 200+ employees) • Individual coverage mandate • Individuals must obtain minimum essential coverage or generally be subject to a penalty • Health insurance exchanges • Federal funding for states to create health insurance exchanges to facilitate purchase of insurance by individuals and small groups • Employer shared responsibility penalties: • Employers with 50+ FT employees may be subject to shared responsibility penalties if at least one full time employee obtains exchange-based coverage and is eligible for financial assistance to better afford it. 2010 2011 2012 2013 2014 2018

14. The Timeline – For Plan Years Beginning in 2014 & Beyond • Employee free-choice vouchers • Any employer offering health coverage and making plan contributions must provide “free-choice” vouchers to eligible employees • Health plan standards – all major medical plans • Insured and self-insured plans • Offer coverage to adult children to age 26 regardless of eligibility for employer provided coverage other than that of parent • No pre-existing condition exclusions • No waiting periods exceeding 90 days • No annual dollar limits on essential benefits 2010 2011 2012 2013 2014 2018

15. The Timeline – Fast Forward to 2018 … Excise Tax • 40 percent excise tax is imposed on “coverage providers” in months where the aggregate value of employer-sponsored health coverage for the employee exceeds 1/12 of $10,200 for individual coverage and 1/12 of $27,500 for family coverage • The amounts are increased to $11,850 and $30,950 for retirees and high risk professions • “Coverage providers” are defined to include the following: • Broaden the population that receives health care coverage through either public sector insurance programs or private sector insurance companies • In the case of fully insured plans, the health insurer • In the case of health savings account contributions, the employer making the contributions 2010 2011 2012 2013 2014 2018

16. What is Public Opinion of Health Care Reform? • According to a nationwide survey from Quinnipiac University, 47 percent of US voters want to repeal the health care law • Given three choices on the health care reform law:•    30 percent of US voters say expand it;•    18 percent say leave it as it is;•    47 percent say repeal it. Quinnipiac surveyed 2,424 respondents nationwide Nov. 8-15, 2010. The poll's margin of error is +/- two percentage points.

17. What is Public Opinion of HCR? • Gallup, Jan. 4-5: 46 percent want repeal; 40 percent want the law to stay • CNN/Opinion Research, Jan. 14-16:  50 percent want repeal; 42 percent want to leave the law in place • These polls are consistent with the public's overall opposition to the health-care law by an average margin of about five percent, and as high as 10 percent in some polls. President Obama's approval on the issue of health care is still low on average.

18. What Should Congress Do? .

19. Status of Legislative Challenges to HCR • On January 19, 2011, the U.S. House of Representatives, with many new members and a Republican majority, passed the Repealing the Job-Killing Health Care Law (H.R. 2) • The bill was passed along party lines with all 242 Republicans and only three Democrats in favor. If passed by the Senate and signed into law by the President, the new legislation would repeal the Patient Protection and Affordable Care Act (PPACA) and the health-care related provisions in the Health Care and Education Reconciliation Act of 2010

20. Status of Legislative Challenges to HCR • A majority of Senators and President Obama publicly have stated that they do not support repealing these laws. The House of Representatives actions, however, seem to indicate that the House, in its current composition, will work to change or replace many aspects of Health Care Reform , especially parts of the law that will come into effect in later years.

21. Status of Court Challenges to HCR • Several court actions challenging Health Care Reform are making their way through the lower federal courts. • Two federal judges have declared the health care law unconstitutional and two federal judges have upheld the law as constitutional.

22. Status of Court Challenges to HCR • Specifically, a federal judge in Pensacola, Florida ruled the entire law unconstitutional. • In December, a federal district court judge in Richmond, Virginia ruled that it was unconstitutional for Congress to enact a health care law that requires all individuals to obtain insurance. • Several other court cases concerning health care law are pending and it is likely that these challenges will make their way through the court system and may change how the law is applied. • Many of these cases will eventually reach the US Supreme Court.

23. Regulations – The Beat Goes On • In the meantime, regulatory guidance and implementing regulations will continue to be issued in 2011.

24. Many Regulations Already Issued • Effective March 23, 2010, Health Care Reform Law requires employers to provide breaks for breastfeeding. The National Conference of State Legislatures provides a list of breastfeeding laws by state – http://www.ncsl.org/issuesresearch/health/breastfeedinglaws/tabid/14389/default.aspx • The Department of Labor (DOL) created a webpage containing a number of health care reform related resources – http://www.dol.gov/ebsa/healthreform/ • On May 10, 2010, the DOL, Internal Revenue Service (IRS), and Department of Health and Human Services (HHS) issued interim final regulations regarding the requirement to make coverage available to an enrollee’s adult child to the age of 26. An official fact sheet and list of frequently asked questions have also been released by the government agencies.

