Responding Strategically to

The Patient Protection AndAffordable Health Care Act

 

The Health Care Reform Legislation

Effective March 23, 2010:

• Title I – Quality and Affordable Health Care for all Americans• Title II – Role of Public Programs• Title III – Improving the Quality and Efficiency of Health Care • Title IV- Prevention of Public Disease and Improving Public Health

Put the law in the proper perspective.

(Or: After the Cow is slaughtered its time to make hamburgers)

The Health Care Reform Legislation

• Only 135 pages of the Act apply directly to employers

• The first of the mandated changes for group health plans are required to be implemented for plan years beginning after September 23, 2010

• Most of the provisions of the Act are phased in between now and January 1, 2014

• Plans in existence on March 23, 2010, are “grandfathered” and are permanently exempt from some mandates under the Act

• The Act exempts “small employers”

• Includes tax credits

Step One:

Determining which provisions of the Act apply to you.

The Health Care Reform Legislation

• The rules for determining whether a person is eligible for cost-shared coverage under an individual policy.

• The rules for determining number of employees

• The rules defining large employers and small employers

• The rules for determining whether a policy or group health plan a is “grandfathered” plan

• The rules exempting grandfathered plans from certain requirements

Step Two:

Rules for persons covered under an individual policy.

The Health Care Reform Legislation

• The new legislation includes cost-sharing subsidies to individuals who are not eligible to participate in an employer plan and who participate in the silver level of a State Insurance Exchange.

• The premium credits are for eligible individuals and families who pay more than a scaled percentage of income: 2% for 133% of FPL to 9.5% for 400% of FPL

Step Two: Determining which provisions of the Act apply to you

Calculating the number of full time employees.

The Health Care Reform Legislation

• A full-time employee (FTE) is one whose cumulative hours equal or exceed 30 hours per week

• Full time equivalent employee (FTEE) are the cumulative hours of all part-time hours for a month divided by 120

• Seasonal employee exception applies if you have more than 50 FTEs for less than 120-days in the year and more than 50 were "seasonal" (defined by the DOL)

Step Two: Determining which provisions of the Act apply to you

The definition of large employers and small employers under the rules.

The Health Care Reform Legislation

• Small employers have 50 or less full-time equivalent employees

• Small employers with less than 25 full-time equivalent employees are eligible for a phased tax credit

• Large employer are defined as those which have more than 50 full-time equivalent employees

Step Two: Determining which provisions of the Act apply to you

The rules for determining whether a Group Health plan is a “grandfathered” or a “new” plan.

The Health Care Reform Legislation

Any group health plan in existence on March 23, 2010, is considered a “grandfathered” plan under the Act.

It can lose its grandfathered status if it is materially changed

Grandfathered plans are not subject to certain mandates but are subject to others

Plans which are not grandfathered are considered “new” plans

Step Two: Determining which provisions of the Act apply to you

The rules for determining whether a Group Health plan is a “grandfathered”.

The Health Care Reform Legislation

To be grandfathered:

• the policy or group health plan must have had at least one covered person on March 23, 2010, and

• continuously covered someone since March 23, 2010 (even if not the same individuals), and

• is not materially changed since March 23, 2010

Step Two: Determining which provisions of the Act apply to you

Interim final regulations define a “material change” in six instances

The Health Care Reform Legislation

1. Eliminating or significantly reducing benefits

2. Raising co-insurance or co-payments

3. Raising deductibles

4. Reducing employer contributions

5. Adding or increasing an annual limit

6. Changing insurance carriers

The rules for determining whether a policy or group health plan is “grandfathered”

Grandfathered status applies separately to each benefit package offered under a policy or plan.

The Health Care Reform Legislation

A plan offers three options: Option 1 (self-funded), Option 2 (insured), Option 3 (insured). The Plan replaces the insurance issuer for Option 2.

Under the rules a plan loses grandfathered status if it changes providers. Option 2 is no longer grandfathered, but Options 1 and 3 retain grandfathered status.

The rules for determining whether a policy or group health plan is “grandfathered”

Permissible changes which will not affect grandfathered status

The Health Care Reform Legislation

• Changes to premiums;

• Changes to comply with federal or state law;

• Changes to voluntarily comply with provisions of PPACA or to increase benefits;

• Changes to a plan's third party administrator

• Changes to plan structure, e.g., switching from a health reimbursement arrangement to major medical coverage, or from insured to self-funded coverage;

• Changes to a provider network; and

• Changes to a prescription drug formulary.

