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2011 Client ForumImplementing Health Care Reform: The Year In Review, andWhat’s on the Horizon                        John...
Since We Last Met                                                                2011 Client Forum• Congress enacted PPACA...
2011 Client ForumPPACA and Its Impact on Employer Provided Health Coverage
The New Health Care CoverageLandscape—General Overview                                                 2011 Client Forum• ...
The New Health Care Coverage Landscape—     Changes in Effect Prior to 2014                                               ...
The New Health Care Coverage Landscape—Changes inEffect On and After 2014                                                 ...
Health Reforms---What is a group healthplan?                                                                              ...
Grandfathered Plans                                                                   2011 Client Forum• Interim Final Reg...
Grandfathered Plans                                                                    2011 Client Forum• Impermissible ch...
Implementation Issues related to GF Status                           2011 Client Forum • What about . . .        – Change ...
Auto-enrollment for employers with more than 200 employees                                                                ...
Prohibition on Lifetime and Annual Limits (NGF)                                                    2011 Client Forum• Inte...
Prohibition on Rescissions (NGF)                                                               2011 Client Forum • No resc...
New Claim Appeals Process (GF)                                                      2011 Client Forum • Changes for ERISA ...
Implementation Issues: New Claim Appeals Process                                                                          ...
Age 26 Coverage Mandate (NGF)                                                 2011 Client Forum • Plans that cover depende...
Implementation Issues: Age 26 Mandate                                                  2011 Client Forum • What is scope o...
Additional PYA 9/23/2010 Mandates                                                             2011 Client Forum • (NGF) No...
Additional PYA 9/23/2010 Mandates                                                2011 Client Forum           • (NGF) Prepa...
Additional PYA 9/23/2010 Mandates                                                           2011 Client Forum • (GF) Speci...
Effective in 2011                                                                                 2011 Client Forum       ...
Effective in 2013                                                       2011 Client Forum         • Health FSA salary redu...
Reforms Effective Plan Years On/After 2014                                      2011 Client Forum• (NGF) No preexisting co...
Reforms Effective Plan Years On/After 2014                                                           2011 Client Forum • N...
Reforms Effective Plan Years On/After 2014                                                                                ...
Health Insurance Exchange                                                                          2011 Client Forum• PPAC...
Employer Responsibility                                                                            2011 Client Forum• Effe...
Employer Responsibility                                                                          2011 Client Forum • Effec...
Employer Responsibility                                                                2011 Client Forum • Effective Janua...
Employer Mandate – 2014                                                   2011 Client ForumApplies to:• Employers with 50 ...
Sledgehammer Penalty                                                                    2011 Client Forum • If one FT empl...
Tackhammer Penalty                                                                            2011 Client Forum • Where co...
Tackhammer Penalty                                                         2011 Client Forum                              ...
Cadillac Plan Tax                                                                      2011 Client Forum• Beginning in 201...
Cadillac Plan Tax                                                                               2011 Client Forum     • De...
Cadillac Plan Tax                                                                    2011 Client Forum• The coverage subje...
PPACA Score Card: FSAs                                               2011 Client Forum •   Permitted (not required) to cov...
PPACA Scorecard: HRAs                                                           2011 Client Forum • Subject to W-2 reporti...
PPACA Scorecard: HSAs                                             2011 Client Forum • Subject to separate W-2 reporting, l...
PPACA Scorecard Health Insurance                                             2011 Client Forum • Group health plan PPACA r...
2011 Client ForumState of Florida v. HHS et al A brief summary of the recent federal district court case holding the Patie...
What is it?                                                               2011 Client Forum • Federal district court filed...
What did the Court hold?                                            2011 Client Forum• The individual mandate exceeds Cong...
Plaintiff’s Arguments                                                                               2011 Client Forum• As ...
Does Individual Mandate Exceed     The Commerce Clause                                                                    ...
Individual Mandate Exceeds      Commerce Clause                                                                           ...
Individual Mandate Exceeds CommerceClause                                                                             2011...
Individual Mandate Exceeds Commerce Clause                                                                                ...
Severability                                                                                         2011 Client Forum    ...
Where do we go from here?                                                                2011 Client Forum     • Presumabl...
2011 Client ForumHITECH Amendments to HIPAA Privacy & Security Rules
Amended HIPAA Privacy and Security  Rules                                                                                 ...
Overview of Amendments to HIPAA Privacy and Security Rules                                                                ...
Expanded Obligations of Business Associates (BAs)                                                                         ...
Expanded Obligations of BAs (con’t)                                                2011 Client Forum • Expanded Security R...
Expanded Requirements for BAs                                                                       2011 Client Forum• Mos...
Expanded Requirements for BAs                                                                                             ...
2011 Client ForumDevelopments Impacting Transit Plans andOther Year-end Developments
Transit Plans Benefit From Extensions                                 2011 Client Forum • Extension of Bush tax cuts exten...
End of 2010 Legislative Session                                        2011 Client Forum Tax Relief, Unemployment Insuranc...
Year-End Regulatory Activity                                               2011 Client Forum • More guidance on PPACA     ...
Additional Year-End Developments                                                           2011 Client Forum • Dodd-Frank ...
2011 Client ForumWellness Promotion/Prevention:Overcoming Legal And Compliance Hurdles
Disease Management vs. Employee     Wellness Programs                                                                     ...
Health Risk Assessments                                                 2011 Client Forum • Health Risk Assessment: Series...
Compliance Issues                                                                          2011 Client Forum • Practical a...
Carrots and Sticks                                                       2011 Client Forum     •             Two Competing...
HIPAA Implications for Wellness     Programs                                                                              ...
Requirements for “Standard Based”     Wellness Programs                                                                   ...
Requirements for “Standard     Based” Wellness Programs                                                                   ...
Age Discrimination in     Employment Act (ADEA)                                                                           ...
HIPAA Administrative Simplification                                                           2011 Client Forum•          ...
COBRA                                                                           2011 Client Forum • Most “group health pla...
COBRA                                                                              2011 Client Forum • COBRA consideration...
