National Health Care Reform – Understanding The New Plan

Presented by David L. Fear, Sr. RHU

Partner, Shepler & Fear General AgencyRoseville, California

Updated November, 2012

Historical Perspective…

Medicare and Medicaid were passed into law in 1965

ERISA signed into law in 1974

TEFRA, COBRA in 1983, 1986

Medicare Reform Act in 2003

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PPACA - history

HR3590/HR4872 signed into law in March, 2010 2,700 page rough draft became the law Largest piece of health related

legislation since Medicare/Medicaid Many provisions went into effect

immediately Regulations released since 2010 and

more expected in the future Major portion of the law is scheduled to

go into effect on 1/1/2014

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PPACA – history: The Supreme Court

SCOTUS ruled 5-4 on 6/28/2012: Chief Justice Roberts writing for the

majority: The individual mandate is legal

because it is in fact a tax and congress has the right to levy taxes

Forcing the States to expand Medicaid funding by taking away all funding if they did not expand it was not legal

The Chief Justice did not want the Court to be “legislating” and basically said that if the people don’t like the law, then have Congress change it…

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PPACA and future elections

2012 elections: President Obama re-elected and unlikely

to agree to amendments Senate remains in Democratic control and

still requires 60 vote supermajority to approve any changes in the law (unlikely)

Republicans maintain control of House but are unlikely to hold more repeal votes May propose some compromise of minor

provisions of the law as part of negotiations pertaining to other matters

Administration will now move forward to release regulations to clarify many points of the law between now and 1/1/2014

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Big picture – what’s happening 2010 through 2013 – Law initiated and first provisions go into effect (some are suspended or delayed)

2014 – Mandates and Major Market Reforms go into effect: Individual mandate Employer “play or pay” Exchanges Insurance reforms Reporting, penalties

After 2014 – additional changes are also scheduled

Visit www.healthcare.gov for updates…

Note: amendments can be enacted and change this timeline and some provisions can be delayed via executive decision.

Note: Majority of funding was appropriated prior to 1/1/2011

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2010: What happened…

Grandfathered Status was available for plans in effect on the date of enactment: May keep such a plan only if no changes

are made to the plan (other than to add or delete employees or changes scheduled as a result of a collective bargaining agreement)

Phase 1 of a Small Employer Tax Credit went into effect for eligible small businesses Less than 25 full-time equivalent employees

with an average wage of under $50,000 A Temporary Reinsurance Program

began on 6/29/2010: For employers who provide retiree health

coverage for employees over age 55 $5 billion was allocated and all used up by

the spring of 2012 Most funding went to Unions, Public Entities and

Large Employers with retiree health benefits

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2010: What happened… Section 105(h) non-discrimination rules

were to have gone into effect for plan years beginning after 9/30/2010 for all fully insured plans: Employer penalties of $100/day per Highly

Compensated employee (similar to HIPAA) Enforcement delayed as of 12/22/2010 and

will waive penalties for non-compliance in the absence of official “guidance”

Expect regulations on this after 11/6/2012 A National High-Risk Pool for people with

a pre-existing condition in effect on 7/1/2010: Works through existing State pools Employers penalized if they place

employees or dependents into the pool Financed by $5 billion Federal appropriation Ends on 12/31/2013

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2010: What happened…

Secretary of Health and Human Services (HHS) and States developed Information Portal Options for state residents to obtain uniform information on sources of affordable coverage (including an Internet site) www.healthcare.gov rolled out 7/1/2010 A Federal grant program for small

employers providing wellness programs to their employees went into effect on 10/1/2010: No grants have been applied for, therefore

none have been awarded…

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2010: What happened… Plan years beginning after 9/30/2010:

All individual and group plans (including self insured) were required to: Eliminate all lifetime benefit limits

This includes grandfathered plans And a prohibition on annual benefit limits

will go into effect by 1/1/2014; No longer permits coverage rescissions in

all markets except for cases of fraud or misrepresentation;

Treat all emergency services as in-network regardless of provider used *;

