The document provides an overview of U.S. healthcare reforms discussed by Brett Webster, addressing key challenges such as accessibility, rising costs, and an aging population. It outlines pivotal reforms enacted between 2010 and 2014, including the establishment of health exchanges, changes to insurance coverage, and financial penalties for non-compliance by employers. The review emphasizes ongoing challenges in the healthcare system and the importance of adapting insurance provisions to meet future needs.

1. Healthcare Reform Review
Presented By:
Brett Webster
Jan 4th, 2013

2. Agenda
• Intro’s and AH&T Story
• Key Challenges in U.S. Healthcare System
• Reforms currently in place (2010-2012)
• Looking Forward (2013-2018)

3. Intro’s and AH&T Story
• AH&T is a full-service insurance brokerage and
consulting firm with nationally recognized
practices in areas including technology,
manufacturing, government contracting and
nonprofits.
• Founded in 1921
• Employee owned and privately held
• Three offices including Leesburg VA, Seattle
WA, and New York, NY
• 140 Employees
• Typically serve clients:
– Pre-Revenue to $200 MM in Revenue
– 25 Employees to 2,000 Employees

4. Key Challenges in U.S. Healthcare System
• Accessibility
– As of 2011 there were 48.6 Million uninsured Americans representing
16% of the population.
• Rising Costs
– Medical premiums are increasing rapidly; they have nearly doubled in
the last 10 years.
– In 2011, the U.S. spent $2.7 trillion on health care, an average of $8,650
per person.
– The share of economic activity (gross domestic product, or GDP)
devoted to health care has increased from 7.2% in 1970 to 17.9% in
2010.
• Aging and Unhealthy Population
– Half of health care spending is used to treat just 5% of the population.

5. Accessibility and Uncompensated Care
Health Insurance Coverage in the U.S. Population, 2011
Uninsured and Underinsured Uninsured,
Americans generate $57
16%
Billion in “Uncompensated
Medical Care” most of which
is paid directly to hospitals by
various state and federal
programs.
Employer-
Sponsored
Insurance,
49%
Total = 307.9 million

6. Rising Costs
Average Annual Worker and Employer Contributions to Premiums and Total
Premiums for Family Coverage, 1999-2011

7. Looking Back – Road to Reform
• 1993: Democratic President Bill Clinton proposes a plan to create universal healthcare
coverage for Americans
• November 4, 2008: Democrat Barack Obama wins the presidency after making
healthcare reform one of his campaign pledges.
• September 9, 2009: In an address to Congress, Obama asks for quick action on
healthcare legislation.
• November 7, 2009: The House of Representatives passes its version of healthcare
reform legislation, including a public option, by a narrow 220-215 vote
• December 24, 2009: The Senate passes its bill on a party-line 60-39 vote. The bill has
no public option.
• February 22, 2010: Obama unveils his own healthcare proposal, drawn heavily from the
Senate bill, three days before a bipartisan summit intended to rescue his reform effort.
• March 21, 2010: U.S. House of Representatives approves a sweeping overhaul of the
$2.7 trillion U.S. healthcare system and sends along for Senate approval a package of
changes made to the Senate bill.
• June 28, 2012 The U. S. Supreme Court rules to uphold all facets of the law including
the controversial “Individual Mandate”

8. Reforms Currently in Place - 2010
26 Provisions - all in Effect

9. Grandfathered Plans
• Group health plan or health insurance coverage in which
an individual was enrolled on March 23, 2010
• Certain health care reform provisions don’t apply to
grandfathered plans, even if coverage is later renewed
• A plan can lose grandfathered status by making too
many changes to benefits or costs
• Employers will have to analyze status and changes at
each renewal
• As of 2012 48% of employees in the US were covered
by a grandfathered plan down from 56% in 2011.

10. Small Business Tax Credit
• Provides tax credits to small employers with no more
than 25 employees and average annual wages of less
than $50,000 that provide health insurance for
employees.
• Phase I (2010-2013)
– tax credit up to 35% (25% for non-profits) of employer cost.
• Phase II (2014 and later)
– tax credit up to 50% (35% for non-profits) of employer cost if
purchased through an insurance Exchange for two years.

11. Additional Reforms Currently in Place - 2010
• Extended Coverage for Young Adults up to age 26
• Development of Pre-existing Condition Insurance Plan
(PCIP)
• Creation of www.healthcare.gov
• Eliminating Pre-existing Condition Exclusions for Children
• Rescissions Prohibiting
• Lifetime and Annual Limits
• Coverage of Preventive Care Services
• Improved Claims and Appeals Process
• Indoor Tanning Services Tax
• Tax Rebate for Part D Participants in the “Donut Hole”

12. Reforms Currently in Place - 2011
20 Provisions - 17 in Effect

13. Medical Loss Ratios
• The Patient Protection and Affordable Care Act
(PPACA) requires insurers to report their
Medical Loss Ratios (MLRs) to regulators and to
meet certain MLR targets. If an insurer exceeds
the minimum MLR, the insurer must issue a
rebate to the policyholder. The first of these
annual rebates is due in August 2012. Rebates
must be provided to enrollees if the following
thresholds are not met:
– less than 85% for plans in the large group market
(51+)
– Less than 80% for plans in the individual and small
group market (50 or fewer enrollees)

14. Medical Loss Ratios Continued
• In 2012 – 12.8 million Americans received more than
$1.1 billion in rebates.
• Americans receiving rebates received an average rebate
of $151 per household.
• In Washington State:
– Total Rebates - $594,031
– Households receiving rebates - 7,681
– Average per - $185

15. Simplified Cafeteria Plans
• Cafeteria plans are designed to allow nontaxable
benefits to employees
• For employers with less than 100 employees
• A simple cafeteria plan provides a safe harbor from
nondiscrimination requirements for cafeteria plans. If the
safe harbor tests are met, the nondiscrimination
requirements are deemed to be met as well.
• Three Safe Harbor Tests

16. Medicare Part D 2011- 2013 – Closing the “Donut Hole”
15% Americans are Covered by Medicare - roughly 49 Million people
27.7 Million people are covered by Medicare Part D

17. Additional Reforms Currently in Place - 2011
• Changes to Flexible Spending Accounts (FSA) and
Health Savings Accounts (HSA)
– Over-the-counter (OTC) medicines and drugs may not be
reimbursed by these plans unless they are accompanied by a
prescription.
– There is an exception for insulin. Also, OTC medical supplies
and devices may continue to be reimbursed without a
prescription.
• Increased Tax Penalties on Non-Medical Withdrawals
from HSAs and Archer MSAs from 10% to 20%

18. Reforms Currently in Place - 2012
11 Provisions – 10 in Effect

19. Expanding Preventative Care Services for Women
– Well-women visits
– Gestational diabetes screening
– HPV DNA testing
– Sexually transmitted infection counseling
– HIV screening and counseling
– Breastfeeding support, supplies and counseling
– Domestic violence screening and counseling
– Contraceptives and contraceptive counseling

20. W-2 Reporting
• For Employers filing over 250 W-2’s
• Employers must report aggregate
cost of group health plan coverage
on each employee’s Form W-2
• For small employers (filed fewer
than 250 W-2 Forms last year),
reporting requirement is delayed
until further guidance issued
• Reportable cost includes the entire
cost of the coverage (without any
reduction for employee
contributions)
• Does not change the tax rules for
health coverage – coverage is still
not taxable

21. W-2 Reporting Penalties
• Employers could be subject to significant
penalties each year for failing to properly report
the cost of employer-sponsored coverage
• Penalty of $100 per Form W-2, capped at $1.5
million per year
– For failures corrected within 30 days, the penalty is
reduced to $30 per Form W-2, capped at $250,000
for the year
– For failures corrected after 30 days but on or before
August 1, the penalty is $60 per Form W-2, capped at
$500,000 for the year

22. Uniform Summary of Benefits and Coverage
All Plans Renewing after September 23, 2012
SBC
Glossary

23. Looking Forward – 2013 and 2014

24. 2013
15 Provisions – 5 Currently in Effect

25. Health FSA Contribution – Reduced to $2,500
• Limits annual employee contributions to $2,500
– Indexed to the CPI starting in 2014
• Reminder: OTC drugs no longer reimbursable under
FSA/HRA/HSA without a prescription

26. Elimination of Retiree Drug Subsidy
• Retiree Drug Subsidy – federal program that provides
tax-free contribution to employers for up to 28% of
annual retiree drug costs
• Before ACA, employers could deduct their entire retiree
drug expense, including costs they paid using the tax-
free government subsidy
• However, starting in 2013, employers can no longer take
a tax deduction for the government-subsidized portion of
prescription drug expenses
– Accounting rules may require employers to include the present
value of the future taxes as a current liability prior to 2013

27. Notice of Exchanges
• Employers must notify new and current employees of the
existence of exchanges by March 1, 2013
• Notice must include information about 2014 changes:
– Existence of health benefit exchange and services provided
– Potential eligibility for subsidy under exchange if employer’s
share of benefit cost is less than 60 percent
– Risk of losing employer contribution if employee buys coverage
through an exchange

28. Itemization Threshold Changes
• ACA increases the income threshold for claiming the
itemized deduction for medical expenses from 7.5
percent of income to 10 percent. However, individuals
over 65 would be able to claim the itemized deduction for
medical expenses at 7.5 percent of adjusted gross
income through 2016.

29. Medicare Tax Increase
• Beginning Jan 1st, 2013
• Withheld by Employers:
– Increase on the Medicare Part A (hospital insurance) tax rate on
wages by 0.9% (from 1.45% to 2.35%) on earnings over
$200,000 for individual taxpayers.
– Employers do not match additional tax
– No requirement to notify employees
• Filed by Individuals:
– Additional 3.8% assessment on unearned income for higher-
income on earnings over $200,000 for individual taxpayers and
$250,000 for married couples filing jointly.

