‘Health Care Reform and Your Business’ WebinarWhat are the impacts you experienced and what can you expect? |
|
|
Webinar presented on January 31, 2012
download a copy of the slide deck Covering topics that will affect you in 2012:
|
|
On January 3, 2012, the Internal Revenue Service released Notice 2012-9 (an ammendment of Notice 2011-28) providing interim guidance on the W-2 reporting requirement. The guidance clarifies that employers distributing fewer than 250 W-2s in 2011 are not required to report the the cost of employer-sponsored health insurance on the Form W-2 issued in 2012.
This requirement has been extended to January 2013, when employers issue W-2s for the 2012 tax year. In addition, Notice 2012-9 restates and amends its guidance to clarify several points and address additional issues. Here are some highlights.
For additional information on this topic, please see Notice 2012-9 on the IRS page.
While the Patient Protection and Affordable Care Act (PPACA) required significant changes for group health plans in the past 20 months, some additional implementations are still required for 2012 and beyond.
On March 23, 2010, President Obama signed into law the Affordable Care Act, which puts in place significant changes in the healthcare reform.
In an effort to protect consumers, lower costs, guarantee choices and enhance quality healthcare for all Americans, the Act has put in place some key provisions that took effect in 2010 and additional provisions that will be implemented in the next few years.
This brief timeline highlights some of the key provisions.
Providing Small Businesses Health Insurance Tax Credit – January 1, 2010
This tax credit helps small businesses provide for the first time, or continue to provide health insurance coverage to their employees. The incentive is a credit worth up to 35% of the employer’s contribution to the employee’s premium. This provision also applies to non-profit organizations.
Closing the “Donut Hole” – Starting in 2010
“Donute Hole” refers to the gap in prescription coverage present in most Medicare Part D plans. A $250 tax-free rebate from medicare was issued to about 4 million seniors last year. Starting in 2011, a 50% discount will be in place for Medicare participants who experience the “Donut Hole”.
Expanding Coverage for Early Retirees – Applications started June 1, 2010
The program under the new law allocates $5 billion towards preserving employer-sponsored health insurance for early retirees until 2014, when more affordable coverage will be available through the new Exchanges.
Pre-Existing Condition Insurance Plan – July 1, 2010
This new plan provides coverage to individuals who have a pre-existing condition and have been uninsured for at least 6 months. The Department of Health and Human Services of each state will establish plans should the state choose not to run this program.
Extending Coverage for Young Adults – September 23, 2010
Effective for plan years starting on or after Sept 23, 2010, the new law allows dependent children to stay on their parent’s health plan until their 26th birthday, as long as the dependent is not offered coverage through his/her work.
Free Preventive Care – September 23, 2010
Effective for plan years starting on or after Sept 23, 2010, certain preventive services such as mammograms and colonoscopies must be covered by new plans. Services are free of charge (deductible, co-pay or coinsurance).
Eliminating Lifetime Limits – September 23, 2010
Effective for plan years beginning on or after Sept 23, 2010, no lifetime dollar limits will be allowed on essential benefits, like hospital stays.
The Patient Protection and Affordable Care Act of 2010 mandates employers to report the aggregate cost of employer sponsored health care coverage on Form W-2, Wage and Tax Statement, beginning January 1, 2011. The IRS (Internal Revenue Service) released Notice 2010-69 (see link below) on October 12, 2010 providing interim relief to employers on this reporting requirement. The reporting is now voluntary in 2011. Furthermore, if employers do not report the aggregate cost of health coverage on Form W-2 in 2011, they are not subject to penalties. This decision made by the Department of Treasury and the IRS provides additional time to employers to make necessary changes to their payroll systems and better prepare to comply with the PPACA reporting requirements.
For additional intormation go to http://www.irs.gov/pub/irs-drop/n-2010-69.pdf
If you have questions, please contact us to discuss these significant health care reform changes.
Effective for health plan years beginning on or after September 23, 2010, the Affordable Care Act requires group health plans and health insurers that offer dependent coverage of children to make coverage available for young adults until age 26. The goal of this policy is to extend coverage to as many employed adults. Enrollees are eligible even if they don’t live with their parents, are no longer a dependent on parents’ tax return, or are no longer students. This law does not apply if the young adult is offered insurance through an employer.
