AN EMPLOYER’S GUIDE TO AN EMPLOYER’S GUIDE TO AN EMPLOYER S GUIDE TO AN EMPLOYER S GUIDE TO HEALTH CARE REFORMHEALTH CARE REFORM

Gary Bottoms, CLU, ChFCPresident

David Bottoms, CFP®, RHU, REBC, CLU, ChFCVice President

The Bottoms Group, LLC180 Cherokee Street NE | Marietta, Georgia 30060-1610 | 770.425.9989

www.thebottomsgroup.com

Securities offered through Registered Representatives of NFP Securities, Inc., a Broker/Dealer and Member FINRA/SIPC. Investment Advisory Services offered throughInvestment Advisory Representatives of NFP Securities, Inc. a Federally Registered Investment Adviser. Not all of the individuals using this material are registered to offerSecurities products through NFP Securities, Inc. The Bottoms Group, LLC is a member of PartnersFinancial, a division of NFP Insurance Services, Inc., which is a subsidiaryof National Financial Partners Corp., the parent company of NFP Securities, Inc. 1

First Some History• 1942 Stabilization Act

– Employer-provided health insurance systemp y p y

• 1954 Internal Revenue Code– Employer contributions to employee health plans

exempt from taxable incomeexempt from taxable income

• 1965 Medicare Enacted– Physician reimbursement based upon “usual, customary and reasonable rate”

b ll d l– Doctors bill patients directly

• 1983 Medicare Payments Based Upon Fee Schedule– Cost shift

• 1986 Consolidated Omnibus Budget Reconciliation Act (COBRA)

2

National Health Expenditures per Capita and Their Share of Gross Domestic Product, 1960-2008

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2008; file nhegdp08.zip).

3

Average Annual Premiums for Single and Family Coverage, 1999-2009

*Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009.

4

Social SecurityNumber of Years Until Depleted

Source: Office of the Chief Actuary Social Security Administration

5

MedicareNumber of Years Until Depleted

Source: Office of the Chief Actuary Social Security Administration

6

Medicare’s U f d d Li bilitUnfunded Liability

(Over 75 Years)

Source: 2009 Medicare Trustees Report

7

Social Security/Medicare Unfunded LiabilityUnfunded Liability

(Over 75 Years)

Sources: 2009 Social Security Trustees Report & 2009 Medicare Trustees Report

8

If something cannot go on forever, it ill tit will stop.

— Herb Stein, Economist

U.S. Deficits are not sustainable.

— Ben Bernanke, Federal Reserve Chairman

9

Patient Protection and Affordable Care Act (PPACA) and the Health Care and Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA)

• Reasons for Reform• Legislative Overview• Employer & Coverage Implications• Tax Provisions• Effective Dates

Q ti• Questions

10

Reasons for Reform

• Social agenda mandates Social agenda mandates universal availability of coverage

• Risk pooling necessitates “all in”Risk pooling necessitates all in• Budgeting requires

revenue sources• Inefficiencies are perceived

as part of problem with p pthe current system

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Legislative Overview

U i l H lth C C b 2014

Legislative Overview

• Universal Health Care Coverage by 2014– Individual “Mandate”: “all” individuals must

maintain coverage or pay a penaltyE l “M d t ” “ ll” l t – Employer “Mandate”: “all” employers must provide affordable coverage or pay a penalty

– State-Based Health Insurance Exchanges provide alternatives and enhance competitiveness and efficiency

– Temporary High-Risk Insurance Pool provides interim coverage for “uninsurable” individuals

– Common limits (lifetime maximums; pre-existing Common limits (lifetime maximums; pre existing condition exclusions; cutoff of dependents at emancipation) eliminated or modified

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Revenue Sources• Tax on High Wage

E

Revenue Sources

Earners

• Health Industry Fees

• Tax on Individuals • Tax on Individuals Who Fail to Obtain Coverage

• Tax on High Cost Health Plans

Sources: (New IRC §§ 3101(b)), 1411 [PPACA §§ 9015, 10906;HCEARA § 1402]; [PPACA § 9008; HCEARA § 1404]]; (New IRC § 4191) [HCEARA § 1405]; [PPACA § 9010, 10905; HCEARA § 1406]; New IRC § 4980I) [PPACA § 9001; HCEARA § 1401]

13

Revenue Sources(continued)

