Damon Thompson of G& A Partners examines the Patient Protection and Affordable Care Act (PPACA) that was signed into law on March 23, 2010.
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1. What does health care
reform mean for you?
Damon Thompson
10/28/10
2. Agenda
• Overview
• Timeline
• Grandfathering
• Small business tax credit
• Discrimination testing: 105(h)
• Sample of additional mandates
• Additional notice requirements
• How to handle the increased
administrative burden
• Q&A
3. Overview
• Patient Protection and Affordable
Care Act (PPACA)
– Signed into law on March 23, 2010
– Stated goals
• Protecting the ability of individuals and businesses to
keep their current plan
• Providing consumer protections that give Americans
control over their own health care
• Create more affordable choices through Exchanges
– Are we confident this will be achieved?
Let’s examine the details.
4. Timeline
• January 1, 2010
– Small business tax credit: Phase I
• March 23, 2010
– Grandfathering
• September 23, 2010
– Annual benefit limits restricted, no lifetime benefit limits
– Coverage of young adults (to 26)
– Preventative care
– Emergency room care
– No preexisting conditions (children under 19)
• Addition of children under 19 is not subject to preexisting
waiting period
5. Timeline
• January 1, 2011
– Medical loss ratio (Premium to claims ratio)
• Small group is 80%, large group is 85%
– Value of healthcare reflected on W-2
– OTC drugs no longer covered under FSA, HSA & HRA
• Jan 1, 2013
– New taxes – detailed later
• Jan 1, 2014
– Small business tax credit: Phase II
– No annual limits on benefits
– Waiting periods shortened
– State exchanges for individual plans
– Adult children (to 26)
7. Grandfathering
• All health plans (grandfathered or new, individual
or employer-sponsored) must provide the
following (as of 9/23/2010):
– No lifetime or annual limits on coverage for all plans
– No rescissions of coverage when people get sick and have
previously made an unintentional mistake on their application
– Extension of parents’ coverage to young adults under 26 years
old
• Employer-sponsored plans (grandfathered or
new) must provide the following:
– No coverage exclusions for children with pre-existing
conditions
– No “restricted” annual limits (e.g., annual dollar-amount limits
on coverage below standards to be set in future regulations)
8. Grandfathering
• If a plan loses its grandfathered status, then
consumers in these plans will gain coverage of
recommended prevention services with no cost
sharing (deductibles, co-insurance, co-pays)
• What does this mean for you?
– Blood pressure, diabetes, and cholesterol tests
– Many cancer screenings
– Counseling from your health care provider on such
topics as quitting smoking, losing weight and reducing
alcohol use
– Routine vaccinations
– Flu and pneumonia shots
– Counseling, screening and vaccines for healthy
pregnancies
– Regular well-baby and well-child visits (birth to age 21)
9. Grandfathering
• Existing plans may lose grandfathered status
by making the following changes:
– Significantly Cut or Reduce Benefits
– Raise Co-Insurance Charges
– Significantly Raise Co-Payment Charges
• Can increase by no more than $5 (adjusted annually for medical inflation) or
a percentage equal to medical inflation plus 15 percentage points
– Significantly Raise Deductibles
• Can increase deductibles and out-of-pocket by a percentage equal to
medical inflation plus 15 percentage points
– Significantly Lower Employer Contributions
• Cannot decrease the percent of premiums the employer pays by more than
5 percentage points
– Add or Tighten an Annual Limit on What the Insurer Pays
– Change Insurance Companies
10. Small business tax credit
• Small employers with no more than 25
full-time equivalent employees and
average annual wages of less than
$50,000 that purchase health insurance
for employees will receive a tax credit.
– Full-time equivalents calculated by dividing the total
number of hours for which the employer pays wages by
2080
11. Small business tax credit
• Phase I - tax years 2010 through 2013
– Employers who contribute at least 50% of the
total premium cost may receive a tax credit of
up to 35% of the contribution
• Full credit available to employers with 10 or fewer
employees and average annual wages of less than
$25,000
• Tax-exempt small businesses meeting these
requirements are eligible for tax credits of up to 25%
of the employer’s contribution toward the employee’s
health insurance premium.
12. Small business tax credit
• Phase II – tax years 2014 and later
– Eligible small businesses that purchase
coverage through the state Exchange and
contribute at least 50% of the total employee
premium cost may receive a tax credit of up to
50% of the contribution. The credit will be
available for two years.
• Full credit available to employers with 10 or fewer
employees and average annual wages of less than
$25,000
• Tax-exempt small businesses meeting these
requirements are eligible for tax credits of up to 35%
of the employer’s contribution toward the employee’s
health insurance premium.
13. Small business tax credit
• How to determine the amount of the credit
• Example
– Auto Repair shop with 10 employees gets $15,750
credit for 2010
» Employees: 10
» Wages: $250,000 total, or $25,000 per worker
» Employee healthcare costs: $45,000
» (assuming 75% contribution towards $500 monthly premium)
» 2010 Tax credit: $15,750 (35% credit)
» 2014 tax credit; $22,500 (50% credit)
14. Small business tax credit
• How does the sliding scale apply to the credit?
