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Implementation Of Health Reform Laws Reno Sparks Chamber Of Commerce Healthcare Reform Compliance Briefing Reno, NV May 13, 2010. Current Status.

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  1. Implementation Of Health Reform LawsReno Sparks Chamber Of Commerce Healthcare Reform Compliance BriefingReno, NVMay 13, 2010

  2. Current Status • On March 21, the House passed HR 3590, the Patient Protection and Affordable Care Act (PPACA) which the Senate passed on December 24, 2009, by a 219-213 vote. President Obama signed PPACA into law on March 23. • The House and Senate separately passed HR 4872, the Health Care and Education Reconciliation Act of 2010, with a package of “fixes” to PPACA. The President signed the reconciliation bill on March 30. • These Acts are now the law of the land, but that is not the end of the story

  3. PPACA • PPACA (P.L. 111-148) and the Reconciliation Act (P.L. 111-152) represent significant changes to the health care industry • PPACA was more than 2,000 pages long and will impact consumers, employers, insurance carriers, taxpayers, state governments, et al • PPACA is expensive, CBO projected in March the 10-year costs to be $938 billion over 10 years • Revised estimates by CBO push the price tag up an additional $115 billion over 10 years

  4. PPACA • Provisions in PPACA become effective over time. • Some become effectively immediately or for plan years starting on/after September 23 • The Congressional Research Service estimates that federal agencies will have to issue more than 40 regulations to implement the Acts • State policymakers will also play an important role

  5. Immediate Issues • Medical Loss Ratio • Small Business Tax Credit • Grandfathered Health Plans • Dependent Coverage • Temporary High Risk Pool

  6. Medical Loss Ratio • By January 1, 2011, carriers must report to the Secretary of HHS the ratio of incurred losses to earned premiums. The report must include the percentage of total premium revenue, after accounting for risk adjustment, premium corridors, and payments of reinsurance that is expended on: • Reimbursement for clinical services • Activities that improve health care quality • All other non-claims expenses, including the nature of the costs, excluding federal and state taxes and licensing or regulatory fees

  7. Medical Loss Ratio • Insurers must provide a rebate to consumers if the percentage of premiums spent for clinical services and activities that improve health care quality is less than 85% in the large group market and 80% in the small group and individual markets. • Applies to all fully-insured plans, including grandfathered plans • Secretary of HHS sent letter to NAIC asking that they complete their work by June 1 developing uniform definitions and methodology for computing MLR. NAIC is required to fully develop definitions by 12/31/10

  8. Small Business Tax Credit • Eligible small businesses are eligible for phase one of the small business premium tax credit. • Small employers with less than 25 employees that contribute at least 50% toward employees' health insurance may be eligible for a tax credit based on number of employees and average payroll • Average salary must be $50,000 or less • Businesses with no tax liability and non-profits are eligible for the credit in the form of a reduction in income and Medicare tax withheld from wages and the employers share of taxes on employees’ wages.

  9. Small Business Tax Credit • In years 2010-2013, the full credit will cover up to 35% of a qualified for-profit employer's contributions to health insurance. • Beginning in 2014, the maximum credit will be 50% of the employer’s contribution, but the credit will only be available for 2 consecutive tax years • The credit is potentially available for a total of 6 years. • www.irs.gov has several useful resources

  10. Grandfathered Health Plans • Group health plans in effect on March 23, 2010, are considered grandfathered plans. • Having grandfathered plan status significantly affects the application of health care reform. Certain deadlines for changes are extended and other changes do not apply at all. • Federal rules will have to be issued to provide additional clarification

  11. Grandfathered Health Plans • PPACA makes it clear that enrolled individuals may add family members to their coverage if on March 23, 2010, the plan permitted this enrollment. • New employees and their families can be enrolled without jeopardizing the plan's grandfathered status. • Apart from these two allowances, PPACA is silent on the changes that may be made to a grandfathered plan without losing grandfathered status or even if grandfathered status can be lost.

  12. Dependent Coverage • All group and individual plans (including self-insured plans and grandfathered plans) that provide dependent coverage will have to cover dependents up to age 26 within 6 months of enactment. • More than 65 insurance carriers have announced that they will offer dependent coverage before the statutory requirement • HHS estimates suggest that dependent coverage will increase premiums by more than 1 percent and that 1.2 million are expected to sign up, more than half of whom would have been uninsured

  13. Dependent Coverage • On May 10, the IRS and the Departments of Labor and HHS issued interim final regulations for group health plans and health insurers concerning dependent coverage • The regulations complement guidance issued by the IRS on April 27 on the tax treatment of health coverage for children who have not yet turned 27 • The interim final regulations implement the coverage extension requirement, clarify that the expansion of coverage cannot be conditioned on whether the child is a tax dependent or student, or on whether the child lives with or receives financial support from the parent.

  14. Dependent Coverage • Under the regulations, a health plan or issuer may only define “dependent” based on a parent/child relationship • The regulations further clarify the apparent discrepancy between the “up to age 26” requirement for health plans and the “not yet turned 27” requirement for the exclusion from gross income. • While health care plans are generally required to cover enrollees’ children up to age 26, some employers may decide to continue coverage past the child’s 26th birthday. In such a case, the value of the employer-provided health coverage will be excluded from the employee’s income for the entire tax year in which the child turns 26 • The regs will take effect 60 days after publication in The Federal Register

  15. Temporary High Risk Pool • Creates a national temporary high-risk pool to provide coverage for people who cannot obtain current individual coverage due to preexisting conditions. • The national program can work with existing state high-risk pools and will end on January 1, 2014, once the exchanges become operational and the other preexisting condition and guarantee issue provisions take effect. • Financed by a $5 billion appropriation. • 20 states, including Nevada, declined to participate

  16. Temporary High Risk Pool • Individuals who have a pre-existing condition and have not had creditable coverage for previous 6 months are eligible • Secretary of HHS will determine minimum benefits; plans must cover 65% of costs • Premiums can vary by age (4:1), geography, family composition and tobacco use • Limits out-of-pocket spending to $5,950 individuals and $11,900 for families (excluding premiums)

  17. What Goes Into Effect This Year • Requires HHS to establish a temporary reinsurance program to reimburse employment-based plans for 80% of costs incurred by early retirees (over the age of 55 but not eligible for Medicare) between $15,000 and $90,000 annually. Payments under the program must be used to lower costs of the plan. Provides $5 billion to fund the program. • Extends current law provisions (Section 105(h)) prohibiting discrimination in favor of highly compensated employees in self-insured group plans to fully-insured group plans. • Deductibility for Part D subsidies is eliminated in 2013, but this results in an immediate accounting impact.

  18. What Goes Into Effect This Year • Group plans must implement an effective internal appeals process and provide notice to participants of available internal and external appeals processes • Self funded plans must implement an external review process in accordance with minimum standards that will be determined through federal regulations • Insured plans will have to satisfy external review requirements mandated by the state or the Secretary of HHS if the state doesn’t have procedures

  19. What Goes Into Effect This Year • Plans may not establish lifetime limits on the dollar value of benefits • Lifetime limits apply to all plans – fully insured, self-insured, individual plans, grandfathered plans – are prohibited within six months of enactment • Plans may only establish annual limits prior to January 1, 2014 on benefits as determined by the Secretary of HHS • Coverage may be rescinded only for fraud or intentional misrepresentation of material fact as prohibited by the terms of the coverage. Prior notification must be made to policyholders prior to cancellation.

  20. What Goes Into Effect This Year • By July1, the Secretary of HHS must establish a mechanism, including a website portal, through which individuals and small businesses may identify affordable insurance coverage. • The portal must include information on: • Private health coverage, Medicaid, CHIP, Medicare, a high risk pool, small group coverage, reinsurance for early retirees, and tax credits • The Secretary is required to develop a standard format for presenting information on coverage options, which must include: • The percentage of total premiums spend on nonclinical costs • Availability • Premium rates and cost sharing

  21. Pre-ex For Minors & Primary Care • All group and individual health plans, including self-insured plans, will have to cover preexisting conditions for minors aged 19 and under for plan years beginning on or after September 23, 2010 • For all group and individual plans, including self-insured plans, emergency services must be covered in-network regardless of provider. • Enrollees may designate any in-network primary care physician as their primary care physician.

