HEALTH CARE REFORM: THE SUPREME COURT HAS SPOKEN; NOW WHAT? Alice E. Helle BrownWinick 666 Grand Avenue, Suite 2000 Des Moines, IA Telephone: Facsimile:

SUPREME COURT DECISION Issued June 28, 2012 –Individual mandate upheld –Medicaid (Title XIX) expansion narrowed

INDIVIDUAL MANDATE Constitutional since the penalty for failure to maintain health coverage is essentially a tax Mandate is effective 2014 (not an employer obligation)

MEDICAID EXPANSION Act expands Medicaid to larger group of low-income people Court said Congress may expand coverage and require states that accept funds to comply, but may not take away existing Medicaid funding from states that don’t provide for the expansion

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT Small Employer Tax Credits Dependent Benefits for Adult Children (up to age 26)

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT No Lifetime Limits on Essential Health Benefits Restricted Annual Limit on Essential Health Benefits (no less than $750,000 for 2011)

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT 100% Coverage Preventative Services and immunizations – No Cost Sharing oN/A to Grandfathered Plans (but grandfathered plans may adopt)

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT Rescissions of Coverage Not Allowed Absent Fraud, Misrepresentation or Nonpayment of Premiums No Pre-Existing Condition Limitations for Children Under Age 19

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT Internal and External Appeals Provisions oN/A to Grandfathered Plans OTC Drugs Not Reimbursable by HSA/FSA/HRA Absent a Prescription oException for Insulin

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT ARE ALREADY IN EFFECT Simple Cafeteria Plans oDeemed to Satisfy Nondiscrimination Requirements of IRC § 125 oLimited to Employers w/ Fewer than 100 Employees

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED Nondiscrimination Rules – IRC § 105(h)(2) – DELAYED oPreviously applied only to self-insured health plans oGenerally prohibit discrimination in favor of top 25% of employees oExcise tax of $100/day/employee oN/A to Grandfathered Plans oRules were to be effective for plan years beginning after 9/23/10  Delayed indefinitely for regulations  Comment period expired in March of 2011

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED Reporting on Form 1099 – REPEALED oWould have greatly expanded 1099 reporting requirements Reporting on Form W-2 – DELAYED oValue of employer-provided health insurance to be reported on Form W-2 (informational only) oOriginally effective for 2011  Now effective for 2012 for employers who issue 250+ W-2s  Effective for 2013 for smaller employers oIRS recently issued Notice

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED Automatic Enrollment – DELAYED oEmployers w/ 200+ employees will be required to automatically enroll new employees oDelayed indefinitely for regulations oNot likely to take effect prior to 2014

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED Small Business Wellness Grants – DELAYED oGrants totaling $200 million over 5 years oEmployers with fewer than 100 employees and no existing wellness program eligible for grants oWas to be available 2011 oDelayed indefinably – Congress did not fund

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED CLASS 1 Program – SUSPENDED oVoluntary long-term care insurance program for working adults oChampioned by Senator Kennedy oWould have provided up to $50/day for nursing home care or home health care after years of paying monthly premiums oNo employer obligation, but employers permitted to provide for participation by payroll deduction _______________ 1 Community Living Assistance Services and Supports

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED oStatute required program to be affordable, self-sustainable and actuarially sound for at least 75 years  Administration analysts determined that basic CLASS insurance plan might cost $235 - $391/mo for $50/day benefit  Program suspended due to concern that not enough people would enroll to make it sustainable

KEY PROVISIONS OF THE AFFORDABLE CARE ACT THAT HAVE BEEN DELAYED OR ELIMINATED Free-Choice Vouchers – REPEALED oWould have been effective in 2014 for employers of 50+ employees

PREVIEWS OF COMING ATTRACTIONS Summary of Benefits and Coverage (SBC) oUniform summary of benefits in specified format  12-point font  No more than 4 duplexed pages  Must include a uniform glossary of terms  Must include at coverage examples illustrating the plan’s coverage for normal delivery of a baby and for management of type 2 diabetes oTemplate provided by DOL – Copy is included in your materials oAlso available at oPurpose is to help participants better understand their health coverage and other coverage options oEffective for plan years beginning after September 23, 2012

