Presented by Kristine Bingman

Health Care Reform Update

Vigilanta

We counsel companies on employment issues across the Northwest and California.

Learn more about Vigilant and the benefits of membership at: www.vigilantcounsel.org

What We’ll Cover Today

• The status of federal health care reform

• What’s new

• Upcoming mandates

• Planning for the future

Federal Health Care Reform

• Patient Protection and Affordable Care Act (PPACA) – enacted March 23, 2010

• PPACA amended by the Health Care and Education Reconciliation Act of 2010 – March 30, 2010

Status of Federal Health Care Reform

• Various federal legislative efforts to repeal entire law or certain sections– Republican-controlled House passed a repeal bill (January

2011)– Senate blocked the bill from going further– Many of the provisions that affect employers are still

relatively popular—not likely to be repealed

• Budget pressure to stall implementation

• Much will depend on the outcome of U.S. Supreme Court decision and 2012 elections

Status of Federal Health Care Reform

• Two main types of court challenges:– Individual mandate to maintain health insurance

(effective 2014)– State vs. federal control of health care; unfunded

mandates

• Appeals courts are split

• U.S. Supreme Court has agreed to hear three of the five cases submitted for appeal– Federal power vs. state power

Supreme Court – Issues Under Review

• Is the suit barred by the Anti-Injunction Act?

• Did Congress had the constitutional authority to impose the individual mandate? (Federal power vs. state power)

• If no, then should the entire law be struck down?

• Arguments to be heard in March, decision expected in late June

Status of Federal Health Care Reform

• Federal government is moving forward with implementation

• 17 states have passed legislation opposing various parts of federal reform

• Climate in Oregon is generally supportive of reform– Oregon Health Policy Board: established in 2009 to set

policy for reform in Oregon– SB 99 established the legal framework for the

Exchange

Recent Updates

Form W-2 Reporting Delayed

• Employers must report “aggregate cost” of employer-sponsored health coverage on Form W-2

• Employers who file <250 Forms W-2 for the preceding calendar year are exempt from reporting until further guidance is issued

• First applies to coverage provided in 2012, as reported on 2012 Form W-2, issued by February 1, 2013

CLASS Program Defunct

• Federally-run long term care program

• October 14: Health and Human Services (HHS) Secretary Sebelius recommends ending the program due to concerns over its financial sustainability

• Would have gone into effect in October 2012

Summary of Benefits and Coverage Delayed Delayed• Distribution deadline for Summary of Benefits and

Coverage has been delayed indefinitely, pending issuance of final regulations– Final regulations will give lead time to ensure

compliance

• Previously scheduled to go into effect March 23, 2012

• 60-day advance notice of material plan changes also delayed

Summary of Benefits and Coverage

• Plan and insurer must distribute a summary no more than 4 pages, 12-point type, containing:– Uniform definitions of insurance and medical terms– Description of coverage, exceptions, limitations on

coverage, cost-sharing provisions, renewability and continuation provisions

– Illustrations of common benefit scenarios– Contact numbers

Summary of Benefits and Coverage

• When to distribute?– As part of enrollment materials– Within 7 days of request for special enrollment– As soon as practicable upon request, but not later than

7 days following the request– Upon renewal:

• As part of enrollment materials if written application is required• 30 days prior to the first day of coverage under the new plan year

where renewal is automatic

Employer Mandates: On the Horizon

Nondiscrimination Rules for Insured Plans

• Effective date: plan years beginning on or after Sept. 23, 2010– Delayed indefinitely pending guidance– Will become effective the first day of the first plan year beginning

some time after guidance is issued

• No discrimination in benefits or eligibility in favor of highly compensated individuals (HCIs):– 5 highest paid officers;– 10%+ shareholders; and– Highest paid 25% of employees

• Applies to plans that are: – Insured; and– Not grandfathered

Nondiscrimination Rules for Insured Plans

• Rules will be “similar to” existing rules for self-insured plans

• Penalty for noncompliance is serious: $100 excise tax per day, per individual discriminated against

• Mandatory reporting of rule violations and excise taxes on IRS Form 8928

• Red flags—differences in: – Eligibility terms– Premium contribution– Plan options

Automatic Enrollment

• Effective date: Delayed until regulatory guidance issued (sometime before 2014)

• Employers with more than 200 full-time employees (30+ hours/week) must automatically enroll employees in employer-sponsored coverage

• Employee may be required to pay any premium contribution and serve any waiting period

• Employees must receive notice and opportunity to opt out

State Insurance Exchanges

• Online marketplace for individuals and businesses to shop, compare options and purchase private health insurance

• Individuals and small employers (up to 100 employees) can purchase coverage from a state-run exchange in 2014

• Large employers (100+ employees) can participate in 2017

• Individuals can use federal tax credits to help pay for coverage

Oregon Insurance Exchange - Governance

• State corporation—not a state agency (similar to SAIF or OHSU)

• Governed by nine-member citizen board– Appointed by Governor, confirmed by Senate– At least two consumer members, no more than two

members with ties to insurance or health care industry

Oregon Insurance Exchange - Duties

• Screens, certifies plans as “qualified health plans” (QHPs)

