HEALTH CARE REFORM AND YOU
Patient Protection and Affordable Care Act
March 23, 2010
The new acronym to remember is PPACA, for the massive legislation signed into law on March 23, 2010 which will forever change the face of American Healthcare.
NAIC, CMS, DOL, Dept of Treasury and DHHS will need to issue guidance after enactment on many issues which will impact our understanding of these measures. As these guidelines are made public, I will try revisit some of the topics in future newsletters in more detail.
What Happens Immediately?
All existing plans are Grandfathered
- You can keep your current plan and it is grandfathered. However, the only changes you can make to your current plan is add or delete new employee/dependents. Any other changes and you loose grandfathering.
- In addition, an exception is made for
employers that have scheduled plan changes as a result of a collective bargaining
- Once a plan loses its grandfathered status, it will be subject to all of the
market reforms in the legislation when they take effect, regardless of where coverage is
purchased (either through an exchange or outside of an exchange).
- Most of
the market‐reform provisions slated to take effect in the next six months will apply to all
plans, whether or not they hold grandfathered status.
Small Business Tax Credits
- Eligible small business will begin to qualify for phase one of the small business premium tax credit. Eligible small businesses (those that have no more than 25 Full Time Equivalent Employees, pay average annual
wages of less than $50,000 and provide qualified coverage) are eligible.
- Small employers will receive a maximum credit, based on number of employees, of up to 50% of premiums for up to 2 years if the employer contributes at least 50% of the total premium cost.
New Accounting Requirements For Employers who Provide Medicare Part D Subsidy to Retirees
- Employers that provide a Medicare Part D subsidy to retirees will have to account for the future loss of the deductibility of this subsidy on liability and income statements.
- Reconciliation package delayed this provision to 2013, but there is an immediate accounting impact.
Changes Effective in 2010
New Options for those with Pre-Existing Conditions
- Temporary high risk pool coverage for people who can not obtain current individual coverage due to pre-existing conditions. This begins within 90 days of enactment (March 23, 2010). Employers can not send individuals to the high risk pool, or they will be subject to a penalty.
- This national program can work with existing state high risk pools, and will end on January 1, 2014 once the Exchanges become operational and other pre-existing condition and guarantee issue provisions take effect.
- Texas already has a risk pool in place.
- This has been financed by a $5 Billion appropriation.
- Requires the states and Secretary of DHHS to develop information portals for state residents to obtain uniform information on sources of affordable coverage, including an Internet site. This is expected to roll out July 1, 2010.
- Information must be provided on private health coverage options, Medicaid, CHIP, and the new high risk pool coverage and existing state high risk pool options.
Temporary Reinsurance Program
- Temporary reinsurance program for employers that provide retiree health coverage for employees over the age of 55. This begins within 90 days of March 23rd, 2010.
- All group plans will be required to comply with the IRS Code 105(h) rules that prohibit discrimination of highly compensated individuals. This is effective 6 months after March 23rd, 2010.
Within 6 Months after enactment (March 23, 2010)
Remove Lifetime Limits and Annual Limits
- Lifetime limits on the dollar value of benefits for any participant or beneficiary for all fully insured and self insured groups and individual plans are prohibited by current law.
- Unclear if this is effective on September 23rd, 2010 (after 6 months) or as they renew over the next 12 months after September 23rd, 2010.
- Annual limits will be allowed only through plan years beginning prior to January 2014, only on DHHS-defined "Non essential" benefits, and totally prohibited after January 01, 2014. What are "Non-Essential benefits"? This is still to be determined by DHHS.
Cover Dependents till age 26
- After 6 months of enactment (March 23rd 2010) all Group and individual plans, including self insured plans will have to cover dependents till age 26
This includes all "Grandfathered" plans.
- Dependents can be married and do not necessarily have to live in household.
- Dependents can be married and will also be eligible for the group health insurance income tax exclusion.
- However, through 2014, grandfathered group plans will only have to cover dependents who do not have another source of employer-sponsored coverage.
Prohibits Coverage Rescissions
- After 6 months of enactment (March 23rd 2010) all insurance markets will be prohibited from canceling or rescinding coverage except in the case of fraud or intentional misrepresentation. This includes all grandfathered plans.
Pre-existing Coverage for all Children Under 19
- Also after 6 months of enactment, all group and individual plans, including self-insured plans, will have to cover preexisting conditions for all children 19 and under.
