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7th Annual Fundamentals of Employment Law Sterling Education Services, Inc. Healthcare Reform: What you need to know now! Patrick O. Peters, Esq. Ohio State Bar Association Certified Specialist in Labor & Employment Law January 18, 2011. Why Reform?.

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7th annual fundamentals of employment law sterling education services inc

7th Annual Fundamentals of Employment LawSterling Education Services, Inc.

Healthcare Reform:

What you need to know now!

Patrick O. Peters, Esq.

Ohio State Bar Association Certified Specialist in Labor & Employment Law

January 18, 2011

why reform
Why Reform?
  • Cost of employer-provided health care has increased approximately eight fold since 1981
    • Private industry has seen 4.2% increase in 12 months following June 2008
  • Between 2000 and 2009, the percentage of firms offering coverage fell from 69% to 60%
    • Percentage dropped from 63%-60% in the last year
  • One quarter of uninsured individuals are small business employees
    • Approximately 11 million people
  • Health care costs make up 18% of the GNP
primary goals for health care reform
Primary Goals for Health Care Reform
  • Expand coverage to an estimated 32 million Americans without health insurance coverage.
  • Reform the delivery system to improve quality.
  • Lower the overall costs of providing health care.
immediate changes effective now
Immediate Changes – Effective NOW
  • Small Employer Tax Credit
  • Early Retiree Reinsurance Program
  • Elimination of Annual Lifetime Limits on Benefits
  • No Rescission of Coverage
  • Prohibition on Preexisting Condition Exclusions
  • Preventative Care
  • Adult Children
immediate changes effective now1
Immediate Changes – Effective NOW
  • Nondiscrimination
  • “Ensuring Quality of Care”
  • Uniform Explanation of Coverage
  • Appeal Procedures
  • “Patient Protections”
  • No Use of Healthcare FSA’s for Over-the-Counter Drugs
immediate changes effective now2
Immediate Changes – Effective NOW
  • Small Employer Tax Credit
    • Tax credit for up to 35% of a small employer’s health insurance contributions
    • Small employers are generally those with 25 or fewer employees with annual wages of less than $40,000 per employee
    • Tax credit will increase in 2014
immediate changes effective now3
Immediate Changes – Effective NOW
  • Early Retiree Reinsurance Program (ERRP)
    • $5 billion bridge to the new health insurance marketplace established by the Exchanges in 2014
    • The Early Retiree Reinsurance Program will reimburse employers for medical claims for retirees age 55 and older who are not eligible for Medicare, and their spouses, surviving spouses, and dependents. Employers, including state and local governments and unions, who provide health coverage for early retirees are eligible to apply.
    • Reimbursements will be available for 80 percent of medical claims costs for health benefits between $15,000 and $90,000.  Program participants will be able to submit claims for medical care going back to June 1, 2010
    • Program ends on December 31, 2013 or when the $5 billion is exhausted
immediate changes effective now4
Immediate Changes – Effective NOW
  • Provisions Effective for Plan Years Beginning On or After September 23, 2010
    • January 1, 2011 for calendar year plans
    • Many provisions do not apply to “Grandfathered” plans – those in effect on March 23, 2010
immediate changes effective now5
Immediate Changes – Effective NOW
  • Elimination of Annual and Lifetime Limits on Benefits
    • Applies to “Grandfathered” plans
    • Plans may not impose lifetime limits on the value of “essential” benefits
    • For plan years beginning in 2014, no annual limits may apply to essential benefits
    • Essential benefits include emergency services, hospitalization, maternity and newborn care, mental and substance abuse services, and pediatric services
immediate changes effective now6
Immediate Changes – Effective NOW
  • No Rescission of Coverage
    • Applies to “Grandfathered” plans
    • Plans may not rescind coverage except when the covered person committed fraud or intentionally misrepresented a material fact
immediate changes effective now7
Immediate Changes – Effective NOW
  • Prohibition on Preexisting Condition Exclusions
    • Group health plans and insurers are prohibited from imposing pre-existing condition exclusions for children under the age of 19
    • Beginning in 2014, plans are prohibited from including a preexisting condition exclusion for any participant.
immediate changes effective now8
Immediate Changes – Effective NOW
  • Preventive Care
    • No deductibles or other cost-sharing may apply to preventive care
  • Adult Children
    • A plan that provides dependent coverage must allow such coverage to continue until a participant’s child (married or unmarried) turns 26
    • Applies to “Grandfathered” plans; however, until 2014, applies only if adult child is not eligible to enroll in another group health plan
