Understanding the latest on health care reform - Grant Thornton LLP

<strong>Understanding</strong> <strong>the</strong> <strong>latest</strong> on health care reform:
<strong>the</strong> impact to providers
Today's session begins June 1, 2010 at 2:30 pm eastern
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Addressing your questions…
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1. Group check
Have you attended a previous Webcast in our health care
reform series?
April 27
April 9
<strong>Understanding</strong> <strong>the</strong> <strong>latest</strong> on health care reform:
<strong>the</strong> impact to employers
<strong>Understanding</strong> <strong>the</strong> <strong>latest</strong> on health care reform:
how will it impact my organization
A. Yes
B. No
www.grantthornton.com/calendar (archived webcasts) or email us
at healthcare@gt.com
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4

Welcome
Anne McGeorge
National Managing Partner of <strong>the</strong>
Health Care Industry Practice,
Charlotte
Please continue to answer all polling questions throughout <strong>the</strong> program
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5

Learning objectives
At <strong>the</strong> end of this webcast, you will better understand:
– Changes you may consider preparing for now as a result
of enactment of <strong>the</strong> health care reform bill
– Your overall responsibility as employer under health
care reform
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6

Today's agenda
• The impact health care reform has on
providers specifically in <strong>the</strong> areas of…
– Reimbursement
– Requirements for tax-exempt hospitals
• New coverage standards
– New rules that apply to health plans
– Employee/individual provisions
– Provisions specific to
employee/employer relationship
We will address questions in <strong>the</strong> Q&A text chat.
Please submit your questions at any time.
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7

Welcome to our additional presenters
Eddie Adkins
Partner, Comp. &
Benefits Technical
Leader
Washington
National Tax Office
Washington, DC
David Simonetti
Senior Manager
Comp. & Benefits
Consulting
New York, NY
Mel Schwarz
Legislative Affairs
Partner
Washington
National Tax Office
Washington, DC
Larry Goldberg
Senior Adviser
Health Care
Legislative and
Regulatory Matters
Washington, DC
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8

Focusing on <strong>the</strong> health care reform bill
Anne McGeorge
National Managing Partner of <strong>the</strong>
Health Care Industry Practice,
Charlotte
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9 9

Enacted as Two Bills
• HR 3590 (as passed by <strong>the</strong> Senate December 24, 2009)
– Patient Protection and Affordable Care Act (PPACA)
– Enacted 3-23-10
– P.L. 111-148
• HR 4872
– Health Care and Education Reconciliation Act of
2010 (HCREA)
– Enacted 3-30-10
– P.L. 111-152
• CMS referring to both as <strong>the</strong> Affordable Health Act
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10

Enacted as Two Bills
• Why two bills?
– Politics
– House needed to pass <strong>the</strong> Senate’s December 24 th version
without changes – so it would not go back to <strong>the</strong> Senate and
be subject to filibuster rules after <strong>the</strong> Democrats lost <strong>the</strong>
Kennedy seat in Massachusetts
– House wanted to make changes and did so via <strong>the</strong>
reconciliation method that required only simple majority in <strong>the</strong>
Senate
• You need to review both bills to understand “bottom line”
• Fur<strong>the</strong>r, Title 10 of H.R. 3590 modifies o<strong>the</strong>r Titles within <strong>the</strong> bill
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11

What <strong>the</strong> bills will do
• Will impact businesses, individuals, providers – insurance
companies, hospitals and o<strong>the</strong>rs, pharma, DME, etc.
• The insurance mandates to expand coverage and set-up
exchanges do not take effect until 2014
– O<strong>the</strong>r items such pre-existing condition, annual limits,
coverage for children take effect within 6 months
• The range of effective dates of various items are between
April 1, 2010 and 2018
• Over <strong>the</strong> years, look for many changes form Congress
– <strong>the</strong>se bills should be considered a “work in progress”
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12

What <strong>the</strong> Bills Do
• Establish a mandate for most residents of <strong>the</strong> United
States to obtain health insurance or pay a penalty
• Sets up insurance exchanges
– But not public option plans
• Significantly expands coverage via eligibility for Medicaid
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13

What <strong>the</strong> Bills Do
• Substantially reduces <strong>the</strong> growth of Medicare’s
payment rates for most services (relative to <strong>the</strong> growth
rates projected under current law)
– Half of <strong>the</strong> bills costs are offset by Medicare reductions
in rates-of-increase
• Imposes an excise tax on insurance plans with relatively
high premiums
• Makes various o<strong>the</strong>r changes to <strong>the</strong> federal tax code,
Medicare, Medicaid, and o<strong>the</strong>r programs
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What <strong>the</strong> Bills Do – H.R. 4872
• Increases tax credits/ subsidies to help people buy insurance
• Increases <strong>the</strong> eligibility levels under Medicaid
– More federal funding to states for Medicaid
– Rescinds H.R. 3590’s favorable treatment for Nebraska
– Allowing additional monies for Louisiana
• Closure of <strong>the</strong> Medicare prescription-drug doughnut-hole for seniors
over 10-years
• Reduces <strong>the</strong> Senate’s 40 percent excise tax on high cost premiums
because of a later effective date and increased thresholds
– Excise tax on high cost (Cadillac) employer-provided
health plans becomes effective in 2018
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15

