Infinisource, Inc Consumer Driven Health Care
© 2011 All rights reserved.
In the fourteen years Karen Kirkpatrick has worked
with Infinisource, she has gained a national reputation
for being one of the foremost experts on COBRA,
HIPAA, FMLA and Consumer Driven Health Plan
Options. She has conducted more than 1,000 seminars
and executive briefings on numerous federal insurance
laws and consumer driven health care. She has written
or contributed to several publications, including HIU, the
magazine of the National Association of Health
Underwriters, as well as the National Health
Information’s Consumer Driven Health Care.
Karen brings Infinisource the valuable expertise of many
years of marketing and professional development
experience. She has been actively involved with
Toastmasters International, which helps individuals
become more effective speakers, leaders and listeners.
Introduction to Exchanges
Intro Letter to States
• “states have the opportunity to play a major role in the creation and
operation of the Health Insurance Exchanges -new competitive insurance
marketplaces where millions of Americans and small businesses will be
able to purchase affordable coverage. Exchanges will give these
consumers and employers similar health insurance options as are available
to Members of Congress. As we look ahead to the establishment of the
Exchanges and other reforms, it is essential that we work closely with
states every step of the way.”-Kathleen Sebelius to the states
What is an Exchange?
• An Exchange is a mechanism for organizing the health insurance
marketplace to help consumers and small businesses shop for coverage in
a way that permits easy comparison of available plan options based on
price, benefits and services, and quality. By pooling people together,
reducing transaction costs, and increasing transparency, Exchanges create
more efficient and competitive markets for individuals and small
Governance and Models
• Governance
– Public agency model
– Public non-profit model
– Quasi-governmental model
• Models
– Clearinghouses
– Active purchasers
– Market organizers
Multi-State Plans Within Exchanges
The Director of the Office of Personnel Management (referred to in this section as
the ‘Director’) shall enter into contracts with health insurance issuers (which may
include a group of health insurance issuers affiliated either by common ownership
and control or by the common use of a nationally licensed service mark), without
regard to section 5 of title 41, United States Code, or other statutes requiring
competitive bidding, to offer at least 2 multi-State qualified health plans (one must
be non-profit) through each Exchange in each State. Such plans shall provide
individual, or in the case of small employers, group coverage.
Multi-State Plan Criteria
• Uniform in each state
• Qualified Health Plans (QHP) for bronze, silver, gold
and catastrophic plans
• Meets rating requirements
• Offered in all states that have adopted adjusted
community rating prior to 3/23/10
Co-ops Within Exchanges
• A non-profit entity in which the same people who
own the company are insured by the company.
Cooperatives can be formed at a national, state or
local level, and can include doctors, hospitals and
businesses as member-owners.
States Responsibilities
• Each state must establish an individual and a
small business exchange
• Small Business Health Options Program
(SHOP) exchanges are established to assist
small employers
– Up to 2016: <50
– Post 2016: 1-100
States Responsibilities
• States may operate multiple exchanges within the state
• States may jointly form regional exchanges
• A federal exchange will be established for states that choose
not to do it themselves
• Exchanges must be operational for open enrollment by July
Exchange Principles & Priorities
Establishing a state-based exchange
Promoting efficiency
Avoiding adverse selection
Streamlined access and continuity of care
Public outreach and stakeholder involvement
Financial accountability
Exchange Core Functions
• Certification, recertification and decertification of plans
• Operation of a toll-free hotline
• Maintenance of a website for providing information on plans to
current and prospective enrollees
• Assignment of a price and quality rating to plans
• Presentation of plan benefit options in a standardized format
• Provision of information on Medicaid and CHIP eligibility and
determination of eligibility for individuals in these programs
Functions Continued
• Provision of an electronic calculator to determine the actual cost of
coverage taking into account eligibility for premium tax credits and cost
sharing reductions
• Certification of individuals exempt from the individual responsibility
• Provision of information on certain individuals identified in Section 1311
(d)(4)(I) to the Treasury Department and to employers
• Establishment of a Navigator program that provides grants to entities
assisting consumers as described in Section 1311(i)
Additional Functions
• Presentation of enrollee satisfaction survey results under
Section 1311(c)(4)
• Provision for open enrollment periods under Section
• Consultation with stakeholders, including tribes, under
Section 1311(d)(6)
• Publication of data on the Exchange’s administrative costs
under Section 1311(d)(7)
Oversight Responsibilities
• In order for insurers to be certified as Qualified Health
Plans, they must:
Network adequacy
Accreditation for performance measures
Quality improvement and reporting
Uniform enrollment procedures
Qualified Health Benefit Plans
(must include)
Essential benefits
Fully insured plans only
Accreditation on clinical quality measures
No pre-existing conditions for all ages
No annual limits on essential health benefits
No lifetime dollar limits on essential health benefits
Minimum of five levels of coverage
Employer Responsibilities
Automatic enrollment
Notification of exchanges and subsidies
Free Rider penalty
Employer penalty
Reporting requirements
Free choice vouchers
Agents Role Within Exchanges
• There is no mention of agents in the Senate Bill, but in
Reconciliation Bill
• Agents can sell in/out of the exchange
• Legislation anticipates that coverage will continue to be
available in/out of the exchange
• All exchange products are private products with carriers
setting commission just like other plans they offer
Written Plan Requirements
Legal Requirements:
Plan Documents
• Required elements
– “a written instrument”
– Identification of named fiduciary
– Description of how responsibilities are
– Funding policy
– Basis for making payments
– Procedure for amending plan
Legal Requirements:
Plan Documents (cont.)
