The Politics and Impact of Health Care Reform on Employers

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1 The Politics and Impact of Health Care Reform on Employers Scott Crane Director of Employee Benefit Services Tycor Benefit Administrators Inc. 850 Cassatt Rd Suite 310 Berwyn, PA Updated May 10, 2012

2 Agenda 3 Introduction 8 Health Insurance Exchanges 13 Employer Responsibilities and Penalties 23 Employer Healthcare Decisions 39 Conclusion 2

3 Introducing Today s Presentation The Patient Protection and Affordable Care Act and The Health Care and Education Affordability Reconciliation Act of 2010 are now law. These new laws are like a jigsaw puzzle. The straight edges pieces have been assembled to frame the picture. Between now and 2020, Health and Human Services, and other Federal and State Government Agencies will begin to fill in the main parts of the picture with new regulations and instructions. This summary is intended to make employer aware of their upcoming responsibilities and provide Tycor clients and business associates with guidance on the new health reform law. This summary does not constitute legal advice. 3

4 The New Political Dynamics Changes to Congress Since Passage of PPACA Factors to Consider: Very conservative Republican base in the House Desire to repeal rather than fix Election Results - Changes to States Since Implementation of PPACA New Governors Impact of Tea Party Desire to wait on Supreme Court Decision to do nothing Supreme Court March 26, 2012 oral arguments on Individual Mandate March 27, 2012 oral arguments on Severability March 28, 2012 oral arguments on Other Items March 30, 2012 justices met and had Initial Vote June 30, 2012 likely deadline for Ruling 4

5 Four Key Issues Being Addressed by SCOTUS The Supreme Court of the United States (SCOTUS) has been asked to rule on the constitutionality of the Patient Protection and Affordable Care Act (PPACA). The four key issues that SCOTUS is expected to address are: Individual mandate: This Individual Mandate requires nearly all Americans to buy some form of health insurance beginning in 2014 or face nominal financial penalties. The underlying question appears to be, may the federal government, under the Constitution's Commerce Clause, regulate economic "inactivity?" Severability: If the individual mandate section is ruled unconstitutional, must the entire PPACA collapse? Are their parts of PPACA that could be upheld separately? Medicaid "Coercion": Can states be forced by the federal government to expand their share of Medicaid costs and administration with the risk of losing existing funding if they refuse? PPACA would double the number of people qualifying for Medicaid. The states must spend their dollar first before receiving matching federal funds. Many states are claiming that they simply cannot afford the increased expenditure. Anti-Injunction Act: The Anti-Injunction Act, which dates back 145 years, prevents asking for a refund on a tax until that tax has been collected and paid. Citing this law could allow SCOTUS to delay a decision on the constitutionality of the individual mandate for at least four years. 5

6 Dependents to Age 26 Popular but at a cost Lifetime and Annual limits Popular but at a cost What Has Happened So Far Medical Loss Ratios Reduced Broker Compensation and in turn Reduced Employer Services Grandfathered plan issues Very few employers can meet grandfathering requirements Pre-existing conditions limitations for children Child only coverage unavailable in many states Restrictions on OTC medications Encourages use of more expensive medications and physician visits 6

7 70% of Businesses with fewer than 25 employees qualify Small Employer Tax Credit Employers with 25 or Fewer Employees Employee health insurance expenses of small employers provides a sliding scale tax credit to small employers with fewer than 25 employees and average annual wages of less than $50,000 that purchase health insurance for their employees. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. To be eligible for a tax credit, the employer must contribute at least 50 percent of the total premium cost or 50 percent of a benchmark premium. In 2010 through 2013, eligible employers can receive a small business tax credit for up to 35 percent of their contribution toward the employee s health insurance premium. Tax-exempt small businesses meeting the above requirements are eligible for tax credits of up to 25 percent of their contribution. In 2014 and beyond, eligible employers who purchase coverage through the State Exchange can receive a tax credit for two years of up to 50 percent of their contribution. Tax-exempt small businesses meeting the above requirements are eligible for tax credits of up to 35 percent of their contribution. 7

8 Health Insurance Exchanges The establishment of health insurance exchanges is one of the most significant and far-reaching aspects of the private health insurance reforms contained in the federal Patient Protection and Affordable Care Act (PPACA). Decisions state and federal policymakers will be making over the next few years regarding design will be critical. 8

9 Exchanges Inside and Outside Markets Congress specifically provided that individual and group health insurance markets are to exist outside of the exchanges. Essential Health Benefits to Include: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and Substance use disorder services Prescription drugs Rehabilitative and habilitative services and devices; Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care Announced December 2011 The Obama administration surprised supporters and critics when it decided to let states define the essential health benefits that must be provided to their citizens under health care reform. 9

10 Employers and Exchanges Making sure exchanges provide a benefit for employers and do not in any way undermine the ability or willingness of employers to provide coverage is a top priority. Although PPACA allows the state the option of expanding the exchange to serve as a potential coverage option for larger groups beginning January 1, 2017, this could result in unintended consequences. The large employers that would be attracted to the exchange would be those with an older and sicker employee population that would benefit from the exchange s modified community rating structure. This would increase the cost of coverage for other participants. 10

11 Exchanges - Current Status On July 11, 2011, HHS released a proposed rule on establishment of Exchanges. The rule includes the minimum requirements for carriers to offer qualified plans in an Exchange. It also includes the requirements employers must meet to participate in the SHOP exchange. The proposed rule gives states more flexibility in implementing Exchanges. A state may receive conditional approval if they are making progress even if they can t demonstrate full operational status by January 1, States allowed to partner with the federal government and use the federal systems. The regulation does not address: Premium subsidies The process for receiving an exemption from the individual mandate The definition of essential health benefits Quality standards for Exchanges and QHPs The remaining items are expected to be addressed by June of

12 Exchanges Small Businesses Groups of up to 100 employees, can buy unsubsidized coverage through the Exchange Grandfathered, selfinsured and large fully insured plans not eligible to participate A web portal marketplace for health insurance Individuals No subsidies for individuals offered employer-based coverage, unless that coverage is unaffordable or doesn t meet the quality test Federal Government 1. Sets criteria for plan participation and purchaser eligibility 2. Provides subsidies for individuals 3. Manages state Exchange if a state does not States 1. Each State sets up it s own Exchange structure and governance 2. Each State will be involved in premium rate reviews and can approve/reject as provided under state law 2010 Steptoe & Johnson LLP 12

13 Employer Responsibilities and Penalties Employer Must Determine 50 Employee Status Employer must count all full-time employees and part-time employees on a full-time equivalent basis in determining if they have 50 or more employees. Certain seasonal workers are not counted in determining if employer has 50 workers Full-time = 30 or more hours per week, determined on a monthly basis Penalties assessed for no coverage or coverage that is not affordable The definition of a full-time employee continues to be a major topic of discussion on Capitol Hill 13

14 Employer Provides No Medical Insurance Penalty for Employers with 50 or More Employees If An employer fails to provide its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage plan, And One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction, Then Employer penalty = $2,000 for each of its full-time employees in the workforce. 14

15 Employer Provides Unaffordable Medical Insurance Penalty for Employers with 50 or More Employees If An employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, And One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost sharing reduction because The employee s share of the premium exceed 9.5% of income, or The actuarial value of the coverage was less than 60% of covered expenses. Then Employer penalty = $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction 15

16 Source: Summary of Potential Employer Penalties under PPACA, Congressional Research Service May 14,

17 Employer Responsibilities Employers All Sized Groups Employee waiting periods for group coverage may not exceed 90 days. Most employers will need to readjust their waiting period definition to 1 st of the month after 60 days. This provision is effective January 1, Notice to current employees and new hires about exchange and subsidies Existence of exchange, services and how to obtain assistance Availability of subsidies if employer coverage is unaffordable or below minimum benefit level. FSA Contributions for medical expenses is limited to $2,500 annually. This provision is effective January 1, Tracking and notification of number of months employees covered by minimum required coverage. A variety of new reporting requirements for self-funded plans must be provided to the government and employees. 17

18 Employer Responsibilities Employers All Sized Groups Benefit Summaries Effective for plan years beginning on or after March 23, 2012, both insured and self-funded plans will be required to provide new summaries of benefits before and after enrollment. Failure to provide required information will result in a fine of not more than $1,000 per enrollee. Each failure to provide an SBC to an individual or entity is a separate violation. Plan sponsors will also generally be subject to an excise tax under IRS section 4980D of up to $100 per day, per affected individual, unless certain exceptions apply. The DOL has indicated that it plans to issue separate penalty regulations. HHS guidance for this provision was due on March 23, However, as of January 4, 2012, guidance has not been issued. The Department of Labor has indicated in its guidance that it is working to finalize its proposed regulations. 18

19 Employer Responsibilities Employers All Sized Groups W-2 Reporting Inclusion of cost of employer-sponsored health coverage on the employee s W-2, requires employers to disclose the value of the benefit provided by the employer for each employee s health insurance coverage. The Internal Revenue Service issued two additional interim guidance notices, Notice and Notice related to reporting the cost of employer-sponsored health insurance coverage on employees' W-2 s. The release extends the transition relief period for employers who file less than 250 W-2 s. For these employers, reporting is now required starting with W-2 s for the 2013 tax year, which would be issued in Note: Employers who file 250 or more W-2 s are responsible to begin reporting starting with W-2 s for the 2012 tax year, which would be issued in Additionally, the release provides more clarification on how employers can calculate the cost of coverage to meet this reporting requirement. The guidance reaffirms that this is a reporting requirement only and does not impact employees' taxable wages 19

20 Employer Responsibilities Employers All Sized Groups Rescission Doctrine Rescission Doctrine prohibits health insurance carriers and group health plans from rescinding coverage (rescissions) except for cases involving fraud or intentional misrepresentation. The health care reform law puts new restrictions in place for terminations. This means plan sponsors and insurers can only terminate a member s coverage retroactively in specific circumstances. Special caution needs to be taken handing COBRA and retroactive terminations. The employer will need to report terminations in a timely manner. Your broker can provide details on the regulations for terminations under the new Rescission Doctrine. 20

21 Employer Responsibilities Employers with 200 or More Employees Employers must automatically enroll new full-time employees in employersponsored coverage Must provide employee adequate notice and opportunity to opt out Applies only to employers with more than 200 full-time employees 21

22 Employers Are Affected Employers All Sized Groups Medical Loss Ratio MLR Requirements Larger employers (51 or more employees in most states, including NY, NJ, PA), the amount an insurance carrier spends on medical care and quality improvement activities must be at least 85% of the premiums received; Small employers (1-50 employees), the amount must be at least 80%. How Does MLR Affect the Employer? 1. Less Plan Choice 2. Less Consultative Service without a fee 3. More Administration Shifted to Employer 22

23 Employer Healthcare Decisions How does the employer budget for increased plan costs? What will the new compliance costs be? Can the employer afford to continue to offer coverage to employees? What are the implications if the employer drops coverage for employees? What is the employers communication strategy? Tycor is available is assist employers with this decision process. 23

24 Employer Healthcare Decisions Local Insurance Company Leaders Acknowledge Impact in 2014; Regardless of Supreme Court Decision During an October meeting with the presidents of the local large health insurance companies they were asked what they thought would happen to PPACA. Everyone of them agreed that there would be health reform in It may not look like exactly what we have today but it will be there in some form. If you look at the changes the insurance companies have made, you can see for yourself that they are investing heavily in the Medicaid and ancillary markets because they believe that is where their growth will continue after % of CFO s Won t Change Health Insurance Offering December Deloite stated 80% of CFO s surveyed said they would be offering the same people benefits in 2014 as they are today. In 2010 those same CFO s said we are dropping the medical insurance and paying the $2,000 penalty? 24

25 Employer Healthcare Decisions Overview of Events Affecting Employers 2011 Dependents to 26 Medical Loss Ratio Exchange Funding Class Act Premium Increase Oversight 2013 Exchange Notice Medical Spending Limits Medicare Tax Increase Medical Device Tax Several Medicare Funding & Administration Pharmacy Assessment Uniform Summaries Individual Requirement State Exchange Subsidies Employer Requirements Essential Benefits Health Insurance Tax Resource: 25

26 Employer Healthcare Decisions Keys To Medicaid Coverage and Eligibility 2. Premium & Cost Sharing Subsidies 3. Health Insurance Exchanges 4. Guaranteed Insurance Availability 5. Essential Health Benefits 6. Employer Responsibility There isn t one answer to the question of what to do in 2014 We need to consider the factors that will influence the answers and make decisions company by company. 26

27 2012 Poverty Guidelines for the 48 Contiguous States and the District of Columbia Excludes Alaska and Hawaii Persons in Family/Household Employer Healthcare Decisions 2012 Federal Poverty Guidelines 100% 133% 200% 300% 400% 2012 Federal Poverty Level 2012 Federal Poverty Level 2012 Federal Poverty Level 2012 Federal Poverty Level 2012 Federal Poverty Level 1 $12,860 $17,104 $25,720 $38,580 $51,440 2 $17,410 $23,155 $34,820 $52,230 $69,640 3 $21,960 $29,207 $43,920 $65,880 $87,840 4 $26,510 $35,258 $53,020 $79,530 $106,040 5 $31,060 $41,310 $62,120 $93,180 $124,240 6 $35,610 $47,361 $71,220 $106,830 $142,440 7 $40,160 $53,413 $80,320 $120,480 $160,640 8 $44,710 $59,464 $89,420 $134,130 $178,840 Add for Each Additional Family Member $3,960 $5,267 $7,920 $11,880 $15,840 27

28 Employer Healthcare Decisions Keys To Categories of People Currently Covered by Most Employers And Expected to be Impacted by the New Rules Group 1: Group 2; Group 3: Group 4: Full Time Employees Medicaid Eligible Employees Low Income Employees Dependents of Employees 28

29 Employer Responsibility Group 1 Full Time Employees Assesses a fee of $2,000 per full-time employee, excluding the first 30 employees, on employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees. 29

30 Group 2 Medicaid Eligible Employees Expanded Coverage Expands Medicaid to all individuals not eligible for Medicare under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% FPL and provides enhanced federal matching payments for new eligible's. Presumptive Eligibility Allows all hospitals participating in Medicaid to make presumptive eligibility determinations for all Medicaid-eligible populations. Notes: Intended by Washington to increase Medicaid by 15 million enrollees In Pennsylvania, close to 500,000 residents will be newly eligible Each industry will be impacted differently: for example, computer engineers may not have as many employees impacted by this as retail 30

31 Persons in Family/Household Group 2 Medicaid Eligible Employees How Many of Your Employees Will Be Eligible For Medicaid? 133% of the 2012 Federal Poverty Level Annual Monthly Hourly 1 $17,104 $1,425 $ $23,155 $1,930 $ $29,207 $2,434 $ $35,258 $2,938 $ $41,310 $3,442 $ $47,361 $3,947 $ $53,413 $4,451 $ $59,464 $4,955 $

32 Group 2 Medicaid Eligible Employees Medicaid Example Retail Employer 3500 Full Time 200 enrolled today that will be Medicaid Eligible in Estimated Savings to if they move to Medicaid: $1,200,000 Challenges: Communication to Specific Employees Changing Federal Regulations with unexpected shift to Medicaid 32

33 Group 3 Low Income Employees Premium and Cost Sharing Subsidies Provides refundable and advanceable tax credits and cost sharing subsidies to eligible individuals. Premium subsidies are available to families with incomes between % of the federal poverty level to purchase insurance through the Exchanges, while cost sharing subsidies are available to those with incomes up to 250% of the poverty level. Health Insurance Exchanges Creates state-based exchange administered by a governmental agency or non-profit organization, through which, individuals and small businesses with up to 100 employees can purchase qualified coverage. Exchanges will have a single form for applying for health programs, including coverage through the Exchanges and Medicaid and CHIP programs. Notes: Premium Subsidies available for employees with income of 133% to 400% FPL Cost Sharing Subsidies available for employees with income of 133% to 250% FPL Accessibility handled by exchanges and navigators 33

34 Group 3 Low Income Employees Low Income Employees Will Need to Determine Whether the State Exchange Plan or the Employer Plan is Less Costly Step 1 Premium Cost Comparison Premium Share Comparison Employer Plan Subsidized Health Exchange Plan Single Family Single Family Monthly Premium $ $ 1, $ $ 1, Annual Premium $ 6, $ 18, $ 4, $ 14, Employer Contibution 80% Employee/50% Dependent $ 4, $ 10, N/A N/A Federal and State Subsidies Available through the Exchange N/A N/A $ 3, $ 11, Net Premium Cost $ 1, $ 7, $ $ 2, Step 2 Out-of-Pocket Cost Comparison Doctors, Hospitals, other Providers Radiology, Laboratory, Durable Medical Equipment, etc. Rx 34

35 Low Income Example Group 3 Low Income Employees Pharmaceutical Supply Company 250 Full Time Employees 20 Making between 133% and 250% Estimated Gross Savings: $120,000 Estimated Net Savings: $60,000 ($120,000 $60,000 (20 employees x $3,000 penalty*) Challenge: Coordinating Multiple state exchanges; all with different rules. * Employer Responsibility Penalty 35

36 Group 4 Dependents of Employees Question for an Employer: If you knew that your staff was able to get their Husband, Wife, Children, covered with a reliable, guaranteed renewable basic benefit plan through the exchange, would you still be as willing to cover dependents under your group plan? Guaranteed Availability of Insurance Requires guarantee issue and renewability of health insurance regardless of health status and allows rating variation based only on age, geographic area and family composition. It also allows for rating to account for tobacco use in the individual and the small group market and the Exchanges. Essential Health Benefits Creates an essential health benefits package that provides a comprehensive set of services, limiting annual cost-sharing to the Health Savings Account limits ($5,950/individual and $11,900/family in 2010). Creates four categories of plans to be offered through the Exchanges, and in the individual and small group markets, varying based on the proportion of plan benefits they cover. 36

37 Why Cover Dependents? Pro s Compensation Equality Less Employee Downtime Improved Employee Retention Con s Compliance for Life Events COBRA Divorce Decrees Group 4 Dependents of Employees Added Administrative Burden Adding and Terminating Dependents Federal Reporting 37

38 Dependent Example Financial Services Company 900 Full Time Employees Covered Dependents 400 Old Premium Funding Strategy 100% of Single 50% of dependents Employer Annual Cost per Dependent : $5,000 New Premium Funding Strategy 100% of Single 0% of dependents Savings Estimate: $2,000,000 Group 4 Dependents of Employees Challenge: Employee Turnover 38

39 In Conclusion Employer Healthcare Decisions Employer Action Plan Analyze Your Data Compare your benefits to actuarial equivalents Decide corporate position Determine cost of possible turnover Review claims data by employee vs. dependents Hire Tycor Guide your company through this decision process 39

40 For More Information Tycor Benefit Administrators, Inc. 850 Cassatt Road Suite 310 Berwyn, PA Scott Crane, Director of Employee Benefit Services 610/ The National Association of Health Underwriters (NAHU) has a wealth of good information on Health Care Reform. We encourage you to refer to Scott served 5½ years as the Legislative Chairman for the Pennsylvania Association of Health Underwriters (PAHU) He continues to serve as Special Projects Coordinator. 40