Healthcare Reform WebinarDiscussion for BenefitMall Key Accounts Monday, August 13, 2012 2:00 p.m. EST
Meet The Panel Meet the Panel Mike Brachlow BenefitMall Executive Sales Director, Large GroupModerator Randy Madry BenefitMall Consultant Speaker Garry Carneal, JD, MA BenefitMall ConsultantSpeaker
Webinar Overview Healthcare Reform Update Medical Loss Future Ratio (MLR) Flexible New carrierIndividual Healthcare Spending W-2 benefit Mandate exchanges Account reporting summaries changes Source: www.besthealthcarerates.com
Individual Mandate Effective January 1, 2014 Who does the individual mandate apply? Applies to everyone except the following: Who already have minimum essential coverage through an employer-sponsored plan Who have individual qualified coverage Who are enrolled in a Medicaid or Medicare program Who are covered by a military plan Who are dependents of active military enrolled in a TriCare plan Who are permanently incarcerated• Other exceptions include persons who: Who are members of Indian tribes Who express religious objection Are without coverage for less than three months Would be contributing more than eight percent of their household income as a “required contribution,” The Secretary of HHS determines that obtaining coverage would constitute an extreme hardship
Individual Mandate: What are the tax penalties for non-compliance?The annual tax (formerly known as a penalty) for not obtaining minimum essentialcoverage will be the greater of a flat dollar tax amount per individual or a percentageof the individual’s taxable income. The applicable flat dollar amount for 2014 for a tax filer with no dependents will be $95 and the amount for 2015 will increase to $325. This amount will increase over the years, rising to $695 in 2016, and will be further revised in 2017 according to the changes in cost-of-living. Each adult will pay the rate of an individual, and then you need to add the dependent at the 50% rate. For example, in 2016 a couple with one child under 18 would be assessed a flat dollar penalty of $1,737.50 (two adults x $695 plus one child at $347.50 -- one half of adult penalty). A family of four (one couple with two children over 18) would only be required to pay the 300% cap in 2016. Three hundred percent of the $695 flat amount for 2016 is equal to $2,085. This amount is less than the flat amount that could be charged if the cap were not in place (two adults + two children over 18 = $695 x 4 = $2,780).
Healthcare ExchangesExchange types States have three options Must be PPACA: certified State-based and versus operational Federal by Oct Exchange 1, 2013 State & Default to State Federal Federally-Individual SHOP standalone Partnership run Exchange Exchange Exchange
Exchange Primary Functions Purchasing cooperative that promotes transparency Qualified health plan certification Standardizing benefit offerings (including essential health benefit requirements and gold/silver/bronze levels) Creation and maintenance of Website for consumers Resource on Medicaid, Medicare and CHIP eligibility (with goal of automated enrollment) Operate or supervise electronic enrollment processImplement an electronic calculator to determine the actual cost of coverage taking into account eligibility for premium tax credits and cost sharing reductions Vehicle for premium subsidies-- Who is eligible and how much is it worth?
