By: Karen Vines/IMA of Kansas
July/August 2010

The March 23 passage of the Patient Protection and Affordable Care Act represents a sweeping change to the nation’s health care system. Now that the legislation has passed, it’s time to understand the impact to your business and your employee benefits program. Consider a measured approach, and keep your strategy focused on the long-haul.

Most of the early provisions in the bill will be in the form of marketplace reform, which will be felt by employers but won’t be employer-driven. As we approach 2014, employers will need to take action to ensure compliance with the new legislation. Specific details aren’t yet available in many cases because future regulations will be necessary to guide employers in implementing specific reforms. There will be many challenges and changes in the days and years ahead. Some highlights of the bill include:

Most of the early provisions in the bill will be in the form of marketplace reform, which will be felt by employers but won’t be employer-driven.

Employer Mandates: Employers with more than 50 employees must offer coverage to their employees. This measure includes a penalty for large employers that do not offer coverage. A formula will be used for part-time employees to calculate the number of full time equivalent employees in determining the penalty for not offering coverage.

Individual Mandates: This measure establishes a mandate for individuals to obtain health insurance. Penalties will be phased in for individuals and families that fail to obtain coverage, and there will be a boost in tax subsidies for low- and moderate-income individuals to purchase insurance.

Wellness: The final package includes a relatively extensive set of provisions designed to encourage employer wellness programs.

Voucher Requirements/Affordability Exemptions:
For employees who pay between 8 and 9.8 percent of their income in premiums under an employer-provided plan and whose family incomes are less than 400 percent of the poverty level requirements, employers are required to offer employees the choice to have their employer-provided health plan contributions directed to an individual insurance policy.

New W-2 Reporting Obligations: Employers will be required to report the value of health insurance on W-2s.

Medical Loss Ratios (MLR): Individual plans and small group market plans must have an MLR of 80 percent, meaning 80 percent of all premium dollars must be spent on medical care. Large employer group plans with 101 or more employees must have a minimum MLR of 85 percent. Beginning in 2011, if minimums are not met, the issuer must provide a rebate to enrollees. Self-insured plans are exempt.

Six months following enactment
• Dependent coverage will be available for children up to age 26 (married or unmarried, and not insured elsewhere) for all individual and group policies (grandfathered plans may exclude dependent children eligible for other employer-sponsored coverage but must remove such limitation in 2014).
• Individual and group health plans are prohibited from placing lifetime limits on the dollar value of coverage.
• Individual and group health plans cannot place annual limits on the dollar value of coverage, unless approved by the Department of Health and Human Services, and all annual limits must be removed by 2014.
• Plans may not impose a pre-existing condition limitation or exclusion on children under age 19.
• Plans must fully pay for preventive care services without any member out-of-pocket responsibility.
• Internal and external appeal rights will be mandated for all group plans (fully insured and self funded) and employers will be required to notify participants of these new rights. While this provision is effective 6 months following enactment, it actually relies on HHS or the State to establish the minimum standards first and thus may be delayed.

Further than six months out
• Starting 2011, over-the-counter drugs will no longer be reimbursable without a prescription. Prescription drugs are still reimbursable.
• In 2013, annual FSA contributions are limited to $2,500 and will be indexed by CPI-U in future years.

Key messages for employees
What does this all mean for employers and employees? Companies may have a lot of questions about health care reform and how the legislation will impact their benefits. Here are some tips you can share with employees:
• Some market reforms will happen quickly, however, most of the major provisions will not take effect for several years, giving us time to understand how this will impact employee benefits and the cost associated with it.
• Commit to employees that you will continue to communicate with them as the realities of health care become clearer. Understand that there are many details that have yet to be defined. • Tell employees that you are committed to being an employer of choice today and in the future, and consider reassuring employees that health and wellness will remain important at the company.

Fast facts to share with employees
• Individual Mandates: This measure establishes a mandate for individuals to obtain health insurance. There will be penalties phased in for individuals and families that fail to obtain coverage, and there will be a boost in tax subsidies for low- and moderate-income individuals to purchase insurance.
• Employer Mandates: Employers with more than 50 employees must offer coverage to their employees. This measure increases the penalty for large employers that do not offer coverage and adds part-time employees to these calculations.
• Wellness: The final package includes a relatively extensive set of provisions designed to encourage employer wellness programs.
• Voucher Requirements/Affordability Exemptions: For employees who pay between 8 and 9.5 percent of their income in premiums under an employee-provided plan and whose family incomes are less than 400 percent of the poverty line requirements, employers are required to offer employees the choice to have their employer-provided health plan contributions directed to an individual insurance policy.

Early Retiree Reinsurance Program
One provision of the legislation will go into effect almost immediately, and employers should take action early if they wish to participate. The Patient Protection and Affordable Care Act establishes a retiree reinsurance program that provides $5 billion for temporary financial help for employer plans to continue to provide valuable coverage to certain retirees.

The program effective date is June 1, 2010 and the application to participate is now available from HHS. The program is administered by HHS and is available to employers that offer health coverage to their early retirees (those between the ages of 55 and 64) and dependents of those retirees. The program will end when all funding has been consumed, or January 1, 2014, whichever is sooner.

The reinsurance reimbursement is 80 percent of the cost of all of the claims paid by the plan and the participant for each plan participant that are between $15,000 and $90,000 for the plan year. To be eligible for those reinsurance payments, a sponsor will be required to file a single application demonstrating plan eligibility, and then, after the sponsor is approved for the program, the sponsor will file for claims reimbursement as claims are incurred.

The U.S. Department of Health and Human Services had committed to enacting the Early Retiree Reinsurance Program by June 1, a few weeks ahead of the June 21 deadline mandated by 1102 of the Patient Protection and Affordable Care Act. HHS officials have posted a copy of the program application on their web site to give health plan sponsors guidance on what will be necessary to complete an application to participate in the program.

ABOUT THE AUTHOR: Karen Vines is the Director of Business Development and Client Services for IMA of Kansas’ Employee Benefits practice. Her over 25 years experience includes strategic planning, benefit analysis, plan design, self-funding, consumer-driven health plans, and value-based benefits. She is an innovator in helping companies implement health risk management strategies that help increase employee health and productivity while controlling health insurance costs.