A Reference on Health Care Reform. Second Edition. The Patient Protection and Affordable Care Act

Transcription

1 A Reference on Health Care Reform Second Edition The Patient Protection and Affordable Care Act May 8, 2013

2 Voted Best Corporate Insurance Firm by Arkansas Business Readers Nine Years in a Row!!! 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, and 2012! It s as Simple as 1, 2, We will always have the LOWEST Prices! 2. YOU will ALWAYS receive Outrageous Service! 3. We sell ALL major insurance carriers! The Home of OUTRAGEOUS Service.....in fact, we even wrote the book on it. Check out our new addition! Individual and Group Insurance Property and Casualty Insurance 310 Louisiana, Little Rock, AR (501) Toll Free: (800) Fax: (501) all@hatcheragency.com Mail: P.O. Box 3505, Little Rock, AR 72203

3 Ahoy me Hearties! A Reference on Health Care Reform Second Edition Disclosure This reference is a summary of key components of the new health insurance laws based on interim final regulations released by federal entities who have created and are interpreting the law. The information herein is gathered from publications released by health care providers, firms, and communication with health insurance experts. Other changes could be forthcoming as federal entities determine how these laws will be implemented. The Hatcher Agency will provide Outrageous Service by continuing to keep you up-to-date through constant communication to assist you with any questions you may have and notify you of key dates and deadlines as you and your company prepare to comply. For full details please consult your attorney or tax advisor and refer to the actual law. In addition to your team at The Hatcher Agency, your company benefits administrators or Human Resource Department can also provide you with further information, along with your health insurance provider. The Hatcher Agency Contact Information: 310 Louisiana, Little Rock, AR (501) Toll Free: (800) Fax: (501) all@hatcheragency.com Mail: P.O. Box 3505, Little Rock, AR 72203

4 Table of Contents Introduction 1 Health Care Reform Checklist 2 Grandfathered Status and Considerations 3-6 Retroactive Termination 6 Expanded Benefits for Group Plans 7-9 Reform Provisions Impacting Product and Plan Design Table Reference 8 Adjusted Community Rating Reform Premium Impact Assessment 9 Large Group Provisions: Play or Pay Mandate, ERRP, Auto Enrollment 10 The Look Back Measurement Method and Transition Relief 11 The Stability Period 12 Determining Group Size by Month and Calendar Year 12 Summary of Time Frames, Penalties, and Employee Types Key Things You Need to Know in Preventive Services Covered Under the ACA Over-the-Counter Prescriptions 17 Women s Preventive Services 18 Health Savings and Medical Savings Account Early Withdrawal Penalties 18 Medical Loss Ratio Rebates 19 Summary of Benefits and Coverage/Uniform Glossary (also see Appendix) 19 Medicare Part D Reporting 20 Grace Periods on Contracts Eliminated 20 W-2 Reporting 20 W-2 Reporting IRS Recap of What to Report Table Reference 21 Essential Benefits Package: 60% Coverage Rule 22 The Affordability Test or 9.5% Rule 22 Employer Mandate to Provide Affordable Coverage Penalty Flow Chart and Summary 23 Individual Mandate to Buy Insurance Flow Chart and Summary 24 Management Carve-Out Penalty 25 Nondiscrimination Provisions 25 Health Insurance Exchanges Major Affordable Care Act Taxes and Fees 27 Fee to Fund Reinsurance Program Including the $63 Fee Premium Impact Assessment 28 Tax Changes Related to Health Insurance Health Care Reform Calendar 31 Appendix A32 Table of Contents to Charts, Graphs, Lists, Tables, and Summaries A32 Sample Blank Template Summary of Benefits and Coverage A33 - A35 Sample Completed Template Summary of Benefits and Coverage A36 - A39 Uniform Glossary A40 - A43 Low Income Premium Subsidy Tax Credit Table A43 Required Notices and Group Checklist A43 - A45 Health Care Reform Acronym Reference A46

5 The Patient Protection and Affordable Care Act Key Dates: March 23, 2010 and June 28, 2012 The Patient Protection and Affordable Care Act, hereafter referred to as the Affordable Care Act (ACA), effective March 23, 2010, layed the foundation for insurance reform provisions to be implemented on a time line beginning September The Hatcher Agency will always provide the details concerning requirements, procedures, options, and penalties with the understanding that sections of the ACA may be amended up to January 1, The Hatcher Agency will stay up-to-date on the major health carriers roll out of the ACA make you aware of any specific variations within the guidelines by carrier. The ACA requirements and time line were set forth by the Department of Health and Human Services and provisions apply to all health plans including grandfathered, fully insured, self-funded, or collectively bargained. On June 28, 2012 the U.S. Supreme Court voted to uphold the Affordable Care Act in its entirety. The health care reform law will consequently continue to be implemented as planned and provisions already in effect will continue. Additionally, the Court decided the provision to require all states to either significantly expand their Medicaid programs or lose all federal funding for their existing Medicaid programs was unconstitutionally coercive. States may now elect to avoid the law s mandate to increase their Medicaid coverage for certain classes of the poor, disabled, or elderly citizens without losing any existing Federal funding. The ACA transforms Medicaid into a program to meet the health care needs of the entire non-elderly population with income below 133 percent of the poverty level. States that choose not to extend Medicaid coverage will not receive the supplemental funding the ACA provides to states that do increase the size and scope of their Medicaid programs. At The Hatcher Agency we will continue to provide Outrageous Service by working on your behalf with insurance carriers in light of each new development and as provisions of the ACA are implemented. We will provide you with information and options necessary to make sure your health plan is in compliance with the new law now and in the coming years. We will continue to recognize and research the decisions of the Court and Congress who are working to make high-quality health care accessible and affordable for everyone to keep you informed. The information in this reference is based on proposed regulations as of September 23, The information is pending final regulations from the Internal Revenue Service (IRS), Department of Labor and Department of Health and Human Services (HHS). These regulations will be interpreted and passed down after the election. 1

