Affordable Care Act and Exchanges


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Affordable Care Act and Exchanges

  1. 1. CLE Seminar for In-House Counsel January 7, 2014 Beverly Hills, CA Supplemental Materials for: Affordable Care Act and Exchanges
  2. 2. I. Introduction II. ACA Requirements a. Individual Mandate (Minimum Essential Coverage) b. Employer Mandate c. Excepted Benefits III. Exchange a. Different Types of Exchange b. Overview of Covered California c. Recent Developments 2
  3. 3. Introduction • The Patient Protection and Affordable Care Act was enacted on March 23, 2010 (and amended shortly thereafter with the Health Care and Education Reconciliation Act of 2010) (the “ACA”). • The ACA imposes two sets of mandates: Employer and Individual. • The ACA applies, in general, to "group health plans" and "health insurance issuers" but exempts certain "excepted benefits." Grandfathered plans and short term limited duration plans are also exempt from selected requirements. • Coverage is still available to individuals through traditional public (Medicare, Medicaid) and private (employer, individual, etc.) markets and now also available through public and private exchanges. 3
  4. 4. MINIMUM ESSENTIAL COVERAGE THE INDIVIDUAL MANDATE • Beginning January 1, 2014, individuals are required to maintain “minimum essential coverage” (or qualify for an exemption) or be subject to a “shared responsibility payment” when filing their federal income tax return. • Applies to individuals of all ages, including children.  The individual or married couple who can claim a child or another individual as dependent for federal income tax purposes is responsible for paying the penalty if the dependent does not maintain coverage or fit an exemption. 4
  5. 5. EXEMPTIONS • Cannot afford coverage • Income below federal income tax filing threshold • Members of Indian tribes • Religious conscience • Hardship • Incarcerated individuals • Members of health care sharing ministry • Uninsured for coverage gap of less than 3 months • Not lawfully present in the United States • US Citizens residing outside of the US for long enough period of time • Foreign nationals living in the US for a short enough period of time • Bona fide residents of the US territories 5
  6. 6. CLAIMING EXEMPTIONS • Certain exemptions available exclusively through certification by an exchange (hardship, religious)  Exchange will review the application, issue a certificate of exemption and notify the IRS • Certain exemptions available exclusively through the IRS filing process (affordability exemption, short coverage gaps, household income below filing threshold) • Certain available either way (Indian tribe members, members of health care sharing ministries, incarcerated) • Partial month coverage counts 6
  7. 7. ACCEPTABLE MINIMUM ESSENTIAL COVERAGE • Acceptable “minimum essential coverage” includes:  Coverage under certain government-sponsored plans (e.g., Medicare, Medicaid, CHIP, TRICARE, certain Veterans health coverage)  Grandfathered health plans  Employer-sponsored plans (including COBRA and retiree coverage)  Plans available in individual market  Qualified Health Plans offered through the exchanges  Any additional types of coverage HHS designates • Does not include specialized coverage (e.g., vision only, dental only, disability, workers’ comp, specified disease) • “Minimum Essential Coverage” vs. “Essential Health Benefits” 7
  8. 8. SUBSIDIES • 2 Types: Premium Subsidies and Cost Sharing Subsidies • Only available to eligible individuals who purchase insurance through an exchange • Eligibility for subsidies:  Premium subsidies are available to individuals and families between 100%-400% of FPL who are not eligible for other acceptable coverage  Cost sharing subsidies are available to those with incomes up to 250% of the poverty level  Persons with access only to “unaffordable” coverage Where employee’s portion of the annual premium for self-only coverage would exceed 9.5% of household income; or The available employer plan covers less than 60% of total allowed cost 8
  9. 9. PREMIUM SUBSIDIES • Limits the amount that an individual or family pays for health insurance coverage by providing a refundable and advance tax credit • Determined on a sliding scale, based on income • Based on premium for a silver plan – an individual that wants a more expensive plan (gold or platinum) must pay the difference Income Premium Limit Up to 133% of FPL 2% of income 133-150% of FPL 3-4% of income 150-200% of FPL 4-6.3% of income 200-250% of FPL 6.3-8.05% of income 250-300% of FPL 8.05-9.5% of income 350-400% of FPL 9.5% of income 9
  10. 10. PENALTY (aka SHARED RESPONSIBILITY PAYMENT) • Greater of percentage of household income over the filing threshold or flat dollar amount  2014: 1% or $95  2015: 2% or $325  2016: 2.5% or $695  2017 and beyond: 2.5% or $695 + cost of living adjustment  Penalty cannot exceed: 300% of applicable dollar amount or the national average premium for bronze level plans offered through exchanges • Penalty paid with tax return; pro-rated by the number of months without coverage (no penalty for a single gap in coverage of less than 3 months in a year) • Not subject to criminal prosecution • No lien or levy on any property permitted 10
