health care reform: what's next for small employers?

Blue Cross Blue Shield of Michigan and Blue Care Network are nonprofit corporations and independent licensees of the Blue Cross and Blue Shield Association. 1Blue Cross Blue Shield of Michigan and Blue Care Network are nonprofit corporations and independent licensees of the Blue Cross and Blue Shield Association.

What’s Next for Small Employers?

A Health Care Reform Webinar

September 20, 2012

This material is for general information and educational purposes only. The information is based on our current understanding of the national health reform provisions referenced. However, interpretations of applicable statutes and regulations vary. The federal government continues to issue guidance on how the provisions of national health reform should be interpreted and applied. While some of the information deals with federal law, it does not constitute legal or compliance advice. Applicability and interpretation of the law depends on the specific facts and circumstances of each individual’s situation. If you have specific questions about application of the law to your situation, you are encouraged to consult an attorney for advice. As required by IRS Circular 230, unless expressly stated otherwise, if this message contains any tax information concerning one or more Federal tax issues, it is not a formal legal opinion and cannot be used by any person to avoid Federal tax penalties, and cannot be quoted or referenced to promote or market to another party any transaction or matter addressed in this communication

Blue Cross Blue Shield of Michigan and Blue Care Network are nonprofit corporations and independent licensees of the Blue Cross and Blue Shield Association. 2

Small employer considerations

• Health care reform timeline• New taxes and fees• Definition of “small group”• Where to SHOP• Small business tax credit• Plan year, benefit year,

renewal date• Rating factor changes• Plan design changes

• Group to individual transition

• Employer penalties*• Individual mandate• Advanced premium tax

credits• Cost-sharing subsidies

*The employer excise tax or penalty does not apply to certain groups who meet the government’s definition of small group.


2012


Women’s Preventive Services– Services for women must be covered with no cost sharing

beginning on plan years on or after August 1, 2012; including:

Screening for gestational diabetes Human papillomavirus, or HPV, testing Screening and counseling for interpersonal and domestic violence Contraceptive counseling and methods Breastfeeding supplies

– Those employers that meet the tax code's narrow definition of religious employer will be allowed an exemption from the contraceptive mandate

– Several documents related to drug coverage and religious status must be maintained on an annual basis to ensure benefits are applied appropriately for each group type


Women’s Preventive Services

The following employer groups may require special handling and important documentation:

• Grandfathered groups• Groups with no prescription drug coverage• Prescription drug coverage with carve-out arrangement• Religious groups • Religious-based employers (temporary safe harbor)


Summary of Benefits and Coverage (SBC) Required Capabilities

• Effective Sept 23, 2012 group health plans and health insurance issuers offering group or individual coverage are required to provide an SBC, coverage examples and a uniform glossary of health insurance terms to enrolled and prospective members

• Employers offering fully insured coverage are jointly responsible for distribution• The SBC includes:

– Summary of Benefits and Coverage – Coverage Examples– Uniform Glossary


Summary of Benefits and Coverage (SBC) Required Capabilities

*Written Renewals require SBC the date that the application materials are delivered.**SBC Distribution only required if changes happen between application and enrollment.***Material modifications denote mid-plan year changes and require either an SBC or a notification of the benefits change.

For each triggering event:

Upon request Application Renewal(Automatic)*

SBC Changes Between

Application and

Enrollment**

Special Enrollees

Material Modification***

Issuer to Group Health Plan

Within 7 business days

of request

7 business days of receipt of

application

30 days before plan year

(If 30 days is not given, 7 days after

intent to renew)

Before 1st day of coverage

NA 60 calendar days prior to the effective date of

change

Issuer/ Group to Participant

Same Include with written app materials or if none then1st day eligible to enroll

Same Same 90 days from

enrollment

Same

Issuer to Individual Customer

Same 7 business days of receipt of

application

Same Same NA Same


2013


Summary of NHR taxes and feesInitial Focus

Line of sight:

– Medical device tax: Effective for sales made after Dec. 31, 2012, this tax is assessed on the manufacturer, producer or importer of any taxable medical device. The tax is a 2.3 percent of the value of the sold item.

– Pharmaceutical tax: In 2011, manufacturers of brand-name pharmaceutical drugs were taxed based on the total amount of their drug sales compared to overall national drug sales.


Timing of ACA taxes and fees

Market Share TaxMarket Share Tax

Exchange User FeeExchange User Fee

Excise TaxExcise TaxReinsurance FeeReinsurance Fee

Comparative Effectiveness Research FeeComparative Effectiveness Research Fee

Initial Payment Dates

• Comparative Effectiveness – July 31, 2013• Reinsurance – January 15, 2014• Market Share - September 30, 2014

2012 2013 2014 2015 2016 2017 2018 2019


2014


The employee share of premium cost cannot exceed 9.5 percent of the employee’s household income

The employer-sponsored coverage must have at least a 60 percent actuarial value and provide essential health benefits

Employers have three key decisions:

Employer offers coverage


Definition of Small Group

• For many health insurance provisions, the federal small group definition effective Jan 1, 2014 will be 1- 50 employees.

• This definition will include full-time, part-time and seasonal employees unlike prior years

• It is important to note variations in the government’s definition of small group by provision.

• Employer penalties in the form of an excise tax will not be imposed on employers with fewer than 50 employees who decide not to offer coverage


Reform impacts on small group

Reform Impact Small and Middle Group

Key ACA Provisions Impacting Products

and Pricing <50EE groups 50-99 EE

100+EE Groups

Deductible and OOP limits 2014 2014 2014

Actuarial value ‘metal” targets 2014 2016 2017*

Essential Health Benefits (EHB) requirements 2014 2016 2017*

Integrated Rx 2014 2016 2017*

Rating changes 2014 2016 N/A

*If state choose to offer large group policies on exchanges in 2017

Small Group

Note: Grandfathered plans are exempt from all above provisions

ACA has defined effective dates for group health insurance reforms based on plan year; Small group will be the most impacted in 2014


Where to “SHOP”

• Small Business Health Options Program (SHOP)• Purchasing coverage on the Exchange is required to receive the

small business tax credit in 2014 • Open enrollment begins on Oct 1, 2013 for coverage effective on Jan

1, 2014. Rolling enrollment is available through the year to allow an open enrollment period that coincides with the group’s plan year.

• Medicare Advantage and Medicare complementary plans will not be available on the Exchange.


The Exchange is a new way to shop


A closer look at the Exchange• Exchange

• Competitive List of Plans• Provider Directory

• Individuals• Ability to compare and select plans• Can receive Advance Premium Tax Credit• Can receive subsidies

• Cost Sharing• 90 day Grace Period

• Individual Enrollment

• Small Group (SHOP) • No premium/cost share subsidies• Ability to compare and select plans• Group Enrollment• Group Member Enrollment• Billing Aggregation

— Consolidates into one payment• Small Business Tax Credit (2 years only)

— Business with approximately 25 or less FTEs/average wage of 50K


How will the Exchange work?

Insurers must offer at least one Silver and one Gold product

Insurers must offer Essential Benefits

Products should conform to metal tiers (Bronze, Silver, Gold, Platinum)

Insurers cannot medically underwrite or apply pre-existing condition clauses

Restricted rating factors to age, tobacco use, geography and family status

Price parity required if same product sold on and off exchange

Minimum network adequacy requirements

Approval and qualification process for plans and prices

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5

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What are the metal tiers?

Actuarial value: Example: a plan with an actuarial value of 70% means that for a standard population, the plan will pay 70% of their expense for essential health benefits, while the enrollees will pay 30% through some combination of deductibles, copays, and coinsurance.


Group to Individual Transition

• After careful consideration some groups may determine that they will no longer offer employer-sponsored coverage to employees

• The Blues have a comprehensive process to assist in transitioning employees to a BCBSM individual plan. This process is available to groups, agents and individuals to support them through this transition.