Tax Issues                                                                              2011 Client Forum • Tax issues ari...
Tax Issues                                                       2011 Client Forum • Non-health incentives raise tax issue...
Tax Issues                                                                       2011 Client Forum • Health related incent...
State Law                                                                                2011 Client Forum•        Statuto...
State Law                                                                                      2011 Client Forum•        S...
State Law                                                                        2011 Client Forum•        Common Law Tort...
State Law                                                                        2011 Client Forum•        Thoughts/Conclu...
Americans With Disabilities Act (ADA)                                2011 Client Forum•        Americans With Disabilities...
Americans With Disabilities Act                                                                                 2011 Clien...
Americans With Disabilities Act                                                                                          2...
Americans With Disabilities Act                                           2011 Client Forum•        Medical Examinations  ...
Americans With Disabilities Act                                                                    2011 Client Forum•     ...
Americans With Disabilities Act                                                                2011 Client Forum•        V...
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John hickman

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Implementing healthcare reform: the year in review and what's on the horizon

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John hickman

  1. 1. 2011 Client ForumImplementing Health Care Reform: The Year In Review, andWhat’s on the Horizon John Hickman, Esq john.hickman@alston.com © 2011, Alston & Bird, LLP
  2. 2. Since We Last Met 2011 Client Forum• Congress enacted PPACA (aka the Affordable Care Act) – The agencies have issued thousands of pages of regulations – What is the impact on individual account plans and employer sponsored health benefits ? – What issues are still in play? Is the law Constitutional?• HHS issued final regulations under the HITECH Act• The Bush Tax Cut Extension Impacts Transit – IRS extends Smart Card Ruling until 2012• Compliance issues for disease management/wellness programs• What’s on the Horizon 2 2011 Client Forum
  3. 3. 2011 Client ForumPPACA and Its Impact on Employer Provided Health Coverage
  4. 4. The New Health Care CoverageLandscape—General Overview 2011 Client Forum• Health Care Reforms – 2 waves of reforms for Group Health Plans• Health Care Exchange• Individual Mandate• Employer “pay or play” mandate• Tax Provisions4 2011 Client Forum
  5. 5. The New Health Care Coverage Landscape— Changes in Effect Prior to 2014 2011 Client Forum• Implementation Timeline – Immediate Health Care Reform (First PY beginning on or after 9/23/10)—Wave #1 of Health Reforms – Changes already effective 2010 • Change in “dependent” definition for purposes of health plan tax exclusions (“child” through age 26) • Small employer tax credit – Changes effective January 1, 2011 • Limits on OTC benefits • SIMPLE Cafeteria Plan Rules for Small employers • W-2 reporting for coverage cost delayed until 2012 (first report in 2013) – Changes effective January 1, 2013 • Loss of Medicare Part D retiree subsidy deduction • $2500 cap on FSA salary reductions 5 2011 Client Forum
  6. 6. The New Health Care Coverage Landscape—Changes inEffect On and After 2014 2011 Client Forum• Changes Effective in 2014 – Individual mandate – Employer pay or play requirement – Employer Coverage Reporting (first report in 2015 for 2014) – Free Choice Vouchers – Exchange• Changes generally effective first plan year on/after January 1, 2014—Wave #2 of Health Reforms• Changes Effective in 2018 – “Cadillac Plan” excise tax6 2011 Client Forum
  7. 7. Health Reforms---What is a group healthplan? 2011 Client Forum• Reforms are added to the HIPAA portability subparts of ERISA and the IRC• This means that: – Liability for failing to comply w/reforms is same as violating HIPAA portability under ERISA/Code • Specific performance under ERISA • $100/day penalty under IRC and HIPAA • Mandatory Self-Reporting and excise tax for violations (Form 8928) – The reforms do not apply to: • Excepted Benefits (such as dental, vision, Health FSA) • Stand alone retiree plans • Delayed effective date for grandfathered plans7 2011 Client Forum
  8. 8. Grandfathered Plans 2011 Client Forum• Interim Final Regulations issued 6/14• A plan is a grandfathered plan with respect to individuals who were enrolled on March 23, 2010. The plan does not stop being a grandfathered plan because individuals enrolled on that date cease to be covered, provided that the plan has continuously covered someone since March 23, 2010. – Family members may be added – “New employees” (newly eligible and newly hired) may be added – Two anti abuse rules • Merger and acquisition • Employer initiated transfer to another option/plan• Regulations apply separately to each benefit package option offered under a plan8 2011 Client Forum
  9. 9. Grandfathered Plans 2011 Client Forum• Impermissible changes? – Change in insurance carriers • But not really if benefits kept the same . . . (FAQ guidance) • Except as provided for plans subject to a CBA—see later presentation • Change in administrators does NOT impact grandfather plan status – Elimination of benefits to treat or diagnose a condition – ANY increase in percentage cost sharing (e.g. coinsurance) – Certain increases in fixed amount cost sharing • [Other than co-payments] medical inflation (from March 23, 2010) reflected as a percentage, plus 15 percentage points • [Copayments] greater of (a) medical inflation (from March 23, 2010), reflected as a percentage, plus 15 percentage points and (b) $5 increased by medical inflation – Change in contribution structure • A decrease in the employer contribution rate of more than 5 percentage points below the rate on March 23, 2010 for any tier of coverage for similarly situated individuals – Certain changes in lifetime/annual limits9 2011 Client Forum
  10. 10. Implementation Issues related to GF Status 2011 Client Forum • What about . . . – Change from fully insured to self-funded – Change from one carrier to another • New Q/a 6 muddies the water – Change from one TPA to another – Changes in stop-loss – Changes to network or formulary – What is a separate coverage option – Dropping one of many coverage options • Real world applications of the anti-abuse rule – Implementing new coverage categories (spouse, children) – Moving retirees into free-standing plan10 2011 Client Forum
