Speakers Jonathan M. Joseph of Christian &Barton LLP T. Braxton McKee of Kaufamn & Canoles PC Elizabeth Breen of Hunton & Williams LLP Stephen C. McCoy, General Counsel of Patient First Nicholas Pace, General Counsel of Amerigroup Corporation Matthew M. Cobb, Deputy Secretary of Health and Human Services for the Governor of VA Mark S. Hedberg of Hunton & Williams LLP
Carolyn A. Watts, Ph. D.Virginia Commonwealth UniversityModerator Carolyn (Cindy) A. Watts, Ph.D.Arthur Graham Glasgow Professor and ChairDepartment of Health AdministrationVirginia Commonwealth UniversityThe Grant House, 1008 E. Clay StreetP.O. Box 980203Richmond, VA 23298-0203(804) 828-7799Fax: (804) 828-1894
Disclaimer • These materials and associated remarks are intended as a general discussion of the subject matter addressed. They are not intended to be comprehensive or as legal advice, and they should not be relied upon as such. Attorneys will need to draw their own conclusions relative to any particular case and take into account all applicable laws when formulating advice.
Sponsors Washington Metropolitan Area Corporate Counsel Association(WMACCA) Richmond Bar Association – Business Law and Corporate Sections Virginia Bar Association – Health Care Law Section Hunton & Williams LLP
Jonathan M. Joseph Christian & Barton, LLP 804.697.4125 firstname.lastname@example.org www.cblaw.com
Congressional Action on Federal Health Care Reform 3/21/10: House vote on Senate bill 3/21/10: House immediately votes on reconciliation “sidecar” 3/23/10: Final bill signed by President 3/23/10: Senate takes up reconciliation bill; begins 20-hour debate 3/25/10: Senate passes amended reconciliation bill, forcing House vote 3/25/10: House passes amended reconciliation sidecar 3/30/10: Reconciliation bill signed by President
Key Elements: Insurance Exchanges • Effective in 2014: • Requires states to establish Exchanges for individuals & small employers • Subsidies for individuals up to 400% of the federal poverty level, only available in exchange • Small employer tax credits available only in exchange Insurance Exchanges
Immediate Provisions Effective for the 2010 tax year: Tax credits for certain small employers $250 rebate to Medicare beneficiaries who reach the Part D “donut hole” Effective 90 days after enactment: Temporary high-risk pools and early-retiree reinsurance programs Effective for plan years starting 6 months after enactment: Dependent coverage for adult children up to age 26 No lifetime coverage limits No cost-sharing for preventive services
Grandfathered Plans Does not cease to be grandfathered because one or all covered individuals cease to be covered, provided plan continues to cover someone from March 23, 2010 forward. To maintain grandfathered status, plan must include statement in plan materials for participants describing benefits, that plan “believes” it is grandfathered and contact information for questions/complaints. To maintain grandfathered status, plan must maintain records documenting plan terms on March 23, 2010, and any other documents necessary to verify grandfathered status and make records available upon request. Defined: Coverage provided by group health plan, or insurer in which individual enrolled March 23, 2010.
Grandfathered Plans Family members enrolling March 23, 2010 are “grandfathered.” Definition of “family member” not given, would assume rely on plan definition. New employees or newly-enrolled employees able to be covered. Mergers for purposes of obtaining grandfathered status causes plan to cease to be grandfathered plan. Cease to be grandfathered if employees transferred into plan and terms of prior plan different and no bona fide business reason to transfer employees.