6 Health Care Reform Checklist State health insurance exchanges are slated to be up and running in Pages Insurers will not be allowed to restrict coverage for adults over age 19 with pre-existing conditions starting in Page 8 Beginning in 2014, large employers with 50+ full-time employees (FTEs), including full-time equivalent employees (FTEEs) will be subject to a penalty, up to $2,000 per employee, if they do not offer their employees health care coverage. It is federally mandated in 2016 small groups will be defined as having 2 to 100 FTEs, including FTEEs. Page 23 Large employers that do not offer minimum essential coverage to their employees by 2014 will pay a penalty. Page 10 Employers will be allowed to increase the value of incentives they provide employees for participating in wellness programs to 30% of the cost of health coverage starting in Major milestones already in effect: Employers, insurance carriers, or third party administrators (if you are self-insured) will have to issue Summaries of Benefits and Coverage (SBC) starting with their first open enrollment on or after September 23, 2012 (all Hatcher Agency insurance carriers and third party administrators will be issuing the SBC on the first anniversary date beginning October 1, 2012). This is taken care of for you. Find a sample of a blank SBC template in Appendix A33 - A35 Find a sample of a completed SBC template in Appendix A36 - A39 Find the Uniform Glossary in Appendix A40 - A43 Employers that produce 250 or more W-2s in 2013 must report the cost of individuals health insurance on their 2012 W-2s and each year thereafter. Pages Insurers issued the first medical loss ratio (MLR) rebates in 2012 and will continue each year hereafter. Page 19 Health care flexible spending accounts (FSAs) that operate on a calendar-year basis must comply with a $2,500 limit on employee contributions beginning in Page 15 Beginning in 2013, the employee-paid portion of Medicare tax will increase for high-wage earners; employers will be required to withhold an additional 0.9% in Medicare tax on employee wages in excess of $200,000. Page 29 Employers must offer health care coverage for their employees adult children up to age 26. Page 3 Health insurance must cover 100% of the cost of preventive services such as mammograms and colonoscopies. Pages Insurers cannot place lifetime limits on health coverage. Page 3, A45 Over-the-counter (OTC) medications may only be purchased with a FSA, health reimbursement account (HRA), or health savings account (HSA) funds with a prescription. Page 17 Health plans are prohibited from rescinding coverage retroactively, except under certain conditions. Page 6 Small employers with fewer than 25 full-time employees (FTEs) with an average wage below $50,000/year may be eligible for tax credits for sponsoring health coverage. List B1 *Many of the provisions apply to companies with 50 or more full-time equivalent employees (FTEEs). Please consult with your legal counsel or compliance advisor if you are unsure which health care reform requirements apply to your company. This checklist is meant to be a general guide and may not be construed as legal advice. Source: Ceridian 3311 East Old Shakopee Road Minneapolis, Minnesota Ceridian Corporation. All rights reserved. 7/12 CJ-C 2

7 For applicable 2014 provisions, any group that has a renewal date other than January 1, 2014 is not required to comply with the provisions until the groups renewal date. For instance, if a group renews on August 1, 2014 compliance is not required until that time (e.g. a group does not have to change a 6 month or 1 year waiting period until the renewal date). Grandfathered Status and Considerations Effective March 23, 2010 Health policies and plans that existed on or before March 23, 2010 (the date ACA took effect), and continue after that date, are considered grandfathered plans. One of the first considerations for companies is whether or not to stay grandfathered. Grandfathered vs. New Plans The requirements to maintain grandfathered status limit the changes that can be made to the existing health plan. Employer group health insurance policies effective April 1, 2010, or after are considered new plans. This also includes plans that were in place before this date but underwent changes that caused them to lose grandfathered status. Changes for All Plans Changes that members enrolled in grandfathered employer group plans can expect during the next year may include (these are typically effective on the employer s renewal/anniversary date): New rules around pre-existing health conditions for children, which means that children who are insured under their parent s health plan are not required to meet any pre-existing condition waiting periods even if the parents are required to do so as a result of some condition of their enrollment (late enrollment, no prior credible coverage, etc.). Dependents can continue coverage under a parent s plan until their 26th birthday. Dependents are eligible regardless of student or marital status. Dependents also are eligible regardless of whether they are claimed as a dependent on their parent s tax return. Exception: Policies in place before March 23, 2010, are allowed to exclude coverage to dependents if they have access to their own coverage from another employer-sponsored health plan. This exception expires on January 1, Lifetime dollar limits will be removed on essential benefits. Annual dollar limits for some benefits in place today may be adjusted by the law. For example, the annual limit floor on all essential benefits for this year is $750,000; the benefits to which this regulation applies have not been determined. However, the law does not place limits on the number of visits, so some employers have revised some of the services with annual dollar limits and visit limits (for example: durable medical equipment, ground ambulance, and home health services). The lifetime maximum benefit is now unlimited. 3