  11. 11. Auto-enrollment for employers with more than 200 employees 2011 Client Forum • Effective date? – Provision has no separate effective date, so general rule that effective date is date of enactment would seem to control – But FAQ guidance confirms that compliance is delayed until regulations are issued • What plans does it apply to? – Excepted benefits ? Likely not. • How does it apply with regard to cafeteria plan rules11 2011 Client Forum
  12. 12. Prohibition on Lifetime and Annual Limits (NGF) 2011 Client Forum• Interim final regulations – Essential benefits defined by statute -- no further clarification yet – Minimum allowable annual restrictions • $750k PY before 9/23/2011 • $1.25M PY before 9/23/2012 • $2M PY before 9/23/2014• Implementation Issues related to Scope of prohibition – Financial limits only • While day or treatment limits generally “ok” be wary of impact on GF status and combination of financial cap and per day/treatment limit – Is prohibition on aggregate benefits only or specific benefits too – What benefits are “essential” ? Carriers are sending mixed signals . . . • Chiro • Fertility treatment • Transplants – Scope of special enrollment rights for newly eligibles – Impact on HRAs – Waiver program for “mini-med” plans 12 2011 Client Forum
  13. 13. Prohibition on Rescissions (NGF) 2011 Client Forum • No rescission of coverage is permitted except in cases of fraud or intentional misrepresentation • Interim final regulations define rescission as any retroactive termination of coverage other than for non-payment of premium • Permissible rescission (e.g., for fraud, intentional misrepresentation) requires at least 30 days notice. • Termination for nonpayment of premiums not a rescission • Implementation issues – How to handle ineligible participant/dependent terminations • Some good informal FAQ guidance for COBRA events • What about immediately eligible dependents – How to handle administrative errors13 2011 Client Forum
  14. 14. New Claim Appeals Process (GF) 2011 Client Forum • Changes for ERISA plans (*denotes some transition relief until 7/1/2011) – Definition of “adverse benefit determination” • Now includes rescission determinations – Urgent Care Timeframe* • No more than 24 hours – Appeals Procedure • Access to documents • Right to present “testimony” – Conflicts of Interest – Denial Notice Content* – Strict Adherence* – External review • But some leeway in FAQ guidance for good faith implementation14 2011 Client Forum
  15. 15. Implementation Issues: New Claim Appeals Process 2011 Client Forum • Challenges in implementing “external review” • Should all plans (e.g., dental, vision) keep same appeal process or differentiate • SPD disclosure issues (what and when) • Who hires external review entity (hub and spokes) • Who pays for external review • What claims does external review apply to? – Medical decisions – Any adverse benefit determination other than pure eligibility15 2011 Client Forum
  16. 16. Age 26 Coverage Mandate (NGF) 2011 Client Forum • Plans that cover dependent children must provide for coverage of a dependent “child” to age 26 – There is no requirement to cover children of covered dependent children (i.e., grandchildren) – Applies to “married” children – Consider impact on disabled coverage extensions and Michelle’s Law – FAQ q/a guidance (q/a 14) defines child consistent with IRC 152(f) – son, daughter, stepson/daughter, adopted child and eligible foster child • Extremely important for “other child” bucket – For grandfathered plans only, no requirement to cover if eligible for other coverage as employee (until 1/1/2014) • Administration issues – Tax exclusion under 105(b) (and 501(c )(9) and 401(h)) expanded to include a “child” (as defined by IRC 152(f)(1) through 12/31 in which turn age 26. • Potential immediate impact for FSAs/HRAs that define eligibility based on 105(b)16 2011 Client Forum
  17. 17. Implementation Issues: Age 26 Mandate 2011 Client Forum • What is scope of coverage mandate – Decide how to treat grandchildren and/or unrelated children “residing” with employee • Communication and special enrollments • Difficulty in policing “other employment coverage” exception for certain GF plans • Questions with regard to “coverage parity” issues up to age 26 – Orthodontia, autism, etc – FAQ guidance clarifies that universal exclusion is ok • State Tax Compliance issues related to “effective date” and retroactivity17 2011 Client Forum
  18. 18. Additional PYA 9/23/2010 Mandates 2011 Client Forum • (NGF) No pre-existing condition exclusions on enrollees under age 19 – Could apply to young employees, spouse or dependent children – Implementation issues • Determine if any pre-ex in plan may apply to children • (GF) First dollar coverage (i.e., no cost-sharing) must be provided for certain evidence- based preventive care (including well-child care) and certain immunizations – Regulations allow for network and medical management restrictions – Implementation issues • Conform wellness/preventive care to list and ensure no cost sharing applies • How to communicate list of covered expenses to participants • Difficulty with interplay between essential benefits (no lifetime cap) and preventive care caps.18 2011 Client Forum
  19. 19. Additional PYA 9/23/2010 Mandates 2011 Client Forum • (NGF) Prepare and distribute a new “Summary of Coverage” – Distributed at enrollment, no more than 4 pages, and 12pt font – Notice of material changes in Summary required 60 days prior to effective date – Agencies will identify additional requirements within 12 months – Plans will have an additional 12 months to distribute • (GF) Fully insured plans sponsored by employers will generally be required to satisfy the same Section 105(h) discrimination requirements that apply to self-funded plans – Impact on executive comp arrangements designed to avoid 409A – Likely no small employer exception – New FAQ guidance provides for delay until FPY after regulations – Applicable to premium reimbursement plans (not subject to 105(h)? – Penalty is $100 per day excise tax (self reported) for affected participant19 2011 Client Forum
  20. 20. Additional PYA 9/23/2010 Mandates 2011 Client Forum • (GF) Special rules regarding health care providers: – Plan enrollees are allowed to select their primary care provider, or pediatrician, from any available participating providers; – Precludes prior authorization or increased cost-sharing for emergency services, whether in-network or out-of-network • Interim final regulations require payment at greater of network rate, out of network rate, or Medicare rate; and – Precludes plans from requiring authorization or referral by the plan for obstetrical or gynecological care – Interim final regulations impose notice requirements20 2011 Client Forum
