Health Care Reform
Impact on Employer Group Health Plans
Maureen M. Maly
Partner, Employee Benefits and Executive Compensation
August 24, 2010 Presentation to Minnesota Bankers Association
5093965
Overview
• Timeline
• Grandfathered plans
• New federal benefit mandates and administrative mandates on
employer-sponsored group health plans
• Tax increases — high cost plans / loss of retiree drug subsidy /
Medicare taxes
• Impact on account-based plans (HSAs, FSAs, etc.)
• Consumer information requirements
• Insurance exchanges
• Employer and individual coverage mandates
2
Health Care Reform Timeline – 2010
3/23/10
• Breaks required for
nursing mothers
• Consumer
Assistance
Grandfather
plans (plans
in existence on
March 23, 2010)
3/30/10
Nontaxable health
coverage for adult
children
7/1/10
Internet portal
9/23/10 (plan years beginning on or after)
• Coverage of adult
children to age 26
• Restrictions on lifetime
and annual dollar limits
• No lifetime limits on
“essential health
benefits”
• Restricted annual limits
on essential benefits
• Limited rescission of
coverage
• No pre-existing
condition exclusions
• Insured medical loss
ratio
6/21/10
Early Retiree
Reinsurance
Program
 Insured plans must
meet nondiscrimination
rules
 Emergency
service provisions
 Primary care
provider
designations
 First dollar
preventive care
 New external
appeals process
2010
Not applicable to grandfathered plans
3
Health Care Reform Timeline – 2011 - 2018
Uncertain start date: increased wellness incentive, auto-enrollment
1/1/11
• New form W-2 reporting
requirement
• Voluntary public
long-term care
• No OTC medications
reimbursed under
account-based plans
• HSA excise tax increase
9/30/12 (plan years ending after)
Fee (per participant) for patient-centered outcomes research
2013
Loss of Retiree Drug Subsidy Deduction
1/1/13
• Medicare tax increases
• Limit FSA contributions
2014
Creation of Health
Insurance Exchanges
3/23/12
New
summaries of
coverage
2011
2012
1/1/14
 Additional
insurance reforms
 Cost sharing limits
2013
Not applicable to grandfathered plans
2014
1/1/14
• Limited waiting periods
• New annual reporting
• Employer mandates
• Individual mandates
2015
2016
2018
Taxation of
High Cost
Plans
2017
2018
4
Grandfathered Plans
• Grandfathered Status
– Plan in existence on March 23, 2010
• Analyze each benefit option separately
– To keep grandfathered status:
• CANNOT eliminate benefits
• CANNOT increase coinsurance at all
• CANNOT increase participant cost sharing (co-pay, deductible, out-ofpocket) outside of permitted range (15% or, for copays, the greater of
$5 or 15%) all plus inflation
• CANNOT add or decrease annual limits on dollar value of benefits
• CANNOT merge plans or transfer employees to other plans to avoid
loss of grandfather status
• CANNOT decrease employer contribution outside permitted range (5%
with no indexing)
• To grandfather or not grandfather?
– Balance compliance advantages with cost / benefit restrictions
2010
2011
2012
2013
2014
2015
2016
2017
2018
5
Breaks Required for Nursing Mothers (3/23/10)
• FLSA amendment – requires employers to provide reasonable
break time / place for nursing mothers
–
–
–
–
2010
Not a bathroom
Free from intrusion / shielded from view
More protective state laws not preempted
Exemption for employers with less than
50 employees if undue hardship
2011
2012
2013
2014
2015
2016
2017
2018
6
Nontaxable Health Coverage for Adult Children (3/30/10)
• No more imputed income for adult children up to age 26 – even if
not dependent
– Still need to impute income for non-dependent domestic partners and
domestic partner children
2010
2011
2012
2013
2014
2015
2016
2017
2018
7
Early Retiree Reinsurance Program (6/21/10)
• Temporary $5 billion insurance program
• 55+ retirees, not Medicare eligible
• Reimburses 80% of claims from $15,000 - $90,000
• Plan sponsor can use reimbursements to reduce premiums,
copays, deductibles, coinsurance, etc. for plan participants or to
reduce health benefit or premium costs for sponsor
• Maintenance of effort requirement –
– Plan sponsor’s plan contributions cannot decrease
• Applications became available June 2010
– Claims not yet accepted
2010
2011
2012
2013
2014
2015
2016
2017
2018
8
Consumer Information Requirements (3/23/10 and 7/1/10)
• Consumer assistance
– Federal grants to states to establish health insurance consumer
assistance offices to assist consumer with complaints, appeals,
enrollment and premium tax credits
– Effective 3/23/10
• Internet portal
– HHS developed Internet consumer tool to help individuals and small
