Update on Health Care Reform Sherry P. Porter 500 West Jefferson Street Suite 2800 Louisville, KY (502)

Disclaimer The information in the following slides represents only an overview of the law, and is not intended to cover all the fine points with respect to any particular portion of the law or its application to any particular person. Accordingly, it is not intended to be legal advice, which should always be obtained in direct consultation with an attorney.

Backdrop of Health Care Reform The U.S. has 47.9 million people who are completely uninsured and another 25 million people who are inadequately insured* More than three-quarters of the uninsured are in a working family* Medicare projected to be bankrupt by 2016 Healthcare spending as percentage of gross domestic product in U.S. is almost twice that of most other countries. If continues at same rate, the Congressional Budget Office (CBO) projects it will be close to 100% of GDP by 2082 *Source: Kaiser Family Foundation, Health Coverage & the Uninsured, (last visited )

History of Health Care Reform On March 23, 2010, the Patient Protection and Affordable Care Act was signed by President Barack Obama* Amended by the Health Care and Education Reconciliation Act one week later.** Jointly called the “Affordable Care Act.”  *Public Law , available from Government Printing Office (GPO) at: **Public Law , available from GPO at: 111publ152/pdf/PLAW-111publ152.pdfhttp:// 111publ152/pdf/PLAW-111publ152.pdf

Goals of ACA Three overriding goals: Expanding the population of Americans covered by health insurance and/or public health care coverage, improving the health care delivery system, and controlling the rising cost of health care. The CBO estimates the new health reform law will provide coverage to an additional 32 million people when fully implemented in 2019.

Making Law is Like... 2,500 Pages More than 500,000 words Phasing in over 10 years Thousands of regulatory decisions left for the future “We have to pass the bill so you can find out what’s in it” - - Nancy Pelosi

Affordable Care Act’s Expanded Coverage

Expanded Healthcare Coverage

Two Decisions Face State Government Expand Medicaid? Create health benefit exchange?

Medicaid Expansion ACA expands Medicaid to all non-Medicare eligible individuals under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% FPL (actually 138%) All newly eligible adults will be guaranteed a benchmark benefit package that meets the essential health benefits available through the Exchanges Supreme Court ruling gave states option whether to expand Medicaid, but States mixed on whether will expand

Medicaid Expansion Map:

Health Insurance Exchange State can create exchange or default to federal exchange Each state can create an American Health Benefit Exchange and a Small Business Health Options Program (SHOP) Exchange for individuals and small businesses States must establish an office of health insurance consumer assistance or an ombudsman program to serve as an advocate for people with private coverage in the individual and small group markets Federal grants available

Nationwide Health Insurance Exchanges Exchanges

Individual Requirements under ACA U.S. citizens and legal residents must have qualifying health coverage. Called the “Individual Mandate” Individual Mandate upheld by the Supreme Court and, after most recent election, is here to stay Must maintain “minimum essential coverage” There are some exceptions: low income required contribution for self-only coverage for a calendar year exceeds 8% of household income hardship religious exemption..

Penalties Under Individual Mandate Those without coverage pay a tax penalty of the greater of: Flat Dollar Amount ($95 in 2014, $325 in 2015, and $695 in 2016 and adjusted for inflation after that, up to a maximum of three times that amount per family) Percentage of Household Income (1% of household income in 2014, 2% in 2015, and 2.5% thereafter) The penalty for noncompliance cannot exceed what it would have cost to obtain insurance.

Individual Subsidies Limited availability of premium credits and cost-sharing subsidies through the Exchanges to U.S. citizens and legal immigrants who meet income limits Premium and cost-sharing credits are available to those with income between % of the federal poverty level Premium credits may be used to purchase insurance through the Exchanges. Set on a sliding scale based on income.