  21. 21. Effective in 2011 2011 Client Forum – Employers must report aggregate value of employer-sponsored coverage on Form W-2 (“optional” for 2011 -- first report due in 2013) • Includes COBRA rate of all health coverage subject to Cadillac tax • Are payroll systems in place to capture amounts • Retirees not already required to receive W2 not subject to this requirement – No reimbursement of OTC medicines or drugs (except insulin) by health FSA, HRA, or HSA without prescription • Related to expenses incurred in calendar year 2011; not based on “plan year” • Recent IRS Guidance on health debit cards21 2011 Client Forum
  22. 22. Effective in 2013 2011 Client Forum • Health FSA salary reductions limited to $2,500 each year – The cap is indexed to the CPI starting in 2014 • Deduction previously permitted for amounts allocable to the Medicare Part D subsidy for prescription drug plans is eliminated – FAS 106 impact and impact on balance sheets22 2011 Client Forum
  23. 23. Reforms Effective Plan Years On/After 2014 2011 Client Forum• (NGF) No preexisting condition exclusions or limitations are permitted• (NGF) Prohibition on excessive waiting periods—i.e. no waiting period in excess of 90 days• Fair Health Insurance Premiums (applicable only to health insurers) – Limitations on premium setting (e.g. limitations on premium setting based on age, tobacco use) – Indirect impact on self insured plans? 23 2011 Client Forum
  24. 24. Reforms Effective Plan Years On/After 2014 2011 Client Forum • No discrimination based on health status is permitted – Essentially, the same rules that currently exist under HIPAA – The bill raises maximum incentive amount for wellness programs that provide the incentive based on achieving a health standard from 20 to 30 percent of the COBRA cost of coverage • Also gives the Secretaries of Labor, HHS, and the Treasury leeway to increase the percentage to 50 percent • Cost limitations – Out-of-pocket expenses do not exceed the amount applicable to coverage related to health savings accounts (HSAs) – Deductibles do not exceed $2,000 for single coverage and $4,000 for family coverage (as indexed) • Unclear whether deductible requirement may only apply to fully insured plans in small group market • Query: Can you ever have a “bronze plan” once this requirement applies?24 2011 Client Forum
  25. 25. Reforms Effective Plan Years On/After 2014 2011 Client Forum • Fully insured plans in small group market must provide essential benefits – Not applicable to fully insured plans in large group market and self insured plans – Self insured plans NOT required to provide essential benefits • Group and individual plans are required to cover routine costs of participation in certain clinical trials by qualified individuals • No nondiscrimination against providers who act within the scope of their license – Not an any willing provider statute25 2011 Client Forum
  26. 26. Health Insurance Exchange 2011 Client Forum• PPACA provides funds to states to establish a health insurance exchange through which individuals may purchase health insurance beginning in 2014• Exchange-related provisions in PPACA impact employers in the following ways: – Beginning in 2017, states may allow all employers of any size to offer coverage through the exchange • Prior to 2017, only small employers - employers with 100 employees or less (except in states that limit small employers to employers with 50 or fewer employees)—may participate – Employers who offer coverage through the exchange may permit employees to pay for such coverage with pre-tax dollars through the employer’s cafeteria plan 26 2011 Client Forum
  27. 27. Employer Responsibility 2011 Client Forum• Effective January 1, 2014 - play or pay mandate #1: – Employers with 50 or more full-time “applicable” employees are subject to the following penalties related to coverage that they offer or fail to offer to full-time employees: • Applicable employers who fail to offer full-time employees health coverage must pay a penalty with respect to each full-time employee in any month in which any full-time employee receives a federal subsidy for the exchange – The penalty is determined on a monthly basis and is the product of the total number of full-time employees of the employer (over 30) for that month and 1/12 of $2000 (up from $750) • For example, a business with 51 employees that does not offer coverage is subject to tax equal to 21 times the applicable payment amount 27 2011 Client Forum
  28. 28. Employer Responsibility 2011 Client Forum • Effective January 1, 2014 - play or pay mandate #1 (cont’d): • Part-time employees are taken into account solely for the purpose of determining if an employer has at least 50 employees – The number of full-time employees otherwise determined is increased by dividing the aggregate number of hours of service of employees who are not full-time employees by 120 • Employers who are “applicable large employers” solely because of seasonal employees who are otherwise full-time employees and that work less than 120 days during the year are NOT considered “applicable large employers”28 2011 Client Forum
  29. 29. Employer Responsibility 2011 Client Forum • Effective January 1, 2014 - play or pay mandate #2: – Even when coverage is extended, applicable employers who offer coverage for any month to a full-time employee who is certified as having enrolled in the exchange and received a tax subsidy is subject to a penalty equal to the product of the total number of such employees who have received a tax subsidy and 1/12 of $3000 (capped at 1/12 of $2000 times the total number of full-time employees during such month) – Note: employees offered employer coverage are not eligible for a credit unless their required premium exceeds 9.5% of household income or the plan’s share of allowed costs is less than 60%.29 2011 Client Forum
  30. 30. Employer Mandate – 2014 2011 Client ForumApplies to:• Employers with 50 or more FTEs• PT employees count based on hours / 120 per month (only for whether penalty applies, not for calculation of the amount of penalty)• Certain exceptions for seasonal employees who work < 120 days per year• Controlled group rules apply (combine related employers) 30 2011 Client Forum
  31. 31. Sledgehammer Penalty 2011 Client Forum • If one FT employee does not have offer of minimum essential coverage • If one FT employee who is not eligible for coverage purchases insurance on an exchange and receives a tax credit • Penalty = $2,000 times # of FT Employees minus 30 Example • Galactic Business Machines (GBM) has 300,000 employees • GBM offers insurance to 299,999 employees • The last employee (Sam) purchases insurance on exchange and receives a tax credit • Penalty = 299,970 times $2,000 = (approx) $600 million • GBM wishes it had offered coverage to Sam!31 2011 Client Forum
