Key Components of Health Reform
Upcoming SlideShare
Loading in...5
×
 

Key Components of Health Reform

on

  • 247 views

v Overview: Key Components of Health Reform ...

v Overview: Key Components of Health Reform
v Health Insurance Exchanges
v Determining Full-Time Employees
v Play-or-Pay Penalties
v Actuarial Modeling and Strategies

Statistics

Views

Total Views
247
Views on SlideShare
247
Embed Views
0

Actions

Likes
0
Downloads
7
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Key Components of Health Reform Key Components of Health Reform Presentation Transcript

    • 1 Today’s Agenda v  Overview: Key Components of Health Reform v  Health Insurance Exchanges v  Determining Full-Time Employees v  Play-or-Pay Penalties v  Actuarial Modeling and Strategies v  Final Thoughts
    • 2 •  No lifetime maximum dollar limits on essential health benefits •  Children eligible to age 26 •  No preexisting condition restriction for enrollees under age 19 •  OTC medication not eligible for FSA or HRA reimbursement without a prescription 2011 2012 2013 2018 •  Individual Mandate •  Employer Mandate •  Health Insurance Exchanges for Individual and Small Group Market •  No annual dollar limits on essential health benefits •  Waiting periods limited to 90 days • Transitional reinsurance fee •  Automatic enrollment (deferred) •  Employer reporting obligations (re: offer of coverage) • Increase in wellness awards/ penalties •  Health FSA benefits capped at $2,500 . Taxes on high wage earners •  Elimination of deductibility of Medicare Part D subsidies •  Excise tax on medical device manufacturers 2014 Health Reform Impact Timeline Cadillac Tax •  Summary of Benefits Coverage •  Medical Loss Ratio Refunds . W-2 Reporting of Health Coverage •  Comparative Effectiveness Research Fees •  HCR Preventive Care Benefits
    • 3 2014 HCR Impacts - Key Pieces of the Puzzle •  Everyone must have “minimum essential coverage” (MEC) or potentially pay a modest penalty* Individual Mandate •  Employer must offer MEC to at least 95% of FTEs in the company (EIN), and their children to age 26, or risk Tier 1 penalties; FTE = 30+ hours/week •  If MEC is not also Qualifying (“Minimum Value”) and Affordable, the employer risks Tier 2 penalties Employer “Play or Pay” Mandate •  Subsidized and unsubsidized coverage •  Subsidies are only available if the employer doesn’t offer Q&A coverage Health Insurance Exchanges * The federal penalty is the greater of $95/year per single or 1% of household income in 2014.
    • HEALTH REFORM ADVISORY PRACTICE Health Insurance Exchanges* * Per HHS, now referred to as “Marketplaces”
    • 5 What Is a Health Insurance Exchange? v  A transparent, regulated, competitive marketplace for individuals to purchase health insurance coverage for themselves and their families Ø  Each Exchange must offer a basic level of comprehensive benefits called “essential health benefits,” as defined by HHS based on “typical” employer plan ²  Bronze (60% actuarial value) ²  Silver (70% actuarial value) ²  Gold (80% actuarial value) ²  Platinum (90% actuarial value) v  Small employers (100 or fewer employees) may leverage Exchanges to provide coverage to their employees Ø  States may extend this option to larger employers beginning in 2017 v  Premium and cost-sharing subsidies available for exchange coverage for individuals who do not have access to qualifying and affordable (Q&A) employment-based coverage Ø  Applies to persons between 1X and 4X federal poverty level Ø  E.g., up to family income of $92,200 (2013) for family of four
    • 6 State Progress on Health Exchanges Source: Kaiser Family Foundation - February 15, 2013
    • 7 Why Exchange-based Coverage Is Expected to Be More Costly v  Self-funded Employer: †  Administrative fees typically less than 5% of overall costs. No profit, risk charges, or state taxes. †  Tax-deductible expense for company and pre-tax contributions for employees. †  Available to actively-at-work employees and their families who are healthier than the general population. †  Employee contributions based on salary, not age. v  Health Insurance Exchanges: †  3.5% user fee for federally-facilitated exchange coverage †  Insured premiums includes profit, risk charges, and state taxes. †  Pool includes adverse selection because healthy lives purchase only as needed. †  Premiums after-tax and age-based with a maximum spread of 3 to 1. †  Insurers subject to billions in additional taxes and charges.
