What Health Care Reform Means For Your Company

What Health Care Reform Means For Your Company What Health Care Reform Means for Your Company

What Health Care Reform Means for Your Company: Patient Protection and Affordable Care Act • The past: Health Reform Changes in 2010 • The present: Changes Effective in 2011 and 2013 • The future: Anticipating Changes Slated for 2014 and Beyond

The past: Health Reform Changes in 2010 • Affecting Plan Sponsors • Impacting Businesses

2010 Changes Affecting Plan Sponsors • Grandfathered plans • • Coverage for adult children • • Nondiscrimination rules for insured health plans • • Preventive care services • • Lifetime and annual limits • • Minimum loss ratios • • Preexisting condition exclusions • • Claims appeals processes • • Early retiree reinsurance program • • Expanding patient selection of providers • Reviews of premium increases

Grandfathered Plans • Two types of plans under health reform: • New health care plans • Grandfathered plans • Individuals who were enrolled in a group health plan or individual health coverage on March 23, 2010, may not be required to terminate that coverage. • Any group health plan or health insurance coverage to which this provision applies is considered a “grandfathered health plan” (Act Sec. 10103). • Grandfathered plans in general are not subject to many of the insurance and market reforms of the health reform law. However, some important provisions do apply.

Grandfathered Plans • Grandfathered plans are not subject to the following: • compliance with nondiscrimination rules for insured plans • requirement to provide preventive care services • effective claims appeals requirement • primary care provider requirements • limits on insurance premium rates • guaranteed availability and renewal • prohibition on discrimination based on health status* • essential benefits coverage package • *HIPAA nondiscrimination rules still apply

Grandfathered Plans Individual and group grandfathered plans aresubject to the following provisions: extension of adult child coverage (Sept. 23, 2010) prohibition on rescinding coverage (Sept. 23, 2010) elimination of lifetime limits (Sept. 23, 2010) prohibiting excessive waiting periods (2014) requirements to provide uniform explanations of coverage and standardized definitions insurer requirements to provide loss-ratio reports and rebate premiums if loss ratios fall below 80%

Grandfathered Plans Group grandfathered plans are subject to the following provisions: elimination of annual limits (Sept. 23, 2010) elimination of preexisting condition exclusions (2014) Coverage of adult children until age 26

Grandfathered Plans Family members may enroll in a grandfathered plan in which the employee is enrolled. This rule applies if the individual was enrolled in the grandfathered plan on the date of enactment and the coverage is later renewed. A grandfathered group health plan may provide for the enrollment of new employees and their families

Coverage for Adult Children Two different provisionsaffect health coverage for adult children. 1.Group health plans with dependent child coverage must make available coverage for the enrollee’s adult children who are younger than age 26, regardless of whether or not the dependent is married. Health plans or health insurers are not, however, required to cover a child of the adult child receiving dependent coverage. Effective for plan years beginning on or after Sept. 23, 2010 (Act Sec. 1004(a)).

Coverage for Adult Children • Plans may not terminate coverage for adult children based on any of these criteria: • financial dependency • residency with the participant student status, • employment, • eligibility for other coverage [other than for grandfathered plans before Jan. 1, 2014], • married status, • or any combination of these factors.

Coverage for Adult Children • 2.Effective on March 23, 2010, reimbursements from a group health plan for children under the age of 27 are excluded from gross income. • Applies to any child of the employee who as of the end of the tax year has not attained the age of 27. • No longer necessary for the child of the employee to be a dependent of the employee in order for this exclusion to apply.

Nondiscrimination Rules for Insured Health Plans • New insured group health plans must comply with existing nondiscrimination rules for self funded plans, including: • nondiscrimination rules for eligibility, and • nondiscrimination rules for benefits (Act Sec. 1001(5)). • Grandfathered plans do not have to comply with these nondiscrimination rules.

Preventive Care Services Group health plans are required to cover, without any cost-sharing, certain adult preventive services and immunizations. Also required to be covered, without any cost-sharing, are certain child preventive services. Effective for plan years beginning on or after Sept. 23, 2010. Grandfathered plans are not required to provide this coverage.

Preventive Care Services • Specific preventive care services covered include these: • Evidence-based items or services that are currently recommended by the U.S. Preventive Services Task Force; • Immunizations that are currently recommended by the Centers for Disease Control’s Advisory Committee on Immunization Practices; • For infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration.

Preventive Care Services • Special rules apply for preventive services provided to women: • Additional preventive care and screenings for women must be covered, without cost-sharing, as provided for in comprehensive guidelines supported by the Health Resources and Services Administration. • For purposes of breast cancer screening, mammography, and prevention, the current recommendations of the U.S. Preventive Services Task Force are considered the most current, other than those issued in November of 2009. • Health plans or issuers are not barred from providing coverage for preventive care services beyond those recommended by the U.S. Preventive Services Task Force.

Lifetime and Annual Limits Group health plans cannot impose lifetime or annual benefit limits (Act Sec. 1001(5)). Lifetime limitsprohibited, effective for plan years beginning on or after Sept. 23, 2010. Annual limits also barred, but there is an exception for pre-2014 annual limits.

Lifetime and Annual Limits • Phase-in rule • Before Jan. 1, 2014, restricted annual limits may be applied to “essential health benefits.” • Group health plans may continue to place annual or lifetime per beneficiary limits on specific covered benefits that are not essential health benefits. • Limits on nonessential health benefits still allowed.

Lifetime and Annual Limits • Annual limits before Jan. 1, 2014 • $750,000, for a plan year beginning on or after Sept. 23, 2010, but before Sept. 23, 2011; • $1,250,000, for a plan year beginning on or after Sept. 23, 2011, but before Sept. 23, 2012; • $2,000,000, for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014.

Minimum Loss Ratios • Insurers offering group or individual health insurance must maintain certain minimum medical loss ratios (Act Sec. 1001(5)). • Ratio of the • incurred claims plus a loss adjustment expense • to • earned premiums • Effective for plan years beginning on or after Sept. 23, 2010.

Minimum Loss Ratios • If minimum loss ratios are not maintained, rebates must be provided to health plan participants (effective Jan. 1, 2011). • Large group loss ratio minimum: 85% • Small group minimum loss ratio: 80% • Rebate equals • the amount by which the coverage fails to meet the minimum loss ratio • multiplied by • the total amount of premium revenue.

Minimum Loss Ratios Rebate example: ABC Insurance Company earns $2.5 million on premiums for coverage for Large Employer, Inc.'s 280 employees. Incurred claims plus a loss adjustment expense total $2.05 million, which results in a loss ratio of 82%. Thus, 3% is the amount by which the coverage fails to meet the minimum loss ratio by the total amount of premium revenue. That 3% multiplied by $2.5 million results in a total annual rebate of $75,000. This would produce an average pro rata rebate of $267.86 (75,000 divided by 280 employees) for each enrollee.

Preexisting Condition Exclusions No group health plan nor any health insurance issuer may impose a preexisting condition exclusion to limit or deny coverage, effective for plan years beginning on or after Jan. 1, 2014. For enrollees who are under 19 years of age, the provision becomes effective for plan years beginning on or after Sept. 23, 2010 (Act Sec. 1201).

Claims Appeals Process • Group health plans and health insurers must implement an effective process for appeals of coverage determinations and claims, including at a minimum the following (Act Sec. 1001(5)): • – an established internal claims appeal process; • – a notice to participants of available internal and external appeals processes; and • – a provision allowing an enrollee to review his or her file, to present evidence and testimony as part of the appeals process. • • Effective for plan years beginning on or after Sept. 23, 2010. • • Grandfathered plans are not subject to these new claims appeals rules.

Claims Appeals Process External claims appeals process — two options: (1) Plans and insurers must comply with state external review requirements that are binding and at a minimum include the consumer protections in the Uniform External Review Model Act from the National Association of Insurance Commissioners; or (2) If state requirements do not meet minimums or if the plan is self-funded, then the plan must implement an external review process that is similar to that in the Uniform External Review Model Act and that meets standards established by the Department of Health and Human Services.

Early Retiree Reinsurance Beginning June 23, 2010, and ending on Jan. 1, 2014, a temporary reinsurance program was established that reimbursed part of the claims cost for participating employment-based plans that provide health insurance coverage for early retirees (ages 55 to 65), eligible spouses, surviving spouses, and dependents of such retirees. The reimbursement was for 80 percent of plan claims that are between $15,000 and $90,000 (Act Sec. 1102). Due to funding issues, CMS stopped accepting new applications on May 5, 2011, and denied health care claims incurred after December 31, 2011.

Expanding Patient Selection of Providers Health insurance plans must allow enrollees to select any participating primary care provider available, including a pediatrician for children, and to cover emergency services provided at a hospital emergency department regardless of the hospital's participation in the plan preferred provider network and without prior authorization requirements. Female enrollees must be able to obtain obstetrical/gynecological specialist services without a referral from another primary care provider (Act Sec. 1001(5)). Effective for plan years beginning on or after Sept. 23, 2010.

Reviews of Premium Increases • An annual review process of “unreasonable increases” in premiums for health insurance coverage. • A health insurance issuer submits a justification for a premium increase prior to implementing those increases (Act Sec. 1001(5)). • Effective for the 2010 plan year.

2010 Changes that Impacted Businesses • Small employer health insurance credit • Automatic health plan enrollment

Small Employer Health Insurance Credit • Small employers receive a tax credit for nonelective contributions of at least one-half the cost of health insurance premiums paid for participating employees during tax year (Act Secs. 1421 & 10105(e)). • Small employer means: • 25 or less FTE employees; • average annual wages not greater than twice the applicable dollar amount for tax year ($25,000 in tax years 2010 through 2013); and • a qualified health care “arrangement” is in effect.

Small Employer Health Insurance Credit • Credit phases out as the number of FTEs increases to 25 and average annual employee compensation increases to $50,000. • FTE = total hours paid divided by 2,080 (only first 2,080 per employee). • Contribution “arrangement”: • uniform percentage • not less that 50% of premiums for qualified health plan • not made through salary reduction • after 2013 the insurance is offered through an Exchange

Small Employer Health Insurance Credit • Credit for tax years 2010 - 2013 is 35% (25% for tax-exempt employers) of the lesser of: • total amount of nonelective contributions the employer makes on behalf of its employees during the tax year, or • (2) total amount of nonelective contributions that would have been made if each of those employees had enrolled in a qualified health plan with a premium determined by HHS to be the average for the small group market in the state – IRS Rev. Rul. 2010-13 (irs.gov/pub/irs-drop/rr-10-13.pdf).

Small Employer Credit after 2013 • May be claimed during 2 consecutive tax year periods starting with year in which 1 or more qualified health plans is offered through an Exchange. • Credit amount is 50 % (35% for tax exempt employers) of the lesserof: • (1) total amount of nonelective contributions for premiums for qualified health plans offered to employees through an Exchange, or • (2) total amount of nonelective contributions that would have been made if each employee had enrolled in a qualified health plan with the average premium in the small group market in the rating area.

Small Employer Health Insurance Credit • Credit phase-out calculation • The credit is reduced (but not below zero) by the sum of: • The product of (a) the credit amount and (b) the number of the employer's full-time equivalent employees for the tax year in excess of ten, divided by 15; and • (2) The product of (a) the credit amount and (b) the employer's average annual wages in excess of the applicable dollar amount for the tax year ($25,000 in tax years beginning in 2010 through 2013) divided by the applicable dollar amount.

Automatic Health Plan Enrollment • Applies to employers with more than 200 full-time employees that offer one or more health plans (Act Secs. 1511 & 1512): • new full-time employees automatically enrolled in one of the plans • subject to any waiting period authorized by law • current employees continue to be enrolled • must give adequate notice and opportunity to opt out

Automatic Enrollment –Notice of Exchange Until regulations are issued, employers are not required to comply with the automatic enrollment requirements. The Department of Labor expects to complete its rulemaking by 2014.

The present: Changes Effective in 2011 and 2013 • Impacting Plan Sponsors • Affecting Businesses

2011 Change Impacting Plan Sponsors • Benefits summary standards

Benefits Summary Standards • Federal standards for a summary of benefits and explanation of coverage (by March 23, 2011). • Uniform format, using easily understood language (Act Sec. 1001(5)). • By March 23, 2012, group health plans must provide a summary of benefits and coverage explanation under these new rules.

