Assessing ACA Issues - The 40% Excise Tax and Other Employer Implications

Transcription

1 Assessing ACA Issues - The 40% Excise Tax and Other Employer Implications April, 2016, IPMA-Employer Training Edward A. Kaplan, Segal Consulting Copyright 2016 by The Segal Group, Inc. All rights reserved.

2 Agenda 1. The Current State: Understanding the ACA Excise Tax on High-Cost Plans 2. Excise Tax Survey Results and Forecasts 3. Cost Containment Strategies Medical plans Prescription Drug plans Retiree Health Options 4. Grandfathered Plans Copyright 2016 by The Segal Group, Inc. All rights reserved. 2

3 Excise Tax on High Cost Plans 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 (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 Tax is paid by insurer or administrator, not by participant. 3

4 First Legislative Change to Tax Consolidated Appropriations Act of 2016 (Public Law ) (December 18, 2015) delays three taxes included in the Affordable Care Act: The excise tax on high-cost plans (delayed until 2020), The health insurance tax (suspended for 2017), and The medical device tax (suspended for 2016 and 2017) In addition to delaying the effective date of the tax, the law Changes the excise tax from non-deductible to deductible, and Calls for a study on how best to determine the age and gender adjustment that can result in an increase in the base threshold The law does not change the threshold levels or indexing for 2020 The law also extends a measure that prevents the federal government from shifting funds to pay for the ACA's risk corridors program 4

5 Cost of Coverage Cost determined under rules similar to those used to calculate the COBRA applicable premium Changing employee premium contributions does not affect the total cost of the plan or the Excise Tax threshold Consequently, the value of the plan must be lowered to avoid reaching the threshold 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 For self-insured plans: actuarial basis method and past cost method Treasury/IRS asked for comments on the feasibility of determining the cost of coverage for the excise tax using actual costs (at year end) 5

6 Cost of Coverage Potential 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, and Permissive disaggregation rules Start with the benefit package: High option plan v. standard option plan, HMO v. PPO, HMO-1 v. HMO-2, PPO-1 v. PPO-2, etc. High Option VS. HMO VS. PPO-1 VS. Standard Option PPO PPO-2 6

7 Single Employer Plan: Treasury/IRS Notice Benefit Package #1 2 Optional Ways to Separate Groups Current employees vs. retirees Bona fide employment criteria (e.g., bargaining status) Geographic differences 3 Cost of Self-Only Coverage $10,200 $ 11,850 (high risk) & Cost of Other Than Self-Only Coverage $27,500 $30,950 (high risk) OR Cost of Each Family Tier $27,500 $30,950 (high risk) 7

8 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 Potential approach: Exclude all limited scope dental and vision benefits that qualify as excepted benefits (including self-insured) Reminder: self-insured dental/vision coverage is excepted if participants can decline the coverage or the benefits are administered under a contract separate from claims administration for any other benefits under the plan Treasury/IRS ask for comments on why not to implement this approach 8

9 On-Site Medical Clinics On-site medical clinics are generally included in the cost of coverage Potential approach in Notice : On-site medical clinics that offer only de minimis medical care would be excluded For example, current COBRA regulations exclude on-site medical clinics that consist primarily of first aid provided during working hours to current employees without charge Comments requested what is de minimis? For example: Immunizations Injections of antigens provided by employees Providing pain relievers, aspirin, etc., Treatment of injuries caused by accidents at work beyond first aid Comments requested should the standard be based on the nature and scope of benefits, a specific dollar limit, or some combination of the two? Comments requested how would cost of coverage be determined? 9

10 Individual Account Plans Health Flexible Spending Arrangements (FSA): include the amount of the employee s salary reduction plus any employer reimbursement in excess of the salary reduction contribution Example: If in 2018 an employee elects family coverage under a fully-insured major medical policy with a value of $27,000 and contributes $2,500 to a Health FSA, the employee has aggregate health insurance coverage valued at $29,500 Archer Medical Savings Accounts (MSA) and Health Savings Accounts (HSA): include the employer contributions Under Notice : Employee salary reduction contributions included After-tax employee contributions excluded 10

11 Health Reimbursement Arrangements HRAs will likely count toward excise tax Treasury/IRS considering various methods to determine the cost of coverage under an HRA, including basing cost on the amounts made newly available to a participant each year (without carryovers) Also considering a rule that would permit employers to determine the cost of coverage by adding together all claims and admin expenses for a particular period and dividing by the number of covered employees; or actuarial basis method Comments requested on double counting, use of HRA for other medical expenses, etc. 11

12 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 Comments requested on: How an employer determines whether the majority of employees covered by a plan are engaged in a high-risk profession, What the term plan means in that context, and How an employer determines that an employee was engaged in a high-risk profession for at least 20 years 12

13 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 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 will offset higher costs for pre-medicare retirees Issues for Treasury/IRS to address: Whether/when retiree costs can be combined with actives How statutory rule on combining pre- and post-65 retirees interacts with benefit package proposal in Notice Once Treasury/IRS set the rules about what combinations of groups are permitted, each plan will need to determine optimal approach 13

14 Who Calculates the Tax & Who Pays The coverage provider pays the tax For insured benefits, the health insurer is the coverage provider If the employer makes HSA contributions, the employer is the coverage provider For other self-insured benefits, the coverage provider is the person that administers the benefits The definition of coverage provider is one of the main issues on which Treasury/IRS have sought comments in Notice To calculate the tax, the employer has to: Combine the cost of the different benefits, Calculate the amount of the excess benefit, Determine the pro rata share of the excess attributable to coverage provider, and Report the taxable excess benefit attributed to each coverage provider to the coverage provider and to the IRS 14

15 Cost Indexing Once the final 2020 tax free thresholds are set, each year the amount will increase based on general inflation (i.e., the Consumer Price Index for All Urban Consumers), not medical inflation The problem - Medical plan cost trend is likely to continue to be higher than general inflation increasing plan sponsor chances of paying the tax CPI averaging around 2% per year (last 5 years) Medical Plan Cost Increases averaging 6% to 8% per year (last 5 years) 15

16 Agenda 1. The Current State: Understanding the ACA Excise Tax on High-Cost Plans 2. Excise Tax Survey Results and Forecasts 3. Cost Containment Strategies Medical plans Prescription Drug plans Retiree Health Options 4. Grandfathered Plans Copyright 2016 by The Segal Group, Inc. All rights reserved. 16

17 Segal s ACA Excise Tax Forecaster Percent of All Active Employee Plans With ACA Excise Tax Liability 80% 70% 70% 60% 61% 50% 40% 42% 45% 48% 50% 56% 30% 31% 35% 37% 20% 10% 0% 31% 4% 2% 5% 3% 2% 2% 6% 6% 9% Total Percent of Plans Projected to Pay Tax Each Year Percent of Plans Projected to Hit Tax for the First Time (subset of total) Source : Segal clients with at least 1,000 covered lives 2015 Cobra rates, 8% annual trend rates, active groups only 17

18 Excise Tax Forecasting TABLE 1: SHARE OF EMPLOYERS WITH AT LEAST ONE PLAN HITTING THRESHOLD Year High-Cost Plan Tax Self-Only Threshold Premium, HSA, HRA Premium, HSA, HRA & FSA 2018 $10,200 16% 26% 2023 $11,800 22% 30% 2028 $13,500 36% 42% SOURCE: Kaiser Family Foundation analysis (Aug. 2015) 18

19 Excise Tax Forecasting Sample Output $52,000 $48,000 $44,000 $40,000 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 $36,000 $32,000 $28,000 $24,000 $27,500 $32,082 $30,650 $34,700 $20,000 $16,000 $12,000 $8,000 $4,000 $23,581 $17,333 Tax Free Threshold Family Cost Per Year Excise Tax $4,976 $0 $573 $ 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). 19

20 Excise Tax Forecasting Sample Output Client ABC Projections of the ACA Excise Tax PPO Plan Single Employer Basis, 2-Tier Rating FAMILY COVERAGE Assuming 5% Cost Trend $40,000 $36,000 $32,000 $28,000 Family Costs are Expected to be below the Threshold throughout the Projection Period. $27,500 $34,700 $32,684 $24,000 $20,000 $16,000 $17,333 $21,068 $12,000 $8,000 Tax Free Threshold Family Cost Per Year Excise Tax $4,000 $0 $0 $ 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). 20

21 Agenda 1. The Current State: Understanding the ACA Excise Tax on High-Cost Plans 2. Excise Tax Survey Results and Forecasts 3. Cost Containment Strategies Medical plans Prescription Drug plans Retiree Health Options 4. Grandfathered Plans Copyright 2016 by The Segal Group, Inc. All rights reserved. 21

22 Strategies to Manage Health Plan Costs 1. Use plan designs to promote use of lower-cost settings. Adjust participant cost sharing to encourage more efficient use of health care system (e.g., lower copays for primary care providers, retail clinics, telemedicine and generic drugs). 2. Find the best value networks: Consider narrow networks or custom networks Remove high-cost outlier providers who cannot prove their value Direct contract for best value medical providers Install plan cost trend cap or risk-sharing arrangements with networks 3. Ensure that network hospitals use discharge planning, medication management and continuum of care to reduce unnecessary hospital readmissions and complications from non-adherent patient compliance with treatments. 4. Improve wellness programs effectiveness. 5. Encourage insurers to make costs more transparent. 22

23 Strategies to Manage Health Plan Costs 6. Explore how integrated health care, like Patient-Centered Medical Homes (PCMH) and Accountable Care Organizations (ACO) might help to better manage participants health and lower cost from alternative reimbursement strategies. 7. Audit claims for potential waste and abusive billing practices. 8. Expand the use of reference-based pricing, in which the plan limits a payment per treatment or service to a reasonable market-based maximum, to steer participants towards best value, higher-quality hospitals or physicians for specific procedures or conditions. 9. Expand focus of high deductible health plan options with health savings account defined contribution strategies (e.g., premium incentives). 10. Educate participants to be better health care consumers. 23

24 Strategies to Manage Health Plan Costs Example of effective member cost sharing copay structure: Treatment Setting Target Copay Ranges Telehealth/Retail Clinics $5 to $10 per consultation Primary Care Office Visits $20 to $25 Urgent Care Visit $25 to $50 Specialist visits $35 to $50 Emergency Dept. Visit $100 to $200 (waived if admitted) Example of health savings account contribution structure: Employment Status Deductible (single /family) Health Savings Account Contribution New Employees $2000/$4000 $500/year Completes Wellness Goals +$500/year 24

25 PBM Cost Trends Prescription Drug Spend * Projected Source: HIRC Managed Markets Service, IMS and HIRC estimates 25

26 PBM Cost Savings Solutions Trends/Challenges Per employee claim trends near 12% per year, could be a major driver of creating Excise Tax liabilities High cost specialty drugs dominate price increase (+20% price inflation) PBM competition and aggressive pricing still strong Clients interested in more transparency in contracts PBM consolidation is threatening competition, hurting service for some Greater focus on clinical management to encourage appropriate utilization 26

27 PBM Cost Savings Solutions Emerging Cost Containment Strategies Aggressive RFPs and new contracting terms Move away from AWP Pay for results performance guarantees Push for trend cap risk sharing arrangements Expanding drug management programs for high cost specialty drugs and compound medications Renewed interest in narrow formularies Clients interested in more transparency in contracts Smarter plan designs (continue generic incentives, converting to percentage copays that keep pace with inflation, greater focus on exclusions and limitations) Take steps to reduce inappropriate utilization Step Therapy Prior Authorization Clinical Reviews Tighter monitoring of fraud, waste and abuse 27

28 Specialty Drug Management Preferred drug strategies are now readily available Conditions such as Hep C, Anemia, Multiple Sclerosis, Growth Hormone, and Rheumatoid Arthritis have enough drug options to create a preferred drug list Formulary exclusions are also targeting specialty drug classes PBM contract should include rebates for specialty drugs Aggressive clinical program management Step Therapy and Prior Authorizations help to ensure appropriate utilization Split fill programs Very useful for oncology medications Limiting fills to 14 days or less for the first 6 fills Channel Management Exclusive vs. non-exclusive specialty networks Identification and carve-out of specialty drugs from medical benefit Carving-out specialty drugs to a stand-alone specialty pharmacy Home infusion through the pharmacy benefit 28

29 ACA and Public Exchanges Create New Opportunities Retiree coverage is also subject to the Excise Tax but the ACA creates new opportunities to avoid the tax and lower plan sponsor costs: Separating Retiree lives for calculation purposes can help, especially for groups with sizeable pre-medicare populations. Growing trend towards a defined contribution approach to retiree coverage (e.g., premium assistance programs) Many large plans have moved retirees to private health exchanges with excellent outcomes Medicare has expanded coverage but gaps in traditional Medicare coverage still exist (e.g., lack of an out-of-pocket maximum on Part A/Part B) Retiree needs are different than those of active employees Medicare Advantage market remains viable and relatively stable pricing Pre-Medicare eligible retirees historically have not had many individual coverage options in the private market, but new ACA underwriting rules provide meaningful coverage choices for early retirees; federal premium subsidies may create better options for pre-medicare retirees with lower incomes 29

30 New Retiree Health Plan Options to Consider Benefits and Payment Pre-Medicare Retirees Medicare Supp Plans Medicare Advantage Medicare Rx (Part D) A growing number of plan sponsors are reshaping their retiree health plan offerings: 1. Designing new plans to maximize federal payments from CMS 2. Changing eligibility to vest like pensions (longer service results in greater plan sponsor contributions to retiree health accounts) 3. Results have been good so far. Satisfied retirees, stable options 30

31 Agenda 1. The Current State: Understanding the ACA Excise Tax on High-Cost Plans 2. Excise Tax Survey Results and Forecasts 3. Cost Containment Strategies Medical plans Prescription Drug plans Retiree Health Options 4. Grandfathered Plans Copyright 2016 by The Segal Group, Inc. All rights reserved. 31

32 Plans are Grandfathered Segal Survey 2015 PERCENTAGE OF PLANS 45.9% 54.1% Plan(s) Still Grandfathered (165) Not Grandfathered (140) Not grandfathered includes plans that lost grandfathered status and plans created after ACA became law. 32

33 Extra Requirements for Non-Grandfathered Plans Extra requirements apply to non-grandfathered plans, including: Amended internal claims and appeals procedures, and external review Emergency room services (e.g., without prior authorization, and parity for in- and out-of-network) No-cost sharing for certain in-network preventive services Cost-sharing limits (2016: $6,850 individual/$13,700 family; 2017: $7,150 individual/$14,300 family) Patient protections: choice of primary care physician (including pediatrician), and direct access to OB/GYN services Coverage of routine patient costs in connection with certain clinical trials Provider nondiscrimination rules 33

34 Edward Kaplan Senior Vice President, National Health Practice Leader