Grandfathered Plans Elimination of any benefits necessary to treat a condition; Increase in percentage of cost sharing or fixed amount of cost sharing compared to March 23, 2010 (increased by an inflation factor defined in the regulations); Decrease in contribution rate by employers by more than 5% below contribution rate for March 23, 2010; and Changes in annual and lifetime limits. Changes causing cessation of grandfathered status:
Grandfathered Plans Coverage for adult children up to age 26 (grandfathered plans may exclude if eligible for employer coverage) Preexisting condition exclusions for enrollees under the age of 19 and for all enrollees in 2014 Coverage may not be rescinded for a participant except in the case of fraud or intentional misrepresentation No coverage limits No annual or lifetime limits Provisions apply to all plans, including grandfathered plans:
Grandfathered Plans Application of nondiscrimination rules to fully-insured plans Right to appeals and external reviews Preventative care with no cost sharing Direct access to OB-GYN Choice of primary care doctors Prior authorization of emergency room care Mandated cost-sharing limits Coverage for clinical trials HHS reporting (wellness and quality of care) Provisions that do not apply to grandfathered plans:
Early Retiree Reinsurance Program $5 billion to reimburse plans costs for early retirees 55 or older Not eligible for Medicare For expenses $15,000-$90,000 Application by plan sponsors, first come, first served basis Application on OMB website
T. Braxton McKee Kaufman & Canoles, P.C. 757.624.3123 email@example.com www.kaufCAN.com
The Patient Protection andAffordable Care Act (“PPACA”) Funding Mechanisms and Practical Implications for Providers
Tax on High-Cost Health Insurance(“Cadillac” Tax) 40% nonrefundable excise tax is imposed on group insurers if the aggregate value of applicable employer-sponsored health coverage exceeds an inflation-adjusted $27,500 for family coverage ($10,200 for individual coverage) beginning in 2018
An employer-specific adjustment is made each tax period to the threshold amounts so that an employer with a workforce that is more expensive to insure due to age or gender characteristics will not be put at a disadvantage. Adjusted for Age, Gender andHigh-risk Professions
The threshold dollar limits for any tax period (i.e. the $10,200 and $27,500 amounts are adjusted by the applicable health cost percentage in 2018, and inflation hereafter) are increased by an amount equal to the differences (if any) between: • the premium cost of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan for the type of coverage provided such individual in such taxable period if priced for the age and gender characteristics of all employees of the individual’s employer, and • that premium cost for the provision of such coverage under such option in such taxable period if priced for the age and gender characteristics of the national workforce
Suppose in 2018, Acme Corporation’s workforce is older than the average age of the national workforce. The threshold amounts that would otherwise apply to Acme’s employees to calculate the excess benefit will be adjusted upwards. By Way of Example…
The amount is determined by taking the premium cost of the Blue Cross/Blue Shield standard benefit option for federal employees in 2018 priced for the age and gender characteristics of Acme’s workforce in 2018, and subtracting the premium cost if the Blue Cross/Blue Shield plan were priced for the age and gender characteristics of the national workforce. Suppose the premium difference for a self-only plan is $1,000, and $2,500 for plans that are not self-only plans. $1,000 is added to the threshold amounts for employees with self-only coverage, and $2,500 is added for employees with coverage from plans that are not self-only.
More generous thresholds apply for coverage of individuals who: • Have attained the age of 55, receive retiree coverage, and are not eligible for Medicare, or • Participate in a plan sponsored by an employer, the majority of whose employees are engaged in high risk professions, which include: • Law enforcement officers, firefighters, members of a rescue squad or ambulance crew, longshore workers, etc. • In either of those above cases the thresholds for the imposition of this tax will increase as follows: • $11,850 for individual coverage (an increase of $1,650) • $30,950 for family coverage (an increase of $3,450)
Individual Mandate Beginning in 2014, “applicable individuals” are required to obtain and maintain minimum essential health coverage for themselves and their dependents. Generally, all persons are “applicable individuals” subject to the penalty unless they fall into one of these four categories: Prisoners (incarcerated) Undocumented aliens Health care sharing ministry members Religious conscience
Exemptions will be granted for certain otherwise “applicable individuals”: Financial hardship, Native Americans, Individuals outside the U.S., Short lapses – those without coverage for less than three (3) months, Those for whom the lowest cost plan option exceeds 8% of an individual’s income, and Those with incomes below the tax filing threshold (in 2009 the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).
Those without coverage pay a tax penalty. The penalty is equal to the lesser of: The sum of the “monthly penalty” is equal to 1/12 of the greater of: The “flat dollar” amount up to a maximum of 300% of the applicable dollar amount, or The applicable “percentage of income” The amount of the national average premium for qualified health plans that: (i) offer a bronze-level of coverage through an Exchange; (ii) provide the coverage for families the size of the taxpayer’s family; and (iii) are offered through Exchanges for plan years beginning in the calendar year with or within which the tax year ends.
The “monthly penalty” will be phased-in according to the following schedule and the individual or the household will pay the greater of the “flat dollar” amount or the “percentage of income” as follows: $95 or 1.0% of the excess of the taxpayer’s household income over the taxpayer’s filing threshold in 2014 (current threshold is $23,900), $325 or 2.0% of the excess of the taxpayer’s household income over the taxpayer’s filing threshold in 2015, and $695 or 2.5% of the excess of the taxpayer’s household income over the taxpayer’s filing threshold in 2016. Penalty for family households capped at 3x the applicable individual penalty Applicable flat dollar amount halved for individuals under the age of 18
Uninsured family of five (5) for the entire year in 2014: four (4) are over the age of 18, one (1) is under the age of 18. The parents are jointly and severally liable for the penalty for themselves and their four uninsured dependents. The applicable dollar amount for 2014 is $95. This amount is halved for applicable individuals under the age of 18. The total penalty would be $427.50 ($95 for each of the four adults, and $47.50 for the one child). By Way of Example…
However, this flat dollar amount is limited to 300% of the applicable dollar amount, with no adjustment for individuals under 18. Thus, the family’s flat dollar penalty is $285 ($95x3). The family’s household income is $45,000, and their filing threshold is $23,900. Their household income exceeds the threshold by $21,100 ($45,000-$23,900). Thus, their percentage of income penalty is $211 (1% of $21,100).
