20th annual legal & accounting institute - healthcare reform - joshua a. sutin

HEALTHCARE REFORM

Where Do Employers Go From Here?

December 6, 2012

These materials are intended to stimulate thought and discussion and to provide the reader with useful ideas and guidance in the areas of healthcare reform. The materials do not constitute, and should not be treated as, legal advice. Although we have made every effort to ensure the accuracy of these materials, neither the authors nor Cox Smith Matthews Incorporated assumes any responsibility for any individual’s reliance on the written information presented during this presentation. Laws and regulations are subject to change at any time.

This PowerPoint presentation is an educational tool that is general in nature and for purposes of illustration only. The materials in this presentation are not exhaustive, do not constitute legal advice and should not be considered a substitute for consulting with legal counsel. Cox Smith has no obligation to update the information contained in this presentation.

CIRCULAR 230 DISCLOSURE: Pursuant to Department of Treasury Circular 230, this presentation is not intended or written to be used, and may not be used by the recipient, for the purposes of avoiding any federal tax penalty which may be asserted.

2© 2012 Cox Smith Matthews Incorporated

The Supreme Court’s Decision: In a Nutshell

National Federation of Independent Businesses v. Sebelius Decided on June 28, 2012 567 U.S. ___ (2012).

Authored by Chief Justice Roberts Joined in various parts by Justices Ginsburg, Breyer,

Sotomayor, and Kagan Dissented to in most parts by Justices Scalia, Kennedy,

Thomas, and Alito

© 2012 Cox Smith Matthews Incorporated 3

The Supreme Court’s Decision: In a Nutshell

Individual mandate held not to be a valid exercise of Congress’s power under the Commerce Clause

Upheld instead under Congress’s power to “lay and collect taxes”

Medicaid Expansion: invalidated provision that threatens states with loss of Medicaid funding if fail to comply with expansion BUT expansion stands if penalty is only that states

lose new funding if do not comply


KEY DEFINITIONS

Grandfathered Coverage: Group health plan coverage existing on March 23, 2010 Applies separately to each benefit package. How to lose grandfathering:

eliminate benefits increase copay percentage increase fixed costs over prescribed amounts reduce level of employer contribution add or decrease annual dollar limits.


KEY DEFINITIONS Grandfathered Coverage (cont’d)

Okay to: Add new participants Change insurance companies after 11/15/10 Change TPAs Increase premiums (without reducing employer contribution) Amend plan to comply with reform.

Notice to participants required. May amend plans to comply with law changes.


August 1, 2012: Preventive Care Benefits New women’s preventive care requirements (including

contraception) effective for the first plan year after August 1, 2012

This is in addition to previously required preventive care benefits: certain evidence-based items or services; certain immunizations; for minors, certain preventive care and screenings; for women, additional preventive care and screenings

including breast cancer screening, mammography, and prevention


September 23, 2012: Summary of Benefits and Coverage (“SBC”)

SBCs must be provided as of the first day of the first open enrollment period that begins on or after September 23, 2012 (in general, the open enrollment period for 2013 plan years).

For special enrollees/new hires, SBCs must be provided beginning on the first day of the first plan year beginning on or after September 23, 2012 (for calendar year plans, January 1, 2013).


Summary of Benefits and Coverage (“SBC”)

Plan must notify enrollees of mid-year material modifications not later than 60 days prior to effective date; changes for new plan year may be disclosed in SBC in connection with open enrollment.

May be provided with SPD and other materials as long as displayed “prominently” at the beginning.

MUST use DOL template, glossary, and instructions (caveat for self-insured plans that do not fit template).

No penalties in first year if good faith efforts to comply.


Disclosure of Expenses & Insurer Rebates (“Medical Loss Ratio”)

Rules apply to insurers, but may indirectly impact plan insurance costs.

Insurer must report to HHS how premium revenue is expended.

Insurer must rebate policyholders to extent that premium ratio exceeds certain thresholds.

Fiduciary duty rules govern receipt of rebates by plan sponsors.


