Health Care Reform Update& Review of Tax Implications Bernard DiFiore President and Chief Executive Officer CompuPay, A BenefitMall Company Thursday, September 20 4:00 p.m. EDT
CompuPay is registered with the NationalAssociation of State Boards of Accountancy(NASBA) as a sponsor of continuing professionaleducation on the National Registry of CPESponsors. State boards of accountancy have finalauthority on the acceptance of individual coursesfor CPE credit. Complaints regarding registeredsponsors may be submitted to the NationalRegistry of CPE Sponsors through its website:www.learningmarket.org.
HousekeepingCourse Level: BasicPrerequisites: None requiredAdvanced Preparation: None requiredInstructional Delivery Method: GroupInternet basedCPE Credits: 50-60 minutes. One (1)credit hour is available for this session.QuestionsEvaluation
Webinar Overview Attendees will learn about Part II: How will Part I: PPACA employers be impacted Part III: Summary of Key Background and and what can employers PointsSupreme Court Ruling do to prepare for the future?
Part I:PPACA Background and Supreme Court Ruling
PPACA Background• The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010• Various portions of the law began being implemented in 2010 and will continue until 2018. Many key changes will occur in 2014.• Federal and state governments are largely implementing these provisions• Several federal agencies are assuming pivotal roles • U.S. Department of Health and Human Services • U.S. Department of Labor • U.S. Department of Treasury • U.S. Department of Homeland Security
PPACA Goals• Covering the uninsured and 32 million more Americans underinsured population• Improving the transparency The Exchange System and ease of purchasing health insurance• Medical Loss Ratio (MLR) Increasing insurance accountability• Creating national standards Essential Health Benefits (EHBs)• Summary of Benefits (SOB) Standardizing benefit packages• Reducing medical and insurance Addressing financing issues costs/Paying for Programs
Individual Mandate• The Individual Mandate is an integral part of PPACA to ensure full participation by all U.S. citizens, unless they are exempted.• Effective January 1, 2014• Most employers also must participate, either through offering coverage or by paying a penalty• Individuals who do not obtain health insurance will be assessed a tax they must pay along with their regular federal tax return • The amount of the tax penalty for individuals in 2014 (reported in 2015), will be $95, or 1 percent of income, whichever is greater. • The penalty would subsequently rise in 2016, reaching $695, or 2.5 percent of income, whichever is greater. • For families: the health insurance non-compliance penalty is capped at $285 per family, or 1% of income, whichever is greater. • By 2016, it will jump sharply to $2,085 per family, or 2.5% of income, whichever is greater.• In theory, this will help spread the risk and make sure everyone is participating in the insurance system. Picture Credit: Texas Enterprise ; Univ of Texas at Austin
Exceptions to the Individual MandateApplies to everyone except the following: • Who already have minimum essential coverage through an employer-sponsored plan • Who have individual qualified coverage • Who are enrolled in a Medicaid, Medicare, Tricare, or similar program • Who are permanently incarcerated • Who are members of Indian tribes • Who express religious objection • Who are without coverage for less than three months • Who would be contributing more than eight percent of their household income as a “required contribution,” • Whom the Secretary of HHS determines that obtaining coverage would constitute an extreme hardship
Individual Mandate:What are the tax penalties for non-compliance?The annual tax (formerly known as a penalty) for not obtaining minimum essential coveragewill be the greater of a flat dollar tax amount per individual or a percentage of theindividual’s taxable income. The applicable flat dollar amount for 2014 for a tax filer with no dependents will be $95 and the amount for 2015 will increase to $325. This amount will increase over the years, rising to $695 in 2016, and will be further revised in 2017 according to the changes in cost-of-living. Each adult will pay the rate of an individual, and then you need to add the dependent at the 50% rate. For example, in 2016 a couple with one child under 18 would be assessed a flat dollar penalty of $1,737.50 (two adults x $695 plus one child at $347.50 -- one half of adult penalty). A family of four (one couple with two children over 18) would only be required to pay the 300% cap in 2016. Three hundred percent of the $695 flat amount for 2016 is equal to $2,085. This amount is less than the flat amount that could be charged if the cap were not in place (two adults + two children over 18 = $695 x 4 = $2,780).
