NB: Ari and Robb will introduce Garry and RandyOverview of today’s presentation Part I: PPACA BackgroundLegislative BackgroundRising Cost of HCPPACA GoalsIndividual Mandate OverviewRepeal Efforts to datesPart II: Key points of Supreme Court’s ruling on PPACAFour legal issuesDecisionReactionPart III: Employer issues: How will employers be impacted? & What can employers do to prepare for the future?ExchangesHealth PlansEssential Health BenefitsSummary of BenefitsMLRTaxes and PenaltiesPart IV: PPACA Reflection PointsPositivesChallengesElections and Financial Impact
NB: Garry and Randy will go through this section quicklyPart I: PPACA BackgroundLegislative BackgroundRising Cost of HCPPACA GoalsIndividual Mandate OverviewRepeal Efforts to dates
The primary reason for the passage of the Act was to address many of the delivery and quality health care short-comings in America, whether real or imagined. The law is being implemented across multiple agencies within the federal and state governments, including the U.S. Departments of Labor, Education, Justice, and Health and Human Services PPACA established several new offices and programs at HHS including the Office of Consumer Information and Insurance Oversight (OCIIO) and the Patient-Centered Outcomes Research Institute (PCORI)Some of the key provisions of PPACA include:Extending the age of adult children eligible for coverage under their parents’ health care plan to age 26Prohibiting individual and group health plans from placing lifetime limits on the dollar value of coveragePreventing health insurers from rescinding coverage (except in cases of fraud)Prohibiting health insurers from imposing pre-existing conditions exclusions for childrenMandating coverage for recommended immunizations and preventive care
In a May 2010 presentation on "Health Costs and the Federal Budget", CBO stated:Rising health costs will put tremendous pressure on the federal budget during the next few decades and beyond. In CBO's judgment, the health legislation enacted earlier this year does not substantially diminish that pressurePrivate insurance payments account for a larger percentage of health expenditures than Medicare or MedicaidA Towers Watson survey published last year analyzed employer attitudes towards PPACA - predicted that nearly 88% of employers plan to control costs and avoid the impact of PPACA’s excise tax. 71% of employers said they plan to provide health care coverage to employees through 2014. Healthcare inflation has been running about 4% this year. Will likely go up in 2014 due to increased costs associated with PPACAIndependent actuaries working for the CMS reported that the healthcare sector's share of the economy grew by 1.1 percent in 2009, the largest one-year increase ever reported, according to a report in Health Affairs.
According to the White House website, PPACA is aimed at:strengthening consumer rights and protectionsproviding affordable coverageimproving access to careand strengthening Medicaid. How well the Act has met these goals is questionable.In support of these goals, the White House cites the following statistics on their website:Private insurers that provide coverage for nearly 174 million Americans must now justify double-digit premium increasesNearly 76 million Americans covered by insurers that now must spend at least 80% of premium dollars on health care360,000 small businesses received a tax credit in 2011 to help them pay for health insurance for an estimated 2 million workers More than 17.6 million children with pre-existing conditions can no longer be denied coverage. 105 million Americans no longer have lifetime dollar limits on their coverage.54 million Americans now can receive a free preventive service, such as cancer screenings, through their private insurance plan.3.1 million young adults have coverage on a parent’s plan through age 26.More than 50,000 Americans with pre-existing conditions have gained coverage through the new Pre-Existing Condition Insurance Plan.
The individual mandate is based on a similar approached used in Massachusetts where the state implemented a tax-enforced insurance mandate on its residents All individuals must have minimum essential coverage, which is defined by the Secretary of HHS If an individual does not have minimum essential coverage they must pay a tax penalty – including a tax penalty on any dependents the tax filer may have
This slide shows the categories of persons who are exempt from the individual mandate requirementCBO originally estimated the legislation will reduce the number of uninsured residents by 30 million, leaving 25 million uninsured residents in 2019 after the bill's provisions have all taken effect. A July 2012 CBO estimate raised the expected number of uninsured by 6 million, reflecting the successful legal challenge to PPACA's expansion of Medicaid.
This slide completes the list of exemptions form the individual mandate
The most recent effort to repeal PPACA was largely viewed as a symbolic effort on the part of the Republican party to say that although the Supreme Court upheld the law, it’s still a bad lawU.S. House of RepresentativesIn July, The U.S.House of Representativesvoted 244 to 185 . All Republicans voted in favor of repeal, joined by 5 Democrats Democrats condemned the vote as being futile and overshadowing the more pressing issue of spurring growth in a still-weak economyHouse Speaker John Boehner said of the vote, “This law continues to make our economy worse and there’s even more resolve to see that it is fully repealed. We’re giving our colleagues in the Senate another chance to heed the will of the American people. And for those who did not support repeal the last time, it’s a chance for our colleagues to reconsider”U.S. SenateSenate Minority Leader Mitch McConnell (R-Ky.) vowed to push for a repeal vote against the “worst piece of legislation … in modern times.” No action has taken place this summer in the Senate, where Democrats retain control. The Senate last voted on a repealing PPACA in February 2011. All Democratic senators supported keeping the law, while all Republicans voted to repeal it.No further action is expected until after the elections.
