Transcript Health Care Reform

HEALTH CARE REFORM IS HERE
(UNLESS THE POLITICIANS
CHANGE IT)
ARE YOU READY?
Willis Human Capital Practice
Legislative and Regulatory Update
Jay M. Kirschbaum, JD, LLM, FLMI
Practice Leader, National Legal & Research Group
18th Annual Willis Construction Risk Management
Conference
September 21, 2012
San Antonio, Texas
This material and any accompanying remarks are provided for informational purposes only and
nothing contained in either should be taken as a legal opinion or as legal advice
Copyright 2012 All rights reserved
JUDICIAL, POLITICAL AND
REGULATORY UPDATE ON
HEALTH CARE REFORM
 Where Are We Now?
 Regulatory Updates
 Financial and Underwriting Effects
 How Will This Affect Employers? Employees?
 Communications with Employees
 Discussion
1
POLITICAL AND LEGAL
ENVIRONMENT
WILL ROGERS ON CONGRESS
The only difference between
death and taxes is that death
doesn’t get worse every time
Congress meets!
3
POLITICAL REALM
 Patient Protection and Affordable Care Act




(“PPACA”) Upheld by Supreme Court
 Changes, if any will be political
Senate –
 Democrats still in majority
 Republicans gained 6 seats in 2010
 23 Democrat seats at stake in 2012
House –
 Republicans in majority (likely to retain
majority in 2012)
President vindicated
GOP efforts redoubled for repeal and will
use politically
 House vote on repeal
* CNN
4
*
WILL PPACA CHANGE?
“It ain’t over ‘til it’s
over!”
- Yogi Berra
5
POLITICAL REALM
 Previous political changes
 Repeal of 1099 reporting
 Repeal of free-choice vouchers
 Abandonment of LTC program
 2012 Campaign
 Other political risks
 ERISA preemption
 Tax exclusion
6
PLAN COMPLIANCE
PLAN COMPLIANCE
REQUIREMENTS
Requirements and Prohibitions – for ALL plans  No lifetime or annual dollar limits on “essential” benefits




 Except as permitted by HHS (waivers/phase-in) until 2014 for
annual limits
No rescissions (retroactive revocation of coverage) except for
fraud/intentional misrepresentation of material fact
Must cover adult children of covered individual up to age 26
 No dependent requirement
 Married/unmarried
 Up to 1/1/2014 grandfathered plans can exclude if eligible for
employment based coverage (other than a parent’s plan)
No pre-ex condition exclusions for enrollees under 19
 applies to all for 2014 plan year
Amend plan and SPD
 Federal agency audits – increased activity
‒ Both general and PPACA related
8
PLAN COMPLIANCE
REQUIREMENTS
Requirements and Prohibitions- for non GF Plans –
 Preventive and immunizations without cost
 Nondiscrimination rules for insured plans “similar” to self-funded plans
 Cover adult child to 26
 Cannot exclude those with other employment based coverage
 Implement and provide notice of available internal and external appeals
processes
 Patient Protection Requirements





Allow participants to choose any primary care provider available to them
Choice of pediatrician as child’s primary care provider
Access to emergency services
Access to obstetrical and gynecological care
Wellness programs may not require disclosure/collection of information relating to
presence of firearms and benefits cannot be based on firearm ownership
 Plan documents and SPD - does not apply necessarily to grandfathered plans
 Insured plans – many lost GF status regardless of employer desires!
9
OTHER REQUIREMENTS
 Auto enrollment for large employers (200 or more employees) – Delayed




 Rules expected for 2014
 Immediate/retroactive effective date – unlikely
OTC medications cannot be reimbursed pre-tax from FSA, HSA, HRA or MSA
 Amend plans and SPDs
Non-qualifying distributions from HSA and
MSA penalty increase to 20%
 Review material for HDHP and HSA contributions
Summary of Benefits (4/8 page) beginning for enrollments after 9/23/2012
W-2 reporting of the value of employer provided coverage for 2012
 2013 for employers with fewer than 250 W-2s (ignore other aggregation rules)
 Multiemployer plans (union-sponsored plans)
delayed and employer contributions are NOT
included on the W-2
10
REMINDERS
 See Timeline in Appendix
 No lifetime or annual dollar limits on “essential” benefits





 Mini-med plans gone by 2014 even with phase-in
Adult children for all plans in 2014
Nongrandfathered insured plans
 Nondiscrimination rules for insured plans “similar” to self-funded plans
MLR Rebates coming for some insured plans
Summary of Benefits (4/8 page) beginning for enrollments after
9/23/2012
W-2 reporting – 2012
 2013 for employers with fewer than 250 W-2s – ignore aggregation
rules
11
INSURER POSITION
ON EXCHANGES AND
COSTS
INSURER POSITION & EFFECT
 PPACA
 Willis maintains ongoing dialogue with national & regional insurers
 Post-decision position
‒ Continue to implement
‒ Assist stakeholders w/ compliance
‒ Remain engaged with lawmakers
‒ Advocate for improved health care delivery system
13
INSURER POSITION & EFFECT
 Public Exchanges
 States slow to respond
 Essential health benefits
 Desire to participate
‒ Access membership
‒ Need for accurate pricing
‒ Concerns about adverse selection
 True Cost Implications
 Unknown
‒ Early stages of exchange development
‒ “Interim final” guidance
 Estimates of financial effect of PPACA alone – 20-50% increases
in premium for individual market coverage
 Increased priority on actuarial analysis of metallic-based plan costs
 Private market appeal/competitiveness retained
14
COMMUNICATIONS
WHAT TO COMMUNICATE TO
EMPLOYEES
 Supreme court decision – legislation was upheld
 Will continue to be implemented through 2017 and
beyond
 How health care reform affects you and your family
 Health care costs and reform
 Costs will continue to increase
 We will keep you informed of changes that may affect
coverage
16
2014 – PAY OR PLAY
MANDATE LOOMING
HEALTH INSURANCE PREMIUMS
OUTPACE INFLATION
20.0%
18.0%
Health Insurance Premiums
18.0%
Workers Earnings
16.0%
12.0%
Overall Inflation
14.0%
14.0%
13.9%^
12.9%*
12.0%
10.9%*
10.0%
8.0%
11.2%*
9.2%
8.2%*
8.5%
9.0%
7.7%
6.0%
5.3%*
6.1%
5.0%
5.0%
4.0%
3.0%
2.0%
0.8%
0.0%
-2.0%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
*Estimate is statistically different from the previous year shown at p<0.05.
Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 1999-2007, 2000-2011; KPMG Survey of Employer- Sponsored Health
Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S.
City Average of Annual Inflation (April to April), 1988-2006; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment
Statistics Survey, 1988-2006 (April to April).
18
PERCENT CHANGE IN HEALTH CARE COSTS
COMPARED TO COSTS FOR ALL ITEMS
(percent increase from prior year)
NATIONAL HEALTH EXPENDITURES AS
PERCENT OF GDP
WILL STATE EXCHANGES BE
VIABLE OPTION?
 17 jurisdictions – exchange laws passed
 16 states - legislation pending or tabled or “studying”
 2 states - exchanges authorized by executive order
 7 states - rejected exchanges
*
 9 states - no law introduced
 After Sup. Ct. ruling - 3 governors say no
to exchanges or any implementation plans
* Kaiser Family Foundation, August 1, 2012
21
PAY OR PLAY MANDATE
Rules starting to develop
 Employers begin to consider rules and compliance or avoidance
 Not all the mandates will be fatal
 Some mandates can be avoided
 Compliance will be complex
 Future guidance will be key
 Recent safe harbor guidance
‒ Look back between 3 and 12 months
‒ Employer discretion – uniform & consistent within categories
‒ Apply to following period
‒ Employer discretion but no less than look back period and at
least 6 months
22
PAY OR PLAY MANDATE
When is an employer subject to a potential penalty under the pay or
play mandate?
