health care reform- are you prepared spring 2012 update ... jd, cebs, gba, flmi vice president...

5/11/2012

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Health Care Reform – Are You Prepared?

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Professional CredentialsAdam P. Jensen, Vice President with Cottingham & Butler, has worked in the insurance and employee benefits industry since 1986. He specializes in providing regulatory compliance and plan design services for health and welfare plans. He also advises executive clients on non-qualified deferred compensation issues. Prior to joining Cottingham & Butler, Adam was the Senior Compliance Officer for Virchow Krause Employee Benefits, LLC. He was previously a manager in the human capital practice of a Big Four accounting firm and has also served as an in-house ERISA attorney for a well-known national financial and retirement plan services firm. He leads Cottingham & Butler’s Compliance and Human Resource Consulting practice group.

Specific Experience• Advises Fortune 500 clients on HIPAA and ERISA compliance issues for health and welfare plans.• Advises Fortune 500 clients on plan design and IRS/DOL compliance issues for benefit plans.• Provides cost containment expertise for businesses and major health plans throughout the Midwest.

Industry Involvement• Milwaukee Chapter of the International Society Certified Employee Benefits Specialists.• 2008, 2009 Madison Chapter President.• 2007 Madison Chapter Vice-President.• International Foundation of Employee Benefit Plans

EducationUniversity of Minnesota - Minneapolis-Bachelor of Arts in History

William Mitchell College of Law-Juris Doctorate

Life Office Management Association-Fellow, Life Management Institute (FMLI) designation

International Society of Certified Employee Benefits Specialists/Wharton School of Business-Certified Employee Benefits Specialist (CEBS) designation-Group Benefits Associate (GBA) designation-Certificate in Global Benefits Management

Adam P. JensenJD, CEBS, GBA, FLMIVice PresidentCottingham & Butler

[email protected]

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Agenda

Agenda

•Recent Clarifications

•Looking Ahead

•Court Action

•Congressional Action

•State Action

•Employer Reaction

•Carrier Reaction

•Economic Realities

•Where’s Health Care Going?

•What Can I Do About It?

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Recent Clarifications

Essential Benefits Rule

•The Department of Health and Human Services (HHS) requested

the Institute of Medicine provide recommendations on Essential

Benefits

• IOM released comments in October 2011 that were short of

actual list of Essential Benefits

•HHS states it will let the States decide what qualifies as an

Essential Health Benefit

•Employers and insurers are left to continue guessing what is and

is not an Essential Benefit

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Free Choice Vouchers Eliminated

•Congressional Republicans negotiated the elimination the Wyden

Free Choice as part of a Congressional deal for the final 2011

federal budget

•Wyden Free Choice Vouchers would have required employers to

re-direct employer health plan contributions to employees who

met certain income and contribution thresholds so they could

purchase coverage from health insurance exchanges

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W-2 Reporting

•Recognizing the immense obstacles faced by employers trying to

meet the new 2011 W-2 reporting requirement, the Internal

Revenue Service (IRS) is providing interim relief under Notice

2010-69

•Employers will not be required to report the aggregate cost of

employer-sponsored coverage on 2011 Form W-2's

•Employers filing more than 250 W-2’s exempt until 2013

•Employers filing fewer than 250 W-2’s exempt until 2014

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W-2 Reporting

•On March 29, 2011 the Internal Revenue Service (IRS) issued

Notice 2011-28 to provide specific guidance for reporting the

value of health coverage on W-2 forms, as required by PPACA

Section 9002Employers will not be required to report the

aggregate cost of employer-sponsored coverage on 2011 Form

W-2's

•The guidance includes definitions of the "cost of coverage," how

to calculate the cost of coverage (for example, the COBRA

premium calculation method can be used), and the method of

reporting (report in W-2 form Box 12 using code DD)

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HHS Stopped Accepting New Claims for Early Retiree Reinsurance Program

•Due to overwhelming demand and its prediction that the Early

Retiree Reinsurance Program (ERRP) would run out of funding in

2012, HHS stopped accepting new applications for the program

on May 5, 2011

•No claims will be considered that were incurred after December

31, 2011

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Summary of Benefits and Coverage

