Sek client presentation 10 1-13


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R. Dane Rianhard's presentation on the Affordable Care Act; Present for Smith Elliott Kearns & Company at Fountain Head Country Club in Hagerstown Maryland on Tuesday 10/1/2013

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Sek client presentation 10 1-13

  1. 1. HEALTH CARE REFORM: EMPLOYER STRATEGIES FOR 2013 & BEYOND Presented by: R. Dane Rianhard 15/16/2013
  2. 2. 2014 SMALL GROUP MARKET Products, Pricing & Other Changes 210/1/2013
  3. 3. ACA Rating Methodology Age 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 3
  4. 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 4
  5. 5. 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.
  6. 6. 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. 7. Complexities of New Contribution Models Option 1: No contribution Employer 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 Contribution Employer 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 Plan Employer 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 Amount Employer 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 7 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. 8. Sample Age Rating: Employer Pays Same % Contribution 10/1/2013 8 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 $200 Sue Sue Self HMO 55 N $600 50% $300 $300 Tim Tim Self HMO 45 N $500 50% $250 $250 Tim Mary Spouse HMO 45 N $500 30% $150 $350 Tim Joe Adult Dep HMO 22 Y $180 30% $54 $126 Tim Frank Child 1 HMO 18 Y $150 30% $45 $105 Tim George Child 2 HMO 10 N $100 30% $30 $70 Tim Ashley Child 3 HMO 9 N $100 30% $30 $70 Tim Bobby Child 4 HMO 8 N $0 $1,530 30% $0 $0 $971 Fred Fred Self PPO 35 N $450 50% $225 $225 Edith 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. 9. Sample Age Rating: Employee Pays Same $ vs. % 10/1/2013 9 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 $158 Sue Sue Self HMO 55 N $600 N/A 50% $242 $358 Fred Fred Self PPO 35 N $450 N/A 50% $242 $208 Tim Tim Self HMO 45 N $500 $1,480 $1,415 60% $849 $631 Tim Mary Spouse HMO 45 N $500 Tim Joe Adult Dep HMO 22 Y $180 Tim Frank Child 1 HMO 18 Y $100 Tim George Child 2 HMO 10 N $100 Tim Ashley Child 3 HMO 9 N $100 Tim Bobby Child 4 HMO 8 N $0 Edith 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. 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 10
  11. 11. 10/1/2013 11
  12. 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 12
  13. 13. What are Employer Options for those with Fewer than 50 FTE’s? (cont’d) 3. Drop Group Coverage • Pros • Cons 10/1/2013 13 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 $1,300 Assume minimum tax bracket: 25% Federal, 7.5% State, 7.65% FICA
  14. 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 14
  15. 15. 2011-2013 REFORM PROVISIONS 1510/1/2013
  16. 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. 1610/1/2013
  17. 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. 1710/1/2013
  18. 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.” 1810/1/2013
  19. 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. 1910/1/2013
  20. 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:‐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. 2010/1/2013
  21. 21. 2014 PROVISIONS 2110/1/2013
  22. 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.” 2210/1/2013
  23. 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). 2310/1/2013
  24. 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. 2410/1/2013
  25. 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. 2510/1/2013
  26. 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. 2610/1/2013
  27. 27. 2710/1/2013
  28. 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. 2810/1/2013
  29. 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. 2910/1/2013
  30. 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. 3010/1/2013
  31. 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. 3110/1/2013
  32. 32. TAXES AND FEES 3210/1/2013
  33. 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. 3310/1/2013
  34. 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. 3410/1/2013
  35. 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. 3510/1/2013
  36. 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. 3610/1/2013
  37. 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. 3710/1/2013
  38. 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. 3810/1/2013
  39. 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. 3910/1/2013
  40. 40. Thank you for joining us today! For more information, please contact: