March 2013

HEALTH CARE REFORM

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NOTE TO SHRM MEMBERS

This sample presentation is a broad overview of the major provisions of the health care reform legislation.

It is designed to help you convey to senior management the key provisions of the health care reform law. It is not intended to cover every aspect of the sweeping legislation.

You will need to carefully review this presentation and customize it to reflect the impact on your company and its benefits plans.

To assist you in preparing for your presentation and leading subsequent discussions, we’ve included at the end of this presentation links to in-depth resources on the topics covered.

This presentation was revised in March 2013. New guidance is issued frequently and may not be reflected in this presentation.

Nothing in this document is intended to be, nor should be, construed as legal advice. Contact your legal counsel if you have legal questions regarding the subject matter in this document.

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INTRODUCTION

Federal health care reform is the result of the March 2010 enactment of the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Education Reconciliation Act.

These two laws are commonly referred to together as PPACA, the Affordable Care Act (ACA) or health care reform.

Mandates become effective over several years. While health care reform is now law, many implementation details remain unanswered and will be clarified by future regulations and guidance.

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HEALTH CARE REFORM TIMELINE2010 2011 2012 2013 2014 2018

Restrictions on lifetime

limits

Preexisting condition

exclusions prohibited

for children under 19

Restrictions on annual

limits

Extension of adult child

coverage to age 26

Prohibition on

rescissions

No cost sharing and

coverage for certain

preventive health

services

Effective appeals

process

Nondiscrimination rules

apply to fully insured

plans

Certain retiree medical

claims reimbursable

(retiree reinsurance)

Employer reporting of

health insurance

information

Nursing mother breaks

and accommodations

Patient protections

Over-the-counter

medicines not

reimbursable under

health FSA or from

HSA without a

prescription, except

insulin

HSA excise tax

increase

Medicare Part D

discounts for

certain drugs in

“donut hole”

Employer/insurer

distribution of

uniform summary

of benefits to

participants

Employer quality of

care report

Comparative

effectiveness fee

Large-employer

notice to inform

employees of

coverage options in

exchange

Limit of health care

FSA contributions to

$2,500 (indexed)

Elimination of

deduction for

expenses allocable

to retiree drug

subsidy (RDS)

Medicare tax on

high income

No cost sharing for

women’s preventive

services, including

contraception

Employer reporting

of health coverage

on form W-2

(voluntary for

employers with

fewer than 250 W-2

forms)

Individual mandate

State insurance

exchanges available

Large employer

responsibility to

provide affordable

minimum essential

health coverage

Preexisting conditions

exclusions prohibited

Annual limits

prohibited

Automatic enrollment

(employers with more

than 200 employees)

Maximum 90-day

waiting period for plan

coverage

Increased cap on

rewards for

participation in

wellness programs

Coverage of clinical

trials

Excise tax on

high-cost

coverage

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GRANDFATHERED VS. NONGRANDFATHERED PLANS

Understanding and interpreting the sweeping 2010 health care reform begins with an understanding of the law’s “grandfathering” provisions.

A “grandfathered” plan is one that was in existence on March 23, 2010 (the day the PPACA was enacted). A grandfathered health plan is required to comply only with a subset of the group market reforms under the PPACA. The benefit of maintaining grandfathered health plan status is that an employer-sponsored plan will not have to comply with some of the more expansive group market reforms.

A “non-grandfathered” plan is a plan that was not in existence on the date the law was enacted OR one that loses its grandfathered status due to certain changes to the plan. Interim regulations issued in June 2010 outline what plan design changes would cause a plan to lose its grandfathered status.

Our plan for the current or imminent plan year is [SHRM Member: fill in your plan status here.]

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If your plan is grandfathered, the following slides apply.

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GRANDFATHERED PLANS

Grandfathered plans are not required to implement the following provisions:– 100% preventive care coverage– No prior authorization for obstetric/gynecological care– Emergency care benefits same in and out of network– Nondiscrimination for insured plans under tax code– Financial and quality data reporting to government– Appeal process rules– Cover children to age 26 who have other employer

coverage (only until 2014)– Rules on deductible and out-of-pocket maximums– Coverage of clinical trials 

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GRANDFATHERED PLANS

Provisions Applicable to Grandfathered Plans

The following provisions are generally effective Jan. 1, 2011, for calendar year grandfathered plans (technically effective for plan years beginning on or after Sept. 23, 2010):

Preexisting conditions. Elimination of preexisting condition exclusions from group health plans for children under the age of 19.

Dependent coverage (for plan years beginning on or after the date that is six months after enactment and before Jan. 1, 2014). Requirement that group health plans provide coverage for adult dependent children up to age 26 only if the child is not eligible to enroll in other employer-provided coverage (other than in a grandfathered plan).