In general, IF an employer is subject to the penalty (50 or more fulltime employees) and:
 An employer provides NO coverage to a full-time employee (and
dependents) AND
 A full-time employee (or more) seeks coverage on a state exchange AND
 The employee receives premium tax assistance to help pay for that
coverage
 100 to 400% of federal poverty level
• 2012 - $23,050 - $92,200/year for family of four
there is a penalty of $2000 x all employees (less first 30) applied to the
employer.
23
PAY OR PLAY MANDATE
What is the penalty if an employer offers minimum essential coverage
but the coverage is not affordable?
 Employer offers minimum essential benefits to employees (and
dependents)
 Minimum essential benefits
 Any insured or self-funded medical benefits (other than HIPAA excepted
benefits – stand alone dental and vision, AD&D, disability, etc.)
 One full-time employee (or more) obtains coverage on a state exchange
AND receives a premium tax credit
 But the coverage is not “affordable”
 Self only coverage costs EE more than 9.5% of modified gross income or
 Coverage is not at least 60% of the mandated actuarial value of benefits
 Annual penalty is the lesser of
 $3,000 for each full-time employee who obtains the premium tax credit or
 $2,000 for each full-time employee of the employer (less the first 30)
24
FEDERAL HEALTH
CARE REFORM –
HOW TO MITIGATE
THE EFFECTS
WHAT EMPLOYERS ARE
ASKING?
Policy Issues and Questions*
 Short term effects?
 What steps do we take NOW to mitigate anticipated cost increases?
 How (will?) those steps put off impact of Cadillac plan excise tax (2018)?
 Can employers eliminate group coverage and pay the penalties?
 Push employees to the exchanges?
 Reduce current expenses
 Negative effects ‒ Recruiting and retaining talent and
‒ Increase employee unrest
‒ Concern with whether exchanges will actually work
‒ Will employees be able to obtain comparable coverage at comparable cost?
‒ What will the employer get for the $2,000?
 Remember – tax benefits still apply!
 What steps to take to position plans?
‒ Permit option to implement coverage if exchanges do not work?
 Consider different strategies for different lines of business
 What is the long term strategic plan?
 Regardless of group benefits sponsorship, what will your strategies be to maximize health
and productivity?
*HR Policy Association Issues Brief provided initial questions for this slide
26
PLANNING IN LIGHT OF
HEALTH CARE REFORM
 Update total rewards/health strategy in light of HCR




 Where is company leadership?
‒ Gain buy-in
 Reset employee expectations
 Migration/cost shifting
‒ Threat or opportunity?
 Dependent coverage/cost
Consumer Directed Health Plans!!
 Likely in all our futures to avoid
Cadillac plan excise tax
Voluntary benefits/ancillary benefits
Wellness/Benefit Transformation
Plan design changes
 EG – “affordable” option for
dependent coverage
27
PLANNING IN LIGHT OF
HEALTH CARE REFORM
 Plan administration
 Efficiency of vendors, advisors/consultants and other
relationships
‒ Leveraged purchasing
‒ Network discounts
‒ PBM/Rx contracts
‒ Admin fees
‒ Performance management/enhanced accountability
 Use brokers/consultants other vendors for their SMEs
 Self-funding a possible option?
‒ Rumors that agencies may try to limit
 Market coverage – employer options superior to bronze level
benefits
28
QUESTIONS?
If you ask me anything I
don’t know I’m not going to
answer.
- Yogi Berra
29
APPENDIX
COMPLIANCE TIMELINE
Entire
Law
Upheld
SBC Coverage Summary
CER Fee
W-2 Cost Reporting
MLR Payouts
Women’s Preventive
Services
External Review
Individual Mandate
Employer Mandate – Essential, Affordable
State Exchanges – Taxpayer-paid Credits
90 day Wait Maximum
Adult Child Grandfather Ends
Pre-ex Ends For All
Medicaid Expanded
New Tax on Health Insurers
Enhanced wellness financial incentive
“Cadillac” Excise Tax
State Exchanges –
100 In All States
Guidance Needed Soon
Month by month administration
Definition of Full Time Employee
Qualified Health Plan Minimum Value
Wellness Program Incentive Update
Automatic Enrollment
Insured Plan Non-Discrimination
- Delayed Provisions?
