Post-Election: Health Care Reform Here to Stay
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Post-Election: Health Care Reform Here to Stay

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Slides from our national webinar on Healthcare Reform.

Slides from our national webinar on Healthcare Reform.

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  • Function of Exchanges: A portal for the purchase of insurance in the individual and small group market State Exchange: State establishes and runs the Exchange, but communicates with federal government on certain issues like eligibility Federally Facilitated Exchange (FFE): Federal government runs the state exchange Partnership Exchange: A form of FFE, with division of eligibility, enrollment, plan management, consumer assistance, and financial management functions between State and Federal governments. Federal government is ultimately responsible KEY DATES : The initial open enrollment period will run from October 1, 2013 through March 31, 2014; Annual open enrollment periods will run from October 15 through December 7, with coverage effective on January 1 of the following year
  • Under 105(h): (1) a plan cannot discriminate in favor of highly compensated individuals (“HCEs”) as to eligibility to participate; and (2) the benefits provided under the plan cannot discriminate in favor of participants who are HCEs An individual is an HCE if he or she is: (1) One of the five highest paid officers; (2) A shareholder who owns more than 10 percent of the employer’s stock; or (3) Among the highest paid 25 percent of all employees (other than excludable employees who do not participate in any plan sponsored by the employer) Assessment of HCE and Testing Performed on a Controlled Group Basis. Look for subsidiaries, brother-sister controlled group, affiliated service groups. Note: Don’t believe the myth—separate EIN is meaningless ELIGIBILITY TEST: Three alternative tests– (1) the 70% test; (2) the 70%/80% test; or (3) a nondiscriminatory reasonable classification test For testing, employers may exclude employees who: (1) Have less than three years of service; (2) Are under age 25; (3) Are “part-time” or “seasonal employees”; and (4) Belong to a union or who are nonresident aliens. Note: Part-time employees for this purpose are those whose customary weekly employment is less than 35 hours, if other employees have substantially more hours; provided, however, that any employee whose customary weekly employment is less than 25 hours may be considered as a part-time employee.
  • ELIGIBILITY TEST The 70% test: (1) The plan benefits 70% or more of all non-excludable employees (e.g., 100 non-excludable employees, at least 70 must be covered); (2) The 70%/80% test (The plan “benefits” 80% or more of all non-excludable employees who are eligible to benefit under the plan and 70% or more of all non-excludable employees are eligible to benefit under the plan (e.g., 100 non-excludable employees, at least 70 must be eligible for coverage and at least 80% of those employees (56) are covered)); (3) Reasonable Classification test (The plan benefits a classification of employees set up by the employer which is found by the Internal Revenue Service not to be discriminatory in favor of HCEs (based on the facts and circumstances)). BENEFITS TEST (1) All benefits provided to any one HCE are provided to all non-HCES on the same basis; and (2) The plan must also not discriminate in favor of HCEs in actual operation (essentially, if any benefit is provided to an HCE that any non-HCEs do not receive, the plan will fail the benefits test) Myth Buster: Benefits are not only those benefits included in the plan—IRS has ruled that benefits include any premium contribution that is greater for HCEs, shorter waiting periods, longer COBRA, etc. are all benefits
  • Fee applies to group health plans and HMOs, regardless of grandfathered status, including “retiree-only” plans Excludes the following types of plans: HIPAA-excepted benefits (which include most health FSAs and stand-alone dental/vision plans) Plans intended to primarily cover expatriate employees EAPs, disease management programs, or wellness programs, if the program does not provide significant medical benefits Permissible methods used to count participants Actual count method (insured and self-funded) Snapshot method (insured and self-funded) Member months method (insured only) State form method (insured only) Form 5500 method (self-funded only)
  • Costs reported in box 12 using code DD. Do not include: Archer MSA contributions (report in box 12, code R); HSA contributions (report in box 12, code W); Employee contributions to a flexible spending arrangement (but employer contributions are included); Cost of coverage under an HRA; Cost of coverage under a self-insured group health plan that is not subject to any federal continuation coverage requirements (e.g., a church plan that is a self-insured group health plan); Cost of coverage provided by a state or the federal government; or Independent Contractors, retirees (if no W-2 issued)
  • Penalty can apply for both the failure to properly report the cost of coverage on the Form W-2 filed with the IRS, and the failure to properly report it on the Form W-2 furnished to the employee (however, in practice the IRS tends to apply only one of the two penalties) W-2 Reporting Tips Use a “reasonable method” of valuing coverage for terminated employees Reporting not required if an employer accommodates a former employee’s request for a W-2 prior to end of the year Not necessary to use the same method for every plan, but use the same method with respect to each employee receiving coverage under a plan Reportable costs must reflect any increase or decrease in cost for the year If an employee changes coverage during the year, the reportable cost must account for the change in coverage
  • FICA (fed’l insurance contribution act) taxes are used to provide for the federal system of old age, survivors, disability and hospital insurance. The hospital insurance portion is funded by a Medicare tax, whereas the rest are funded by the Social Security system. Both employees and employers are required to contribute to FICA taxes through regular payroll deductions. There is a limit to the amount of FICA taxes an employee is required to pay. Generally, FICA taxes are collected at a rate of 7.65% on gross earnings. The breakdown of FICA is 6.2% for Social Security (Old-Age, Survivors, and Disability Insurance or OASDI) and 1.45% for Medicare. Currently 6.2 -> 4.2 for employees.
