Health "insurance" reform legislation, the Affordable Care Act (ACA), was signed into law March 23, 2010 and provides the most sweeping changes we have seen to health insurance in the United States.  Now that the entire ACA has passed constitutional muster by the Supreme Court, small business owners need to familiarize themselves with ACA provisions that directly impact their bottom-line.

Over the next few weeks, we will be revisiting the following frequently asked questions from small businesses regarding ACA.

• What is the summary of benefits and coverage requirement for small business health insurance?
   
• What is the W2 reporting of health insurance costs requirements for small businesses?
   
• How do the employer penalties for not offering "affordable" and "qualified" health insurance apply to small businesses? 
   
• How much is the individual penalty for not buying "qualified" health insurance?   
   
• What are my small business health insurance options in 2014?

In the meantime, here's a link to a few posts you will find helpful in answering the above questions:

Employer Mandate - What Happens If a Company Does NOT Offer Health Insurance

Individual Mandate - What Happens if You Don't Buy Health Insurance

Employer-Provided Health Coverage -- Insurance W-2 Reporting in 2012

5 Ways You Can Avoid Paying the Penalty For Not Buying Health Insurance

The Ideal Solution for Employer Health Benefits in 2014

The below content should not be taken as legal or tax advice. It is meant to be taken as humor.

The Individual Mandate requires most individuals to purchase health insurance, or else pay a penalty on their tax return each year. Last week, the Supreme Court found Health Care Reform's "Individual Mandate" to be constitutional because the PENALTY is really a TAX. The intention of the individual penalty is to reduce the "Free Riding" effect in the health insurance market (a free rider is someone who is healthy and does not purchase health insurance until they need it). If you are looking for a way out of the mandate, here are 5 ways to avoid the tax...

Background on the Insurance Mandate's Tax Penalty 

Effective January 1st, 2014, certain individuals (referred to as "applicable individuals") will be required to maintain health insurance that meets a minimum standard (referred to as "minimum essential coverage") for themselves and their dependents.  "Applicable individuals" who fail to maintain "minimum essential coverage" will be required to pay a tax "penalty" on their tax return.

According to the bill, here are 5 ways to avoid paying the tax (without actually purchasing "minimum essential coverage"):

1. Apply for a religious exemption to avoid the health insurance tax

Claim that your religion (whether that be Christianity, Judaism, Islam, etc.), does not allow you to purchase health insurance.

2. Join an Indian Tribe to avoid the health insurance tax

Members of Indian tribes are not subject to the penalty. Here's a WikiAnswers thread about how to join an Indian Tribe.

3. Join a Health Care Sharing Ministry to avoid the health insurance tax

Some associations cost $99-$135 per member per month.

4. Renounce your U.S. citizenship to avoid the health insurance tax

If you are not a U.S. citizen, you don't have to pay the penalty. Here's an article about renouncing your U.S. Citizenship.

5. Go to Jail to avoid the health insurance tax

If you do something to incarcerate yourself, you can avoid paying the penalty while your in jail.

Of course, the easiest way to avoid the tax is to simply purchase health insurance that meets the minimum coverage requirements.

The Affordable Care Act (ACA), which was upheld by the Supreme Court on June 28th, is still not out of the line of fire, according to The National Journal. That same day, house majority leader Eric Cantor said the vote for a second repeal of the Health Care Bill would be set for the week of July 9.

"During the week of July 9th, the House will once again repeal ObamaCare, clearing the way for patient-centered reforms that lower costs and increase choice. We support an approach that offers simpler, more affordable and more accessible health care that allows people to keep the health care that they like."  

The plans for this new attempt to repeal ACA for a second time are now underway, as the House Rules Committee has slated a meeting for Monday, July 9th. This meeting is considered an "emergency" meeting, because a physical copy of the bill must be in the hands of the panel, which is not expected until Monday.

What are your thoughts? Will the GOP succeed? Should we just move forward after the June 28 decision?

In March 2010, Congress passed the Patient Protection and Affordable Care Act (ACA). The ACA is a piece of legislation with many provisions phasing from 2012 to 2014. Below, we have provided a brief outline of the key provisions taking effect over the next 3 years.

Key Provisions of the Affordable Care Act That Take Effect in 2012

• Medicare hospital value-based purchasing program 
• Increase in physician quality reporting requirements in Medicare 
• Additional Medicare pilot programs on alternative payment methodologies, e.g., accountable care organizations 
• Increased requirements for hospitals to maintain not-for-profit status 
• Fees from insured (including self-insured) plans transferred to the Patient-Centered Outcomes Research Trust Fund

Key Provisions of the Affordable Care Act That Take Effect in 2013

• Increase Medicare payroll tax by 0.9% on high-income earners 
• Impose a 3.8% tax on net investment income of high-income individuals 
• $500,000 cap on health insurers’ deduction for executive compensation 
• Eliminate employer deduction for Medicare Part D subsidy 
• FSA limitations 
• Excise tax on medical device manufacturers and importers 
• Medical expense deduction floor increases to 10% 
• Nationwide bundled payment pilot begins in Medicare 
• Increased Medicaid reimbursement for primary care 
• Medicare physician comparison data available to the public 
• Reductions in Medicare payments for select hospital readmissions 
• Expanded coverage of preventive services by Medicaid