State Exchange Updates 10 states and D.C. have adopted legislation 4 states through executive order 20 states have enacted laws or are leaning toward opting out of broad healthcare reform What is going to happen next? Source: www.NCSL.org
Summary of Plan Benefits and Coverage Effective September 23, 2012, insures and group benefit plans must issue a standardized Summary of Benefits and Coverage (SBC) SBC should detail “in plain language, simple and consistent information about health plan benefits and coverage that…will help consumers better understand the coverage they have, and, for the first time, allow them to easily compare different coverage options.” NAIC provided recommendations that were adopted by the federal government Should include coverage examples that illustrate benefits provided under the plan or coverage, detail out-of-pocket costs, and explain any coverage exclusions for common benefit Person requesting an SBC must be provided with the document within seven (7) business days Upon renewal, must be provided to both participants and beneficiaries as part of any written enrollment application materials Experts differ as to when updated SBCs need to be issued – after Sept 23 or after new policy year (?) Obligations of employers versus the insurance carriers
W-2 Reporting Requirements PPACA requires employers to report the cost of health benefitscoverage under an employer-sponsored group health plan on anemployee’s Form W-2, in Box 12, using Code DD Reporting for the 2011 calendar year (meaning the Form W-2 generally required to be furnished to employees in January 2012) was optional. For years after 2011, employers generally are required to report the cost of health benefits provided on the Form W-2 Reported amount is not taxable because employers excludable contribution is being reported Limitations to W-2 filing requirements such as an employers filing fewer than 250 Forms W-2 for the previous calendar year Many employers are eligible for W-2 reporting transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement
Flexible Saving Accounts Beginning in 2013, flexible spending accounts are limited to an annual contribution of $2,500 The $2,500 limit will be indexed for inflation after 2013 Married couples may each contribute $2,500 to their employer FSA plan to total $5,000 One spouse may not contribute $4,000 to theirs and the other spouse $1,000 to total the $5,000 The limit is $2,500 each Can wait until renewal date in 2013 Why the Change? It was implemented to: Move individuals into the Exchange insured pools Decrease the amount of income that was tax exempt and to generate more federal income tax revenue to pay for the PPACA
MLR in a Nutshell Large Group Small Group (defined as (defined as 2Beginning in 100 or more to 100 FTEs) Calculations and nongroup Rebates2011, insure FTEs) are based • 80% clinical checks for rs had to • 85% clinical by legal services and 2011 will be spend and services and qualified quality entity, state qualified quality issued in track MLR programs and line of programs • 20% 2012 ratios • 15% business administrative administrative
MLR in a Nutshell If a health plan If 80/85% or insurer percentage not HHS says that meets or Three month achieved, notic it will start MLR reports exceeds the requirement es and rebate publishing filed to HHS MLR, notices from August 1 checks must MLR reportsJune 1st each will be issued to take action be distributed during the year with the first on the MLR by August 1st summer of plan document rebate options the following 2012 after July year 1, 2012
Plan Types and Plan Asset Overview Variations in the MRL Rebate Process ERISA versus non-ERISA plans Does not apply to self-funded plans Who is the policyholder? Could be the employer, trust, or an individual The role of a plan fiduciary Determining when the MLR proceeds is a “plan asset “under ERISA? Plan document description governs (within ERISA guidelines) When plan documents silent, look to source of premium payment: Paid completely be employer (no) Paid by employee (yes) By both? (yes, employee portion) Paid through trust assets?(yes) See DOL Technical Guidance 2011-04
Plan Asset Determination ExamplesThe portion of the rebate requiring treatment as plan assetsdepends on how the premiums for the coverage were initially paid: • If all premiums are paid by the employees, the entire rebate constitutes plan assets; • If the premiums are shared by a fixed percentage (e.g., employer pays 75% of the premium cost and employees pay 25% of the premium cost), that ratio determines the amount of the rebate that constitutes plan assets (25%); • If an employer pays a fixed amount and the employees pay the remaining amount (the employer pays $350 per month, the employees pay the balance), the rebate constitutes plan assets up to the amount paid by employees; and • If the employees pay a fixed amount and the employer pays the remaining premium (the employees pay $350 per month, the employer pays the balance), the rebate constitutes plan assets only to the extent it exceeds the amount paid by the employer.
Employer MLR Distribution Rebate Options DOL Technical 2011-04 Release Based upon already established ERISA principles, the DOL guidance provides employers with four options. An employer may: • Distribute rebates to current (and, if desired, former) participants • Enhance benefits provided to plan participants by additional benefits or wellness programs • Pay reasonable plan expenses (?) • Reduce future premiums for current plan participants (?) • Note: For the purposes of MLR rebate checks, COBRA plan participants are considered plan participants.
