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“Regulation Update on PPACA--2013” Kelley Insurance Center Hilton Garden Inn - Johnston, IA March 12, 2013 Jesse A Patton LUTCF, HIA, MHP, FAHM, HIPAAA, EHBA, PHIAS. Health Reform Implementation….
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“Regulation Update on PPACA--2013” Kelley Insurance CenterHilton Garden Inn - Johnston, IAMarch 12, 2013Jesse A Patton LUTCF, HIA, MHP, FAHM, HIPAAA, EHBA, PHIAS
Health Reform Implementation… This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. Winston Churchill, November 10, 1942 at the Lord Mayor's Luncheon at Mansion House in London
Overall Approach & Objective • Require most U.S. citizens to have health insurance • Create American Health Benefit Exchanges with cost sharing credits • Expand Medicaid • Impose new regulations on Health Plans • Require Employers to pay penalties if employees get tax credits
CBO 2019 Estimates of Insurance Coverage Among noneldery (under age 65). ‘Exchanges’ include 2% (5M) that CBO counted as ‘Employer.’ If excluding unauthorized immigrants, CBO’s uninsured projection for PPACA would be 6%.
Current Status “We have to pass the bill so that you can find out what is in it” …. Speaker Nancy Pelosi On March 21, the House passed HR 3590, the bill passed by the Senate on December 24, 2009, with a 219-213 vote. Signed into law on March 23. The House and Senate have also passed a reconciliation bill, HR 4872, with a packages of “fixes” to the Senate bill President Obama signed the reconciliation bill.
Implementation Be forewarned, NAIC, CMS, DOL ,Treasury, IRS and DHHS will need to issue continued guidance. These rules will impact our understanding of these measures. There are some questions you have today that cannot be answered.
PPACA Cost more than Anticipated • Estimatesreleased by the Congressional Budget Office: 10 year cost March of 2010, just before the law was enacted, cost $950 billion August 2012, CBO estimated PPACA would be $1.165 trillion February 5, 2013, CBO estimated new 10 year cost $1.329 trillion
Unhappy States • Budget deficits • Individual mandate lawsuits • Medicaid changes/increased potential costs to states • Waiver requests denied • Refusal of some to take PPACA funds/implement programs • Extreme variation in state political climates—California to Wisconsin
Supreme Court Outcome • The Supreme Court upheld the constitutionality of PPACA and the individual mandate • Although the mandate was deemed not constitutional under the Commerce Clause, it was deemed to be an appropriate use of the Congressional power of taxation • Bottom line: Congress can’t force Americans to obtain broccoli, but they can tax or penalize Americans who don’t • The court also ruled 7-2 to allow PPACA’s expansion of the Medicaid program, but it struck down the portion of the law that would have penalized states that chose not to expand their Medicaid programs by taking their existing federal Medicaid funds away. This part of the ruling gives states significant leverage, as it will create a coverage hole in states that choose not to expand their programs for financial reasons.
Grandfathered Plans • Essentially all plans in effect on date of PPACA enactment (March 23, 2010) are “grandfathered” • Very few changes are permitted if a plan wants to retain grandfathered status • Plans must provide a statement to participant that it believes it is a “grandfathered” plan
What Grandfathered Plans Can’t Do Can’t increase Co-insurance rate Can’t increase Co-pay more than the greater of $5 (adjusted annually for medical inflation) or medical inflation plus 15% Can’t reduce employer contribution more than 5% Can’t increase deductible more than 15% plus medical inflation
What Grandfathered Plans Can’t Do Can’t use a merger, acquisition or business restructuring for the purpose of covering new individuals under a grandfathered plan Can’t change carriers if you are fully insured Can’t move employees to a grandfathered plan with lower benefits Can’t make a significant cut to benefits such as eliminating benefits for a particular condition
IRC Section 105(h) • PPACA imposes new nondiscrimination rules on certain health plans • New rules are effective for plan/policy years beginning on or after September 23, 2010 – Place on Hold until further Notice • Only applies to non-grandfathered plans • New rules previously applied to self-insured health plans
Background on IRC Section 105(h) • IRC section 105(h) was added to IRC in 1978 • Treasury/IRS issued final regulations in 1981 as well as limited number of private letter rulings • Temporarily repealed in 1986 with enactment of IRC section 89 • IRC section 89 was soon repealed and IRC section 105(h) reinstated retroactively
IRC Section 105(h) • Since reinstatement of IRC section 105(h), Treasury/IRS have avoided the nondiscrimination rules * IRS has not issued any guidance since reinstatement * Instituted “no rule” on IRC section 105(h) * Very limited enforcement to date • Existing IRC section 105(h) and related regulations are very unclear and thus raise compliance issues for both self-insured and insured plans