Allow enrollees to designate any in-network provider as their primary care physician *; A new coverage appeal process was to

have been implemented;*both of these have been delayed…

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2010: What happened… Beginning plan years after 9/30/2010:

All individual and group plans (including self insured) are required to: Cover dependents up to age 26:

Includes married dependents Through 2014, grandfathered plans only

have to cover dependents that do not have another source of employer-based coverage;

Cover pre-existing conditions for children 19 and under : Grandfathered status applies for group

health plans; Carriers restricted plan offerings to children

as a result of this, but this seems to be easing up

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2010: What happened…

Also for plan years after 9/30/2010: All individual and group plans

(including self insured) will be required to: Provide specific preventive care

services with no cost sharing (i.e. deductibles, coinsurance, copays); Offer minimum covered services based

on existing Federal guidelines on specific topics

There were rate adjustments as of 10/1/2010 to offset this benefit increase

Grandfathered plans were exempted from this until they lose that status

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2010: What happened…

Federal review of health insurance rates was to have been established by 10/1/2010 Secretary of HHS – will have authority to

monitor carrier premium increases To prevent unreasonable rate increases Publicly disclose the information

Carriers may be barred from participating in an exchange if they have a “pattern of unreasonable increases”

$250 million grant to States to help them increase their review and approval process of health insurer rate increases Most States applied for and have received a

portion of grant funding in 2010 including CA Secretary HHS has elected to work

through existing State regulators…

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2010: What happened… Minimum Loss Ratio (MLR) requirements:

Large group (100+) MLR is 85%, Small group (under 100) and Individual MLR is 80%

Carriers will have to issue a premium rebate for plans that fail to meet the minimum MLR requirements

First premium rebates went out in August, 2012 for the 2011 policy year for both individuals and employers

Employers have asked for guidance on how to distribute rebate dollars to employees who contributed: Some will issue employee refunds Most will take a credit against future

payments

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2011: What happened… The tax for non-qualified distributions

from an H.S.A. increased from 10% to 20%

Required Over-The-Counter (OTC) drugs to be prescribed in order to be reimbursed from FSA/HSA/HRA plans

A public Long Term Care program (CLASS Act) was to have started on 1/1/2011 but was delayed indefinitely on 10/14/2010: Would have generated $90 billion in payroll

taxes for five years before benefits paid Found to be actuarially unsound

The “1099 reporting provision” was to have gone into effect, but was repealed by congress (bi-partisan)

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2012: What happened… A federal tax on fully insured and self-

funded group plans to fund federal comparative effectiveness research Tax will be $2.00 per enrollee per year Paid in 2013 for 2012 plan participants

Employers required to include the aggregate cost of employer-sponsored health benefits on an employee’s W-2 for tax years beginning in 2011 (issued in 2012) Excludes contributions to FSA/HSA/HRA

plans Includes total amount paid by both

Employer and Employee This has been delayed by a year for

employers with less than 250 W-2’s Report is for “informational purposes”

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2013: What will happen…

The Medicare tax (2.9%) is increased an additional .9% for employees and self employed on their earnings above $200k/single ($250k/joint) This additional tax is not deductible by self

employed individuals The 3.8% Medicare tax be levied on

certain unearned income for individuals with AGI of $200k/single ($250k/joint)

A $2,500 cap on Medical F.S.A. contributions by employers (annually indexed for inflation)

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2013: What will happen…

Threshold for itemized deduction for unreimbursed medical expenses (schedule A) will be increased from 7.5% to 10% of AGI: Increase will be waived for individuals age

65 and older for tax years 2013 through 2016 States have to indicate by 1/1/2013 if they

are going to set up a Health Insurance Exchange for their residents: Federal Fallback Exchange would be

developed for States who fail to set one up themselves (“Partnership Arrangement”)

Exchanges will begin open enrollment of individuals and small employer groups on 10/1/2013

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2014: The Individual Mandate

All American citizens and legal residents will be required to purchase “essential” health insurance coverage or pay a fine (“tax”)