The Supreme Court reviewed the legal arguments from the 11th circuit decision issued last year where two of three judges found that the individual mandate was an unprecedented and unconstitutional expansion of the power of Congress to regulate interstate commerce In addition to the constitutionality of the individual mandate, the court considered the following questions:Do the 26 states suing the federal government have sufficient legal standing to bring the case to court?Can the courts consider a lawsuit on PPACA? The Anti-Injunction Act prohibits federal courts from hearing suits against federal taxes until the tax becomes effective.Is the Medicaid expansion provision in PPACA an unconstitutional coercion by the federal government since the states must significantly fund and expand their respective Medicaid programs with limited leeway at the state level?Does the missing severability clause require the entire law to be struck down if one provision is found unconstitutional? A severability clause provides that if any provision in a statute or act is declared unconstitutional, the balance of the law remains in force. PPACA did not contain such a provision
5 to 4 vote, the United States Supreme Court held PPACA is constitutional as a legitimate use of Congress’ taxing power. The five justices joining the majority opinion, written by Chief Justice John Roberts, include Justice Ruth Bader Ginsburg, Justice Elena Kagan, Justice Sonya Sotomayor and Justice Stephen Breyer. Anti-Injunction Act Does Not Apply: The Court heard argument that centered on the issue of legal standing -- specifically, whether the parties suing have the ability to bring the case before the U.S. Supreme Court at this point in time. The U.S. Supreme Court Ruled that the jurisdiction and timing was proper. The Court in essence sided with U.S. Solicitor General Donald B. Verilli’s argument that although the penalty for failing to purchase insurance is enforced through tax collection laws, Congress did not intend for the penalty to be construed as a tax. Individual Mandate Ruled Constitutional: Although the Court found that the mandate was not constitutional under the Commerce Clause, five members of the Court upheld it under Congress’ taxing power. - “Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. This is sufficient to sustain it.” On the losing end of the decision, Justices Anthony Kennedy and three other justices asserted that the entire health care reform law should have been struck down.They write: "The Act before us here exceeds federal power both in mandating the purchase of health insurance and in denying nonconsenting states all Medicaid funding. These parts of the Act are central to its design and operation, and all the Act's other provisions would not have been enacted without them. In our view it must follow that the entire statute is inoperative." Lack of Severability Clause Not RelevantTheU.S. Supreme Court addressed the complex legal question of whether or not to strike down the entire federal health care reform law if the Court finds part of the Act unconstitutional or otherwise illegal. This becamea major legal issue because Congress failed to include a “severability clause” in the final draft of the bill before it was signed into law. The minority opinion argued that because of the missing severability clause, and because the Individual Mandate and the Medicaid Expansion provisions were, in their opinion, unconstitutional the entirety of PPACA should be overturned. The majority opinion did not address this issue, but effectively rejected the argument due to finding the Mandate constitutional.MedicaidThe Court also rejected the states’ challenge to the expansion of the state Medicaid programs, although the Court held that this provision must be narrowed. Specifically, the decision states, "Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.“Notes from old slides that have been deleted:The dissent was joined by Justices Samuel Alito, Antonin Scalia, and Clarence ThomasArgued that the Individual Mandate fails under both the Commerce clause and the taxing power – there is a clear distinction between a tax and a penalty and the mandate serves as an unlawful penaltyAgrees with the majority that the Medicaid expansion is overly coercive – points out the impracticality of a state actually choosing to withdraw from participating in Medicaid as it is the most heavily relied upon program by states with most states receiving more than $1 billion in federal funding
Part III: Employer issues: How will employers be impacted? & What can employers do to prepare for the future?ExchangesHealth PlansEssential Health BenefitsSummary of BenefitsMLRTaxes and Penalties
The White House has intimated on their website that the Affordable Care Act “makes it easier for businesses to find better coverage options and builds on the employer-based insurance market already in place. It stops insurance companies from taking advantage of you, giving the consumer and business owner more control and making health care coverage more affordable.” Many health care experts are questioning the White House assumptions and assertions. Employers have extensive new tax regulations with which they must comply, and must have a good grasp of the additional concepts listed on this slide.
According to the White House website, Exchanges “are one-stop marketplaces where consumers can choose a private health insurance plan that fits their health needs. Starting in 2014, they will offer to the public the same kinds of insurance choices members of Congress will have. Exchanges will select health plans qualified to offer coverage; facilitate consumer assistance, shopping, and enrollment; and coordinate eligibility for the Exchange and potential premium assistance.”
