1 18 11 Updated Health Care Reform IiaPresentation Transcript
2010 Health Care ReformPatient Protection and Affordable CareHealth Care Reconciliation By: Brandon A. Lagarde, CPA, JD March 16, 2011
Patient Protection and Affordable Care Act Health Care and Education Reconciliation Act of 2010
Health Care Reform
Two Acts – A Framework Patient Protection and Affordable Care Act, signed March 23, 2010 Health Care and Education Affordability Reconciliation Act, signed March 30, 2010 Combine for over 2,000 pages Much more to come – regulations, guidance Some estimates go as high as 3 million pages of regulations
Does Health Care Reform Contain Anything Designed to Reduce the Cost of Health Care?
Administration’s Stated Goals for Healthcare Reform Expand Coverage (46 million uninsured). Regulate Insurance Carriers (“Keep ‘em honest”). Reduce the Federal Deficit/Bend the healthcare cost curve downward.
Expansion of Coverage Medicaid Eligibility in Louisiana: Today: 15% of FPL, About $3,300 for Fam of 4 Means Testing, signficant assets disqualifies 1.2 million enrolled at end of 2009 1/1/2014: 133% of FPL, About $30,000 for Fam 4 NO means testing, everybody qualifies Estimate is 375,000 new eligible adults
Louisiana Insurance Status: Present
Louisiana Insurance Status: 1/1/2015
Does Health Care Reform Contain Anything Designed to Reduce the Cost of Health Care Keep in mind If reform does not reduce the cost or volume (or both) of medical goods and services, then these costs/services continue to be performed and the health care providers must still be paid. Who pays the cost may change – but the amount that must be paid will not change.
Does Health Care Reform Contain Anything Designed to Reduce the Cost of Health Care A Quick Overview of Costs and Sources of Revenues to Pay Those Costs
A Quick Overview of Costs and Sources of Revenues to Pay Those Costs
A Quick Overview of Costs and Sources of Revenues to Pay Those Costs
A Quick Overview of Costs and Sources of Revenues to Pay Those Costs Revenue Raisers: Elimination of the tax deduction for employers who receive Medicare Part D drug subsidy payments (Effective January 1, 2013) New annual fees on the pharmaceutical manufacturing sector (beginning in 2012, in the $3 billion range) and on the health insurance sector (beginning in 2014, starting at $8 billion and escalating to $14.3 billion in 2018) A tax on 10% on the amount paid for indoor tanning services. (Effective July 1, 2010)
A Quick Overview of Costs and Sources of Revenues to Pay Those Costs Revenue Raisers: Generally, an additional 0.9% Medicare tax is imposed on the wages and self-employment income of certain high-income taxpayers received with respect to employment for tax years beginning after December 31, 2012. The additional Medicare tax is imposed on every taxpayer (other than a corporation, estate or trust) who receives wages or self-employment income in excess of $200,000 ($250,000 in the case of a joint return, $125,000 in the case of a married taxpayer filing separately). The additional Medicare tax increases the employee portion to 2.35% or a total Medicare rate of 3.8%.
A Quick Overview of Costs and Sources of Revenues to Pay Those Costs Revenue Raisers: Effective for tax years beginning after December 31, 2012, a 3.8% Medicare tax is imposed on the lesser of an individual’s net investment income for the tax year or modified AGI in excess of $200,000 ($250,000 in the case of joint filers and surviving spouses, and $125,000 in the case of a married taxpayer filing separately.) Net investment income is the excess of the sum of the following items less any otherwise allowable deductions properly allocable to such income or gain: Gross income from interest, dividends, annuities, royalties and rents unless such income derived is in the ordinary course of any trade or business (unless such trade or business is a passive activity of the taxpayer or involves trading in financial instruments and commodities); Other gross income from any passive trade or business; and Net gain included in computing taxable income that is attributable to the disposition of property other than property held in any active trade or business.
