Health Care Reform: An

Update

Vaughn VanceVice President & General Counsel

October 2013

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• Changing insurance marketplace

• New fees and taxes• New plan restrictions• New employer obligations

Agenda

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Health Insurance Exchanges• Individual exchanges are open for enrollment;

many technical glitches.• Voluntary marketplace for small employers and

individuals. May be expanded in 2017 for large groups.

• No Wisconsin effort to establish a state-based exchange.

• Federal government will establish and operate in 2014.

• Federal law defines small employers as those with 100 or fewer employees. However, federal government is deferring to Wisconsin’s definition of 50 or fewer employees, for now.

• Many unanswered questions remain.

Changing insurance marketplace

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Individual and Employer MandatesAs of January 1, 2014:• Every individual must have health

insurance for themselves and their dependents

Given recent federal delay, as of January 1, 2015:• Failure to offer affordable coverage to their

employees and eligible dependents can result in penalties (taxes) to employers

Changing insurance marketplace

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Individual Penalties• 2014—$95.00/adult and $47.50/child, up to

$285.00 or 1% of family income, whichever is greater

• 2015—$325.00/adult and $162.50/child, up to $975.00 or 2% of family income, whichever is greater

• 2016 and beyond—$695.00/adult and $347.50/child, up to $2,085.00 or 2.5% of family income, whichever is greater

Changing insurance marketplace

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Applicable Large

Employer

Fails/refuses to offer plan to at least

95% of employees

and dependents

One or more employees

receives tax credit or subsidy

Penalty=$2,000 x # of full-

time employees minus 30

Employer penalties

Applicable Large

Employer

Offers plan to

employees and

dependents

Affordability

Employee receives a tax credit

or subsidy

Penalty=$3,000 x # of full-

time employees receiving a tax credit or subsidy

Delayed until 2015

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• 30 hours of service per week or 130 hours per month (Federal requirement similar, but not identical to Wis. Stat., § 632.745(5)(a))

• Look-Back Standard Measurement Period (SMP) At least three months and not more than 12 months- If unpaid time (of at least four weeks) due to

the academic calendar occurs during SMP, it must either be excluded or credited as service hours (maximum 501 hours)

• “And their dependents”—children, not spouse

Full-time employee defined

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• A group health plan fails to offer minimum value (MV) if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs”

• Can demonstrate compliance using any of the following:– HHS MV Calculator Tool– HHS/IRS Safe Harbor– Actuarial Certification

Minimum value

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• Plans and issuers in the small group market will be required to comply with the $2,000/$4,000 deductible limit (indexed)

• All non-grandfathered group health plans must comply with the annual limitation on out-of-pocket maximums of $6,250 self-only/$12,500 family (the same amounts that apply under Code § 223 for high deductible health plans/HSAs)

Deductible and out-of-pocket limits

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• PPACA extends IRS non-discrimination requirements to health insurance plans

• Effect of regulations will likely be to limit plan offerings made to “Highly Compensated Employees” that differ from other staff

• IRS Notice 2011–1 suspends enforcement of regulation until additional guidance has been issued

Non-discrimination testing

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• Patient Centered Outcome Research Institute (PCORI) Fee

• Insurer Assessment Fee• Mandatory Reinsurance Program Fee• Risk Adjustment Program (applies

only to insurers that participate in the individual or small group markets)

New fees and taxes

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Program Patient Centered Outcome Research Institute (PCORI) Fee

Mandatory Reinsurance Program Fee

Insurer Assessment Fee

Purpose Funds evidence-based research.

Offset adverse selection risk in individual market.

Funds are not linked to specific purpose.

Effective Dates

Temporary Program—Plan Years 2012–2018.

Temporary Program—January 1, 2014 to December 31, 2016.

Permanent program.  

Applies To All health insurance carriers and TPAs on behalf of self-funded group plans.

All health insurance carriers and TPAs on behalf of self-funded group plans.

Health insurance issuers (licensed insurers). Not applicable to any of the following: self-funded plans, plans with 80% MA/other government program business, non-employer VEBA plans, or other “governmental” plans.

Fee structure

$1 annual fee per member—2012.$2 annual fee in subsequent plan years.

$5.25 per member per month (PMPM). $63 per year per member—first year.

Federal estimates vary between 1.9% to 3.5% of premium in 2014.

New PPACA fees

*Reference to risk assessment program omitted as only applicable to small groups

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• Rating restrictions• Plan design requirements• Actuarial value requirements

New plan restrictions

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• Applicable to all individual and small group insurance policies

• Prohibited rating factors include: Gender, health status, claims experience, occupation, duration of coverage, prior source of coverage, credit worthiness, and re‑underwriting

Rating restrictions: How rates are determined

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Permitted Rating Factor

Permissible Rating Impact

Notes

Family Size Family Tiers Prohibited Defaults to state definition of spouse/partner.Rates can include no more than the three oldest family members under age 21.