Disclosure of Expenses & Insurer Rebates (“Medical Loss Ratio”)

Note: If employees pay premiums on a pre-tax basis, rebates paid to employees in cash or in the form of a premium reduction will be considered income and subject to employment tax. A rebate paid as a premium reduction is taxable because it

reduces the employee's salary reduction contribution. A rebate paid in cash is treated as additional compensation and is taxable as such.

If premiums paid on an after-tax basis, the rebate would not be subject to employment taxes regardless of whether it was paid in cash or used to reduce the amount of the employee's health insurance premium payment.


October 1, 2013: Fees for Research Trust Fund

Insurers and employers with self-insured plans pay: 2013: $1.00 times average lives covered 2014 – 2019: $2.00 times average lives covered

Purpose: Fund comparative clinical effectiveness research When: File return reporting fee by July 31 of the calendar

year immediately following the last day of the plan year. This is effective for all plan years that end on or after

October 1, 2012. Thus, a January 1 – December 31, 2012 plan will file July

31, 2013. But a February 1, 2012 – January 31, 2013 plan would not have to file until July 31, 2014.


2013: Health FSA Reimbursement Limit

Current Law: No reimbursement limit required – plan sponsors may choose their limit.

A $2,500 limit applies on a plan year basis and is effective for cafeteria plan years beginning after December 31, 2012. In the case of a short plan year, the limit must be

prorated. The limit is indexed for cost-of-living adjustments for

plan years beginning after December 31, 2013.


2013: Health FSA Reimbursement Limit

Cafeteria plan documents must be amended to reflect the $2,500 limit.

Cafeteria plan sponsors have until December 31, 2014 to amend their plans to conform to the new requirements, so long as the amendment is effective retroactively and the plan operates in compliance for plan years beginning after December 31, 2012.


2013: Increased Hospital Insurance Tax

Current Law: Employer must withhold 1.45% for all employees as the employees’ portion.

January 1, 2013: Employee portion of FICA is increased for high income taxpayers by 0.9%. Employer portion remains the same.

Threshold depends on filing status, but employer must withhold extra percentage starting at $200,000.


2013: Elimination of Tax Deduction for Medicare Part D Employer Subsidies

Current Law: Employers can deduct full amounts paid for retiree prescription drugs, including the portion that is subsidized by government and is excluded from income.

January 1, 2013: Can no longer deduct subsidized amount paid for retiree prescription drugs.


2013: W-2 Reporting

An employer that issues more than 250 Form W-2s must report “cost” of employees’ health insurance on form.

Coverage under all plans (except Health FSA, HSA, Archer MSA) is aggregated.

“Cost” includes employer and employee portion: may use COBRA method to determine cost (not counting 2% administrative fee allowed under COBRA).

Reporting required for 2012 tax year (i.e., 2013 W-2).


March 1, 2013: Notification re State Exchanges

By March 1, 2013, employers must notify current employees (and future employees at time of hire) of: existing exchange’s services and contact information availability of premium assistance for exchange-

purchased insurance if employer coverage is “unaffordable” (employer contribution < 60%

Unavailability of employer subsidy for insurance purchased through exchange


Notification re State Exchanges

Premium assistance takes the form of subsidy payments to a qualified health plan on behalf of the individual.

Take the form of an advanced credit payment. Exchange will determine whether individual qualifies for

premium assistance. Has been challenged as to whether premium assistance

is available only under state exchanges or under federal exchange as well.


2014: Coverage Mandate – Large Employers

Supreme Court case did not address “pay or play” provision.

An employer with at least 50 full-time equivalents must provide “Minimum Essential Coverage” or pay penalty. Coverage requirement applies to full-time employees. Full-time employees = 30 hours per week (guidance

forthcoming on determining hours of service). Counting of part time is up in the air. Aggregation rules apply when identifying “employer.”


2014: Coverage Mandate – Minimum Essential Coverage Minimum Essential Coverage:

A yet to be determined benefits package provided by any of the following four vehicles:

1. Government programs

2. Eligible employer-sponsored plans

3. Individual market plans

4. Grandfathered plans Most employer-provided group health coverage will

meet the very broad definition of “minimum essential coverage.”