Key Provisions of the Affordable Care Act That Take Effect in 2014

• Employer mandate and individual mandate 
• Employer and insurer reporting requirements 
• New health insurance market reforms take effect 
• State health insurance Exchanges established 
• Premium tax credits and cost-sharing subsidies available to certain individuals in Exchange insurance products 
• Medicaid expansion to new populations (100% federal match to states for newly-eligible populations through 2016) 
• Annual fee on health insurers 
• Medicare/Medicaid DSH payment cuts begin 
• Independent Payment Advisory Board (IPAB) issues first report to Congress if Medicare spending exceeds growth target

Read on for three official statements from leading U.S. health insurers and associations on the recent Supreme Court Ruling. I found it interesting that there are zero references to health insurance exchanges.

1. Blue Cross and Blue Shield Association Statement on Supreme Court Affordable Care Act Ruling

WASHINGTON – Blue Cross and Blue Shield Association (BCBSA) President and CEO Scott P. Serota issued the following statement regarding today’s Supreme Court decision: “BCBSA has long been committed to ensuring everyone has high quality, affordable health care coverage. We will continue to implement the law while working with policymakers to fix provisions that will increase costs, such as the health insurance tax that will add hundreds of dollars to families’ premiums each year. On behalf of our 100 million members, Blue companies will continue to lead efforts in their local communities – partnering with doctors, nurses, hospitals and others – to rein in costs, improve quality, help people stay well and better manage their care when they need it.”

2. Aetna Statement on Supreme Court Affordable Care Act Ruling

HARTFORD, Conn. -- Aetna AET -0.61% released the following statement after today's Supreme Court ruling upholding the Affordable Care Act:

"Today's Supreme Court decision does not change our business strategy or commitment to system reforms that make quality care more affordable and accessible. We are prepared for the changes ahead and will continue to fully comply with the requirements of the Affordable Care Act. At the same time, we know that much more must be done to fix the problems that remain in our health care system. We believe there is still time -- if people can come together in a bipartisan way -- to improve quality and affordability. That security is what Americans want and need.

We are focused on delivering the next generation of health care through innovative solutions that improve quality and health outcomes, which ultimately makes care more affordable. We remain committed to working with policymakers and other stakeholders to make our health care system work better for everyone."

3. Cigna Statement on Supreme Court Affordable Care Act Ruling

Today, many small businesses are canceling group health insurance coverage due to cost, participation and administrative hassle.  When a business cancels its group health insurance policy, the employees not only lose their health insurance, but they also lose the tax advantages associated with employer-based premium contributions.

Here are are three ways to help businesses that cancel group health insurance due to cost, participation or administrative hassle:

1. Establish a Defined Contribution Health Plan
2. Setup a Premium Reimbursement Arrangement (PRA)
3. Connect with a Private Health Exchange

How to Cancel a Group Health Insurance Plan

When a company cancels its health insurance plan, it needs to call a customer representative with the insurance company.  By calling, an insurance representative can confirm the steps the company must take to successfully cancel the group health insurance policy. For instance, some insurance companies may require that a fax or letter be sent confirming the cancellation. Correspondence via email only may result in the employer being obligated to pay for next month’s premium.

1. Establish a Defined Contribution Health Plan

Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. Rather than paying the costs to provide a specific group health plan benefit (a "defined benefit"), employers can fix their costs on a monthly basis by establishing a defined contribution health plan.

Key features include:

1. No Minimum Contribution Requirements
2. No Minimum Participation Requirements

2. Setup a Premium Reimbursement Arrangement (PRA)

Premium Reimbursement Arrangements allow employees to reimburse themselves for out-of-pocket health insurance costs tax-free. This saves employees 20-40% in taxes on health insurance costs. Businesses not currently offering health benefits may consider increasing employee wages in an effort to help key employees with their individual health insurance costs. The problem is that the business and the employees are paying thousands of dollars in taxes every month unnecessarily. This is because W-2 employees cannot take a tax deduction for individual insurance without a PRA!

Key features include:

1. Employees typically save 20-40% on their health insurance costs
2. Businesses save 7.65% on every dollar in FICA and FUTA

3. Connect with a Private Health Exchange

A private health exchange is a health insurance exchange run by a private company. Health plans and carriers in a private exchange must meet certain criteria defined by the exchange management.  Private exchanges often include online eligibility verification, and mechanisms for allowing employers who connect their employees with exchanges to offer defined contributions. 

Key features include:

1. Choice of multiple individual health plans and insurance companies 
2. Portability of individual health insurance policies

The Congressional Budget Office will release its estimate of the federal budgetary impact of the Supreme Court health law ruling the week of July 23, according to a blog post by CBO Director Doug Elmendorf. While the court upheld most of the health law, it did make a ruling on the Medicaid provisions that could result in fewer people participating in Medicaid (than originally projected) and more people being eligible for federally-funded subsidies (than originally projected):

CBO is still assessing the effects of the Supreme Court’s decision related to the Affordable Care Act (ACA) on the agency’s projections of federal spending and revenue under current law. We expect to complete that assessment and release updated projections of the budgetary effects of the ACA’s coverage provisions during the week of July 23rd. Because such updated projections are the base against which CBO will estimate the budgetary effects of changes in the ACA, CBO cannot provide estimates of the effects of such changes—including the effects of repealing the ACA—until that assessment is completed during the week of July 23rd.

