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Q7, Q 11, and MEC. What is Medical Insurance For?

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Q7, Q 11, and MEC

SEAC Spring Meeting 2014

James H. Baum, MAAA

What is Medical Insurance For?

Old School View

Insurance for costs of

treatment of illness or

injury

Carrier acts as utilization

manager

New School View

Insurance to Maintain

Health

– Wellness

– Preventative

More patient cost share on

treatment of sickness and

injury, to get the patient to

act as utilization manager

(2)

ACA – The Journey Continues

We have to pass the bill so you can find out

what is in it, away from the fog of the

controversy.

Nancy Pelosi

Questions about Mysterious

Health Insurance Law

(3)

? And The Mysterians

http://www.youtube.com/watch?v=R7uC5m-IRns

The group took its name from the 1957

Japanese

science fiction

film

The Mysterians

, in which aliens

from the destroyed planet Mysteroid arrive to

conquer Earth, and may have been the first group to

be described as

punk rock

.

[2]

They were also the first

Latino rock

band to have a mainstream hit record in

the United States with 1966's "

96 Tears

"

ACA Requirements

Minimum Essential Coverage (MEC)

Minimum Value

Affordable

(4)

Minimum Essential Coverage

Minimum Essential Coverage includes:

• Government sponsored programs including: Medicare, Medicaid, Children’s Health

• Insurance Program coverage (CHIP), TRICARE, coverage through Veterans Affairs,

• and Health Care for Peace Corps volunteers;

Employer-sponsored plans including governmental plans, grandfathered plans and other plans offered in the small or large group market;

• Individual market plans, including grandfathered plans; or

• Other coverage designated as minimum essential coverage by HHS and/or the Dept. of the Treasury.

PPACA § 1501, IRC §5000A(f)

Minimum Essential Coverage

More defined by Where From than What

Must include Preventative Care Requirements

of ACA

Satisfies the Individual Mandate Penalty (Tax)

and the $2,000 No Coverage Offered Employer

Mandate Penalty (Tax)

(5)

Individual Tax Penalty

The annual penalty for not having

minimum

essential coverage

will be the

greater of

a flat

dollar amount per individual

or

a percentage

of the individual’s taxable income. For any

dependent under the age 18, the penalty is

one half of the individual amount.

Individual Tax Penalty

The flat dollar amount per individual is $95 in 2014;

$325 in 2015 and $695 in 2016. After 2016, the flat

dollar amount is indexed to inflation. The flat dollar

penalty is capped at 300% of the flat dollar amount.

The percentage of taxable income is an amount equal

to a percentage of a household’s income (as defined by

the Act) that is in excess of the tax filing threshold

(6)

Minimum Essential Coverage

(Preventive Only)

MEC Preventative Only Plans allow Individuals to

meet their coverage responsibilities under ACA at

low/no cost

MEC Preventative Only Plans allow Employers to

avoid $2,000 per FTE employer penalty at low/no

cost.

May be a recruitment tool for workers not

interested in funding their share of a MVP Plan

New Law Redefines Playing Field

What Government Wants

– More People Covered

– Emphasis on Preventative

What Employers Want

– Low Cost Solutions

– Attract and Retain Workers

What Employees Want

– Some want protection from the high cost of major illness or injury

– Some want meaningful First Dollar Coverage

(7)

Private Sector Reaction to Government

Imposed New Rules

MEC Preventative Only & Fixed Indemnity

Everyone’s happy- End of Story

But Wait!!

FAQS ABOUT AFFORDABLE CARE ACT

IMPLEMENTATION (PART XI)

January 24, 2013

• Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of various provisions of the Affordable Care Act. These FAQs have been prepared by the Departments of Labor, Health and Human Services (HHS), and the Treasury

(collectively, the Departments). Like previously issued FAQs

(available at http://www.dol.gov/ebsa/healthreform/), these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended.

(8)

Fixed Indemnity Insurance

Fixed indemnity coverage under a group health plan

meeting the conditions outlined in the Departments’

regulations3 is an excepted benefit under PHS Act section

2791(c)(3)(B), ERISA

3

See

26 CFR 54.9831-1(c)(4), 29 CFR 732(c)(4), 45 CFR

146.145(c)(4). 5 section 733(c)(3)(B), and Code section

9832(c)(3)(B).

As such, it is exempt from the health coverage

requirements of title XXVII of the PHS Act, part 7 of ERISA,

and chapter 100 of the Code.

The Departments have

noticed a significant increase in the number of health

insurance policies labeled as fixed indemnity coverage.