25. Many Regulations Already Issued The DOL, HHS, and the Treasury Department (Treasury) jointly issued interim regulations on the grandfathering provisions under the Health Care Reform Law.  (The DOL has published a table showing how the relevant provisions of the Health Care Reform Law apply to grandfathered plans at http://www.dol.gov/ebsa/pdf/grandfatherregtable.pdf.) On November 17, 2010, the DOL, HHS and Treasury released an amendment to the interim final regulations on grandfathered health plans, effective prospectively. The amendment provides that a group health plan can change policies or carriers without losing grandfathered status, provided no other changes are made that would cause the plan to lose grandfathered status. HHS published interim final rules on May 5, 2010 with regard to the Early Retiree Reinsurance Program.

26. Many Regulations Already Issued The Health Care Reform Law places two new requirements on health care Flexible Spending Accounts (FSAs). Beginning January 1, 2011, participants in an FSA may only obtain reimbursement for over-the-counter (OTC) medications if the medication is prescribed; and beginning January 1, 2013, annual contributions to an FSA will be limited to $2,500. In September 2010, the IRS released further guidance, Notice 2010-59, in relation to the reimbursement eligibility of OTC medicine and drug health expenses under a health FSA. In addition to Notice 2010-59, the IRS also released “Questions and Answers on Over-the-Counter Medicines and Drugs.” In this guidance, the IRS provides information on several topics including the definition of “prescribed” and the documentation required to demonstrate that an OTC medicine or drug has been prescribed. On December 23, 2010, the IRS released Notice 2011-5 which stated that the use of health FSA and HRA debit cards is allowable when certain conditions are met.

27. Many Regulations Already Issued In the June 28, 2010 Federal Register, HHS, DOL, and Treasury jointly published interim final rules regarding the group health plan design elements of preexisting condition exclusions, annual and lifetime limits, coverage rescissions, and patient protections. On July 14, 2010, HHS, DOL and Treasury issued interim final regulations on preventive care. New plans and issuers must cover certain preventive services without any cost-sharing for the enrollee when services are delivered by in-network providers for the following four categories: general preventive care, immunizations, preventive care for children, and preventive care for women. In the July 23, 2010 Federal Register, the IRS, DOL, and HHS issued interim final rules in relation to the internal appeals and external claims review requirements. The guidance addressed both the group and individual market. There are several new requirements, in addition to the requirement to implement the existing claims and appeals procedures as required under the Employee Retirement Income Security Act of 1974 (ERISA).

28. Many Regulations Already Issued Effective July 30, 2010, a new program was created to make health insurance available to individuals who have been denied coverage by private insurance companies because of a pre-existing condition – The Pre-Existing Condition Insurance Plan (PCIP) Program. This program is also being referred to as a “temporary high risk pool.” The PCIP program will be in place until 2014, at which time all individuals will have access to affordable health insurance choices through a competitive marketplace called an Exchange. On October 12, 2010, the IRS announced via Notice 2010-69 that reporting the cost of health coverage under an employer-sponsored group health plan on Form W-2 will not be mandatory for Forms W-2 issued for 2011. In addition, the IRS released a 2011 Forms W-2 DRAFT (link below) stipulating that if the cost of coverage under an employer-sponsored group health plan is reported on the 2011 Forms W-2, it will be reported on Box 12 using Code DD. The IRS also made it clear that “the amount reported in Code DD is not taxable.” http://www.irs.gov/pub/irs-utl/draft_w-2.pdf On November 1, 2010, the DOL, HHS and IRS jointly released an additional three frequently asked questions (FAQ). This new guidance, as summarized below, contains two questions regarding grandfathered plans and one question regarding expense reimbursement of learning-disabled children with physical, mental, or developmental disabilities.

29. Many Regulations Already Issued On December 22, 2010, the IRS released Notice 2011-1 stipulating that the requirement to comply with the nondiscrimination rules imposed for insured plans under Section 2716 of the Health Care Reform Law is delayed. On December 22, 2010, the DOL’s EBSA issued an additional set of FAQs concerning the non-discrimination rules, automatic enrollment, dependent coverage and grandfathered plans, amongst others. The DOL, HHS and Treasury released an FAQ stating that employers will not be required to comply with the automatic enrollment requirements until regulations are issued. The DOL stated that it expects to solicit comments as part of the rule-making process and intends to issue the regulations by 2014. On January 8, 2011, the IRS and Departments of Treasury, Labor and Health and Human Services determined that compliance with the non-discrimination provisions of Affordable Care Act should not be required until after the regulations or other guidance has been issued and that such guidance, once issued, will not apply until plan years beginning after a specified period after the issuance of the guidance.

30. Provisions of Interest to Businesses • Optional W-2 reporting. Employers do not have to report the cost of insurance on employee W-2s in 2011. This reporting is optional in 2011. • The reporting requirement is intended to be informational and provide employees with greater transparency into health care costs. The amounts reported are not taxable. 

31. W-2 Reporting Optional for 2011 • Employer-Provided Health Coverage — Not Taxable; Reporting Requirement Optional in 2011 • The revised Form W-2 for 2011 is now available in draft for viewing. This is the W-2 that most employees will receive in early 2012. The draft form includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan.

32. W-2 Reporting Optional for 2011 • Employer-Provided Health Coverage — Not Taxable; Reporting Requirement Optional in 2011 • This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income, and it is not taxable.

33. Provisions of Interest to Businesses • No mandate to provide insurance. HCR does not have a mandate for employers to provide health insurance. Starting in 2014, large businesses (those with 50 or more full-time workers) that do not provide adequate health insurance will be required to pay an assessment if their employees receive premium tax credits to buy their own insurance. • These assessments will offset part of the cost of these tax credits. The assessment for a large employer that does not offer coverage will be $2,000 per full-time employee beyond the company's first 30 workers. 

34. Tax Provisions in Effect Now • Small Business Health Care Tax Credit – This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees

35. Tax Provisions in Effect Now • Changes to Flexible Spending Arrangements -Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.

36. Tax Provisions in Effect Now • Changes to Flexible Spending Arrangements (con’t) The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). • For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and the IRS questions and answers.

37. Tax Provisions in Effect Now • Changes to Flexible Spending Arrangements (con’t) FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5.

38. Tax Provisions in Effect Now • Health Coverage for Older Children • Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

39. Tax Provisions in Effect Now • Excise Tax on Indoor Tanning Services • A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. The first payment of the tax was due Monday, Nov. 1. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

40. Tax Provisions in Effect Now • Group Health Plan Requirements. HCR establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Other information on requirements is available on the websites of the Departments of Health and Human Services and Labor.  

41. Business Challenges – Cost Impact and Other Opinions Top Provisions Impacting Plan Costs Respondents were asked to select the provisions of Health Care Reform legislation (becoming effective in 2011) that will impact plan costs the most. International Foundation of Employee Benefit Plans Health Care Reform: What Employers are Thinking Survey Results from May 2010

42. Business Challenges - What are Employers Considering? • Only one in five employers is planning to change primary medical plan eligibility requirements for employees’ adult children up to age 26 • Close to half of employers surveyed have no preexisting condition exclusions in their plans • Almost half of employers are not sure how to address cost-sharing for dependent coverage • Over half of employers are not sure if they will change the eligibility requirements for dependents on other benefit plans (e.g., dental, vision, etc.) • Approximately 42% of employers plan to extend dental coverage to adult children International Foundation of Employee Benefit Plans Health Care Reform: What Employers are Thinking Survey Results from May 2010

43. Business Challenges – Dependent Coverage to Age 26 Changes to Eligibility Requirements of Medical Plans for Dependents International Foundation of Employee Benefit Plans Health Care Reform: What Employers are Thinking Survey Results from May 2010

44. Business Challenges – Dependent Coverage to Age 26 Cost Sharing for Dependent Coverage International Foundation of Employee Benefit Plans Health Care Reform: What Employers are Thinking Survey Results from May 2010

45. Business Challenges – Grandfathered Plan Status Having it, losing it, quantifying it: Any plan in place before March 23, 2010 was a grandfathered plan Losing grandfathered status: Plans can enroll new hire and family members of existing participants and stay grandfathered Limited information on how or when a plan could lose grandfathered status? Plan cannot: Significantly cut or reduce benefits Raise co-insurance charges Significantly raise co-payment charges Significantly raise deductibles Significantly lower employer contributions Change insurance companies (okay, unless coupled with other changes)

46. What does grandfathered status offer (if you could keep it)? Delayed enactment of specific plan standards No discrimination in favor of highly compensated employees in insured plans Grandfathered plans do not have to allow enrollees to choose instead of being assigned a participating Primary Care Physician Nor do they have to eliminate pre-authorization of emergency service and referral for a OB-GYN Business Challenges – Maintaining Grandfathered Status

47. What changes would result in the forfeiture of grandfathered plan status? A significant cut or reduction in benefits An increase in co-insurance charges The raising of co-payment amounts paid by participants A significant increase in plan deductibles A significant decrease in employer contribution toward cost of coverage Business Challenges – Maintaining Grandfathered Status

48. Administrative and Communication Challenges Capturing and processing new information Household income and exchange elections Medicaid eligibility Vouchers, payments and taxes New reporting and tracking needs Plan standards Tax withholding and reporting CLASS enrollment Communication – requirements and needs New plan summaries New options: Medicaid, Exchanges and Vouchers New plan standards and limitations: from free preventive care to caps on FSA contributions

49. What You May Be Considering? Implementing of new plans New or increased length of waiting periods Addition of coverage tiers or per participant contribution structure Removal of all plans Implementation or increase of wellness program premium differential Auto enrollment of new hires into medical plans Auto enrollment of employees into long term care insurance program (CLASS) How are you going to get it all done?

50. Immediate Impact for 2011 • Adult Child Medical Coverage to Age 26 • Health & Welfare • Use annual enrollment window • One time enrollment event prior to the start of the plan year or leveraging another event to facilitate the change • Dependent Verification Services • Consider using a Dependent Audit service to help verify your employees’ dependents’ eligibility for coverage • FSA • FSA claims processes will remain the same • HR / Payroll • Not impacted by the change