8 Changes for New Plans Grandfathered Status and Considerations Employer group health insurance policies effective April 1, 2010 or after Annual dollar limits for some benefits in place today may be adjusted by law. The benefits to which this regulation applies have not been determined. Emergency services must be covered at the in-network coinsurance or co-payment level even if you receive the services at an out-of-network facility. Access is allowed to any in-network primary care physician or pediatrician who is accepting new patients. Direct access for women obstetricians/gynecologists is available without a referral. Preventive services identified by the U.S. Preventive Services Task Force (USPSTF) will be covered with no member cost sharing (co-payments, deductibles, or coinsurance) Other ACA provisions that may impact your employees include: New appeals processes will be established. Consumer and small group health plan shopping to be facilitated through a web site created by the Federal Department of Health and Human Services. State ombudsman programs have been established. An ombudsman is an official appointed to investigate individual s complaints usually against maladministration, especially that of public authorities. Over-the-counter drugs not prescribed by a physician no longer can be reimbursed from a flexible spending account (FSA) or health reimbursement account (HRA). Should you stay grandfathered? The big question facing employers is do we like the health plan we have (with the required changes) enough to keep it, or should we give up our grandfathered status and establish a new health plan in compliance with all the changes required for non-grandfathered plans? To answer that question, employers need two major questions answered. 1. What can you change in your health plan and still remain grandfathered? 2. What do you lose if you give up grandfathered status? The following actions would cause the loss of grandfathered status: 1. Eliminating or substantially reducing benefits for certain types of conditions 2. Increasing a member s coinsurance percentage by any amount. 3. Increasing a plan s annual deductible by more than medical inflation plus 15 percent, in total, from March 23, 2010 forward. 4. Increasing co-payments to physicians or pharmacies by more than the greater of $5, or medical inflation plus 15 percent from March 23, 2010 forward. In addition, employers must maintain records showing what their health plan benefits were as of March 23, 2010 and beyond so they are available for review in case there is a question. Employers also must include a statement that their health plan is grandfathered in any benefit plan communications to employees. The Department of Labor (DOL) has published model language to use for that communication. There are some additional items that will trigger the loss of grandfathered status. Adding an annual limit if that limit is not equal to the lifetime limit that remains eligible under reform. Decreasing the dollar value of an annual limit. Purchasing a plan that existed before March 23, 2010, with the same carrier, and merging plans for the purpose of reducing benefits. There are potential cost implications of staying grandfathered, both in the short term and long term. Employers have less ability to control costs by traditional approaches, such as increasing deductibles, raising co-payments or adjusting their contribution amounts. However, it is important to consider the benefits of retaining grandfathered status as well. 4

9 Should you stay grandfathered? Grandfathered Status and Considerations Requirements for new plans that do not apply to grandfathered plans: Expanded preventive care without cost sharing Nondiscrimination rules for insured groups Quality of care/provider reimbursement structure reporting Appeals and external review process. Choice of providers/emergency services (already in place) Modified community rating and bands Guaranteed issue - some insured plans already were subject to this requirement Nondiscrimination related to providers Requirement to cover essential benefits Annual out-of-pocket coinsurance maximum Deductible limits no more than health reimbursement account (HRA) amounts Clinical trials coverage Losing grandfathered status will require all the above provisions be in place for the next plan year. Depending on the group health plan s current benefit structure, each would have an associated cost with required new benefits and patient protections that are required of all plans, such as dependent coverage to age 26, removal of lifetime limits and floors for annual benefit limits. In the short term, the biggest cost implication is the requirement to cover all preventive services first-dollar costs and to cover out-of-network emergency room services at the same level as in-network for all grandfathered health plans. In the long term, the cost implications for small groups revolves around entering a risk pool based on community ratings versus medically underwritten pools, which some industry experts think will have significant rating impact beginning in The Affordability Test or 9.5% Rule There is one last factor to consider, in 2014, plans must meet the affordability test for employees with adjusted gross family income of less than 400% of the federal poverty level (FPL). For those employees, if the employee portion of their contribution is greater than 9.5% of their family gross income the employer s offering is considered unaffordable. Because it is nearly impossible for the employer to determine an employees family income since they do not have their spouse s income level, there has been a safe harbor issued that if you base the 9.5% on the employee s income only you are safe. If the employer has more than 50 full-time equivalent employees (FTEEs), there is a possibility of an employer fine if an employee under 400% of the FPL decides to purchase through the exchange and is subsidized. So even in the instance of going to a new health plan, some of the traditional cost control tools may have limited value by 2014 if the health plan becomes unaffordable for a large number of employees. To calculate the 9.5% rule turn to page 22 in this reference. Small Group Products A small group is currently defined as having 2 to less than 50 full-time employees (FTEs), including full-time equivalent employees (FTEEs) in the state of Arkansas and it is federally mandated that small groups must be defined as having FTEs, including FTEEs in There are small changes that can be made to a grandfathered plan without losing grandfathered status. Small Group Deductibles If the deductible decreases, there is no impact on grandfathered status, but if the deductible increases, a group could lose grandfathered status. However, grandfathered groups changing existing deductibles to these new deductibles at renewal will remain grandfathered. *Please note, effective January 2014, deductibles over $2,000/individual will be subject to a penalty. Small group deductibles will need to be adjusted on the 2013 year renewal to qualify for affordable coverage. For the definition of a small group turn to page 12 in this reference. 5 Find a subsidy calculator here: Deductible Increases Current Allowed $1,000 $1,150 $1,200 $1,350 $1,500 $1,700 $2,000 $2,300 $2,500 $2,850 $3,000 $3,450 $4,000 $4,600 $5,000 $5,750 Table B2

