Transcript EB304W Health Care Reform: Strategic Planning for Small

HEALTHCARE REFORM:
STRATEGIC PLANNING FOR
SMALL EMPLOYERS
PRESENTED BY:
JONATHAN CICH
Associated Financial Group
Employee Benefits. Insurance. HR Solutions.
TIMELINE OF MAJOR EVENTS
2014-15
• Guaranteed Issue
No PCEs; no health underwriting in individual and small group markets
• Individual Mandate
Individuals required to have health coverage or pay a penalty
• Expansion of Medicaid Eligibility
Household income less than 133% of federal poverty level
• Health Insurance Exchanges
Online market place for purchasing individual and small group policies
• Premium Tax Credit for Individuals
Household income between 100%-400% of federal poverty level
• Employer “Play or Pay” Penalties (delayed to 2015)
2010
2011
2012
2013
2014
2015
1
THREE COMPONENTS OF HCR
Individual
Mandate
Insurance
Exchanges
Employer
Mandate
INDIVIDUAL MANDATE
• Beginning in 2014…
Taxpayers will be assessed a penalty in the form of a tax for
months during which they, their spouse or their dependents
lack health insurance (“minimum essential coverage”)
•
Annual penalty = greater of $95 or 1% of household income
•
Flat dollar amount per each family member capped at 3x annual
penalty for household
•
By 2016: greater of $695 or 2.5% of household income
INDIVIDUAL MANDATE
Through employers
Where will individuals
purchase health
insurance?
Through a private or public
“exchange” – guaranteed issue
individual insurance policies
Government health program
(e.g. Medicare, Medicaid,
Tricare, VA, etc.)
INSURANCE EXCHANGE
By 2014, each state must establish their own health insurance exchange
In Minnesota, this is MNSure – mnsure.org
Improve choice of affordable health
insurance
Improve purchasing power for
individuals and small businesses
Purpose of exchange:
Provide common vehicle for
everybody
Enhance competition in marketplace
For individuals and small group market employers in 2014.
PREMIUM TAX CREDITS
Household
income
between
100%-400%
of FPL
Amount of
credit
decreases
as income
increases
Individual
Exchange
Policies
Only
Not eligible
for gov’t
health
program
• Employer coverage
is “affordable” if
employee’s cost for
single coverage on
lowest cost plan is
less than 9.5% of
household income
Not eligible
for
affordable,
employer
coverage
STRATEGIC
CONSIDERATIONS
STRATEGIC PLANNING – THREE STEPS:
1
2
3
• Are you a large or small employer?
• Evaluate impact of individual and small group rates.
• What “coverage” and how to fund it?
ARE YOU A LARGE OR SMALL
EMPLOYER?
Applicable Large Employer
Small / Large Group Market
• Determines whether employer
is subject to “play or pay”
penalties
• Determines whether insurance
policy is subject to small group
market rules
• Average of 50 full-time
employees (FTE) employed in
the preceding calendar year
• 2014 : Under 50 employees
• By 2016: Under 100
employees
APPLICABLE LARGE EMPLOYER
Average
of 50
FTEs
• Prior calendar year
• FT = 30 hrs/week*
• PT count as fraction
* See slides 40-54
Applicable
Large
Employer
Common
law
employees
Controlled
Group
•
•
•
•
•
Anyone issued a W-2
Union
Seasonal
Casual
Temporary?
• Separate legal
entities treated as a
single employer
• Tax Code § 414 (b),
(c), (m) or (o)
10
“APPLICABLE LARGE EMPLOYER”
Example
 20 employees – 40 hours / week
 10 employees – 32 hours / week
 40 employees – 20 hours / week
Assume 20 hr/wk = 86 hr/month
Note: Number of full-time employees is determined separately for each calendar month,
totaled, and then divided by 12 to determine average number of full-time employees for the
year. This example assumes number of employees and hours worked remains constant for all
12 months. Special rules may apply for employers with large number of seasonal employees.
