K-12 Health Benefits Act

ESD 113 Superintendents Meeting

August 15, 2012

Agenda

• Introductions

• Overview of ESSB 5940 – The K-12 Health Benefits Act

• Discuss Issues Facing Districts over next few months and years

• Discussion of QHDHP’s and HSA’s

• Questions

Overview

• Follows 2010 State Auditor’s Office review of K-12 health benefits

• Passed early on April 11, 2012 – first and last day of 2nd special session

• Act is effective July 11, 2012 with legislative intent to be effective for 2012-13 school year

• If goals of Act are not met, recommendation could be to create new K-12 benefit program similar to Public Employee Benefits (PEB) program for Classified only, Certificated only or Combined

Legislative Goals

• Improve transparency [§1(2)(a)]

• Create greater affordability and greater equity [§1(2)(b)]

• Promote health care innovations, cost savings and reduce administrative costs [§1(2)(c)]

• Provide greater parity in state allocations for state employees and K-12 employees [§1(2)(d)]

• Retain current collective bargaining for benefits, and retain state, school district, and employee contributions to benefits [§1(3)]

Changes in Medical Coverage – 1

• Each employee who elects medical coverage must pay a “minimum premium charge” or payroll deduction [§2(2)(c)]

• Employee premiums must be structured so that employees who elect richer benefit plans pay higher premium charge [§2(2)(d)]

• Make progress toward employee deductions for full family coverage not more than three times deduction for single coverage [§3(4)(b)]

Changes in Medical Coverage – 2

• Must offer a Qualified High Deductible Health Plan (QHDHP) and Health Savings Account (HSA) [§3(4)(a)]

• Must offer a plan with employee premium share that does not exceed premium share on one of the PEB plans for all tiers [§3(4)(c)]

Oversight

• Districts must provide annual reports to Office of Insurance Commissioner (OIC)

• OIC required to submit report to Legislature by December 1, 2013, then annually

• Health Care Authority (HCA) must report to the Governor and Legislature by June 1, 2015

• Joint Legislative Audit and Review Committee (JLARC) must review reports and submit recommendations to Legislature by December 31, 2015

What Are Agencies Looking For?

• That districts are making adequate progress towards meeting goals

• That carriers/providers are complying with Act

• That coverage is becoming more affordable, especially for families

• Whether a new statewide K-12 benefits pool should be created for classified employees, certificated employees or both groups combined

Issues Facing Districts – 1

1. Offer a High Deductible Health Plan with a Health Savings Account [§3(5)(a)]

• Which medical carrier’s plan?

• Which HSA administrator?

• Should District designate funds from State Benefit Allocation to contribute to HSA?

• Do contributions need to be negotiated?

Review by 8/31/2012

Issues Facing Districts – 2

2. Each employee electing District sponsored medical coverage pays a minimum premium charge – subject to collective bargaining [§2(1)(c)]

3. Employees selecting “richer” benefit plans pay the higher premium [§2(1)(d)]

4. Offer at least one plan in which the employee share of the premium does not exceed state employees share of the premium [§3(5)(c)]

5. Make progress towards 3 to 1 ratio between Employee/Family and Employee Only coverage [§3(5)(b)]

Review by 8/31/2012

Issues Facing Districts – 3

• Issues 2-5 are all payroll deduction issues

• When do they need to be implemented?

• What is the best approach to meet goals?

• Will flat percent of premium meet goal of richer plans paying more, or is higher percentage needed?

• Does each item need to be bargained?

• Must you bargain this year or when the contract next opens?

Review by 8/31/2012

Issues Facing Districts – 4

6. New reporting requirements [§4(2) to §4(5)]

• More detailed reporting to OIC

• Details and reporting format are being developed now

• Expected deadline is next spring/summer so that the OIC can meet their December 1, 2013 deadline

• Failure to substantially comply can lead to OIC recommending to OSPI that coverage be purchased through PEB program

Review by 12/31/2012

Issues Facing Districts – 5

7. All contracts subject to competitive procedure [§3(6)]

8. Benefit plans must make progress on health care innovation and cost savings, and reduce administrative costs [§3(7)]

9. Contracts or agreements for employee benefits may not exceed one year [§4(1)]

• When and how frequently to go to quote?• Is health care innovation/administrative costs a

carrier or district issue?• Will WEA going to quote satisfy requirement?

Review by 6/1/2013

Issues Facing Districts – 6

10.Open Enrollment ending by October 1st (or start of plan year)

• This issue is not related to K-12 Health Benefits Act

• Section 125 rules stipulate that elections be made prior to start of plan year, except:

▫ New hires

▫ Qualifying event

• Congress instructed and funded Department of Labor to audit groups (also auditing for PPACA compliance)

Review by 8/31/2012

Issues Facing Districts – 7

11.Non-Discrimination Rules

• Effective 9-23-2010, suspended 12/23/2010.

• New regulations expected by end of 2012

• Cannot favor highly compensated individuals with:

▫ Better benefits

▫ Shorter elimination period

▫ Greater contributions

• Excludes those covered by Collective Bargaining. Includes all non-bargained employees

Review by 12/31/2012

Penalties For Non-Compliance

• If do not comply with OIC reporting rules, OSPI could require purchase of benefits through PEB

• If inadequate progress, OIC, HCA and JLARC could recommend creation of statewide K-12 pool to 2016 legislature

•Employees or unions could sue based on non-compliance with K-12 Act

•Section 125 rules – potential huge tax liability•Non Discrimination rules – plan could be subject to

fines of $100 per day per person discriminated against

Payroll Deduction Illustration

WEA Plan 3 Full Rate Mandatory Benefits (Dental,

Vision, Life, LTD)

State Benefit

Allocation

Payroll Deduction

(Before Pooling)

