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Impact Of Health Care Reform On Employers June 17 2010

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  • 1. The Impact of Health Care Reform on Employers Presented by: Andrea L. Bailey David E. Gevertz 420 20th Street North 3414 Peachtree Road, N.E. Wachovia Tower, Suite 1600 Monarch Plaza, Suite 1600 Birmingham, Alabama 35203 Atlanta, Georgia 30326 [email_address] [email_address] © 2010 Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. All rights reserved.
  • 2.
    • Andrea Bailey, of counsel in the Firm’s Birmingham office, concentrates her practice in the area of employee
    • benefits and executive compensation. A graduate of the University of Virginia School Of Law, Ms. Bailey is
    • experienced in all aspects of executive compensation and employee benefits matters, including the design and
    • administration of qualified plans, health and welfare benefit plans, and non-qualified plans.
    • Professional Honors & Activities
    • Member – Alabama State Bar Association
    • National Program Chair – WEB, Worldwide Employee Benefits Network
    • Past President, Atlanta Chapter, WEB, Worldwide Employee Benefits Network
    • Former Board Member – National Women in Pensions, Inc.
    • Adjunct Professor – Georgia State University (1999-2004)
    • Admissions
    • Alabama, 2008
    • Georgia, 1993
    • U.S. District Court for the Middle District of Georgia, 1995
    • Education
    • University of Virginia School of Law, J.D., 1993
    • Managing Editor, Virginia Tax Review
    • Volunteer Tax Preparation
    • Legal Aid Society
    • University of Alabama, B.S., 1990, cum laude
    • Beta Alpha Psi
    • Mortar Board, Anderson Society, The XXXI
    Andrea L. Bailey Of Counsel Birmingham Phone: 205.244.3809 Fax: 205.488.3809 abailey@bakerdonelson.com
  • 3. David E. Gevertz Shareholder Atlanta, GA   Phone: 404.221.6512 Fax: 678.406.8816 [email_address]
    • Professional Honors & Activities
    • AV® Preeminent™ Peer Review Rated by Martindale-Hubbell
    • Listed as a top Labor & Employment lawyer in Georgia by Chambers USA: America's Leading Business Lawyers (2009 and 2010)
    • Selected in 2009 and 2010 as one of "Georgia's Super Lawyers" by Atlanta Magazine and Georgia Super Lawyers magazine
    • Selected in 2007-2009 as one of "Georgia's Legal Elite," by Georgia Trend magazine
    • Named "One of Top Ten Employment Lawyers Under 40," by Employment Law360 (March 2010); Profiled in February 20, 2007 edition of Employment Law360
    • Selected as one of "Georgia's 2006 Rising Stars" (the top 2.5% in the state) by Atlanta Magazine and Georgia Super Lawyers magazine
    • Admissions
    • Georgia
    • United States District Courts for the Northern and Middle Districts of Georgia
    • United States District Court, Northern District of Florida
    • United States District Court, Northern District of Illinois
    • United States Court of Appeals, Fourth, Sixth and Eleventh Circuits  
    • Education
    • Harvard Law School, J.D., 1995, cum laude
    • Emory University, B.A., 1992, Phi Beta Kappa
    David Gevertz is an employment lawyer and Vice Chair of Baker Donelson's Labor & Employment Department. His practice is concentrated on defending large and medium-sized organizations accused of violating local, state and federal discrimination, wage and hour, privacy, drug testing and benefits laws. He is also experienced in negotiating and litigating executive agreements and restrictive covenants, as well as in leading sensitive internal investigations and implementing widespread reductions in force. Mr. Gevertz's practice also involves counseling and litigating on behalf of financial, housing, testing, and hospitality-based institutions sued for violating public accommodations, fair housing, fair testing and fair lending laws.
  • 4. Health Care Reform
    • The following are a few key provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively the "Act") that will affect employer-sponsored group health plans with implementation periods that begin immediately and continue over the coming years. Some provisions apply to so-called "grandfathered plans," while others apply initially only to non-grandfathered plans. A grandfathered plan is defined by the Act as a plan that was in existence, with at least one person enrolled, as of March 23, 2010. It is not yet clear, and further guidance will be needed to determine, what types of changes will affect the grandfathered status of these plans.
    • The following is only a summary of key provisions and is not exhaustive.
  • 5.
    • Health Care Mandates
    • For
    • Grandfathered and
    • Non-grandfathered Plans
  • 6. Grandfathered Plans
    • Many employers are already planning revisions to their medical plans for 2011. However, under health reform, if "grandfathered plans" (generally plans with at least one participant on March 23, 2010) make changes in their benefit structure, they may lose "grandfathered" status.