The concept of an Exchange is one of PPACA’s central vehicles through which individuals and small employers would be able to obtain health care coverage at rates similar to those enjoyed by large groups that have the ability to negotiate favorable discountsThe hope is that by pooling the lives of individuals and small groups into large purchasing blocks, the cost of future health care coverage could be better contained
An Exchange must provide for both individuals and a SHOP Exchange for small businesses or an Exchange that combines the two A state can choose to create and implement the Exchange, however, if the state defaults even if by choice, the federal government will step in and create a federally run Exchange
State updates on ExchangesSource NCSL Exchange Website http://www.ncsl.org/issues-research/health/state-actions-to-implement-the-health-benefit-exch.aspxWith updated info on Michigan, Rhode Island and Ohio.
Establishing a Federally-Facilitated ExchangeStates that default to a federal Exchange will have several options in terms of the structure of the ExchangeOne is to form a joint venture with the federal governmentand be responsible for some of the operational aspects of the ExchangeAnother option is to allow the federal government to run the entire Exchange, but under this scenario, local support will be needed. For example, a federally-run Exchange will need to operate concurrently with the existing state regulated private health insurance system. This will likely pose significant challenges as two sets of government officials will be approving and/or setting rates and benefits and creating expansive sets of rules, not all of which will be congruent.The state can maintain control over some functions of a federally-facilitated ExchangeMany questions remain about the structure of the federally-run Exchange. These questions will only be answered by final federal Exchange rules. Several states will likely default to a federal Exchange by choice, and will ultimately find their local markets run either in part or wholly by the federal government. Given the short amount of time between now and October 1, 2013, it is unlikely HHS employees will be able to customize the federal Exchange structure to conform to individual insurance markets of these hold-out states.
Exchanges must be up and running by Oct 1, 2013 for the open enrollment period for Jan 1 2014 effective dates.Exchange challenges center around two key areas:Developing coherent, stable regulations that are not overly burdensome but ensure high quality care andFinancial issues with budget
All health plans offered through exchanges must be "qualified health plans," which was also stated in the earlier proposed rules. A QHP, as defined by the PPACA, is an insurance plan that "provides essential health benefits, follows established limits on cost-sharing (like deductibles, co-payments and out-of-pocket maximum amounts) and meets other requirements." The actuarial value for QHPs and other non-grandfathered health coverage can be divided among four main metal tiers of PPACA health coverage: bronze, silver, gold and platinum.The final rule allows exchanges to work with health insurers to structure QHPs and also allows exchanges, along with state insurance departments, to set specific standards to ensure each QHP gives consumers a wide range of healthcare providers. A QHP issuer must also maintain a provider network that has enough hospitals, physicians, mental health providers and other healthcare providers, assuring that all services "will be accessible without reasonable delay," according to the final rule. Although the final rule does not provide a hard number for the provider network, it does ensure that consumers will have adequate access to hospitals and other community healthcare providers.
Overview of eachGrandfathered Health PlansSelf-funded health plans and union Taft Hartley plansAccountable Care Organizations
It should be noted that the rules do not require the new SBCs to include premium information
PPACA Section 1302 requires health insurance plans offered to individuals and small businesses to provide health benefit services in each of these 10 categoriesThe Secretary of HHS has left the ability to define what services must be included as EHBs to the statesState regulators, health plans and the business community support the flexibility offered to states as the essential benefits package will be drawn from policies already approved, offered and popular in each stateConsumer and patient advocated and providers have criticized leaving the EHBs to the state, as they believe there should be a national standard to reduce variation between states and to ensure that plans do not have inadequate benefits State regulators may choose any of the following:One of the three largest small group plans in the state by enrollmentOne of the three largest state employee health plans by enrollmentOne of the three largest federal employee health plan options by enrollment, or The largest health maintenance organization (HMO) plan offered
NB: At this point, Robb and Ari will pose a question about HSAs and the proliferation of mini-med facilities – give general overview of topicEmbracing State FlexibilityState regulators, health plans and the business community support the flexibility afforded to states: the essential benefits package will be drawn from policies already approved, offered and popular in each state.Many state officials consider this the best choice given the time constraints to establish Exchanges. Consumer and patient advocates as well as providers have criticized the decision. They prefer a national standard to reduce variation between states and share concern that some plans currently have inadequate benefitsKeeping EHB levels Affordablethe cost of benefits offered by small businesses today is significantly less than what is expected to be mandated in 2014State-mandated benefitsHistorically, most states have mandated benefits that vary widely from commonly offered services (emergency room care) to those infrequently offered (in-vitro fertilization). The number of a state’s mandated benefits ranges from as many as 69 in Rhode Island to a low of 13 in Iowa, according to the Health Affairs policy brief. While state mandates do not always apply to all markets within a state, most are typically included in the plans that will be considered as a benchmark. States will