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Key Compliance Issues for School Districts March 17, 2011

YEAR #2 OF HEALTHCARE REFORM:. Key Compliance Issues for School Districts March 17, 2011. Eric N. Athey Jennifer E. Will Co-Chair, Labor & Employment Member 717.581.3708 717.237.5418 eathey@mwn.com jwill@mwn.com. PPACA at a glance.

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Key Compliance Issues for School Districts March 17, 2011

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  1. YEAR #2 OF HEALTHCARE REFORM: Key Compliance Issues for School DistrictsMarch 17, 2011 Eric N. Athey Jennifer E. Will Co-Chair, Labor & Employment Member 717.581.3708 717.237.5418 eathey@mwn.com jwill@mwn.com

  2. PPACA at a glance • Patient Protection and Affordable Care Act Passed 3/23/10 • Some Near-Term Highlights: • Unpaid breaks for nursing mothers (2010) • Dependent care extended to age 26 (2010-11) • Pre-existing condition exclusions phased out (2010-14) • Lifetime & Annual Maximum Benefit Limits phased out (2010-14) • FSA/HRA/HSAs:  OTC reimbursements nixed (2011) • Extension of nondiscrimination rules to fully insured plans (unknown)

  3. Ppaca at a glance • PPACA Long-Term Requirements (2014) • Free Rider Penalty: Up to $2085 annual penalty for families who don't have coverage • No Coverage Penalty for Employers: $2000/yr per employee • Unaffordable Coverage Penalty for Employers: $3000 per subsidized employee • Free Choice Vouchers • Cadillac Tax (2018) • Issue: How much of PPACA will survive the 2012 elections?

  4. PPACA Compliance and Your CBA:Where to Begin? • Determine whether your plan is grandfathered ("GF") • Determine cost/benefits of maintaining GF status • Determine timing & costs of PPACA mandates

  5. PPACA Compliance and Your CBA:Where to Begin? • Develop a bargaining strategy that ensures compliance without breaking the bank (i.e. what does district get in exchange for new benefits) • Develop a bargaining strategy that complies with bargaining obligations

  6. Grandfathering and collective bargaining agreements (cbas) • General Rule: ALL collectively bargained plans must comply with PPACA requirements when they become effective BUT fully-insured CBA plans may retain grandfathered status longer than non-CBA plans • Fully Insured collectively bargained plans in effect before 3/23/10 remain grandfathered until expiration of CBA • Issue: Scope of "binding contract" exception?

  7. Grandfathering and collective bargaining agreements (cbas) • Once CBA expires, any post-3/23/10 changes to fully-insured collectively bargained plans will be analyzed under general GF rules • Change of carriers or of TPA during current term does not eliminate grandfathered status • Grandfathered status determined on a benefit package level rather than plan-wide

  8. Applying the Grandfathering Rules to CBAs Hypothetical 1: • CBA (July 1, 2009-June 30, 2012) • Employee Health Contributions Per Month: 2009-10: $100 2010-11: $110 2011-12: $120 • Still Grandfathered?

  9. Applying the Grandfathering Rules to CBAs Hypothetical 2: • CBA (July 1, 2008-June 30, 2012) • Employee Health Contributions Per Month: 2008-09: 7% 2009-10: 8% 2010-11: 9% 2011-12: 10% • Still Grandfathered?

  10. Applying the Grandfathering Rules to CBAs Hypothetical 3: • CBA (July 1, 2008-June 30, 2011) • Employee Health Contributions Per Month: 2008-09: $100 2009-10: $100 2010-11: The % equivalent of $100 • Still Grandfathered?

  11. Applying the Grandfathering Rules to CBAs Hypothetical 4: • CBA (July 1, 2008-June 30, 2012) • No changes in cost-sharing – but indemnity plan option is eliminated in 2010-11 • Still Grandfathered?

  12. Applying the Grandfathering Rules to CBAs Hypothetical 5: • CBA (July 1, 2008-June 30, 2012) • No changes in cost-sharing or benefits – but plan moves from self-insured to fully insured in 2010-11 • Still Grandfathered?

  13. Applying the Grandfathering Rules to CBAs Hypothetical 6: • CBA (July 1, 2008-June 30, 2013) • The following cost-sharing changes are implemented during the CBA – which ones defeat GF status: • 7/1/08: Exclude benefits for treatment of morbid obesity • 7/1/09: Reduce "supplemental insurance" pool from $300 to $200 per year

  14. Applying the Grandfathering Rules to CBAs Hypothetical 6 (cont'd): • 7/1/10:  Annual Deductible increased from $200 to $400 • 7/1/11: Office visit co-pay increase from $10 to $20 • 7/1/12: District decreases its contribution to indemnity plan premium from 90% to 75%

  15. Bargaining Considerations for Pre-2014 Requirements • How important is GF status to your District? • Should you renegotiate (or delay) concessions to maintain GF status? • What is the cost of losing GF status relative to desired cost-sharing concessions?

