Health Care Reform. PPACA at 30,000 Feet. Coverage Expansions and Market Reforms

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1 Health Care Reform Karl Ahlrichs, SPHR. Gregory & Appel April 19, PPACA at 30,000 Feet Coverage Expansions and Market Reforms Temporary high risk pools; individual mandate, elimination of PEC; expansion of public programs; employer penalties, credits, and subsidies; various insurance industry reforms; state exchanges and many others Health Care Quality and Payment Incentives Center for Innovation, numerous programs focused on quality and delivery reform; pilot programs; focus on primary care, coordination, and outcomes; VBP for numerous providers and many others Cost Containment and Financing of Health Reform Increased taxes, thresholds or restrictions for Medicare payment; reduction in payments to certain providers, reduction of DSH, enhanced compliance enforcement and many others 2 1

2 Cost vs. Life Expectancy 8,000 6,000 4,000 2,000 0 National Geographic, 2010 UK What is the Health Care Crisis Costing Us? Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, (April to April). 2

3 Walker Index engagement pays off We Need a Strategic Plan Facilitated process that you embark upon jointly with a trusted advisor Use a proven strategic planning process to explore the business and human capital management issues of your organization 3

4 We need logic Inputs Activities Outputs Outcomes and we need a crisis. 4

5 Produce -20% Poor Producers Produce 60% Average Producers 68% Produce 60% Superior Producers Bottom 16% Top 16%. Karl Ahlrichs - Karl@expertspeaks.com Agenda Brief Overview of ACA Exchanges (Marketplaces) Established Pay or Play Definition of a Large Employer How Large Employers can avoid the tax penalties 2014 Health Care Reform Timeline Upcoming Health Care Reform Fees / Taxes 10 5

6 Exchange Overview Individuals, and small employers (up to 100 employees [But at first, 50 employees or less]) can purchase coverage (may allow large employers [100+ employees] access to coverage in 2017) Premium and cost sharing subsidies will be available to individuals with household incomes between 100% 400% of the federal poverty level (FPL) Coverage must cover essential health benefits (by state) Coverage must satisfy certain cost sharing limits ( minimum essential value) Four (4) benefit categories (Platinum, Gold, Silver, Bronze) plus a young invincible catastrophic coverage plan must be made available Health Insurance Exchanges Established 12 6

7 Who s In and Who s Out? 13 None of this guarantees less expensive access to health care Former CBO Director, Doug Holtz Eakin of the American Action Forum, says that premiums for young, healthy people in the individual and small group market may jump 169%, while cost for older insureds may decrease an average of 22% An MIT study found that premiums in the individual market could jump by 85%, while small group market premiums could increase more than 20% 14 7

8 Delay in rollout of SHOP exchanges A marketplace where small group employers could give employees premium credits to elect coverage from a variety of exchange plans Employers could be eligible for a two year tax credit to offset part of their contribution to employees Obama administration just pushed that off until 2015 Most states are expected to have one (1) plan to offer in their 2014 SHOP exchange 15 ACA Pay or Play? Effective January 1, 2014, the Affordable Care Act (ACA) will impose a penalty on large employers that do not offer minimum value coverage to substantially all full time employees and dependents Offered to 95% of benefit eligible Large employers that do offer coverage may still be liable for a penalty if the coverage is unaffordable The ACA s employer penalty is referred to as the Employer Shared Responsibility Payment. 16 8

9 New Standards Established 17 Penalties for individuals without coverage $ $ $ 2014: Greater of $95, or 1% of taxable income $ 2017 and beyond Annual indexed adjustments 2016: Greater of $695, or 2.5% of taxable income 2015: Greater of $325, or 2% of taxable income 9

10 Identifying a Large Employer A large employer is defined as an employer with more than 50 full time equivalent employees during the preceding calendar year. (IRS 4980H control group standards apply) In order to determine whether an employer is a large employer, both full time and part time employees are included in the calculation Full time employees are those working 30+ hours of service per week, or avg. of 130 hours per month The hours worked by part time employees (those working less than 30 hours per week) are included in the calculation by taking their total number of monthly hours worked divided by Identifying a Large Employer EXAMPLE: A company has 35 full time employees (30+ hours). In addition the company has 20 part time employees who all work 24 hours per week (96 hours per month). These part time employees hours would be treated as an equivalent to 16 full time employees as follows: 20 employees x 96 hours = 1920 / 120 = 16 FTE s This company would be considered a large employer, based on their 35 full time ee s + 16 full time equivalent count = 51 ee s

11 You re a Large Employer Now What? The ACA requires large employers to either play by offering health coverage to their full time employees and dependents* that is affordable and provides minimum value or pay a substantial excise tax. On January 2, 2013, the IRS released long awaited proposed regulations that provide additional guidance on an optional Safe Harbor method for identifying full time employees for purposes of determining and calculating an employer s potential liability for a shared responsibility penalty. Please note: Part time workers are not included in penalty calculations, even though they are included in the determination of whether an employer is a large employer. Also, employers are not required to cover spouses under the IRS definition of Dependent in the ACA regulations (Translation: It s ok for employers to maintain Spousal Carve Out provisions) 21 Measurement, Administrative & Stability Under the Look Back/Stability Period Safe Harbor method: Determine each employee s full time status by looking back at a defined period of not less than 3 but not more than 12 consecutive calendar months, as chosen by the employer. If it was determined during the Measurement Period that the employee averaged at least 30 hours of service per week (130 hours per month), then they would be treated as a full time employee during the subsequent Stability Period, regardless of the number of service hours that employees works during the Stability Period. The Stability Period must be a period of at least 6 consecutive calendar months and not shorter in duration than the Measurement Period. Coverage would be offered to the employee during the Administrative Period which can last up to 90 days

12 Look Back/Stability Period Safe Harbor IRS Notice expands the safe harbor method to provide employers the option to use a Look Back / Stability period of up to 12 months to determine whether variable hour or seasonal employees are full time employees. The combined Measurement and Admin Period may not exceed 13 months 23 Penalty for Large Employers Not Offering Coverage Beginning in 2014, a large employer will be subject to a penalty if any of its full time employees receive a premium credit (Federal subsidy) toward coverage in the State / Federal exchange plan. Generally, individuals with household incomes between 100% 400% of the federal poverty level will be eligible for a premium credit. The annual penalty assessed is $2,000 per employee (less the first 30 full time employees). Large employers will be treated as offering coverage if they extend coverage to at least 95% of their full time employees

13 Penalty for Large Employers Offering Coverage Employers that do offer coverage may still be subject to penalties if at least one (1) full time employee obtains a premium credit in an exchange plan because the employer s coverage is unaffordable or insufficient. In order to trigger a penalty, the employee s required contribution for self only coverage must exceed 9.5% of the employee s W 2 income (unaffordable), or the employer s plan must pay for less than 60% of covered expenses (does not provide minimum benefit value). Employer penalty would be $3,000 for each employee that receives a subsidy. 25 Penalty for Large Employers Offering Coverage, cont In order to determine if coverage is affordable, how are employers to ascertain an employee s household income for the taxable year? In response to this question, the IRS has determined three (3) proposed safe harbors measures: W 2: Wages for this purpose would be reported in Box 1 Rate of Pay: Hourly rate x 130 hours per month or monthly salary, if a salaried employee Federal Poverty Level: Cost of coverage does not exceed 9.5% of the FPL for a single individual 26 13

14 Penalty for Large Employers Offering Coverage, cont On February 25, 2013, HHS issued a final rule on essential health benefits. The final rule outlines three (3) approaches for determining whether an employer s health coverage provides minimum value. MV calculator HHS has released an MV calculator that permits an employer to enter information to determine whether the plan provides minimum value. Safe Harbor Checklists HHS and the IRS have indicated that they will provide an array of design based safe harbors in the form of checklists that employers can use to compare their plans coverage Actuarial Certification An employer sponsored plan may seek certification by an actuary to determine the plan s minimum value. 27 Penalty for Large Employers Offering Coverage, cont If an employers plan is unaffordable or does not offer minimum essential coverage to all full time employees and at least one full time employee obtains federallysubsidized coverage through an Exchange, the employer must pay an annual tax of the lesser of: (1) $3,000 per subsidized full time employee; or (2) $2,000 for each full time employees (less the first 30 full time employees) But, what is the real cost of these penalties?

15 Pay or Play Evaluation 29 Flow Chart of Penalties 30 15

16 2014 Health Care Reform Timeline No pre existing condition limitations for any enrollee No restriction of adult children who have coverage through an employer Limits on cost sharing: copays, ded., coinsur. capped at HSA limits (expected 2014 limits) $6,400 for single coverage $12,800 for family coverage 90 day limit on waiting periods for coverage No annual dollar limits on Essential Health Benefits Individual mandate, guaranteed issue 30% incentive cap for wellness programs Coverage of routine patient costs for clinical trials of life threatening diseases (non grandfathered plans only) Health Care Reform Timeline Delayed Implementation Until Further Guidance Employer requirement to auto enroll employees into health benefits (200+ employees) Nondiscrimination rules for insured plans 32 16

