Health Care Reform
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On March 23rd, 2010, the President signed health reform into law, completing a task worked on by seven Presidents before him. He referenced many people had met who had struggled with health care bills and insurance, including his mother, as his motivations for signing the bill.
“Here, in this country, we shape our own destiny. That is what we do. That is who we are. That is what makes us the United States of America. And we have now just enshrined, as soon as I sign this bill, the core principle that everybody should have some basic security when it comes to their health care. –President Obama, 3/23/10
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With the passing of the health care reform legislation, there are many questions being asked regarding the impact to each of us as individuals, as well as the implications for our employer, Carleton College. At this early stage, many questions are unable to be answered until guidance from respective governmental agencies is received.
In the interim, we want to share a summary of the key provisions that will impact employers (by the provisions' effective dates). The law will be implemented in waves; many of the provisions will not become effective until 2014.
The Patient Protection and Affordable Care Act (signed into law on March 23, 2010) and the Health Care and Education Reconciliation Act (signed March 30, 2010) constitute what is commonly known as the comprehensive health care reform legislation.
- The definition of a health plan for purposes of health care reform is generally limited to medical plans; it does not apply to dental or vision plans or medical flexible spending accounts (FSA).
- Health care reform applies equally to self-funded and fully insured plans. (Carleton's plans are currently fully-insured plans.) Some specific provisions of the reform laws may apply differently due to the differing nature of the two types of plans.
- Federal health care reform laws operate in addition to state insurance laws; state insurance laws are still applicable. When a state and federal law address the same issue, generally, employers are to comply with whichever law is more generous to the plan participant. States will have to administer their state-based exchange consistent with the minimum core requirements identified in the federal reform laws. Minnesota (and Wisconsin) are setting up task forces to begin studying and planning for health care reform; it is likely that that Minnesota will be passing their own legislation to supplement the federal laws.
Special Rules for Grandfathered Plans: Plans in effect on March 23, 2010 will be considered to be "grandfathered" and, therefore, not subject to certain health care reform changes. Regulatory guidance is expected regarding how and to what extent a grandfathered plan may be changed in the future without jeopardizing the plan's grandfathered status. Grandfathered plan exceptions to the new legislation are highlighted below.
A plan subject to collective bargaining agreements can be grandfathered; however, will lose their grandfathered status automatically as of the date the last of the collective bargaining agreements which relate to the plan that was in effect as of March 23, 2010 expires. (This rule appears to apply for plans covering both non-union and union employees.)
Additional FAQ guidance has been issued on grandfathered plans. Here are the significant clarifications:
- Grandfather status will terminate immediately upon a plan making any changes resulting in the loss of grandfathered status. Accordingly, if a plan were to lose grandfather status mid-year (such as due to decreasing employer contribution rates by more than 5 percent), then the plan would immediately cease to be grandfathered as of that date. This makes it risky for a plan to lose grandfather status mid-year, especially if the TPA or insurance carrier refuses to amend the plan mid-year to ensure compliance with all the requirements that will apply to the now non-grandfathered plan.
- Current regulations provide that transferring employees from one plan to another (such as when the plan they are currently on is being eliminated) typically results in the loss of grandfathered status for the plan they are transferring on to, unless there is a “bona fide employment-based reason” for the transfer. And the recent FAQ guidance sheds some additional light on this issue by clarifying that bona-fide employment based reasons include:
- When a plan is being eliminated due to the carrier no longer offering the plan or refusing to offer the plan to the employer;
- When it is impractical for the employer to continue offering the plan due to low or declining participation;
- When a multi-employer plan is eliminated as part of the collective bargaining process; or
- When a plan is eliminated for any reason and multiple other plans remain available to the employees being transferred.
