Transcript Slide 1
Healthcare Reform Implications
for Employers
May 23, 2013
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The Law
The Patient Protection and Affordable Care Act of 2010 (PPACA) was signed
March 23, 2010
Amended by the Health Care and Education Reconciliation Act of 2010
(Reconciliation) signed March 30, 2010
Jointly referred to as the “Healthcare Reform Law”
Phases in over several years
Delayed effective dates a possibility but strong likelihood that current provisions
are here to stay
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Agenda for Today
Overview of Healthcare Reform Law
What is it intended to do?
Who is affected?
Immediate Reforms
What happens now and through 2014?
How can employers prioritize?
Perspective from Market Data
Employer Implications
Managing costs and remaining competitive
Impact on compensation and overall employee benefits program
Wrap-up and Q&A
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Healthcare Reform Goals
Expand coverage to all Americans
Require coverage for those employed
Provide subsidies for those who are not
Reform delivery and insurance systems
Reduce costs
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Coverage – Reducing the Uninsured
Insurance Exchanges provided by States
Insurance Market Reforms
Individual Mandates
Employer Mandates – “Play or Pay”
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Polling Question
What do you think most of your employees who currently waive coverage will do
to comply with the mandatory coverage mandate?
Elect coverage under your employer plan.
Elect coverage under a spouse’s plan.
Elect coverage under and exchange plan
Not elect coverage / pay the penalty.
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Delivery – How Care is to be Provided
Create payment and system incentives that are intended to improve efficiency
and quality of care
Transition from a volume-based system to an outcome-based system
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Financing – Who pays for it?
Savings from current health system
Excise taxes
Employer penalties
Insurance company penalties
Individual tax increases
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Near-Term Requirements
Earliest changes began for plan years beginning on or after September 23, 2010
(six months after President Obama signed PPACA)
Most calendar year plans first affected with plan year beginning January 1, 2011
Significant provisions become effective in 2014 and beyond
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Post-Election Expectations
State governments will struggle with implementation decisions
Some will establish their own exchanges while others will rely on the Federal
government
Some will expand Medicaid programs
More judicial challenges will receive press
Ability to access “pay or play” penalties against employers in states that do not operate
their own state exchange
Application of preventive care mandate concerning contraceptives
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Transition Period
Understanding “Grandfathered Health Plan” (GHP)
Nothing in the Act requires an individual to terminate current coverage
“If you like your coverage, you can keep it.”
Grandfathered plan is:
Any group health plan or
Individual health insurance coverage in which an individual was enrolled on the date of
enactment
Family members may enroll, if such enrollment was permitted under the terms in
effect as of March 23, 2010
New employees and their families may enroll
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Current Provisions – No Lifetime / Annual Limit
GHP’s prohibited from imposing lifetime dollar limits on “essential health
benefits”
GHP’s may not impose “unreasonable” annual dollar limits
Unreasonable term eliminated in 2014
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Current Provisions– Pre-existing Exclusion
Effective immediately, no pre-existing conditions exclusions for children under
age 19
Otherwise effective for all other individuals as of January 1, 2014
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Current Provisions – Preventive Coverage
New GHP’s must provide first dollar coverage for:
Evidence-based preventive services (rated A or B by the US Preventive Services Task
Force)
Recommended immunizations
Preventive care for infants, children and adolescents
Preventive care and screenings for women
Not applicable for grandfathered plans
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Phase Two Impact – 2012 - 2013
Form W-2 reporting must include the aggregate cost of employer provided group
health coverage
Excludes coverage through an Archer MSA, an HSA or employee salary
reductions to a FSA
Determined under COBRA-like rules
Delayed for employers that file fewer than 250 Forms W-2 in the preceding tax
year
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Phase 4 – 2013 Changes
Flexible Spending Account Limit
Caps the maximum health flexible spending account salary deferral at $2,500
Indexed for years beginning in 2014
Excludes true employer matching or other employer contributions to an FSA
Employer Notice Regarding Exchange
Originally set for March 1, 2013. Now delayed where DOL expects the new deadline
will be late summer or fall of 2013, near open enrollment period for Exchanges.
Notice will inform employees about enrolling in Exchanges, affordability and lack
of employer subsidy
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2013 – Additional Changes
Increase itemized deductions for unreimbursed medical expenses to 10%
(currently 7.5%)
Increase payroll tax on earnings over $200,000 ($250,000 for joint filers) and tax
unearned income (such as investment income)
Impose 2.3% excise tax on medical devices
Self-insured plans pay tax of $2 per covered member per year
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Polling Question
What is your biggest challenge to implement?
Communicating employees
Determining employee / employer premiums split
Administrative requirement (i.e. W-2 reporting)
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Phase 5 – 2014
Individual mandate to obtain coverage
Penalty phases in up to greater of $695 or 2.5% of income by 2016
Employers not required to offer coverage
If employer with 50 or more employees does not provide health coverage, then
employer pays $2,000 assessment per employee (first 30 employees exempt)
Employers that do provide health coverage may still pay assessment if employee optsout and buys through Exchange ($3,000 per employee opting out)
Employers must provide free choice vouchers to certain employees
Assessments are not tax deductible
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2014 – Insurance Exchanges
The Exchange would be offered to individuals and small groups (up to 50 or 100
employees)
New plans must comply with one of four benefit categories
“Essential benefits” must be offered
Insurance exchanges represent a way for individuals to obtain health coverage in
addition to employer plans and individual policies
Challenging for employers to understand employees’ options for health coverage
while still remaining competitive for quality employees at an affordable cost
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Final Phase – 2018
High Cost (“Cadillac”) Plan Tax
40% excise tax would be imposed on insurers of employer sponsored health
plans with aggregate values that exceed $10,200 for individual coverage and
$27,500 for family coverage
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High Priorities for Employers
National Federation of Independent Business reports that half of small employers
view healthcare costs as their “most critical problem”
Monitor, update and communicate
Consider changes in context of overall compensation and benefits structure
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Observations and Planning Ideas
Upward pressure on plan costs and premiums
Consider premium cost split between employer and employees
Industry surveys
Analysis of local labor market
Depending on eligibility for subsidy, it may be important to keep employees on employer
plan vs. having them opt for an Exchange plan
Tax increases on upper-income filers (3.8% on unearned income and .9% on
wages) beginning 2013
Obligation to offer coverage that meets minimum standards or pay a penalty
(2014)
Evaluation of overall plan design and whether to offer plan
Upward pressure on plan administration and compliance costs
Excise tax on high-cost plans (2018)
Downward pressure on value of plan coverage
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Case for Comprehensive Benefits Review
Impact of health insurance costs felt by other plans
Qualified retirement plans
Deferred compensation
Executive benefits
Ancillary and voluntary benefits
Opportunity for a fresh look at compensation and benefits program
Employers must balance costs and overall benefits provided to remain
competitive
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Market Data
The source of data on the following slides is the 2012 Annual Survey “Employer
Health Benefits” published by The Henry J. Kaiser Foundation and Health
Research and Educational Trust
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Healthcare Costs
Continue to increase in spite of reform (and to some extent because of it)
Average single premium in 2012 ($5,615) is 3% higher than in 2011 ($5,429)
Average family premium in 2012 ($15,745) is 4% higher than in 2011 ($15,073)
Average family premium in 2012 is 30% higher than it was in 2007
The rate increase is similar in insured and self-insured plans
Employers need a plan in view of increasing costs irrespective of PPACA
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Offering Healthcare
Towers Watson just reported that 88% of employers affirmed their commitment
to offer healthcare benefits for the foreseeable future
38% of surveyed employers are considering or plan to reduce dependent
coverage
55% plan to increase the employee cost-share
Nearly 60% offering retiree benefits will drop them when the exchanges become
operational
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2013 Additional Payroll Tax
The Act imposes an additional .9% (for a total of 2.35%) Medicare tax on the
wages and self-employment income of certain high-income taxpayers
The additional tax is applicable to wages in excess of:
$200,000 – single filers
$250,000 – married filing jointly or surviving spouse
$125,000 – married filing separately
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2014 Employer Responsibility
The Act adds a new “shared responsibility” requirement that “applicable large
employers” must pay a non-deductible excise tax penalty if any of their full-time
employees are certified as having purchased health insurance through a state
exchange with respect to which a tax credit or cost-sharing reduction is allowed
or paid to the employee
This requirement has been referred to as a “free rider surcharge” because it is
imposed only when the federal government subsidizes coverage for employees
of an employer
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Definitions
“Applicable large employer”
Means an employer that employed an average of at least 50 FTEs during the
preceding calendar year
An employer is not an applicable large employer if its workforce exceeds 50
FTEs for 120 days or less during the calendar year and the employees that
cause the employer’s workforce to exceed 50 FTEs are “seasonal workers”
Regs. issued 12/28/12 are complex for employees who are seasonal or have
variable hours
Determined on a controlled group basis
IRS Notice 2012-58
FTE means an employee who is employed on average at least 30 hours of
service per week
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2014 Penalty for not offering coverage
For any month in which:
An applicable large employer fails to offer its FTEs and their dependents the opportunity
to enroll in minimum essential coverage, and
At least one FTE enrolls in health coverage purchased through a state exchange with
respect to which a premium tax credit or cost-sharing reduction is allowed or paid
The penalty is the product of the number of the employer’s FTEs (excluding the
first 30 employees) multiplied by one-twelfth (1/12) of $2,000 (or $166.67 per
month)
Determination is made without regard to the number of the employer’s FTEs who
are receiving a premium tax credit or cost-sharing reduction
After 2014, this $2,000 amount will be indexed
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Penalty for not offering coverage
Where an applicable large employer offers its FTEs and their dependents the
opportunity to enroll in minimum essential coverage, the employer is still subject
to the excise tax penalty if
At least one of its FTEs enrolls in health insurance coverage purchased through a state
exchange with respect to which a premium tax credit or cost-sharing reduction is
allowed or paid to the employee or employees, and
The coverage is “unaffordable” or the plan’s share of the total allowed cost of benefits is
less than 60%. This is the “bronze plan” standard sometimes referred to as actuarial
value.