First Polling Question According to the White House website, PPACA is aimed at:A)strengthening consumerrights and protectionsB) providing affordablecoverageC) improving access to careD) strengthening MedicaidE) All the aboveImage Source: progressillinois.com
U.S. Supreme Court - PPACA Legal Issues • The Question of Legal Standing and the Applicability of the Anti-Injunction Act Issues being • The Constitutionality of the Individual considered by Mandate the Court were: • The Missing Severability Clause • The Medicaid Expansion Provisions
U.S. Supreme Court Ruling • The Court found that jurisdiction and timing was proper, and rejected the argument that the Anti-Injunction Act prohibited the case from being heard • The Court found that the Commerce Clause does not grant CongressFindings by the U.S. the authority to regulate inactivity, but that the Individual Mandate is Supreme Court constitutional under Congress’s ability to levy and collect taxes. • Court noted that the missing Severability Clause was not relevant to this case. • The Court upheld most of the Medicaid Expansion Provisions but narrowed the financial obligations of the state
Reactions to the Decision• Prior to the Supreme Court’s decision, less than half of the country was moving forward to implement the various provisions of PPACA• Now that the Supreme Court has issued their ruling, 60% of states have made progress towards complying with PPACA• The remaining 40% of states are still waiting for November 6th to see what the election brings before they move forward • What is clear is that the election will be the next big litmus test • Additional litigation challenging PPACA will likely occur depending on the election outcomes
Second Polling QuestionWhat issue was not consideredby the Court in the AffordableCare Act decision?A) Rule Against PerpetuitiesB) Medicare expansionprovisionsC) Constitutionality of theIndividual MandateD) Lack of severability clause
Part II: How will employers be impacted and what canemployers do to prepare for the future?
Exchange Overview• The Exchange concept will take individuals and small group employers into large risk pools that will give them better purchasing power and could result in lower premiums• Exchanges will serve as the platform that will allow individuals to determine if they are eligible for government coverage or insurance premium subsidies• Exchanges will also facilitate the ability of individuals to compare benefit plans that meet minimum coverage requirements on a standardized basis
State-Based Exchanges• Individual/Non-Group• Small Business Health Options Program (SHOP) • As of October 1, 2013, Small group employers with fewer than 101 employees will be able to access health insurance through the SHOP exchange. • The SHOP exchange will only sell benefit plans that conform to a consistent format • On January 1, 2017, state health insurance SHOP exchanges may be able to expand eligibility to large employers with more than 100 FTEs.• Blended model that combines both the Individual and SHOP options• State Exchanges must be certified and operational by October 1, 2013
State Exchange Updates• Implementing a State-Based Exchange: 16 States that are moving forward with Exchanges are California, Colorado, Connecticut, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, New York, Nevada, Oregon, Rhode Island, Vermont, Utah, West Virginia, Washington (and the District of Columbia)• State-Based Exchange Legislation Pending: 2 States with pending Exchange legislation include Illinois, and Pennsylvania.• Not Implementing a State-Based Exchange: 10 States not moving forward with Exchanges are Alaska, Florida, Louisiana, Maine, Michigan, New Hampshire, Ohio, South Carolina Texas, Wisconsin• Leaning Towards/Not Moving Forward: 22 other states are leaning toward opting out of broad health care reform or waiting for a federal exchange.
Federally-Facilitated Exchanges• Should a state fail to implement a state-based Exchange, even if by choice, the federal government will implement a federally-facilitated Exchange• The structure of this Exchange can take one of several options – either a joint venture between the federal government and the state, with varying levels of state control, or one where the federal government runs the entirety of the Exchange• The State can maintain some control over this type of Exchange• Funding for this type of Exchange is still lacking
Exchange Challenges• Setting up the governance and operational infrastructure, including the IT platforms• Promoting efficiency and flexibility while keeping costs for participants down (e.g., for small businesses and individuals)• Avoiding adverse selection by pooling a mix of the healthy and the unhealthy• Becoming financially self-sustaining• Complying with PPACA standards for public accountability, transparency, and reporting• Private Exchanges will exist and compete with them
Qualified Health Plans• A QHip is a “qualified health plan” is a health plan that: • Is certified by each Exchange through which it is offered • Provides the essential benefits package• An issuer must offer plans that meet the following 4 standards: • Licensed and in good standing in each state in which it is offered • Agrees to offer at least one silver plan and one gold plan • Agrees to charge the same premium whether the plan is sold through the Exchange or outside the Exchange • Complies with other requirements of the Secretary of HHS and the Exchange Source: NAIC
Essential Health BenefitsBeginning in 2014, PPACA requires health insurance plans offered to individuals and small businesses toinclude health benefit services in each of ten categories, called essential health benefits (EHBs). • HHS has established a rule that allows state regulators several options to define their state’s EHBs. State regulators may choose any of the following: • One of the three largest small group plans in the state by enrollment • One of the three largest state employee health plans by enrollment • One of the three largest federal employee health plan options by enrollment, or • The largest health maintenance organization (HMO) plan offered.Policy Goal: "It is important to find a successful balance between providing affordable coverage whileestablishing a reasonable level of benefit protection. If we continue to increase the cost by mandating acomprehensive set of essential benefits, we place further unwanted burdens on the business owner andtheir employees."
