Effects of the Affordable Health Care Act A Focus on Financial, Administrative and Plan Impacts February 27, 2013 Presented By J.W. Terrill Consulting Services
Agenda Introduction: Patient Protection & Affordable Care Act (PPACA) 2010 Impacts: ERRP, Rx Discounts, Tanning Tax, Benefit Enhancements & Small Employer Subsidy 2011 Impacts: Pharmacy Tax, OTC(d), HSA Penalty & MLR 2012 Impacts: Comparative Research Fee 2013 Impacts: Medicare & Unearned Income Tax, FSA Cap, RDS, Device Tax, Deduction Changes and Exchange Notification Requirement 2014 Impacts: Individual Mandate, Shared Responsibility Requirement, Benefit Enhancements, Market Adjustments, Health Insurance Tax, Reinsurance Program Tax & Individual Subsidies 2018 Impacts: Cadillac Tax Potential Future Impacts & Pressures
Health Care Reform Introduction Patient Protection & Affordable Care Act (PPACA) Amended by Health Care and Education Affordability Reconciliation Act of 2010 Signed into law March 30, 2010 Implementation of the bill s provisions will continue through 2018 Legislation 900-2,000 pages (depending on line spacing) Final regulations estimated at 100,000 pages By comparison the Federal Tax Code = 70,320 pages Tax Code 70,320 PPACA 100,000 0 20,000 40,000 60,000 80,000 100,000 120,000
Health Care Reform: 2010 Impacts ERRP Early Retiree Reinsurance Program Subsidized 80% of costs between $15,000 - $90,000 $5 Billion in funding designed to last through 2014 ran out in 2011 Rule changes midway requiring employers to pay back some received funds Now employers having to send additional documentation for substantiation 50% Rx Discount to Seniors in Donut Hole Donut hole = expenses between $2,930 - $4,700 Rx manufacturers discount drugs by 50% 10% Tax on Indoor Tanning
Health Care Reform: 2010 Impacts Benefit Enhancements (Est.+2-8%) No lifetime limits Only restricted annual limits allowed (3 year implementation) 100% coverage of specified preventive services required Dependent coverage extended to age 26 Coverage for ER services at in-network cost-sharing levels with no prior authorization Rescissions (retroactive terminations) prohibited
Health Care Reform: 2011 Impacts Pharmacy Manufacturer Tax (Est. 1%) 2011 $2.5 billion increasing to $4.2 billion in 2018 No OTC(d) as Allowed Expense Effective January 1, 2011 no over-the-counter (OTC) medicines or drugs will be recognized as eligible expenses Reduced contributions create FICA tax implications for employers and employees HSA Non-Qualified Withdrawal Penalty Increases from 10% to 20% Medical Loss Ratio Requirements (Fully-Insured Market) Minimum loss ratio standards 80% for individual and small group and 85% for large group markets; rebates payable to policyholders if standards not met by 8/1/12 Neutral cost impact: downward rating pressures and potential rebates offset by administrative impact
Health Care Reform: 2012 Impacts Comparative Effectiveness Research Fee Who is responsible for payment of the fee? Insured plans = insurance company Self-funded plans = plan sponsor How much is the fee? $1 per covered life (year 1) and $2 per covered life (year 2) In year 3 and beyond the fee will be determined based on national health expenditures Fees to be paid starting 7/31/13 for plans starting 9/23/12, using IRS Form 720 Program ends October 2019
Health Care Reform: 2013 Impacts Medicare Hospital Insurance Tax Those earning $250,000 joint / $200,000 singles Tax increased by 0.9% (1.45% to 2.35%) Unearned Income Tax Those earning $250,000 joint / $200,000 singles 3.8% tax on unearned income FSA Expenditures Capped at $2,500 Effective January 1, 2013 $2,500 limit on employee salary reduction for FSA s Transitional relief provided May 30, 2012 for non-calendar year FSA plans Does not apply until plan years beginning prior to 2013 Provision does not apply to employer contributions into an employee s FSA Reduced contributions create FICA tax implications for employers and employees W-2 Reporting of Plan
Health Care Reform: 2013 Impacts 2.3% Medical Device Excise Tax (Est. 1%) Medical devices include a wide range of products varying in complexity and application. Examples include tongue depressors, medical thermometers, and blood sugar meters to more advanced devices such as medical robots, microchip implants, etc. Cost shift from manufacturers to consumers Bi-partisan legislation introduced to repeal (180 House members or 40% of House) Itemized Deduction Threshold Increased from 7.5% to 10% Reduction in individually claimed tax deductions from medical expenses Exchange Notification Requirement Delayed to late summer or fall Written notice of State Exchange Notification to employees of adequacy of employers plan options Notice to employees that if they migrate to exchange they may lose employer contribution
