presented by: venable llp carefirst bluecross blueshield and allegis group, inc. healthcare reform:...

Presented by:

Venable LLP

CareFirst BlueCross BlueShield

and Allegis Group, Inc.

Healthcare Reform: It’s Not Over Yet—What Your

Company Needs to Know for 2015

State of Private Insurance

• Individual Market• Changes in the Employer Market• Private Exchanges

Purchasing Individual Health Insurance: before and after the ACA

Before• Harder to compare

benefit options and premiums

• Pre-existing condition exclusion

After• Individual Mandate• Consumer Protections• Access to Insurance• Affordability

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Individual Mandate

• Generally, absent a few limited exceptions, all Americans must have health insurance after January 1, 2014

• Individuals who fail to obtain coverage will be subject to a tax penaltyo 2014: $95.00 or 1.0% of income (whichever is greater)o 2015: $325.00 or 2.0% of income

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Consumer Protections

• 10 Essential Health Benefits• Standardization of health care plans • No more pre-existing conditions/gender-based

denials• Coverage until age 26• Guaranteed issue and renewability• Eliminating lifetime and annual limits

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Essential Health Benefits

• Ambulatory patient services

• Emergency services• Hospitalization• Maternity and newborn

care• Mental health and

substance use disorder services/behavioral health treatment

• Prescription drugs• Rehabilitative services

and devices • Laboratory

services/testing• Preventative services• Pediatric dental and

vision

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Standardization of Health Care Plans

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Bronze PlanSilver PlanGold PlanPlatinum Plan

Expense Paid by Metal Plans (Actuarial Value)

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Access to Insurance

• Exchangeso Federally Facilitated Exchange (FFE) www.healthcare.gov o State-Based Exchange (SBE)o Partnership Exchange

• Open Enrollment Period (OEP)o 2014 OEP was October 1, 2013 to March 31, 2014o 2015 OEP is November 15, 2014 to February 15, 2015

• Special Enrollment Period (SEP)

http://www.healthcare.gov/

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Affordability

• Premium subsidies (APTC): 139%-400% FPL

• Cost-sharing subsidies (CSR): 139%-250% FPL

FPL (2014)

Income (Midpoint of Range)Premium Cap as %

of IncomeEstimated Subsidy

for IndividualIndividual Family of 4

138%-150% $16,500 $33,900 3.65% ~ 80%

150%-200% $20,100 $41,200 5.15% ~ 60%

200%-250% $25,900 $53,000 7.18% ~ 40%

250%-300% $31,600 $64,800 8.78% 0%

300%-400% $40,200 $82,400 9.5% 0%

* Subsidy percentage varies by actual premium.

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Changes in the Employer Market

• Employer Mandate – Large employers must offer affordable coverage that has minimum essential value

• Penalty for:o Failure to offer minimum essential coverage

$2,000 per year times the total number of full-time employees (not counting the first 30)

o Failure to offer affordable or minimum value coverage $3,000 per year times the number of full-time employees who are

certified to receive, and purchase, subsidized individual health insurance through an Exchange

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Small Business Health Options Program (SHOP)

• Open to small businesses with fewer than 50 full-time employees

• Tax credit for small businesses with fewer than 25 employees

• Definition of small employer will change to 1-100 full-time employees on January 1, 2016

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Market Shifts Between Fully Insured and Self-Insured for Employers

• Employers are dropping coverage because:o no penalty for small employerso providing coverage offers no mutual benefito decreases expenses and reduces burden

• Employers are shifting to self-insured plans with stop- loss coverage which:o decreases expenseso creates reliance on stop-loss

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Private Exchanges

• Managed insurance marketplace for large employer groups

• Employer establishes amount it will pay toward healthcare for its employees

• Employee uses the established credit from employer to shop from a list of standard health plans from different carriers

• E.g., Mercer and Aon Hewitt

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Where Are We Headed?