  • Employers that participate in the Retiree Drug Subsidy Program are entitled to a federal subsidy to offset the cost of providing coverage to retirees that is at least actuarially equivalent to Medicare Part D coverage Currently, employers are not taxed on the subsidy The 2003 MMA created the RDS and other options that were designed to encourage employers and unions to continue providing high quality prescription drug coverage to their retirees. Loss of deduction must be recognized in income statement this year under GAAP Accounting Standards Codification 740 Means that an employer can deduct the entire cost of providing coverage, even though the subsidy partially offsets the cost Effective 1/1/13, ACA effectively eliminates the tax deduction for the subsidy
  • For these purposes only, FTE employees are determined by taking the sum of the employer’s full time employees (using a 30 hour per week standard) and the number determined by dividing the hours of service of employees who are not full time employees by 120. Special rule for seasonal employees Seasonal workers are those who perform labor or services on a seasonal basis as defined by the DOL and retail workers employed exclusively during holiday seasons
  • Example 1: No full time employee receives a tax credit No penalty assessed Example 2: One or more full time employees receive a tax credit The annual penalty is calculated by taking the number of full time employees minus 30, multiplied by $2,000 If there are 50 full time employees, the penalty would not vary if only one employee or all 50 employees received the credit; the employer’s annual penalty would be (50-30) × $2,000, or $40,000
  • An employer elects to use a 6-month measurement period and a 6-month stability period for purposes of determining its full time employees The first measurement period runs from January 1, 2014 through June 30, 2014 and the associated stability period runs from July 1, 2014 through December 31, 2014
  • Employers may use a reasonable period to determine eligibility if (a) period is not designed to avoid the 90 day period, (b) individual becomes eligible within 90 days of being assessed eligible or, if earlier, within 13 months of start date (plus the days to the first day of the next calendar month depending on the employee’s start date)
  • Very simply, “net investment income” is the excess of gross income from interest, dividends, annuities, etc., over any deductions allowed by the IRS that are allocated to such income. As such, net investment income does not include, for example, tax-exempt interest or distributions from tax qualified plans. As with the hospital insurance FICA tax, this tax will apply to an individual’s investment income in excess of the thresholds described above on an uncapped basis.
  • ACA expanded ERISA’s benefit claims procedures to include external review for plans that are not “grandfathered.” ERISA requires that every employee benefit plan contain written administrative claim procedures to ensure “full and fair review” to participants whose claims for benefits have been denied. The purpose of ERISA’s internal review process is to reduce litigation and thereby reduce the cost of benefit claim disputes. The administrative exhaustion process concludes when a named fiduciary, generally bestowed with discretionary authority to interpret the plan, renders a final and binding benefit decision. Courts require that claimants exhaust these internal claims procedures as a prerequisite to filing suit, and Firestone language confers abuse of discretion review to the Plan Admin. DE NOVO : DOL Tech. Release 2010-01: “The IRO will review all of the information and documents timely received. In.reaching a decision, the assigned IRO will review the claim de novo and not be bound by any decisions or conclusions reached during the plan’s internal claims and appeals process . . .”
  • Non-grandfathered Plans must now contract with IROs to provide external review following exhaustion of the traditional internal administrative claims procedures. Under the interim final rules, external review applies to any adverse benefit determination, except for benefit denials based on the claimant’s lack of eligibility to participate in the health plan. ERISA divides benefit plan administration into two camps: fiduciary and non-fiduciary. Fiduciaries have authority to interpret the plan and make final and binding benefit determinations. Aetna Health Inc. v. Davila , 542 U.S. 200, 218-20 (2004). In contrast, non-fiduciaries partake in day-to-day ministerial functions, such as drafting and sending notices to participants, and calculating benefits owed. ERISA provides that a person is a fiduciary with respect to a plan to the extent: “he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets . . . , or he has any discretionary authority or discretionary responsibility in the administration of such plan.”
  • Need not meet all requirements of safe harbor: plan could be compliant based on facts and circumstances
  • Although IRO determinations are generally final and binding on the plan and claimant, participants and the plans may challenge them pursuant to other state or federal laws, such as ERISA. As noted by the Supreme Court: “the ultimate decisionmaker in a plan regarding an award of benefits must be a fiduciary and must be acting as a fiduciary when determining a participant’s or beneficiary’s claim.” Aetna v. Davila , 542 U.S. at 218 (noting benefit determinations are generally fiduciary acts: “a benefit determination is part and parcel of the ordinary fiduciary responsibilities connected to the administration of a plan”).
  • For ERISA-governed plans, IRO determinations may be challenged by plan participants as contrary to the plan’s terms and/or procedurally flawed. The seminal ERISA standard of review case is Firestone Tire & Rubber Co. v. Bruch . Under Firestone , federal courts apply the arbitrary and capricious standard to benefit claim cases when the governing ERISA plan bestows discretionary authority upon the Plan Administrator. Otherwise, benefit determinations are reviewed de novo . In Metropolitan Life Ins. Co. v. Glenn ,the Supreme Court reaffirmed that the arbitrary and capricious standard applies to the review of ERISA benefit claims Because IROs are required to review each benefit claim de novo , the question arises as to the appropriate standard of review courts will apply to the IROs’ benefit determinations. If plans do not confer discretionary decision-making authority upon IROs, courts may apply the de novo standard, since Firestone required the plan to confer discretionary authority to trigger abuse of discretion review. On the other hand, if plans confer discretionary authority upon their IROs then Firestone provides good grounds to argue that courts should review IROs decisions deferentially, i.e ., for an abuse of discretion
  • Section 1201 of ACA amended the Public Health Services Act (PHSA) and ERISA to make its coverage mandates applicable to individual and group health plans, including self-insured employer-sponsored plans. The coverage mandates for private sector group health plans “established or maintained” by employers are incorporated by reference into Section 715 of ERISA, Codified at 29 U.S.C. § 1185d. Because ACA’s coverage mandates were incorporated into Title I, Part 7 of ERISA, participants of employer-provided health plans have a private cause of action to enforce their rights to these ACA benefits through ERISA’s remedial provisions.