Health Care Reform: 2014 Impacts 2014 Individual Mandate Requirement for all U.S. citizens and legal residents to have qualifying coverage Those without coverage will have to pay a penalty the greater of $695 per year up to a maximum of three (3x) that amount or $2,085 per family or 2.5% of household income Penalties to be phased in as follows: 2014 - Greater of $95 or 1.0% of taxable income 2015 - Greater of $325 or 2.0% of taxable income 2016 - Greater of $695 or 2.5% of taxable income After 2016 penalties will be increased annually by the cost-of-living adjustment Recent lobbying for increased penalties by insurance industry Exemptions will be granted for: Financial hardship, religious objections, American Indians, undocumented immigrants, incarcerated individuals, those whom the lowest cost plan exceeds 8% of an individual s income and those with incomes below the tax filing threshold Individuals will report insured status &/or pay penalties during filing of 2014 taxes (additional guidance forthcoming).
Health Care Reform: 2014 Impacts Shared Responsibility Requirements a.k.a Employer Mandate or Pay or Play Excise tax added by the Affordable Care Act for employers failing to meet certain conditions regarding employer-sponsored health coverage offered to their employees Beginning January 1, 2014, employers with 50+ full-time or FTE employees must: Offer health coverage to all full-time employees and their dependents A. Full-time employee defined as an employee who is employed, on average, at least 30 hours of service per week (or 130 hours per month) Offer minimum essential coverage that is both affordable and provides minimum value: A. Minimum Essential Coverage as determined by state benchmark plan B. Affordable employee portion of premiums for self-only coverage not to exceed 9.5% of the employee s household income (employers may base affordability on the employee s W-2 wages as a safe harbor) C. Minimum Value plan must cover at least 60 percent of total allowed costs
Health Care Reform: 2014 Impacts Shared Responsibility: Affordability Requirements Federal Poverty Level (FPL) Employer-Sponsored Plan: Employee Premium Contribution as a Percent of Income 0.0% - 9.5% 9.5% + 401% Not Eligible for Premium Subsidy 139% - 400% 0 138% Not Eligible for Premium Subsidy Eligible for Premium Subsidy Medicaid Eligible No Employer Penalties for Medicaid-Enrolled Employees Note: Missouri general income eligibility requirements for Medicaid start at 185% expanded definitions exist for children ages 0-19
Health Care Reform: 2014 Impacts Shared Responsibility: Penalties for Non-Compliance The following penalties are triggered when one of an employer s full-time employees receives a premium tax credit or cost-sharing reduction through an Exchange: A. If employer fails to offer minimum essential coverage to at least 95% of its eligible full-time employees and their dependents, then the employer will be subject to a penalty in the amount of $2,000 for each full-time employee (after 1 st 30); B. If employer offers minimum essential coverage, but fails to satisfy the affordability and minimum value requirements, then the employer will be subject to a penalty in the amount of $3,000 for each full-time employee receiving exchange subsidy
Health Care Reform: 2014 Impacts Shared Responsibility: Definition of Full-time Employees expected to have 30 or more hours of service per week each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment Variable Hour & Seasonal Employees Full-time status for variable hour or seasonal employees can generally be determined on annual basis by looking at actual hours worked during prior calendar year ( measurement period ) Measurement period must be a defined time period New employees hours may be averaged over a period of 12 months from date of hire and then transitioned to calendar year determination period For 1/1/2014, the one-year look-back measurement period would begin 1/1/2013, however for this first year, employers can use a shortened period of 6-12 months, beginning no later than 7/1/2013 If employee averages at least 30 hours per week during the one-year measurement period, that employee MUST be eligible for health coverage during the entire following year
Health Care Reform: 2014 Impacts Shared Responsibility: Affordability Safe Harbors IRS has issued three optional safe harbors. An employer will not be subject to a penalty if the employee cost for self-only coverage does not exceed 9.5% of the following: 1. Employee s W-2 wages (as shown in Box 1); 2. Employee s Rate of Pay employee s monthly pay for salaried employees or the hourly rate multiplied by 130 for hourly employees; or 3. Federal Poverty Line for single individuals for the state where individual is employed. An employer may choose to use one or more of the above safe harbor methods as long as the chosen method is applied on a uniform and consistent basis for all employees within a reasonable classification. Shared Responsibility: Controlled Groups Members of a controlled group are aggregated to determine large employer qualification. For determination of whether a mandate penalty is due and how much is to be paid, members of the group are treated individually. To calculate the penalty, the 30-employee reduction must be allocated proportionately among members of the group.
Health Care Reform: 2014 Impacts Benefit Enhancements (Varies Contingent on Market) States determine essential benefits coverage Each state chooses one of four (4) existing plan options to model as benchmark One of the three (3) largest small group plans in state; One of the three (3) largest state employee health plans; One of the three (3) largest federal employee health plan options; The largest HMO plan offered in the state s commercial market Essential benefits do not apply to self-insured plans, grandfathered plans and large group market health plans Actuarial Value Requirement Plans must meet minimum actuarial value requirements (60% - 90%) A.K.A. metal standards Bronze, Silver, Gold and Platinum Reduction in allowed plan differentials 5% Guaranteed Issue / No Pre-existing Conditions
Health Care Reform: 2014 Impacts Individual & Small Group Adjustments (Est. 30%) Deductible limitation $2,000/$4,000 & OOP maximum same as for QHDHP Deductibles are limited and indexed to average premium growth. Community Rating Limits on Age Rating 3 to 1 ratio maximum *legislation proposed to expand to 5 to 1 Note: In 2015 small group defined nationally as 1-100 OOP maximums limited to Account Based plan maximums: $6,400 single and $12,800 family Individual Market 199% 91% 122% 18% Young / Healthy Averge Age / Average Health Small Group Market Potential 2014 Rating Impacts -11% -26% Older / Less Healthy Source: Health Care Reform Premium Impact in Missouri
Health Care Reform: 2014 Impacts Health Insurance Industry Tax $8 billion tax beginning in 2014 increasing to $14.8 billion Carriers will begin applying tax on renewals effective February 2013 Impacts fully-insured plans only (may impact dental plans) Estimated impact per member $200 / year or a 1.9% - 3.7% aggregate premium increase Exchange Reinsurance Program $25 billion tax on TPAs and insurers from 2014-2016 Carriers will begin applying tax on renewals effective February 2013 Applies to fully-insured and self-funded plans Current estimate $63 per member per year or $5.25 pmpm Current regulations still in comment period and have not been finalized Purchasing Exchanges Individual Subsidies Subsidies available for individuals between 133% and 400% of FPL Potential gap contingent on state Medicaid eligibility guidelines
Health Care Reform: 2018 Impacts Cadillac Plan Excise Tax 40% non-deductible tax on the value of health plan costs exceeding threshold Thresholds $10,200 single / $27,500 family for 2018 Amounts indexed to CPI-U Pre-65 retiree indexes $11,850 single / $30,950 family Adjusted for high risk industries Excludes dental and vision
Health Care Reform: Potential Future Impacts Increased plan expenses associated with: Direct and indirect taxes Benefit enhancements and coverage expansions Administrative requirements Staffing adjustments associated with Employer Mandate Currently PT classified workers at hours threshold reclassified to FT Potential for increased workers compensation premiums & claims Potential adverse selection Potential increased plan participation increasing aggregate costs Potential adjustment to defined contribution offerings