30. Comparative Effectiveness Research Fees
• The Patient Protection and Affordable Care Act imposes a new
Patient-Centered Outcomes Research Institute (PCORI) fee,
formerly the comparative effectiveness research fee, on plan
sponsors and issuers of individual and group policies. The first year
of the fee is $1 per covered life per year, the second year the fee
adjusts to $2 per covered life and then it's indexed to national health
expenditures thereafter until it ends in 2019.
• Who Pays:
– Fully Insured – Remitted by Carrier
– Level Funded / Partially Self Insured – Remitted by Employer
– Self funded / Self Insured – Remitted by Employer
• The first possible payments are due on July 31, 2013

31. Additional 2013 Provisions
• HIPAA Certification
– By Dec. 31, 2013, employers with group health plans must
certify that their plans comply with certain HIPAA rules on
electronic transactions. HHS intends to issue more guidance on
this requirement in the future.
• Tax on Medical Devices
– oImposes an excise tax of 2.3% on the sale of any taxable
medical device.

32. 2014
16 Provisions – 2 in Effect

33. Individual Mandate
• Jan. 1, 2014: Individuals must enroll in coverage or pay
a penalty
– Penalty amount: Greater of $ amount or a % of income
• 2014 = $95 or 1%
• 2015 = $325 or 2%
• 2016 = $695 or 2.5%
• Family penalty capped at 300% of the adult flat dollar
penalty or “bronze” level premium

34. Exchanges
What is a health insurance exchange?
•A “marketplace” setup to create a more organized and
competitive environment for buying health insurance.
•Exchanges will serve primarily individuals buying insurance on
their own and small businesses with up to 100 employees,
though states can choose to include larger employers in the
future.
•States are expected to establish Exchanges--which can be a
government agency or a non-profit organization--with the federal
government stepping in if a state does not set them up.

35. Exchanges Cont.
• CBO expects 20 Million individuals will utilize exchanges
by 2020
• In 2017 states may allow large employers to enter
Exchanges
• Exchange plans must offer “essential health benefits” at
certain levels; must be community rated

36. Exchanges by State

37. Who Will Buy Insurance Through the Exchange?
2012 / 2013 Federal Poverty Levels
Premiums likely to be 150% of private market insurance
Subsidies phase out as income rises
Who will buy? Those who can least afford insurance

38. Employer Coverage Requirements – “Pay or Play”
• Fine for Not Providing Coverage:
– Employers with 50 or more employees that do not
offer coverage to their employees will be subject to
penalties if any employee receives a government
subsidy for health coverage.
– The penalty amount is up to $2,000 annually for every
full-time employee, excluding the first 30 employees.

39. Pay or Play Continued
• Fine for Not Offering Affordable Coverage:
– Employers who offer coverage, but whose employees receive
tax credits because the coverage is unaffordable or does not
provide minimum value, will be subject to a fine of $3,000 for
each worker receiving a tax credit, up to an aggregate cap of
$2,000 per full-time employee (excluding the first 30 employees).
Employers will be required to report to the federal government
on health coverage they provide.
– Two Affordability Thresholds:
• Costs employee more than 9.5% of W-2 Wages, or
• Plan does not cover 60% of total costs (deductible, copay and/or
coinsurance)

40. Potential Fines
• Failure to comply with the Act’s insurance mandates and
market reforms (such as coverage of adult children,
elimination of lifetime limits, etc.) may subject the
employer to an excise tax
– $100 per day per affected individual
– Limited to the lesser of $500,000 or 10% of employer’s
healthcare costs for the prior tax year
• Exceptions:
– Failures due to reasonable cause that are corrected within 30
days after the plan knew or should have known about the failure
– Employer did not know the failure occurred and could not have
known by exercising reasonable diligence

41. Additional 2014 Provisions
• Pre-existing Condition Exclusions
• Guaranteed Issue and Renewability
• Insurance Premium Restrictions
• Complete Prohibition on Annual Dollar Limits
• No Excessive Waiting Periods
• Essential Health Benefits
• Automatic Enrollment – Over 200 Employees
• Changes to Wellness Subsidies
• Health Insurance Provider Fee

42. 2018 – Cadillac Plan Tax
• 40 percent excise tax on high-cost health plans
• Based on value of employer-provided health coverage
over certain limits
– $10,200 for single coverage
– $27,500 for family coverage
• More guidance expected

43. Nondiscrimination Rules Coming for Fully-Insured Plans
• Delayed until guidance released
• Will apply to non-grandfathered, fully-insured plans after
release (already apply to self-insured)
• Prohibits discrimination in favor of “highly compensated
employees” with respect to eligibility & benefits
• Penalty: up to $500,000 under ACA

44. Questions?