1. mcbloom@msn.com
10/7/2010
Health Reform and Risk Management
- The impact on your income statement
Mark Bloom
4 Degrees Benefits Consulting
Hamline University School of Business

2. • Patient Protection and Affordable Care
Act" (H.R. 3590)
• 10 Considerations
• Implementation Grid

3. Top 10 Considerations for Employers
The Changing Landscape – Health Reform
- Grandfathering
- Lifetime and Annual Limit Prohibitions
- Coverage for Preventive Services
- Coverage for Dependents up to Age 26
- Prohibitions on Denied Coverage for Pre-
existing Conditions
- Requirements for Appeals Processes
- Prohibition on Coverage Rescissions

4. 1. Exchanges
2. State High Risk Pools for Individuals with Preexisting Conditions
3. Plan Design Changes (Within First Year After Enactment)
4. Plan Design Changes (Effective by 2014)
5. New Administrative Rules and Reporting Requirements
6. Employer Mandate
7. Tax on High Cost Health Plans - “Cadillac Health Plans”
8. Changes to FSAs, HRAs and HSAs
9. "Free Choice Vouchers"
10. Repeal of Tax Exclusion for Medicare Part D Subsidy

5. Things to consider
Employers should consider whether employer-sponsored coverage meets the
minimum essential coverage and affordability requirements – if not, employers
may be penalized if employees receive federal subsidies to purchase coverage
through a state Exchange.
1. Exchanges
• State-regulated Exchanges will be created to allow individuals and small
employers to purchase health insurance coverage
• States may allow large employers to purchase coverage through an Exchange
beginning in 2017
• If an employee purchases coverage through an Exchange and receives a
federal subsidy, the employer may be penalized
• Employers may be required to provide vouchers to certain employees for
whom the employer coverage is considered unaffordable, to help pay for
Exchange coverage
• The reconciliation bill added requirements that each Exchange provide
information to the Secretary of the Treasury and taxpayer. This newly required
information includes 1) the period of coverage, 2) the premium paid, 3)
identification of each individual covered under the plan, and 4) information on
eligibility for tax credits.

6. Things to consider
Employers may not encourage, through any financial
incentives
or otherwise, employees with preexisting conditions to drop
employer-sponsored coverage in favor of coverage through
the high-risk pool program.
2. State High Risk Pools for Individuals with Pre-existing
Conditions
- Pools will be created to insure individuals with
preexisting conditions

7. Things to consider
Employers will need to assess whether plan amendments are needed for
2011 and how these changes affect costs to plans.
NOTE: Items marked with an asterisk (*) indicate provisions that will now
apply to grandfathered plans; both insured and self insured, pursuant to the
reconciliation bill.
3. Plan Design Changes (Within First Year After Enactment):
• * Coverage of dependents to age 26
• * No lifetime or unreasonable annual limits on the dollar value of
"essential benefits"
• * No pre-existing condition limitations for children under age 19
• Mandatory coverage of certain preventive care without cost-sharing
• Ability to designate pediatrician as primary care provider for children
• No requirements for referrals to go to OB-GYN
• No requirements for prior authorization for emergency care
• New claim appeals procedures

8. Things to consider
Employers will need to monitor future guidance and make plan
design changes, including possible plan amendments,
accordingly.
NOTE: Items marked with an asterisk (*) indicate provisions that
will now apply to grandfathered plans; both insured and self
insured, pursuant to the reconciliation bill.
4. Plan Design Changes (Effective by 2014):
• No preexisting condition exclusions
• No discrimination based on health
• Annual cost-sharing limits cannot exceed HDHP limits
• Deductible limitation for small groups ($2,000 individual / $4,000
family, which may be increased by maximum amount reimbursed
under FSA)
• * Limits waiting periods to no more than 90 days
• Expansion of coverage for clinical trials

9. Things to consider
Employers will need to examine existing procedures to ensure
compliance. To facilitate these new administrative rules,
plans may need to contract for external review services.
5. New Administrative Rules and Reporting Requirements
• New disclosures applicable to insured and self-funded plans
• New Health Plan Identifier requirement
• W-2 reporting of the value of health benefits
• New Standard for Electronic Funds Transfer
• New Operating Rules for Standard Transactions
• New Certification of Compliance with Transaction Rules
• Employers subject to the Fair Labor Standards Act must give notice
of coverage options to employees