Elimination of coverage rescissions. Rescission refers to the practice of canceling coverage after someone has submitted medical claims. Rescission would still be permitted if an individual committed fraud or made an intentional misrepresentation of a material fact.

Coverage limits. Requirement that group health plans eliminate lifetime maximum limits on coverage of essential benefits and the elimination of certain annual limits. It should be noted that group health plans will continue to be able to place limits on the amount covered for certain medical procedures.

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REQUIREMENTS FOR GRANDFATHERED PLANS

An employer sponsoring a grandfathered health plan must:

Include in plan materials that describe plan benefits a statement indicating that the employer believes the health plan is grandfathered.

Provide contact information for questions and complaints.

Maintain records documenting the coverage in effect on March 23, 2010, as well as documents to verify, explain or clarify grandfathered status.

Make these records available upon request.

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MAINTAINING GRANDFATHERED STATUS

Each employer has to weigh the cost of losing grandfathered health plan status against the cost reductions from the proposed plan changes that would cause loss of grandfathered health plan status.

Savings derived from adopting plan changes need to be assessed relative to the additional cost and administrative burden required to be in compliance as a nongrandfathered plan; based on the cost/benefit analysis you must determine if design/contribution changes should be made.

A September 2010 poll conducted by SHRM found that 30% of HR professionals say they are attempting to maintain their organization’s grandfathered status, whereas 11% have decided not to maintain their organization’s grandfathered status.

Note to SHRM Member: If you have completed an analysis, you can add that information to this slide.

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LOSING GRANDFATHERED STATUS

Actions that cause a plan to lose grandfathered status are complex, but below are examples:

• Elimination of benefits• Increase in percentage cost sharing • Increase in a fixed-amount cost sharing other than a co-

payment• Increase in a fixed-amount co-payment • Decrease in contribution rate by employer• Changes in (or addition of) annual limits• Decrease in limit for a plan or coverage with only a lifetime

limit or with an annual limit• “Anti-abuse rule”

– Mergers and acquisitions– Change in plan eligibility

SHRM Member: refer to regulations for specifics on above; add explanations for why your plan may or will lose grandfathered status

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SMALL BUSINESSES

SHRM member: If you are a small business, you can customize the next slide as applicable to your organization.

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SMALL BUSINESS

Employer size affects which provisions of the law are applicable. Employers with fewer than 25 full-time employees:

– Eligible for a tax credit if the employer’s average annual wages are below $50,000 and the employer contributes at least 50% of total premium costs

Employers with fewer than 50 full-time employees:– Exempt from Nursing Mother Break and Accommodations Provisions– Exempt from the free rider penalty if they do not provide health coverage

in 2014– Employers with up to 50 employees (or up to 100 employees at the

discretion of the state) will have access to state-based Small Business Health Options Program (SHOP) Exchanges (starting in 2014)

Employers with fewer than 100 full-time employees:– Grants available for workplace wellness programs for employers with fewer

than 100 workers who work 25 or more hours a week– Health plans offered in the small group market (group plans for employers

with 100 or fewer employees) will be required to comply with maximum deductible limits (starting in 2014)

– Cafeteria plans considered simple cafeteria plans that are exempt from nondiscrimination requirements of Code section 125(b)

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KEY COVERAGE PROVISIONS

Key coverage provisions include:

Preexisting condition exclusions prohibited for children under 19 Lifetime limits prohibited on essential health benefits Restricted annual limits

– No 2011 annual dollar limits less than $750,000 on “essential health benefits”• Essential health benefits are not defined in the law, but good

faith compliance is expected until regulations are released 100% coverage for preventive health services Patient protections

– No restrictions on patient’s designation of PCP or pediatrician– Unrestricted access to coverage for emergency treatment – No prior authorization for obstetric/gynecological care

Extension of dependent coverage to age 26 Prohibition on rescissions Nondiscrimination rules apply to fully insured plans

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IMPACT ON WELFARE PLANS

Insurance and group market reforms applicable to health insurance coverage do not directly apply to stand-alone dental and vision coverage

A dental or vision plan is a stand-alone plan if it is:– A fully insured plan under a separate contract– A self-insured plan with a separate election right and

employee contribution

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OTHER KEY PROVISIONS

As stated earlier, health care reform is complex and changing. The following slides highlight key provisions of the law that affect employers.

Breaks for nursing mothers: The PPACA amended the Fair Labor Standards Act (FLSA) to require employers to provide reasonable break time and a suitable location for a nonexempt employee to express breast milk for her nursing child (effective March 23, 2010)

Adoption assistance: The PPACA increased the tax credit and tax exclusion to $13,170 for all adoptions (effective retroactively to Jan. 1, 2010)

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OTHER KEY PROVISIONS

Tax years beginning after Dec. 31, 2010:

OTC products: Over-the-counter medicines or products are no longer eligible for reimbursement under a health FSA, HRA, HSA or Archer MSA without a doctor's prescription. Insulin remains reimbursable.