• Multiple court challenges pending• Proposed changes through legislation• Changes in political landscape over the next several

years

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ACA Program Integrity Provisions

• ACA, “Financial Integrity”: §1313; 42 USC §18033 (2010)

• Apply to Exchanges and/or Issuers• Accounting for Expenditures

o General - (a)(1)o Investigations – (a)(2)o Audits – (a)(3)o Pattern of Abuse – (a)(4)o Protections Against Fraud and Abuse – (a)(5)o Application of the False Claims Act – (a)(6)

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• General o Exchanges required to keep accurate records

• Investigations o Exchanges subject to investigations by IG, HHS

• Auditso Exchanges subject to HHS annual audit

• Pattern of Abuseo Exchanges or States may be subject to HHS payment withholds

if engaged in serious misconduct or noncompliance

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• Protections Against Fraud and Abuse o Secretary:

ensures efficient and non-discriminatory administration of Exchanges

implements measures/procedures within authorities to reduce fraud and abuse as determined appropriate

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• Application of the False Claims Act (FCA)o To payments made “by, through or in connection with” an

Exchange subject if any Federal fundso Includes payments to issuers:

Advance premium tax credits Advance cost-sharing reduction payments Risk adjustment, reinsurance and risk corridor payments (“3 Rs”)

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• Application of the False Claims Act (FCA)o Compliance with issuer Exchange participation requirements is

a material condition for entitlement to receive payments, “including payments of premium tax credits and cost-sharing reductions,” through the Exchange

o Participation requirements include: data reporting to Exchange, HHS, State state insurance marketing regulation compliance enrollment, coverage effective date and disenrollment compliance

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• CMS issued 2 key program integrity regulations:o 78 Fed. Reg. 54070 (Aug. 30, 2013)o 78 Fed. Reg. 65046 (Oct. 30, 2013)

• Includes provisions on exchange oversight requirements, premium tax credits, cost-sharing subsidies, 3 Rs, administrative enforcement authorities, etc.

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Key Federal Health Care Regulators

• U.S. Department of Health and Human Services (“HHS”)• Centers for Medicare and Medicaid Services (“CMS”)• HHS Office of Inspector General (“OIG”)• Internal Revenue Service (“IRS”)• U.S. Government Accountability Office (“GAO”)

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Program Integrity

• CMS Center for Program Integrityo Focus is protecting government funds spent on federal health

care programs (e.g., Medicare, Medicaid, CHIP) and now the Exchanges

• OIG Oversight and Enforcemento #1 priority regarding oversight and enforcement of Exchanges is

payment accuracy (2014 OIG Work Plan)o Other priorities include eligibility systems, contracts, and

security of data and consumer information

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How QHP Issuers Are Paid on Exchanges

• Premium payments from enrollees• Premium tax credit and cost-sharing subsidies• Premium Stabilization Program payments

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Premium Payments from Enrollees

• Individuals pay premiums to QHP issuers based on level of coverage (bronze, silver, gold or platinum)

• More comprehensive QHPs have higher premiums, but lower out-of-pocket costs

• Premiums may vary based on age and geographic location

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Premium Tax Credit

• Tax credit available to enrollees in QHP on an Exchange with income between 100% and 400% of FPL

• Tax credit available through tax return or can be paid directly to QHP issuer

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Advance Payment of Premium Tax Credit

• QHP issuers receive periodic advance payments for premium tax credits

• QHP issuer must reduce premium charged to enrollee by amount of advance payment of tax credit

• Reporting obligations in billing statement to enrollee• Notification and refund obligations if QHP issuer does

not reduce premium accurately• Potential liability under Exchange enforcement

authorities and False Claims Act

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Cost-Sharing Subsidies

• Subsidies available to enrollees in QHP on an Exchange with income between 100% and 250% of FPL

