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RAC

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RAC Recovery Audit Contractor Connolly Healthcare Connolly is tasked with auditing Region C, which consists of the states of: AL, AR, CO, FL, GA, LA, MS, NC, NM, OK ... – PowerPoint PPT presentation

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Title: RAC


1
RAC
  • Recovery Audit Contractor
  • Connolly Healthcare

Connolly is tasked with auditing Region C, which
consists of the states of AL, AR, CO, FL, GA,
LA, MS, NC, NM, OK, SC, TN, TX, VA, WV and the
territories of Puerto Rico and U.S. Virgin
Islands. The RAC Programs Mission "To reduce
Medicare improper payments through efficient
detection and collection of overpayments, the
identification of underpayments, and the
implementation of actions that will prevent
future improper payments.
BBVA Compass Executive Briefing PPACAs Impact on
Health Benefits, Taxation and the Health
Insurance System January 23, 2013
By Balch Bingham LLPs Philip M. Sprinkle II
and Michel M. Marcoux
2
Outline of Presentation
  1. Outline of Perfect Storm Facing Healthcare
    Stakeholders PPACA Overview
  2. PPACAs Impact on Health Benefits
  3. PPACAs Impact on Taxation
  4. PPACAs Impact on the Health Insurance System
  5. Discussion of Future Trends in Healthcare
  6. Question Answer

3
I. Discussion of The Perfect Storm
  • With or without PPACA, all Americans are faced
    with exploding health care costs and increasingly
    complex maze of regulations affecting the
    delivery/receipt of medical care

4
I. Discussion of The Perfect Storm
  • Facts
  • Four components of Medicare Trust Funds are all
    expending money faster than they can recoup it.
  • Part A the entitlement based generally on
    individuals being 65 years of age or older or
    handicapped
  • Part B the indirect insurance product for
    physician services and outpatient care funding
  • Part C the Medicare HMO product now sometimes
    referred to as Medicare Advantage
  • Part D the Medicare Drug Program
  • Even with PPACA-projected savings, Medicare Part
    A will be insolvent by 2024

5
I. Discussion of The Perfect Storm
  • The Trustees project that HI Part A tax income
    and other dedicated revenues will fall short of
    HI expenditures in all future years under current
    law. The HI trust fund does not meet either the
    Trustees test of short-range test of financial
    adequacy or their test of long-range close
    actuarial balance.
  • - Boards of Trustees of the Federal Hospital
    Insurance (Part A) and Federal Supplementary
    Medical Insurance (Part B) Trust Funds 2012
    Annual Report

6
I. Discussion of The Perfect Storm
  • Poor Trends in Census Figures
  • Fastest growing component of American public
    population age 65 and older (i.e., Baby Boomers)
  • Population of 25 to 44 year olds shrunk by almost
    3 million from 2000 through 2010
  • Physician shortages predicted by 2025
  • 46,000 primary care physicians and
  • 41,000 general surgeons.
  • Based on Association of American Colleges Center
    for Workforce Studies data from November 2008
    study

7
I. Introduction of PPACA
  • PPACA comprises
  • Patient Protection and Affordable Care Act,
    signed into law on March 23, 2010 and
  • Health Care and Education Reconciliation Act,
    signed into law on March 30, 3010
  • On date of enactment, CBO estimated legislation
    would increase percentage of Americans under 65
    with healthcare coverage from 83 to 95 by 2015
    (i.e., 32 million people obtain new coverage).

8
I. Introduction of PPACA (cont.)
  • Implications for Employers Individuals
  • New Federal Standards for Commercial Health
    Insurance
  • Creation of State-Administered Insurance
    Exchanges
  • Tax Penalties on Employers with 50 or More
    Employees Who Fail to Offer Certain Minimum
    Healthcare Coverage
  • Mandate that Individuals have Health Insurance or
    Pay Penalty
  • Elimination of Tax Deductibility for Retiree Rx
    Drug Programs
  • Limitations on Cafeteria Plans

9
I. Introduction of PPACA (cont.)
  • More Implications for Employers Individuals
  • Limitations on Flexible Spending Accounts
  • Tax Credit Programs for Small Employers and
    Individuals at Certain Income Levels
  • Mandated Expansions of Medicaid (however, Supreme
    Court ruled this was unconstitutional, so
    expansion is a state-by-state choice)
  • 0.9 tax on Annual Income in Excess of 250,000
    for Joint Filers and 200,000 for Individual
    Filers
  • 40 Tax on Cadillac Plans