• Scenario-based decision making is recommended. You may seek:– Tax advisor

– Consultant

– Agent

• Timing is critical because of downstream impacts to your business model and your employees and their families

• Communication should begin soon


Health care reform will shift definitions and decision timing

• Plan year vs. renewal year – reform provisions are most often effective on plan year while business decisions and rate changes occur at renewal

• Complex and flexible plan designs vs. simplified and standard plan designs– All plans must offer essential health benefits

– Actuarial value requirements limit flexibility to “tweak” cost sharing

• Some rating categories may be eliminated based on the new definition of “small group” in favor of community or experience rating depending on group size.

• Some migration of small group membership to the individual market is expected in 2014-2017


Principles of BCBSM’s 2014 small group product strategy

BCBSM will provide an array of affordable, easy to understand traditional products and new well-priced innovative options


Better alignment in small group portfolios

New BCBSM SG products New BCN SG products

Simply Blue &

HSA/HRA

BCN 5

BCN 10

High Deductibles

& Other

Pric

e

Community Blue

New Silver Products

New Platinum Products

New Bronze Products

New Gold ProductsNew Gold Products

New Silver Products

New Platinum Products

New Bronze Products

New Gold ProductsNew Gold Products


Premium tax credits and cost-sharing subsidies are available, but there are rules


Premium tax credit = Silver plan premium – maximum % of income a consumer must pay

Federal Poverty Level Percentage of income

100-150%* 2.0 - 4.0%

150-200% 4.0 - 6.3%

200-250% 6.3 - 8.05%

250-300% 8.05 - 9.5%

300-400% 9.5%

What is the premium tax credit?


What employees would qualify for financial assistance?

FPL: Federal Poverty Level; Medicaid eligibility is generally extended to 133 percent FPL calculated with a 5 percent income disregard. Thus, Medicaid eligibility is effectively up to 138 percent FPL

Employees qualify if they meet the following criteria:

However, they will not qualify if:

Have income 100 to 400 % FPL ▪ Single individual income: $11,170 - $44,680

▪ Family of 4 income: $23,050- $92,200

Employer offers a plan of at least bronze level equivalent (60% actuarial value), AND

Purchase coverage through the Exchange, and

The employee’s contribution to premium would not exceed 9.5% of household income, OR

U.S. citizen or legal immigrant Other coverage (not including

individual market) is available (such as through Medicaid or Medicare)


How is the penalty for the individual mandate calculated?

Legal residents who don’t purchase minimum essential coverage may have to pay a tax. This tax is the greater of two calculations:

$695 per person per year up to a maximum of $2,085 per family

2.5% of household income (the $2,085 max

does not apply)

OR


APPENDIX• Background on Exchanges• Overview of Exchanges• Application of the Excise Tax or “Employer Penalty”• Eligibility Chart for Individual Premium Tax Credits and Cost-sharing

subsidies• Illustrative State Implementation Timeline for the Exchanges


Exchanges

Background

• The National Healthcare Reform legislation provides funding for the states to establish Health Benefit Exchanges that “facilitates the purchase of qualified plans” (Sec. 1311). The scope of the Health Benefit Exchanges include, combined or separately, an individual Exchange and a SHOP (Small Business Health Options Program) Exchange.

• The State of Michigan received a planning grant and a “level 1” grant from HHS for Exchange development, but the state legislature did not authorize the use of the level 1 grant.

• The state has announced that it will not have a state-based Exchange in 2014. Rather, it is preparing for a federal exchange or a state-federal partnership. In either model, we expect that the state will manage QHP (product) certification for an exchange that operates on the federal technology solution. The state could elect to stand up a state-based Exchange in 2015 or a subsequent year.

What the Blues are doing:

• BCBSM is working toward the assumption that the State of Michigan will participate in 2014 on the State/Federal Partnership model.

• BCBSM will transition to the State exchange once it is established


Overview of the Exchange

• What is an “Exchange”?• An Exchange is a competitive marketplace for individuals and small employers to directly

compare available private health insurance options on the basis of price, quality, and other factors.

• Purpose and Function of an Exchange• Offers consumers a choice of health plans and focuses competition on price.• Provides information to consumers.

• Creates an administrative mechanism for enrollment.