What <strong>the</strong> Bills Do – H.R. 4872
• Extends <strong>the</strong> Medicare payroll tax on unearned income for
joint filers earning $250,000 or more and individuals making
$200,000 and up
– Makes up a $116 billion shortfall caused by delaying <strong>the</strong>
“Cadillac tax” on insurance premiums till 2018
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16

Congressional Budget Office says
• Will cost approximately $938 billion over 10 years
• Will reduce <strong>the</strong> Federal deficit
• Will reduce <strong>the</strong> number of nonelderly people uninsured by
about 32 million
• Will leaves 23 million nonelderly residents uninsured (onethird
of whom would be unauthorized immigrants)
• Will increase nonelderly residents with insurance coverage
from about 83 percent to about 94 percent
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Congressional Budget Office says
• Approximately 24 million people will purchase coverage
through <strong>the</strong> new insurance exchanges
• There will be roughly 16 million more enrollees in Medicaid
and <strong>the</strong> Children’s Health Insurance Program (CHIP)
• The number of people purchasing individual coverage
outside <strong>the</strong> exchanges will decline by about 5 million
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18

Congressional Budget Office – Costs
Medicaid & CHIP Expansion Outlays (increased
enrollment)
$434B
Exchange Subsidies and Related spending $464B
Small Employer Tax Credits $40B
Penalty Payments by Uninsured Individuals
Penalty Payments by Employers
Excise Tax on High-Premium Insurance Plans
O<strong>the</strong>r Effects on Tax Revenues and Outlays
$-17B
$- 52B
$- 32B
$- 48B
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19

New requirements for tax-exempt providers
• Documented financial assistance policies
– Now, written financial assistance policies must include:
• Specifics on eligibility criteria pertaining to free and
discounted care
• Method of applying for financial assistance
• Specifics on how patient charges are calculated
• Process of collection activities
• Process for publicizing <strong>the</strong> financial assistance plan
• Separate policy on emergency care provided
– Effectively immediately
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20

New requirements for tax-exempt providers
• Limits on collection practices
– Hospitals must make a reasonable effort to determine
whe<strong>the</strong>r or not a patient is eligible for assistance under
<strong>the</strong> hospital’s financial assistance policy before <strong>the</strong>y
begin collection actions
– Effective immediately
• Limits on patient charges
– Hospitals must use amounts generally charged by using
lowest negotiated commercial rates for those patients
qualifying for financial assistance
– Effective immediately
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21

New requirements for tax-exempt providers
• Community health needs assessment
– An assessment must be conducted at least every three
years
– One per facility in <strong>the</strong> case of multiple hospitals within
health system
– Effective for tax years beginning after March 23, 2012
– Failure to comply will be subject to a tax of $50k per year
• Provena Covenant Medical Center v. The Department of
Revenue
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22

Focusing on reimbursement and what providers
should be thinking about now
Larry Goldberg
Senior Adviser
Health Care Legislative and
Regulatory Matters
Washington, DC
Please continue to answer all polling questions throughout <strong>the</strong> program
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23 23

2. Group check
Tell us a little bit about your organization. Are you with a:
A. Hospital/health system
B. Nursing home/long term living facility or hospice
C. Home health
D. Insurance industry
E. Government
F. Financial industry
G. o<strong>the</strong>r
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24

Hospital Inpatient and Outpatient Rates of Increase
2010-2019
• Reduces <strong>the</strong> market basket rates of increases as follows:
– FY 2010-2011 market basket update reduced by 0.25 percent
(Effective April 1, 2010 for IPPS; January 1, for OPPS)
– FY 2012-2013 market basket update reduced by 0.10 percent
– FY 2014 market basket update reduced by 0.30 percent
– FY 2015-2016 market basket update reduced by 0.20 percent
– FY 2017-2019 market basket update reduced by 0.75 percent
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25

Hospital Inpatient and Outpatient Productivity
Adjustment
2012
• Effective FY 2012
• “Productivity adjustment” defined
– 10-year moving average of
• Changes in annual economy-wide, private non-farm
business multi-factor
• As projected by <strong>the</strong> Secretary
• When coupled with market basket update, can result in
payments being less than in prior year (negative rate-ofincrease)
– Says so in legislation
– First time ever
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26

Hospital Inpatient and Outpatient Wage Index
2010-2011
• Repeal state-based Budget Neutrality adjustment
– Effective 10-1-10
– Revert to single national adjustment
• Section 508 hospitals extended 9-30-10
• Floor in “frontier states”
– Effective 10-1-10
– Floor set at 1.0
– At least 50 percent of counties in <strong>the</strong> state have a population

Hospital Inpatient and Outpatient Wage Index
2011
• Repeal revised MGCRB criteria
– Minimum thresholds back to 82/84 percent
• Secretary to report to Congress
– Re: reform of methodology
– Due 12-31-11
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Rurals
2010-2012
• Extends MDH program to 10-1-12
• Temporary changes to low-volume adjustment
– FY 2011 and FY 2012 only
• 15 road miles (instead of 25)
• 1600 discharges (instead of 800)
• Use a linear sliding scale adjustment
• Extension of rural outpatient hold harmless
– To 1-1-11 (from 1-1-10)
– All SCHs (as of 1-1-10) are eligible
• Reinstate cost reimbursement for clinical lab in certain rural
hospitals
– For one-year period starting 7-1-10
– Only for