10
I. Introduction of PPACA (cont.)
  • PPACA also has significant implications for
  • Physicians
  • Hospitals
  • Medical Device Manufacturers
  • Other Healthcare Stakeholders

11
II. Impact on Health Benefits (cont.)
  • Shared Responsibility for Employers - 4980H
  • Effective January 1, 2014, applicable large
    employers face penalties if full time employees
    (FTEs) receive a tax credit or cost-sharing
    reduction for buying insurance from a state
    health care Exchange plan
  • Penalty amount depends on whether employer
    provides affordable health plan coverage to its
    FTEs
  • Penalties will be assessed annually based on
    monthly calculations
  • Applicable Large Employers employers who
    employ on average at least 50 FTEs for more than
    120 days during the preceding year
  • FTE employee who works at least 30 hours per
    week

12
II. Impact on Health Benefits (cont.)
  • Applicable Large Employer Test
  • To determine whether it is an applicable large
    employer, in addition to including the of its
    FTEs, an entity also must include the of FTEs
    determined by dividing
  • (i) the aggregate number of hours of service
    employees who are not FTEs for the month, by
  • (ii) 120.
  • Example In April 2014, XYZ Company employs 48
    FTEs, as well as 5 employees who are not FTEs,
    who work an aggregate of 360 hours of service
    during that month. For April 2014, XYZ Company
    is considered to employ 51 FTEs (48 plus (360
    divided by 120)).

13
II. Impact on Health Benefits (cont.)
  • Employer Penalty (i.e., Tax)
  • Employers NOT Offering Coverage
  • Must pay annual tax of 2,000 per each FTE if
    employer is an applicable large employer which
    does not offer certain specified minimum levels
    of health coverage and one or more employees
    receives health federal subsidy from the federal
    government
  • First 30 employees are disregarded for this
    calculation
  • Allocated among members of controlled group,
    regardless of how many members decide to pay
    versus play
  • After 2014, penalty increases based on formula
    using average per capita premium

14
II. Impact on Health Benefits (cont.)
  • Example
  • In 2014, Employer A fails to offer minimum
    essential coverage and has 100 FTEs, ten of whom
    receive a tax credit for the year for enrolling
    in a state exchange-offered plan.
  • For each employee over the 30-employee threshold,
    the employer owes 2,000 for a total
    non-deductible penalty of 140,000 (2,000
    multiplied by 70 (100-30)).

15
II. Impact on Health Benefits (cont.)
  • Employers Offering Coverage
  • Different penalty imposed if employer offers
    minimum essential coverage, but the coverage does
    not satisfy specified affordability standards
  • Penalty is a tax of 3,000 per year for each FTE
    who actually receives federal subsidy for
    coverage (with cap equal to 2,000 multiplied by
    of FTEs disregarding first 30 FTEs)
  • 95 Margin of Error Rule

16
II. Impact on Health Benefits (cont.)
  • What is Minimum Essential Coverage?
  • Includes almost any eligible employer-sponsored
    plan
  • KEY
  • To avoid tax/penalty, Minimum Essential Coverage
    needs to be
  • (i) affordable (i.e., employees cost for
    coverage cannot be gt than 9.5 of the employees
    household income) and
  • provide minimum value (i.e., no minimum value
    if employer plan does not provide minimum value
    of benefits defined as the plans share of total
    allowed cost of benefits is less than 60).

17
II. Impact on Health Benefits (cont.)
  • Example In 2014, Employer A has 100 FTEs and
    provides health insurance coverage to these FTEs.
    Fifteen of Employer As FTEs receive federal
    subsidy to purchase insurance coverage through a
    state exchange-offered plan.
  • Employer A faces a non-deductible penalty of
    45,000 (15 multiplied by 3,000).

18
II. Impact on Health Benefits (cont.)
  • Example Same as previous example, except
    Employer A provides health insurance coverage to
    FTEs and 50 of the FTEs receive federal subsidy
    to buy insurance coverage through a state
    exchange-offered plan.
  • Employer A faces a non-deductible penalty of
    140,000 because aggregate cap limit reached
    (calculation is 70 multiplied by 2,000, as
    opposed to 150,000 based on the regular penalty
    of 50 multiplied by 3,000).