    • 8 Sample Projected Exchanges Rates – 2014 v  Anticipated exchange-based premiums were developed from the Kaiser Family Foundation Health Subsidy Estimator model and validated from several additional sources including recent premiums under Massachusetts's individual exchange as well as CBO projections. v  An individual-employee rate was developed for each employee’s age, coverage category and location based on demographic and area factors. v  Federal subsidies were calculated using two methods 1) that consider only the employee’s salary for determining household income and 2) a spousal income generator (RSIG) that randomly assigns income based on gender, wage and age of the employee. Kaiser Family Foundation 2009 Trended 9% to 2014 Boston Area Rates trended to 2014 Age Single Emp + Sp Emp + Chld Emp + Fam Emp + Fam 30 $4,117 $8,235 $8,235 $12,097 $16,414 40 $5,385 $10,770 $10,770 $14,517 $20,202 50 $8,352 $16,703 $16,703 $20,174 $24,865 60 $12,172 $24,344 $24,344 $28,772 $31,081 CBO Average -All Ages $4,264 $11,562
    • HEALTH REFORM ADVISORY PRACTICE Who are full-time employees?
    • 10 Determining and Dealing with Full-Time Employees v  Who Are FTEs*? †  Individuals working at least 30 hrs/wk, on average ²  May use 130 hrs/month as an equivalency †  But not: ²  True independent contractors ÷  Contrast with “common law employees,” to wit, individuals with respect to whom the employer not only has the right to say what is to be done, but how it is to be done ²  Leased employees ²  Partners ²  More than 2-percent shareholders in an S corporation, and ²  Employees without US-source income * Employer is at-risk for penalties if FTEs get subsidized exchange-based coverage
    • 11 Determining and Dealing with Full-Time Employees v  What’s the Deal with Full-Time Employees? †  Regular (non-seasonal) full-time: Offer coverage prior to end of the employee’s “initial three full calendar months of employment,” or risk penalties †  Seasonal/Variable Hour: ²  Track hours over a “measurement period” of 3-12 months ²  Get ducks in a row during a brief “administrative period” ²  Offer coverage, to those emerging from the measurement period with an average of 30 hrs/week or 130 hrs/month, through a “stability period” of at least 6 months, and no shorter than the measurement period Look-Back “Measurement” Period Prospective Stability Period
    • 12 Regular Full-Time Seasonal/ Variable Hour v  So…in Which Bucket Do We Place a New Employee? †  On start date, employee expected to work 30+ hrs/wk for indefinite period †  On start date, employee is reasonably believed to be seasonal †  On start date, employee expected to work <30 hrs/wk for indefinite period †  On start date, employee expected to work indefinitely, but we can’t reasonably determine if will average 30+ hrs/wk over an entire measurement period Determining and Dealing with Full-Time Employees
    • 13 Regular Full-Time Seasonal/ Variable Hour v  So…in Which Bucket Do We Place a New Employee? †  On start date, employee hired for indefinite term, expected to work 30+ hrs/wk for a while, but then hours will diminish so can’t determine if will average 30+ hrs/wk over an entire measurement period †  On start date, non-seasonal employee expected to work 30+ hrs/wk, but term of employment will end before the end of the measurement period ²  Disregard high turnover rate †  Staffing/temporary employees whose assignments, duration of assignments, and hours per week at assignments are all uncertain Determining and Dealing with Full-Time Employees
    • 14 Determining and Dealing with Full-Time Employees v  Counting Hours †  What hours are taken into account? (Proposed regulations) ²  Hours paid, whether working or not (count all hours for work within controlled group) ²  Disregard hours worked outside the U.S. (i.e., foreign-source income)….
    • 15 = Averaged 30+ hours during initial measurement period = Averaged < 30 hours during initial measurement period New Hire Initial Measurement Period Start Date June 25, 2014 July 1, 2014 June 30, 2015 New Hire Initial Stability Period August 1, 2015 Dec. 31, 2015 July 31, 2016 Determining and Dealing with Full-Time Employees Optional Administrative Periods Example of Initial Measurement and Stability Periods Assume standard measurement periods run November 1 – October 31, standard administrative periods run November 1 – December 31, and standard stability periods run Jan 1 – Dec 31. Green arrow shows length of initial stability period for an employee averaging 30+ hours per week/130 hours per month over his initial measurement period. Red arrow shows the initial stability period for an employee averaging fewer than 30 hour per week/130 hours per month over his initial measurement period. Note how the initial stability period ends prematurely, as the employee’s first standard stability period begins. The employee’s FT or non-FT status in that standard stability period beginning January 1, 2015, is based on the hours per week or month he averaged over the standard measurement period that overlapped his initial measurement period (e.g., the standard measurement period that ran November 1, 2013 – October 31, 2014).