  11. 11. REALITY CHECK • How many people are estimated to be affected by the individual mandate?  Congressional Budget Office projects $45 billion penalty payments over the FY 2014-2023 period • Will people calculate the penalty vs. the cost of coverage and buy coverage only if they become ill?  Penalty payment is a fraction of the cost of health insurance premiums  Limited annual open enrollment period  Unclear how vigorously IRS will enforce penalty • Other political considerations?  Health insurance industry pushing for stronger provisions to encourage people to sign up for coverage  Will penalty be high enough to encourage the young invincibles to apply?  First penalty payments not made until 2015 11
  12. 12. EMPLOYER MANDATE • “Employer Mandate” is a misnomer – employers are not technically required to provide coverage • Large employer (50 or more full time or full time equivalent employees) will pay a “shared responsibility” penalty if one or more of its full time employees chooses to obtain coverage through an exchange and obtains a premium tax credit • Small employer (less than 50 full time or full time equivalent employees) are not subject to mandate/penalty, but tax credits may be available if coverage is provided • Effective January 1, 2014 • “Small” and “large” may be defined differently with respect to exchanges 12
  13. 13. CALCULATING FTEs • To be subject to penalty, employer must employ at least 50 full time or full time equivalent (FTE) employees • Full time: employee that works 30 hrs/week (includes seasonal) • FTE: aggregate the number of hours worked by non-full time employees (including seasonal) and divide by 120 (i.e. each 120 hrs of part-time work per month counts as one full-time employee) • Calculate: Add the number of full time and FTE employees for each month of proceeding calendar year, add the monthly totals and divide by 12, if exceeds 50 determine whether seasonal employee exception applies • Multiple businesses with common ownership may be treated as one for purposes of calculating FTEs as per Internal Revenue Code controlled group rules (IRC 414(b), (c), (m) or (o)); treated separately for purposes of penalty 13
  14. 14. THE DECISION TO PAY OR PLAY • Employers considering whether it is more advantageous to play or to pay. Employers considering:  Dropping coverage altogether  Offering limited benefit plans - law requires large employers to offer “minimum essential coverage,” not “essential health benefits” (see evolution of mini-med plans on next slide)  Reducing lowest cost option to just above 60% actuarial value threshold  Reducing workers hours to below 30 hr/week  Paying targeted penalties (e.g. not providing “affordable coverage” to certain segments of workforce) • Other considerations than cost involved – culture, competitiveness, lost tax advantages, reporting requirements 14
  15. 15. EXCEPTED BENEFITS • Category 1: Excepted in all Circumstances  Accident (including AD&D), disability income insurance, coverage supplement to liability insurance, liability insurance, workers’ compensation or similar insurance, automobile medical payment insurance, credit-only insurance, coverage for on-site medical clinics, other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. 42 USC 300gg–91(c)(1). • Category 2: Excepted Only if Offered Separately  Benefits not subject to requirements if offered separately: (A) Limited scope dental or vision benefits; (B) Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof; (C) Such other similar, limited benefits as are specified in regulations. 42 USC 300gg–91(c)(2). 15
  16. 16. EXCEPTED BENEFITS • Category 3: Excepted if Offered as Independent, Non-coordinated Benefits  Benefits not subject to requirements if offered as independent, non-coordinated benefits: (A) Coverage only for a specified disease or illness; (B) Hospital indemnity or other fixed indemnity insurance. 42 USC 300gg–91(c)(3). • Category 4: Excepted if Offered as Separate Insurance Policy  Benefits not subject to requirements if offered as separate insurance policy: Medicare supplemental health insurance; coverage supplemental to the coverage provided under Tricare, and similar supplemental coverage provided to coverage under a group health plan. 42 USC 300gg–91(c)(4). 16
  17. 17. Example Excepted Benefits and Notes of Interest • Accident-Only or Accidental Death & Dismemberment. Coverage may not be provided unless injury (or, sometimes, sickness) was incurred through accidental means. • Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. May not be used until a regulation has actually been promulgated. • Dental and Vision. Must be “limited scope” (i.e., narrow range or type of benefits that are generally excluded from medical coverage); and “offered separately” (provided under a separate policy, certificate, or contract of insurance, or otherwise not an integral part of a Group Health Plan). "Not integral" means not required as a condition for the medical coverage and subject to à separate premium. 17
  18. 18. Examples Excepted Benefits • Hospital Indemnity and Fixed Indemnity. Must pay a fixed dollar amount per day (or other time period) of hospitalization or illness regardless of the amount of expenses incurred ("DOL Q7"). • Similar Supplemental Coverage Provided to Coverage Under a Group Health Plan. The same coverage, issued in connection with an individual policy (including an association policy), would not be an excepted benefit. 18