Outpatient Therapy Caps
2010
• Extends <strong>the</strong> outpatient <strong>the</strong>rapy caps exceptions
process through December 31, 2010
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IME/ GME
2011
• Allows unused training slots to be re-distributed for
purposes of increasing primary care training at o<strong>the</strong>r
sites
– Effective 7-1-11
• Counting resident time in non-provider settings
– Effective with cost reporting periods on/ after 7-1-10
• Didactic time counts
– Effective cost reporting periods on/after 7-1-09 for GME
– Effective cost reporting periods on/after 10-1-01 for IME
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31

Hospital Inpatient – Value Based Purchasing
2013
• Establishes a hospital value-based purchasing
program (VBP) to incentivize enhanced quality
outcomes for acute care hospitals
– VBP program would transition from pay-for-reporting to
pay-for-performance; and reduced payments to
hospitals with high readmission rates begins
– A percentage of hospital payment would be tied to
hospital performance on quality measures related to
common and high-cost conditions, such as cardiac,
surgical and pneumonia care
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Hospital Inpatient – Value Based Purchasing
2013
• Quality measures for 5 conditions (AMI, heart failure,
pneumonia, surgeries and HAI)
• In FY 2014 and beyond, will include efficiency measures
• Any hospital meeting a “performance score” will receive a
percentage add-on to payment
– Will include levels of both
• achievement and
• Improvement
– Secretary will establish <strong>the</strong> methodology for assessing
– Hospital’s performance will be public
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Hospital Inpatient – Value Based Purchasing
2013
• Funded by an across-<strong>the</strong>-board cut in all hospital’s “base
payments”
– 1 percent in FY 2013
– Increasing to 2 percent by FY 2017
– Excludes outliers, IME and DSH
• Some hospitals exempt
– Too small a number to measure
– Quality non-reporters
– Non-IPPS
• Appeals process will be created
– But only for challenging its performance assessment
– No appeals of payment amounts
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34

Hospital Inpatient – Readmissions
2012
• Directs CMS to track hospital readmission rates for
certain high-volume or high-cost conditions and uses new
financial incentives to encourage hospitals to undertake
reforms needed to reduce preventable readmissions, which
will improve care for beneficiaries and rein in unnecessary
health care spending
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35

Hospital Inpatient – Readmissions
2013
• Reduction in base payment for “excess” readmits
– Is a number of discharges over a minimum
– Risk-adjusted
– Time period to be decided by CMS
• Only for certain conditions
– 3 in FY 2013
– 4 in FY 2015 and beyond
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Hospital Inpatient – Readmissions
2013
• Cut is a ratio
• Numerator is payment for excess readmits
• Denominator is aggregate payment
• Disregards IME, DSH and outlier
• Maximum reductions
– 1.0 percent in FY 2013
– 2.0 percent in FY 2014
– 3.0 percent in FY 2015 and beyond
• No appeals
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Hospital Inpatient – DSH
2014-2018
• Reductions to start in 2014
• By 2018 will be down to 25 percent to what o<strong>the</strong>rwise
would have been paid
• No appeals
• Should redistribute to those still with DSH patients
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38

Hospital Inpatient – Hospital Acquired Conditions
2015
• Hospitals in <strong>the</strong> top 25th percentile of rates of hospital
acquired conditions for certain high-cost and common
conditions would be subject to a payment penalty
• 1.0 percent reduction of total payments (not just base)
– For hospitals in top 25 percent of HACs
– Risk-adjusted
– Applicable period to be decided by CMS
• No appeals
• Info will be public
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39

Inpatient Rehabilitation Facilities (IRFs) Rates of
Increase
2010-2019
• FY 2010-2011 market basket update reduced by 0.25 percent
(Effective April 1, 2010)
• FY 2012-2013 market basket update reduced by 0.10 percent
• FY 2014 market basket update reduced by 0.30 percent
• FY 2015-2016 market basket update reduced by 0.20 percent
• FY 2017-2019 market basket update reduced by 0.75 percent
• 2012 - Full productivity reduction applies to annual update
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Inpatient Rehabilitation Facilities (IRFs)
2014
• Quality reporting program established with a 2.0 percent
penalty for failing to report
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Inpatient Rehabilitation Facilities (IRFs)
2016
• Pilot testing for value-based purchasing to occur no later
than January 1, 2016
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Skilled Nursing Facilities
2012
• Productivity adjustment incorporated into annual update
• HHS to develop and submit a value-based purchasing
implementation program to Congress by October 1, 2011
• Implementation of <strong>the</strong> RUG-IV classification system
may not occur prior to October 1, 2011
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43

Inpatient Psychiatric Facilities (IPFs)
2010-2019
• RY 2010-2011 market basket update reduced by 0.25 percent
• RY 2012-2013 market basket update reduced by 0.10 percent
• RY 2014 market basket update reduced by 0.30 percent
• RY 2015-2016 market basket update reduced by 0.20 percent
• RY 2017-2019 market basket update reduced by 0.75 percent
• 2012 - Full productivity reduction applies to annual update
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44

