Health Care Reform Patient Protection and Affordable Care Act (PPACA)

1. Health Care ReformPatient Protection and Affordable Care Act (PPACA) Jessica Waltman, Senior Vice President of Government Affairs National Association of Health Underwriters

2. Deadlines, Regulations & 2010 Elections • Deadlines vary based on the way law was written • Some provisions go into effect in 2010 • All changes effective on PLAN anniversary on or after 9/23/10 • A number of Changes effective January 1, 2011, 2012, 2013 and then 2014 • Regulatory “Clarifications” come out every week • HHS, DOL issuing regulations, FAQs answer many questions • 2010 Elections will not fundamentally change employer obligations • Political Reality • Carrier investments • Efforts to repeal vs. realities of trying to repeal

3. Immediate Insurance/Benefit Change Timeline

4. 2010 Grandfathered Plans • Grandfathered Plans: • Individuals and employer group plans can keep their current “grandfathered” policy if the only plan changes made are to add or delete new employee/dependents or part of a collective bargaining agreement. • Impacts plans in place as of March 23, 2010 • New regulations define what changes are permissible to retain grandfathered status • Plans that made changes between March 23 and June 14 have an opportunity to reverse any significant changes made without losing grandfathering status. • This must be done by the plan year following September 23, 2010

5. 2010 Grandfathered Plans • Grandfathered plans are permanently exempt from the following reforms: • Preventive services mandates • Annual cost sharing and deductible requirements • 105(h) Nondiscrimination rules apply to fully-insured plans • Certain reporting requirements • Appeals process • Designation Rules for Primary Care Providers • Coverage of clinical trials • No discrimination against providers • Main reasons to maintain status • Savings of 1-5% in additional health care costs • Non-discrimination rules

6. 2010 Grandfathered Plans • Grandfathered plans are subject to the following requirements: • Changes in tax rules relating to health plans • Uniform explanation of coverage • Cost reporting and rebates • Automatic enrollment • Notification of availability of the exchange and subsidies • Notices regarding the exchange • Requirement to provide employees vouchers

7. 2010 Grandfathered Plans • Grandfathered plans are subject to the following requirements (continued): • Six months after enactment • Limitation on lifetime and annual limits • Limitation on pre-existing condition exclusions • Limitation on waiting periods • Coverage of adult children (only if adult child is NOT eligible to enroll in another eligible employer plan) • 2014 for employees • Prohibition on rescissions

8. 2010 Grandfathered Plans • Cannot retain grandfathered status if: • Increase of 5%* or more of employee contribution amount for any tier of coverage (EE only, ES, EC, Family) • Change of 15%* or more of deductible • Any increase in employee’s coinsurance % (e.g. 20% to 30%) • Increase copayments by more than $5 or 15% • Eliminate coverage to diagnose or treat a particular condition • Obtain new policy, certificate or contract of insurance • Obligations • Notify employees of grandfathered plan status Removed

9. 2010 Grandfathered Plans • What can you do? • Add family members or new employees • Disenroll employees • Make changes as a result of state or federal regulations • Make changes to voluntarily adopt some or all of the law’s requirements • Change third party administrator if you are self-funded • Increase premiums • Some uncertainty about… • Change to from fully-insured to self-funded, altering provider network, changing drug formulary

10. 2010 Guidance on Notices • USDOL/HHS announced early November • Employers must provide the grandfathered notice whenever they provide a participant or potential participant a copy of their benefits • May be given or delivered in paper or electronically

11. 2010 (Very) Small Business Tax Credit • Eligible small businesses are eligible for phase one of the small business premium tax credit. • Requirements: • Less than 25 employees • Must pay up to 50% of premiums • Average salary must be $50,000 or less. • Sliding scale based on # of employees and average payroll • Businesses and non-profits are eligible for the credit. • Credit for amounts paid for dental and vision eligible

12. 2010 (Very) Small Business Tax Credit • Must have taxable income for the tax credit: • Carry back 1 year / Carry forward 20 years • Controlled Groups / Common Ownership are treated as a single employer • How subsidy claimed varies based on how taxes paid by employer • “C” Corporations - reflected on tax return • “S” Corps or other disregarded entities – distributed to owners via K-1 • Nonprofits – used to pay employment taxes (but not more than annual amounts)

13. 2010 (Very) Small Business Tax Credit • How will it work? • Take all employee hours from the prior year • Example: 10 FT employees, 20 PT employees • Determine # of employees • 20 PT employees work, on average, 1,000 hours annually • Add full-time employees hours (10 x 2080) and part-time EE hours (20 x 1000) = 40,800 then divide by 2,080 = 19.6 • Determine average salary • Total salaries for all employees (except for owners) • Average salary for FT workers: $26,000 • PT employees paid an average of $12/hr • Add FT employees salaries ($260,000) + PT ee’s income ($240,000) = $500,000 then divide by # employees above (19.6) = $25,510.20

14. 2010 (Very) Small Business Tax Credit • How will it work? • Amount paid for health insurance by employer • Only covering 10 FT employees • Employer portion is $200 per employee per month • Annual cost: $24,000 • MUST PAY AT LEAST 50% OF EMPLOYEE COSTS TO BE ELIGIBLE and the premium amount cannot exceed the state average • Tax credit amount reduced by any state tax credit for health insurance • What is the max tax credit? • For Profit Business: No more than 35% of employer portion • Tax CREDIT (not deduction) of $8,400 • Reduces tax deduction under Section 152 by the amount of tax credit • Non-profit Organization: No more than 25% of employer costs • Tax CREDIT (not deduction) of $6,000

15. 2010 (Very) Small Business Tax Credit • Phase-out for amounts above certain limits • US Chamber has an excellent online calculator • IRS Notice 2010-82 now available • Who gets counted as an employee? • Includes those who have terminated, or who waived coverage • Determining hours of service • Can use any of the common methods (count actual hours, days-worked or weeks-work equivalencies) • Could use different methods for different employees within same employer • Form for filing for tax credit issued • IRS Form 8941 (available on IRS website)

16. 2010 “Older” Dependent Children Coverage • Mandate for all groups • Employee’s children who are up to 26 years of age are eligible to be on parents’ insurance • Includes up to the date before the child turns 26 • Regardless of whether full-time student or a tax Dependent of employee • Still have COBRA eligibility for 36 months following loss of eligibility (so covered until day before they turn 29 years old) • Amount paid by employee is not taxable income (new change) • Prohibited from vary premium contributions based on child’s age • Does not apply to spouse of child, nor to the child’s child(ren) • Other benefit restrictions still apply • Per regs, creates new eligibility period employee and dependent • Grandfathered plans do not have to extend eligibility if the child is eligible for other employer coverage

17. 2010 “Older” Dependent Children Coverage • New guidance – 9-23-2010 • “Child” means: • Biological child • Step-child • Adopted child • Foster child • Does not require the coverage of employee’s grandchildren, custody arrangements or children of domestic partner • Could still extend to these “other” children, and could also place restrictions on their inclusion (such as student status, etc.)

18. 2010 Preventative Service Mandates • New regulations issued July 12, 2010 • A part of the 2010 implementation mandates • Outline list of tests/procedures to be covered with no cost sharing to the plan participant • Three page list of procedures to be covered includes STD testing, pregnancy tests, mammograms, vision exams for children, and colonoscopies • Also includes covering costs of immunizations and other well-child and well-baby care • Likely to be the most expensive aspect of first phase of HCR implementation

19. 2010 Mini-Med Policies • Affects plans that do not provide “comprehensive” medical benefits • Lower annual caps (e.g. $25,000) • Limited benefits for office visits, etc. • Carriers could obtain waiver for mini-med to continue to offer benefits, but must establish that failure to obtain waiver will result in a: • Significant decrease in access to benefits OR • Significant increase in premiums • Waiver only applies to EXISTING plans and does not permit the sale of new policies • Limited exception – existing mini-med customers buying a replacement policy from a different carrier