The family’s actual penalty is the lesser of: (i) their “monthly penalty,” which is $285 [the greater of $285 (the flat dollar fee) or $211 (percentage of income)] or (ii) the average national annual premium for qualified health plans that offer bronze-level of coverage for a family of five through the Exchange. Penalty amount included with family’s 2014 return.
Employer Requirements Effective January 1, 2014, large employers will face excise tax penalty for not providing health care coverage. Penalty of $2,000 per year per full-time employee for not offering specified minimum levels of health coverage (subtract the first 30 full-time employees) Penalty of up to $3,000 per year for each full-time employee if employer offers coverage but coverage does not satisfy minimum levels (subtract the first 30 employees) Penalty does not apply to employers with 50 or less employees
In 2014, Omega Corp. offers health coverage and has 100 full-time employees, 10 of whom receive a tax credit for the year for enrolling in a state exchange offered plan. For each employee receiving a tax credit, Omega owes $3,000, for a total assessable payment of $30,000 ($3,000 x 10 employees). By Way of Example…
The maximum amount of the assessable payment for Omega is capped at the amount of the assessable payment that it would have been assessed for a failure to provide coverage, or $140,000 ($2,000 x 70 full-time employees (100 full-time employees, less 30)). • Since the calculated assessable payment ($30,000) is less than the overall limitation ($140,000), Omega owes the $30,000 assessable payment, which is assessed on a monthly basis.
Health Insurance ProviderIndustry User Fee Annual fee on health insurance provider industry, effective 2014 as follows: $8 billion in 2014, $11.3 billion in 2015-2016, $13.9 billion in 2017, $14.3 billion in 2018, and $14.3 billion + rate of premium growth in 2019 and beyond. Annual fees allocated across the industry sector according to market share.
Prescription Drug Industry User Fee Effective 2011, an annual fee on brand name prescription drug manufacturers as follows: $2.5 billion in 2011, $2.8 billion in 2012-2013, $3.0 billion in 2014-2016, $4.0 billion in 2017, $4.1 billion in 2018, and $2.8 billion in 2019 and beyond. Annual fees allocated across the industry sector according to market share.
Medical Device Industry Excise Tax Effective 2013, a 2.3% excise tax will be assessed on medical devices sold in the U.S.
Health Savings Accounts (“HSAs”) Starting in 2011, individuals who have Health Savings Accounts (“HSAs”) or Archer Medical Savings Accounts (“MSAs”) will no longer be permitted to take distributions in order to pay for over-the-counter medications (there is a special exception for insulin) with pre-tax dollars. Individuals who have HSAs or MSAs and take distributions that are not used for qualified medical expenses will, effective 2011, instead of paying the current 10% and 15% additional tax, respectively, pay a 20% additional tax on such distributions.
Flexible Spending Accounts (“FSAs”) Effective for tax years beginning after December 31, 2012, a FSA will not be a qualified benefit under a cafeteria plan unless the plan provides for a $2,500 maximum salary reduction contribution to the FSA.
Individual Income Taxes Effective 2013, a hospital insurance (Medicare Part A) payroll tax will be increased by 0.9% (from 1.45% to 2.35%) on individuals earning over $200,000 and joint filers earning over $250,000, (income amount not indexed to inflation).
Effective 2013, an annual “unearned income Medicare Contributions Tax” in the amount of 3.8% will be assessed on individuals earning over $200,000 (or joint filers earning over $250,000) in an amount equal to the lesser of: −net investment income from interest, dividends, annuities, royalties, rents and certain other income and gains not generated in the ordinary course of an active trade or business, or which is generated in a trade or business of trading financial instruments or commodities or − modified adjusted gross income (which includes, for this purpose, foreign earned income net of certain expenses) in excess of $200,000 ($250,000 for joint filers and surviving spouses, $125,000 in the case of married taxpayers filing separately).
If a couple’s total income is $300,000 ($50,000 above the threshold), and they had $40,000 in investment income, the 3.8% tax would apply to the $40,000. If their investment income was $60,000, however, they would only pay the tax on $50,000, which represents the amount in excess of the applicable threshold. By Way of Example…
Unreimbursed Medical Expenses Effective January 1, 2013, the threshold for the itemized deduction for unreimbursed medical expenses will increase from 7.5% of adjusted gross income to 10% of adjusted gross income for regular tax purposes. The increase will be waived for individuals age 65 and older for tax years 2013 through 2016.
Indoor Tanning Services Effective July 1, 2010, a 10% tax will be imposed on the amount paid for indoor tanning services.