Author Anthony Nefouse

Section 9006 of the health care bill — just a few lines buried in the 2,409-page document — mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

It has now come to light what a burden this aspect of the health care reform is going to have on small business.

Democrats and Republicans want to repeal it, but getting them to work together on the issue is proving difficult in an election year. 

Republicans want to repeal the filing requirement and pay for it by changing other parts of the new health-care law, a strategy that Democratic leaders won’t support. Democrats want to repeal the filing requirement and pay for it by raising taxes on international corporations and limiting taxpayers’ ability to use special trusts to avoid gifts taxes. Republicans won’t support that.

The House rejected the Democratic bill Friday after Democratic leaders brought it up under a procedure that requires a two-thirds majority for approval. The vote was 241-154, with nearly all Democrats voting in favor of the bill and nearly all Republicans opposed.

Its important to note that both political parties recognize how this law is going to impact small business. Both sides are willing to repeal it but have different ideas on how to make up the funding. This is very important because there will be many more debates on aspect of the health care reform that will need to be appealed or changed.

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Under the health care reform all children under 19 can not be declined or pre x on a health plan. Everyone in the industry had major concerns over this issue.  One of the big concerns was parents would wait until the child had a health care crisis and then enroll them on the plan.  It was just released that carriers are now going to be able to have open enrollments for these types of plans. That means the child can get the plan without underwriting but only once a year.

We are now starting to see the reality of what can and cannot be done under the health care reform. In the last few months almost every Individual carrier pull out of the stand alone child market.  Not only did we see regional carriers pull out but we also saw national carriers.  When national carriers pull out of a  market that is the a huge red flag because they have large reserves. It will be interesting to see if the carriers that pulled out get back in.

Another aspect that might be interesting is the premium for those stand alone policies during the open enrollment period. Will that policy cost more?

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Effective first of the plan year or after September 23, 2010 , health plans will have in effect internal claims appeal procedures. Each plan must allow the insured to review his or her plan to present evidence and testimony as part of the appeal process.

So what this means is if carrier declines a claim the insured now has the right to appeal the claim from an independent source. If the independent source declines the claim the insured can this go to the Department of Insurance and appeal the claim in person. So some could give their testimony in person to appeal the claim.

This would have a huge impact on experimental treatment.  Almost all plans exclude experimental treatment but now the insured has a right to appeal the denied claim. For example if a family had a child that need a experimental heart transplant and received the treatment and the claim was denied. Now that family has multiple sources to appeal the claim.  There is a very good possibility that if a family appeals that claim in person the chance of it being declined is a lot less. Who would decline a claims that saved a child’s life?

Now this does create some situations for groups that are self funded that use reinsurance.  It is vital going forward that the contract states the re insurance will pay for that claim if its appealed and won. Other wise you could have a group that is self funded that is now responsible for paying for a very large claim. So any group that has re insurance contracts in place should be looking at the at this aspect very closely.

If a group is grandfathered in then they do not have to comply with this requirment of the health care reform.

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As we move forward with health insurance reform small group plans with under 50 employees may be dropping health plans all together in 2014.  There is still going to be a need and desire for employee benefits. These future employee benefit packages are going to come in the form on non-medical benefits. This would Long Term Disability, Short term disability, Dental, Vision, Life and supplemental policies. Metlife came out with a study on how to keep your employee happy/loyal should you drop the group health plan. The purpose of these type of benefit packages is show the employee that the company is still investing in them.

According to MetLife’s 8th Annual Study of Employee Benefits Trends, 43% of all employees agree that benefits are a very important reason why they remain with their employers. This number drops to 31% for employees at smaller companies.

While healthcare legislation has grabbed the attention of small business owners and brokers, it is important to recognize that health coverage may become less of a differentiator when it comes to hiring, retaining and motivating workers. Non-medical benefits – like dental, disability, life insurance – and voluntary offerings will likely play an increasingly significant role in driving employee loyalty, retention and engagement.

Building a Better Benefits Program Without Breaking the Budget: Five Practical Steps Every Small Business Should Consider outlines steps that small business owners can take to strengthen their non-medical benefits program and optimize benefits value:

1. Manage costs for dental, disability and life insurance while increasing employee loyalty. Many small business owners underestimate the value that their employees place on non-medical benefits like dental, disability and life insurance. While 59% of small business employees say these benefits contribute to their feelings of employer loyalty, only 34% of employers recognize this. The resource outlines ways that employers can control their budgets while still offering benefits that drive loyalty.

