Final presentation health careruling_7.18.12

Health Care Reform – Next Steps for

Minnesota

What the Supreme Court Ruling Means For You

Angela M. Bohmann

Jeffrey P. Cairns

July 18, 2012

IRS CIRCULAR 230 DISCLOSURE

Any tax advice included in this presentation (oral or in writing) is not intended to be used and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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INTRODUCTION

• Overview of Supreme Court Decision

• Political Reaction

• Next Steps With Health Care Reform

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SUPREME COURT DECISIONIssues Raised

• Constitutionality of individual mandate

• Constitutionality of Medicaid expansion

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SUPREME COURT DECISIONIndividual Mandate

• Affordable Care Act (ACA) requires most U.S. residents to have health care coverage or pay a penalty

• Penalty is collected by the IRS

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SUPREME COURT DECISIONMedicaid Expansion

• States must expand Medicaid eligibility to persons up to 133% of federal poverty level

• Federal government will pay all or most of increased cost, at least initially

• If state does not, HHS could withhold all federal Medicaid funds

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SUPREME COURT DECISIONFour Main Issues Raised

1. Tax Anti-Injunction Act– Under federal law, taxes cannot be

challenged until paid– If penalty for individual mandate is a tax, no

challenge until paid in 2014– Court said that penalty is not a tax under Anti-

Injunction Act because Congress did not call it a tax

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SUPREME COURT DECISIONFour Main Issues Raised continued

2. Individual Mandate– Is it constitutional to penalize an individual for

not purchasing a product (health care coverage)?

– Court said unconstitutional under the Commerce Clause

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–Court said constitutional under Congress’s taxing authority

• For constitutional purposes, it does not matter that Congress did not call the penalty a tax

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3. What parts of the law must also be struck down if individual mandate is unconstitutional?– No need to decide because mandate is

constitutional

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4. Is Medicaid expansion constitutional?– Court said federal government cannot

withhold all Medicaid funding for states that decline to expand coverage

– Can only withhold funding associated with the expansion

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POLITICAL REACTION

Presidential Challenger Mitt Romney’s reaction to decision:

“What the court did not do on its last day in session, I will do on my first day if elected president of the United States. And that is I will act to repeal Obamacare.”

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POLITICAL REACTION

U.S. House of Representatives’ reaction:• On July 11, 2012 voted 244 to 185 to

repeal the Affordable Care Act - the 33rd time they have done so

– Symbolic only, as Senate will not act on such a bill and President Obama would certainly veto it if both houses passed a repeal bill

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http://politics.nytimes.com/congress/votes/112/house/2/460

POLITICAL REACTION

State reactions: • USA Today survey has 7 state governors

pledged not to expand Medicaid coverage– Texas and Florida lead the pack– 13 Democratic governors pledge to fully

implement the law

• 14 states have already formed Health Exchanges in anticipation of 2014

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NEXT STEPS WITH HEALTH CARE REFORM

Employers need to take steps now to start compliance assuming that major parts of the law will survive pending and future challenges

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HEALTH CARE REFORM W-2 Reporting 2012

• W-2 reporting of value of employer provided health coverage (not including HSAs or flex accounts) beginning 2012 – IRS Notice 2010-69

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• Per IRS Notice 2011-28, W-2 reporting of health plan coverage is optional for 2012 calendar year for employers who file fewer than 250 W-2s in January 2013

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• IRS Notice 2012-9 clarified several issues on W-2 reporting:

– Employers with fewer than 250 W-2s in prior year also delayed

– Wholly owned subs of tribal governments exempt– Flex Spending Accounts are exempt if salary deferral

only

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– Employers can elect to include the cost of HRA that is packaged with high deductible insurance plan

– Insurance premiums included in partner or LLC member’s income not reportable even if deductible on form 1040

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• Large employers (over 250 W-2s) must report aggregate cost of employer sponsored coverage excluded from income – Jan 2013

• Small employers start reporting for 2013 – Jan 2014

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– Reporting does not apply to taxable coverage provided to highly compensated and S Corp 2% shareholders

– EAP, wellness and onsite clinic costs can be excluded if employer does not charge a COBRA premium

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• Regulations will specify COBRA type rules for valuation of coverage

• March 2011 Notice provides interim guidance that allows employers to use as a matter of convenience, the applicable COBRA premium, less the 2% administrative charge

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• Alternative #1 is the “Charged Premium Method” – for insured plans

• Alternative #2 is the “Modified COBRA Premium Method” – employer subsidizes COBRA premiums using the prior year COBRA premiums

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• The following are not included in the amount reported:– Long term care premiums– Dental and vision premiums unless not stated

separately from major medical– Contributions to HSAs, MSAs, flex spending

accounts, HRAs

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HEALTH CARE REFORMAppeals: PYs after 9/23/10

• Internal appeals– Plans must have robust internal appeal

process for denied claims or rescinded coverage

– Provide notices in culturally and linguistically appropriate manner

• Non-English language statement if 10% of county is literate in same non-English language

• Spanish, Navajo, Tagalog, Chinese• Oral assistance must be available• Written translation on request

– Does not apply to grandfathered plans25

HEALTH CARE REFORMAppeals: PYs after 9/23/10

• External appeals– Right to appeal to an independent third party

review• At least 3 independent review organizations by

July 1, 2012– Does not apply to grandfathered plans

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HEALTH CARE REFORMMedical Loss Ratio Rebates - 2012

• ACA requires insurance companies to spend 80 or 85% of premiums on health care costs annually

– Does not apply to self funded plans

• If less than that spent, insureds are entitled to refunds• First refunds due August 1, 2012• Insurers generally required to notify insureds whether

standard was met

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• Employers who receive refunds need to evaluate whether refund must be passed through to participants

• Per DOL for ERISA plans, if participants pay part of cost of coverage, participants are entitled to proportionate share of refund

– DOL Technical Release 2011-04

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• Proceeds attributable to participant contributions should generally be used within 3 months of receipt

– Refund to participants (taxable if premium paid with pre-tax dollars)

– Premium reduction or holiday

• Employer should document evaluation and use of refund

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• DOL search tool regarding insurance company MLRs and rates

– http://companyprofiles.healthcare.gov/

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HEALTH CARE REFORMFederal Benefit Mandates – Already in effect• Preventive services at 100%

• No pre-authorization or differential in coverage for emergency care services (in or out of network)

• Cannot limit to in-network providers for emergency care

• Regs have rules for out of network providers to balance bill for amounts in excess of amounts paid by the plan

• Nongrandfathered plans only31

HEALTH CARE REFORMFederal Benefit Mandates

• Preventive services for women– Includes coverage for contraception and

sterilization– Nongrandfathered plans only– Exemption for certain religious employers

• Coverage of children to age 26– Already in effect

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HEALTH CARE REFORMSummary of Benefits and Coverage (SBC)

• New Uniform Explanation of Coverage– No more than 4 pages (double sided)12 point

font– Specific content prescribed

• Uniform glossary (not part of 4 pages)• Culturally and linguistically appropriate

– In addition to SPD – $1,000/day penalty for willful failure to

provide– Including grandfathered plans

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HEALTH CARE REFORMSummary of Benefits and Coverage (SBC)

• Applies to open enrollment periods beginning on or after September 23, 2012

• Applies to group health plans– Excludes retiree only plans– Excludes stand alone dental and vision plans– Excludes most health FSAs– Includes HRAs unless integrated with medical

plan that provides SBC

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HEALTH CARE REFORMAnnual Limits

• No lifetime or dollar limits on essential health benefits

• Annual dollars limits phased out through 2014

– PY on or after September 23, 2011 and before September 23, 2012 -- $1.25 million

– PY on or after September 23, 2012 and before September 23, 2013 -- $2 million

– PY on or after September 23, 2013 and before January 1, 2014 -- $2 million

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HEALTH CARE REFORMAnnual Limits

• Some waivers for grandfathered plans have been allowed

• Problem for stand alone HRAs

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HEALTH CARE REFORMQuality of Care Reporting

• ACA provides that agencies are to develop annual reporting requirements for insurers and group health plans

– Report activities that improve health and disease management

– Report must also be made available to plan participants

– Reporting not required until regulations are issued

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HEALTH CARE REFORM Nondiscrimination Rules – PYs after 9/23/10

• Non-discrimination rules apply to insured plans – IRC section 105(h) – unless “grandfathered” plan

• 105(h) rules require plans not be discriminatory in eligibility or benefits

• Penalty is not income tax but $100/day excise tax under Public Health Services Act

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• Maximum penalty is $500,000

• Does not apply to small employers with between 2 and 25 employees – “business as usual”

• Does not apply to retiree medical plans that are not providing coverage to at least two active employees

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• IRS issued guidance delaying the effective date of these rules until it issues regulations describing how to determine if the coverage is discriminatory

– IRS Notice 2011-1

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• Discriminatory insured health coverage creates a claim under ERISA Title I for comparable benefits by non-highly compensated employees – would need to sue to recover benefits

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HEALTH CARE REFORM Simple Cafeteria Plan – Calendar 2011

• New small employer “simple” Cafeteria Plan - employers with 100 or fewer employees

– No discrimination tests required if minimum eligibility, participation and contribution requirements are met

• All non-excludable employees who had at least 1,000 hours of service during the preceding plan year must be eligible

• Minimum employer contribution– 2% of base pay or

– lesser of 200% or 6% match

• Can exclude <21, union, NR aliens42

HEALTH CARE REFORMFlexible Spending Arrangements - 2011

Calendar Year

• Over the counter drugs not eligible for tax benefits

• Applies -from 2010

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HEALTH CARE REFORMFlexible Spending Arrangements - 2013

Calendar Year

• Flex spending account limit for salary deferrals is $2,500 (indexed 2014 and later)

– This was previously unlimited– Employer matching or non-elective contributions

not counted toward limit

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HEALTH CARE REFORMFICA and Medicare Tax Changes –

2013 Calendar Year

• Floor for deductible medical expenses raised from 7.5% to 10% (delay for 65+)

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2013 Calendar Year• Increased Medicare tax .9% for individuals earning over

$200,000 and joint filers over $250,000• New 3.8% tax on unearned income (interest, dividends,

cap gains) for individuals earning over $200,000/joint filers over $250,000

– $500,000 cap gain exclusion for principal residence still applies

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2013 Calendar Year

• New cap on deductions for compensation to officers, directors or employees of health insurance providers $500,000 per year. IRC 162(m)(6)

• Applies to payments after 2012 including comp earned after 2009

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HEALTH CARE REFORMNotice of Exchange Option

• Employers must notify new and existing employees regarding

– Availability of coverage through Exchange– How to access Exchange for coverage– If employer’s plan is not sufficiently robust, employee

may be eligible for premium subsidy through Exchange

– Employee who uses Exchange loses employer’s (pre-tax) subsidy of health coverage

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HEALTH CARE REFORMNotice of Exchange Option

• Employers must notify new and existing employees

–March 1, 2013 effective date–Part of Fair Labor Standards Act (FLSA)–No regulations issued as yet

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HEALTH CARE REFORMResearch Fees – PYs after 9/30/12

• Research Trust Fund Fee – assessed against all health plans-

–$2/participant/year - $1 for 2013 –Fee ends 2019

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HEALTH CARE REFORMExcise Taxes - 2013 Calendar Year

• Medical Device Excise Tax– Amount is 2.3% of price charged

– Assessed against manufacturer or importer

– Reported on IRS form 720 quarterly

– Minnesota federal delegation trying to get this repealed – including Paulson, Klobuchar and Franken

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“Play or Pay”

• Penalty for employers not offering coverage = $2,000 x each full-time worker (except for first 30 workers)

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“Play or Pay”

• Penalty for employers offering coverage not “affordable”=

– At least, $3,000 x # of full-time employees receiving federal assistance BUT

– No more than, $2,000 x each full-time employee (except for first 30 full-time workers) penalty

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“Play or Pay”

• Full time employee - working over 30 hours/week – can use 12 month lookback and 90 day waiting period

• “Affordable coverage” = 40% of premium but not more than 9.5% of household income

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• 40% excise tax on insurers and TPAs who offer coverage costing more than $10,200 for individual coverage or $27,500 family (indexed)

– Also called “Cadillac Tax”

• Higher limits for retirees 55-64 and selected high risk occupations

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HEALTH CARE REFORM 2014 Calendar Year

• Premium assistance tax credits to individuals with income between 100% and 400% of the federal poverty level: For 2011 these numbers were:

# in household 100% poverty level 400% poverty level

1 $10,890 $43,560

2 $14,710 $58,840

3 $18,530 $74,120

4 $22,350 $89,400

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To qualify the taxpayer must:– Be legally in the U.S.– Not enrolled in employer plan or government health

program– Be under 400% of the federal poverty level– Enrolled in an affordable health exchange

Estimates are that over 28 million will qualify/year

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• Refundable credit is difference between the benchmark plan and expected contribution– Benchmark is the 2nd lowest cost plan at “silver

level”– Expected contribution is between 2% and 9.5% of

HHI

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HEALTH CARE REFORMPremium Tax Credit - 2014 Calendar Year

• Premium credit is available for “unaffordable employer sponsored coverage”– If employer contribution is less than 60% of the

“value of coverage” or– Self-only cost is over 9.5% of HHI

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HEALTH CARE REFORMMiscellaneous - 2014

• No pre-existing condition limitation for any enrollee

• No waiting periods longer than 90 days• Auto enrollment for employers of 200 or more

employees (regulations needed)• Coverage for participants in approved clinical

trials required (nongrandfathered plans only)

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• Notice required regarding whether plan qualified as minimum essential coverage (year-end reporting)

• No discrimination against providers acting within scope of license (nongrandfathered plans only)

• Limits on deductibles and out-of-pocket maximums (nongrandfathered plans only)

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• Financial incentives for wellness programs increased to 30% by law and up to 50% if regulations so provide

• Grants to small employers to implement wellness programs 2011-2015 (Fewer than 100 workers who work 25 or more hrs/week)

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© 2012, Leonard, Street and Deinard Professional Association.Leonard, Street and Deinard and the Leonard, Street and Deinard logo are registered trademarks.

Thank You

Angela M. Bohmann(612) [email protected]

Jeffrey P. Cairns(612) [email protected]

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Final presentation health careruling_7.18.12