  22. What Goes Into Effect This Year • All non grandfathered group and individual health plans must provide coverage without cost-sharing for: • Services recommended by the US Preventive Services Task Force • Immunizations recommended by the Advisory Committee on Immunization Practices of the CDC • Preventive care and screenings for infants, children and adolescents • Preventive care and screenings for women

  23. HSA Changes & CLASS Act in 2011 • Tax on distributions from an HSAs that are not used for qualified medical expenses doubles from 10% to 20%. • OTC drugs no longer be reimbursable under HSAs, FSAs, HRAs unless prescribed by a doctor. • Creates the CLASS Act, a new public long-term care program • Employers are expected to enroll employees unless they opt out • Employees will be able to opt out of participation • Questions about financial viability • Sen. Kent Conrad described as “Ponzi scheme of the first order”

  24. Employer Requirements in 2012 • Starting with the 2011 tax year, employers will have to report the value of health care coverage provided to each employee on their W-2 form. The first W-2 with benefit information would be issued at the end of January 2012. •  Employers are directed to exclude contributions to Health FSAs, HSAs and Archer MSAs, but HRA contributions would be included. The value of health care coverage would be based on the COBRA cost of coverage rules contained in §4980B of the Internal Revenue Code.

  25. Employer Requirements in 2012 • Group plans – including self-insured plans – must report to HHS on whether benefits under the plan improve health outcomes, reduce medical errors, and encourage wellness and health promotion activities. • This report must also be provided to plan participants. • All plans must provide new summary of benefits to enrollees • Can be no more than 4 pages in length • Must be cultural and linguistically appropriate

  26. Tax Changes in 2013 • Additional 0.9% Medicare Hospital Insurance tax on the self-employed and employees on earnings and wages in excess of $200,000 for individuals and above $250,000 for 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 from individuals with AGI over $200,000 ($250,000 for joint filers) • Two new taxes will raise approximately $200 billion

  27. Tax Changes in 2013 • Threshold for itemized deduction for unreimbursed medical expenses would be increased from 7.5% of AGI to 10% of AGI. • 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.

  28. Individual Mandate • Requires all American citizens and legal residents to purchase qualified health insurance coverage. Exceptions are provided for : • religious objectors, • individuals not lawfully present in the United States • 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 • Individuals with no income tax liability

  29. Individual Mandate • The penalty for non compliance is either a flat dollar amount per person or a percentage of income, whichever is higher. • 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. • The alternative is a fixed dollar amount that phases in beginning with $325 per person in 2015 to $695 in 2016. • Enforcement may be a problem. The IRS has indicated that it will not impose liens or levy assets, but would only withhold from tax returns. This coupled with lack of open enrollment or waiting periods increases the likelihood of adverse selection.

  30. Employer Responsibility • PPACA does not explicitly mandate an employer to offer employees acceptable health insurance. • Employers with at least 50 full-time equivalent employees will face penalties and a number of coverage obligations. • Those that do not provide qualified health coverage would be assessed $2,000 for each full time employee in their workforce. • Employers would not be assessed a penalty for the first 30 full time employees.

  31. Employer Responsibility • “Full-time employees” are defined as those working 30 or more hours per week. The number of full-time employees excludes those full-time seasonal employees who work for less than 120 days during the year • The hours worked by part-time employees are included in the calculation of a large employer, on a monthly basis. This is done by taking their total number of monthly hours worked divided by 120 • If an employer does not provide coverage and one employee receives a tax credit through the exchange, the employer will pay a penalty for all full-time employees.

  32. Employer Responsibility • Employers that provide coverage that is deemed unaffordable would be assessed the lesser of $3,000 for each full time employee who obtains a premium credit in a health insurance exchange or $2,000 for all FTE employees. • Regardless of whether or not a large employer offers coverage, it will be potentially liable for a penalty if at least one of its full-time employees obtains coverage through an exchange and receives a premium credit. Part-time workers or full-time equivalents are not included in penalty calculations. • An employer will not pay a penalty for any part-time workers, even if that employee receives a premium credit.

  33. Employer Responsibility • Individuals who are offered employer-sponsored coverage can only obtain premium credits for exchange coverage if they are not enrolled in their employer’s coverage because their employer’s coverage meets either of the following criteria: • The individual’s required contribution toward the plan premium would exceed 9.5% of their household income • or the plan pays for less than 60%, on average, of covered health care expenses.

  34. Auto Enrollment • Requires employers with 200 or more employees to auto-enroll all new employees into any available employer-sponsored health insurance plan. • Waiting periods subject to limits may still apply. • Employees may opt out if they have another source of coverage. • Implementation date is unclear, may change to earlier via regulation

  35. Market Reforms in 2014 • All individual health insurance policies and all fully insured group policies 100 lives and under (and larger groups purchasing coverage through the exchanges) must abide by strict modified community rating standards • 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. Coverage must be offered on a guarantee issue basis in all markets, and be guarantee renewable.

  36. Market Reforms in 2014 • Exclusions based on preexisting conditions are prohibited in all markets. • Full prohibition on any annual limits or lifetime limits in all group (even self-funded plans) or individual plans. • Redefines small group coverage as 1-100 employees. • States may also elect to reduce this number to 50 for plan years prior to January 1, 2016.

  37. State Based 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. • In addition the states must create “SHOP Exchanges” to help small employers purchase coverage. • States can either create one exchange to serve both the individual and group market or they can create a separate individual market exchange and group SHOP exchange. • States may choose to allow large groups (over 100) to purchase coverage through the exchanges in 2017

  38. State Based Exchanges • Exchanges must be state-established government or non-profit entities that will also be responsible for certifying plans and identifying individuals eligible for Medicaid, CHIP and premium credits. • Within 1 year, the Secretary must provide grants to states to create exchanges • Exchanges will have to be self sustaining by January 1, 2015 when grants expire • An exchange may operate in multiple states if each state agrees and HHS Secretary approves

  39. State Based Exchanges • A state may have more than one exchange if each serves a geographically distinct area and is sufficiently large • New individual and group qualified health plans may be offered inside and outside the exchange, but the premiums must be the same. • Premium and cost sharing subsidies will only be available through exchanges. • Secretary of HHS will establish procedures for agents and brokers to enroll individuals in exchanges

  40. Qualified Health Benefit Plans • QHBP is defined as: • A plan that provides the essential benefits package • Is offered by an insurer in good standing in each state in which it is offered • Agrees to offer at least one silver and one gold plan • Agrees to charge the same premium whether the plan is offered inside or outside the exchange • Complies with other requirements established by the Secretary of HHS and the exchange

  41. Essential Benefits • Essential benefits packages are defined • They must provide coverage for ambulatory services, emergency services, hospitalization, maternity and newborn care, Rx drugs, mental health and substance abuse, pediatric care • Defines cost-sharing, mandates, and minimum covered benefits • Multiple levels available based on actuarial values • Self-funded plans may not be subject to all requirements, but may not meet employer mandate requirements if they don’t comply

  42. Tax Subsidies • PPACA creates sliding-scale tax credits for non-Medicaid eligible individuals with incomes up to 400% of FPL to buy coverage through the exchange. • The tax credits are advanceable and refundable • Beginning in 2019, a failsafe mechanism is applied that reduces overall premium subsidies if the aggregate amount exceeds 0.504 percent of GDP.  

  43. New Taxes in 2014 • 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. • Imposes annual taxes on private health insurers based on net premiums. • Taxes do not apply to self insured plans or government entities • Projected to generate $60 billion over 10 years

  44. Medicaid Expansion • Expands Medicaid eligibility to individuals making up to 133% of FPL. • Mandatory state by state employer premium assistance programs begin for eligible individuals who have access to employer sponsored coverage. • States can also create a separate non-Medicaid plan for those with incomes between 133% and 200% of FPL that don’t have access to employer sponsored coverage.

  45. 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.

  46. Interstate Health Compacts • Interstate Health Choice Compacts go into effect in 2016. • Under these compacts, qualified health plans could be offered in all participating states, but insurers would still be subject to consumer protection laws of purchaser’s state

  47. Excise Taxes on Benefit Plans • 40% excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for singles and from $27,500 for families takes effect in 2018. • Values of health plans include reimbursements from FSAs, HRAs and employer contributions to HSAs. • Stand-alone vision and dental are excluded from the calculation. • Beginning in 2020, premium values will be indexed to CPI • Allows plans to take into account age, gender and certain other factors that impact premium costs

  48. Conclusion • Acts have been signed, but health care will remain volatile political issue • Attorneys General in 20 states have filed suit challenging constitutionality of individual mandate • States are also considering legislation to prohibit federal mandates • Outcome of suits and legislation uncertain, but federal and state policymakers will continue implementation • Federal rulemaking and state efforts will impact market as well

  49. Michael J. KeeganDirector of State Affairsmkeegan@nahu.org(703) 276-3809

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