1. National Health Care
Reform –
Understanding The
New Plan
Updated November, 2012
Presented by
David L. Fear, Sr. RHU
Partner, Shepler & Fear General Agency
Roseville, California

2. Historical Perspective…
 Medicare and Medicaid
were passed into law in
1965
 ERISA signed into law
in 1974
 TEFRA, COBRA in
1983, 1986
 Medicare Reform Act in
2003
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3. PPACA - history
 HR3590/HR4872 signed into law in
March, 2010
 2,700 page rough draft became the law
 Largest piece of health related
legislation since Medicare/Medicaid
 Many provisions went into effect
immediately
 Regulations released since 2010 and
more expected in the future
 Major portion of the law is scheduled to
go into effect on 1/1/2014
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4. PPACA – history: The Supreme Court
 SCOTUS ruled 5-4 on 6/28/2012:
 Chief Justice Roberts writing for the
majority:
 The individual mandate is legal
because it is in fact a tax and congress
has the right to levy taxes
 Forcing the States to expand Medicaid
funding by taking away all funding if they
did not expand it was not legal
 The Chief Justice did not want the
Court to be “legislating” and basically
said that if the people don‟t like the
law, then have Congress change it…
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5. PPACA and future elections
 2012 elections:
 President Obama re-elected and unlikely
to agree to amendments
 Senate remains in Democratic control and
still requires 60 vote supermajority to
approve any changes in the law (unlikely)
 Republicans maintain control of House but
are unlikely to hold more repeal votes
 May propose some compromise of minor
provisions of the law as part of negotiations
pertaining to other matters
 Administration will now move forward
to release regulations to clarify
many points of the law between now
and 1/1/2014
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6. Big picture – what’s happening
 2010 through 2013 – Law  After 2014 – additional
initiated and first provisions changes are also
go into effect (some are scheduled
suspended or delayed)  Visit www.healthcare.gov
 2014 – Mandates and Major for updates…
Market Reforms go into  Note: amendments can be
effect: enacted and change this
 Individual mandate timeline and some provisions
can be delayed via executive
 Employer “play or pay” decision.
 Exchanges  Note: Majority of funding
 Insurance reforms was appropriated prior to
 Reporting, penalties 1/1/2011
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7. 2010: What happened…
 Grandfathered Status was available for
plans in effect on the date of enactment:
 May keep such a plan only if no changes
are made to the plan (other than to add or
delete employees or changes scheduled as a
result of a collective bargaining agreement)
 Phase 1 of a Small Employer Tax Credit
went into effect for eligible small businesses
 Less than 25 full-time equivalent employees
with an average wage of under $50,000
 A Temporary Reinsurance Program
began on 6/29/2010:
 For employers who provide retiree health
coverage for employees over age 55
 $5 billion was allocated and all used up by
the spring of 2012
 Most funding went to Unions, Public Entities and
Large Employers with retiree health benefits
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8. 2010: What happened…
 Section 105(h) non-discrimination rules
were to have gone into effect for plan years
beginning after 9/30/2010 for all fully insured
plans:
 Employer penalties of $100/day per Highly
Compensated employee (similar to HIPAA)
 Enforcement delayed as of 12/22/2010 and
will waive penalties for non-compliance in the
absence of official “guidance”
 Expect regulations on this after 11/6/2012
 A National High-Risk Pool for people with
a pre-existing condition in effect on
7/1/2010:
 Works through existing State pools
 Employers penalized if they place
employees or dependents into the pool
 Financed by $5 billion Federal appropriation
 Ends on 12/31/2013
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9. 2010: What happened…
 Secretary of Health and Human Services
(HHS) and States developed Information
Portal Options for state residents to obtain
uniform information on sources of
affordable coverage (including an Internet
site)
 www.healthcare.gov rolled out 7/1/2010
 A Federal grant program for small
employers providing wellness
programs to their employees went into
effect on 10/1/2010:
 No grants have been applied for,
therefore none have been awarded…
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10. 2010: What happened…
 Plan years beginning after 9/30/2010:
 All individual and group plans (including self
insured) were required to:
 Eliminate all lifetime benefit limits
 This includes grandfathered plans
 And a prohibition on annual benefit limits
will go into effect by 1/1/2014;
 No longer permits coverage rescissions in
all markets except for cases of fraud or
misrepresentation;
 Treat all emergency services as in-network