• Makes QHPs available to individuals and small businesses, beginning in 2014– 2014: 2-50 employees– 2016: up to 100 employees

• Determines eligibility for QHP enrollment and administering tax credits

• Provide customer service for internet-based program

• Provide information to consumers to help them make informed decisions

• Manage a Navigator program to provide education, awareness, assistance

Oregon Insurance Exchange – Prohibited Functions

• Cannot prohibit non-exchange market

• Cannot compel enrollment in the exchange

• Cannot limit individual enrollment choice

• Cannot impose premium price controls– Rate regulation is still the responsibility of the Oregon

Insurance Division

Oregon Insurance Exchange - Funding

• Planning and implementation grants funded by federal government through 2013

• Federal grant for first year of operation: 2014

• Self-sustaining January 2015

• No access to general fund

Oregon Insurance Exchange

• Much left to be determined:– Business plan due to Oregon legislature Feb 2012, due

to HHS by Aug 2012, for federal approval by 2013– Risk sharing/market stability– QHP standards– Role of agents and brokers– Sustainable funding – Transformation of delivery system: how to handle

Medicaid shortfalls, etc.

Health Insurance Premium Tax Credits

• Premium Tax Credits– Individuals/families between 100% and 400% of federal

poverty level ($22,350 to $89,400 for a family of four in 2011) – Enrolled in a qualified health plan through the exchange– Legally present in the United States, not incarcerated– Not claimed as a dependent by another taxpayer– Not eligible for Medicare, Medicaid, CHIP, TRICARE, veterans’

health care or affordable employer-sponsored coverage• Affordable employer coverage: plan's share of total cost of benefits

is at least 60% or the premium is no more than 9.5% of employee's household income

Health Insurance Premium Tax Credits

• Amount of credit depends on income level and amount of premium for the plan selected

• Refundable

• Credit is paid in advance directly to the insurance company by the IRS

Employer “Play or Pay” Penalties

• Effective date: 2014

• Applies to employers with 50+ full-time employees (30+ hours/week)– Seasonal employees (<120 days/yr) do not count

toward 50-employee threshold

• Coverage not required to be offered, but…

• If employer does not offer coverage to full time employees (30+ hours/week) and their dependents, or if coverage is offered, but is not affordable, penalties are assessed

Employer “Play or Pay” Penalties

• “Free rider penalty” – Employer does not offer coverage and – At least one full time employee enrolls in an exchange

plan under which they receive a tax credit or premium reduction assistance

– Penalty = $2,000 per full time employee per year ($166.67 per month in 2014)

– First 30 full time employees exempt– Penalties indexed for inflation after 2014

Employer “Play or Pay” Penalties

• “Unaffordable coverage penalty” – If coverage is offered to full time employees and their

dependents, but – At least one full time employee has enrolled in an

exchange plan under which they receive a premium tax credit

– Penalty (annual) = $3,000 per full time employee that purchases coverage through the exchange with a tax credit ($250 per month in 2014)

– Annual penalty capped at $2,000 x (Total FTEs – 30)

Employer “Play or Pay” Penalties

• National Retail Federation’s Health Mandate Cost Calculator:

http://www.nrf.com/modules.php?name=Pages&sp_id=1290

Tax on High Cost Health Coverage (“Cadillac Tax”)

• Effective date: taxable years beginning after 1/1/17

• 40% nondeductible excise tax on high-cost health coverage

• Initial cost limits: (subject to later adjustments)– $10,200/year self-only– $27,500/year other than self-only

• Policy objectives: – Revenue raiser (projected to raise $20 billion in 2019)– To encourage control of health care costs

Employee Benefits: Planning for the Future

“How will health care reform affect my company?”

Employee Benefits: Planning for the Future

• Should I stop offering health benefits altogether? – Outcome of Supreme Court decision and elections– Outcome of regulatory guidance– Labor market and industry competition– Workforce demographics – Corporate culture– Workforce size– Employee health and productivity– Workers’ compensation costs– Effectiveness of state exchanges– Increased tax burden of not offering health benefits– “Play or pay” penalties are not tax deductible

Employee Benefits: Planning for the Future

• What are other employers doing?– McKinsey Quarterly survey of 1,329 employers (June

2011):• 30% of employers will “definitely” or “probably” stop offering

coverage in 2014• http://www.mckinsey.com

– Mercer survey of 894 employers (June 2011): • 8% of employers “likely” or “very likely” to terminate employer-

sponsored coverage in 2014• http://www.mercer.com/press-releases/1421820

Employee Benefits: Planning for the Future

• Can I divide my business into separate small companies to avoid reform mandates? – IRS controlled group rules

• Can I make all or most of my employees part-time to avoid reform mandates?– Yes, but …

Questions and More Information?

Questions about Health Care Reform?

Kristine BingmanBenefits & Employment Attorneyk.bingman@vigilantcounsel.org

503.620.1710

Questions about Vigilant membership?

Bryon Baileyb.bailey@vigilantcounsel.org 800.733.8620

www.vigilantcounsel.org