Exceptions will be allowed for: Religious objectors Incarcerated individuals Hardship waivers, individuals with income

less than 100% of FPL Members of Indian Tribes People with no income tax liability Individuals not ‘lawfully present’ Those who were not covered for a period of

less than three months during the year

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2014: The Individual Mandate The penalty for non-compliance of the

individual mandate is the higher of: A percentage of gross household income equal to:

1% in 2014 2% in 2015 2.5% in 2016 Capped at the value of the average bronze-level

insurance premium (60% actuarial value), or A flat amount equal to:

$325 per person in 2015 $696 per person in 2016

Mandate applies to employed and unemployed persons: If their employer does not provide an essential

benefit plan, they must still comply and pay penalty if they fail to obtain essential coverage

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2014: Federal Premium Subsidy A Federal health insurance “premium subsidy” becomes available to qualified individuals: A sliding-scale refundable tax credit paid to the

carrier (through the Exchange) for individuals or families with incomes of between 133% and 400% of Federal Poverty Level* (Family of 4 @ $22,000 = 100% of FPL)

Subsidy only available through an Exchange Not available to employees of employers who offer

“affordable” and the “minimum value” coverage to their employees

Amount of subsidy based on the “Silver” level benefit in the exchange rating area where the person resides and is higher for families than for individuals

*Subsidy can be changed in 2019 if total exceeds .504% of Gross Domestic Product

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2014: Market Reforms All health insurance coverage will be

guaranteed issue and guaranteed renewable in all markets (Individual, Small Group, Large Group)

Pre-existing condition exclusions will be prohibited in all markets (Individual, Small Group, Large Group)

Full prohibition on any annual or lifetime limits in all individual, group and self funded plans The “Phase In” from 2010 will be eliminated

Benefit plans will become more standardized with some variance allowed on a State-by-State basis: Small employers will be offered only “essential”

benefit plans “Excepted” plans will be available

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2014: Market Reforms

Redefines the small group market as 1-100 employees States may elect to reduce this to 1-50 for

plan years prior to 1/1/2016 (California is) All fully insured individual and group

policies up to 100 lives must abide by strict community rating standards: Premium variations only allowed for:

Age (3:1 price ratio) Tobacco use (1.5:1 price ratio) Family composition Geography (regions defined by States)

Experience rating will be prohibited Wellness discounts are allowed for group

plans under specific circumstances

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2014: The Employer Mandate Employers with the equivalent of 50+ full time

employees* must provide health benefits to full time employees that: Meet a “minimum value” standard, and; Meet an “affordability” test with regard to how much

an employee must pay for such coverage Mandate applies regardless of whether an

employer is fully insured or self funded Failure to do this will result in a fine paid by the

employer, which is the lesser of: $2,000 x no. of full time employees (less 30), or $3,000 x no. of full time employees who receive an

exchange premium subsidy Employers are NOT required to provide coverage

to part time employees*

* 50 full time employee definition includes pro-rated part time employees based on 30+ hours per week; Seasonal employees who work less than 120 days per year are excluded from the count.

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2014: The Employer Mandate

Expect that “minimum value” will parallel “essential benefits” definition which applies to individual and small employer plans Designated covered, limited and excluded

expenses Maximum cost sharing provisions (deductibles,

coinsurance, copayments) Allow for “catastrophic” plans for employees

under age 30 “Affordability” test based on employees

share of single coverage for the lowest benefit tier plan cost less than 9.5% of employee’s W-2 income (not household income per proposed regulation)

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Start

Here

èDoes the employer have

at least 50 full-time equivalent employees?

NO èPenalties do not apply to

small employers.

ðIf the employer has 25 or

fewer employees and average wage up to $50,000, it may be eligible for a health insurance tax credit.

YES ê

Does the employer offer coverage to its workers? NO è

Did at least one employee receive a premium tax credit

or cost sharing subsidy in an

Exchange?

YES èThe employer

must pay a penalty for not offering

coverage.