The rules for determining whether a policy or group health plan is “grandfathered”

Caveats for grandfathered policies and plans

The Health Care Reform Legislation

• Grandfathered plans must disclose its status in each participant communication

• Grandfathered status is revoked if:

Participants are switched to another grandfathered plan with less benefits or protections

Merges into another plan for purposes of avoiding the obligations under PPACA

The rules for determining whether a policy or group health plan is “grandfathered”

Step Three:

Understand your obligations under the Act

The Health Care Reform Legislation

Mandates applicable to “new” plans

• Small employer exceptions

• Small Employer Tax Credit

• Mandates applicable to both new and grandfathered plans

• Play or Pay

Step Three:Understand your obligations under the Act

Mandates applicable to “new” plans

The Health Care Reform Legislation

•Non-discrimination rules will apply to fully-insured plans

•The plan must provide for an internal and external review process

•Emergency services must be covered without prior authorization (this may be found not to be exempt for grandfather plans)

•Participant can select own physician, pediatrician, and OB/GYN

•Must provide preventative care with no cost sharing

Step Three:Understand your obligations under the Act

Small employer exceptions apply to employers with 50 or less full-time equivalent employees

The Health Care Reform Legislation

Only employers with more than 50 FTEEs are mandated to provide “minimum essential coverage” to FTEs

Coverage is not required to be provided until January 1, 2014

Employers with less than 25 FTEE get a tax credit for 2010 phased out through 2014

Step Three:Understand your obligations under the Act

Small Employer Tax Credit

The Health Care Reform Legislation

For tax years beginning in 2010, this new tax credit maybe taken by employers which meet the following three criteria:

• have fewer than 25 full-time equivalent employees (50 part-time workers are an example of equivalent),

• pay average annual wages of less than $50,000 for each full-time equivalent employee, and;

• contribute a uniform* percentage of at least 50% of the employer’s cost of single coverage premiums* paid through a “qualifying arrangement”.

Payroll deferrals into a cafeteria plan are considered employee contributions.

Step Three:Understand your obligations under the Act

Mandates applicable to both new and grandfathered plans

The Health Care Reform Legislation

Effective January 1, 2010:

•No lifetime limits on coverage

•Coverage for adult children to age 26

•Pre-existing condition exclusions

Effective for plan years after September 30, 2012,:

•employers are to pay a $1.00 fee/participant for the first year; $2.00 the second; thereafter per formula

•notice and reporting requirements

Effective 2013

•3.8% Medicare tax on unearned income

Effective 2014

•Excise Tax for failure to provide coverage. The “Play or Pay” provision

Step Three:Understand your obligations under the Act

Play or PayThe Health Care Reform Legislation

The Act imposes a non-deductible excise tax upon

• “applicable large employers” which do not offer

• “coverage for all its full-time employees,

• under a plan which the total allowed participant’s cost of benefits is more than 60%, and

• any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.

Play or pay

When the employer plays

The Health Care Reform Legislation

Employer with more than 50 FTEs determined on a controlled group basis

Must provide minimum essential health coverage to be established by the Secretary of HHS and based on local markets and comparable to the average employer plan

Employer plan must be affordable. Employer fails to offer either:

"Qualifying Coverage" - plan's actuarial value more than 60% (i.e., participants pay 40% or less)

Affordable Coverage – cost is equal to or less than 9.5% of household income

Play or pay

When theemployer pays

The Health Care Reform Legislation

Free Rider Surcharge - Effective 2014 – is the penalty an employer may pay if it does not offer “minimum essential health coverage”

The penalty for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by one-twelfth of $2,000

Step Four:

Respond strategically

The Health Care Reform Legislation

• Define your benefit philosophy

• Quantify your return on your health care dollar

• Identify and cost out your health care options

• Consider benefits as a part of total compensation package

Step Four:Respond strategically

Define your benefits philosophy

The Health Care Reform Legislation

Is there an expressed policy as to what the employer wants to provide its employees in terms of health coverage?

Is the current philosophy consistent with business needs?

Step Four:Respond strategically

Quantify your return on the health plan dollar

The Health Care Reform Legislation

Costs – current and projected

Tool for recruiting and retaining employees

Consistent with employer’s philosophy on employee benefits

Labor relations/Public Relations

Administration and compliance costs and effectiveness

Measure the qualitative and quantitative return on the dollar invested in health care

Step Four:Respond strategically

Develop a formal benefits strategy

The Health Care Reform Legislation

Reconcile gaps between business needs and objectives and the current health benefits policies and practices

NOTE: changes to a plan may affect its “Grandfather” status under the Act.

Next steps

Manage your response to the Health Care Reform Act (PPACA)

Management: ◙ Assemble your decision-making team◙ Design a plan which will flex to meet forecasted business plans ◙ Consider employee relations and administrative issuesAdministration: ◙ Consult with your insurance carrier or actuary for a cost analysis◙ Schedule the implementation of changes, communications, systems, and coordinate with vendors◙ Operate in accordance with the fiduciary requirements of ERISAFinance: Project out costs for playing under both a grandfathered and new Project out costs for not playing Legal: Consider risk tolerance pending agency guidance