What health care reform means for your company
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What Health Care Reform Means For Your Company. What Health Care Reform Means for Your Company. What Health Care Reform Means for Your Company: Patient Protection and Affordable Care Act. The past: Health Reform Changes in 2010 The present: Changes Effective in 2011 and 2013

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What Health Care Reform Means For Your Company

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What health care reform means for your company

What Health Care Reform Means For Your Company

What Health Care Reform Means for Your Company


What health care reform means for your company patient protection and affordable care act

What Health Care Reform Means for Your Company: Patient Protection and Affordable Care Act

  • The past: Health Reform Changes in 2010

  • The present: Changes Effective in 2011 and 2013

  • The future: Anticipating Changes Slated for 2014 and Beyond


What health care reform means for your company

The past:

Health Reform Changes in 2010

  • Affecting Plan Sponsors

  • Impacting Businesses


What health care reform means for your company

2010 Changes Affecting Plan Sponsors

  • Grandfathered plans

  • • Coverage for adult children

  • • Nondiscrimination rules for insured health plans

  • • Preventive care services

  • • Lifetime and annual limits

  • • Minimum loss ratios

  • • Preexisting condition exclusions

  • • Claims appeals processes

  • • Early retiree reinsurance program

  • • Expanding patient selection of providers

  • Reviews of premium increases


What health care reform means for your company

Grandfathered Plans

  • Two types of plans under health reform:

    • New health care plans

    • Grandfathered plans

  • Individuals who were enrolled in a group health plan or individual health coverage on March 23, 2010, may not be required to terminate that coverage.

  • Any group health plan or health insurance coverage to which this provision applies is considered a “grandfathered health plan” (Act Sec. 10103).

  • Grandfathered plans in general are not subject to many of the insurance and market reforms of the health reform law. However, some important provisions do apply.


Grandfathered plans

Grandfathered Plans

  • Grandfathered plans are not subject to the following:

    • compliance with nondiscrimination rules for insured plans

    • requirement to provide preventive care services

    • effective claims appeals requirement

    • primary care provider requirements

    • limits on insurance premium rates

    • guaranteed availability and renewal

    • prohibition on discrimination based on health status*

    • essential benefits coverage package

  • *HIPAA nondiscrimination rules still apply


Grandfathered plans1

Grandfathered Plans

Individual and group grandfathered plans aresubject to the following provisions:

extension of adult child coverage (Sept. 23, 2010)

prohibition on rescinding coverage (Sept. 23, 2010)

elimination of lifetime limits (Sept. 23, 2010)

prohibiting excessive waiting periods (2014)

requirements to provide uniform explanations of coverage and standardized definitions

insurer requirements to provide loss-ratio reports and rebate premiums if loss ratios fall below 80%


Grandfathered plans2

Grandfathered Plans

Group grandfathered plans are subject to the following provisions:

elimination of annual limits (Sept. 23, 2010)

elimination of preexisting condition exclusions (2014)

Coverage of adult children until age 26


Grandfathered plans3

Grandfathered Plans

Family members may enroll in a grandfathered plan in which the employee is enrolled. This rule applies if the individual was enrolled in the grandfathered plan on the date of enactment and the coverage is later renewed.

A grandfathered group health plan may provide for the enrollment of new employees and their families


What health care reform means for your company

Coverage for Adult Children

Two different provisionsaffect health coverage for adult children.

1.Group health plans with dependent child coverage must make available coverage for the enrollee’s adult children who are younger than age 26, regardless of whether or not the dependent is married. Health plans or health insurers are not, however, required to cover a child of the adult child receiving dependent coverage.

Effective for plan years beginning on or after Sept. 23, 2010 (Act Sec. 1004(a)).


What health care reform means for your company

Coverage for Adult Children

  • Plans may not terminate coverage for adult children based on any of these criteria:

    • financial dependency

    • residency with the participant student status,

    • employment,

    • eligibility for other coverage [other than for grandfathered plans before Jan. 1, 2014],

    • married status,

    • or any combination of these factors.


What health care reform means for your company

Coverage for Adult Children

  • 2.Effective on March 23, 2010, reimbursements from a group health plan for children under the age of 27 are excluded from gross income.

    • Applies to any child of the employee who as of the end of the tax year has not attained the age of 27.

