The Essentials of Healthcare Reform in 2014

What you really need to know to prepare and protect your business

Primary Resources

Department of Health and Human Services (HHS)

HR 3590 and HR 4872 (The Reform Laws), and associated rules and regulations

Department of Labor (DOL) Internal Revenue Service (IRS) National Association of Health Underwriters

(NAHU) Kaiser Family Foundation

Important Notice: The information contained in this presentation have been compiled from a variety of resources. While our representatives are well schooled regarding the Patient Protection and Affordable Care Act (PPACA) and its many regulations, we are not lawyers and therefore do not intend to give legal advice or guidance.

Patient Protection and Affordable Care Act

On March 21, 2010, The House passed HR 3590, the bill passed by the Senate on December 24, 2009, with a 219-213 vote

The House and Senate also passed a reconciliation bill, HR 4872, with packages of “fixes,” to the Senate Bill

President Obama signed both bills into law Many components of the new laws are still yet to

be defined– Still awaiting final regulations on many provisions

Top 10 Employer Questions

1. What are the chances this law can still be repealed?2. When do the big changes take effect for us?3. Are we a large group or small group under the law

(and what does that mean to us)?4. Are we subject to penalties?5. How will new taxes impact us?6. How high will premiums go?7. What are the carriers planning to do to comply?8. Are we better off dropping coverage for our employees?9. How can we get and stay compliant? 10. What else should I know?

1. What are the chances this law can still be repealed?

Minimal Best opportunities were in 2012

– Supreme Court ruling– Presidential election

Minor legal challenges still in play Shift in GOP platform of “repeal or nothing”

– Example: Senate vote to repeal “medical device tax” Wholesale changes in 2014 may drive modifications

Potential Problems on the Horizon!

Cost Problems– Overall premiums/costs will increase under reform

(mandates, taxes, etc.)– Reform laws do not address cost controls

Risk Management/Compliance Problems– An onslaught of new regulations– Stiff penalties – 17,000 IRS agents to be hired to enforce

• Unfunded due to “fiscal cliff” compromise Education/Communication Problems

– 2,600 pages of law– Tens of thousands of pages of regulations

Implementation Problems– “Messy”– Delay of “Employer Mandate” until January 2015

2. When do the big changes take effect for us?

For most employers, the changes take effect upon renewal of coverage in 2014

2014

Key Provisions Already In Play Grandfathering Small Business Tax Credit

– Only available through the public exchange/marketplace beginning in 2014

No Lifetime Limits Dependent Coverage to 26 No Cost Preventive Care MLR Requirement - Health plans are required to

maintain a minimum medical loss ratio (MLR) – 85% for large group plans, 80% for individual and

small group plans New SBCs (Summary of Benefits and Coverage) No OTC Drugs under FSAs, HSAs, HRAs unless

prescribed by a doctor Pharmaceutical Industry Tax Health Savings Account penalty increases from 10% to

20% Reporting the value of health benefits on W-2 forms

If you like your plan you can keep it!

Key Provisions This Year Medical Devise Tax

– Impose an excise tax of 2.3% on the sale of any taxable medical device

Itemized Medical Deductions – Increases threshold on unreimbursed medical expense

deductions from 7.5% to 10% of AGI – The increase would be waived for individuals age 65

and older for tax years 2013 through 2016 FSA Cap

– A $2,500 cap on Medical FSA contributions annually indexed for inflation begins

Notice of Marketplaces – All employers must provide notice to employees of the

existence of state-based Marketplaces/Exchanges – Delayed until later in 2013

Preparing for 2014

Prepare for Change!

Waiting Period

Cannot exceed 90 days Recommendation if at 90 days now…revise policy

to “first of the month following 60 days”

30 Hours Per Week

Is The New Full-Time!

Auto-Enrollment

For employers with 200 or more employees Required to auto-enroll all new employees into any available

employer sponsored health insurance plan – Employees may waive coverage if they have another source of

coverage

Wellness Incentives

Increases HIPAA workplace wellness program incentives to 30% of premiums with HHS ability to raise it to 50%

Guaranteed Issue

Requires all health plans to issue coverage regardless of health status

Eliminates the use of pre-existing conditions exclusions Must be guaranteed renewable Opens door to eligibility to all American citizens Redefines small groups as 2-100 employees (states may elect to

keep defining it as 2-50 until 2016)– PA defines small group as 2-50

Marks the end of medical questionnaires for individual coverage and small group coverage

Individual Mandate Requires all American citizens to purchase

qualified health insurance coverage (with some exceptions) or be fined for non-compliance – Ruled constitutional by Supreme Court in July

2012 Impact

– Higher costs are expected as carriers have less ability to predict risk

– Individual mandate penalty is too low, which will result in uninsured population purchasing insurance when they are sick and dropping when they are well due to “guaranteed issue” provision

– Penalty identified by Federal tax return• Many citizens don’t pay Federal taxes

– Access to care may be compromised as 30 million uninsured citizens enter the system

PenaltyGreater of…

• 2014 - $95 or 1%*• 2015 - $325 or 2%*• 2016 - $695 or 2.5%*

*of AGI (Adjusted Gross Income)

Formation of Marketplaces Formerly called “exchanges” Each state is required to create a “marketplace”

to facilitate the sale of qualified benefits plans for:– Individual coverage – Small group coverage (2-50 employees) – referred

to as SHOP marketplace• SHOP may extend to groups with over 100

employees in 2017 Only source for sliding-scale tax credits for

individuals with incomes between 133% and 400% of Federal Poverty Level (FPL)

Portions of SHOP are delayed until 2015– Groups limited to select one carrier and one plan

design

For the 48 Contiguous States & Washington DC

Persons in Family/

Household

100% of Poverty

Guideline*

133% of Poverty

Guideline

400% of Poverty

Guideline1 $11,490 $14,937 $45,960 2 15,510 $20,163 $62,040 3 19,530 $25,389 $78,120 4 23,550 $30,615 $94,200 5 27,570 $35,841 $110,280 6 31,590 $41,067 $126,360 7 35,610 $46,293 $142,440 8 39,630 $51,519 $158,520

*For families/households with more than 8 persons, add $4,020 for each additional person Source: Federal Register

0% to Poverty Guideline is presently Medicaid-eligible

Poverty Guideline to 133%** will be added to Medicaid eligibility under PPACA through the Public Exchange

– Pennsylvania to date has not accepted the Medicaid expansion and funding from the Federal Government

– This could become a coverage gap

133% to 400% may be eligible for government subsidies through the Public Exchange**

Many employees may qualify for subsidies through the Exchange which could lead to penalties unless employer properly sets up its plan and employee payroll contributions

**Effective rate of 138% with 5% income disregard for childless adults

Medicaid Expansion Would expand Medicaid eligibility to those with incomes

between 100% and 133% of the Federal Poverty Limit Optional state-by-state decision as a result of Supreme

Court ruling in 2012 Federal government would fully fund through 2016, but

PA’s share would be $500 million a year thereafter (90/10 split)

PA Governor Corbett so far has made the decision not to accept the Medicaid expansion– 13% of PA adults are currently on Medicaid, would more

than double under expansion– States may opt in at any time

Decision will leave a gap in PPACA mission to cover uninsured

PA’s Public “Marketplace” For small groups (SHOP) and

the individual market Governor Corbett made decision

to have the federal government run the Exchange for PA as an FFM (Federally-Facilitated Marketplace)

Only source for federally subsidized tax credits

HHS has begun referring to Exchanges as Marketplaces

FFE will charge carriers 3.5% to participate (will be added to premiums)

Modified Community Rating

New methodology that applies to small group and individual policies

Premium variations only allowed for:– Age (3:1)– Tobacco use (1.5:1)– Family composition– Geography - 9 geographic regions in PA, including 4 in Western PA

Impact– Higher rates for younger groups due to compression of age ratio– End to rate negotiation – no leeway under the law– No more fear of a high claimant impacting rates– Higher costs in general as carriers have less ability to predict risk

(without medical underwriting)

3. Are we a large group or small group under the law? (And what does that mean to us?)

If you are a large group (50 or more FT/FTE)… You may be subject to “pay or play” penalties

– If you fail to offer affordable and qualified coverage– And an employee (or employees) qualify for a subsidy

through the public exchange/marketplace Implementation delayed until 2015

If you are a small group (2-50 FT/FTE)… Fully insured rates will be set under new “modified

community rating” rules Plans designs must meet “essential benefits”

requirements You are not subject to “pay or play” penalties

30 Hours Per Week Is

Full-Time!Under PPACA

Are You A Small or Large Employer Under PPACA?

FT Employees:30+ hrs/wk OR130 hrs/month

FTEs:All non-FT hours (up to 120 per employee) for month divided by 120

MonthlyFT+ =

Feb

Aug

Jan

Jul Sep Dec

Jun

Oct Nov

Mar Apr May

/ 12 = AVG

# of FTEmployees

Large Employer = 50 or more FT/FTE

If seasonal hours put the employer over 50, may subtract seasonal hours (Safe harbor - Notice 2012-58)

Common Ownership

Application of Aggregation Rules– IRC section 414(b), (c), (m), and (o)

If the total exceeds 50 full time or equivalent employees across all commonly owned organizations, each is treated as a large employer

– Designed to prevent large employers from breaking up into smaller affiliated companies to avoid potential penalties

6

1

7 8 9 10

2 4 53

6

1 2

Parent Company

Other Considerations

Calculation of full-time status must be made every year Must include sick time, vacation, personal time Applies to U.S. companies with employees overseas Tough decisions need to be made now due to the look-back period

– Defined look-back period that is less than or equal to 12 consecutive months but no less than 3 months

Complex measurement for “variable” employees– Stability Period– Administrative Period– Standard Measurement Period

Essential Benefits Plans offered in the individual and small

group markets, both inside and outside of the marketplace, must include the 10 categories on the right

Four “metal” categories – bronze (60%), silver (70%), gold (80%), platinum (90%)

– Percentages represent actuarial value of each category

– In Western PA, this could mean an end to very rich, first dollar coverage plans

Allows catastrophic-only policies for those 30 and younger

Pediatric services will include dental and vision care (yet to be defined), which will increase costs

Caps deductibles ($2,000/$4,000) and out-of-pocket maximums

1. Ambulatory patient services2. Emergency services3. Hospitalization4. Maternity and newborn care5. Mental health and substance

use disorder services, including behavioral health treatment

6. Prescription drugs7. Rehabilitative and

habilitative services and devices

8. Laboratory services9. Preventive and wellness

services and chronic disease management

10. Pediatric services, including oral and vision care

Overview

Employer Shared Responsibility Applied to large groups only “Employer Mandate” or “Pay or Play” Employers with 50 or more full-time employees or equivalents must

offer coverage to 95% of full-time employees and dependents (not including spouses)

Penalties only apply to full-time employees Penalties are assessed on a monthly basis To avoid penalties, coverage must meet the following criteria:

– Minimum Essential Coverage - The employer must offer its full-time employees (and their dependents not including spouse) the opportunity to enroll in minimum essential coverage

• 60% actuarial value (plus or minus 2%) – Affordable – Employee-only payroll contributions cannot be higher than 9.5% of

line 1 of the W-2

Delayed until 2015

Analysis of 9.5% Affordability RuleMaximum Self-Only Employee Payroll Contribution Assuming W-2 Earnings (not household income) by Contribution Period

$11,310 W-2 Earnings based on $7.25 minimum wage (in most states), multiplied by 30 full-time hours per week, times 52 weeks

W-2 Earnings X 9.5% Monthly Semi-

MonthlyEvery Two

Weeks Weekly

$100,000 $ 9,500 $ 792 $ 396 $ 365 $ 183 90,000 8,550 713 356 329 164 80,000 7,600 633 317 292 146 70,000 6,650 554 277 256 128 60,000 5,700 475 238 219 110 50,000 4,750 396 198 183 91 40,000 3,800 317 158 146 73 30,000 2,850 238 119 110 55 20,000 1,900 158 79 73 37 11,310 1,074 90 45 41 21

Possible Strategies Vary contributions by

income or class Shift contribution

dollars from non-self-only tiers (employee + spouse, employee + child(ren), family) to self-only tier

Introduce separate self-only contribution and separate dependent contributions

Base contributions off of a low option plan

Employer Shared Responsibility Penalties

Unaffordable or Ineligible Coverage If employer offers its full-time employee (and their

dependents – not including spouse) the opportunity to enroll in a medical plan, and

– Either, the employee’s share of the self-only premium exceeds 9.5% of household income*

– And/Or, the actuarial value of coverage is less than 60% – And, one or more full-time employees enrolls for coverage

in the public marketplace and qualifies for a premium tax credit (subsidy)

Then, the employer penalty is $3,000 for each full-time employee who receives a tax credit (subsidy)

– Or $2,000 for each full-time employee in the workforce (after the first 30), whichever is the lower amount

*Note: DOL Technical Release 2012-01 says employers MIGHT be able to use employee W-2 since household income is not known by employers and violates privacy rules – pending regulations

Keys to Avoiding Penalties

1. Offer Minimum Essential Benefits to All Full-Time Employees and Dependents

2. Make Sure Self-Only Payroll Contributions do not exceed 9.5% of Employee W-2 Income

Employer Shared Responsibility Penalties

No Coverage Offered Employer penalty = $2,000 for each full-time

employee in the workforce, with the first 30 exempted If one or more full-time employees enrolls for

coverage in the public marketplace and qualifies for a premium tax credit (subsidy)

4. Are we subject to penalties?

But not if you comply If you are a large group, Employer Shared Responsibility penalties

(pay or play) Other Penalties

– Non-discrimination penalties– Non-compliance with SBC penalties– Additional non-compliance penalties

Yes

Non-discrimination Rules

Prohibits employers from discriminating in favor of highly compensated individuals relative to other employees in eligibility and benefits under a group plan

Sanctions will not be required of fully insured plans until guidance is provided (has been delayed)

Applies to all non-grandfathered groups Section 105(h) of IRS Code, applies to non-grandfathered plans Violators are subject to a $100 per day per failure penalty

– Will likely apply to each non-highly compensated employee who is impermissibly excluded under the plan

5. How will new taxes impact us? Dozens of Taxes or “Reverse Taxes”

Taxes That Directly Impact Employers

Tax on Health Insurers - $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, $14.3 billion in 2018

– Tax will be passed on by insurers – This tax will not apply to self-insured plans

Patient-Centered Outcomes Research Institute Fee (PCORI) – Fee (on plan sponsors and issuers of individual and group policies)

– The first year of the fee is $1 per covered life per year, the second year the fee adjusts to $2 per covered life and then it's indexed to national health expenditures thereafter until it ends in 2019

– Carrier pays if fully insured, employer pays if self-funded (IRS Form 720)

Taxes That Directly Impact Employers

Transitional Reinsurance Tax (2014-2016) – Tax on group plans (fully insured and self-funded) to support high risk enrollment in individual market

– 2014 = $12 billion, 2015 = $8 billion, 2016 = $5 billion– 2014 contributions = $5.25 PMPM plus $.11 PMPY

(total of $63.11 PMPY) Cadillac Tax – In 2018, a 40% excise tax on

insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage

– Applies to values that exceeds the threshold amounts

6. How high will premiums go? Varies by state and region

– Local carriers are hinting that average small group premiums may rise by an average of 25%

Individual premiums are expected to rise as high as 100%– Though subsidies through the exchange/marketplace will

offset some of the increase for qualified individuals Taxes

– Direct impact of taxes on fully insured groups in 2014 projected at 3.8% increase in premiums

– $5 per member per month for self-funded groups Risk Adjustments

– Carriers will have less ability to assess risk due to guaranteed issue provision (end of medical underwriting)

Compliance Costs

7. What are the carriers planning to do to comply?

All carriers serving Western PA are very busy… Rates and plan designs for the public marketplace were filed by

4/30/2013 Building new infrastructures

– Systems platforms to comply with new rating requirements– Private marketplaces/exchanges– Creating new products and plan designs that are compliant with the law– Developing educational tools for customers, employees, providers, and

more– Seeking new ways to impact cost and quality– Training and educating staff and many new employees

Hoping their 2014 rate filings don’t miss the mark

Formation of Private Marketplaces

Primarily driven by the carriers to compete with the public marketplace

Defined Contribution Model in which employer determines how much it will contribute toward coverage and employee selects online from choice of multiple plan options– Employee may also purchase ancillary coverage (dental, vision, life,

etc.) Western PA carriers have or are developing private marketplace

models – Highmark and UnitedHealthcare have launched their solutions– UPMC Health Plan, Aetna, HealthAmerica are gearing up for 2014

Foundation of Utah and Massachusetts exchanges

Self-Funding for Smaller Employers

Carriers are beginning to offer self-funding to smaller employers– With stop loss protection to offset risk

Offers greater flexibility in plan design– Do not have to comply with modified

community rating and essential health benefits

Eliminates premium taxes and some other taxes under PPACA

Early Renewal Strategy

Carriers in Western PA are offering December 1, 2013 early renewals to buy time for clients– And to potentially lock in a lower

rate under current underwriting rules versus modified community rating

8. Are we better off dropping coverage for our employees?

Here are some reasons why most employers will continue to offer medical coverage Best and Brightest

– You’ve never had to offer coverage, but you want to attract and retain quality employees

Savings to Employees – Even with subsidies, individual premiums

will often be higher than employee payroll contributions

Employer Tax Deduction – Premiums are tax deductible, penalties are

not Health and Productivity of Employees

– Minimal penalties mean some employees won’t purchase insurance on their own

No Pre-Tax Through Marketplace – Employee contributions are pre-tax

under IRS Section 125 Will “Pay or Play” Penalties Rise?

– What do you think? Gross Up of Salaries Shortcomings

– FICA tax will increase for all and some employees will wind up in a higher tax bracket

Subsidy Qualification – Not all employees will qualify for a

subsidy and will have to pay full price

10. What else should I know?

Know that… We only scratched the surface of this massive law

– But hit the key priorities at this time More regulations are forthcoming and provisions will continue to

change Carrier offerings are being revamped as we speak There are still many unanswered questions We are on it!

Plenty More to Come

We’re here to help!