19
II. Impact on Health Benefits (cont.)
  • The determination of tax an employer must pay if
    they fail to offer OR choose not to offer any
    coverage is easy to calculate.
  • CONVERSELY,
  • Employers likely to have difficulty calculating
    with certainty whether one or more employees will
    qualify for federal subsidies (which is available
    to purchasers with incomes up to 400 of FPL)

20
II. Impact on Health Benefits (cont.)
  • IRS guidance issued at the close of 2012
    indicates possible safe harbors for determining
    whether coverage is affordable
  • Specifically, IRS would allow employer to
    determine affordability of self-only coverage on
    employees W-2 wages, instead of household
    income, OR based on employees rate of pay OR
    based on the FPL
  • Also, premiums for individual coverage would be
    used to calculate whether the employee would pay
    9.5 for health coverage regardless of whether
    employee had individual or family coverage

21
II. Impact on Health Benefits (cont.)
  • Example Affordability Chart to Calculate
    Employer Penalty
  • (source FPL Georgetown University Health Policy
    Institute)

Federal Poverty Limit 2011 FPL (1 Unit) Hourly Rate Household Income Premiums per Month _at_ 9.5 FPL (Self ONLY)
100 10,890 Medicaid N/A
133 14,484 Medicaid N/A
150 16,335 7.85/hr 9.5 130/mo
200 21,780 10.47/hr 9.5 172/mo
250 27,225 13.09/hr 9.5 216/mo
300 32,670 15.71/hr 9.5 259/mo
350 38,115 18.32/hr 9.5 302/mo
400 43,560 20.94/hr 9.5 345/mo
400 family of four 89,400 9.5 707.75/mo
22
II. Impact on Health Benefits (cont.)
  • Possible Strategies to Avoid Employer Mandate
  • Increase Contribution to Premiums.
  • Reduce Workers Share of Premiums, But Increase
    Co-Pay or Deductible.
  • Offer Plan with Less Generous Coverage.
  • Charge Lower Premiums/Share to Workers with Lower
    Wages.
  • Pay 4980H(a) Penalties in Lieu of Offering
    Coverage. Consider increasing salary and wages
    to offset potential loss of employees.

23
II. Impact on Health Benefits (cont.)
  • Possible Strategies to Avoid Employer Mandate
  • Offer Range of Affordable Plans Disfavoring
    Dependent Coverage and/or Dropping Spousal
    Coverage at the Low End. Since 4980H(b)
    affordability penalty based solely on employees
    cost for cheapest, qualifying, self-only coverage
    offered, employer may subsidize individual
    employee premiums as required but paying little
    or none of the dependent premium and/or delete
    spousal coverage. At the other end, offer
    expensive self and full family coverage with
    employer paying most of the premium (at least
    until Cadillac Tax comes into effect). The likely
    result will be only highly-compensated employees
    will select expensive options.
  • Minimize Full Time Jobs. Part time workers not
    offered coverage may purchase subsidized coverage
    through an exchange, and those transactions
    should not trigger 4980H penalty.

24
II. Impact on Health Benefits (cont.)
  • Possible Strategies to Avoid Employer Mandate
  • Maintain Grandfathered Status. A policy or
    self-funded health care plan that has been
    substantially the same since at least March 23,
    2010 is, under PPACA Section 1251,
    grandfathered, meaning that it need not comply
    with most of the costly new mandates found in
    PPACA amendments to the Public Health Service
    Act. To maintain this status employer must do,
    and avoid, certain things, such as not (i)
    eliminating benefits, (ii) raising employees
    of cost sharing and (iii) increasing co-pays.
  • Eliminate Coverage for Retired Workers.
    Arguably, retired workers, especially those not
    eligible for Medicare yet, will have many more
    insurance options in 2014 than today.

25
II. Impact on Health Benefits (cont.)
  • Balch Prediction Over the next 5 years
  • a substantial portion of the population insured
    through employers will turn to government or to
    government-administered insurance exchanges for
    coverage
  • employers, meanwhile, will feel pressure to
    convert FTE positions to part-time and undertake
    other lawful methods to avoid some of the more
    onerous penalty/tax provisions of PPACA and
  • employees will become increasingly unhappy with
    the type and amount of coverage provided by
    employers.
  • The End Result Many health insurance programs
    will be uncoupled from traditional employment
    compensation models.

26
III. PPACAs Impact on Taxation
  • Cadillac Health
  • Insurance Tax - 4980I
  • Effective January 1, 2018, a 40 non-deductible
    excise tax will apply to all non-exempt Cadillac
    plans (i.e., total per capita exceeds 10,200
    annually for an individual or 27,500 for family
    coverage)
  • NOTE Tax is on health insurance companies and
    plan administrators (i.e., employers only face it
    directly if they are self-funded)

27
III. Impact on Taxation (cont.)
  • Small Business Tax Credit - 45R
  • Eligible Small Employers (i.e., fewer than 25
    FTEs, average annual employee wages of less than
    50,000 per FTE and maintain qualifying
    arrangement) eligible for tax credit equal to
    portion of their health insurance premium expenses

