“Regulation Update on PPACA--2013”
Kelley Insurance Center
Hilton Garden Inn - Johnston, IA
March 12, 2013
Jesse A Patton LUTCF, HIA, MHP, FAHM, HIPAAA, EHBA, PHIAS
Health Reform Implementation…
This is not the end. It is
not even the beginning
of the end. But it is,
perhaps, the end of the
beginning.
Winston Churchill, November 10, 1942
at the Lord Mayor's Luncheon at Mansion House in
London
Key House Players
Key Senate Players
Overall Approach & Objective
• Require most U.S. citizens to have health insurance
• Create American Health Benefit Exchanges with cost sharing
credits
• Expand Medicaid
• Impose new regulations on Health Plans
• Require Employers to pay penalties if employees get tax
credits
CBO 2019 Estimates of Insurance
Coverage
Among noneldery (under age 65). ‘Exchanges’ include 2% (5M) that CBO counted as ‘Employer.’ If
excluding unauthorized immigrants, CBO’s uninsured projection for PPACA would be 6%.
Current Status
• On March 21, the House
passed HR 3590, the bill
passed by the Senate on
December 24, 2009, with a
219-213 vote. Signed into
law on March 23.
• The House and Senate
have also passed a
reconciliation bill, HR
4872, with a packages of
“fixes” to the Senate bill
• President Obama signed
the reconciliation bill.
“We have to pass the bill so
that you can find out what is
in it” …. Speaker Nancy
Pelosi
Implementation
Be forewarned, NAIC, CMS, DOL ,Treasury, IRS
and DHHS will need to issue continued
guidance. These rules will impact our
understanding of these measures. There are
some questions you have today that cannot be
answered.
PPACA Cost more than Anticipated
• Estimates released by the Congressional
Budget Office: 10 year cost
March of 2010, just before the law was enacted,
cost $950 billion
August 2012, CBO estimated PPACA would be
$1.165 trillion
February 5, 2013, CBO estimated new 10 year
cost $1.329 trillion
Unhappy States
• Budget deficits
• Individual mandate lawsuits
• Medicaid
changes/increased potential
costs to states
• Waiver requests denied
• Refusal of some to take
PPACA funds/implement
programs
• Extreme variation in state
political climates—
California to Wisconsin
Supreme Court Ruling
Supreme Court Outcome
 The Supreme Court upheld the constitutionality of PPACA and
the individual mandate
 Although the mandate was deemed not constitutional under the
Commerce Clause, it was deemed to be an appropriate use of the
Congressional power of taxation
 Bottom line: Congress can’t force Americans to obtain broccoli,
but they can tax or penalize Americans who don’t
 The court also ruled 7-2 to allow PPACA’s expansion of the
Medicaid program, but it struck down the portion of the law that
would have penalized states that chose not to expand their
Medicaid programs by taking their existing federal Medicaid
funds away. This part of the ruling gives states significant
leverage, as it will create a coverage hole in states that choose not
to expand their programs for financial reasons.
Grandfathered Plans
• Essentially all plans in effect on date of
PPACA enactment (March 23, 2010) are
“grandfathered”
• Very few changes are permitted if a plan wants
to retain grandfathered status
– Plans must provide a statement to
participant that it believes it is a
“grandfathered” plan
What Grandfathered Plans Can’t Do
• Can’t increase Co-insurance rate
• Can’t increase Co-pay more than the greater of $5
(adjusted annually for medical inflation) or medical
inflation plus 15%
• Can’t reduce employer contribution more than 5%
• Can’t increase deductible more than 15% plus
medical inflation
What Grandfathered Plans Can’t Do
• Can’t use a merger, acquisition or business
restructuring for the purpose of covering new
individuals under a grandfathered plan
• Can’t change carriers if you are fully insured
• Can’t move employees to a grandfathered plan with
lower benefits
• Can’t make a significant cut to benefits such as
eliminating benefits for a particular condition
IRC Section 105(h)
• PPACA imposes new nondiscrimination rules
on certain health plans
• New rules are effective for plan/policy years
beginning on or after September 23, 2010 –
Place on Hold until further Notice
• Only applies to non-grandfathered plans
• New rules previously applied to self-insured
health plans
Background on IRC Section 105(h)
• IRC section 105(h) was added to IRC in 1978
• Treasury/IRS issued final regulations in 1981
as well as limited number of private letter
rulings
• Temporarily repealed in 1986 with enactment
of IRC section 89
• IRC section 89 was soon repealed and IRC
section 105(h) reinstated retroactively
IRC Section 105(h)
• Since reinstatement of IRC section 105(h),
Treasury/IRS have avoided the nondiscrimination
rules
* IRS has not issued any guidance since
reinstatement
* Instituted “no rule” on IRC section 105(h)
* Very limited enforcement to date
• Existing IRC section 105(h) and related regulations
are very unclear and thus raise compliance issues for
both self-insured and insured plans
How Do the Test Work
• Must satisfy the following two tests:
Eligibility test (really more participation test)
Benefits test (really universal availability test)
• Both tests look to if the plan disproportionately benefits highly compensated
employees (HCE’s):
5 highest paid officers
10% or more shareholder; AND
Highest 25% paid (disregarding excludable employees)
• Excludable employees include:
Employees with < 3 years of service
Part-time employees working < 35/hours per week
Seasonal employees
Employees subject to collective bargaining agreement
Employees < age 25
Three Tests for Eligibility – must pass one
• At least 70% or more of all controlled group
employees participate in the plan (70% Test);
• 70% of controlled group are eligible to
participate, AND at least 80% or more of
those eligible in fact participate (70/80 Test):
• The plan benefits a nondiscriminatory
classification of employees
(nondiscriminatory classification test)
Benefits Test
•
Benefit Tests: True or False - Must answer
True to all Four to PASS test
1.
The required employee contribution are identical/uniform
for each benefit level
The maximum benefit level that can be elected does not
vary based on compensation, years of service or age
Type of medical benefits reimbursable is identical for all
participants
Waiting periods are the same for all employees
2.
3.
4.
Penalties for Noncompliance
• Unlike for self-insured plans violations, where
amounts reimbursed form the plan are taxable
to HCEs.
• Penalties were clarified in IRS Notice 2010-63
– IRC
$100 per for “each individual to whom failure relates”, capped at the lesser of 10% of
the group health plan costs or $500,000
– ERISA
Suits for equitable relief
Essential Benefits Defined in 2014
Section 1302(b) defines essential health benefits to include:
•
•
•
•
•
•
•
•
•
•
Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn care
Mental health and Substance use disorder services
Prescription drugs
Rehabilitative and habilitative services and devices
Laboratory Services
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care
CBO Analysis of PPACA Premium
Costs
• Moreover, the CBO makes clear that average premiums
would be 27 to 30 percent higher because the law
demands greater insurance coverage. The CBO
emphasized that those provisions, along with others, “
would have a much greater effect on premiums in the
non-group [individual] market than in the small group
market, and they would have no measurable effect on
premiums in the large group market.”
Comprehensive & Flexible
• HHS propose using a benchmark approach
• States would have Flexibility to select
benchmark that reflects the scope of a
“typical employer plan
• Gives the States the flexibility to best meet
the needs of their citizens
Benchmark Approach
States would choose one of the following benchmark
health insurance plans:
• One of the three largest small group plans in the State by enrollment
• One of the three largest State Employee health plans by enrollment
• One of the three largest federal employee health plan options by
enrollment
• The Largest HMO plan offered in the State’s commercial market by
enrollment
If State choose not to select benchmark, HHS intends to propose
the default will be the small group plan with largest enrollment
in the State
State Funding
• To prevent Federal dollars going to State
Benefit mandates, PPACA requires States to
defray the cost of benefits required by State
law in excess of Essential Health Benefits
• This will apply for individuals enrolled in any
plans through an exchange
• 2014 & 2015 transition relief if State elects
one of the three largest small group plans as
benchmark
W-2 Reporting
• Employers will be required to include the value of group
health plan coverage on W-2s issued after 1/1/2013.
• Reporting for 2011 is voluntary.
• The new reporting requirements do not change the tax
treatment of employer-provided health coverage. The
reporting is for informational purposes only.
• Small Employer Exception
•
•
•
•
Employers issuing fewer than 250 Forms W-2 in the preceding calendar
year are exempt from the reporting requirement.
May be on an entity rather than control group basis
Note- this is not the total number of employees, but the total number for
Forms W-2
Applies to all employers who provide applicable employer sponsored
coverage
What to Report
 Employers are required to report the value of all “applicable employer-
sponsored coverage”. Generally, group health plans, including:






Major medical
Mini-meds
On-site medical clinics
Medicare supplemental coverage
Health FSA contributions (employer)
Employee assistance & wellness programs (with separate COBRA rates)
 Optional Reporting

IRS guidance permits employers to report the cost of coverage that is not
required to be reported (e.g. multiemployer, HRA) if reported coverage
is otherwise applicable employer sponsored coverage
How to Report: Determining
the “Aggregate Cost”
 Must report the “aggregate cost”
 Include pre-tax and post-tax coverage
 Include employer and employee contributions (e.g.
employer premium contribution or employee cafeteria plan
contributions)
 Multiple methodologies for determining aggregate cost.
 General Rule: Use cost of COBRA premium
Employer-Provided Notice
No later than March 1, 2013, employers must provide written notice informing
each current employee: DELAYED
• Of the existence of an Exchange, including a description of the services
provided by such Exchange and how the employee may contact the
Exchange to request assistance;
• That the employee may be eligible for a premium tax credit and a cost
sharing reduction if the employee purchases a qualified health plan through
the Exchange, if the employer plan's share of the total allowed costs of
benefits provided under the plan is less than 60% of such costs; and
• If the employee purchases a qualified health plan through the Exchange,
the employee may lose the employer contribution (if any) to any health
benefits plan offered by the employer and that all or a portion of such
contribution may be excludable from income for federal tax purposes.
Beginning March 1, 2013, employers must provide this written notice to new
employees at the time of hiring. The U.S. Department of Labor is expected to
release final regulations, as well as a model notice.
© 2011, National Association of Health Underwriters • www.nahu.org
Who is a Large Employer under ACA
• Any employer with 50+ full-time equivalents
• IRC 4980H applies to all common law
employers including governmental entities,
churches, tax-exempt organizations with at
least 50 full-time equivalent employees.
• Foreign companies with at least 50 full-time
equivalent performing working in the US with
US-source compensation
Transition Relief for Smaller Employer
• Employers can determine whether they are
large employers based on a period of six
consecutive calendar months as chosen by the
employer in the 2013 calendar year, rather
than based on the entire 2013 calendar year.
The January 1, 2014, compliance deadline is
not delayed for smaller employers determined
to be large employers based on the six-month
calculation.
PPACA in 2014 – Individual Mandate
• Requires all American citizens and legal residents to purchase
qualified health insurance coverage
• In 2014, those without insurance will pay the greater of $95 or
1% off household income that exceeds personal exemption for
that year
• Starting in 2016, the penalties rise, to the greater of $695 or
2.5% of income. These penalties apply to EACH family
member without coverage
How Many Could be Affected by the
Individual Mandate in 2016?
32 million previously uninsured affected by the mandate
24 million qualify for exemptions from the mandate
219 million insured by employers, Medicaid,
Medicare’s disability coverage, or individual
insurance and not affected by the mandate
Projected Non-Elderly in 2016
= 275 million
Source: Kaiser Family Foundation analysis; Congressional Budget Office; Jonathan Gruber
Minimum Essential Coverage for
Meeting Individual Mandate
• LOWER standard than what large employers will be
required to offer
• LOWER than qualified health plan coverage
Coverage will include:
a) Coverage under an eligible employer-sponsored plan, including a governmental
plan or any plan available in the small or large group market within a state
b) Coverage available in the state's individual market
c) Coverage under a grandfathered health plan
d) Government sponsored programs, such as Medicare, Medicaid, CHIP and TRICARE
e) Other health benefits coverage designated by the Secretary of HHS
2014 Unaffordable For Smokers
• Health insurers are allowed to charge smokers
who purchase an individual policy up to 50%
higher premiums.
• "60-year-old smoker could wind up paying
nearly $5,100 on top of normal premiums.
• Government tax credits that will be available
to help pay premiums cannot be used to
offset the cost of penalties for smokers
Final Rules on Tobacco
Tobacco includes all tobacco products. However, religious or ceremonial uses
of tobacco (for example, by American Indians and Alaska Natives) are
specifically exempt under this final rule.
This approach establishes a minimum standard to assure consistency in the
individual and small group health insurance markets and simplifies
administration of the tobacco rating factor.
For example, an individual could be asked the
following two questions about tobacco use:
(1) Within the past six months, have you used tobacco regularly (four or
more times per week on average excluding religious or ceremonial uses)?
(2) If yes, when was the last time you used tobacco regularly?