Inpatient Psychiatric Facilities (IPFs)
2014
• Quality reporting program established with a 2.0 percent
penalty for failing to report
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Inpatient Psychiatric Facilities (IPFs)
2016
• Pilot testing for value-based purchasing to occur no later
than January 1, 2016
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46

Long-Term Care Hospitals (LTCHs) Rates of
Increase
2010-2019
• Rate year 2010 market basket update reduced by 0.25 percent
(Effective April 1, 2010)
• Rate year 2011 market basket update reduced by 0.50 percent
• Rate years 2012-2013 market basket update reduced by 0.10
percent
• Rate year 2014 market basket update reduced by 0.30 percent
• Rate years 2015-2016 market basket update reduced by 0.20
percent
• Rate years 2017-2019 market basket update reduced by 0.75
percent
• 2012-Full productivity reduction applies to annual update
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47

Long-Term Care Hospitals (LTCHs)
2014
• Quality reporting program established with a 2.0 percent
penalty for failing to report
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48

Long-Term Care Hospitals (LTCHs)
2016
• Pilot testing for value-based purchasing to occur no later
than January 1, 2016
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49

3. Group check
If Medicare rates were <strong>the</strong> best payments you could get,
could your organization survive?
A. Absolutely!
B. Not sure on that one
C. I don’t think so
D. Never!
E. N/A
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50

Home Health
2010-2011
• Establishes a provider-specific cap of 10 percent of
revenues that may be reimbursed from outlier payments (1-
1-11)
• Provides for a 3.0 percent add-on payment for rural
agencies, from April 1, 2010 to January 1, 2016
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51

Home Health
2011-2013
• Market basket update reduced 1.0 percent for 2011-
2013
• HHS to submit a value-based purchasing implementation
program to Congress by October 1, 2011
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52

Home Health
2014
• HHS directed to rebase PPS payments
• With a four-year transition
• Payment reductions limited to 3.5 percent annually
• Quality reporting program established with a 2.0 percent
penalty for failing to report
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53

Home Health
2015
• Productivity adjustment incorporated into annual update
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54

Hospice
2011
• Mandatory face-to-face encounter before doctor may
recertify eligibility
– Prior to <strong>the</strong> 180 th day
– Effective 1-1-11
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55

Hospice
2013
• FY 2013-2019 market basket update reduced 0.3 percent
• Productivity adjustment incorporated into annual update
• HHS, in consultation with MedPAC, to revise <strong>the</strong> payment
system
– Secretary can rebase by regulation
– From data collection beginning 10-1-11
– Budget neutral impact
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56

Hospice
2014
• Quality reporting program established with a 2.0 percent
penalty for failing to report
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57

Hospice
2016
• Pilot testing for value-based purchasing to occur no later
than January 1, 2016
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58

Ambulatory Surgical Centers
2011
• Full productivity adjustment incorporated into annual update
• HHS to submit a value-based purchasing program plan to
Congress by January 1, 2011
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59

4. Group check
Do you know if you are making money or losing money in your
hospital emergency rooms and outpatient departments and
facilities?
A. Yes, we have a good handle on those numbers
B. Not sure
C. We don’t have those numbers pinned down
D. N/A
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Ambulance
2010-2011
• Add-ons for rural and air service – 3.0 percent (2010)
• Full productivity adjustment incorporated into annual update
(2011)
• HHS to submit a value-based purchasing program plan to
Congress by January 1, 2011
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61

Clinical Laboratory Services
2011
• Payments reduced 1.75 percent for 2011-2015
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62

Durable Medical Equipment
2011
• Productivity adjustment incorporated into <strong>the</strong> annual update
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63

Imaging
2010-2011
• Requires disclosure about MRI, PET and CT services
– Effective 2010
• Increases <strong>the</strong> utilization rate assumption for calculating <strong>the</strong>
payment for advanced imaging equipment from 50 percent
to 75 percent
– Effective 1-1-11
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64

ESRD
2012
• Productivity adjustment incorporated into annual update
• GAO to study <strong>the</strong> impact of including specified oral drugs in
<strong>the</strong> bundled ESRD PPS on Medicare beneficiary access to
high-quality dialysis services
– Focus on oral drugs
– Due 3-23-11
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65

Center for Innovation
2011
• Establishes a new Center for Medicare & Medicaid
Innovation within CMS
– To “Improve Health Care Quality and Efficiency”
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66

Independent Payment Advisory Board
2015
• Establishes an to develop and submit proposals to Congress and <strong>the</strong>
private sector aimed at extending <strong>the</strong> solvency of Medicare, lowering
health care costs, improving health outcomes for patients, promoting
quality and efficiency, and expanding access to evidence-based care
– Commission proposals will be automatically implemented
unless Congress acts in opposition
– Hospitals exempt from its recommendations
• Until 2020
• Apparently all aspects of hospital payment are exempt until <strong>the</strong>n
• O<strong>the</strong>r providers getting update reductions also can’t be touched
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67

Independent Payment Advisory Board
2015
• Cannot
– Ration care
– Change cost-sharing
– Increase revenues
– Reduce benefits
• Composed of 15 members
– Appointed by <strong>the</strong> President
– Confirmed by Senate
– Serve six-year staggered terms
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68

