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HEALTH CARE REFORM

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B.O.S.S. Workshops

(Business Owner Strategy Sessions)

Healthcare Reform

How does the recent Supreme Court Ruling affect your Business? Speaker: Bruce Davis, Principal Findley Davies September 13

™

Health Care Reform: Impact on Your Business

September 13, 2012

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Your Presenter

• Bruce Davis: Principal, Leader of Findley Davies’

Health/Group Benefits Consulting Practice

• 419.327.4133
• bdavis@findleydavies.com

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Agenda

• Welcome
• Recap of the Supreme Court decision
• What It Means for Employers
• 2012 and 2013
• 2014 and Beyond
• Communicating with Employees
• Questions & Answers

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Decision of the United States Supreme Court

• Addressed the constitutionality of two key provisions of

the Patient Protection and Affordable Care Act (“ACA”)

• The individual mandate to maintain minimum

essential health insurance; and

• The expansion of the Medicaid program.

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Decision of the United States Supreme Court

• The Individual Mandate:
• Constitutional under “Commerce Clause”? No
• Constitutional under “Necessary and Proper”

power? No

• Constitutional as a tax? Yes

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Decision of the United States Supreme Court

• The expansion of Medicaid is NOT constitutional under

Congress’ spending power.

• Spending power is Congress’ ability to grant Federal

funds to the States. Congress may condition receipt of funds on States taking certain actions.

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What the Supreme Court Decision Means for Employers 2012 – 2014

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Significant Communication Obligations

• A Uniform Summary of Benefits and Coverage (SBC) &

Glossary must be provided for Open Enrollments beginning on or after 9/23/2012

• If insured, carrier will provide SBC
• If self-funded, check with your claims administrator as to

whether they will provide SBC

• If Rx benefits have been carved-out, the Pharmacy

Benefits Manager may not provide SBC information

• Instead of providing separate Medical and Rx SBCs,

employer may need to merge Rx only information into the Medical SBC provided by the Medical claims administrator

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Significant Reporting Obligations

• Employers > 250 employees must report value of

aggregate cost of employer-sponsored health benefits

• n W-2s for 2012 (issued in January 2013)
• This does not mean the value of health coverage

will become taxable income

• Does not apply to Health Care FSAs if contributions
• nly occur through salary reduction (i.e. IRC 125

pre-tax elections);

• Does not include Dental and/or Vision coverage

that is considered limited scope or unbundled from Medical/Rx benefits

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Reporting Obligations, cont’d

• Does not include any amounts contributed to a

Health Savings Account (but continue reporting on HSAs in box 12 using code W); and

• Does not include costs under an EAP, wellness

program, or on-site medical clinic if the employer does not charge a premium for that coverage under COBRA

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Reporting Obligations, cont’d

• Watch for guidance on filing a “Quality of Health Care

Report”

• Requirement was to have taken effect for plan years

beginning after 3/23/2012, but guidance from HHS was delayed

• Employers are required to report on “quality, safety,

health promotion and case management activities”

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New Preventive Care Requirements

• Non-grandfathered employers become subject to HHS

women’s preventive care requirements for plan years beginning on or after 8/1/2012

• No cost-sharing (either copays or coinsurance) may be

imposed on:

• Well woman visits;
• Screening for gestational diabetes;
• HPV DNA testing for women age 30 years and older;
• Sexually-transmitted infection counseling;
• HIV screening and counseling;
• FDA-approved contraception methods and counseling;
• Breastfeeding support, supplies, and counseling; and
• Domestic violence screening and counseling

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Reduced Health Care FSA Limit

• Effective 1/1/2013 Health Care Flexible Spending

Accounts are limited to $2,500

• This amount will be indexed for inflation
• Include information about the limitation in this year’s

Open Enrollment materials and update Benefit Toolkits

• Remind employees about the ability to use their

HSAs to help pay for orthodontia, etc.