10. Things to consider
Employers offering coverage must evaluate if that coverage
meets the minimum standards, including affordability.
6. Employer Mandate
• Employers offering health coverage that meets or exceeds the minimum
essential requirements will only be subject to penalties if employees do not
enroll in the employer coverage and instead receive federal subsidies to
purchase coverage through a state Exchange; the amount of the penalty for
each such employee will be up to $3,000 per year.
• Employers offering health coverage that is not minimum essential coverage,
or that do not offer any healthy coverage, will be subject to a penalty if even
one employee receives a federal subsidy for purchase of coverage through a
state Exchange; the penalty will be up to $2,000 per year for each full time
employee. However, the first 30 full time employees are excluded.
• Employers with more than 200 employees that offer coverage must
automatically enroll and renew coverage, subject to notice and opt-out
requirements

11. Things to consider
Employers will need to determine whether the benefit package
they provide to employees results in an excess benefit that
will be subject to the tax. However the new effective date
reduces the urgency to change your plan design immediately.
7. Tax on High Cost Health Plans - “Cadillac Health Plans”
• A 40 percent excise tax will be imposed on the health benefits
provided by an employer for the value of the benefit over $10,200 for
single coverage and $27,500 for a family coverage (higher dollar
thresholds may apply)
• Dollar limitation is increased based on the increase in cost of health
insurance for federal employees from 2010 to 2018.
• The new effective date is January 1, 2018.
• Employer-sponsored health coverage subject to the tax now
excludes separate dental and vision coverage.

12. Things to consider
Employers should consider whether plan amendments and
communications are necessary.
8. Changes to FSAs, HRAs and HSAs
• Beginning in 2013, employee contributions to health care flexible
spending accounts (FSAs) will be limited to $2,500
• Coverage based on salary reductions for health FSAs, and
employer contributions to health savings accounts (HSAs) and
health reimbursement arrangements (HRAs) are included in the
calculation of health plan costs for purposes of the "Cadillac
Plan Tax"
• Penalty on HSA distributions for non-qualified medical expenses is
increased from 10% to 20%
• Distributions from FSAs, HSAs or HRAs for over-the-counter
(OTC) medicine or drug purchases are no longer deemed a
qualified medical expense, unless the purchase was pursuant to a
prescription or is for insulin

13. No additional considerations
9. "Free Choice Vouchers“
• Employers who offer minimum coverage must provide a voucher to
"qualified employees" who meet household income requirements
and whose premium contribution is considered “unaffordable”
relative to their salary.
The voucher will be available for use in purchasing coverage
through an Exchange; the voucher’s value is the amount the
employer would have contributed under the employer-sponsored
plan
• Employers will not be subject to the employer shared responsibility
penalty for those employees who use vouchers to purchase
Exchange coverage

14. No additional considerations
10. Repeal of Tax Exclusion for Medicare Part D Subsidy
• Regarding retiree prescription drug plans, repeals the current
federal income tax deduction for an employer’s Medicare Part D
subsidized expenses beginning in 2013, although there is an
immediate financial statement impact in the first quarter of
2010.

15. The surtax applies to individuals (including taxpayers with passive trade or
business interests in Partnerships, LLCs and S Corporations). The dollar
thresholds are not adjusted for inflation. Because the tax applies a “lesser-of”
formula tied to MAGI, individuals with MAGI less than the applicable dollar
threshold will not have to pay the tax even if they have net investment income.
Net investment income includes income from interest, dividends, annuities,
royalties, rents, and capital gains, but excludes distributions from a qualified
pension plan, 403(a) or 403(b) annuity plan, IRA, Roth IRA and 457(b) deferred
compensation plan. Employees seeking tax shelters might begin to demand a
Roth feature for their retirement plan.
Two New Taxes on the Horizon
A final issue you may want to consider are two new taxes on those who are
considered "high-income." Beginning in 2013, individuals with wages or self-
employment income above $200,000, or joint filers with wages or self-
employment income above $250,000 ($125,000 for married separate filers) will
be required to pay an additional 0.9% hospital insurance tax. In addition, there is
a new 3.8% surtax on the lesser of net investment income or the excess of the
modified adjusted gross income (MAGI) over $200,000 for individual filers,
$125,000 for married filing separate filers, and $250,000 for joint filers effective
as of January 1, 2013.

16. • Analytics and Strategies
• Healthcare Expenditures - Three (3) Year claims history
- Medical and Pharmacy Benefits Claims
- Benchmarks – How do you compare?
- Know your data (VBBD)
• Strategies to improve your income statement.