    • 16 = Averaged 30+ hours during initial measurement period = Averaged < 30 hours during initial measurement period New Hire Initial Measurement Period Start Date June 25, 2014 July 1, 2014 June 30, 2015 New Hire Initial Stability Period August 1, 2015 Dec. 31, 2015 July 31, 2016 Determining and Dealing with Full-Time Employees Optional Administrative Periods Ongoing Assoc. Standard Stab. Period Dec. 31, 2015 Oct. 31, 2014 Jan. 1, 2015 Ongoing Assoc. Std. Meas. Period Nov. 1 2013 Ongoing Assoc. Std. Meas. Period Standard Stability Period Nov. 1, 2014 Oct. 31, 2015 Jan. 1, 2016 Dec. 31, 2016
    • 17 Determining and Dealing with Full-Time Employees v  Averaging Periods for Determining FTEs †  Ongoing employees ²  Standard Measurement Periods: ÷  3-12 consecutive months (earlier guidance said calendar months) ÷  May be followed by Standard Administrative Periods of up to 90 days (Caution…not necessarily 3 months) ²  Standard Stability Periods: ÷  Greater of 6 months or length of the Standard Measurement Period ÷  For 2013, may have a Standard Measurement Period of 6 consecutive months, followed by a Standard Stability Period beginning in 2014 of 12 months; measurement period must start by July 1, 2013 ú  Note that for non-CY plans to take advantage of this special rule, the measurement period may have to be longer than 6 months in order to apply 12-month stability period…the measurement period must start not later than July 1, 2013 and end no more than 90 days before the stability period
    • 18 Determining and Dealing with Full-Time Employees Ongoing Assoc. Standard Stab. Period Dec. 31, 2015 Oct. 31, 2014 Jan. 1, 2015 Ongoing Assoc. Std. Meas. Period Nov. 1 2013 Ongoing Assoc. Std. Meas. Period Standard Stability Period Nov. 1, 2014 Oct. 31, 2015 Jan. 1, 2016 Dec. 31, 2016 Watch for record-keeping requirements! Note how coverage continues through the 2015 Administrative Period that the 2015 Stability Period overlaps
    • 19 Determining and Dealing with Full-Time Employees v  Averaging Periods for Determining FTEs †  Ongoing employees ²  Variations : May use different standard Measurement, Administrative and Stability Periods for certain different groups: ÷  Employees in different bargaining units covered by separate bargaining agreements ÷  Collectively-bargained and non-collectively bargained employees ÷  Salaried and hourly employees ÷  Employees whose primary places of employment are in different states ÷  Employees in different companies (because “play or pay” is applied separately) ²  Same flexibility for Initial Measurement, Administrative and Stability Periods?
    • 20 Determining and Dealing with Full-Time Employees v  Averaging Periods for Determining FTEs †  Special Rules Affecting Measurement, Administrative and Stability Periods ²  Rehires and Returns to Service After Unpaid Leave/ Layoff (after 2014?) ÷  If period of break (no paid/unpaid hours of service) is at least 26 weeks, the rehired/returning employee may be treated as new employee, for “play or pay” purposes, or ÷  If period of break is at least four weeks, and longer than the preceding period of employment, the rehired/returning employee may be treated as a new employee for “play or pay” purposes ÷  If the employee can’t be treated as a new hire, upon his return he picks up where he left off (e.g., if he returns in a stability period for which he must be treated as a FTE, coverage must be offered on his first day back or as soon as administratively practicable)
    • 21 Determining and Dealing with Full-Time Employees v  Averaging Periods for Determining FTEs †  More Special Rules Affecting Measurement, Administrative and Stability Periods ²  Adjustment to Measurement Period to Account for Special Unpaid Leave ÷  If an employee returns from a period of “special” unpaid leave, and cannot be treated as a new hire (i.e., he hasn’t been gone long enough), the period of unpaid leave is either: ú  Disregarded in determining average hours (i.e., the measurement period is shortened), or ú  Credited the employee with hours at the weekly rate he averaged during the weeks in the leave that were not special unpaid leave ÷  Special unpaid leave is unpaid leave under FMLA, USERRA or for jury duty ÷  Only required to apply this rule for employees who, upon return, must be treated as rehired/returning employees, as opposed to new employees
    • 22 Determining and Dealing with Full-Time Employees v  Averaging Periods for Determining FTEs †  More Special Rules Affecting Measurement, Administrative and Stability Periods ²  Proposed Educational Institution Special Rule ÷  Apply the “special unpaid leave” rule to unpaid breaks of at least four consecutive weeks (ignoring FMLA, USERRA and jury duty unpaid leave) if the unpaid breaks are “related to or arising out of non-working weeks or months under the academic calendar” ÷  If the employer chooses to credit deemed hours, rather than shrink the measurement period, it’s not required to credit more than 501 hours ÷  Only required to apply this rule for employees who, upon return, must be treated as rehired/returning employees, as opposed to new employees ²  Uh-Oh… ÷  IRS considering broader application of Educational Institution Special Rule….
