The Health Reform tab has been added to provide easy access to recent health legislation news and guidance. You will find the information in the form of embedded links, as well as full text articles. As more information about the new law becomes available, we will begin production of a comprehensive employer guide, most of which will be available online. Please look for informative employee resources in the coming months, as well.

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Latest HHS Guidance on Grandfathered Plans     June 15, 2010

EXECUTIVE SUMMARY

The health care reform law passed earlier this year brings many changes to employers and health plans. The extent of the impact will depend, in part, on whether you maintained a health care plan on March 23, 2010, the date the primary legislation was enacted. If your company sponsored a plan on that date, it is considered a “grandfathered” plan. Grandfathered plans are exempt from certain health care reform requirements, such as no cost-sharing for preventive care and other patient protections.

On June 14, 2010, the Departments of Health and Human Services (HHS), Labor and Treasury issued regulations regarding grandfathered plans. Importantly, it clarifies what types of changes can be made to existing plans that will allow them to retain their “grandfathered” status.

This BP Benefits Group Legislative Brief summarizes the new regulations as follows.

SUMMARY OF THE REGULATIONS

The regulations essentially state that plans will lose their grandfathered status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers. Losing grandfathered status means that a plan would have to comply with additional health care reform requirements, such as first-dollar coverage of recommended prevention services and patient protections such as guaranteed access to OB-GYNs and pediatricians.

Permitted Changes

Grandfathered health plans will be able to make routine changes to their policies and maintain their status. These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other federal laws.  Premium changes are not taken into account when determining whether or not a plan is grandfathered.

Prohibited Changes

Plans will lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs to consumers. Specifically, making the following changes would cause a plan to lose its grandfathered status:

· Significantly Cutting or Reducing Benefits. For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.

· Raising Co-Insurance Charges. Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20 percent of a hospital bill). Grandfathered plans cannot increase this percentage.

· Significantly Raising Co-Payment Charges. Frequently, plans require patients to pay a fixed-dollar amount for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next two years, it will lose its grandfathered status.

· Significantly Raising Deductibles. Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000 or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.  In recent years, medical costs have risen an average of 4-5 percent so this formula would allow deductibles to go up, for example, by 19-20 percent between 2010 and 2011, or by 23-25 percent between 2010 and 2012. For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year.

· Significantly Reducing Employer Contributions. Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).

· Adding or Tightening an Annual Limit on What the Insurer Pays. Some insurers cap the amount that they will pay for covered services each year.  If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010.  Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees).

· Cannot Change Insurance Companies. If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan.  This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

Additional Requirements for Grandfathered Plans

The regulations also contain additional requirements to keep health plans from using the grandfather rule to avoid providing important consumer protections.

To promote transparency, the regulations require a plan to disclose to consumers, every time it distributes materials, whether the plan believes that it is a grandfathered plan and therefore is not subject to some of the additional consumer protections of the health care reform law. This allows consumers to understand the benefits of staying in a grandfathered plan or switching to a new plan. The plan must also provide contact information for enrollees to have their questions and complaints addressed.

The regulations also provide that a plan’s grandfathered status may be revoked if it forces consumers to switch to another grandfathered plan that, compared to the current plan, has less benefits or higher cost sharing as a means of avoiding new consumer protections. Grandfathered status may also be revoked if a plan is bought by or merges with another plan simply to avoid complying with the law.

PROJECTED IMPACT ON CONSUMERS AND PLANS

The Departments have provided information on the expected impact the grandfathered plan rules will have on health coverage. For additional information, access the fact sheet at: www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html.

Large Employer Plans

It is expected that large employers (100 or more workers) - who make up the vast majority of those with private health insurance today - will not see major changes to their coverage as a result of this regulation. The regulations affirm that most of these plans will remain grandfathered – more than three-quarters of firms in 2011 – based on the way they changed cost sharing from 2008-2009.