Click here to go to the CBO blog.

This week, House Republicans are launching another push to repeal the health care reform bill. House Majority Leader Eric Cantor, R-Va., announced that the House of Representatives would vote to repeal the entire Affordable Care Act after the Supreme Court issued its 5-4 decision to uphold the law.  The actual vote on the repeal bill will come Wednesday. Read below for the text of the bill.

To repeal the Patient Protection and Affordable Care Act and health care-related provisions in the Health Care and Education Reconciliation Act of 2010.

Mr. CANTOR (for himself, Mr. CAMP, Mr. KLINE, Mr. UPTON, Mr. SMITH of Texas, Mr. RYAN of Wisconsin, Mr. GRAVES of Missouri, Mr. HERGER, Mr. PITTS, Mr. ROE of Tennessee, Mr. MCCARTHY of California, Mr. ROSKAM, Mr. HENSARLING, Mr. SESSIONS, Mr. PRICE of Georgia, Mrs. MCMORRIS RODGERS, Mr. CARTER, and Mr. DREIER) introduced the following bill; which was referred to the Committee on Energy and Commerce, and in addition to the Committees on Ways and Means, Education and the Workforce, Natural Resources, the Judiciary, House Administration, Rules, Appropriations, and the Budget, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To repeal the Patient Protection and Affordable Care Act and health care-related provisions in the Health Care and Education Reconciliation Act of 2010.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Repeal of Obamacare Act’.

SEC. 2. FINDINGS.

Congress finds the following with respect to the impact of Public Law 111-148 and related provisions of Public Law 111-152 (collectively referred to in this section as ‘the law’):

(1) President Obama promised the American people that if they liked their current health coverage, they could keep it. But even the Obama Administration admits that tens of millions of Americans are at risk of losing their health care coverage, including as many as 8 in 10 plans offered by small businesses.

(2) Despite projected spending of more than two trillion dollars over the next 10 years, cutting Medicare by more than one-half trillion dollars over that period, and increasing taxes by over $800 billion dollars over that period, the law does not lower health care costs. In fact, the law actually makes coverage more expensive for millions of Americans. The average American family already paid a premium increase of approximately $1,200 in the year following passage of the law. The Congressional Budget Office (CBO) predicts that health insurance premiums for individuals buying private health coverage on their own will increase by $2,100 in 2016 compared to what the premiums would have been in 2016 if the law had not passed.

(3) The law cuts more than one-half trillion dollars in Medicare and uses the funds to create a new entitlement program rather than to protect and strengthen the Medicare program. Actuaries at the Centers for Medicare & Medicaid Services (CMS) warn that the Medicare cuts contained in the law are so drastic that ‘providers might end their participation in the program (possibly jeopardizing access to care for beneficiaries)’. CBO cautioned that the Medicare cuts ‘might be difficult to sustain over a long period of time’. According to the CMS actuaries, 7.4 million Medicare beneficiaries who would have been enrolled in a Medicare Advantage plan in 2017 will lose access to their plan because the law cuts $206 billion in payments to Medicare Advantage plans. The Trustees of the Medicare Trust Funds predict that the law will result in a substantial decline in employer-sponsored retiree drug coverage, and 90 percent of seniors will no longer have access to retiree drug coverage by 2016 as a result of the law.

(4) The law creates a 15-member, unelected Independent Payment Advisory Board that is empowered to make binding decisions regarding what treatments Medicare will cover and how much Medicare will pay for treatments solely to cut spending, restricting access to health care for seniors.

(5) The law and the more than 13,000 pages of related regulations issued before July 11, 2012, are causing great uncertainty, slowing economic growth, and limiting hiring opportunities for the approximately 13 million Americans searching for work. Imposing higher costs on businesses will lead to lower wages, fewer workers, or both.

(6) The law imposes 21 new or higher taxes on American families and businesses, including 12 taxes on families making less than $250,000 a year.

(7) While President Obama promised that nothing in the law would fund elective abortion, the law expands the role of the Federal Government in funding and facilitating abortion and plans that cover abortion. The law appropriates billions of dollars in new funding without explicitly prohibiting the use of these funds for abortion, and it provides Federal subsidies for health plans covering elective abortions. Moreover, the law effectively forces millions of individuals to personally pay a separate abortion premium in violation of their sincerely held religious, ethical, or moral beliefs.