17 Upcoming Health Care Reform Fees Patient Centered Outcomes Research Trust Fund Fee (PCORI) This fee funds research on the effectiveness, risks and benefits of medical treatments through the Patient Centered Outcomes Research Institute. The annual fee is $1 for each covered life (belly button plan member) for plans ending before October 1, 2013, and $2 annually for each covered life on plans through October, Plan sponsors are required to submit IRS form 720 with the appropriate payment by July 31, Upcoming Health Care Reform Fees ACA Transitional Reinsurance Fee This fee will support the transitional reinsurance program that aims to stabilize premiums for coverage in the individual market and lower the effects of adverse selection in the exchanges. Both fully insured and self funded plans will be required to pay $63 per covered life annual fee on all those enrolled in the health plan. This fee will be reduced in 2015 and 2016, though the amounts have yet to be released. Per covered life counts are due to HHS by 11/15/

18 Upcoming Health Care Reform Fees Health Insurance Tax This tax is an annual tax divided proportionately between all insurance companies based on their market share. It applies to fully insured plans only and currently is expected to be approximately 2.6% of the plans premium. Marketplace Fee Health insurance companies will be required to pay a user fee of 3.55% of the premium for every insurance policy it sells through the Exchange (Marketplace). 35 Upcoming Health Care Reform Fees Cadillac Tax Coming in 2018: Employer sponsored health coverage that is considered high cost will be subject to an excise tax The tax is equal to 40% of the excess benefit The excess benefit is the amount of annual coverage that costs more than $10,200 for single coverage and more than $27,500 for family coverage 36 18

19 Let s look at the answer Wellness Barriers to Effective Wellness Programming Lack of Employee Interest Insufficient Staff Resources Inadequate Funds Failure to Engage High-Risk Employees Inability to Elicit the Support of Upper Management 19

20 Well-being strategies Community / Regional focus ACO theory New skills needed Behavioral Psychology Strategic planning Communication Metrics analysis Marketing Sales 20

21 Let s look at communication The confusion will create a need for information Use the opportunity to properly communicate the total rewards package to employees Transparency tools Make it simple Explain PPACA in 30 Seconds Transparency Accountability 21

22 Well being An Expanded Focus Community Wellness can reduce trend 96% participated in mychoice $5,000,000 $4,500,000 mychoice Program $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000, Local Trend Employer Trend 22

23 What else is working? Avoid the One Size Fits All approach Individualize goals/incentives (as much as administratively possible) Downloadable pedometers Get people moving! People can t cheat. Much. Never do open ended programs Try not to leave your program on Autopilot Your cost drivers can easily shift as employees come and go What else is working cont Value Based Insurance Design (VBID) Incent those with chronic disease to obtain the right care, at the right time, from the best providers Share Next Practices (Transparency, etc.) Fresh ideas/concepts Survey your employees Get the motivators right! 23

24 Forward Looking Metrics Old Activity Time to fill Turnover rate Training cost New Outcome of activity Time to high productivity Turnover quality Training payback 24

25 Leading vs. Trailing Indicators Manipulating inputs and not outcomes Trailing Turnover Leading Engagement What are we Measuring? We measure and time the steps in the process but we typically don t do a very good job of measuring quality. Number of Openings Days the Position is Open Number of Candidates Number Interviewed Offer Hit Rate Cost per Hire Turnover Time in Position Time from Interview to Hire Quality of Referral Source Quality of Candidate Quality of the Job Fit Quality of the process as a predictor of performance Level of proficiency of the candidate in specific skills Quality of the handoff to the hiring manager Quality of the overall team 25

26 HR vs. CFO HR thought the key metric was turnover Wanted to improve on 35% per year CFO thought the key metric was productivity with accuracy Avg. crew of 2 could cycle a truck in 7 hours High performing crew could do it in 4.5 hours Human Capital Financial Statements the next big thing 26

27 A look at the future A look at the future 27

28 A look at the future The Full Costs of EE Health -- Auto Manufacturers 171,250 employees Employer-paid claims costs only 28

29 $500 Health Costs Adding Performance Impact Medical Pharmacy Wage replacements Absence LP Performance LP Total = $1.29 B $400 $300 $200 $100 $0 Medical (EE) Medical (family) Time loss pay Lost productivity Wellsource.com 2011 Full Costs Medical, Pharmacy, Absence and Presenteeism Kaiser Foundation

30 Co-Morbidity & Lost Time Integrated Benefits Institute 2008 The right questions to ask Do you have written, 3 year wellness strategy? How do you measure the success of your program? How do you calculate ROI? How does your program truly change employee s health behaviors? How do you intend to reach current nonparticipants? 30

31 What have we learned? Time to do a benefits strategic plan Wellness is the long-term answer to health insurance issues Communication Hire for values alignment Use the crisis as a time to change organizational behaviors. Use the Healthcare Crisis to change your organization. kahlrichs@gregoryappel.com