1003-1144411 HCR Highlights Slipsheet 032910 Final

8/9/2019 1003-1144411 HCR Highlights Slipsheet 032910 Final

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March 2010

Health care reform haspassed: what now?

With the recent enactment of sweeping health care reform legislation, the US is undertakin

—

companies and health care providers to individuals and employers. All stakeholders shouldexpect, and begin preparing for, substantial changes in the way health care is obtained,

delivered, paid for and regulated.

This summary outlines the key elements of the Patient Protection and Affordable Health

Care Act1 (the Act), how the Federal Government will pay for the increased health care

spending, and a timeline for when major provisions will take effect.

The primary goals of the Act are to: (i) expand coverage to an estimated 32 million

Americans without health insurance; (ii) reform the delivery system to improve quality;

and (iii) lower the overall costs of providing health care.

To accomplish the goal of expanding coverage, the legislation mandates that all Americans

maintain a minimum level of health coverage. It expands Medicaid coverage and provides

federal subsidies to assist low-income individuals in obtaining health insurance. The

legislation also implements insurance market reforms, including a ban on exclusions for pre

existing conditions, premium rate restrictions, extension of dependent coverage through a

26, and mandatory coverage of preventive services.

The Act establishes insurance exchanges through which individuals and small employers ca

shop for health insurance. It also mandates, for the first time, that employers with 50 or

more full-time employees provide certain minimum benefits or pay penalty fees. Employers

will need to analyze the cost implications of proposed changes to their benefit plans, payro

taxes, administrative functions and other compliance obligations.

Health care cost reductions stem from cuts to Medicare and Medicaid a ments rovision

to reduce fraud, waste, and abuse in those public programs, and other delivery reforms to

their payment systems. These reforms present both challenges and opportunities for healt

care industry sectors as they analyze the impact of increased patient volume,

reimbursement cuts, changes in relationships between hospitals and other providers, and

modifications to their administrative operations and cost structures.

“ ”. . , the “ atient rotection an or able are ct as signe into law on arch , , inclu ing mo i ications ma eH.R. 4872, the “Health Care and Education Reconciliation Act of 2010” (as signed into law on March 30, 2010).



Key provisions of health care legislation

Coverage

Immediate

reforms

Eliminates lifetime or unreasonable annual limits;prohibits rescissions; mandates coverage ofpreventive services; extends dependent coverageup to age 26; requires insurers to meet certain

medical loss ratios; establishes a temporary high-risk pool for those with pre-existing conditions;and provides reinsurance for retirees.

Provision Description

Limits insurers’ flexibility to vary premiums;

Individual

mandate

Requires individuals to maintain minimumcoverage beginning in 2014. Imposes a penaltythat increases over time for failure to maintain

coverage. Certain exceptions are available forthose with hardships, religious objections, non-US citizens or incarcerated individuals.

Provision Description

Insurancemarket reforms

requires guaranteed availability and renewabilityof policies; prohibits exclusions based on pre-existing conditions; and prohibits discriminationbased on health status.

Minimumbenefitstandards

Establishes new benefit requirements andrequires plans to pay a minimum of 60% ofcoverage costs. Permits high-deductiblecatastrophic plans for adults under age 30 whoare exempt from the individual mandate due to

Individualsubsidies

rov es ax cre s an cos -s ar n g re uc onson a sliding scale for individuals between 133%and 400% of the federal poverty level toward thecost of coverage.

Requires large employers (50+ full-time equivalents)that do not offer coverage to pay an annual fee of$2,000 per full–time employee (FTE) if at least one FTreceives a health insurance tax credit.

Requires large employers offering coverage that isar s p or una or a y.

Grandfatherrules

Grandfathers existing employer plans frominsurance market reforms except for dependentcoverage, wait periods, lifetime limits,rescissions, uniform explanation of coveragedocuments and medical loss ratio requirements.

Creates state-based exchanges through which

Employermandate “unaffordable” to pay an annual fee of $3,000 timesthe number of FTEs receiving tax credits (with amaximum amount not to exceed $750 times the totalnumber of all FTEs). Prohibits waiting periods over90 days.

Employers may subtract the first 30 workers incalculating penalties.

Extends Medicaid to individuals at or below 133%of the federal poverty level. Increases federal

Insuranceexchanges

insurance. Establishes multi-state plans withrates and benefits negotiated by the Office ofPersonnel Management. Does not include a publicinsurance option.

Medicaidexpansion

matching payments to states to compensate forstates’ Medicaid costs for newly eligibleindividuals to 100% from 2014–2016, phasingdown to 90% in 2020 and beyond. IncreasesMedicaid payments to primary care physicians.