Auto Enroll (> 200)
Insured Plan Nondiscrimination testing
FSA $2,500 Limit
2.3% Medical Device Tax
.9% FICA-Med Surtax on High Earners
Itemize medical @ 10% AGI (up from 7.5%)
31
Part D “Donut Hole”
Phase Out Complete
State Exchanges –
Potential Expansion
To Large Employers?
COMPLIANCE TIMELINE (MORE
DETAILS)
2010
Coverage reforms (plan years on or after
September 23, 2010)
 Early retiree reinsurance program
 Small employer tax credit
 Children’s coverage nontaxable
 No incentives to opt out and go to highrisk pool
 Automatic enrollment (enforcement
delayed, probably until 2014)
 60 days’ notice of changes (enforcement
delayed, probably until 2012)
2011 (continued)
 “Simple” cafeteria plans
 CLASS program (authorized, but will not be
implemented per HHS)
2012
 Required use of uniform explanations of
coverage
 60 days’ advance notice of changes
required
 Report value of coverage on W-2s
 $1 per capita fee applies to years ending
after 9/30/12 (current plan years!)
2011
 Refunds for medical loss ratios <85% or
80% for small plans
 OTC drug restrictions
 Increased penalties for non-medical HSA  Reporting on heath improvement benefits
standards (date for reporting unclear)
withdrawals
 Transparency reporting standards (date for
 Uniform explanations of coverage (use
issuance/report unclear)
not required until 2012)
32
EMPLOYER HCR TIMELINE
2013
2014 (continued)
 Health FSA salary reduction contributions  Wellness incentives up to 30% (50%
capped at $2500
possible)
•
IRS guidance - start with 2013 plan year  Employers offering exchange plan may
allow pre-tax premiums
 Per capita fee increases to $2
 Early retiree reinsurance program ends
 Medicare Part D subsidy no longer
(ended early)
deductible
 Notice of state exchanges and premium
assistance availability
2016
 Medicare payroll tax increases to 2.35%  Insurance exchanges must open to
on pay over $200k/$250k
employers with <100 employees
2014
 Pay or play/free-rider penalties
 Individual mandate
 Employer reporting to IRS re: individuals’
coverage
 Automatic enrollment required (expected)
 Insurance exchanges open individuals
and small employers
2017
 States may open insurance exchanges to
any size employer
2018
 Excise tax on high-cost plans
2020
 Per capita fee sunsets
33
PAY OR PLAY
DETAILS
PAY OR PLAY MANDATE
When is an employer subject to a potential penalty under the pay or
play mandate?
In general, IF an employer is subject to the penalty (50 or more fulltime employees) and:
 An employer provides NO coverage to full-time employees (and
dependents) AND
 ONE full-time employee (or more) seeks coverage on a state exchange
AND
 The employee receives premium tax assistance to help pay for that
coverage
• 100 to 400% of federal poverty level (2011 - $89,400/year for family
of four)
there is a penalty applied to the employer.
35
PAY OR PLAY MANDATE
What is the penalty if an employer is subject to the pay or play
mandate and fails to play?
 Annual penalty of $2,000 for each full-time employee (with an exclusion
for the first 30 employees).
 Potential impact
 Employer with 100 full-time employees and no coverage
 One employee seeks coverage on an state exchange and qualifies for
assistance
 Penalty of $140,000 (100 – 30=70 FT employees X $2,000 each)
36
PAY OR PLAY MANDATE
What is the penalty if an employer offers minimum essential coverage
but the coverage is not affordable?