Employers will be required to make an “assessable payment” to IRS if: Any full-time employee is certified to the employer as

having purchased health insurance through an Exchange and a tax credit or cost-sharing reduction is allowed (i.e., the full-time employee receives a subsidy)

And:



The employer does not offer healthcare coverage for all its full-time employees; or

Offers minimum essential coverage that either: is “unaffordable” (i.e., > 9.5% of employee’s income

per W-2, for self coverage); or Does not provide “minimum value” (i.e., employer’s

share of the total allowed “cost of benefits” < 60%, guidance pending).


2014: Coverage Mandate – Subsidies through the Exchange

The subsidy, or credit, is designed to make health insurance affordable to taxpayers who: Have a household income for the tax year that is

between 100% and 400% of the federal poverty level, Cannot be claimed as a dependent by another

taxpayer, and Who are not eligible for other qualifying coverage,

such as Medicare, or “affordable” employer-sponsored health plans that offer “minimum value.”


2014: Coverage Mandate – Subsidies through the Exchange

When an eligible individual purchases insurance through the Exchange, the Exchange makes subsidy payments to the qualified health plan on behalf of the individual.

Payments take the form of an advance credit payment (“monthly premium assistance amount”) under the Internal Revenue Code.

The Exchange determines whether the individual meets the income and other requirements for advance credit payments, and the amount of the advance payments.


2014: Coverage Mandate – Notice to Employee of Premium Assistance

Exchange will notify employer of applicant’s eligibility to receive subsidy.

Notice must include: Employee’s identity Notice that employee has been determined eligible for

premium assistance Statement that employer may be liable for shared

responsibility payment There is an opportunity to appeal (guidance

forthcoming on appeal process). © 2012 Cox Smith Matthews Incorporated 26

2014: Coverage Mandate – Large Employers NOT OFFERING A HEALTH PLAN Applies when employer does not offer minimum essential

coverage to “its full-time employees,” which IRS proposes to interpret as “substantially” all full-time employees, with few exceptions.

Assessable payment/penalty tax = “applicable payment amount” times the number of full-time employees (less 30) during the month.

2014 “applicable payment amount” is $166.67 with respect to any month (that is, 1/12 of $2,000). Adjusted for inflation subsequently.

So for 2014, annualized penalty = $2,000 x number of full-time employees minus 30.


2014: Coverage Mandate – Large Employers OFFERING A HEALTH PLAN

Penalty tax assessable payment = $250 (1/12 of $3,000, adjusted for inflation after 2014) times the number of full-time employees for any month who receive premium tax credits or cost-sharing assistance (this number is not reduced by 30).

Tax is capped at applicable penalty had no coverage been offered: $166.67 (1/12 of $2,000, adjusted for inflation after 2014), times the employer's total number of full-time employees, reduced by 30.


Excise Tax on Individuals

Starting in 2014, individuals who do not have Minimum Essential Coverage will be subject to an excise tax. IRC § 5000A Amount of penalty will phase in and may vary Payment to be collected on individual’s annual tax

return


Information Returns

Starting in 2014, Employers must report insurance coverage information to the covered individual and IRS. Form will require employer to certify it offers Minimum

Essential Coverage. Form to request name and Social Security number of

all full-time employees who are covered.


2014: Plan Design Reforms

No annual dollar limit on “Essential Health Benefits” on or after January 1, 2014

Maximum 90 day waiting period No pre-existing condition exclusions or limitations Grandfathered plans must provide coverage for adult

dependent child, whether or not the child is otherwise eligible for other employer-sponsored coverage.


KEY DEFINITIONS

Essential Health Benefits include the following general categories of benefits (states to flesh out details):

a. ambulatory patient services;

b. emergency services;

c. hospitalization;

d. maternity and newborn care;

e. mental health and substance use disorder services, including behavioral health treatment;

f. prescription drugs;


KEY DEFINITIONS

g. rehabilitative and habilitative services and devices;

h. laboratory services;

i. preventive and wellness services and chronic disease management;

j. pediatric services, including oral and vision care; and

k. no stand-alone dental or vision.


