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How the 2010 Health Care Bills Are Currently Affecting Cities and Other Government Agencies

How the 2010 Health Care Bills Are Currently Affecting Cities and Other Government Agencies Presented by: March 1, 2012 Bill Morgan, White Nelson Diehl Evans LLP Daniel Kopti, Wells Fargo Insurance Services. Agenda. Current Developments Summary of Benefits and Coverage

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How the 2010 Health Care Bills Are Currently Affecting Cities and Other Government Agencies

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  1. How the 2010 Health Care Bills Are Currently Affecting Cities and Other Government Agencies Presented by: March 1, 2012 Bill Morgan, White Nelson Diehl Evans LLP Daniel Kopti, Wells Fargo Insurance Services

  2. Agenda • Current Developments • Summary of Benefits and Coverage • Form W-2 Reporting • Federal Definition of “Full-Time Employee” • Medical Loss Ratio Rebates • Annual Dollar Limit on Benefits • Cap on Health Flexible Spending Arrangements • Pending and Other Provisions

  3. Current Developments • Is it constitutional for the federal government to require citizens to purchase health insurance, or pay a penalty? • U.S. Supreme Court is expected to hear the case in March 2012, and a ruling is expected by June 2012 • Republicans have pledged to repeal the law if they win the November 2012 elections

  4. Current Developments • Federal circuit court decisions on the individual mandate are mixed • Individual mandate is unconstitutional – Florida v. HHS (11th Circuit) • Individual mandate is constitutional - Seven-Sky v. Holder (DC Circuit); Liberty University v. Geithner (4th Circuit); Thomas More Law Center v. Obama (6th Circuit) • Case dismissed on procedural grounds - New Jersey Physicians v. Obama (3rd Circuit); Virginia v. Sebelius (4th Circuit); Baldwin v. Sibelius (9th Circuit)

  5. Summary of Benefits and Coverage • SBC is a uniform, four page, double-sided document • Describes covered benefits, cost-sharing provisions, and coverage limitations and exceptions • Includes examples of what the plan would pay, and the participant’s cost, for having a baby and managing diabetes • Effective date • First day of the first open-enrollment period that begins on or after September 23, 2012 (for distribution to participants and beneficiaries who enroll or re-enroll through an open-enrollment period) • First day of the first plan year that begins on or after September 23, 2012 (for distribution to participants and beneficiaries who enroll for coverage other than during an open-enrollment period) • September 23, 2012 (for disclosures made by insurance carriers to group health plans)

  6. Summary of Benefits and Coverage • At least 60 days notice must be made to enrollees if • A material modification is made to any of the terms of the plan or coverage that would affect the content of the SBC, and • The modification is not already reflected in the most recently provided SBC, and • The modification occurs other than in connection with a renewal or reissuance of coverage (i.e. other than during open-enrollment) • Who is responsible for creating and distributing SBCs • Insurance carrier for group medical insurance policy (note that the employer shares responsibility for distributing these SBCs) • Employer for self-insured group medical plan (note that this responsibility may be delegated to a third-party administrator) • Penalty of $1,000 for each willful failure to provide required information

  7. Summary of Benefits and Coverage • Action steps: • For each group health insurance policy and HMO maintained by the employer, confirm that the insurance carrier or HMO is preparing the SBC, and monitor delivery dates • For each self-insured medical plan maintained by the employer, negotiate with the third-party administrator regarding preparation of the SBC, and monitor delivery dates • Include the SBC in all open-enrollment materials and new-hire packages, consistent with the SBC effective dates

  8. Form W-2 Reporting Form W-2 must report the value of healthcare coverage for each employee Include value of healthcare coverage in box 12, using code DD Effective for 2012 Forms W-2 that are distributed in January 2013 Inclusion of this information on Form W-2 does not mean that healthcare coverage is taxable income Small employer exception Employers that issued fewer than 250 Forms W-2 for the preceding year (i.e. the threshold for electronic filing of Form W-2) are not subject to the Form W-2 reporting requirement This exception is based on the employer tax ID, and is not based on the “controlled group” (or consolidated income tax return) concept Form W-2 does not need to be issued with respect to an individual, if the sole purpose of issuance would be to report the value of healthcare coverage provided to the individual

  9. Form W-2 Reporting Healthcare coverage that must be reported on Form W-2: Medical coverage (insured or self-insured) – include both the employer and employee contributions for coverage Employer contributions to the employee’s health flexible spending arrangement Fixed dollar indemnity insurance (hospital or critical illness) or disease-specific benefits insurance, but only if the employer contributes to their cost, or employees use pre-tax dollars to pay for coverage Employers have the option of including (or not including) COBRA coverage in the employee’s Form W-2

  10. Form W-2 Reporting Healthcare coverage that may be excluded from Form W-2 reporting: Stand-alone dental or vision plans, but only if the coverage is not integrated with the group medical plan (i.e. employees can opt-out of coverage, and employees pay a separate amount if covered) Wellness programs, employee assistance plans, and on-site medical clinics, but only if COBRA qualified beneficiaries are not charged a separate amount for coverage under these options Health flexible spending arrangements that do not include employer contributions Health reimbursement accounts Health savings accounts Long-term care insurance

  11. Form W-2 Reporting Employers can use one of four methods to calculate the value of coverage COBRA applicable premium method (exclude 2%) Premium charged method - based on the premium charged by the insurance carrier for each tier of coverage (for example, single, two party or family) Modified COBRA premium method - if the employer subsidizes the cost of COBRA coverage, or the cost of COBRA coverage is equal to the previous year’s cost Composite rate - one rate for all tiers of coverage Action steps Select a method to calculate the value of healthcare coverage Confirm that the payroll system is properly tracking the value of coverage for each employee, effective January 1, 2012

  12. Federal Definition of “Full-Time Employee” Employer is not subject to Employer Shared Responsibility (i.e. Play or Pay) 50 or fewer FTE employees • Employer: Follows IRS controlled group rules Employer is subject to Employer Shared Responsibility (i.e. Play or Pay) More than 50 FTE employees • Full-time employees and full-time equivalents (FTE) • “Full-time” is 30 or more hours per • week • “Full-time equivalents” include all part-timers and seasonal employees. FTE is determined by dividing hours worked in a month by 120 • Add FT and FTE employees for each month of the year, and divide by 12 • Excludable Employees • Leased employees/independent • contractors • Potentially J-1 visa holders 14

  13. Federal Definition of “Full-Time Employee” No minimum essential benefits coverage, and employee purchases subsidized coverage from exchange • $2,000 annual penalty ($166.67 per month) per total number of full-time employees • Exclude first 30 FT Employees • Applicable large employer • Over 50 full-time equivalent employees $3,000 annual penalty ($250 per month) for each full-time employee that receives premium tax credit / cost-sharing reduction from an exchange Offers minimum essential benefits coverage but it is unaffordable (more than 9.5% of MAGI) and employee purchases subsidized coverage from exchange • Full-time employees • “Full-time” is an employee who works on average 30 or more hours per week (or at least 130 hours per month) • For employees with fluctuating work hours: “look back period” (up to 12 months), and an equally long “stability period” into the future • Employees’ eligibility for premium tax credit or cost-sharing reduction • Income cannot exceed 400% of the Federal poverty level • Can access subsidized coverage if employer does not offer coverage, or • Coverage must not provide “minimum value” (paying 60% of benefit costs) OR • Coverage must not be “affordable” (employee premiums exceed 9.5% of employee’s household income) • Play or Pay Penalty Does not Apply • Employees waive coverage and enroll in Medicaid • Employees household income exceeds 400% of the Federal poverty level • Employee waives employer coverage and employer coverage is affordable and meets the minimum essential value requirement 15

  14. Federal Definition of “Full-Time Employee” Step 1 “Fair” Employee Access Step 2 “Acceptable” Health Insurance “Minimum Essential Value” (60% Actuarial Value) All Employees > 30 hrs/week Step 3 “Affordable” Employee Contributions “Exchanges and Individual” Tax Credits < 400% of Federal Poverty Line < 9.5% of W-2 wages for single coverage Step 4 “Unaffordable” Coverage Play or Pay Tax on Employer <9.5% of employee’s W-2 wages for single coverage Meets Step 1-3 No penalty to employer