(8) Until enactment of the law, the Federal Government has not sought to impose specific coverage or care requirements that infringe on the rights of conscience of insurers, purchasers of insurance, plan sponsors, beneficiaries, and other stakeholders, such as individual or institutional health care providers. The law creates a new nationwide requirement for health plans to cover ‘essential health benefits’ and ‘preventive services’, but does not allow stakeholders to opt out of covering items or services to which they have a religious or moral objection, in violation of the Religious Freedom Restoration Act (Public Law 103-141). By creating new barriers to health insurance and causing the loss of existing insurance arrangements, these inflexible mandates jeopardize the ability of institutions and individuals to exercise their rights of conscience and their ability to freely participate in the health insurance and health care marketplace.

(9) The law expands Government control over health care, adds trillions of dollars to existing liabilities, drives costs up even further, and too often puts Federal bureaucrats, instead of doctors and patients, in charge of health care decisionmaking.

(10) The path to patient-centered care and lower costs for all Americans must begin with a full repeal of the law.

SEC. 3. REPEAL OF OBAMACARE.

(a) PPACA- Effective as of the enactment of Public Law 111-148, such Act (other than subsection (d) of section 1899A of the Social Security Act, as added and amended by sections 3403 and 10320 of such Public Law) is repealed, and the provisions of law amended or repealed by such Act (other than such subsection (d)) are restored or revived as if such Act had not been enacted.

(b) Health Care-Related Provisions in the Health Care and Education Reconciliation Act of 2010- Effective as of the enactment of the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), title I and subtitle B of title II of such Act are repealed, and the provisions of law amended or repealed by such title or subtitle, respectively, are restored or revived as if such title and subtitle had not been enacted.

SEC. 4. BUDGETARY EFFECTS OF THIS ACT.

The budgetary effects of this Act, for the purpose of complying with the Statutory Pay-As-You-Go Act of 2010, shall be determined by reference to the latest statement titled ‘Budgetary Effects of PAYGO Legislation’ for this Act, submitted for printing in the Congressional Record by the Chairman of the Committee on the Budget of the House of Representatives, as long as such statement has been submitted prior to the vote on passage of this Act.

With health care reform taking full effect in 2014, health reimbursement arrangements and defined contribution health benefits are expected to become a mainstream employee benefit. A Health Reimbursement Arrangement, or HRA, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses and individual health insurance premiums. A common question about HRAs for a small business is "Can an owner participate in an HRA?" 

Employees and C-Corp Owners can Participate in an HRA

Current or former employees may participate in an HRA and receive reimbursements 100% tax-free.  Owners of C-Corporations may also participate in an HRA. However, employees who are also non-C-Corp "Owners" (e.g. sole proprietors, partners, or S-Corp shareholders that own >2% of the company's shares) may use the HRA platform but may not receive the same amount of tax benefits as non-owners. If the company is an LLC, owner participation varies based on the way the LLC files taxes (i.e. if they file taxes as a partnership, S-Corp, or C-corp). 

Sole proprietors, Partners, or S-Corp shareholders that own >2% of the company's shares can use the HRA Platform to Reimburse Medical Expenses

The non-C-Corp Owners specified above may receive reimbursement from their companies for medical expenses, and they may use the HRA platform to receive and track these reimbursements. However, reimbursements made to Owners must be reported on the owners'/partners' wages (on their W-2 and 1040 forms) subject to federal income tax withholding. These reimbursements are exempt from Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes, similar to profits passed through to the owner. Further, the cost of the reimbursements is a deductible expense to the business, reducing the taxable income of the business and, thus, reducing the taxable income of the owners/partners (because these are flow-through tax entities).

IRS rules limit the deductibility of medical expenses for certain business owners. Using an online HRA software platform enables business owners to secure all income and payroll tax deductions to which they are legally entitled. Additionally, the online platform can tracks expenses to provide information needed for federal and state income and payroll tax filings. 

Note that sole proprietors and other self-employed individuals receive an above-the-line tax deduction for personal health insurance premiums. IRS Notice 2008-1 (see http://www.irs.gov/pub/irs-drop/n-08-01.pdf) clarified that S-Corp owners may only take the self-employed health insurance premium tax deduction (on Form 1040) if the S-Corp pays for or reimburses the owner for the premiums.

Recruiting and retaining great employees is important to every company-from major global corporations to the newest small business. Getting the best people requires you to give them great compensation. Your health benefit plan is a key part of the compensation you offer. A Health Reimbursement Arrangement, or HRA, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses and individual health insurance premiums. A common question about HRAs for a small business is "Can I give different HRA amounts to different employees?" 

Using HRA Classes to Recruit and Retain Employees Makes Business Sense

With salary and other types of compensation, employers routinely compensate groups of employees differently. Field sales people are compensated differently than sales managers. Some employees get company cars, while others earn quarterly bonuses. Because health benefits are such an important part of compensation, why not provide benefits that vary by class of employee?

Employers can use an HRA plan to create employee classes that offer benefits tailored to your company's objectives, transforming your health benefit plan into a tool to find and keep great people.

HRA Classes Example - Recruiting and Retaining Electricians

To illustrate how using classes does this, consider an electrical contracting company who struggled to hire and keep journeymen electricians in a very tight labor market. Instead of offering the same health plan to all employees, the company created separate classes for apprentices and journeymen and gave journeyman $350 more per month in their HRA. This large increase helps the company reduce attrition among journeyman. Plus, it creates a visible incentive for apprentices to complete the education required to become journeymen.

Providing Class-Specific Health Benefits is Clearly Allowed by ERISA and HIPAA

Providing different levels of benefits to classes of employees is at the core of benefits compensation and is routinely done by major corporations. Federal regulations state that "a plan or issuer may treat participants as two or more distinct groups of similarly situated individuals if the distinction between or among the groups of participants is based on a bona fide employment-based classification consistent with the employer's usual business practices." (see 29 CFR §2590.702 at http://law.justia.com/us/cfr/title29/29cfr2590_main_02.html)

To comply with these regulations, employee classes within the HRA must:

• Be based on bona-fide business differences. These may include job categories, geographic location, part-time or full-time status, date of hire, etc.
• Treat all "similarly situated" employees equally. By creating classes based on genuine job categories, all employees within a class will be "similarly situated".
• Not discriminate against unhealthy people. An employer cannot provide inferior benefits to specific individuals with adverse health conditions. 
• Spell out the requirements for classes and benefits in the ERISA plan document.

Here are 10 frequently asked questions (10 HRA FAQs) that outline common health reimbursement account rules.  A Health Reimbursement Account (HRA), also known as a health reimbursement arrangement, is an IRS approved, tax advantaged, health benefit plan that reimburses employees for out of pocket medical expenses and individual health insurance premiums. The HRA is 100% funded by your employer. The terms of these arrangements can provide first dollar medical coverage until the funds are exhausted or insurance coverage kicks in. The contribution amount per employee is set by the employer, and the employer determines what the funds can be used to cover. 

HRA FAQs - Health Reimbursement Account Rules

1. Do I have to have health insurance to have a health reimbursement account (HRA)?

HRAs are usually provided by employers to complement a higher-deductible health plan (HDHP), but can be paired with any type of health plan or offered alone. There is no rule requiring you to have health insurance in order to have a health reimbursement account.

2. Who owns the HRA?

According to IRS rules, your employer.

3. Who can put money in my HRA?

According to IRS rules, HRAs are fully owned and funded by the employer.

4. Does the money in my HRA earn interest?

Typically, no. Under most HRA plan rules, the accounts aren’t individually owned bank accounts that are eligible to earn interest.

5. What is an eligible health care expense for an HRA?

Eligible expenses under an HRA plan are determined by your employer and might include

• Health insurance premiums
• Health insurance deductibles
• Coinsurance and co-pays
• Other expenses included in IRS Publication 502—Medical and Dental Expenses as eligible or qualified expenses

Eligible expenses must be incurred by the employee and/or eligible members of the employee’s family, and take place within the benefit plan year.

6. How much can be contributed to my health reimbursement account? 

The amount contributed to your HRA is up to your employer. 

7. What is the maximum reimbursement amount from my HRA?

The health reimbursement account contribution rules are determined by your employer. Most plans will reimburse eligible expenses up to the full available balance in your HRA. If your plan is based on an accrual, you'll only be reimbursed the amount that you've earned in the plan.

8. What happens to the money in my HRA if I leave my job or retire?

This health reimbursement account rule is up to your employer. Most often, the unused money stays with the company when you terminate employment.

9. Does the money I have in my HRA roll over from year to year?

This health reimbursement account rule is up to your employer. 

10. Can I use the money in my HRA to pay for my family's medical expenses?

Yes. The money in your HRA can be used to pay for eligible medical expenses of any family member who qualifies as a dependent on your tax return. However, the dependent must be covered by your HRA.

Businesses are increasingly looking to Health Reimbursement Arrangements (HRAs) to offer health benefits tax-free while gaining far better control over monthly costs. Not only can an HRA allow an employer to recruit and retain employees, many employers even offer health benefits to 1099 contractors using an HRA.

Whether a business already has an HRA in place, or they are looking to set one up, knowledge is key. Through our employee benefits blog, our free whitepapers and guides, and our dedicated support team, we strive to be the knowledge base for all things Health Reimbursement Arrangements.

What's Covered Under an HRA?

Today, we're publishing the latest rendition of the guide to HRA Eligible Expenses for 2012. This free download can serve as a reference for benefits administrators researching HRAs, as well as those with established HRA plans who may wish to review their setup.

It's important to note that, within IRS guidelines, employers can customize an HRA to fit their particular needs. For example, they may decide to use an HRA for dental expenses only, or to give managers more coverage than seasonal workers. A businesses' individual HRA Plan Document should always be referenced for a specific company's plan coverage.

So, what's covered under an HRA? The list ranges from acupuncture, ambulance and birth control to eye exams, operations, and transplants. It's almost equally important to observe expenses that are NOT qualified, which are also included in the free download.

HRAs are individual health reimbursement arrangements that employers can establish to pay employees’ medical expenses. HRAs must be set up by an employer on behalf of its employees, and only the employer can contribute to an HRA.  HRAs became prevalent after June 2002, when the IRS issued a ruling to clarify their treatment in the tax code. There are many different types of HRAs, and a popular type is referred to as a high-deductible HRA.

