Federal Healthcare Legislation

IRS Affordability Standard - New Health Reform Guidance

What an interesting week in the land of employee benefits.   A federal appeals court struck down the constitutionality of the healthcare reform's individual mandate virtually guaranteeing that the Supreme Court will weigh in on the disputes now surfacing between the 11th Circuit and others.   Remember hanging-chad anyone?   Once again our politics got in the way so our  national policies will be determined by the "heavies" in the highest court in the land. Now onto two federal healthcare requirements that had our employer plan sponsor clients wondering if sanity would prevail in Washington.   As a reminder, the statute requires employers with 50 full-time employees or more to offer health insurance to employees and dependents in 2014.   The law requires the coverage to be both "affordable" and "qualifying" in order to avoid penalties.

The answer to both is good news for  employer plan sponsors.   The IRS  used broad discretionary powers to define affordability if the employee is not required to pay more than 9.5% of an employee's current W-2 wages.   The more muddier definition of  household income through AGI verfication now gives way to something the employer has in their purview as a data point.  So an employee earning $40k a year would be prohibited from single contributions in excess of $316.67 a month.

Additionally, employers caught a reprieve by IRS guidance on the new "qualifying" definition, which varies from the standard imposed in the state exchanges.   The 60% standard has now been interpreted to mean the percentage of charges covered by the plan.   So for every dollar of eligible health expenses incurred under the plan, Uncle Sam wants to see the plan picking up sixty cents of the tab.   Finally, employers were given another bonus by exempting plan sponsors from the "essential benefits" definition being crafted for plans under the state exchanges.

For more information and a nice write up by our Health Reform Advisor Practice, please go here.

HHS Cracks the Door on the Retiree Reinsurance Money Grab

The Department of Health and Human Services (HHS) has issued the first in what promises to be a decades-long series of regulations and other guidance on the new health reform law. The new guidance concerns the temporary $5 billion retiree healthcare reinsurance fund authorized by the health reform legislation. The purpose of the reinsurance fund is to provide an incentive for employers supplying retiree health coverage for certain pre-Medicare-eligible retirees to continue providing that coverage. Congress recognizes that coverage for individuals in their mid-fifties and at later ages is substantially more expensive than health insurance for younger individuals, and hopes employers will continue to supply the retiree coverage.

The federal program reimburses sponsors of self-funded and fully insured retiree health plans for a substantial portion of the costs associated with providing benefits to the plans' most expensive retirees and dependents between age 55 and Medicare-eligibility age. The plan is entitled to claim up to 80% of its annual costs, minus negotiated price concessions, for medical, surgical, hospital and prescription drug benefits paid by the plan on behalf of these individuals, within a "reinsurance corridor."

The Re-insurance Corridor

The 80% reimbursement rate applies to the plan's expenses between $15,000 and $90,000 per retiree or dependent. Thus, a plan that pays $100,000 on behalf of a retiree in a given year could receive $60,000 from the fund (80% of the $75,000 in expenses between $15,000 and $90,000). The reinsurance corridor is to be adjusted in later years by the medical component of the consumer price index.

The future adjustment may be largely a moot point, as Lockton's actuaries don't expect the $5 billion to last more than a couple years.

"Show Me the Money!"

The program comes online June 23, 2010, and will be handled much the way Medicare Part D retiree drug subsidy payments are handled (there will be an application process and deadline, data verification and reconciliation requirements, potential for federal audit, etc.). It appears from the HHS guidance that the reimbursements are paid annually, after the close of a plan year. Reimbursement is available for retiree healthcare expenses incurred by the plan on and after the June 23, 2010 start date. The program ends after 2013, unless the money runs out sooner.

To be eligible for reimbursements, a retiree health plan must implement programs and procedures to generate cost savings for participants with chronic and high-cost conditions.

Payments will be made to the employer-sponsored retiree health plan. According to HHS, the payee must use the reimbursements to "lower health costs for enrollees (e.g., lower premium contributions, co-payments, deductibles, etc.)."

The reimbursement payments to the plan sponsor are nontaxable.

Reimbursement is not confined to retiree plans maintained by private sector, for-profit companies. Plans maintained by state and local governments, not-for-profit businesses, tax-exempt entities such as churches, and unions may also apply for a bite at the reimbursement apple.

Stay Tuned...Then Act Fast!

HHS will issue additional guidance in the coming weeks and months, specifying precisely how claims are to be made against the $5 billion fund. We'll let you know when we receive that guidance. Then, be prepared to move quickly, as the $5 billion - while it seems like a lot of money - won't last long.

A copy of the HHS guidance is available by clicking here.

A summary provided by: Edward C. Fensholt, J.D. Lockton Benefit Group, Compliance Services

Health Reform Will Cost Me How Much?

The Health Care Reform  and Reconciliations Bill signed into law by President Obama will vastly change  how care is delivered,  purchased, consumed and taxed over a lifecyle that begins for plans with  anniversary dates as early as October 1, 2010 through  2018.   While the media has been quick to report the 100 million dollar plus  charges of company's like AT&T and Catepillar, these reflect hits to earnings as a result of   a loss of a tax benefit for covering seniors under their drug plans instead of through Medicare Part D.   For most employers who do not offer coverage for inactive employees, the question is often how and when will this bill cost my company. There will be three primary costs a company can expect to pay under this bill:

1. Benefit Adjustments - As the government will soon require bans on lifetime maximums and coverage for dependents up to age 26 (regardless of student status), there will be underwriting adjustments that will impact health premiums.   These adjustments will impact plans with anniversaries of October 1, 2010 or later.