10 Coinsurance Grandfathered Status and Considerations Any decrease in the amount of the insurer s coinsurance percentage will cause a group to lose grandfathered status (example: 80% coinsurance dropping to 70%). Any increase in the insurer s coinsurance percentage will not impact grandfathered status (example: 80% coinsurance increasing to 90%). Coinsurance Maximum Any reduction in the coinsurance maximum dollar amounts will not impact a group s grandfathered status (example $2,000 dropping to $1,000). Any increase in the coinsurance maximum (example $1,000 going to $2,000) will cause a group to lose grandfathered status. Co-payments Any decrease in co-payments will not impact a group s grandfathered status; any increase beyond $5 will cause a group to lose grandfathered status. Preventive Services (Wellness) If a group is non-grandfathered, then they must have preventive services under health care reform. Grandfathered groups may keep their current preventive services, even if they move to a richer plan in terms of other benefits. Grandfathered groups may buy preventive services under health care reform and stay grandfathered. If a grandfathered group has no wellness benefit and wants to add one, only preventive services under health care reform will be sold. Find a detailed chart on preventive services, including preventive services for women on pages in this reference. Small Group Grandfathering Considerations Small groups are defined as having 2 to less than 50 FTEs, including FTEEs however the definition of a small group is determined by state at this time. It is federally mandated that small groups must be defined as having 2 to 100 FTEs, including FTEEs by To determine group size turn to page 12 in this reference. Some benefits of staying grandfathered to small groups now include: avoid mandated benefits, preventive at no cost sharing, essential health benefits. Benefits of staying grandfathered later include: no rate compression, groups 50 to 100 can continue to blend in groups experience, not required to cover clinical trials, not required to meet non-discrimination rules, allowed to keep any current benefits (not just metallics, see page 7 in this reference), likely to have lower premiums for same benefits, avoid risk adjustment administration fees, maintain the option to become non-grandfathered. Retroactive Termination Effective September 23, 2010 The ACA generally provides that plans and issuers must not rescind coverage, except for cases of fraud, or if an individual makes an intentional misrepresentation of material fact. A rescission is defined in the law as a cancellation or discontinuance of coverage that has a retroactive effect, except to the extent attributable to a failure to pay timely premiums towards coverage. This provision limits a health provider to make exceptions to retroactively terminate a member s coverage beyond our normal reconciliation process. Although this was put into law with the good intention of protecting a member from being terminated if they got sick, it has some unintended consequences that may have a negative impact on the member, the group, and the carrier. The most common issue to arise is when a group or member does not term on a timely basis. If the member has paid any part of the premium after the requested termination date, we must extend coverage through the time period the premium covers. On the other hand, some plans and issuers have commented that some employers human resource departments may reconcile lists of eligible individuals with their plan or issuer via data feed or billing only once per month. If a plan covers only active employees (subject to the COBRA continuation coverage provisions) and an employee pays no premiums for coverage after termination of employment, the Department of Labor does not consider the retroactive elimination of coverage back to the date of termination of employment, due to the delay in administrative record keeping, to be a rescission. Similarly, if a plan does not cover ex-spouses (subject to he COBRA continuation of coverage provisions) and the plan is not notified of a divorce and the full COBRA premium is not paid by the employee or ex-spouse for coverage the Departments do not consider a plan s termination of coverage retroactive to the divorce to be a rescission of coverage (in such situations, COBRA may require coverage to be offered for up to 36 months if the COBRAapplicable premium is paid by the qualified beneficiary). 6

11 Reform Provisions Impacting Product and Plan Design Expanded Benefits for Individual and Group Plans 2014 Provisions Individual and small group plans must provide essential health benefits package, the four components of the package include: Individual and small group plans must provide essential health benefits. Essential Health Benefit Categories Ambulatory patient services Emergency services Hospitalization Laboratory services Maternity and newborn care Mental health and substance abuse services, including behavioral health treatment Rehabilitative and habilitative services and devices Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care Essential health benefits 10 required essential health benefits coverage categories (refer to List B3 in lower left on this page) Out-of-pocket maximum (OOPM) - new accumulation rules and ceiling OOPM maximum at health savings account level: likely $6,400 (individual) and $12,800 (other than individual) in 2014 indexed to inflation All cost-sharing for essential health benefits must accumulate OOPM. Does not apply to out-of-network benefits Small group deductible maximums - $2,000 (individual) $4,000 (other than individual) Indexed to inflation Exception for Bronze plans (if you cannot reasonably design one) with a $2,000 deductible Does not apply in individual market Does not apply to out-of-network benefits Limited to Metallic coverage levels (Bronze, Silver, Gold, Platinum) Apply on and off exchange Defined by actuarial value (plus/minus 2%): Bronze/60%, Silver/70%, Gold/80%, Platinum/90% Federal requirement to offer one Silver, one Gold plan on exchanges Metallic levels and actuarial value Quick Reference Glossary List B3 90% actuarial value Platinum Plan 80% actuarial value Gold Plan 70% actuarial value Silver Plan 60% actuarial value Bronze Plan Target + or -2% The bar graph above provides a comparison of the metallic levels and actuarial value. Plans falling between the defined levels are NOT permitted. Find a subsidy calculator here: Actuarial value is the proportion of medical expenses an insurance plan is expected to cover; actuarial values can be used to compare different plan designs to determine the relative generosity of each plan. Graph B4 Source of Information: UnitedHealth Group An individual health insurance plan is a form of health insurance designed to cover just one person (and often immediate family members) as opposed to someone covered by a group health insurance plan. Group health insurance plans are defined as groups of individuals covered under one insurance contract. Usually people are offered group health plans by their employers. A small group is defined as having 2 to less than 50 FTEs, including FTEEs, however the definition of a small group is determined by state at this time. It is federally mandated in 2016 small groups will be defined as having 2 to 100 FTEs, including FTEEs. To calculate a group size turn to page 12 in this reference. A large group is defined as having 51 or more FTEs, including FTEEs at this time in the state of Arkansas, for more information health care reform provisions for large groups turn to pages in this reference. 7