Reported False Tobacco Use
• If an enrollee is found to have reported false or incorrect
information about their tobacco use, the issuer may
retroactively apply the appropriate tobacco use rating factor
to the enrollee’s premium as if the correct information had
been accurately reported from the beginning of the plan year.
• However, an issuer must not rescind the coverage on this
basis.
• Tobacco use is not a material fact for which an issuer may
rescind coverage if there is a misrepresentation because these
regulations already provide the remedy of recouping the
tobacco premium surcharge that should have been paid since
the beginning of the plan or policy year.
ACA Provisions for Insurance
Exchanges, 2014
• Each state must establish an American Health Benefit
Exchange and a Small Business Health Options Program
(SHOP) Exchange by 2014 for individuals and small employers;
states can create single exchange; regional exchanges
• If HHS determines in 2013 that a state will not have an
exchange operational by 2014, HHS is required to establish
and operate an exchange in the state
• Individual and small-group markets are not replaced by
exchanges, but same market rules apply inside and outside
• Non-grandfathered plans to provide essential benefit package
inside/outside
Flexible Exchange Options for States
Premium Tax Credits and Cost-Sharing Protections
Under the Affordable Care Act
Federal
poverty level
Income
Premium contribution
Out-ofActuarial value:
as a share of income pocket limits
Silver plan
<133%
S: <$14,484
F: <$29,726
2% (or Medicaid)
133%–149%
S: $14,484 – <$16,335
F: $29,726 – <$33,525
3.0%–4.0%
150%–199%
S: $16,335 – <$21,780
F: $33,525 – <$44,700
4.0%–6.3%
200%–249%
S: $21,780 – <$27,225
F: $44,700 – <$55,875
6.3%–8.05%
250%–299%
S: $27,225 – <$32,670
F: $55,875 – <$67,050
8.05%–9.5%
300%–399%
S: $32,670 – <$43,560
F: $67,050 – <$89,400
9.5%
S: $3,967
F: $7,933
70%
400%+
S: $43,560+
F: $89,400+
—
S: $5,950
F: $11,900
—
Four levels of cost-sharing: 1st tier (Bronze) actuarial value: 60%
2nd tier (Silver) actuarial value: 70%
3rd tier (Gold) actuarial value: 80%
4th tier (Platinum) actuarial value: 90%
94%
S: $1,983
F: $3,967
94%
87%
S: $2,975
F: $5,950
73%
70%
Catastrophic policy with essential benefits
package available to young adults and people
who cannot find plan premium <8% of income
Notes: FPL refers to federal poverty level; levels are for 2011. Actuarial values are the average percent of medical
costs covered by a health plan. Premium and cost-sharing credits are for the Silver plan.
Source: Commonwealth Fund Health Reform Resource Center: What’s in the Affordable Care Act? (PL 111-148 and
111-152), http://www.commonwealthfund.org/Health-Reform/Health-Reform-Resource.aspx.
2014 – Product Framing
Plus catastrophic plan offering for individuals
younger than 30/financial hardship
The benefit requirements listed above for exchange plans will
also apply to Individual and small group fully insured plans sold
outside of the exchanges
Office of Personnel Management
• OPM is required to contract with insurers to
offer at least two Multi-State plans
• Each Multi-State plan must be licensed in each
state
• Plans will be offered separately from the FEHB
and will have a separate risk pool
Health Insurance CO-OPs
• Federal government now pledged $3.8 billion in grants and
loans to assist in the establishment of non-profit member-run
health CO-OPs. Originally PPACA established $6 billion
• Candidates to create a CO-OP
Accountable Care Organization
Integrated Delivery Systems
Chambers of Commerce
Associations
• Grants assist CO-OPs with State Solvency/Reserves must be
repaid in 15 years. Loans that assist in start-up cost repaid in
5 years
CO-OPs
Unlike many health insurance companies today, a CO-OP:
• Gives its enrollees a say in their health plan. CO-OP members elect the
board of directors, a majority of whom must also be enrolled in the CO-OP
health plan.
• Uses profits to benefit enrollees. CO-OPs are required to use their profits
to lower premiums, improve health benefits, improve the quality of health
care, expand enrollment or otherwise contribute to the stability of
coverage for members.
• Educates enrollees about the plan. Because a CO-OP relies on its
enrollees to help decide the direction of the plan, communication about
key features of the plan will be a high priority.
