ASSESSING ACA S BIG ISSUES Grandfathered Status and the 40% Excise Tax (plus other ACA updates)

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1 ASSESSING ACA S BIG ISSUES Grandfathered Status and the 40% Excise Tax (plus other ACA updates) February 13, 2016 Andrew D. Sherman Hollywood, FL National Labor Management Conference Copyright 2016 by The Segal Group, Inc. All rights reserved.

2 1. Current ACA Concerns and New Developments 2. Grandfathered Status 3. Excise Tax Delay Outlook What do we need to know now? Should this have an impact on how we run our health plans? 2

3 Current ACA Concerns and New Developments ACA Reporting Deadlines Extended New Final ACA Rules Published on November 18, 2015 Delay in the Excise Tax 3

4 ACA Reporting Deadlines January 31: Employee/Participant statements Extended to March 31, 2016 for first round of reporting February 28: Deadline for filing with IRS if filing on paper Extended to May 31, 2016 for first round March 31: Deadline for filing with IRS if filing electronically Extended to June 30, 2016 for first round Must file electronically if filing 250 or more Forms 1095-B or Forms 1095-C First reports are due in 2016 for the 2015 calendar year. Same reporting schedule for plans that do not operate on a calendar-year basis. NOTE: Multiemployer plans that are large employers must also do large employer reporting for their full-time employees. 4

5 Allocation of Responsibility Employer Type Plan Type Employer Reporting Plan Reporting Large Employer (including each member of a controlled group) Small Employer (not part of a controlled group) Self-insured plan Insured group health plan Contributes to multiemployer plan Employer (Forms 1095-C and 1094-C) Employer (Forms 1095-C and 1094-C) Employer (Forms 1095-C and 1094-C) Employer (complete Part III of the 1095-C) Health insurer (Form 1095-B and 1094-B) Multiemployer plan (if selfinsured) or Insurer (if insured) (Form 1095-B and 1094-B) Self-insured plan Not applicable Employer (Form 1095-B and 1094-B) Insured group health plan Contributes to multiemployer plan Not applicable Not applicable Health insurer (Form 1095-B and 1094-B) Multiemployer plan (if selfinsured) or Insurer (if insured) (Form 1095-B and 1094-B) 5

6 New Final ACA Rules Regulations issued in 2010 were interim final regulations: They generally took effect with the plan year beginning on/after September 23, 2010 Final regulations were published November 18, 2015 many group health plan requirements: Final rules generally incorporate guidance already published New rules apply to plan years beginning on/after January 1,

7 What s Actually New Multiemployer plans can add new employers without losing grandfathered status An essential health benefit (EHB) is essential whether obtained in or out of network Age 26: Plans cannot restrict coverage to a child who lives or works in an HMO or network service area Plan sponsors cannot charge even a nominal fee for external review (non-grandfathered plans only) Pediatricians, including pediatric subspecialists, can be a Primary Care Provider (non-grandfathered plans only) 7

8 What s Important To Remember Ban on annual and lifetime limits Covering children to age 26 HRAs have to be integrated (can be stand-alone only if a Retiree-Only Plan) Payment levels for out-of-area emergency care (non-grandfathered plans only) 8

9 1. Current ACA Concerns and New Developments 2. Grandfathered Status 3. Excise Tax Delay Outlook What do we need to know now? Should this have an impact on how we run our health plans? 9

10 Segal Survey 2014: Grandfathered (any benefit options) Not grandfathered includes plans that lost grandfathered status and plans created after ACA became law 45.9% Percent of Multiemployer Plans 54.1% Plan(s) Still Grandfathered (165) Not Grandfathered (140) 10

11 Changes That Trigger Loss of Grandfathered Status Any one of these plan changes will trigger loss of grandfathered status (this is an exclusive list): 1. An increase in a percentage cost-sharing requirement (i.e., coinsurance), regardless of the amount An increase in the deductible or out-of-pocket maximum by an amount that exceeds medical inflation plus 15 percentage points 1. An increase in copayments if the increase exceeds the greater 3 of $5 (adjusted for medical inflation) or medical inflation plus 15 percentage points 41. A decrease in the employer s contribution rate by more than 5 percentage points (measured for each tier of coverage) 51. Eliminating all or substantially all benefits to diagnose or treat a particular condition 11

12 Requirements for Non-Grandfathered Plans Some extra requirements in effect for the first plan year beginning on or after September 23, 2010 that the plan is not grandfathered: 11. Amended internal claims and appeals procedures, and external review 21. Emergency Room Services: Without prior authorization, and parity for in- and out-of-network 31. Cost Sharing Limits: In 2016: $6,850 (single)/$13,700 (family), 2. with the single limit applied to each member of a family 41. No-cost sharing for preventive care 12

13 Items for Consideration in Deciding Whether to Retain Grandfathered Status Retain Grandfathered Status Become Non-Grandfathered Limit on benefit changes Do not need to comply with certain additional benefits Questions by participants Flexibility to make benefit changes Additional requirements 13

14 1. Current ACA Concerns and New Developments 2. Grandfathered Status 3. Excise Tax Delay Outlook What do we need to know now? Should this have an impact on how we run our health plans? 14

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16 First Legislative Change to Tax Consolidated Appropriations Act of 2016 (Public Law ) (December 18, 2015) delays three taxes included in the Affordable Care Act: 1. The excise tax on high-cost plans (delayed until 2020), 2. The health insurance tax (suspended for 2017), and 3. The medical device tax (suspended for 2016 and 2017) The law does not change the threshold levels or indexing for

17 Potential Amendments to Excise Tax Delay effective date 2 5 years Improve indexing of the tax thresholds (increase CPI-U) Increase dollar value of tax thresholds Tax triggered at the 90% or 85% AV level Exempt retiree-only health plans Permit geographic adjustments Exempt FSAs, HSAs, and/or HRAs from the cost of applicable coverage (or exempt employee salary deferral) Improve the high-risk occupations language to cover more workers; provide higher adjustment Improve adjustments for age/gender 17

18 Excise Tax on High Cost Plans As It Stands Now Effective in % tax on excess over threshold Based on total cost of coverage; employer plus employee premium share Cost Threshold for Tax (indexed after 2018) $10,200 Single; $27,500 Family in 2018 Increased by $1,650 Single; $3,450 Family: For retired individuals age 55 or older and not eligible for Medicare If majority of employees covered by the plan are:» Engaged in a high-risk profession (list in statute), or» Employed to repair/install electrical or telecommunications lines Multiemployer plans use family threshold 18

19 Cost of Coverage Cost determined under rules similar to those used to calculate the COBRA applicable premium The COBRA premium is based on the cost of coverage for similarly situated non-cobra beneficiaries, and is determined by the plan sponsor in advance 19

20 Cost of Coverage Proposed Approach in Notice : Each group of similarly situated employees would be determined starting with all employees covered by a particular benefit package, then subdividing that group based on: Mandatory disaggregation rules (self-only or other-than-self-only coverage) Permissive disaggregation rules (e.g., bona fide work classifications, CBA, etc.) High Option HMO PPO-1 Standard Option PPO PPO-2 20

21 Excise Tax Forecasting Sample Output Client ABC Projections of the ACA Excise Tax PPO Plan Single Employer Basis, 2-Tier Rating FAMILY COVERAGE Assuming 8% Cost Trend Family Costs are Expected to Exceed the Threshold beginning in 2022 $47,139 Tax Free Threshold $27,500 $32,082 $34,700 Family Cost Per Year $30,650 $23,581 $17,333 $0 $573 $4,976 Excise Tax The 2014 family cost of $17,333 ($1,444 per month) is from the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2014 Employer Health Benefits Survey (average premiums for covered workers, PPO, all firm sizes). 21

22 Segal s ACA Excise Tax Forecaster Percent of All Active Employee Plans With ACA Excise Tax Liability Total Percent of Plans Projected to Pay Tax Each Year Percent of Plans Projected to Hit Tax for the First Time (subset of total) 70% 61% 56% 42% 45% 48% 50% 31% 35% 37% 4% 2% 5% 3% 2% 2% 6% 6% 9% Source: Segal clients with at least 1,000 covered lives 2015 COBRA rates, 8% annual trend rates, active groups only 22

23 Retirees and the Excise Tax Retiree-only plans are subject to the tax Some retirees get the higher threshold ($11,850/$30,950) those who are age 55 or older and not eligible for Medicare The ACA statute states that costs for pre-65 and 65+ retirees may be combined: Lower costs for Medicare retirees are permitted to offset higher costs for pre-medicare retirees Unclear whether/when retiree costs can be combined with actives 23

24 High-Risk Professions Individuals covered by a plan sponsored by an employer the majority of whose employees covered by the plan are engaged in a high-risk profession or employed to repair or install electrical or telecommunications lines Law enforcement officers Employees who engage in fire protection activities Individuals who provide out-of-hospital emergency medical care (including emergency medical technicians, paramedics, and first-responders) Individuals whose primary work is longshore work Individuals engaged in the construction, mining, agriculture (not including food processing), forestry, and fishing industries A retiree with at least 20 years of employment in a high-risk profession is also eligible for the increased threshold 24

25 On-Site Medical Clinics Included in Cost of Coverage On-site medical clinics are generally subject to the excise tax Treasury Proposal: On-site medical clinics that offer only de minimis medical care would be excluded, e.g., first aid for injuries and illnesses What is de minimis? Immunizations Injections of antigens provided by employees Providing pain relievers, aspirin, etc. Treatment of injuries caused by accidents at work beyond first aid Other? 25

26 Dental/Vision Coverage under a separate policy, certificate, or contract of insurance which provides benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth) or for treatment of the eye are excluded Treasury Proposal: Exclude all limited scope dental and vision benefits that qualify as excepted benefits (including self-insured) Self-insured dental/vision coverage must be able to be declined (i.e., opt-out) by the participant or be administered under a separate contract from claims administration for any other benefits under the plan 26

27 Avoid the Tax Lower the Baseline Cost Cost Control Strategies Calculation Strategies Retiree Strategies 27

28 New Retiree Health Plan Options to Consider Benefits and Payment Medicare Supp Plans Medicare Rx (Part D) Pre-Medicare Retirees Medicare Advantage A growing number of plan sponsors are reshaping their retiree health plan offerings: 1. Designing new plans to maximize federal payments from CMS 2. Creating retiree-only plans to avoid ACA group health plan coverage mandates 3. Consider use of public or private Exchanges 28

29 Strategies to Manage Health Plan Costs Use plan design changes to improve outcomes health and financial Consider using high performing, narrow networks Ensure efforts made to reduce unnecessary hospital readmissions 4 Improve wellness program effectiveness 5 Encourage insurers to make costs more transparent 29

30 Strategies to Manage Health Plan Costs continued 6 Promote integrated health care models (e.g. ACOs) 7 Audit claims 8 Consider reference-based pricing 9 Explore high deductible health plan options with Health Savings Accounts 10 Educate members to be better health care consumers 30

31 Thank you! 116 Huntington Avenue, 8 th Floor Boston, MA T Andrew D. Sherman Senior Vice President asherman@segalco.com 31