• Example
– For the 2010 tax year, a qualified employer has 12 FTEs and
an average annual wage of $30,000. The employer pays
$54,000 in healthcare premiums for those employees (which
does not exceed the average premiums for the small group
market in the employers state and/or region). And otherwise,
meets the requirements for the credit. The credit is calculated
as follows:
» Initial amount of credit determined before any reduction:
(35% x $54,000) = $18,900
» Credit reduction for FTEs in excess of 10: ($18,900 x
2/15)= $2,520
» Credit reduction for the average annual wage in excess of
$25,000: ($18,900 x $5,000/$25,000)= $3,780
» Total credit reduction: ($2,520 + $3,780)= $6,300
» Total 2010 tax credit: ($15,750-$6,300)= $9,450
15. Small business tax credit
• Can a client of a PEO receive this credit?
• Yes.
• Will all premiums in 2010 be counted,
including those incurred before the
passage of the Act?
• Yes.
16. Discrimination testing: 105(h)
• Effective six months after enactment
• Prohibits new group health plans from
establishing any eligibility rules for health care
coverage that have the effect of discriminating in
favor of higher wage employees.
• Non-Discrimination - Plans may not discriminate
in favor of “highly compensated individuals” in
terms of eligibility to participate and benefits
• Highly compensated individual is
– One of the five highest paid officers
– More than 10% shareholder
– Highest paid 25% of all employees
• Noncompliance results in an excise tax of $100
per day per individual discriminated
17. Employer Mandates
• Effective January 1, 2014
– An employer with more than 50 employees that does not offer coverage and has
at least one full-time employee who receives a premium tax credit will be
assessed a fee of $2,000 per full-time employee, excluding the first 30
employees from the assessment.
– An employer with more than 50 employees that offers coverage but has at least
one full-time employee receiving a premium tax credit will be assessed the
lesser of:
• $3,000 for each employee receiving a premium credit or $2,000 for each full-time
employee.
– Employers that impose a waiting period before employees can enroll in coverage
will be required to pay $400 for any full-time employee in a 30-60 day waiting
period and $600 for any employee in a 60-90 day waiting period.
– An employer that offers coverage to employees must provide a free choice
voucher to an employee whose income is less than 400% of the federal poverty
level if the employee’s premiums are more than 8% but less than 9.5% of his
income and he chooses to enroll in a qualified health plan through an exchange.
– Employers with more than 200 employees must automatically enroll employees
into health insurance plans offered by the employer. Employees may opt out of
coverage.
18. Additional notice requirements
• Notices
– Benefit determination
– Patient protection
– Grandfathered plans
– Lifetime maximums
– “Adult” children
– Summary of benefits
– Exchanges
– Auto enrollments
– Quality of care
20. General IRS reporting
– Premiums paid for each employee
– Dollar amounts for every vendor paid $600 or more
annually
– # of months that company annually provides benefits
– Length of waiting periods
– Monthly premium for lowest cost health plan offered
– Employer’s share of total premiums
– Number of full-time employees for each month of the
year
– Name, address, SS# of each full-time employee and #
of months that employee was covered during the plan
year
21. W-2 Reporting
• Aggregate costs:
– Major Medical
– Separate Rx
– Medicare supplements
– EAPs
– Dental/Vision
• What is excluded?
– Long term care
– Accident/disability income plans
– Specific disease/illness policies (i.e., cancer)
– Archer FSA, MSA or HSA employee contributions (until
2018)
22. 1099 Reporting
• 2012
– $600 threshold to any vendor
– Services AND tangible goods
– Individuals AND corporations
23. How are we going to pay for
this? New taxes.
• New Taxes (Red: new tax beginning that year)
– 2010 H.S.A. ineligible distributions taxes at 20% vs. 10%, $2.3 billion apportionment among drug companies retro to
2009 sales.
– 2011 H.S.A. tax again, Drug tax again,
– 2012 H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research
– 2013 H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based Research, FSA capped, medical
deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax increase, 3.8% income tax on
unearned income
– 2014 1% of income for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based
Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax
increase, 3.8% income tax on unearned income, Free ride penalty tax, $8 billion premium tax
– 2015 2% of income for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based
Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax
increase, 3.8% income tax on unearned income, Free ride penalty tax, $11.3 billion premium tax
– 2016 2.5% of income for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based
Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax
increase, 3.8% income tax on unearned income, Free ride penalty tax, $13.9 billion premium tax
– 2017 % of income is indexed for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based
Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax
increase, 3.8% income tax on unearned income, Free Ride penalty tax, $14.3 billion premium tax
– 2018 % of income is indexed for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based
Research, FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax
increase, 3.8% income tax on unearned income, Free ride penalty tax, indexed premium tax
– 2019 % of income is indexed for not enrolling, H.S.A. tax again, Drug tax again, $2.00 pe/py tax to fund Outcome Based
Research FSA capped, medical deduction threshold increases, $2 billion tax on medical device mfgs., medicare tax
increase, 3.8% income tax on unearned income, Free ride penalty tax, 40% tax on premiums
triggered by Cadillac tax – tax is paid by insurance company, indexed premium tax
– The IRS estimates that the Cadillac tax alone will provide $2.5 trillion
– The IRS estimates ALL other taxes will total $1.5 trillion
24. How a PEO can reduce the
increased administrative burden
• Affordable benefits through economies of
scale
• Benefits expertise & benefit coverage
administration
– We can sift through and manage the
complexities of health care reform
• Back office technology and HR expertise
• Single source solution
25. Conclusion
• Will we achieve the stated goals?
• Protecting the ability of individuals and businesses to
keep their current plan
• Providing consumer protections that give Americans
control over their own health care
• Create more affordable choices through Exchanges