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Federal Healthcare Reform: Major Provisions & Impact on Employers. Michigan Chamber Board of Directors Meeting April 28, 2010 Presented by Wendy Block, Director of Health Policy & Human Resources Scott Norman, Senior Director of Insurance Services. Overview: Healthcare Reform.
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Federal Healthcare Reform: Major Provisions & Impact on Employers Michigan Chamber Board of Directors Meeting April 28, 2010 Presented by Wendy Block, Director of Health Policy & Human Resources Scott Norman, Senior Director of Insurance Services
Overview: Healthcare Reform • Patient Protection and Affordable Care Act (H.R. 3590) and Reconciliation Bill (H.R. 4872) signed into law in March of 2010. • Over 2,800 pages. • Sweeping changes, rolled out over the next eight years. • Estimate: 31 of 54 million current uninsured are expected to secure coverage by 2019. (23 million left uninsured.) • Total cost: $940 billion (10 years). • Deficit Reduction: $138 billion (10 years).
Overview: Healthcare Reform • Difficult to forecast the complete effect. • Significant changes as early as this year. • Most changes to employers to take effect in 2014 and beyond. • Much to be shaped by forthcoming federal regulations/state law.
Overview: Healthcare Reform • Overall Approach: • Individuals must secure coverage or pay an income tax penalty. Coverage can be from an employer, government plan (Medicare/Medicaid) or state-based exchange. (Effective 2014) • Employers with 50+ employees face penalties if employees are not covered. (Effective 2014) • Plans in existence at the time of enactment are “grandfathered in” and won’t have to comply with some of the benefit mandates but implementation unclear. • Expand Medicaid eligibility to 133% of FPL. (Effective 2014.) • State-based Exchanges for individuals and small group purchases. Federal subsidies apply to low income; tax credits for very small employers. (Effective 2014) • New health insurance regulations. (Varying effective dates)
Key Provisions Pertinent to Employers 2010 • Dependent Coverage – Applies to individual and group policies. Must extend coverage to employee’s dependents up to age 26 if lack access to other employer-sponsored coverage. • Dependent = married or unmarried; student or not. • Tax definition doesn’t change. • Preventive Services – No more cost-sharing for certain preventive health services, including specified immunizations and services for women and children. • Appeals – Employers must implement an appeals process for coverage and claims determination. Must include internal and external procedures, notice requirements and employee file reviews. Effective for plan years beginning after 9/23/10 but grandfather provisions may apply.
Key Provisions - 2010 • Small Business Tax Credit – Phase I: • Small employers with no more than 25 employees and average annual wages of less than $50k qualify for tax credit to assist in purchase of insurance for employees. • Phase I is for tax years 2010-13, providing credit for up to 35% of the employer’s contribution if the employer contributes at least 50% of the total premium cost or 50% of a benchmark premium. • Full credit available to employers with 10 or fewer employees and average annual wages of less than $25k. • Credit phases out as firm size and average wage increases.
Key Provisions - 2011 • Employer W-2 Reporting – Will be required to begin reporting value of employee health benefits on W-2s. • Voluntary Long Term Care Insurance – Establishes a national, voluntary insurance program for the purchase of community living services and supports. • No requirement for employers to implement this program. • If employer elects, will need to institute automatic payroll deductions for their employees for this coverage. • Employees may opt-out.
Key Provisions - 2011 • Tax Changes to HRAs, FSAs, HSAs – Over-the-counter drugs will no longer be reimbursed through HRA/FSA on a tax-free basis unless prescribed by a doctor. Increase in tax on distributions from HSAs, Archer MSAs if not used for qualified medical expenses (to 20%).
Key Provisions - 2012 • Employers must distribute a uniform summary of benefits and coverage explanation prior to enrollment or re-enrollment.
Key Provisions - 2013 • FSAs – Limits the amount of contributions to FSAs for medical expenses to $2,500/year (indexed). • Tax on Unearned Income – 3.8% tax on unearned income (capital gains, interest, dividends, annuities, rents, royalties, other net income). Impacts higher-income taxpayers (over $200k for individual taxpayers or $250k for married, filing jointly). • Medicare Part A Tax – Increase tax by 0.9% to 2.35% for earnings and wages over $200,000/$250,000 (individual/joint returns). • State Compacts/National Plans – Regulations that will allow states to form healthcare choice compacts and allow insurers to sell policies in any state participating in the compact must be developed; compacts will take effect after Jan. 1, 2016. • Exchanges – Employers required to notify employees of the existence of an Exchange (to be offered in 2014) and describe the services offered by it.
Key Provisions - 2014 • Individual Mandate – All U.S. citizens and legal residents are required to obtain qualifying coverage. Those without coverage, subjected to a new penalty. • $95/yr [up to 3 times per family] or 1% of taxable income in ’14 • Increases in ‘15 and ’16. • Indexed to COLA in ’17 and beyond. • Waivers available for hardship, religious objectors, incarcerated, etc.