  32. 32. Tackhammer Penalty 2011 Client Forum • Where coverage is offered to all FT employees • Cost to employee of coverage exceeds 9.5% of household income or employer subsidy is less than 60% of cost of coverage. • FT Employee enrolls in exchange and receives tax subsidy. • Penalty to Employer is $3,000 per year for that employee • Capped at Sledgehammer penalty. • Employer pays no penalty for employee if: – Household income > 4 x poverty (about $40,000 for individual, $88,000 for family of 4) – Employee chooses not to purchase coverage on the exchange – Employee is covered by Medicare, Medicaid, spouse’s plan, parents’ plan, other employer’s plan, etc.32 2011 Client Forum
  33. 33. Tackhammer Penalty 2011 Client Forum Example • Galactic Business Machines offers coverage to Sam at high price; he goes to the exchange and obtains coverage with a subsidy. • Tackhammer penalty = $3,000, not $600 million.33 2011 Client Forum
  34. 34. Cadillac Plan Tax 2011 Client Forum• Beginning in 2018, PPACA (as modified by the Reconciliation Bill) imposes a 40 percent excise tax on: – “Coverage providers:” for the sum of months in which the aggregate value of employer sponsored health coverage for the employee exceeds: • 1/12 of $10,200 for single coverage and $27,500 for family coverage – The higher family threshold applies to both single and family coverage offered under a multiemployer plan – These amounts are to be adjusted automatically if health costs increase by more than anticipated before 2018 – The thresholds are increased by CPI + 1 in 2019, and by CPI thereafter – An employer may make an adjustment to reduce the cost of plans when calculating the tax if the employer’s age and gender demographics are not representative of a national average – The PPACA transition rule for high cost states does not apply • The annual limit for retirees between ages 55 and 64, individuals engaged in certain high-risk professions (e.g., law enforcement professionals, EMTs, longshoremen, construction workers, and miners), and those employed to install electrical or telecommunication lines is increased to $11,850 for individual coverage and $30,950 for family coverage 34 2011 Client Forum
  35. 35. Cadillac Plan Tax 2011 Client Forum • Determined by the employer and assessed against “coverage providers” • “Coverage providers” are defined to include the following: – In the case of fully insured plans, the health insurer – In the case of HSA or medical savings account (MSA) contributions, the employer making the contributions – In the case of a self-insured plan or flexible spending account (FSA), the person that administers the plan (e.g., the TPA) • In many cases, employer-sponsored coverage will include both fully insured and self- insured contributions ( also includes HSA contributions) – The coverage provider’s applicable share of the tax will bear the same ratio to the total excess benefit as the cost of provider’s coverage to the total value of employer-sponsored coverage35 2011 Client Forum
  36. 36. Cadillac Plan Tax 2011 Client Forum• The coverage subject to the excise tax rule includes: – The applicable premium (determined in accordance with COBRA rules) for all accident and health coverage provided by the employer, even if paid for with after-tax dollars by the employee (except vision only insurance, dental insurance, accident and disability insurance, long-term care insurance, and after-tax funded hospital indemnity and/or specified disease coverage) – Both non-elective and salary reduction contributions to a health FSA – Employer contributions (presumably including salary reductions) to an HSA 36 2011 Client Forum
  37. 37. PPACA Score Card: FSAs 2011 Client Forum • Permitted (not required) to cover children up to 26 • In 2011 OTC medicines and drugs require an Rx • In 2013 FSA salary reductions cannot exceed $2500 • FSA benefits will be counted for W2 and Cadillac Tax • Otherwise generally excepted from PPACA as an excepted benefit37 2011 Client Forum
  38. 38. PPACA Scorecard: HRAs 2011 Client Forum • Subject to W-2 reporting and Cadillac Tax • In 2011 OTC medicines and drugs require an Rx • Some HRAs are exempt from most of PPACA – Limited scope vision, dental, and retiree only coverage • Non-exempt HRAs will be especially impacted (square peg, round hole) by – Annual cap prohibition • Qualification for regulatory FSA exemption (5 times rule) • Qualification for “mini-med” waiver – Claims requirements and external review • Also subject to Mandatory MSP reporting38 2011 Client Forum
  39. 39. PPACA Scorecard: HSAs 2011 Client Forum • Subject to separate W-2 reporting, likely subject to Cadillac tax • In 2011 OTC medicines and drugs require an Rx • Excise tax for non-health care distributions increased to 20% • New “mismatch” between dependent for HDHP eligibility purposes and tax free distribution purposes • Some concern with regard to viability of HDHP coverage under MLR rules39 2011 Client Forum
  40. 40. PPACA Scorecard Health Insurance 2011 Client Forum • Group health plan PPACA rules generally apply – New discrimination rules imposed on insured plans (delayed pending IRS regulations) • Additional requirements imposed on insurers – Sector tax – MLR requirements – Prohibition on underwriting (in 2014) – Exchange participation rules (e.g., essential benefits)40 2011 Client Forum
  41. 41. 2011 Client ForumState of Florida v. HHS et al A brief summary of the recent federal district court case holding the Patient Protection and Affordable Care Act unconstitutional
  42. 42. What is it? 2011 Client Forum • Federal district court filed by the State of Florida and 25 other states, 2 private citizens, and the National Federation of Independent Business (NFIB) • Defendants are HHS, DOL, Treasury and their secretaries • At issue: Whether the individual mandate set forth in Section 1501 of the Patient Protection and Affordable Care Act exceeded Congress’ congressional authority set forth in the constitution---i.e. whether it is constitutional or not.42 2011 Client Forum
  43. 43. What did the Court hold? 2011 Client Forum• The individual mandate exceeds Congress’ constitutional authority under the Commerce Clause; therefore, it is unconstitutional• In a surprising twist, the Court held that the individual mandate could not be severed; therefore, the entire act is unconstitutional• No injunction was issued because it is a long standing presumption that the executive branch will adhere to the law of the Court; therefore, injunction was not necessary 43 2011 Client Forum