Some important points:
For more information on this topic, please visit http://www.hhs.gov/ociio/regulations/dependent/ or www.healthcare.gov
Sample Dependent Coverage Notice
Individuals whose coverage ended, or who were denied coverage (or were not eligible for coverage), because the availability of dependent coverage of children ended before attainment of age 26 are eligible to enroll in [insert name of group health plan or health insurance coverage]. Individuals may request enrollment for such children for 30 days from the date of notice. Enrollment will be effective retroactively to [insert date that is the first day of the first plan year beginning on or after September 23, 2010]. For more information contact the [insert plan administrator or issuer] at [insert contact information].
If you have questions, please contact us to discuss these significant health care reform changes.
Recognizing that the key provisions of the Affordable Care Act do not take effect until 2014, Congress included a number of short-term incentives for the expansion of health coverage during the intervening period. Three of these programs are as follows:
See below for detailed information about these three health care reform incentive programs.
Early Retiree Reinsurance Program
According to the Obama Administration, the percentage of large employers offering health coverage to early retirees (i.e., those between age 55 and Medicare eligibility) has declined precipitously in recent years, from 66% in 1988 to 31% in 2008. As a way of stemming that slide, the Affordable Care Act allocates $5 billion to a program under which the federal government will reimburse employer health plans (whether insured or self-funded) for certain claims incurred by early retirees or their covered dependents. During 2010, this program will reimburse 80% of an individual’s claims of more than $15,000 and less than $90,000. These two dollar amounts will be adjusted for inflation in later years.
To be eligible to participate in this reinsurance program, a health plan must submit an application to the Department of Health and Human Services (“HHS”) demonstrating that the plan has implemented “programs and procedures to generate cost-savings with respect to participants with chronic and high-cost conditions.”
As an example of such a cost-savings program, recent HHS regulations mention a diabetes management program that includes monitoring and behavioral counseling to prevent complications and hospitalizations. Those regulations define a “high-cost condition” as one that is likely to result in claims of $15,000 or more during a plan year by any one participant. Any reimbursements received under this program must be used by the plan to “lower costs for the plan.” For example, these funds might be used to reduce retiree premiums, copayments, deductibles, coinsurance, or other out-of-pocket costs. Apparently, they could also be used to reduce any employer premiums for the retiree coverage. However, they could not be used as general revenues of the plan sponsor. HHS is required to audit this program on an annual basis to ensure the appropriate use of all reimbursements. These reimbursements will not be taxable to the plan sponsor
This program is slated to end on January 1, 2014 – or sooner, if the $5 billion appropriation is exhausted before then. Applications to participate in the program will be available by the end of June. Because reimbursements will be made to qualifying plans on a first-come, first-served basis, any sponsor interested in participating in this program should plan to apply early.
Small-Employer Tax Credit
Beginning in 2010, small employers (those with fewer than 25 full-time employees, including full-time equivalents [“FTEs”]) with a relatively low-paid workforce (an average annual wage of less than $50,000) may qualify for a federal tax credit equal to a portion of the amounts the employer pays for its employees’ health insurance.
To receive the full credit, an employer must have 10 or fewer FTEs and an average annual wage of less than $25,000. The credit is phased out for employers with 10 to 25 employees or average annual wages of $25,000 to $50,000. This tax credit is equal to a percentage of the total health insurance premiums paid by the employer. For 2010 through 2013, taxable employers may receive a credit of up to 35% of these premiums, while tax-exempt employers may receive a credit of up to 25%. Taxable employers will claim this amount as a general business credit, thereby allowing it to be carried back one year and forward for up to 20 years. The credit also applies to liability under the alternative minimum tax. Tax-exempt employers will claim the credit as an offset against their payroll tax liability. For such employers, the credit is limited to this annual amount.