2. Deliver budget-conscious wellness programs to aid productivity and help control medical costs. While 61% of larger employers offer wellness programs, just 22% of small companies offer the programs. However, 67% of small businesses believe wellness programs are effective at reducing medical costs. Low-cost options can be implemented by small businesses to help create a culture of health and control long-term costs. Options can include leveraging local health organizations and associations that can help to educate employees on healthy behaviors, or providing convenient access and time off to participate in wellness programs like weight loss, exercise and smoking cessation.

3. Help employees become financially secure and support productivity goals at the same time. About one in five small business employees admits that in the last 12 months, he/she has taken unexpected time off to deal with a financial problem or taken more time than should be spent at work to deal with personal financial issues. In fact, 64% of small businesses strongly believe that employees’ productivity is impacted when they are worried about personal financial matters. Small businesses can consider tapping into local financial institutions and services to provide retirement and/or financial planning options during work hours, or provide access to web-based financial resources for their employees.

4. Simplify benefits communications for greater benefits effectiveness. Only one in five small business employees believes that his/her employers’ benefits communications effectively educate the employee about their benefits programs. The resource gives best practices for benefits communication including using multiple channels, removing jargon, and making messages relevant to key life events or life stages. Employers can also beta test communications to listen and learn from their employees prior to launching a full communication campaign.

5. Leverage small business workplace advantages for increased worker loyalty. The MetLife Study found a loyalty gap in that nearly two-thirds of small businesses say they feel very loyal toward their employees but only about one-third of employees feel their employers have that strong sense of loyalty. Small business employers can take advantage of their company culture to foster an environment where work-life balance, which garners employee loyalty.

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The major health carriers have developed a kind of efficiency rating for doctors and hospitals. These rating systems are directly communicating with the consumer.  The rating systems show price of a procedure and quality of care. So if an insured wants to look up how many times a doctor has performed a certain procedure they can.  They can also view the complication rate from that doctor or facility on that particular procedure.

The American Medical Association is stating that the Rating Measures are wrong up to 25% of the time. This is a very high % if they are correct. The Wall Street Journal confirmed that one of the studies that reported this high % was funded by the AMA.

What we are seeing from the top health insurance carriers is they are developing health plans that want you to use the top rated doctors and facilities. These plans will have less cost to the insured if they use the preferred doctors.

So now it seems that the health care providers are not happy that the insured can now look up the cost of the procedure and the quality of care that doctor provides. All of these types of plans were developed pre health care reform so it will be interesting to see if this type of health care information will continue to be available to the consumer. Recently the HHS launched a site that also gives a quality of care. So at this point there is not just the carriers programs available but now a free service to shop health care.

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With the health care reform we are now going to see plans required to cover preventive care. It should be very interesting to see what kind of impact these coverages have on premium. There is no doubt that these additional coverage will increase premium. The problem right now is no one knows what kind of premium increase these coverages are going to have. From a long term standpoint if everyone takes advantage of these first dollar benefits will it reduce costs? If someone can catch a health problem early then the treatment can be much more effective which could reduce larger treatments down the road. In the short period we all pay more in premium.

“If you have a new health insurance plan or insurance policy beginning on or after September 23, 2010, the following preventive services must be covered without your having to pay a copayment or coinsurance or meet your deductible, when these services are delivered by a network provider.”

Covered Preventive Services for Adults

Abdominal Aortic Aneurysm one-time screening for men of specified ages who have ever smoked
Alcohol Misuse screening and counseling
Aspirin use for men and women of certain ages
Blood Pressure screening for all adults
Cholesterol screening for adults of certain ages or at higher risk
Colorectal Cancer screening for adults over 50
Depression screening for adults
Type 2 Diabetes screening for adults with high blood pressure
Diet counseling for adults at higher risk for chronic disease
HIV screening for all adults at higher risk
Immunization vaccines for adults–doses, recommended ages, and recommended populations vary:
Hepatitis A
Hepatitis B
Herpes Zoster
Human Papillomavirus
Measles, Mumps, Rubella
Tetanus, Diphtheria, Pertussis
Obesity screening and counseling for all adults
Sexually Transmitted Infection (STI) prevention counseling for adults at higher risk
Tobacco Use screening for all adults and cessation interventions for tobacco users
Syphilis screening for all adults at higher risk