  44. 44. Plaintiff’s Arguments 2011 Client Forum• As a threshold matter, Plaintiff’s argue that: – PPACA’s Medicaid provisions violate the Spending Clause – PPACA’s individual mandate exceeds the powers granted by the Commerce Clause • Plaintiff’s argue that Commerce Clause permits Congress to regulate certain “activities” and that the failure to purchase insurance is “inactivity” outside the scope of the Commerce Clause 44 2011 Client Forum
  45. 45. Does Individual Mandate Exceed The Commerce Clause 2011 Client Forum• Key issue: Is Commerce Clause limited to “Activity”; if so, is failure to purchase insurance an “activity”?• Court held that Commerce Clause only regulates “activity”• Congress has power to regulate three (and only three) areas of “activities” under the Commerce Clause: • Use of channels of interstate commerce • Instrumentalities of interstate commerce • Activities that “substantially affect” interstate commerce---THIS IS THE KEY ELEMENT AT ISSUE IN THIS CASE 45 2011 Client Forum
  46. 46. Individual Mandate Exceeds Commerce Clause 2011 Client Forum• The issue boils down to whether failure to purchase insurance is an activity• Defendants made the following arguments that failure to purchase insurance was an “activity” contemplated by the Commerce Clause – Health care market is unique – Forgoing health insurance is an “economic decision” equivalent to activity 46 2011 Client Forum
  47. 47. Individual Mandate Exceeds CommerceClause 2011 Client Forum• Health care market is unique – Defendants rely on three factors that uninsured are active: • We are humans subject to sudden illness • When we get sick we will seek care that must be provided w/o regard to ability to pay • If unable to pay, costs are shifted to third parties – Court stated that causal link between what is being regulated and the interstate commerce too attenuated • Courts cannot be required pile on inference after inference47 2011 Client Forum
  48. 48. Individual Mandate Exceeds Commerce Clause 2011 Client Forum • Economic decision to forgo purchase of health insurance is activity – Defendants argue that economic decision to forgo purchase of health insurance now and play “market timing” is activity • “If you choose not to decide, you still have made a choice” Rush from Free Will – Court held that every decision is an economic decision and that “decisions” do not equate to activities that substantially affect interstate commerce48 2011 Client Forum
  49. 49. Severability 2011 Client Forum • Court held that all of its provisions are tied together and could not be severed. – I.e. without the individual mandate, will the provisions of the act function in manner consistent with the intent of congress? • Court ruled that it wouldn’t; even the purpose of the non-health provisions are to serve the health provisions49 2011 Client Forum
  50. 50. Where do we go from here? 2011 Client Forum • Presumably the law in Florida – How will the ruling apply in other states? – Court decisions are split 2/2 on Constitutionality issue with Virginia decision finding mandate “severable” • Do employers dismantle all that they have done to date to comply (e.g. with the health insurance reforms). This would be ill-advised50 2011 Client Forum
  51. 51. 2011 Client ForumHITECH Amendments to HIPAA Privacy & Security Rules
  52. 52. Amended HIPAA Privacy and Security Rules 2011 Client Forum• HIPAA Amendments are in The Health Information Technology for Economic and Clinical Health Act (HITECH) provisions of The American Recovery & Reinvestment Act of 2009 (ARRA).• Effective Date: February 17, 2010, except as otherwise noted. – HITECH Breach requirements effective September 23, 2009 (enforcement moratorium until approximately February 23, 2010) – Proposed HITECH Regulations provide for transition period until 180 days after effective date of final regulations for compliance and until 12 months after effective date to get business associate agreements updated. 52 2011 Client Forum
  53. 53. Overview of Amendments to HIPAA Privacy and Security Rules 2011 Client Forum • Expanded Obligations of Business Associates (BAs) – Security – Privacy • Affirmative Notification of Breach Requirements • Guidance on “Minimum Necessary” Standard • Prohibition on Sale of PHI • Restrictions on Marketing • Application to Personal Health Records (PHR) Vendors – FTC Enforcement • Increased Enforcement and Penalties, including application to BAs Note: This presentation relates primarily to obligations of employer-sponsored health plans, not health care providers to which additional requirements apply.53 2011 Client Forum
  54. 54. Expanded Obligations of Business Associates (BAs) 2011 Client Forum • Pre-HITECH Rule: – BAs were not directly subject to the HIPAA Privacy and Security Rules. Rather, their duties arose out of their BA Agreements. • Revise BAAs to incorporate expanded Privacy and Security Rule obligations. • Civil and criminal penalties now apply directly to BAs.54 2011 Client Forum
  55. 55. Expanded Obligations of BAs (con’t) 2011 Client Forum • Expanded Security Rule Obligations: – Security Rule obligations that govern Administrative, Physical and Technical Safeguards, and require Security Policies and Procedures, now apply directly to BAs. – BAs are also directly subject to additional HITECH requirements, which must be incorporated into BA Agreements.55 2011 Client Forum
  56. 56. Expanded Requirements for BAs 2011 Client Forum• Most security requirements to apply directly to BAs– Pre- HITECH—security requirements not directly imposed on BAs • BA only contractually obligated to CE to safeguard ePHI– Post- HITECH—effective Feb. 17, 2010, most HIPAA security requirements apply directly to BAs • Establish administrative safeguards to protect ePHI • Implement physical safeguards to limit physical access to ePHI • Implement technical safeguards for electronic information systems that control access to ePHI • Implement reasonable and appropriate policies and procedures and maintain proper documentation56 2011 Client Forum
  57. 57. Expanded Requirements for BAs 2011 Client Forum • Changes to business associate contracts – CEs (including GHPs) should review their BA contracts and be prepared to make needed modifications • Proposed regulations allow for transition period for updating contracts until 12 months after effective date of final rules – BAs (TPAs and other service providers) should take a proactive approach to identifying their status as a BA and entering into BA contracts with CEs, when required • Review existing safeguards and policies and procedures to determine what gaps exist relative to enhanced obligations – Some BAs may be more prepared than others but all need to have formal compliance program going forward – Note: Requirements would seem to apply even if BA and CE fail to execute a written BA contract (perhaps, unknowingly)57 2011 Client Forum
