2. CHRS
Certified Healthcare Reform Specialist
Being a Certified Healthcare Reform Specialist does NOT
mean that I know everything there is to know about
Healthcare Reform. That would be like saying I know the
speed limit between here and Georgia - it changes every
few miles. But... If you have questions that I can’t
answer, I will get the answers for you.
3. Disclaimer
This presentation is intended for informational
and educational purposes. It is not intended to be
a partisan look at the legislation nor is it intended
to project the presenter’s agreement or
disagreement with such legislation.
4. Who will
PPACA
affect?
EVERYONE! In one way
or another, everyone in the
United States will be
affected by PPACA –
business people,
individuals, families and
healthcare providers.
5. Preparing for 2014
What is on the
Horizon?
Thus far, only minor regulations
have been implemented including:
1. Children under 19 can no
longer be subjected to pre-
existing clauses.
2. Dependents must be covered
to age 26 if they do not have
employer sponsored coverage.
3. Annual maximum coverage
increased to $2M
4. Coverage for preventive
medicine with no cost sharing.
The more significant changes will being
in 2014. Let’s look at some frequently
asked questions.
7. Are Health Insurance Costs Going to
Increase Because of PPACA?
According to most experts, health insurance costs
will increase by 2-3% more than they would have
if the legislation had not passed. Only time will
tell but we can put plans of action in place to
minimize these increases.
8. What Tax Credits are Available?
Small businesses are eligible for a tax credit for up to six years.
Before 2014, the maximum credit equals 35% of the business’s
contribution to employee health insurance premiums. After
2014, the maximum is 50%, but only on policies purchased in
SHOP exchanges. The percentages phase out as the number of
employees and FTEs rises from 10 to 25 and as the average
wage rises from $25,000 to $50,000.
The above is only a summary of the Small Business Tax
Credits. A tax credit calculator is available at
http://www.smallbusinessmajority.org/tax-credit-calculator
9. What are SHOP Exchanges?
(Small Business Health Option Programs)
Some businesses may not be “small” enough to receive tax credits or “small” enough to
be excluded from the employer mandate of the PPACA but it may be “small” enough
to purchase coverage through SHOP Exchanges. SHOP Exchanges that will allow
small businesses to buy insurance at a “presumably” lower cost will be required starting
in 2014.
In order for a “small employer” to qualify for the small group market, it must have
between 1 and 100 employees in both a calendar year and a plan year. Here’s the catch.
Until 2016, the state SHOP Exchanges can define a “small group” as having 50
employees or less which disqualifies an employer having 51-100 employees from
purchasing insurance through the exchange.
Nevada’s Exchange HAS defined a “small group” as having 50 employees or less until
2016 at which time it will open up to groups having up to 100 employees.
10. What are Essential Health
Benefits (EHB)?
The PPACA identifies 10 (ten) categories of Essential Health Benefits
S Ambulatory patient services
S Emergency services
S Hospitalization
S Maternity and newborn care
S Mental health and substance use disorder services, including behavioral health
treatment
S Prescription drugs
S Rehabilitative and habilitative (see note below) services and devices
S Laboratory services
S Preventive and wellness services and chronic disease management
S Pediatric services, including oral and vision care
NOTE: While REhabilitative services help people recover lost skills, habilitative services
help them acquire new ones. Habilitative services can help autistic children improve
language skills, or those with cerebral palsy learn to walk. They can also help a person
with schizophrenia improve his social skills.
11. What is the Health Insurance
Tax (HIT)?
PPACA assesses a tax on all health insurance companies based on their
“net premiums” written. This tax will raise $8 billion in 2014, rise to
$14.3 billion in 2018, and the amount will continue to increase by the
rate of premium growth for subsequent years. The amount of the tax that
the insurance company is responsible for is equal to the percent of the
market that the insurance company covers. The larger the insurance
company’s market-share, the higher their annual HIT. One thing insurers
have made clear throughout the healthcare debate: new taxes will result
in new costs passed along to customers. The group that experiences the
most cost-shifting is the fully insured market.
NOTE: The Health Insurance Tax does NOT apply to Self-Funded
plans.
12. What is the Individual
Mandate?
Individual taxes for failure to obtain health insurance begin in 2014 and rise in years
following. In each year, the tax consists of the higher of a dollar amount or a percentage
of household income. For a given household, the tax applies to each individual, up to a
maximum of three.
2014: $95 per person (up to 3 people, or $285) OR 1.0% of taxable income, whichever is
greater.