likely consider the issue of state mandates in selecting their benchmark plan. Under Section 1311(d)(3)(B) of PPACA, if a state requires coverage of a specific benefit not included in the EHB package, the state must cover these additional costs for enrollees in plans subject to the requirement. A study cited in the policy brief suggests Maryland may pay an additional $10 - $80 million annually if they retain all mandates, depending on which benchmark plan they select. However, study authors also state HHS has indicated that it may, beginning in 2016, start to exclude some state benefit mandates from essential health benefits even if they are covered in a state’s benchmark plan. Neither PPACA nor federal guidance specifies how the money will be paid, and where it will go.Benefit Design and Limits Although PPACA requires that health insurance plans afford coverage to those with pre-existing conditions, and prohibits limiting coverage by means of annual or lifetime dollar limits, health plans will be allowed to limit the scope and duration of services. As an example, the policy brief points out that plans could legally limit the annual number of mental health outpatient visits by a beneficiary. (In this case, they would still be required to meet other federal requirements such as mental health parity). By allowing plans to limit coverage in this manner, advocacy groups have voiced their concern that sicker beneficiaries would be discouraged from enrolling. Definition of Medical NecessityHealth plans currently use their own definition of “medical necessity” to determine what services they cover and want to continue to do so. Despite the flexibility given to the states on EHB, patient advocacy groups believe HHS should develop a universal definition of medical necessity to be used by all insurers. Insurers are particularly concerned about covering “habilitative services,” which are often not clearly defined and most often are not covered. The resolution of this issue will likely generate vigorous debate. Federally Facilitated ExchangesThe policy brief is silent on how any federally-facilitated Exchanges (FFEs) would define the benefits offered to individuals or small employers participating in the Exchange system. Clearly, a process would need to be defined to set the benefit levels within an FFE system.
The SBCs are a joint effort among the Depts of Health and Human Services, Labor and the Treasury The SBC is designed after the Nutrition Facts label required for packaged food that helps you make healthy and informed decisions about your diet Beginning on September 23, 2012, all health insurance companies and group health benefit plans must issue a standardized Summary of Benefits and Coverage (SBC). The new SBCs must comply with specific requirements provided in a federal rule issued jointly by the U.S. Department of Health and Human Services (HHS) and the U.S. Department of Labor (DOL) titled “Summary of Benefits and Coverage and Uniform Glossary.” The purpose of the SBC is to provide a document that details “in plain language, simple and consistent information about health plan benefits and coverage that…will help consumers better understand the coverage they have, and, for the first time, allow them to easily compare different coverage options.”The new SBC requirements closely follow the recommendations of the NAIC.
The rules mandate that the new SBCs follow a simple, concise format designed to provide shoppers with the ability to compare the benefits and coverage options across different types of plans and insurance products. The rules restate the provisions of Section 2715 of the Public Health Service Act and additionally require that all new SBCs comply with 12 content elements including font and language requirements. Additionally, SBCs issued on or after September 23, 2012 shall include an internet address or other contact information:For obtaining a list of the network providers, Where an individual may obtain information about the prescription drug coverage under the plan or coverage, Where an individual may review and obtain the new uniform glossary.The new SBCs shall also include coverage examples that illustrate benefits provided under the plan or coverage, detail out-of-pocket costs, and explain any coverage exclusions for common benefit scenarios. The SBC must provide detailed coverage information for childbirth and the management of a well-controlled type 2 diabetes patient.It should be noted that the rules do not require that the new SBCs include premium information. Since elements of the minimum essential coverage and minimum value statements to have yet to be finalized, the inclusion of this information will not be required until January 1, 2014.When an enrollee renews coverage, the SBC must be provided to both participants and beneficiaries as part of any written enrollment application materials. A single SBC may be provided to a participant and any beneficiaries at the participant's last known address. However, if a beneficiary's last known address is different than the participant's last known address, a separate SBC is required to be provided to the beneficiary at the beneficiary's last known address. The rule mandates that a person requesting an SBC must be provided with the document within seven (7) business days. In most cases, the SBC can be provided electronically. This will allow an issuer or employer to post the SBC on its website or provide it by email.
Employers & Plan AssetsFrom the perspective of administrative simplicity and cost, nothing prevents an employer from treating the entire rebate as plan assets and not receiving any of the rebate proceeds for its own benefit.The use of a rebate generated by one plan to benefit the participants of another plan would be a violation of the fiduciary responsibility to the plan participants.If employer is using a cafeteria plan, Technical Guidance 92-01 offers further information on the requirements to assist in the treatment of plan assets. Insured Plans (i.e., an unfunded trust)Distribute rebates within 3 months from August 1Set up a trust which allows more time to distribute rebatesDOL notes that employer could direct insurers to apply the rebate toward future participant premium payments or toward benefit enhancements adopted by the plan sponsor would avoid the need for a trust, and may, in some circumstances, be consistent with fiduciary responsibilities.
NB: if an employer chooses to apply MLR to next year’s premiums, COBRA and terminated employees would not be included, and this is acceptable.Guidance on rebate distributionDecisions on how to apply the plan's portion of a rebate are subject to ERISA's general standards of fiduciary conduct. This includes a duty of impartiality to the plan's participants.In deciding on an allocation method, the plan fiduciary may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective.Under no circumstances should the employer ever receive for its own benefit more than it originally paid in premiums and plan expenses in the MLR year.Benefit EnhancementsNot defined in regulationsPlans can defined through good faith effortExamples that would probably qualify: Wellness, Dental and VisionWhen Rebate becomes a taxable eventThe distribution of the rebates to plan participants raises significant tax issues that should be considered before choosing that option. The IRS has issued FAQ page with examples that address the tax implications of direct distribution of rebate funds to plan participants. See IRS “Medical Loss Ratio (MLR) FAQs”Taxable if cash is paid through a pre-tax cafeteria plan – must be tracked on W-2
Beginning in 2014, employers with more than 200 fill time employees that offer health benefits coverage must automatically enroll all new full-time employees and continue the enrollment of current employeesAutomatic enrollment programs will be required to include adequate notice All automatic enrollments must provide the opportunity for an employee to opt out
- The Congressional Budget Office estimates that approximately 1 million individuals per year will enroll in an exchange plan and receive a credit because their employer’s plan was unaffordable
Beginning in 2015, the tax penalty payment amount will be indexed by the premium adjustment inflation rate for the calendar year
Beginning in 2015, the tax penalty payment amount will be indexed by the premium adjustment inflation rate for the calendar year
An additional requirement imposed on employers by PPACA concerns reporting the cost of employer-sponsored health care coverage on employees’ W-2 forms for all tax years starting on or after January 1, 2011.
The Congressional Budget Office estimates that only 19% of workers with employment based coverage would be affected by the excise tax in 2016, and hypothesize that most people would avoid the cost of the excise tax by enrolling in plans that had lower premiumsAs to how enrollees, insurers, employers and other key actors will respond to the tax is extremely uncertain The nondeductible tax becomes effective January 1, 2018 and will be levied on employers and assessed against the annual value of any excess benefit provided under applicable employer-sponsored coverage Excess benefit is defined as exceeding the aggregate of %10,200 for single coverage or $27,500 for family coverage in 2018A Towers Watson study estimates that many employer benefit plans will exceed the excise tax threshold Dave Ostendorf, a consulting actuary with Towers Watson stated, “All it takes to drive costs above the excise tax cap for 6 in 10 employers is an 8% average annual cost increase. And, without making plan design changes, that’s what many employers are projecting.”
The tax is calculated by multiplying the 3.8% tax rate by the lower of either the “net investment income” for the year or the “modified adjusted gross income” over the threshold amount. In calculating net investment income for purposes of the new tax, items such as interest, dividends, capital gains, annuities, royalties, rents, and pass through income from a passive business (i.e., S-corporations and partnerships) are included. Items such as tax exempt municipal bond interest, nontaxable veteran’s benefits, capital gains excluded from the sale or a principal residence, distributions from IRAs, 403(b) plans, 401(k) plans, 457 plans, pensions, profit-sharing plans, stock bonus plans, or qualified annuity plans are not included in net investment income calculations. For the purpose of the new tax calculation, the modified adjusted gross income includes wages, salaries, tips, other compensation, dividend and interest income, business and form income, realized capital gains, and income from other passive activities and the foreign earned income exclusion or foreign housing exclusion included.Income not subject to the modified adjusted gross income calculations includes income derived from: tax-exempt municipal bond interest, capital gains excluded from the sale of a principal residence, non-taxable veteran's benefits, and IRA, 403(b) plan, 401(k) plan, 457 plan, or pension distributions. Proceeds from stock bonus plans, profit-sharing plans or qualified annuity plans are also exempt.
Part IV: PPACA Reflection PointsPositivesChallengesElections and Financial Impact
With all of the frustrations associated with how PPACA was passed and is being implemented, there are some positive attributes that we should recognize.
Obviously, there are dozens and dozens of concerns associated with PPACA. This slide is just the tip of the iceberg.
