copyright © 2010 mcgraw wentworth, inc. all rights reserved. 11 benefits stewardship through...

Copyright © 2010 McGraw Wentworth, Inc. All rights reserved.

11Benefits Stewardship Through Knowledge and Know How

David R. HoisingtonAccount Director

[email protected]

2010 Health Reform OverviewMichigan Association of School Personnel

AdministratorsDecember 3, 2010



A Week That Changed Health Care Forever

Patient Protection and Affordable Health Care Act (PPACA) Passed by House March 21, 2010

Signed by President March 23, 2010

Health Care and Education Reconciliation Act of 2010 (HCERA) – “Side car” Passed by Senate with changes

Passed by House March 25, 2010

Signed by President, March 30, 2010

We call it Health Care Reform (HCR)



Three Waves of Health Care Reform

#1: Money & Mandates (2010-2013)

#2: Major Expansion of Coverage (2014)

#3: (trying to) Bend the Cost Curve (2015 )



#1: Money & Mandates (2010-2013)

Government Money Temporary high risk insurance pools ($5 billion) Temporary early retiree reinsurance program ($5 billion) $250 rebate to Medicare members reaching “doughnut hole”

Employer Mandates Elimination of pre-ex exclusions for participants under 19 Children covered to age 26 Elimination of lifetime dollar benefit levels Elimination of cost-sharing on preventive care services

Insurance Carrier Mandate Minimum Loss Ratios (MLR) for insurance companies



#2: Major Expansion of Coverage (2014)

Individuals – new coverage mandate

Employers - penalties for not providing coverage

Expansion of governmental subsidies for individuals in certain income brackets Medicaid expanded to incomes up to 133% of FPL Subsidies for individuals up to 400% of FPL

Creation of health insurance “Exchanges” New access point for individuals and small groups Only access point to receive governmental subsidies



#3: Bending The Cost Curve (2015 )

Penalty for not adopting electronic medical records

Medicare changes such as: Reduced payment for hospital acquired conditions Enabling legislation for accountable care organizations

New boards and organizations: Medicare Independent Payment Advisory Board with rules

automatically implemented absent congressional action Patient Centered Outcomes Research Institute to develop new

information resources CMS Innovation Center Accountable Care Organizations

High cost plan excise tax (Cadillac plan tax)

Medicare Part D “donut hole” closes



Todays Topic

Health Plan Changes

Tax Code Changes

Employer Requirements

Wave #1 (2010 – 2013)



When Does This Begin ?

Effective date, first day of first plan year following September 23, 2010

What is my plan year ? For ERISA plans, this is easy - ERISA plan year For non-ERISA plans, not so easy as several different

“plan years” can be defined Appears best to follow three step check

• First, if have plan document – “plan year” in document• If not, CFR 45 indicates plan year default – “deductible year”• If not, CFR 45 indicates second default - “policy year”

Most attorneys now recommending that non ERISA plans draft a plan document to clarify plan year



Any Exceptions To Start Date ?

Fully insured union plans where an agreement was in place on March 23, 2010

Initially, most requirements delayed until the longest running CBA associated with plan expired

Final rules curtailed delay to only fully insured union plans and only gain treatment as a “grandfathered” plan Fully insured union plan compliance delayed until

longest running CBA expires Even if plan makes a change mid-agreement retains

grandfathering until longest running CBA expires

Final rules treat self-funded union plans in the same manner as non-union plans



Grandfathering

If coverage in place on March 23, 2010

Effective dates for a few health reform initiatives can be delayed

Grandfathered status determined by plan option

Grandfathered plans must include model language in plan and plan materials disclosing grandfathered status

Plan must maintain documentation of benefit levels and employee premiums in place on March 23, 2010

Certain plan changes cause loss of grandfathered status

Changes always measured against plan in place on March 23, 2010



What Can Be Delayed ?

Reform Requirement Effective Date Delayed for Grandfathered Plan?

Specified preventive care services covered with no copayment

September 23, 2010* YES

Extension of Section 105(h) non-discrimination rules to insured plans

September 23, 2010* YES

New claim appeal procedures and rules September 23, 2010* YESPrimary care physician rules September 23, 2010* YESRules for emergency room coverage September 23, 2010* YESNew quality reporting requirements Not clear YESRequirement to provide coverage for clinical trials

January 1, 2014* YES

Changes to HIPAA non-discrimination rules when rewarding achievement of health factor

January 1, 2014* YES

* First day of first plan year on or after



What Cannot Be Delayed ?

Reform Requirement Effective Date Delayed for Grandfathered Plan?

Prohibition on dollar lifetime limits September 23, 2010* NORestriction on annual dollar limits September 23, 2010* NONo pre-existing condition limitation on participants under 19

September 23, 2010* NO

Prohibition on coverage rescissions September 23, 2010* NOExtension of coverage to adult children September 23, 2010* NOFour page summary of benefits requirement that is culturally and linguistically appropriate

Not clear; the government will deliver model by March 2011 and employers have until March 2012 to deliver

NO

Limitation on new hire waiting periods January 1, 2014* NOElimination of annual dollar limitations for essential benefits

January 1, 2014* NO

Prohibition of pre-existing condition limitation for all plan participants

January 1, 2014* NO

* First day of first plan year on or after



Losing Grandfathered Status

Change insurance carriers (insured plans)

Any, eliminate benefits to treat a specific condition

Any, increase to percentage cost share (coinsurance)

Any, change to annual dollar limit (maximums)

Certain, increases to fixed cost-sharing (deductible / coinsurance maximum) Total percentage over medical inflation plus 15%

Certain, increases to flat copays: Cannot exceed great of Medical inflation plus 15%, or $5 increased by medical inflation



Losing Grandfathered Status (cont.)

Certain, decrease employer contribution Cannot decrease by more than five percentage points

below rate in effect on March 23, 2010• Based on cost of coverage• Applies per coverage tier

Most plans will not be able to maintain grandfathered status over the long term: Measures back to benefits at 3/23/10 Measures back to contributions at 3/23/2010

Work through tolerable spend and check with vendors to determine if grandfathering possible



How Low Can You Go?

Deductibles

Current Level Allowable Increase Maximum Level

$0 15.16% $0

$100 15.16% $115

$150 15.16% $173

$200 15.16% $230

$250 15.16% $288

$300 15.16% $345

$500 15.16% $576

$750 15.16% $864

$1,000 15.16% $1,152

Increase cannot exceed the sum of medical inflation plus 15%. Medical inflation is calculated by

subtracting 387.142 (the March 2010 CPI-U unadjusted medical care component) from the indexed

amount for any month in the 12 months before the new change takes effect and dividing the result

by 387.142. For purposes of this chart, we use the May 2010 figure of 387.762.



How Low Can You Go?(continued)

Copayments

Current Level Allowable Increase Maximum Level

$0 15.16% $5

$2 15.16% $7

$5 15.16% $10

$10 15.16% $15

$15 15.16% $20

$20 15.16% $25

$25 15.16% $30

$30 15.16% $35

$40 15.16% $46

$50 15.16% $58

Increase cannot exceed greater of $5 increased by medical inflation or sum of medical inflation plus

15% - medical inflation calculated by subtracting 387.142 (March 2010 CPI-U unadjusted medical care

component) from indexed amount for any month in 12 months before new change takes effect and

dividing the result by 387.142 (this uses May 2010 figure of 387.762)



Dependent Child Extension

Health plans that cover dependents must extend coverage to children up to age 26: No dependency requirements (can’t limit coverage

due to residency, student status, marital status, financial dependence, employment or eligibility for other coverage)

No requirement to cover a child’s spouse or child Can’t charge different rate for child based on age Can charge different rate based on number of deps

Can limit eligibility to children who do not have coverage available with their employer (ends in 2014)



Additional Requirements

Plans can no longer have a lifetime dollar limit: Must allow anyone who hit the limit back on the plan Must be treated as HIPAA special enrollee Notice requirement

Annual dollar limits (essential benefits) must be at least: 9/23/2010 – 9/23/2011: $750,000 9/23/2011 – 9/23/2012: $1,250,000 9/23/2012 – 9/23/2013: $2,000,000 By 2014, annual dollar limits prohibited on essential

benefits



Additional Requirements (cont.)

Pre-existing condition limitations can’t be applied to participants under age 19 (eliminated in 2014) Review plan for indirect pre-existing condition limits

Coverage rescissions explicitly prohibited Defined as a cancelation or discontinuance of

coverage that has retroactive effective date Rescission based on health status eliminated by

HIPAA for group plans Still permitted in fraud situations or non-payment Employers need to be careful of retroactively

terminating benefits…more guidance expected



ER Visits and PCP Designation

If your plan covers ER visits: No prior authorization required Non-participating providers must be treated the same

as participating providers (only copays and coinsurance requirements must be the same)

If your plan requires PCP designation: Can designate any PCP that can accept a patient An allopathic or osteopathic pediatrician can be

named a child’s PCP Plan can require use of network OB/GYN, but can’t

require OB/GYN to notify PCP of treatment decisions



Preventive Care Coverage

Health plans required to provide 100% coverage - no copays on specified preventive care: Rated “A or B” by US Preventive Care Task Force Immunizations recommended by CDC (ACIP) For children recommended preventive care from

Health Resources and Service Administration (HRSA) Women additional screenings recommended by HRSA Recommendations by USPCTF on mammograms,

ignoring guidance issued in November 2009

New guidance issued, list of covered services expansive, vendors (including BCBSM) scrambling to define

released preventive care benefits



Coverage Appeals

Health plans must establish internal review process: Makes minor changes to ERISA appeal requirements

(must hear testimony, communication changes) Extends similar ERISA appeal requirements to non-

ERISA plans

Vendors will typically handle internal coverage appeals

New external review (state and federal) process: Regulations delayed effective date (7/1/11) More guidance coming



Non-Discrimination Rules

Section 105(h) non-discrimination rules changed: Extended to fully insured plans Increased penalties - $100 per participant per day

Basics of 105(h): Plan cannot favor “highly compensated employees” (top

25%) in eligibility or benefits Tests for both eligibility and benefits

Be wary of different waiting periods, different benefits offered, different contributions, etc.

If your insured plan discriminates – may make sense to maintain “grandfathered status”



In Summary

Effective dates will be influenced by plan year and “grandfathered” status – identify when each benefit provision will impact your plan

Grandfathered provisions estimated to increase heatlh plan cost by 1% to 2%

Does it makes sense to grandfather plan?

Check with your health plan vendor: Can they administer grandfathered status? What are their action steps for complying with HCR? How will your cost be affected by HCR?



OTC Medications

Effective January 1, 2011, “non-prescribed” OTC medications are no longer eligible for “tax-favored status”

Applies to expenses covered by HSAs, Archer MSAs, health FSAs, HRAs or employer-sponsored health plans

Doesn’t impact bandages and other health devices

Applies 1/1/11, regardless of plan year – for OTC to be covered must be purchased prior to 1/1

Check with your debit card vendor



HSA Changes

Effective January 1, 2011, excise tax on non-medical distributions increases to 20% (was 10%)

The extension of adult child coverage to age 26 does not apply to HSAs: The core HDHP is compelled to extend coverage to

adult children, adult child expenses are not eligible for tax-favored medical distributions from the HSA

Your HSA can only make tax-favored distributions for Section 152 dependents



RDS Subsidy

Effective January 1, 2013, employers will lose tax-favored status on retiree drug subsidy

Plans likely made adjustments to FAS calculations to adjust for loss of tax-free status

Employers filing for RDS may want to revisit: Actuarial value of Part D will increase over time If your plan is close to standard Part D benefit, your

plan in time may not be actuarially equivalent Your plan may want to consider an EGWP, which may

provide a greater benefit if you continue Rx coverage



A Note on Changes to Part D

Phase out of the coverage gap (brand name):Year Manufacturer

DiscountGov’t Subsidy to PDP Beneficiary Pays

2010 n/a n/a 100% less $250 rebate

2011 50% n/a 50%

2012 50% n/a 50%

2013 50% 2.5% 47.5%

2014 50% 2.5% 47.5%

2015 50% 5% 45%

2016 50% 5% 45%

2017 50% 10% 40%

2018 50% 15% 35%

2019 50% 20% 30%

2020 50% 25% 25%



Limit on Medical FSAs

Effective 1/1/2013, medical FSAs will have a $2,500 annual limit: $2,500 cap will be annually indexed to CPI (not

medical inflation) Limit applies to employee election Does not apply to non-elective employer contributions