11
APPLICABLE LARGE EMPLOYER
Full-Time
Employees
• 20 @ 40 hours / week
• 10 @ 32 hours / week
• Total FTs = 30
Part-Time
Employees
• Total hours worked by all PTs
= 3,440 hours
• Divide by 120 = 28.66 FTEs
Total FTEs
• 58.66 FTEs
• “Play or Pay” Penalties Apply
12
APPLICABLE LARGE EMPLOYER
• Parent-Subsidiary
• Brother-Sister
A
B
C
D
E
Corp X
Corp Y
Corp X
Corp Y
Caution: Controlled group rules are complex. Consult with your tax or legal advisor for details.
13
APPLICABLE LARGE EMPLOYER
“NO COVERAGE” PENALTY
Employer
does not
offer health
coverage
to at least
95% of FTs
At least
one FT
receives a
premium
tax credit
through an
exchange
Annual
Penalty =
$2,000 x
total FTs
minus 30
14
APPLICABLE LARGE EMPLOYER
“AFFORDABILITY” PENALTY
Employer
offers
coverage
to 95% of
FTs
At least
one FT
receives a
premium
tax credit
through an
exchange
Annual
Penalty =
$3,000 x
number of
FTs who
receive a
tax credit
15
WHAT IF WE FLUCTUATE BETWEEN
LARGE AND SMALL EMPLOYER STATUS?
Faced with two choices:
Plan to comply with “Play or Pay” mandate;
OR
Take steps to prevent hitting the 50 employee threshold
to maintain small employer status
WHAT IF WE FLUCTUATE BETWEEN
LARGE AND SMALL EMPLOYER STATUS?
Ways to ensure small employer status
Hire more parttime employees
Remember, PTE
counts as a
fraction of FTE
Hire more
independent
contractors
Be careful!
DOL/IRS/workers’
compensation
considerations
Outsource
through other
companies or
staffing agencies
Quality of work
and logistical
feasibility
concerns
Not a solution –
Pass work off to a separate business under common ownership
**Remember, controlled group rules**
SMALL GROUP MARKET
2014:
Employers who had, on average, less than 50 employees in
the preceding calendar year.
2016:
Employers who had, on average, less than 100 employees
in the preceding calendar year.
How to count employees for this purpose is unclear; HHS has
indicated it intends to issue further guidance in the future.
SMALL GROUP MARKET
Changes affecting small group market
Community Rating
the way premiums are established.
Cost-Sharing Limits
max deductibles and max out-of-pocket costs.
Essential Health Benefits
minimum coverage plans must offer.
COMMUNITY RATING
• Today
– Small group market premiums set by insurer based on
employer’s claims experience and health status of
participants enrolled in plan.
– Employer with more claims or more serious health issue
claims will generally pay higher premiums than similar
employer with fewer claims or less serious health issues.
COMMUNITY RATING
• In 2014…
Shift to community rating structure.
Insurers will only be
allowed to set
premiums based on
four factors:
•
•
•
•
Coverage category (i.e., family vs individual)
Geographic rating area (set by each state)
Age (one year tiers); and
Tobacco use
COMMUNITY RATING
• In 2014…
Premiums may not be based on any other factor aside from
the four in previous slide!
In particular . . .
An individual employer’s premium will not be affected by
claims experience or health status of plan participant.
COMMUNITY RATING
1 Coverage Category – Family Size
Premiums for family coverage are to be developed by adding up
the rates of covered family members, but insurers are capped at
including no more than the three oldest “covered children” under
age 21.
For Example
Family with two adults and three children under age 21
pay same premium as family with two adults and four
children under age 21.
COMMUNITY RATING
2
Geographic Rating Area
State establishes rating areas – rates set based on claims
experience for all small groups in that rating area.
Rates for individual market plans use same rating areas but based
on individual policy claims experience in that rating area.
COMMUNITY RATING
2
Geographic Rating Area
COMMUNITY RATING
3
Age
Three broad age bands:
Children under 21
(prohibits higher
premiums for newborns).
Adults 21-63
(banded by year)
Adults 64 and older
COMMUNITY RATING
4
Tobacco Use
Insurers may impose a tobacco rating factor only if a tobacco user
can avoid paying the full amount of that factor by participating in a
wellness program. MN carriers have so far not indicated they
intend to impose tobacco rates.