immediate changes effective now9
Immediate Changes – Effective NOW
  • Nondiscrimination
    • Does not apply to “Grandfathered” insured plans
    • Adverse tax treatment for highly compensated employees who participate in health plans that discriminate in favor of such employees
    • Similar tax treatment for employees who participate in self-insured plans face under Section 105(h) of the Internal Revenue Code
    • Extends nondiscrimination to insured plans and provides “excise” tax of $100 per day (with annual limits) as opposed to including value in gross income
immediate changes effective now10
Immediate Changes – Effective NOW
  • Who is a highly compensated employee?
    • (1) one of a company's five highest paid officers;
    • (2) a 10% shareholder, or
    • (3) an individual who is among the 25% highest paid employees by rank.
immediate changes effective now11
Immediate Changes – Effective NOW
  • What is discrimination?
    • (1) a certain percentage of the regular employees are not eligible to participate in the plan, or
    • (2) regular employees do not receive all the benefits provided under the plan.
immediate changes effective now12
Immediate Changes – Effective NOW
  • As to the first requirement, the plan must benefit either:
    • (1) 70% or more of all employees, or
    • (2) if 70% or more of the employees are eligible to participate, then 80% or more of that 70% (essentially 56% of all employees)
  • In calculating the percentage of employees covered, an employer may exclude certain employees including those who have not been employed for three years, who are under 25, or who are part-time or seasonal.
immediate changes effective now13
Immediate Changes – Effective NOW
  • As to the second requirement, a plan discriminates by providing any benefit to a highly compensated employee that is not available to regular employees.
  • The Act directs that the agency rules applicable to insured plans shall be “similar to the [nondiscrimination] rules” applicable to self-insured plans.
immediate changes effective now14
Immediate Changes – Effective NOW
  • What are the penalties?
    • A highly compensated employee whose self-insured group health plan discriminates in his favor must pay taxes on the value of the medical benefits he receives from his employer (which would otherwise be deductible)
    • The Act appears to have made insured group health plans subject only to an excise tax. This excise tax is $100 per day per participant.
    • This tax is capped at the lesser of
      • (1) 10% of the employer's total health cost for the previous year, or
      • (2) $500,000.
    • The tax does not apply to employers with between 2 and 50 employees.
immediate changes effective now15
Immediate Changes – Effective NOW
  • Ensuring Quality of Care
    • Plans must annually report to HHS and to participants and beneficiaries regarding benefits under the plan that improve health, such as case management and wellness activities
  • Uniform Explanation of Coverage to Enrollees
    • All employer sponsored health plans must prepare and distribute a paper or electronic summary of coverage to all plan participants both at the time of initial enrollment and annual enrollment.
    • This must be provided in addition to the Summary Plan Description required under ERISA.
immediate changes effective now16
Immediate Changes – Effective NOW
  • Appeal/Claims Review Procedures
    • The Act imposes detailed additional requirements on internal and external claims procedures that must:
      • (1) provide notice in a “culturally and linguistically appropriate manner” of the review process and availability of any applicable health insurance ombudsman created by a state to assist claimants with appeals;
      • (2) allow claimants to review the entire claim file and present evidence;
      • (3) allow claimants to continue receiving coverage during the appeal process; and
      • (4) initially incorporates the claims review procedure set forth in DOL regulations that apply to ERISA-covered plans.
    • Plans must also establish an external review process for medical claims that complies with applicable state law.
immediate changes effective now17
Immediate Changes – Effective NOW
  • Patient Protections
    • If a plan requires or permits an enrollee to designate a primary care provider (PCP), the plan must permit each enrollee to elect any such PCP available under the plan who is willing to accept the enrollee
    • New requirements regarding access to emergency treatments
immediate changes effective now18
Immediate Changes – Effective NOW
  • No Use of Helathcare FSA’s for Over-the-Counter Drugs
    • Applies to “Grandfathered” plans
    • FSA monies can no longer be used for reimbursement of over-the-counter drugs other than insulin
    • Also applies to Healthcare Savings Accounts and Healthcare Reimbursement Accounts
immediate changes effective now19
Immediate Changes – Effective NOW
  • Breastfeeding Mothers