  15. Federal Definition of “Full-Time Employee” Action steps Confirm that the Human Resources Information System is properly tracking employee work-hours Evaluate whether part-time, seasonal and temporary employees are properly included or excluded from healthcare coverage under the look-back concept Identify current employees who are required to contribute more than 9.5% of their income (based on current payroll) for single coverage under the employer’s medical plan (i.e. who may subject the employer to a “play or pay” penalty under Employer Shared Responsibility) Determine whether the employer will adopt (i) a strategy of avoiding the “play or pay” penalty entirely, or (ii) a strategy of accepting some liability under the “play or pay” penalty, so that lower paid employees will qualify for federal subsidies for coverage purchased through an insurance exchange

  16. Medical Loss Ratio Rebates • Insurance carriers are required to pay a minimum percentage of premium dollars as medical benefits; MLR does not apply to self-insured plans • 85% medical loss ratio for group medical insurance policies covering large employers (i.e. 50 or more employees) • 80% medical loss ratio for medical insurance policies covering individuals and small employers (i.e. fewer than 50 employees) • Insurance carrier must distribute a rebate if the medical loss ratio is not met • First annual rebate is payable in August 2012 for calendar year 2011 • For group insurance policies, the insurance carrier may pay the entire rebate – including the employee portion - to the policyholder (i.e. employer) • IRS has promised to issue guidance in the near future on how to tax MLR rebates

  17. Medical Loss Ratio Rebates • MLR rebate must be distributed among the employer and employees (including retirees and COBRA beneficiaries) covered under the insurance policy, based on their share of contributions for the year in question • Example of MLR rebate of $300 for 2011; employer keeps $180 = $300 x $3,600/($3,600+$2,400) • Note that ERISA plans are required to distribute the MLR rebate in a different manner

  18. Medical Loss Ratio Rebates • Action steps: • Develop and maintain records showing premiums paid by the employer and employee, for each medical insurance policy and HMO agreement, starting January 1, 2011 • Maintain the last known mailing address for each terminated employee since January 1, 2011, to facilitate the distribution of refunds to them • Whenever the MLR rebate is distributed, keep a file of how the rebates were calculated, and proof of rebate distribution, in case the federal government conducts an audit

  19. Annual Dollar Limits on Benefits • Annual dollar limit on “essential health benefits” have increased from a minimum of $750,000 to a minimum of $1,250,000 • Applies to both grandfathered and non-grandfathered plans • Effective for plan years beginning on or after 9/23/2011 • Waivers for limited medical plans, mini-med plans and health reimbursement accounts extended through December 31,2013 • Waiver applies only if plan was in effect on or before 9/23/2010, and the plan obtained a waiver from the federal government • Waiver ends on January 1, 2014 • Action steps • Amend plan documentation (if applicable) and open-enrollment materials • Prepare for end of waivers, for plans subject to a current waiver

  20. Cap on Health Flexible Spending Arrangements • Employee pre-tax contributions to a health flexible spending arrangement are limited to $2,500 per year • Effective beginning in 2013 for all health FSAs • Waiting for IRS guidance on how the cap applies to fiscal year plans • Action step – amend plan documentation (if applicable) and open-enrollment materials 22

  21. Pending and Other Provisions • Non-grandfathered insured plans may not discriminate in favor of highly compensated individuals – POSTPONED • Patient-centered outcomes research fee of $1 for every employee, spouse and child covered by an insured or self-insured medical plan –GUIDANCE EXPECTED TO BE ISSUED SOON • Automatic enrollment in the medical plan as the default election for employees –POSTPONED UNTIL 2014 OR LATER • Definition of “essential health benefits” for non-grandfathered plans – DELEGATED TO THE STATES • Community living assistance services and supports program (CLASS) providing long-term care insurance for employees and family members – CANCELLED • Action step – wait for guidance to be issued before taking action 23

  22. Thank you! The material is provided for informational purposes only based on our understanding of applicable guidance in effect at the time of publication, and should not be construed as tax or legal advice. Customers and other interested parties must consult and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing and presenting this material accurately (based on the laws and regulations, and judicial and administrative interpretations thereof, as of the date set forth above), White Nelson Diehl Evans LLP and Wells Fargo Insurance Services USA, Inc. disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it, and any responsibility to update this material for subsequent developments. To comply with IRS regulations, we are required to notify you that any advice contained in this material that concerns federal tax issues was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

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