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Non-Discrimination Rules for Insured Plans

• Be ready to amend or terminate insured plans that

discriminate in favor of highly compensated employees

• PPACA non-discrimination rules were going to take

effect in 2011, but guidance was delayed

• We expect guidance soon, now that SCOTUS has ruled
• We also expect the rules to be similar to those

governing self-funded plans: Section 105(h) where the value of discriminatory benefits is taxable to the executive

• Be mindful of IRC 125 non-discrimination rules, too

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Imposition of New Fees

• First of the new Comparative Effectiveness Research

fees due July 31, 2013

• Requirement began with 1/1/2012-12/31/2012 plan

year

• Applies to insured and self-funded health plans
• Does not apply to HIPAA-excepted benefits
• Employers will use IRS Form 720 to remit the initial

$1/member (i.e. employees & dependents) fee.

• Fee increases to $2/member for 1/1/2013-12/31/2013

plan year

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Medicare Tax Increase - 2013

• Tax on Employment Income
• For employment income in excess of $250,000,

if married, or $200,000, if single:

• W-2 employee’s share of Medicare

withholding tax will increase from 1.45% to 2.35%.

• Medicare tax on self-employment income

will increase from 2.9% to 3.8%.

• Tax on Investment Income
• Medicare tax imposed at 3.8% on net investment

income for taxpayers with modified adjusted gross income over $250,000, if married, or $200,000, if single.

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Medicare Tax Increase - 2013

• Investment Income:
• Interest
• Dividends
• Annuities
• Royalties
• Rents
• Passive activity income
• Income from trading in financial instruments and

commodities

• Gain from the sale of an interest that produces such

income

• Does not include amounts otherwise excluded from

income.

• Reduced by deductions allocable to such income.

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2014: The “Pay or Play” Penalty Scheme for Employers

• Imposed only on “Applicable Large Employers.”
• At least 50 full-time equivalent employees during the

preceding calendar year.

• A full-time employee works 30 or more hours per

week.

• Part-time employees are aggregated together on pro-

rated basis to equal full-time equivalent employees.

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2014: The “Pay or Play” Penalty Scheme for Employers, cont’d

• If an Applicable Large Employer does not offer minimum

essential coverage to all of its full-time employees and their dependents, it may be subject to an excise tax.

• The tax is: # of actual full-time employees (minus 30)

and multiplied by 1/12th of $2,000 for each month that such coverage is not offered.

• Example: 60 actual full-time employees and the

employer does not offer coverage for 6 months. 60 – 30 = 30 x $2,000 x 6/12 = $30,000 tax.

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2014: The “Pay or Play” Penalty Scheme for Employers, cont’d

• An individual is eligible to receive a premium credit if:
• Household income is between 138% and 400% of

the federal poverty level;

• The individual is not enrolled in the employer’s group

health plan; and

• The individual’s required premium cost for his or her

employer group health plan exceeds 9.5% of the individual’s W-2 income, or the employer plan’s share of covered health expenses is less than 60%.

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2014: The “Pay or Play” Penalty Scheme for Employers, cont’d

• If the employer’s sponsored group health plan meets

either of the following criteria: 1. The employee’s required premium cost exceeds 9.5% of the employee’s W-2 income; or 2. The employer plan’s share of covered expenses is less than 60%.

• Then an excise tax is imposed on the employer equal to

the number of full-time employees who receive a premium credit x 1/12 of $3,000 for each month during the year that such coverage is “unaffordable.”

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The Individual Responsibility Tax

• Failure to maintain minimum essential coverage results

in the greater of two penalty calculations – the Flat Dollar Amount or the Percentage of Income test (not to exceed the cost of the national average premium for a plan that provides 60% of the actuarial value of benefits covered).

• The Flat Dollar Amount is a fixed amount ($95 per

person in 2014, $695 per person in 2016) x 1/12th for each month that coverage is not maintained. Per person penalty is reduced by 50% for each person under age 18.

• The Flat Dollar Amount may not exceed 300% of the

annual flat dollar amount.

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The Individual Responsibility Tax

• Percentage of Income Test:

1. The applicable percentage is 1% in 2014, and rises to 2.5% in 2016. 2. The applicable percentage is multiplied by household income” in excess of the threshold amount required to file a federal income tax return ($9,500 for a single person, and $19,000 for married persons filing jointly in 2012).

• “Household income” is adjusted gross income, plus tax

exempt interest and foreign-earned income for all persons in the household.