12 Reform Provisions Impacting Product and Plan Design Benefit and Coverage Rules Employer Impacts Essential Health Benefits (EHB)* Out-of-Pocket Max* (OOPM) Deductible Limits Metallic Levels Pre-Existing Condition Exclusion (All Ages) Employer Mandate (Large Group Employer) Max 90-Day Waiting Period Guaranteed Issue and Renewability** Flexible Spending Account (FSA) Limits Expanded Women s Preventive Services* Description Health plans must provide essential health benefits for individual and small group. OOP limits must comply with OOP limits for HSA plans: likely $6,400 (individual) and $12,800 (family) in 2014 All cost sharing (including co-pays) for EHB services must count toward OOPM. Beginning 2014 plan design deductibles may not exceed a $2,000 (individual) or $4,000 (family) annual limitation. Four tiers of coverage for EHB packages: Bronze, Silver, Gold, and Platinum and catastrophic coverage (under 30-year olds only) Beginning in 2014, pre-existing condition exclusions must be removed for all members, not just those under age 19. Employers 50+ (for average number of employees definition refer to page 12) must provide full-time employees (and dependents) with minimum essential coverage to avoid paying a shared responsibility payment (i.e., tax penalty) Minimum essential coverage must: -be affordable (employee contribution must not exceed 9.5% of employee s household income); and -provide minimum value (employer pays more than 60% of covered plan expenses). Waiting period before coverage is in place cannot exceed 90 days. Beginning in 2014, issuers required to offer and accept to any individual, small or large group ALL products that are approved for sale in the market with limited exceptions. Beginning in 2014, coverage must be renewed at the option of the plan sponsor or individual. Beginning in 2013, employee contributions to health FSAs will be limited to $2,500 per year, with indexed increases allowed in future years to adjust for inflation Beginning in August 2012, women s preventive benefits will be expanded to include additional screening, prenatal office visits, breastfeeding support, and some contraceptives. Impact Range ~ 0.32% or 1 per member per month (pmpm) Individual and small group plans must provide essential health benefits package, the four components of the package are described in rows 1 through 4. Small Group Fully Insured Large Group Fully Insured Self-Funded Individual Yes No No Yes Yes Yes** Yes** Yes Yes No No No Yes No No Yes Yes Yes Yes Yes No (Over 50+ only) Yes Yes No Yes Yes Yes No Yes Yes No Yes Yes Yes Yes N/A Yes Yes Yes Yes *Not required for grandfathered plans **Final rule may clarify impact, The Hatcher Agency will provide updates. 8 Table B5

13 Adjusted Community Rating Small Group Definition will be Changing The small group definition is have 2 to less than 50 FTEs, including FTEEs until 2016, unless the state defines it differently. It is federally mandated that small groups must be defined as having 2 to 100 FTEs, including FTEEs by Counting methodology is the average total number of employees (ATNE). However, there is some uncertainty regarding counting methodology over the next couple of years for several ACA provisions including adjusted community rating, small group deductible maximum, metallic level requirement, essential health benefits, and eligibility for small business health options program (SHOP) exchanges. Medical loss ratio (MLR) counting methodology is the average total number of employees (ATNE). Price Restrictions - Fair Health Insurance Premiums Group rate factors are limited to: Geographic area Age (3:1 limit) Tobacco Use (1.5:1 limit) Rates cannot vary by: Gender Health Status Claims History Medical Underwriting Group Size Industry Source of Information: UnitedHealth Group Additional Rating Factors Being Eliminated or Changed Size factors (eliminated) Gender differentiation (eliminated) Typically 10-1 age slope (changed/reduced) MRRF refers to manual rate relationship factor Healthiest or newest groups and lowest rate Current State Low MRRF Future State MRRF 2014 Provisions Current State High MRRF Graph B6 Less healthy or longest duration groups and highest rate Reform Compliance Drives Significant Price Increase Individual Market Premium Increase Average Rate Increase 12% Pre-Reform Rating Rules/ Product 100%+* Average Rate Increase 12%... Community Rating Causes Material Price Disruption for Healthiest Groups Small Group Market Premium Increase Average Rate Increase 15% Pre-Reform Rating Rules for Healthiest Groups 25% Product 4 to 11% Average Rate Increase 15% Large Group Market Premium Increase Average Rate Increase 15% Pre-Reform Product 3 to 6 % Average Rate Increase 15% Post-Reform Post-Reform Post-Reform... Incremental increase to rates beginning in 2013 to cover taxes, fees, and benefits Reform Premium Impact Assessment (impact of benefit expansion, pricing restriction, and taxes and fees) Consumers (both group and individual buyers) will face substantial price increases, further pressuring the system. New pricing rules and new product design mandates will have a significant impact on the price consumers pay for insurance in 2014 and beyond. *Individual rates expected to increase 100% to up to 200% due to product and rating changes. **May be partially offset by reinsurance payments, net impact not yet known. Graph B7 9

14 Large Group Provisions and Regulations 2014 Provisions Employer Shared Responsibility Provisions Play or Pay Mandate Minimum Essential Coverage (MEC) The Affordable Care Act added the so-called play or pay mandate or employer shared responsibility provisions to the Internal Revenue Code (the Code). Starting in 2014, certain employers may be subject to a penalty tax, or employer shared responsibility payment, if: 1. They fail to offer the opportunity to enroll in an employer-sponsored health plan that offers minimum essential coverage (MEC) to substantially all full-time employees (and certain dependents); or 2. MEC is offered but it is unaffordable or does not provide the required minimum value; and 3. At least one of the employer s full-time employees receives a premium tax credit or cost-sharing reduction for purchasing health insurance through an exchange. This update provides an overview of the guidance issued to date with respect to the play or pay mandate. Refer to page 22 for MEC and Appendix A43 for a low income premium subsidy tax credit (Table B21). Minimum essential coverage (MEC) is the type of coverage you need to have to meet the individual responsibility requirement under the Affordable Care Act, turn to page 22 to determine MEC. Applicable Large Employer The play or pay mandate only applies to applicable large employers as defined in the Code and the Internal Revenue Service s (IRS) proposed regulations published on January 2, Under the proposed regulations, an employer is an applicable large employer for a calendar year if it employed, on average, at least 50 full-time employees, including full-time equivalent employees (FTEEs), both discussed below, (the 50-employee threshold) on business days during the preceding calendar year. The play or pay mandate is effective beginning in 2014 but the determination of whether an employer is an applicable large employer for 2014 is based on the number of employees employed by the employer this year (2013). Employer The employer-employee relationship is defined under the common law standard, as outlined in IRS Notice , and adopted by the proposed regulations. Employer for purposes of the play or pay mandate includes government entity employers (e.g., federal, state, local or Indian tribal government employers) and tax-exempt organization employers, as well as private sector employers. With respect to employers that are members of a controlled group or affiliated service group, employees of all such group members are counted for determining whether the group is considered an applicable large employer. However, as discussed in the determination of group size, the calculation of penalties is determined on a member, rather than group, basis. The proposed regulations reserve for future guidance the application of the aggregation rules to government entities, churches, and conventions or associations of churches. In the meantime, such employers may rely on a reasonable, good faith interpretation of the aggregation rules in determining whether an employer under those circumstances is an applicable large employer. For purposes of determining whether an employer is an applicable large employer, the term employer also includes a predecessor employer and a successor employer. Early Retiree Reinsurance Program (EERP) June 21, January 1, 2014 Under the Affordable Care Act Congress appropriated $5 billion for a temporary program to reimburse retiree health plans for certain costs of benefits provided to pre-medicare-eligible retirees. The EERP will continue throughout the exhaustion of funding or January 1, 2014, whichever comes first. Beginning January 1, 2014, early retirees and their families will be able to choose from a range of coverage options available through the insurance exchanges. Auto Enrollment Employers with 200+ employees will be required to auto enroll all full-time employees as soon as they are eligible for health coverage. Specific details on how and when this requirement will be effective have not been issued by the Department of Labor. 10