BenefitMall Recommendations Three Simple Ways to Go• Checks to employees• Premium holiday• Enhanced benefits
Example Calculation: Document Rebate Check = $5,000 Process!Step 1: Calculate total premium employer paid to carrier in the 2011 plan year = $100,000Step 2: Calculate total contribution paid by employees and COBRA participants for the same year = $25,000Step 3: Divide Step 2 by Step 1 = the total percentage of the premium paid by employees and COBRAparticipants ($25,000/$100,000 = 25%)Step 4: The percentage calculated in Step 3 is multiplied by the total rebate check which equals the amountdue the employee/COBRA participants ($5,000 x 25% = $1,250)Step 5: Calculate the total amount of 2011 plan year contribution paid by employees and COBRAparticipants currently insured using payroll records = $20,000Step 6: Take the amount paid by each employee or COBRA participant in the 2011 plan year and convert itto a percentage of the total in Step 4. Employee A contributed $200/ $20,000 = 1%Step 7: The percentage calculated in Step 6 would then be applied to the net plan participant portion of therebate check (Step 4) and the resultant sum is what that plan participant should receive (Employee A 1% x$1,250 = $12.50)
Processing the MLR Rebate Checks What happens Does the MLR if an employerHow does an Who do the How much rebate have to offered both an employer rebate checks effort must What happens match the HMO policy calculate the go to? employer make if refund payments by and PPO policyrefunds when (e.g., current to track down amount is very participants for in 2011, and there are vs. former former small? the plan year the HMO hitmultiple plans? participants) employees? that the rebate 78% and the is based on? PPO hit 87%?
MLR Rebate Reminders • From the perspective of administrative simplicity and cost, nothing prevents an employer from treating the entireEmployers rebate as plan assets and not receiving any of the rebate proceeds for its own benefit. • The use of a rebate generated by one plan to benefit the & Plan participants of another plan would be a violation of the fiduciary responsibility to the plan participants. Assets • If employer is using a cafeteria plan, Technical Guidance 92-01 offers further information on the requirements to assist in the treatment of plan assets. • Distribute rebates within 3 months Insured • Set up a trust which allows more time to distribute rebates • DOL notes that employer could direct insurer to apply the rebate toward future participant premium payments or toward Plans benefit enhancements adopted by the plan sponsor would avoid the need for a trust, and may, in some circumstances, be(i.e., an unfunded trust) consistent with fiduciary responsibilities.
MLR Rebate Reminders • Decisions on how to apply the plans portion of a rebate are subject to ERISAs general standards of fiduciary conduct. This includes a duty of impartiality to the plans participants. Guidance • In deciding on an allocation method, the plan fiduciary may properly weigh the costs to the on rebate plan and the ultimate plan benefit as well as the competing interests of participants ordistribution classes of participants provided such method is reasonable, fair and objective. • Under no circumstances should the employer ever receive for its own benefit more than it originally paid in premiums and plan expenses in the MLR year.
Additional MLR Rebate Observations • The distribution of the rebates to plan participants raises significant tax issues that should be consideredWhen Rebate before choosing that option. • The IRS has issued FAQ page with examples that becomes a address the tax implications of direct distribution of rebate funds to plan participants. See IRS “Medicaltaxable event Loss Ratio (MLR) FAQs” • Taxable if cash is paid through a pre-tax cafeteria plan – must be tracked on W-2 • Not defined in regulations Benefit • Plans can defined through good faith effort • Examples that would probably qualify:Enhancements Wellness, Dental and Vision
MLR Impact: Kaiser Foundation Study Refund: MLR rebate checks this year estimated $1.3 billion Non-Group Market: Rebates are expected to go to almost one-third (31%) of consumers in the individual market. The share of consumers in the individual insurance market expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas Group Market: About one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates. Amount: Checks could range from an average of $72 for those with insurance through a large employer to an average of $127 for those who bought individual policies
Reflection Points Administrative burden of tracking employee contributions Process for calculating eligibility for employers Quick pace of adoption with some regulatory ambiguity More regulations to come DOL will be auditing all plans and assessing penalties (Note: IRS is hiring 16,000 FTEs)Some insurers concerned about market disruptions especially in the large group market
Healthcare Reform: Looking Ahead More regulations and guidance on key PPACA deliverables Federal versus State rights More insurance coverage;: Who is eligible for the subsidies? Expect more lawsuits Need funding for federally run state exchanges The Elections Budget concerns including Congress’s sequestration rule
DisclaimerDisclaimer: This webinar is forinformational purposes only. Please seeklegal and tax expert advice beforeimplementing your MLR rebate program.
Questions & AnswersAfter today’s webinar, please contact: Mike Brachlow Executive Sales Director, Large Group 1133 Westchester Avenue Suite S229 White Plains, NY 10604 Email: email@example.com Mike will route follow-up questions to the speakers and/or BenefitMall contactFor additional Healthcare Reform updates, please monitor: www.benefitmall.com www.healthcareexchange.com