Thursday, April 29, 2010

Health reform to restrict the use of FSA, HRA and HSA funds on over-the-counter drugs

Effective January 1, 2011, the Patient Protection and Affordable Care Act (PPACA) stipulates that over-the-counter (OTC) medicines will not be eligible for purchase with pre-tax dollars without a doctor’s prescription. This rule applies to the use of Flexible Spending Account (FSA), Health Reimbursement Account (HRA) and Health Savings Account (HSA) funds.

Even with a doctor’s prescription or Note of Medical Necessity (NMN), individuals will be required to pay at the point of service and submit a manual claim for reimbursement of FSA or HRA funds. Pre-tax FSA, HRA or HSA funds can still be used to purchase OTC items that are not considered a drug or a medicine (e.g. bandages, wound care, contact lens solution). Stores that distinguish eligible from ineligible items at the cash register are expected to adjust their systems to accommodate the new regulations.

These changes will go into effect on January 1, 2011 regardless of an employer’s plan renewal date. It is important that employees consider the new OTC rules when estimating the amount to put in their accounts for the next plan year.

Other changes to cafeteria plans include:
• The penalty for using HSA funds on non-qualified medical expenses is increased from 10% to 20% (effective January 1, 2011)
• FSA contributions for medical expenses is limited to $2,500 per year, indexed for inflation (effective January 1, 2013)

Wednesday, April 21, 2010

Does my business qualify for the small employer tax credit?

Under the Patient Protection and Affordable Care Act (PPACA), small businesses that choose to provide health insurance could be eligible for a credit toward their cost of coverage. To be eligible, the small employer must contribute at least 50% of the cost of premiums towards a qualified health plan.

Maximum tax credit
• 35% of the employer premium contribution, for tax years 2010-2013
• 50% of the employer premium contribution for coverage purchased through the exchange, beginning in 2014 and for no more than two consecutive taxable years

The maximum tax credit for non-profit organizations is the lesser of (1) a 25% credit (2010-2013) and a 35% credit (beginning in 2014), or (2) the amount of employer-paid payroll taxes for the calendar year.

The maximum tax credit is available to groups with 10 or fewer full-time equivalent employees (FTEs) and $25,000 or less in average salary. The credit phases out as average salary increases from $25,000 to $50,000 and as the number of FTEs increases from 10 to 25.

Additionally, the amount of an employer’s premium payments that counts for purposes of the credit calculation is capped based on the average premium for the small group market in the State, as determined by the Secretary. This is to avoid incentivizing groups to choose a high-cost plan.

A qualified employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health care premiums for those employees (which does not exceed the average premium for the small group market in the employer's State) and otherwise meets the requirements for the credit.

The credit is calculated as follows:

1. Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600

2. Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480

3. Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,720

4. Total credit reduction: ($4,480 + $6,720) = $11,200

5. Total 2010 tax credit: ($33,600 – $11,200) = $22,400

For more information, click to access the IRS Small Business Health Care Tax Credit: Frequently Asked Questions.

Tuesday, April 20, 2010

What is a grandfathered health plan?

As defined by the Patient Protection and Affordable Care Act (PPACA), a grandfathered health plan is any group health plan or individual coverage that was in effect on March 23, 2010, the date of the new law’s enactment.

Grandfathering was put into place to carry out Obama’s promise that if you like your current plan, you can keep it. A plan can remain grandfathered even if employees or dependents are added or deleted from the plan. Although it is still unclear from the legislation, it is likely that any plan design changes will cause the plan to lose its grandfathered status. Once a plan loses its grandfathered status, it is subject to all applicable provisions of the PPACA.

Although grandfathered plans are generally able to avoid many of the PPACA’s requirements, the access and reform provisions outlined below will still apply to these plans.

Provisions effective for plan years beginning on or after September 23, 2010:
• Eliminate pre-existing condition exclusions for children under 19
• Extend dependent coverage to adult children up to age 26 only if that child is not eligible to enroll in other employer provided coverage
• Prohibit rescission of coverage except for fraud or intentional misrepresentation
• Eliminate lifetime limits and annual limits as set forth by HHS Secretary; group health plans will still be allowed to place limits on the amount covered for certain medical procedures

Provisions effective for plan years beginning on or after January 1, 2014:
• Extend dependent coverage to adult children up to age 26
• Eliminate enrollment waiting periods in excess of 90 days
• Eliminate pre-existing condition exclusions on all individuals
• Eliminate annual limits on essential benefits

Grandfathered plans will be required to comply with the above provisions and will not lose their grandfathered status for doing so. As long as a plan maintains its grandfathered status, other provisions required by the PPACA will not apply.

UHC begins covering college graduates up to age 26

UnitedHealthcare (UHC) announced Monday that it intends to allow current graduating college seniors to remain on their parents’ health insurance plan. UHC predicts this proactive step will allow nearly 150,000 graduating students continued coverage under their parents’ employer-sponsored plan.

