The Current Conversation on Health Care Reform

1. The Current Conversation on Health Care Reform Presented to: PSFOA Meeting July 11, 2012 By: Carol Wilmes AWC Trust Program Manager

2. Today’s Conversation • Big picture developments • W-2 reporting • Claims & appeals • Summary of benefits & coverage (SBC) • Planning for 2013 & 2014 • Distant future - 2018 Excise tax on high cost coverage

3. Big Picture • Year 3 of Health Care Reform • Original effective date: March 23, 2010 • Supreme Court ruling on constitutionality of individual mandate • Potential for legislative action • 2012 election implications • Congressional reaction

4. Health insurance exchanges • Individual coverage mandate • Financial assistance for exchange coverage of low-income individuals • Medicaid expansion • New health plan regulations • HIPAA wellness limit increases • Shared responsibility penalties • Free-choice vouchers • Additional reporting and disclosure • Dependent coverage to age 26 for any covered employee’s child** • No annual dollar limits** • No pre-existing condition limits** • No waiting period over 90 days** • Additional new standards for new or “non-grandfathered” health plans, including limited cost-sharing • Health insurance industry fees begin • Dependent coverage to 26 (no other employer coverage available)* • No lifetime dollar limits* • Restricted annual dollar limits* • No pre-existing condition limitations for children up to age 19* • No rescissions* • Additional standards for new or “non-grandfathered” health plans, including non-discrimination provisions for insured plans and mandatory preventive care with no cost-sharing • No health FSA/HRA/HSA reimbursement for non-prescribed drugs • Increased penalties for non-qualified HSA distributions • Voluntary long-term care “CLASS” program slated to start • Pharmaceutical manufacturers’ fees start • Medicare, Medicare Advantage benefit and payment reform • Insurers subject to medical loss ratio rules* Key Elements of Health Care Reform Key elements of health reform for employers • Change in tax treatment for over-age dependent coverage • Accounting impact of change in Medicare retiree drug subsidy tax treatment • Early retiree medical reinsurance • Medicare prescription drug “donut hole” beneficiary rebate • Auto-enrollment of full-time employees (effective TBD) • Break time/private room for nursing moms • Employers must distribute uniform benefit summaries to participants • Employers must provide 60-day advance notice of material modifications (TBD) • Form W-2 reporting for 2011 health coverage 2010 2011 2012 2013 2014 2018 • $2,500 health FSA contribution cap (indexed) • Medical device manufacturers’ fees start • Higher Medicare payroll tax on wages exceeding $200,000/ individual; $250,000/couples • New Medicare tax on net investment income for taxpayers with incomes exceeding $200,000/ individual; $250,000/couples • Research fees begin • Change in Medicare retiree drug subsidy tax treatment takes effect • Excise tax on “high cost” or Cadillac plans * Applies to all plans, including “grandfathered” plans, effective for plan years beginning on or after Sept. 23, 2010 (Jan. 1, 2011, for calendar year plans). Collectively bargained plans may have a delayed effective date. ** Applies to all plans, including grandfathered plans, effective for plan years beginning on or after Jan. 1, 2014.

5. Market changes and health reform are converging

6. Is it Constitutional? Yes! • Constitutionality of individual mandate • Argued in March to U.S. Supreme Court • Historical discussion = compared to Brown v. Board of Education of 1954 • Decision issued June 28, 2012 – Yes! • What does the Campaign Trail & Elections have in store for us?

7. Supreme Court Bracketology – Individual Mandate Anti-injunction act:individual mandate Tax Tax or Penalty? No ruling until at2015, when tax is first assessed and paid; OR federal government authorized due to compelling need Supreme Court rules on constitutionality of individual mandate Health care reform moves forward No Commerce clause: is individual mandate unconstitutional Yes Health Care Reform No Is the individual mandate severable from the rest of the law? Yes/Partially Health care reform implemented without individual mandate • Issues • Will exchanges be available? • Will Congress enact legislation to incent healthy individuals to buy coverage? • Court could determine which components stay and which go

8. Supreme Court Bracketology – Medicaid Expansion Medicaid expansion “coercive”? Yes No Medicaid status quo Proceed as enacted Will individuals be eligible for premium tax credit or cost-sharing subsidy to purchase coverage in the Exchange? States receive federal funds for expanding Medicaid coverage

9. W-2 Reporting • Cost of health coverage must be reported in Box 12, Code DD on the W-2 • Effective for 2012 W-2 end-of-year forms (issued in early 2013) • Applies to employers filing more than 250 W-2s • Employers with less than 250 W-2s have an indefinite reprieve

10. W-2 Reporting (cont.) • What to report? • Aggregate cost of all plans in which the employee participates • Pre-tax & after-tax • COBRA Premium (active coverage premium) • Must reflect mid-year cost changes • Both employee & employer contributions • Dependent coverage • Vision/dental if bundled • Employer contributions to FSA

11. W-2 Reporting (cont.) • What NOT to report: • Employee contributions to FSA • HSA or HRA contributions • Specific disease policies (i.e., cancer) • Unbundled vision/dental policies • Separate election for coverage • Separate premium for coverage • Retiree or COBRA participants • EAPs, wellness programs and on-site medical clinics

12. Claims & Appeals • Rules apply to non-grandfathered plans, including non-ERISA group health plans (local government) • Specified response time & method: • Urgent care claims – 72 hours • Diagnosis & treatment codes do not have to be in claim notices

