Newby, Lewis, Kaminski & Jones, LLP
916 Lincolnway
La Porte, Indiana 46350
[email protected]
[email protected]
Few hospitals for those communities with
hospitals, doctors often treat patients
without charging a fee
Doctors are generalists; many also practice
as veterinarians
Treatment of most illnesses at home
No real diagnostic or disease management
Doctors often paid through bartering
Before 1920, costs associated with health care
was not medical expenses, but loss of work
wages due to illness (Bureau of Labor
Technology and pharmacy breakthroughs
begin with such things as:
The invention of X-ray Penicillin
Understanding of bacteria to develop immunology
Hospitals increase with understanding of
antiseptic treatments
People seek medical help at hospitals and doctor’s
homes / offices
American Medical Association formed and lobby
for doctors
Consumers recognize need to treat illness, and
with higher wages, consumers pay more for
medical services on a fee for service basis (Journal
of American Medical Association, 1922)
1930 – Dallas teachers’ contract with Baylor
University for Health Insurance; Blue Cross-Blue
Shield is born; pay fixed rate, per day, for hospital
1939 – California Physicians Service is first
prepayment plan to cover physicians
services; physician plans with a fixed fee for
service payment system are incorporated
into Blue Cross-Blue Shield (Monthly Labor
Review, 1944)
American Medical Association opposes
health insurance programs as
“bureaucratic” and “freedom limiting”;
strongly opposes President Theodore
Roosevelt’s suggestion of a nationalized
health insurance
During World War II, federal government implements
wage controls so many employers offer health
insurance as an added benefit
Blue Cross-Blue Shield is not-for-profit and to uphold
its charity status, must rate “community” – both sick
and healthy to set rates on a payment by service
Commercial insurance is born; carriers can pick better
risk pool and thus offer lower premiums than Blue
Cross-Blue Shield, causing a “boom” of commercial
President Truman’s plan for National Health Insurance
for all citizens fails; criticized by American Medical
1965 – President Johnson signs into law Medicare,
provides federally funded health coverage for all
citizens over age 65, regardless of health status;
Part A – hospital services; Part B – physician
Medicaid, a federal/state program for
impoverished also begins
Rates to providers charged by Medicare at “usual,
customary and reasonable rate” from 1965 to 1983
1983 – Medicare adopts a prospective payment
system based on diagnosis and type of treatment;
pay fixed fee for diagnosed illness, not just paying
a fee for each service encounter
1980 sees explosion of “private” health care
businesses (i.e., “for profit” entities)
1990 – cost of health care exploding,
managed care model developed to mitigate
costs (HMOs)
By 2000, health care costs deemed a crisis by
most employers
Medicare’s annual fee schedule increasingly
ignores the actual costs Medicare providers
incur while providing treatment
Prescriptive drug and diagnostics
exploding, increasing cost of care
With costs of care increasing, all
insurance premiums increased,
leading to increase of uninsured
Insurers decreasing coverage to
manage risk
Medicare reimbursement not
rising with costs; Medicare
paying increasingly larger
amount for care in the last year
of life of participants
 Cost shifting to private insurers
by health care providers
Cover more lives
Extend coverage to “working Americans” who
otherwise would not be insured
Poverty ridden citizens – stay on Medicaid
 Low income – 133% to 400% offered tax credits to
pay for private insurance and won’t pay more than
6.3% of income on premiums
 If low income does not opt to participate, tax penalty
 Some employers mandated to provide coverage or
pay penalty
Provide more coverage terms to public:
 Insurance companies not allowed to
discriminate based on pre-existing
 Can rate based on age, family
composition, tobacco use and rating
area, but plans must offer basic health
Requires a taxpayer to obtain
“minimum essential coverage”
for health insurance or else pay a
“shared responsibility payment”
(in the form of an excise tax)
 Mandate begin 01/01/2014
To qualify, an individual must have coverage
Employer sponsored coverage, including COBRA,
retiree coverage and health flex plans (Employer
plans required to have)
Government sponsored programs, like Medicare /
Medicaid, CHIP (Children’s Health Insurance
Individual plans, including plans purchased on
Health plans certified by Health & Human Services
If cost of minimum coverage exceeds 8% of
total household income or if income is so low
that no return is required to be filed – exempt:
 Native Americans: exempt in federally
recognized tribes
 Certain religious objections: exempt and
must request exemption (i.e. Amish;
Mennonites; etc)
 Illegal immigrants
 People with coverage gaps lasting less than 3
consecutive months
General Board of Pension and Health Benefits
Tax penalty which is the greater of:
2014: $95.00 per uninsured person (up to 3
individuals) in household or 1% of taxable income
2015: $325.00 per uninsured person or 2% of taxable
2016: $695.00 per uninsured person or 2.5% of
taxable income
Compliance will be monitored through federal
tax returns.
Individuals can get tax credits for premium
payments if income is at 400% or less of federal
poverty level; the more income – the smaller
the credit.
Example: In 2013, a family of 4 with $35,000.00
household income would get a $10,742.00 tax credit
to purchase insurance with $12,130.00 premium
annually while the same family with $90,000.00
household income would get a $3,580.00 credit.
Tax credit paid directly to insurer.
Individuals will be able to purchase
coverage through Health Insurance
Exchanges or market places.
Exchanges will be run by states, federal
government or partnership (Indiana is
Essentially, an online purchasing site,
operational October 1st of this year!
Exchanges will offer “essential health benefits”
with 10 broad categories:
 Ambulatory patient services
 Emergency services
 Hospitalization
 Maternity and newborn care
 Mental health and substances disorder
services, including behavioral health
Prescriptive drugs
Rehabilitative and habilitative services and
Laboratory services
Preventive and wellness and chronic disease
Pediatric services, including oral and vision
Plan costs will vary based on “acturial
value” or expected costs plan will cover.
Coverages defined as bronze, silver, gold
and platinum.
• Bronze will have lowest premium, but
highest deductible.
• Bronze covers 60% of expected costs
versus “platinum” which will cover
90% of expected costs.
Patient Protection and
Affordable Care Act
Affordable Care Act
Health Care Reform
Individual Mandates
Employer Mandates
Creation of Insurance Exchanges
Subsidized Health Insurance for Poor and
Funding Through New “Taxes”
Additional Rules to be Used in
Determining the Number of
Full-Time Employees:
4. Creating a Stability Period – at
least 6 months, but not less than
Initial Measurement Period – to be
used by employer under “look
back” rules to determine status of
5. Creating an optional
“Administrative Period” – a period of
time not greater than 90 days after
Initial Measurement Period and
before the Stability Period to be used
by employer to determine if employee
averaged 30 or more hours per week
during Initial Measurement Period.
6. Allowing different Initial
Measurement Periods, Stability
Periods, and Administrative
Periods for employees in different
union groups (mandatory subject
of bargaining?), salaried versus
hourly workers, and employees in
different states.
Covered Employer must offer
health coverage under employer’s
health plan to a deemed full time
employee within 90 days of Start
Date or pay penalties.
If variable hour or seasonal
employee averages 30 hours per
week or 130 hours per month
during his/her Initial
Measurement Period s/he must be
treated as a full time employee
during the following Stability
Employers with 50 or more FTE’s
must offer “affordable” “minimum
value” health insurance to at least
95% of their “full time” employees
or pay an annual penalty (tax), but
only if one or more of that
employer’s employees purchases
health insurance from a state or
federal insurance exchange and
receives a premium subsidy in
order to purchase the insurance.
To be affordable,
employee’s share of
premium costs must not
exceed 9.5% of
employee’s household
Household income
includes income of
employee, employee’s
spouse, and all
household dependents.
Affordability test also
subject to complex safe
harbor rules that require,
in some instances, an
employer to obtain the
opinion of an actuary.
“Experts” claim that to meet
affordability test, an employer
should offer at least one
coverage option for a single
employee that costs $90 or less
per month.
Insurance plan must pay
at least 60% of allowable
costs to meet test of
“Minimum Value” and
provide certain minimum
coverages, including
The free-rider penalty
applies only to businesses
that have more than fifty
(50) full-time employees or
full-time equivalents.
An employee is
eligible for a
premium subsidy if
s/he meets both of
these conditions:
(1) the employee’s total
household income must be less
than 400% of the federal
poverty level. This poverty
level varies with family size.
For a family of four, 400% of
the current federal poverty level
equals $88,200.
Household income
includes the income of
the employee, the
employee’s spouse,
and all other
dependent members of
the household; and
(2) the employee’s
portion of the insurance
premiums on the
employer’s plan must
exceed 9.5% of the
employee’s household
The amount of the
employer’s free-rider penalty
varies depending upon
whether the business does or
does not provide health
If the business does not provide
health insurance, the annual
penalty that the employer must
pay equals $2,000 x the total
number of the employees in the
firm minus 30. For example, if the
business does not provide health
insurance, and employs 200
people, the annual free-rider
penalty owed by the employer is
$340,000 = ((200-30) x $2000).
If the business does provide health
insurance, but the insurance is
either not “affordable” or does not
provide “minimum value”, its
annual free-rider penalty equals
the lesser of (1) the number of
subsidized employees x $3,000, or
(2) the number of employees in the
firm minus 30 x $2000.
In addition to the free-rider penalties
that may be owed by an employer,
beginning in 2018, an employer may
also owe additional penalties if it
provides a “Cadillac” plan. A
Cadillac plan is defined as a health
insurance plan where the annual cost
for single coverage exceeds $10,200 or
where the annual cost for family
coverage exceeds $27,500.
Beginning in 2018, the
law will begin imposing
an excise tax on Cadillac
plans in the amount of
40% of the costs that
exceed the thresholds.
Example: In 2018, employer has 200
full-time employees on family plan and
premium cost for family plan is
$35,000. Employer’s “Cadillac” tax
would be $600,000 per year.
$35,000 - $27,500 = $7,500 x .40 =
$3,000 x 200 = $600,000
Know your workforce
Restructure jobs – Be aware of
potential issues under ERISA –
Section 510 of ERISA makes it
unlawful for an employer to
discriminate against a
participant by interfering with
the attainment of any right
under an employee benefit
Under ERISA, the term
participant means “any
employee . . . who is or may
become eligible to receive a
benefit of any type from an
employee benefit plan which
covers employees of such
employer. . .”
Under case law, reclassification
of a worker to deprive him of
benefits under an employee
benefit plan is a violation of
ERISA. Isbell v. Allstate Ins.
Co., 418 F.3d 788 (7th Cir.
Additional case law holds
that changes in an
employee’s employment
status that emanate from
benefit-based motivations
violate ERISA.
Penalties for ERISA
violations can include make
whole remedies, injunctive
relief, and cease and desist
orders, plus payment of the
employee’s legal fees and
3. Pay closer attention to
summer hires, project
workers, and temps.
4. Adopt a 90-day waiting
period for coverage
5. Adopt the maximum
allowed initial measurement
and stability periods
6. Review coverages to
make certain yours are
affordable and provide
minimum value.
Do what the labor
unions are now

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