    • No longer necessary for the child of the employee to be a dependent of the employee in order for this exclusion to apply.


Nondiscrimination rules for insured health plans

Nondiscrimination Rules for Insured Health Plans

  • New insured group health plans must comply with existing nondiscrimination rules for self funded plans, including:

    • nondiscrimination rules for eligibility, and

    • nondiscrimination rules for benefits (Act Sec. 1001(5)).

  • Grandfathered plans do not have to comply with these nondiscrimination rules.


Preventive care services

Preventive Care Services

Group health plans are required to cover, without any cost-sharing, certain adult preventive services and immunizations.

Also required to be covered, without any cost-sharing, are certain child preventive services.

Effective for plan years beginning on or after Sept. 23, 2010.

Grandfathered plans are not required to provide this coverage.


Preventive care services1

Preventive Care Services

  • Specific preventive care services covered include these:

    • Evidence-based items or services that are currently recommended by the U.S. Preventive Services Task Force;

    • Immunizations that are currently recommended by the Centers for Disease Control’s Advisory Committee on Immunization Practices;

    • For infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration.


Preventive care services2

Preventive Care Services

  • Special rules apply for preventive services provided to women:

    • Additional preventive care and screenings for women must be covered, without cost-sharing, as provided for in comprehensive guidelines supported by the Health Resources and Services Administration.

    • For purposes of breast cancer screening, mammography, and prevention, the current recommendations of the U.S. Preventive Services Task Force are considered the most current, other than those issued in November of 2009.

  • Health plans or issuers are not barred from providing coverage for preventive care services beyond those recommended by the U.S. Preventive Services Task Force.


Lifetime and annual limits

Lifetime and Annual Limits

Group health plans cannot impose lifetime or annual benefit limits (Act Sec. 1001(5)).

Lifetime limitsprohibited, effective for plan years beginning on or after Sept. 23, 2010.

Annual limits also barred, but there is an exception for pre-2014 annual limits.


Lifetime and annual limits1

Lifetime and Annual Limits

  • Phase-in rule

    • Before Jan. 1, 2014, restricted annual limits may be applied to “essential health benefits.”

    • Group health plans may continue to place annual or lifetime per beneficiary limits on specific covered benefits that are not essential health benefits.

    • Limits on nonessential health benefits still allowed.


Lifetime and annual limits2

Lifetime and Annual Limits

  • Annual limits before Jan. 1, 2014

    • $750,000, for a plan year beginning on or after Sept. 23, 2010, but before Sept. 23, 2011;

    • $1,250,000, for a plan year beginning on or after Sept. 23, 2011, but before Sept. 23, 2012;

    • $2,000,000, for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014.


Minimum loss ratios

Minimum Loss Ratios

  • Insurers offering group or individual health insurance must maintain certain minimum medical loss ratios (Act Sec. 1001(5)).

  • Ratio of the

    • incurred claims plus a loss adjustment expense

    • to

    • earned premiums

  • Effective for plan years beginning on or after Sept. 23, 2010.


Minimum loss ratios1

Minimum Loss Ratios

  • If minimum loss ratios are not maintained, rebates must be provided to health plan participants (effective Jan. 1, 2011).

    • Large group loss ratio minimum: 85%

    • Small group minimum loss ratio: 80%

  • Rebate equals

    • the amount by which the coverage fails to meet the minimum loss ratio

      • multiplied by

    • the total amount of premium revenue.


Minimum loss ratios2

Minimum Loss Ratios

Rebate example:

ABC Insurance Company earns $2.5 million on premiums for coverage for Large Employer, Inc.'s 280 employees.

Incurred claims plus a loss adjustment expense total $2.05 million, which results in a loss ratio of 82%. Thus, 3% is the amount by which the coverage fails to meet the minimum loss ratio by the total amount of premium revenue.

That 3% multiplied by $2.5 million results in a total annual rebate of $75,000. This would produce an average pro rata rebate of $267.86 (75,000 divided by 280 employees) for each enrollee.


Preexisting condition exclusions

Preexisting Condition Exclusions

No group health plan nor any health insurance issuer may impose a preexisting condition exclusion to limit or deny coverage, effective for plan years beginning on or after Jan. 1, 2014.

For enrollees who are under 19 years of age, the provision becomes effective for plan years beginning on or after Sept. 23, 2010 (Act Sec. 1201).


