STEVENSON KEPPELMAN ASSOCIATESHEALTHCARE REFORM WEBINARJUNE 28, 2010 Bob Stevenson (firstname.lastname@example.org) Tim McGraw (email@example.com) Deb Thompson (firstname.lastname@example.org) Mickey Bartlett (email@example.com)
Topics • Overview—Bob Stevenson • Adult Children—Tim McGraw • Grandfathering—Tim McGraw • Small Business Tax Credit—Deb Thompson • Simple Cafeteria Plans—Deb Thompson • Early Retiree Reinsurance—Mickey Bartlett • Patient Bill of Rights Regulations—Tim McGraw • To-do list—Bob Stevenson • Questions
Stevenson Keppelman Associates SKA is a highly-honored employee benefits boutique law firm. Located in Ann Arbor, SKA has a national practice serving Fortune 100 and international firms, tax-exempt and governmental employers and all kinds of businesses. The SKA team includes 13 highly experienced benefits practitioners, with 11 attorneys averaging well over 20 years in the field. Our specialization and expertise allow a low rate structure. Our experienced staff and diverse clientele provide a high level of cutting edge knowledge. SKA and its attorneys consistently receive the highest honors and rankings from national organizations. We owe our success to our clients. We hope you enjoy today’s presentation. Stevenson Keppelman Associates 444 South Main Street Ann Arbor, Michigan 48104 Tel: (734) 747-7050 www.skalaw.com firstname.lastname@example.org
1. Overview of PPACA • The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively “PPACA”) contains the following broad mandates: • Individuals are subject to tax for not purchasing coverage. • Government subsidies are available for those with lower incomes. • States will set up health benefit exchanges where individuals and employers can purchase coverage. • Employer plans and insurers are subject to many new rules. • Smaller employers get a tax credit for providing coverage. • Larger employers (>50 employees) must “play or pay”. • “Play” involves providing certain mandated health care benefits. • “Pay” involves an excise tax in lieu of providing benefits.
Overview (cont’d) • Plans in existence on March 23, 2010 are exempt from some PPACA requirements. • Requirements which grandfathered plans escape are generally described on the following slides. • Dependents and new employees may be added without disturbing grandfathered status. • Benefit cuts, employee cost increases, or insurer changes could destroy grandfathering. • Remaining as a grandfathered plan will involve tradeoffs between limited permissible benefit/cost changes and avoiding PPACA mandates.
Overview (cont’d)─ Requirements that grandfathered plans escape—First wave of requirements (2011 effective dates) • Grandfathered plans do not have to: • Cover preventive services (immunization, pediatric preventive care, women’s preventive care and screening) without cost sharing. • Submit special quality reports to HHS. • Enhance claim appeal rules. • Accept any “open” primary care provider. • Cover E.R. visits at same cost-sharing, in or out of network. • Allow OB/GYN, pediatrician, or ER visits without prior authorization or referral. • Perform nondiscrimination testing on insured plans. • Cover adult children to age 26 even if they are eligible for other employer-provided coverage not through a parent.
Overview (cont’d)─Requirements that grandfathered plans escape—Second wave of requirements (generally 2014 effective dates.) • Grandfathered may also escape the following provisions: • Cannot discriminate based on health status except for wellness programs. • Must allow participation in plan by licensed alternative medicine practitioners (e.g., chiropractors). • Cannot exceed limits of high deductible health plans for cost sharing ($5,950 or $11,900). • Deductibles can’t exceed $2,000 or $4,000. • Must cover routine cost of participants in clinical trials. • Benefits of grandfathering must be weighed against benefits of design changes (principally cost).
All Plans, including Grandfathered Plans All plans are subject to the following PPACA mandates*: • New modification notice (unclear, comply now?). • No lifetime limits (2011). • Cover adult children to age 26 (2011). • No rescissions except for fraud (2011). • No pre-existing conditions (under 19—2011 through 2013; everyone 2014 and after). • New summary of benefits (March 23, 2012; awaits guidance). • No annual limits (2014). • No waiting periods beyond 90 days (2014). *Effective dates assume calendar year plans.