• Government provides subsidies directly to QHP issuer• QHP issuer applies lower cost-sharing amounts when

administering enrollee’s benefit

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Cost-Sharing Subsidies

• QHP issuer must ensure that enrollee pays the lower cost-sharing amounts

• Notification, reassignment and refund obligations if QHP issuer assigns enrollee to wrong plan variation

• Annual reconciliation of advance payments of cost-sharing subsidies with CMS

• Potential liability under Exchange enforcement authorities and False Claims Act

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Premium Stabilization Programs

• 3 interrelated programs:o Risk Adjustment Programo Reinsurance Programo Risk Corridors Program

• Work together to stabilize insurance market by redistributing funds from high-performing issuers to low-performing issuers

• Issuers report certain data to CMS, CMS then calculates necessary subsidies and payments

• Potential liability under Exchange enforcement authorities and False Claims Act

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Additional Compliance Obligations for QHP Issuers on FFE

• Establish effective compliance plan• Issuer attestations in QHP issuer application (potentially

used for FCA liability)• Oversight of downstream and delegated entities • Above requirements are similar to those in Medicare

Advantage/Prescription Drug programs• Potential liability under Exchange enforcement

authorities and False Claims Act

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Oversight and Enforcement

• QHP issuers on all Exchanges subject to audit and oversight by HHS and OIG

• QHP issuers on FFE subject to compliance reviews by HHS and OIGo risk of administrative enforcement actions (i.e., civil money

penalties (CMPs) and decertification for non-compliance with Exchange standards)

• Potential for False Claims Act liability (including as a new target for qui tam actions)

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Oversight and Enforcement

• GAO Report – “Preliminary Results of Undercover Testing of Enrollment Controls for Health Care Coverage and Consumer Subsidies Provided Under the Act”, GAO-14-705T, July 23, 2014o Subsidies and other costs represent a “significant, long-term

fiscal commitment of the Federal government”o “CMS must rely on health insurance issuers to self-report

enrollment data reflecting individuals for whom CMS owes the issuers the income-based subsidies arising from obtaining coverage through the Marketplace”

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Key Actions for QHP Issuers

• Institute internal controls to ensure accurate reporting of data to CMS, record retention, documentation

• Report and return identified overpayments • Anticipate and plan for future government audits• Incorporate new requirements and risks into corporate

compliance programs• Incorporate lessons from MA-PD program oversight

activities regarding compliance plans, oversight of delegated and downstream entities, etc.

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Employer Mandate (Generally Effective January 1, 2015)

• A one-year delay; originally effective January 1, 2014• Special rules for fiscal year plans• The ACA imposes a mandate on large employers to

offer minimum essential coverage to their full-time employees and their dependent children (up to age 26) or pay a penalty tax

• In addition, if that minimum essential coverage is not affordable or does not provide minimum value, the employer is subject to a penalty tax

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Penalty Tax Trigger

• A penalty tax is due for any month in which at least one full-time employee is certified to the employer as having purchased health insurance through an Exchange with a premium subsidy from the government for that coverage

• But an individual is NOT eligible for a premium subsidy offered through the Exchange if he or she is eligible for employer-sponsored coverage that is affordable and provides minimum value

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Applicable Large Employer

• Applies to “applicable large employers,” defined as “an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees (“FTEs”)) on business days during the preceding calendar year”o Determined on a controlled group basiso Full-time means an average of 30 hours/week or 130 hours/montho Common law test used for identifying employees

Note – Special Transition Rule for 2015 – At Least 100 Full-Time employees (including FTEs)

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The “No Coverage” Penalty

• Penalty for Failure to Provide Coverageo If more than 5% of full-time employees are not offered

coverage (that includes dependent children) and even ONE full-time employee obtains a subsidy through an Exchange the no coverage penalty is triggered

Note – Special Transitional Rule for 2015 – if more than 30% (not 5%)