regardless of provider used *;
 Allow enrollees to designate any in-network
provider as their primary care physician *;
 A new coverage appeal process was to
have been implemented;
*both of these have been delayed…
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11. 2010: What happened…
 Beginning plan years after 9/30/2010:
 All individual and group plans (including self
insured) are required to:
 Cover dependents up to age 26:
 Includes married dependents
 Through 2014, grandfathered plans only
have to cover dependents that do not have
another source of employer-based
coverage;
 Cover pre-existing conditions for children
19 and under :
 Grandfathered status applies for group
health plans;
 Carriers restricted plan offerings to children
as a result of this, but this seems to be
easing up
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12. 2010: What happened…
 Also for plan years after 9/30/2010:
 All individual and group plans
(including self insured) will be
required to:
 Provide specific preventive care
services with no cost sharing (i.e.
deductibles, coinsurance, copays);
 Offer minimum covered services based
on existing Federal guidelines on
specific topics
 There were rate adjustments as of
10/1/2010 to offset this benefit increase
 Grandfathered plans were exempted
from this until they lose that status
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13. 2010: What happened…
 Federal review of health insurance rates
was to have been established by 10/1/2010
 Secretary of HHS – will have authority to
monitor carrier premium increases
 To prevent unreasonable rate increases
 Publicly disclose the information
 Carriers may be barred from participating in
an exchange if they have a “pattern of
unreasonable increases”
 $250 million grant to States to help them
increase their review and approval process of
health insurer rate increases
 Most States applied for and have received a
portion of grant funding in 2010 including CA
 Secretary HHS has elected to work
through existing State regulators…
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14. 2010: What happened…
 Minimum Loss Ratio (MLR) requirements:
 Large group (100+) MLR is 85%, Small
group (under 100) and Individual MLR is
80%
 Carriers will have to issue a premium
rebate for plans that fail to meet the
minimum MLR requirements
 First premium rebates went out in
August, 2012 for the 2011 policy year for
both individuals and employers
 Employers have asked for guidance on
how to distribute rebate dollars to
employees who contributed:
 Some will issue employee refunds
 Most will take a credit against future
payments
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15. 2011: What happened…
 The tax for non-qualified distributions
from an H.S.A. increased from 10% to 20%
 Required Over-The-Counter (OTC)
drugs to be prescribed in order to be
reimbursed from FSA/HSA/HRA plans
 A public Long Term Care program
(CLASS Act) was to have started on
1/1/2011 but was delayed indefinitely on
10/14/2010:
 Would have generated $90 billion in payroll
taxes for five years before benefits paid
 Found to be actuarially unsound
 The “1099 reporting provision” was
to have gone into effect, but was
repealed by congress (bi-partisan)
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16. 2012: What happened…
 A federal tax on fully insured and self-
funded group plans to fund federal
comparative effectiveness research
 Tax will be $2.00 per enrollee per year
 Paid in 2013 for 2012 plan participants
 Employers required to include the
aggregate cost of employer-sponsored
health benefits on an employee’s W-2
for tax years beginning in 2011 (issued
in 2012)
 Excludes contributions to FSA/HSA/HRA
plans
 Includes total amount paid by both
Employer and Employee
 This has been delayed by a year for
employers with less than 250 W-2’s
 Report is for “informational purposes”
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17. 2013: What will happen…
 The Medicare tax (2.9%) is increased an
additional .9% for employees and self
employed on their earnings above
$200k/single ($250k/joint)
 This additional tax is not deductible by self
employed individuals
 The 3.8% Medicare tax be levied on
certain unearned income for individuals
with AGI of $200k/single ($250k/joint)
 A $2,500 cap on Medical F.S.A.
contributions by employers (annually
indexed for inflation)
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18. 2013: What will happen…
 Threshold for itemized deduction for
unreimbursed medical expenses
(schedule A) will be increased from 7.5% to
10% of AGI:
 Increase will be waived for individuals age
65 and older for tax years 2013 through 2016
 States have to indicate by 1/1/2013 if they
are going to set up a Health Insurance
Exchange for their residents:
 Federal Fallback Exchange would be
developed for States who fail to set one up
themselves (“Partnership Arrangement”)
 Exchanges will begin open enrollment of
individuals and small employer groups on