Benefits Summary Standards • Summaries must include: • Uniform definitions of standard insurance and medical terms • A coverage description, including cost sharing for each of the categories of essential health benefits coverage exceptions, reductions, and limitations • Cost-sharing provisions, including descriptions of deductibles, coinsurance, and co-pays • Renewability and coverage continuation provisions • A “coverage facts label” that includes examples • A statement as to whether the plan (1) provides minimum essential coverage and (2) ensures that its share of the total allowed benefit cost under the plan is no less than 60% of those costs

2011 Changes Affecting Businesses • W-2 health coverage disclosure • Small employer “simple cafeteria plans” • Over-the-counter medicines not reimbursable through HSAs & HRAs • Increased excise tax on HSA & HRA non-medical distributions

W-2 Health Coverage Disclosure • Beginning with 2012 tax year (Act Sec. 9002): • Aggregate cost of “applicable employer-sponsored health insurance” coverage must be disclosed on employee's Form W-2 (in Box 12, Code DD). This is for information only; the amount reported is not taxable. • The reporting requirement was scheduled to begin with Forms W-2 for the 2011 tax year, but the IRS later made it optional for 2011. Small employers (fewer than 250 Forms W-2 in 2011) are exempt for 2012. • Excludes: • Contributions to an Archer medical savings account or Health Savings Account of an employee or spouse • Salary reduction contributions to a flexible spending arrangement under cafeteria plan

W-2 Health Coverage Disclosure • “Applicable employer-sponsored coverage” is: • Coverage under any group health plan made available by the employer that is excludable from gross income under Code Sec. 106, or would be if considered employer-provided coverage under Code Sec. 106 • Regardless of whether the employer or employee pays for it • Does not include long-term care, accidents, or disability income insurance, or coverage only for a specified disease or illness, hospital indemnity, or other fixed indemnity insurance, the payment for which is not excludable from gross income and deductible under Code Sec. 162(l)

Small Employer “Simple Cafeteria Plans” Beginning in 2011, certain small employers may provide a simple cafeteria plan for their employees, under which the nondiscrimination rules of a classic cafeteria plan are treated as satisfied (Act Sec. 9022). A simple cafeteria plan is cafeteria plan established and maintained by an eligible employer that meets certain contribution, eligibility and participation requirements.

Small Employer “Simple Cafeteria Plans” • Deemed as met by an employer establishing a simple cafeteria plan is any nondiscrimination requirement applicable to: • A classic cafeteria plan under Code Sec. 125(b); • Group-term life insurance under Code Sec. 79(d); • An accident and health plan under Code Sec. 105(h); or • A dependent care assistance program under Code Sec. 129(d)(2), (3), (4) or (8)

Small Employer “Simple Cafeteria Plans” • Eligible employer: • Average of 100 or fewer employees on business days during either of the 2 preceding years. • A year is counted only if the employer existed throughout the year. • If not in existence throughout the preceding year, still eligible if reasonably expects to average 100 or fewer employees on business days during current year. • If 100 or fewer employees for any year & simple cafeteria plan is established that year, requirement is met after that if more than 100 but less than 200 employees.

Small Employer “Simple Cafeteria Plans” • Contribution requirements met if: • Employer is required by the plan, regardless of whether a qualified employee makes any salary reduction contribution, to make a contribution to provide qualified benefits on behalf of each qualified employee, in an amount equal to: • a uniform percentage (not less than 2%) of the employee’s compensation for the year; or • an amount not less than the lesser of: (a) 6% of the employee’s compensation for the plan year, or(b) twice the amount of the salary reduction contributions of each qualified employee.

Small Employer “Simple Cafeteria Plans” Option 2: If the employer chooses the second option it will be out of compliance if the contribution rate for any salary reduction contribution of a highly compensated or key employee is greater than that for any other employee. A “salary reduction contribution” is any amount contributed to the plan at the election of the employee and not includable in the employee’s gross income under the cafeteria plan provisions. “Highly compensated employee" and "key employee" are defined as under classic cafeteria plan provisions. “Qualified employee" is any employee who is not a highly compensated or key employee.

Small Employer “Simple Cafeteria Plans” • Employee eligibility and participation requirements: • All employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate. • Each eligible employee may elect any benefit under the plan, subject to terms and conditions applicable to all participants.

Small Employer “Simple Cafeteria Plans” • Employees excludable even if 1,000 hour requirement is met: • Not age 21 before the close of the plan year • Less than 1 year of service as of any day during the plan year • Covered under CBA if benefits covered under the plan were the subject of good faith bargaining • Nonresident alien working outside U.S. whose income did not come from U.S. source

What Health Care Reform Means For Your Company