Beginning in 2014, the program will be slightly modified. The maximum credit percentage will increase to 50% for taxable employers and 35% for tax-exempt employers. However, the credit will then apply only to coverage purchased through Beginning in 2014, the program will be slightly modified. The maximum credit percentage will increase to 50% for taxable employers and 35% for tax-exempt employers. However, the credit will then apply only to coverage purchased through one of the state-wide exchanges that are to be established under the Act. Moreover, the credit will then be available to an employer for only two consecutive years.
In order to qualify for this credit, an employer must pay at least 50% of the total insurance premiums charged to its employees. For 2010, the employer must simply pay the same dollar amount for each employee, regardless of whether an employee elects single or family coverage. Beginning in 2011, however, the employer must pay a uniform percentage of each employee’s actual premium, even if an employee’s premium is higher due to his or her election of family coverage.
A complicating factor stems from the fact that the credit is actually calculated on the basis of the lesser of (1) the employer’s actual premiums paid on behalf of its employees, or (2) the amount that the employer would have paid (based on the same uniform percentage of the premium) if its employees had enrolled in a plan under which the premiums were equal to the average premiums charged in the small group market in the state where the insurance is purchased. In its recent Revenue Ruling 2010-13, the IRS has listed the dollar amounts of these “benchmark” employee and family premiums to be used during 2010. HHS will redetermine these state-wide benchmarks on an annual basis, and may also establish higher benchmarks for certain areas within a state.
In determining whether an employer meets the 25 FTE and $50,000 average wage thresholds, an employer may disregard any self-employed individuals, any 2% S-corporation shareholders, and any 5% owners of other entities. The number of FTEs is then determined by dividing the total number of hours worked by all employees by 2080. The applicable wage definition is the one used for FICA contribution purposes, but disregarding the annual FICA wage cap.
Any small employer that would qualify for this tax credit – or that would qualify by making only minor adjustments to the premium amounts it currently pays on behalf of its employees – should investigate the credit’s availability. Claiming the credit may significantly ease the cost of maintaining the employee health plan. Moreover, although an employer may not deduct any premium payments that give rise to the credit, any additional employer premiums will still be deductible.
High-Risk Pools for Long-Term Uninsured
One of the programs included in the Affordable Care Act was proposed by congressional Republicans. It is designed to encourage states to establish temporary pools to provide health coverage to individuals who are otherwise unable to obtain such coverage due to a preexisting condition.
To qualify for coverage through one of these “high-risk pools,” an individual must be lawfully in the United States, have a preexisting condition (as determined under guidance to be issued by HHS), and not have been covered under creditable coverage (as defined for HIPAA purposes) during the six months prior to applying.
This program is to be available starting on July 1, 2010. It will end on January 1, 2014, when coverage with no preexisting condition exclusions should be available through the exchanges. The Act appropriated $5 billion to support these high-risk pools, which are to be funded entirely by the federal government.
Each state may either establish its own high-risk pool or allow HHS to establish and maintain such a pool for its residents. As of May 3, thirty states had announced that they would maintain their own pools and 17 had elected to allow HHS to do so. The remaining four states were still considering their options.
Although employers will have no direct involvement with these high-risk pools, they should be aware of a provision in the Act that requires an insurer or self-funded plan to reimburse a pool if the insurer or plan sponsor is found to have encouraged an individual to disenroll from existing coverage in order to obtain coverage through a pool.
The Departments of Health and Human Services, Labor and Treasury recently issued an interim final rule on what constitutes a grandfathered health plan under the Patient Protection and Affordable Care Act.
Under the regulations, a grandfathered health plan is defined as an employer-sponsored group health plan, either insured or self-insured, or individual insurance coverage that existed as of March 23, 2010. The rule also lists the changes that may and may not be made to plans seeking the grandfathered status.
Changes that will cause a plan to lose its grandfathered status include:
Overall, plan changes enacted before March 23, 2010, with an effective date after that date, will not cause a loss of grandfathered status. If an employer or plan sponsor has amended a group health plan since March 23, 2010, that would cause a plan to lose its grandfathered status under the new guidance.