Claims appeals process

Claims Appeals Process

  • Group health plans and health insurers must implement an effective process for appeals of coverage determinations and claims, including at a minimum the following (Act Sec. 1001(5)):

    • – an established internal claims appeal process;

    • – a notice to participants of available internal and external appeals processes; and

    • – a provision allowing an enrollee to review his or her file, to present evidence and testimony as part of the appeals process.

  • • Effective for plan years beginning on or after Sept. 23, 2010.

  • • Grandfathered plans are not subject to these new claims appeals rules.


Claims appeals process1

Claims Appeals Process

External claims appeals process — two options:

(1) Plans and insurers must comply with state external review requirements that are binding and at a minimum include the consumer protections in the Uniform External Review Model Act from the National Association of Insurance Commissioners; or

(2) If state requirements do not meet minimums or if the plan is self-funded, then the plan must implement an external review process that is similar to that in the Uniform External Review Model Act and that meets standards established by the Department of Health and Human Services.


Early retiree reinsurance

Early Retiree Reinsurance

Beginning June 23, 2010, and ending on Jan. 1, 2014, a temporary reinsurance program was established that reimbursed part of the claims cost for participating employment-based plans that provide health insurance coverage for early retirees (ages 55 to 65), eligible spouses, surviving spouses, and dependents of such retirees.

The reimbursement was for 80 percent of plan claims that are between $15,000 and $90,000 (Act Sec. 1102).

Due to funding issues, CMS stopped accepting new applications on May 5, 2011, and denied health care claims incurred after December 31, 2011.


Expanding patient selection of providers

Expanding Patient Selection of Providers

Health insurance plans must allow enrollees to select any participating primary care provider available, including a pediatrician for children, and to cover emergency services provided at a hospital emergency department regardless of the hospital's participation in the plan preferred provider network and without prior authorization requirements.

Female enrollees must be able to obtain obstetrical/gynecological specialist services without a referral from another primary care provider (Act Sec. 1001(5)).

Effective for plan years beginning on or after Sept. 23, 2010.


Reviews of premium increases

Reviews of Premium Increases

  • An annual review process of “unreasonable increases” in premiums for health insurance coverage.

  • A health insurance issuer submits a justification for a premium increase prior to implementing those increases (Act Sec. 1001(5)).

  • Effective for the 2010 plan year.


2010 changes that impacted businesses

2010 Changes that Impacted Businesses

  • Small employer health insurance credit

  • Automatic health plan enrollment


Small employer health insurance credit

Small Employer Health Insurance Credit

  • Small employers receive a tax credit for nonelective contributions of at least one-half the cost of health insurance premiums paid for participating employees during tax year (Act Secs. 1421 & 10105(e)).

  • Small employer means:

    • 25 or less FTE employees;

    • average annual wages not greater than twice the applicable dollar amount for tax year ($25,000 in tax years 2010 through 2013); and

    • a qualified health care “arrangement” is in effect.


Small employer health insurance credit1

Small Employer Health Insurance Credit

  • Credit phases out as the number of FTEs increases to 25 and average annual employee compensation increases to $50,000.

  • FTE = total hours paid divided by 2,080 (only first 2,080 per employee).

  • Contribution “arrangement”:

    • uniform percentage

    • not less that 50% of premiums for qualified health plan

    • not made through salary reduction

    • after 2013 the insurance is offered through an Exchange


Small employer health insurance credit2

Small Employer Health Insurance Credit

  • Credit for tax years 2010 - 2013 is 35% (25% for tax-exempt employers) of the lesser of:

  • total amount of nonelective contributions the employer makes on behalf of its employees during the tax year, or

  • (2) total amount of nonelective contributions that would have been made if each of those employees had enrolled in a qualified health plan with a premium determined by HHS to be the average for the small group market in the state – IRS Rev. Rul. 2010-13 (irs.gov/pub/irs-drop/rr-10-13.pdf).


Small employer credit after 2013

Small Employer Credit after 2013

  • May be claimed during 2 consecutive tax year periods starting with year in which 1 or more qualified health plans is offered through an Exchange.

  • Credit amount is 50 % (35% for tax exempt employers) of the lesserof:

  • (1) total amount of nonelective contributions for premiums for qualified health plans offered to employees through an Exchange, or

  • (2) total amount of nonelective contributions that would have been made if each employee had enrolled in a qualified health plan with the average premium in the small group market in the rating area.