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The “No Coverage” Penalty

• Penalty for Failure to Provide Coverageo Penalty = $2,000/year * TOTAL number of full-time

employees Assessed on a monthly basis ($166.67/employee/month) First 30 (80 for 2015) full-time employees are disregarded

• Penalty applies on an employer-by-employer basis and not on a controlled group basis

• Be careful not to play AND pay

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The “Unaffordability” Penalty

• Penalty for not providing affordable/minimum value coverageo Applies if:

Employee’s share of the premium for lowest-cost employee-only coverage would exceed 9.5% of the employee’s income, or the affordable plan does not provide minimum value—pay at least 60% of the allowed costs under the plan, AND

The employee receives a subsidy through an Exchange

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• Penalty for Providing “Unaffordable” coverageo Penalty = $3,000/year/employeeo Assessed on a monthly basis ($250/employee/month)o Applies only to employees who actually receive a premium

subsidy for coverage on an Exchange

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• Safe harbors for determining if the cost of coverage exceeds 9.5% of employee’s incomeo Form W-2 compensationo Rate of payo Federal poverty limit

• Minimum valueo Safe harbor plan designso Minimum value calculatoro Actuarial analysis

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Transitional Reinsurance Program Fees

• Three year fee-to-fund transitional reinsurance pool (2014-2016)

• Uniform contribution rate of $63/year/covered life for 2014 ($44/year/covered life for 2015)

• To be collected in two installments:o Plan provides notice to HHS of the numbered of covered lives by

November 15 of each calendar yearo Each installment will be due within 30 days of HHS’ notice of the

amount of fee owed Notice that first installment due – HHS expected to provide this notice

in December of each year Notice that second installment due – HHS expected to provide this

notice during the 4th quarter of each year following the year for which payment is being made

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“Cadillac” Tax

• First applies in 2018• 40% non-deductible tax on “excess benefits”• Excess benefit = benefits provided in excess of

annual limit ($10,200/$27,500 for 2018)

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Overview – Code Sections 6055 and 6056

• Calendar year basis (regardless of plan year)• Effective for 2015, with initial reports due in early

2016• Two overlapping sets of reporting requirements

o Code Section 6055 – Health insurance issuer/self-funded plan sponsor – to facilitate compliance with the individual mandate provisions

o Code Section 6056 – Employers subject to the coverage mandate – to facilitate compliance with the Employer Mandate and premium subsidies

o Our focus today is on the latter – Reports satisfying the latter will also satisfy the former

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Overview – Code Section 6056

• Defined terms and concepts from the Employer Mandate

• Each entity within a controlled group reports separately

• IRS will issue forms for reporting:o Form 1095-C (one form for each full-time employee)o Form 1094-C (aggregated data for all full-time employees of

the reporting entity)o These forms (and their instructions) will fill in gaps left in the

regulations• No 2015 reporting exemption for employers with between 50

and 99 full-time employees who qualify for the 2015 special transitional rule

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Content of Report to IRS (Primary Method)

• Name, address and EIN of the reporting employer• Name and phone number of contact person at the reporting

employer (or its third-party reporting agent)• Calendar year to which report pertains• For each full-time employee, certification of whether the full-time

employee (and dependents) were offered minimum essential coverage (MEC), by calendar month

• For each full-time employee, months during the calendar year for which MEC was available

• For each full-time employee, the full-time employee’s cost share for the lowest cost monthly premium for self-only coverage providing minimum value, by calendar month

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• The number of full-time employees for each month during the calendar year

• Name, address and TIN of each full-time employee during the year, and the months, if any, during which the full-time employee was covered

• Information about whether the coverage offered provides minimum value and whether spouses were eligible

• The total number of employees, by month• Whether an employee was subject to a permissible waiting

period, by month• Whether the employer had no employees or otherwise credited

any hours of service during any particular month, by month

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• Whether the reporting employer is a member of a controlled group, and, if so, the name and EIN of each controlled group member

• Certain additional information for governmental plans, multiemployer plans and third-party reporting entities