20. 2010 Mini-Med Policies • If Plan is approved (HHS determination), employer must provide a notice to mini-med participants • Notice must: • Clearly indicate the dollar amount of the annual limit and the benefits affected by the lower annual limit • Be prominently displayed in 14 point bold type • State waiver is good for only one year • Model language is available • Obligation to provide notice is an EMPLOYER responsibility and not one for the CARRIER

21. 2010 High Risk Pools • Creates high-risk pool coverage for people who cannot obtain current individual coverage due to preexisting conditions. • Employers and Insurers cannot put people in the pool—would pay penalty. • Could work with existing state high-risk pools • Ends January 1, 2014, when Exchanges are operational • It will be financed by a $5 billion appropriation.

22. 2010 Reinsurance for Early Retirees • Federal gov’t assumes some risk for early retirees’ health care costs • Effective June 23, 2010 • Impact: dramatically reduce costs for early retirees on group health plans • Health care costs for 55-64 populations are significantly higher (estimated to be more than 30%) than younger workers • Health care costs for early retirees are higher than those working • Caveat: • Must invest the difference in wellness and chronic care management programs • Ends January 1, 2014, when Exchanges are operational

23. 2010 Reinsurance for Early Retirees • Federal gov’t will assume partial risk for early retiree health costs • Only for early retirees who are 55 or older • Plans would pay first $15,000 in claims • Share risk on the next $75,000 on an 80/20 basis • Plan assumes liability for costs in excess of $90,000 Plan paid stop-loss coverage Federal Reinsurance $90,000 $15,000

24. 2010 Rescission of Coverage • Plan may not rescind coverage unless: • individual or person seeking coverage on behalf of individual performs act, practice, or omission that constitutes fraud or intentional misrepresentation of material fact. • “Inadvertent” failures to provide health information not considered intentional misrepresentation. • Regulation defines “rescission” as a cancellation or discontinuance of coverage that has a retroactive effect.

25. 2010 Rescission of Coverage • Not considered “rescission” if cancellation is prospective or only is effective retroactively to extent attributable to a failure to timely pay required premiums or contributions. • Plan must provide 30-days advance written notice to each participant affected (regardless whether individual or group coverage). • No guidance yet on cancellations (Preamble says will be issued in future). Statute requires advance notice. • Guidance: be very careful if you want to revoke someone’s participation on plan

26. 2010 Benefit Changes • No Lifetime limits on benefits • Some annual limits allowed for now • prohibited completely by January 1, 2014 • Cover preexisting conditions for children 0-19 • Emergency services covered in-network • Includes new limitations on copayments for going to ER • Enrollees may designate any in-network doctor as their primary care physician. • New coverage appeal process. • Federal grant program for small employers providing wellness programs to their employees

27. 2010 Other Provisions • All group plans will be required to comply with the Internal Revenue Section 105(h) rules that prohibit discrimination in favor of highly compensated individuals within six months of enactment—Delayed • Medicare Part D changes • Deductibility for Part D subsidies is eliminated in 2013, but this results in an immediate accounting impact. • Provides a $250 rebate to seniors who hit the “donut hole in 2010 (and closes the donut hole over time) • Nursing mothers must be given breaks/location • Employers with less than 50 employees maynot have to comply if there is “undue hardship”

28. 2010 Other Provisions • Expanded claims appeals process • Six major changes include: • Reducing urgent care claims from 72 to 24 hours • Expanded notice requirements for denials • Mandated use of state-based external review of claims • Delayed enforcement until 7/1/2011 • All plans must provide new summary of benefits (SPD) to enrollees at specified times. • Can be no more than 4 pages in length and must be culturally and linguistically appropriate • 25% or more of eligible employees speak a language other than English as their primary language

29. 2011 Changes Effective in 2011 • Penalty for use of HSA for nonqualified medical expenses increases to 20%. • OTC drugs no longer be reimbursable unless prescribed by a doctor. • Small employers (less than 100 lives) will be allowed to adopt new “simple cafeteria plans.” • Easier eligibility requirements • Uniform eligibility to benefits • Minimum contribution requirements based on non-elective or matching methods • Cannot favor HCE or key employees

30. 2011 Changes Effective in 2011 • MINIMUM MEDICAL LOSS RATIOS: • Beginning January 2011, rebates must be provided to consumers if health plans spend below minimum loss ratios • 85% for large group plans • 80% for small group and individual • This will result in some carriers sending rebates to buyers • Later guidance requires that any rebate be returned proportionately by the employer to the contributing employee

31. 2012 Changes effective in 2012 • The Department of Labor will begin annual studies on self-insured plans using data collected from Form 5500. • All employers must provide a 1099 if any outside party is paid more than $600 annually (includes utilities, rent, raw materials, etc) • Will be reported in 2013 for 2012 spending • Likely to be modified or eliminated by 2011 Congress • All employers must include on their W2s the aggregate cost of employer-sponsored health benefits. • If employee receives health insurance coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage, • Excludes all contributions to HSAs and Archer MSAs and salary reduction contributions to FSAs. • Applies to benefits provided during taxable years after December 31, 2010. Now December 31, 2011 May be going away Delayed

32. 2012 Changes effective in 2012 • Group plans (including self-insured) must report whether benefits provided to employees: • meet criteria (to be established) on improving health outcomes, reducing medical errors, and wellness and health promotion activities. • This report must also be provided to plan participants. • All plans must provide new summary of benefits (SPD) to enrollees at specified times. • Mandated to give notice of any “material benefit change” at least 60 days prior to effective date.

33. 2012 Changes effective in 2012 • CLASS Act • What? A government program to pay for long-term care expenses, but with a smaller benefit and mandatory “taxes” to pay for this benefit • Very similar to Social Security Disability • Requirements? • Monthly payment of $180-240 for a period of at least five years to receive a small daily benefit for long-term care expenses (rest home, etc.) • Employer doesn’t have to participate, but if they do you must opt out – either employer or employee or will automatically be required to take out amount from paycheck

34. 2013 Changes effective in 2013 • Higher taxes: • Additional 0.9% Medicare Hospital Insurance tax on self-employed individuals and employees with respect to earnings and wages above $200,000 individuals/$250,000 joint filers (not indexed). • Self-employed individuals are not permitted to deduct any portion of the additional tax. • New 3.8% Medicare contribution on certain unearned income (e.g. rental income) from individuals with AGI over $200,000/$250,000 joint filers

35. 2013 Changes effective in 2013 • The threshold for the itemized deduction for unreimbursed medical expenses would be increased from 7.5% of AGI to 10% of AGI for regular tax purposes. • The increase would be waived for individuals age 65 and older for tax years 2013 through 2016. • $2,500 Cap on Medical FSA contributions annually indexed for inflation begins. • All employers must provide notice to employees of the existence of state-based exchanges.

36. 2014 Taxes and Fees • A new federal tax on fully insured and self-funded group plans, equal to $2 per enrollee, takes effect to fund federal comparative effectiveness research takes effect in 2012. • Imposes annual taxes on private health insurers based on net premiums. Coverage must be offered on a guarantee issue basis in all markets and be guarantee renewable.

37. 2014 Rating Changes • Redefine small group coverage as 1-100 employees (states may choose to keep it at 50 till 2016) • Strict modified community rating standards for pricing all small group products • Premium variations only allowed for age (3:1), tobacco use (1.5:1), family composition and geography • Geographic regions to be defined by the states and experience rating would be prohibited. • Wellness discounts are allowed for group plans under specific circumstances.