Small employer health insurance credit3

Small Employer Health Insurance Credit

  • Credit phase-out calculation

  • The credit is reduced (but not below zero) by the sum of:

  • The product of (a) the credit amount and (b) the number of the employer's full-time equivalent employees for the tax year in excess of ten, divided by 15; and

  • (2) The product of (a) the credit amount and (b) the employer's average annual wages in excess of the applicable dollar amount for the tax year ($25,000 in tax years beginning in 2010 through 2013) divided by the applicable dollar amount.


Automatic health plan enrollment

Automatic Health Plan Enrollment

  • Applies to employers with more than 200 full-time employees that offer one or more health plans (Act Secs. 1511 & 1512):

    • new full-time employees automatically enrolled in one of the plans

    • subject to any waiting period authorized by law

    • current employees continue to be enrolled

    • must give adequate notice and opportunity to opt out


Automatic enrollment notice of exchange

Automatic Enrollment –Notice of Exchange

Until regulations are issued, employers are not required to comply with the automatic enrollment requirements.

The Department of Labor expects to complete its rulemaking by 2014.


What health care reform means for your company

The present:

Changes Effective in 2011 and 2013

  • Impacting Plan Sponsors

  • Affecting Businesses


2011 change impacting plan sponsors

2011 Change Impacting Plan Sponsors

  • Benefits summary standards


Benefits summary standards

Benefits Summary Standards

  • Federal standards for a summary of benefits and explanation of coverage (by March 23, 2011).

  • Uniform format, using easily understood language (Act Sec. 1001(5)).

  • By March 23, 2012, group health plans must provide a summary of benefits and coverage explanation under these new rules.


  • Benefits summary standards1

    Benefits Summary Standards

    • Summaries must include:

      • Uniform definitions of standard insurance and medical terms

      • A coverage description, including cost sharing for each of the categories of essential health benefits coverage exceptions, reductions, and limitations

      • Cost-sharing provisions, including descriptions of deductibles, coinsurance, and co-pays

      • Renewability and coverage continuation provisions

      • A “coverage facts label” that includes examples

      • A statement as to whether the plan (1) provides minimum essential coverage and (2) ensures that its share of the total allowed benefit cost under the plan is no less than 60% of those costs


    2011 changes affecting businesses

    2011 Changes Affecting Businesses

    • W-2 health coverage disclosure

    • Small employer “simple cafeteria plans”

    • Over-the-counter medicines not reimbursable through HSAs & HRAs

    • Increased excise tax on HSA & HRA non-medical distributions


    W 2 health coverage disclosure

    W-2 Health Coverage Disclosure

    • Beginning with 2012 tax year (Act Sec. 9002):

    • Aggregate cost of “applicable employer-sponsored health insurance” coverage must be disclosed on employee's Form W-2 (in Box 12, Code DD). This is for information only; the amount reported is not taxable.

    • The reporting requirement was scheduled to begin with Forms W-2 for the 2011 tax year, but the IRS later made it optional for 2011. Small employers (fewer than 250 Forms W-2 in 2011) are exempt for 2012.

    • Excludes:

      • Contributions to an Archer medical savings account or Health Savings Account of an employee or spouse

      • Salary reduction contributions to a flexible spending arrangement under cafeteria plan


    W 2 health coverage disclosure1

    W-2 Health Coverage Disclosure

    • “Applicable employer-sponsored coverage” is:

    • Coverage under any group health plan made available by the employer that is excludable from gross income under Code Sec. 106, or would be if considered employer-provided coverage under Code Sec. 106

    • Regardless of whether the employer or employee pays for it

    • Does not include long-term care, accidents, or disability income insurance, or coverage only for a specified disease or illness, hospital indemnity, or other fixed indemnity insurance, the payment for which is not excludable from gross income and deductible under Code Sec. 162(l)


    Small employer simple cafeteria plans

    Small Employer “Simple Cafeteria Plans”

    Beginning in 2011, certain small employers may provide a simple cafeteria plan for their employees, under which the nondiscrimination rules of a classic cafeteria plan are treated as satisfied (Act Sec. 9022).

    A simple cafeteria plan is cafeteria plan established and maintained by an eligible employer that meets certain contribution, eligibility and participation requirements.