    • The advantage of being a grandfathered plan is that the plan does NOT have to comply with a number of otherwise applicable requirements that become effective in 2011 and 2014, such as:
      • coverage of certain preventive care services without cost-sharing,
      • certain appeals processes, requirements relating to access to primary care physicians, emergency services, pediatric care, and OB/GYN services;
      • nondiscrimination based on health status;
      • no discrimination against providers;
      • restricted annual out-of-pocket limits; and
      • coverage of clinical trials.
  • 7. Grandfathered Plans (cont’d)
    • Changes That Will Cause Loss of Grandfathered Status. Under the draft regulations, published June 14, 2010, changes that will result in the loss of grandfathered status include:
    • elimination of all or substantially all benefits to diagnose or treat a particular condition;
    • any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an individual’s coinsurance requirement);
    • any increase in a fixed-amount cost-sharing requirement other than a copayment (e.g., deductible or out-of-pocket limit), if the total percentage increase exceeds the increase in the overall medical inflation;
    • any increase in a fixed-amount copayment, determined as of the effective date of the increase, if the total increase in the copayment exceeds the greater of an amount equal to $5 increased by the overall percentage increase in medical inflation or if the total increase in the copayment is greater than the increase in medical inflation plus 15 percentage points; or
    • a decrease in the contribution rate by employers and employee organizations towards the cost of similarly situated individuals by more than five percentage points below the previous contribution rate.
  • 8. Grandfathered Plans (cont’d)
    • Collective Bargaining Plans. The language relating to grandfathering status and collective bargaining plans is unclear. It appears that self-insured plans maintained pursuant to a collective bargaining agreement will maintain grandfathered status (as long as they meet all other rules under these regulations) even after the agreement expires. The proposed regulations clarify that collectively bargained plans are subject to all other mandates that apply to non-collectively bargained grandfathered plans.
    • Transition Rules. The draft regulations provide guidance around transition rules for plan changes that were planned but not put into effect until after enactment of the reform law. A group health plan or health insurance issuer does not lose its grandfathered status if it:
      • adopted changes pursuant to written amendments on or before March 23, 2010, even though they were not effective at that time;
      • made changes to the plan after March 23, 2010 that were made pursuant to a legally binding contract entered into on or before March 23, 2010; or
      • made changes to the plan after March 23, 2010 that were made pursuant to a filing on or before March 23, 2010 with a State insurance department.
    • Ability to Amend Plan Changes to Regain Grandfathered Status. If a group health plan or health insurance issuer makes changes that are adopted prior to publication of the interim final rules, the changes will not cause the plan to cease to be a grandfathered health plan if the changes are revoked or modified effective as of the first day of the first plan year beginning on or after September 23, 2010.
  • 9. Expansion of Coverage for Young Adults – Age 26 Rule
    • A plan (whether insured or self-funded) that provides dependent coverage for children must continue to make that coverage available to an adult child (whether or not married) until the child turns 26. The plan is not required to make coverage available for a spouse or child of a child receiving dependent coverage. Regulations require the cost of the Age 26 coverage be no more than for younger dependent children. While not required, the Obama administration has encouraged early adoption of the Age 26 Rule.
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • Failure to comply could subject an employer to an excise tax of $100 per day per person to whom the failure relates. ERISA’s civil enforcement rules also may apply to violations of this provision.
    • This mandate applies to grandfathered plans as well as non-grandfathered plans. However, until January 1, 2014, a grandfathered plan can limit this Age 26 Rule coverage to children who are not eligible to enroll in other employer-provided coverage.
    • The law amends the Internal Revenue Code to extend the individual federal income tax exclusion for medical care benefits under an employer-provided plan so that benefits provided to an employee’s child who has not turned 27 as of the end of the year are excludible, even if the child does not otherwise meet the Code’s definition of dependent. This provision was effective March 30, 2010.
  • 10. Elimination of Preexisting Condition Exclusions for Children Under Age 19
    • A plan (whether insured or self-funded) may not impose any preexisting condition exclusion on enrollees who are under 19 years of age.  (The law prohibits imposing preexisting condition exclusions altogether after 2013.)
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • Failure to comply could subject an employer to an excise tax of $100 per day per person to whom the failure relates.  ERISA’s civil enforcement rules also may apply to violations of this provision.
    • This prohibition applies to grandfathered plans as well as non-grandfathered plans.
  • 11. Elimination of Lifetime and (after 2013) Annual Limits on Essential Benefits
    • A plan (whether insured or self-funded) may not establish lifetime limits on the dollar value of "essential health benefits" for any participant or beneficiary. Also, a plan’s annual limits on the dollar value of essential health benefits will be restricted (in accordance with regulations yet to be issued). (The law prohibits these annual limits altogether after 2013.)