• In response to the requirement in the Patient Protection and

Affordable Care Act (PPACA), the Department of Health and

Human Services (HHS) finally released interim guidance in

August 2011 for the uniform explanation of coverage that was

due by March 23, 2011

• The model of the uniform benefit summary created by a working

group of the National Association of Insurance

Commissioners (NAIC) was provided to HHS in recent meetings

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•Final Rules released in February, delayed effective date to give

plans and insurers time to comply

•SBCs must be provided beginning on the first day of the first

open enrollment period that begins on or after September 23,

2012

•Persons who are newly eligible for coverage and special

enrollees must receive an SBC by the first day of the 2013 plan

year

•SBC must not exceed four pages (front and back), be in 12-point

font, be presented in “culturally and linguistically” appropriate

language

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•Template available at: www.dol.gov/ebsa/SBCtemplate.doc

•Don’t have to use template as long as the same result is

achieved

•Templates available in non-English languages

•May be provided in paper or electronic form, including via an

Internet posting

•Dental and vision plans that are not integral parts of a group

medial plan are not required to be included in the SBC

•Plan sponsors may include information on FSA or HSA if desired

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Summary of Benefits and Coverage Triggered By:

•Application/enrollment

•First day of coverage (if there have been any changes since

enrollment)

•Special enrollment

•Renewal

•Upon request

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Summary of Benefits and Coverage Must Contain:

•Uniform definitions of standard insurance terms and medical

terms

•A description of coverage and any cost-sharing (including any

deductibles, coinsurance, and copayments, but not premiums)

•Any exceptions, reductions, and limitations on coverage

•Renewability and continuation coverage provisions

•Coverage examples (currently only childbirth and diabetes, but

up to four more may be added in the future)

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Summary of Benefits and Coverage Must Contain:

•A statement of whether the plan provides minimum essential

coverage and has an actuarial value of at least 60 percent

(effective 1/1/14)

•A contact number to call and an Internet address for a copy of the

policy (and presumably the SPD for self-funded plans)

• If a plan has multiple networks, contact information for obtaining

a list of network providers

• If a plan uses a prescription drug formulary, contact information

for obtaining information on prescription drug coverage

•An Internet address for obtaining the uniform glossary, a contact

number to obtain a paper copy of the uniform glossary, and a

disclosure that paper copies are available

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Fully Insured Section 105(h) Testing Delayed

• IRS delayed application of 105(h) nondiscrimination testing to

fully-insured groups

•Still applies to self-funded plans

• IRS has requested comments

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Waivers Phased Out

•The Centers for Medicare and Medicaid Services (CMS)

issued guidance on June 17, 2011 allowed "mini-med" plans

to apply for or renew a temporary waiver from annual limit

restrictions through 2013

•The guidance also imposes more stringent disclosure

requirements and requires health plans with waivers to tell

consumers that their health care coverage is subject to

annual dollar amounts lower than that allowed under the law

•No new applications or extension requests considered after

September 22, 2011

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CLASS Act Eliminated

•Community Living Assistance Services and Support

(CLASS) had been delayed until 10/1/12

•Became a casualty of deficit reduction

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Health Plan Participant Fees

•Beginning with plan years beginning on or after September

30, 2012

•Self-funded plan sponsors will be required to pay health plan

participant fees

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Fee for Calendar Year Plans

•2012 $1 x Average Number of Covered Lives

•2013 $2 x Average Number of Covered Lives

•2014 $2 x Inflation* x Average Number of Covered Lives





•2019 & beyond No fee

•* Fee is adjusted for projected increases in national health

expenditures

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Medical Loss Ratios (MLR)

•Fully insured plans will contend with the new Medical Loss

Ratio (MLR) rules in 2012

•Health insurers must publically report the portion of

premium dollars spent on health care and quality

improvement and other activities in each state they operate

• Insurers failing to meet the applicable MLR standard must

pay rebates to consumers beginning in 2012

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Medical Loss Ratios (MLR)

• Individual and Small Groups must have loss ratios above

80%

•Large Groups must have loss ratios above 85%

•Refunds must be provided by August 1st of the year

following the reporting period

•ACA permits adjustments to the MLR requirements in a state

if it is determined by the federal government that the 80%

MLR requirement could destabilize the state’s individual

insurance market

•HHS has approved MLR adjustments for very few states

including Georgia, Iowa, Kentucky, Maine, Nevada, New

Hampshire, and North Carolina

•Wisconsin’s request was denied

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Looking ahead

2013

•Medical FSA contributions will be limited to $2,500 per year,

indexed to CPI

•New taxes for singles earning >$200,000 and joint filers

>$250,000

- Increase Medicare payroll tax to 2.35% (employee portion only)