• Any other information required by the Instructions to the Forms 1094-C and 1095-C (to be determined)

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Timing of Report to IRS

• Must be filed by March 31 following the calendar year, if filed electronically

• Must be filed by February 28 following the calendar year, if filed on paper

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Statement to Participant (Primary Method)

• Must provide a Form 1095-C to each full-time employee reported to the IRS

• All of the information reported to the IRS with respect to such full-time employee

• By January 31 following the calendar year to which it pertains

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Alternative Reporting Methods

• Method #1: “Qualifying Offers”o Coverage offer to one or more full-time employeeso Offer covers all months in the calendar year for which the

individual was a full-time employee (except months for which there is a Section 4980H penalty exemption)

o Coverage provides minimum valueo Employee cost of employee-only coverage does not exceed

9.5% of the mainland single federal poverty level (which is $1,108.65 – or 9.5% of $11,670, for 2014)

o Offer extends to dependents and spouse

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• Method #1: “Qualifying Offers”o Each full-time employee who received a “qualifying offer” for

all 12 months in the calendar year is eligible to be reported using an abbreviated Form 1095-C

o Other full-time employees (who did not receive “qualifying offers”) are reported using the “primary method”

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• Method #2: “98% Offers”o Reporting employer certifies that it offered coverage

qualifying for Section 4980H(b) penalty relief (i.e., minimum value, affordable, to employee and dependents) to at least 98% of its employees who were full-time at any time during the calendar year (and are therefore subject to Section 6056 reporting)

o Exempts the employer from identifying in its Section 6056 reporting whether a particular employee is a full-time employee for one or more months during the year

o Exempts the employer from reporting its total number of full-time employees for the year

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Penalties for Non-Compliance

• $100 per late or incorrect return filed (or not filed) with IRS (Code Section 6721)

• $100 per late or incorrect statement provided (or not provided) to a participant (Code Section 6722)

• IRS may choose to waive penalties upon a showing of reasonable cause

Contingent Workforce and PPACA

• Contingent workforce allows companies to have flexibility in workforceo Leaves and other absenceso Seasonal fluctuations and market fluctuationso Skill shortages

• How should you think about your contingent workforce as it relates to PPACA and your interactions with staffing firms?

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Contingent Workforce Concerns

• Concern that contingent workers will be considered “employees” of client and since no offer of coverage is made by client, client triggers “A” penalty (bigger issue when coverage level is 95% in 2016)

• Staffing firms have always taken the position they are the common law employer of the employees they assign to clients

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Common Law Employer

• Multi-factor test• There can only be one (for tax and benefits purposes,

no such thing as “co-employment or “joint employment”)

• Right to direct and control (does not have to be actual)

• Origins of common law test are in tort law (basis of recovery from the master for torts committed by servant during servant’s employment)

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Common Law Employer – Staffing Firms

• Staffing firms typically:o Recruit and screen potential employeeso Hire employees and remit withholdingso Responsible for worker’s compensation and benefitso Right to control: Right to hire, discipline and fire;

right to assign and re-assigno Behavior of the client and staffing firm are important

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Dos and Don’ts – Staffing Firms/Clients

DO:• Tell staffing firm you are

“ending the assignment”• Let staffing firm handle

discipline and performance issues

• Let staffing firm recruit and screen (with limited client input)

DON’T:• “Terminate” a contingent

worker• Discipline contingent

worker or address performance issues without involving staffing firm

• Act like the employer (e.g., evaluate screening results, dictate wages or benefits)

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PPACA Final Rules – Discussion of Staffing Firms

• Section in preamble regarding “temporary staffing firms” which discusses such staffing firms making an offer of coverage to its “employees”

• Preamble seems to use “temporary staffing firm” to mean a firm that places employees in short-term, high-turnover assignments

• A “staffing firm” can be construed to mean any staffing firm that does not place temporary workers (e.g., direct permanent placement services, pay-rolling)