    • Effective Date:
      • Elimination of Lifetime Limits: Plan Year beginning on or after Sept. 23, 2010.
      • Elimination of Annual Limits: Plan Years beginning on or after January 1, 2014.
    • Failure to comply with this new requirement could subject an employer to an excise tax of $100 per day per person to whom the failure relates. ERISA’s civil enforcement rules may also apply to violations of this provision.
    • This prohibition applies to grandfathered plans as well as non-grandfathered plans.
    • "Essential health benefits" include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, including behavioral health treatment, prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services, including oral and vision care. Regulations will further define essential health benefits.
  • 12. Elimination of Over-the-Counter Drug Reimbursement
    • Distributions from health savings accounts, Archer MSAs, and health flexible spending accounts for medicine are not medical expenses excludable from income unless the medicine is prescribed or is insulin. 
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • The law increases the penalty for nonqualified distributions from health savings accounts and Archer MSAs to 20%.
    • There is no grandfathering associated with this provision.
  • 13. Limit on Health FSA Deferral Contribution
    • Annual salary reduction contributions to health flexible spending accounts are limited to $2,500 (an amount that may be adjusted for inflation after 2012).
    • Effective Date: Tax Year after December 31, 2012.
    • There is no grandfathering associated with this provision.
  • 14. Anti-Discrimination Rules Applicable to Fully-Insured Health Plans
    • An insured group health plan must comply with certain requirements in the Internal Revenue Code that prohibit discrimination in favor of certain highly compensated employees.  (Under prior law, only self-insured plans were subject to this nondiscrimination requirement.)
    •   
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • This prohibition does not apply to a grandfathered plan.
  • 15.
    • TAX RELATED PROVISIONS
  • 16. 2010 Tax Changes :
    • Small Employee Tax Credit (discussed later)
    • Impose additional requirements on non-profit hospitals. Impose a tax of $50,000 per year for failure to meet these requirements
    • Limit the deductibility of executive and employee compensation to $500,000 per applicable individual for health insurance providers
    • Exclude unprocessed fuels from the definition of cellulosic biofuel for purposes of applying the cellulosic biofuel producer credit
    • Clarify application of the economic substance doctrine and increase penalties for underpayments attributable to a transaction lacking economic substance
    • Imposes a 10% tax on amounts paid for indoor tanning
  • 17. 2011 Tax Changes :
    • Exclude the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through an HSA or health FSA and from being reimbursed on a tax-free basis through an HSA or Archer Medical Savings Account
    • The value of employer benefits must be reported on employee W-2
    • Increase the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% of the disbursed amount
    • Impose new annual fees on the pharmaceutical manufacturing sector
    • New tax on private health insurance policies to pay for comparative effectiveness research
  • 18. 2012 Tax Changes :
    • Increase the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income for regular tax purposes; waive the increase for individuals age 65 and older for tax years 2013 through 2016
    • Increase 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 and $250,000 for married couples filing jointly and impose a 3.8% assessment on unearned income for higher-income taxpayers
    • Limit the amount of contributions to a flexible spending account for medical expenses to $2,500 per year increased annually by the cost of living adjustment
    • Impose an excise tax of 2.3% on the sale of any taxable medical device
    • Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments
  • 19. Tax Changes After 2012 :
    • Impose an excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage. (Effective January 1, 2018)
  • 20. Small Employer Tax Credit :
    • For tax years 2010 through 2013 small employers (those employing fewer than 25 employees with average annual wages of less than $50,000) who purchase health insurance for their employees may receive a sliding scale tax credit. Small employers with 10 or fewer workers with an average wage of $25,000 or less may receive the full value of the credit. To qualify for a tax credit, an employer must contribute at least 50% of the total premium cost of a benchmark premium.
    • Phase I: From 2010 – 2013, eligible employers may receive a credit for up to 35% of their contribution toward the employee's health insurance premium. Tax-exempt small businesses are eligible for a reduced credit of up to 25% of their contribution.
    • Phase II: Beginning in 2014, eligible employers who purchase coverage through the state exchange may receive a tax credit of up to 50% of their contribution for two years if they contribute at least 50% of the total premium cost. The full credit will be available to employers with 10 or fewer employees with average annual wages of less than $25,000. Tax-exempt small businesses would be eligible for a reduced credit of up to 35% of their contribution.
  • 21.