Enhances Wellness and Preventative Care Programs
- Establishes a Federal Grant program for small employers providing wellness programs to their employees. This takes effect on October 1, 2010.
- For all group and individual health plans, mandates coverage for specific preventative services with NO cost sharing. They also will have
to cover emergency services at the in-network level regardless of provider, allow
enrollees to designate any in-network doctor as their primary care physician (if they
require a primary care physician designation already) and have a coverage appeal
- Minimum covered services are specified based on existing federal guidelines on specific topics.
- This will be the most significant/costly change for most plans
- Unclear if dental and vision for children will be included in the preventative care requirement
New Federal Review of Health Insurance Premium Rates
- Secretary of Health and Human Services, in conjunction with the states, will have new authority to monitor health insurance carrier premium increases beginning in 2010 to prevent unreasonable increases and requires public disclosure of such information.
- Carriers that have a pattern of unreasonable increases may be barred from participating in the exchange.
- in addition, $250,000,000 is appropriated for state grants to increase their review and approval process of health insurance carrier premium rate increases.
Establishes Minimum Loss Ratios For All Insurers In All Markets.
- The MLR is 85% for larger group plans and 80% for individual markets and small group plans (with fewer than 100 employees and below).
- The calculation is independent of federal or state taxes
- Carriers will have to issue a premium rebate to individuals for plans that fail to meet the MLR requirements.
- Allows the Secretary of DHHS to make adjustments to the MLR percentage if it proves to be destabilizing to the individual or small group markets.
- The National Association of Insurance Commissioners (NAIC) is required to establish uniform definitions regarding the MLR and how the rebate is calculated by December 31, 2010.
Changes Effective in 2011
Changes Tax Penalties for Health Savings Accounts (HSAs)
- Changes the penalty for distributions from HSAs that are not for qualified medical expenses. Increases the penalty from current 10% to 20%.
- Over the counter drugs are No Longer reimbursable under HSAs, FSAs, HRAs and Archer MSAs (unless prescribed by a doctor).
New Public Long Term Care Program
- Creates a new public long-term care program and requires all employers to enroll employees, unless the employee elects to opt out
New W2 Requirements
- All employers must include on W2s the aggregate cost of employer-sponsored health benefits, for informational purposes. If an employee receives health insurance coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage, but exclude all contributions to HSAs and Archer MSAs and salary-reduction contributions to FSAs.
- Applies to benefits provided during taxable years after December
New Business Owners Federal Income Tax
- All business owners will be subject to new expanded federal income tax requirements on payments of fixed or determinable income or compensation.
New Simplified Cafeteria Plans
- Small employers (less than 100 lives) will be allowed to adopt new “simple cafeteria
Changes Effective in 2012
New Disclosure Requirements
- All employers and group and individual health insurers (including self-funded plans) will have to provide a summary of benefits and a coverage explanation that meets specified criteria to all enrollees.
- when they apply for coverage,
- when they enroll or re-enroll in coverage,
- when the policy is delivered,
- and identify any material modification is made to the terms of their coverage
- The summary and explanation will require substantially more information than current summary plan descriptions and can be provided electronically or in written form.
- It must be no more than four pages in length with print no smaller than 12-point font written in a culturally linguistically appropriate manner.
- There is a $1,000-per-enrollee fine for willful failure to provide the information.
New Reporting Requirements to HHS
Goal - Improve and Document Patient Outcome
- All group plans (including self-insured plans) and all individual and group carriers will
have to annually submit reports to the HHS secretary on whether or not the benefits provided under their plans meet criteria to be established by HHS on improving health outcomes, preventing hospital readmissions, improving patient safety and reducing medical errors, including wellness and health promotion activities.
- This report also must be provided to all plan participants during the annual open enrollment period and HHS will make the reports publicly available through the Internet. The secretary of HHS can also create and impose fines for noncompliance by employers and plans.
Changes Effective in 2013
New Taxes Take Effect
- A new federal premium tax on fully insured and self funded group plans, equal to $2 per enrollee, takes effect to fund comparative effectiveness research.
FSAs Limited to $2,500
- FSA contributions for medical expenses will be limited to $2500 per year, with the cap annually indexed for inflation.
Taxes Increase And Deductions Decrease
- The Medicare payroll tax increase of 0.9% on self-employed individuals and employees with respect to earnings and wages received during the year above $200,000 for individuals and above $250,000 for joint filers will go into effect.
- The income eligibility levels for the tax are not indexed for inflation.