Easier for Individuals to Obtain and Keep Coverage Dependents covered until their 26th birthday No discrimination based on health status Guaranteed issue No pre-existing condition exclusions Limited rescissions Eligibility waiting periods longer than 90 days prohibited Reviews on premiums charged

Additional Services Covered by Plans Full coverage for certain preventative care E.g., high blood pressure, diabetes and cholesterol screenings, routine immunizations, and evidence-based preventive care and screenings for women Abolishes annual and lifetime coverage caps for medical care

“Grandfathered” Plans Plans that existed on March 23, 2010 are exempt from some of the law’s consumer protections. Can lose grandfathered status if: Eliminates all or substantially all benefits to diagnose or treat a particular condition Increases participant's percentage cost-sharing requirement Increases co-payments by more than certain amounts In order to maintain such status, plans must continually disclose to participants that it believes it is a grandfathered plan and keep documentation of this

Medical Loss Ratios (MLRs) Insurers must spend a certain percentage of premium dollars on eligible expenses instead of overhead or profits to shareholders Otherwise, it must pay a rebate An incentive to health insurers to either keep premiums low or increase coverage

Delayed until 2015 Employer “Pay or Play” Mandates General Rule. The ACA imposes penalties on applicable large employers who: fail to offer minimum essential coverage to 95% of their full time employees; or provide coverage that is either: “insufficient” (i.e., the employer pays less than 60% of the cost), or “unaffordable” resulting in employees choosing their own coverage and receiving government subsidies.

What Is an Applicable Large Employer? 50 or more full time equivalent employees Full time is defined as 30 or more hours per week To calculate total FTEs, add the following: All employees who works at least 30 hours per week (full time); PLUS Total number of hours worked in a month by part time employees (<30 hours per week) divided by 120. If 50 or more FTEs, then must offer coverage, but only to full time employees If less than 50 FTEs, then no obligation to offer coverage Tip: Retain documentation of calculations

Penalties for No Coverage An applicable large employer who offers no health coverage will be subject to a penalty equal to $2,000 per year per employee after the first 30 employees

Penalties for Insufficient or Unaffordable Coverage Insufficient Coverage means employer does not pay at least 60% of the total allowed cost under the plan Unaffordable Coverage means the employee’s required contribution is more than 9.5% of the employee’s household income and the employee’s household income is under 400% of FPL

Penalties for Insufficient or Unaffordable Coverage The penalty for inadequate coverage is $3,000 per year for every employee who opts out of the employer’s plan and gets government subsidized coverage under the exchange plan subject to a cap. The cap: The total penalty for the employer cannot exceed the overall penalty that would apply if the employer offered no coverage at all

Variable Employees Do not have to offer coverage to: Seasonal employees Temps Leased employees Most issues arise with variable hour employees Measurement (“Look Back”) Period between 3 and 12 months defined by employer Stability Period at least 6 months cannot be shorter than Measurement Period Administrative Period optional 90-day “time out” after the Measurement Period

Important Points Regarding Penalties There is no penalty for these failures if you are not a large employer The penalties are not tax deductible Employer will be notified if any of its employees are determined to be eligible for premium assistance or cost sharing reduction

AT&T Analysis 2009 Medical Costs for 283,000 Employees: $2.4 billion Penalties if workers uninsured: $600 million

90-Day Waiting Periods ACA says no more than 90 days before an individual is eligible to be covered for benefit under group health insurance (employee can choose to wait more than 90 days)

Model Notices Employers must provide notice of health insurance marketplace by October 1, 2013 (within 14 days for new hires) Sample notices from Department of Labor Cannot just print and send to employees – need specific employer information on notice COBRA notice also revised Available on DOL website

Non-Discrimination Health plan cannot favor highly-compensated employees Penalties: Inadvertent Violations: The employer is subject to an excise tax of $100 per non-highly paid employee per day. Calculated for each day the plan fails testing. Cap of the lesser of $500,000 or 10% of the premium for the prior plan year Willful Violations: Excise taxes plus additional civil penalties Enforcement for self-insured plans by DOL However, regulations defining such “discrimination” have not been released; thus, this particular anti- discrimination provision won’t likely be enforced in 2014

Small Business Tax Credit (25 or fewer employees) Certain small employers were eligible for tax credit if they contribute at least 50% toward their employees health insurance. Available for small businesses that are both for-profit (35% credit) and non-profit (25% credit). NOTE: Due to the “sequester,” effective 3/1/13, small businesses, “tax exempt” under IRC § 45R, will have an 8.7% reduction in their refundable small business tax credit through at least 9/30/13. Smaller employers can participate in State Exchanges. Once eligible, employer remains eligible regardless of number of employees. (After 2017, states may permit larger employers in exchanges.) Employer Subsidies