  • There is currently no definitive list of EHBs. Thus, Employers are left to implement EHBs in a regulatory environment where “good faith” compliance is the standard. A DOL bulletin does state, however, that EHBs must equal the scope of benefits provided under a typical employer plan and that such coverage must be determined by considering the health needs of diverse segments of the population and may not discriminate based on age, disability, or expected length of life. HHS also has already noted that:
  • These coverage mandates can result in litigation exposure because of their sheer complexity and the uncertainty that surrounds implementation. In addition, many of these mandates will upset existing practices ( e.g. , the potential lifting of annual limits on durable medical equipment, therapy services, and the like), and will impose substantial costs on employers. For example, plaintiffs may be expected to test whether limits on doctor visits, mental health sessions, and the like (which are often imposed by plans) are permitted, or instead constitute impermissible forms of annual limits. Finally, if a court later determines that the benefit at issue was required by ACA, the employer or plan fiduciary may face plan-wide exposure, with plaintiffs seeking to use ERISA’s remedial provisions to acquire these benefits, including payment of money for any lost benefits.

Post-Election: Health Care Reform Here to Stay Post-Election: Health Care Reform Here to Stay Presentation Transcript

  • Post-Election: Health Care Reform Here to Stay November 27, 2012 James R. Napoli jnapoli@proskauer.com © 2012 Proskauer. All Rights Reserved.
  • Welcome and Introduction • The Political Question • Impact on Employers/Plan Sponsors • Tax Provisions under ACA Relevant to Employers • Employer Reporting Obligations Under ACA • Litigation Risks • Questions © 2012 Proskauer. All Rights Reserved.2
  • The Political Question • Chief Justice Roberts: “…we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.” • The November election will become a referendum on the Act3
  • The Political Question • President Obama and Democratic Candidates ran on the positive aspects of the Act: ­ Coverage to Age 26 ­ Elimination of Lifetime and Annual Limits ­ Abolition of pre-existing conditions ­ Access for individual and small employers through Exchanges ­ Subsidies for those who can least afford coverage4
  • The Political Question • Governor Romney and Republican Candidates ran on the negative aspects of the Act: ­ Governor Romney took a “Repeal and Replace” posture ­ Constitutes a tax disproportionately applied to lower- and middle-income earners ­ Empowers federal regulators to dictate to employers and individuals and the medical community ­ Increased costs and deficits5
  • The Political Question - Exchanges • Types of Exchanges: State, Federally Facilitated, and Partnership • All states to establish an Exchange by January 1, 2014 • 2017: States may allow large employers to enter Exchanges • Exchange plans must offer “essential health benefits” at certain levels; must be community rated • Federal subsidies will be available to help people buy coverage • CBO expects 20 Million individuals utilizing exchanges by 20206
  • Exchange Options: As of September 2012Data Source: Kaiser Family statehealthfacts.org 7
  • 8
  • Impact on Employers/Plan Sponsors - Preventive Care Rules • Non-grandfathered plans must provide preventive care without cost-sharing • Initially applied to services with an "A" or "B" rating from the United States Preventive Services Task Force (immunization, screenings and preventative care for infants, children and adolescents, additional care for women) • Later expanded by HHS to include all FDA approved contraceptives (effective for plan years starting August 1, 2012) • HHS will permit employers "who, based on religious beliefs, do not currently provide contraceptive coverage in their insurance plan" until August 1, 2013, to comply9
  • Impact on Employers/Plan Sponsors – Other Mandates (2013) • Form W-2 reporting requirement (for the 2012 tax year) • $2,500 limit on employee contributions to health FSAs (for plan years beginning in 2013) • Requirement for employers to notify employees of the availability of health insurance exchanges (March 2013) • Expansion of FICA in 2013 to include an additional 3.8% tax on the unearned income of high income individuals • 0.9% Medicare payroll tax increase in 2013 on high income individuals10
  • Impact on Employers/Plan Sponsors – Other Mandates (2014) • The “pay-or-play” mandate • Employer certification to HHS regarding whether its group health plan provides “minimum essential coverage” • Increase in permitted wellness incentives from 20% to 30% (50% for tobacco cessation programs) • For large employers (200+ employees), automatic enrollment of new employees in a group health plan (effective date unknown) • 90 day limit on waiting periods • Coverage under non-grandfathered plans for certain approved clinical trials11
  • Impact on Employers/Plan Sponsors – Other Mandates (2014) • Complete prohibition on annual dollar limits • Guaranteed availability and renewability of insured group health plans • Prohibition on preexisting condition exclusions12
  • Impact on Employers/Plan Sponsors – Regulatory Uncertainty • Guidance on nondiscrimination rules for non-grandfathered, insured plans • Additional guidance and regulations on the preventive care rules ­ Expect rules for women’s preventive services with respect to self- insured plans of religious employers • Guidance on “essential health benefits” • Guidance on the “pay-or-play” mandate ­ Definition of full time employee; Exclusions; Process • Rules on automatic enrollment provisions • Clarification regarding limits on cost sharing effective 2014 • Additional guidance on state Exchanges13
  • Impact on Employers/Plan Sponsors – Audit Risk • DOL, IRS and HHS audits will increase ­ Already seeing audits of grandfathered status by DOL under the Act • DOL efforts focus on increasing employer compliance rather than assessing penalties in early years14