The healthcare sector's rising share of the economy, magnified by a contraction in other sectors, reached 17.3 percent of the gross domestic product and is expected to reach 19.3 percent of GDP by the end of the decade. See http://www.beckersasc.com/news-analysis/healthcare-spending-reaches-173-of-gnp-largest-1-year-rise-ever-recorded.html
RWJ issue brief -- http://www.rwjf.org/files/research/68868.pdfPPACA will affect employers differently, depending upon their size and whether they currently offer health insurance. Small employers, those with fewer than 50 workers, will face no new requirements but will have new insurance options made available to them through the new health insurance exchanges. These new options have the potential to save money for small businesses that wish to offer insurance to employees. Medium-size employers, those with 50 to 100 workers, will have access to these new coverage options as well, but may face some financial penalties if their modest income, full-time workers obtain federal subsidies due to a lack of affordable coverage available through the workplace. New coverage sold to small and medium-size groups will be subject to regulations that will make insurance more affordable to groups with higher than average health care needs. Healthier groups will share in these costs more than they do today. The vast majority of large employers (more than 100 workers) currently offer insurance coverage to their workers and, as a consequence, are the least likely to be significantly affected by health care reform. However, they may experience greater employee participation in their current insurance plans and will face penalties if their full-time workers obtain subsidized coverage through the exchanges. Employers of more than 100 workers will not be eligible to purchase coverage through the new SHOP exchanges prior to 2017. Beginning in 2017, states can, at their discretion, permit large employers to obtain coverage through the exchanges. Large employers with at least one full-time employee enrolling in subsidized insurance through the nongroup exchange will face the same penalties outlined for the medium-size employers above. Employers with 200 or more full-time workers that offer health insurance to their workers will be required to automatically enroll all full-time workers and all previously enrolled workers into a plan each year. Workers will have the opportunity to opt out of the plan if they so choose. This provision for larger workers will tend to increase employment-based insurance coverage and employer contributions toward health insurance. However, employers could decide to decrease their contributions to employee premiums to keep the firm’s health insurance spending from changing significantly.
This slide is self-explanatory
A recently released poll shows that Americans are divided in their support or opposition for PPACA It is likely that Republicans will continue to attempt to defund or repeal PPACA Recent polling data shows that the Democrats received a larger boost from their convention that the Republicans, but the presidential debates should hold more weight with independent voters. Randy will address different scenarios:What will happen if the Republicans win the White House, but not the Senate/House?What will happen if the Republicans win all 3?What will happen if the Republicans lose all 3?What could happen if PPACA is repealed?
Healthcare Reform PPACA Overview
Healthcare Reform Webinar Discussion for BenefitMall Brokers Thursday, September 13, 2012 10:00 a.m. ESTListen to the audio portion of the webinar here.
Meet The Panel Rob Schlossberg Meet the Panel Ari Friedman Executive Director of Sales Executive Director of Sales Moderators Randy Madry BenefitMall Consultant Garry Carneal, JD, MA SpeakerSpeaker BenefitMall Consultant
Webinar Overview Attendees will learn about Part III: How will brokers and their Part II: Key points clients be impactedPart I: PPACA Part IV: PPACA of Supreme Court’s and what can Background Reflection Points ruling on PPACA employers do to prepare for the future?
PPACA Background• The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010• Technical amendments were made through the Health Care and Education Reconciliation Act of 2010, signed March 30, 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
National Health ExpenditureProjections by Payer, 2010-2019
PPACA GoalsCovering uninsured and underinsured populationsImproving the transparency and ease of purchasing health insuranceIncreasing health plan/insurer accountabilityCreating national standardsStandardizing benefit packagesReducing medical and insurance costs But how successful will PPACA be in achieving these goals?
Individual Mandate The Individual Most employers In theory, this With a few Mandate is an also must will help spread exceptions, integral part of participate, the risk andeveryone must PPACA to Effective either through make sure participate in ensure full January 1, offering everyone isthe new health participation by 2014 coverage or by participating in care reform all U.S. citizens, paying a the insurance system unless they are penalty system. exempted. 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 or Medicare program • Who are covered by a military plan • Who are dependents of active military enrolled in a TriCare plan • Who are permanently incarcerated
Additional Exceptions to the Individual MandateOther exceptions include persons: • 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
Repeal Efforts Not Successful To DateMost recent effort There have beenoccurred in the US 32 efforts to repeal House of or defund variousRepresentatives on portions of PPACA July 11th to date The vote followed Some programs party lines with 244 associated with members voting to PPACA are not repeal PPACA in its funded and will entirety need an affirmative action by Congress
Part II: Key points of SupremeCourt’s ruling on PPACA
U.S. Supreme Court - PPACA Legal Issues • The Question of Legal Standing and the Applicability of the Anti-Injunction Act Four Key • The Constitutionality of the Individual Legal Mandate Issues • The Missing Severability Clause • The Medicaid Expansion Provisions
Supreme Court RulingThe Court found that jurisdiction and timing was proper, and rejected theargument that the Anti-Injunction Act prohibited the case from being heardThe Court found that the Commerce Clause does not grant Congress theauthority to regulate inactivity, but that the Individual Mandate is constitutionalunder 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 thefinancial obligations of the state
Part III:How will brokers and their clients be impacted andwhat can employers do to prepare for the future?
