Q7, Q 11, and MEC. What is Medical Insurance For?

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1 Q7, Q 11, and MEC SEAC Spring Meeting 2014 James H. Baum, MAAA What is Medical Insurance For? Old School View Insurance for costs of treatment of illness or injury Carrier acts as utilization manager New School View Insurance to Maintain Health Wellness Preventative More patient cost share on treatment of sickness and injury, to get the patient to act as utilization manager 1

2 ACA The Journey Continues We have to pass the bill so you can find out what is in it, away from the fog of the controversy. Nancy Pelosi Questions about Mysterious Health Insurance Law 2

3 ? And The Mysterians The group took its name from the 1957 Japanese science fiction film The Mysterians, in which aliens from the destroyed planet Mysteroid arrive to conquer Earth, and may have been the first group to be described as punk rock. [2] They were also the first Latino rock band to have a mainstream hit record in the United States with 1966's "96 Tears" ACA Requirements Minimum Essential Coverage (MEC) Minimum Value Affordable Essential Health Benefits 3

4 Minimum Essential Coverage Minimum Essential Coverage includes: Government sponsored programs including: Medicare, Medicaid, Children s Health Insurance Program coverage (CHIP), TRICARE, coverage through Veterans Affairs, and Health Care for Peace Corps volunteers; Employer-sponsored plans including governmental plans, grandfathered plans and other plans offered in the small or large group market; Individual market plans, including grandfathered plans; or Other coverage designated as minimum essential coverage by HHS and/or the Dept. of the Treasury. PPACA 1501, IRC 5000A(f) Minimum Essential Coverage More defined by Where From than What Must include Preventative Care Requirements of ACA Satisfies the Individual Mandate Penalty (Tax) and the $2,000 No Coverage Offered Employer Mandate Penalty (Tax) 4

5 Individual Tax Penalty The annual penalty for not having minimum essential coverage will be the greater of a flat dollar amount per individual or a percentage of the individual s taxable income. For any dependent under the age 18, the penalty is one half of the individual amount. Individual Tax Penalty The flat dollar amount per individual is $95 in 2014; $325 in 2015 and $695 in After 2016, the flat dollar amount is indexed to inflation. The flat dollar penalty is capped at 300% of the flat dollar amount. The percentage of taxable income is an amount equal to a percentage of a household s income (as defined by the Act) that is in excess of the tax filing threshold (phased in at 1% in 2014; 2% in 2015; 2.5% in 2016). 5

6 Minimum Essential Coverage (Preventive Only) MEC Preventative Only Plans allow Individuals to meet their coverage responsibilities under ACA at low/no cost MEC Preventative Only Plans allow Employers to avoid $2,000 per FTE employer penalty at low/no cost. May be a recruitment tool for workers not interested in funding their share of a MVP Plan New Law Redefines Playing Field What Government Wants More People Covered Emphasis on Preventative What Employers Want Low Cost Solutions Attract and Retain Workers What Employees Want Some want protection from the high cost of major illness or injury Some want meaningful First Dollar Coverage 6

7 Private Sector Reaction to Government Imposed New Rules MEC Preventative Only & Fixed Indemnity Everyone s happy- End of Story But Wait!! FAQS ABOUT AFFORDABLE CARE ACT IMPLEMENTATION (PART XI) January 24, 2013 Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of various provisions of the Affordable Care Act. These FAQs have been prepared by the Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the Departments). Like previously issued FAQs (available at these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended. The Departments anticipate issuing further responses to questions and issuing other guidance in the future. We hope these publications will provide additional clarity and assistance. 7

8 Fixed Indemnity Insurance Fixed indemnity coverage under a group health plan meeting the conditions outlined in the Departments regulations3 is an excepted benefit under PHS Act section 2791(c)(3)(B), ERISA 3 See 26 CFR (c)(4), 29 CFR 732(c)(4), 45 CFR (c)(4). 5 section 733(c)(3)(B), and Code section 9832(c)(3)(B). As such, it is exempt from the health coverage requirements of title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code. The Departments have noticed a significant increase in the number of health insurance policies labeled as fixed indemnity coverage. Gambling in Rick s Cafe (Casablanca) Captain Renault: I'm shocked, shocked to find that gambling is going on in here! 8