ð

The penalty is $2,000 annually times the number of full-time

employees minus 30. The penalty is increased each

year by the growth in insurance premiums.

YES ê

Does the coverage pay for at least 60% of covered

health care expenses for a typical population?

NO è

Employees can choose to buy coverage in an Exchange and

receive a premium subsidy.

îThe employer

must pay a penalty for not offering affordable coverage.

The penalty is $3,000 annually for each full-

time employee receiving a premium subsidy, up to

a maximum of $2,000 times the number of full-

time employees minus 30. The penalty is

increased each year by the growth in insurance

premiums.

YES ê ð

Do any employees have to pay more than 9.5% of family income for the employer coverage?

YES è

Those employees can choose to buy coverage in an Exchange and

receive a premium subsidy.

ì

NO ê

No employer penaltyInformation provided by The

Henry J. Kaiser Family Foundation 04/18/2023

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2014: The Employer Mandate

All employers must give notice of the existence of a health benefit exchange

Limits employee waiting periods to 90 days

Expect that the Section 105(h) non-discrimination requirements to be enforced ($100/day penalty)

Expect the Auto-Enrollment for groups of 200+ to be enforced Employees will be able to opt-out if they

have other coverage HIPAA workplace wellness rules will

change – incentive values increase from 30% to 50%

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2014: Health Insurance Exchanges Exchanges are a key part of how health

insurance will be delivered: States are expected to either establish exchanges

by 2014 or the Feds will do it for them if they haven’t acted by 2013

Federal grant funding available to the States up to 2015 to offset set-up costs*

Feds provide broad outline of benefits, services and features but will leave details to the States

Exchanges will have the exclusive administration of subsidies in 2014: Individual premium subsidy Small Employer Health Insurance Tax Credit They are developing an online administrative

program for the qualification of these subsidies

* California has received nearly $250 million by August 2012…

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Exchange functions include: Certifying, re-certifying & de-certifying Qualified

Health Plans to participate Establish a toll-free hotline & internet website Transfer data to the U.S. Treasury Rating Qualified Health Plans Providing standardized information on benefits Screening & enrolling into the Exchange, Medi-

Cal, Healthy Families Granting exemptions from the individual

mandate Provide employer notification Determine eligibility for Premium Subsidy

and Tax Credits Establish a Navigator program Submit to annual audit of performance

2014: Health Insurance Exchanges

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2014: Health Insurance Exchanges Primary focus is for sale of qualified plans to

individuals, however: Must also create “SHOP Exchanges” for Small Employers to

purchase coverage States are allowed to create a single exchange serving both

individual and small group markets or separate exchanges for each of those markets

California will have two separate exchanges operating under one jurisdiction (“Covered California”)

PPACA allows large employer groups to participate in State exchanges beginning in 2017

Prior to 2012 election, state response was mixed with many rejecting funds and declining to move forward

Following election, Feds are reaching out again to try to incentivize States to take action

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Employer attitude about Exchanges A high number of small employers may

drop group coverage and encourage employee enrollment into an exchange to take advantage of the subsidy

Larger employers are less likely to do this and in fact seem to be leaning toward joining private exchange arrangements Also weighing the cost of the “play or pay”

penalties ($2,000/$3,000) versus changing plan and continuing forward with group coverage

Exchange concept appeals to employers with low paid workforce, smaller in size and in high turnover industries

The exchange concept makes sense in more competitive markets

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California is the first state to enact legislation to set up an exchange SB-900 (Alquist) and AB-1602

(Perez) were signed into law on 9/30/2010 by Gov. Schwarzenegger

Visit their website at www.healthexchange.ca.gov View “Grant Reporting” section of

the site to track progress per Federal requirements

All other public documents are posted for review: Minutes of board meetings and

related materials Quarterly grant reports

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Five Board Members have been appointed: Kimberly Belshé Diana S. Dooley, Chair Paul Fearer Susan Kennedy Robert Ross, MD