    Small employer simple cafeteria plans1

    Small Employer “Simple Cafeteria Plans”

    • Deemed as met by an employer establishing a simple cafeteria plan is any nondiscrimination requirement applicable to:

    • A classic cafeteria plan under Code Sec. 125(b);

    • Group-term life insurance under Code Sec. 79(d);

    • An accident and health plan under Code Sec. 105(h); or

    • A dependent care assistance program under Code Sec. 129(d)(2), (3), (4) or (8)


    Small employer simple cafeteria plans2

    Small Employer “Simple Cafeteria Plans”

    • Eligible employer:

    • Average of 100 or fewer employees on business days during either of the 2 preceding years.

    • A year is counted only if the employer existed throughout the year.

    • If not in existence throughout the preceding year, still eligible if reasonably expects to average 100 or fewer employees on business days during current year.

    • If 100 or fewer employees for any year & simple cafeteria plan is established that year, requirement is met after that if more than 100 but less than 200 employees.


    Small employer simple cafeteria plans3

    Small Employer “Simple Cafeteria Plans”

    • Contribution requirements met if:

    • Employer is required by the plan, regardless of whether a qualified employee makes any salary reduction contribution, to make a contribution to provide qualified benefits on behalf of each qualified employee, in an amount equal to:

    • a uniform percentage (not less than 2%) of the employee’s compensation for the year; or

    • an amount not less than the lesser of: (a) 6% of the employee’s compensation for the plan year, or(b) twice the amount of the salary reduction contributions of each qualified employee.


    Small employer simple cafeteria plans4

    Small Employer “Simple Cafeteria Plans”

    Option 2: If the employer chooses the second option it will be out of compliance if the contribution rate for any salary reduction contribution of a highly compensated or key employee is greater than that for any other employee.

    A “salary reduction contribution” is any amount contributed to the plan at the election of the employee and not includable in the employee’s gross income under the cafeteria plan provisions.

    “Highly compensated employee" and "key employee" are defined as under classic cafeteria plan provisions.

    “Qualified employee" is any employee who is not a highly compensated or key employee.


    Small employer simple cafeteria plans5

    Small Employer “Simple Cafeteria Plans”

    • Employee eligibility and participation requirements:

    • All employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate.

    • Each eligible employee may elect any benefit under the plan, subject to terms and conditions applicable to all participants.


    Small employer simple cafeteria plans6

    Small Employer “Simple Cafeteria Plans”

    • Employees excludable even if 1,000 hour requirement is met:

    • Not age 21 before the close of the plan year

    • Less than 1 year of service as of any day during the plan year

    • Covered under CBA if benefits covered under the plan were the subject of good faith bargaining

    • Nonresident alien working outside U.S. whose income did not come from U.S. source


    Over the counter medicines hsas hras

    Over-the-Counter Medicines, HSAs & HRAs

    • As of tax year 2011, the cost for a medicine or drug is a qualified medical expense only if it’s a prescribed drug or insulin for purposes of reimbursement through (Act Sec. 9003):

      • a health flexible spending arrangement;

      • a health reimbursement arrangement; or

      • a distribution from a health savings account or Archer medical savings account.

    • As a result, reimbursements for over-the-counter medicines are not excluded from an employee’s gross income, unlessprescribed by physician.


    Excise tax on non medical distributions

    Excise Tax on Non-Medical Distributions

    • Beginning with tax year 2011 (Act Sec. 9004):

    • The excise tax on distributions made from HSAs not used for qualified medical expenses increases from 10% to 20% of the amount includible in gross income.

    • The excise tax on distributions made from Archer MSAs not used for qualified medical expenses increases from 15% to 20% of the amount includible in gross income.


    2013 changes impacting businesses

    2013 Changes Impacting Businesses

    • Contributions to FSAs are limited to $2,500

    • Excessive employee compensation limitations

    • Medicare tax increases

    • Medicare Part D subsidy deduction repealed

    • Medical itemized deduction limit increases


    Limits on fsa contributions

    Limits on FSA Contributions

    • Beginning with 2013 tax year (Act Secs. 9005 & 10902; Reconciliation Act Sec. 1403):

    • A health flexible spending arrangement is not a qualified benefit under a cafeteria plan unless the plan has a $2,500 cap on the annual salary reduction contribution.

