Navigating Healthcare Reform

The first wave of healthcare reform regulations went live on Sept. 23. How many of you were prepared for the changes? An even bigger question is: Will your dealership be ready for the next wave of changes in 2011?

For consumers, the “go live” date meant that individuals who purchased or joined a new plan on or after Sept. 23 will not have to worry about out-of-pocket charges when it comes to preventative services. It also meant consumers can visit any doctor within their healthcare provider’s network without a referral. Additionally, consumers now have the ability to appeal their healthcare providers’ decisions.

For employers, the passage of the “go live” date raised more questions than answers. During the healthcare reform debates that ended this past spring, a central point of discussion was over whether employers and employees would have the ability to maintain their plans as they currently exist. Unfortunately, many employers came to realize that doing so was nearly impossible once the first phase of reforms took effect.

‘Grandfather’ Status Not a Sure Thing

The first issue to address is whether or not to seek “grandfather” status for a plan. That would allow employers to avoid some of the regulatory requirements in the new healthcare law for the interim period between 2011 and 2013. However, there are several new requirements within the law that will need to be incorporated if a plan is renewed after the September effective date.

And if that wasn’t enough, there are approximately 25 different issues employers will have to address come next year, several of which will have a direct impact on the medical insurance plans in place today. They include:

■ Certain dollar-benefit limits cannot remain in place.

■ Previously uninsured and ill children under the age of 19 cannot be subject to exclusions.

■ Employees’ children must be allowed to remain on your plan up to age 26.

■ New notification and administrative requirements.

For employers that find it cost-prohibitive to grandfather their old plans, significant attention must be paid to the new nondiscrimination testing requirement, which is described in Section 105(h) of the rules. This has brand-new applicability for guaranteed-cost or fully insured plans. Plan sponsors will have to reexamine their criteria for enrollment, as well as which — and at what cost — benefits are offered to highly compensated employees compared to the rank-and-file.

Based on numerous eligibility definitions in existence today, many plans will be deemed discriminatory under the new rules. Additionally, we have already seen some of our clients struggling to meet the minimum eligibility testing requirements, and this is without having to increase their premium subsidy in order to entice more employees to enroll.

The new law also calls for stiff penalties for noncompliance. Employers can be fined up to $100 per violation per day, with a maximum penalty of $500,000.

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New Document Requirements

Another major change will be the requirement that insurance companies prove they spend a minimum required amount on paying for medical services for their membership. These minimum loss-ratio requirements obligate insurance companies to spend at least 85 cents of every premium dollar collected on direct payments for medical services (80 percent for the “small groups”). This requirement may initially sound like a good idea, but there is an ongoing debate within the National Association of Insurance Commissioners (NAIC) about which types of payments can go into the numerator of this calculation.

There also remains great uncertainty regarding where expenses for preventative health programs will fall. The NAIC released a proposal on how this calculation should be performed in September. The proposal also contained uniform definitions and standardized rebate calculations to be used in 2011 and beyond. Insurance companies that fail to meet the minimum loss ratios the law sets forth will be required to furnish members with premium rebate checks at the end of the year.

Beyond the requirements that take effect in 2011, there are several other new rules that will affect employers. Starting with tax year 2011, employers will have to amend their W-2 reporting format to include the total value of premium subsidies provided to an individual employee covered under their group plans. They also will have to disclose whether or not their plan is grandfathered.

The following year will see additional requirements, such as a new summary of benefits that must follow a specific format prescribed by the law. There also will be a new annual report that must be submitted to the Department of Health and Human Services.
It will need to cover plan initiatives for prevention, safety and reduction in medical errors.

Preparing for 2014

Twenty states have joined forces to block the overhaul of the $2.5 trillion healthcare system, including a mandate that will require all Americans to sign up for health insurance or pay a tax penalty. They argue that requiring Americans to obtain coverage violates their rights. In one of the first challenges against the requirement, filed by a conservative interest group, a federal judge ruled that Congress has the authority to enact such a law under the Commerce Clause of the U.S. Constitution. An appeal is expected. There also is a suit being spearheaded by Florida Attorney General Bill McCollum, which experts believe is the most viable challenge.

If those challenges are unsuccessful, the requirement will mandate that all consumers have insurance, either through an employer-sponsored plan or through other sources (including state-purchase exchanges). Those who don’t have insurance by 2014 will become subject to a tax penalty of $95, or up to 1 percent of their annual income, whichever is higher. In 2016, the penalty will be $695 or 2.5 percent of income.

Employers also will be required to provide documentation to the Internal Revenue Service of those who did and didn’t take advantage of their company’s sponsored plan. Those businesses that employ more than 50 full-time workers and fail to offer a sponsored plan would be subject to a penalty of $2,000 per full-time employee — excluding the first 30 from the calculation. So, if your dealership has 60 full-time employees and doesn’t offer health insurance, you would pay the penalty for 30 workers, which would add up to $60,000.

The full phase-in effect of the new law will not be complete until 2018, which also is when the proposed tax on so-called “Cadillac” plans goes into effect. Based on early (and somewhat conservative) projections, a significant percentage of employer plans will reach the prescribed premium threshold to be subject to the tax — that’s unless insurers can find a way to bend the cost curve and reduce the estimated annual premium increases.

For employers, the slew of new requirements can sometimes be difficult to comprehend. But, should they fail to meet them, there’s no doubt they’ll be subject to penalties. Hang on tight. It’s going to be a bumpy ride for the next few years.

Christian Bergstrom is senior vice president at Wallace Welch & Willingham, a privately held insurance agency in St. Petersburg, Fla. He can be reached at [email protected].

Many of the issues discussed in this article are addressed in a Webinar hosted by Compli on Sept. 22. To watch for free, click here.