13. Claims & Appeals (cont.) • Denial notices must be provided in non-English languages in counties where 10% of the county is literate in the same non-English language (4 languages specified): • Spanish • Mandarin • Self-funded plans: • Only for medical judgment or rescission • Contract with 2 (instead of 3) external reviewers until 7-1-12

14. Summary of Benefits and Coverage (“SBC”)

15. SBC (cont.) • Final regulations issued in Feb. 2012 (FAQs issued in March) • SBC required as of 1st open enrollment after 9-22-12 • Highlights: • Responsible entities to report • Timing • Method • Content & Appearance

16. Planning for 2013 • Health FSA limited to $2,500 (indexed) for calendar year plans • Employer notice to employees about State Health Care Exchanges • March 2013 (assuming no regulatory delays)

17. Planning for 2013 (cont.) • Non-grandfathered plans must cover expanded preventive care for women at 100% • Contraceptive coverage, STD screening and counseling, breastfeeding supplies • Watch Rx coverage: NO COPAYS

18. Planning for 2014 • Grandfathers will now be non-grandfathers • No pre-ex exclusions for anyone • No annual limits for Essential Health Benefits • Maximum 90-day waiting periods • Dependent children to age 26 • Cost-sharing limits to level of HSA-eligible HDHP • Not exceed $2,000/ee & $4,000/family ded.

19. Planning for 2014: Individual Mandate • Individuals must pay tax if they, their spouses, or their tax dependents do not have “minimum essential coverage” • Minimum essential coverage includes: • Any employer-sponsored plan • Any government-sponsored plan • Plans in the individual market • State Health Care Exchanges

20. Planning for 2014: Individual Mandate (cont.) • Exemptions for: • Religious conscience • Health care sharing ministry participants • Taxpayers with income below filing threshold • Individuals who cannot afford coverage (when required contribution is more than 8% of income) • Members of Indian tribes

21. Planning for 2014: Employer Pay or Play • Apply to employers with >50 full-time employees • Full-time employee (awaiting regulations) • Current definition 30+ hours/week • Hint in recent FAQs in another section (90-day look with 90-day grace) • Penalties kick in when an employee receives a premium tax credit

22. Planning for 2014: Employer Pay or Play (cont.) • Employers who do not offer coverage and have an employee who receives a premium tax credit: • Must pay $2,000 per FTE (after subtracting the 1st 30 FTEs) • Employers who offer coverage and have an employee who receives a premium tax credit: • Must pay $2,000 per FTE OR $3,000 per FTE receiving tax credit, whichever is less

23. Planning for 2014: Premium Tax Credit • Employee not eligible for premium tax if employee has access to minimum essential coverage • Employer-provided coverage is minimum essential if: • Coverage provides 60% of total allowed costs • Affordable coverage: employee only coverage of lowest plan option does not exceed 9.5% of household income

24. Shared Responsibility 2014 Affordability mandate – income segments Shared responsibilitypenaltiesmay apply * Note: Number based on Mercer forecasts for 2014 based on current contributions; illustrative only

25. 2014: Projected contributions at Medicaid thresholds Provisions – Shared Responsibility • If employee premiums for at least one plan are less than or equal to approximately $133 (“Employer Contribution Affordability Threshold” at the 138% or Medicaid level), then the shared responsibility penalties would not apply • Employers may pursue a strategy of keeping “employee-only” contribution rates low, while increasing other coverage tiers (employee + one and employee + family)

26. Planning for 2014: State Exchanges • Exchanges initially only open to individuals and small employers • States may choose to expand to larger employers later • Will vary by state – Core plan of “metal tiers” – bronze, silver, gold, platinum • State Exchanges must be approved by Jan. 1 2013 for Jan. 1 2014 operation (first open enrollment is Oct. 1 2013)

27. Washington Healthcare Reform: Overview • Narrowed focus down to 3 goals: • Increase access to affordable health plans • Organize a transparent & accountable insurance market – to facilitate consumer choice • Provide an efficient, accurate & customer-friendly eligibility determination process

28. Washington Healthcare Reform: Exchange • Health Insurance Exchange • E2SHB 2319 passed both houses on March 8 & delivered to Governor • Establishes Exchange Board as final rule maker of Exchange structure • Submit recommendations to Legislature by 12-1-12 • If no 2013 Legislative agreement, then Board proceeds with implementation

29. Washington Healthcare Reform: Exchange • Health Insurance Exchange (contd.) • “Market” rules outside of the Exchange • Concerning language that all health plans offered outside Exchange must conform to “precious metals” structure • Concerning language regarding association plans • Centralized administration as your risk and/or income level changes • Extremely aggressive timeline for 3-1-12 education deadline

30. Washington Healthcare Reform: AWC Trust Response • Long Range Strategic Planning Retreat 2011 • Trust has continued role • Educate membership – Be a leader • Bend the trend • Monitor Exchange plan design & cost for comparable offerings • Retain legislative advocate to address pooling laws and rolling cities into PEBB • Federal voice – staying connected with NLC • i.e., definition of full-time employee (30-hr work wk) • Watchful waiting

31. Health care reform issues -Finally in 2018 – Excise tax on high cost plans

32. Added Slide from Live Presentation - Understanding the Cost Impact Sample Output Excise Tax Provision • Results vary significantly based on assumed trend applied to employer costs (below assumes 9%/year) • Average employer of 100 with varied enrollment • Preferred Plan with $500 deductible

33. Questions? Source of Materials & Graphs: Mercer Health & Benefits; and Stoel Rives