10/1/2013
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19. 2014: The Individual Mandate
 All American citizens and legal
residents will be required to purchase
“essential” health insurance coverage
or pay a fine (“tax”)
 Exceptions will be allowed for:
 Religious objectors
 Incarcerated individuals
 Hardship waivers, individuals with income
less than 100% of FPL
 Members of Indian Tribes
 People with no income tax liability
 Individuals not „lawfully present‟
 Those who were not covered for a period of
less than three months during the year
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20. 2014: The Individual Mandate
 The penalty for non-compliance of the
individual mandate is the higher of:
 A percentage of gross household income equal to:
 1% in 2014
 2% in 2015
 2.5% in 2016
 Capped at the value of the average bronze-level
insurance premium (60% actuarial value), or
 A flat amount equal to:
 $325 per person in 2015
 $696 per person in 2016
 Mandate applies to employed and unemployed
persons:
 If their employer does not provide an essential
benefit plan, they must still comply and pay
penalty if they fail to obtain essential coverage
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21. 2014: Federal Premium Subsidy
 A Federal health insurance “premium subsidy”
becomes available to qualified individuals:
 A sliding-scale refundable tax credit paid to the
carrier (through the Exchange) for individuals or
families with incomes of between 133% and 400%
of Federal Poverty Level*
 (Family of 4 @ $22,000 = 100% of FPL)
 Subsidy only available through an Exchange
 Not available to employees of employers who offer
“affordable” and the “minimum value” coverage to
their employees
 Amount of subsidy based on the “Silver” level
benefit in the exchange rating area where the
person resides and is higher for families than for
individuals
*Subsidy can be changed in 2019 if total exceeds .504% of
Gross Domestic Product
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22. 2014: Market Reforms
 All health insurance coverage will be
guaranteed issue and guaranteed
renewable in all markets (Individual, Small
Group, Large Group)
 Pre-existing condition exclusions will be
prohibited in all markets (Individual, Small
Group, Large Group)
 Full prohibition on any annual or lifetime
limits in all individual, group and self
funded plans
 The “Phase In” from 2010 will be eliminated
 Benefit plans will become more
standardized with some variance allowed
on a State-by-State basis:
 Small employers will be offered only “essential”
benefit plans
 “Excepted” plans will be available
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23. 2014: Market Reforms
 Redefines the small group market as 1-
100 employees
 States may elect to reduce this to 1-50 for
plan years prior to 1/1/2016 (California is)
 All fully insured individual and group
policies up to 100 lives must abide by strict
community rating standards:
 Premium variations only allowed for:
 Age (3:1 price ratio)
 Tobacco use (1.5:1 price ratio)
 Family composition
 Geography (regions defined by States)
 Experience rating will be prohibited
 Wellness discounts are allowed for group
plans under specific circumstances
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24. 2014: The Employer Mandate
 Employers with the equivalent of 50+ full time
employees* must provide health benefits to full
time employees that:
 Meet a “minimum value” standard, and;
 Meet an “affordability” test with regard to how much
an employee must pay for such coverage
 Mandate applies regardless of whether an
employer is fully insured or self funded
 Failure to do this will result in a fine paid by the
employer, which is the lesser of:
 $2,000 x no. of full time employees (less 30), or
 $3,000 x no. of full time employees who receive an
exchange premium subsidy
 Employers are NOT required to provide coverage
to part time employees*
* 50 full time employee definition includes pro-rated part time employees
based on 30+ hours per week; Seasonal employees who work less
than 120 days per year are excluded from the count.
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25. 2014: The Employer Mandate
 Expect that “minimum value” will parallel
“essential benefits” definition which applies
to individual and small employer plans
 Designated covered, limited and excluded
expenses
 Maximum cost sharing provisions
(deductibles, coinsurance, copayments)
 Allow for “catastrophic” plans for employees
under age 30
 “Affordability” test based on employees
share of single coverage for the lowest
benefit tier plan cost less than 9.5% of
employee‟s W-2 income (not household
income per proposed regulation)
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26. If the employer has 25 or
Penalties do
Start Does the employer have at
not apply to
fewer employees and
 least 50 full-time NO  small  average wage up to
$50,000, it may be
Here equivalent employees?
employers.
eligible for a health
insurance tax credit.
YES