    • 23 Determining and Dealing with Full-Time Employees v  What lengths make the most sense? †  Most employers will find a 12-month measurement period works best v  When should they begin and end? ²  Probably, end a few weeks prior to open enrollment ²  Designate an administrative period to bridge the gap between end of measurement period, and start of stability period
    • 24 2014 Employer “Play or Pay” Mandate* •  No offer of “minimum essential coverage” (MEC) to at least 95% of FTEs (and children) and •  At least one FTE employee obtains subsidized Exchange-based coverage Tier 1 Penalty $2,000 annually per total number of FTEs in EIN (minus first 30 EEs, prorated for controlled groups) •  Offer of MEC but offer is not also Qualifying and Affordable, and FTE obtains subsidized Exchange-based coverage Tier 2 Penalty $3,000 annually per each FTE that receives subsidies from an Exchange (this penalty is capped at the maximum penalty above) * Applies on EIN-by-EIN basis
    • 25 Minimum Essential Coverage Qualifying (“Minimum Value”) Coverage v  Assuming the employer will “play” by offering minimum essential coverage, it will need to ensure the offer is Qualifying and Affordable to avoid the risk of Tier 2 penalties v  How good does Qualifying coverage need to be? †  60% actuarial value based on typical self-insured plans †  Feds issued Excel-based calculator ²  http://cciio.cms.gov/resources/files/mv-calculator- final-2-20-2013.xlsm v  Only the Employee’s Coverage Need be Qualifying, to avoid potential Tier 2 †  Children’s coverage does not; no coverage offer required for spouses “Qualifying Coverage” H E A L T H R E F O R M 60%
    • 26 Affordable Coverage v  To Satisfy the Tier 2 “Play or Pay” Obligation, the Employer’s Offer of Coverage to FTEs Must Also Be “Affordable” v  What Does “Affordable Coverage” Mean? †  Statute merely says coverage can’t cost the employee (for employee-only coverage) more than 9.5% of his or her “household income” ²  Basically, adjusted gross income; that’s taxable wages with “above the line” adjustments for things like alimony, student loan interest, HSA contributions, farming gains and losses, etc. †  Feds offer a variety of safe harbors: E’ee-only coverage is affordable if it does not cost more than 9.5% of: ²  W-2 wages (actual Box 1 wages); look-back calc ²  Rate of pay at beginning of year, times 130 hours (monthly premium can’t exceed this number) ²  Poverty level for state in which employee works H E A L T H R E F O R M
    • HEALTH REFORM ADVISORY PRACTICE Actuarial Modeling and Strategies for 2014
    • 28 Actuarial Modeling by Industry GENERAL CONCLUSIONS: v  Most employers can continue to offer coverage with minimal cost impact due to play-or-pay v  Most employers could save a lot by terminating group coverage and allowing employees to find coverage in the insurance exchanges v  Most employees begin to “lose” when shopping in the exchanges, once household income reaches 2x federal poverty level †  For now, most employers will continue to offer coverage to their FTEs
    • 29 Financial Impact of Law Will Vary Issue OK Possible Problems Major Problems Current Eligibility=30 hours Yes No but not many PT workers No and a large PT work force Types of Plans Traditional Limited Medical Employer Subsidy High Low to mod and low paid work force Low Current Participation Rate High Low Wage Spectrum High Low Regular vs. Seasonal Workers Regular Seasonal Employer Culture Do they need a plan to attract and retain? Financial savings of greater value? How does Play or Pay impact their employees? What will their peer group do?
    • 30 Health Reform’s Cost Impact – All Industries (except Retail, Restaurant, Hotels, Hospitality and Entertainment) Based on analysis of 199 clients; Summary of Findings * Employees can opt out, so the impact will depend on how many new employees remain on the plan, for how long, and the size of the ER’s subsidy. # First number based on employee's salary; second based on estimate of the EE's household income, on which Exchange subsidies will be based. Reform Requirement Description Average Cost Adjustment 2010/2011 2010/2011 Mandated Benefits •  Remove pre-ex cond’n restriction to 19 •  Remove lifetime dollar maximums on EHB’s •  Minimum annual dollar maximums on EHB’s •  Cover children to age 26 1.3% 2014 Waiting Period (WP) Waiting Period cannot be greater than 90 days From current 180 day WP 4.0% From current 365 day WP 23.7% Auto Enroll (deferred) Plans must automatically enroll newly eligible FT EEs and re-enroll existing EEs 4.4%* PlayorPay Play Employer continues to offer coverage Plan Employee 0.4%, in addition to the cost impacts listed above. Pay Employer terminates plan -41.4% 98.5% - 152.7% # 2018 Excise Tax If plan value exceeds limits, excess will be taxed. 1.6% The impact to the EE varied based on salary levels and the ER's contribution. For example, for a low- paid workforce where the ER does not contribute a significant portion of premium, the Ees’ increase is much smaller than a higher-paid workforce with a substantial ER contribution.
    • 31 Health Reform’s Cost Impact – Retail, Restaurant, Hotels, Entertainment Industries Based on analysis of 31 clients; Summary of Findings. * Employees can opt out, so the impact will depend on how many new employees remain on the plan, for how long, and the size of the ER’s subsidy. # First number based on employee's salary; second based on estimate of the EE's household income, on which Exchange subsidies will be based. ^This cost is in addition to the cost impacts associated with mandated benefits, waiting period changes, and auto enroll. Reform Requirement Description Average Cost Adjustment 2010/2011 2010/2011 Mandated Benefits •  Remove pre-ex cond’n restriction to 19 •  Remove lifetime dollar maximums on EHB’s •  Minimum annual dollar maximums on EHB’s •  Cover children to age 26 1.2% 2014 Waiting Period (WP) Waiting Period cannot be greater than 90 days From current 180 day Waiting Period 5.6% From current 365 day Waiting Period 8.4% Auto Enroll (deferred) Plans must automatically enroll newly eligible FT EEs and re-enroll existing EEs Groups not offering qualifying coverage to all 30+ Hour FTEs Groups offering qualifying coverage to all 30+ Hour FTEs 15.2%* 5.2%* Playor Pay Play Employer continues to offer coverage Plan Employee Plan Employee 91.1%^ 0.4% Pay Employer terminates plan 67.4% -37%-0.1%# -26.4% 38.4%-80.5%# 2018 Excise Tax If plan value exceeds limits, excess will be taxed. 0.4% Note: Assumes Limited Medical Plans get waiver of annual dollar maximum requirement. The impact to the EE varied significantly based on salary levels. For example, one client’s salaried employees would see a 73% increase to purchase through the Exchange where the hourly employees would see a 40% decrease because of the governmental subsidies.
    • 32 Strategies to Mitigate Costs v  Options †  Do nothing; maintain status quo (current offerings, to employees currently eligible) †  Pay (in whole or in part) ²  Terminate plan, or fail to offer coverage to FTEs in one or more subsidiaries †  Play, but utilize workforce management to shrink the universe of newly eligible full-time employees †  Play, by offering current plan(s) to the newly eligible FTEs †  Play, by offering current plans and an affordable 60% plan †  Play, by offering only a 60% plan †  Play, by offering a 60% plan and an MEC plan †  Offer only non-qualifying coverage, or offer qualifying coverage without regard to affordability †  Combinations of the above Individually, these strategies reduce the number of FTEs, or the potential cost per FTE. Combinations mitigate both risks. H E A L T H R E F O R M
    • 33 Strategies to Mitigate Costs – Status Quo v  Do Nothing New (Maintain Current Plan Design and Eligibility) †  Maintain current plan design, and continue to offer the plan to the class of employees currently eligible; ignore the employees considered “full-time” under health reform who are not eligible now †  Little or no workforce management to shrink the universe of newly- designated “full-time” employees v  Why it Works, or Doesn’t: †  Not a cost effective option in vast majority of cases; penalties are too severe, particularly in light of cost-effective and efficient alternative strategies H E A L T H R E F O R M
    • 34 Strategies to Mitigate Costs - Pay v  Pay †  Offer no coverage to more than 5% of FTEs v  Why it Works, or Doesn’t: †  Won’t work for employers who need to attract and retain employees. †  For employers in restaurant/retain industries, many employers cannot afford to pay a $2k nondeductible penalty on behalf of all FTEs, particularly where the employer has: ²  A significant number of FTEs to whom it effectively must offer coverage (executives and other corporate staff, managers, etc.) and/or ²  A significant number of FTEs to whom the employer does not offer coverage (or only limited coverage) today ²  But, consider possibility of isolating groups of employees, to whom you do not want to offer coverage, under separate EIN H E A L T H R E F O R M
    • 35 Strategies to Mitigate Costs – Workforce Management v  Play, but Utilized Workforce Management to Minimize the Universe of Newly Eligible FTEs †  Manage some full-time employees to part-time †  Employ “measurement period” concept to seasonal and variable hour employees †  Identify up to 5% of FTEs who won’t receive a coverage offer †  Engage Medicaid- or Medicare-eligible employees v  Why it Works, or Doesn’t †  Reduce potential cost by minimizing the number of newly eligible FTEs to whom you must make a coverage offer †  Are you able to substitute part-time labor for full-time? Can you shave hours from one group and have another pick up the slack? †  Conform HR policies, practices, publications and contracts to notion that you hire part-time employees H E A L T H R E F O R M
    • 36 Example – Workforce Management Strategy v  Reducing Hours to <30 – Where to Draw the Line? - 50 100 150 200 250 300 350 400 450 30 31 32 33 34 35 36 37 38 39 40+ HourlyEmployeeCount Hours Per Week Before Reduction After Reduction Managing hourly workers from 32 hrs/wk to under 30 removes 598 hourly employees from the equation… …but can employees with 33+ hrs/week take up the slack, or will Company ABC need to hire additional part-time workers? What is the impact on hiring and training costs, loyalty, etc.?
    • 37 Strategies to Mitigate Costs – Offer Current Plans v  “Play” by Offering Current Plan(s) to All FTEs †  In other words, maintain status quo offerings and offer them to the new universe of eligible FTEs v  Why it Works, or Doesn’t: †  Usually it doesn’t. Coverage tends to be generous, and would have to be offered at very modest cost (to satisfy “Affordability”) to the new universe of eligible FTEs †  The take-up rate may be too high to be acceptable (financially); plan will attract: ²  Unhealthy employees in greater numbers ²  Employees driven by the individual mandate—particularly the more highly paid (due to increase in individual mandate penalty) ²  Individuals who lose coverage under spouse’s plan H E A L T H R E F O R M
    • 38 Strategies to Mitigate Costs – Offer Current & 60% Plan v  “Play” by Offering All FTEs Current Plans, Plus a New 60% “Qualifying” Option †  Add a 60% actuarial value (i.e., minimum value) offer of Qualifying coverage to the current offerings, price the 60% plan so it’s “Affordable” to all FTEs, and offer all options to all FTEs, including the universe of newly eligible FTEs v  Why it Works, or Doesn’t: †  Eliminates any worry over penalties, because you’ve made an offer of Qualifying and Affordable coverage to your FTEs †  OK to price the more generous plan at “unaffordable” levels, as long as the 60% plan is “Affordable” †  Cheaper plan may cause migration of your best risks into the less expensive 60% plan †  May need to created “salary-banded” contribution rates H E A L T H R E F O R M
