Today s Agenda. The Price Tag. Healthcare: Is Obamacare Causing Intensive Care? Tuesday, March 4, 2014

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1 HEALTH REFORM ADVISORY PRACTICE Healthcare: Is Obamacare Causing Intensive Care? Tuesday, March 4, 2014 Presented by Mark Holloway, JD, LLM, CEBS Senior Vice President Lockton Benefit Group Compliance Services Today s Agenda Overview: Key Components of Health Reform* Individual mandate Insurance exchanges (aka marketplaces) Play-or-Pay (Employer Mandate) Benefit Mandates, Administrative Duties, and Taxes What s on the Horizon Strategies for 2015 *Polling Numbers: 42 percent of respondents were unaware of the health law or thought it had been repealed 1 in 5 Medicare enrollees think they re losing their Medicare coverage About $1 trillion over 10 years But cost is largely back-loaded over final 6 7 years of the decade; what happens after that? The Price Tag $1 Million in $100 Bills $1 Billion $100 Million 1

2 A Quick Refresher... Employer Mandate Individual Mandate Benefit Mandates Insurance Exchanges Taxes and Fees Administrative Hassles $1 Trillion The Individual Mandate Effective 2014 Individuals must have minimum essential coverage or pay modest penalty for noncompliance Tax/penalty for no coverage = greater of percentage amount or dollar See chart below Lower income persons may choose to pay penalty instead of getting coverage Dollar Amount Insurance Exchanges Marketplace for individuals and small employers to purchase health insurance coverage Established and operated by states and/or the federal government We ll discuss in a moment Separate exchanges for individuals and small employers (SHOP) Tax Year % of Income Per Adult Per Child Family Cap % $95 $47.50 $ % $325 $ $ % $695 $ $2,085 Insurance Exchange Coverage is guaranteed issue, no pre-existing condition exclusions Modified community rating Vary based on age, geographic location and tobacco use Premiums maximum spread of 3 to 1 on account of age Exchange-Based Coverage Who Qualifies? An individual is eligible for enrollment in an Exchange if he or she: Is a citizen, national, or non-citizen lawfully present in the U.S. and is reasonably expected to remain in the U.S. for the entire period for which enrollment is sought Is not incarcerated Resides in the state that established the Exchange or in which a federal Exchange is operated, and Must not be eligible or Medicare or Medicaid or other government-provided coverage 2

3 State or Federal Exchange 16 states and D.C. are operating their own insurance exchanges Federally facilitated exchange for residents of other states Themes Few carriers (largely BCBS) in many states Narrow networks for many plans Tough for exchanges to verify eligibility for subsidies Feds will try and verify income by using credit reporting agency Federally Facilitated Exchange (26) State Exchange (17+ D.C.) State Partnership Exchange (7) Insurance Exchanges State vs. Federally Facilitated Source: Council of Insurance Agents and Brokers (CIAB) Exchange Shopping Experience Access through Must create username and password Answer numerous questions intended to verify eligibility for coverage and whether tax credits might apply Are you currently incarcerated? If employed, you will be directed toward Employer Coverage Tool Write your name and Social Security number in boxes 1 and 2 and ask the employer to fill out the rest of the form. Complete one tool for each employer that offers health coverage that you re eligible for. marketplace-application-checklist.pdf Exchange Shopping Experience For the lowest-cost plan that meets the minimum value standard offered only to the employee (don t include family plans): If the employer has wellness programs, provide the premium that the employee would pay if he/she received the maximum discount for any tobacco cessation programs, and didn t receive any other discounts based on wellness programs. Deemed premium for affordability purposes Subsidy eligible if single deemed premium exceeds 9.5 percent W-2 wages Employer Mandate (2015) Who s in the boat? Calculate: Average 50+ FTEs/FTEqs on business days of prior year Controlled group calculation! EMPLOYER MANDATE A.K.A. PLAY OR PAY 3

4 Employer Mandate (2015) When you re in the boat, which employees matter? Full-time: reasonably expect to average 30+ hours per week Variable hour: Not sure whether employee will average 30+ hours Take a 12-month look! Detailed record keeping, complex break in service rules, special unpaid leave rules Seasonal: Employed on seasonal basis; seasonal not yet defined Effectively, no obligation for seasonals Employer Mandate (2015) Offer something or pay a penalty Offer FTEs and kids some health insurance, or pay $2,000 (nondeductible) annual penalty for all FTEs But free pass on first 30 FTEs Health reform doesn t require offer of coverage to spouse Employers taking alternative approaches: Status quo Shift far more expense of spouse s coverage, to employee Spouse ineligible if enrolled elsewhere Spouse ineligible if eligible elsewhere Spouse ineligible, period The ACA s Catch-22 Better for spouse to offer NO coverage than to offer non-subsidized or modestly subsidized coverage Employer Mandate (2015) If decide to play, make sure the employees coverage is reasonably good and affordable percent actuarial value or greater, and 9.5 percent of household income for employee-only coverage Otherwise, risk $3,000 nondeductible, annual penalty on THAT employee if the employee gets subsidized coverage on a public exchange Penalty capped at $2,000 x FTEs (less 30) BENEFIT MANDATES, ADMINISTRATIVE DUTIES, AND TAXES Health Reform Benefit Mandates (PY Beginning in 2014) Cost-free preventive care (nongrandfathered plans) In-network only; plans can use medical management techniques to control costs Women s health, including contraception (PY beginning on/after August 1, 2012) Accommodation for some nonprofits with religious ties Hobby Lobby case Obesity screening and counseling (PY beginning on/after July 1, 2013) Wide variations on cost impact CT scan for older smokers (coming) Health Reform Benefit Mandates (PY Beginning in 2014) Maximum OOP limit for in-network care (nongrandfathered plans) Tied to OOP max under HSA-qualifying HDHPs (e.g., for 2014, $6,350/12,700) Potential cost impact One-year extension for plans that use multiple service providers (e.g., carve-out PBM, mental health/substance abuse); they can continue to use separate OOP limits for

5 Health Reform Benefit Mandates (PY Beginning in 2014) 90-day max waiting period Not first of the month after 90 days Satisfaction of reasonable substantive conditions (e.g., a training requirement) can result in a waiting period longer than 90 calendar days Health Reform Benefit Mandates (PY Beginning in 2014) Wellness incentives increase 30 percent of total cost of coverage 50 percent if tobacco cessation Weird rules: affect of incentives on affordability Fees and Taxes Fee or Tax Effective Date Amount Pharmaceutical Drug Manufacturers and Importers Tax Comparative Effectiveness Research Fee (PCORI) Medical Device Manufacturers and Importers Tax Annual Excise Tax on Health Insurance Companies (fully insured coverages only) Transitional Reinsurance Program 2011 $25.2 billion through 2018; $2.8 billion annually thereafter.076% Plan Year ending after September 2012 Plan Year ending after September : $1 per covered life 2013: $2 per covered life Indexed thereafter % tax on sales price of devices.026% 2014 $58.8 billion through = $14.3 billion; indexed thereafter 2.25% $25 billion $63 per covered life in 2014 WHAT ELSE? Health Reform On the Horizon Health Reform: The Data Hub Tax Code Section 105(h) Nondiscrimination Regulations New rules would apply to nongrandfathered insured plans; current regulations apply to selffunded plans, but enforcement has been lax No whispers on when new proposed rules will be issued Be careful what you wish for Automatic enrollment Effective after DOL issue final regulations To date, DOL has not issued proposed rules Unlikely requirement will apply before 2015 Cost impact: 4.4 percent (est.) How do the employer mandate, individual mandate, and insurance exchanges work together? 5

6 Health Reform: Employer Reporting (2015) Individual Mandate Who: Insurers (and self-funded e ers) What: Name, address, and EIN of the employer (not necessarily the sponsor) Name, address, and SSN/TIN for each FTE employed during the calendar year Covered dependents (by SSN) and months during which the employee (and any dependents) were covered Health Reform: Employer Reporting (2015) Employer Mandate? Who: Employers subject to mandate What: Employer name, address, and EIN Number of FTEs for each month of the year Certification that employer offered its FTEs and children minimum essential coverage Name, address, and SSN of each employee employed during the year, and months during which enrolled Each FTE s share of premium for lowest cost, minimum value coverage, by month And more And Let s Not Forget the Cadillac Tax (2018) 40 percent excise tax on health benefits with COBRA values exceeding: $10,200 individuals; $27,500 for families Calculation includes value of medical, HRA, HSA, and FSA benefits (whether provided by employer or employee), on-site clinics, etc. Dental and vision not included; neither indemnity nor dread disease policies Thresholds indexed, but not for medical inflation Higher-risk demographics may take that into account when determining the value of coverage Thresholds are increased $1,650 single/$3,450 family for retirees <65 and for "high-risk professions STRATEGIES FOR Financial Impact of Law Will Vary Issue OK Possible Problems Current Eligibility=30 hours Yes No but not many PT workers Major Problems No and a large PT workforce Types of Plans Traditional Limited Medical Employer Subsidy High Low to mod and low paid work force Current Participation Rate High Low Wage Spectrum High Low Regular versus Seasonal Workers Regular Seasonal Employer Culture Low 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? General Conclusions Most employers can continue to offer coverage with minimal cost impact due to play-or-pay Most employers could save a lot by terminating group coverage and allowing employees to find coverage in the insurance exchanges Most employees begin to lose when shopping in the exchanges, once household income reaches twice the federal poverty level For now, most employers will continue to offer coverage to their FTEs 6

7 Health Reform s Cost Impact All Industries (Except Retail, Restaurant, Hotels, Hospitality, and Entertainment) Reform Requirement Description Average Cost Adjustment 2014 Options Strategies to Mitigate Costs From current 4.0% 180 day WP Waiting Period (WP) WP cannot be greater than 90 days From current 23.7% 365 day WP Do nothing; maintain status quo (current offerings, to employees currently eligible) Play, by offering only a 60 percent plan Play or Pay Auto Enroll Plans must automatically enroll newly eligible FT 4.4%* (deferred) EEs and reenroll existing EEs 2015 Plan Employee Play Employer continues to offer coverage 0.4%, in addition to the cost impacts listed above. 98.5% Pay Employer terminates plan -41.4% 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 lowpaid workforce where the ER does not contribute a significant portion of premium, the EEs increase is much smaller than a higherpaid workforce with a substantial ER contribution. Pay (in whole or in part) v 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 FTEs Play, by offering current plan(s) to the newly eligible FTEs Play, by offering a 60 percent plan and an MEC plan Offer only non qualifying coverage, or offer qualifying coverage without regard to affordability Combinations of the above 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. Play, by offering current plans and an affordable 60 percent plan Individually, these strategies reduce the number of FTEs, or the potential cost per FTE. Combinations mitigate both risks. Status Quo 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 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 Pay HEALTH REFORM Pay Offer no coverage to more than 5 percent of FTEs Why it works, or doesn t: Won t work for employers who need to attract and retain employees. For employers in restaurant/retail industries, many employers cannot afford to pay a $2,000 nondeductible penalty on behalf of all FTEs, particularly where the employer has: A significant number of FTEs to whom it effectively must offer coverage (executives and other corporate staff, managers, etc.) A significant number of FTEs to whom the employer does not offer coverage (or only limited coverage) today Consider possibility of isolating groups of employees, to whom you do not want to offer coverage, under separate EIN Workforce Management Play, but utilize workforce management to minimize the universe of newly eligible FTEs Manage some FTEs to part-time Employ measurement period concept to seasonal and variable hour employees Identify up to 5 percent of FTEs who won t receive a coverage offer Engage Medicaid- or Medicare-eligible employees 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 Offer Current Plans 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 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: Unhealthy employees in greater numbers Employees driven by the individual mandate particularly the more highly paid (due to increase in individual mandate penalty) Individuals who lose coverage under spouse s plan 7

8 Offer Current and 60% Plan Play by Offering all FTEs current plans, plus a new 60 percent qualifying option ( Teflon Plan ) Offer Only 60% Plan Add a 60 percent actuarial value (i.e., minimum value) offer of Qualifying coverage to the current offerings, price the 60 percent plan so it s affordable to all FTEs, and offer all options to all FTEs, including the universe of newly eligible FTEs Substitute a qualifying 60 percent 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 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 percent plan is affordable Cheaper plan may cause migration of your best risks into the 60 percent option 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 Offer all FTEs a 60 percent and affordable plan (and maybe current plans too), plus a skinny and inexpensive minimum essential coverage (MEC) plan Offer Unaffordable Coverage Why it works, or doesn t: If the 60 percent plan is designed to minimize the take-up rate, the MEC coverage solves a variety of issues: Coverage will be inexpensive 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 percent plan (from a contribution standpoint) if employer doesn t subsidize the MEC plan 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 percent coverage but don t worry about affordability Make coverage deliberately unaffordable Use wellness surcharges to trigger unaffordability Couple a 60 percent 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) 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 percent plan Offer 60% and MEC Plan Play by offering all FTEs a new 60 percent qualifying option only 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 Any Questions? FINAL THOUGHTS 8