• Disallowed Deduction for Certain Retiree

(continued)

Prescription Drug Plans

A d It i d • Amend Itemized Deduction for Medical Expenses

• OTC Restrictions on Account Based Plans

T I d • Tax on Indoor Tanning

Sources: (New IRC § 139A) [PPACA § 9012; HCEARA § 1407]; (New IRC § 213) [PPACA § 9013]; (New IRC §§ 223(d)(2)(A); 220(d)(2)(A); 106(f)) [PPACA § 9003]; (New IRC § 5000B) [PPACA § 10907]

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Efficiency Measures• Competition through

Efficiency Measures

State-Based Exchanges

• Focus on Prevention and Wellness

• Comparative Effectiveness Research/Awareness Efforts

• Medical Loss Ratios and Premium Reviews

• Modified Community Rating Requirementsg q

Sources: (New PHSA § 2718(c)) [PPACA § 1001] ; (New PHSA § 2794)[PPACA § 1003]; (New PHSA § 2718(b)) [PPACA §§ 1001, 10101(f)] (New PHSA §2706) [PPACA § 1201]

15

Modified Community R ti R i t

R l t t i di id l l f ll i d

Rating Requirements• Relates to individual plans, fully insured

group policies with less than 100 employees, and larger groups purchasing

th h th E hcoverage through the Exchange• Premium Variations:

– Age (3:1)– Tobacco Use (1.5:1)– Family Composition– Geographic regions to be defined by the States

Notes: Data is from the MEPS Household and Medical Provider Components and includes direct payments Notes: Data is from the MEPS Household and Medical Provider Components and includes direct payments for care provided, including out-of-pocket payments and payment by private insurance, Medicare, Medicare, and other sources; it does not include payment for health insurance premiums, over-the-counter drugs, or indirect payments not related to specific medical events (e.g., Medicaid Disproportionate Share and Medicare Direct Medical Education payments). Includes individuals without any spending in 2007.

Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2007.

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Employer Provisions• Enrollment

– Automatic Enrollment for Large Employers (200+ Employees)g p y ( p y )

– 90-Day Limit on Waiting Period

– Prohibition on Rescissions

– No Preexisting Condition Exclusionsg

– Adult Dependent Coverage (Expansion of Eligibility Up to Age 26)

Sources: (New FLSA § 18A) [PPACA § 1511]; (New PHSA § 2711) [PPACA § 1001, 10101]; (New PHSA § 2704) [PPACA §§ 120]; [PPACA § 1101]; [HCEARA §2301(a)] [HCEARA § 1004(d)]; (New PHSA § 2709) [PPCAC §10103]

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Minimum Essential Coverage• “Minimum Essential Coverage”

– “Free Rider” Penalty• Plan Must Cover 60% of CostsPlan Must Cover 60% of Costs

• Coverage Must be Affordable (Employee Portion Must be Less than 9.5% of Income)

If A E l R i S b id • If Any Employee Receives a Subsidy through the Exchange, Penalty Applies

– Employee “Free Choice” Vouchers• 400% Federal Poverty Level400% Federal Poverty Level

• Employee’s Portion of Cost Between 8% and 9.8% of Income

• Employee Gets Refund of Excess Voucher Amount

– No Lifetime Limits/Only Reasonable Annual Limits on Essential Benefits

– Changes to Health Flex-Spending Account RulesSources: [PPACA § 1302] ; [PPACA § 1302(b)(5)]; [PPACA § 1303]; [PPACA § 1302(b)]; [PPACA § 1302(f)]

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Employer Mandate• No Coverage

Employer Mandate

– Companies with more than 50

Full Time Employees (FTE’s)

– Must Provide “Qualified” and “Affordable” Coverage

– If an employer does not provide coverage and at least one employee

i t dit th h receives a tax credit through the Exchange:

• Fine will be equal to $2,000 per employee annually, but the first p p y y30 employees are not counted. Fine does not go to the employees for use in the Exchange.

Source: (New IRC § 4980H) [PPACA § 1513, § 10106(e); HCEARA § 1003]

19

Employer Mandate• Insufficient Coverage

Employer Mandate

– If an employer does provide coverage and at least one employee receives a tax credit through the Exchange:

Fi ill b h l f $ f h l • Fine will be the lesser of $3,000 for each employee receiving a tax credit or $2,000 per employee annually, but the first 30 employees are not counted.