Geographic Rating Areas Actuarially justified Established/approved by federal government.

Age 3:1 for adults Children have single rate band from 0–20 years.Age bands by year 21–63.One age band for 64 and older.

Tobacco Use 1 ½:1 for adults Definition of use pending.Must have opportunity to avoid surcharge through wellness program.

Rating restrictions, cont.

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To comply with initial PPACA requirements, the following plan changes will likely be necessary:• Modify plans so that copayments apply to

maximum out-of-pocket• Eliminate plan options that exceed maximum

out-of-pockets• Must have separate network and non-network

accumulators• Eliminate existing annual dollar limits for ESRD,

autism, TMD, and home health services• Add coverage for habilitative services and

pediatric vision in all small group offerings

Plan changes required

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• All non-grandfathered health insurance coverage in the individual and small group market meet specific actuarial values

• A plan must be within 2% of the metal standard to be acceptable

Actuarial value: Plan design

Metal Level % costs paid by insurer

% of costs paid by insured

Platinum 90% 10%Gold 80% 20%Silver 70% 30%Bronze 60% 40%

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• W-2 reporting• Employer notices• Summary of benefits and coverage• Automatic enrollment• IRS reporting on covered employees

New employer obligations

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• PPACA requires employers to report to employees the aggregate cost of their employer-sponsored group health plan coverage on the annual Form W-2, in box 12, using code DD

• These benefits are not taxed• Optional for employers with less than

250 employees until IRS publishes additional guidance

W-2 reporting requirements

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• Employer requirement was initially set for March 1, 2013, to provide written notice to employees related to health insurance exchanges

• October 1, 2013, was deadline; no fine or penalty under the law for failing to provide the notice

• Notice to include a description of services provided by the Exchange and how to contact the Exchange

• Notice also to highlight potential premium tax credits or cost-sharing reductions if the employee purchases coverage through the Exchange

Employer exchange notice

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• PPACA requires a variety of notices• Most notices are included in WEA Trust

plan documents – Prohibition of pre-existing condition exclusion– Claims appeal procedures– Notice of material modifications

• Some notices are not PPACA related, but still performed by WEA Trust: – Notice of privacy practices– Medicare Part D creditable coverage– Women’s Health and Cancer Rights

Other Employer Notices

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• Summary of Benefit Coverage• Notice of Healthcare Marketplace (Mandated by October 1, 2013, but no penalties for failure to do so)

– http://www.dol.gov/ebsa/faqs/faq-noticeofcoverageoptions.html

• Automatic Enrollment – Notice and the opportunity for an

employee to opt-out of coverage

• IRS Reporting on Covered Employees

Other Notices

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Trigger To Whom Distribution Timeline“Upon application” To the plan/sponsor No later than 7 calendar daysUpon request from either the plan (employer/sponsor) or participant

Either plan or participant As soon as practicable, but no later than 7 business days following receipt of request

Automatic Renewal Participants No later than 30 days prior to the first day of the new plan year

Renewal—where policy has not been issued or renewed before the 30 day period

Plan/participants As soon as practicable, but no later than 7 business days after issuance of the new policy or written confirmation of intent to renew

Material modifications of plan affecting SBC provisions

Participants At least 60 days prior to the effective date of the change

Summary of Benefits and Coverage (SBC)

• The purpose of SBC is to provide individuals with standard information so they can compare medical plans as they make decisions about which plan to choose

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• Applies to employers with 200 or more employees

• Employer must automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law), and to continue the enrollment of current employees in a health benefits plan offered through the employer

• In abeyance until IRS issues additional regulations —guidance expected in 2014

Automatic enrollment of employees

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• Requirement delayed until 2015 (to be reported in 2016)• Applies to large employers (≥ 50 FTE)• Employer requirements:

– Certification that employees had the opportunity to enroll in minimum essential coverage

– Reporting of the months for which each employee’s coverage was available

– Reporting the employee’s share of the lowest cost monthly premium for Minimum Essential Coverage, by calendar month

– Reporting the name, address, and Taxpayer Identification Number (TIN) for each employee and the months, if any, during which the employee was covered

• Participants must also be provided with notice

IRS reporting on covered employees

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• Requirement delayed until 2015 (to be reported in 2016)• Applies to insurers of fully-insured plans and employers with

self-funded plans• Information to be reported:

– Name, address, and EIN of employer plan sponsor– Name, address, and TIN of the “responsible individual”

and of each other individual obtaining coverage under the plan

– Month in which the individual is covered at least one day• Participants must also be provided with notice given to

federal government

IRS reporting on Minimum Essential Coverage

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• To avoid penalty, employers must offer coverage to full-time employees

• Little guidance given• No guidance on when first offer must occur

(assume one must occur prior to January 2015)• Must be no less than once during the plan year• Whether coverage was offered is determined

by:– Adequacy of notice– Period of time during which acceptance may be

made– Other condition on the offer

Open enrollment period

Thank you!