1

HEALTH CARE REFORM:EMPLOYER STRATEGIES FOR 2013 & BEYOND

Presented by: R. Dane Rianhard

5/16/2013

2

2014 SMALL GROUP MARKET Products, Pricing & Other Changes

10/1/2013

3

ACA Rating MethodologyAge Rating Standards

• Insurance companies are not allowed to charge an older adult more than three time the rate of a 21 year old

• States can establish age curve or default to federal age curve• Federal age bands (0-20, one year bands between 21-63, and 64 and older)

Family Rating Standards• Number of family members included in rating:• 1 or 2 parents• Up to 3 family members under the age 21• Unlimited dependent children age 21 to 26

• Family premiums are based on the premiums for each family member’s age and tobacco use

• Only the premiums for the first three children under age 21 contribute toward the total family premium

• Family rates include per-member rates for dependent children 21 and older

10/1/2013

4

ACA Rating Methodology (cont’d)Geographic Rating Standards• Premiums may reflect geographic rating areas in the state• Rating area is:• Home address for Individual market coverage• Employer’s primary place of business in the state, for small group

coverage

Tobacco Rating Standards• Insurance companies cannot charge an individual who uses tobacco

products more than 1.5 times the non-tobacco user’s rate.• Tobacco rating can vary based on age (e.g. 1.2:1 for those under 35)• For small employers covered individuals will be able to avoid the tobacco

surcharge by participating in a wellness program• The rating variation permitted for tobacco use can only be applied to the

portion of the premium attributed to the family member affected.

10/1/2013

Deductibles• Maximum annual limitation on plan deductibles is $2,000

single/$4,000 family for non-grandfathered small groups.

• However, coverage will exceed the annual deductible limit if it cannot reasonably reach a given level of coverage (metal tier) without exceeding the deductible limit.

Essential Health Benefits (EHB)

• Insurance carriers are mandated to make sure your plan provides Essential Health Benefits (EHB).

• These categories are:• Ambulatory patient services• Emergency services• Hospitalization• Maternity and newborn care• Mental health and substance abuse disorder services• Prescription drugs• Rehabilitative and habilitative services and devices• Laboratory services• Preventive and wellness services and chronic disease management• Pediatric services, including oral and vision care

7

Complexities of New Contribution Models

Option 1: No contributionEmployer doesn’t elect to make a contribution to employee coverage.

No issues from a CCIIO/EEOC perspective; however, employers must contribute 50% to employee coverage to receive tax credit subsidies.

Option 2: Flat Dollar Amount ContributionEmployer contributes a fixed dollar amount to each employee’s

coverage. Under the individual rating model, this method would be deemed discriminatory per EEOC rules.

Option 3: % Contribution vs. a Reference PlanEmployer selects a % contribution versus a reference plan (RP) at the desired metal level on the SHOP. If the employer selects an alternate

plan, the employee bears the differential premium cost. This is an option that the FFE will provide and is permissible under the EEOC.

Option 4: Employees Pay the Same AmountEmployer selects a reference plan (RP) for which each employee will pay the same amount. In this case the employer makes up the difference in

rates through their defined contribution. If the employee selects an alternate plan, the employee bears the differential premium cost. This is

also an option under the FFE and is permissible under the EEOC.

10/1/2013

Employee Sue Bob

Age 35 55

RP Premium $300 $600

Employer Contribution (%) 50% 50%

Employer Contribution ($) $150 $300

Employee Contribution for RP $150 $300

Alternate Plan Premium $320 $650

Employee Contribution for AP $170 $350

Employee Sue Bob

Age 35 55

Premium $300 $600

Employer Contribution $150 $150

Employee Contribution $200 $450

Employee Sue Bob

Age 35 55

RP Premium $300 $600

RP Average Premium $450 $450

Employee Contribution (%) 50% 50%

Employee Contribution for RP $225 $225

Employer Contribution ($) $75 $375

Alternate Plan Premium $320 $650

Employee Contribution for AP $245 $275

8

Sample Age Rating:Employer Pays Same % Contribution

10/1/2013

Employee Member Dependent QHP Age Tobacco Premium Family Premium

Employer % Contrib.

Employer $ Contrib.

Payroll Deduction

Family Payroll Deduction

Bob Bob Self HMO 35 N $400 50% $200 $200Sue Sue Self HMO 55 N $600 50% $300 $300Tim Tim Self HMO 45 N $500 50% $250 $250Tim Mary Spouse HMO 45 N $500 30% $150 $350Tim Joe Adult Dep HMO 22 Y $180 30% $54 $126Tim Frank Child 1 HMO 18 Y $150 30% $45 $105Tim George Child 2 HMO 10 N $100 30% $30 $70Tim Ashley Child 3 HMO 9 N $100 30% $30 $70Tim Bobby Child 4 HMO 8 N $0 $1,530 30% $0 $0 $971Fred Fred Self PPO 35 N $450 50% $225 $225Edith Edith Self PPO 45 Y $825 50% $413 $413

Edith Martin Spouse PPO 45 N $550 30% $165 $385

Edith Betty Child 1 PPO 12 N $110 $1,485 30% $33 $77 $1,100

TOTAL $4,465 $1,895 $2,571

9

Sample Age Rating:Employee Pays Same $ vs. %

10/1/2013

Employee Member Dependent QHP Age Tobacco Premium Family Premium

Avg. of Composite

Employee %

Contrib.