2015: $325 per person (up to 3 people, or $975) OR 2.0% of taxable income, whichever is
greater
2016: $695 per person (up to 3 people, or $2,085) OR 2.5% of taxable income, whichver is
greater.
After 2016: The same as 2016, but adjusted annually for cost-of-living increases.
13. My company has less than 50 employees –
Will PPACA affect me?
Yes and No. The number of full time employees is determined by the number of full
time “equivalent” employees. This is calculated by totaling the number of hours of
“regular time” your employees have worked in the past 12 months (in 2013). The
new federal definition of “full-time” is 30 hour per week. PPACA regulations require
that part time employees’ hours be used in the calculation of full time “equivalents”.
For example: a company employs 35 full-time workers (working on average of more
than 30 hours per week) and 20 part-timers (working on average 24 hours per week, or
96 hours per month). These 20 PTE are the equivalent of 16 FTE. (20 x 96 / 120 =
16). So for calculation purposes, this employer has 35 + 16= 51 full-time equivalents.
In this case, the employer must provide insurance coverage to its employees or pay a
penalty of $2000 per employee for 21 employees. (the first 30 employees are not
subject to a penalty).
NOTE: These rules do not apply to seasonal workers that worked less than 120 days
during the prior year.
14. My company has less than 50 employees –
Will PPACA affect me? (con’t)
As stated before, some small employers may qualify for tax credits if they provide
their employees with insurance coverage; however, they are not required to do so by
the PPACA.
CAUTION: Many employers with more than 50 employees have had an initial
reaction to “lay off full time employees and bring them back as part time, thereby
avoiding the impact of PPACA. Because of the way the number of full time
employee equivalents is calculated, this is not a feasible option. In addition, the
current penalty for failing to provide coverage is $2000. That amount can, and will
likely, be increased as we move forward.
15. What is Pay or Play?
The Pay or Play mandate refers to the requirement of the PPACA to either “pay” a
penalty tax for either dropping or not offering health insurance to its employees or
“play” by continuing or beginning to offer health insurance to its employees.
If an employer chooses not to provide group health coverage in 2014, and at least
one full-time employee obtains federally subsidized coverage through a Health
Exchange, the employer will have to pay a $2,000 “free rider” penalty for each full-
time employee. The employer’s first 30 employees are excluded from this calculation.
The penalty is assessed on a monthly basis. This is the so-called Pay scenario.
In addition, the coverage offered must meeting minimum coverage levels or face
other penalties.
16. What is Pay or Play (con’t)
If an employer offers group health coverage in 2014 and at least one full-time employee
obtains subsidized coverage through an Exchange, the employer will incur a monthly
penalty.
An employee is eligible for the tax credit (subsidy) if at least one of the following is
met:
1. The employer offers group health plan coverage that meets EHB (Essential Health
Benefits) requirements but the plan premium for single coverage is greater than
9.5% of the employee’s household income.
2. The employer’s contribution is less than 60% of the actuarial plan value.
The employer penalty will be the lesser of $3000 times the number of full-time
employees receiving subsidized coverage OR $2000 times the number of full-time
employees (again, the employer will not be penalized for the first 30 employees).
17. What is the “Cadillac Tax”?
The “Cadillac Tax” is a nondeductible tax that will be levied
on health plan costs for employees that exceed $10,200 for
single coverage or $27,500 for family coverage beginning in
2018.
Because of this new tax, it is imperative that employers start
controlling their healthcare costs NOW so that the costs of
their plans do not increase to a point that will trigger this tax.
18. Options
The options of dealing with the PPACA are:
1. “PAY” the penalties and drop coverage
2. “PLAY” and continue to offer same coverage coverage as
normal or change benefits to meet new guidelines
3. “PLAY” and look at other coverage options (Self-
Funding)
19. Be careful not
to Pay AND
Play
Before making a decision to
pay, think about the following.
Deciding to “Pay” could mean
you’re “Playing with Fire”
Don’t get burned.
1. What happens if Congress
decides to raise the penalty
amount?
2. Will you lose quality
employees to companies that
are offering coverage?
3. Will you have to increase
employees’ pay to cover any
shortfalls in paying for
Exchange coverage?
20. A Push Toward Self Funding?
An article in Business Insurance Magazine in February, 2012, stated in
part:
“The passage of health care reform is likely to further accelerate the growth of
middle-market self-funding.