• Moves towards portability of coverage.o “Coverage through an exchange can be de-linked from employment, helping make

health insurance more portable for people moving from job to job”

• Reforms the insurance market.o “Health reform proposals require insures to accept all applications without

consideration of the applicants health and further prohibits or significantly limits premium variation related to health status”

• http://www.kff.org/healthreform/upload/7908.pdf


How is the excise tax calculated?

Employers that do not offer coverage, and have at least one full-time employee that receives a premium tax credit on the exchange:

Excise tax = $2,000 X (# of full-time employees – 30 employees)

• Excise tax applies to “applicable large employers.” An applicable large employer is an employer with an average of 50 or more full-time equivalent employees in the preceding calendar year

• The excise tax that must be paid depends on whether the employer offers coverage and whether any employees receive subsidies on the individual market exchange

• While the definition of applicable large employer is determined on an annual basis, the excise tax penalty is assessed on a monthly basis and there are multiple scenarios to calculate the excise tax:

Employers that offer coverage and have at least one full-time employee that receives a premium tax credit on the exchange. The excise tax is the lesser of:

$2,000 for each full-time employee – 30 employees

$3,000 for each full-time employee receiving a tax credit

OR

2

1


Who is eligible for a subsidy?

Premium Subsidy

Cost Sharing Subsidy

▪ Individual market participants:100% and 400% of federal poverty level (FPL)

▪ Single Individual income: $11,170 - $44,680

▪ Family of 4 income: $23,050- $92,200

▪ Not if group coverage is available

Subsidy = Silver plan premium – Maximum payable

“Maximum Premium Payable” (% of income): 2% - 9.5%

Sliding scale: 100 - 400% FPL

Limit on Premium: Applies to:

▪ Out of Pocket Limit Reduction: 1/3 – 2/3

▪ Actuarial Value Improvement: 3% - 24%

Cost Sharing Change:

▪ Sliding Scale: 100-400% FPL

▪ Sliding Scale: 100-250% FPL

Applies to:

Individuals who purchase on the Exchange may be eligible for subsidies


ILLUSTRATIVE State Exchange Implementation Timeline

04/13 All Systems Go

06/12 Most Legislative Sessions End

10/12 Payor Product LoadComplete

• All QHP Shopping Test

03/13 Navigator Training Complete

• Hub EligibilityAnd Enrollmenttesting

• Web Portal• Call Centers• QHP Management• Employer Management• Navigator Management• Outreach & Education• Notice & Appeals• Enrollment (Single Streamline Application)• Reporting • Financial Management• Federal Program Eligibility/ Premium Subsidies• State Program Eligibility Rules• Shopping• QHP Product Comparison• QHP Cost Calculator• SHOP Functionality

01/12 BusinessRequirementsComplete

04/12 DesignComplete12/11 Operational

Leads in place

• Work with selected Vendor(s)

Oct 2011 Jan 2012 Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013

State Exchange Work Integration with Other Parties

System TestSystem Test(10/2012 – 04/2013)(10/2012 – 04/2013)

DevelopmentDevelopment(04/2012 – 10/2012)(04/2012 – 10/2012)

Exchange DesignExchange Design(NOW – 04/2012)(NOW – 04/2012)

Open Open EnrollmentEnrollment10/2013 – 10/2013 – 12/201312/2013

ImpImp09/201309/201310/201310/2013

QAQA08/2013 08/2013 09/201309/2013

State Exchange State Exchange Operational Operational

Readiness TestingReadiness Testing(04/2013 – 08/2013)

Early-Mid 2012 – Final Regulations

LegendBased on Proposed Federal Regulations

Critical State Milestones


Where does my Insurance Agent fit in?

Knowledgeable on plan options

AND

Federal and State Legislation that could impact your business


Where does my Insurance Agent fit in?

Employer Requirements under PPACA Exchanges and Employer Sponsored Plans Up-to-date guidance on recent regulations


To find a knowledgeable insurance agent in your area, go to:

http://www.nahu.org/consumer/findagent.cfm


Further Discussion and Questions

Please go on to B4BConnect.com immediately following the webinar.


Updates

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health care reform: what's next for small employers?

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