Independent Payment Advisory Board
2015
• Savings targets
– 0.5% in 2015
– 1.5% in 2018 and <strong>the</strong>reafter
– No appeals
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Bundling
2013
• Not Mandated
• Establishes a national pilot program on payment bundling to
encourage hospitals, doctors, and post-acute care providers to
work toge<strong>the</strong>r to achieve savings for Medicare through increased
collaboration and improved coordination of patient care
– National
– Voluntary
– Starting by 1-1-13
– Ending 1-1-18 (unless CMS extends)
– No authority to make permanent
– No authority to expand to everyone
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70

Bundling
2013
• Test bundles
– Hospital episode
– Physician services in <strong>the</strong> hospital
– Outpatient hospital visits
– Post-acute care, including LTAC, SNF, IRF, and HHA
– O<strong>the</strong>r services deemed appropriate
• Time-frame for an episode
– 3 days pre-admission to
– 30 days post-discharge
– Unless CMS decides differently
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71

Bundling
2013
• Bundled payment may be made to a
– Provider
– Multi-provider entity
• 10 conditions to be chosen
– Mix of acute and chronic
– Mix of surgical and medical
– Evidence that <strong>the</strong>re can be reduced costs and improved
quality
– Significant variations in post-acute spending
– High-volume or high-spending
– Amenable to being bundled
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72

Accountable Care Organizations
2012
• Effective 1-1-12
• Defined as
– Group of providers and suppliers
– Have a leadership and management structure
– Have a mechanism for joint decision-making
– Formal legal structure to receive payment
• Examples
– Group practices
– Hospital-physician joint ventures
– Does not mean hospital gets payment to distribute
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73

Accountable Care Organizations
2012
• Must agree to participate for 3-year minimum
• Must agree to take at least 5000 beneficiaries
• Would be eligible for shared savings if
– Risk adjusted
– Estimated average per capita
– Part A and Part B expenditures
– At least x percent below benchmark
• Benchmark
– 3 year prior period average
– Risk-adjusted
– Would be reset every 3 years
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74

Physicians
2010-2012
• Self-Referral (Specialty Hospitals)
– Prohibits new/expanded physician ownership in
hospitals
– Grandfa<strong>the</strong>rs physician-owned hospitals in operation as
of December 31, 2010
• Extends PQRI to 2015
• 1 year extension of 1.0 floor for work GPCI
• Creates a physician value-based payment program to
promote increased quality of care for Medicare
beneficiaries – effective 1-1-2012
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75

O<strong>the</strong>r Part B
2011
• CMHC must provide at least 40 percent of services to non-
Medicare patients
– Effective 4-1-11
• Waives cost-sharing for preventive services
– Effective 1-1-11
• Annual wellness visit
– Effective 1-1-11
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76