High-Deductible HRAs—A Way to Encourage Employees to Adopt High-Deductible Insurance

High-deductible health insurance:

• Can be better for a company because it may save thousands per employee on the premium for their group health plan
• Can be better for employees because they get to choose their medical providers and their type of treatment
• Can be less expensive for most of the employees since the cost is typically less than their out-of-pocket, below-deductible medical expenses

Why Don’t All Employees Choose High-Deductible Plans?

Many employees have received low or no-deductible health coverage from their employer for their entire life. It will take time before some of these employees accept high-deductible health insurance despite the fact that they can save money immediately by switching to a high-deductible policy.

When it comes to healthcare, many healthy employees do not worry about developing an illness—they worry about themselves or a child having an accident costing thousands of dollars in medical expenses. This is one of the biggest reasons that people don’t choose high-deductible health insurance, even when it would clearly save them money.

Another reason people don’t choose money-saving high-deductible health insurance is the fear of a specific disease, like cancer, that may have plagued one of their parents. Of course, cancer and every other specific disease are covered by high-deductible plans, but employees sometimes feel less secure with high-deductible plans, for purely emotional reasons.

Another reason that some people reject high-deductible coverage that would save them money is dental benefits—they simply don’t want to pay out-of-pocket dental expenses regardless of how much more it costs them in premium. This same is true for vision benefits and many other specific medical items.

The solution is a high-deductible HRA that offers first-dollar coverage of $1,000 a year or more for all of these items. Employees incur these expenses and send their receipts to a third-party administrator (TPA) for reimbursement. Any unspent amounts each year are carried forward to be used in future years, but forfeited if the employee leaves the company.

How High-Deductible HRAs Save Employers Money

Let’s assume the current annual deductible on a group plan is $1,000 and the employer wants to raise this deductible to $5,800 so their employees can qualify for HSAs and make the maximum HSA contributions. The insurance carrier would probably lower the group premium by about $1,500 per employee for this large an increase in their deductible.

To make this change acceptable to the employees, the employer offers each employee a $1,000 per year high-deductible HRA in combination with the new high-deductible health plan. The high-deductible HRA pays 100 percent of all medical expenses up to $1,000 a year, with unspent amounts carried forward for future years.

Roughly 80 percent of your employees consume less than $1,000 a year in healthcare—these employees would immediately get up to $1,000 a year improvement in their health benefits, and the company would save $500 in health premiums plus any unspent HRA amounts. Among the remaining 20 percent of employees who consume more than $1,000 a year on healthcare, those who consume $1,000 to $2,000 would also benefit, while those who consume $2,000 to $5,800 in healthcare would have out-of-pocket expenses up to a maximum of $3,800.

In addition to having a high-deductible HRA, an employer can have an unlimited number of similar HRAs to cover almost whatever they wish. These are typically used to keep an employee benefit that is being removed from their group health plan or being lost by switching from defined benefit group health insurance to defined contribution individual/family policies.

Supplemental HRAs for Dental

For example, an employer might be facing a 20 percent or greater increase in their group health insurance plan premium and want to switch carriers—but the more affordable carrier they select may not offer a specific benefit, like dental coverage, that is popular with the employees. The solution is to accept the lower-cost carrier and offer a supplemental HRA to cover this benefit. 

Dental, Vision, and Other Items—Filling the Gaps in Group and Individual/Family Health Insurance with HRAs

Another popular use for a supplemental HRA would be to smooth the transition from a defined benefit to a defined contribution plan by covering items not covered by individual/family policies. 

The Affordable Care Act (ACA) requires that insurers spend a minimum amount of the premium they collect on medical claims and clinical expenses. If the minimum threshold is not met, insurers will rebate a portion of the premium paid during the calendar year to the policyholder. To determine if insurers are meeting these requirements, the law requires insurers to calculate and report annually their medical loss ratio (“MLR”) to the federal regulatory agency. The MLR provisions within the PPACA became effective January 1, 2011, but the MLR will first be calculated and reported with rebates issued in mid-2012.  Per federal guidelines, rebates must be sent to applicable groups by August 2012. A notification letter will be sent with all rebates. This 5 Minute Guide to Medical Loss Ratios (MLRs) should give you a solid understanding of the MLR requirements.

How is MLR calculated?

The MLR calculations are defined within the PPACA regulations. All insurers must calculate the MLR using the same methods and must make certain government-specified adjustments to the MLR for claims, premium, taxes and quality improvement expenses. Generally, the MLR is expressed as a percentage and is calculated by dividing an insurer’s claims paid plus expenses related to quality improvement by the premium collected less any taxes or fees associated with that premium.

Example: If an insurer paid out $850 in allowable expenses ($800 in claims and $50 in quality expense) related to $1,000 in adjusted premium ($1,050 premium less $50 in taxes and fees) the calculated MLR would be 85.0% (850/1000=85.0%). In general, the minimum MLR is 80% for the Individual and Small Businesses and 85% for Large Businesses.

How are Group Market Segments defined?

The group market (subdivided into Small and Large Groups) is defined as a health insurance policy whereby an individual obtains health insurance coverage through a group health plan maintained by an employer. 