 Employer offers minimum essential benefits to employees (and
dependents)
 Minimum essential benefits
 Any insured or self-funded medical benefits (other than HIPAA excepted
benefits – stand alone dental and vision, AD&D, disability, etc.)
 One full-time employee (or more) obtains coverage on a state exchange
AND receives a premium tax credit
 But the coverage is not “affordable”
 Self only coverage costs EE more than 9.5% of modified gross income or
 Coverage is not at least 60% of the mandated actuarial value of benefits
 Annual penalty is the lesser of
 $3,000 for each full-time employee who obtains the premium tax credit or
 $2,000 for each full-time employee of the employer (less the first 30)
37
PAY OR PLAY MANDATE
What is the penalty if an employer offers minimum essential coverage
but the coverage is not affordable?
 Potential impact –
 Employer with 100 full-time employees and minimum essential
coverage
 Contribution for one employee exceeds 9.5% of that employee’s
modified gross income and the employee seeks coverage on a state
exchange and qualifies for assistance
‒ Penalty of $3,000
 If 30 have unaffordable coverage
‒ Penalty of $90,000 (30 X $3,000)
 If 50 have unaffordable coverage
‒ Penalty of the same $140,000 as employer with NO coverage (lesser
of 50 X $3000 or 70 X $2000)
38
PAY OR PLAY MANDATE
COMPLIANCE ISSUES
 Applies to employers with at least 50 full time employees
 Seasonal employees excluded
 If an employer is subject to the rules, penalties apply for full time
employees (including seasonal employees)
 Those who work an average of 30 hours per week or more
‒ So far implication is the average is determined on a monthly basis
 Guidance on look-back
‒ Look back 3 – 12 months
‒ Apply results to the following 6 – 12 months
39
CURRENT CONCERNS
Full-Time Employee Determination (30 hours per week average)
 Ongoing Employees Safe Harbor
 Standard Measurement Period
‒ ≥ 3 months and ≤ 12 months
‒ Employer flexibility as long as uniform and consistent within
categories
 Determination applies during stability period
‒ At least 6 months but no shorter than SMP and begins after the
SMP plus any applicable administrative period (up to 90 days but
cannot reduce or lengthen either SMP or SP)
 New Employees
 If reasonably expected to work FT must begin coverage w/i 90 days
 Variable and Seasonal Employees
‒ SMP ≥ 3 months and ≤ 12 months
‒ SP if FT – same as ongoing EE
‒ SP if NOT FT – Same as SMP plus one month but no longer than
40
CURRENT CONCERNS
Ninety Day Waiting Period
 Effective date of coverage may not exceed 90 days if based on time.
 Other factors that limit eligibility permissible but cannot be used to
avoid 90 day limit
‒ Example – if FT required, PT can be ignored
‒ Including variable hour employees whose SMP lasts a year
 If employee fails to elect coverage, no violation by employer
41
PAY OR PLAY MANDATE
POTENTIAL AVOIDANCE
Planning based on plan coverage
 Determine impact on attraction, retention and motivation
 Avoid hiring 50th full-time employee
 Restructuring will not work if in same group of entities under common
control (i.e., controlled group rules will apply)
 Change work schedules to keep employees under full-time status
 Part time employees not subject to the mandate
 Part time employees not subject to affordability mandate
 Potential challenge under old ERISA case law that taking actions
simply to avoid impact of ERISA might be a violation of ERISA
42
PAY OR PLAY MANDATE
POTENTIAL AVOIDANCE
Planning based premium tax credit eligibility
 Restructure offerings to make sure ONE is a bronze level
 60% of actuarial cost
 HDHP/HSA qualifying might meet that test
 Avoid dependent coverage
 So far failure to offer dependent coverage will not result in a penalty
‒ Some commentary that agencies might change that
 Offer unaffordable dependent coverage
‒ Penalty based on affordable self-only coverage
‒ Dependents still able to get coverage on exchange/qualify for
premium tax credits
 Offer coverage to some employees
 Reduce coverage for employees who do not qualify for premium tax