- A plan will not lose grandfather status if a prescription drug is reclassified to a higher cost-sharing tier when a generic alternative becomes available. However, the guidance appears to be limited to situations in which the current prescription drug tiers are based on generic availability. Accordingly, there is still uncertainty in regard to whether or not changes to the prescription drug formularies will result in the loss of grandfather status (i.e. can drugs be dropped from the formulary altogether, or can they be moved to different cost-sharing tiers, without jeopardizing grandfather status).
Changes Effective in 2010:
- Small Employer Tax Credit (Effective January 1, 2010)
Employers with less than 25 full-time equivalent (FTE) employees and average payroll of less than $50,000 per FTE may qualify for substantial tax credits to help offset the cost of providing health insurance to their employees. The tax credits will generally only be available to qualifying small employ
ers who contribute at least 50% of the single premium for enrolled employees.
Action Steps for Carleton:
Not applicable to Carleton. No action required.
- Group Health Coverage for Adult Children (Effective March 23-30, 2010)
Insurers will be required to permit adult children to stay on family plans until reaching the age of 26 (even if married). This applies to all plans in the individual market, new employer plans, and existing employer plans unless your adult child has an offer of coverage through his/her employer. This requirement will be effective for plan years beginning on or after September 23, 2010.
Action Steps for Carleton:
No immediate action required; our plan year begins January 1, 2011.
Tax Free Group Health Coverage for Dependent Children (Effective March 23-30, 2010)
The tax code has been amended to provide tax free group health insurance coverage to adult dependent children who will be under age 27 at the end of the calendar year. This was done so employees would not be taxed on the coverage for their children under a group health plan due to the age 26 coverage mandate. The new age 26 mandate requires that a child be covered through the age of 25 (coverage ends on their 26th birthday), so these children will always be entitled to tax free group health coverage.
Currently, employers who extended coverage for dependent children (over age 19 or over age 24 if a full-time student) had to verify if the child is the employee's tax dependent; if not, the employee had to be taxed on the FMV (fair market value) of the coverage provided to that child.
Action Steps for Carleton:
Employers cannot automatically assume that a child who will be under age 27 at year's end will not be entitled to tax free group health insurance coverage, since it is still possible for the child to be the employee's tax dependent if they meet the IRS's qualifying relative tax dependent standard.
Minnesota has not yet formally adopted or endorsed the new tax amendment; therefore, for employees with adult dependents with imputed income, their health plan coverage premiums will have federal taxes removed. Following recommendations from trusted sources, Carleton College has ended imputing income for state tax purposes.
- Employers must provide reasonable break times for nursing mothers to express breast milk. (Effective March 23-30, 2010)
This provision is an employment law and specifies that the employer must provide a secure and private area to an employee to express breast milk; it cannot be a bathroom. The break time does not have to be paid.
Action Steps for Carleton:
A room is being identified and prepared for this purpose and will be announced to the Carleton community soon.
- Employers with retiree plans covering pre-65 retirees may be entitled to reimbursements via a government funded temporary reinsurance program. (Effective June 1, 2010)
This temporary reinsurance program is for public and private employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare; the program will reimburse employers or insurers for 80% of retiree claims between $15,000 and $90,000. This program has an overall funding limit of $5 billion and will start on June 1, 2010 and was to expire on January 1, 2014-or when the $5 billion is exhausted, whichever comes first. We've learned that the ERRP (Early Retiree Reinsurance Program) will no longer accept applications after May 5, 2011, as funds are expected to be exhausted by approximately September of 2012.
Action Steps for Carleton:
We are currently evaluating this option; however, with very limited participants, may choose to decline this, due to the level of application and processing required vs. potential benefit to the College.
Changes Effective in 2011:
- No lifetime limits on coverage for essential benefits for all plans. Note: Interim Final Rules that define “essential benefits” are still pending.
- Extension of parents’ coverage to young adults under 26 years old (grandfathered plans may exclude children who have other employment-based coverage until 2014).
- No rescissions of coverage except for fraud or intentional misrepresentation.
- No coverage exclusions for children (under age 19) with pre-existing conditions.
- No annual limits.