28
III. Impact on Taxation (cont.)
  • Shifting gears from Employer Mandate, PPACA will
    have a significant impact on individual taxes,
    e.g.
  • (i) Individual Mandate associated excise
    tax/penalty, which begins in 2014
  • (ii) Increase Medicare Hospital Insurance Tax
    Rate by 0.9
  • (iii) Impose Addition 3.8 Tax on Net Investment
    Income
  • Increased Threshold for Itemized Deductions for
    Medical Expenses (7.5 of AGI to 10 of AGI) and
  • Limit Annual Contributions to Flexible Spending
    Arrangements and Cafeteria Plans to 2,500.

29
III. Impact on Taxation (cont.)
  • Certain other PPACA tax increases
  • Impose a 2.3 excise tax on manufacturers and
    importers of certain medical devices
  • Expected to result in 20 billion over 10 years
  • Impose annual fee on manufacturers and importers
    of branded drugs
  • Expected to result in 27 billion over 10 years
  • Charge an annual fee on health insurance
    providers
  • Expected to result in 60 billion over 10 years
  • t

30
III. Impact on Taxation (cont.)
  • Summary of certain PPACA spending offsets
  • Reduce funding for Medicare Advantage policies by
    132 billion over ten years
  • Reduce Medicare home health care payments by 40
    billion over ten years
  • Reduce certain Medicare hospital payments by 22
    billion over ten years

31
IV. PPACAs Impact on the Health Insurance System
  • State Health Insurance Exchanges
  • Every state is required to have an insurance
    exchange structured either as a government
    agency or as a quasi-public/quasi-private entity
  • Exchanges must begin open enrollment period by
    October 1, 2013 for health coverage with a
    January 1, 2014 effective date
  • HHS (or its agent) must operate Exchanges for
    states that do not establish them (e.g., Alabama,
    Georgia and, possibly, Mississippi)

32
IV. Impact on Health Insurance System
  • Exchanges (more details)
  • Only will offer products that provide essential
    health benefits under PPACA
  • Pub. L. No. 111-148, Section 1302(b)
  • Specific services covered by plans on Exchanges
    will vary between states based on benchmark
    that each state chooses
  • Generally, benchmarks offer trade-off between
    affordability and comprehensiveness of coverage
  • Exchanges to serve as intake mechanism for
    Medicaid and other state health benefits for
    low-income individuals and families

33
IV. Impact on Health Insurance System
  • Exchanges (more details)
  • Supreme Court found mandatory expansion of
    Medicaid coverage (i.e., PPACA attempted to
    require states to include individuals up to 133
    of FPL in Medicaid) to be unconstitutional
  • Possibility certain individuals may fall into GAP
    between Medicaid level in certain states and
    eligibility for federally subsidized coverage
  • Federal subsidy e.g., premium tax credit or
    cost sharing reduction applies to those from
    133 of FPL up to 400 of FPL (phased out as
    income rises)

34
IV. Impact on Health Insurance System
  • Exchanges (more details)
  • HHS delegating significant level of Exchange
    decisions to states, which will provide series of
    Petri dishes allowing side-by-side comparisons
    that will significantly transfer marketplace for
    health coverage over the next few years

35
IV. Impact on Health Insurance System
  • Many States must decide whether to expand
    Medicaid to cover up to 133 of FPL
  • Federal government will pay 100 of cost of
    expansion in 2014-2016 95 in 2017 94 in 2018
    93 in 2019 and 90 in 2020 and beyond
  • As of January 18, 2013, at least 23 states
    support expansion of Medicaid eligibility in
    response to PPACA, including at least two with
    GOP governors (New Mexico and Nevada)

36
IV. Impact on Health Insurance System
  • Medical Loss Ratios (MLRs)
  • Effective 2011, PPACA established MLRs for United
    States insurance companies
  • Goal Increase amount of direct health benefits
    provided as part of health insurers operations.
  • Generally, MLRs require
  • Large insurers to retain no more than 15 of
    premiums for administrative costs and profit and
  • Small insurers to retain no more than 20 of
    premiums for administrative costs and profit.