HSA excise tax: The excise tax for nonmedical HSA and Archer MSA distributions increases from 10 percent to 20 percent.

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OTHER KEY PROVISIONS

On or before March 23, 2012:

Uniform explanation of coverage: Employers must provide to all participants and applicants a summary of benefits stating whether the plan provides minimum essential coverage and whether the plan's share of costs is at least 60% of actuarial value. The timing of this requirement is still pending.

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OTHER KEY PROVISIONS

Tax years beginning after Dec. 31, 2012:

Cap on health flexible spending accounts: Contributions are capped at $2,500 each year, indexed for the Consumer Price Index starting in 2014.

Notification of state exchanges: Employers must provide new and existing employees with information about state insurance exchange, including information on employee eligibility if the employer’s coverage is not affordable and information on free choice vouchers and premium credits.

W-2 reporting: Beginning with the tax year 2012 Form W-2, employers with 250 or more W-2’s must calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees' Form W-2s. Optional for smaller employers.

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OTHER KEY PROVISIONS

Plan years beginning after Dec. 31, 2013:

Play-or-pay penalty: Nothing in the health care reform says an employer must offer health coverage to employees. However, the law imposes penalties under certain circumstances:– An organization that has more than 50 full-time equivalent (FTE) employees

and does not offer minimum essential coverage to full-time employees will be fined $2,000 per full-time employee per year if any full-time employee receives a premium tax credit from the federal government for use in a state exchange. When counting full-time employees, the first 30 are subtracted.

– An employer that has more than 50 FTE employees, offers health benefits and has at least one full-time employee receiving a premium tax credit from the federal government will be fined either $3,000 for each employee receiving a credit or $2,000 for each full-time employee, whichever fine is smaller.

– For employers with 50 FTE employees or fewer, there is no penalty for not offering health care coverage.

– The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.

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OTHER KEY PROVISIONS

Plan years beginning after Dec. 31, 2013 (continued):

Minimum essential coverage: Large employers that offer health insurance must provide “minimum essential coverage” or face a tax penalty.

Limits on waiting periods: Enrollment waiting periods may not exceed 90 days. (Applies to all plans.)

Prohibition of preexisting condition exclusions: Preexisting condition exclusions are eliminated completely. (Applies to all plans.)

Cost sharing limits: A health plan providing the essential health benefits package must have limits on cost sharing provisions (tied to HSA limits). (Applies to nongrandfathered plans.)

Wellness programs: Employers are permitted to offer employees wellness incentive rewards of up to 30 percent of health plan premiums.

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OTHER KEY PROVISIONS

Tax years beginning after Dec. 31, 2017:

Excise tax on high-cost health plans: Health care plans that are valued at more than $10,200 for individual coverage and $27,500 for family coverage, often-called “Cadillac plans,” will be subject to a nondeductible excise tax. The initial cost thresholds for high-cost plans will be adjusted annually for inflation.

The excise tax will be 40 percent of a health plan’s annual cost that exceeds the threshold. For example, an individual plan that is valued at $12,200 would be $2,000 above the threshold, and the issuer of the health policy would be taxed 40 percent of $2,000, or $800 for the high-cost plan.

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WHAT ACTIONS SHOULD EMPLOYERS TAKE?

Stay abreast of new developments related to health care reform.

For coverage provisions, review and evaluate grandfathered protections; measure the financial impact of plan design changes; evaluate changes to offset cost increases; update systems, plan documents, HIPAA certificates; provide required notices.

For health-related account changes, communicate new rules before and during annual enrollment; update plan documents and materials.

For new W-2 reporting requirements, calculate value of health benefits; establish procedures for payroll; communicate to employees that W-2 reporting does not add to their taxable income.

For effective appeals process, review current appeals process with legal counsel and update, if needed, to comply with law and guidance; communicate new procedures to employees.

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FURTHER READING

For more detailed information on the strategic aspects of health care reform, please see the following resources:

SHRM Health Care Reform Resource Pagehttp://www.shrm.org/hrdisciplines/benefits/Articles/Pages/HealthCareReform.aspx

SHRM Health Care Q&Ashttp://www.shrm.org/TemplatesTools/hrqa/benefits/Pages/hcbene.aspx

Aon Hewitthttp://insight.aon.com/?elqPURLPage=5905Kaiser Family Foundationhttp://healthreform.kff.org/Mercerhttp://www.mercer.com/articles/us-health-care-reform

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FURTHER READING

Text of the Laws

Patient Protection and Affordable Care Acthttp://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3590enr.txt.pdf

Health Care Education and Reconciliation Act of 2010http://www.govtrack.us/congress/bills/111/hr4872/text

Regulations

HealthCare.gov: Implementation Center > Regulations & Guidancehttp://www.healthcare.gov/center/regulations/index.html