- Additional Benefits*:
• Guaranteed access to pediatricians and OB-GYN’s
• Emergency Services must be provided without prior authorization requirements and non-participating providers must be covered at the same benefit and cost sharing level as services provided for participating providers
*Prior to PPACA, the majority of health plans/issuers provided these patient protections.
- Preventive services, must be provided as defined by Health Care Reform, without cost sharing.
- Additional reporting and disclosure requirements.
- Internal/External appeals requirements.
- Employers will need to include the value of employer-provided health coverage on employees' W-2s prepared in 2013 pertaining to the 2012 tax year. Even though this new W-2 reporting requirement is not required until the 2012 W-2 (which is issued in January of 2013), employers may voluntarily report on the 2011 W-2s.
- Additional prescription drug plan (PDP)/Medicare Advantage plan with prescription drug coverage (MA-PD) discounts for brand and generic.
- PDP/MA-PD may waive copayments for first fills of generic.
- Medicare Advantage payments frozen at 2010 levels.
- Medicare Part D premiums increased for high-income beneficiaries.
- New Medicare wellness benefits.
Other Health Reforms
- Higher penalty for Health Savings Account withdrawals for non-qualified expenses. (Does not currently apply to Carleton.)
- Medical loss ratio requirements for insurers (85% for large groups). Applies only to insurance companies.
- CLASS Program (voluntary, public long-term care program). --Still in development.
- Annual Fee on pharmaceutical manufacturers and importers.
Changes Effective in 2012
- Employers will need to include the value of employer-provided health coverage on employees' W-2s prepared in 2013 pertaining to the 2012 tax year. Standardized information disclosure (with notice of modifications 60 days in advance). The value of the health insurance will be reported on the W-2 in box 12 with the code "DD" and includes the full premium (both the employee and employer share) based upon the coverage tier the employee is enrolled in.
- Comparative effectiveness research fee paid by insurers and self-insured plans beginning plan year ending after September 30, 2012 (for Carleton this would be January 1, 2013.)
- User-friendly benefits summaries to help individuals more easily understand their health plan and its key provisions must be presented in a four-page document prepared by insurance carriers (for fully-insured plans) or by employers of self-funded health plans. (Carleton's plans are fully insured). These plan summaries are to be presented to participants on/after March 23, 2012 (at the earliest).
- Encouraging Integrated Health Systems: The new law provides incentives for physicians to join together to form "Accountable Care Organizations". These groups allow doctors to better coordinate patient care and improve the quality, help prevent disease and illness, and reduce unnecessary hospital admissions. If Accountable Care Organizations provide high quality care and reduce costs to the health care system, they can keep some of the money that they helped save.
- Reducing paperwork and administrative costs: Health care remains one of the few industries that relies on paper records. This new law will institute a series of changes to standardize billing and requires health plans to begin adopting and implementing rules for the secure, confidential, electronic exchange of health information. Using electronic health records will reduce paperwork and administrative burdens, cut costs, reduce medical errors, and most importantly, improve the quality of care. (First regulation is effective October 1, 2012.)
- To help understand and reduce persistent health disparities, the law requires any ongoing or new federal health program to collect and report racial, ethnic, and language data. The Secretary of Health and Human Services will use this data to help identify and reduce disparities. (Effective March, 2012.)
- Medicare Advantage payments are decreased.
- Value-based purchasing program (VBP) in Traditional Medicare is established. This program offers financial incentives to hospitals to improve the quality of care. Hospital performance is required to be publicly reported, beginning with measures relating to heart attacks, heart failure, pneumonia, surgical care, health-care associated infections, and patients' perceptions of care. (Effective on/after October 1, 2012).
Changes Effective in 2013
- Payments to Primary Care Physicians: Requires that Medicaid payment rates to primary care physicians for furnishing primary care services be no less than 100% of Medicare payment rates in 2013 and 2014. Provides 100% federal funding for the incremental costs to states of meeting this requirement.