    • If the plan does not specifically prohibit salary reductions in excess of $2,500, the benefit under the health FSA will not be qualified.

    • As a result, employees will be subject to tax on distributions from the health FSA, thus eliminating any tax benefits of the health FSA contributions, including those under $2,500.


    Excessive employee compensation limitations

    Excessive Employee Compensation Limitations

    In a disqualified tax year after Dec. 31, 2012, applicable individual remuneration for services performed is not deductible above the amount of $500,000 (Act Sec. 9014).

    “Disqualified” tax year: any tax year for which the employer is a covered health insurance provider.

    “Applicable individual”: officer, director, or employee of a covered health insurance provider, or any individual who provides services for or on its behalf.

    There is a separate limitation for deferred deduction remuneration.


    Excessive employee compensation limitations1

    Excessive Employee Compensation Limitations

    A covered health insurance provider is:

    Tax years after Dec. 31, 2009 and before Jan. 1, 2013: employer that is a health insurance issuer and receives premiums from providing health insurance coverage.

    Tax years after Dec. 31, 2012: employer that is a health insurance issuer that receives gross premiums from providing health insurance coverage with not less than 25% of gross premiums from essential health benefits coverage.


    Medicare tax increases

    Medicare Tax Increases

    • In addition to the 1.45% employee portion of the HI (Medicare) tax imposed on wages, a 0.9% Medicare tax is imposed on every taxpayer (other than a corporation, estate or trust) who receives wages with respect to employment during any tax year beginning after Dec. 31, 2012, in excess of $200,000 (Act Sec. 9015; Reconciliation Act Sec. 1502(b)).

    • $250,000 in the case of a joint return

    • $125,000 in the case of a married taxpayer filing separately


    Medicare part d subsidy deduction repealed

    Medicare Part D Subsidy Deduction Repealed

    The rule that allows an employer, as a plan sponsor, to disregard the value of any qualified retiree prescription drug plan subsidy in calculating its business deduction for retiree prescription drug costs is repealed, effective for tax years beginning after Dec. 31, 2012 (Act Sec. 9012(b); Reconciliation Act Sec. 1407).

    The amount otherwise allowable as a business deduction for retiree prescription drug expenses is reduced by the amount of the excludable subsidy payments received.


    Medical itemized deduction limit

    Medical Itemized Deduction Limit

    • For tax years beginning after Dec. 31, 2012, the threshold to claim an itemized deduction for unreimbursed medical expenses is increased to 10% of AGI for regular income tax purposes (Act Sec. 9013).

    • Age 65 and older are exempt until Jan. 1, 2017

    • Alternative minimum tax treatment of deduction is unchanged


    What health care reform means for your company

    The future:

    Anticipating Changes Slated for 2014 and Beyond

    • Affecting Plan Sponsors

    • Impacting Businesses


    Changes affecting plan sponsors in 2014 and later

    Changes Affecting Plan Sponsors in 2014 and Later

    • Guaranteed availability and renewal

    • • Preexisting condition exclusions *

    • Minimum health coverage

    • Limits on waiting periods

    • Restrictions on premium rating

    • • Health insurance premium assistance credit

      • *covered earlier


    Guaranteed availability and renewal

    Guaranteed Availability and Renewal

    • Applies to health insurance issuers that offer health insurance coverage in the individual or group market

      • Requirement is to accept every employer and individual in the state that applies for coverage.

      • Enrollment in coverage may be restricted to open and special enrollment periods (Act Sec. 1201).

      • Effective for the plan years beginning on or after Jan. 1, 2014.


    Minimum health coverage

    Minimum Health Coverage

    Health insurers offering coverage in the individual or small group health insurance market must ensure that the coverage they offer includes the essential health benefits package required under the health reform law, and that the annual cost share under the plan does not exceed the statutory limits (Act Sec. 1302).

    Effective for plan years beginning on or after Jan. 1, 2014.


    Minimum health coverage1

    Minimum Health Coverage

    Essential Benefit Package

    Beginning in 2014, health insurance will be available for purchase through state-based American Health Benefit Exchanges. Only "qualified health benefit plans" may be sold via an Exchange.

    The essential health benefits package offered by qualified health benefit plans must include specific categories of benefits, meet certain cost-sharing standards, and provide certain levels of coverage. In the individual and small group markets, the scope of benefits provided must equal benefits provided under a "typical" employer-sponsored plan.