PREVIEWS OF COMING ATTRACTIONS Continued Phase-In of Annual Limit Rule – Essential Health Benefits o09/23/11 - $1,250,000 o09/23/12 - $2,000,000 o2014 – no annual limits permitted

PREVIEWS OF COMING ATTRACTIONS Limits on Health Flexible Spending Arrangements (FSAs) oContributions limited to $2,500/year effective 2013

PREVIEWS OF COMING ATTRACTIONS FICA Medicare Tax Rate Increase for Certain Employees oEffective 2013 oThe Medicare tax rate is increased from 1.45% to 2.35% for earnings over the threshold of $200,000 for an individual or $250,000 for a married couple filing jointly oThe employer’s portion of the tax is not affected oThe employer will be responsible for collecting the additional Medicare tax due from the employee oEmployers are not responsible for determining a spouse’s earnings

PREVIEWS OF COMING ATTRACTIONS Plan Amendments – 2014 oNo pre-existing condition limitations oNo waiting periods over 90 days oNo out-of-pocket limits greater than the limits for high- deductible health plans (currently $5,950/11,900)  N/A to grandfathered plans oWellness program rewards based on satisfaction of health standards can’t exceed 30% of the cost of employee-only coverage (currently 20%) N/A to grandfathered plans oExpanded coverage of clinical trials  N/A to grandfathered plans

PREVIEWS OF COMING ATTRACTIONS Exchange Notice oNotice deadline is March 31, 2013 oNotice must inform employees of:  The existence of the exchanges  The services provided  How to contact the exchanges to request assistance.  The availability of premium assistance if the employer’s share of the cost of benefits is less than 60% The circumstances under which the employee loses employer contributions to the health plan and explaining that tax-free employer contributions may be lost when an employee enrolls in an exchange plan

PREVIEWS OF COMING ATTRACTIONS State Insurance Exchanges – 2014 o“Marketplace” where individuals and small employers (under 50 employees) may purchase health insurance oMust offer four levels of coverage with different benefit levels and actuarial values oTo participate, insurers must agree to charge the same premium for each Qualified Health Plan regardless of whether it is offered inside or outside the exchange oPlans must offer plans similar in scope to “typical” employer-sponsored plans

PREVIEWS OF COMING ATTRACTIONS Reporting Requirements – 2014 oCoverage – IRC § 6055  Plans providing “minimum essential coverage” to an individual must file report with IRS with info re covered persons  Plans must also provide statement to individuals who were listed on report filed with IRS oAdditional Reporting – Large Employers – IRC § 6056  Applies to employers subject to § 4980H (50+ employees)  Must file report that includes info re premiums and contributions

PREVIEWS OF COMING ATTRACTIONS Individual Mandate – Effective 2014 oIndividuals required to have health coverage or pay a penalty  2014 – greater of $95 or 1% of household income  2015 – greater of $325 or 2% of income  greater of $695 or 2.5% of income oSubsidies  Premium assistance tax credits for individuals with income between 100% and 400% of the federal poverty level  Cost-sharing subsidies for individuals with income up to 250% of the federal poverty level to reduce out-of-pocket costs for plans purchased through an exchange

PREVIEWS OF COMING ATTRACTIONS Large Employer Mandate (50+) oMust offer “minimum essential coverage” or pay a tax penalty oIf employer does not offer coverage, penalty is $2,000 per employee, except that number of employees is reduced by 30 in calculating the penalty oIf the employer offers coverage but doesn’t meet affordability and value tests, penalty is $3,000 for each full-time employee who receives premium assistance through an exchange

DETERMINING FULL-TIME EMPLOYEES FOR PURPOSES OF LARGE EMPLOYER MANDATE Statute defines “full-time employee” as an employee who, on average, works at least 30 hours per week Notice issued in September Provides “safe harbor” method employers may use to determine whether variable-hour employees or seasonal employees are full-time employees

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