• Optional elements
– More than one fiduciary capacity (e.g., trustee
and administrator)
– Fiduciary may employ others to fulfill its plan
– Fiduciary may appoint plan asset manager
– Incorporate SPD by reference
Legal Requirements:
• Basic questions
– Who must provide?
• Plan administrators
– To whom must it be provided?
• Covered employees
– How may it be provided?
• In a manner “reasonably calculated to ensure receipt”
• For example, first-class mail, hand-delivery, and electronic
distribution, if the employees have access to computers in
the workplace and can print a copy easily.
• Provide non-English assistance
Legal Requirements:
SPDs (cont.)
• Basic questions
– When must it be provided?
• Within 90 days of enrollment
• Within 120 days of plan formation
• Every five years if changes made to SPD
information or plan is amended
Legal Requirements:
SPDs (cont.)
• Content requirements
– Plan name, employer’s name and address
– Plan sponsor’s EIN and plan number
– Indication of plan year
– Plan type (e.g., health FSA, group health plan)
– Identification of how plan is administered
Legal Requirements:
SPDs (cont.)
• Content requirements
– Plan administrator’s and trustee’s name,
address and phone
– Designated legal agent’s name, address and
statement that process may be served on
plan administrator/trustee
Legal Requirements:
SPDs (cont.)
• Content requirements
– Special statement for union plans
– Eligibility statement, benefit summary and
QMCSO information
– Participant ineligibility/termination
Legal Requirements:
SPDs (cont.)
• Content requirements
– Plan termination and amendment information
– COBRA statement of rights
– Contribution sources
– Identification of funding medium
– Claims procedures
Legal Requirements:
SPDs (cont.)
• Content requirements
– ERISA rights statement
– Statement related to newborn children
– Other required notices
• HIPAA portability
• Other ERISA mandates
Legal Requirements:
• Summary of Material Modifications (SMM)
– For material modifications or SPD changes
– Must provide within 210 days of plan year end (or
within 60 days of change if material benefit reduction)
– “… written in a manner calculated to be understood by
the average plan participant …”
– Includes changes to rates, premiums, contributions,
Summary of Benefits and Coverage
• PUR: To provide a “four-page” summary of benefits for
plan comparison purposes
• WHO: Participants
• DEL: With enrollment materials
• TIM: March 23, 2012, then 30 days before plan year or
60 days before material modification and upon request
• PEN: Up to $1,000 for each failure and $100 daily IRS
excise tax
March 23, 2012 start date is likely to be delayed
W-2 Reporting
IRS Notice 2011-28
W-2 Guidance and Transition Relief
• Earliest deadline
– The earliest that employers must report the cost of
health coverage is January 2013. Therefore, if an
employee terminated in 2012 requests a W-2
earlier than January 31, 2013, the W-2 need not
contain the required information in Box 12.
• Small employer delay
– If an employer is required to file fewer than 250
W-2s in 2011, it is excused from the reporting
requirement until the 2013 tax year.
W-2 Guidance
• What to report
– Employers must report the aggregate cost of
coverage, both the employer and employee
portions, even if some of it is paid on a post-tax
basis. Special rules come into play with flex
credits through a §125 cafeteria plan.
• How to calculate the cost
– Three methods are permissible:
• What is charged for the COBRA premium (less the two percent
administrative fee)
• The total premium charged for fully insured policies
• A modified COBRA premium where an employer subsidizes the cost of
coverage or determines cost by applying the cost of coverage in a prior
plan year
W-2 Guidance
• Coverage not reported
– The salary reduction portion of Health FSAs (you
must report any flex credits or employer
– Health Reimbursement Arrangements
– Stand-alone dental coverage
– Stand-alone vision coverage
– HSAs and Archer MSAs
– Long-term care
– Self-insured plans not subject to federal
continuation coverage (e.g., self-insured church
plans, self-insured small employer plans)
– Governmental plans for the military
Medicare Secondary Payer
MSP Topics
• COBRA events
• Lawsuit regarding employer advice
• MSP and HRAs
Medicare Entitlement
COBRA terminates for former employee when he becomes
Medicare entitled. Spouse remains on COBRA for 18 months
total unless becomes Medicare entitled
January 15, 2011 July 1, 2011
Qualifying Event
Medicare entitlement
COBRA terminates
for employee
July 15, 2012
COBRA terminates for
spouse and dependents
Medicare Entitlement
Qualified Beneficiaries entitled
to 36 months of COBRA coverage
(From the date of the Medicare entitlement)
January 1, 2011
Employee becomes
entitled to Medicare
(no loss of coverage)
December 31, 2013
July 15, 2011
Qualifying Event COBRA terminates for
Termination (causes
a loss of coverage)
spouse and dependents
Why Offer an FSA?
FSAs save employers money. FSA contributions are not subject to FICA or FUTA
taxes. Thus, the more employees contribute, the more employers save.
FSAs save employees money.Because FSA contributions are tax-free, they are not
subject to FICA, federal (and most state) income tax withholding. Distributions are
tax-free also.
FSAs are flexible.Employers have plenty of plan design options: general purpose,
limited purpose, deductible-only, seed or matching contributions.
The Use-or-Lose Rule helps employers. If a participant fails to spend the entire
balance when the plan year (or any grace period) ends, the unused funds can
defray reasonable administrative expenses.
The Uniform Coverage Rule helps employees with unexpected costs.Participants
have access to the full balance as of day one of the plan year. While this could
negatively affect employers, the risk is usually balanced by the Use-or-Lose Rule.
FSAs help with out-of-pocket expenses.Rising health care costs often mean higher
deductibles and noncovered expenses. FSAs fill the void.
• Health FSAs are not always subject to COBRA.Generally, an overspent
Health FSA is not subject to COBRA. Health FSA COBRA coverage only lasts
through the end of the current plan year.
• Health FSAs can cover adult children.Because of the Affordable Care Act
(ACA), participants can cover their adult children on a Health FSA until the
year in which the children turn age 27.
• You can save on orthodontia.Typically, an orthodontist provides a
discount if payment is up front, instead of month to month. Health FSAs
may now reimburse orthodontia expenses when paid, instead of when
they are incurred.
• Dependent care expenses are a no-brainer.Dependent care expenses are
usually a fixed cost that easily exceeds the $5,000 FSA limit in a year, even
for just one child. Tax-free reimbursement makes a lot of sense.
• Debit cards make it even easier.Debit card auto-substantiation rates are
usually over 90 percent, virtually eliminating the hassle of keeping receipts
and waiting for reimbursement.
How to Survive an Audit
• Can be random or prompted by complaint
• Can include multiple years
• Audit involves both an examination of records,
• An interview with the Plan Administrator-to
ensure knowledge and compliance
• Signed plan documents including all amendments in use since
• Signed Annual Report Form 5500’s and schedules since *date*
• All Summary Plan Descriptions since *date*
• All health insurance contracts and policies including all
amendments and riders covering the Plan since *date*
• Copies of all employee enrollment applications in use since
• All written agreements between the Plan and
Insurance issuer whereby certificates of creditable
coverage (Certs) are issued by a separate issuer
• To the extent there is no agreement between the
Plan and Issuer to provide Certs for individuals who
have lost coverage under the Plan or have requested
Certs, provide a list or log of issued Certs
• Written procedures provided to individuals to
request and receive Certs
• A copy of the Plan’s General Notice of
Preexisting Condition issued to enrollees and a
copy of the Individual Notice of determination
of any preexisting condition exclusion period
that applies to the individual and notification
of creditable coverage applied to the
preexisting condition exclusion period
including lists or logs of issued notices
• Notices of Special Enrollment Rights including lists
and logs of issued notices
• The plan’s Newborn’s Act notice (this should appear
in the plan’s SPD), including lists or logs of notices an
administrator may keep of issued notices
• Notices provided as required by the Women’s Health
and Cancer Rights Act, including lists or logs of issued
WHCRA Example
1998-upon enrollment and annually
• Health insurance billing invoices, premium schedules,
employee and employer contribution schedules, and/or
payroll records of withholding for benefits
• Materials describing any wellness programs or disease
management programs offered by the plan. If the program
offers a reward based on the individual’s ability to meet a
standard related to a health factor, the plan should also
include its wellness program disclosure statement regarding
the availability of a “reasonable alternative”
• Notices provided to participants and
beneficiaries explaining their rights to
continuation of coverage as required by
COBRA of 1985, including a list or log of
notices issued
• Employee census reports provided to the
health insurance providers
• All correspondence between the Plan and the
health insurance providers
• Any Service Provider Contracts in existence
since *date*, including, (Investment Manager
Agreements, Insurance Contract Agreements,
TPA Agreements, Actuary Agreements,
Accounting Agreements and Legal
• “The examiner will need copies of the items
marked with a * (which were most items in
the audit letter). Additional records may be
requested following review of the above.”
Be Prepared
• Conduct compliance reviews for COBRA
• Ensure manuals, policies and procedures are
written and adhered to
• Form 8928 compliance
• Relationship between payroll and benefits
• Thank you for attending today! If you have
any questions, please direct them to:
Alex Lara, 800-300-3838 or