    • Eligible Small Employers
    • Fewer than 25 full-time equivalent employees
      • Credit phases out for employers starting with 10 FTEs and fully phasing out at 25 FTEs
      • generally owners (as small as a 2% owner in an S corporation) and their relatives are not to be counted
      • seasonal employees are not counted
      • employees of affiliated entities must be counted using the affiliation rules of IRS §414(b), (c) (m) or (o)
    Small Employer Tax Credit : IRS Notice 2010-44
  • 22. Small Employer Tax Credit : IRS Notice 2010-44 (cont’d)
    • Average annual wages for the year must be less than $50,000 per FTE
    • The employer must maintain a “qualifying arrangement” by which it pays a uniform percentage (not less than 50%) of the premium cost of coverage for each enrolled employee
  • 23. Qualifying Arrangement Transition Rule for Tax Years Beginning in 2010
    • An employer will be deemed to satisfy the uniform percentage of premium requirement if it pays at least 50% of the premium for single coverage for each covered employee, even if it does not pay the same percentage for each employee.
  • 24. The Calculation of the Credit
    • For 2010 through 2013:
      • Up to 35% of the lesser of:
        • the premiums paid by the employer under a qualifying arrangement
        • the amount determined by HHS to be the average premium in the small group health insurance market in the applicable state
      • Tax-Exempt Employers are eligible for a 25% credit
      • Phase-outs apply
        • From 10 to 25 full-time equivalents
        • From $25,000 to $50,000 average annual wage
  • 25. The Calculation of the Credit (cont’d)
    • After 2013, the credit increases to 50% (35% for tax-exempts).
    • In all years, no deduction can be claimed under IRC §162 for the portion of health insurance premiums equal to the credit.
  • 26.
    • Health Care Mandates
    • And
    • Provisions Applicable Only To
    • Non-Grandfathered Plans
  • 27. Breast-feeding Breaks
    • An employer must give an employee who is a nursing mother reasonable break times to express milk for her child each time she needs to do so during the one-year period after the child’s birth.  The employer must provide a private place, other than a bathroom, for this purpose.
    • Effective Date: March 23, 2010.
  • 28. Choice of Physician
    • Plans that include a primary care provider (PCP) must allow participant to have the participating provider of his/her choice, and must allow OB/GYN to act as a PCP.
    • Effective Date: August 23, 2010.
    • This provision does not apply to grandfathered plans.
  • 29. Emergency Services
    • A plan (whether insured or self-funded) that provides emergency service benefits (e.g., emergency room visits) must do so without requiring pre-authorization and imposing a different cost-sharing amount if the emergency service provider is out-of-network.
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • Failure to comply could subject an employer to an excise tax of $100 per day per person to whom the failure relates. ERISA’s civil enforcement rules also may apply to violations of this provision.
    • This provision does not apply to grandfathered plans.
  • 30. Preventive Care Benefits
    • A plan (whether insured or self-funded) must cover preventive services without any cost-sharing (e.g., deductibles, co-payments).  Preventive services include, for example, immunizations and mammograms. Regulations will provide additional guidance and detail.
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • Failure to comply could subject an employer to an excise tax of $100 per day per person to whom the failure relates. ERISA’s civil enforcement rules also may apply to violations of this provision.
    • This provision does not apply to grandfathered plans.
  • 31. Rescissions Prohibited
    • Non-grandfathered group health plans will not be able to rescind existing coverage or terminate existing plans except with notice to enrollees and only in the case of fraud or misrepresentation.
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • Guidance is needed to determine if this provision applies only to insured plans or to all non-grandfathered group health plans, including self-funded plans.
  • 32. New Appeals Process
    • A plan (whether insured or self-funded) must have written internal and external appeals procedures.  An internal process, at a minimum, must: (i) have in effect an internal claims appeal process, (ii) provide notice, in a culturally and linguistically appropriate manner, of available internal and external appeal procedures and the availability of any office of health insurance customer assistance or ombudsman to assist with the appeals process, and (iii) allow an enrollee to review his file, to present evidence and testimony and to receive continued coverage pending the outcome of his claim.  This internal process must initially incorporate the current ERISA claims procedures regulations and must update such process in accordance with Department of Labor guidance. 
    • Effective Date: Plan Year beginning on or after Sept. 23, 2010.
    • An external process must: (i) comply with applicable state external review procedures that, at a minimum, include the customer protections set up in the Uniform External Review Model Act (put in place by the National Association of Insurance Commissioners) or (ii) implement an effective external review process that meets minimum standards established by the Secretary and is similar to the guidance provided in (i) if the applicable state has not established a sufficient external review process or if the plan is self-funded (and therefore not subject to state regulation).
    • Failure to comply could subject an employer to an excise tax of $100 per day per person to whom the failure relates.  ERISA’s civil enforcement rules also may apply to violations of this provision.
    • These mandates do not apply to grandfathered plans.
  • 33.
    • QUESTIONS?