- Administrative Simplification: Health plans must adopt and implement uniform standards and business rules for the electronic exchange of health information to reduce paperwork and administrative burdens and costs.
- Encouraging Provider Collaboration: Establishes a national pilot program on payment "bundling" to encourage hospitals, doctors, and post-acute care providers to work together to achieve savings for Medicare through increased collaboration and improved coordination of patient care.
- Limiting Health Flexible Spending Savings Account Contributions: Limits the amount of contributions to health FSA's to $2,500 per year, indexed by CPI for subsequent years.
- State Notification Regarding Exchanges: HHS issued notification (on May 16, 2012) that states must submit to HHS by November 16, 2012 if they wish to operate a state-based exchange or a Partnership exchange. Once known, employer notices to employees are to be sent out about the Health Insurance Exchange.
- Eliminating Deduction for Employer Part D Subsidy: Eliminates the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees.
- Closing the Medicare Drug Coverage Gap: Provides a phased federal subsidy for brand-name prescriptions filled in the Medicare Part D coverage gap (reducing coinsurance from 100% in 2010 to 25% in 2020, in addition to the 50% manufacturer brand-name discount).
- Medicare Disproportionate Share Hospital Payments: Reduces Medicare Disproportionate Share Hospital (DSH) payments initially by 75% and subsequently increases payments based on the percent of the population uninsured and the amount of uncompensated care provided. (October 1, 2013)
- Medicaid Disproportionate Share Hospital Payments: Reduces states' Medicaid Disproportionate Share Hospital (DSH) allotments and requires the Secretary to develop a methodology for distributing the DSH reductions. (October 1, 2013)
- Medicaid Coverage of Preventive Services: To expand the number of Americans receiving preventive care, the law provides new funding to state Medicaid programs that choose to cover preventive services for patients at little or no cost.
Other Health Reforms
- Increased Threshold for Claiming Itemized Deduction for Medical Expenses: Increases the income threshold for claiming itemized deduction for medical expenses from 7.5% to 10%. Individuals over 65 would be able to claim the itemized deduction for medical expenses at 7.5% of adjusted gross income through 2016.
- Additional Hospital Insurance Tax for High Wage Workers: Increases the hospital insurance tax rate by 0.9% (from 1.45% to 2.35%) on an individual taxpayer earning over $200,000 ($250,000 for married filing jointly). Expands the taxable base to include net investment income in the case of taxpayers earning over $200,000 ($250,000 for joint returns).
- Medical Device Excise Tax: Establishes a 2.3% excise tax on the sale of a medical device by a manufacturer or importer. Exempted from the tax are eye glasses, contact lenses, hearing aids, and any device of a type that is generally purchased by the public at retail for individual use.
- Financial Disclosure: Required disclosure of financial relationships between health entities, including physicians, hospitals, pharmacists, other providers, and manufacturers and distributors of covered drugs, devices, biologicals, and medical supplies. (Due 4/1/13)
- Extension of CHIP: Extends authorization and funding for the Children's Health Insurance Program (CHIP) through 2015 (current authorization is through 2013).
Changes Effective in 2014
- No waiting periods longer than 90 days.
- No annual dollar limits on essential benefits.
- Employer free-rider penalty.
- Wellness program rules.
- Employers to report to IRS on plan features (and provide statements to employees by January 31, 2015).
Other Health Reforms
- Health Insurance Exchanges.
- Individual mandate with federal subsidies.
- Medicaid expansion to 133% of Federal Poverty Level.
- Annual fee on health insurance providers.
Changes Effective in 2015
- December 31, 2015: Plans to certify compliance with other Health Insurance Portability and Accountability Act (HIPAA) Electronic Data Interchange (EDI) standards.
Other Health Reforms
Changes Effective in 2018
- Excise tax on high-cost health plans.
- (Effective date to be set in regulations): Automatic enrollment by large employers (200 or more full-time employees).
Other Health Reforms