Questions on practical implication of limit: How will non-calendar plan years be handled? IRS may issue transitional guidance, but as of today,

not clear Early adoption of $2,500 limit may alleviate issues



Additional Tax Code Changes – 1/01/13

Increase Medicare payroll tax: Medicare Part A tax from 1.45% to 2.35%

• Earnings over $200,000 (individuals); $250,000 (married filing jointly); $125,000 (married filing separate)

• Applies only to employee-paid Medicare tax

Additional 3.8% tax on investment income for individuals whose incomes exceed above limits

Increase threshold for itemized medical expenses Increased to 10% of adjusted gross income Does not directly impact employers, may require you to

change some of your communications



In Summary

Tax changes amend the Tax Code – at this point there is no flexibility with effective dates

It is important that your employees understand the impact of these changes before making annual benefit elections

Your communications, summary plan descriptions and maybe even election forms will need to be updated to reflect tax changes



Notice of Dependent Child Extension

Employers must provide notice: Children may now be eligible, even if they previously

weren’t eligible or lost coverage Effective date if a new dependent enrolls Cost of coverage, should child elect to enroll Coverage options, including option for employee to enroll

in order for child to enroll Timeframe for enrollment to be submitted and

consequences for not enrolling Model notice language released

Can be combined with open enrollment, must allow 30-day window to enroll



Additional Employer Notices

Notice on lifetime limit removal: Notice applies to individuals whose coverage or

benefits ended due to reaching the lifetime limit Plan and carrier required to notify removal of limit Individual can re-enroll – treated as special enrollee

Notice on specific elements of patient protection: If your plan requires the designation of PCP, a notice

needs to be provided on rules regarding designating a PCP and the rules related to OB/GYN care

It is likely your carrier/administrator may provide this notice on behalf of the plan



Reporting on W-2’s

Originally, for tax years beginning after 12/31/2010 W2 for 2011, issued in early 2012

New IRS 2010-69 indicates compliance will be delayed until 2011 (more guidance expected) W2 for 2012, issued in early 2013

Employers required to report the cost of employer-sponsored health coverage (W-2 is being revised)

Aggregate cost does not include contributions to HSAs, health FSAs or Archer MSAs

Benefits remain tax-free

Cost determined similar to setting COBRA rates

More guidance needed for clarity



Comparative Effectiveness Fees

Effective each policy year or plan year ending after September 30, 2012

Annual fee imposed on employer or carrier: $1 multiplied by average number lives covered under

plan (policy/plan years ending in fiscal year 2013) Increases to $2 multiplied by average number of

covered lives for plan years ending after 2013 Does not apply to plan years ending after 9/30/2019

Used to fund comparative effectiveness research and required to publish findings



Notice on Exchanges

Amends Fair Labor Standards Act

Requires employers provide notice of Exchanges: Inform employee of existence of Exchange, description

of services provided by Exchange and how to access Exchange

Include information on possible premium tax credit that may be available through Exchange

Additional information on free choice vouchers

Must be provided to current employees no later than March 1, 2013 - to new hires at the time of hiring (after current employees receive notice)



Summary of Benefits

Effective date unclear – gov’t model released by 3/2011; employers must distribute by 3/2012

Specific requirements: Culturally and linguistically appropriate Written in at least 12 pt. font Provided to new applicants and at open enrollment Provided by plan administrator or insurance carrier May be provided in paper or electronic format Expansive list of minimum information requirements

Fine for not providing $1,000 for each willful failure

60 day prospective notice of benefit changes



Auto Enrollment

No stated effective date (believed to be 3/23/10); delayed until additional regulations issued

Amended FLSA to require employers (more than 200 FT EEs) to automatically enroll new hires: Subject to any waiting period (as of 2014, 90 day limit) Must enroll in one of health plans offered (employer

designates) Must allow continued enrollment for current employees Must provide adequate notice and time for an

individual to opt-out of automatic coverage Supersedes state law if prevents automatic enrollment



In Summary

Health reform includes a number of administrative requirements for employers

Employers will need to keep in mind when the various notice and reporting requirements will need to be addressed

More guidance is expected on the administrative requirements with later effective dates



Questions ?

copyright © 2010 mcgraw wentworth, inc. all rights reserved. 11 benefits stewardship through...

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