  16. Projected ppaca compliance costs • Extension of Dependent Coverage to Age 26: 0-3% premium increase • Elimination of Lifetime Limits and Gradual Elimination of Annual Limits: 0-1.5% premium increase • Remaining Requirements Effective for Plan Years Beginning on or after 9/23/10: No anticipated impact *Source: Aetna, "Impact of Health Care Reform in 2010

  17. Negotiating the Right Language • Minimize changes to CBA; Address Amendments in Plan Document/SPDs • Annual/Lifetime Limits – OK in CBA with proper context language • Can you charge more for older dependents – No.

  18. Negotiating the Right Language • What if older dependents have other coverage – Irrelevant unless GF plan • Amend FSAs, HSAs and HRAs to eliminate OTC • Amend FSAs to implement $2500 limit

  19. Negotiating the Right Language • Preventive Health Services – Avoid listing in CBA • Appeals Procedure – Avoid listing in CBA • Reopener language as needed for compliance

  20. Bargaining Considerations for 2014/2018 Requirements • What are the 2014/2018 requirements? • Will the 2014/2018 requirements be repealed? • How will they impact school districts? • What are the key bargaining considerations?

  21. What are the 2014/2018 Requirements? • Free rider penalty for employees • No coverage penalty: $2,000 x [# of FTEs – 30] • Unaffordable coverage penalty: $3,000 x # of subsidized FTEs [if employee cost of coverage exceeds 9.8% of gross household income]

  22. What are the 2014/2018 Requirements? • Free choice vouchers [for employees earning less that 400% FPL and cost of coverage is b/t 8%-9.8% of gross household income] • Cadillac Tax [Eff. 2018 – 40% excise tax on plan costs over $10,200/$27,500] NOTE: $27,500 is threshold amount for all levels of coverage under multi-employer plan

  23. Will the 2014/2018 Requirements be Repealed? • 20 State Attorney Generals sue to block 2014 Provisions • 6 States pass laws purporting to reject 2014 Provisions • Republicans now control House • Who will act first, Congress or the Supreme Court? • In the meantime, we must address the 2011 requirements

  24. General Bargaining Strategies for the Unknown • Short-term CBAs expiring pre-2014 • Long-term CBAs with salary/benefit reopeners pre-2014 • "Me too" provisions to match administrative or support staff (with a floor) • Negotiate waiver of duty to bargain as necessary to comply and/or avoid penalties

  25. Specific 2014/2018 Strategies Free Rider Penalties • Strategy: Negotiate provision prohibiting waiver of coverage or allowing waiver only with proof of other coverage No Coverage Penalty • Strategy: Compare current coverage to plans on Exchange  • Consider sharing of savings if elimination of coverage is feasible

  26. Specific 2014/2018 Strategies Unaffordable Coverage Penalty • Strategy: Knowing gross household income (GHI) will be key to avoidance  • Implement GHI reporting requirement • Mutually explore benefit of eliminating coverage • Tighten up opt-out payments

  27. Specific 2014/2018 Strategies Free Choice Vouchers • Strategy: Control cost-sharing to stay below 8% of GHI • Monitor cost/benefits of exchange plans • Consider negotiating elimination of coverage • Trigger elimination of coverage on threshold number of employees seeking vouchers?

  28. Specific 2014/2018 Strategies Cadillac Tax (eff. 2018) • Reopener provision to avoid imposition of tax • Elimination of benefits triggered by imposition of tax • Unilateral reduction of benefits provision to avoid imposition of tax • Greater employee contributions triggered by imposition of tax • Union/Employee indemnification if tax imposed

  29. Will The Cadillac Tax Be Driving Your District in 2018? • 2010 Avg. District Pseudo Rate*: • Employee Only: $6996/yr or 68.5 of $10,200 • Family: $16,344/yr or 60% of $27,500 • Avg. % Premium Increase for Districts since 2006: 10.65% • Where will the avg. pseudo rate be in 2018? *Source: Lancaster County School District Data

  30. Anticipated Average Pseudo-Rate for 2018: • Assuming 10.65% increase per year • Employee Only: $15,719 Excess of $5,519/yr subject to 40% tax (or $2,207 tax per employee per year) • Family: $36,726Excess of $9,226/yr subject to 40% tax (or $3,690 tax per employee per year)

  31. Questions Visit our blog at: http://www.palaborandemploymentblog.com/

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