Employer coverage and the era of exchanges


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Presented by: Caroline Pearson at NADP's CONVERGE 2013 Conference at the Bellagio, Las Vegas.

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Employer coverage and the era of exchanges

  1. 1. Employer Coverage in the Era of Exchanges Presented by: Caroline Pearson 1 September 9-12 Bellagio Resort Las Vegas, Nevada 9/4/2013
  2. 2. Employer-Sponsored Insurance: Mandate Impact and Employer Response Presented by Caroline Pearson September 2013 avalerehealth.net 2
  3. 3. Agenda ● Affordable Care Act (ACA) Provisions Impacting Employers ● Employer Mandate and Decision to Delay ● Monitoring Employer Behavior to Mitigate Impact of the Mandate ● Outlook for Other Employer Trends ● Conclusions 9/4/2013 3
  4. 4. ACA Provisions Impacting Employers 4
  5. 5. Employers Offer Coverage For Three Main Reasons Why Employers Offer ESI 1. Employers offer health benefits as part of overall compensation package to recruit and retain employees 2. Employers offer health benefits because there has been no viable alternative for employees to obtain comprehensive coverage on their own 3. Employers offer health benefits to boost worker productivity The ACA make significant changes only to the second of these reasons – insurance market reforms and exchanges could potentially create a viable alternative to ESI ESI = Employer-sponsored insurance 9/4/2013 5
  6. 6. Small Employers Are Less Likely to Offer Health Benefits and the Offer Rate Has Fallen in Recent Years Percentage of Firms Offering Health Benefits 92% 87% 85% 87% 85% 95% 95% 94% 93% 91% 99% 98%99% 99%98% 76% 72% 71% 73% 68% 59% 47% 48% 50% 45% 3 - 9 Workers 10 - 24 Workers 2009 25 - 49 Workers 2010 2011 50 - 199 Workers 2012 200+ Workers 2013 Source: Kaiser Family Foundation/HRET, Employer Health Benefits 2012 Survey 9/4/2013 6
  7. 7. Employer Coverage Likely to Remain Stable Through 2016 EXPECTED SOURCES OF COVERAGE (IN MILLIONS) 50 52 53 55 5 5 5 5 Medicare Other Public Programs Employer 144 144 145 146 Non-Group Exchanges Medicaid and CHIP 16 50 49 2013 13 8 12 12 55 57 11 22 Uninsured 58 40 35 26 2014 2015 2016 Source: Avalere Enrollment Model, May 2013, Scenario 3, which assumes 26 states opt out of the Medicaid expansion. 9/4/2013 7
  8. 8. Several ACA Provisions May Affect Employers’ Decisions to Offer Health Insurance Provision Description Employer Mandate Employers with >50 workers will face penalties if they do not offer affordable coverage Individual Mandate Requires individuals to purchase insurance coverage or pay a penalty Exchanges States must establish an exchange for the individual and small group markets by 2014 or rely on federal-fallback Subsidies/ Medicaid Expansion ESI Impact Provides sliding-scale tax credits to individuals from133 to 400% of FPL; Extends Medicaid coverage to those up to 133% of FPL FPL = Federal Poverty Level 9/4/2013 8
  9. 9. The ACA Will Increase Costs for Some Employers Factors Driving Employer Costs Higher • Employer Costs 9/4/2013 • • Generosity requirements for companies with mini-med plans Higher uptake rates among employees Coverage requirement for part-time employees working more than 30 hours/week 9
  10. 10. Estimates of ACA’s Impact on ESI Vary Widely Though Modelers Are Generally Consistent With Each Other Other policy analysts and politicians, such as Capretta and Bredesen agree with McKinsey and Holtz-Eakin Benefit consultants and other experts largely agree with the models that predict only small net changes in coverage 2.7% McKinsey Holtz-Eakin Booz Gruber2 CBO1 Lewin Urban -3.8% -3.1% -2.5% 2.7% RAND -1.6% Estimates reflect different ACA phase-in periods from 2010 to 2016 -21.5% -30% Impact on early retirees not included in microsimulation model estimates Source: See Appendix 1CBO and Joint Committee on Taxacion (JCT) estimate a decline of 3 – 5 M people with ESI (graphic above uses 4 million for display purposes). CBO and JCT modeled 4 scenarios and results ranged from -20 M to + 3 million people with ESI. 2For percent change calculation, Avalere assumed that Gruber used the current/projected CBO ESI baseline for his estimates 9/4/2013 10