The announcement is in response to a provision in the recently passed health reform legislation, which requires insurers to cover dependent children through age 26, regardless of student status. By law this provision does not go into effect until September 23, which would leave many graduating students temporarily without coverage.

For more information, please review the UHC Client Update or contact your Senn Dunn representative.

Friday, April 16, 2010

Congress passes short-term COBRA subsidy extension

After resuming session in Washington this week, Congress passed another short-term COBRA subsidy extension, which President Obama signed into law late Thursday. This temporary measure extends the eligibility period for the 15-month 65% premium subsidy to those involuntarily terminated through May 31, 2010.

Although the previous extension expired on March 31, this provision is effective retroactively to April 1 to avoid a lapse in the program.

President Obama has urged lawmakers to pass legislation extending the subsidies to employees laid off through the end of the year. While the Senate has passed a measure proposing an extension into 2011, the House has yet to act on it.

Thursday, April 8, 2010

What does health reform mean for employers?

While the yearlong push to pass health reform has ended, the process of understanding and implementing the newly passed Patient Protection and Affordable Care Act (PPACA) has just begun. As with most legislation, the devil is in the details. What makes this bill even more complicated is that many of the details have yet to be determined.

One of the most common phrases in the PPACA is "the Secretary shall." Not only does this demonstrate the enormous amount of power this legislation grants to HHS and other government agencies, it also proves that the federal rule-making process will play a vital role in determining how PPACA is interpreted and implemented.

The timeline below summarizes the key provisions pertinent to employers. We will provide more detailed analysis of specific provisions and how they impact your business on an ongoing basis as we receive clarification from Washington. As always, do not hesitate to contact us with your questions or concerns.

To view a printer-friendly version of the timeline below, CLICK HERE.

Timeline for Implementation
This summary includes the key provisions for employers and is not inclusive of all the provisions effective as a result of the health care legislation.

Effective immediately
• Allows individuals and employer group plans to keep their current policy on a grandfathered basis if the only plan changes made are to add or delete new employees/dependents
• Requires that grandfathered plans still comply with the following provisions as they go into effect: extend dependent coverage to adult children up to age 26; prohibit rescission of coverage except for fraud or intentional misrepresentation; eliminate pre-existing condition exclusions for children and adults; eliminate waiting periods greater than 90 days; and eliminate lifetime limits and annual limits
• Provides small employers with no more than 25 employees and average annual wages of less than $50,000 with a tax credit of up to 35% of the employer’s contribution for employee health coverage if the employer contributes at least 50% of the total premium cost (Phase I of small employer tax credits available in tax years 2010-2013)
• Requires employers that provide a Medicare Part D subsidy to retirees to account for the future loss of the deductibility of this subsidy on liability and income statements (immediate accounting impact; deduction disallowance takes effect in 2013)

Effective within 6 months
• Prohibits pre-existing condition exclusions for children under 19
• Prohibits lifetime benefit limits and annual limits as determined by the Secretary of HHS
• Allows children to be covered as dependents up to age 26
• Prohibits coverage cancellation or rescission except in cases of fraud or intentional misrepresentation
• Requires individual and group plans to cover specified preventive services without cost sharing
• Requires that plans cover emergency services at the in-network level, allow enrollees to designate any in-network doctor as their primary care physician and have a coverage appeal process
• Requires group health plans to comply with IRC Section 105(h) rules that prohibit discrimination in favor of highly compensated individuals

Effective in 2011
• Provides $200 million in grant funding for small employer-based wellness programs for fiscal years 2011-2015
• Requires 80% medical loss ratio (MLR) for individual and small group plans (1-100 employees) and 85% MLR for large group plans (101+ employees)
• Requires carriers to issue a premium rebate for plans that fail to meet the minimum MLR threshold
• Requires employers to include the aggregate cost of employer-sponsored health benefits on W-2s
• Increases the penalty for using HSA funds on non-qualified medical expenses from 10% to 20%
• Prohibits the use of FSA/HSA funds for over-the-counter drugs not prescribed by a doctor
• Allows employers with 100 employees or less to adopt new “simple cafeteria plans”
• Establishes a national, voluntary long term care program financed through voluntary payroll deductions; employers may automatically enroll employees, unless they opt out
• Requires employers with 200 employees or more to auto-enroll all new employees in the employer-sponsored health plan; employees may opt out if they have another source of coverage (effective date to be determined)
• Requires the Department of Labor to begin annual studies on self-insured plans using data collected from Form 5500

Effective in 2012
• Imposes $2.8 billion in annual fees on brand-name prescription drug manufacturers and importers
• Requires all employers and insurers to provide a summary of benefits and a coverage explanation that meets specified criteria to all enrollees, in addition to the summary plan descriptions (SPD)
• Requires group plans to submit an annual report to HHS to determine if the benefits provided meet certain criteria; must also provide the report to plan enrollees during open enrollment