Most of these plans already offer the patient protections applied to grandfathered plans such as no pre-existing condition exclusions for children and no rescissions of coverage when a person gets sick. In addition, they are likely to already give their workers and families protections like a choice of OB-GYN and pediatrician, and access to emergency rooms in other states without prior authorization.  Based on past patterns of behavior, it is expected that large employers will continue to make adjustments to the health plans they offer from year to year so that, by the time the health insurance Exchanges are established in 2014, fewer – but still most – large employer plans will have grandfather status.  However, the assumed market changes depend on the choices large employers make in the future.

Small Business Plans

The roughly 43 million people insured through small businesses will likely transition from their current plan to one with the new protections over the next few years. Small plans tend to make substantial changes to cost sharing, employer contributions, and health insurance issuers more frequently than large plans. As such, it is estimated that 70 percent of plans will be grandfathered in the first year, but depending on the choices these employers make, this could drop to about one-third over several years.

Individual Health Market

The 17 million people who are covered in the individual health insurance market, where switching of plans and substantial changes in coverage are common, are expected to receive the health care reform protections sooner rather than later. Roughly 40 percent to two-thirds of people in individual market policies change plans within a year. Given this “churn,” the transition for the 17 million people in this market may be swift, irrespective of the grandfather plan definition.

Special Types of Health Plans

Fully-insured health plans subject to collective bargaining agreements will be able to maintain their grandfathered status until their agreement terminates. After that point, they are subject to the same rules as other health plans; in other words, they will lose their grandfathered status if they make any of the substantial changes described above.  Retiree-only and “excepted health plans” such as dental plans, long-term care insurance, or Medigap, are exempt from the health care reform insurance reforms.

Health Reform Overview from the Kaiser Family Foundation

Consumers Guide to Health Reform

Key Provisions for Employers

By Phil Galewitz

KHN Staff Writer

Apr 13, 2010

The new health reform law is the most far-reaching health legislation since the creation of the Medicare and Medicaid programs.

The following is a look at the impact of the law, which will extend insurance coverage to 32 million additional Americans by 2019, but which will also have an effect on almost every citizen.

Here are some commonly-asked questions about how you might be affected:

Q: I don't have health insurance. Will I have to get it, and what happens if I don't?

A: Under the legislation, most Americans will have to have insurance by 2014 or pay a penalty. The penalty would start at $95, or up to 1 percent of income, whichever is greater, and rise to $695, or 2.5 percent of income, by 2016. This is the individual limit; families have a limit of $2,085 or 2.5 percent of household income, whichever is greater. Some people can be exempted from the insurance requirement, called an individual mandate, because of financial hardship or religious beliefs or if they are American Indians, for example.

Q: I want health insurance, but I can't afford it. What do I do?

A: Depending on your income, you might be eligible for Medicaid, the state-federal program for the poor and disabled, which will be expanded sharply beginning in 2014. Low-income adults, including those without children, will be eligible, as long as their incomes didn't exceed 133 percent of the federal poverty level, or $14,404 for individuals and $29,326 for a family of four, according to current poverty guidelines.

Q: What if I make too much for Medicaid but still can't afford coverage?

A: You might be eligible for government subsidies to help you pay for private insurance that would be sold in the new state-based insurance marketplaces, called exchanges, slated to begin operation in 2014.

Premium subsidies will be available for individuals and families with incomes between 133 percent and 400 percent of the poverty level, or $14,404 to $43,320 for individuals and $29,326 to $88,200 for a family of four.

The subsidies will be on a sliding scale. For example, a family of four earning 150 percent of the poverty level, or $33,075 a year, will have to pay 4 percent of its income, or $1,323, on premiums. A family with income of 400 percent of the poverty level will have to pay 9.5 percent, or $8,379.

In addition, if your income is below 400 percent of the poverty level, your out-of-pocket health expenses will be limited.

Q: How will the legislation affect the kind of insurance I can buy? Will it make it easier for me to get coverage, even if I have health problems?