  • Insurance Mandates and Market Reforms • Failure to comply with the Act’s insurance mandates and market reforms (such as coverage of adult children, elimination of lifetime limits, etc.) may subject the employer to an excise tax ­ $100 per day per affected individual ­ Limited to the lesser of $500,000 or 10% of employer’s healthcare costs for the prior tax year ­ Exceptions: ­ Failures due to reasonable cause that are corrected within 30 days after the plan knew or should have known about the failure ­ Employer did not know the failure occurred and could not have known by exercising reasonable diligence © 2012 Proskauer. All Rights Reserved.15
  • IRS Form 8928 Reporting • Employers are required to self-report failures to comply with COBRA, HIPAA, GINA, MHPAEA, and other federal laws ­ Effective January 1, 2010 ­ Updated in 2011 to reflect PPACA mandates • Penalty is $100/day per affected individual • Penalty will not apply if the failure is timely corrected and was not caused by willful neglect • Exceptions for small employers: less than 50 employees on business days in prior year © 2012 Proskauer. All Rights Reserved.16
  • IRS Form 8928 Reporting • Once a plan is notified of an IRS examination, “reasonable cause” exception is limited • Penalties can be up to $2,500 per affected individual for de minimis violations, or $15,000 per affected individual for violations that are not de minimis © 2012 Proskauer. All Rights Reserved.17
  • IRS Form 8928 Reporting • If required, Form 8928 must be filed no later than the companys income tax return due date for the applicable year (regardless of any extensions) ­ However, an automatic 6-month extension may be obtained by filing Form 7004 by the regular due date (along with the taxes) • A late filing may result in a penalty of 5% of the unpaid tax per month (up to 25%) ­ Additional penalties may apply if the tax is not timely paid (.5% per month, up to 25%), unless failure is due to reasonable cause and not willful neglect © 2012 Proskauer. All Rights Reserved.18
  • Notice of Availability of Insurance Exchange • Effective March 23, 2013, employers must provide notice of the existence of the health insurance exchange ­ Notifies employees of the potential eligibility for federal assistance if the employers health plan is “unaffordable” and the possibility that the employer may not contribute to the cost of coverage purchased through an Exchange © 2012 Proskauer. All Rights Reserved.19
  • Coming Soon: Transitional Reinsurance Program • Assessment on carriers and TPAs (on behalf of self- funded plans) • Generally applies to all group health plans – no exceptions for non-ERISA plans (e.g., governmental or church plans) • Applies on a per-member basis • Does not apply to HIPAA-excepted benefits • Applies to 2014-2016 plan years • Intended to stabilize premiums in the individual markets • Additional employer recordkeeping and cost requirements © 2012 Proskauer. All Rights Reserved.20
  • Non-Discrimination Rules • Delayed until guidance released • Will apply to non-grandfathered, fully-insured plans after release (already apply to self-insured) • Prohibits discrimination in favor of “highly compensated employees” with respect to eligibility & benefits ­ Note: Testing Performed on a Controlled Group Basis • Penalty: up to $500,000 under ACA © 2012 Proskauer. All Rights Reserved.21
  • Comparative Effectiveness Fee • Effective for plan years ending after September 30, 2012 and before October 1, 2019 • $2 fee per member per year ­ Paid by insurers if insured plan ­ Paid by plan sponsor if self-funded plan • Fee reduced to $1 for plan years ending before October 1, 2013 • For plan years beginning after September 30, 2014, fee increases based on national health expenditures • Fee supposed to sunset after 2019 © 2012 Proskauer. All Rights Reserved.22
  • Comparative Effectiveness Fee • Fee applies separately to insurers and plan sponsors ­ An HRA that is integrated with an insured group health plan is subject to the fee, as is the insurer, even though the HRA and the insured plan are maintained by the same plan sponsor • Insurers and plan sponsors must pay these fees annually on Form 720, which is due by July 31 of each year • A return will generally cover policy or plan years that end during the preceding calendar year • Form 720 may be filed electronically © 2012 Proskauer. All Rights Reserved.23
  • W-2 Reporting of Health Costs • Beginning with 2012 Forms (i.e., Forms issued in January 2013), employers must report aggregate cost of health coverage • Small Employer Exception: those issuing less than 250 W-2’s in prior year exempt until further guidance issued • Reportable cost includes the entire cost of the coverage (without any reduction for employee contributions) • Cost of coverage is determined under rules similar to those for determining COBRA premiums (excluding 2% administrative charge) © 2012 Proskauer. All Rights Reserved.24
  • W-2 Reporting of Health Costs • Employers could be subject to significant penalties each year for failing to properly report the cost of employer- sponsored coverage • Penalty of $100 per Form W-2, capped at $1.5 million per year ­ For failures corrected within 30 days, the penalty is reduced to $30 per Form W-2, capped at $250,000 for the year ­ For failures corrected after 30 days but on or before August 1, the penalty is $60 per Form W-2, capped at $500,000 for the year © 2012 Proskauer. All Rights Reserved.25
  • W-2 Reporting Tips • Use a “reasonable method” of valuing coverage for terminated employees ­ Reporting not required if an employer accommodates a former employee’s request for a W-2 prior to end of the year • Not necessary to use the same method for every plan, but use the same method with respect to each employee receiving coverage under a plan • Reportable costs must reflect any increase or decrease in cost for the year ­ If an employee changes coverage during the year, the reportable cost must account for the change in coverage © 2012 Proskauer. All Rights Reserved.26
  • W-2 Reporting Failures • Employers could be subject to significant penalties each year for failing to properly report the cost of employer- sponsored coverage • Penalty of $100 per Form W-2, capped at $1.5 million per year ­ For failures corrected within 30 days, the penalty is reduced to $30 per Form W-2, capped at $250,000 for the year ­ For failures corrected after 30 days but on or before August 1, the penalty is $60 per Form W-2, capped at $500,000 for the year © 2012 Proskauer. All Rights Reserved.27