credits
43
PAY OR PLAY MANDATE
POTENTIAL AVOIDANCE
Planning based on whether coverage is affordable (Notice of Proposed
Rule Making August 17, 2011)
 Qualifying individual
 Household income between 100 & 400% of federal poverty level
 If married, file joint return
 Not dependent of another taxpayer
 Additional rules for incarcerated or resident aliens
 Minimum essential coverage
 Applies to insured plans and GF plans
 Maybe not to nonGF self-funded plans, perhaps will confirm that there
is no mandate to cover ALL benefits
 Employee only has to be eligible at open enrollment
 COBRA qualifies if elected
44
PAY OR PLAY MANDATE
POTENTIAL AVOIDANCE
Planning based on whether coverage is affordable
 Avoid offering unaffordable coverage
 Employee cost not in excess of 9.5% of household income
‒ Applies to self-only coverage, NOT to family (or other tiers)
‒ Can use lowest cost plan with minimum value
‒ 60% of the cost, but the feds may establish a floor
‒ Self only coverage is affordable meets standard and dependents
excepted from eligibility for premium tax credits
 Proposed Safe Harbor for affordability – Notice 2011-73
 Taxable wages reported on W-2 for each employee
 Offer minimum essential benefits with minimum value for full-time
employee AND dependents (including spouse)
45
MEDICAL LOSS RATIO
DETAILS
MEDICAL LOSS RATIO
REBATES
 Only applies to insured plans
 Insurers determined if rebate applies to class of contract
 Return rebate to policyholder
 Notice to all insureds
 Employer responsible for determining whether and to what extent rebate
is plan assets
 Remember - Amounts will be small on a per participant basis
 DOL guidance provides a three month window to distribute or reduce
premiums
 Plan document would first determine
47
MEDICAL LOSS RATIO
REBATES
 Plan asset determination
 Five scenarios
‒ Employer paid full cost - not generally plan assets
‒ Employees pay full cost – completely plan assets
‒ Each pays fixed percentage of cost – same percentage is plan
assets
‒ Employer pays fixed dollar amount and employees pay the rest –
plan assets up to amount that the employees paid
‒ Employees pay fixed dollar amount and employer pays the rest –
amount up to employer cost would not be plan assets
 Fiduciary obligation exists for plan assets
48
MEDICAL LOSS RATIO
REBATES
 Plan asset determination
 Take a conservative approach
 Fiduciary obligation exists for plan assets
 Individual determination taking into account costs and benefits
 Reasonable, fair and objective
 Can be used to enhance benefits or plan expenses
 Tax treatment
 Distributions that represent after-tax employee contributions (rare) not taxable
 Distributions that represent pre-tax employee contributions (typical) –
taxable
 Former employees – no specific guidance, use cost benefit analysis
 Generally, if the rebate is equal to or less than the admin costs of
distributing to former employees, can instead be used for current
employees
49
MEDICAL LOSS RATIO
REBATES
 Non federal governmental plans – HHS provides three options
 Reduce premiums for “subsequent” year for all “subscribers” for all
policies covered under the plan
 Reduce premiums for “subsequent” year only for those subscribers in
the policy that generated the rebate
 Provide cash rebate to the subscribers covered by the policy that
generated the rebate
 Church Plans
 If the employer agreed in writing to comply with the HHS
requirements, same options as above
 If employer refuses, insurer will distribute but will include employer
portion of the rebate
50
HEALTH CARE REFORM IS HERE
(UNLESS THE POLITICIANS
CHANGE IT)
ARE YOU READY?
Willis Human Capital Practice
Legislative and Regulatory Update
Jay M. Kirschbaum, JD, LLM, FLMI
Practice Leader, National Legal & Research Group
18th Annual Willis Construction Risk Management
Conference
September 21, 2012
San Antonio, Texas
This material and any accompanying remarks are provided for informational purposes only and
nothing contained in either should be taken as a legal opinion or as legal advice
Copyright 2012 All rights reserved