employers shop for affordable coverage
– Effective 7/1/10
– www.healthcare.gov
2010
2011
2012
2013
2014
2015
2016
2017
2018
9
Coverage of Adult Children to Age 26 (plan years beginning on or
after 9/23/10)
• For plans covering children
• Up to age 26, regardless of residency, marital or dependent status
• Special enrollment notice required
• Cannot impose greater costs for adult children
• Special grandfathered rule – if other
employer coverage is available
2010
2011
2012
2013
2014
2015
2016
2017
2018
10
Restrictions on Lifetime and Annual Dollar Limits
(plan years beginning on or after 9/23/10)
• Lifetime Limits: Lifetime limits on essential health benefits are
prohibited for plan years beginning on or after 9/23/2010
• Annual Limits: Restricted annual limits on essential health benefits
are allowed until 1/1/2014, and then prohibited
• Non-Essential Health Benefits: Annual and lifetime limits are
permissible
2010
2011
2012
2013
2014
2015
2016
2017
2018
No Lifetime Limits on “Essential Health Benefits”
(plan years beginning on or after 9/23/10)
• “Essential Health Benefits” – statutory list:
−
−
−
−
−
−
−
Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn care
Mental health and substance abuse disorder treatment
Prescription drugs
Rehabilitative and habilitative service
and devices
− Laboratory services
− Preventive and wellness services and
chronic disease management
− Pediatric services
• Waiting for further guidance
2010
2011
2012
2013
2014
2015
2016
2017
2018
Restricted Annual Limits on Essential Benefits (plan years
beginning on or after 9/23/10)
• Before 2014: Annual limits on essential health benefits are
permitted, but not below these levels:
– Plan years beginning 9/23/2010 – 9/22/2011: $750,000
– Plan years beginning 9/23/2011 – 9/22/2012: $1.25 million
– Plan years beginning 9/23/2012 – 12/31/2013: $2 million
• Effective 2014: Annual limits on essential health benefits are
prohibited for plan years beginning January 1, 2014
2010
2011
2012
2013
2014
2015
2016
2017
2018
13
Limited Rescission of Coverage (plan years beginning on or
after 9/23/10)
• No retroactive terminations except for:
– fraud
– intentional misrepresentation of material fact or
– non-payment
2010
2011
2012
2013
2014
2015
2016
2017
2018
14
Pre-Existing Condition Exclusions (plan years beginning on or
after 9/23/10)
• Plan Years Beginning On or After September 23, 2014: Group
health plans may no longer have pre-existing condition exclusions
for children under age 19
• Plan Years Beginning January 1, 2014: No pre-existing condition
exclusions for anyone
2010
2011
2012
2013
2014
2015
2016
2017
2018
15
Insured Medical Loss Ratio (plan years beginning on or after 9/23/10)
• Insured plans must report the medical loss ratio (incurred losses
and lost adjustment expenses compared to earned premiums)
• If medical loss ratio is less than minimum, must provide participants
with a pro rata rebate
• Minimum for large group market is 85%
• Minimum for small group market is 80%
2010
2011
2012
2013
2014
2015
2016
2017
2018
16
Insured Plans Must Meet Nondiscrimination Rules
(plan years beginning on or after 9/23/10)
• No discrimination in favor of highly compensated
employees in eligibility or benefits
– Long-time self-funded plan rule
– Now applies to insured plans
– Not applicable to grandfathered plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
17
Emergency Service Provisions (plan years beginning on or after 9/23/10)
• Must cover emergency services without prior
authorization and out‐of‐network as if in‐network
– Not applicable to grandfathered plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
18
Primary Care Provider Designations (plan years beginning on or
after 9/23/10)
• Must allow OB/GYN/Pediatrician to be
designated as primary care provider
– Not applicable to grandfathered plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
19
First Dollar Preventive Care (plan years beginning on or after 9/23/10)
• Must cover specified services and items without
deductible, copayment or coinsurance
• Network providers only
• Covered services include certain U.S. Preventive
Services Task Force recommendations,
vaccines recommended by Advisory Committee
on Immunization Practices and Bright Futures,
guidelines developed by the Health Resources
and Services Administration with the American
Academy of Pediatrics
• List of specified services and items will be updated
• Not applicable to grandfathered plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
20
New External Appeals Process (plan years beginning on or after 9/23/10)