The employer or plan sponsor, however, may reverse those amendments before the first plan year beginning on or after Sept. 23, 2010 (typically, the 2011 plan year) and retain grandfathered health plan status. Health plan changes that are not specifically prohibited (e.g., benefit improvements) will not cause a health plan to lose its grandfathered status.
If you have any questions, please contact us as soon as possible to discuss these significant health care reform changes.
The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Act”) create a broad roster of new requirements and prohibitions affecting individual and group health insurance contracts and employer-sponsored group health plans. These include curbs on lifetime and annual limits, coverage of preventative care, and limitations on waiting periods, among many others.
On June 22, 2010, the Internal Revenue Service, U.S. Department of Labor, and U.S. Department of Health and Human Services issued an interim final regulation (the “Regulation”) interpreting the following provisions of the Act:
This Alert highlights some of the key provisions of the Regulation. (Note that we refer to “grandfathered” plans throughout this alert.
Prohibition on Preexisting Condition Limitations (PHSA §2704)
The Act prohibits any preexisting condition exclusion2 from being imposed by group health plans or group or individual health insurance coverage.
This prohibition generally is effective with respect to plan years beginning on or after January 1, 2014, but for enrollees who are under 19 years of age, this prohibition is effective for plan years beginning on or after September 23, 2010 (for calendar year plans, January 1, 2011).
The Regulation makes clear that the prohibition applies not just to the exclusion of a specific benefit relating to a preexisting condition, but also to a complete exclusion from a plan or coverage based on a preexisting condition.
Grandfathered group health plans must comply with this provision, with one limited exception: grandfathered individual health insurance coverage is not required to comply.
Practitioner’s Observation: This prohibition applies to “enrollees” under age 19. Thus, the provision picks up not only children and dependents of plan participants, but also young workers who may themselves be participants.
Prohibition on Lifetime and Annual Limits (PHSA §2711)
Effective for plan years beginning on or after September 23, 2010, the Act prohibits group health plans and group or individual health insurance issuers from imposing lifetime or annual limits on the dollar value of health benefits.
Effect on Account-Based Plans
The Regulation clarifies that PHSA §2711 does not apply to Flexible Spending Account plans, Medical Savings Plans, or Health Savings Accounts. Health Reimbursement Account (HRA) plans coupled with other coverage will not violate PHSA §2711, so long as the other coverage does not violate §2711. A stand-alone retiree-only HRA will not violate PHSA §2711, but the fate of stand-alone HRA plans covering active participants is not yet settled (the regulators have asked for comments on this item).
“Essential Health Benefits”
The Regulation makes clear that a plan or issuer may impose annual or lifetime per-individual dollar limits on specific covered benefits that are not “essential health benefits.” 3 The Act also allows “restricted annual limits” with respect to “essential health benefits” for plan years beginning before January 1, 2014 (discussed in further detail below).
Because regulations defining “essential health benefits” have not been issued, the Regulation (in the preamble) notes that the Departments will take into account good faith efforts to comply with a reasonable interpretation of the term “essential health benefits,” so long as the definition is applied consistently.
Phase-Out of Restricted Annual Limits
The Act prohibits annual limits on the dollar value of benefits generally, but allows “restricted annual limits” with respect to “essential health benefits” for plan years beginning before January 1, 2014. The restricted annual limits may be no less than:
Waiver Program
The Regulation provides for the Secretary of Health and Human Services to establish a program under which the requirements relating to restricted annual limits may be waived if compliance would result in a significant decrease in access to benefits or a significant increase in premiums. This provision is targeted to “limited benefit” (or “mini-med”) plans, which typically contain annual limits well below those contemplated by the Regulation.
Special Enrollment Right
Under the Regulation, individuals who reach a lifetime limit under a plan or health insurance coverage prior to the effective date and are otherwise still eligible under the plan or health insurance coverage must be provided, no later than the effective date, with (1) a notice that the lifetime limit no longer applies and (2) an enrollment or reinstatement opportunity.
Application to Grandfathered Plans
PHSA §2711 applies to all group health plans and group health insurance, whether or not grandfathered. However, the Act and the Regulations relating to the prohibition on annual limits, including the special rules regarding restricted annual limits for plan years beginning before January 1, 2014, do not apply to grandfathered individual health insurance coverage. In addition, certain changes to annual limits will end grandfathering treatment:
Practitioner’s Observation: Changes to annual limits will end grandfathering treatment, even if the post-modification limits are above the “restricted annual limits” thresholds.
Exclusion of a Benefit
The Regulation notes that an exclusion of all benefits for a condition is not considered to be an annual or lifetime dollar limit.
Restrictions on Rescissions (PHSA §2712)
Effective for plan years beginning on or after September 23, 2010, the Act prohibits plans and issuers from rescinding coverage once an individual is enrolled in coverage, unless the individual was involved in fraud or made an intentional misrepresentation of material fact. This standard applies to all rescissions, whether in the group or individual insurance market, whether coverage is insured or self-insured coverage, and whether or not a plan is grandfathered.
The Regulation provides the following guidance and clarifications:
Patient Protections (PHSA §2719A)
Effective for plan years beginning on or after September 23, 2010, the Act establishes new requirements relating to the choice of a health care provider and availability of emergency services. These rules do not apply to grandfathered plans.
Choice of Health Care Provider
With respect to the choice of a health care provider, the Regulation provides:
Emergency Services
If a plan or issuer covers any emergency services, it must provide for the services:
In addition, if the emergency services are provided out-of network, the plan or issuer must comply with additional rules set forth in the Regulation regarding the minimum reimbursements for such services. The Regulation provides three alternate means of calculating the reimbursement amount, based on, respectively (1) the median charge for in-network services, (2) the amount the plan generally uses to calculate in-network services, and (3) the Medicare reimbursement rate. The reimbursement for out-of-network services must be the greatest of the three amounts.
Effective Date
The Regulation is effective 60 days following publication in the Federal Register. However, as noted above, the provisions discussed in this alert are all effective for plan years beginning on or after September 23, 2010 (for calendar year plans: January 1, 2011).
If you have any specific questions about implementation, please contact us as soon as possible to discuss these significant health care reform changes.
Health care reform requires employers to calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees’ Form W-2s. Although the new rule applies for employees’ tax years beginning after Dec. 31, 2010, payroll systems need to be updated for this change by January 2011. This deadline is imposed because employees are entitled to request their Form W-2s early if they terminate employment during the year.
As a result of this requirement, most Form W-2s for tax year 2011 will be issued in January 2012. Form W-2s reflecting the new health insurance information must be available no later than Feb. 1, 2011, in the event that an employee requests one.
Plans for which coverage costs must be reported under the new requirement include:
Coverage under dental and vision plans is included unless they are “stand-alone” plans. However, the cost of coverage under health flexible spending accounts, health savings accounts and specific disease or hospital/fixed indemnity plans is excluded from the reporting requirement.
How to Value Plans
The aggregate cost of coverage under the plans (including the employee and employer portions of cost) is determined under rules similar to COBRA – minus the 2 percent administrative charge permitted under COBRA. Government regulations regarding how to value plans for COBRA purposes were, as of this writing, expected shortly. Presumably, any regulations issued would apply to COBRA and to the new Form W-2 reporting requirements. One challenge for employers might be that some of the plans covered by the new reporting requirement, such as on-site medical clinics, are not plans that they have previously valued for COBRA purposes. Now, employers will need to come up with reportable values for coverage provided under these programs.
Monthly Coverage
The new reporting requirement appears to require a monthly calculation of coverage. However, some employees might have less than a month’s coverage if their coverage starts or stops during the month. Future regulations might clarify how to report coverage of less than a full month.
Reporting is required for employees but also seems to apply to former employees who are provided with health coverage, including early retirees, retirees, terminated employees on COBRA and surviving spouses. Many of these individuals would not typically receive a Form W-2 from the employer, at least not for taxable years following their termination of employment. Accordingly, if this interpretation is correct, an employer’s overall W-2 reporting requirements may increase dramatically. Employers should begin working with their payroll departments immediately to ensure compliance with these new requirements.
If you have any specific questions about implementation, please contact us as soon as possible to discuss these significant health care reform changes.