5% of Full Rate

(Possible Minimum

Deduction)

15% of Full Rate

(PEB Target)

Ee Only $657.50 $200.00 $768.00 $89.50 $32.88 $98.63

Ee/Sp $1,209.40 $200.00 $768.00 $641.40 $60.47 $181.41

Ee/Ch $881.90 $200.00 $768.00 $313.90 $44.10 $132.29

Ee/Family $1,450.20 $200.00 $768.00 $882.20 $72.51 $217.53

WEA Easy Choice Plans

Ee Only $469.35 $200.00 $768.00 ($98.55) $23.47 $70.40

Ee/Sp $856.60 $200.00 $768.00 $288.60 $42.83 $128.49

Ee/Ch $625.20 $200.00 $768.00 $57.20 $31.26 $93.78

Ee/Family $1,026.40 $200.00 $768.00 $458.40 $51.32 $153.96

Qualified High Deductible Health Plan

•A QHDHP must meet Internal Revenue Code requirements including:▫Minimum deductible of $1,200 for single coverage

or $2,400 for family coverage(increasing to $1,250 and $2,500 in 2013)

▫Maximum annual out-of-pocket maximum of $6,050 for single coverage or $12,100 for family coverage(increasing to $6,250 and $12,500 in 2013)

▫All services must subject to deductible with exception of preventive care

HDHP Premium Comparison

WEA Plan 3 Full Rate Premera QHDHP Full Rate

Monthly Savings

Ee Only $657.50 $369.10 $288.40

Ee/Sp $1,209.40 $672.70 $536.70

Ee/Ch $881.90 $491.30 $390.60

Ee/Family $1,450.20 $794.95 $655.25

WEA Easy Choice Plans

Ee Only $469.35 $369.10 $100.25

Ee/Sp $856.60 $672.70 $183.90

Ee/Ch $625.20 $491.30 $133.90

Ee/Family $1,026.40 $794.95 $231.45

Health Savings Accounts (HSA’s)

•To be eligible to deposit funds into an HSA, the account holder must:

▫Be enrolled on a QHDHP

▫May not have any other medical coverage

▫May not be eligible to receive benefits from Health Care Flexible Spending Account or VEBA – even spouses

▫Could have limited purpose HCFSA or VEBA which covers dental and routine vision expenses

HSA’s – 2

• HSA belongs to the account holder

• Funds are available as soon as deposited

• HSA funds can be used for expenses incurred after account is opened, even if deposited later

• Maximum HSA contribution for 2012 tax year is $3,100 for single coverage or $6,250 for family coverage(increasing to $3,250 and $6,450 for 2013)

• Maximum is pro-rated

• $1,000 catch-up provision if 55 or older

HSA’s – 3

• Tax advantages:

▫Deposits are pre-tax or tax deductible▫HSA earnings are tax free▫Withdrawals are tax free as long as they are for

eligible health are expenses• Eligible health care expenses include medical plan

costs such as deductibles, copays, coinsurance, dental expenses, and routine vision expenses

• HSA expenses can be paid for spouse or any tax dependent even if they have their own insurance and are not on QHDHP

Scenario 1 – Limited Medical Plan Expenses

• 1 preventive exam, 1 illness per year, & 2 prescriptions

QHDHP Traditional PPO

Annual Preventive Care Exam

Covered in full, not subject to Ded. and Coinsurance

Covered in full, not subject to Ded. Copay or Coinsurance

Doctor visit - $150 charge

Must pay all $150 subject to Ded. and Coinsurance

$30 copay, then covered in full

Lab work - $100 charge Must pay all $100 subject to Ded. and Coinsurance

Must pay all $100 subject to Ded. and Coinsurance

2 Generic drugs $20 each

Must pay all $40 Must pay 2 X $15 copays

Total out of pocketHow much payroll deduction savings?How much in HSA?

$290

$ ____________$ ____________

$160

Scenario 2 – Expensive Medical Treatment

• 30 day hospital stay with $250,000 in claims

QHDHP Traditional PPO

Hospital costs Subject to $1,500 Ded; then 80% Coinsurance until $2,500 maximum

Subject to $200 Ded; 3 Hospital Copays of $300;80% Coinsurance until $2,550 maximum

4 Follow up Doctor Visits after Hospital stay

Covered at 100% since Ded. & Coinsurance already satisfied

4 Visits X $30 Copay each Office Visit

6 Prescriptions following Hospital stay

Covered at 100% since Ded. & Coinsurance already satisfied

6 Prescriptions X $15 Copay each prescription

Total out of pocketHow much payroll deduction savings?How much in HSA?

$4,000

$ ____________$ ____________

$3,860

Comparison of HSA’s, HCFSA’s and VEBA’s

HSA’s HCFSA’s VEBA’s

Who owns account?

Individual Employer Individual

Who can fund account?

Employer, employee or both

Employer, employee or both

Employer

Account goes with former employee?

Yes No except under COBRA

Yes

Do balances rollover?

Yes No Yes

Pay for non-health care expenses?

Yes with taxes & penalties

No No

Additional Resources

•OSPI Weekly Updates of FAQ’s▫http://www.k12.wa.us/finance/insurancebenefits5940.aspx

•Publication 969 Health Savings Accounts and Other Tax-Favored Health Plans▫http://www.irs.gov/pub/irs-pdf/p969.pdf

• IRS Publication 15-B Employers Tax Guide to Fringe Benefits▫http://www.irs.gov/pub/irs-pdf/p15b.pdf

• IRS Publication 502 Medical and Dental Expenses▫http://www.irs.gov/pub/irs-pdf/p502.pdf

•Questions?•Suzanne Lewis

•skl@propelinsurance.com; 253-761-3461

•Bob Bentley

•rlb@propelinsurance.com; 253-310-4028