What should brokers and their clients do to prepare for the future?With the PPACA moving forward including the individual mandate, brokers should helptheir clients prepare for future changes to the health care system. To make an informedchoices, six key elements will be discussed:• Exchange concept (both state-based and federally-facilitated)• Qualified Health Plans and other insurance arrangements• Essential Health Benefits (EHB)• Summary of Benefit and Coverage• Medical Loss Ratio (MLR) impact• Tax implications and penalties
Exchange Functions • Purchasing cooperative that promotes transparency • Qualified health plan certification • Standardizing benefit offerings (including essential Primary health benefit requirements and gold/silver/bronzeFunctions levels) • Consumer website/On-line enrollment portal • Operate or supervise electronic enrollment process • Vehicle for premium subsidies - Who is eligible and how much is it worth?
Exchange OverviewExchangeConfigurations• State standalone Exchange(s) (Individual and/or SHOP)• State & Federal Partnership Exchange• Default to Federally-run Exchange
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 is designed to attempt to arrange employee health insurance for small employers on terms similar to those that large employers enjoy. • The SHOP exchange will only sell benefit plans that conform to a consistent format • On January 1, 2014, state health insurance SHOP exchanges may be able to expand eligibility to large employers with more than 100 FTEs.• Blended model• 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• PPACA establishes a federal exchange system along with the state 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 State can maintain some control over this type of Exchange• Funding for this type of Exchange is still lacking• How many states are likely default to the federal exchanges?
Exchange Challenges Promoting efficiency and Setting up the flexibility while keepingPPACA timeframe - only governance and costs for participants about one year to operational infrastructure, down (e.g., for small become operational including the IT platforms businesses and individuals) Complying with PPACA Avoiding adverse standards for publicselection by pooling a mix Becoming financially self- accountability, of the healthy and the sustaining transparency, and unhealthy reporting
Qualified Health Plans• Both Brokers and Employers must understand PPACA authorized health plan offerings• A “qualified health plan” is a health plan that: • Is certified by each Exchange through which it is offered • Provides the essential benefits package • Is offered by an issuer that is: • 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
Other Health Plans• Grandfathered Health Plans • Allows existing benefit designs and participation rules to be maintained for a period of time• Self-funded Health Plans and Union Plans have some exemptions under PPACA. They are not required to: • provide coverage with minimum essential benefits • participate in a risk-adjustment system • comply with the MLR requirements and review of premium increases• Accountable Care Organization (ACO) • Providing coordinated high quality care to Medicare patients • Agree to take responsibility for the care of patients in exchange for the opportunity to share in the total savings - $940 million over 4 years
Essential Health BenefitsBeginning in 2014, PPACA requires health insurance plans offered to individuals andsmall businesses to include health benefit services in each of ten categories, calledessential 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 providingaffordable coverage while establishing a reasonable level of benefit protection. If wecontinue to increase the cost by mandating a comprehensive set of essentialbenefits, we place further unwanted burdens on the business owner and theiremployees."
Sec. 1302. Essential Health Benefits Requirements • (A) Ambulatory patient services. • (B) Emergency services. • (C) Hospitalization. • (D) Maternity and newborn care.PPACA 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 Issues that Employers and Brokers Should Thinking About 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 standardized Summary of Benefits and Coverage (SBC) SBC should detail “in plain language, simple and consistentinformation about health plan benefits and coverage that…will help consumers better understand the coverage they have, and, for thefirst time, allow them to easily compare different coverage options.”NAIC provided recommendations that were adopted by the federal government
Summary of Benefits and Coverage Should include coverage examples thatillustrate benefits provided under Upon renewal, the plan or must be provided Experts differ as coverage, detail Person requesting to both to when updated out-of-pocket an SBC must be participants and SBCs need to be costs, provide provided with the beneficiaries as issued – after examples of document within part of any written September 23 or coverage for a seven (7) enrollment after new policy simple delivery business days application year (?) and a Type II materialsdiabetic care, and explain any coverage exclusions forcommon benefits
MLR in a Nutshell• Beginning in 2011, insurers had to spend and track MLR ratios• Large Group (defined as 100 or more Employees) • 85% clinical services and qualified quality programs • 15% administrative• Small Group (defined as 2 to 100 Employees) and nongroup • 80% clinical services and qualified quality programs (NY 82%) • 20% administrative (NY 18%)• Calculations are based by legal entity, state and line of business• MLR reports filed to HHS June 1st each year• Rebate checks for 2011 have been issued in 2012• If a health plan or insurer meets or exceeds the MLR, notices will be issued with the first plan document after July 1, 2012• If 80/85% percentage not achieved, notices and rebate checks must be distributed by August 1st the following year• Three month requirement from August 1 to take action on the MLR rebate options
Employer MLR Distribution Rebate Options DOL Technical 2011-04 Release Based upon • Distribute rebates to current (and, if already desired, former) participants established • Enhance benefits provided to plan ERISA participants by additional benefits or principles, the wellness programs DOL guidance • Pay reasonable plan expenses provides • Reduce future premiums for current plan employers with participants four options. • Note: For the purposes of MLR rebate An employer checks, COBRA plan participants are may: considered plan participants.