• No major changes for most insured plans
• New process for self-funded plans – need additional guidance
– Claims for benefits only (not eligibility)
• Internal ERISA claims process still applies
– New denial notice requirements (DOL to issue models)
– New non-English language requirements
– Strict compliance required
• 4980D $100 / day penalty for non-compliance
2010
2011
2012
2013
2014
2015
2016
2017
2018
21
New Form W-2 Reporting Requirement (1/1/11)
• Report cost of employer-sponsored health coverage
–
–
–
–
2010
Excludes contributions to HSAs, FSAs, Archer MSAs
Excludes truly stand-alone vision and dental
Informational only, not taxable
Systems ready by 1/30/11, but for most Forms W-2, 1/31/12
requirement
2011
2012
2013
2014
2015
2016
2017
2018
22
Voluntary Public Long-Term Care (1/1/11)
• CLASS Act
• Optional for employers to auto enroll employees
• Premiums will be determined annually by
Secretary of HHS
• Benefits will be paid from new public trust
fund
2010
2011
2012
2013
2014
2015
2016
2017
2018
23
New Summaries of Coverage (3/23/12)
• Four-page maximum summary
– Additional to SPD
– HHS models by 3/23/11
• Notice of material modifications
– 60 days before effective date of change
2010
2011
2012
2013
2014
2015
2016
2017
2018
24
Loss of Retiree Drug Subsidy Deduction (2013)
• Loss of deduction for 28% Medicare Part D drug subsidy
– Effective in 2013, but accounting rules
require employer to take immediate
charge for quarter of date of enactment
– Will cause employers to rethink
retiree drug offerings — may
switch to PDPs / other options
2010
2011
2012
2013
2014
2015
2016
2017
2018
25
Medicare Tax Increases (1/1/13)
• Additional Medicare tax on wages — 0.9% on wages over $250,000
(jt.) / $200,000 (others)
• Unearned income Medicare contribution tax — new 3.8% tax on
“net investment income” for taxpayers with modified AGI over
$250,000 (jt.) / $200,000 (others)
– Net investment income — interest, dividends, capital gains, annuities,
royalties and rents and certain trade or business income
– Excludes qualified retirement plan distributions
– Unclear whether includes nonqualified plan distributions
2010
2011
2012
2013
2014
2015
2016
2017
2018
26
Impact on Account-Based Plans (1/1/11 and 1/1/13)
• No OTC medications reimbursed under HSAs, FSAs, HRAs,
except by prescription or insulin (effective for expenses incurred on
or after 1/1/11)
• HSA excise tax increase
– 20% excise tax on withdrawals for non-medical expenses
(effective 1/1/11)
• Limit FSA contributions to $2,500, indexed in future years
(effective 1/1/13)
2010
2011
2012
2013
2014
2015
2016
2017
2018
27
Fee (per participant) for Patient-Centered Outcomes Research
(plan years ending after 9/30/12)
• Fee on each health insurance policy or self-funded plan
• First year fee is $1 per participant to fund federal patient-centered
outcomes research
• Increases to $2 in second year and indexed for future years
• January 1, 2013 for calendar-year plans
• Imposes as a tax
2010
2011
2012
2013
2014
2015
2016
2017
2018
28
Additional Insurance Reforms (plan years beginning on or after 1/1/14)
None of these apply to grandfathered plans
• Non-discrimination against health care provider
– Plan cannot limit provider if within provider’s license
• Guaranteed Issue / Renewal
– Health insurance issuers offering coverage in the individual
and group markets must accept every employer and
individual who applies for coverage
– Not applicable to self-funded plans
• Clinical trials and routine expenses for clinical trials must
be covered for cancer and life-threatening diseases.
• Rating Discrimination
– Not applicable to self-funded plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
29
Cost Sharing Limits (plan years beginning on or after 1/1/14)
• Cost-sharing on essential health benefits cannot
exceed the out-of-pocket HDHP limit in 2014
indexed for future years ($5,950 / $11,900 in 2010)
• Cost-sharing includes deductible, coinsurance
and copayments, but not premiums
• Not applicable to grandfathered plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
30
Limited Waiting Periods (plan years beginning on or after 1/1/14)
• Effective for plan years beginning on or after
January 1, 2014
• Waiting period to enroll in group health plan
cannot exceed 90 days
2010
2011
2012
2013
2014
2015
2016
2017
2018
31
New Annual Reporting Requirements (1/1/14)
• Report coverage, cost of coverage, employees covered, etc.
• Additional reporting for large employers regarding waiting periods,
premium costs, etc.