  19. 19. SHORT-TERM LIMITED DURATION EXEMPTION • Applicable only to coverage issued in the individual market (federal interpretation). Length of “contract” must be less than 12 months (including any extensions that may be elected by the policyholder without the issuer’s consent). 42 USC 300gg–91(b)(5) and 45 CFR 144.103. • HHS has advised that the determination of short-term limited duration may be based on the certificate rather than the master policy. If the certificate expires after less than 12 months and renews only with consent of the insurer, it would be short-term limited duration regardless of the master policy term. 19
  20. 20. EXCHANGES/MARKETPLACES • The ACA allows each state to establish an “affordable health insurance exchange” (a/k/a marketplace), or the federal government will do it for them • Purpose of exchanges:  Facilitate the purchase of qualified health plans (QHPs) by consumers and small businesses  Allow individuals and small employers to compare and select from QHPs  Provide a single point of access to receive eligibility determinations  Increase competition among issuers and improve affordability of coverage 20
  21. 21. EXCHANGES/MARKETPLACES • States were required to establish exchanges by January 1, 2014 (as a practical matter must establish sooner, for open enrollment) or HHS would establish/operate exchanges for them • 3 forms of exchanges have evolved:  State-Based Exchanges: state establishes and operates the exchange, QHP applications submitted to state, state performs QHP certifications; QHPs are offered to consumers on state run web portal  State Partnership Exchanges: hybrid of state and federal, QHP applications submitted to state, state reviews QHPs and submits recommendation as to certification to FFE, FFE reviews and certifies, QHPs offered through federal web portal  Federally Facilitated Exchange (FFE): QHP applications submitted to HIOS, FFE reviews QHP applications and certifies, QHPs offered through federal web portal 21
  22. 22. Health Insurance Marketplace by State 22
  23. 23. STATE-BASED EXCHANGES • Primary exchange functions:  Certify plans as qualified health plans (QHPs)  Determine eligibility  Enrollment • Small Business Health Options Program (SHOP)  Employers with up to 100 employees (with state options)  Employer choice: specific QHP or level of coverage; level of contribution  Can be combined with the Individual Exchange  Opportunities for tax credits 23
  24. 24. FEDERALLY FACILITATED EXCHANGE (FFE) • HHS will operate the FFE in states that fail to establish state based exchange (and in partnership states) • Purpose/Function of FFE similar to state-based exchanges: Certify plans as QHPs (timing to be discussed) Determine consumer eligibility (including for Medicaid and CHIP) Provide mechanism for consumers to enroll Provide consumer support 24
  25. 25. PRIVATE EXCHANGES • What is a private exchange? • Formats vary; typically a concept not an entity so not specifically regulated • Who creates private exchanges? • Companies, non-profits (usually brokers or consultants) • Licenses required: producer, broker, administrator, consultant/advisor (varies by state) 25
  26. 26. STRUCTURE OF PRIVATE EXCHANGES • How may a private exchange be structured? Example:  For the purchase of group health insurance by employers.  Underlying major medical coverage (self-insured, fully-insured) with the potential to add on “voluntary benefits” (e.g., vision, dental, hospital indemnity, critical illness).  Generally marketed as one-stop self-service, typically technologydriven (e.g., web-based portal for use of employers, individuals). • Potential benefits to consumers:  Packages available on private exchange likely to be marketed as “best in class” types of coverage. Carriers may vary with geography.  In theory, carriers (and other vendors such as PBMs, wellness programs, etc.) will be able to discount premiums in anticipation of increased volume, which may provide an additional incentive for employers to purchase insurance through private exchanges. 26
  27. 27. Overview of Covered California Organization and Corporate Governance • Covered California operates as an independent public entity within the State government and is not affiliated with any agency or department. Government Code 100500(a). • Governed by an executive board consisting of five members (Government Code 100500(a)) • • • • • Residents of California Two members appointed by the Governor One member appointed by the Senate Committee on Rules One member appointed by the Speaker of the Assembly Secretary of California Health and Human Services or his or her designee shall serve as a voting, ex officio member of the board 27
  28. 28. Overview of Covered California • Funding • The California Health Trust Fund was created in the State Treasury for the purpose of operating the exchange • The funding of Covered California is summarized as follows: Fundng of the California Exchange (per 2013-14 Preliminary Budget) (000's) Actual 2011Est. 2012Est. 20132012 2013 2014 Category Federal Trust Fund 3 yr Total 348,691 366,498 - 27,900 22,800 50,700 30,148 Reimbursements 30,148 745,337 376,591 389,298 796,037 • The exchange will assess a “participation fee” to QHPs (Government Code 100503(n)) in an amount equal to approximately: • 3% of premiums for policies sold through the individual exchange • 4% of premiums for policies sold through the SHOP exchange • The fee must be determined by the exchange to be reasonable and necessary to support the development, operations, and prudent cash management of the exchange 28