MLR Impact: Kaiser Foundation Study Refund: MLR rebate checks this year estimated $1.3 billion Non-Group Market: Rebates are expected to go to almost one-third (31%) of consumers in the individual market. The share of consumers in the individual insurance market expected to receive rebates ranges from near zero in several states to as high as 86% in Oklahoma and 92% in Texas Group Market: About one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates. Amount: Checks could range from an average of $72 for those with insurance through a large employer to an average of $127 for those who bought individual policies
Individual Mandate:What are the tax penalties for non-compliance?The annual tax (formerly known as a penalty) for not obtaining minimum essentialcoverage will be the greater of a flat dollar tax amount per individual or a percentageof the individual’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).
Small Employer Tax Credits Eligible small employers are defined as those employing 25 or fewer full- Under PPACA, small time equivalentemployers offering health employees with average insurance coverage to annual wages of less thanemployees enjoy several $50,000 and contributingbenefits, including a new to employees’ qualified income tax credit health care coverage a uniform percentage, no less than 50%, of the premium cost
Large Employer Tax Penalties Large employers Under PPACA, a MUST offer medical premium subsidy coverage to its full- program is NOT time employeesestablished for a large beginning in 2014. If a employer. In fact, a large employer fails to tax penalty may be offer appropriate assessed against a coverage, that large employer employer may be liable for a tax penalty.
How is the Tax Penalty Triggered? The tax • If the employer does not offer coverage, and at least one of its full- penalty time employees claims the premium tax assistance tax credit, or can be • The employer does offer coverage, but the coverage fails to meet the triggered minimum essential coverage in one of threshold and one full-time employee is certified to claim the premium taxtwo ways: credit
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 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 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
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
Employer W2 Reporting Requirements Employers need to report the cost of employer- sponsored health care • Applicable to all employers that provide group coverage on employees’ health plans, including federal, state, and localW-2 forms for all tax years governments, and religious organizations.starting on or after January 1, 2011. • The employer was required to file fewer than 250 W-2 Forms for the preceding calendarAn employer need year, or not report if: • The employer is a federally recognized Indian tribal government
Excise Tax on “Cadillac” Health PlansIn an effort to penalize employers who offerexcessively rich health benefit plans, PPACAincludes a new excise tax on high-cost health plans,called “Cadillac” health arrangements.This is a new non-deductible 40% excise tax thatsome experts have estimated will affect more thanhalf of large employers’ active health plans by 2018.
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 conditions are met as described below.• Currently, individuals pay a Medicare tax of 2.9% of their wages. The new tax is in addition to the current Medicare taxes, and expands the definition of income subject to Medicare taxes. 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 or higher 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 adjusted income exceeds $125,000
PPACA’s Impact: Positive Opened a national dialogue on insurance coverage Federal funding for Move to electronic uninsured and medical records underinsuredMore patients are Fundamentalinsured with first insurance reform dollar coverage Expansion of care management, Leveraging NAIC wellness programs, expertise medical home, etc.
PPACA Impact: ChallengesAdopted by a slim majority in CongressNot supported by the majority of AmericansRegulatory Concerns• PPACA law is 2,700 pages and regulations are over 9,000 pages.• More regulations and guidance to come.• Federalism: State losing ground• Over-reliance on “interim final rules”Radical changes to current health plan offerings will likelycreate some disruptions to the market
PPACA Impact: Challenges Health care spending is over 17% of the U.S. GDP • Additional cost burdens (e.g., expansion of mandated benefits, appeal rights, etc.)MLR premiumrebates are an • CBO now estimates that PPACA willadministrative cost over $1.76 trillion burden • States cannot afford to build, support and maintain many of PPACA’s Young subsidize requirements the old, and • Significant compliance costs for health males plans and others subsidizes the females • Budget concerns including Congress’s sequestration rule Premium increases
How will PPACA Impact Employers?As highlighted earlier in the presentation, PPACA will affect employers differently, depending upon their size and whether they currently offer health insurance.• Small employers (less than 50 workers) will face no new requirements but will have new insurance options made available to them through the new health insurance exchanges.• Medium-size employers (50 to 100 workers) will have access to these new coverage options as well, but may face some financial penalties•The vast majority of large employers (more than 100 workers) will be impacted significantly including penalties, automatic enrollment requirements, etc.