- The new tax does not change the employer’s tax obligations, but self-employed individuals are not permitted to deduct any portion of the additional tax. In addition, there will be a new 3.8% Medicare contribution on certain unearned income from individuals with AGI over $200,000 ($250,000 for joint filers).
- For those who itemize their federal income taxes, the threshold for deducting
un reimbursed medical expenses will increase from 7.5% of AGI to 10% of AGI. The
increase would be waived for those ages 65 and older through 2016.
New Employer Notices
- All employers must provide notice to their employees informing them of the existence of the state-based exchanges.
Changes Effective in 2014
Mandates to purchase Health Insurance go in Effect
- The individual mandate requirement to purchase health insurance for all citizens and legal residents takes effect. There are specified exceptions and under current law and violators will be subject to a phased-in excise tax penalty for noncompliance of either a flat-dollar amount per person or a percentage of the individual’s income, whichever is higher.
- In 2014, the percentage of income determining the fine amount would be one
percent, then two percent in 2015, with the maximum fine of 2.5% of taxable (gross) household income capped at the average family bronze-level insurance premium.
- The alternative is a fixed-dollar amount that begins at $325 per person in 2015 and goes to $695 in 2016.
Employer Penalties go in Effect: $2,000 per Employee per Year
- The employer responsibility requirements take effect for companies that employ more than 50 FTEs (Full Time Equivalents 30 or more hours) with an exemption for seasonal workers. If an employer does not provide coverage to its FTEs (30 hours or more) and one or more the employees receive a premium-assistance tax credit to buy coverage through the exchange, the employer must pay a fine of $2,000 per year for each full-time employee.
- The legislation exempts the first 30 employees from the fine calculation (i.e., if the employer has 51 employees and doesn't’t provide coverage, the employer pays the fine for 21 employees).
- Coverage must meet the essential benefits requirements in order to be considered
compliant with the mandate.
- An employer with more than 50 employees that does offer qualified coverage but has at least one FTE receiving the premium assistance tax credit will pay the lesser of $3,000 for each of those employees receiving a tax credit, or $2,000 for each of its full-time employees total.
Individuals to be Eligible for Premium Assistance
- An individual with family income up to 400% of Federal Poverty Level (FPL) is eligible for a premium assistance tax credit if the actuarial value of the employer’s coverage is less than 60% or the employer requires the employee to contribute more than 9.5% of the employee’s family income toward the cost of coverage.
- When determining whether an employer has 50 employees, both for the purposes of
the fine and the responsibility requirements generally, part-time employees must be
taken into consideration based on aggregate number of hours of service.
- Part-time employees do not have to be offered coverage, but they will be partially included in the calculation to determine whether or not these provisions apply to a particular employer.
90 Day Waiting Periods for Coverage Prohibited
- For employers that have a waiting period for coverage for new employees, waiting
periods of more than 90 days are prohibited for all plans, including grandfathered plans.
All Market Reforms for Individual and Fully Insured Group Plans go in Effect
- All plans must be offered on a guaranteed-issue basis.
- Preexisting condition limitations will be prohibited.
- Annual and lifetime limits will be fully prohibited, including for grandfathered plans,
- The size of a small-employer group will be redefined to one to 100 employees (although states may elect to keep the size of small groups at 50 employees until 2016).
- All fully insured individual and small groups up to 100 employees (and any larger groups purchasing coverage through an exchange) will have to abide by strict modified community rating standards with premium variations only allowed for age (3:1), tobacco use (1.5:1), family composition and geographic regions, to be defined by the states, and experience rating would be prohibited.
- Wellness discounts will be allowed for group plans under specific circumstances.
State Exchanges Go Live
- States are required to have their exchanges up and running.
- Each state can have a separate exchange for employers and individuals, or merge their exchanges to include both markets.
- States can also apply for a waiver on their exchange design from HHS, and currently operational state exchanges (UT and MA) are exempt.
Standards for Qualified Coverage Begin
- The standards for qualified coverage, which will apply to all fully insured group and
individual products to be sold both inside and outside the exchanges, begin.
- The essential benefit standards will also used to determine if large employer coverage is sufficient enough relative to the employer responsibility requirements.
- The essential benefit standards include specific mandated benefits, cost-sharing requirements, out of pocket limits and a minimum actuarial value of 60%. They also allow for catastrophic only policies for those 30 and younger.
Employee Free Choice Voucher Program Takes Effect.