Employer Responsibilities
Employer Responsibilities
• Employer must count all full-time employees and
part-time employees – on a full-time equivalent basis
– in determining if they have 50 or more employees
– Certain seasonal workers are not counted in determining if
employer has 50 workers
– Full-time = 30 or more hours per week, determined on a
monthly basis
• Penalties assessed for “no coverage” or coverage that
is not “affordable”
No Coverage
• If an employer fails to provide its full-time employees
(and their dependents) the opportunity to enroll in
“minimum essential coverage,” and
• One or more full-time employees enrolls for coverage
in an exchange and qualifies for a premium tax credit
or cost-sharing reduction, then
• Employer penalty = $2,000 for each of its full-time
employees in the workforce
Additional Details
•
•
•
•
Penalties assessed on a monthly basis.
No penalties assessed on first 30 full-time employees.
No penalties apply to part-time employees.
No penalties for waiting periods (if any), not exceeding 90
days.
• Total “affordability” penalty is capped. May not exceed
penalty for “no coverage.”
Coverage to Full-Time Employees
• Employers will meet the requirement to offer
coverage to “substantially all” full-time
employees if they offer coverage to 95% of
full-time employees and their dependents. No
penalties will apply for any month in which an
employer offers coverage to all but 5% of its
full-time employees (or five full-time
employees, if greater).
Transitional Relief for Non-1/1 Effective
Date Plans
The transition relief includes the following components:
•
•
If employees who are eligible for employer-sponsored coverage under the terms
of the plan in effect on Dec. 27, 2012, are offered affordable, minimum value
coverage that starts no later than the first day of the 2014 plan year, the employer
will not be assessed a shared responsibility penalty for any of those employees
before the 2014 plan year begins.
If an employer has at least one quarter of its employees covered under a fiscal
year plan (or if the employer offered coverage under the plan to at least one third
of its employees during the most recent open enrollment period, before Dec. 27,
2012), the employer will not be subject to shared responsibility payments for any
of its full-time employees until the first day of the 2014 plan year, provided that
those employees are offered affordable, minimum value coverage no later than
the first day of that plan year.
Although these regulations are proposed and not final, employers can rely on
them until final guidance is issued.
Dependents?
• Dependents are defined as children
up to age 26. Spouses are not
included in the definition of
dependents in this guidance, so
employers are not required to offer
coverage to spouses.
Penalty in 2014
Summary of Potential Employer Penalties under PPACA, Congressional Research Service
May 14, 2010
Does Group Coverage Meet the
Affordability Test?
Federal Poverty Limit FPL
2011 FPL
Hourly
Rate (40 hr
week)
100% (Possibly Medicaid
Eligible)
$10,890
$5.24/hr
9.5%
$86/mo
133%(Possibly Medicaid
Eligible)
$14.484
$6.96/hr
9.5%
$114/mo
150% (Minimum Wage)
$16,335
$7.85/hr
9.5%
$130/mo
200%
$21,780
$10.47/hr
9.5%
$172/mo
250%
$27,225
$13.09/hr
9.5%
$216/mo
300%
$32,670
$15.71/hr
9.5%
$259/mo
350%
$38,115
$18.32/hr
9.5%
$302/mo
400%
$43,560
$20.94/hr
9.5%
$345/mo
9.5%
$345/mo since employer only has to use
the single rate for lowest tier plan to
calculate affordability
400% family of 4
$89,400
$20.94/hr
W2
Wage
Employee Share of Single Premiums per
Mo @ 9.5% income Standard
Health Insurance Provider Fee
• January 1, 2014- $8
Billion
• January 1, 2015-2016
$11.3 Billion
• January 1, 2017 $13.9
Billion
• January 1, 2018 $14.3
Billion
Health Insurance Industry Fee
• The fee for each “covered entity” will be proportionate to the
insurer’s share of net premium written by all covered entities
for U.S. health risks during the preceding calendar year.
• Covered entities with less than $25 million of net premium
are not subject to fee.
• The fee is imposed on covered entities, which include any
entity that provides “health insurance” for any United States
health risk during the applicable calendar year. Covered
entities include insurance companies and HMOs, but not selfinsured plans.
Health Insurance Industry Fee
• The insurance products embraced by the term, “health
insurance,” include:
1. Medical
2. Standalone dental/vision, even if an “excepted benefit”
3. Standalone behavioral
4. Standalone pharmacy
5. Medicare Advantage, Medicare Part D
6. Children's Health Insurance Program (CHIP)
• Excluded products include:
Medicare Supplement
Questions