Gambling in Rick’s Cafe (Casablanca)

Captain Renault: I'm shocked, shocked to find that

gambling

is going on in here!

(9)

Q7: What are the circumstances under which fixed

indemnity coverage constitutes excepted benefits?

• The Departments’ regulations provide that a hospital indemnity or other fixed indemnity insurance policy under a group health plan provides excepted benefits only if:

• • The benefits are provided under a separate policy, certificate, or contract of insurance;

• • There is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and

• • The benefits are paid with respect to an event without regard to

whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor.

• The regulations further provide that to be hospital indemnity or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day (or per other period)of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred.

Q7: Continued

……

When a policy pays on a per-service basis as

opposed to on a per-period basis, it is in practice

a form of health coverage instead of an income

replacement policy. Accordingly, it does not

meet the conditions for excepted benefits.

The Departments plan to work with the States to

ensure that health insurance issuers comply with

(10)

Industry Response

You can’t be serious/What ??

Segmentation of Interests

Health Writers

Limited Medical Writers

Supplemental Writers

Periodicity Approach

Change Event Based to Event and Time Period

Payment Trigger

(11)

Supplemental Only Plans

Is Fixed Indemnity Sold Only to Individuals

with Medical Coverage?

California Model - Individuals must have Major

Medical in order to be eligible for less

comprehensive health coverage products

More FAQs

(January 9, 2014)

Q11: If insurance labeled as fixed indemnity

insurance provides benefits other than on a

per-period basis, may the insurance

(12)

Q 11 (Continued)

Yes. With respect to group health insurance coverage that does not meet the definition of fixed indemnity excepted benefits, coverage that supplements other group health plan coverage may, nonetheless, qualify as supplemental excepted benefits under sections 2722(c)(3) and 2791(c)(4) of the PHS Act, sections 732(c)(3) and 733(c)(4) of ERISA, and sections 9831(c)(3) and 9832(c)(4) of the Code. See 26 CFR 54.9831-1(c)(5); 29 CFR 2590.732(c)(5); 45 CFR 146.145(c)(5); the Department of Labor’s Employee Benefits Security Administration’s Field Assistance Bulletin No. 2007-04 (available at

http://www.dol.gov/ebsa/pdf/fab2007-4.pdf); HHS Centers for Medicare & Medicaid Services Insurance Standards Bulletin 08-01 (available at

http://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); and Internal Revenue Service Notice 2008-23 (available at

http://www.irs.gov/irb/2008-07_IRB/ar09.html).16

Furthermore, HHS intends to propose amendments to 45 CFR 148.220(b)(3) that would allow fixed indemnity coverage sold in the individual health insurance market to be considered to be an excepted benefit if it meets the following conditions:

Q 11 (continued)

It is sold only to individuals who have other health coverage that is minimum essential coverage within the meaning of section 5000A(f) of the Code;

There is no coordination between the provision of benefits and an exclusion of benefits under any other health coverage;

The benefits are paid in a fixed dollar amount regardless of the amount of expenses incurred and without regard to the amount of benefits provided with respect to an event or service under any other health coverage; and

A notice is displayed prominently in the plan materials informing policyholders that the coverage does not meet the definition of

(13)

Q 11 (continued)

If these proposed revisions are implemented, fixed indemnity insurance in the individual market would no longer have to pay benefits solely on a per-period basis to qualify as an excepted benefit.

Until HHS finalizes this rulemaking related to these proposed amendments, HHS will treat fixed indemnity coverage in the individual market as excepted benefits for enforcement purposes if it meets the conditions above in States where HHS has direct enforcement authority. For States with primary enforcement authority, HHS encourages those States to also treat this coverage as an excepted benefit and will not consider that a State is not substantially enforcing the individual market requirements merely because it does so.

Questions and Regulations

Fixed Indemnity

Q7 Periodicity permits as stand alone

Q11 Followed by CMS-9949-F followsCalifornia

Model for individual supplemental medical

indemnity products without time period

provisions

(14)

Questions?

"96 Tears"

Singleby ? & the Mysterians

from the album 96 Tears

B-side "Midnight Hour"

Released February 1966

Format 7"45 RPM

Genre Garage rock, protopunk

Length 2:56

Label Cameo-Parkway Records Writer(s) Rudy Martinez Producer(s) Rudy Martinez

Stay Tuned!

http://www.youtube.com/watch?v=R7uC5m-IRns http://www.dol.gov/ebsa/healthreform/), http://www.youtube.com/watch?v=SjbPi00k_ME

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