    • As part of Healthcare Reform, the Fair Labor Standards Act (“FLSA”) was revised to require employers to provide “a reasonable break time for an employee to express breast milk …”
    • The requirement is for employers to provide “a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public…”
    • The FLSA does not require employers to pay employees for such break time.
immediate changes effective now20
Immediate Changes – Effective NOW
  • The requirements do not apply to employers with less than 50 employees, if such requirements would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business.
  • The FLSA's provisions do not preempt a state law that provides greater protections to employees.
    • In Ohio, law applicable to public accommodations in response to Derungs v. Wal-Mart case
immediate changes effective now21
Immediate Changes – Effective NOW
  • Additional Anti-Retaliatory Changes to the FLSA
    • Prohibits employers from discharging or discriminating against any employee because the employee:
      • Received a federal tax credit or cost-sharing subsidy to purchase health insurance;
      • Provided or is about to provide to the employer, federal government, or state attorney general information relating to a violation, or what the employee reasonably believes to be a violation, of the Act;
      • Testified or is about to testify in a proceeding about such violation;
      • Assisted, participated, or is about to assist or participate in such a proceeding; or
      • Objects to or refuses to participate in any activity the employee reasonably believes to be a violation of the Act.
immediate changes effective now22
Immediate Changes – Effective NOW
  • W-2 Reporting Requirements
    • Employers will be required to report the value of coverage under the employer’s GHP on each employee’s IRS Form W-2
    • Technically effective now, but delayed by IRS
    • The IRS announced on November 1, 2010 that reporting of health care contributions (which was not set to begin until 2011 payroll, e.g. for W-2's normally issued in January 2012) will be optional for 2011 payroll to allow employers additional time to make changes to their payroll systems: http://www.irs.gov/irb/2010-44_IRB/ar13.html
    • As noted in the release, the IRS will issue guidance on complying with the reporting requirements which will be mandatory for 2012 payroll (for W-2's issued in January 2013). Of course, should an employee request his or her W-2 early in 2012, employers will need to have a complying system in place so that the W-2 can be issued appropriately.
changes effective in 2013
Changes Effective in 2013
  • Change to Medicare Part D Subsidy
  • Limitations on Healthcare FSA’s
  • Increase in Medicare Tax
changes effective in 20131
Changes Effective in 2013
  • Change to Medicare Part D Subsidy
    • When Medicare Part D was enacted, a 28% employer tax credit was included in order to incentivize employers to continue providing retiree prescription drug coverage
    • The Act eliminates the deduction for amounts allocable to Medicare Part D subsidy, thereby indirectly reducing the value of the subsidy to affected employers
changes effective in 20132
Changes Effective in 2013
  • Extremely controversial
    • AT&T, Verizon, and other large companies issued earnings restatements due to the loss of the subsidy, generating a lot of controversy
changes effective in 20133
Changes Effective in 2013
  • Limitations of Healthcare FSA’s
    • Employer contributions to a healthcare FSA will no longer count as “qualified benefits” that are not taxable to the employee unless the plan limits employees’ annual health FSA salary reduction contributions to $2,500, indexed for inflation (currently there is no limit)
changes effective in 20134
Changes Effective in 2013
  • Increase in Medicare Tax
    • Beginning in 2013, individuals with wages above $200,000 for a single return and $250,000 for a joint return will be subject to an additional 0.9% tax on wages in excess of these thresholds
    • The increase will apply only to the “employee” portion of the Medicare tax and not the “employer” portion.
    • The employer is still required to withhold the employees’ taxes, including this increase
changes effective in 2014
Changes Effective in 2014
  • Health Insurance Exchanges
  • Individual Responsibility - Penalty
  • Automatic Enrollment
  • “Pay or Play”
  • “Free Choice” Vouchers
  • Notice Requirements
  • Maximum Waiting Period
changes effective in 20141
Changes Effective in 2014
  • Prohibition on Preexisting Exclusion Limitations
  • Prohibition on Discrimination Based on Health Status
  • Cost-Sharing Limitations
      • Only 2014 Change Exempted for “Grandfathered” plans
changes effective in 20142
Changes Effective in 2014
  • Health Insurance Exchanges
    • State-established health insurance exchanges must begin to operate on January 1, 2014
    • The Exchanges are virtual marketplaces that allow individuals and eligible employers to purchase health insurance