    Minimum health coverage2

    Minimum Health Coverage

    • Minimum items to be covered in the essential health benefits package:

      • Ambulatory patient services;

      • Emergency services;

      • Hospitalization;

      • Maternity and newborn care;

      • Mental health and substance use disorder services;

      • Prescription drugs;

      • Rehabilitative services and devices;

      • Laboratory services;

      • Preventive and wellness services; and

      • Pediatric services (including oral and vision care).


    Limits on waiting periods

    Limits on Waiting Periods

    Group health plans may not impose any waiting period exceeding 90 days before individuals may enroll in the plan (Act Sec. 1201(4)).

    Effective for the plan years beginning on or after Jan. 1, 2014.


    Restrictions on premium rating

    Restrictions on Premium Rating

    Premium rates for an insured qualified health benefits plan may vary only to account for age, rating area, individual or family enrollment, and tobacco use (Sec. 1201(4)).

    Effective for the plan years beginning on or after Jan. 1, 2014.


    Health insurance premium assistance credit

    Health Insurance Premium Assistance Credit

    Beginning in 2014, taxpayers with household income between 100% and 400% of the federal poverty line can qualify for a refundable health insurance premium assistance credit (Act Sec. 1401). Individuals who enroll in a qualified health plan at the silver coverage level in an Exchange may be eligible for cost-sharing reductions (i.e., subsidies) if their household income does not exceed 400% of the poverty line.

    Reductions decrease annual out-of-pocket limits and, for lower-income individuals, further increase a plan’s share of total allowed benefits costs. The federal government will pay plan issuers for the value of the reductions they make (Act Sec. 1402).


    Changes impacting businesses 2014 and later

    Changes Impacting Businesses 2014 and Later

    • Health Exchanges

    • Employer shared responsibility assessments

    • “Cadillac tax” on expensive employer-sponsored plans


    Health exchanges

    Health Exchanges

    By Jan. 1, 2014, states must establish American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges to be administered by a governmental agency or non-profit organization (Act Sec. 1311).

    Individuals and small businesses with 100 or fewer employees can purchase qualified coverage (after 2017, states may permit businesses with more than 100 employees to purchase in the SHOP Exchange).

    States may form regional Exchanges, or allow more than one Exchange to operate in a state, as long as each Exchange serves a distinct geographic area. States may also elect to have a single Exchange.


    Employer shared responsibility assessments

    Employer Shared Responsibility Assessments

    • Beginning after Dec. 31, 2013, an assessable payment is imposed on large employers that (Act Sec. 1513; Reconciliation Act Sec. 1003):

      • Do not offer full-time employees minimum essential coverage under an eligible employer-sponsored plan for any month and have at least one full-time employee enrolled that month in a qualified health plan (state exchange-offered plan) for which a premium tax credit or cost-sharing reduction is allowed or paid.

      • Assessable payment:1/12 of $2,000 for any month ($166.67/month) multiplied by the number of full-time employees for the month, reduced by 30.


    Employer shared responsibility assessments1

    Employer Shared Responsibility Assessments

    Example:

    In 2014, Gama Corp. fails to offer minimum essential coverage and has 90 full-time employees, 10 of whom receive a premium tax credit for the year for enrolling in a state exchange offered plan. For 60 of its full-time employees (90 full-time employees, less 30), Gama owes $2,000 per employee, for a total assessable payment of $120,000 ($2,000 x 60 full-time employees), which is assessed on a monthly basis.


    Employer shared responsibility assessments2

    Employer Shared Responsibility Assessments

    • There is also an assessable payment imposed on large employers that:

    • Do offer full-time employees minimum essential coverage under an eligible employer-sponsored plan for any month, but have one or more full-time employees who enrolled for the month in a qualified health plan (a state exchange-offered plan) for which a premium tax credit or cost-sharing reduction is allowed or paid.

    • Assessable payment: Number of full-time employees receiving the premium tax credit/cost-sharing subsidy for the month, reduced by 30, and multiplied by 1/12 of $3,000 for any month ($250 per month). The aggregate amount is limited to the applicable payment amount (1/12 of $2,000 per month) times the number of full-time employees that month.


