Agenda• Intro’s and AH&T Story• Key Challenges in U.S. Healthcare System• Reforms currently in place (2010-2012)• Looking Forward (2013-2018)
Intro’s and AH&T Story• AH&T is a full-service insurance brokerage and consulting firm with nationally recognized practices in areas including technology, manufacturing, government contracting and nonprofits.• Founded in 1921• Employee owned and privately held• Three offices including Leesburg VA, Seattle WA, and New York, NY• 140 Employees• Typically serve clients: – Pre-Revenue to $200 MM in Revenue – 25 Employees to 2,000 Employees
Key Challenges in U.S. Healthcare System• Accessibility – As of 2011 there were 48.6 Million uninsured Americans representing 16% of the population.• Rising Costs – Medical premiums are increasing rapidly; they have nearly doubled in the last 10 years. – In 2011, the U.S. spent $2.7 trillion on health care, an average of $8,650 per person. – The share of economic activity (gross domestic product, or GDP) devoted to health care has increased from 7.2% in 1970 to 17.9% in 2010.• Aging and Unhealthy Population – Half of health care spending is used to treat just 5% of the population.
Accessibility and Uncompensated Care Health Insurance Coverage in the U.S. Population, 2011Uninsured and Underinsured Uninsured,Americans generate $57 16%Billion in “UncompensatedMedical Care” most of whichis paid directly to hospitals byvarious state and federalprograms. Employer- Sponsored Insurance, 49% Total = 307.9 million
Rising CostsAverage Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage, 1999-2011
Looking Back – Road to Reform• 1993: Democratic President Bill Clinton proposes a plan to create universal healthcare coverage for Americans• November 4, 2008: Democrat Barack Obama wins the presidency after making healthcare reform one of his campaign pledges.• September 9, 2009: In an address to Congress, Obama asks for quick action on healthcare legislation.• November 7, 2009: The House of Representatives passes its version of healthcare reform legislation, including a public option, by a narrow 220-215 vote• December 24, 2009: The Senate passes its bill on a party-line 60-39 vote. The bill has no public option.• February 22, 2010: Obama unveils his own healthcare proposal, drawn heavily from the Senate bill, three days before a bipartisan summit intended to rescue his reform effort.• March 21, 2010: U.S. House of Representatives approves a sweeping overhaul of the $2.7 trillion U.S. healthcare system and sends along for Senate approval a package of changes made to the Senate bill.• June 28, 2012 The U. S. Supreme Court rules to uphold all facets of the law including the controversial “Individual Mandate”
Reforms Currently in Place - 2010 26 Provisions - all in Effect
Grandfathered Plans• Group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010• Certain health care reform provisions don’t apply to grandfathered plans, even if coverage is later renewed• A plan can lose grandfathered status by making too many changes to benefits or costs• Employers will have to analyze status and changes at each renewal• As of 2012 48% of employees in the US were covered by a grandfathered plan down from 56% in 2011.
Small Business Tax Credit• Provides tax credits to small employers with no more than 25 employees and average annual wages of less than $50,000 that provide health insurance for employees.• Phase I (2010-2013) – tax credit up to 35% (25% for non-profits) of employer cost.• Phase II (2014 and later) – tax credit up to 50% (35% for non-profits) of employer cost if purchased through an insurance Exchange for two years.
Additional Reforms Currently in Place - 2010• Extended Coverage for Young Adults up to age 26• Development of Pre-existing Condition Insurance Plan (PCIP)• Creation of www.healthcare.gov• Eliminating Pre-existing Condition Exclusions for Children• Rescissions Prohibiting• Lifetime and Annual Limits• Coverage of Preventive Care Services• Improved Claims and Appeals Process• Indoor Tanning Services Tax• Tax Rebate for Part D Participants in the “Donut Hole”
Reforms Currently in Place - 2011 20 Provisions - 17 in Effect
Medical Loss Ratios• The Patient Protection and Affordable Care Act (PPACA) requires insurers to report their Medical Loss Ratios (MLRs) to regulators and to meet certain MLR targets. If an insurer exceeds the minimum MLR, the insurer must issue a rebate to the policyholder. The first of these annual rebates is due in August 2012. Rebates must be provided to enrollees if the following thresholds are not met: – less than 85% for plans in the large group market (51+) – Less than 80% for plans in the individual and small group market (50 or fewer enrollees)
Medical Loss Ratios Continued• In 2012 – 12.8 million Americans received more than $1.1 billion in rebates.• Americans receiving rebates received an average rebate of $151 per household.• In Washington State: – Total Rebates - $594,031 – Households receiving rebates - 7,681 – Average per - $185
Simplified Cafeteria Plans• Cafeteria plans are designed to allow nontaxable benefits to employees• For employers with less than 100 employees• A simple cafeteria plan provides a safe harbor from nondiscrimination requirements for cafeteria plans. If the safe harbor tests are met, the nondiscrimination requirements are deemed to be met as well.• Three Safe Harbor Tests
Medicare Part D 2011- 2013 – Closing the “Donut Hole”15% Americans are Covered by Medicare - roughly 49 Million people27.7 Million people are covered by Medicare Part D
Additional Reforms Currently in Place - 2011• Changes to Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) – Over-the-counter (OTC) medicines and drugs may not be reimbursed by these plans unless they are accompanied by a prescription. – There is an exception for insulin. Also, OTC medical supplies and devices may continue to be reimbursed without a prescription.• Increased Tax Penalties on Non-Medical Withdrawals from HSAs and Archer MSAs from 10% to 20%
Reforms Currently in Place - 2012 11 Provisions – 10 in Effect
Expanding Preventative Care Services for Women – Well-women visits – Gestational diabetes screening – HPV DNA testing – Sexually transmitted infection counseling – HIV screening and counseling – Breastfeeding support, supplies and counseling – Domestic violence screening and counseling – Contraceptives and contraceptive counseling
W-2 Reporting • For Employers filing over 250 W-2’s • Employers must report aggregate cost of group health plan coverage on each employee’s Form W-2 • For small employers (filed fewer than 250 W-2 Forms last year), reporting requirement is delayed until further guidance issued • Reportable cost includes the entire cost of the coverage (without any reduction for employee contributions) • Does not change the tax rules for health coverage – coverage is still not taxable
W-2 Reporting Penalties• 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
Uniform Summary of Benefits and Coverage All Plans Renewing after September 23, 2012 SBC Glossary
Health FSA Contribution – Reduced to $2,500• Limits annual employee contributions to $2,500 – Indexed to the CPI starting in 2014• Reminder: OTC drugs no longer reimbursable under FSA/HRA/HSA without a prescription
Elimination of Retiree Drug Subsidy• 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
Notice of Exchanges• Employers must notify new and current employees of the existence of exchanges by March 1, 2013• Notice must include information about 2014 changes: – Existence of health benefit exchange and services provided – Potential eligibility for subsidy under exchange if employer’s share of benefit cost is less than 60 percent – Risk of losing employer contribution if employee buys coverage through an exchange
Itemization Threshold Changes• ACA increases the income threshold for claiming the itemized deduction for medical expenses from 7.5 percent of income to 10 percent. However, individuals over 65 would be able to claim the itemized deduction for medical expenses at 7.5 percent of adjusted gross income through 2016.