Part C Medicare Advantage
2011
• Freezes 2011 Medicare Advantage payment benchmarks
at 2010 levels to begin transition to reduce toward FFS
rates, if not 95 percent of FFS
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Medicare Advantage
2012
• Coding intensity adjustment starts in 2012
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Medicare Advantage
2014
• Requires 85 percent Medical Loss Ratio for MA plans;
(failure to achieve will result in a rebate paid to HHS)
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Part D
2010
• Provides a $250 rebate for Part D enrollees who exceed
<strong>the</strong> doughnut hole in 2010
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Part D
2011
• Gradually phases out donut hole
– Beginning 2011
– By 2020
– Down to 25 percent
• Drug companies to offer 50 percent discount to enrollees in
<strong>the</strong> donut hole
– Effective 1-1-11
– Does not apply to employer plans
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Part D
2013
• Eliminates tax deduction for companies providing drug
subsidies
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Fraud & Abuse
2010
• Requires enhanced screening procedures for health care
providers to eliminate fraud and waste in <strong>the</strong> health care
system by adding $250 million over 10-years
• Maximum 12 month time limit to file claims
• 90 day payment hold
– On DME supplier claims
– In high risk areas
• Expand RAC
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Medicaid
2010
• Increases <strong>the</strong> Medicaid drug rebate from 15.1 percent to
23.1 percent of <strong>the</strong> average manufacturers price (AMP)
• Increases <strong>the</strong> drug rebate for generic drugs from 11 percent
to 13 percent
• Extends <strong>the</strong> drug rebate to include Medicaid managed care
organizations
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Medicaid
2011
• Prohibits payment for HACs
– Effective 7-1-11
– Medicare regs may apply
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Medicaid
2014
• Eligibility will increase to 133 percent of poverty for all non-elderly
individuals to ensure that people obtain affordable health care in <strong>the</strong>
most efficient and appropriate manner
• States will receive increased federal funding to cover <strong>the</strong>se new
populations
• Strikes <strong>the</strong> provision for a permanent 100 percent federal matching rate
for Nebraska for <strong>the</strong> Medicaid costs of newly eligible individuals
• Provides federal Medicaid matching payments for <strong>the</strong> costs of
services to newly eligible individuals at <strong>the</strong> following rates in all
states except expansion states: 100 percent in 2014, 2015, and
2016; 95 percent in 2017; 94 percent in 2018; 93 percent in 2019;
and 90 percent <strong>the</strong>reafter
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Medicaid
2014
• DSH payment cuts start in 2014
– $500 M in first year
– Aggregate $14.1B over 7 years
– Largest reductions in states with ei<strong>the</strong>r:
• Lowest percentage of uninsured, or
• Those that do not target DSH payments
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CHIP
• Reauthorized thru 2015
– FY 2013 - $17.4B
– FY 2014 - $19.1B
– FY 2015 - $5.7B
• Expand eligibility for certain kids
– For those ineligible for Medicaid because of incomedisregards
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New rules that apply to all health plans
David Simonetti
Senior Manager
Comp. & Benefits Consulting
New York, NY
Please continue to answer all polling questions throughout <strong>the</strong> program
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5. Group check
Have you reviewed and considered how <strong>the</strong> new standards
for coverage apply to your group health plan as well as <strong>the</strong>
statutory effective date of such requirements?
A. Yes!
B. Not really sure.
C. No, we haven’t looked that far ahead yet.
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Insurance Reform
Overview
• The Patient Protection and Affordable Care Act (<strong>the</strong> “Act”) was enacted
on March 23, 2010, and was amended on March 30, 2010 by <strong>the</strong> Health
Care and Education Reconciliation Act of 2010, which makes changes
to <strong>the</strong> Act.
• Effective dates are staggered from <strong>the</strong> date of enactment until January
1, 2014.
• New health insurance plans must comply with all requirements.
• Grandfa<strong>the</strong>red Plans are exempt from some of <strong>the</strong>se requirements.
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Insurance Reform
Grandfa<strong>the</strong>red Plans
• Grandfa<strong>the</strong>red Plans are all those plans that were in
existence on March 23, 2010.
– Grandfa<strong>the</strong>r rules apply indefinitely.
– Special rules for collectively bargained plans.
– Enrollment of new members or <strong>the</strong>ir family members
after <strong>the</strong> date of enactment.
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Insurance Reform
Grandfa<strong>the</strong>red Plans
– O<strong>the</strong>r plan changes may impact grandfa<strong>the</strong>red status.
– Caution should be exercised with plans changes until guidance is
issued.
– Grandfa<strong>the</strong>red plans still subject to insurance reforms and employer
mandate as well as:
• Dependent Coverage Until Age 26;
• Preexisting Exclusions;
• Lifetime maximums;
• Annual Maximums; and
• Rescission of coverage limitations.
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Insurance Reform - Dependent Coverage Until Age 26
Six Months from Enactment for all Plans including
Grandfa<strong>the</strong>red Plans
• Health plans must cover adult children up until age 26, regardless of
student or marital status.
– In most cases, January 1, 2011.
• Definition of an adult child.
• Grandchildren not included.
• Prior to January 1, 2014, adult children may be excluded if eligible to
enroll in employer-sponsored coverage.
• Preamble to Interim Final Rules issued by <strong>the</strong> IRS, DOL and Health and
Human Services clarify impact on grandfa<strong>the</strong>red status.
• No taxation for such coverage.
• Notice 2010-38 clarify <strong>the</strong> tax treatment of providing such coverage, as
well as <strong>the</strong> ability to amend cafeteria plans retroactively to effectuate
this change
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Insurance Reform - Pre-Existing Condition Prohibition
Six Months from Enactment for all Plans including
Grandfa<strong>the</strong>red Plans
• Children under age 19 may not be excluded for pre-existing
conditions.
– Effective as of January 1, 2011 in most cases.
– Applies to all for plan years beginning on or after January
1, 2014.
• The new law may not require coverage for children until 2014.
• Forthcoming regulations expected to dictate o<strong>the</strong>rwise.
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Insurance Reform - Lifetime Maximums
Six Months from Enactment for all Plans including
Grandfa<strong>the</strong>red Plans
• A lifetime maximum on essential benefits prohibited.
• Nonessential benefits can be subject to such a maximum.
– The Secretary of Health and Services is to determine <strong>the</strong>
scope of what is considered essential benefits.
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Insurance Reform - Annual Dollar Limitations
Six Months from Enactment for all plans including
Grandfa<strong>the</strong>red Plans
• No annual dollar limits on “essential” benefits.
– Prior to January 1, 2014, a “restricted annual limit” on
“essential” health benefits permitted.
– The Secretary of Health and Human Services to issue
guidance on definition of restricted annual limit.
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Insurance Reform - Rescissions
Six Months from Enactment for all plans including
Grandfa<strong>the</strong>red Plans
• Prohibition from rescinding participant health insurance
coverage, except for fraud or material misrepresentation.
– Impact mistakenly enrolled individuals unclear, or on a
plan amendment that prospectively eliminates coverage.
– With prior notification, cancellation of coverage permitted
for nonpayment of premiums, fraud and termination of
<strong>the</strong> plan.
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Insurance Reform - Mandated Coverage for Preventive
Care - Six Months from Enactment For Plans o<strong>the</strong>r
than Grandfa<strong>the</strong>red Plans
• No cost sharing for:
– preventive care services and immunizations
– certain child preventive services; and
– women’s preventive care and screening.
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Insurance Reform - Patient Protections
Six Months from Enactment For Plans o<strong>the</strong>r than
Grandfa<strong>the</strong>red Plans
• Patient protections including:
– Designation of primary care provider.
– Coverage of emergency services in a hospital.
– Designation of pediatrician required.
– No authorization or referral required for obstetrical or
gynecological care.
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Insurance Reform - Appeal Procedures
Six Months from Enactment For Plans o<strong>the</strong>r than
Grandfa<strong>the</strong>red Plans
• Claims and appeals processes required, which must
include:
– An internal claims appeal process;
– Notice to participants of available and external appeals
and consumer assistance and ombudsmen;
– Participant’s right to file review, present evidence and
testimony; and