Retaliation Protections for Employees & Whistleblowers Employees may not be subjected to retaliation for: Reporting violations of the ACA’s consumer protections, or cooperating in investigation or prosecution of such violations Note: it could be an employer or insurer that violates this protection Receiving premium tax credits that expose their employer to tax assessments for failing to provide affordable or sufficient health coverage A violation of these non-discrimination, anti-retaliation provisions are treated as violative of the FLSA Employee complaints must be brought within 180 days before OSHA Query: will employer’s ACA-evasive conduct be compliant?

How Are We Going To Pay For This? Increase Medicare payroll tax for incomes that exceed $200,000/$250,000 40% excise tax on “Cadillac” plans (exceeds $10,200 / $27,500) Reduce Medicare Advantage overpayments Reduce Medicaid drug cost Increase Medicare premiums for the wealthy

How Are We Going To Pay For This? Cont. In 2014, annual fee on plans based on an insurer’s net premiums (self- insured plans exempt) Industry fees Adjust payments to Medicare providers Reduce special payments to hospitals Employee and individual penalties Tanning bed taxes

Legal Challenges to ACA NFIB v. Sebelius, Sec’y of HHS (decided 6/28/12) NIFB’s Bottom Line: ACA is mostly constitutional Individual Mandate Upheld (5 to 4) “Taxing” power sustains it (5 to 4) “Interstate commerce” does not (4 of 9) Only unconstitutional part - “coercive” Medicaid expansion (7 to 2) Remedy (fractured opinions): Strikes ACA’s enforcement that threatens loss of Medicaid funding if States don’t expand (5 to 4) Sustains ACA’s “offer” of enhanced Medicaid funding if States do expand (5 to 4)

Legal Challenges to ACA: Tax Subsidy Challenges in States Refusing to Set up an Exchange Loophole in ACA Challenge to Federal Tax Subsidies for individuals purchasing coverage in federally run Exchanges Could go to the SCOTUS in 2014; not likely until 2015 Result: not likely to cause “repeal” of the law

Legal Challenges to ACA: Contraception “Mandate” Numerous challenges Churches/denominational hierarchies Religious-affiliated, non-profit/tax- exempt employers For-profit businesses with owners having strong religious objections Religious Objections to: abortifacients & anti- contraception meds

Legal Challenges to ACA: Contraception “Mandate” Cont. New Regulations “accommodate” churches & religious-affiliated employers Catholic Bishops still dissatisfied New Regulations do not “accommodate” for-profit businesses Will likely go to SCOTUS, but maybe not before 2015 If successful, result: not likely to strike the law, only carve out religious objector exemption

Other Interesting Legal Challenges Pacific Legal Foundation’s Challenge to the ACA as a violation of the Constitution’s “Origination” Clause The “guts” of the ACA were constructed in the Senate, and “substituted” for a House bill (HR 3590) related to other topics “Origination” clause requires “tax” bills to start in the House Kentucky Health Benefit Exchange – New “Tea Party” challenge to Gov. Beshear’s establishing by executive order an exchange for Ky.

Health Care Reform is Here to Stay President Obama Re- Elected ACA (mostly) upheld in the Supreme Court More than 30 attempts to repeal all or part of the law in Congress have failed

Additional Resources Business Lexington articles on the Affordable Care Act by Doug McSwain and Business First article by Sherry Porter affordable-care-act affordable-care-act care-competition-through-the-aca care-competition-through-the-aca increased-demand-for-health-care-services increased-demand-for-health-care-services ed%20to%20Know%20Before% pdf ed%20to%20Know%20Before% pdf Margaret Levi’s book on the Affordable Care Act, The Impact of Health Care Reform on Kentucky Employers, is available at the Kychamber.com/bookstore

Questions?

THANK YOU! Sherry P. Porter Wyatt, Tarrant & Combs, LLP 500 West Jefferson Street, Suite 2800 Louisville, KY (502)