Although self-funded benefits will be subject to many of the same coverage
requirements imposed on insured plans,” the cost of self-funded benefit plans will
continue to remain lower than that of insured plans because self-funded plans are
not subject to state benefit mandates or premium taxes that add to plan costs, experts
say.
21. Fully Insured vs. Self-Funding
Now, more than ever before, employers, including employers with as few as 25
employees, are looking at Self-Funding (partially Self-Funding) for several reasons:
1. More plan flexibility. Self-Funded ERISA plans are not subject to all of the
PPACA mandates.
2. Ability to control costs.
3. Medical, dental, vision and prescription coverage's can all be self-funded.
4. Elimination of most premium tax
5. Lower administration costs
6. Profit goes to employer
7. Exempt from most State mandates
22. More Plan Flexibility
S Self-Funded plans are NOT subject to Essential Health Benefits
Mandate.
S Self-Funded plans are NOT subject to the MLR (Medical Loss
Ratio) that is imposed on fully insured plans.
S Self-Funded plans will NOT be subject to community rating.
S Self-Funded plans do NOT have to provide justification of
premium increases or benefit decreases.
23. Ability to Control Costs
Unlike fully insured plans where provision of plan and claims
information is scarce, self-funding allows the employer to obtain their
plan information, modify the plan (with 60 days notice) when needed
to control certain benefits, predict with some degree of certainty what
claims and costs will be as well as well as predict to some degree the
amount of increase (if any) in premiums annually.
This access to plan data can be invaluable when determining budgets,
renewal estimates, cost drivers and the impact of plan changes to
costs and to employees.
24. Profits Go to Employer
Unlike fully-insured plans, any profits (or savings on
expenditures) are retained by the employer, not the insurance
carrier.
While funds for claims expenses can be accrued, they can also
be “pay as you go” which frees up cash flow. Mechanisms are
put in place to cap monthly and annual expenses to prevent
adverse financial effects for the employer.
25. Will Self-Funding Work for a Small Employer
A common myth is that Self-Funding is only for very large businesses, unions or
trade associations. That is simply not true. Below is a graph showing the trend of
“real” costs for an actual client since 2006.
0
2000
4000
6000
8000
10000
12000
14000
2006 2007 2012
National Avg
Client
Note: This client was fully insured in 2006 and became self-funded in 2007
26. Fully Insured vs. Self Funded under
PPACA
Requirement Fully
Insured
Self-
Funded
Adherence to State benefit mandates ✔
Payment of premium tax ✔ **
Must provide Essential Health Benefits ✔
Guaranteed Issue ✔
Compliance with Minimum Loss Ratio ✔
Compliance with 90 day maximum waiting period ✔ ✔
Compliance with prohibition of pre-existing conditions ✔ ✔
Summary Benefit Comparison Compliance ✔ ✔
Subject to review of premium increases ✔
Required to participate in risk adjustment system ✔
Subject to Health Insurance Tax (HIT) ✔
Subject to minimum reserve requirements ✔
**Self-Funded plans are subject to premium tax but because the premium is much lower, the tax is also much lower
27. Possible Disadvantages of
Self-Funding
Self-Funding, while a potential vehicle for huge savings, is not a bed of roses.
With savings and control also comes responsibility.
For all intents and purposes, the employer basically becomes the insurer, and
must take on the responsibilities and financial risks normally held by the
insurance company. These risks can be capped and/or eliminated with
appropriate management and stop loss coverage.
You must have sufficient cash flow to pay larger-than-usual claims when they
occur (and, to continue to fund the plan until you receive any reimbursements
from your stop-loss carrier). Again, mechanisms can be put in place, such as
advance reimbursement to mitigate this risk.
28. Possible Disadvantages of
Self-Funding (con’t)
The employer may be forced to become involved in healthcare and insurance issues
if you self-fund, which is significantly more responsibility than simply writing the
monthly premium check to the insurer.
If you decide at any point to return to a fully insured plan, you will still be
responsible for "run out" claims plus the new premiums for the fully insured plan (a
possible cash flow challenge).
For employers that are comfortable with additional risk and understand the short
and long term implications, self-funding is a tool that can be used to save money
and better manage the expense of providing their employees with health care.
29. Conclusion
Thank you for your time today. I hope that I was able to clarify some of the
more confusing issues surrounding the PPACA. If you have any further
questions or would like assistance in making a decision as to how you will
move forward with your employees healthcare coverage, please contact me.
Christine Price, CEO, CHRS
888-332-8984
www.cmrca.net
christine@cmrca.net
