1 Health Care Reform The Affordable Care Act
House Keeping items.. 1. All phone lines are muted so please send any questions you may have via the chat session during the webinar. 2. All slides will be made available after the presentation at www.capitalbenefitservices.com or at www.epkbenefits.com please simply visit the Health Care Reform section of either website. Any follow up questions you may have, please feel free to send to: Will Compton at wcompton@epkbenefits.com
Topics Covered: The Affordable Care Act How did we get here? Historical look on health care trends and the environment in which the Affordable Care Act was passed? Where are we going? Specific pieces of legislation that will effect business owners, families, and individuals. What to expect in the future? What are the trends to look for going forward
How did we get here? Health Insurance is a relatively new idea: Rise of Employer Sponsored Coverage started off slowly shortly after WWII..Yet by 2010 60% of employers were offering Health Insurance. Over time Almost 50 million Americans did not have health insurance in 2010 16.3% of the population. Yet 21% of GDP is spent on Medicaid, Medicare, and CHIP (Children s Health Insurance Program) Recent Gallup in March 2013 polled Small businesses who said that healthcare costs are the No. 1 factor hurting their operating environment, 54% of small businesses said healthcare costs are hurting the business environment "a lot" Taxes on small businesses came in just behind, at 53%
Increases in Health Insurance Premiums, Workers Contributions to Premiums, Inflation, and Workers Earnings, 1999 2012 200% 180% 160% 140% 120% 100% Health Insurance Premiums Workers' Contribution to Premiums Workers' Earnings Overall Inflation 113% 109% 180% 172% 80% 60% 40% 20% 0% 47% 38% 29% 38% 38% 11% 24% 8% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Where are we going? President signed Patient Protection and Affordable Care Act on March 23, 2010. (2,400 pages long) Makes significant changes affecting the regulation of and payment for many types of private health insurance many insurance market reforms Will require almost all private sector employers to evaluate the health benefits they currently offer and consider whether they are compliant For those without access to employer coverage, new individual mandate to purchase and maintain minimum coverage
Lets take a step back. When national health care policy is debated, we jump right to the issue of who should pay the bills. Yet we seem to blow right past the logical question of why exactly the bills are so high in the first place? Health insurance has become a commodity purchase where consumers want everything paid for and have arguably lost perspective on what the true costs of health care really are. The Affordable Care Act arguably does very little to address those concerns. Thankfully WA State has had a robust and competitive Association Plan Market for over 20 years Such as the: MBA Health Insurance Program Over 600,000 people are currently getting their health insurance through an association plan in the state of WA.
Washington State 8 Washington has one of the lowest average health insurance rates in the country. in part to the presence of Association Health Plans her in Washington State Medical Insurance Premiums by State - Small Group Market Washington Avg. Rate Washington Ranking High Low All small groups 1-100 $332.00 5th lowest $565.00 $302.00 25-50 employees $330.00 4th lowest $565.00 $265.00 11-25 employees $327.00 4th lowest $577.00 $295.00 10 or less employees $341.00 2nd lowest $579.00 $332.00
Reform Topics Covered 9 The Affordable Care Act begins with the.. Individual Mandate
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Individual Mandate 11 Beginning in 2014, if you are uninsured, not exempt from the new mandate, and refuse to sign up for health care coverage the health care law sets out a formula to determine your penalty, which will be assessed and collected by the IRS as part of your federal income taxes. The penalty will be the greater of: 1) A flat dollar amount per person. Flat dollar amount for individuals: $95 in 2014; $325 in 2015; and $695 in 2016; increases indexed to inflation after that, subject to a cap. OR 2) A percentage of your taxable income fixed percentage of household income in excess of tax filing threshold equal 1% in 2014; 2% in 2015; 2.5% in 2016. (Percentage of taxable income is capped at 300% of flat dollar amount) For dependents under 18, the penalty is half the individual amount.
Individual Mandate 12 Example: Sue and Bob are married and have two children, ages 7 and 9. They are applicable individuals and they do not have health insurance for the 2014 tax year. Their combined household income is $65,000. Their penalty under the flat dollar amount would be $285 ($95 for Sue, $95 for Bob, and $47.50 for each child) Their penalty under the percentage of income method would be $650 ($65,000 X 1%) Their total penalty would be the greater of the two and therefore $650.
Individual Mandate 13 Individual exemptions: Who will be exempt from the mandate? Individuals who: 1. Have a religious exemption, 2. Incarcerated individuals. 3. Cannot afford coverage based on formulas contained in the law, or have income below the federal income tax filing threshold, (2010 thresholds for taxpayers under age 65 was $9,350 and couples was $18,700) 4. Are members of Indian tribes, 5. Were uninsured for short coverage gaps of less than three months; 6. Are residing outside of the United States
Reform Topics Covered 14 Employer Mandate Pay or Play
Employer Mandate 15 Who is subject to the employer mandate requirement? An employer who has on average of 50 or more Full Time Employees on business days in the prior calendar year: O Note that both Full Time and Part Time employees count toward the total O Full Time employee = Average of at least 30 hours per week or 130 hours of service in a calendar month which is equivalent to 30 hours per week. Hours worked by Part Time employees are counted toward the total O An employer must aggregate hours worked by Part Time employees in a month / 120 = number of full time equivalent employees. O These full time equivalent employees are used to calculate if you are over or under 50 O Exception for seasonal employees if: O Workforce exceeds 50 FT employees for 120 days or fewer in a year and employees in excess of 50 employed in that period were seasonal workers.
Employer Mandate 16 Beginning Jan 1 st 2014 Employers with 50 or more Full Time Employees will be required to: Provide coverage Provide minimum value that is deemed Affordable Coverage defined by no more than 9.5% of employee income.
Employer Mandate 17 How the Penalties are calculated : If an employer fails to offer coverage: If an applicable large employer fails to offer all FT employees (and dependents) the opportunity to enroll in eligible employer sponsored plan for any month.. and just one FT employee is certified (by the exchange) to employer has having enrolled in subsidized coverage for that month: Monthly penalty = $2,000 X # of FT employees minus the first 30 / 12 (calculated monthly at $166.67) Note penalties are not tax deductible
Employer Mandate 18 How the Penalties are calculated : If an employers fails to offer minimum essential coverage or coverage that is deemed unaffordable If an applicable large employer fails to offer all full time employees coverage that is both affordable and meet minimum requirements Monthly penalty = $3,000 X # of FT employees who apply for an receive subsidized coverage through the exchange / 12 (calculated monthly at $250.00) Note penalties are not tax deductible
Employer Mandate 19 What is Minimum Value? O Plan s share of total allowed costs is at least 60%. O This is an actuarial value of the plan s cost sharing Note that new annual HRA contributions can count towards determining minimum value. What is Affordability? O Plan is deemed unaffordable if employee cost for self only coverage for the least expensive plan is greater than 9.5% of household income for tax year. O However note that since employer is unaware of household income in most cases, employee W 2 earnings can be used instead. O An employer is only obligated to offer the chance for dependents to enroll in coverage, not pay for the dependent coverage.
Employer Mandate 20 Examples: An employer fails to offer coverage: Example: Company has 100 FT employees and does not offer an eligible employersponsored plan: O If one FT employee enrolls in subsidized coverage during the year: Annual penalty = $2,000 X (100 30) = $140,000. Example: Company has 20 FT employees and 60 FTE equivalent employees. O Treated as having 50 FT employees and thus subject to the rules O If one FT employee enrolls in subsidized coverage for year: O Annual penalty = $2,000 (20 30) = $0 O Note that the FTE (full time equivalent employees do not count towards penalty)
Employer Mandate 21 Will Employers Drop Coverage or not?? O Most large employers are already covering all requirements for minimum value coverage as well as affordability and will likely be business as usual. O However will larger employers drop coverage and pay penalty? Reasons they may not 1. Penalties are not deductible 2. Lose tax advantages of providing coverage FICA tax savings, tax deductions for plan costs. 3. Increase salary for employees 4. Employees may end up using after tax dollars to pay for coverage 5. Company Culture may be effected, impact on productivity, etc.
Reform Topics Covered 22 Exchanges
Exchanges Think Expedia online market place to purchase health insurance Affordable Care Act requires that each State create an Exchange to facilitate the sale of qualified benefit plans to individuals. If states choose to not create an exchange, the Federal Government is required to do it for them. 1. Roughly 30 States have indicated they will not create state based exchanges and have some sort of Federal / State gov t co operation. Insurance carriers must decide whether or not they want to participate. However, they will only be allowed to sell individual and small groups plans in the outside market, if they sale the same plans in the State Based Exchanges. All insurance carriers will offer a metallic system of plans. 1. Bronze (60% plan) 2. Silver (70% plan) 3. Gold (80% plan) 4. Platinum (90%)
Exchanges What Exactly will the Exchange do: The State based exchanges are tasked with: Determining whether an individuals meets income requirements and is eligible for coverage through the exchange. Determining whether their employer coverage is unaffordable. Get certification of exemption from the individual coverage requirement so that no penalty will apply. Communicating with employers to determine the level of coverage they offer their employees and whether their employees qualify for subsidies. Assist with enrollment and questions applicants may have Determine tax credits and cost sharing reductions if they apply.
Subsidies part 1 What is a Subsidy / Tax Credit? 25 Tax Credits or Subsidies are premium assistance provided to individuals to purchase insurance through the state based exchanges. They are available for those that fall within 100% 400% of the Federal poverty level. Tax Subsidies are only available for those individuals who qualify and purchase coverage through the new state based exchanges: The tax subsidies / credits are to go directly from the Dept. of Treasury to the carriers. The tax credit is not meant to go to the individual at any time, only to the carriers. The Congressional Budget Office (CBO) estimates the direct cost of premium and cost sharing subsidies to be $500 billion from 2010 to 2019, and $8 billion in indirect costs.
Subsidies part 2 How are Subsidies calculated? 1) Income Level. If your income level is here: Income Level of FPL Premium as a Percent of Income Up to 133% 2% of income 133% to 150% 3% - 4% of income 150% to 200% 4%- 6.3% of income 200% to 250% 6.3% - 8.05% of income 250% to 300% 8.05-9.5% of income 300% to 400% 9.5% of income FEDERAL POVERTY LEVEL CALCULATIONS 26 The maximum you can be required to spend on your individual health insurance is here: Poverty level 400% of poverty level Persons in Family 1 $10,830 $43,320 2 $14,570 $58,280 3 $18,310 $73,240 4 $22,050 $88,200 5 $25,790 $103,160 6 $29,530 $118,120 7 $33,270 $133,080 8 $37,010 $148,040 For Families w/ more than 8 people, add $3,740 for each additional person
Exchanges Questions that remain 27 1) Money Will there be enough money to continue to provide these premium assistance / cost sharing subsidies?? Without the subsidies, it is very likely that the plans found in the exchanges will be unaffordable 2) Simplicity The gov t draft application was just released in March 2013 Paper version is 15 pages for a three person family. Online version has 21 steps At least three major federal agencies, including the IRS, will scrutinize your application. Checking your identity, income and citizenship is supposed to happen in real time That's just to let you know if you qualify for financial help. Once you're finished with the money part, actually picking a health plan will require additional steps, plus a basic understanding of insurance jargon. And it's a mandate, not a suggestion. 3) What will the plans / pricing look like: Expectations for what the plans look like, how much they cost, what insurance carriers are going to participate are expected in early to late summer of 2013.
Reform Topics Covered 28 Other Provisions to watch for:
Dependent Coverage to age 26 29 Plans that provide coverage for dependents are required to extend the coverage of dependents (adult children) to age 26, regardless of their eligibility for other insurance coverage, effective Sept. 23, 2010. Your children can join or remain on your plan even if they are: married not living with you attending school not financially dependent on you eligible to enroll in their employer s plan (starting in 2014)
Pre Existing Conditions: 30 Beginning Sept. 23, 2010, group health plans cannot exclude enrollees (employees, spouses or dependents) under age 19 based on preexisting conditions. For other plans, all pre existing condition exclusions must be removed beginning in 2014. Grandfathered group health plans receive no special protection and must comply once the provision becomes effective with respect to the plan. These rules apply equally to collectively bargained and noncollectively bargained plans.
Probationary Periods 31 Starting in 2014, no employer sponsored plan can make an eligible, full time, employee wait more than 90 days before they become eligible for coverage. The interpretation of the law is that this is exactly 90 days and not the beginning of the month following 90 days as it common in many current plans.
W2 Reporting Requirements: 32 Employers required to file 250 or more W 2 forms will be responsible for reporting to employees the total cost of their group health benefit plan coverage on their W 2 forms under the Patient Protection and Affordable Care Act (the Act) effective with the 2012 W 2 forms distributed to employees in January 2013. For All other companies who provide employer coverage. Beginning in 2014 The value of the health care coverage will be need to be reported in Box 12 of the Form W 2, with Code DD to identify the amount. In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee.
Medical Loss Ratios: The medical loss ratio (MLR) = How much of every premium dollar is spent on medical expenses. Under the new regulations, the MLR requirement for large group is 85% and the requirement for small group is 80%. This means that for the individual and small group markets (<50 employees), insurers must spend at least 80% of premium dollars on claims and activities to improve health care quality whereas large groups insurers (>50 employees) must spend 85%. If they fail to meet these standards, the insurance companies will be required to provide a rebate to their customers starting in 2012. Rebates are sent directly to individuals or enrollee, not employers. 33
Essential Benefits: 34 Essential health benefits must include items and services within at least the following 10 categories: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management, and Pediatric services, including oral and vision care 1. Essential benefit requirements apply to individual and small group plans sold within and outside the new online, statebased exchanges scheduled to launch in 2014.
Individual Tax Implications Medicare Tax Increase Implemented in 2013 35 The Act increases the employee portion of the Medicare tax (currently 1.45% of wages) by an additional 0.9% on wages exceeding a threshold amount. The threshold amount is $250,000 for married couples filing a joint return; $125,000 for married individuals filing separately; and $200,000 for single filers. The employer must withhold the additional tax on the portion of an employee s wages received from the employer that exceeds $200,000, without regard to the amount of wages received by the employee s spouse. Current Law Obamacare Tax Hike First $200,000 ($250,000 Married) Employer/Employee 1.45%/1.45% 2.9% self employed 1.45%/1.45% 2.9% self employed All Remaining Wages Employer/Employee 1.45%/1.45% 2.9% self employed 1.45%/2.35% 3.8% self employed
Lesser Known Facts: 36 Support for wellness programs at work As of 2014, participants in wellness programs generally can get discounts or rewards from their employers of up to 30% of the cost of their health care premiums (currently, the maximum discount is 20%). That reward can go up to 50% if the secretaries of Labor, Health and Human Services and the Treasury deem it appropriate. Smokers can be charged more As of 2014, employers can charge smokers up to 50% more than non smokers for their health insurance.
What to expect in the future What to expect in the future 37
What to expect in the future? Greater ownership of your health care: A shift in how Americans view health insurance.this due to. Rising deductibles from employers to control costs More skin in the game for employees Sticker shock when purchasing coverage by individuals in the exchanges or open market Rise in HSA Health Savings Accounts Wellness discounts / Non Smoking Discounts Choice: limited choices in the market. A few examples include: 1. Public Exchange 2. Industry Based Association Plans 3. Direct with the Carriers.
What to expect in the future? What Makes the MBA Health Insurance Program unique under Health Care Reform? 1. A clear, defined, and approved association that will be around for many years to come: 2. Large Group status: 3. Benefit Design Flexibility: 4. Strength in numbers when negotiating pricing 5. Licensed, dedicated professionals who understand the industry and work only for our members.
40 Capital Benefit Services / EPK Benefits 800 545 7011 www.capitalbenefitservices.com www.epkbenefits.com Will Compton 800 545 7011 x 6 wcompton@epkbenefits.com