15 Large Group Provisions and Regulations The Look Back Measurement Method and Transition Relief 2014 Provisions A detail of rules to comply with in order to receive premium tax credits and explanation of penalty assessments for large group employers and benefit administrators. For employers sponsoring plans with plan years other than the calendar year (fiscal year plans) Because the terms and conditions of coverage are difficult to change in the middle of a plan year, to fiscal year plans as of January 1, 2014 would, in many cases, require compliance for the entire fiscal year plan year beginning in 2013 (the 2013 plan year). In order to use the look-back measurement method to determine their employees status as full-time employees for the 2013 plan year ending in 2014, employers with fiscal year plans would be required to determine the employees hours of service for periods before the publication of these proposed regulations. Transition relief is being provided for members of applicable large employer members with fiscal year plans. If an applicable large employer member maintains a fiscal year plan as of December 27, 2012, the relief applies with respect to employees of the applicable large employer member (whenever hired) who would be eligible for coverage, as of the first day of the first fiscal year of that plan that begins in 2014 (the 2014 plan year) under the eligibility terms of the plan as in effect on December 27, If an employee described in the preceding sentence is offered affordable, minimum value coverage no later than the first day of the 2014 plan year, no assessable payment will be due with respect to that employee for the period prior to the first day of the 2014 plan year. While transition relief is provided with respect to all enrollees (and other eligible employees) in fiscal year plans, further relief is also provided for employers that have a significant percentage of their employees eligible for or covered under one or more fiscal year plans that have the same plan year as of December 27, 2012 and want to offer certain other employees coverage under these plans. Specifically, if an applicable large employer member has at least one-quarter of its employees covered under one or more fiscal year plans that have the same plan year as of December 27, 2012 or offered coverage under those plans to one-third or more of its employees during the most recent open enrollment period before December 27, 2012, no payment will be due for any month prior to the first day of the 2014 plan year of that fiscal year plan with respect to employees who: 1. are offered affordable, minimum value coverage no later than the first day of the 2014 plan year of the fiscal year plan, and 2. would not have been eligible for coverage under any group health plan maintained by the applicable large employer member as of December 27, 2012 that has a calendar year plan year. For purposes of this transition relief, an applicable large employer member may determine the percentage of its employees covered under the fiscal year plan or plans as of the end of the most recent enrollment period or any date between October 31, 2012 and December 27, Employers using this transition relief will still be subject to the reporting requirements for the entire 2014 calendar year. The concerns do not apply with respect to reporting by a fiscal year plan. Because no liability will occur whether or not a full-time employee is offered coverage during the portion of the 2013 plan year falling in 2014, the applicable large employer may determine the full-time employees for that period for purposes of reporting requirements after the period has ended, using actual service data rather than the look-back measurement method, and use those determinations for the reporting required at the beginning of 2015 to cover the entire 2014 calendar year. In addition, the identification of whether the coverage offered provides minimum value and the employee portion of the applicable premium should be available to the employer in time to complete the required reporting. Therefore, because this reporting is essential to the administration of the premium tax credit, applicable large employers will be required to report this information for the entire 2014 calendar year, even if during some calendar months in 2014 liability will not apply due to application of the transition rules for fiscal year plan years. The Treasury Department and the IRS are developing appropriate transition rules for employees of employers with fiscal year plans to account for the fact that premium tax credits will first become available for the 2014 calendar year. 11