Effective in 2013
• Imposes a new federal premium tax on insurers, equal to $2 annually per covered individual, to fund federal comparative effectiveness research
• Imposes a new excise tax on medical device manufacturers equal to 2.3% of the price for which the device is sold
• Imposes an additional 0.9% Medicare Hospital Insurance tax on self-employed individuals and employees with earnings above $200,000 for individuals and $250,000 for joint filers
• Levies a new 3.8% Medicare contribution on certain unearned income for individuals with AGI over $200,000 ($250,000 for joint filers)
• Increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of AGI to 10% of AGI for regular tax purposes
• Limits the annual contribution to medical FSAs to $2,500
• Eliminates plan sponsors’ ability to deduct the 28% federal subsidy for Medicare Part D prescription drug coverage
• Requires all employers to provide a notice to their employees informing them of the existence of an exchange

Effective in 2014
• Imposes annual fees on private health insurers, phased in at $8 billion in 2014 and reaching $14.3 billion by 2018
• Requires coverage in all markets to be offered on a guarantee issue basis and be guarantee renewable
• Prohibits pre-existing condition exclusions in all markets
• Prohibits all annual and lifetime limits on essential health benefits
• Imposes strict modified community rating standards on all individual and fully insured policies, 100 lives or less, with premium variations only allowed for age (3:1), tobacco use (1.5:1), family composition and geographic location
• Requires each state to create an exchange to facilitate the sale of qualified benefit plans to individuals and small employers; will include multi-state plans and non-profit co-operative plans
• Specifies that an individual with family income up to 400% of the federal poverty level (FPL) is eligible for a premium assistance tax credit and can opt out of the employer plan, if the actuarial value of the employer’s coverage is less than 60% or the employer requires the employee to contribute more than 9.5% of the employee’s family income toward the cost of coverage
• Imposes a non-deductible fine of $2,000 per employee, excluding the first 30 employees, for employers with 50+ full-time eqivalent employees if the employer does not provide group coverage
• Requires employers that offer coverage but have at least one full-time employee receiving the premium assistance tax credit to pay a non-deductible fine of $3,000 for each employee receiving a credit, capped at a maximum of $2,000 per employee, excluding the first 30
• Requires employers to provide vouchers for employees to use in the exchange instead of participating in the employer-provided plan if the employee is required to contribute between 8% and 9.8% of their household income toward the cost of coverage; employers providing free choice vouchers will not be subject to penalties for employees that receive a voucher
• Prohibits waiting periods in excess of 90 days
• Establishes standards for qualified coverage, including mandated benefits, cost-sharing requirements, out-of-pocket limits and a minimum actuarial value of 60%
• Imposes an individual mandate with a penalty for non-compliance equal to a flat dollar amount ($95 in 2014, $325 in 2015, $695 in 2016) or a percentage of the individual’s income (1% in 2014, 2% in 2015, 2.5% in 2016), whichever is greater
• Requires health plans to provide coverage documentation to both covered individuals and the IRS
• Increases the value of workplace wellness incentives from 20% to 30% of premiums; gives HHS the ability to increase the differential to 50%
• Provides small employers purchasing coverage through a state exchange with no more than 25 employees and average annual wages of less than $50,000 with a tax credit of up to 50% of the employer’s contribution for employee health coverage if the employer contributes at least 50% of the total premium cost (Phase II of small employer tax credits available in tax year 2014, and for no more than 2 consecutive taxable years)

Effective in 2017
• Allows groups 100+ into the exchanges if state elects

Effective in 2018
• Levies 40% excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for singles and $27,500 for families; includes reimbursements from FSAs, HRAs and employer contributions to HSAs; does not include stand alone dental and vision

Thursday, April 1, 2010

Health reform signed into law, interpretation and implementation to follow

President Obama signed the reconciliation fixes to the Patient Protection and Affordable Care Act into law on Tuesday, marking the end of the legislative push to pass health reform and the beginning of putting the 2700+ pages of legislation into practice.

While the broad provisions of the law are clear, the details on how these provisions are to be interpreted and implemented are not. Lawmakers in Washington will need to provide clarification on how to apply several parts of this legislation over the coming months.

The good news is that the most significant provisions do not take effect immediately. We are working hard at Senn Dunn with the National Association of Health Underwriters (NAHU) and other experts throughout our industry to carefully analyze this legislation and provide you with the most thorough and accurate information possible.

Within the next week we will release a timeline summarizing the key provisions pertinent to employers and how these provisions affect your organization. In the meantime, access The Kaiser Family Foundation Health Reform Summary for a detailed description of the major provisions. As always, do not hesitate to contact Senn Dunn with any of your questions or concerns.