Medicare and Medicaid delivery system reforms

Provision Description Provision Description

Hospitalreadmissions

Reduces payments to hospitals that havereadmission rates above certain thresholds forpatients re-hospitalized with preventableconditions.

Marketbasketupdates

Implements productivity adjustments and marketbasket reforms that will reduce payments forhospitals, home health care, skilled nursingfacilities and other Medicare providers.

Medicarecommission

Establishes an independent payment advisoryboard to make binding recommendations to

Part Dcoverage gap

Requires drug manufacturers to provide a 50%discount to Part D beneficiaries for brand-namedrugs and biologics purchased during thecoverage gap (“donut hole”). Provides a $250rebate for enrollees who hit the donut hole in2010. Eliminates the donut hole by 2020.

Paymentreforms

Authorizes programs to test coordinated care

payment models (e.g., bundled payments acrossan episode of care, medical homes andaccountable care organizations).

MedicareAdvantage

Freezes Medicare Advantage payments in2011. Phases in reductions in federalsubsidies paid to private health plans to equallocal Medicare payment rates. Requires plansto meet an 85% medical loss ratio.

ongress or ex en ng e so vency o e care.

DSH payments

Reduces Medicare and Medicaid payments tohospitals that serve a disproportionate share ofuninsured patients, based on the reduction in thenumber of uninsured.

Medicaid drugrebates

Increases rebates paid by prescription drugmanufacturers for certain drugs prescribed toMedicaid beneficiaries. Extends rebates to drugspurchased by Medicaid managed care plans.

Health care reform has passed: what now? 2



Biologics and comparative effectiveness


Biosimilardrugs

Establishes an approval pathway at FDA forbiosimilars (i.e., generic versions of biologicdrugs); provides a 12-year period of exclusivityfor the licensed biologic product.

Comparativeeffectiveness

Establishes a private, nonprofit entity to conductresearch on the comparative effectiveness ofdiagnostics, pharmaceuticals, devices and othermedical treatments.

Tax provisions


Excise tax onhigh-costhealth plans

Imposes a 40% excise tax on employer healthcoverage valued over $10,200 for individuals,$27,500 for families (with certain limitedexceptions), effective January 1, 2018.

Medicarehospitalinsurance (HI)tax on high-

Increases the Medicare HI payroll tax by 0.9% onwages of $200,000 or more for individuals or$250,000 for couples. Imposes a 3.8% tax on thelesser of net investment income (e.g., income frominterest, dividends, capital gains) or the excess of

Provides that the cost of over-the-counter

Executivecompensation

Places a $500,000 cap on health insurers’deduction for compensation paid to officers,directors and certain employees.

Part Ddeduction

Eliminates the employer deduction for MedicarePart D retiree drug subsidy, beginning in 2013.

taxpayersthe taxpayer’s modified AGI over $200,000 forindividuals or $250,000 for couples.

Healthinsurers fee

Imposes a non-deductible annual fee on healthinsurers, allocated based on market share,designed to raise $60 billion from 2014–2019.Provides certain exemptions for tax-exempt andnonprofit insurers.

Im oses a non-deductible annual fee on dru

Information

Requires businesses to file information returnsfor all payments aggregating $600 or more in acalendar ear to a sin le a ee includin

FSA, HSA,HRA changes

insulin) may not be reimbursed through a healthFSA, HSA, or HRA.

Increases penalties for non-qualified distributionsfrom HSAs and Archer MSAs to 20%.

Limits individual contributions to FSAs incafeteria plans to $2,500 annually.

rugmanufacturersfee

manufacturers, allocated based on market share,designed to raise $27 billion from 2011–2019.Excludes those with sales of $5 million or less.

Medical devicemanufacturersexcise tax

Imposes a 2.3% excise tax on the first sale of

medical devices, designed to raise $20 billionfrom 2013–2019. Excludes glasses, contacts,hearing aids and similar products.

Medicalexpenses

Increases the floor on the medical expensededuction for individuals from 7.5% to 10% of AGI

corporations (other than a payee that is a tax-exempt corporation).

Black liquor Eliminates the cellulosic biofuels tax credit forunprocessed biofuels, such as black liquor.

Economicsubstance

Codifies the doctrine and imposes strict liabilitypenalties on transactions lacking economicsubstance.

Charitablehospitals

Imposes additional requirements on charitablehospital organizations to retain charitable status.

Modification ofIRC section 833

Requires eligible insurers to meet a medical lossratio of 85% or higher to continue receiving the tabenefits of IRC section 833.