16 The Stability Period The stability period is an established period where a person s full-time or part-time status is stable. Once an employee is determined to be a full-time or non full-time employee during the standard measurement period, the classification does not change during the stability period regardless of hours worked. For an employee that is of full-time status, the stability period would be at least six consecutive calendar months that follows the measurement period and is no shorter in duration than the standard measurement period. So for all practical purposes the stability period will be from six months to a year for full-time employees. The administrative period is up to 90 days after the standard measurement period to allow the employer to determine if an employee is full-time or part-time for the next stability period. For example, the look back period or standard measurement period might run from September 1, 2012 through August 31, During the time from September 1, 2013 the employer would have 90 days to classify, notify, and enroll employees as accordingly based on the hours worked in the previous standard measurement period for the next stability period that would begin on January 1, 2014 through December 31, An employee s enrollment status does not change in the administrative period, only at the start of the next stability period. Determining Group Size by Month and Calendar Year How do I calculate how many full-time equivalent employees I have? For the purposes of determining whether an employer is an applicable large or small group employer, employers are required to calculate the number full-time equivalent employees (FTEEs) they employed during the previous calendar year and count each FTEE as one full-time employee in determining whether the 50-employee threshold has been met. Full-Time Equivalent Employees (FTEEs) To calculate FTEEs for a given month, an employer must: 1. Add up the total number of hours of service for all employees who were not employed on average at least 30 hours of service per week (up to a maximum of 120 hours of service per employee per month may be included); then 2. divide that total by 120. The resulting number is the number of FTEEs for that month. Fractions are taken into account for calculation purposes, but for purposes of determining whether the 50-employee threshold is met, the fraction is disregarded as described above. The 50-Employee Threshold To calculate whether the 50-employee threshold is met with respect to a given year (see above), the total number of full-time employees must be determined for each calendar month in the preceding year. The total number FTEEs for each calendar month in the preceding calendar year must also be determined. The totals for both FTEs and FTEEs for each calendar month are then added together for all months in the preceding calendar year, and then divided by 12. If the result is not a whole number, it is rounded down to the next lowest whole number. For example, an employer with an average total of 49.9 FTEs and FTEEs for 2013 would not be treated as an applicable large employer for Quick Reference and Review A small group is defined as having 2 to less than 50 FTEs, including FTEEs, however the definition of a small group is determined by state at this time. It is federally mandated that small groups must be defined as having 2 to 100 FTEs, including FTEEs by A large group is defined as having 50 or more FTEs, including FTEEs at this time in the state of Arkansas. Affordable coverage must be offered to full-time employees who work 30 hours a week or more for 48 weeks (or 1440 hours) or more each year, to calculate turn to page 22 in this reference. 12

17 Summary of Time Frames, Penalties, and Employee Types Time Frame for Determining Full-Time Status Measurement Period Administrative Period Stability Period Definition Measure (on average) whether employees are full-time or not On-going Employees 3 to 12 months a New employees hired as full-time New variable hour and seasonal employees Identify and enroll full-time employees Up to 90 days (may neither reduce nor lengthen the measurement or stability period - can overlap prior stability period) Period in which penalty may be due relative to employees found to be full-time during measurement period At least 6 months but cannot be shorter in duration than measurement period Not applicable Up to 90 days to enroll Not applicable Up to 90 days (measurement 3 to 12 months b period and administrative period cannot exceed 13 months) c 3 to 12 months but cannot be longer than measurement period a. For on-going employees, this is referred to as the standard measurement period. Table B8 b. For new employees, this is referred to as the initial measurement period. Source: IRS Notice c. Technically, the initial measurement and administrative period cannot last beyond the final day of the first calendar month beginning on or after the one year anniversary of the employee (about 13 months). A penalty, if applicable, is incurred only during the stability period which lasts at least six consecutive calendar months and is no shorter in duration than the standard measurement period designated by the employer. If an employer determines that an employee did not work full-time during the standard measurement period, the employer would not be required to treat the workers as full-time during the subsequent stability period. However, if an employee was full-time during the measurement period, then the employer could potentially pay a penalty during the stability period if all other criteria were met (e.g. full-time employees entered the exchange and received a premium tax credit, and any health insurance coverage offered was not adequate or affordable). The employer penalty is effective for months beginning after December 31, Thus, employers that intend to utilize the look-back measurement period for determining full-time status for on-going employees for 2014 will need to begin their measurement period in 2013 to have a corresponding stability period for The IRS and Treasury recognize that employers who want to have a 12-month measurement period and a 12-month stability period may face constraints the first year, given that the regulation has not yet been finalized. Thus, the IRS is offering a transitional measurement period that can be (for first year of implementation only) shorter than the stability period (see pages in this reference). The IRS recognizes that these periods may differ depending on whether the employer s health plan or the firm s financial operations are based on a calendar or a fiscal year. Also, the guidance states that employers who use a full 12-month measurement period are not required to begin the measurement period before July 1, 2013 (see example in Table B9 below for employer with fiscal year starting on November 1, 2014). Table B9 below shows some examples the IRS provides in its guidance of start and end dates for the measurement, administrative, and stability periods which meet the requirements outlined in the proposed rule. Examples of Start and End Dates During Transition Period To Determine Full-Time Status of On-going Employee Plan Year Transitional Measurement Period Administrative Period Stability Period Calendar Year April 15, Oct. 14, 2013 a Oct. 15, Dec. 31, 2013 Jan. 1, Dec. 31, 2014 Fiscal Year Starting On: April 1, 2014 July 1, Dec. 31, 2013 Jan. 1, March 31, 2014 April 1, March 31, 2015 July 1, 2014 b June 15, April 14, 2014 April 15, June 30, 2014 July 1, July 1, 2015 Nov. 1, 2014 Sept. 1, Aug. 31, 2014 Sept. 1, Oct. 31, 2014 Nov. 1, Nov. 1, 2015 a. During the transition period, an employer with a calendar year could have a later start date if they shorten the administrative period. Table B9 b. An employer with a fiscal year beginning on July 1, 2014 must use a measurement period that is longer than 6 months to comply with the required measurement period beginning by no later than July 1, 2013 and ending no earlier than 90 days before the stability period. 13