  11. 11. ESI Lives Stable in Short-Term; Certain Firms Could Drop FIRMS WITH LOW WAGE WORKERS OR HIGH COSTS RELATED TO EARLY RETIREES ARE THE MOST LIKELY TO DROP COVERAGE Likely to Drop Firms with Low Wage Workers Firms with High Early Retiree Costs 9/4/2013 Unlikely to Drop Small Businesses (<25 Workers and Microbusinesses) Large Employers 11
  12. 12. Firms Surveyed Anticipate a Very Small Drop in Medical Offer Rates & a Slight Increase in Dental Offers in 2014 MOST FIRMS EXPECT TO CONTINUE OFFERING BOTH MEDICAL AND DENTAL BENEFITS FOR EMPLOYEES IN 2014 93.0% 92.4% 77.6% 78.1% 70.1% 68.8% 62.8% 63.0% 15.1% 16.1% Full-Time Dependents Part-Time 14.1% 14.3% Full-Time Medical Benefits Dependents Part-Time Dental Benefits 2013 2014 Source: NADP, Employer ACA Implementation Tracking Study, May 2013. 9/4/2013 12
  13. 13. Employer Mandate and Decision to Delay 13
  14. 14. The Employer Mandate Places Onus on Large Employers to Offer Coverage • Under the ACA, large employers are subject to a penalty when: – 1 Employers do not offer coverage – 2 Employers offer coverage that is not affordable • Large employer is ≥ 50 full-time of full-time equivalent (FTE) employees averaged across all months in the year. • “Full-time” means an average of at least 30 hours per week. • The employer mandate goes into effect on January 1, 2014. FTE = Full-time equivalent Source: Proposed Rule on Shared Responsibility for Employers Regarding Health Coverage. http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf. 14
  15. 15. Employers With at Least 50 FTEs Must Offer Coverage that Provides Minimum Essential Value or Face Penalties Employers trigger penalties under the following scenarios: Does the employer offer coverage? Applicable Penalties Employer offers coverage that is not affordable* and has at least one full-time employee receiving a premium assistance tax credit to purchase exchange coverage Penalty will be the lesser of: (a) $2,000 times the number of full-time employees excluding the first 30, or (b) $3,000 times the number of full-time employees receiving subsidies in an exchange Employer does not offer coverage to its full-time employees and has at least one full-time employee receiving a premium assistance tax credit to purchase exchange coverage Penalty will be $2,000 times the number of fulltime employees in the business, not counting the first 30 *Unaffordable is defined as coverage with costs that exceed 9.5% of an employee’s household income. Source: Proposed Rule on Shared Responsibility for Employers Regarding Health Coverage. http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf. 15
  16. 16. HHS Delayed Employer Mandate Requirement by One Year MOST OTHER KEY REQUIREMENTS, PARTICULARLY THE INDIVIDUAL MANDATE, REMAIN EFFECTIVE FOR 2014 Employer Mandate Effective January 1, 2015 2013 2014 Exchange Open Enrollment Begins October 1 to March 31, 2014 9/4/2013 Exchange Coverage Begins January 1, 2014 2015 Individual Mandate Live April 1, 2014 Exchange Milestone Employer Milestone 16
  17. 17. Delay of Employer Mandate a Marginal Impact A TEMPORARY REPRIEVE FOR MOST EMPLOYERS; MARGINAL IMPACT ON ENROLLMENT PROJECTIONS Impact on Enrollment ● Small impact on enrollment projections for 2014 ● 95% of large employers already offer health insurance ● Some low-wage firms may elect to not offer coverage in 2014, potentially shifting these lives to the exchanges Impact on Hiring ● Mandate incentivizes part-time over full-time hiring for businesses large and small ● Businesses on the cusp of 50 fulltime equivalent employees may not delay hiring in order to avoid increased benefit costs Employers, large and small, were primarily concerned about the reporting requirements, which was the primary impetus in the HHS delay 9/4/2013 17