Sec. 1302. Essential Health Benefits Requirements • (A) Ambulatory patient services. • (B) Emergency services. • (C) Hospitalization. • (D) Maternity and newborn care. Sec. • (E) Mental health and substance use disorder services,1302(b)(1) including behavioral health treatment. services • (F) Prescription drugs. covered • (G) Rehabilitative and Rehabilitative services and devices. include: • (H) Laboratory services. • (I) Preventive and Wellness services and Chronic Disease Management. • (J) Pediatric services, including oral and vision care
EHB Challenges• Embracing state flexibility especially for multi-state employers• Customizing EHB standard packages for each state• Keeping EHB levels affordable• Addressing variability in mandated benefits at state level• Understanding additional variations in benefit designs• Defining Medical Necessity when interpreting applicability of EHBs• How will EHBs be addressed in Federally-Facilitated Exchanges
Summary of Benefits and Coverage• Effective September 23, 2012, insurers and group benefit plans must issue a Summary of Benefits and Coverage (SBC)• SBC should detail “in plain language, simple and consistent information about health plan benefits and coverage that…will help consumers better understand the coverage they have.“• NAIC provided recommendations that were adopted by the federal government• Should include coverage examples that illustrate benefits provided under the plan or coverage, detail out-of-pocket costs, provide examples of coverage for a simple delivery and a Type II diabetic care, and explain any coverage exclusions for common benefits• Person requesting an SBC must be provided with the document within seven (7) business days• Upon renewal, must be provided to both participants and beneficiaries as part of any written enrollment application materials• Experts differ as to when updated SBCs need to be issued – after September 23 or after new policy year
Medical Loss Ratio Tracking Medical Loss Ratio Current Rebate Process began January 2011•January 2011, insurers had to comply •MLR reports filed to HHS June 1st eachwith MLR ratio rules year•Large Group (defined as 100 or more •If a health plan or insurer meets oremployees) exceeds the MLR, notices will be issued • 85% clinical services and qualified with the first plan document after July 1, quality programs 2012 • 15% administrative •If 80/85% percentage not achieved,•Small Group (defined as 2 to 100 notices and rebate checks must beemployees)) and nongroup distributed to employers by August 1st the • 80% clinical services and qualified following year quality programs •Three month requirement from August 1 • 20% administrative to take action on the MLR rebate options•Calculations are based by legal entity, •Most rebate checks for 2011 have beenstate and line of business issued
Employer MLR Distribution Rebate Options DOL Technical 2011-04 Release • Distribute rebates to current (and, if Based upon already desired, former) participants established ERISA • Enhance benefits provided to plan principles, the DOL participants by additional benefits or guidance provides wellness programs employers with four options. An • Pay reasonable plan expenses employer may: • Reduce future premiums for current plan participants
Small Employer Tax Credits Eligible small employers are defined as those employing 25 or Under PPACA, small employers fewer full-time equivalentoffering health insurance coverage employees with average annual to employees enjoy several wages of less than $50,000 andbenefits, including a new income contributing to employees’ qualified tax credit health care coverage a uniform percentage, no less than 50%, of the premium cost
Large Employer Tax Penalties Large employers MUST offerUnder PPACA, a premium subsidy medical coverage to its full-timeprogram is NOT established for a employees beginning in 2014. If a large employer. In fact, a tax large employer fails to offerpenalty may be assessed against a appropriate coverage, that large employer employer may be liable for a tax penalty.
How is the Tax Penalty Triggered? • If the employer does not offer coverage, and at least one of its full-time employees claims theThe tax penalty can be premium tax assistance tax credit, ortriggered in one of two • The employer does offer coverage, but the ways: coverage fails to meet the minimum essential coverage threshold and one full-time employee is certified to claim the premium tax credit
What are the tax penalties for large employers who do not offer coverage? The monthly penalty a large employer is obligated to pay for not offering any coverage is equal to $2,000 divided by 12, multiplied by the difference of the number of full-time employees employed during the applicable month minus the first 30 full-time employees. Only full-time employees (not full-time equivalents) are counted for purposes of determining the penalty. (Number of Full-Time Employees) – 30 x (2,000/12) For example, a firm with 51 employees would be subject to: 51-30 x (2,000/12) = total monthly penalty $3,500 per month
Which Employers will face these Penalties?• Employers with at least 50 Employees will face penalties if one or more of their full-time employees obtains a premium credit through an Exchange.• How does the law define 50 Employees? • PPACA refers to “full-time equivalents” • A subsequent rule expanded on this definition to include both full and part time workers • Guidance issued by DOL expanded the definition to include employees of a “controlled group” of corporations, employees, partnerships, proprietorships, etc., that are under common control
How can an Employer determine if it is a “Large Employer”?• Both full and part time employees are included in the calculation • Full time employees: work 30 or more hours per week • Seasonal employees who work for fewer than 120 days per year are not considered to be full time employees • Part time employees: include hours worked by taking the total number of hours worked by individuals who work less than 30 hours per week and dividing the total by 120 • If an employer has more than 50 employees for 120 days or less in the preceding year, the employer will NOT be considered a large employer
Employee Calculations: an Example• A firm has 35 full time employees who work at least 30 hours a week.• In addition, the firm has 10 part time employees who all work 24 hours per week (for a total of 96 hours per month) 10 employees x 96 hours = 960 total hours 960 hours / 120 = 8 The part time employees would be counted as 8 full time employees •35 full time employees + 8 = 43 “Employees”
Who can potentially obtain a premium credit?• Individuals can obtain a premium assistance credit if: • They are not eligible for Medicare, Medicaid, or other similar programs • They are not offered employer-sponsored health benefit coverage • Their family income is between 138% and 400% of the federal poverty level If an individual is offered employer sponsored health benefits, but these health benefits are unaffordable, that individual can obtain a premium assistance credit. • Benefits are unaffordable if: • The individual’s required contribution toward the plan premium for self-only coverage exceeds 9.5% of their household income, OR • The plan pays for less than 60%, on average, of covered health care expenses.
What are the tax penalties for large employers who offer coverage that is not affordable? A large employer who offers coverage that does not satisfy the minimum value threshold or minimum affordability threshold is assessed a monthly penalty of $3,000 divided by 12 times the number of employees that qualify for the tax credit. For example, a firm with 51 employees of whom 5 qualify for the tax credit would be subject to a penalty of: 5 x (3,000/12) = $1,250 per month
Employer W2 Reporting RequirementsEmployers need to report the cost of employer-sponsored • Applicable to all employers that provide group health health care coverage on plans, including federal, state, and local governments, employees’ W-2 forms for all and religious organizations. tax years starting on or after January 1, 2011. • The employer was required to file fewer than 250 W-2 Forms for the preceding calendar year, orAn employer need not report if: • The employer is a federally recognized Indian tribal government
Excise Tax on “Cadillac” Health PlansIn an effort to penalize employers who offer excessively rich health benefitplans, PPACA includes a new excise tax on high-cost health plans, called“Cadillac” health arrangements.This is a new non-deductible 40% excise tax that some experts haveestimated will affect more than half of large employers’ active health plans by2018.
Medicare Tax Increase•PPACA includes a provision that will create a new tax for certain Americans.•Specifically, section 1411 of PPACA imposes an additional tax of 3.8% if certain conditionsare met as described below.•Currently, individuals pay a Medicare tax of 2.9% of their wages. The new tax is in additionto the current Medicare taxes, and expands the definition of income subject to Medicaretaxes. The tax also applies to trusts and estates.•The tax applies to taxable years beginning after December 31, 2012•The tax will apply to single taxpayers with a modified adjusted gross income of $200,000 orhigher and married taxpayers with a modified adjusted gross income of $250,000 or over.The tax also will apply to a married person filing separately whose modified gross adjustedincome exceeds $125,000
Polling Question 3 What is the Medical Loss Ratio percentage for large group insurers? A) 85% B) 40% C) 65% D) 90%
PPACA Impact: Challenges• Health care spending is over 17% of the U.S. GDP • CBO now estimates that PPACA will cost over $1.76 trillion • States cannot afford to build, support and maintain many of PPACA’s requirements• MLR premium rebates are an administrative burden• Young subsidize the old, and males subsidizes the females• Premium increases due to increased benefits• PPACA law is 2,700 pages and regulations are over 9,000 pages.• Radical changes to current health plan offerings will likely create some disruptions to the market
Polling Question 4What are the main challenges when implementing PPACA going forward?A) Coordinating state and federal oversight of the future insurance offeringsB) Funding the new exchange system to offer qualified health plansC) Interpreting the thousand of pages of federal regulationsD) Understanding the full array of employer responsibilitiesE) All of the above
Questions & AnswersFor additional health care Reform updates, please monitor: • www.benefitmall.com • www.health careexchange.com