The Executive Director is Peter V. Lee (formerly of Pacific Business Group on Health and CMS)

HBEX has received nearly $250 million in Federal Grant funding since it’s start up in January, 2011

They are dealing with key issues Information Technology (IT) Stakeholders RFP’s for services including TPA and Navigator

grant funding Plan design, carrier selection, agent relations

Recently named itself “Covered California”

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Federal grants will end on 12/31/2014 – after that all Exchanges will be self sufficient

Private 501-c foundations are also granting money and in-kind services to States to assist in building Exchanges Blue Shield of California (actuarial) California Health Care Foundation (IT)

The Feds are looking at California as the example of how to do this: There is bi-partisan support in California for an

exchange for small businesses Moving traditional Medi-Cal members into

a managed care program – budget issues Forging consensus among parties to make it

work and be self sufficient

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What about Exchange Navigators? Navigator Duties & Responsibilities

Make available information that is fair, accurate and impartial;

Conduct public education activities to raise awareness of plans in the Exchange:

Facilitate enrollment in qualified health plans;

Provide referrals for any enrollee with a grievance, complaint, or question regarding their health plan, coverage, or a determination under such plan or coverage; and

Provide culturally and linguistically appropriate information for the population being served by the Exchange.

PPACA specifically bars a Navigator from receiving consideration (i.e. commission) directly or indirectly from any health insurer

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What about Exchange Navigators? Entities that may be Navigators

Trade, industry, and professional associations, Ranching and farming organizations, Community and consumer-focused nonprofit groups,

Chambers of commerce, Unions, Small business development centers, Licensed insurance agents and

brokers, Other entities that can carry out the

required duties, meet the required standards and provide fair, impartial and accurate information

Insurers & Health Plans and their employees are specifically prohibited from being Navigators

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Exchanges and Insurance Agents No Federal prohibition on agents

placing business with an Exchange Leave it up to States to determine the role of

agents California Exchange has embraced

agents as part of the solution of insuring the uninsured Will allow agents to sell individual and

SHOP (small group) products Will allow agents to be paid “market level”

compensation for placing business Has agreed to work with General Agents for

the SHOP exchange Included agents as stakeholders in the

process of developing the Exchange Relationship is not exclusive as Navigators

will be appointed too…

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2014: What else will happen

Allows states to apply for a waiver for up to five years of requirements relating to: Qualified health plans Exchanges Cost-sharing reductions Tax Credits The Individual responsibility mandate The Employer shared responsibility mandate Providing that the State creates its own

programs meeting specific standards Imposes annual taxes on private health

insurers based on net premiums Self Funded plans are exempt from this tax

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After 2014: More to come 1/1/2018 - implementation of a 40% excise

tax on insurers of employer sponsored health plans with aggregate values that exceed $10,200* for singles and $27,500* for families (*adjusted for inflation annually):

Transition relief would be provided for 17 identified high-cost states;

The above values include reimbursements from F.S.A.’s, H.R.A.’s and employer contributions to H.S.A.’s;

Stand-alone dental and vision are excluded from the calculation;

Premium values are indexed to the CPI; Plans will be allowed to take into

consideration age, gender and certain other factors that impact premium costs.

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Concluding thoughts… The role for advisors has never been more

important than today Employers need help in strategizing their benefits offering,

especially with regard to cost, plan design and funding issues

Consumers will need help in purchasing and paying for coverage they were not eligible for in the past, especially in the area of Premium Subsidy and plan selection

Both Employers and Consumers are facing serious compliance issues and penalties that will require assistance to navigate over the next 2-3 years

Navigators may help individuals but are unlicensed and have narrow knowledge and not well suited to assist businesses in any of this

Licensed insurance advisors have an opportunity to cross sell other products besides health insurance Ancillary benefits, personal lines, supplemental products,

Medicare/Senior products A multi-lines agency will need support from trained

professionals in compliance, product and legal issues related to PPACA for individuals and small businesses

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Information provided by

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Email: Insurance@sheplerfear.com

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