- It requires employers that provide and contribute to health coverage to give vouchers to each employee who is required to contribute between eight percent and 9.8% of their household income (indexed to the premium growth rate) toward the cost of coverage, if such employee’s household income is less than 400% of FPL and the employee does not enroll in a health plan sponsored by the employer.
- The value of vouchers would be adjusted for age, and the vouchers would be used in the exchanges to purchase coverage that would otherwise be unsubsidized.
- The employee can also keep amounts of the voucher in excess of the cost of coverage elected in an exchange without being taxed on the excess
- The amount of the voucher must be equal to the amount the employer would
have provided toward such employee’s coverage (individual vs. family based on the
coverage the employee elects through the exchange) with respect to the plan to which the employer pays the largest portion of the cost.
Employers Required to Auto-Enroll Employees into Coverage
- Employers of 200 or more employees will have to auto-enroll all new employees into
any available employer-sponsored health insurance plan.
- Waiting periods in existing law can apply.
- Employees may opt out if they have another source of coverage.
- Important note: The effective date of this provision is unclear and may be determined via regulation to take effect earlier.
Premium Taxes Begin for Private Health Insurers
- Premium taxes on most private health insurers based on premium volume take effect, which can be passed directly down to fully insured plan consumer
- This tax WILL NOT apply to self-insured plans, nonprofit insurers that receive over 80% of their gross revenues from government programs like Medicare, Medicaid and CHIP, and voluntary employee benefit associations that are established by non-employers.
- Certain tax exempt health plans would also pay less because they will calculate the fee based on only 50% of their premiums. The amount of the total assessed tax on the industry will start at $8 billion in 2014, rise to $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.3 billion in 2018.
- After 2018, the fee would be indexed to the annual amount of premium growth in subsequent years.
New Wellness Program Rules go in Effect
- Employer-sponsored wellness program rules for all employer group plans under HIPAA
improve and employers can increase the value of workplace wellness incentives up to 30% of premiums, with HHS discretion to increase the incentives to 50%.
- A 10-state pilot program to extend wellness programs to the individual market begins, with the potential expansion to the entire individual market in 2017.
New Cooperative Plans and Multi-State National Plans
- Cooperative plans will be allowed to be sold. Multi-state national plans will be offered to individual and small employers through the state-based exchanges.
Premium Assistance and Medicaid Expansion
- Premium assistance tax credits for individuals and families making up to 400% of FPL begin.
- These subsidies are available only for individual coverage purchased through the exchange, not employer-sponsored coverage.
- Expansion of the Medicaid program for all individuals, including childless adults, making up to 133% of the FPL begins.
- Mandatory state-by-state employer premium-assistance programs begin for those eligible individuals who have access to qualified employer sponsored
- States can also create a separate non-Medicaid plan for those with incomes between 133% and 200% of FPL that do not have access to employer sponsored
Changes Effective in 2015
The Children’s Health Insurance Program must be re-authorized.
Changes Effective in 2017
States may elect to allow large employers (more than 100 employees) to purchase coverage through their exchanges.
Changes Effective in 2018
Cadillac Tax Goes Into Effect
- Cadillac tax goes into effect for all group plans, including self-insured plans. The tax
would be paid by the insurer in the case of a fully insured group or the TPA in a self insured arrangement, but would be passed on directly to the employer.
- The new law establishes a 40% excise tax on plans with values that exceed $10,200 for individual coverage and $27,500 for family coverage, with higher thresholds for retirees over age 55 and employees in certain high-risk professions.
- Transition relief would be provided for 17 identified high-cost states.
- The tax would be indexed annually for inflation using the consumer price index, not medical inflation standards.
- When determining the values of health plans, reimbursements from FSAs, HRAs and employer contributions to HSAs will be included.
- The value of stand-alone vision and dental plans will be excluded.
- In addition, the excise tax will not apply to accident, disability, long-term care and after tax indemnity or specified disease coverage.
This information has been provided by the National Association of Health Underwriters or NAHU. Adapted from the document "How the Health Care Reform Legislation Will Impact Your Employer Clients" revised March 29, 2010.
How does Carter's Benefits help ?
Carter's Benefits has immediately begun to notify clients of the changes as they occur. We will continue to stay on top of the changes as they are ever evolving. In a consultative role, Eddie Carter has begun hosting live seminars to update employers and Human Resource Managers on these changes. If you would like to host a meeting with your local community or civic organization, please contact me for details.