Law & the Workplace March 23, 2010 Peter J. Marathas, Jr. [email protected] 617.526.9704 [email protected] Benefit Advisors Network

Law & the Workplace

March 23, 2010

Peter J. Marathas, [email protected]

617.526.9704

Benefit Advisors Network

© 2010 Proskauer Rose LLP

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Agenda

• Update on National Health Care Reform: Where are We and Where Might We Be Going?—Latest Developments

• Leading Health Insurance Issues to Consider for 2010:

Recent opinion by NY Insurance Commissioner regarding Spousal Eligibility Carve Outs

Reminders on HIPAA, COBRA, Michele's Law, CHIPRA and Mental Health Parity


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National Health Care Reform


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• Sweeping Reform Focuses Primarily on Insurance Reform

Passed in Two Parts—

Senate Bill: Patient Protection and Affordable Care Act (H.R. 3590)

Reconciliation Bill

• The stated problem: Coverage and Cost

• Coverage

10% of Americans (30 Million Americans) Do Not Have Sufficient Insurance Coverage


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• Cost

Insurance costs increase every year

Costs to states increase every year for uninsured care (relates to coverage)

• Key Components Of Bill:

Individual Mandates

Employer Mandates

Exchanges for Insurance

Cost Containment/Revenue Generators


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Individual Mandates

• Requires all adults to obtain and maintain “qualifying coverage” or “acceptable coverage” for themselves and dependent children

• Generally based on Massachusetts Model

• Impact on Employer:

Creates complex administrative scheme for determining whether individuals are insured with qualifying coverage

Supposed to be a market driver in a good economy


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Individual Mandates

Penalties for Non-CompliancePenalties for Non-Compliance

• Bill As Passed: Penalty for failure to obtain coverage—the greater of a “per-person fixed dollar amountper-person fixed dollar amount” or a “percent of income percent of income amountamount”

The per-person fixed dollar amount is determined by using the lesser of

(1) an “applicable dollar amountapplicable dollar amount” for the year the failure occurred times the number of individuals who failed to obtain coverage, or

(2) 300% of the applicable dollar amountapplicable dollar amount in that year

The “applicable dollar amounts” are $95 in 2014, $495 in 2015, $750 in 2016, and indexed thereafter


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Individual Mandates

The percent of income amount starts at 0.5% in 2014 and phases in to a maximum of 2.0% over time

The penalty is capped at the national average premium for “bronze” level health coverage in a health insurance Exchange


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Individual Mandates

• Reconciliation Bill:

• Lowers applicable dollar amounts from $495 to $325 in 2015 and $750 to $695 in 2016

Subsequent years are indexed to $695 rather than $750.

• Raises the percent of income amount from 0.5 to 1.0% in 2014, 1.0 to 2.0% in 2015, and 2.0 to 2.5% for 2016 and subsequent years

• Because individuals would pay the greater of the fixed dollar penalty or the percent of income penalty, the changes in formula intended to make the provisions more progressive


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Individual Mandates

• No penalty assessed on individuals without health insurance whose income is below the filing level for income tax purposes

Subsidies on premiums for individuals with incomes up to 400% of the federal poverty level

Tax credits to make premiums more affordable as a percent of income


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Individual Mandates

• Observations?

Penalties are not huge

Penalties are potentially greatest on those who typically do have insurance

Drive must be to change cultural mindset

Can Government successfully do that?


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Individual Mandates


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Qualifying Coverage Mandates

Senate Bill Essential Benefits:

Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse Prescription drugs Rehabilitative, habilitative and

devices Laboratory services Preventive and wellness services Pediatric services, including oral

and vision care No cost-sharing permitted for

preventive services, except to value-based insurance designs

No lifetime limits (within 6 months) or overall annual dollar limits on benefits (2014)

No waiting periods longer than 90 days and penalties would apply to waiting periods over 60 days

Secretary of HHS to determine the scope of essential benefits “equal to the scope of benefits provided under a typical employer plan”


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Reconciliation:

Prohibition on rescissions;

Limitations on excessive waiting periods, and a requirement to provide coverage for non-dependent children up to age 26 to all existing health insurance plans starting six months after enactment

For group health plans, prohibits pre-existing condition exclusions in 2014, restricts annual limits beginning six months after enactment and prohibits them starting in 2014


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Limitations on annual out-of-pocket maximums (e.g., $5,000/$10,000)

For coverage of non-dependent children prior to 2014, the requirement on group health plans is limited to those adult children without an employer offer of coverage


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Other Items

Reconciliation:

• “Donut hole” Filled

$250 rebate for all Medicare Part D enrollees who enter the donut hole in 2010

Builds on pharmaceutical manufacturers' 50% discount on brand-name drugs beginning in 2011 to completely close the donut hole with 75% discounts on brand-name and generic drugs by 2020


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Other Items

• Freeze on Medicare Advantage payments

Freezes Medicare Advantage payments in 2011

Beginning in 2012, the provision reduces Medicare Advantage benchmarks relative to current levels

• Limits on MA plan administrative costs

Requires Medicare Advantage plans to spend at least 85% of revenue on medical costs or activities that improve quality of care, rather than profit and overhead


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Employer Mandates—Play or Pay

Senate Bill (in 2014):

• Employers with more than 200 employees must automatically enroll new full-time employees in coverage

Full-time appears to mean 30+ hours per week

April 20, 2023

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• An employer with > 50 employees that:

1.Offers coverage deemed unaffordable or does not meet the standard for minimum essential coverage and

2.Has at least one full-time employee receiving premium assistance because the coverage is either unaffordable or does not cover 60% of total costs,

3.Will pay the lesser of $3,000 for each of those employees receiving assistance or $750 for each of their full-time employees total


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Reconciliation:

• Employers with 50 or more employees that do not provide health coverage would be assessed $2,000 for each full-time employee in its workforce

• Employers that do provide coverage, but the coverage is deemed not affordable to employees under the terms of the legislation, would also be assessed $3,000 for each full-time employee who obtains an income-based health insurance premium tax credit in an insurance Exchange

• Employers that do not provide coverage would not be assessed a penalty for the first 30 full-time employees

April 20, 2023

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• Employers would be permitted to have waiting periods up to 90 days without being subject to penalties

• Part-time employees would be considered solely for the purpose of determining if an employer has 50 or more employees (by adding together full-time equivalents) and are therefore subject to the employer responsibility and penalty provisions. But any penalties would be assessed only on behalf of full-time employees who work 30 or more hours per week


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Exchange Program

Senate Bill:

Exchange facilitates offering qualified health insurance plans at four different levels of coverage:

bronze, silver, gold and platinum with actuarial values of 60, 70, 80 and 90% to individuals in the non-group and small group markets

States required to have Exchange established and operational by 1/1/2014, or HHS is required to establish and operate an Exchange in a non-compliant state (directly or through a not-for-profit entity)


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• Senate Bill/Reconciliation:

• Cadillac Tax (Senate):

Beginning in 2013, nondeductible excise tax of 40% for any plan above $8,500 for singles and $23,000 for family plans; $10,200/$27,500—starting 2018 in Reconciliations

$11,850 and $30,950 for retirees and employees in high risk professions

40% tax would apply to the amount of the premium in excess of the threshold

Revenue Generation


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• Senate Bill: Prohibits reimbursement of over-the-counter drugs through an

HRA or health FSA or on a tax-free basis through an HSA or Archer Medical Savings Account. (Effective January 1, 2011)

Increase tax on distributions from an HSA or Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs). (Effective January 1, 2011)

Limits amount of contributions to an FSA for medical expenses to $2,500 per year increased annually for COLA. (Effective January 1, 2011) (2013 in Reconciliation)

Revenue Generation


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• Senate Bill/Reconciliation: Eliminate the tax deduction for employers who receive Medicare

Part D retiree drug subsidy payments (Effective January 1, 2011)(Delayed by 2 years in Reconciliation)

Medicare tax modified to apply to net investment income.

Applies to those with modified AGI of $250,000 or above (joint filers), or $200,000 in the case of a single return.

Revenue Generation


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• Senate Bill: Increases threshold for the itemized deduction for unreimbursed

medical expenses from 7.5% of AGI to 10% of AGI for regular tax purposes; waive the increase for individuals age 65 and older for tax years 2013 through 2016. (Effective January 1, 2013)

Increases Medicare Part A (hospital insurance) tax rate on wages by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly; funds deposited into the Medicare Part A Trust Fund. (Effective January 1, 2013)

Revenue Generation


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• Includes new Medicare fraud and abuse provisions;

• Governmental oversight and limitation of loss/premium ratios and reporting;

• Establishes a Health Insurance Reform Implementation Fund within the Department of Health and Human Services and allocate $1 billion to implement health reform policies

Other Notable Provisions


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The Road Ahead, Briefly

• House Has Passed Senate Bill & Reconciliation BillHouse Has Passed Senate Bill & Reconciliation Bill

• Reconciliation Bill Must Go Back to SenateReconciliation Bill Must Go Back to Senate

Senate Parliamentary Rules May Impeded Quick PassageSenate Parliamentary Rules May Impeded Quick Passage

Byrd Rules Byrd Rules

Amendment RulesAmendment Rules

• Bill(s) Enrolled and Sent to President Obama for Signature; Bill(s) Enrolled and Sent to President Obama for Signature; He Will Sign PromptlyHe Will Sign Promptly

• Upon Ultimate Passage, Federal Court Challenges?Upon Ultimate Passage, Federal Court Challenges?


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Individual Mandates

• Constitutional Challenge? Supporters Believe Commerce Clause Guarantees

Constitutionality

Opponents Believe Commerce Clause Cannot Be Extended to Individual Mandates, which may be first hurdle

The Ninth Amendment clarifies that the rights of the people do not have to be codified to exist and be retained

The Tenth Amendment states the reverse: powers of the federal government must be codified in the Constitution to exist—if it’s not in the Constitution, the Federal Government Cannot Do It


Individual Mandates

Constitutional Challenge

• March 11, 2010—Commonwealth of VA Banned Individual Mandates

• Idaho Follows Suit and Both Instruct AG’s to File Suit

• More than 30 States Have Considered or Are Considering

• Do They Have Standing?

Not Clear

April 20, 2023 17155559_1

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Individual Mandates

• Constitutional Challenge—Does It Matter?

Intermodal Surface Transportation Efficiency Act of 1991

Offers grant money to establish seat belt and helmet laws

States not participating are forced to pay

April 20, 2023 17155559_1

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Peter J. Marathas, Jr., Esq.

Proskauer

Partner

[email protected]

617-526-9704

March 23, 2010

Documents

Law & the Workplace March 23, 2010 Peter J. Marathas, Jr. [email protected] 617.526.9704 [email protected] Benefit Advisors Network