  58. 58. 2011 Client ForumDevelopments Impacting Transit Plans andOther Year-end Developments
  59. 59. Transit Plans Benefit From Extensions 2011 Client Forum • Extension of Bush tax cuts extends ARRA transit parity provision until 1/1/2012 – Efforts under way to extend permanently • Perhaps with partial parking cost offset • IRS extended (yet again) effective date of smart card ruling59 2011 Client Forum
  60. 60. End of 2010 Legislative Session 2011 Client Forum Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 • Extension of Bush tax cuts • 2% Cut in FICA tax • Other Extensions – Transit Benefits extended (but only until 2012) – Educational assistance program – Dependent care tax credit Omnibus Trade Act of 2010 • HCTC Credit extended through Feb 12, 201160 2011 Client Forum
  61. 61. Year-End Regulatory Activity 2011 Client Forum • More guidance on PPACA – OTC Drugs: IRS Notice 2011-5 – PPACA health insurance nondiscrimination requirements postponed – More PPACA sub-regulatory guidance • ERRP FAQs revised • Age 26 “parity” FAQ in Agency FAQs Part V61 2011 Client Forum
  62. 62. Additional Year-End Developments 2011 Client Forum • Dodd-Frank Wall Street Reform and Consumer Protection Act – Regulations Impact Debit Cards • Limitations on Interchange • Limitations on Network Exclusivity • Red Flag Rules – Delay Ended 12/31/2010 – According to FTC guidance, a covered “financial institution” includes businesses that “administer flexible spending accounts and give [their] customers a debit card to access benefits.” [Agency FAQs B-15] – Ramifications for TPAs (and others) not already subject to requirements62 2011 Client Forum
  63. 63. 2011 Client ForumWellness Promotion/Prevention:Overcoming Legal And Compliance Hurdles
  64. 64. Disease Management vs. Employee Wellness Programs 2011 Client Forum • Wellness Programs: Designed to improve general health of overall employee population before employees get sick. – Example: Weight Watchers • Disease Management Programs: Designed to improve health of particular employees after they have developed chronic health conditions (e.g., asthma, diabetes, heart condition, hypertension, renal disease). – Example: Health coach to advise about options64 2011 Client Forum
  65. 65. Health Risk Assessments 2011 Client Forum • Health Risk Assessment: Series of medical and health-related questions aimed at obtaining “baseline” information about employees’ overall health to identify persons with chronic conditions or who are at risk for developing a condition.65 2011 Client Forum
  66. 66. Compliance Issues 2011 Client Forum • Practical and legal compliance issues may arise with Disease Management and Wellness Programs under . . . – HIPAA Nondiscrimination Requirements – Americans With Disabilities Act (ADA) – Genetic Information Nondiscrimination Act (GINA) – Age Discrimination in Employment Act (ADEA) – HIPAA Administrative Simplification (Privacy, EDI, and Security) – COBRA – ERISA – Income Tax – Plan Design/Integration Issues (e.g., HRAs and HSAs) – State law66 2011 Client Forum
  67. 67. Carrots and Sticks 2011 Client Forum • Two Competing Approaches: – Carrot: • Health club memberships • Reduced health care premiums • Smoking cessation programs • Weight loss programs • Free health examinations • Healthy eating programs • Stress reduction programs – Stick: • Refusal to hire • Disqualification from health care plan • Termination67 2011 Client Forum
  68. 68. HIPAA Implications for Wellness Programs 2011 Client Forum • Generally cannot vary benefit based on health status . . . but variation allowed for certain wellness programs • Rule does not apply to programs that do not condition benefit on ability to meet health standard (i.e., a “Participation Based Wellness Program” – e.g: – Incentives to participate in testing (regardless of outcome) – Waiver of co-payment/deductible if participate in pre-natal program – Reimbursement of health club membership – Reimbursements for smoking cessation or weight reduction programs (regardless of outcome) – Compensation to fill out health risk assessment68 2011 Client Forum
  69. 69. Requirements for “Standard Based” Wellness Programs 2011 Client Forum • Any program that provides a “reward/penalty” based on the ability to meet a health standard must: – Limit reward/penalty to specified percentage 20 % – Be reasonably designed to promote health or prevent disease – Annual qualification requirement – Must be available to all similarly situated participants -- i.e., individually tailored adjustments to program may be required for individuals who cannot meet health standard – Notice of individual accommodations must be provided69 2011 Client Forum
  70. 70. Requirements for “Standard Based” Wellness Programs 2011 Client Forum • Example: Bonus for cholesterol levels below 200 must include notice allowing those medically unable to comply to discuss alternatives; • Example: Bonus for body mass index might allow for qualification based on walking 20 minutes three times a week; • Example: Bonus for “tobacco-free” employees might allow for qualification based on enrollment in smoking cessation program (Note: assumption that tobacco use addiction is a medical condition -- nicotine addiction)70 2011 Client Forum
  71. 71. Age Discrimination in Employment Act (ADEA) 2011 Client Forum • ADEA prohibits employers from discriminating against individuals on the basis of age with regard to employment and the privileges of employment (e.g., benefits) – Generally can’t reduce or terminate benefits due to age • May reduce benefits based on equal cost/equal benefit rule – Recent case (Erie) has indicated that the ADEA applies to retirees • Erie prevents employers from reducing benefits of retirees (e.g., at Medicare age) unless plan meets equal cost/equal benefit rule • Does not require employer to offer retiree benefits – ADEA impacts both • The ability to stop DM/Wellness program incentives /surcharges upon reaching a particular age and • Varying incentives/surcharge due to age • Imposing additional requirements for incentive based on age71 2011 Client Forum
  72. 72. HIPAA Administrative Simplification 2011 Client Forum• Are disease management, wellness programs subject to HIPAA Privacy/Security/EDI? – Only if • The DM/Wellness is part of a “Health Plan” or • The DM/Wellness vendor is a “Health Care Provider” – Most argue that DM/Wellness is part of a “health plan” • Facilitates information sharing with health care providers without authorization and marketing concerns • Enables VEBA/Trust funding72 2011 Client Forum