In general, a Small Group under PPACA is defined as any group that has between 1-100 employees; however, for MLR reporting, the Federal Government has said that until 2016 if a state defines small employer as an employer having up to 50 employees, insurers should use 50 as the upper limit for that State's experience unless the State indicates otherwise. Therefore a small group is defined as between 1-50 employees for MLR reporting unless the state has indicated otherwise.

In general, a large group under PPACA is defined as any group with 101 or more employers; however, for MLR reporting, the Federal Government has said that until 2016 if a state defines small employer as an employer having up to 50 employees, insurers should use 50 as the upper limit for that State's experience unless the State indicates otherwise. Therefore, a large group is defined as 51+ employees for MLR reporting unless the state has indicated otherwise.

What plans/markets will be impacted?

Effective January 1, 2011, all fully-insured medical products are subject to the MLR regulations of the ACA. Self-insured commercial plans are exempted from the minimum MLR requirement. 

Who will get rebates?

In cases where the minimum MLR percentage is not met, insurers will issue rebates to the policyholders. Rebates will be issued based on the difference between the calculated MLR percentage and the target MLR. For example:

• If the minimum MLR is 80% for the Small Group or Individual market in a given state and the PPACA-prescribed calculated MLR for a legal entity was 78%, a 2% rebate would be issued to all Small Group policyholders of that legal entity in that state.
   
• If the minimum MLR is 85% for the Large Group market in a given state and the PPACA-prescribed calculated MLR for a legal entity was 83%, a 2% rebate would be issued to all Large Business policyholders of that legal entity in that state.

Unlike the MLR percentage calculation, the rebate dollar amount will be calculated based on the amount of premium paid by the individual policyholder less any taxes or fees associated with that premium. In the example above, if a policyholder paid $1,000 in premium and the insurer paid $50 in taxes related to that premium, the 2% rebate percentage would be applied to a basis of $950 for a total rebate of $19. Rebates for other policyholders within the state-legal entity-market segment aggregation will be similarly calculated.

How will rebates be distributed and how can they be used?

The ACA also provides guidance on how the rebates can be distributed to policyholders and how the rebates may be used. If an employer is the policyholder, rebates will typically be issued directly to the employer. In general, the group/policyholder must utilize the rebate for the benefit of employees in accordance with guidance provided by the Department of Labor. 

What are the MLR reporting requirements?

For each year the MLR is calculated, insurers must file reports with the Department of Health and Human Services (HHS). The reports include data on medical claims, collected premiums, costs incurred to improve health care delivery and quality, and adjustments that exclude certain administrative costs. 

As 2014 approaches, more and more employers will begin offering Health Reimbursement Arrangements (HRAs) as employee health benefit programs. Employers must follow specific rules when offering an HRA to employees. Here's an overview of the most important health reimbursement arrangement rules.

HRA Plan Design Rules

HRAs are very flexible, allowing an employer to design the health reimbursement arrangement from scratch to meet the exact needs of the company and the employees.  The employer makes the determination on what types of IRS-qualified health care expenses can be reimbursed through the HRA plan. See a full list of HRA eligible expenses. An employer may decide to limit certain type of expenses by expense category, which includes the removal (or inclusion) of expenses such as dental, vision, and pharmacy and the placement of a cap on the dollars that may be used for each expense category.  For example, some common plan designs include the following:

1. Deductible HRA: HRAs designed to only reimburse medical expenses that apply to an underlying health plan's deductible. 

2. All Medical Expense and Insurance Premium HRA: HRAs designed to reimburse all out-of-pocket medical expenses including health insurance premiums.

3. Limited-Purpose HRA: HRAs designed to cover specified expenses only (such as dental or vision).

HRA Rollover Rules

With an HRA, unused fund amounts may be carried over from year to year. Employers have full control over how the roll-over is managed. For example, the employer determines whether all or only a portion of unused funds carries over to the next year.  Similarily, the employer may determine that all fund balances reset to zero after the close of a HRA plan year.

HRA Substantiation Rules

HRA reimbursement requests must be substantiated. The most common documentation used for HRA substantiation is the EOB (Explanation of Benefits) statement provided by a health insurance company.  If an EOB is not available, a copy of a receipt or bill identifying the date of service, amount of service, and the provider of service is typically used as documenation.

HRA Reimbursement Rules

The reimbursable medical expenses should be outlined in the health reimbursement arrangement plan document. Acceptable expenses include medical, dental, vision and pharmacy costs. Additional qualifying expenses include premiums for health insurance payments and expenses for long-term care.

HRA Participation Rules

Employers that offer health reimbursement arrangements must adhere to federal rules regarding HRA participation and eligibility. An employer cannot exclude employees from health reimbursement arrangements based upon personal characterics (e.g. race, age, national origin, religion, or gender).  The employer can base HRA eligibility on bona-fide job criteria such as hours worked per week, job classifications and date of hire.

HRA Funding Rules

All contributions to an HRA must be funded by the employer. An HRA cannot be tied to any reduction of employee compensation. There is no limit on the amount an employer may contribute to an HRA.

HRA Tax Rules

Distributions from an HRA may be made to current and former employees, spouses and dependents of those employees.