    Employer shared responsibility assessments3

    Employer Shared Responsibility Assessments

    Example:

    In 2014, Omega Corp. offers health coverage and has 100 full-time employees, 10 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan. For each employee receiving a tax credit, Omega owes $3,000, for a total assessable payment of $30,000 ($3,000 x 10 employees). The maximum amount of the assessable payment for Omega is capped at the amount of the assessable payment that it would have been assessed for a failure to provide coverage, or $140,000 ($2,000 x 70 full-time employees (100 full-time employees, less 30)). Since the calculated assessable payment ($30,000) is less than the overall limitation ($140,000), Omega owes the $30,000 assessable payment, which is assessed on a monthly basis.


    Employer shared responsibility assessments4

    Employer Shared Responsibility Assessments

    An applicable large employer, with respect to a calendar year, is an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.

    A full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week.

    The ACA provides that an assessable payment is not imposed on an offering employer for any month with respect to any employee to whom the employer provides a free choice voucher – however, the free choice voucher provision has been repealed.


    Employer shared responsibility assessments5

    Employer Shared Responsibility Assessments

    A Medicaid-eligible individual can choose to leave the employer’s coverage and enroll in Medicaid – an employer will not be subject to an assessable payment for employees enrolled in Medicaid.

    There is an exemption that applies to seasonal workers.

    After 2014, the $2,000 amount used in determining the applicable payment assessment for large employers not offering coverage, and the $3,000 used in determining the assessable payment imposed on large employers to do offer coverage, will be increased for inflation.


    Cadillac tax on expensive employer sponsored plans

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    Starting in 2018, a 40% excise tax will be imposed on health coverage providers to the extent that the aggregate value of employer-sponsored health coverage for an employee exceeds a threshold amount (Act Secs. 9001 & 10901; Reconciliation Act Sec. 1401(b)).

    The excise tax amount is 40% of the “excess benefit.”

    This is the tax on so-called "Cadillac" health plans.


    Cadillac tax on expensive employer sponsored plans1

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    • Excess benefit: The tax is on the excess benefit, which is the sum of the monthly excess amounts during the tax period. A monthly excess amount is the excess of:

    • the aggregate cost of the applicable employer-sponsored coverage of the employee for the month, over

    • an amount equal to 1/12 of the annual limitation for the calendar year in which the month occurs.


    Cadillac tax on expensive employer sponsored plans2

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    • The annual limitation for any calendar year is the statutory dollar limit for that year as adjusted for inflation and for certain other factors.

    • The dollar limits for determining the tax thresholds are:

      • $10,200 (for 2018) multiplied by the health cost adjustment percentage for an employee with self-only coverage, and

      • $27,500 (for 2018) multiplied by the health cost adjustment percentage for an employee with coverage other than self-only coverage.


    Cadillac tax on expensive employer sponsored plans3

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    The $10,200 and $27,500 amounts are just starting points for determining the thresholds for taxing excess benefits.

    The health costadjustment percentages, which are applied to the $10,200 and $27,500 amounts, are designed to capture upward deviations in the rise of the cost of good health care coverage between 2010 and 2018 as compared to an expected change (i.e., 55%).


    Cadillac tax on expensive employer sponsored plans4

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    The percentage equals 100% plus:

    The excess (if any) of the percentage by which the per employee cost for providing coverage under the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan for plan year 2018 (determined by using the benefit package for such coverage in 2010) exceeds such cost for plan year 2010, over 55%.


    Cadillac tax on expensive employer sponsored plans5

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    Example:

    Suppose the per-employee cost of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan for self-only coverage goes up by 80% between 2010 and 2018 (controlling for the same 2010 benefits package). The adjustment percentage for coverage under self-only plans is 135% (100 + (80 – 55)).


    Cadillac tax on expensive employer sponsored plans6

    “Cadillac Tax” on Expensive Employer-Sponsored Plans

    There are employer-specific age and gender adjustments to the threshold amounts so that an employer with a workforce that is more expensive to insure due to age or gender characteristics will not be placed at a disadvantage.

    More generous thresholds will also apply for coverage of retirees and high-risk professions.


    For more information

    For More Information

    CCH's Law, Explanation and Analysis of the Patient Protection and Affordable Care Act provides comprehensive and practical guidance for professionals who need to understand this historic legislation.

    For more information about the book and other solutions from Wolters Kluwer Law & Business, please visit hr.cch.com.


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