    • Initially in 2014, only employers with up to 100 employees may purchase insurance for their employees through the Exchanges
    • Prior to 2016, states can limit this to businesses with up to 50 employees
    • Beginning in 2017, states can allow employers with more than 100 employees to purchase health insurance for their employees through the Exchange
changes effective in 20143
Changes Effective in 2014
  • Individual Responsibility – Penalty
    • 2014: $95 for each uninsured adult in household or 1% of household income over filing threshold, whichever is greater
    • 2015: $325 or 2%
    • 2016: $695 or 2.5%
changes effective in 20144
Changes Effective in 2014
  • Automatic Enrollment
    • Employers with 200 or more full-time employees that offer one or more health benefit plans must automatically enroll new full-time employees in the plan.
    • The employer must notify the employees about the automatic enrollment program and provide an opportunity to opt out of plan coverage
changes effective in 20145
Changes Effective in 2014
  • “Pay or Play” – the Employer Mandate
    • Employers with 50 or more full-time employees must either provide specified minimum levels of coverage to their employees or pay an excise tax
changes effective in 20146
Changes Effective in 2014
  • If an employer does not offer health coverage and at least one employee enrolls in a state insurance exchange andreceives a subsidy from the federal government, the excise tax for each month that such minimum essential coverage was not provided is $167 for each full-time employee (whether or not a particular employee received a subsidy), excluding the first 30 employees.
changes effective in 20147
Changes Effective in 2014
  • If the employer does offer the required minimum level of coverage but an employee nonetheless enrolls in a state insurance exchange and qualifies for a subsidy (generally because the employee’s cost for insurance under the employer’s plan exceeded 9.5% of the employee’s household income), the employer will be assessed a monthly penalty of $250 for each such employee.
  • Minimum essential coverage generally includes emergency services, hospitalization, maternity and newborn care, among others.
changes effective in 20148
Changes Effective in 2014
  • “Free Choice” Vouchers
    • Employers that offer coverage will be required to provide any employee whose income is less than 400% of the poverty level a “free choice” voucher” if the employee’s cost of coverage is more than 8% but less than 9.8% of household income
    • This voucher must be in an amount equal to what the employer would have contributed toward the employee’s health coverage and can be used by the employee to pay the premium for a plan purchased through a state-sponsored insurance exchange
changes effective in 20149
Changes Effective in 2014
  • “Free Choice” Vouchers
    • Vouchers are excludable from employees’ taxable income and are deductible by the employer
    • Voucher recipients are not eligible for subsidies through the insurance exchanges
changes effective in 201410
Changes Effective in 2014
  • Notice Requirements
    • Employers must satisfy various notice requirements, including providing employees with a description of the applicable insurance exchange and a description of the subsidy provided by the Act
changes effective in 201411
Changes Effective in 2014
  • Maximum Waiting Period
    • The maximum employment-based waiting period will be 90 days
  • Prohibition on Preexisting Exclusion Limitations
    • No such limitations are permitted (broader than the prohibition that became effective September 23, 2010 to include all plan participants)
changes effective in 201412
Changes Effective in 2014
  • Prohibition of Discrimination Based on Health Status
    • Plan eligibility rules may not take into account health status-related factors, including medical condition, claims history, and certain other factors
changes effective in 201413
Changes Effective in 2014
  • Cost-Sharing Limitations
    • “Grandfathered” plans exempt from this requirement
    • Health plans may not impose cost-sharing amounts greater than the dollar amounts applicable to high-deductible health plans (currently $5,000 for individuals, $10,000 for families)
challenges to healthcare reform
Challenges to Healthcare Reform
  • Repeal
    • Bill to be introduced in 112th Congress
    • Likely to pass in the House, fail in the Senate
  • Judicial Challenges
    • Constitutionality of Individual Mandate
    • Commonwealth of Virginia v. Sebelius
    • Ohio AG DeWine has indicated that Ohio will join with 20 other states’ attorneys general in similar lawsuit in the Middle District of Florida
questions comments discussion
Questions, Comments, Discussion

Thank you!

Patrick O. Peters

OSBA Certified Specialist in Labor & Employment Law

Benesch, Friedlander, Coplan & Aronoff LLP

200 Public Square, Suite 2300

Cleveland, Ohio 44114-2378

(216) 363-4434


As a reminder this presentation is being delivered to draw your attention to issues and is not to replace legal counseling.