A: If you have a medical condition, the law will make it easier for you to get coverage; insurers will be barred from rejecting applicants based on health status once the exchanges are operating in 2014.

In the meantime, the law will create a temporary high-risk insurance pool for people with medical problems who have been rejected by insurers and have been uninsured at least six months. This will occur this year.

Starting later this year, insurers can no longer exclude coverage for specific medical problems for children with pre-existing conditions nor deny coverage to children with pre-existing illnesses.

Insurers later this year will also be barred from setting lifetime coverage limits for adults and kids. In 2014, annual limits on coverage will be banned.

New policies sold on the exchanges will be required to cover a range of benefits, including hospitalizations, doctor visits, prescription drugs, maternity care and certain preventive tests.

Q: How will the legislation affect young adults?

A: If you're an adult younger than 26, you'll be able to stay on your parent's insurance coverage as long as you are not offered health coverage at work. This provision officially takes effect in September, but insurers may not have to comply until the beginning of a new health plan year - which often happens in January.

In addition, people in their 20s will be given the option starting in 2014 of buying a “catastrophic” plan that will have lower premiums. The coverage will largely only kick in after the individual has $6,000 in out-of-pocket expenses

Q: I own a small business. Will I have to buy insurance for my workers? What help can I get?

A: It depends on the size of your firm. Companies with fewer than 50 workers won’t face any penalties if they don’t didn't offer insurance.

Companies can get tax credits to help buy insurance if they have 25 or fewer employees and a workforce with an average wage of up to $50,000. Tax credits of up to 35 percent of the cost of premiums will be available this year and will reach 50 percent in 2014. The full credits are for the smallest firms with low-wage workers; the subsidies shrink as companies' workforces and average wages rise.

Firms with more than 50 employees that do not offer coverage will have to pay a fee of up to $2,000 per full-time employee if any of their workers get government-subsidized insurance coverage in the exchanges. The first 30 workers will be excluded from the assessment.

Q: I'm over 65. How will the legislation affect seniors?

A: The Medicare prescription-drug benefit will be improved substantially. This year, seniors who enter the Part D coverage gap, known as the “doughnut hole,” will get $250 to help pay for their medications.

Beyond that, drug company discounts on brand-name drugs and federal subsidies and discounts for all drugs will gradually reduce the gap, eliminating it by 2020. That means that seniors, who now pay 100 percent of their drug costs once they hit the doughnut hole, will pay 25 percent. Beginning in 2011, drug companies will be required to give a 50 percent discount on brand-name drugs for prescriptions filled in the doughnut hole.

And, as under current law, once seniors spend a certain amount on medications, they will get “catastrophic” coverage and pay only 5 percent of the cost of their medications.

Meanwhile, government payments to Medicare Advantage, the private-plan part of Medicare, will be frozen starting in 2011, and cut in the following years. If you're one of the 10 million enrollees, you could lose extra benefits that many of the plans offer, such as free eyeglasses, hearing aids and gym memberships. To cushion the blow to beneficiaries, the cuts to health plans in high-cost areas of the country such as New York City and South Florida — where seniors have enjoyed the richest benefits — will be phased in over as many as seven years.

Beginning this year, the law will make all Medicare preventive services, such as screenings for colon, prostate and breast cancer, free to beneficiaries.

Q: How much is all this going to cost? Will it increase my taxes?

A: The package is estimated to cost $938 billion over a decade. But because of higher taxes and fees and billions of dollars in Medicare payment cuts to providers, the package will narrow the federal budget deficit by $143 billion over 10 years, according to the Congressional Budget Office.

If you have a high income, you will face higher taxes. Starting in 2013, individuals with earnings over $200,000 and married couples earning more than $250,000 will pay a Medicare payroll tax of 2.35 percent, up from the current 1.45 percent. In addition, high-income taxpayers will face a 3.8 percent tax on unearned income such as dividends and interest over the threshold.