• Final rules also use “professional employer organization” and “staffing firm” in section on offers of coverage (no explicit definitions given for any of these terms)

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Staffing Industry – Staffing Firms and PEOs• Traditional staffing firms:

o Historically have always been viewed as the common law employer of employees they assign to clients

o Recruit employees

• PEOs (Professional Employer Organization):o IRS Notice 2002-21: PEO

retirement plans are multiple employer plans (client is the common law employer)

o 3/1/06 DOL Information Letter: PEO welfare plan is a MEWA

o Generally do not recruit employees

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PPACA Final Rules – Offers of Coverage on Behalf of Other Entities (Treas. Reg §54.4980H-4(b)(2))• This section was meant to cover multi-employer, single-employer Taft-

Hartley, MEWAs and “other similar arrangements”• “If certain conditions are met, an offer of coverage to an employee

performing services for an employer that is a client of a professional employer organization or other staffing firm (in the typical case in which the professional employer organization or staffing firm is not the common law employer of the individual)…made by the staffing firm on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer for purposes of 4980H….only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan”

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Offer of Coverage by Other Entities - Issues

• Troubling that the Final Rules included “or other staffing firm,” as it creates confusion

• Many clients want to pay something more to staffing firms only for those employees who get benefits in case the clients gets deemed the common law employer to avoid the “A” penalty issueo This means the client is saying they are the common law

employer, which likely isn’t the caseo Creates MEWA issue for staffing firm

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Risks of Paying Extra for Health Care Per Employee

• Disfavoring employees who elect benefits because the cost is higher (not in line with spirit of PPACA)

• Privacy issues• Client typically hasn’t acted as the common law

employer for payroll taxes or otherwise acted as the common law employer – inconsistent to say client is the common law employer

• MEWA issue for staffing firms (staffing firms are not treating plans as MEWAs because they view all employees as employees of staffing firm and not the clients)

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What should clients do?

• Require staffing firms to comply with PPACA and get an indemnity for the staffing firm’s failure to comply (staffing firm may exclude claims where client’s actions lead to claim – i.e., client taking steps to cause client to be the common law employer)

• Make sure contracts with staffing firms state the staffing firm reserves the right to control and direct the employees assigned (and expressly state staffing firm is common law employer)

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What should clients do?• Consider whether you want to require in contract

that staffing firm must provide Minimum Value and Affordable Coverage (PPACA requires pay or play, so why require play?). Keep in mind:o Some smaller staffing firms may not have to provide

Minimum Value, Affordable Coverage or may decide it’s in best interests of employees to not provide it so employees can get subsidies on exchanges

o Limits the accessible talent poolo Make sure both client and staffing firm are following the

right steps for staffing firm to be the common law employer – coupled with indemnity, should be sufficient to cover risk

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Staffing Firms – Costs of PPACA

• Many staffing firms may need to pass on the costs associated with PPACA to clientso Traditionall, staffing firms were not providing any subsidies

toward coverage (costs to make coverage affordable)o Obtaining coverage for contingent workforce employees is

difficult and expensive (underwriting is a challenge- unpredictable workforce, high turnover)

o Many staffing firms were providing mini-meds or similar-type limited indemnity plans that are no longer allowed under PPACA, but they were significantly cheaper than plans that comply with PPACA

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Thank you. Contact Information:

Meryl Burgin, Executive Vice President, General Counsel & Corporate Secretary, CareFirst BlueCross [email protected]

Maureen Dry-Wasson, Assistant General Counsel, Allegis Group, [email protected]

Thora Johnson, Partner, Venable LLP [email protected]

Brenda Tranchida, Counsel, Venable [email protected]

www.Venable.com/healthcare/

mailto:[email protected]




http://www.venable.com/healthcare/

presented by: venable llp carefirst bluecross blueshield and allegis group, inc. healthcare reform:...

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