– Continued health care coverage during <strong>the</strong> appeals
process.
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Insurance Reform - Explanation of Coverage
Requirements. Two Years from Enactment for all
Plans including Grandfa<strong>the</strong>red Plans
• Requirement to provide summary documentation to all plan participants
that must:
– state whe<strong>the</strong>r <strong>the</strong> plan provides minimum essential coverage; and
– whe<strong>the</strong>r <strong>the</strong> plan’s share of <strong>the</strong> costs is at least 60% of actuarial
value.
• Limited four pages
• In addition, to ERISA’s Summary Plan Description requirements.
• Standards for this summary expected by March 23, 2011.
• 60-days advance notice of changes to <strong>the</strong> summary of benefits
required.
• A new $1,000 per participant penalty for each willful failure to provide
<strong>the</strong> summary, as well as a $100 per day per individual penalty for such
a failure.
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Insurance Reform - Pre-existing Condition Limitation
Effective as of January 1, 2014 for all Plans including
Grandfa<strong>the</strong>red Plans
• For both insured and self-insured health plans, no preexisting
condition exclusions regardless of age.
– Currently, HIPAA permits pre-existing condition
limitations to be applied for up to 12 months (or 18
months for late enrollees), subject to reduction for
periods of prior creditable coverage.
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Insurance Reform - O<strong>the</strong>r Important Changes
Effective as of January 1, 2014 for all Plans including
Grandfa<strong>the</strong>red Plans
• No eligibility waiting periods of more than 90 days.
• Existing law permitted wellness programs, but new law
makes one major change by increasing level of financial
incentives from 20% to 30%.
• May be increased by 50% in <strong>the</strong> discretion of <strong>the</strong>
Department of Labor, Health and Human Services and <strong>the</strong>
Treasury.
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Insurance Reform - O<strong>the</strong>r Important Changes
Effective as of January 1, 2014 for Plans o<strong>the</strong>r than
Grandfa<strong>the</strong>red Plans
• Mandated benefit and design changes for new plans:
– Coverage of essential benefits for individual and small
plans for insured, individual and small group markets
only.
– Non-discrimination based on health status prohibited.
– Expanded coverage for routine costs of clinical trials for
insured and self-insured plans
– Plans may not impose annual cost-sharing requirements
and deductibles in excess of certain limitations
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Individual mandates and assistance
Mel Schwarz
Legislative Affairs Partner
Washington National Tax Office
Washington, DC
Please continue to answer all polling questions throughout <strong>the</strong> program
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Individual mandate and assistance
Beginning in 2014
• Mandate
– Individuals must acquire minimum insurance
• Help
– Assistance offered for premiums
– Assistance offered for out-of-pocket costs
• Why does it matter for employers?
– If your employee gets assistance to fulfill mandate:
• You are exposed to penalties
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Individual mandate and assistance
Individual mandate
• Exceptions:
– Below income tax filing threshold
– Non-residents, Native Americans, prisoners
• Penalty is greater of (capped at actual cost of coverage):
– $95 or 1% of income in 2014
– $325 or 2% of income in 2015
– $695 or 2.5% of income 2016+ (indexed for inflation)
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Individual mandates and assistance
Individual assistance offered in two parts
• Premium assistance credit
– Refundable tax credit toward insurance premiums
– Offered for plans through <strong>the</strong> exchange
– Based on <strong>the</strong> premium as % of income
• Cost-sharing credit
– Subsidy to reduce out-of-pocket cost-sharing
– Based on cost-sharing vs. actuarial value
• Sliding scale from 100% to 400% of poverty level
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Individual mandates and assistance
Credits available if:
• Taxpayer income is 100% to 400% of poverty level
AND
• Employer does not offer coverage
OR
• Employer offers coverage, BUT:
– Cost to employee is 9.5% of income or more OR
– Plan’s share of benefits is under 60%
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Individual mandates and assistance
Defining income
• Modified AGI of taxpayer
PLUS
• AGI of o<strong>the</strong>r members of family
– Unless not required to file tax returns
• Based on tax return 2 years prior to enrollment
– Apply in 2013 for 2014 coverage using 2012 return
– Can update information if change in circumstance
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Individual mandates and assistance
Poverty levels for 2009 (adjusted annually by CPI-U)
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Individual mandates and assistance
Premium assistance credit
• How it operates:
– Taxpayer reports income to exchange and applies
– Taxpayer enrolls in plan through exchange
– Premium cost to taxpayer reduced by credit amount
– Treasury pays credit directly to insurer
• (Taxpayer can choose to claim credit at year-end)
– Employer notified if employee qualifies
• Only name and income level provided
• Can’t terminate or discriminate based on credit
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Individual mandates and assistance
Cost-sharing credit
• How it operates:
– Taxpayer applies with income and family info
• Taxpayer must qualify for premium assistance credit
– Taxpayer’s Plan reduces out-of-pocket cost
• Treasury pays difference directly to plan
– Employer notified when employee qualifies
• Only name and income level provided
• Can’t terminate or discriminate based on credit
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Medicare taxes
• Effective in 2013 on income over $200k single 250k joint:
– 0.9% increase on employee share of earned income
• Increased from 1.45% to 2.35%
• Employer share remains 1.45% for total of 3.8%
• Employer will withhold 0.9%
– New 3.8% tax on “unearned” gains, dividends, interest
• Employee responsibility for estimated taxes
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Employer provisions
Eddie Adkins
Partner, Comp. & Benefits
Technical Leader
Washington National Tax Office
Washington, DC
Please continue to answer all polling questions throughout <strong>the</strong> program
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6. Group check
As an employer providing insurance benefits to your
employees, under health care reform, are you leaning toward
continuing your plans or paying penalties?
A. At this point I’m in favor of providing coverage
B. At this point, I’m in favor of paying penalties
C. I’m still thinking about it, unsure
D. N/A
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Employer provisions
• All employers
• Small employers
• Large employers
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All employers – 2011
• W-2 reporting
– Cost of health coverage
• Flexible spending arrangements
– No reimbursements for non-prescription drugs
• Nondiscrimination requirements expanded to include fullyinsured
plans
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All employers – 2013
• Health flexible spending arrangements
– Salary reduction contributions limited to $2,500
• Medicare Part D subsidy provided to employers
– Deduction no longer permitted
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All employers – 2018
Excise tax on employer-sponsored high-cost plans
• Tax = 40% of “excess benefit”
• Parties liable for tax:
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All employers – 2018
Excise tax on employer-sponsored high-cost plans
Excess benefit calculation
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Small employers – 2010
Tax credit for providing coverage
• Small employer
– Fewer than 25 full-time equivalent employees
– Average full-time equivalent wages less than $50,000
• Coverage
– Employer pays > 50%
– Coverage source:
• 2010-2013: purchased from insurance company
• 2014 and beyond: State exchange
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Small employers – 2010
Tax credit for providing coverage
• Years of availability
– 2010 through 2013
– 2014 and beyond: limited to 2 consecutive years
• Credit = percentage of employer cost
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Small employers – 2010
Tax credit for providing coverage
• Credit phase-out
– More than 10 employees
– Average wages exceed $25,000
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Large employers – more than 200 full-time employees
Automatic enrollment requirement
• To take effect under Department of Labor regulations
• Requirements
– Automatic enrollment
– “Adequate notice”
– Opt-out opportunity
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Large employers – 50 or more full-time employees
Penalties, starting in 2014
• Not offering health coverage
• Offering inadequate coverage
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Large employers – 50 or more full-time employees
Penalty for not offering health coverage
• Applicability
– Health coverage not offered
– At least one full-time employee receives premium tax
credit or cost-sharing reduction
• Monthly penalty = $166.67 x number of full-time employees
in excess of 30
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128