- Adds a 3.8% tax on capital gains, dividend, interest and other net investment income

•Deductibility of employer Medicare Part D subsidy

eliminated

•Threshold for itemized deductions for unreimbursed medical

expenses increases from 7.5% of adjusted gross income to

10%- Not applied to 65 and over

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Looking ahead

2014

•§9010, §1406 Health Insurance Industry Tax

- $8 Billion

- Increases to $14.3 Billion in 2018

- Indexed to annual premium growth in subsequent years

- VEBAs maintained by non-employers are exempt

- Cost Shifting

•§1341(b) Exchange Reinsurance Tax on TPAs, Insurers

- $25 Billion from 2014-2016>$12 Billion in 2014

>$8 Billion in 2015

>$5 Billion in 2016

- Not levied against self-funded plans directly

- Cost Shifting

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Court Action

Florida Health Care Reform Suit

•The 11th Circuit Court of Appeals in Atlanta heard oral

arguments on June 8, 2011 in a government appeal of a

Florida federal judge's ruling that found the health care

reform law unconstitutional

•The administration is appealing a decision in January by

U.S. District Judge Roger Vinson that favored arguments by

26 states which say the law's requirement that Americans

buy health insurance starting in 2014 or pay a penalty is

unconstitutional

•Judge Vinson found that the individual mandate could not

be separated from the rest of the reform law and therefore

found the entire law unconstitutional

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Court Action

Florida Health Care Reform Suit

•The 11th Circuit found the mandate unconstitutional and the

case was appealed up to the U.S. Supreme Court

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Court Action

Virginia's health care lawsuit heard by federal appeals panel

•The Commonwealth of Virginia lawsuit against the federal

health care reform law was heard by a panel of the 4th

Circuit Court of Appeals on May 10, 2011

•The panel also heard the appeal by Liberty University Law

School also located in Virginia

•4th Circuit Court of Appeals in Richmond ruled that the law’s

penalty for not buying insurance after 2014 is essentially a

tax and thus cannot be challenged in court until consumers

start paying it under the Tax Anti-Injunction Act

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Court Action

Supreme Court

•The Constitutional challenge to the individual mandate

requiring all persons to purchase health insurance or face a

penalty heard by the U.S. Supreme Court on March 26, 2012

•A decision by the Court would likely be rendered by June of

2012

• It is expected that the Court will split along

Liberal/Conservative lines of 4/4, leaving Justice Kennedy as

the anticipated “swing” vote who may decide the matter

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Congressional Action

Repeal or Modification

•Despite Republican gains in midterm elections, Senate and

White House will be controlled by Democrats until at least

2012

•House voted to repeal health care reform, but the bill died

upon arrival in the Senate

•Repeal is a practical impossibility

•Ongoing “tweaks” to health care reform until next election

cycle

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Defunding

• If Republicans cannot repeal, they may try to defund

•Defund = deny annual funding to items within health care

reform without actually repealing the law

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Defunding

•Democrats wanted to try to pass an omnibus spending bill

during the Lame Duck session that funds the healthcare

reform bill into the future

•An omnibus appropriation bill would have created

unencumbered budget authority for the major agencies and

programs that are authorized by the health reform bill

•Republicans got a series of “clean” continuing resolutions

and a final clean budget for FY2011

•Final 2011 budget deal postponed big fight until 2012 budget

battle

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Republicans moving from outright repeal to a “piece by piece” approach:

•Elimination of 1099 reporting

•Elimination of free choice vouchers

•Reduction in funding for CO-OP program

•Elimination of funding for additional IRS staff to enforce law

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State Action

Florida is ignoring health care reform:

•Gov. Rick Scott and the Republican-led Legislature have

returned or refused to spend at least $19 million in federal

money associated with implementing the health care law

•Gov. Scott also has stopped any state planning for the

creation of mandated health care exchanges

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Employer Reaction

Mixed Signals from Employers

•Recent report released by consulting firm McKinsey

indicates up to 30% of employers will stop offering

employer-sponsored insurance after 2014

•Obama administration rejects the survey findings

•Contrasts with estimate from the Congressional Budget

Office that only about 7%of employees currently covered by

employer-sponsored insurance will have to switch to

subsidized-exchange policies in 2014

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Employer Reaction

Mixed Signals from Employers

•Benfield Business Health Leadership recently published a four-

page perspective on the topic of employers retaining their health

plans in the face of health care reform:

http://www.benfield.com/perspectives/Pers6_9_11.php

•Their research indicates that jumbo employers (5000+

employees) will remain actively involved in healthcare decisions

and benefits offerings for their employees and dependents for the

foreseeable future

•Only 1% of employers describe their approach to providing active

employee benefits post reform as "looking for the exits"

•Just 7% of jumbo employers are considering dropping active

employee healthcare coverage in 2015 and beyond

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Employer Reaction

More Likely to Retain Benefits

•Larger employers

•Employers with educated/technical work forces

•Employers in competitive industries, locales

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Employer Reaction

Less Likely to Retain Benefits

•Smaller employers

•Employers with unskilled, low-wage work forces

•High turn over

•Employees easily replaceable

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Employer Reaction

Factors to Consider

•Cost of non-deductible penalty- If employer offers coverage but has at least 1 FT employee receiving a

premium tax credit, will pay lesser of $3,000/each employee receiving credit or $2,000/each FT employee

- If employer does not offer coverage and has at least 1 FT employee receiving a premium tax credit, penalty is $2,000/each FT employee

- Penalties subtract 1st 30 FT employees from payment calculation

- PT employees not considered for penalties

•Effect of Loss of deduction for benefit plan

•Replacement of lost benefit to employees• Cash in lieu of benefits to offset loss of employer coverage (reduction in

total compensation)

• Employees will need to spend more to go out to an exchange

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Employer Reaction

U.S. CFO survey

• In a national biannual survey of CFOs and senior

comptrollers conducted by Grant Thornton, LLP, 49% say it

will increase the pricing of their goods, 40% say it will

decrease their company’s growth and 37% say it will

decrease their hiring

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Employer Reaction

Aon Hewitt Report Shows Potential Impact of Health Care Reform on Retiree Medical Programs

• Aon Hewitt surveyed 344 companies, representing 2.2 million retirees nation wide, and found that 61% were either already evaluating or were expected to evaluate their long-term retiree medical strategy by the end of 2011, due to health care reform

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Employer Reaction

Employees May Be Asked to Contribute More

• The 17th annual Top 5 Total Rewards Priorities survey conducted by ISCEBS and Deloitte indicates many employers are taking a "wait and see" approach for final health care reform regulations that may reduce plan design flexibility

• Two-thirds of surveyed employers are making no changes to their benefit plans at this point, signaling a “wait and see” approach for final Health Reform provisions that will likely reduce plan design flexibility

• 85% of respondents expect Health Reform will lead to an increase in benefits costs per employee

• 63%of respondents indicated they will focus mostly on controlling total healthcare costs

• 73% indicated that they expect to re-evaluate benefits due to Health Reform over the next 12 months

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Carrier Reaction

Blue Cross Blue Shield Associations are dumping grandfathering

•BSBS of IL and NE have unilaterally eliminated

grandfathered status on blocks of business

•Financial decision not to offer grandfathered and non-

grandfathered

•Unclear if cost of increased benefit payments for non-

grandfathered plans will be passed on to fully insured

employers

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Economic Realities

Changing landscape of America

•Health care reform is just one issue in the mix of economic

realities facing the U.S.

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Economic Realities

U.S. Population is Aging

•The median age in America reached its highest point ever at

36.8 years in 2009

•Over 65 population will spike as Baby Boomers hit

retirement age

• Increased number of claimants, coupled with fewer persons

paying into system will affect Social Security and Medicare

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Economic Realities

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Economic Realities

Ratio of Social Security Covered Workers to Beneficiaries

•159.4:1 in 1940

•3.3:1 in 2006

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Economic Realities

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Economic Realities

Number of Covered Workers Per OASDI Beneficiary, 2011 Trust Fund Report

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Economic Realities

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Economic Realities

Social Security Insolvency

•Congressional Budget Office (CBO) projects that the

Disability Insurance (DI) trust fund will be exhausted in fiscal

year 2018

•Old-Age and Survivors Insurance (OASI) trust fund will be

exhausted in 2038 (was 2042 in the last report)