Distributions for qualified medical expenses from an HRA are not included in the taxable income of employees. No federal income taxes or employment taxes are payable on HRA distributions. 

HRA COBRA Rules

HRAs are subject to COBRA. Employees experiencing a qualified event should be given the opportunity for continued participation in the HRA offered by the employer. If an employee experiences a COBRA qualifying event and makes a COBRA election for the HRA, the employer determines the premium amount the employee must pay to continue participation.

HRA HIPAA Privacy Rules

An HRA plan is a self-funded health plan and is governed by HIPAA Privacy Rules. In order to administer an HRA, the entity processing employee claims receives protected health information (PHI) that is protected by HIPAA. Employers that offer a fully-insured health plan and sponsor an HRA often overlook their HIPAA Privacy obligations and rely on the insurance carrier to comply with the HIPAA Privacy Rules.  HRA compliance obligations, however, rest with the employer. Employers that do not comply can be subject to civil penalties of up to $100 per violation.

HRA FSA Coordination Rules

An employer may choose to offer a Flexible Spending Account (FSA) plan in conjunction with an HRA. In a situation where an incurred medical expense could be reimbursed from either the FSA or HRA, the employer or plan administrator must determine the "ordering rules" which determine which plan (FSA or HRA) the expense shall be reimbursed from first.

From a health care provider's perspective, the fastest way to increase cash flow and improve collection rates is to collect patient payment up front. According to many providers, patients are less inclined to pay and / or are difficult to reach once the services have been performed. In this  video, Michelle Andrews answers the question about providers requesting advance payment for medical tests and other services from a consumer's perspective.  What do you think?

The Department of Health and Human Services (HHS) released a pre-rule bulletin in December to outline their intended regulatory approach to defining Essential Health Benefits. As a follow-up, HHS recently released an FAQ document to provide additional guidance on the approach. Specifically, the FAQ document provides clarification regarding which groups of health plans do and do not have to offer essential health benefits in 2014.

Groups who DO have to cover essential health benefits in 2014

• Plans on the exchange
• Non-grandfathered individual health care plans
• Non-grandfathered, fully insured small group health plans

Groups who DO NOT have to cover essential health benefits in 2014

• Self-insured health plans (including health reimbursement arrangements)
• Grandfathered health plans
• Non-grandfathered, fully insured large group health plans

According to the FAQ, these plans are permitted to impose non-dollar limits, consistent with other guidance, on essential health benefits as long as they comply with other applicable statutory provisions. In addition, these plans can continue to impose annual and lifetime dollar limits on benefits that do not fall within the definition of essential health benefits.

Click here to read the full FAQ

According to HHS, U.S. health insurance companies will pay approximately $1.1 billion in medical loss ratio (MLR) rebates in 2012. Many individuals received their rebate over the past weekend. My rebate was $211.18, which was nearly a 20% refund! What was yours?

According to HHS, Americans covered by insurance companies that failed to meet the MLR standard will receive an average rebate of $151 per family across all markets. The average rebate per family is expected to be $152 in the individual market, $174 in the small group market, and $135 in the large group market. Approximately 66.7 million consumers are insured by an insurance company that provides the required value for their premium dollars.  This means that a large majority of consumers are insured by companies that meet or exceed the MLR standard:  62% of consumers in the individual market; 83% in the small group market; and 89% in the large group market.

Rebates must be paid by August 1, 2012. 

The full press release is available at healthcare.gov.  See below for some interesting charts and graphics.

Did you receive a rebate?

Appendix I: Total Rebates in All Markets for Consumers and Families, by State 

U.S. businesses have traditionally paid premiums to insurance companies to cover workers with a single "defined benefit" group health insurance plan. However, due to changes in the individual market, most of these businesses will consider switching to a "defined contribution" health benefits program, where employers give workers a monthly allowance to purchase their own "individualized" coverage through a private or public health insurance exchange.

Health Reform Provides Massive Federal Subsidies for Individual Policies

Under the health law, individuals or families making as much as four times the U.S. poverty level -- that's approximately $90,000 for a family of four -- are eligible for health insurance premium subsidies. In states that don’t set up exchanges, a federally run national site will take over.

Public Health Insurance Exchanges are Being Developed Now for 2014

The development of the public health insurance exchanges for 2014 is under way. These public exchanges will provide new opportunities for health insurance companies and brokers to provide new, value-added services. Similarly, private health exchanges, which have been around for years, are adapting their services for employers and defined contribution.

Below are 5 key questions brokers, health plans and businesses should be prepared to discuss during the upcoming renewal periods.

1. Broker Role: How can insurers and brokers integrate and/or coordinate with federally run health insurance exchanges?

2. Public exchanges: What insurance options will be available in public health exchanges?

3. Defined contribution: How can employers, insurers and broker adopt defined-contribution platforms?

4. Employer Penalty: First, Does it apply? Then, based on the comparitive costs of "paying or playing", should the employer provide qualified, affordable coverage or provide a defined contribution plan and pay the penalty? 

5. Private exchanges: What role will private health exchanges play in 2013, 2014 and beyond?