  18. 18. Initial Enrollment Projections Intact Despite Mandate Delay A TEMPORARY REPRIEVE FOR MOST EMPLOYERS; MARGINAL IMPACT ON ENROLLMENT PROJECTIONS Employer-Sponsored Coverage Number 157 million 156 million 2.3 million 2.6 million Large Firms Not Offering Insurance Congressional Budget Office* Updated Projections Based on Employer Mandate Delay Workforce at Employed Non-Offering Large Firms Organization Initial Projections with Enforced Mandate in 2014 23,000 24,000 Impact RAND Corporation** * CBO Analysis of Employer Mandate Delay. July 30, 2013. ** Price, Carter C and Saltzman, Evan. “Delaying the Employer Mandate.” RAND Corporation. 9/4/2013 18
  19. 19. Monitoring Employer Behavior to Mitigate Impact of the Mandate 19
  20. 20. Will Need to Monitor for Possible Employer Changes to Avoid Mandate Penalties POTENTIAL AVENUES EMPLOYERS MAY TAKE IN ORDER TO REDUCE HEALTHCARE COSTS WHILE AVOIDING THE EMPLOYER PENALTY Reduce number of employees (<50) or shift workers to part-time status Reduce the employer contribution to premiums Reduce benefit design to the minimum value 9/4/2013 Reduce or eliminate contribution for family coverage Drop early retirees from coverage 20
  21. 21. Employers with Close to 50 Full-Time Workers May Cut Hours, Jobs, or Both ● Under the ACA, the 50-employee threshold is reached based on: 50 full-time employees ● Move FTEs / Reduce Workforce A combination of FTEs and PTEs that Or equals at least 50 To get around the mandate, employers may reduce employees’ hours to under 30 a week. However, cutting hours may not be enough—some firms may eliminate jobs entirely: o Full-time equivalency (FTE) is determined based on the total number of hours worked each month by PTEs, divided by 120 o If a company has 500 hours worked by PTEs in a month, this would yield an extra 4.1 FTE employees (500 ÷ 120) − Notably, employers will not be penalized for PTEs that are uninsured Employees of Darden Restaurants Inc.* who work fewer than 30 hours a week will be considered part time and will not be offered insurance, according to the company’s senior vice president of government and community affairs. Darden Restaurants expects about 75 percent of its workforce to remain part time. 9/4/2013 21
  22. 22. Move FTEs / Reduce Workforce Part-time Hiring a Likely Tactic to Manage Benefit Costs LOW-WAGE EMPLOYERS LIKELY TO START HIRING PRIMARILY PART-TIME WORKERS IN 2014 TO MINIMIZE IMPACT Exchange Market Part Time Workers in Retail, Restaurants, Entertainment, and Agriculture Part-time employees will have to find coverage in the individual market Source: “Fed Ponders Part-Time Shift as Obamacare Role Questioned.” Bloomberg. July 19, 2013; “Study: Most workers will keep employer insurance after 2014.” Politico. December 19, 2012. 9/4/2013 22
  23. 23. Move FTEs / Reduce Workforce The Low-Wage Restaurant Industry Is Attributing Benefit Changes to ACA Requirements A SURVEY BY THE INTERNATIONAL FRANCHISE ASSOCIATION FOUND THAT 64% OF FRANCHISERS AND 72% OF FRANCHISEES SAID THE ACA RAISES SOME UNCERTAINTY OR SIGNIFICANT UNCERTAINTY IN LONG-TERM PLANNING. Darden Restaurants Inc. ECW Enterprises White Castle Management Co. Owner of Olive Garden, Red Lobster, and Longhorn Steakhouse Chains Owner of East Coast Wings & Grille Owner of White Castle fast food chain In 2012, the company began hiring more part-time workers in order to cut healthcare costs under the ACA ECW is limiting franchises to 3-5 units in order to keep employment below 50 workers Still assessing ACA impact, but plans to open 2-3 new restaurants in 2013, down from about a dozen three years ago 9/4/2013 23
  24. 24. Reduce Employer Contribution Employer Contributions Could Be a Target Average Health Insurance Premiums and Worker Contributions for Single Coverage1 Potential drop in employer contribution 94% increase in average total premium $4,664 ? $2,617 Employer Contribution Worker Contribution $951 Employers may reduce their contribution so that low wage workers would qualify for exchange subsidies. In this case, the employer would have to pay the mandate penalty, but could maintain coverage for high-paid workers. ? $466 2002 2012 2015+ Source: 1. Kaiser Family Foundation. “Employer Health Benefits Annual Survey 2012. 9/4/2013 24
  25. 25. Reduce / Eliminate Family Coverage Employer Contribution Could Decline For Those With a Higher Number of Dependents AVERAGE PERCENTAGE OF PREMIUM PAID BY EMPLOYERS FOR SINGLE AND FAMILY COVERAGE, 2002-2012 84% 84% 84% 72% 73% 72% 2002 2003 2004 84% 84% 84% 84% 83% 74% 73% 72% 73% 73% 2006 2007 2008 2009 2005 Single Coverage 81% 70% 2010 82% 82% 72% 72% 2011 2012 Family Coverage Because employers will not be penalized for not offering family coverage, some companies may bring their family premium contributions down to align with those from single coverage. Businesses may even decide to drop family coverage altogether. Source: Annual Health Benefits Report: Research Institutes 2013 Benchmarks and Trends for Large Companies; Kaiser/HRET 2012 Employer Health Benefits Annual Survery. 9/4/2013 25
  26. 26. Reduce Benefit to Minimum Value Skinny Plans an Attractive Alternative for Some Employers Generous Coverage More Costly than Penalties… ● Cost of comprehensive coverage exceeds $2,000 per employee penalty ● Penalties assessed according to the number of individuals obtaining subsidized exchange coverage ● Discouraging employees from buying coverage on exchanges is a hedge against paying significant penalties …But Limited Benefit Plans May Offer a Workaround ● “Skinny plans” designed to comply with ACA ● Such plans may be more affordable, yet less generous, than exchange plans ● But, they may not cover most expensive kinds of care may limit access to drugs and physicians Source: “Some workplace health plans will be ‘skinny’.” Politico. July 15, 2013. 9/4/2013 26
  27. 27. Although Broad “Employer Dumping” Is Unlikely, Many May Send Early Retirees to the Exchanges Drop Early Retirees “In the past, most employers were reluctant to send their retirees to the individual insurance market because of concerns about high age-based rates and medical underwriting for pre-existing conditions. However, the exchanges and related insurance reforms that become effective in 2014 create a potentially more viable option for retirees.” – Bill Kramer, Pacific Business Group on Health Plans to Use Retiree Health Accounts 40% 35% Action taken/Tactic used in 2012 35% Planning for 2013 Considering for 2014 or 2014 30% 25% 20% 21% 15% 15% 13% 10% 7% 5% ● Very few private-sector employers currently offer retiree health benefits, and the number offering them has been declining o In 2010, 18% of workers were employed at establishments that offered health coverage to early retirees, down from 29% in 1997 o Further, recent surveys have found that use of health accounts for retiree health benefits is already expanding rapidly; starting in 2014, employers can simply give retirees money in an HRA to allow them to purchase exchange coverage 4% 0% Convert current subsidy to retiree health account Offer retiree medical savings account Source: http://www.ebri.org/pdf/briefspdf/EBRI_IB_10-2012_No377_RetHlth.pdf 9/4/2013 27
  28. 28. Drop Early Retirees Some Cities Are Turning to the Health Insurance Exchanges As A Means to Cut Costs and Reduce Deficits Cities Considering Dropping Early Retirees and Moving Them to the Exchanges Detroit The city’s Emergency Manager announced in June 2012 that Detroit may stop covering early retirees’ health benefits and instead send them to the state’s health insurance exchange. The city currently spends $177M on retiree benefits; by moving these individuals to the exchange, it expects spending to decrease to between $27M and $40M per year. Chicago Chicago plans to phase out retiree health coverage by 2017. The city projects that healthcare spending would increase to from $109M in 2012 to $541M in 2023 without changes, according to a Retiree Healthcare Benefits Commission report published in January. Retirees have filed a class-action against the city to prevent the transition; it is anticipated that Chicago will provide more details about its plan before the end of the year. Source: “Detroit, Chicago Propose Ending Retirees’ Health Coverage.” June 14, 2013. http://www.governing.com/news/local/gov-detroit-emergency-manager-proposes-moving-retirees-to-healthexchanges.html 9/4/2013 28
  29. 29. Outlook for Other Employer Trends 29
  30. 30. Exchange Market Could Impact Employer Offerings Exchange benefit designs may have spillover effects by setting a new standard for coverage generosity Benefit Design Generosity Less Generous More Generous Commercial Exchange Catastrophic Medicaid Lives Served by Market Today Anticipated Future Market 9/4/2013 30
  31. 31. While Modelers Predict Stability of ESI in the Short Term, Many Expect the Nature of ESI May Change Considerably Continue to Offer Coverage Restructure Contributions Offer ESI to Limited Group Drop Coverage and Gross-up Wages Drop Coverage with No Wage Gross-up Employers may shift toward a defined contribution model of coverage. Private exchanges are a new delivery mechanism that could encourage this trend. Based on “Performance in an Era of Uncertainty”, 17th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care , March 2012. 9/4/2013 31
  32. 32. Lack of Clarity Around Private Exchanges Private Exchanges Are Largely Unregulated and Undefined  The lack of a definition for a “private exchange” is reflected in the assertions that have been made as to the number of private exchanges in operation: “HealthPass [is] one of ‘no more than a dozen Health exchanges [that] are thought to exist nationwide.’” - HealthPass website, May 18, 2012 (citing report from May 2010)1 “Over 100 private exchanges are in existence today and cumulatively represent more than one-third of most insurance carriers’ distribution efforts.” “Bloom Health Launches Nation's First Private Exchanges With Two Health Plans.” - PR Newswire, July 6, 20113 - Bernard DiFiore, President and CEO of BenefitMall, March 17, 20112 1. 2. 3. http://www.healthpass.com/about-healthpass.html http://www.healthcareexchange.com/blog/bernard-difiore/need-private-exchanges-co-exist-public-exchanges http://www.prnewswire.com/news-releases/bloom-health-launches-nations-first-private-exchanges-with-twohealth-plans-125081889.html HHS = Department of Health and Human Services SHOP = Small Business Health Options Program 9/4/2013 32
  33. 33. Current Private Exchanges Serve a Diverse Set of Customers Private Exchange Types Online Brokers/Web Portals eHealth1 Individual, Under- 65 Market Medicare Advantage Medigap Medicare drug coverage Extend Health (Recently acquired by benefits consultant Towers Watson)2 Array Health 3 Self-insured employers Fully-insured employers HealthPass New York4 Insurer-Operated Exchanges Contracted Exchanges Many private exchanges serve multiple markets, while others specialize in particular product offerings or customer types For more examples of exchanges, see appendix 1 http://www.ehealthinsurance.com 2 http://www.extendhealth.com 3 http://www.arrayhealth.com 4 http://www.healthpass.com 9/4/2013 33
  34. 34. Private Exchanges Typically Offer Both Medical and Dental Products Health Insurance Other Ancillary Products* Dental/ Vision Insurance Private Exchange Employee Wellness Programs Health Savings Accounts Life Insurance *Other ancillary products include: pet insurance, retirement-related products, disability insurance, and long-term care insurance, travel insurance, critical illness insurance, accident insurance and discount cards for services such as chiropractic care and prescription drugs 9/4/2013 34
  35. 35. Conclusions 35
  36. 36. Dental Coverage Is Likely Stable in Near-Term, But Future Threats Remain Uncertain • Employer coverage will be stable in the near-term – No signs that employers are seeking to drop ancillary benefits • Ongoing cost-pressure could result in continued, slow erosion of benefits – A few employers may drop all coverage (health and dental) – Others are increasing cost-sharing to offset premium costs – Are ancillary benefits at risk for increasing cost pressure? • Impact of defined contribution model and private exchanges is uncertain – Will defined contribution apply to all benefits in aggregate? – May shift decision about whether to purchase dental insurance to the employee—no mandate for adult dental 9/4/2013 36
  37. 37. Online Evaluation Pearson.questionpro.com 37 9/4/2013