COMMUNITY RATING
Employers with poor claims history will likely
see relatively small premium increases.
Employers with good claims history will likely
see large premium increases.
COMMUNITY RATING
Strategic Options
Early renewal
Self-insure
Consider individual policies
INDIVIDUAL RATES IN MINNESOTA
On 9/6,
MNSure
released
average rates
for individual
and small
group plans
Individual
rates were
significantly
lower than
small group
rates
Should
employers
consider
sending
employees to
the exchange
to purchase
individual
coverage?
INDIVIDUAL RATES IN MINNESOTA
Region 8
INDIVIDUAL RATES IN MINNESOTA
Pros
Cons
• May result in cost savings to
employees and employers
• Loss of tax savings for both
employee and employer
• Employer does not have to
administer a group health plan
• How user friendly will
exchanges be?
– Functionality
– Too many choices
– Lack of education
• How long will individual rates
last?
• Impact on ability to attract and
retain talent
• Impact on employee morale
COVERAGE & LOGISTICS ISSUES
Group Plans
If you use
SHOP
Can only
exchange,
receive Small
must offer
Employer Tax
coverage to
Credit through
employees who
SHOP
Exchange
work 30+ hours
per week
If you offer
affordable
coverage,
employees and
their family will
be ineligible for
premium tax
credit
COVERAGE & LOGISTICS ISSUES
Small Employer Tax Credit Eligibility
• Less than 25 FTEs
• Average annual wages less than $50,000 per FTE (note: for this
purpose FTE = 2080 hours per year)
• Contribute at least 50% towards the cost of employee-only health
coverage
Credit may be up to 50% of employer’s premium costs
• Amount of credit decreases if number of FTEs exceeds 10 and/or
average annual wages exceeds as $25,000
• Can claim credit for a total of two consecutive years
COVERAGE & LOGISTICS ISSUES
Group Plans
Deductible <
$2000 single
OOP Max <
$4000 family $6350
single
– unless
$12700 family
necessary to
meet AV
Must cover
Essential
Health
Benefits
COVERAGE & LOGISTICS ISSUES
Group Plans
Maximum
90-day
waiting
period
Nondiscrimination
with respect
to Highly
Compensated
Individuals
(delayed)
Revised
SBCs
COVERAGE & LOGISTICS ISSUES
Individual Plans
Employee
Eligibility for
Premium Tax
Credits
Employer
contributions
Employee
Education &
Assistance
COVERAGE & LOGISTICS ISSUES
Employer contributions towards individual plans
• Recent guidance makes it impossible for employers to contribute
towards the cost of individual coverage on a tax-free basis.
• Any employer contributions will be taxable income
• Increased income taxes for employees
• Individual premiums are not fully tax deductible
• Increased payroll taxes for employees and employers
• Indirect cost increases tied to taxable wages, e.g. work comp
premiums, 401(k) contributions, unemployment taxes
• Employees may not pay for individual exchange policies using
pre-tax payroll deductions.
• Unclear if employees can pay for individual non-exchange policies
through pre-tax payroll deductions
MISCELLANEOUS ISSUES
EXCHANGE NOTICES
Notice must be provided to all employees, regardless
of full- or part-time status or benefits eligibility.
For employees hired before 10/1/13, notice must be provided no
later than 10/1/13.
For employees hired after 10/1/13, within 14 days of start date.
DOL has stated there is no fine for failing to issue the notice
but do you want to give DOL a reason to look at what else you may not have been doing?
EXCHANGE NOTICES
DOL Technical Release 2013-02
http://www.dol.gov/ebsa/newsroom/tr13-02.html
Model notice for employers who offer a health plan to some or all
employees: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
Model notice for employers who do not offer a health plan:
http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf
COBRA model election notice:
http://www.dol.gov/ebsa/modelelectionnotice.doc
UPDATED COBRA ELECTION NOTICES
DOL has revised model COBRA election notice to
inform qualified beneficiaries of the exchange and
premium tax credit.
Start using in December/January
Revised COBRA Model Election Notice
http://www.dol.gov/ebsa/modelelectionnotice.doc
PCORI (PATIENT CENTERED OUTCOME
RESEARCH INSTITUTE) FEE
What plans are
subject to the
fee?