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Other 2014 Requirements

• Premium differentiation for employer wellness programs

cannot exceed 30% (up from 20%)

• Transitional Reinsurance Program
• Both insured and self-funded plans pay into state-based

program to cover high cost claimants enrolled for individual coverage in and outside the exchange

• Estimates are the per member fee in 2014 could range

from $61 to $105; additional fees due in 2015 and 2016

• Non-grandfathered plans must cover routine costs and

services in connection with a clinical trial

• Deductibles in the small group market (< 100 employees)

may not exceed $2,000/individual or $4,000/family

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New Guidance on Definition of Full-Time Employee

• Guidance issued on 8/31/2012 offers safe harbor methods

employers may—but are not required to—use to identify FTEs beginning 1/1/2014

• Reason for the guidance: because the “pay or play”

rules apply month-to-month, employers must not be burdened with monthly eligibility determinations or having to make frequent changes in eligibility for health benefits

• The safe harbor methods are different for on-going

employees than for new employees

• Employers may want to begin applying these methods

beginning 1/1/2013

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New Guidance on Definition of Full-Time Employee, cont’d

• Employers may use a “look-back/stability period safe harbor”
• f not less than 3 but no more than 12 months to determine if
• n-going employees are “FTEs” (i.e. averaging at least 30

hours/week or 130 hours/month)

• If the on-going employee meets the FTE definition during the

look-back or “standard measurement period” (could be calendar year, or other 12-month period that ends before annual Open Enrollment) then he/she must be treated as a FTE during the subsequent “stability period” regardless of the hours worked in the stability period

• Although the stability period must be at least 6 months, for

practical purposes, employers will set their standard measurement and stability periods at equal lengths

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New Guidance on Definition of Full-time Employee, cont’d

• New employees can be subject to a different measurement

period called an “initial measurement period”

• “New employees” have not been employed for at least
• ne full standard measurement period
• The “initial measurement period” must also be at least 3

but not more than 12 months

• If the new hire is expected (as of their hire date) to work

full-time, and the employee is offered health benefits during their 1st 3 months of employment, the penalty tax will not apply

• For plan years beginning after 12/31/2013 both

grandfathered & non-grandfathered plans cannot impose eligibility waiting periods greater than 90 days

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New Guidance on Definition of Full-Time Employee, cont’d

• If, on the date of hire, you cannot determine a new

employee is reasonably expected to work on average at least 30 hours/week, they are considered a “variable hour employee”

• If the variable hour employee does not meet the FTE

definition during the initial measurement period, then they are deemed not an FTE during the following stability period that must not be more than 1 month longer than the initial measurement period

• During the stability period the employer will not be

subject to the pay or play penalty

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New Guidance on Definition of Full-Time Employee, cont’d

• The employer may use different measurement and

stability periods for collectively bargained and non- collectively bargained employees; or salaried and hourly employees

• IRS says employers may use reasonable good faith

interpretation of the term “seasonal employee” to include retail employees employed during the holiday season, or agricultural workers

• Still no guidance on what(if any) coverage must be
• ffered to dependents to avoid penalties

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Continued Transformation of Our Health Care System

• Expect continued consolidation of community hospitals

into larger, regional health systems

• Follow the development of Accountable Care

Organizations (ACOs)

• Some ACOs will evolve into risk-bearing entities to

compete with regional and national carriers

• Emergence of Patient Centered Medical Homes
• Employers will promote coordinated care with plan

design incentives to use PCMHs

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Initial Communication

• Explain the decision in the context of your organization
• Reassure employees that coverage is still available
• “We will continue to review our programs”
• Prepare employees for open enrollment messages

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W-2 Communications

• Prepare communications prior to W-2 on what

employees should expect to see

• If possible, include messages with issuance of W-2
• Key messages
• Not taxable income
• Emphasize the value of the health care benefits

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Summary of Benefits & Coverage (SBC)

• Required by PPACA which added Section 2715 to the

Public Health Services Act (PHSA)

• Regulations were to be published by March 23, 2011

(one year from enactment of PPACA) and effective March 23, 2012 (did not occur)

• Proposed Regulations issued in August 2011
• Final Regulations issued in February 2012

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Purpose of SBC

• To “enable consumers, both individuals and employers,

to better understand the coverage they have and allow consumers choosing coverage to more easily compare coverage options.”

