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Health care reform the financial impact on franchises   a case study 11-12-12
 

Health care reform the financial impact on franchises a case study 11-12-12

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Learn more about financial impacts of US health care reform with this case study

Learn more about financial impacts of US health care reform with this case study

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    Health care reform the financial impact on franchises   a case study 11-12-12 Health care reform the financial impact on franchises a case study 11-12-12 Presentation Transcript

    • ©2012 CliftonLarsonAllen LLP Health Care Reform: A Franchise Case Study Your Financial Impact Employer October 1, 201211 ©2012 CliftonLarsonAllen LLP
    • CASE STUDY CLIFTON-LARSON-ALLEN HEALTH INSURANCE & PENALTY (HIP) CALCULATOR2 ©2012 CliftonLarsonAllen LLP
    • Health Reform Definitions • Employer-Sponsored Insurance (“ESI”) – represents the current health insurance coverage offered by an employer to its employees. • Health Insurance Exchange (“Exchange”) – an exchange is an insurance marketplace where individuals or certain small business employees can purchase insurance as part of a large risk pool. Each state must establish its own exchange or a federal exchange option will be provided. Four plan levels will be offered. • Full-Time Employee – Working an average of 30+ hours per week, annually. • Waived – A full-time employee who elects not to obtain health insurance through the employer. Future coverage decisions made by these employees will impact the employer’s total health care costs.3 ©2012 CliftonLarsonAllen LLP
    • Health Reform Definitions (Continued) • Exchange Subsidy – Individuals who meet the income and health insurance affordability criteria will be eligible for premium and cost sharing (e.g. deductibles, co-payments) subsidies in the Exchange. – Affordable Insurance – Employee premium cost is less than 9.5% of Household Income. – Household Income (HHI) – An employee’s adjusted gross income (AGI) as reported on their annual tax return. The baseline simulation uses employee taxable wages as a proxy for AGI (EXCLUDES spousal income). Alternate scenarios can be considered. HHI will be assessed in relation to FPL to determine eligibility for Exchange subsidies. – Federal Poverty Level (FPL) – Government-established income thresholds used to determine eligibility for assistance through various federal programs.4 ©2012 CliftonLarsonAllen LLP
    • Health Reform Definitions (Continued) • Penalty – Assessed on individuals who fail to obtain adequate health insurance in 2014 and beyond. Assessed on certain employers who have employees that access subsidies and purchase insurance through the Exchange in 2014 and beyond. – Employer Penalty for No or Inadequate Insurance: $2,000 x all full time employees (minus the first 30 FT employees) if no ESI provided, or ESI actuarial value is less than 60% – Employer Penalty for Unaffordable Employee Insurance: $3,000 x # of employees receiving exchange subsidies due to low income and unaffordable insurance premiums5 ©2012 CliftonLarsonAllen LLP
    • Simulation Key Assumptions Key variables included in the simulation: Key Assumptions Base Assumption Case Assumption Range 100% Waived / Insured based off Todays Todays Waived Employees Converted Insurance Income Spouse and/or Other Income Include Specific / Include Range / Average Excluded Premium Annual Increases 9% 2% to 12% per Year Employee Salary Inflation 2% 0% to 5% per Year Changes to Employer Premiums Todays % Contributing x amount up to y HHI Level $5,940 Exchange Premium Historical RAND, +- 25% RAND, ESI, +- 25% ESI Avg 60% of Funding Alternative $2.9M Increased Insurance Cost Premiums6 ©2012 CliftonLarsonAllen LLP
    • Simulation Scenarios • 2014 Pre-Reform ESI – Employer’s current year ESI premium cost increased by projected annual premium growth and health care utilization (volume growth) BEFORE health reform impacts • 2014 Post-Reform ESI – 2014 ESI insurance premium cost including growth in premium costs and health reform impacts (e.g. penalties) • 2014 No ESI – 2014 Scenario where an employer either does not offer health insurance to its employees or selects to discontinue offering health insurance coverage. This may result in employees purchasing insurance through the Exchange. • 2014 Employ-Funded Alternative – 2014 scenario an employer no longer offers health insurance coverage but elects to provide a cash benefit (e.g., wage increase, HRA) to its non-subsidized employees.7 ©2012 CliftonLarsonAllen LLP
    • What Does this Mean for the client? • Real costs are at stake • Beginning 2014, there is a fork in the road Today’s ESI Coverage ESI Coverage EMPLOYERPrivate or Status Quo Total HC Cost - ($000s) HC COSTExchange TODAYS COST 56 Insurance 2014 PRE REFORM ESI 73 2014 POST REFORM ESI 1,321 2014 POST REFORM NO ESI 1,0548 ©2012 CliftonLarsonAllen LLP
    • Employer Health Insurance & Penalty (HIP) Costs Impact of Employer Health Insurance Reforms HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTS Full-Time Employees 557 (35 Insured / 522 Waived) Dodges Stores Todays 2014 Offer 2014 Drop/ Total Staffed 834 (1 PT Insured/277 PT No ESI) ($000s) Cost Coverage Dont Offer 2014 PPACA FTEs 708 Baseline Premium Cost $ 56 $ 56 $ 56 HEALTH REFORM KEY DRIVERS 2011-2014 Premium Increase (9.0% / Yr) - 17 17 Todays Single Coverage Employer Premium Cost Adjusted Premium Cost 56 73 73 Average Single Employer Cost $ 1,560 Post Tax Adjusted Premium Costs 36 47 47 Employer Contribution % 38% PLUS: Additional Reform Impact Medicaid Eligible Employees Previously Waived FT Employees - 1,018 - Total FT Medicaid Enrollees 18 Increased Employer Premiums - - - Employer Estimated Cost Savings $ - ($000s) Penalty: Subsidy Eligibles & ESI - 1,054 - Employer Unaffordable Coverage Penalty Health Reform Increased Cost - 2,072 - Subsidy Eligible Full-Time Employees 408 LESS: Previous Premium Liabilities Subsidy ($3,000) $ 3 Medicaid Employee ESI - - - Estimated Subsidy Penalty $ 1,224 ($000s) Subsidy Eligible FT Employees ESI - (824) - % Total Full-Time Employees 73.2% Health Reform Decreased Cost - (824) - Employer No ESI Insurance Penalty No Minimal Essential Coverage Total Full-Time Employees 557 Less: 2014 Inflation Adjusted HC Cost - - (73) Less: 30 Employees (30) Plus: Subsidy Eligible Penalty - - 1,054 Adjusted Full-Time Employees 527 Health Reform No ESI Cost - - 981 No Insurance Penalty ($2,000) $ 2 Adjusted HC Costs $ 56 $ 1,321 1,054 Estimated Subsidy Penalty $ 1,054 ($000s) HC Cost Change to 2014 Projected $ 1,248 $ 981 2014 Pre Reform Projected HC Costs $ 73 ($000s) % HC Cost Change to 2014 Projected 1710% 1344% Estimated Net Cost $ (981) ($000s) Tax Adjusted HC Costs $ 36 $ 1,228 1,0549 ©2012 CliftonLarsonAllen LLP
    • Maintain ESI Scenario – Current cost vs. 2014 ESI cost HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTS 2014 Post-Reform ESI Scenario Dodges Stores Todays 2014 Offer 2014 Drop/ includes: ($000s) Cost Coverage Dont Offer 1. Additional premium cost Baseline Premium Cost $ 56 $ 56 $ 56 2011-2014 Premium Increase (9.0% / Yr) - 17 17 for previously-waived Adjusted Premium Cost 56 73 73 employees Post Tax Adjusted Premium Costs 36 47 47 2. 9% Annual Premium PLUS: Additional Reform Impact Growth Previously Waived FT Employees - 1,018 - Increased Employer Premiums - - - 3. Penalties for subsidy- Penalty: Subsidy Eligibles & ESI - 1,054 - eligible Health Reform Increased Cost - 2,072 - 4. Premium savings for LESS: Previous Premium Liabilities Medicaid Employee ESI - - - subsidy-eligible Subsidy Eligible FT Employees ESI - (824) - 5. Tax impact (if applicable) Health Reform Decreased Cost - (824) - No Minimal Essential Coverage Net Reform Impact = Less: 2014 Inflation Adjusted HC Cost - - (73) Plus: Subsidy Eligible Penalty - - 1,054 $1,181K Increase Health Reform No ESI Cost - - 981 Adjusted HC Costs $ 56 $ 1,321 1,054 HC Cost Change to 2014 Projected $ 1,248 $ 981 % HC Cost Change to 2014 Projected 1710% 1344% Tax Adjusted HC Costs $ 36 $ 1,228 1,05410 ©2012 CliftonLarsonAllen LLP