Key Provisions - 2014 • State Exchange – States required to establish an exchange through which individuals and employers with up to 100 employees can purchase coverage. • States may limit to 50 or less employees; may open to large employers in 2017. • Two multi-state plans to be offered in each Exchange. • State exchanges must offer four benefit categories plus a separate catastrophic plan available to those under 30. • Must cover “essential benefits (to be defined by HHS).
Key Provisions - 2014 • Automatic Enrollment – Employers with 200+ employees required to automatically enroll new full-time employees in health insurance plans offered by the employer. Employees may opt-out. (Note: Effective date unclear.) • New Employer Coverage Requirements – Applies to employers with 50+ FTEs. • FTE = Worked an average of 30+ hours per week, measured month to month.
Key Provisions - 2014 • Employer Penalties – • Employers with 50+ employees that do notoffer “qualified coverage” (to be clarified at a later date) and have at least one FTE who receives income-based assistance to purchase coverage through an Exchange must pay a “free rider” penalty of $2,000/FTE (or FTE equivalent). • Excludes the first 30 employees for assessment calculation purposes. • Example: 51 employees. Penalty on 21 FTEs x $2,000/FTE = $42,000/yr.
Key Provisions - 2014 Employer Penalties, cont’d: • Different employer penalties apply if employers with 50+ employees that meets “qualified coverage” requirements but have at least one FTE who declines coverage (because “unaffordable”) and elects coverage through an exchange and receives federal premium assistance. • Penalty: Lesser of $3,000/employee receiving a premium credit or $2,000 per FTE.
Key Provisions - 2014 • Employer Free Choice Vouchers – If an employers offers coverage, must provide “free choice vouchers” to employees with incomes less than 400% of the federal poverty level (below $43,320 individual; $88,200 family of four). • Can qualify if contribution for employer-sponsored coverage exceeds 8% but is less than 9.8% of their household income and choose to enroll in a plan in the Exchange. • Voucher equal to what the employer would have paid to provide coverage under the employer’s plan; used to offset premium costs for the plan in which the employee is enrolled • Employees can keep excess voucher amounts if the voucher exceeds the cost of the plan under the Exchange. • If provide free choice vouchers, NOT subject to other employer penalties.
Key Provisions - 2014 • Small Business Tax Credit – Phase II – • For tax years 2014 and later, a tax credit of up to 50% of the employer’s contribution toward an employee’s premium is available for eligible small businesses that purchase coverage through the Exchange only. Must contribute at least 50% of the total premium cost and the credit is available for 2 years. • Full credit: 10 or fewer employees; average annual wages of less than $25,000. • Credit phases out as firm size/wages increases – but capped at 25 employees, average wages of less than $50,000.
Key Provisions - 2015 and Beyond • 2015 – Individual mandate penalty increases from $95 or1% of taxable income to $325 or 2% of taxable income (greater of). • 2016 – Individual mandate increases to $695 or 2.5% of taxable income. • 2017 – Individual mandate is indexed to COLA or 2.5% of taxable income. States allowed to open up their Exchanges to employers with 100+ employees to purchase coverage. • 2018 – New excise tax on high cost insurance plans (if aggregate values exceed $10,200 for individual coverage or $27,500 for family coverage – indexed to CPI-U beyond 2020). • Tax is equal to 40% of the value of the plan that exceeds the threshold amounts. Imposed on issuer of insurance (or, in case of self-insured, plan administrator).
Considerations for Employers • Impact on Coverage Costs: • Employers shouldn’t anticipate lower costs as a result of new law. • Other taxes included in legislation (taxes on insurers, pharmaceutical industry, medical device manufacturers); likely to be passed along to consumers/employers. • Small Business Tax Credits: • Very limited in applicability. Only available to very small employer, limited in duration and must meet coverage conditions (beginning in ’14 only available to employers purchasing coverage through Exchange).
Considerations for Employers • Impact of Employer Mandates: • CBO estimates that the number of individuals obtaining coverage through their employer will drop by 3 million in 2019 as a result of legislation. • Employer mandates/penalties don’t apply to employers with 50 or fewer employees. May cause many small employers to drop coverage and encourage employees to seek coverage through Exchange. • New law not only requires employers with 50+ employees to provide coverage but to meet certain coverage requirements in order to avoid penalties. Many plans will need to be improved. • Even if employers offer plans at set coverage requirements, they can be subject to penalties for Exchange opt-outs. • Employers with 50+ employees will need to weigh the costs of providing coverage vs. not. In some cases, may be less expensive to discontinue coverage altogether and pay the penalty.
Considerations for Employers • Impact of Auto Enrollment Requirements: • Auto enrollment in benefit plans for large employers (200+) has the potential to increase costs and create complex administrative difficulties. • Same goes for automatic employee payroll deductions required for purchase of LTC insurance (unless employee opts-out). • “Cadillac Plan” Excise Tax – • Will 2018 bring an end to these employer plans? • Assuming a 10% annual medical trend rate, a $10,200 plan value threshold for individuals in 2018 would be equivalent to only $4.758 in today’s dollars.
What’s Next? • Twenty-one states, including Michigan (A.G. Cox), have filed a lawsuit challenging Congress’ authority under its constitutional power to regulate interstate commerce to force people to buy insurance. • Neither the Michigan Chamber or US Chamber have a formal position this lawsuit. • Highest Court? Supreme Court Justice Stephen Breyer has indicated that health care reform legislation may be a good candidate for review by the court. • “Every word in a bill is subject for an argument in court. You have passed a law with 2,400 pages. It probably has a lot of words. And I would predict, as a test of my theory, that three or four years from today, no one is going to ask us again why we have so few cases.”
What’s Next? • Ballot Question? Last week the State Board of Canvassers approved a petition to amend the state’s constitution. • Would stipulate that everyone has a right to provide for their own health care, employers and individuals have a right to purchase health care services directly and that the purchase of health care insurance in private systems shall remain legal. • Circulated by Michigan Citizens for Healthcare Reform. • Tea party and liberty groups involved. • Need 381,000 signatures by July 5 to get the initiative on the ballot. • Not sure if will get required signatures; volunteer base (35,000 collected to date).
What’s Next? • Implementation legislation at the state level. • Repeal? • Not likely, at least not in the foreseeable future unless dynamic change in the make-up of Congress. • Veto override requires 2/3rds majority vote in both chambers. • US Chamber has said “repealing the bill outright is not realistic.” • Instead, preparing to help write the thousands of pages of federal regulations that will be needed to implement the new law, seeking to minimize the potentially harmful impacts many of the provisions could have on job providers. Will also be seeking legislative improvements.
What’s Next? • Michigan Chamber’s Plan of Action: • Continue to provide our members with the resources they need to understand the new law and what they need to do to comply. • Continue to will work with our partners at the federal level and in other states to explore all available avenues -- regulatory, legislative, legal and political -- to fix the flaws and minimize the harmful impacts of the health care legislation.
Impact on Michigan Chamber’s Health Plan • In general this bill has minimum impact on the Michigan Chamber as it relates to it’s health plan for employees. • All health plans will have to meet minimum requirements which will be determined by the carriers. • Accounting procedures will need to be put into place for W-2 reporting, national voluntary long term care, and additional HR reporting responsibilities. • Due to group size being less than 50 FTEs, most group mandates and penalties will not apply. Therefore, the Michigan Chamber will be able to continue to offer benefits without major disruption after 2014.
Impact on Michigan Chamber Health Plan Future Considerations • If employee count exceeds 50 FTEs by 2014 the Michigan Chamber health plan will need to meet the minimum coverage and affordability requirements. • Future cost of health plan may exceed the “Cadillac Tax” annual premium limit of $10,200/individual and $27,500/ family. Assuming a 10% rate increase between now and 2018, the individual annual premium limit would be approximately $4,700 in today’s dollars.
Impact on Michigan Chamber Membership • The broad scope and nature of this bill will have an impact on virtually every Michigan Chamber member. • Mandates for minimum coverage will increase cost of providing coverage for all groups. • Tax increases both on the health care industry and individually on business owners will increase expenses for most employers. • Employers with 50 or more FTEs will be impacted the most • Some small employers with fewer than 25 FTEs may benefit from tax credits.
Impact on Michigan Chamber Membership – Small Business Owners Very small employers, sole proprietors, and sub contractors such as hair dressers and real estate agents may benefit from this bill. State exchanges will provide sole proprietors better options to purchase health insurance on a guaranteed issue basis. Tax credits may provide an incentive for small business owners to continue to provide health insurance to employees.
Impact on Michigan Chamber Membership – Larger Employers • Larger employers (over 50 FTEs) such as fast food restaurant chains, auto dealers and janitorial services may be severely impacted by this bill. • These employers typically do not provide benefits or provide very minimum benefits and require very high employee premium contributions. • These employers will be forced to either increase benefit levels and premium contributions to comply with the new mandates or face significant penalties. • One possible solution for employers in this situation will be to make all employees part time to avoid the mandates and penalties.
Impact on Michigan Chamber Services The insurance division will be impacted by this bill; however, the impact is very difficult to predict at this point. Most of the pressure will be on groups with less than 50 FTEs who may choose to drop benefits and allow employees to purchase coverage in the exchange. Agents will be allowed to sell in the exchange, but at this point it is unclear what the potential revenue will be for agents. Groups with more than 50 FTEs will face penalties if they drop coverage and we feel as if many of these employers will continue to provide benefits.
Impact on Michigan Chamber Services Over 75% of the revenue of the insurance division currently comes from larger groups and ancillary benefit programs such as VSP and Delta Dental. Despite the fact that a number of small employers may drop benefits, the revenue from larger groups and increase in our ancillary benefit programs should minimize the impact. The ancillary benefits program is marketed through outside agents and continues to grow – VSP plan currently has nearly 10,000 enrolled and in just over 2 years the Delta Dental plan has over 2,000 enrolled. In addition, to further offset potential losses in group benefits, we have launched the Commercial Insurance Division. Our partnership with Frankenmuth Insurance and other carriers will allow us to provide competitive commercial insurance to existing insurance clients and Michigan Chamber members.