Indoor tanningtax

Imposes a 10% excise tax on indoor tanningservices.




How is the money spent and where does it come from?

The bulk of the Act’s almost $950 billion price tag comes from: (i) providing federal tax

(ii) expanding Medicaid to cover individuals with incomes up to 133% of the federal pove

level. A mix of tax increases and Medicare spending cuts provide the funding for these

coverage expansions. Notable tax increases include an excise tax on high-cost health

plans; a new Medicare payroll tax for individuals with annual income over $200,000

($250,000 for couples); and annual taxes on health insurers, drug manufacturers andsales of medical devices.

–

Spending increases (billions) Medicare cuts/tax increases (billions)

Individual subsidies, exchanges andrelated spending

$464 Medicare cuts $45

Medicaid and children’s coverageexpansion

$434 Increased Medicare HI taxes $2

Small employer tax credits $40 Taxes on insurers, drugmanufacturers and medical devicesales

$10

Employers (penalties, high-costplans, Part D deduction)

$8

Other tax increases $10

Total $938 Total $96




When do these changes take place?

While the coverage expansions and tax subsidies do not go into effect until 2014, a number of

Key effective dates

.

will run through 2020. Federal agencies will be required to develop extensive regulatory

guidance to flesh out the details of the numerous new programs created by the Act. The

following timeline illustrates when major provisions will take effect.

► Medicaid expansion

► State exchanges established

► Individual mandate and subsidies

► Employer mandate

► Small business subsidies

► Other insurance market reforms take effect

► Medicaid 100% federal match to states

► Health insurers’ fee

► Medicare/Medicaid DSH payment cuts begin

► Immediate health insurancemarket reforms

► Increased Medicaid

► Corporate

information

reporting

► Medicare Commission’s first report toCongress

prescr p on rug re a es

► Medicare Part D “donuthole” relief begins

► Medicare provider rate cutsbegin

► Comparative effectivenessinstitute established

► FDA biosimilars pathwayestablished

► 40% excise tax

on high-cost

health plans

► Codification of economicsubstance

2010 20122011 2013 2014 20182016 2020Coverage expansionstake effect

► HRA, FSA and HSA restriction on OTCdrugs

► Drug manufacturers’ fee

► Medicare Advantage payment cuts begin

► Ban on physician ownership of hospitals

► Increase Medicare payroll tax by

► Medicare Part D donuthole closed

► Medicaid federal match

► Medicaid 100%

match ends

. on earne ncome

► Impose 3.8% tax on investmentincome

► Eliminate deduction for MedicarePart D subsidy

► FSA limitations

► Excise tax on medical devices

► Medical expense deduction floorincreases to 10%

a or su sequenyears




Conclusion

Many observers see the Act as the most sweeping domestic policy legislation passed since Ernst & Young

.

industry will need to undertake major initiatives to comply with the new coverage and

payment rules. In addition, they must decide not only how to manage these compliance

costs, but also the new fees and taxes imposed upon them to fund the Act’s reforms.

Ernst & Young LLP can provide a wide range of services to help navigate these changes,including federal legislative and regulatory advisory services through Washington Council

Ernst & Young, and assistance in analyzing and preparing for business changes resulting

from health care reform, including assurance, advisory, tax, human resources and

transaction advisor services.

Assurance Tax Transactions Advisory

About Ernst & Young

Ernst & Young is a global leader inassurance, tax, transaction and advisoryservices. Worldwide, our 144,000 peopleare united by our shared values and anunwavering commitment to quality. Wemake a difference by helping our people,our clients and our wider communitiesachieve their otential.

More information

For more information on the health care reform legislation, contact Washington Council

Ernst & Young at +1 202 293 7474.

For more information, please visitwww.ey.com.

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The Ernst & Young organization is dividedinto five geographic areas and firms may bmembers of the following entities: Ernst &Young Americas LLC, Ernst & Young EMEIALimited, Ernst & Young Far East Limitedand Ernst & Young Oceania Limited. Theseentities do not provide services to clients.

Ernst & Young LLP is a client-servingmember firm of Ernst & Young GlobalLimited located in the U.S.

© 2010 Ernst & Young LLP.All Rights Reserved.

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This publication contains information in summary form anis therefore intended for general guidance on ly. It is notintended to be a substitute for detailed research or theexercise of professional judgment. NeitherEYGM Limited nor any other member of the globalErnst & Young organization can accept any responsibility


for loss occasioned to any person acting or refraining froaction as a result of any material in this publication. On anspecific matter, reference should be made to theappropriate advisor.

1003-1144411 HCR Highlights Slipsheet 032910 Final

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