Prior to healthcare reform, the National average actuarial value was around 83%
meaning some employers have room to scale down benefits if needed (higher
deductibles, co-pays, etc.)
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Unaffordable Definition
Employer-provided coverage is “unaffordable” if the single premium required to
be paid by the employee (regardless of whether he/she has family coverage)
exceeds 9.5% of the employee's household income
To demonstrate that coverage is unaffordable, the employee must obtain an
affordability waiver from the exchange
Note that current National average of employees’ household income spent on
healthcare coverage is around 4.5% so many employers have room to raise
prices if necessary (varies widely on demographics of workforce – i.e. fast food
vs. professional services)
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Penalty where coverage is unaffordable
Product of the number of employees who receive a premium tax credit or costsharing reduction for health insurance purchased through an exchange multiplied
by one-twelfth (1/12) of $3,000 (or $250 per month)
Penalty in any month is capped at an amount equal to the number of FTEs
during the month (regardless of how many employees are receiving a premium
tax credit or cost-sharing reduction) in excess of 30, multiplied by one-twelfth
(1/12) of $2,000
Penalty imposed on an employer offering coverage can never exceed the
penalty imposed on an employer not offering coverage
Individual tax credits generally are available to individuals earning less than
400% of the Federal poverty line
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Polling Question
What are your expectations for employees considering coverage through
exchange?
Expect few if any employees to qualify for a subsidy
Are worried that many will leave for exchange plan
Have not yet considered, but plan to analyze
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Results of Willis Survey
More than ½ of employers believe that other similar employers will pass more of
the cost of dependent coverage to employees
1/3 believe that similar employers will reduce coverage to lowest-cost package
that will avoid “pay or play” penalty
Majority believe wellness programs will expand in scope
2/3 believe employers expect to increase employee contributions
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Defined Contribution Approach
Two employers are planning a radical change in the way they provide health
benefits
Give employees a fixed sum of money and allow them to choose their medical
coverage and insurer from an online marketplace
Sears and Darden Restaurants say the change isn't designed to make workers
pay a higher share of health-coverage costs
Instead they say it is supposed to put more control over health benefits in the
hands of employees
The approach will be closely watched. If it takes hold widely, it might parallel the
transition from company provided pensions to 401(k) retirement-savings plans
controlled by workers and funded partly by employer contributions
For employees, the concern will be that they could end up
more directly exposed to the upward march of health costs
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Key Financial Considerations for Employers
Scope of potential additions to group plan – how many of your current
employees are ineligible or waive coverage?
Income of workforce – if you have relatively few employees under 400% of
Federal poverty line, not many will qualify for State exchange subsidy and there
may be room to increase employee cost sharing
Actuarial values of current plan designs and employer subsidization levels – if
plan is relatively rich, you may look at scaling back benefit levels or increasing
deductibles and co-pays if needed to remain competitive
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Final Thoughts
PPACA does little to control health care costs in the short run
Most of the increased costs will be imposed on employees
Attempts to constrain the cost of labor may or may not impact other benefits
For the first time, employers will be competing with state exchanges for choices
that employees have in obtaining coverage
Defined contribution healthcare is something to keep an eye on
Determining the cost sharing split between employer and employee has added
significance
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Utilizing Your Broker as a Resource
Understand general Pay or Play Rule Concepts
Confirm your plan
Offers Minimum Essential Coverage (MEC)
Provides Minimum Value (MV)
Is affordable and offered to all full-time employees
Review economic and strategic considerations
Focus on the gray areas
Perform high level analysis now
Be prepared to communicate with employees
Record keeping is an essential component
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Questions
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Contact Information
Dave Horvath, CPA
Crowe Horwath LLP
One Mid-America Plaza
Suite 700
Oakbrook Terrace, IL 60181
630-586-5117
[email protected]
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