2014: Plan Design Reforms Plans may vary premium rates plan only for specific

factors, such as coverage of an individual or family, geographic area, age, and tobacco use.

Guaranteed Availability and Renewability of Coverage Insurers must accept every employer and individual in

the state who applies, and must renew such coverage.

Grandfathered plans are exempt. Clinical Trials

Cannot deny coverage for participation in clinical trials.


2014: Plan Design Reforms Individual and Small Group Insurance Markets Health plans offered in the individual and small group

markets, both inside and outside of the Exchanges, must offer a core package of “essential health benefits (“EHB”).

Proposed rule defines EHB based on state-specific benchmark plan. States will select a benchmark plan from among several options identified in the proposed rule, and that all plans that cover EHB must offer benefits that are substantially equal to the benefits offered by the benchmark plan.


2014: Plan Design Reforms (continued) Non-grandfathered health plans in the individual and

small group markets must meet certain Actuarial Values (“AVs”), or metal levels: 60 percent for a bronze plan, 70 percent for a silver

plan, 80 percent for a gold plan, and 90 percent for a platinum plan.

Also catastrophic-only coverage with lower AV for eligible individuals. HHS is providing a publicly available AV calculator, which issuers would use to determine health plan AVs based on a national, standard population, as required by law.



No discrimination based on health status As to benefits or coverage, including continued

eligibility, based on health status factors Health Status Factors:

health status medical condition (physical or mental) claims experience receipt of healthcare medical history



genetic information evidence of insurability disability; or any other health factor, per HHS regulations

Grandfathered plans are exempt.



Cost-Sharing (co-pays, deductibles, co-insurance) Cannot exceed the limitations provided in the bill for

essential health benefits. Based on maximum out-of-pocket expenses for high

deductible health plans, adjusted for cost of living 2014 numbers not yet available.

Deductible: $2000 for self-only and $4000 for family Grandfathered plans are exempt.

© 2012 Cox Smith Matthews Incorporated

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Expanded Wellness Program Financial incentives for participation in a wellness

program can be based upon health status, including up to 30% of the cost of plan coverage.

Additionally, for any wellness program designed to promote tobacco cessation, the new proposed regulations would allow a reward up to 50% of the cost of plan coverage.

Wellness program standards apply to grandfathered plans.


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2014: State Exchange Reimbursement = Qualified Benefit

Reimbursement or direct payment for insurance premiums on state Exchange will be a qualified benefit under a cafeteria plan.

Exception if employer offers Exchange enrollment


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2018: Cadillac Tax

Excise tax will be imposed on insurers on high cost employer-sponsored health coverage: 40% nondeductible excise tax levied on insurers,

employers (for HSAs and MSAs), and plan administrators if annual premium exceeds $10,200 for single coverage and $27,500 for family coverage

Note: This tax is calculated ONLY on the excess amount over the annual limitation (e.g., one dollar over $10,200 $0.40 tax over 12 months).


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Waiting for Guidance: Automatic Enrollment

Employers with over 200 FTEs that offer health plans must automatically enroll new employees. Notice must be provided to employee of opportunity to

opt out of automatic enrollment in employer’s health plan.

Watch for Regulations. Compliance is not expected before regulations are issued.


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Waiting for Guidance: Discrimination Testing

Insured health plans must pass some of IRC § 105(h) discrimination testing or employer pays excise tax ($100 per day per person).

Grandfathered plans are exempt. Effective first plan year beginning on or after September

23, 2010 Government has announced nonenforcement policy

pending regulations


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Waiting for Guidance: Reporting and Disclosure Requirements

Plans must submit to HHS, State Insurance Commissioner, and make available to the public, certain information, in plain language, in relation to coverage transparency:

claims payment policies and practices periodic financial disclosures data on enrollment and disenrollment


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Reporting and Disclosure Requirements

data on the number of claims that are denied data on rating practices information on cost-sharing and payments with

respect to any out-of-network coverage information on enrollee and participant rights

under this title other information as determined appropriate by

HHS


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Reporting and Disclosure Requirements

DOL will provide rules. Grandfathered plans are exempt from these

requirements. Effective first plan year beginning on or after September

23, 2010.


