1509865 1

PREPARING FOR HEALTH
CARE REFORM

THE PATIENT PROTECTION AND
AFFORDABLE CARE ACT

FOR: Construction Financial Management Association
August 19, 2010

Julie A. Pace Heidi Nunn-Gilman
The Cavanagh Law Firm The Cavanagh Law Firm
602.322.4046 602.322.4080
jpace@cavanaghlaw.com hnunngilman@cavanaghlaw.com

Health Care Demographics
There are approximately 300 million Americans
2

 177 million w/ employer based coverage (59%)
 26 million w/ individual private insurance (9%)
 83 million w/ Medicare, Medicaid, or Military
(28%)
 46 million are uninsured (15%)

Julie A. Pace The Cavanagh Law Firm, P.A. 602.322.4046 jpace@cavanaghlaw.com

The Big Picture
3

 Health care reform enacted in two separate bills
 Individuals must “enroll or pay”
 Individuals will have access to basic health coverage
through:
 Employer-sponsored group health plans
 Individual insurance policies offered through an Exchange
 Government plan (Medicare, Medicaid, Veterans’ or CHIP)

 Employers must “pay or play” - offer coverage or
pay taxes
 Array of Federal subsidies for small businesses and
lower income individuals


Employer Options - Now & In the Future
4
 March 23, 2010-January  Post January 1, 2014:
1, 2014:  Continue Grandfathered
 Continue coverage that Plan
existed as of 3/23/2010  Employer insured group
(Grandfathered Plan) plan
 Other employer group  Employer self-funded
plan plan
 Insured  Provide Exchange
 Self-funded support
 No coverage  Offer Exchange plan
(when available)
 No coverage


Grandfathered Health Plan
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 Grandfathered health plan’’ is defined as
 any group health plan or

 individual health insurance coverage

 in which an individual was enrolled on the date of enactment

 Family members may enroll, if such enrollment was
permitted under the terms in effect as of March 23,
2010
 “New employees” and their families may enroll


Requirements for Grandfathered Plans
6

 For plan years beginning on or after 9/23/2010
Grandfathered Plans
 No pre-existing condition provisions may apply to children <
19
 Cannot have dollar value limits on lifetime or annual benefits
 Must extend benefits to children up to age 26
 Must provide uniform benefits summary information
 May not have a waiting period in excess of 90 days
 May not rescind coverage, other than for fraud
 Other market reforms and Exchange requirements
do not apply to Grandfathered Plans (before or after
2014)

Coverage of Adult Children
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 For plan years after September 23, 2010, GHP, including
Grandfathered Plans, that provide dependent coverage
must
 “Continue to make such coverage available” for an adult child
 Until the child (unmarried or married) turns 26 years of age
 Not required to cover a child of a child receiving coverage
 Code amended to exclude expanded coverage from
income tax
 Prior to January 1, 2014, coverage for older dependent
only required if child is not eligible to enroll in an eligible
employer-sponsored health plan other than the
grandfathered plan
 Secretary to promulgate regulations


Collectively Bargained Agreements (CBAs)
8

 CB Plans ratified before the enactment date are
grandfathered until the date on which the last of the
CBAs relating to the coverage terminates
 Coverage requirements applicable to other Grandfathered
Plans, including dependent coverage, do not apply
 Any CBA coverage amendment which amends coverage solely
to conform to any requirement added by the Act shall not be
treated as a termination of such CBA


Non-Grandfathered GHPs
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 Employers may offer health plans other than
“grandfathered plans” before and after 2014
 All non-grandfathered GHP, including self-insured
plans, are subject to additional coverage
improvement and reporting requirements
 Most become effective for plan years after September
23, 2010, unless otherwise noted
 After January 1, 2014, employer-sponsored coverage
must meet minimum essential benefit requirements
to qualify under individual and employer play or pay
provisions


Additional Coverage Improvements
10

 In addition to the coverage requirements that apply
to Grandfathered Plans, GHP coverage must:
 Cover preventive health services without cost-sharing
requirements
 Satisfy appeal process requirements
 Quality reporting annually to Health & Human Services (HHS)
Secretary
 Insured plans must account for claims/non-claim costs and
rebate to enrollees if non-claims costs too high


Preventive Health Benefits
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 GHP must cover, without any cost-sharing
requirements,
 Evidence-based items and services (currently recommended by
U.S. Preventive Services Task Force)
 Immunizations
 Pediatric preventive care and screenings
 Women’s health preventive care and screenings including
breast cancer screening, mammography


Market Reforms
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 Effective for plan years after January 1, 2014
 Prohibition on discrimination on the basis of health status
 Health and Wellness Program safe harbor
 Allow incentives of up to 30% of premium
 Limits on fair health insurance premiums
 Guaranteed availability and renewability (individuals over
age 19)
 Comprehensive coverage requirements to be established


Premium Variation Limits
13

 Limit variation in premium rates based on
 Family structure

 Age (3:1)

 Tobacco use (1.5:1)

 Geographic rating area


Post-2014 Options
14

 Continue Grandfather Plan
 Qualified health plan (through an Exchange or
otherwise)
 Exchanges available for small employers beginning 2014
 Available for largest of employers beginning 2017
 Employer may provide support for a coverage level
 Any employer* or individual may enroll in a health plan
offered outside an Exchange (non-qualified health plan)
 Subject to State insurance law mandates
 May be subject to “pay or play” penalties if plan does not meet
minimum essential coverage requirements
* Congress and its staff may only enroll in an Exchange
plan


How to Stay a GHP
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 Regulations define the changes that may be made
and still be considered a GHP
 Prohibit major cuts in benefits
 Prohibit significant cost increases
 Permits “routine changes”


“Routine Changes” to GHP Permitted
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 Cost adjustments in line with medical inflation
 Addition of new benefits
 Modest adjustments to existing benefits
 Adoption of consumer protections under PPACA
 Changes to comply with federal or state law


“Significant” Changes Threaten GHP Status
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 Cannot significantly cut or reduce benefits
 Cannot raise coinsurance charges
 Cannot significantly raise copayment charges
 Increases less than or equal to the greater of medical inflation + 15%
or $5.00 are permitted
 E.g., medical inflation 4%, increase of 19% permitted
 Cannot significantly raise deductibles
 Increases less than or equal to medical inflation + 15% okay
 Cannot reduce % of employer contributions by more than
5%
 Cannot add or reduce annual limits
 Cannot change insurance companies


Requirement that Individuals Enroll or Pay Fine
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 To avoid a penalty, individuals must have
acceptable coverage from one of the
following sources:
 Employer-sponsored plan (including a grandfathered
plan)
 An individual policy (purchased through a private insurer
or through an Exchange)
 Government program (Medicare, Medicaid, Veterans,
CHIP)


Requirement that Individuals Enroll or Pay Fine
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 Those without coverage face the greater of a dollar
penalty or a percentage of household income penalty
 Dollar penalty equals ½ of the amount listed below for each
uninsured dependent under the age of 18
 Total dollar penalty for a family is capped at 300% of the
normal penalty
 Penalties phased in
 2014 $95 or 1.0% Income

 2015 $325 or 2.0% Income

 2016 (and after) $695 (indexed) or 2.5% Income


Employers Pay or Play
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 Large ERs (=50 EEs)
 that do not offer health coverage and have at least one FT
EE who receives premium tax credit must pay a penalty
 $2,000 per FT EE (excludes the first 30 EEs)
 that offer health coverage and have at least one FT EE who
receives a premium tax credit because employment-related
health coverage is not adequate or affordable (plan covers
less than 60% of costs or EE’s contribution to ER coverage >
9.5% of household income) must pay the lesser of
 $3,000 per employee who is receiving a premium tax credit
 $2,000 for each FT EE


Employers Pay or Play
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 Small ERs (< 50 EEs) are exempt from penalties
 For “pay or play” purposes, employees are
 FT EEs (30 or more hours/week)

 FT Equivalent Employees (total monthly part-time hours /
120)
 ER assessments are not tax deductible
 Vouchers for EE at less than 400% of federal poverty
level who choose Exchange


Incentives for Small Employers to
Provide EE Benefits
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 ER criteria for tax credits
 ER must pay at least 50% of EE health care coverage
 ER must have no more than 25 FT Equivalent EEs
 Maximum credit for ERs with 10 or fewer FT Equivalent EEs
 ER must pay average wage < $50K/year
 Maximum credit for ERs that pay average wage < $25,000
 Amount of tax credits
 Phase I (2011- 2013)
 Credit up to 35% of ER contribution toward EE’s health insurance premium
 Phase II (2014 and later)
 Credit up to 50% of ER contribution toward EE’s health insurance premium
 Tax exempt entities are eligible for FICA credits


Health Care Exchanges
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 What is an Exchange?
 A marketplace of health insurance issuers (traditional, for-profit
insurance companies and non-profit cooperatives) that will offer
QHPs to individuals/small ERs
 Exchanges will be operational by January 1, 2014
 Large ERs may be eligible to purchase coverage through Exchanges in
2017
 Who creates an Exchange?
 Each state must create an Exchange (funded by $6 billion in
federal grants)
 What is the goal of an Exchange?
 Enhance consumer choice
 Creation of single risk pools
 “Apples to apples” comparison of health insurance coverage


Health Insurance Exchanges
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 What are the features of an Exchange?
 Issuers must be certified by the Exchange

 Rating system based on quality and price

 Enrollee satisfaction system

 Premium rate limits
 Age (3:1), tobacco use (1.5:1), family structure and geographic area


Health Insurance Exchanges
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 Multi-tier with different levels of coverage
 Every tier covers essential benefits
 % of covered benefits costs ranges 60% to 100%
 Out-of-Pocket limit for all tiers capped at $5,950
(individual)/$11,900 (family)
 Tiers labeled Bronze, Silver, Gold, Platinum, and Catastrophic
 Essential benefits include
 Preventive care
 Emergency services
 Hospitalization
 Maternity and newborn care
 Mental health and substance abuse
 Prescription drugs


Subsidies for Individuals
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 Modest income  Modest income
individuals (between individuals in Exchanges
100% and 400% of the eligible for three
federal poverty level) are subsidies
eligible for subsidies to  Limits on amount of
pay premiums income paid for premiums
 Family of 4 - 400% of  Cost-sharing (copays,
poverty level is deductibles, etc) limits
$88,2000  Out-of-pocket spending
limits


Excise Tax on “Cadillac Plans” (2018)
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 Tax = 40% of “excess benefit”
 Excess benefit is the aggregate cost of the benefit in excess
of:
 $10,200 for single-only coverage (as adjusted)
 $27,500 for family coverage (as adjusted)
 For qualified retirees and those in high-risk jobs threshold
is $11,850/$30,950


Other Changes to Plan Design and Operation
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 Medicare Part D
 No ER deduction for retiree drug subsidy beginning 2013

 Closing the “Donut Hole” on prescription coverage

 Nondiscrimination in favor of highly compensated in
insured health coverage
 New administrative fee for employer-sponsored
health plans


Other Changes to Plan Design and Operation
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 Reinsurance for Early Retirees
 Reimbursed 80% of costs between $15,000 and $90,000 for
employer sponsored retiree health plan
 Program runs only through 2013

 HSA and Health FSA changes
 FSA contribution limited to $2,500 beginning 2013

 OTC drugs no longer covered effective 2011

 Excise tax on non-medical HSA distributions increased from
10% to 20%


Notice to Employees
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 Employers subject to FLSA must provide written
notice to current and new employees
 Identify the Exchange and how to contact
 If employer’s health plan is not sufficiently valuable, notify of
the existence of premium subsidies and cost-sharing
reductions
 If the employee enrolls in an Exchange plan, indicate that the
employee may lose any employer subsidy in the employer plan
 Effective March 1, 2013


Auto Enrollment
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 Large employers (200+ FTEs) must automatically
enroll new employees if the employer offers a health
plan
 Employees may opt out; advance notice required
 Effective for the 2014 plan year


Taxes on High Income Individuals
32

 Increases the health insurance (HI) portion of the
FICA tax from 1.45% to 2.35% on wages in excess of
$200,000 ($250,000 for a joint return)
 Same rule for SECA (and no deduction for the additional tax)
 Additional 3.8% tax on lesser of:
 net investment income (interest, dividends, royalties, rents,
passive income)
 Modified adjusted gross income in excess of $200,000
($250,000 for a joint return)
 Both provisions are effective in 2013


Other Provisions
33

 Medicaid expanded to cover people at less than 133%
of the federal poverty level

 Creation of temporary (through 2014) “high risk”
insurance pools for individuals denied other
coverage because of preexisting condition


Other Provisions
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 Amends the FLSA to require ER to furnish “reasonable break time
for an employee to express breast milk for her nursing child” up to
one year – breaks provided “as needed” be EE
 ER must also provide a place where the EE can express breast milk
 The place must be somewhere other than a bathroom and must be “shielded from
view and free from intrusion from coworkers and the public”
 ER with less than 50 Ees exempt if compliance would impose undue
hardship
 Applies only to non-exempt employees
 Breaks may be unpaid
 Effective March 23, 2010
 Does not preempt state law more favorable to EE
 Awaiting DOL regulations to clarify requirements


QUESTIONS??
35

Julie A. Pace
The Cavanagh Law Firm
1850 N. Central Avenue, #2400
Phoenix, Arizona 85004
602.322.4046
jpace@cavanaghlaw.com
www.cavanaghlaw.com


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