9 Q7: What are the circumstances under which fixed indemnity coverage constitutes excepted benefits? The Departments regulations provide that a hospital indemnity or other fixed indemnity insurance policy under a group health plan provides excepted benefits only if: The benefits are provided under a separate policy, certificate, or contract of insurance; There is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and The benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor. The regulations further provide that to be hospital indemnity or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred. Q7: Continued When a policy pays on a per-service basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an income replacement policy. Accordingly, it does not meet the conditions for excepted benefits. The Departments plan to work with the States to ensure that health insurance issuers comply with the relevant requirements for different types of insurance policies and provide consumers with the protections of the Affordable Care Act. 9

10 Industry Response You can t be serious/what?? Segmentation of Interests Health Writers Limited Medical Writers Supplemental Writers Periodicity Approach Change Event Based to Event and Time Period Payment Trigger 10

11 Supplemental Only Plans Is Fixed Indemnity Sold Only to Individuals with Medical Coverage? California Model - Individuals must have Major Medical in order to be eligible for less comprehensive health coverage products More FAQs (January 9, 2014) Q11: If insurance labeled as fixed indemnity insurance provides benefits other than on a per-period basis, may the insurance nonetheless qualify as excepted benefits? 11

12 Q 11 (Continued) Yes. With respect to group health insurance coverage that does not meet the definition of fixed indemnity excepted benefits, coverage that supplements other group health plan coverage may, nonetheless, qualify as supplemental excepted benefits under sections 2722(c)(3) and 2791(c)(4) of the PHS Act, sections 732(c)(3) and 733(c)(4) of ERISA, and sections 9831(c)(3) and 9832(c)(4) of the Code. See 26 CFR (c)(5); 29 CFR (c)(5); 45 CFR (c)(5); the Department of Labor s Employee Benefits Security Administration s Field Assistance Bulletin No (available at HHS Centers for Medicare & Medicaid Services Insurance Standards Bulletin (available at and Internal Revenue Service Notice (available at 16 Furthermore, HHS intends to propose amendments to 45 CFR (b)(3) that would allow fixed indemnity coverage sold in the individual health insurance market to be considered to be an excepted benefit if it meets the following conditions: Q 11 (continued) It is sold only to individuals who have other health coverage that is minimum essential coverage within the meaning of section 5000A(f) of the Code; There is no coordination between the provision of benefits and an exclusion of benefits under any other health coverage; The benefits are paid in a fixed dollar amount regardless of the amount of expenses incurred and without regard to the amount of benefits provided with respect to an event or service under any other health coverage; and A notice is displayed prominently in the plan materials informing policyholders that the coverage does not meet the definition of minimum essential coverage and will not satisfy the individual responsibility requirements of section 5000A of the Code 12

13 Q 11 (continued) If these proposed revisions are implemented, fixed indemnity insurance in the individual market would no longer have to pay benefits solely on a per-period basis to qualify as an excepted benefit. Until HHS finalizes this rulemaking related to these proposed amendments, HHS will treat fixed indemnity coverage in the individual market as excepted benefits for enforcement purposes if it meets the conditions above in States where HHS has direct enforcement authority. For States with primary enforcement authority, HHS encourages those States to also treat this coverage as an excepted benefit and will not consider that a State is not substantially enforcing the individual market requirements merely because it does so. Questions and Regulations Fixed Indemnity Q7 Periodicity permits as stand alone Q11 Followed by CMS-9949-F followscalifornia Model for individual supplemental medical indemnity products without time period provisions MEC Preventative CMS-9949-F references MEC, does not require EHB 13

14 Questions? "96 Tears" Single by? & the Mysterians from the album 96 Tears B-side "Midnight Hour" Released February 1966 Format 7" 45 RPM Genre Garage rock, protopunk Length 2:56 Label Cameo-Parkway Records Writer(s) Rudy Martinez Producer(s) Rudy Martinez Stay Tuned! Things are certain to change 14