The penalty is $2,000
Did at least one The employer
annually times the
employee receive a must pay a number of full-time
Does the employer offer
coverage to its workers? NO 
premium tax credit
or cost sharing YES  penalty for  employees minus 30. The
penalty is increased each
subsidy in an not offering
year by the growth in
Exchange? coverage. insurance premiums.
YES

Employees can
Does the coverage pay for choose to buy
at least 60% of covered coverage in an
health care expenses for a
NO  Exchange and  The penalty is $3,000
annually for each full-
typical population? receive a premium The employer time employee receiving
subsidy. must pay a a premium subsidy, up to
a maximum of $2,000
YES penalty for
times the number of full-
 not offering
affordable
 time employees minus
30. The penalty is
Those employees
Do any employees have to increased each year by
can choose to buy coverage.
pay more than 9.5% of coverage in an the growth in insurance
family income for the YES  Exchange and  premiums.
employer coverage? receive a premium
subsidy.
NO

Information provided by
No employer penalty The Henry J. Kaiser Family Foundation
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27. 2014: The Employer Mandate
 All employers must give notice of the
existence of a health benefit exchange
 Limits employee waiting periods to 90
days
 Expect that the Section 105(h) non-
discrimination requirements to be
enforced ($100/day penalty)
 Expect the Auto-Enrollment for groups of
200+ to be enforced
 Employees will be able to opt-out if they
have other coverage
 HIPAA workplace wellness rules will
change – incentive values increase from
30% to 50%
1/29/2013 27

28. 2014: Health Insurance Exchanges
 Exchanges are a key part of how health
insurance will be delivered:
 States are expected to either establish exchanges
by 2014 or the Feds will do it for them if they
haven‟t acted by 2013
 Federal grant funding available to the States up to
2015 to offset set-up costs*
 Feds provide broad outline of benefits, services and
features but will leave details to the States
 Exchanges will have the exclusive
administration of subsidies in 2014:
 Individual premium subsidy
 Small Employer Health Insurance Tax Credit
 They are developing an online administrative
program for the qualification of these subsidies
* California has received nearly $250 million by August 2012…
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29. 2014: Health Insurance Exchanges
 Exchange functions include:
 Certifying, re-certifying & de-certifying Qualified
Health Plans to participate
 Establish a toll-free hotline & internet website
 Transfer data to the U.S. Treasury
 Rating Qualified Health Plans
 Providing standardized information on benefits
 Screening & enrolling into the Exchange,
Medi-Cal, Healthy Families
 Granting exemptions from the individual
mandate
 Provide employer notification
 Determine eligibility for Premium Subsidy
and Tax Credits
 Establish a Navigator program
 Submit to annual audit of performance
1/29/2013 29

30. 2014: Health Insurance Exchanges
 Primary focus is for sale of qualified plans to
individuals, however:
 Must also create “SHOP Exchanges” for Small Employers to
purchase coverage
 States are allowed to create a single exchange serving both
individual and small group markets or separate
exchanges for each of those markets
 California will have two separate exchanges operating under
one jurisdiction (“Covered California”)
 PPACA allows large employer groups to
participate in State exchanges beginning in 2017
 Prior to 2012 election, state response was mixed
with many rejecting funds and declining to move
forward
 Following election, Feds are reaching out again to
try to incentivize States to take action
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31. Employer attitude about Exchanges
 A high number of small employers may
drop group coverage and encourage
employee enrollment into an exchange
to take advantage of the subsidy
 Larger employers are less likely to do
this and in fact seem to be leaning
toward joining private exchange
arrangements
 Also weighing the cost of the “play or pay”
penalties ($2,000/$3,000) versus changing
plan and continuing forward with group
coverage
 Exchange concept appeals to employers
with low paid workforce, smaller in
size and in high turnover industries
 The exchange concept makes sense in
more competitive markets
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32.  California is the first state to enact
legislation to set up an exchange
 SB-900 (Alquist) and AB-1602
(Perez) were signed into law on
9/30/2010 by Gov. Schwarzenegger
 Visit their website at
www.healthexchange.ca.gov
 View “Grant Reporting” section of
the site to track progress per Federal
requirements
 All other public documents are
posted for review:
 Minutes of board meetings and
related materials
 Quarterly grant reports
1/29/2013 32