37
V. Future Trends in Healthcare
  • Balchs predictions for the future

38
V. Future Trends in Healthcare
  • Increased Emphasis in Managed Care.
  • Medicare Trust Report indicates almost 25 of
    Medicare beneficiaries currently receive medical
    care coverage through managed care products
  • These plans permit beneficiaries to select level
    of coverage on year-to-year basis (opt in
    periods)
  • Government then pays plans anticipated annual
    Medicare costs of the beneficiaries, and plan
    must ensure beneficiaries receive care when
    needed
  • Attraction Risk of loss associated with runaway
    Medicare costs shifts from Federal government to
    private insurance plans

39
V. Future Trends in Healthcare
  • Accountable Care Organizations will proliferate
  • Generally, permits providers to form an ACO,
    receive a spending target for patient care and
    keep some of the savings if the ACOs comes in
    under budget
  • Eventually, there will be downside risk as well
  • 106 new ACOs approved in January 2013 (total of
    around 300 approved so far)

40
V. Future Trends in Healthcare
  • Proliferation of Employers Taking Steps to Ensure
    Healthy Workforce.
  • Ability to control employees healthcare costs in
    a number of ways (e.g., higher deductibles)
  • Wellness programs encouraging daily exercise,
    sponsoring smoking cessation workshops,
    encouraging healthier food selection (e.g.,
    filling soda machine with bottled water), use of
    on-site or shared clinics and on-site flu
    vaccinations lead to more productive workforce
    and less expensive insurance costs

41
V. Future Trends in Healthcare
  • Varied New Attempts to Seek Additional Tax
    Revenue.
  • Medicare numbers are stark with current system
    slated to fail in the next decade without
    additional revenue
  • Political suicide, at the moment, to cut
    reimbursement to physicians or increase Medicare
    qualifying age
  • Thus, new and ever varied methods of taxation
    from local (e.g., modifying property taxation to
    exclude from taxation only direct hospital
    resources used in the delivery of hospital care
    and not broad brush exclusions based on
    tax-exempt status of landowner) to the federal
    level (e.g., increasing taxation of the perceived
    wealthy in America or cost sharing for Medicare
    benefits used by the affluent)

42
V. Future Trends in Healthcare
  • Attacks Against Tax-Exempt Industry.
  • IRS recently redesigned Form 990, the
    informational return filed by tax-exempt
    entities, and added the new Schedule H for
    licensed hospitals this year. Section 501(r) of
    the Code.
  • Community assessment requirements, which started
    in 2012, represented sea change for the
    hospital industry
  • Expect these new tools and initiatives to lead to
    either additional direct taxation or indirect
    taxation through annual commitments by licensed
    tax-exempt hospitals to return funds to the
    public by relieving burdens to spend on community
    needs to affect health care
  • Possible future impact on tax-exempt hospitals
    ability to borrow funds through tax-exempt
    financings

43
V. Future Trends in Healthcare
  • Consolidation of the Healthcare Industry.
  • Based on financial and regulatory pressures,
    providers will continue to consolidate
  • For example, reduction or elimination of DSH
    program could force many rural providers (e.g.,
    community hospitals) to merge with larger urban
    counterparts and become feeders or to close
    entirely
  • Small community hospitals should consider local
    solutions now to preserve their critical place in
    rural communities

44
V. Future Trends in Healthcare
  • Increased State and Federal Prosecution.
  • Current annual return on investment for fraud
    and billing violations by prosecutors involved in
    the health care arena is staggering 1600,
    according to OIG
  • Thus, providers should continue to anticipate
    activist law enforcement and strive to make all
    operations consistent with state and federal
    regulatory requirements
  • Time for implementation of robust and thorough
    corporate compliance programs and self-audits is
    now
  • For example, HHS (actually KPMG) recently
    concluded 150 audits of HIPAA covered entities.
    Beginning in 2013, a permanent HIPAA audit
    program is expected to begin, which will include
    audits of business associates

45
VI. QUESTIONS?
46
RAC
  • Recovery Audit Contractor
  • Connolly Healthcare

Connolly is tasked with auditing Region C, which
consists of the states of AL, AR, CO, FL, GA,
LA, MS, NC, NM, OK, SC, TN, TX, VA, WV and the
territories of Puerto Rico and U.S. Virgin
Islands. The RAC Programs Mission "To reduce
Medicare improper payments through efficient
detection and collection of overpayments, the
identification of underpayments, and the
implementation of actions that will prevent
future improper payments.
THANK YOU!
Philip M. Sprinkle II Michel M.
Marcoux Balch Bingham LLP Balch Bingham
LLP 30 Ivan Allen Jr. Blvd., Suite 700 1901
Sixth Avenue North, Suite 1500 Atlanta, Georgia
30308 Birmingham, Alabama 35203 psprinkle_at_balch
.com mmarcoux_at_balch.com (404)
962-3573 (205) 226-8746 (888)
360-9093 (205) 251-8100 (866) 811-7365
(fax) (205) 488-5455 (fax)
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