Health Care Reform: The Good, The Bad and the Ugly Andrew S. Williams 330 N. Wabash Avenue, Suite 1700 Chicago, IL 60611 (312) 755-3145 awilliams@agdglaw.com www.benefitslawgroupofchicago.com Andrew S. Williams has practiced in the employee benefits and ERISA arena since ERISA was passed in 1974. He has been recognized by his peers through a survey conducted by Leadings Lawyers Network as among the top 5 percent of Illinois lawyers in Small, Closely and Privately Held Business Law and Employee Benefits Law. He maintains a website at www.benefitslawgroupofchicago.com with additional updates, commentary and analysis of benefits and employment topics. 2011 AGDG – All rights reserved. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa PPACA will impose: • expanded access • mandated benefits • compliance responsibilities • corresponding costs increases © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 2 Andrew S. WIliams awilliams@agdglaw.com Who Are The Uninsured? • Those who do not have access to employer-provided coverage, including the unemployed © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 3 Andrew S. WIliams awilliams@agdglaw.com • Those with family incomes over $75,000 who elect not to be covered © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 4 Andrew S. WIliams awilliams@agdglaw.com • Those who are already eligible for government health coverage and have not enrolled © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 5 Andrew S. WIliams awilliams@agdglaw.com • Undocumented workers © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 6 Andrew S. WIliams awilliams@agdglaw.com PPACA is intended to help millions more Americans obtain health insurance coverage, but its requirements will affect almost all of us, beginning now © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 7 Andrew S. WIliams awilliams@agdglaw.com Consider the following overview of only the most significant changes: © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 8 Andrew S. WIliams awilliams@agdglaw.com THE GOOD (current requirements only) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 9 Andrew S. WIliams awilliams@agdglaw.com • Subject plans must cover otherwise eligible children under age 19 regardless of any pre-existing conditions © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 10 Andrew S. WIliams awilliams@agdglaw.com • PPACA prohibits cancellation of individual policies because of faulty or incomplete information disclosed on application forms (there’s an exception for fraud) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 11 Andrew S. WIliams awilliams@agdglaw.com • Lifetime coverage maximums are abolished © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 12 Andrew S. WIliams awilliams@agdglaw.com • Coverage of adult children up to age 26 is required under a parent’s group health plan, regardless of their student, dependency or marital status © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 13 Andrew S. WIliams awilliams@agdglaw.com • Insurers must rebate a portion of premiums to policy holders if more than 15 percent of premium revenue (20 percent for small group and individual plans) is expended on costs other than payment of medical claims © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 14 Andrew S. WIliams awilliams@agdglaw.com • Except for “grandfathered” plans, group health coverage will also have to provide: © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 15 Andrew S. WIliams awilliams@agdglaw.com • first dollar care for designated diagnostic procedures (immunizations, blood pressure checks, mammograms and colon cancer screenings) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 16 Andrew S. WIliams awilliams@agdglaw.com • emergency medical services must be available without pre-authorization or outof-network surcharges © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 17 Andrew S. WIliams awilliams@agdglaw.com • participants must be allowed to choose a primary care provider in plans which require one © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 18 Andrew S. WIliams awilliams@agdglaw.com • Additional Medicare benefits include lower Part D prescription drug costs, “free” annual physical exams and certain “free” preventative services © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 19 Andrew S. WIliams awilliams@agdglaw.com Miscellaneous other perks include: • a health care tax credit for employers with fewer than 25 employees with an average wage of less than $50,000 per year, and • an exemption from the penalties for failure to provide employee health coverage for employers with 49 or fewer employees © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 20 Andrew S. WIliams awilliams@agdglaw.com THE BAD © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 21 Andrew S. WIliams awilliams@agdglaw.com Coverage mandates and other expansions of coverage will cost additional premium dollars, estimated at between an extra 1 to 9 percent of premium expense this year. That’s on top of premium increases reflecting the general upward trend of medical costs. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 22 Andrew S. WIliams awilliams@agdglaw.com Extra taxes, incentives and other revenue raising rules affect individuals and a wide variety of industries ranging from tanning salons to bio fuel producers © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 23 Andrew S. WIliams awilliams@agdglaw.com Individual Mandate Excise Tax: Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following: 1 Adult 2 Adults 3+ Adults 2014 1% AGI/$95 1% AGI/$190 1% AGI/$285 2015 2% AGI/$325 2% AGI/$650 2% AGI/$975 2.5% AGI/$1390 2.5% AGI/$2085 2016+ 2.5% AGI/$695 © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 24 Andrew S. WIliams awilliams@agdglaw.com Employer Mandate Tax (Jan. 2014): If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees. This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 25 Andrew S. WIliams awilliams@agdglaw.com Surtax on Investment Income (Jan. 2013): This increase involves the creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 26 Andrew S. WIliams awilliams@agdglaw.com Excise Tax on Comprehensive Health Insurance Plans (Jan. 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans (plans charging more than $10,200 single/$27,500 family annual premiums) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 27 Andrew S. WIliams awilliams@agdglaw.com Hike in Medicare Payroll Tax (Jan. 2013): Withholding tax for higher incomes (over $200,000 individual, $250,000 married) increases from 1.45% to 2.35% (employee portion) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 28 Andrew S. WIliams awilliams@agdglaw.com Medicine Cabinet “Tax” (Jan. 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-thecounter medicines (except insulin) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 29 Andrew S. WIliams awilliams@agdglaw.com HSA Withdrawal Tax Hike (Jan. 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 30 Andrew S. WIliams awilliams@agdglaw.com Flexible Spending Account Cap – a/k/a “Special Needs Kids Tax” (Jan. 2013): Imposes cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 31 Andrew S. WIliams awilliams@agdglaw.com Tax on Medical Device Manufacturers (Jan. 2013): This law imposes a new 2.3% excise tax on medical devices © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 32 Andrew S. WIliams awilliams@agdglaw.com Raise “Threshhold” for Medical Itemized Deduction from 7.5% to 10% of AGI (Jan. 2013) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 33 Andrew S. WIliams awilliams@agdglaw.com Tax on Indoor Tanning Services (July 1, 2010): New 10 percent excise tax on indoor tanning salons © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 34 Andrew S. WIliams awilliams@agdglaw.com • Tax on Drug Companies (Jan. 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 35 Andrew S. WIliams awilliams@agdglaw.com • States are responsible for additional Medicare and Medicaid costs • Medicare premiums for Part B and Part D coverage also will increase in 2011 for higher income recipients © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 36 Andrew S. WIliams awilliams@agdglaw.com Non-grandfathered, self-insured plans may have to engage independent claims review organizations (either directly or through their third party administrators) in order to satisfy PPACA’s new external claims review requirements © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 37 Andrew S. WIliams awilliams@agdglaw.com Non-grandfathered fully insured plans will have to comply with nondiscrimination rules that previously applied only to self-insured plans. Failure to comply in an insured plan exposes the employer to an excise tax of $100 per day per participant, not just the taxation of benefits to highly compensated employees (enforcement of this provision has been postponed indefinitely) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 38 Andrew S. WIliams awilliams@agdglaw.com THE UGLY Click To Play : http://www.youtube.com/watch?v=1LRcLMScEqo © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 39 Andrew S. WIliams awilliams@agdglaw.com PPACA reforms technically allow employers to keep their group health plans as they existed on March 23, 2010 if they meet certain requirements for “grandfathered” plans © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 40 Andrew S. WIliams awilliams@agdglaw.com Premium changes are not taken into account when determining whether or not a plan is grandfathered © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 41 Andrew S. WIliams awilliams@agdglaw.com Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to participants. Examples of prohibited changes include: © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 42 Andrew S. WIliams awilliams@agdglaw.com • A Significant Cut or Reduction in Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 43 Andrew S. WIliams awilliams@agdglaw.com • Raising Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 44 Andrew S. WIliams awilliams@agdglaw.com • Significantly Raising Co-Payment Charges. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 45 Andrew S. WIliams awilliams@agdglaw.com • Significantly Raising Deductibles. Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 46 Andrew S. WIliams awilliams@agdglaw.com • Significantly Lowering Employer Contributions. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 47 Andrew S. WIliams awilliams@agdglaw.com • Adding or Reducing an Annual Limit on What the Insurer Pays © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 48 Andrew S. WIliams awilliams@agdglaw.com For insured plans, insurance companies probably will impose plan changes without regard to grandfathered status © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 49 Andrew S. WIliams awilliams@agdglaw.com Accordingly, by government estimates, about 80 percent of existing small business plans will be unable to maintain their grandfathered plan status – those employers will not be able to keep their current plan if they like it © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 50 Andrew S. WIliams awilliams@agdglaw.com What To Do? © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 51 Andrew S. WIliams awilliams@agdglaw.com Because insurers’ gross margin on policy premiums are now limited to 15 percent (20 percent for small group plans and individual policies), broker commissions are likely to be reduced or eliminated – so commission fee brokers may be a thing of the past. © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 52 Andrew S. WIliams awilliams@agdglaw.com Consider plan design changes to shift high risk employees to the state insurance exchanges © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 53 Andrew S. WIliams awilliams@agdglaw.com Anti-discrimination rules for insured group health plans require careful planning while definitive guidance is being prepared – © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 54 Andrew S. WIliams awilliams@agdglaw.com • Don’t continue a two-tiered plan • Be careful with any executive agreement that provides additional health benefits, including subsidized COBRA © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 55 Andrew S. WIliams awilliams@agdglaw.com Consider personal tax strategies to minimize exposure to the 3.8 percent health care surtax or investment income effective starting in 2013 © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 56 Andrew S. WIliams awilliams@agdglaw.com Harvest capital gains in 2012 © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 57 Andrew S. WIliams awilliams@agdglaw.com Convert conventional IRAs to Roth IRAs © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 58 Andrew S. WIliams awilliams@agdglaw.com Consider tax-exempt or tax-deferred investments (municipal bonds, taxdeferred annuities, life insurance, real estate, and charitable remainder trusts) © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 59 Andrew S. WIliams awilliams@agdglaw.com Discontinue your employer provided group health plan © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 60 Andrew S. WIliams awilliams@agdglaw.com The above material is intended for general information and promotional purposes, and should not be relied on or construed as professional advice. Under the Illinois Rules of Professional Conduct, the above information may be considered advertising material. The submission of this information is not intended to create, and receipt of it does not create, a lawyer-client relationship © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 61 Andrew S. WIliams awilliams@agdglaw.com Andrew S. Williams (312) 755-3145 awilliams@agdglaw.com www.BenefitsLawGroupofChicago.com Aronberg Goldgehn Davis & Garmisa 330 N. Wabash Avenue Suite 1700 Chicago, IL 60611 © Copyright 2011 Aronberg Goldgehn Davis & Garmisa 62 Andrew S. WIliams awilliams@agdglaw.com