33.  Five Board Members have been appointed:
 Kimberly Belshé
 Diana S. Dooley, Chair
 Paul Fearer
 Susan Kennedy
 Robert Ross, MD
 The Executive Director is Peter V. Lee (formerly
of Pacific Business Group on Health and CMS)
 HBEX has received nearly $250 million in Federal
Grant funding since it‟s start up in January, 2011
 They are dealing with key issues
 Information Technology (IT)
 Stakeholders
 RFP’s for services including TPA and Navigator
grant funding
 Plan design, carrier selection, agent relations
 Recently named itself “Covered California”
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34.  Federal grants will end on 12/31/2014 – after
that all Exchanges will be self sufficient
 Private 501-c foundations are also granting
money and in-kind services to States to
assist in building Exchanges
 Blue Shield of California (actuarial)
 California Health Care Foundation (IT)
 The Feds are looking at California as the
example of how to do this:
 There is bi-partisan support in California for an
exchange for small businesses
 Moving traditional Medi-Cal members into
a managed care program – budget issues
 Forging consensus among parties to make it
work and be self sufficient
1/29/2013 34

35. What about Exchange Navigators?
 Navigator Duties & Responsibilities
 Make available information that is fair,
accurate and impartial;
 Conduct public education activities to
raise awareness of plans in the Exchange:
 Facilitate enrollment in qualified health
plans;
 Provide referrals for any enrollee with a
grievance, complaint, or question regarding
their health plan, coverage, or a
determination under such plan or coverage;
and
 Provide culturally and linguistically
appropriate information for the population
being served by the Exchange.
 PPACA specifically bars a Navigator from
receiving consideration (i.e. commission)
directly or indirectly from any health
insurer
35
1/29/2013

36. What about Exchange Navigators?
 Entities that may be Navigators
 Trade, industry, and professional
associations, Ranching and farming
organizations, Community and
consumer-focused nonprofit groups,
 Chambers of commerce, Unions,
 Small business development centers,
 Licensed insurance agents and
brokers,
 Other entities that can carry out the
required duties, meet the required
standards and provide fair, impartial
and accurate information
 Insurers & Health Plans and their
employees are specifically
prohibited from being Navigators
1/29/2013 36

37. Exchanges and Insurance Agents
 No Federal prohibition on agents
placing business with an Exchange
 Leave it up to States to determine the role of
agents
 California Exchange has embraced
agents as part of the solution of
insuring the uninsured
 Will allow agents to sell individual and
SHOP (small group) products
 Will allow agents to be paid “market level”
compensation for placing business
 Has agreed to work with General Agents for
the SHOP exchange
 Included agents as stakeholders in the
process of developing the Exchange
 Relationship is not exclusive as Navigators
will be appointed too…
1/29/2013 37

38. 2014: What else will happen
 Allows states to apply for a waiver for up to
five years of requirements relating to:
 Qualified health plans
 Exchanges
 Cost-sharing reductions
 Tax Credits
 The Individual responsibility mandate
 The Employer shared responsibility mandate
 Providing that the State creates its own
programs meeting specific standards
 Imposes annual taxes on private health
insurers based on net premiums
 Self Funded plans are exempt from this tax
1/29/2013 38

39. After 2014: More to come
 1/1/2018 - implementation of a 40% excise
tax on insurers of employer sponsored
health plans with aggregate values that
exceed $10,200* for singles and $27,500* for
families (*adjusted for inflation annually):
 Transition relief would be provided for 17
identified high-cost states;
 The above values include reimbursements
from F.S.A.‟s, H.R.A.‟s and employer
contributions to H.S.A.‟s;
 Stand-alone dental and vision are
excluded from the calculation;
 Premium values are indexed to the CPI;
 Plans will be allowed to take into
consideration age, gender and certain
other factors that impact premium costs.
1/29/2013 39

40. Concluding thoughts…
 The role for advisors has never been more
important than today
 Employers need help in strategizing their benefits offering,
especially with regard to cost, plan design and funding
issues
 Consumers will need help in purchasing and paying for
coverage they were not eligible for in the past, especially in
the area of Premium Subsidy and plan selection
 Both Employers and Consumers are facing serious
compliance issues and penalties that will require
assistance to navigate over the next 2-3 years
 Navigators may help individuals but are unlicensed and
have narrow knowledge and not well suited to assist
businesses in any of this
 Licensed insurance advisors have an opportunity to
cross sell other products besides health insurance
 Ancillary benefits, personal lines, supplemental products,
Medicare/Senior products
 A multi-lines agency will need support from trained
professionals in compliance, product and legal
issues related to PPACA for individuals and small
businesses
1/29/2013 40

41. Information provided by
Proud members of the
2140 Professional Drive, Suite 150
Roseville, CA 95661
Telephone: 1-877-361-7342
Telefax: 1-888-360-7342
Email: Insurance@sheplerfear.com
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