    • 39 Strategies to Mitigate Costs – Offer Only 60% Plan v  “Play” by Offering All FTEs a New 60% “Qualifying” Option Only †  Substitute a “Qualifying” 60% actuarial value (i.e., minimum value) coverage offer for the current plan(s), price it at “Affordable” levels, and make it the only offering to FTEs v  Why it Works, or Doesn’t: †  Reduces premium cost immediately; OK to soften the transition to higher deductibles (coverage may have a $3,500 or larger deductible) through bonuses to key employees †  Potential for penalties is eliminated because of the offer of Qualifying and Affordable coverage †  Minimize the take-up rate, particularly among the universe of newly eligible FTEs, via contribution rates (even for “Affordable” coverage); can minimize it further via plan design (i.e., increasing deductibles) †  Note: The offer freezes employees out of subsidized coverage in an Exchange; thus they cannot satisfy the individual mandate or have insurance unless they buy the 60% plan H E A L T H R E F O R M
    • 40 Strategies to Mitigate Costs – Potential 60% Plan Designs Plan Actuarial Value Deductible Coinsurance Out of Pocket Maximum Bronze 1* 60% $4,375 20% $6,350 Bronze 2* 60% $3,475 40% $6,350 Bronze 3 60% $6,350 0% $6,350 * Kaiser Family Foundation April 2012 http://www.kff.org/healthreform/upload/8303.pdf
    • 41 Strategies to Mitigate Costs – Offer 60% & MEC Plan v  Offer All FTEs a 60% and Affordable Plan (and Maybe Current Plans Too), Plus a Skinny and Inexpensive “Minimum Essential Coverage” (MEC) Plan †  Couple a 60% offering with an MEC plan that would look/feel much like contemporary “limited medical” plans †  Coverage would be very inexpensive to employees, and employer (might even be employee-pay-all) v  Why it Works, or Doesn’t: †  If the 60% plan is designed to minimize the take-up rate, the MEC coverage solves a variety of issues: ²  Coverage will be inexpensive ²  Coverage satisfies their individual mandate †  Note: No guidance yet on how skimpy an MEC plan may be †  May be a challenge to adequately differentiate the MEC plan from the 60% plan (from a contribution standpoint) if employer doesn’t subsidize the MEC plan H E A L T H R E F O R M
    • 42 Self-Funded Preventive Care Only + Richer Fully Insured Indemnity Supplemental Plan †  Inpatient Indemnity Benefits: ²  $1500 Hospital Admission ²  $500/Day Inpatient Misc (10 day max) ²  Surgical and Anesthesia Benefits †  Outpatient Indemnity Benefits: ²  $60 per OV, up to 6 per year ²  $60 per Outpatient DXL, up to 6 per year ²  Rx Total Monthly Cost (Single) Self-Insured Prev Care $30 Insured Supplemental $140 Total: $170 *Gross cost of Indemnity plan potentially reduced if ER contributes >50%. Self-Funded Preventive Care Only +Cheaper Fully Insured Indemnity Supplemental Plan †  Inpatient Indemnity Benefits: ²  $800 Hospital Admission ²  $300/Day Inpatient Misc (10 day max) ²  Surgical and Anesthesia Benefits †  Outpatient Indemnity Benefits: ²  $60 per OV, up to 3 per year ²  $60 per Outpatient DXL, up to 3 per year Total Monthly Cost (Single) Self-Insured Prev Care $30 Insured Supplemental $65 Total: $95 What Might an MEC Plan Look Like?
    • 43 Strategies to Mitigate Costs – Offer Unaffordable Coverage v  Offer Qualifying Coverage to All or Substantially All FTEs, But Do Not Worry About Making it Qualifying or Affordable †  Offer only an MEC plan †  Offer Qualifying 60% coverage but don’t worry about affordability †  Make coverage deliberately unaffordable †  Use wellness surcharges to trigger unaffordability v  Why it Works, or Doesn’t: †  Some employees will not seek subsidized coverage in an Exchange (they’ll object to the mandate, have coverage elsewhere, or won’t care) †  It might be cheaper for the employer to pay the penalty than to subsidize the coverage †  It may be better for the employee, too, to reap subsidies †  Enticing unhealthy employees to bolt for Exchange-based coverage will almost always be a “win” for the employer, even with penalties H E A L T H R E F O R M
    • 44 Any Questions? Mark C. Holloway, JD Rob Ruotolo, MBA Lockton Benefit Group Lockton Companies – New York mholloway@lockton.com rruotolo@lockton.com 816-960-9567 646-572-3962
    • 45 Our Mission To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management Our Goal To be the best place to do business and to work www.lockton.com © 2011 Lockton, Inc. All rights reserved. Images © 2011 Thinkstock. All rights reserved.