9/19/2017. Nobody knew healthcare could be so complicated. H E A LT H P O L I C Y U P D AT E F R O M W A S H I N G T O N D C

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1 H E A L T H W E A L T H C A R E E R H E A LT H P O L I C Y U P D AT E F R O M W A S H I N G T O N D C October 2017 Tracy Watts Sr. Partner Washington, DC MERCER A C A R E P E A L A N D R E P L A C E P R E S I D E N T T R U M P S A G E N D A Repeal and replace ACA Allow purchase of health insurance across state lines Let individuals deduct health insurance premiums Encourage HSAs Require provider price transparency Block-grant Medicaid to the states Allow re-importation of prescription drugs MERCER Nobody knew healthcare could be so complicated. PRESIDENT TRUMP, FEBRUARY 27,

2 T H E A C A R E P E A L A N D R E P L A C E J O U R N E Y I T S N O T O V E R Y E T EARLY 2017 MARCH MAY JUNE JULY SEPTEMBER House introduces House cancels House Senate unveils Senate defeats Bipartisan efforts American Health AHCA vote passes AHCA Better Care revised version of to stabilize the Care Act Reconciliation Act BCRA and two individual market more repeal bills 4 C O N G R E S S S T I L L F O C U S E D O N H E A LT H R E F O R M U N I F I E D A G E N D A R E M A I N S I L L U S I V E MARKET STABILITY BLOCK GRANTS SINGLE PAYER Bipartisan effort to fund the costsharing reduction subsidies, give states new flexibility Conservative Republican s attempt to revive the ACA repeal effort by giving states block grants to implement their own reforms Medicare for all proposal introduced by Bernie Sanders (I-VT) OTHER TOPICS CONGRESS MAY CONSIDER There is still a strong lobby to repeal the excise tax Higher contribution limits, more flexibility for HSAs Apply employer mandate only to firms with >500 employees Allow use of HRA contributions to purchase coverage in the individual market Permit use of premium tax subsidies to purchase off-exchange coverage Allow anyone not just those under 30 to buy less expensive catastrophic coverage Encourage association health plans Shelter stop-loss coverage from health plan regulation 5 A D M I N I S T R AT I V E A C T I O N S T O W AT C H CADILLAC TAX ER & EE MANDATES STATE WAIVERS Watch for possible IRS guidance on implementation Watch for assessment and appeal guidance Unclear whether reporting requirements will be eased generally 2017 drafts unchanged Expect Administration to support certain statebased reforms 6 2

3 P R E S I D E N T T R U M P M AY TA C K L E O T H E R R E F O R M S V I A E X E C U T I V E O R D E R EXPANSION OF HDHPs Leaked draft allows payment for treatment of chronic conditions before meeting the plan deductible Would include prescription medications DRUG PRICING Leaked draft directs administrative agencies to explore new models to lower drug prices and encourage innovation Later reports said this was a FAKE DRAFT 7 CAP P I NG THE E M P L O YE E TAX E X CLUSION 8 I M P A C T O F C A P P I N G T H E E M P L O Y E E T A X E X C L U S I O N F O R E M P L O Y E R H E A L T H C O V E R A G E Generally, premiums paid for employer-sponsored health coverage and contributions to accountbased plans are excluded from employee income and payroll taxes We evaluated the potential impact to employer plans and employees/families of three proposals to cap the employee exclusion and compared their effects to the 40% Cadillac excise tax. Various scenarios are included in this deck. P R O P O S AL S & C U R R E N T L AW I N D I V I D U AL FAM I LY THE EMPOWERING PATIENTS FIRST ACT $8,000 $20,000 40% CADILLAC EXCISE TAX ON HIGH COST PLANS As projected by the Congressional Research Service $10,800 $29,100 MERCER

4 F A C T O R S T H A T A F F E C T P L A N C O S T N O T J U S T P L A N D E S I G N D E M O G R A P H I C S M A T T E R Characteristics of employers with plans that w will reach versus won t reach the Cadillac tax threshold in 2020: Older employees More female employees Higher rate of dependent coverage election More likely to offer coverage to parttime employees Plan values only slightly richer Average age: 42 Average age: 39 54% female 44% female 48% avg rate 40% avg rate 38% offer 27% offer AV: 87% AV: 84% Like the Cadillac tax, capping the exclusion is more likely to penalize older workers, women, people with families, and employers who provide health benefits to part-time employees And there is relatively little difference between the plan designs of those employers that will reach the threshold and those who won t. Estimates based on data from Mercer National Survey of Employer-Sponsored Health Plans 2016; premium trended at 6%, tax threshold ($10,750 individual/$28,950 family) trended at 3% in 2021 and 2% in future years MERCER C A P O N T H E H E A L T H C O V E R A G E T A X E X C L U S I O N L O W I N C O M E F A M I L I E S H I T H A R D E S T Cap will result in increased income tax liability for middle-income Americans 25% 20% 23% Percentage increase in effective rate Effective tax rate for married filing jointly 15% 10% 5% 5% 0% $20-30k $60-70k $ k $ k $ k $ k Income bracket: Single Head of household Married, filing jointly Effective tax rate with cap Effective tax rate without cap The bars represent the percentage increase in income tax liability in Payroll taxes not included Proposed caps ($8,000 individual/$20,000 family) indexed at CPI% (CPI assumed to be 2%); medical plan trend assumed to be 5.5% Projects the impact of including account contributions FSAs, HRAs and HSAs in value of coverage Based on a Mercer proprietary database of 600,000 members salary and benefits. Salary information used as proxy for household income. MERCER E M P L O YE R F O C U S ARE AS 12 4

5 F O U R K E Y F O C U S A R E A S F O R E M P L O Y E R S A C A C O M P L I A N C E 40% E X C I S E TA X H E A LT H S AV I N G S A C C O U N T S C O S T M A N A G E M E N T ESR reporting Revised SBC template New preventive services 2020 effective date Update your projection Consider adding an HSA option, if you don t have one Many current initiatives aimed at expanding HSAs Possible cost shifting - Individual market - Medicaid Employer use of best practices experience lower cost increases Time to move to a bundled approach? MERCER Within three years, 1 in 3 Americans will be buying a different insurance product than they do today, through a channel that didn t exist three years ago, receiving 30% of their care outside of a traditional health system. SAM GLICK, OLIVER WYMAN, DECEMBER 2016 MERCER T H E F U T U R E O F H E A L T H C A R E D E L I V E R Y W H A T D O E S I T M E A N F O R Y O U? M A R K E T P A Y E R P R O V I D E R Retail care changes loyalties and will open up new options. The journey to a true consumer model is difficult but possible with technology and new channels. Providers are beginning to bear more financial risk, supporting the move from fee-for-service to pay-for-value. MERCER

6 AP P E N D I X 16 A B O U T O U R D A T A EMPLOYERS Mercer s National Survey of Employer Sponsored Health Plans is the largest, most comprehensive annual survey in the country. It uses scientific sampling and weighting methodology that recreates the actual mix of employers in the US in terms of their size and geographic location, which means that the results provide an accurate picture of what all US employers are doing and thinking. Most surveys in our industry use what s called a convenience sample meaning, you survey whoever is convenient to survey. EMPLOYEES Mercer s proprietary database of over 600,000 members enrolled in employer sponsored medical coverage, includes membership from over 200 employers of all sizes and various industries. These employers, both local and national in scope, are actively involved in providing efficient coverage for their employees by offering a choice of plans (PPOs, HMO, CDHPs). MERCER D A T A, A S S U M P T I O N S A N D M E T H O D O L O G Y A S S U M P T I O N S These simulated results are based on a Mercer proprietary database of over 600,000 members enrolled in employer sponsored medical coverage. The database includes membership from over 200 employers of all sizes and various industries. These employers, both local and national in scope, are actively involved in providing efficient coverage for their employees by offering a choice of plans (PPOs, HMO, CDHPs).Taxable income developed assuming: Base salary of the employee assumed to be the only source of income for their household Only employees pre-tax contributions associated with medical plan enrollment were assumed to reduce their gross income to taxable income. Other potential adjustments to taxable income, such as 401(k) contributions, were ignored for purposes of this analysis 2016 standard Federal Income Tax Brackets and standard deductions assumed Tax filing status is assumed to align with their dependents covered under the medical plan: Dependents Tax Filing Status No Dependents Children Only Spouse with or without Children Single Head of Household Married Filing Jointly Medical plan trend: 5.5% Consumer price index (CPI) trend: 2.0% Salary increase: 2.0% Standard deduction and Federal income tax bracket trend: 1.5% Social Security Threshold Trend: 1.5%; Other indexes used to calculate FICA taxes were unchanged The proposed caps are assumed to be effective in 2020; see table on slide 1 for cap assumptions State and local taxes were excluded from these simulated results MERCER

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