•
•
•
•
What plans are
not subject to
the fee?
• Dental & vision plans
• EAP, disease management and wellness
programs
• Health FSAs and other plans that qualify as
excepted benefits (e.g. hospital indemnity plans)
Fully-insured and self-funded major medical
Individual policies
Retiree plans
HRAs
PCORI FEE
Who pays the fee?
Fully-Insured – Insurance Carrier
• Passed on either as part of premiums or separate line item
Self-Funded (incl. HRAs) – Plan Sponsor
• Typically the employer but may be other entities in some cases,
e.g. board of trustees of union-sponsored plan
PCORI FEE
When is the fee due?
Fee is due for plan years ending between 9/30/2012 - 9/30/2019
Due date is July 31 of the calendar year following the last day of the
plan year for which the fee is being assessed.
Plans with plan years beginning after January 1, 2012 but prior to
October 2, 2012 will not have to report and pay the PCORI fee until
July 31, 2014.
What is the amount of the fee?
Year 1: $1 per member per year (PMPY)
Year 2: $2 PMPY
TRP (TEMPORARY REINSURANCE PROGRAM)
FEE
What plans are
subject to the
fee?
• Fully-insured and self-funded major medical
• Retiree plans
What plans are
not subject to
the fee?
• Dental & vision plans
• EAP, disease management and wellness
programs
• Health FSAs and other plans that qualify as
excepted benefits (e.g. hospital indemnity plans)
TRP FEE
Who pays the fee?
Fully-Insured – Insurance Carrier
• Passed on either as part of premiums or separate line item
Self-Funded – Plan Sponsor
• Typically the employer but may be other entities in some cases,
e.g. board of trustees of union-sponsored plan
TRP FEE
When is the fee due?
Fee is due for calendar years 2014-2016
Report to HHS due by November 15 of each applicable year.
Fee generally due by January 15th of following year.
What is the amount of the fee?
Year 1: $63 per member per year (PMPY)
Years 2 & 3: Unknown (but should decrease)
HEALTH INSURERS FEE
What plans are
subject to the
fee?
•
•
•
•
•
What plans are
not subject to
the fee?
• Self-funded plans
• EAP, disease management and wellness
programs
• Health FSAs and other plans that qualify as
excepted benefits (e.g. hospital indemnity plans)
Fully-insured major medical
Fully-insured individual plans
Fully-insured dental plans
Fully-insured visions plans
Fully-insured retiree plans
TRP FEE
Who pays the fee?
Insurance Carrier
• Passed on either as part of premiums or separate line item
TRP FEE
When is the fee due?
Fee is due 2014 and each calendar year thereafter
Fee due by September 30 of each year
What is the amount of the fee?
Difficult to project – based on total premium volume of all applicable
US insurance policies
CADILLAC TAX
• 40% excise tax on value of “excess benefit”
 Excess benefit = amount by which cost of employer-provided health
coverage exceeds specified annual limit (currently $10,200 single /
$27,500 family).
• Not effective until 2018.
 Considerable disagreement amongst pundits whether Cadillac Tax will
be repealed or delayed.
• Many employer plans provide an “excess benefit”:
 Union plans
 Government plans
 Other high-benefit / low cost sharing plans
CADILLAC TAX
Too early to make concrete changes to plan designs.
But not too early to start thinking about contingency plans if
Cadillac Tax is not repealed.
– Time frame for phase out or elimination of high cost plan options.
– What plan design adjustments may be necessary to avoid Cadillac
Tax and should they be phased in over time?
– Begin discussing issue with unions and/or addressing in CBAs, e.g.
right to reduce benefits if necessary to avoid Cadillac Tax, employer
contributions reduced if plan subject to Cadillac Tax.
– Review, and/or be cautious entering into, employment agreements
that promise rich health plan benefits for executives
?
WHAT NOW?
Contingency Planning
What are alternatives to
compliance or offering
health insurance?
Strategic Planning
Compliance vs. Need
Cost Containment
Wellness, new products,
cost-sharing
THANK YOU!
[email protected]