18 Summary of Time Frames, Penalties, and Employee Types Definition of Seasonal Workers- The definition of seasonal worker differs across the two-part calculation used to determine the ACA employer penalty. Specifically, the seasonal worker definition varies depending on whether it is used in the first part of the calculation, which determines whether an employer is considered large (i.e. the 50-FTE calculation on pg. 12) (see 1. below), or the second part of the calculation, which determines how many employees are considered full-time for purposes of setting the dollar amount of the penalty (see 2. below). 1. If a seasonal employee works less than 120 days during a year, he or she is not included in the FTE calculation. In this instance, the definition of a seasonal worker is not limited to agricultural or retail workers. 2. The 120 day period is not used to determine whether someone is a seasonal worker, instead employers are permitted to use a reasonable, good faith interpretation of the term seasonal employee. It is not a good faith interpretation of the term seasonal employee to treat an employee of an educational organization who works during the active portions of the academic year, as a seasonal employee. The Treasury and the IRS have indicated that final ACA regulations may tighten the definition of seasonal employee to include a specific time limit in the form of a defined period. Definition of Variable Hour Employees- A new employee is a variable hour employee, if based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to be employed on average at least 30 hours per week. In some cases, variable hour employees may not work the necessary 30 hours on average over a specified time period (up to 12 months) to be considered full-time. However a new employee who is expected to be employed initially at least 30 hours per week may be a variable hour employee, if, based on the facts and circumstances at the start date, the period of employment at more than 30 hours per week is reasonably expected to be of limited duration. Definition of Part-Time Employees- Part-time employees work 20 hours a week or 750 hours of service for 37 1/2 weeks or just under 9 months. Definition of Full-Time Employees (FTEs)- Full-time employees work 30 hours a week or more for 48 weeks (or 1440 hours) or more each year. Definition of Full-Time Equivalent Employees (FTEEs)- Add up the total number of hours of service for all employees who were not employed on average at least 30 hours of service per week (up to a maximum of 120 hours of service per employee per month may be included); then divide that total by 120. The resulting number is the number of FTEEs for that month. Fractions are taken into account for calculation purposes, but for purposes of determining whether the 50-employee threshold is met, the fraction is disregarded as described above. Definition of On-Going Employees- An on-going employee is generally an employee who has been employed for at least one complete standard measurement period. This is a defined period of not less than three, but not more than 12 consecutive months. Under the safe-harbor method for on-going employees, an employer determines each on-going employee s status by looking back at the standard measurement period. Definition of Employer- The ACA definition of an employer is based on the common law standard which states than an employment relationship exists if an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In contrast, an independent contractor is an individual who controls what will be done and how it will be done and the contract dictates the desired result of the work. In this context, a temporary worker is not an employee of the firm he or she is leased to but rather an employee of the temporary agency. An employer of multiple entities must aggregate employees across all entities to determine if the employer met the 50-FTE requirement. However, recent guidance from the IRS does not make a determination about whether the controlled group rule applies to government entities, churches, and a convention or association of churches may rely on a reasonable good faith interpretation of the IRC controlled group. Determining Full-Time Employees Time Periods under Proposed IRS Guidelines On-Going Employee Standard Measurement Period 3 to 12 months to determine if full-time Admin Period up to 90 days Stability Period at least 6 months Only pay penalty during stability period if required Standard Measurement Period Repeats... Variable Hour and Seasonal Employees... Initial Measurement Period 3 to 12 months to determine if full-time cannot exceed 13 months... Admin Period up to 90 days Stability Period at least 6 months Only pay penalty during stability period if required Standard Measurement Period Repeats 14 Graph B10

19 Health Care Reform Landscape: Key Things You Need to Know Small Groups 1. Flexible spending account limit ($2,500 max for employee contribution) applies The small group definition may be different by state (having 2 to less than 50 FTEs, including FTEEs vs. having 2 to 100 FTEs, including FTEEs) It will be federally mandated in 2016 that small groups are defined as having 2 to 100 FTEs, including FTEEs. No - pre-ex: coverage cannot be denied due to pre-existing conditions for all members No pre-ex: coverage cannot be denied for dependent children under the age of 19 due to pre-existing conditions was effective in Guaranteed issue applies: issuers are required to offer and accept to any individual small, or large group all products that are approved for sale in the market with limited exceptions and coverage must be renewed at the option of the plan sponsor or individual No medical underwriting is required, rating will be determined using adjusted community rating (ACR) which includes age and tobacco factors using ratios and geographic area The small business health options program (SHOP) exchange will be available Essential health benefits (EHB)* applies to non-grandfathered groups Small group deductible maximums $2,000 (individual) $4,000 (other than individual) and out-of-pocket maximum $6,400 (individual) $12,800 (other than individual) applies New taxes and fees apply Large Groups Flexible spending account limit ($2,500 max for employee contribution) applies Guaranteed issue applies: issuers are required to offer and accept to any individual small, or large group all products that are approved for sale in the market with limited exceptions and coverage must be renewed at the option of the plan sponsor or individual Out-of-pocket maximum $6,400 (individual) $12,800 (other than individual) applies Deductible limits and essential health benefits do not apply. New taxes and fees apply *Individual and small group plans must provide essential health benefits. The essential health benefit categories include: ambulatory patient services emergency services hospitalization laboratory services maternity and newborn care mental health and substance abuse services, including behavioral health treatment rehabilitative and habilitative services and devices preventive and wellness services and chronic disease management pediatric services, including oral and vision care 15 Summary B11

20 Preventive Services Covered Under the Affordable Care Act Effective March 23, 2010 If your employer based health insurance plan is a grandfathered plan (one that existed before March 23, 2010), and if your group has preventive services, you currently have the preventive benefits listed in the second column labeled Current Preventive Services of the tables below based on the U.S. Preventive Services Task Force recommendations (USPSTF). If your employer based health insurance plan is a new plan (it was created on or after March 23, 2010), the benefits in the third column of the tables below now must be covered with no co-payments, coinsurance, or deductible when these services are delivered by a network provider. This is an illustrative benefit summary of preventive services and is subject to all benefit terms, conditions, limitations, coverage policy, and exclusions contained in the applicable certificate of coverage or evidence of coverage. Listed below is a comparison of current preventive services for a grandfathered plan versus the new preventive services for any plan that is not grandfathered or was written after April 1, Source 16 Summary B12