Payroll Deduction

Employer $ Contrib.

Bob Bob Self HMO 35 N $400 N/A$483

50% $242 $158Sue Sue Self HMO 55 N $600 N/A 50% $242 $358Fred Fred Self PPO 35 N $450 N/A 50% $242 $208Tim Tim Self HMO 45 N $500

$1,480

$1,415

60% $849 $631

Tim Mary Spouse HMO 45 N $500Tim Joe Adult Dep HMO 22 Y $180Tim Frank Child 1 HMO 18 Y $100Tim George Child 2 HMO 10 N $100Tim Ashley Child 3 HMO 9 N $100Tim Bobby Child 4 HMO 8 N $0Edith Edith Self PPO 45 Y $750

$1,350 60% $849 $501Edith Martin Spouse PPO 45 N $500

Edith Betty Child 1 PPO 12 N $100

TOTAL $4,280 $2,424 $1,856

10

Proposal & Premium Invoice Changes• Small group proposals must break out premiums for each

employee and all of their dependents (on or off the Exchange).• Invoices must break out the premiums for each employee and all

of their dependents (on or off the Exchange).• Invoices must also break out the premium for each employee

and their dependents three ways:• Total premium• Employer portion of the premium• Employee portion of the premium

10/1/2013

1110/1/2013

12

What are Employer Options for those with Fewer than 50 FTE’s?

1. Renew Early – MIA is issuing cease and desist orders to carriers, but it is too late.• Pros

• Cons

2. Self-Funding• Avoid ACA fees and taxes

• Transparency

• Medically Underwritten

10/1/2013

13

What are Employer Options for those with Fewer than 50 FTE’s? (cont’d)3. Drop Group Coverage

• Pros

• Cons

10/1/2013

Pre and Post Tax Example

Pre-Taxed Post-Taxed

Gross Income $3,000 $3,000

Pre-Taxed Premium ($500)

Taxable Income $2,500 $3,000

Income Tax 40% ($1,000) ($1,200)

Post Tax Premium ($500)

Net Income $1,500 $1,300Assume minimum tax bracket: 25% Federal, 7.5% State, 7.65% FICA

14

What are Employer Options for those with Fewer than 50 FTE’s? (cont’d)

4. Purchase Plans with Much Higher Deductibles • To extent available beyond ACA small group deductible caps

• Supplemented by underlying GAP (mini-med plans in states where available)

5. SHOP Exchange for tax credits for those groups eligible

10/1/2013

15

2011-2013 REFORM PROVISIONS

10/1/2013

16

Medical Loss Ratio• Beginning January 1, 2011, health insurers were required by the

ACA to spend at least 85% of premium dollars received from policies in the large group market (50+ employees) on a combination of medical care claims and activities to improve health care quality.• Limits the amount that insurers can spend on administrative

expenses, overhead, profit, commissions and other non claim ‐expenses to 15% of premium dollars received. • Insurance companies were required to pay rebates for 2012 by

August 1, 2013.

10/1/2013

17

Limit Employee Contributions to Medical Flexible Spending Accounts (FSA)

• Beginning in 2013, employee salary reduction contributions to medical FSAs will be limited to $2,500 per plan year.• Indexed increases allowed in future years to adjust for inflation.

10/1/2013

18

Provide Written Notice About Health Benefit Exchanges (Exchanges)

• By October 1, 2013, employers must provide written notice to current and new employees, to inform them of the Exchanges and the circumstances under which they may be eligible for health insurance subsidies. • In addition, the COBRA Model Election Notice was revised to

inform qualified beneficiaries of coverage options available through “the Marketplace.”

10/1/2013

19

Summary of Benefits and Coverage (SBC)• On or after Sept. 23, 2012, group health plans and health insurance issuers

are required to use standards in compiling and providing an SBC that accurately describes the benefits and coverage.

• Group health plans must issue an SBC to plan participants and beneficiaries (including COBRA participants) free of charge in the following circumstances: • Participants and beneficiaries must receive an SBC for each benefit package offered

under the plan for which they are eligible, no later than the first date of eligibility. The SBC(s) must be provided with any written application materials for enrollment, or if there are no written application materials, prior to the first date the employee is eligible to enroll in the group health plan.