Starting in 2018, the law will also impose a 40 percent excise tax on the portion of most employer-sponsored health coverage (excluding dental and vision) that exceeds $10,200 a year for individuals and $27,500 for families. The tax is often referred to as a "Cadillac" tax.

The law also will raise the threshold for deducting unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent.

The law also will limit the amount of money you can put in a flexible spending account to pay medical expenses to $2,500 starting in 2013. Those using an indoor tanning salon will pay a 10 percent tax starting this year.

Q: What will happen to my premiums?

A: That's hard to predict and the subject of much debate. People who are sick might face lower premiums than otherwise because insurers won’t be permitted to charge sick people more; healthier people might pay more. Older people could still be charged more than younger people, but no more than three times as much.

The bigger question is what happens to rising medical costs, which drive up premiums. Even proponents acknowledge that efforts in the legislation to control health costs, such as a new board to oversee Medicare spending, won’t have much of an effect for several years.

Key Provisions for Employers

The landmark health reform legislation enacted this week brings new responsibilities for employers as early as this year, as well as future considerations for those offering company-sponsored health benefits.

The Patient Protection and Affordable Care Act (H.R. 3590), signed into law Tuesday by President Obama after a yearlong quest for health reform, enacts the most sweeping change in U.S. social policy in over a half century.

“Comprehensive health care reform is now the law of the land. Over time, it will fundamentally alter the nature of employer-sponsored health benefits,” said Bart Valdez, Executive Vice President and General Manager of Ceridian Benefits Services. “Right now, however, employers need to understand what exactly is in the law and what provisions will have the greatest impact on them.”

Ceridian recognizes the legislation is highly complex. We have highlighted below a summary of some of the key provisions in the health reform legislation that will have the greatest impact to all employers, large or small, in the coming months and years.

The Senate is now working toward final passage of the second piece of the comprehensive legislative package, the Health Care and Education Affordability Reconciliation Act of 2010 (H.R. 4872), which is subject to parliamentary challenges from Republicans.

“We think by the end of the week, or early next week, the U.S. Senate will approve the House-passed reconciliation legislation, which makes major changes to the bill just signed into law,” said Jim O’Connell, Ceridian’s expert on legislative affairs in Washington, D.C. “To begin to understand this monumental health care reform legislation, we will need to analyze both the new law and the pending reconciliation bill.”

With or without passage of the reconciliation bill, every employer, every employee and every household will be affected by the $940 billion health reform legislation.

Ceridian’s team of benefits experts will continue to monitor and advise you about all aspects of health care reform. Through our bi-weekly publication, Health Care Compass, we will keep you apprised of this important legislation and provide you with the information and insight you need to navigate the changes ahead.

What Employers Need to Know

After a detailed analysis of the Patient Protection and Affordable Care Act, Ceridian has identified some key provisions that could have significant impact on all employers and employer-sponsored health benefits plans.

Below are some of the more significant provisions affecting employers with existing plans in the two-bill package. Additional requirements will apply to employer plans adopted after enactment. Although many of the provisions in the bill will not go into effect until 2014, and in one case 2018, some take effect the first plan year following six months after enactment. While six months following the date of enactment is October 1, 2010, for employers with calendar year plans the effective date will be January 1, 2011.

Employer Mandates

Employers who employ more than 200 employees must automatically enroll new full-time employees in coverage. Employers must also provide employees with an opportunity to opt-out of coverage. Clarification on the effective date of this provision is forthcoming.

Effective 2011

A health plan W-2 reporting requirement will be imposed, requiring employers to report the aggregate value of medical benefits, vision, dental and supplemental insurance coverage. It is expected that this requirement would apply to Forms W-2 for the year 2011 that are made available to employees in January 2012.

Effective 2013

Not later than March 1, 2013, employers will be required to give a notice to their employees that they may be eligible to participate in one of the state-based health-insurance Exchanges.