How Do the Test Work • Must satisfy the following two tests: Eligibility test (really more participation test) Benefits test (really universal availability test) • Both tests look to if the plan disproportionately benefits highly compensated employees (HCE’s): 5 highest paid officers 10% or more shareholder; AND Highest 25% paid (disregarding excludable employees) • Excludable employees include: Employees with < 3 years of service Part-time employees working < 35/hours per week Seasonal employees Employees subject to collective bargaining agreement Employees < age 25
Three Tests for Eligibility – must pass one • At least 70% or more of all controlled group employees participate in the plan (70% Test); • 70% of controlled group are eligible to participate, AND at least 80% or more of those eligible in fact participate (70/80 Test): • The plan benefits a nondiscriminatory classification of employees (nondiscriminatory classification test)
Benefits Test • Benefit Tests: True or False - Must answer True to all Four to PASS test • The required employee contribution are identical/uniform for each benefit level • The maximum benefit level that can be elected does not vary based on compensation, years of service or age • Type of medical benefits reimbursable is identical for all participants • Waiting periods are the same for all employees
Penalties for Noncompliance • Unlike for self-insured plans violations, where amounts reimbursed form the plan are taxable to HCEs. • Penalties were clarified in IRS Notice 2010-63 • IRC $100 per for “each individual to whom failure relates”, capped at the lesser of 10% of the group health plan costs or $500,000 • ERISA Suits for equitable relief
Essential Benefits Defined in 2014 Section 1302(b) defines essential health benefits to include: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and Substance use disorder services • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory Services • Preventive and wellness services and chronic disease management • Pediatric services, including oral and vision care
CBO Analysis of PPACA Premium Costs • Moreover, the CBO makes clear that average premiums would be 27 to 30 percent higher because the law demands greater insurance coverage. The CBO emphasized that those provisions, along with others, “ would have a much greater effect on premiums in the non-group [individual] market than in the small group market, and they would have no measurable effect on premiums in the large group market.”
Comprehensive & Flexible • HHS propose using a benchmark approach • States would have Flexibility to select benchmark that reflects the scope of a “typical employer plan • Gives the States the flexibility to best meet the needs of their citizens
Benchmark Approach States would choose one of the following benchmark health insurance plans: • One of the three largest small group plans in the State by enrollment • One of the three largest State Employee health plans by enrollment • One of the three largest federal employee health plan options by enrollment • The Largest HMO plan offered in the State’s commercial market by enrollment If State choose not to select benchmark, HHS intends to propose the default will be the small group plan with largest enrollment in the State
State Funding • To prevent Federal dollars going to State Benefit mandates, PPACA requires States to defray the cost of benefits required by State law in excess of Essential Health Benefits • This will apply for individuals enrolled in any plans through an exchange • 2014 & 2015 transition relief if State elects one of the three largest small group plans as benchmark
W-2 Reporting • Employers will be required to include the value of group health plan coverage on W-2s issued after 1/1/2013. • Reporting for 2011 is voluntary. • The new reporting requirements do not change the tax treatment of employer-provided health coverage. The reporting is for informational purposes only. • Small Employer Exception • Employers issuing fewer than 250 Forms W-2 in the preceding calendar year are exempt from the reporting requirement. • May be on an entity rather than control group basis • Note- this is not the total number of employees, but the total number for Forms W-2 • Applies to all employers who provide applicable employer sponsored coverage
What to Report • Employers are required to report the value of all “applicable employer-sponsored coverage”. Generally, group health plans, including: • Major medical • Mini-meds • On-site medical clinics • Medicare supplemental coverage • Health FSA contributions (employer) • Employee assistance & wellness programs (with separate COBRA rates) • Optional Reporting • IRS guidance permits employers to report the cost of coverage that is not required to be reported (e.g. multiemployer, HRA) if reported coverage is otherwise applicable employer sponsored coverage
How to Report: Determining the “Aggregate Cost” • Must report the “aggregate cost” • Include pre-tax and post-tax coverage • Include employer and employee contributions (e.g. employer premium contribution or employee cafeteria plan contributions) • Multiple methodologies for determining aggregate cost. • General Rule: Use cost of COBRA premium