Collectively Bargained Plans—Delayed Effective Date • (Wimpy) delayed PPACA effective date for collectively bargained plans. • Normally: new law has no effect until current CBA ends. • PPACA provides watered-down CBA treatment: • All collectively bargained medical plans must timely comply with requirements applicable to other grandfathered plans. • Self-insured medical plans: no special CBA treatment. • Insured plans: • May make cost or coverage changes that otherwise end grandfathering, and remain grandfathered until CBA ends. • May change insurers during CBA and remain grandfathered until CBA ends.
Other Important Provisions • “Reinsurance” to reduce cost of early retirees’ coverage (June, 2010). • OTC drugs not reimbursable from health FSAs (2011). • Simple cafeteria plan for employers of <100 employees (2011). • W-2 reporting of coverage on W-2s (2012 for 2011 plan year). • Medicare Part D subsidy to employer taxable (2013). • $2,500 contribution limit to health FSAs (2013). • “Cadillac Plan” tax (2018). • Payroll tax change: increase in Medicare tax (2013). • Automatic enrollment for large employers (when regs. issued).
Other Important Provisions: “Play or Pay” • “Play or Pay” begins 2014 for large employers (>50). Must give minimum essential coverage to FTEs or pay penalty. Penalty varies based on circumstances. • If employer offers no coverage and at least one FTE gets government premium tax credit: penalty is $2,000 per FTE, excluding first 30 FTEs. • If employer offers coverage that is not adequate or affordable* and at least one FTE gets tax credit: penalty is lesser of $3,000 times employees getting the tax credit, or $2,000 per FTE. • *Coverage is not “affordable” if the plan covers < 60% of costs, or costs the employee > 9.5% of household income. • Large employers must weigh costs and HR imperatives, and choose between providing coverage or paying penalties and letting employees get coverage via an Exchange.
Other Important Provisions: “Free Choice Voucher” • In 2014, large employers (> 50 employees) that provide health coverage must provide a “free choice voucher” to employees who meet the following: • income < 400% of poverty level, • premium share > 8% but < 9.8 of income, and • choose to enroll in the Exchange. • Voucher equals what employer would have paid in employer’s plan. • No employer fine for such employees’ participation in Exchange. • SMALL EMPLOYERS are encouraged beginning 2010 to provide coverage via a tax credit (carrot vs. a stick). Deb will discuss this in more detail later.
2. Adult Children • Required coverage for adult children • Effective 2011 for calendar year plans, group health plans that offer family coverage must make coverage available to adult children to age 26. • For plan years prior to 2014, grandfathered plans are not required to cover adult children if eligible to enroll in another employer-sponsored health plan (other than plan of the parent).
Adult Children (cont’d) • Two pieces of guidance have been issued: • IRS Notice 2010-38. • Interim Final Regulations. • IRS Notice 2010-38: • Effective March 30, 2010, medical reimbursements or coverage of any “child” of the taxpayer are not taxable through the end of the year in which the child turns age 26, irrespective of the child’s dependency status, student status, residency status, or marriage status. • “Child” is defined broadly to include a son, daughter, stepson, stepdaughter, legally adopted child or foster child placed with parent by judgment or decree. • Cafeteria plans may be amended by year-end to permit pre-tax premium reductions.
Adult Children (cont’d) • Interim Final Regulations: • Effective for plan years beginning after September 23, 2010, a plan or insurer that covers children must cover them until they turn age 26. • Group health plans may not: • Condition coverage on any factors other than the parent-child relationship and the child being under the age of 26; • Charge different premiums or cost sharing for different age groups; • Require the child to demonstrate residency, financial dependency, student status, or unemployment status to obtain coverage; • Deny coverage because eligible for another employer’s coverage (except for grandfathered plans before January 1, 2014); or • Deny coverage due to marital status.
Adult Children (cont’d) • Group health plans: • Are not required to cover adult child’s spouse or children. • Cannot deny coverage if both parents’ plans cover adult child (need coordination of benefits provision). • Must provide new special enrollment rights for adult children previously denied coverage (and parents where appropriate). • Must provide notice of the enrollment opportunity for adult children denied coverage. • Must provide enrollment period of at least 30 days.
3. PPACA—Grandfather Provisions: Rules Grandfathered Plans Escape • Plans that were in existence on March 23, 2010 may be considered grandfathered and not subject to the following PPACA mandates: • No cost sharing for certain preventive services. • Submit coverage and cost-sharing information to HHS. • Submit annual report to HHS. • Appeals process must include external review. • Ability to designate primary care physicians. • Cover ER visits at same cost sharing, in or out-of-network • No prior authorization or referral for coverage of OB/GYN, pediatrician, or ER visits. • Code Section 105(h) nondiscrimination rules for insured plans.
Grandfathered Plans: More Rules Grandfathered Plans Escape • Grandfathered plans do not have to provide adult children under age 26 coverage until 1-1-2014 if child is eligible to enroll in the child’s employer sponsored plan. • Non-grandfathered plans may not discriminate based on health status, except for certain wellness plans. • Non-grandfathered plans may not discriminate against certain healthcare providers (alternative medicine, acupuncturists, chiropractors). • Commencing 1-1-2014, non-grandfathered plans may not have annual out-of-pocket limits exceeding those for HSAs and annual deductibles may not exceed $2,000 for self-only coverage and $4,000 for family coverage. • Coverage for approved clinical trials.
Grandfathered Plans: Rules They Must Meet • PPACA mandates that do apply to grandfathered (and all other) plans include: • No pre-existing condition exclusion for children under age 19 (no pre-existing condition exclusion for anyone effective January 1, 2014). • No lifetime limits. • Restricted annual limits permitted prior to January 1, 2014; no annual limits thereafter. • No rescission of coverage except for fraud or misrepresentation. • Coverage for adult children, with limited exception until January 1, 2014 for adult children eligible for their own employer-provided coverage.
Grandfathered Plans: More Rules They Must Meet • Commencing January 1, 2014, waiting periods cannot exceed 90 days. • Uniform summary of benefits. • 60-day advance notice of material modifications.
Grandfathered Plans: Changes That End Grandfathered Status • Plan changes that will end grandfathered status: • New policy, certificate, or contract of insurance (except for collectively bargained insured plans). • Significantly reduce benefits to diagnose or treat a condition • Increase coinsurance percentage. • Significantly increase deductibles and out-of-pocket limits (more than medical inflation plus 15 percentage points). • Significantly increase copayment amounts (more than the greater of $5 or medical inflation plus 15 percentage points). • Add or reduce annual limits.
Grandfathered Plans: Changes That Won’t End Grandfathered Status • Changes that will not affect grandfathered status include: • Changes other than those described in the preceding slide will not affect grandfathered status. • Changes in premiums. • Increases in benefits. • Changes to comply with legal requirements. • Changes to voluntarily comply with PPACA. • Changes to third party administrators.
Grandfathered Plans: CBAs and Exemptions • Collectively bargained plans • Self-insured collectively bargained plans receive no special treatment under PPACA (need to make the same changes as other grandfathered plans, even if before expiration of CBA). • Insured collectively bargained plans receive modest relief for changes made before the expiration of the CBA. • Plans exempt from PPACA • Retiree-only plans. • Vision-only and dental-only plans. • Health FSAs. • Medicap policies. • Accidental death and dismemberment plans.
Grandfathered Plans: Special Rules • Transition Rules: • Certain changes adopted before March 23, 2010 will not affect grandfathered status if made pursuant to a legally binding contract entered into before March 23, 2010, a state insurance department filing before March 23, 2010, or plan amendments that were made before March 23, 2010. • Certain changes made prior to June 14, 2010 will not affect grandfathered status if they are timely revoked. • Anti-Abuse Rules: • Mergers, acquisitions, or similar business restructurings designed to cover new individuals under grandfathered plan. • Certain transfers of employees between plans.
4. Small Business Tax Credit • The small business tax credit is available to “eligible small employers” (ESEs) who: • Have fewer than 25 full-time equivalent employees (FTEs) for the year; • Have average annual wages for the year of less than $50,000 per FTE; and • Maintain a “qualifying arrangement.” • A qualifying arrangement is health insurance coverage to which the employer contributes a uniform percentage (not less than 50%) of the premium cost. • For 2010 only, an employer that pays an amount equal to at least 50% of the premium for single coverage will be deemed to satisfy this uniformity requirement, even if the employer does not pay the same percentage of the premium for each employee.
Small Business Tax Credit: ESE Status • Which employees must be taken into account? • All employees performing services for the employer on a controlled group basis, except for • sole proprietors • partners in a partnership • 2% owners of an S-Corp • 5% owners • Family members and other dependent members of owners and partners. • Wages and hours of these business owners and partners, and of their family members and dependent members of their household, are disregarded in determining FTEs and average annual wages, and the premiums paid on their behalf are not counted in determining the amount of the credit.
Small Business Tax Credit: ESE Status • To determine the number of FTEs: • Step 1 ─ Divide the total annual hours of service performed by the employees (but not more than 2,080 hours per employee) by 2,080. • Step 2 ─ Round down to the next lowest number. Employees are included regardless of whether they currently participate in the health insurance coverage. • To determine average annual wages for the year: • Step 1 ─ Divide total wages paid during the year to such employees by the number of calculated FTEs. • Step 2 ─ Round down to the nearest $1,000.
Small Business Tax Credit: Calculating the Credit • To calculate the premiums for health insurance coverage: • Take into account only the portion of the premium paid by the employer. • Exclude amounts paid under a cafeteria plan through salary reduction. • Remember to exclude premiums paid on behalf of business owners and partners. • The premium taken into account for the credit cannot exceed the average premium for the applicable small group market.
Small Business Tax Credit: Calculating the Credit • For the 2010-2013 credits: • The maximum credit is 35% (25% for tax-exempts) of the calculated premium payments. • Credit for tax-exempts is limited to the amount of income tax and Medicare tax the ESE is required to withhold from the income of employees plus the employer’s share of the Medicare tax.
Small Business Tax Credit: Special Rules • The credit phases out if the number of FTEs exceeds 10 or if the average annual wages exceed $25,000. • Interaction of the credit with state credits and state subsidies for health insurance: • Any state tax credit or premium subsidy is disregarded for purposes of determining whether a “qualifying arrangement” exists. • Any state tax credit or subsidy is taken into account when calculating the amount of the credit. • The credit is limited to the amount of the premium actually paid by the ESE, not taking the subsidy or credit into account.
Small Business Tax Credit: Claiming the Credit • How is the credit claimed? • The credit is claimed on a taxable ESE’s annual income tax return and offsets the ESE’s actual tax liability for the year. • The credit is a general business credit and, thus any unused credit can be carried back one year (but not a year before 2010) and carried forward 20 years. • For a tax-exempt ESE, the credit is a refundable credit. • The IRS will provide further information on how to claim the refundable credit. • However, no deduction is allowed for that portion of the health insurance premiums which is equal to the credit.
5. Simple Cafeteria Plans • General rule: • Simple cafeteria plans do not have to satisfy the nondiscrimination requirements for cafeteria plans, life insurance plans, health plans and dependent care assistance programs.
Simple Cafeteria Plans: Who Qualifies? • Requirements to qualify as a simple cafeteria plan: • Must be an eligible employer, that is, any employer that employed an average of 100 or fewer employees during either of the 2 preceding years. Number of employees determined on a controlled group basis. • For an employer not in existence throughout the preceding year, the determination of number of employees is based upon the average number of employees that it is reasonably expected that the employer will employ in the current year. • Once an eligible employer establishes a simple cafeteria plan, it may continue the simple cafeteria plan for subsequent years with respect to employees in the same trade or business who were covered by the original simple cafeteria plan, until the employer employs 200 employees. • Must satisfy 2 minimum eligibility and participation requirements, that is, all employees who had at least 1,000 hours of service for the preceding plan year must be eligible to participate, and each employee eligible to participate in the plan may elect any benefit available under the plan. Excludable employees are similar to those which may be excluded from qualified plans.
Simple Cafeteria Plans: Who Qualifies? • Must satisfy minimum contribution requirements. Each “qualified employee,” that is, each employee who is not a highly compensated employee or a key employee must receive a contribution to the plan in an amount equal to: A uniform percentage (not less than 2%) of compensation, or The lesser of – 6% of the employee’s compensation, or Twice the amount of the qualified employee’s salary reduction contribution. • For these purposes, the rate of employer contribution with respect to the salary reduction contributions of any highly compensated employee or key employee cannot be greater than the rate of contribution on behalf of any qualified employee. Also, contributions must be made to each qualified employee regardless of whether he or she makes salary reduction contributions to the plan.
6. Early Retiree Reinsurance • What is it? • The government reimburses up to $60,000 in retiree medical claims per individual (early retiree or the spouse, surviving spouse or dependent of an early retiree) per plan year. • The temporary program is effective June 1, 2010 through January 1, 2014 (or until the $5 billion dollar funding runs out). • Who may apply to participate? • Employers and unions that maintain “employment-based” retiree heath benefit plans for “early retirees” and their dependents. • Includes self-funded and insured health benefit plans.
Early Retiree Reinsurance: Affected Retirees • Who is an “Early Retiree”? An “early retiree” is a plan participant who: • Is age 55 to 64; • Is not eligible for coverage under Medicare; • Is not an active employee of the plan sponsor; and • Is enrolled for health benefits in a certified “employment-based plan.” • Includes eligible dependents (spouse, surviving spouse or dependent of early retiree).
Early Retiree Reinsurance: Eligible Plans • What is an “employment-based plan”? • An “employment-based plan” is a group health plan that is maintained by: • One or more current or former employers (including any state or local government , or political subdivision), • An employee organization (such as a union or committee that administers a voluntary employees’ beneficiary association) or • A committee or board of individuals appointed to administer one of the plans above. • An employment-based plan can also be a multi-employer plan.
Early Retiree Reinsurance: Reimbursement Amount • How much will the reimbursement be? • 80% of claims costs for each early retiree (or early retiree’s spouse, surviving spouse or dependent) for claims incurred for that individual between $15,000 and $90,000 during a plan year, and paid; • Maximum reimbursement per individual is $60,000 $90,000 - $15,000 = $75,000 x 80% = $60,000 • A sponsor can receive credit/reimbursement for the portion of claims paid by the insurer or health plan, as applicable, and by the early retiree and early retiree’s spouse, surviving spouse, or dependent.
Early Retiree Reinsurance: Special Rule for 2010 • How will reimbursements be calculated for 2010? • Up to $15,000 in claims incurred in a plan year prior to June 1, 2010 will count toward meeting the $15,000 “cost threshold” and the $90,000 “cost limit.” (Claims in excess of $15,000 will not count toward either limit and will not be eligible for reimbursement.) • Reimbursement amounts are based on claims incurred on or after June 1, 2010 that fall between the $15,000 cost threshold and $90,000 cost limit. • Example: • Plan year of July 1 – June 30 • Claims of $120,000 incurred July 1, 2009 – May 30, 2010. • Additional $30,000 of claims incurred June 1-30, 2010. • $15,000 of the $120,000 in claims counts toward the $15,000 threshold. • Reimbursement = $30,000 x 80% = $24,000.
Early Retiree Reinsurance: Using the Reimbursement • Reimbursements can be used: • To reduce the sponsor’s health benefit premiums or health benefit costs; • To reduce health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs for plan participants; and • To reduce any combination of these costs. • Reimbursements cannot be used as general revenue.
Early Retiree Reinsurance: Process • Get ready now to avoid missing this opportunity! • Funding is limited, and applications will be processed in the order received. • Prepare a “draft” application now. • Submit an “official” application with the Secretary of the Department of Health and Human Services as soon as the official version is available.
Early Retiree Reinsurance: Application • The application includes: • Applicant’s Tax Identification Number. • Applicant’s name and address. • Contact name, telephone number and email address. • Signed “plan sponsor agreement”. • The start and end date of the cycle or plan year.
Early Retiree Reinsurance: Application • The application also includes a summary of: • How the applicant will use any program reimbursement to meet the requirements of the program (e.g., to reduce benefit premium costs). • The procedures or programs used to reduce costs for chronic and other high-cost conditions; and • How the sponsor will maintain its level of contribution to the applicable plan. • The plans projected reimbursement amounts for the first two plan year cycles (with specific amounts for each of the first two cycles). • A list of all benefit options within a plan under which the sponsor may receive reimbursement.
Early Retiree Reinsurance: Certifications • What is a “plan sponsor agreement?” • An agreement signed by an authorized representative of an applicant: • Certifying that the plan sponsor has an agreement with the plan’s insurer or with the plan regarding disclosure of information to the Secretary of HHS (e.g., claims records); • Acknowledging information is being provided to obtain Federal funds and all subcontractors are aware that the information is being provided for the purpose of obtaining Federal funds; and • Attesting to having fraud, waste, and abuse procedures.