  29. 29. Overview of Covered California • Standard Benefit Plans • Essential Health Benefits. The ACA includes the following categories meant to set a benefit floor: • • • • • • • • • • Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care • Standard Benefit Design: • The standard benefit design for Covered California is set forth at Title 10 California Code of Regulations 6426 (issued pursuant to emergency regulations on March 22, 2013) 29
  30. 30. Overview of Covered California • Certification of QHPs • Covered California solicited bids from health insurers to sell a QHP pursuant to a solicitation issued by Covered California in November • Covered California is in the process of reviewing responses to the solicitation • Initial certification of QHPs is expected in late May • Licensure and Good Standing • Licensed health care service plans (regulated by California Department of Managed Health Care) • Insurers with certificate of authority issued by California Department of Insurance • Exchange will adopt a “good standing” requirement that leverages existing regulatory framework but provides for independent determination by the exchange • Provider Network to be Maintained by Participating Insurers • Insurers providing QHPs through the exchange must comply with applicable network adequacy standards imposed by the applicable regulatory agency, • Department of Managed Health Care (“DMHC”) if insurer is a licensed health care service plan, or • Department of Insurance (“CDI”)) (if QHP is an insurer regulated by the CDI) • The exchange may also impose its own network standards • Enhance network accessibility • Reduce potential for disruption 30
  31. 31. Overview of Covered California • Essential Community Providers. The network of providers offered through the insurer must include sufficient geographic distribution of essential community providers (“ECP”) to provide access to health care services by low income populations in each geographic region • ECPs shall include entities participating in the following programs: • • • • • 340B entities California Disproportionate Share Hospital Program Indian health programs Community and free clinics Participants in electronic health record incentive programs • Rates • Participating insurers shall comply with existing DMHC or CDI requirements regarding rate filings • Rates will be subject to independent review by exchange 31
  32. 32. Overview of Covered California • Outreach, Education, Awareness, and Marketing • In the event that the insurer sells products outside the exchange, the insurer must fairly and affirmatively offer, market and sell all products made available through the exchange to individuals and employers outside the exchange. • QHPs and substantially similar plans offered by the insurer outside the exchange must be offered at the same rate whether offered inside or outside the exchange ( 1301 of the ACA; Government Code 100503(n)) • See also discussion on “navigators” and “agents” below • Navigators: Exchange must establish a “navigator” program that requires navigators to perform certain activities, including, the following (under 1311 of ACA and Government Code 100502(l)): • Conduct public education activities to raise awareness of the availability of qualified health plans • Distribute fair and impartial information concerning enrollment in qualified health plans, and the availability of premium tax credits under 36B of the Internal Revenue Code of 1986 and cost-sharing reductions under 1402 of the ACA • Facilitate enrollment in QHPs • Provide referrals to any applicable agency or office for any enrollee with a grievance, complaint, or question regarding his or her health plan, coverage, or a determination under that plan or coverage • Provide information in a manner that is culturally and linguistically appropriate to the needs of the population being served by the exchange 32
  33. 33. Overview of Covered California • Agents • Agents will be compensated by insurers for selling the QHPs through the individual market • The same compensation must be paid by the QHPs to agents for products sold inside and outside the individual exchange • The exchange will appoint and enter into agreements with agents who enroll employers in the SHOP exchange • The exchange will enter into arrangements with agents to sell through the SHOP exchange and the QHPs will reimburse the exchange for amounts paid by the exchange to agents who sell through the SHOP exchange • Subsidies • Individuals who purchase insurance through an exchange are eligible for subsidies for health insurance premiums and cost-sharing if their income is less than 400 percent of the FPL • Premium assistance tax credit will lower the premium amount an individual or family must pay • Available only for coverage obtained through the exchange • Limitation on cost of premiums (sliding scale ranging from 2% of income up to 133% of FPL to 9.5% for income between 350% and 400% of FPL • Premium assistance is based on a benchmark plan (the second lowest cost silver plan available in an exchange) (i.e., an individual or family who wants a more expensive or higher tier plan (i.e., gold or platinum) must pay the difference) 33