38. 2014 Exchanges • Requires each state to create an Exchange to facilitate the sale of qualified benefit plans to individuals, including new federally administered multi-state plans and non-profit co-operative plans. • States must create “SHOP Exchanges” to help small employers purchase such coverage. • Each state cold choose to allow large groups (over 100) to purchase coverage through the exchanges beginning in 2017

39. 2014 Individual Mandate • All American citizens and legal residents to purchase qualified health insurance coverage. Exceptions: • religious objectors, • individuals not lawfully present • incarcerated individuals, • taxpayers with income under 100 percent of poverty, and those who have a hardship waiver • members of Indian tribes, • those who were not covered for a period of less than three months during the year • People with no income tax liability

40. 2014 Individual Mandate • Penalty for non compliance • flat dollar amount per person or • The alternative is a fixed dollar amount that phases in beginning with $325 per person in 2015 to $695 in 2016. • a percentage of the individual’s income • In 2014 the percentage of income determining the fine amount will be 1%, then 2% in 2015, with the maximum fine of 2.5% of taxable (gross) household income capped at the average bronze-level insurance premium (60% actuarial) rate for the person’s family beginning in 2016. • whichever is higher

41. 2014 Individual Mandate • Sliding-scale tax credits for non-Medicaid eligible individuals • Incomes up to 400% of FPL to buy coverage through the exchange. • Slight increases to the subsidy amounts for all subsidy-eligible individuals and increases the cost-sharing subsidies for those making 250% FPL or less.

42. 2014 Employer Mandate • Employer must count all full-time employees and part-time employees – on a full-time equivalent basis – in determining if they have 50 or more employees • Certain seasonal workers are not counted in determining if employer has 50 workers • Full-time = 30+ hours per week, determined on a monthly basis • Penalties assessed for “no coverage” or coverage that is not “affordable” • Does not mandate coverage for part-time workers (those working less than 30 hrs per week)

43. 2014 Employer Mandate • Penalty if NO COVERAGE OFFERED • If an employer fails to provide its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage,” and • One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction, then • Employer penalty = $2,000 for each of its full-time employees in the workforce

44. 2014 Employer Mandate • Penalty if UNAFFORDABLE COVERAGE: • If employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, and • One or more FT employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost sharing reduction because • The employee’s share of the premium exceed 9.5% of income, or • The actuarial value of the coverage was less than 60%, then   • Employer penalty = $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction

45. Summary of Potential Employer Penalties under PPACA, Cong. Research Service, May 14, 2010

46. 2014 Employer Mandate • Free Choice Vouchers • Requires employers to provide a voucher to use in the exchange instead of participating in the employer-provided plan in limited circumstances  • Employees must be ineligible for subsidies • Employees share of premium must be more than 8% to 9.8% of family income that is less than 400% of FPL • Employee can keep amounts of the voucher in excess of the cost of coverage

47. 2014 Other Responsibilities • Must automatically enroll “new full-time employees” in employer-sponsored coverage • Required to provide adequate notice and opportunity to opt out • Applies to employers with “more than 200 full-time employees” • No effective date specified, but must be “in accordance with regulations promulgated by the Secretary (of DOL)…” (so presumably not effective until regulations are issued)  • Waiting periods in excess of 90 days are prohibited • This mandate doesn’t go into effect until 2014

48. 2014 Benefits • Three benefit packages to be defined – Gold, Silver, & Bronze • Known changes to the benefit mandates • Preexisting conditions limitations prohibited • Prohibition on any annual limits or lifetime limits in all group (even self-funded plans) or individual plans. • Multiple levels available based on actuarial equivalents • Self-funded plans may not be subject to all requirements, but may not meet employer mandate requirements if they don’t comply • Allows catastrophic-only policies for those 30 and younger.

49. 2014 Benefits • All plans must meet standard packages or be based on actuarial equivalents • The plans will define maximum cost-sharing amounts, benefit mandates, and other minimum covered benefits • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and Substance use disorder services • Prescription drugs • Rehabilitative services and devices • Preventive and wellness services and chronic disease management • Pediatric services, including oral and vision care

50. 2014 Wellness • Codifies and improves upon the HIPAA bona fide wellness program rules and increases the value of workplace wellness incentives to 30% of premiums with DHHS able to raise to 50% • Establishes a 10-state pilot program to apply the rules to HIPAA bona fide wellness program rules the individual market in 2014-2017 with potential expansion to all states after 2017. • New federal study on wellness program effectiveness and cost savings.