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Waiting for Guidance: Grants to Small Businesses for Wellness Programs

Grants from 2011 to 2015, for new wellness programs Only for employers with fewer than 100 employees working

25+ hours per week HHS to outline requirements, but will concern:

Health awareness initiatives Maximizing employee engagement Changing unhealthy behaviors and lifestyle choices Providing supportive environment.


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Waiting for Guidance: Efficiency Standards and Wellness Promotion Reporting Requirements

HHS to develop reporting requirements (and penalties!). Annual report submitted by group health plan to HHS and

made available during open enrollment. Report must describe activities that:

improve health outcomes prevent hospital readmission improve patient safety and reduce medical errors target health and wellness

Grandfathered plans are exempt.


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Waiting for Guidance: Electronic Operating Rules – Phase 1

In July 2011, HHS issued regulations adopting operating rules for two HIPAA electronic transactions. Eligibility for health plan Healthcare claim status

HIPAA-covered health plans must comply by January 1, 2013.

Regulations adopt standards developed by Council for Affordable and Quality Healthcare.


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2013: Electronic Operating Rules – Phase 1

Plan must maintain adequate documentation that demonstrates: the plan conducts electronic transactions for health

plan eligibility and health claim status transactions in compliance with the HHS regulations; and

the plan completed end-to-end testing for transactions with vendors (e.g., hospitals and physicians).


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2013: Electronic Operating Rules – Phase 1

Plan must ensure business associates comply, too. Enforcement through periodic audits and penalties


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2014: Electronic Operating Rules - Phase 2

Plans to adopt and implement uniform operating rules (established by HHS) for electronic fund transfers and healthcare payments and remittance

HHS Regulations issued January 2012 Effective date: January 1, 2014


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Plans to use Unique Health Plan Identifier (“HPID”) Compliance date for large plans: October 1, 2014; small

plans: October 1, 2015 Plans can obtain HPID’s beginning October 1, 2012

through a national enumeration system. Covered entity must use HPID when it identifies a health

plan in a standard transaction.



Plans to adopt and implement uniform operating rules (to be established by HHS) for: Health claims or equivalent encounter info Enrollment and disenrollment in a health plan Health plan premium payments Referral certifications and authorizations

HHS Regulations no later than July 2014


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What should I have done in 2010?

Weigh benefits of grandfathered status versus costs of continued compliance.

Evaluate cost savings of existing retiree plans (net of compliance expenses).

Determine whether your business is eligible for small business tax credit.

Establish COBRA cost method for each plan (for 2011 reporting requirement).

No dumping of participants into High-Risk Pool


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What should I have done in 2010 - 2011?

Delete lifetime dollar limits on “Essential Health Benefits” from plans.

Restrict annual dollar limits on “Essential Health Benefits.”

Revisit dependent coverage provisions. Review preventive care benefits and eliminate

deductibles and co-pays. Amend plans to allow permitted rescission.


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Review eligible classes, differing waiting periods, differing benefits, and differing premiums to identify and weed out prohibited discrimination.

Review and amend plan claims process. Eliminate restrictions on designation of in-network

primary physicians. Eliminate restrictions on designation of in-network

primary care pediatricians.


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Eliminate prior authorization and in-network requirements for emergency care.

Eliminate pre-authorization for access to OB/Gyns. Confer with insurer or TPA about data collection and

reporting assistance.



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COX SMITH MATTHEWS INCORPORATED EMPLOYEE BENEFITS ATTORNEYS:

Joshua A. Sutin

112 E. Pecan Street, Suite 1800San Antonio, Texas 78205

(210) 554-5500 tel(210) 226-8395 faxwww.coxsmith.com


This PowerPoint presentation is an educational tool that is general in nature and for purposes of illustration only. The materials in this presentation are not exhaustive, do not constitute legal advice and should not be considered a substitute for consulting with legal counsel. Cox Smith Matthews Incorporated has no obligation to update the information contained in this presentation.

Mary M. PotterL. Katherine Noll

William M. FisherJillian L. Gordon

60

20th annual legal & accounting institute - healthcare reform - joshua a. sutin

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