A Quick Overview of Costs and Sources of Revenues to Pay Those Costs Even the average plan will have difficulties Assume a 7.5% cost trend without the cost escalators of health care reform Every dollar over taxed at 40%
Will Health Care Reform Affect the Cost of Employer-Sponsored Health Plans Short answer: No. Health Care Reform will not reduce the increase in the cost of employer-sponsored health coverage. Health Care Reform reduces funding for Medicare to pay for its incentives to induce working middle-income individuals to enroll in health coverage – but does not reduce the volume or types of services that Medicare will cover. Congressional Budget Office Analysis - Large Employer (>50) plans: $7,300 single/$20,100 family (new law) vs. $7,400 single/$20,300 family (current law) - slight increase in family and slight decrease in single
Health Care Reform’s Provisions That Impact Employers That Sponsor Group Health Benefit Plans
“Qualified Health Plans” Will be offered on state-operated exchanges beginning in 2014 Requirements: Offer the “essential benefits package” Uniformity in premiums for each level of plan coverage Limits on cost-sharing and deductibles Underwriting requirements – Modified Community Rating
Individual Mandate Every individual with household income <138% of the poverty level To avoid a penalty, individuals must have acceptable coverage from one of the following sources: - Employer-sponsored plan (including a grandfathered plan) - An individual policy (purchased through a private insurer or through an Exchange) - Government program (Medicare, Medicaid, Veterans, CHIP) Those without coverage face the greater of a dollar penalty or a percentage of household income penalty - Dollar penalty equals ½ of the amount listed below for each uninsured dependent under the age of 18 - Total dollar penalty for a family is capped at 300% of the normal penalty
Large Employers Large Employers (≥ 50 FT EEs) may owe penalties if one or more of their full-time employees enrolls in an exchange plan and obtains a premium credit toward the cost of exchange coverage. An individual may be entitled to a premium credit to purchase an exchange-offered health care policy either because the employer does not offer coverage or the coverage is not “affordable. The test is 50 or more “full time employees” during the preceding calendar year. “Full time employees” are those working 30 or more hours a week and excludes seasonal employees who work for less than 120 days during the year. Part-time employees count in determining whether the 50 threshold is met. Divide the number of monthly hours worked by the part-time employees by 120.
Large Employers Employers face two different penalties IF at least one true-full time employee is eligible for the new premium tax credit and cost sharing subsidy. The key is determining individuals who are eligible for the premium tax credit and/or cost subsidy. Eligibility for the credit/subsidy. Household income between 138% and 400% of the federal poverty level. For family of 4, between $30,000-$88,200. Amount of the credit/subsidy Amount by which premium for the silver plan exceeds a percentage of household income. Percentage ranges from 2% of household income (133% of FPL) to 9.5% of household income (Result: higher the income, the lower the credit)
Large Employers Two Penalties Penalty on large employer that does not offer group health benefit plans to all of its full time employees. Penalty that offers coverage, but the coverage is not affordable: The employer’s share of the premium > 9.5% of household income. OR The plan’s share of covered health benefit costs is less than 60%.
Large Employers Failure to Provide Penalty To trigger this penalty: No group health benefit plan coverage to its full-time employees AND At least one of those full time employees enrolls in an exchange plan AND receives the premium tax subsidy/credit (i.e., family income less than 400% of FPL) Amount of Penalty: In 2014, the annual penalty is equal to: the total number of full-time employees minus 30, multiplied by $2,000. After 2014, the penalty is indexed by a premium adjustment percentage for the calendar year.
Large Employers Failure to Offer Affordable Coverage To trigger the penalty: Offer a plan the employee premium cost (for self only coverage) of which is at least 9.5% of household income, or for which the plan’s share of covered health benefit costs is less than 60% AND At least one full time employee enrolls in an exchange plan AND receives the premium tax subsidy/credit (i.e., family with income less than 400% of FLP) How much is penalty: In 2014, the annual penalty is equal to the number of employees receiving the subsidy times $3,000, but in no case shall exceed the penalty that would have been imposed if employer offered no coverage. After 2014, the penalty is indexed by a premium adjustment percentage for the calendar year.
Large Employers Free choice vouchers An employer that offers a group health plan and pays any portion of the premium MUST provide free choice vouchers to each qualified employee. Qualified employee: an employee whose required contribution to the employer plan, for self-coverage only, is greater than 8% and less than 9.8% of the employee’s household income for the year, whose household income is not greater than 400% of FPL, AND who does not participate in the plan offered by the employer.
Large Employers Free Choice Vouchers Voucher will be equal to the monthly amount that the employer would have contributed for the employee toward the plan for which the employer pays the largest portion of plan costs. An exchange will credit the amount of a voucher to the monthly premium of an exchange plan in which the qualified employee enrolled and the employer will pay the exchange the credited amount. No penalty will be imposed on an employer with respect to any employee who is provided with a voucher.
Employer Penalty Enforcement Under §1411(e) and (f) of PPACA, after a person applies for premium credits in an exchange, the Secretary will notify the exchange whether the person is eligible because the enrollee’s (or related individual’s) employer does not provide minimum essential coverage or the coverage is unaffordable. The exchange must notify employers and inform them that they may be liable for a penalty. The Secretary must establish a separate appeals process for these employers, providing them with the opportunity to present information for review and must grant them access to the data used to make the determination. This process is in addition to any rights of appeal the employer may have under the IRC.
Employer Decision Points Do we employ 50 or more full-time equivalents? If yes, what is compensation level of employees. The individual credit/subsidy is only available if their household income is at least 138% of the FPL and less than $400% of the FPL ($30,000-$88,000 for family of 4). For employers that sponsor plans, the fewer that qualify the lower the penalty. No plan: Consider reducing full time (30+ hour workers) to reduce penalty.
Savings are Illusory Example: total premium cost of $13,400 and employer pays $11,000. If employer discontinues plan, the most the employer can rebate as additional compensation is about $5,630. Employee’s net after paying employee’s share of payroll taxes: $3,680. If employee’s income is $80,000: premium credit = $800. Employee owes $13,400 for exchange coverage; out of pocket cost is $8,920. Employee’s cost before? $2,200. Employer is neutral and employees are very unhappy!
Grandfathered Plans or Non-Grandfathered Plans All plans – grandfathered or not – are required to follow: No rescissions of coverage when people get sick and have previously made unintentional mistakes on their application. No lifetime limits on coverage for all plans. Can limit days of treatment and number of visits. Extension of parents’ group health plan coverage to “adult children” under 26 years old. Grandfathered plans until 2014 – only if child is not eligible for other coverage No coverage exclusions for children (effective 9/23/10) and adults (starting in 2014) with pre-existing conditions.
Grandfathered Plans Escape: Coverage of preventive care Nondiscrimination rules Claims appeal procedures Transparency requirements Ensuring quality of care Fair health insurance premiums Prohibition on discrimination against providers Cost sharing limitations Requirement to provide essential benefits Participation in clinical trials – cancer or other life-threatening conditions
How To Lose Grandfathered Status Have no other choice Significantly reduce or cut benefits Raise co-insurance charge Significantly raise fixed dollar copayment charges Significantly raise fixed amount deductibles Significantly lower employer contributions Add an annual limit, or decrease an existing annual limit
Provisions Requiring Immediate Attention Small Employer Tax Credits Coverage of Children until Age 26 Early Retiree Reinsurance Program Over the Counter Drugs Increase Penalty on Non-Qualified Expenses from HSA, MSA $2,500 Limitation on Health FSA under Cafeteria Plans
Small Employer Health Insurance CreditEffective 2010 Allows eligible small employers to claim a 35% credit (25% in the case of tax-exempt employers) for premiums paid toward health coverage for its employees in tax years beginning 2010 through 2013. These percents increase to 50% and 35%, respectively, in 2014. An eligible small employer is an employer that has no more than 25 full-time employees and the average annual compensation of these employees is not greater than $50,000. The credit is reduced by 6.6667% for each full-time employee in excess of 10 employees and by 4% for each $1,000 that average annual compensation paid to the employee exceeds $25,000. After 2013, employer must participate in an insurance exchange to be eligible for credit.