  73. 73. COBRA 2011 Client Forum • Most “group health plans” are required to provide COBRA continuation coverage to qualified beneficiaries if coverage is lost as a result of certain qualifying events – “Group health plan” means a plan that provides “medical care” and is maintained by the employer – Will DM/Wellness programs provided by the employer be subject to COBRA? • If they provide “medical care” • General health not medical care73 2011 Client Forum
  74. 74. COBRA 2011 Client Forum • COBRA considerations: – Is Medical care offered? – What type of incentive is offered? • Impact of cash incentives/premium reductions? • Impact of HRA/HSA incentives? – Part of overall health program or stand alone arrangement? • Participation limited to plan participants or all employees? – What benefit must be provided? – What is cost of program?74 2011 Client Forum
  75. 75. Tax Issues 2011 Client Forum • Tax issues arise when – Employer pays for coverage that does not constitute “medical care” • General health and wellness programs – Weight reduction programs not limited to obesity – Membership in a gym • If not for medical care, the value of such programs must generally be included in gross income and subject to withholding?75 2011 Client Forum
  76. 76. Tax Issues 2011 Client Forum • Non-health incentives raise tax issues – Cash payments • Taxable and subject to withholding – Gift certificates • Likely taxable and subject to withholding – If paid through VEBA, could be a disqualified benefit • De minimis exception76 2011 Client Forum
  77. 77. Tax Issues 2011 Client Forum • Health related incentives – E.g., contribution to HRA or HSA or Health FSA – Generally non-taxable if health plan related • No tax exclusion for self-employed individuals • Health FSA • Possible change of election issues – Potentials for health benefit restricted debit card – HSA • Must be structured to be made “through the cafeteria plan”77 2011 Client Forum
  78. 78. State Law 2011 Client Forum• Statutory Restrictions: – Smokers’ Rights: 20 states, including Arizona, Connecticut, District of Columbia, Indiana, Kentucky, Louisiana, Maine, Missouri, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Virginia, West Virginia, Wyoming – Example: “An employer may not … require as a condition of employment, an employee or prospective employee to refrain from using; or … discriminate against an employee with respect to the employee’s compensation and benefits or terms and conditions of employment based on the employee’s use of tobacco products outside the course of the employee’s or prospective employee’s employment.” Ind. Stat. 22-5-4-1 78 2011 Client Forum
  79. 79. State Law 2011 Client Forum• Statutory Restrictions: – Lawful Conduct / Lawful Products: 11 states, including California, Colorado, Illinois, Minnesota, Montana, Nevada, New York, North Carolina, North Dakota, Tennessee, and Wisconsin. – NY Example: “It shall be unlawful for any employer or employment agency to refuse to hire, employ or license, or to discharge from employment or otherwise discriminate against an individual in compensation, promotion or terms, conditions or privileges of employment because of: … an individual’s legal use of consumable products prior to the beginning or after the conclusion of the employee’s work hours, and off the employer’s premises and without the use of the employer’s equipment or other property. 79 2011 Client Forum
  80. 80. State Law 2011 Client Forum• Common Law Tort Claims • Wrongful Discharge in Violation of Public Policy • Invasion of Privacy / Intrusion into Seclusion• Example: – Rodrigues v. The Scotts Company (Mass. Sup Ct.) • Facts: – Hired as lawn technician. – Never smoked on the job; only off the job. – Fired for drug screen that was positive for nicotine. • Law: – No statutory provision in Massachusetts – Violation of Right to Privacy – Unreasonable Search of his Person 80 2011 Client Forum
  81. 81. State Law 2011 Client Forum• Thoughts/Conclusions: – Patchwork Effect – Practical Limitations • Legal compliance issues for national employers • Fairness issues for employees in different states • Administrative costs/burdens – Future Developments • More and more action from state legislatures • Lobbying by American Civil Liberties Union 81 2011 Client Forum
  82. 82. Americans With Disabilities Act (ADA) 2011 Client Forum• Americans With Disabilities Act • Coverage: 15 or more employees • Substantive Provisions: – Non-discrimination / Accommodation – Restrictions on Medical Examinations – Confidentiality of Medical Information 82 2011 Client Forum
  83. 83. Americans With Disabilities Act 2011 Client Forum• Non-Discrimination/Accommodation – Provisions only apply to “disabled” individuals • Definition: Physical or mental impairment that substantially limits one or more major life activities. – Most behaviors targeted by wellness programs do not rise to the level of a “disability” under the ADA • Smoking – No • Weight – Maybe • Alcohol Consumption – Yes – Beware: “Regarded As” Disabled Claims 83 2011 Client Forum
  84. 84. Americans With Disabilities Act 2011 Client Forum• Medical Examinations and Inquiries: – Exams: ADA restricts manner and method of administering “medical exams” to both applicants and employees. • Medical Exams: Vision tests, blood, urine and breath analysis; blood pressure/cholesterol screens; x-rays – Questions: ADA also restricts asking “disability-related” questions of applicants and employees • Disability-Related Question: Any question likely to elicit information about a disability. 84 2011 Client Forum
  85. 85. Americans With Disabilities Act 2011 Client Forum• Medical Examinations – Broad Coverage: • Rules apply to both applicants and employees. • Rules apply to both disabled and non-disabled. • Consequently, anyone can sue you. – Common Liability Scenarios: • Health Risk Assessments • Policing mechanisms for wellness programs85 2011 Client Forum
  86. 86. Americans With Disabilities Act 2011 Client Forum• Rules for Medical Examinations and Inquiries: • Applicants: – Pre-Offer: No examinations or inquiries allowed – Post-Offer: Examinations permitted, but must apply to all employees. • Employees: Must be “job-related and consistent with business necessity.” – Applies to all employees (whether disabled or not). – “Job-related” = Ability to perform essential job functions 86 2011 Client Forum
  87. 87. Americans With Disabilities Act 2011 Client Forum• Voluntary Wellness Program Exception: – Statute: “A covered entity may conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that work site.” – Regulation: EEOC has not promulgated any regulation about meaning of “voluntary.” – Enforcement Guidance: “Voluntary” means no penalty can be imposed for not participating; anything other than “de minimis” incentive is prohibited. 87 2011 Client Forum

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