Health Care Reform: What’s In Store for

Employer Health Plans?

April 21, 2010Presented by:

Norbert F. Kugelenkugele@wnj.com

(616) 752-2186

Sue O. Conwaysconway@wnj.com

(616) 752-2153

Copyright 2010 by Warner Norcross & Judd LLPAll Rights Reserved

(Materials included in the following outline are not intended to provide legal advice and are for seminar use only.)

What Is Health Care Reform?

� Patient Protection and Affordable Care Act (PPACA) March 23, 2010, as amended by Health Care and Education Reconciliation Act (Reconciliation Act)

� Over 2,400 pages� Legal challenges/repeal efforts� Voluminous regulations to come

30,000 Foot View� Health Plan Changes (aka Insurance Reform). New

mandates and features including bans on pre-existing condition exclusions and plan dollar limits, expanded dependent coverage, etc.

� Individual mandate (“Individual Responsibility”). Individuals subject to tax if they don’t purchase coverage

� Employer mandate (“Play or Pay” or “Employer Responsibility”). Larger employers (50+ FTEs) pay tax if they don’t make affordable health coverage available to employees

� Health Benefit Exchanges. State-established electronic marketplace where individuals and employers can purchase health insurance coverage

Today’s Presentation

� Early retiree health plan reinsurance program

� Small employer tax credits� Year-by-year analysis of changes for

group health plans� Health Plan Exchanges and the “shared

responsibility” requirements

Employer Implementation Timeline

� Immediate health care reform� Incentives for providing health care� Changes for plan years beginning on or after September 23,

2010� Changes effective in 2011� Changes effective in 2012� Changes effective in 2013� Changes effective in 2014� Changes effective in 2018

Grandfather: Exempt

Immediate ChangesSmall Employer Tax Credit

� Purpose: encourage small business to offer or continue employee health coverage

� Tax credit for small business and tax-exempt employers� Fewer than 25 FTEs� Average annual FTE wages below $50,000� Employer pays at least 50% of cost of employee single

coverage

� Maximum credit� 35% of premiums (for-profit), 25% (non-profit)� Increases to 50%, 35% in 2014� Credit highest if 10 or fewer FTEs and average pay is $25,000

or less

� Effective for 2010 tax year

Immediate ChangesEarly Retiree Medical Reinsurance

June 21, 2010� Purpose: Encourage employers to continue retiree medical for pre-

Medicare retirees until Exchanges available

� Reimburse 80% of participant’s claims between $15,000 and $90,000 during plan year

� Applies to retirees 55-64 not eligible for Medicare (also spouse, dependent, surviving spouse)

� Can use only to reduce premium costs, retiree contributions or out-of-pocket expenses

� Cost savings program in place for high cost/chronic conditions

� $5 billion in funding

� Temporary – begins June 21, 2010 and ends January 1, 2014 or, if earlier, when money runs out

� HHS application available in June

Immediate ChangesTemporary High Risk Pool

Established by June 21, 2010

� National high risk health insurance pool to provide health insurance for individuals with pre-existing medical condition until Exchanges established

� Directly or through contracts with states or private non-profit� Uninsured for 6 months with pre-existing condition� Subsidized premiums� $5 billion� Expires January 1, 2014� Penalty (must reimburse employee’s medical expenses) if employer

encourages disenrollment in employer plan to join high risk pool

Plan Years Beginning on or after 9/23/2010

Grandfathered Plans

� President Obama: You will be able to keep the health plan that you have through your employer

� PPACA: A group health plan in which an individual is enrolled on the date of enactment does not have to comply with all of the new requirements� Such a plan is “grandfathered”

Grandfathered plans

� Requirements for being Grandfathered:� Plan had individuals enrolled on March 23, 2010.� Do not lose grandfathering if:

� Re-enrollment of employees/families� Enrollment of new employees/families� Addition of dependents for currently enrolled employees

� If plan is grandfathered:� Certain requirements do not apply at all.� Some are delayed.

� Non-grandfathered plans must comply with all requirements

Grandfathered Plans

� How long does grandfathering last?� Collectively bargained plans: until last

collective bargaining agreement ratified prior to 3/23/2010 expires

� All other plans: not clear� Grandfathering not intended to last forever� Substantial modification?

� Is being a grandfathered plan crucial?

Pre-Existing Condition Exclusions

� Plan cannot impose a pre-existing condition exclusion on coverage for children under age 19� Applies to all plans (even grandfathered plans)

� What To Do� Determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials,

etc. as necessary

Coverage of Dependent Children� Must provide coverage to children of covered employees until child

reaches age 26� For grandfathered plans: until 1/1/14, need not cover adult child who

is eligible for coverage under another employer’s plan� Non-grandfathered plans: must cover all adult children until age 26� Tax Code revised to allow coverage through end of year child turns

age 26� Does not require coverage of child’s dependents

� What To Do� Review Plan’s eligibility rules� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as

necessary

Rescission of Coverage� Group health plans may not rescind

coverage except in cases of fraud or intentional misrepresentation of material fact as prohibited by terms of plan

� What To Do� Review termination of coverage provisions in

plan documents, SPDs, etc. and revise if necessary

� Review terminations on case-by-case basis

Lifetime Limits

� Plan may not impose lifetime dollar caps on essential plan benefits.� Essential plan benefits are:

� Ambulatory patient services� Emergency services� Hospitalization� Maternity and newborn care� Mental health and substance use disorder benefits (including behavioral health

treatment)� Prescription drugs� Rehabilitative and habilitative services and devices� Prevent and wellness services and chronic disease management� Pediatric services, including oral and vision care

� Can have lifetime dollar limits per beneficiary on specific benefits that are not essential plan benefits.

� Applies to all plans (including grandfathered plans)� What To Do

� Identify lifetime limits currently imposed and determine whether change required

� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as necessary

Annual Limits

� Until 2014, no unreasonable annual limits for essential plan benefits� Department of Health & Human Services will issue guidance on

permitted restrictions� Can continue to impose annual limits on non-essential plan

benefits� What To Do

� Compare annual limits with guidance to determine whether change required

� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as

necessary

PYB: 9/23/2010

Nondiscrimination� Insured plans will be subject to nondiscrimination rules that currently apply

only to self-funded plans� Cannot discriminate in favor of highly compensated employees in terms of

eligibility and benefits� Eligibility tests apply� Benefits provided to highly compensated employees must also be provided to non-

highly compensated employees� Applies only to non-grandfathered plans

� What To Do� Determine if plan is grandfathered� If not grandfathered, determine if discrimination may be an issue� If there is an issue, consider alternatives� Confirm changes with insurance company� Revise plan documents, SPDs, enrollment materials, etc. as necessary

Grandfather: ExemptPYB: 9/23/2010

Preventive Care Coverage� Must provide coverage without cost-sharing for certain immunizations and

other preventive care� Based on recommendations by:

� United States Preventive Services Task Force� Advisory Committee on Immunization Practices of the Centers for Disease Control

and Prevention� Health Resources and Services Administration

� May cover more than these minimum requirements� Does NOT apply to grandfathered plans

� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as necessary

Grandfather: ExemptPYB: 9/23/2010

Appeals Process� Claims appeals must be subject to internal and external review

� ERISA claims procedures will still apply to internal reviews� External reviews now also required

� Uniform External Review Model Act provisions promulgated by the National Association of Insurance Commissioners; or

� Standards issued by HHS� Only applies to non-grandfathered plans

� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether current process meets requirements� If changes are necessary, confirm with claims administrators� Revise plan documents, SPDs, enrollment materials, etc. as necessary—including

form letters used with claims appeals

Grandfather: ExemptPYB: 9/23/2010

Coverage of Emergency Services

� For emergency services covered under plan:� No pre-authorization requirement� No requirement that treating physician be a participating provider� Out-of-network cost-sharing must be the same as in-network � Does not apply to grandfathered plans

� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as

necessary

Grandfather: ExemptPYB: 9/23/2010

Designation of Primary Care Providers� If plan requires or allows for designation of a primary care provider,

then each participant, beneficiary or enrollee must be allowed to:� Designate any participating primary care physician who is available

� For child, designation may be a pediatrician� For female, designation may be OB/GYN (and test or procedures ordered by

non-PCP OB/GYN treated as though ordered by PCP)� Does not apply to grandfathered plans

� What To Do� Determine if plan is grandfathered� If not grandfathered, determine whether change required� Confirm changes with insurance company or TPA� Revise plan documents, SPDs, enrollment materials, etc. as

necessary

Grandfather: ExemptPYB: 9/23/2010

Changes for 2011

Effective January 1, 2011� Over-the-Counter Meds - Expenses incurred on or after January 1,

2011 for over-the-counter drugs and medications (except insulin) without doctor’s prescription not a qualified medical expense for FSA, HRA, HSA� Affects open enrollment materials in 2010

� Reporting on W-2 – Employer must report aggregate cost of employer-provided coverage beginning with 2011 W-2 issued in January 2012

� HSA penalty tax upped - Tax on HSA distributions not used for qualified medical expense increases from 10% to 20%

� What To Do� Revise plan documents, SPDs, enrollment materials as necessary for

OTC meds

� Prepare for W-2 reporting

CLASS Act (Community Living Assistance Services and Support)

January 1, 2011

� Voluntary federal long-term care insurance for active employees

� Employer and employee participation voluntary� Age-related premiums

� Determined by HHS� Paid by payroll deduction

� 5-year vesting period for benefit eligibility� $50/day minimum benefit

Simple Cafeteria PlansEffective January 1, 2011

� Safe harbor from complex nondiscrimination requirements

� Eligible employer: 100 or fewer employees during either of two preceding years

� Control group rules apply (substituting 50% for 80%)

� All non-excludable employees with 1,000 hours of service preceding year must be eligible

� Minimum employer contribution requirement� Partners, sole proprietors, 2%-plus shareholders

of S-corp still excluded

Medicare Part DEffective January 1, 2011

� “Donut hole” begins closing� May affect Creditable Coverage for

Medicare Part D Prescription Drug Notices

Changes for 2012

Uniform Explanation of Coverage by March 23, 2012

� HHS to develop uniform terms and formats for summaries of health benefits and coverage

� Plan sponsor (self-insured plans) or insurer (insured plans) must provide before March 23, 2012 to enrollees, re-enrollees and applicants

� Not more than 4 pages or smaller than 12 point font

� “Culturally and linguistically appropriate” with understandable terminology

� Paper or electronic

� $1,000 per enrollee for willful failure to comply!

� Applies to Grandfather Plans

Advance Notice of Modifications

� Material modification to terms of plan or coverage

� Not later than 60 days prior to date modification is effective

� Applies to grandfather plans

3/23/2012

Annual Reporting Requirements

� Required annual reports to HHS and participants regarding health care quality and wellness initiatives� Regulations due by March 2011

� Does not apply to grandfathered plans

Grandfather: Exempt

Annual Fees

� Annual fees begin to apply to insured and self-insured benefit plans to fund patient-centered outcomes research� $2 per average number covered lives ($1 for

2013 fiscal year)

� Applies for plan years ending after 9/30/2012)

� Will be paid as a tax

Additional HIPAA Transactions

� Regulations due for unique health plan identifier and electronic funds transfers� Health plans will have to certify compliance

� May require amendment of business associate agreement with TPAs

Changes for 2013

Notification of Exchange

� Must notify employees of availability of insurance through Exchange� Applies to all plans beginning March 1, 2013

� Give to:� New employees upon being hired� Existing employees not later than 3/1/13

� HHS to publish regulations

FSA Limits

� Limits annual health FSA contributions to $2,500� Applies January 1, 2013

� Limit is indexed to inflation for following years

� Applies to all plans (including grandfathered plans)

Taxation of Medicare Part D Subsidy

� Currently, employers who sponsor retiree health benefits that provide creditable prescription drug coverage may get a tax-free federal subsidy

� Starting in 2013, the subsidy becomes taxable� Consider whether there is an immediate

impact on income statements

Changes for 2014

Additional ChangesPlan Year on or after January 1, 2014

� No annual limits on dollar value of coverage� Cover all children up to age 26� No pre-existing condition exclusions or limitations for

adults (under 19 already covered)

� Waiting period cannot exceed 90 days� Increased wellness program maximum incentive (for

achieving health standard)� 20% to 30% of premium cost� Regulators can increase to 50%

All above changes apply to grandfather plans

Additional ChangesPlan Year on or after January 1, 2014

� Cost Sharing Limits� Out-of-pocket expenses cannot exceed HSA out-of-pocket

maximum� Currently $5,950 single, $11,900 family

� Deductible cannot exceed $2,000 single, $4,000 family (indexed)

� Clinical trials � Must cover routine patient costs in connection with clinical trial

Grandfather: Exempt

Play or Pay Requirements

Health Plan Exchanges� Each state required to have in place either:

� American Health Benefits Exchange; or� Similar market approved by HHS

� Market for:� Individual/family insurance policies.� Small employer policies

� Small employer if 1-100 employees in prior calendar year

� Beginning 2017, states may allow large employers (101 or more employees) to purchase through Exchange

Qualified Health Plans� Creates standards for health plans to be sold through state

Exchanges� Essential health benefits� Deductible and out-of-pocket limits� Various levels of coverage:

� Bronze (60% coverage)� Silver (70% coverage)� Gold (80% coverage)� Platinum (90% coverage)

� Catastrophic-only plans for:� Those under age 30 (“Young Invincibles”)� Those exempt from individual responsibility requirement

Individual Mandates

� Individuals generally required to maintain minimum essential coverage beginning 2014� Exempts those at or under the tax filing threshold

� Penalty for failing to maintain coverage:� 2014: greater of $95 or 1% of income� 2015: greater of $325 or 2% of income� 2016: greater of $695 or 2.5% of income

� Penalty will not be more than average cost of bronze plan for individual’s family size

Assistance for Individuals� Refundable tax credits for individuals who purchase

qualified health plans� Incomes must be between 100 to 400 percent of federal

poverty line (approx. $88,000 for a family of four)� Credits not available if eligible for coverage under

employer health plan, unless:� Employee’s premiums for single coverage would exceed 9.5% of

income; or� Benefits paid under plan are less than 60% of the costs

� Reduced cost-sharing for those under 400 percent of federal poverty line (tiered)� Out-of-pocket amounts reduced� Increased percentage of costs covered

Employer Responsibilities

� Employers with more than 50 FTEs who do not offer “affordable” coverage to all “full-time”employees will likely pay penalties� “full-time” means employees working an average of

at least 30 hours per week/120 hours per month� “affordable” means:

� Employee contribution does not exceed 9.5% of household income; and

� Plan covers at least 60% of actuarial value of total allowed costs

Employer Responsibilities

� Penalties for employers with more than 50 FTEs� Triggered if at least one “qualified individual”:

� enrolls in coverage through exchange; and� qualifies for premium tax reduction or cost-sharing reduction

� “qualified individual” means employee with household income of less than 400% of federal poverty level� household income of less than $43,320 for individual, or

less than $88,200 for family of four (2009 levels)

Responsibility of Employers with more than 50 FTEs

� if employer does not offer health plan coverage:� pay penalty of $2000 per year per full time employees

(reduced by 30).� Monthly pro rata is $166.67 per month

� If employer’s health plan coverage is not affordable coverage:� $3000 per per year per full time employee who enrolls

in Exchange coverage and qualifies for premium tax reduction or cost-sharing reduction

� Penalty does not apply of free choice voucher applies

Free Choice Vouchers

� Employer offers affordable coverage, but employee coverage costs more than 8% and less than 9.8% of household income� Employee does not participate in plan but chooses

to enroll in an Exchange plan� Voucher amount equals employer’s contribution to

employer’s health plan� If multiple plans, the plan to which the employer

contributes the largest portion of the cost� Same amount employer would contribute toward

single or family coverage under employer’s plan

Changes for 2018

Cadillac Plan TaxJanuary 1, 2018

� 40% excise tax on “excess benefit” under employer plan� “Excess benefit” = annual value of coverage above

$10,200/individual and $27,600 family; $11,850/$30,950 for post-55 retirees and high-risk industries (indexed after 2018)

� Includes� Employee contributions� FSA and HRA and employer-paid HSA contributions� Non-work related coverage provided at onsite medical

� Excludes stand-alone dental, vision, disease specific, long-term care

� Value determined similarly to COBRA premiums� Includes grandfather plans

Who Pays Cadillac Tax?

� Tax imposed on coverage provider

� Insured plan – insurer

� Self-insured – “person that administers the plan”defined as the plan sponsor if the plan sponsor administers plan benefits

� Tax will likely be passed on to employers/employees

� If more than one plan, allocated among coverage providers

Other Issues

Automatic Enrollment Effective Date Not Clear

� Employers with more than 200 employees

� Must automatically enroll new full-time employees in one of health plans it offers (subject to waiting period)

� Employees may opt out

� Effective date likely delayed until regulations issued

What Happens If Your PlanLoses Grandfather Status?

� If plans become un-grandfathered, it becomes subject to all rules that apply to group health plans, including� Coverage of preventive services without cost-sharing

� New annual reports to government

� Cost-sharing limitations

� External claims procedures

� Cannot limit choice of primary care provider

� Coverage of certain emergency services

� Access to pediatric and ob/gyn care

� Coverage of individuals in clinical trials

� Nondiscrimination rules apply to insured plans

Conclusion� Basic overview of mandates for employers, new

plan design and administrative requirements and other provision that affect employer health plans

� Still many unanswered questions

� Future webinars as guidance issued will keep you updated

� Meanwhile call us or e-mail us if we can help

Health Care Reform: What’s In Store for

Employer Health Plans?

April 21, 2010Presented by:

Norbert F. Kugelenkugele@wnj.com

(616) 752-2186

Sue O. Conwaysconway@wnj.com

(616) 752-2153