Small Employer Health Credit (Cont.)Effective 2010 Must pay at least 50% of premium for all employees and the percentage must be uniform among all employees, except for during the year 2010 Steps in determining credit Determine number of employees Determine number of hours of service by those employees Calculate number of employer’s FTEs Determine average annual wages paid per FTE Determine premium taken into account Effective for tax year 2010; See Notice 2010-44
Credit Phaseout Example: For the 2010 taxable year, a taxable small employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health insurance premiums for its employees and meets all other requirements for the credit. The amount of the credit is calculated as follows: The initial amount of the credit determined before any reduction: (35% x $96,000) = $33,600. Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480. Credit reduction for wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,270. Total credit reduction: ($4,480 + $6,720) = $11,200. Total 2010 tax credit equals $22,400.
Dependent Coverage Expanded - 2011 Plan years beginning on or after 9/23/2010. Plans that provide dependent coverage of children must make coverage available to a child until the child attain age 26, even if married and not a student. Plan cannot condition coverage on child being a “dependent” for tax purposes. Plan cannot charge extra for the child. Plans are not required to offer care to dependents, but if they do the coverage is expanded. No more imputed income concerns through age 27 Grandfathered plans until 2014 – only if child is not eligible for other coverage. Estimated to add 1,250,000 young adults. Children can be a son, daughter, adopted child, stepchild or eligible foster child.
Early Retiree Reinsurance Program Will reimburse sponsors of 80% of total claims incurred by an “early retiree” that exceed $15,000 but are less than $90,000 for the plan year. Early retiree: at least 55 but not Medicare-eligible. Reimbursements may only be used to lower plan costs. Plan sponsors must deploy programs to reduce costs for chronic high-cost conditions. Program ends on first to occur of January 1, 2014 or when reimbursements equal $5 billion.
No More OTC Medications - 2011 Over-The-Counter medications, except insulin, items no longer reimbursable without a prescription Bandages and supplies may still be reimbursed Impact on FSA, HRA and HSA Most cafeteria plans will need to be amended – look for a reference to 213(d) Failure to amend from 213(d) would make all benefits taxable to all employees
HSA, MSA Excise Tax - 2011 The excise tax for paying nonqualified costs is increased to 20%
FSA Cap - 2013 Limited to $2,500 each year Indexed for inflation Previously no cap Family typically participated in just one plan
W-2 Reporting - 2011 Optional for 2011 But immediate impact today – terminating employee entitled to request early issuance Report the aggregate cost of coverage under the plans, monthly calculation of coverage – COBRA cost, IRS to issue regs on valuation Plans included: medical, prescription, executive physicals, on-site/near-site clinics providing more than first-aid care, dental and vision if not stand-alone Cost of coverage under FSA/HSA, specific disease or hospital indemnity plan excluded (AFLAC) Required for employees, but seems to apply to retirees and those on COBRA, such as a terminee or surviving spouse
Reporting Requirements on Payments to CorporationsEffective after 12/31/11 Exceptions to Form 1099 reporting eliminated All payments made by a payor to a corporation (as payee) totaling $600 or more annually must be reported on a Form 1099 Tax-exempt entities are arguably exempted from both sides of the transaction Effective as to payments after 12/31/11 The 1099 rules are further expanded to cover property transactions. Thus, all payments made by a payor for property totaling $600 or more annually must be reported on a Form 1099.
Health Care Coverage ReportingEffective 2014 Any person who provides minimum essential health care coverage (i.e. the insurer) to an individual during a calendar year is required to file an information return. Such person is also required to furnish a written statement to the individual with respect to whom information is reported, detailing the contents of the information return submitted to the IRS. Large employers (defined as having more than 50 employees) or any employer offering minimum coverage will have to file an information return disclosing the type of insurance offered to its employees and other required information.