• Allows consumers to “make better coverage

decisions, which more closely match[es] their preferences with respect to benefit design, level of financial protection, and cost.”

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Effective Date

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• Depends whether enrolling during Open Enrollment or
• therwise:

For participants and beneficiaries who enroll or re- enroll in coverage through an

• pen enrollment period

First day of the first open enrollment period beginning on or after September 23, 2012 For participants and beneficiaries who enroll in coverage other than through an open enrollment period (e.g. special enrollees, newly eligible participants) First day of the first plan year period beginning on

• r after September 23,

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More About the SBC

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• Group health plan must

provide to enrolled or eligible participants and beneficiaries and special enrollees

• Rules differ depending on

plan’s self-funded or fully- insured status

• Provide SBC via paper

copy or electronically

• Same rules as providing

SPDs electronically

• Electronic format “readily

accessible”

• Provide in writing upon

request

• If online, notify via email or

paper regarding availability for review

How must it be provided ? Who must provide ?

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• Flexibility for describing terms if Plan cannot reasonably

be described in a manner consistent with the template instructions

• Plan or issuer must accurately describe the relevant

plan terms

• Use best efforts to do so in a manner consistent

with the instructions and template format

• No stand-alone requirement
• SBC no longer required to be in separate document
• Can be part of SPD if “prominently displayed” in

beginning of document

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Required Format

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Required Format

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UBS Template

• Four, 2-sided pages
• May use more pages as

long as “best effort” to comply

• Use plain language
• “Culturally and linguistically

appropriate”

• “Understandable by the

average individual"

• Language and formatting must be

precisely reproduced

• Use 12-point font
• Replicate all symbols,

formatting, bolding, and shading

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Required Format

“Why This Matters”

• Provides explanation

for the answers to important questions about deductibles,

• ut-of-pocket limits,

networks, providers, and specialists

• Must use word-for-

word answers as provided in instructions, based

• n Plan provisions

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Required Format

UBS Template— Examples Page

Coverage Examples

• Summaries of cost

sharing for two example conditions:

• Having a baby
• Managing type
• 2 diabetes

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43 SBC Content

SBC Content

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• 7. Statement that SBC is only a

Summary Consult the Plan Document, Policy or Insurance Certificate for actual governing terms

• 8. Contact number

For questions and Internet address to obtain Plan Document, Policy or Insurance Certificate

• 9. If Plan has one or more network

providers Internet address (or similar contact information) for list of providers

• 10. If Plan maintains a prescription

drug formulary Internet address (or similar contact information) for more information on prescription coverage

• 11. Uniform Glossary of Definitions

See next slide

• 12. Internet address for Uniform

Glossary Contact number for paper copy, and disclosure that paper copies are available and free

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Uniform Glossary

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Communication Best Practices

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• Regulations limit flexibility, customization, branding
• pportunities
• Given these limitations, it is still critical to provide a clear

explanation to employees to prevent confusion:

• Make it clear the Summary and Glossary are materials

required by Health Care Reform

• Help employees understand these new materials do not

represent a major change in benefits

• Clearly articulate any changes (if any) in benefits from last

year to clarify

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Communication Best Practices

• Create context
• If delivering as part of an SPD or standalone
• Add a cover letter
• If providing as online content
• Add information to the website landing page or

in the body of the email/postcard/letter containing the link to the materials

• If providing as part of open enrollment
• Include information in the cover letter or

enrollment guide

• Be sure to explain why some information may

be duplicated

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Communication Best Practices

Continue demonstrating the value of Total Compensation and the Employee Value Proposition

• Begin or keep providing branded, clear, concise open

enrollment materials

• Remind employees about the key features of benefits
• Provide decision support tools so employees can more

easily choose among the benefit plans you offer

• Provide “real-life” examples so employees understand
• how to use key plan features, such as in-network
• providers or Flexible Spending Accounts

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Questions and Answers

• Thank you for your attendance and participation
• Please call us if we can be of assistance to you
• Watch for details on our next WebEx on 10/10/2012
• Refer to www.findleydavies.com for health care reform

references

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