2010
2011
2012
2013
2014
2015
2016
2017
2018
32
Increased Wellness Incentive (unclear effective date)
• From 20% to 30% of employee premiums lost
• Agency discretion to increase to 50%
• Guidance needed regarding
grandfathered plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
33
Auto-Enrollment (unclear effective date)
• Auto-enrollment for full-time employees
(employers with more than 200
employees)
2010
2011
2012
2013
2014
2015
2016
2017
2018
34
Creation of Health Insurance Exchanges (2014)
• By 2014
• State insurance market — run by government or non-profit entities
• For individuals and businesses < 100 employees; larger businesses
may be allowed to buy in beginning 2017
• Will offer four comprehensive plans (varying co-pays / deductibles)
and one catastrophic plan
• Employer requirement to provide written notice to employees about
exchange and potential premium credits — effective 2013
2010
2011
2012
2013
2014
2015
2016
2017
2018
35
Employer Mandates (1/1/14)
• Employer Mandates
– Applies to “large” employers (50+ employees)
• Full time and part time employees (on full time equivalent basis) count to
determine 50
• Full time = 30+ hours / week, average (period for determination unclear)
– Penalties apply for no coverage / unaffordable coverage
2010
2011
2012
2013
2014
2015
2016
2017
2018
36
Employer Mandates – No Coverage (1/1/14)
• No Coverage Penalty
– If employer fails to provide full time employees and dependents
opportunity to enroll in minimum essential coverage, and
– One or more full time employees enroll in an exchange and receive a
premium tax credit or cost-sharing reduction,
– Employer penalty = $2,000 per full time employee
– Minimum essential coverage means any employer-sponsored major
medical coverage
– If you have no employees with income < 400% of federal poverty
level, this penalty will not apply:
• For 2009, $43,230 individual, $88,200 family
2010
2011
2012
2013
2014
2015
2016
2017
2018
37
Employer Mandates – Unaffordable Coverage (1/1/14)
• Unaffordable Coverage Penalty
– If employer offers full time employees and dependents opportunity to
enroll in minimum essential coverage and
– One or more full time employees enrolls in exchange and receives
premium tax credit or cost-sharing reduction because either:
• Employee’s share of premiums > 9.5% of income, or
• Actuarial value of coverage employer provides < 60% of full value, then
Employer penalty = $3,000 per full time employee who receives a tax
credit or cost-sharing reduction
• May not exceed penalty for no coverage
– If you have no employees with income < 400% of federal poverty
level, this penalty will not apply
2010
2011
2012
2013
2014
2015
2016
2017
2018
38
Employer Mandates – Vouchers (1/1/14)
• Free Choice Vouchers:
– Effective 1/1/14
– Applies to employers that offer coverage and pay part of the cost
• To qualify, employees must:
– Meet lower income requirements (< 400% of federal poverty) and
– Contribute 8-9.8% of income and
– Not participate in employer plan
2010
2011
2012
2013
2014
2015
2016
2017
2018
39
Employer Mandates – Vouchers (1/1/14)
• Voucher = cost which employer would have paid if employee were
covered under plan for which employer pays the largest portion of
plan cost (self or family depending on employee’s election)
• Employer pays amount of exchange credits for cost of coverage
employee elects
• Excess amounts paid to employee, tax-free
• Employee who gets voucher does not qualify for premium tax credit
in exchange
• Need further guidance on how to calculate employee cost for
employer’s plan, amount employer must contribute, how this
program interacts with unaffordable coverage penalty, etc.
2010
2011
2012
2013
2014
2015
2016
2017
2018
40
Individual Mandates (1/1/14)
• Individual Mandate
– Requires individuals to obtain minimum essential coverage or pay tax
penalty
• Starts at $95 / individual — 2014
• Up to $695 / individual, $2,085 / family — 2016
• Exemption if uninsured less than three months
2010
2011
2012
2013
2014
2015
2016
2017
2018
41
Taxation of High Cost Plans (2018)
• “Cadillac plan” tax
– High cost plan excise tax
– Effective 2018
• 40% excise tax on value of employer-provided coverage over $10,200 (self) /
$27,500 (other)
– Increased levels for high risk jobs, multi-employer plans, plans with higher
cost due to age / gender
• Tax on all employer-sponsored health coverage
– Includes FSA, HSA, on-site medical clinics, Medicare supplemental
policies, but excludes stand-alone dental and vision, long-term care,
accident and disability insurance, liability insurance, auto medical
insurance, employee pay-all hospital indemnity and specified disease or
illness policies
• Self-funded plans — employer pays tax
• Insured plans — insurance company pays tax
2010
2011
2012
2013
2014
2015
2016
2017
2018
42
Questions?
Maureen Maly
(612) 766-8414
mmaly@faegre.com
fb.us.5504793