• If there is any change to benefits and coverage between enrollment and the first day of coverage, no later than the first day of coverage.

• Within 90 days after special enrollment. Special enrollment is when employees and dependents have the right to enroll in coverage midyear upon specified circumstances.

• Upon renewal of coverage (i.e., annual enrollment), not later than 30 days prior to the first day of the new plan year.

• Upon request, as soon as possible, but no later than 7 business days following request.

10/1/2013

20

Summary of Benefits and Coverage (SBC) (cont’d)

• The regulations provide a two part rule for electronic delivery:‐• For those already covered under the plan, the employer must satisfy the

Department of Labor’s electronic disclosure regulations. See the following notice from the DOL: http://www.dol.gov/ebsa/newsroom/tr11 03.html‐

• For those eligible but not enrolled, the employer may provide electronically if the format is readily accessible, and a paper copy is available free of charge upon request.

10/1/2013

21

2014 PROVISIONS

10/1/2013

22

Employer Mandate• Mandate is effective January 1, 2014, regardless of grandfathered status.

However, as of July 2, 2013, the Department of Treasury and the White House delayed the enforcement of the penalties associated with the mandate until 2015.

• Employers with 50+ full time employee equivalents must offer medical ‐coverage that is “affordable” and provides “minimum value” to their full‐time employees (and their dependent children to age 26) or be subject to penalties.

• Employees who work 30 hours per week are deemed full time.‐• Coverage is affordable if the employee’s contribution of the self only ‐

coverage for the lowest cost plan is less than 9.5% of:• the Federal Poverty Level for a single individual. (2013 $ 11,490 for single)‐• an employee’s box 1 W 2 wages‐• an employee’s monthly wages (hourly rate x 130 hours per month)

• A plan must pay actuarially 60% of the costs of covered health services to be considered as providing “minimum value.”

10/1/2013

23

Employer Mandate Penalties• The penalty for employers not offering any coverage to their

employees is $2,000 per FTE (minus the first 30 employees).

• The penalty for employers offering a plan that is not “affordable” or does not provide “minimum value” is the lesser of:• $3,000 per FTE receiving the tax credit for exchange coverage, or• $2,000 per FTE (minus the first 30 employees).

10/1/2013

24

Full time Employee Determination Definitions‐

• IRS recognized potential issues with full time employee ‐determination on a month by month basis.‐ ‐• Created an optional “look back measurement method” as an ‐

alternative way to determine the number of full time employees. ‐• Look back method essentially provides safe harbor methods for ‐

determining which ongoing employees, new employees, employees rehired after a termination of employment and employees returning to service after certain unpaid leaves of absence are considered full time.‐

10/1/2013

25

Full time Employee Determination Definitions ‐(cont’d)

• Measurement Period ‐• Time period selected by the employer of at least 3 but not more than 12

consecutive calendar months during which the employer determines whether an employee is considered a full time employee based on that employee’s average ‐number of hours of service per week.

• Stability Period ‐• Time period selected by the employer that immediately follows, and is associated

with, an applicable measurement period (and any applicable administrative period, defined below), during which an employee who qualified as a full time employee ‐based on the measurement period is treated as a full time employee (i.e., is “locked ‐into” full time status) for purposes of the Play or Pay mandate’s tax penalty.‐ ‐ ‐

• Administrative Period ‐• An optional period of no longer than 90 days beginning immediately after the end

of a measurement period and ending before the associated stability period. The purpose of this period is to allow an employer time to count employees and coordinate health coverage. The administrative period must overlap with the prior stability period to ensure that no gaps in coverage occur.

10/1/2013

26

Full time Employee Determination Definitions ‐(cont’d)

• Ongoing Employees ‐• Under the look back method, an employer determines whether each employee is a full time ‐ ‐

employee by “looking back” at the applicable measurement period. • The measurement period applicable to ongoing employees is referred to as a “standard

measurement period.” • An “ongoing employee” is defined as an employee who has been employed for at least one standard

measurement period. • The employer may add an administrative period of up to 90 days between the measurement period

and the stability period.

• If an employer determines that an ongoing employee performed on average at least 30 hours of service per week during a standard measurement period, then that employee is treated as a full time employee during the associated stability period as long as the ‐employee remains employed—regardless of the employee’s actual number of hours of service during such stability period.

• The stability period must be at least as long as the greater of six consecutive calendar months or the length of the applicable measurement period.

• Therefore, even if the standard measurement period is three months, the associated stability period cannot be shorter than six months.

10/1/2013

2710/1/2013

28

Automatic Enrollment (200+)• Delayed until after additional guidance is issued• Employers that offer coverage must automatically enroll new full

time employees with the opportunity to opt out. • Until the Department of Labor issues regulations, employers are

not required to comply with Automatic Enrollment in Health Plans. • The DOL intends to complete this rulemaking by 2014.