Covered Preventive Services for Women, Including Pregnant Women

Anemia screening on a routine basis for pregnant women
Bacteriuria urinary tract or other infection screening for pregnant women
BRCA counseling about genetic testing for women at higher risk
Breast Cancer Mammography screenings every 1 to 2 years for women over 40
Breast Cancer Chemoprevention counseling for women at higher risk
Breast Feeding interventions to support and promote breast feeding
Cervical Cancer screening for sexually active women
Chlamydia Infection screening for younger women and other women at higher risk
Folic Acid supplements for women who may become pregnant
Gonorrhea screening for all women at higher risk
Hepatitis B screening for pregnant women at their first prenatal visit
Osteoporosis screening for women over age 60 depending on risk factors
Rh Incompatibility screening for all pregnant women and follow-up testing for women at higher risk
Tobacco Use screening and interventions for all women, and expanded counseling for pregnant tobacco users
Syphilis screening for all pregnant women or other women at increased risk

Covered Preventive Services for Children

Alcohol and Drug Use assessments for adolescents
Autism screening for children at 18 and 24 months
Behavioral assessments for children of all ages
Cervical Dysplasia screening for sexually active females
Congenital Hypothyroidism screening for newborns
Developmental screening for children under age 3, and surveillance throughout childhood
Dyslipidemia screening for children at higher risk of lipid disorders
Fluoride Chemoprevention supplements for children without fluoride in their water source
Gonorrhea preventive medication for the eyes of all newborns
Hearing screening for all newborns
Height, Weight and Body Mass Index measurements for children
Hematocrit or Hemoglobin screening for children
Hemoglobinopathies or sickle cell screening for newborns
HIV screening for adolescents at higher risk
Immunization vaccines for children from birth to age 18 —doses, recommended ages, and recommended populations vary:
Diphtheria, Tetanus, Pertussis
Haemophilus influenzae type b
Hepatitis A
Hepatitis B
Human Papillomavirus
Inactivated Poliovirus
Measles, Mumps, Rubella
Iron supplements for children ages 6 to 12 months at risk for anemia
Lead screening for children at risk of exposure
Medical History for all children throughout development
Obesity screening and counseling
Oral Health risk assessment for young children
Phenylketonuria (PKU) screening for this genetic disorder in newborns
Sexually Transmitted Infection (STI) prevention counseling for adolescents at higher risk
Tuberculin testing for children at higher risk of tuberculosis
Vision screening for all children

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This is the clearest explanation that I could find on the health care tax credit. This information was put together by 15 attorneys that specialize in interpreting these types of laws. This is very complicated. What was spun as a simple tax credit is very difficult to qualify and understand.  A small business might end up spending more on professional services to get the credit than what the tax credit is worth.


Who is Eligible for the Credit? To be eligible for the Credit, an employer must be an “eligible small employer” for the year – requiring all 4 criteria to be satisfied:

1. taxable employer or a 501(c) tax-exempt employer (e.g., colleges and universities);

2. fewer than 25 full-time equivalent employees (“FTE”) for the taxable year;

  • • FTE: In order to determine the number of FTEs, the employer must divide the total “hours of service” (but not more than 2,080 hours for an employee) of the”employees” by 2,080, and round down to the next lowest whole number.
  • • Employees: For this purpose, count employees who perform services for the employer (which is a controlled group concept), excluding (1) partners, soleproprietors, 2% S-corp. owner, and 5% owners (along with any family members),and (2) seasonal employees unless they work more than 120 days during the taxable year (but always count these premiums).
  • • Hours of Service: Hours include (1) each hour for which an employee is paid, orentitled to pay, for work performed; and (2) each hour for which an employee is paid, or entitled to pay, for periods the employee did not perform work due to a vacation, holiday, illness, incapacity disability, layoff, jury duty, military duty or leave of absence (maximum 160 hours for a single continuous period). This calculation may be a challenge depending on your pay types and payroll records;therefore, the IRS permits using either an 8 hours/day or 40 hours/week equivalency (which should be considered if it lowers the hours). We recommend reviewing the available options with your payroll department.

3. “average annual wages” for FTEs must be less than $50,000; and

  • • Average Annual Wages: The employer divides the total Medicare wages paid by the employer for the “hours of service” during the taxable year by the number o FTEs, rounded down to the nearest $1,000. Unfortunately, this may not simply line up with box 5 of the W-2 because this is only wages attributable to “hours of service.”

4. employer pays “health insurance coverage” through a “qualifying arrangement.”

  • • Heath Insurance Coverage: The Notice provides an expansive list of medical care coverage (whether insured or self-funded, which should include HRAsand HSAs), including HMO/PPO, dental, vision, long-term care, nursing home care, specified disease or illness, hospital indemnity, and Medicaresupplemental. The list excludes, among others, accident or disability insurance and worker’s compensation insurance. Importantly, the credit only covers employer paid premiums and does not include employee pre-tax or post-tax payments (e.g., section 125 payments are not eligible). Also, in general, State tax credits or premium subsidies are counted as employer paidpremiums and will not negatively affect the amount of the Credit.

• Qualifying Arrangement: The employer pays a uniform percentage of not less than 50% of the premium cost for the coverage. (Each type of coverage is tested separately for this purpose.) For 2010, the employer only needs to pay an amount equal to at least 50% of the premium for single (employee-only) coverage for each enrolled employee, and all premiums paid in 2010 will count (even if paid prior to the March 23, 2010 enactment date).

What is the Amount of the Credit? The maximum Credit is currently 35% of the employer paid “health insurance coverage” premiums (25% for tax-exempt employers). The maximum Credit is increased to 50% beginning in 2014 but will only be available if the coverage ispurchased through the Exchange. Importantly, the Credit is phased out rather quickly if the employer has more than 10 FTEs or the “average annual wage” exceeds $25,000. The following steps can be taken to calculate the 2010 Credit:

Step 1: Determine that you meet the definition of “eligible small employer” for the year.

Step 2: Determine the employer portion of the premium paid for the year for each “employee” (which includes any State subsidy).

Step 3: Take the lesser of Step 2 amount or the employer’s percentage of average small group market rates set forth in Revenue Ruling 2010-13 (by State) for each “employee” and sum this amount.

Step 4: Multiple Step 3 amount by 35% (25% for a tax-exempt employer).

Step 5: For a tax-exempt employer, enter the smaller of Step 4 amount or the aggregate federal income tax withholding and employer and employee share of Medicare taxes paid/withheld for the year (which will likely require a review of Form 944 and again help from your payroll department). For a taxable employer, enter the amount from Step 4.

Step 6: Reduce Step 5 amount by the sum of: (1) if more than 10 FTEs: (FTE – 10)/15 x Step 5, and (2) if “average annual wages” exceeds $25,000: (“average annual wages” – $25,000)/$25,000 x Step 5. (If negative, then the Credit is zero and stop here.)

Step 7: Reduce Step 6 amount to not exceed the employer’s net premium payments if State credits or subsidies for health insurance are available to the employer (e.g., amount actually paid by the employer excluding the State subsidy).

How is the Credit Claimed? For taxable employers, the Credit is claimed on the employer’s annual income tax return (e.g., Form 1120 and presumably Form 3800) a nonrefundablegeneral business tax credit (which can be carried forward 20 years and may offset AMT). Note that a deduction for the health care costs is not permitted for the amount of the Credit, which should be considered when determining the value of the Credit. For tax-exempt employers, the IRS is still working on how to receive the refundable credit (e.g., likely Form 990-T to offset unrelated business income tax or result in a refund, but for small employersthat may rarely file Form 990-T, a new schedule to Form 990/990-EZ would be preferred). When valuing the Credit for these employers, the loss of the deduction is not a factor but theCredit is limited to the annual employment taxes (federal income tax withholding andemployer and employee share of Medicare tax), which may impact the value of the Credit. Importantly, for all employers, the Credit has no impact on employment tax forms/deposits(e.g., no impact on Form 944 or related deposits), which is a which is a helpful clarification.

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The medical loss ratio (MLR) is the most important aspect of healthcare reform. This interpretation of this law is going to determine if the private industry stays in business. The one positive thing is the NAIC is in charge of interpreting the MLR.

The National Association of Insurance Commissioners was charged by Congress with considerable implementation responsibilities relative to PPACA, and NAHU continues to work with state regulators and the NAIC on a weekly basis on implementation issues of concern to health insurance agents and brokers. The primary issue the NAIC is currently working on of key interest to NAHU and its members is the crafting of definitions relative to what health insurance services will be covered by the PPACA’s minimum loss ratio (MLR) requirements.  

The law gives the NAIC until December 31 to craft the MLR definitions, but HHS has requested that the NAIC complete its work early so that necessary regulations relative to MLR implementation can also be developed. HHS originally asked that the NAIC complete its work by June 1, but the NAIC rejected the timetable, stating it was too tight. Initially, the NAIC said they hoped to get their final work product to HHS by the end of July. However, during a conference call yesterday, Commissioner Steve Ostlund, chair of the NAIC’s Accident and Health Working Group, which is the primary committee within the NAIC working on the definitions, backed away from the end-of-July timeframe. While he was clear that the group will finish its work well in advance of December 31, he refused to specify exactly when they will finish. 

The NAIC committees addressing this issue meet via conference call on at least a weekly basis, and the group is holding an interim meeting on the MLR issue in Washington the week of July 18. The NAIC will also hold their regularly scheduled meeting in Seattle from August 14-17, and NAHU will continue to be an active participant in all of these calls and meetings. Our most recent letter to the NAIC on the MLR issue was sent in conjunction with the entire Agent/Broker Alliance and can be found here.

In addition to the MLR issue, the NAIC is also charged with crafting a sample of the notice all health insurers must send to customers by March 2012 outlining plan benefits and costs. The goal of the NAIC committee is to translate complicated insurance-related terms and benefit information into summaries that can be easily digested by consumers. PPACA required the NAIC committee to be made up of not just insurance regulators, but also interested parties like insurers and consumer groups. NAHU CEO Janet Trautwein was appointed by the NAIC as one of the statutory working group’s formal members to represent the interests of health insurance agents and brokers.

The law gives the NAIC group until March 2011 to craft their sample forms, and the committee has begun meeting on a biweekly basis to accomplish that task. As with the MLR definitions, HHS has requested that the committee finish its work early—by the fall of 2010. NAHU will keep you apprised of the committee’s progress on the sample notices via future editions of Washington Update.  

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The Government website has just released a free service for comparing hospitals services.

This tool provides a listing of Indianapolis hospitals,  and 44 quality measures.

This kind of information is cutting edge when it comes to healthcare. Recently companies like Anthem and Unitedhealthcare have released these kinds of tool to their clients. Now everyone can access this type of information to help make informed healthcare decisions.  This is really important because if  you are going to have a surgery you should have the best Doctor and facility to perform that procedure.

One way to reduce healthcare costs is to use the best care aviable . We all know complications leads to higher costs and personal discomfort.

So if you or a loved one is in need of hospital services take advantage of this tool.

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As we move through and have a better understanding of this very complicated health care reform it becomes clearer the disconnect from the white house and real life.  This is so complicated and the effects are only going to raise costs.

For Small group health plans there is very little chance they can be grandfathered in. These small group plans are unable to keep their current plan designs and not do more cost shifting.  Once these groups have to have plans that have the additional coverages force on them this is only going to raise premium.  These are increase that small groups can’t afford. The Reform is giving small groups tax credits but very few groups are going to qualify for those tax credits once  you read the small print.

When the health exchanges open in 2014 no one will be able to afford them without tax subsidies. How can you offer such rich benefit plans and think it will bring down premiums?

The launch of the High Risk Pool plans is a perfect example of how these law makers did not use math. Right now the prediction on the high risk pool plans cost is anywhere from $600-$900 a  month for single coverage and there is a 3-6 month wait until pre x is covered and you have had to go without coverage for 3-6 months. The White House is clueless on the reality of a high risk pool.  First off  very few will be able to afford the plan. The other problem is the waiting period for benefits to kick into place.  This is another huge example of disconnect.

In my experience $900 a month premium is a very real possibility once the exchange goes into effect. When we look at states like Mass and NY where they are already practicing Guaranteed issue type policies we have big problems there. One is a complete lack of carrier competition. They carriers can not make any money in fact most of them lose money operating in those markets. So you end up with one or two carriers that are charging $2,800 a month for a family plan. I am afraid we are on a fast track to see these kinds of premiums.

The next big issue for this month is Medical Loss Ratio (MLR). This law is going to force the carriers to pay 80%-85% of the premiums towards claims or refund a portion of the premium.  We could see private carriers forced out of business on this one. The problem with doing an MLR on a case by case scenario is one group might be health and the other one has huge claims.  At the end of the day the carriers is making a profit because the healthy groups help to offset the sick ones.  Once again the White House with total disconnect to the industry could destroy the private carriers in a very short time period.

There is no doubt that health care and health insurance is a very complicated problem but I am affraid the healthcare reform package is taking us in the wrong direction.

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