  • Summary of Benefits and Coverage • The Basics • Final Rule effective September 23, 2012 • SBC cannot exceed four double-sided pages in length and must be “culturally and linguistically appropriate” ­ Special rules for plan designs that do not fit the template • SBC must be accompanied by the “uniform glossary” ­ Available at www.healthcare.gov and www.dol.gov/ebsa/healthreform/ • HHS forms: http://cciio.cms.gov/resources/other/index.html#sbcug • Upon renewal, an SBC need only be provided for the benefit option in which a participant is enrolled, unless other SBCs are requested • SBC is in addition to Summary Plan Description requirement © 2012 Proskauer. All Rights Reserved.28
  • Summary of Benefits and Coverage • The Basics (cont.) • The SBC requirement applies jointly to plans and carriers ­ Carrier responsible for developing SBC for insured plan ­ Employer responsible for developing SBC for self-funded plan • A plan or carrier that willfully fails to provide an SBC is subject to a fine of up to $1,000 per offense ­ Each failure with respect to a participant is a separate offense • SBC may be included with other documents (e.g., SPD) as long as it is “prominently displayed” • Premiums not required to be disclosed on SBC © 2012 Proskauer. All Rights Reserved.29
  • Summary of Benefits and Coverage • Timing of Initial Distribution • Based on participants’ enrollment status • For participants who are enrolling or reenrolling at open enrollment (including late enrollees), the SBC must be provided before the first day of open enrollment beginning on or after September 23, 2012 • For participants who enroll other than through open enrollment (including newly eligible employees and special enrollees), the SBC must be provided starting on the first day of the plan year beginning on or after September 23, 2012 © 2012 Proskauer. All Rights Reserved.30
  • Summary of Benefits and Coverage • Methods of Distributing the SBC ­ The SBC requirement is satisfied if a single SBC is provided to an employee and spouse known to reside at the same address ­ The SBC requirement may be satisfied electronically, provided the distribution complies with ERISA’s electronic disclosure rules • Changes to the SBC ­ If a material modification is made mid-year that affects the content of the SBC, and it’s not reflected in the most recent SBC, the plan or carrier must provide enrollees 60 days’ advance notice of the change ­ Plans are not required to distribute a new SBC 60 days in advance of changes made in connection with the renewal © 2012 Proskauer. All Rights Reserved.31
  • Summary of Benefits and Coverage • Providing the SBC • SBC must be provided at the following times: ­ Upon request (ASAP, but no later than 7 days) ­ Within 90 days of enrolling under a HIPAA special enrollment ­ With open enrollment materials (or, if no materials are provided, by the date the participant is eligible to enroll) ­ If the SBC cannot be timely provided because the plan terms have not been finalized, the SBC must be provided within 7 days of finalizing the plan terms © 2012 Proskauer. All Rights Reserved.32
  • Summary of Benefits and Coverage • Content of the SBC ­ Uniform definitions of standard insurance and medical terms ­ Coverage description and cost sharing for certain benefits ­ The exceptions, reductions, and limitations of the coverage ­ The renewability and continuation of coverage provisions ­ Two coverage examples ­ Statement that the SBC is only a summary and to consult the plan ­ Contact information for questions and obtaining plan documents ­ Web address for obtaining Rx information, a list of network providers, and the “uniform glossary” ­ Statement as to whether the plan provides “minimum essential coverage” (2014) © 2012 Proskauer. All Rights Reserved.33
  • $2,500 Health FSA Limit • Effective for plan years beginning in 2013 ­ Limits annual employee contributions to $2,500 ­ Indexed to the CPI starting in 2014 ­ Does not limit employer contributions that are non-cashable • To Do: ­ Communication to begin in 2012 (2nd half) ­ Plan amendments recommended by start of 2013 plan year ­ However, an amendment adopted by the end of 2014 may apply retroactively if the plan has complied with the $2,500 limit • Reminder: OTC drugs no longer reimbursable under FSA/HRA/HSA without a prescription © 2012 Proskauer. All Rights Reserved.34
  • Additional 0.9% Medicare Payroll Tax • Effective January 1, 2013 ­ Under ACA, the employee portion of the FICA hospital insurance (HI) payroll tax is increased by 0.9% for employees with wages in excess of $200,000 ($250,000 for married couples filing jointly) ­ Example: the current 1.45 percent HI tax rate applies to wages up to $200,000/$250,000, and a 2.35 percent tax rate applies to any wages over those amounts ­ The $200,000 and $250,000 thresholds are not indexed ­ Note: the 0.9% increase is not applicable to the employer’s portion of the HI tax © 2012 Proskauer. All Rights Reserved.35
  • Additional 0.9% Medicare Payroll Tax • If the employer fails to withhold the additional 0.9% tax on wages in excess of $200,000, the employer will be liable for the taxes that were not withheld ­ If the employee ultimately pays the tax, the employer will no longer be responsible ­ However, the employer will be liable for any penalties that may result from its failure to withhold correctly © 2012 Proskauer. All Rights Reserved.36
  • Elimination of tax deduction for RDS payments • Retiree Drug Subsidy – federal program that provides tax-free contribution to employers for up to 28% of annual retiree drug costs • Before ACA, employers could deduct their entire retiree drug expense, including costs they paid using the tax-free government subsidy • However, starting in 2013, employers can no longer take a tax deduction for the government-subsidized portion of prescription drug expenses ­ Accounting rules may require employers to include the present value of the future taxes as a current liability prior to 2013 © 2012 Proskauer. All Rights Reserved.37
  • Employer “Pay-or-Play” Mandate • In 2014, the pay-or-play mandate requires employers of 50 FTE or more to offer quality, affordable health insurance coverage to full time employees (30 hours per week or 130 hours per month) and their families • Failure to offer such coverage potentially subjects the employer to a tax penalty for a given month if a full time employee receives a federal premium tax credit and is enrolled in coverage through an Exchange © 2012 Proskauer. All Rights Reserved.38
  • What are the Pay-or-Play Penalties? • Employers who “opt out” of providing benefits • Employers who do not provide health coverage to all full time employees (and their dependents) are penalized • If at least one full time employee (30+hrs/wk or 130+ hrs/mo) is eligible for, or receives, a tax credit and enrolls in exchange coverage, the employer is subject to an annual penalty of $2,000 × all full time employees (except for the first 30) • Penalty is assessed monthly (i.e., $167.67 per full time employee per month) © 2012 Proskauer. All Rights Reserved.39
  • What are the Pay-or-Play Penalties? • Employers who provide “unaffordable” coverage • Coverage is affordable only if the premium for single coverage under the employer’s lowest cost plan with at least a 60% “actuarial value” does not exceed 9.5% of household income (or W-2 wages) • Annual penalty is the lesser of $3,000 for each full time employee who receives a tax credit and enrolls in exchange coverage, or $2,000 multiplied by all full time employees (subtracting first 30) • Penalty is assessed monthly (i.e., $250 per subsidy-receiving full time employee per month) © 2012 Proskauer. All Rights Reserved.40
  • Determining Full Time Employee Status For Purpose of the Pay or Play Tax • “Look-back/stability period safe harbor” method • The employer selects a 3-12 month “measurement” period to determine which employees averaged at least 30 hours per week • Employee will be treated either as full time or not full time during the subsequent “stability period”, regardless of hours worked • Stability period is the longer of 6 months or the measurement period © 2012 Proskauer. All Rights Reserved.41
  • Variable Employees & Full Time Employee Status • A Variable Employee: On start date, it cannot be determined whether employee is expected work on average at least 30 hours per week • Initial Measurement Period of Between 3 and 12 months ­ Assess average during Initial Measurement Period ­ Assessment is then used for stability period that is the same as for ongoing employees • Use of Administrative Period: can use an “administrative period” but total can not exceed 13 months (plus the remainder of the month if anniversary falls in middle of month) © 2012 Proskauer. All Rights Reserved.42
  • Coordination with 90-day Waiting Period Limit • An employer will not be subject to a penalty for the first three months following an employee’s date of hire • Coordinates with 90-day limit on waiting periods, which is effective for plan years beginning in 2014 © 2012 Proskauer. All Rights Reserved.43
  • Other Tax Related Provisions • Taxes Relevant to Individuals ­ Increased excise tax on non-qualified HSA distributions ­ Increased itemized deduction limit for medical expenses ­ 3.8% FICA tax on unearned income • Individual Mandate and Federal Premium Tax Credits © 2012 Proskauer. All Rights Reserved.44
  • Other Tax Related Provisions • Relevant to Individuals: • Effective January 1, 2011, the penalty for using HSA funds for non-medical purposes increased from 10% to 20% • Effective January 1, 2014, the itemized deduction for medical expenses is allowed only to the extent expenses exceed 10% of AGI, increasing the threshold from 7.5% ­ The 10% threshold does not apply to individuals age 65+ until January 1, 2017 © 2012 Proskauer. All Rights Reserved.45
  • 3.8% FICA tax on unearned income • Effective January 1, 2013, FICA taxes are expanded to include a new 3.8% tax on the lesser of (A) net investment income, and (B) the excess of AGI over $200,000 ($250,000 if filing jointly) • Example 1: • Individual’s wage income: $200,000 no 0.9% wage tax; • Investment income: $ 50,000 3.8% tax paid on $10,000 • Assume modified AGI is: $210,000 (excess of AGI >$200K) • Example 2: • Individual’s wage income: $350,000 0.9% wage tax on $150k; • Investment income: $ 50,000 3.8% tax paid on $50,000 • Assume modified AGI is: $325,000 (investment income) © 2012 Proskauer. All Rights Reserved.46
  • Litigation Risk • Workforce Realignment • Retiree-Only Plans • Retiree Medical Exit Strategy • IROs • Claims to Mandated Benefits • Whistleblower Actions47
  • Avoiding the Employer Mandate – Workforce Realignment• How are employers responding to the Employer Mandate? ­ Possible avoidance by reorganizing workforces o Penalty determined based on “full-time” employees o ACA “full-time” employees work at least 30 hrs per week o Now, “part-time” employees work less than 40 hrs per week o Employers may reduce employees’ hours below 30 per week to avoid “full-time” employees under ACA48
  • Avoiding the Employer Mandate – Workforce Realignment (cont’d) • Risks to workforce reorganization? ­ Discrimination, retaliation as to benefits (ERISA § 510) o No discrimination or retaliation “against a participant or beneficiary for exercising any right to which he is entitled” o Or “interference with . . . any right to which [they] may become entitled” o If motivated by a “specific intent” to interfere with benefits ­ Same, as to a protected class (e.g., ADEA and Title VII) o Need to ensure that “adverse” employment action (i.e., cutback in hours) does not disparately impact a protected class of employees o Is there a legitimate business reason other than avoiding penalties? ­ Whistleblower action under ACA o Cannot take adverse employment action against an employee who reports a violation of ACA to the employer or a government agency49
  • Avoiding the Employer Mandate – Workforce Realignment (cont’d)• How to minimize risks? ­ Determine affected employees and current benefit rights ­ Accomplish cost savings via plan design instead? o Settlor function v. employment action o Note: Still need to ensure plan design does not disparately impact a protected class of employees ­ Document legitimate business reasons for reclassifications50
  • Avoiding ACA Coverage Mandates – Retiree Only Plans • ACA generally does not apply to “retiree-only plans” ­ Retiree-only plans cover fewer than 2 active employees • What if plan covers both active and retirees? ­ ACA would apply to the entire plan ­ Would need to spin off the retirees into a separate retiree only plan to avoid ­ ACA would continue to apply to active plan, but would not apply to the new retiree only plan.51
  • Avoiding ACA Coverage Mandates – Retiree Only Plans (cont’d) • Risks of spinning off a retiree-only plan? ­ ERISA § 502(a)(1)(B): authorizes civil actions to recover benefits due under a plan and enforce plan terms ­ ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice which violates ERISA or the terms of the plan or to obtain other “appropriate equitable relief” to redress violations of ERISA or the Plan ­ LMRA § 301(a): authorizes civil actions to enforce CBA terms52
  • Avoiding ACA Coverage Mandates – Retiree Only Plans (cont’d) • How can these risks be minimized? ­ Thoroughly review the plan documents, etc. to determine the benefits “promised” to retirees ­ Thoroughly review the plan documents, etc. for valid reservation of rights clauses ­ Follow the prescribed method for amending the plan(s)53
  • Taking Advantage of Exchanges – Retiree Medical Exit Strategy • According to a recent study, ACA is a catalyst to employers exiting sponsorship of retiree medical plans • One exit strategy is to use the exchanges as a “soft landing” for retirees who will lose employer-sponsored coverage • Risks are similar to the retiree medical spin off: ­ ERISA § 502(a)(1)(B): authorizes civil actions to recover benefits due under a plan and enforce plan terms ­ ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice which violates ERISA or the terms of the plan or to obtain other “appropriate equitable relief” to redress violations of ERISA or the Plan ­ LMRA § 301(a): authorizes civil actions to enforce the terms of a CBA54
  • Taking Advantage of Exchanges – Retiree Medical Exit Strategy (cont’d) • How can these risks be minimized? ­ Thoroughly review the plan document, SPD, CBA, if applicable, and other plan related materials to determine the what benefits were “promised” to retirees ­ Thoroughly review the plan document, SPD, CBA, and other plan related materials to determine whether a valid reservation of the right to amend the terms and conditions of plan coverage exists ­ Consider a court action to bind retirees55
  • External Appeals & IROs – Loss of Deferential Review? Federal external appeals process (does not apply to grandfathered plans) ­ Group health plans, e.g., self-funded ERISA plans, are required to provide external review processes by Independent Review Organizations (“IROs”) ­ External review is final and binding ­ Will IROs be subject to ERISA’s fiduciary duties? ­ How does this impact the standard of review?56
  • External Appeals & IROs – Process • Contracting with IROs ­ Plan may contract directly with IROs or through its TPA ­ Contracting IROs through a TPA does not relieve plan fiduciaries of their oversight responsibilities o Perform due diligence with respect to the selection of IROs o Continued monitoring of IROs by appropriate plan fiduciary o Indemnification issues ­ Keep fiduciary status in mind when contracting with IROs and setting up external appeals procedures o Is an IRO and ERISA fiduciary?57
  • External Appeals & IROs – Regulatory Uncertainty • Safe harbor until further guidance ­ DOL and IRS will not take enforcement action if external review procedure meets certain standards ­ Safe harbor allows use of state process or adoption of specific procedures for the following: o Initiating an external review o Procedures for preliminary reviews to determining whether a claim is eligible for external review o Contracting with at least 3 IROs that meet minimum requirements ­ 2 IROs by January 1, 2012 ­ 3rd IRO by July 1, 2012 o A process for the random assignment of external reviews to an IRO o Standards for IRO decision making (including that it be de novo) o Rules for providing notice of a final external review decision o Process for expedited external review58
  • External Appeals & IROs – Litigation Risk • Possible litigation involving IROs ­ Plan Administrator vs. IRO o If IRO is a plan fiduciary ­ ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice which violates ERISA or the terms of the plan or to obtain other “appropriate equitable relief” to redress violations of ERISA or the Plan ­ ERISA § 502(a)(2): authorizes civil actions to recover liabilities associated with fiduciary breaches o If IRO is not a plan fiduciary ­ Breach of contract ­ Professional negligence59
  • External Appeals & IROs – Litigation Risk • Possible IRO litigation scenarios: ­ Plan Participant vs. IRO o If IRO is a plan fiduciary ­ ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice which violates ERISA or the terms of the plan or to obtain other “appropriate equitable relief” to redress violations of ERISA or the Plan o If IRO is not a plan fiduciary ­ ERISA preemption? ­ Plan Participant vs. Oversight Fiduciary o ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice which violates ERISA or the terms of the plan or to obtain other “appropriate equitable relief” to redress violations of ERISA or the Plan60
  • Claims for Mandated Benefits • Possible claims for failure to provide mandated benefits: ­ ERISA § 502(a)(1)(B): authorizes civil actions to recover benefits due under a plan and enforce plan terms ­ ERISA § 502(a)(3): authorizes civil actions to enjoin any act or practice which violates ERISA or the terms of the plan or to obtain other “appropriate equitable relief” to redress violations of ERISA or the Plan61
  • Claims for Mandated Benefits (cont’d) • Mandates for grandfathered and non-grandfathered plans • Plan years beginning on or after • Plan years beginning on or after September 23, 2010 January 1, 2014: ­ No lifetime limits on essential health ­ No annual limit on dollar value benefits of essential benefits, without exception ­ Minimum annual limits on dollar value of essential health benefits ­ Coverage of children to age 26, regardless of other coverage ­ Coverage of children to age 26 (grandfathered plans may exclude ­ No preexisting condition children eligible for other coverage) exclusions ­ No rescission except in case of ­ Waiting periods limited to 90 fraud days ­ No preexisting condition exclusions ­ Changes to wellness plan for children under age 19 incentives62
  • Claims for Mandated Benefits (cont’d) • Additional mandates for non-grandfathered plans only: ­ Limits on deductibles and out-of-pocket maximums ­ Nondiscrimination for insured plans determined under IRC 105(h) ­ Internal and external appeal process rules ­ Coverage of in-network preventive services with no cost-sharing ­ Special rules on choosing primary care provider ­ No prior authorization for OB/GYN visits ­ Coverage of out-of-network emergency services using in-network cost-sharing and no prior authorization requirement ­ Coverage of treatment for those in clinical trials63
  • ACA Whistleblower Protections • ACA prohibits employers from taking adverse action against any employee because the employee: ­ received a premium tax credit or subsidy for a health plan ­ provided information to the employer or the federal or state government concerning a violation, act or omission the employee reasonably believes to be a violation relating to Title I of the ACA ­ testified or is about to testify in a proceeding concerning such violation ­ assisted or participated, or is about to assist or participate, in such a proceeding ­ objected to, or refused to perform any activity or assigned task the employee reasonably believes to be such a violation64
  • ACA Whistleblower Protections (cont’d) • Standards of Proof ­ Claim – employee must prove by a preponderance of the evidence that the employee’s protected activity was a contributing factor to the employer’s adverse employment action ­ Defense – the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same action in the absence of the employee engaging in the protected conduct • Procedure ­ Administrative Process – employee must file a complaint with OSHA within 180 days of the employee becoming aware of the retaliatory action. OSHA will then investigate the complaint and can order preliminary relief. Either party can appeal OSHA’s determination by requesting a hearing before an administrative law judge of the U.S. Department of Labor. ­ Federal Court – if the Secretary of Labor fails to issue a final decision within 210 days after a complaint is filed, or within 90 days after receiving a written determination from OSHA, the complainant may pursue the claim in federal court and may request a trial by jury65
  • ACA Whistleblower Protections (cont’d) • Remedies include reinstatement, back pay, special damages (including emotional distress damages), and attorneys’ fees • Whistleblower protections and remedies are in addition to any other rights under federal or state law or under a collective bargaining agreement • Whistleblower protections cannot be waived66
  • Next Steps for Employers/Plan Sponsors 1. Review plan documents and SPDs 2. Address readiness for upcoming requirements 3. Consider all of your compliance options 4. Engage in the regulatory process67
  • Questions? Please type your question in to the Question area in your attendee control panel, OR click the “raise your hand” button in your control panel. We will verbally read and respond to typed questions. If you select the “raise your hand” button, we will unmute your phone line individually and call you by name to let you know as soon as you are unmuted so that you may ask your question.68
  • James R. Napoli Senior Counsel • James R. Napoli is a Senior Counsel in the Washington, D.C. office of Proskauer Rose LLP, where he chairs the Firm’s Health Care Reform Task Force. He has experience litigating matters involving claims to benefits under pension plans, long- term disability plans, employer sponsored medical plans, and general insurance contracts. He has litigated matters involving claims for breach of fiduciary duty and fiduciary misrepresentation. The defense of actions raising ESOP valuation issues, defined contribution account balance valuation issues, executive compensation issues, ERISA §510 claims, and preemption issues have all been an important part of Jim’s experience. He also has brought claims for breach of contract, breach of fiduciary duty, and reimbursement on behalf of his ERISA party clients. Jim is also experienced in representing clients before the IRS, DOL and PBGC. He recently 202.416.5862 served as counsel of record on an amicus brief filed with the US Supreme Court on jnapoli@proskauer.com behalf of the American Benefits Council in the pending healthcare reform litigation. He also participated in the settlement of Chrysler’s nearly $10 billion retiree medical obligation with the UAW Retiree Medical Benefits Trust. In addition to his controversy practice, Jim counsels employers on all aspects of their employee benefit programs, including matters affecting tax-qualified retirement plans (such as 401(k) plans, cash balance pension plans, traditional defined benefit plans, and other retirement plan designs); executive compensation plans; and welfare benefit plans (including cafeteria plan, COBRA and other group health plan issues). Mr. Napoli is a frequent speaker on employee benefit matters, including a series of webinars and lectures on Healthcare Reform. He is the managing author of “The New Health Care Reform Law - What Employers Need to Know,” published by Thompson Publishing, and has authored numerous articles and other publications on employee benefit matters.69
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  • Post-Election: Health Care Reform Here to Stay November 27, 2012 James R. Napoli jnapoli@proskauer.comThe information provided in this slide presentation is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does itnecessarily reflect the opinions of the firm, our lawyers or our clients. No client-lawyer relationship between you and the firm is or may be created by your access to or use of this presentation or anyinformation contained on them. Rather, the content is intended as a general overview of the subject matter covered. Proskauer Rose LLP (Proskauer) is not obligated to provide updates on the informationpresented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions. © Proskauer Rose LLP. All Rights Reserved. © 2012 Proskauer. All Rights Reserved.