Medicare Tax Increase• Beginning Jan 1st, 2013• Withheld by Employers: – Increase on the Medicare Part A (hospital insurance) tax rate on wages by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers. – Employers do not match additional tax – No requirement to notify employees• Filed by Individuals: – Additional 3.8% assessment on unearned income for higher- income on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly.
Comparative Effectiveness Research Fees• The Patient Protection and Affordable Care Act imposes a new Patient-Centered Outcomes Research Institute (PCORI) fee, formerly the comparative effectiveness research fee, on plan sponsors and issuers of individual and group policies. The first year of the fee is $1 per covered life per year, the second year the fee adjusts to $2 per covered life and then its indexed to national health expenditures thereafter until it ends in 2019.• Who Pays: – Fully Insured – Remitted by Carrier – Level Funded / Partially Self Insured – Remitted by Employer – Self funded / Self Insured – Remitted by Employer• The first possible payments are due on July 31, 2013
Additional 2013 Provisions• HIPAA Certification – By Dec. 31, 2013, employers with group health plans must certify that their plans comply with certain HIPAA rules on electronic transactions. HHS intends to issue more guidance on this requirement in the future.• Tax on Medical Devices – oImposes an excise tax of 2.3% on the sale of any taxable medical device.
Individual Mandate• Jan. 1, 2014: Individuals must enroll in coverage or pay a penalty – Penalty amount: Greater of $ amount or a % of income • 2014 = $95 or 1% • 2015 = $325 or 2% • 2016 = $695 or 2.5%• Family penalty capped at 300% of the adult flat dollar penalty or “bronze” level premium
ExchangesWhat is a health insurance exchange?•A “marketplace” setup to create a more organized andcompetitive environment for buying health insurance.•Exchanges will serve primarily individuals buying insurance ontheir own and small businesses with up to 100 employees,though states can choose to include larger employers in thefuture.•States are expected to establish Exchanges--which can be agovernment agency or a non-profit organization--with the federalgovernment stepping in if a state does not set them up.
Exchanges Cont.• CBO expects 20 Million individuals will utilize exchanges by 2020• In 2017 states may allow large employers to enter Exchanges• Exchange plans must offer “essential health benefits” at certain levels; must be community rated
Who Will Buy Insurance Through the Exchange? 2012 / 2013 Federal Poverty Levels Premiums likely to be 150% of private market insurance Subsidies phase out as income rises Who will buy? Those who can least afford insurance
Employer Coverage Requirements – “Pay or Play”• Fine for Not Providing Coverage: – Employers with 50 or more employees that do not offer coverage to their employees will be subject to penalties if any employee receives a government subsidy for health coverage. – The penalty amount is up to $2,000 annually for every full-time employee, excluding the first 30 employees.
Pay or Play Continued• Fine for Not Offering Affordable Coverage: – Employers who offer coverage, but whose employees receive tax credits because the coverage is unaffordable or does not provide minimum value, will be subject to a fine of $3,000 for each worker receiving a tax credit, up to an aggregate cap of $2,000 per full-time employee (excluding the first 30 employees). Employers will be required to report to the federal government on health coverage they provide. – Two Affordability Thresholds: • Costs employee more than 9.5% of W-2 Wages, or • Plan does not cover 60% of total costs (deductible, copay and/or coinsurance)
Potential Fines• 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
Additional 2014 Provisions• Pre-existing Condition Exclusions• Guaranteed Issue and Renewability• Insurance Premium Restrictions• Complete Prohibition on Annual Dollar Limits• No Excessive Waiting Periods• Essential Health Benefits• Automatic Enrollment – Over 200 Employees• Changes to Wellness Subsidies• Health Insurance Provider Fee
2018 – Cadillac Plan Tax• 40 percent excise tax on high-cost health plans• Based on value of employer-provided health coverage over certain limits – $10,200 for single coverage – $27,500 for family coverage• More guidance expected
Nondiscrimination Rules Coming for Fully-Insured Plans• 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• Penalty: up to $500,000 under ACA