• An individual who has access to employer coverage and has family income up to 400% of Federal Poverty Level (FPL) is eligible for a tax credit through the Exchange if:

– The actuarial value of the employer’s coverage is less than the minimum standard, or

– The employer requires the employee to contribute more than 9.5% of the employee’s family income toward the cost of coverage. Source: (New IRC § 36B) [PPACA § 1401]

20

Employer Mandate• Free Choice Vouchers

If l d id th

Employer Mandate– If an employer does provide coverage, they

must provide free-choice vouchers to each employee who is required to contribute between 8.0% and 9.8% of the employees household income toward the cost of coverage if:income toward the cost of coverage, if:

• The employee’s household income is less than 400% of FPL, and

• The employee does not enroll in the plan sponsored by the employerby the employer.

– The voucher must be equal to the amount the employer would have provided for coverage in the employer plan, adjusted for age.The employee can keep amounts of the voucher in – The employee can keep amounts of the voucher in excess of the cost of coverage selected on a tax-free basis.

Source: (New IRC § 139D) [PPACA § 10108]

21

Employer Provisions• Emergency Care

– Required In-Network Coverageq g

• Preventative Care– Required First Dollar Coverage

for Preventive CareI d W ll I ti Th h ld– Increased Wellness Incentives Threshold

• Retiree Insurance– Retiree Reinsurance Program– Tax on Retiree Medicare Part D Prescription – Tax on Retiree Medicare Part D Prescription

Drug Subsidy

• Revenue Provisions– “Cadillac Tax” on High Cost Health Plans

Sources: (New PHSA § 2713) [PPACA § 1001]; (New PHSA § 2705) [PPACA § 1201] (New PHSA § 2706) [PPACA § 1201]; [PPACA § 1102]

22

Employer Provisions• New Reporting/

Disclosure RequirementsDisclosure Requirements– Form W-2 Reporting of the Value

of Benefits Provided– Certification of Health Care Coverage– Uniform Explanation of Coverage (“Mini-SPD*”)– 60-Day Advanced Notice of Benefit Modifications– Employee Notice of Exchange Information

• Miscellaneous– Insured Plans Subject to Nondiscrimination

Requirements– Revised Appeals Process

*Summary Plan Description

Sources: (New IRC § 4980I)[PPACA § 9002]; (New IRC § 6056) [PPACA § 1514]; (New PHSA § 2715) [PPACA § 1001]; (New FLSA § 18B) [PPACA § 1512]; (New PHSA § 2719) [PPACA §§ 1001, 10101]

23

Small Business Provisions

• Coverage Available Coverage Available Through Exchanges

• Tax Credits for Providing gHealth Care Coverage

• Simplified Cafeteria Plan Rulesp• Grants for Creating Wellness

Programs

24

Small Business Provisions• Small Business Tax Credit

Small Business ProvisionsS a us ess a C ed t

– Eligible small businesses are eligible for phase one of the small business premium tax credit.

• Small employers with less than 25 employees may be eligible for a tax credit on a sliding scale based on number of employees and average payroll, of up to 50% of premiums for up to 2 years if the p 5 p p yemployer contributes at least 50% of the total premium cost.

• Average salary must be $50,000 or less.

• Businesses with no tax liability and non profits • Businesses with no tax liability and non-profits are eligible for the credit.

Source: (New IRC § 45R)[PPACA §§ 1421; 10105]

25

Employee Provisions• Changes to Taxation

– Changes to Health Flexible-S di A t R lSpending Account Rules

• No Reimbursement for Non-Prescription Over the Counter Drugs

• $2,500 Cap on Employee Contributions

– Changes to Health Savings Account TaxationAccount Taxation

– Increased Medicare Tax for High Income Employees

– CLASS ActCLASS Act

Sources: (New IRC §§ 223(d)(2)(A); 220(d)(2)(A); 106(f)) [PPACA § 9003]; (New IRC §§ 223(f)(4)(A); 220(f)(4)(A)) [PPACA § 9004]; (New IRC § 125(i)) [PPACA §§ 9005, 10902; HCEARA § 1403]

26

Employer Implications• Reporting

f l f l h f– Form W-2 Reporting of Value of Health Benefits

– Expanded 1099 Reporting

• Employee MisclassificationsEmployee Misclassifications• Employee Communications• Nursing Mothers Amendment to Fair Nursing Mothers Amendment to Fair

Labor Standards Act (FLSA)• WellnessWellness• Consumer-Driven Initiatives

Sources: [PPACA § 1311(j)]; ((New FLSA § 207) [PPACA § 4207]; New PHSA § 2705) [PPACA § 1201](New PHSA § 2706) [PPACA § 1201]

27

Employer Implications –C ll i l B i d G H l h PlCollectively Bargained Group Health Plans

• Grandfathering– Exempt until last of collective bargaining agreements expire

• Medicare Part D Prescription Drug Coverage– Tax deduction eliminated January 1, 2013

Accounting rules require reporting changes this year– Accounting rules require reporting changes this year

• Cadillac Tax– 40% Excise Tax effective 2018– Thresholds: $10 200 single/$27 500 familyThresholds: $10,200 single/$27,500 family

Sources: [PPACA § 1251(d)]; [PPACA §§ 1251; 10103(d); HCEARA § 2301]; [PPACA § 1251(d)]

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Individual Mandate

• Minimum Essential Coverage

Individual Mandate

• Minimum Essential Coverage– Requires all American citizens and legal

residents to purchase qualified health insurance coverageinsurance coverage.

– Penalty for non compliance to either a flat dollar amount per person or a percentage of the individual’s income, whichever is higher., g

• Capped at the value of a “Bronze Level” premium in the Exchange.

• “Bronze Level” coverage is defined a providing coverage for a minimum of 60% of providing coverage for a minimum of 60% of the expected actuarial value of claims.

Source: ([PPACA § 1501; New IRC § 5000A] & New IRC § 5000A)[PPACA §§ 1501; 10106]

29

Individual Mandate• Penalty for Noncompliance

– In 2014 the percentage of income

Individual Mandate– In 2014, the percentage of income

determining the fine amount will be 1%, then 2% in 2015, with the maximum fine of 2.5% of taxable (gross) household income capped at the average bronze-level insurance premium (60% actuarial) rate for the person’s family rate for the person s family beginning in 2016.

– The alternative is a fixed dollar amount that phases in beginning with $325 per person in 2015 to $695 in 2016.

Source: [PPACA §§ 1501, 10106;HCEARA § 1002]

30

Individual Mandate• Tax Credits

Individual Mandate

– Creates sliding scale credits for non-Medicaid eligible individuals with incomes up to 400% of FPL to buy coverage through the Exchangecoverage through the Exchange.

– Employer penalties for non-compliance do not serve as credits for employee purchase of coverage.

– Beginning in 2019, a “failsafe” mechanism is in place to ensure subsidies do not exceed 0.504 percent of Gross Domestic Product percent of Gross Domestic Product (GDP).

Source: [New IRC§ 36B) [PPACA §§ 1401, 10105, HCEARA § 1001(a)]

31

State Based Exchanges• Variety of Carriers/Plans:

– Bronze Plan: 60% Actuarial Value of Minimum Coverageg

– Silver Plan: 70% Actuarial Value of Minimum Coverage

– Gold Plan: 80% Actuarial Valueof Minimum Coverageof Minimum Coverage

– Platinum Plan: 90% Actuarial Value of Minimum Coverage

– Catastrophic Only Plan: Available to those 30 and youngerAvailable to those 30 and younger

• Deductible Limits: $2,000 Individual; $4,000 Family

• Out of Pocket Limits: $5,950 Individual; $11,900 Family

Sources: [PPACA § 1311]; [HCEARA § 1204; PPACA § 1323]; [PPACA §§ 1301(a)(1); 1311(d)(2), (3)]; [PPACA § 1302(e)] [PPACA §§ 1304(b), 1311,1312(f)]

32

Health Care Provisions• Quality of Care

d C t I iti tiand Cost Initiatives– Accountable Care Organizations

– Hospital Value-Based Purchasing Program

– Payment Reform

– Demonstration Projects

• Disclosure and Transparency• Disclosure and Transparency– Pharmaceutical and Medical Device

Manufacturers

Physician Ownership and Self Referrals– Physician Ownership and Self-Referrals

– Imaging Services

– Nursing Homes

33

Health Care Provisions• Increase Fraud and

Abuse EnforcementAbuse Enforcement– Compliance Plans

– Disclosures of Financial Relationships among Health Care Providersamong Health Care Providers

– Whistleblower Actions

• Non-Profit Hospitals– Community Needs Assessment

Every Three Years

– Implementation Strategy

i i l A i li– Financial Assistance Policy

– $50,000 PenaltySources: (New IRC § 501(r)) [PPACA §§ 9007, 10903]; (New IRC § 4959) [PPACA § 9007]

34

Health Care Provisions• Bottom Line Effects

R i b ill id – Reimbursement will provide incentives for providers to consolidate

– Reimbursement cuts unless Reimbursement cuts unless quality and cost control measures are implemented

– Incentives related to integrated gdelivery service models

– Tighter scrutiny on referrals, compliance, and fraud and abuse

– Disclosure and transparency requirements

35

Tax Provisions• OTC Drug Exclusion from Account-Based Plans

– FSA Contributions Limited to $2 500FSA Contributions Limited to $2,500

• Tax on Brand-Name Drug Prescription Drug ManufacturersT G H lth Pl t F d • Tax on Group Health Plans to Fund Comparative Effectiveness Research

• Elimination of Employer Subsidy for Medicare Part D Premiums

• Medical Expense Tax Deduction Increased to 10% of AGIIncreased to 10% of AGI

• Tax on Private Health Insurance Premiums• Tax on “Cadillac” Plans

36

Tax Provisions - Medicare

• Medicare Premium Changes/Subsidy Reductions

• Reduce Medicare Reimbursements to Providers

• Medicare Payroll Tax Increase– 0.9% Medicare

Hospital Insurance (HI)

– 3.8% Medicare Contribution N t I t t I • Net Investment Income or

• The excess of the taxpayers AGI over thresholds

37

Effective Dates• Effective immediately

– Limit on Deductibility of Limit on Deductibility of Executive Compensation for Health Insurance Companies

– Increased Adoption Assistance Exclusion

– Automatic Enrollment?

• Three Months Three Months from Enactment

– Retiree Reinsurance Program:Lasts until 2014 (or when funding runs out)Lasts until 2014 (or when funding runs out)

– Temporary High Risk Insurance Pool

38

Effective Dates• Plan Years Beginning on

ft S t b 23 2010or after September 23, 2010– Prohibition on Lifetime Limits

– Limitations on Annual Limits

– Adult Dependent Coverage

– Elimination of Preexisting Exclusions for Dependents

– No Rescissions

– Transparency Disclosures

– No Cost-Sharing for Preventative Coverage*

– Nondiscrimination Rules Apply to Insured Plans*

– Revised Appeals Process**Does not Apply to Grandfathered Plans

39

Effective Dates• Tax Years Beginning

January 1, 2011– No reimbursement for OTC Medication– CLASS Act Automatic Opt-in– Form W-2 Reporting Requirement– Increased HSA Non-Medical Withdrawal Assessment

Tax Years Beginning • Tax Years Beginning January 1, 2012

– Corporate Service Provider Reporting Requirement– Uniform Explanation of Coverage (March 23, 2012)

Modification Notice (March 23 2012)– Modification Notice (March 23, 2012)

• Tax Years Beginning January 1, 2013

– Medicare portion of FICA tax increases for high earning employees– Cap on Health FSA Contributions– Employer Taxed on Retiree Drug Subsidy– Comparative Effectiveness Fee– Employer Notification to Employees Regarding Exchange

(March 1, 2013)

40

Effective Dates• Tax Years Beginning

January 1, 2014y ,– Creation of State-Based Exchanges– Ban on All Preexisting Condition Exclusions– Ban on Annual Limits– Free Rider Penalty– Free Choice Vouchers– Out of Pocket Limits*– Required Coverage for Clinical Trials for

Life-Threatening Diseases– Certification of CoverageCertification of Coverage– Individual Mandate– Limit on Waiting Periods– Increased Wellness Program Incentives– Retiree Reinsurance Program Ends g

(unless funding runs out sooner)– Temporary High Risk Insurance Pool Ends

*Does not Apply to Grandfathered Plans

41

Effective Dates• Tax Years

B i i Beginning January 1, 2018

– Cadillac TaxCadillac Tax

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QUESTIONS???QUESTIONS???

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