•CBO projects that, if legislation to shift resources from the

OASI trust fund to the DI trust fund was enacted, the

combined OASDI trust funds would be exhausted in 2036

(was 2039 in the last report)

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Economic Realities

Present value as of January 1, 2011, in trillions, per 2011 Trust Fund Report

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Economic Realities

OASDI Income, Cost, and Expenditures as Percentages of Taxable Payroll, 2011 Trust Fund Report

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Economic Realities

Medicare Insolvency

•Expenditures have exceeded income annually since 2008

and are projected to continue doing so under current law in

all future years

•According to the 2009 Congressional Research Service,

Medicare Part A trust fund will be depleted in 2017, two

years earlier than projected in the 2008 report

•2011 report states that without the Affordable Care Act, the

Medicare A Medicare Part A trust fund will be depleted in

2016

•ACA extension of Medicare A has been criticized as “double

counting”

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Economic Realities

Medicare Insolvency

•The 2009 trustees’ report states that the fund fails to meet

both the short and long-range tests for financial adequacy

•Part B will not be depleted due to how it’s funded

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Economic Realities

Reducing the national debt

•National deficit nearly doubled between 2008 and 2010 to

approximately $13.8 trillion

•Political pressure to reduce the national debt and avoid the

possibility of troubles suffered by Greece and Ireland

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Economic Realities

What’s the point?

•CBO estimates predict that health care reform will increase

cost of health care

•Massachusetts has seen a 52% increase in direct health care

spending since 2006

•Congress and the White House have to balance the expected

cost of health care reform against the pending economic

realities facing Social Security, Medicare, and the national

debt

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Where’s Health Care Going?

Probably not a return to business as usual

•System needed fixing and still does

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Health care likely to remain employer-provided

•Long tradition of employer provided benefits in the U.S.

•Government can’t afford to pay for it all

• Increased regulation including mandated benefits

•Changes to tax breaks for employers or tax exemption of

benefits to increase federal revenue

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Changes to health care delivery

•Essentially “health insurance reform” up to now, reform did

not address health care delivery system• Future efforts in improving quality, “more bang for the buck”

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Changes to Medicare and Social Security

•Likely to see reduced benefits to keep system in place

• Increased retirement ages

• Increased importance of employee savings

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What Can I Do About It?

Keep Your Options Open

•One of the quickest ways to paint yourself into a corner is to

ignore the implications of grandfathering on your plan

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Grandfathered plans do not need to comply with:

•Coverage of dependent children to age 26 who have access

to their own employer plan (until 2014)

•Coverage for the essential Health Benefits Package for small

groups (under 100 employees) as of 2014

•Annual limitations on cost-sharing and deductibles for 2014

and later

•Requirement to cover preventive care without cost sharing

provisions

•Application of §105h non-discrimination rules to fully-

insured plans

•External review/appeal requirements

•Requirement to cover Emergency Care in-network

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Manage Your Dependent Population

• Nothing in health care reform requires employers to offer dependent coverage at all

• Depending on an employer’s workforce demographics, offering single-only coverage may be a viable alternative

• Grandfathered plans are allowed to deny coverage to dependent children under age 26 who have access to their own employer plan until 2014

• Employers should verify whether dependents are eligible for employer-sponsored coverage, either separately or as part of an overall plan eligibility audit

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Restructure Limits

• Loss of annual limits can be offset by implementing day- or number of treatment-based limitations that are not prohibited by the current reforms

• Non-essential benefits can have dollar limits!

• Restricted Annual Limits for essential benefits

• Waivers available on an annual basis (for now)

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Sweat the Small Stuff

• Conduct an eligibility audit to verify that the persons receiving benefits actually meet plan eligibility guidelines

• Incorporate mandatory disease management compliance language into plan documents

• Focus on the long-term benefits of comprehensive accountability-based wellness programs to keep people from migrating from low or medium risk to high risk health categories

• Pursue risk mitigation that comes with buying no-laser guarantees and/or transplant carve-out policies for self-funded plans

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Thank you!

For more information contact:Adam P. Jensen,

JD, CEBS, GBA, FLMI

Vice President

608.467.5030

[email protected]

health care reform- are you prepared spring 2012 update ... jd, cebs, gba, flmi vice president...

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