Large employers – 50 or more full-time employees
Penalty for offering inadequate coverage
• Applicability
– Coverage is too expensive for employees
• Employee cost exceeds 9.5% of household income,
or
• Employee share of total allowed cost of benefits is
more than 40%
– At least one full-time employee receives premium tax
credit or cost-sharing reduction
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129

Large employers – 50 or more full-time employees
Penalty for offering inadequate coverage
• Monthly penalty is lesser of
– $250 x number of full-time employees who receive a tax
credit or cost-sharing reduction
– $166.67 x number of full-time employees in excess of 30
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7. Group check
Would you like to receive…
A. Invitations to future health care reform webcasts
B. Health care reform thought leadership
C. Both mentioned above
D. N/A
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Our presenters will now answer your questions
Please type any questions into Q&A
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132 132

Who to contact
Anne McGeorge
Larry Goldberg
Eddie Adkins
Mel Schwarz
David Simonetti
National Managing Partner,
Health Care Industry Practice
Senior advisor on health care
and legislative matters
Partner, Technical Leader,
Comp. & Benefits Consulting
Legislative Affairs Partner,
Washington National Tax Office
Senior Manager, Comp. &
Benefits Consulting
T 704.632.3520
E Anne.McGeorge@gt.com
T 866.328.1247
E healthcare@gt.com
T 202.521.1565
E Eddie.Adkins@gt.com
T 202.521.1564
E Mel.Schwarz@gt.com
T 212.542.9844
E David.Simonetti@gt.com
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After <strong>the</strong> program
• Respond to online evaluation form
• Print your CPE Certificate from a CPE confirmation email
– Note: Group participation will not receive CPE
• Download today’s slides as a reference resource
For questions regarding your CPE certificate,
contact Learnlive at 888.228.0988
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Thank you.
The information contained in this presentation is current as of
<strong>the</strong> original, June 1, 2010 broadcast.
Tax Professional Standards Statement
This document supports Grant Thornton LLP’s marketing of professional services, and is not written tax
advice directed at <strong>the</strong> particular facts and circumstances of any person. If you are interested in <strong>the</strong> subject
of this document we encourage you to contact us or an independent tax advisor to discuss <strong>the</strong> potential
application to your particular situation. Nothing herein shall be construed as imposing a limitation on any
person from disclosing <strong>the</strong> tax treatment or tax structure of any matter addressed herein. To <strong>the</strong> extent
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