10/1/2013

29

Nondiscrimination Provisions Applicable to Insured Group Health Plans• Delayed until after additional guidance is issued• In the past, an insured group health plan could provide non‐

taxable benefits to executives and other highly compensated individuals even if the plan discriminated in favor of those individuals with regard to eligibility to participate or benefits provided. • If, however, self funded group health plans discriminated in favor ‐

of highly compensated employees, the benefits for the highly compensated individuals would be subject to taxation under Internal Revenue Code 105(h). • The ACA states that Non Grandfathered insured group health ‐

plans will be subject to similar rules as those contained within Internal Revenue Code 105(h) if they discriminate in favor of these persons.

10/1/2013

30

W-2 Reporting• Employers that file 250 or more W 2 forms in the prior year will ‐

be required to report the cost of health coverage to employees.• This amount shows up in box 12 with the code DD. • Transition relief has been given to those employers filing under

250 W 2 forms until further notice.‐

10/1/2013

31

Waiting Period• Employers cannot have more than a 90 day waiting period after ‐

an employee becomes eligible for coverage.• Waiting periods longer than 90 days must be amended prior to or

at 2014 renewal.

10/1/2013

32

TAXES AND FEES

10/1/2013

33

Patient-Centered Outcomes Research Institute (PCORI) Fee• For plan years ending on or after Oct. 1, 2012, the Act imposed a

fee on health insurance issuers and employers sponsoring self‐funded group health plans. • For fully insured plans, the temporary fee is rolled into the

premium rates and is not called out separately on the invoice. • The annual fee begins at the rate of $1 per each covered life

(employee, spouse and dependents) per year in the first year, increases to $2 per covered life per year in the second year and is then indexed for the remaining five years.

10/1/2013

34

Insurer Fee• Will be collected from health insurance providers based on net

written premiums for fully insured groups. • The annual fee is permanent and expected to total $8 billion in

2014 for all insurers, increasing each year to $14.3 billion in 2018, and indexed to premium trend thereafter. • Based on the government rule and industry analysis• Impact on premium is approximately 2.3 percent in the first year,

and will increase to 3 – 4% in future years.

10/1/2013

35

Transitional Reinsurance Fee• Will be collected from health insurance providers for years 2014

to 2016. • Funds are distributed to insurers in the non grandfathered ‐

individual market that disproportionately attract individuals at risk for high medical costs. • The intent is to spread the financial risk across all health insurers

to provide greater financial stability. • Based on the government rule and industry analysis, the impact• for the first year of the Transitional Reinsurance Fee is about $5

to $6 per member per month.

10/1/2013

36

Risk Adjustment Fee• Fee of about $1 per member per year is assessed on issuers of

risk adjusted plans in the non grandfathered individual and small ‐ ‐group markets, whether in or out of the Exchanges. • The permanent fee helps fund the administrative costs of running

the Risk Adjustment Program. • The program is intended to protect health insurance issuers of

risk adjusted plans against adverse selection by redistributing ‐premiums from plans with low risk populations to plans with ‐high risk populations. ‐• The Risk Adjustment Fee begins in 2014.

10/1/2013

37

Medicare Tax• Will require employers to withhold an additional 0.9% of

employee wages exceeding $200,000. • While the 1.45% income tax withholding is still in place for all

employees and employers, the new Medicare tax adds an additional 0.9% on employee earned income above $200,000. • The additional tax is only assessed on the individual, who is

ultimately responsible for the tax. • However, employers who do not withhold this additional income

tax will be liable.

10/1/2013

38

Annual fee on pharmaceutical manufacturers (2011) and medical devices (2013)

• May increase claim expenses to your plan. • Pharmaceutical companies that make or import brand name ‐

drugs are paying fees that totaled $2.5 billion in 2011, the first year.• Companies that make medical equipment sold chiefly through

doctors and hospitals, such as pacemakers, artificial hips and coronary stents, will pay a 2.3 percent excise tax on their sales.

10/1/2013

39

“Cadillac Tax”• Will subject health plans to a 40% excise tax on the value of health

insurance benefits exceeding a specific threshold (2018). • In 2018, the thresholds are $10,200 for single coverage and $27,500 for

family coverage. (Over age 55 or high risk professional thresholds are ‐$11,850 and $30,950 for individuals and families respectively)

• If a plan’s annual premiums for single coverage exceed $10,200, the dollar amount over that threshold will be taxed at 40% rate.

• For example, if an individual’s annual premiums in 2018 are $12,200 – or $2,000 over the $10,200 threshold – the Cadillac tax would equal 40% of $2,000, or $800.

• The thresholds may increase depending on actual medical inflation between 2010 and 2018.

• The health issuer will be responsible for paying this fee if the plan is fully insured, and will apply to both grandfathered and non‐grandfathered plans.

10/1/2013

Thank you for joining us today!

For more information, please contact: