2011-2012 Issues for Employers

How the law affects employers and health plans Grandfathered plans Small business tax credit Early Retiree Reinsurance Program Plan coverage and administration changes Employer reporting and disclosure rules Medical loss ratio (MLR) regulations CLASS Act

Patient Protection and Affordable Care Act (PPACA) – signed on March 23, 2010 Health Care and Education Reconciliation Act (Reconciliation Act) – signed on March 30, 2010 The health care reform law makes sweeping changes to our nation’s health care system

Existing plans = grandfathered plans A group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of the health care reform legislation Certain health care reform provisions don’t apply to grandfathered plans, even if coverage is later renewed New employees can still enroll Family members of current enrollees can still join Regulations provide guidance on changes to plan design that could take a plan out of “grandfathered” status

Patient Protections Nondiscrimination rules for fully insured plans New appeals process Quality of care reporting Insurance premium restrictions Guaranteed issue and renewal of coverage Nondiscrimination based on health status/in health care Comprehensive health insurance coverage Limits on cost-sharing Coverage for clinical trials

Health Insurance Changes – Prohibitions on: Lifetime and annual limits Pre-existing condition exclusions Rescissions Excessive waiting periods Required coverage of adult children up to age 26 Summary of benefits and coverage Reporting medical loss ratio

Permitted Changes Cost adjustments consistent with medical inflation Adding new benefits Modest adjustments to existing benefits Voluntarily adopting new consumer protections under the health care reform law Changes to comply with state or federal laws

Special Rule for Insured Collectively Bargained Plans Prohibited Changes Significantly reducing benefits or contributions Significantly raising copayment charges or deductibles Raising coinsurance charges Adding or tightening annual limits Changing insurance companies (not TPAs) – Changing insurers is now permitted! Special Rule for Insured Collectively Bargained Plans Additional Requirements Disclose grandfathered status Status can be revoked if try to avoid compliance 8

Changes made before regulations issued can be revoked Changes made before March 23, 2010 are part of the plan on the date of enactment Must be legally binding Changes don’t have to be effective yet Changes made before regulations issued can be revoked Must be adopted before June 14, 2010 Must be revoked by first day of first plan year on or after September 23, 2010 “Modest changes” may not be taken into account No clear guidelines

Available beginning in 2010 Qualifying small employers that provide health care coverage to employees are eligible for tax credit Have fewer than 25 full-time equivalent (FTE) employees Pay wages averaging less than $50,000 per employee per year Has a “qualifying arrangement” (pays premiums for each employee in a uniform percentage that is at least 50 percent of the cost of coverage) Available beginning in 2010 IRS guidance clarifies how to calculate FTEs and wages  

Depends on employees and wages Credit based on premiums paid by employer for health insurance coverage Credit amount = up to 35 percent of premium costs paid (25 percent for tax-exempt employers) On Jan. 1, 2014, increases to 50 percent (35 percent for tax- exempt employers) Depends on employees and wages The credit phases out gradually for: Employers with average wages over $25,000 and Employers with more than 10 FTEs

Plans that are not health insurance coverage: Self-insured plans (including HRAs and FSAs) Health Savings Accounts (HSAs) Employer contributions to these plans are not counted for credit Contributions to multi-employer plans can count if for health insurance coverage Contributions to church welfare plans count as insurance

2010 Transition Relief 2010-2013 Rules Employer pays an amount that is equal to at least 50 percent of the cost of single coverage for each employee enrolled Even if the percentage paid is not uniform for each employee 2010-2013 Rules Employer can choose approach for 2010 Qualifying arrangement depends on number of plans and type of billing (composite or list)

Effective on date of enactment? Yes, but need regulations so compliance delayed Large employers that offer health benefits must automatically enroll new employees Large employer = more than 200 full-time employees Adequate notice and opt-out option required Other questions to be addressed in regulations

Early retiree = 55 and older and not eligible for Medicare Temporary program to reimburse costs of providing coverage for early retirees, spouses and dependents Early retiree = 55 and older and not eligible for Medicare Reimburses 80 percent of costs related to claims between $15,000 and $90,000 Must be used to lower plan costs (not for general revenue) Apply and submit claims to HHS New application for use after Nov. 9, 2010 Updated information at www.errp.gov 15

State mandates above this level continue to apply Plans that cover dependent children must make coverage available until child turns 26 Includes grandfathered plans, unless child has own employer coverage (before 2014) Covers married and unmarried children Children and spouses of covered adult children do not have to be covered State mandates above this level continue to apply Insurers complying early to avoid coverage gaps Tax exclusion applies to coverage

Definition of dependent restricted Can only be defined by relationship Other factors (financial dependence, residency, student status, employment, eligibility for other coverage) generally can’t be used as basis for denial Qualified dependents must be: Offered same coverage as similarly situated individuals Given the same rates for coverage Provided with a 30-day special enrollment opportunity and notice

Favorable tax treatment extended for this coverage Coverage excluded from income for children who have not attained age 27 at the end of the taxable year Other dependent requirements do not apply Applies to health FSAs and HRAs Effective March 30, 2010 Transition rule for cafeteria plan amendments Retroactive amendment permitted

Apply to new and grandfathered plans No lifetime limits on essential benefits Restricted annual limits on essential benefits Allowed for plan years beginning before Jan. 1, 2014 Essential benefits generally include: Ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse services, prescription drugs, rehab services, lab services, wellness and disease management, pediatric care Per beneficiary limits ok on non-essential benefits Some regulations issued, waiting on others

Restricted Annual Limits Lifetime Limits Notice and special enrollment required for individuals who reach lifetime limit Restricted Annual Limits After September 23, 2010: $750,000 After September 23, 2011: $1.25 million After September 23, 2012 (before January 1, 2014): $2 million Waivers available for annual limit requirements

Plan or policy must have existed before September 23, 2010 Plans can apply for waiver of annual limit minimums if access to or cost of benefits significantly affected Plan or policy must have existed before September 23, 2010 Exceptions for certain mandated or group policies Approval applies for one year Plans must reapply for later years If plan obtains a waiver, must notify participants

No rescission of coverage Applies to group and individual coverage Applies to new and grandfathered plans Exception for fraud or intentional material misrepresentation Individual must be given prior notice of cancellation for permitted reasons (including nonpayment of premium or plan termination) No pre-existing condition exclusions or limitations for children under age 19 This prohibition will apply to everyone in 2014 Applies to new and grandfathered group plans

Limits on preauthorization and cost-sharing Apply to new plans Limits on preauthorization and cost-sharing No cost-sharing for some preventive care (including well-child care) and immunizations No preauthorization or increased cost-sharing for emergency services (in- vs. out-of-network) No preauthorization or referral for ob/gyn care Patients can chose any available participating primary care provider (or pediatrician) Regulations issued

Apply to new fully insured plans Fully insured plans must follow rules regarding nondiscrimination in favor of highly compensated employees (HCE) Cannot discriminate with respect to eligibility or benefits HCE: 5 highest paid officers, more than 10 percent shareholder, or highest paid 25 percent of all employees Effective date delayed for regulations

Grace period until July 1, 2011 for some rules Apply to new plans Group health plans and health insurers must implement effective internal appeals process Include rescissions as denials Expedite urgent care claims Provide a full and fair review and avoid conflicts of interest Follow new notice standards Continue coverage until appeal is resolved Grace period until July 1, 2011 for some rules Plans and insurers must meet minimum requirements for external review (state or federal)

Nondiscrimination rules will be treated as satisfied Some small employers can provide a simple cafeteria plan for employees 100 or fewer employees during one of the last 2 years Strict contribution, eligibility and participation requirements apply Employer contributes minimum amount All employees with 1,000 hours of service can participate and elect any benefit Nondiscrimination rules will be treated as satisfied

Apply to Health FSAs, HRAs, HSAs and Archer MSAs Medicine or drugs only treated as qualified medical expense for tax exclusion if they are prescribed or are insulin This means no reimbursement for OTC medicine or drugs without a prescription (except insulin) Applies to expenses incurred after Dec. 31, 2010

Applies to distributions made after December 31, 2010 HSA distributions not used for medical expenses currently subject to tax of 10 percent and inclusion in gross income Not monitored by employer Taxation between employee and IRS Tax amount increases to 20 percent if funds not used for medical expenses Applies to distributions made after December 31, 2010

MLR rules: HHS issued final rule Insurers must spend 80-85 percent of premiums on medical care and quality improvement (not admin. costs) or give rebates Effective January 1, 2011 HHS issued final rule Adopted NAIC recommendations Outlines items counted as medical care/health care quality improvement (and items that are not) Provides rules for rebates

Due by the August 1 after reporting year Issuer must provide proportionate rebate to each enrollee if MLR requirements not met (and notice) Due by the August 1 after reporting year Issuer can arrange with group health plans to distribute rebates to enrollees Methods of payment Premium credit Lump sum check Reimbursement to account used to pay premium

Optional for 2011 tax year; mandatory for later tax years Employers must disclose aggregate cost of employer-sponsored health coverage on Forms W-2 Optional for 2011 tax year; mandatory for later tax years Includes group health plan coverage, whether paid by employer or employee Does not include: FSA contributions Long-term care, accident or disability income insurance Coverage only for specific disease or illness Hospital or fixed indemnity insurance

Applies to new and grandfathered plans HHS to develop standards for uniform summary within 1 year of enactment (March 23, 2011) Plans to start using within 2 years of enactment (March 23, 2012) Standards Easily understood language Explanation of coverage 4 page limit, 12 point font

Community Living Assistance Services and Supports Program Voluntary long-term care benefits program Effective date Technically effective on January 1, 2011 HHS not required to determine details or establish benefits until October 2012 Enrollment will be available sometime after that

Actively employed adults are eligible to contribute Participating employers can automatically enroll employees Eligibility for benefits: Pay premiums for 5 years Meet employment requirements for 3 years Disabled or limited in daily activities

Average $50 per day, depending on disability Benefits include: Cash Advocacy services Advice and assistance counseling Benefits can be used for: Assisted living facilities/nursing homes Home modifications Home care aides Assistive technology Accessible transportation

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