2. Communication Expenses - With the complexity of this bill, expect to invest more in your corporate communications or rely more heavily on firms like mine.   In 2014, certain employees will have the option of electing coverage under the state exchanges.   Let's all look forward to  explaining family income limits and federal poverty levels,  state exchanges  and medicaid choices in an open enrollment meeting that will boggle the mind.

3. Compliance & Reporting Costs - These charges will be the actuarial and filing expenses your company must now pay to adhere to the new federal regulations.   In the same way that Sarbanes Oxley made it more expensive to be a public company, there will be  federal reporting and disclosure costs for all employers.

Click here for a year by year report of the major changes the reform will bring.

Online CMS Disclosure — A How To Guide for Employers

Reminder: Employers with Calendar Year Health Plans Must Complete Online CMS Disclosure by March 1, 2010 In addition to distributing Medicare Part D coverage notices to Medicare-enrolled employees, plans sponsors must also complete an annual on-line disclosure form with CMS. The plan sponsor must complete the disclosure within 60 days after the beginning of the plan year (sponsors of insured plans may choose to file within 60 days after the beginning of the insurance contract year). For calendar year health plans, this means filing with CMS by March 1, 2010. A CMS filing is also required within 30 days of termination of a prescription drug plan and for any change in creditable coverage status of a plan.

Employer plans that do not offer drug coverage to any Part D eligible individuals at the beginning of the plan year are exempt from filing. Similarly, employers who qualified for the retiree drug subsidy are exempt from filing with CMS, but only for the individuals and plan options for which they are claiming the subsidy. If an employer offers prescription drug coverage to any Part D eligible individuals who are not claimed under the subsidy, the employer must complete an on-line disclosure for plan options covering such individuals.

To learn more go to  How Do I Complete My Online CMS Disclosure?

Health Reform Tea Leaves Turn "Brown"

In a move that caught most of the nation by surprise, voters in heavily Democratic Massachusetts catapulted Republican Scott Brown into the U.S. Senate last night to fill the seat vacated by the late Ted Kennedy. This morning, just hours after that stunning development, the precise implications for health reform remain unclear. Brown ran on a campaign pledge to deliver a death blow to the pending federal health reform legislation, a message that apparently resonated with enough moderate Democrats and Independents in Massachusetts to send him to Washington. That will be hard for many Congressional Democrats to simply ignore.

And it may be difficult for the President to ignore. Swirling within the Beltway this morning are rumors that the White House is weighing several options, including a plan to pull the insurance exchanges and taxpayer-provided premium subsidies out of reform legislation, essentially leaving some insurance market reforms and changes to the Medicare program.

But Democratic leaders still have meaningful cards to play. Under White House pressure, the House of Representatives might quickly offer up the Senate's health reform bill for a straight "yes or no" vote, entertaining no amendments. If Speaker Nancy Pelosi (D-CA) can find 217 other Democrats willing to vote "yes," we'll have health reform, Senate style, perhaps in less than a fortnight.

Many House Democrats have said recently that they cannot vote for the Senate legislation as it stands, so great are the differences between the health reform bills passed by the two chambers. But those views might change now that it appears the House cannot send a comprehensive health reform bill of any kind back to the Senate and expect it to pass, with Scott Brown supplying the Republicans with sufficient seats to sustain a filibuster.

Another option is for the House to quickly take its health reform legislation and break it into two bills, one with all the budget-related provisions (such as the government-run "public option," the insurance exchanges, taxpayer-provided subsidies toward the purchase of insurance, tax increases and Medicare changes), and one with everything else, such as the insurance market reforms. If the House can pass both bills, the Senate would then take them up and could employ its "reconciliation" process to push the budget-related bill through with a filibuster-proof simple majority of 51 votes. The non-budget-related bill would be vulnerable to a filibuster. However, most of that bill's provisions would not be particularly controversial.

A third option is a sort of hybrid approach, where the House passes the Senate bill but House leaders assure their more progressive colleagues that the Congress will quickly come back to fix the contentious issues later, using the reconciliation process.

But the question nobody can answer this morning is what individual Democratic senators and representatives, particularly the moderates, infer from last night's election, and what they're willing to risk to push the pending legislation through. In the hard, cold light of dawn today, the reality is that the Democratic Party lost a senate race it never expected to lose. True, Brown's opponent ran an uninspired campaign, but there might be something else at play here. Polls have shown a slow but steady erosion in public support for the current health reform plans, and Brown's surprising victory puts an unexpected GOP face on what the polls have been suggesting.

We should know very shortly now which track the health reform train will take from this point forward. If Brown's win does, indeed, signal the beginning of the end for the President's ambitious health reform measure, the demise will come with a hard bit of irony. Brown replaces Ted Kennedy, who fought all his political life for health reform of the sort sitting now in the Congress, just short of the goal line.

History tells us that epic, defining battles sometimes turn on unexpected twists. Now it appears the health reform fight might turn on the most implausible of events: a little known Republican, campaigning from a pickup truck in the very heart of the Democratic Party's most secure bastion, wins the Senate seat held by a Kennedy for almost half a century. After nine months of bitter Congressional wrangling over health reform, it's difficult to imagine anything more astonishing.

Lockton Benefit Group prepares this Health Reform Briefing Summary to keep you apprised about the unfolding health reform effort in Washington, D.C.

Reid Secures 60 Senate Votes for Clearance

WASHINGTON–The Democratic-controlled Senate, voting 60-40, swept aside Republican objections and moved to close off debate on health overhaul legislation, marking a milestone moment for President Barack Obama's most pressing domestic initiative.   All 58 Democrats and two independents voted to approve the first -- and most crucial -- of three motions needed to break off action, as the Senate entered a fourth week of debate on the bill. All Republicans voted no.

Key Provisions of the Senate Bill

Source: Wall Street Journal