    • No ESI Scenario Comparison – Today’s ESI Cost vs. 2014 No ESI HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTS 2014 No ESI Scenario Dodges Stores Todays 2014 Offer 2014 Drop/ Scenario Includes: ($000s) Cost Coverage Dont Offer 1. Employer penalty for not Baseline Premium Cost $ 56 $ 56 $ 56 2011-2014 Premium Increase (9.0% / Yr) - 17 17 offering insurance Adjusted Premium Cost 56 73 73 2. Employees purchase Post Tax Adjusted Premium Costs 36 47 47 insurance through the PLUS: Additional Reform Impact Exchange or private Previously Waived FT Employees - 1,018 - Increased Employer Premiums - - - market Penalty: Subsidy Eligibles & ESI - 1,054 - 3. Potential reduced cost for Health Reform Increased Cost - 2,072 - employees through LESS: Previous Premium Liabilities Medicaid Employee ESI - - - Exchange subsidies Subsidy Eligible FT Employees ESI - (824) - Health Reform Decreased Cost - (824) - No Minimal Essential Coverage Net Reform Impact = Less: 2014 Inflation Adjusted HC Cost - - (73) Plus: Subsidy Eligible Penalty - - 1,054 $1,007K Increase Health Reform No ESI Cost - - 981 Adjusted HC Costs $ 56 $ 1,321 1,054 HC Cost Change to 2014 Projected $ 1,248 $ 981 % HC Cost Change to 2014 Projected 1710% 1344% Tax Adjusted HC Costs $ 36 $ 1,228 1,05411 ©2012 CliftonLarsonAllen LLP
    • Employer Cost Components Todays vs 2014 HC Cost $3,000 2010 HC Costs $2,500 2011-2014 Increased Premiums $2,000 Medicaid Qualif ied Employees $1,500 $1,321 $1,018 $1,054 Waived to ESI $1,000 Increased Premiums $500 $230 $56 $17 $- $- Net Subsidy Impact $- Est 2014 ESI HC Cost $(500) No ESI $(1,000)12 ©2012 CliftonLarsonAllen LLP
    • Employee Exchange Subsidy Eligibility Factors Exchange Subsidy Eligibility = Affordability + 133-400% of FPL In 2014, employer pays penalty when a FT employee is eligible for Exchange Subsidy.13 ©2012 CliftonLarsonAllen LLP
    • 2014 Coverage Breakdown We estimate that 73% of your full-time employees will be eligible for Exchange subsidies, while 24% will continue to be covered by your current ESI.14 ©2012 CliftonLarsonAllen LLP
    • Average Premium Cost Per Employee Perspective15 ©2012 CliftonLarsonAllen LLP
    • Aggregate View of Who Pays What Portion of Health Care Cost EMPLOYER EMPLOYEE GOVT TOTAL Total HC Cost - ($000s) HC COST HC COST SUBSIDY HEALTH CARE COSTTODAYS COST 56 142 - 1982014 PRE REFORM ESI 73 184 - 2562014 POST REFORM ESI 1,321 989 1,575 3,8852014 POST REFORM NO ESI 1,054 1,189 1,639 3,88216 ©2012 CliftonLarsonAllen LLP
    • Key Cost Drivers for Dodge’s Stores • High % of waived employees =94% – If the individual mandate survives the legal challenges, this will increase costs considerably regardless of whether the employer continues to offer insurance to employees. • High % of employees are subsidy eligible = 73% • Employer contribution is less than $2000/$3000 penalty. – Consider whether it makes sense to offer ESI at the $2000 contribution level that meets law requirements and minimizes the number of subsidy eligible full-time employees. • Lowest cost scenario is for employer to cease offering ESI or assess whether they can offer an ESI plan with a $2000 annual per employee contribution that meets the other minimum essential benefit requirements of the law and reduces the number of subsidy eligible.17 ©2012 CliftonLarsonAllen LLP
    • Breakdown of Covered Employees by Income18 ©2012 CliftonLarsonAllen LLP
    • Achieving a Win / Win? Opportunities may exist where “WIN / WIN” scenarios for both employers and employees may be constructed Employer Wins Employee Wins 1) Profitability 1) Adequate Insurance 2) Competitive 2) Affordable Coverage Workforce WIN / WIN Where Employer & Employee interests meet, & Government subsidies are maximized19 ©2012 CliftonLarsonAllen LLP
    • Employer Considerations – Maintain Coverage • Plan Design Issues – Supplemental insurance plan cannot be considered under the law as meeting the minimum essential benefits definition. – Check with insurer/broker to determine if current Blue Cross plan meets 60% actuarial value. If not, employer plan will be treated like no employer-sponsored insurance offered and therefore, costs to employer will be same as dropping coverage. – Current Blue Cross deductibles may exceed deductible and maximum out of pocket caps established by the PPACA law’ beginning in 2014. Recommendation: Evaluate restructuring benefit offerings to meet law’s definitions with employer contribution at $2000 annual per employee level.20 ©2012 CliftonLarsonAllen LLP