Effective 2014

The Patient Protection and Affordable Care Act requires employers with 50 or more employees to offer coverage to their employees or pay a fine of $2,000 per full-time employee, if even one employee obtains a federal subsidy to buy health coverage from one of the new state-based health-insurance exchanges.* The first 30 employees are exempt from the calculation of the penalty.

The mandate also requires an employer who does provide coverage to pay either of the following: an “assessment” of $3,000 for each employee who qualifies for subsidized coverage from an exchange either because the employer pays less than 60 percent of the full actuarial value of the coverage provided or because the employee’s cost is greater than 9.8 percent of their adjusted gross income; or $2,000 per full-time employee, whichever is less.

* By 2014, the Act requires states to create health-insurance exchanges, which would offer four different levels of qualified health insurance plans. It also would mandate individuals at this time to purchase coverage and provide subsidies for certain individuals to do so.

Mandates Impacting Employer-Sponsored Plans

Effective 2010

Employer-provided group health plans will be required to cover adult children up to age 26, unless they are eligible under another group plan (for years before 2014). This coverage will be nontaxable. Also, the group health plan will be required to eliminate pre-existing condition exclusions for children under age 19.

Employer health plans will be prohibited from rescinding or cancelling health coverage, except in cases of fraud.

Employer-provided coverage will be required to eliminate lifetime limits on essential benefits coverage and may only place "restricted" annual limits on essential benefits coverage until 2014, when annual limits are prohibited.

Effective 2011

Over-the-counter medicines will no longer be eligible for purchase with funds from Flexible Spending Accounts, Health Savings Accounts or Health Reimbursement Arrangements, unless a prescription is provided.

The penalty for use of funds from a Health Savings Account for non-qualified medical expenses will increase, doubling the additional tax on these types of withdrawals from 10 percent to 20 percent for anyone under the age of 65.

Effective 2013

A statutory cap of $2,500 will be placed on the amount of funds an employee can save in a Flexible Spending Account. The limit will be adjusted annually in accordance with the U.S. Consumer Price Index.

Effective 2014

The employer’s group health plan will be required to eliminate the pre-existing condition exclusions for adults. The plans also have to eliminate annual limits on essential benefits coverage for adults.

Employers will be required to eliminate waiting periods beyond 90 days when enrolling employees in a group health plan.

Tax Provisions

Effective 2010

Small business tax credit: Businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35 percent of the cost of employees’ premiums.

Effective 2013

Individuals with adjusted modified gross income over $200,000, and joint filers with over $250,000, will be required to pay a Medicare surtax of 3.8 percent on investment and other passive income, including rents, interest, dividends, royalties and capital gains.

In addition, these high-income earners will have to pay a Medicare payroll tax of 2.35 percent — an increase of 0.9 percent — on the portion of their wages in excess of the above noted thresholds. (Note: These are individual mandates that affect employees; they do not employers.)

An employer's deduction for retiree prescription drug coverage is disallowed to the extent the employer receives the Retiree Drug Subsidy for providing coverage that is as good as or better than Medicare Part D coverage.

Effective 2014

The 35 percent tax credit that goes into effect in 2010 for businesses with fewer than 25 employees and average wages of less than $50,000 increases to up to 50 percent of the cost of employees’ premiums.

Effective 2018

Excise tax on high-value health plans: A 40 percent excise tax will be applied to the excess value of a health plan above a statutory threshold. For most health plans, the threshold in the law will be established at $10,200 for individual health plans and $27,500 for family coverage. The threshold for the new excise tax will be adjusted annually for general inflation.

Also in the Patient Protection and Affordable Care Act

Wellness: The Act provides limited incentives for employers to provide corporate wellness programs to their employees. The new law permits employers to offer premium discounts of up to 30 percent and other cost-related incentives to employees who participate in employer-sponsored wellness programs.

Ceridian will continue to provide you with updates and information regarding health care reform in our next edition of Health Care Compass.