    • Employer Considerations – No Employer-Sponsored Insurance • The alternative funding strategy doesn’t offer a win-win for the employer and the employee due to both the fact that the employer contribution is lower than the penalty costs and the high % of waived employees. • Increase employee wages within federal health reform restrictions around discrimination • How to communicate to employees? • Impact of lost deductibility = not significant in this situation • Recruitment/retention/competitors = likely a non issue for this employer as we believe the benefits offered to date and take up rate are comparable to the industry standard.21 ©2012 CliftonLarsonAllen LLP
    • Health Insurance and Penalty (HIP) Calculator www.cliftonlarsonallen.com/HIP22 ©2012 CliftonLarsonAllen LLP
    • Nondiscrimination Rules • Health Care Reform expands the nondiscrimination rules of IRS Code Section 105(h) to cover fully insured group health plans – Also includes Health Reimbursement Arrangements (HSAs) or stand alone Medical Reimbursement Plans – Affects those plans that do not have grandfathered status for plan years beginning on or after September 23, 2010 – Effective date has been delayed until regulations are issued23 ©2012 CliftonLarsonAllen LLP
    • Nondiscrimination Rules (continued) • IRS Section 105(h) Requirements – A self-insured health plan must not discriminate in favor of highly- compensated employees with respect to eligibility to participate or benefits provided – Highly-compensated employees must include the value of the discriminatory benefits received in their taxable income for any tax year in which the self-insured plan fails to satisfy discrimination • Definition of highly-compensated employee – Among the 5 highest paid officers – A 10% or more shareholder of the company’s stock – Among the highest paid 25% of all employees24 ©2012 CliftonLarsonAllen LLP
    • Nondiscrimination Rules (continued) • Eligibility test - the plan must pass one of the following coverage tests: – 70% of all employees must benefit under the plan. – 80% of eligible employees benefit and 70% of all employees are eligible. – The plan benefits a nondiscriminatory classification of employees as determined by the employer based on facts and circumstances conducted on the basis of plan participation.25 ©2012 CliftonLarsonAllen LLP
    • Nondiscrimination Rules (continued) • Benefits test – the plan must meet these requirements: – Provide the same benefits to both highly-compensated and non-highly compensated employees, including benefits for dependents of highly- compensated employees provided on the same basis for dependents of all other employees. – The benefits subject to reimbursement are in proportion to compensation – Not discriminate in favor of highly compensated employees. – Optional benefits (e.g. dental) are available to all eligible employees to elect coverage with the same premium charged for all employees. Members of a control group or affiliated service group are considered a single employer for purposes of 105(h) rules26 ©2012 CliftonLarsonAllen LLP
    • Nondiscrimination Rules (continued) • Excludable Employees (if not participating) – Employees with less than 3 years of service – Employees that have not attained age 25 – Part-time or seasonal employees – Employees covered under a collective bargained agreement – Employees who are nonresident aliens or receive no U.S. earned income27 ©2012 CliftonLarsonAllen LLP
    • Nondiscrimination Rules (continued) • Penalties – An employer who sponsors a discriminatory insured group health plan will be subject to an excise tax liability of $100 per day per employee affected with a maximum penalty of $500,000 – The law does not address if a discriminatory non-grandfathered insured plan will result in an income tax liability for highly- compensated employees as it would for a discriminatory self-insured plan28 ©2012 CliftonLarsonAllen LLP
    • Questions? Anita F. Baker Bob Churchwell Managing Partner Franchise Workforce Consultant Employee Benefit Plans Employee Benefits Specialist CliftonLarsonAllen LLP Franchise Workforce anita.baker@cliftonlarsonallen.com bob.churchwell@franchiseworkforce.com 480/615-2410 240-423-8682 For more information on health reform, go to our Health Care Reform Center: www.cliftonlarsonallen.com/healthreform29 ©2012 CliftonLarsonAllen LLP