The basics and beyond Presented by Amy Fossum, SVP Alliant Employee Benefits June 12, 2013
AGENDA • Healthcare Reform • Why – What – Who • Overview • Strategy • Interactive Timeline • Grandfathered plans • Dependent coverage through age 25 • Preventive coverage • No rescission • Essential health benefits • Pre-existing condition exclusions • Medical loss ratio • Summary of benefits and coverage (SBC) • Taxes & Fees • W-2 reporting • Flexible spending account Limits • Notice of exchange • Automatic enrollment • Non-discrimination testing • Individual mandate • Exchanges • Pay or Play • Coverage by 91st day • Coverage for clinical trials • Wellness incentives • Cadillac Tax
What is driving health care spending? What is driving health care spending? • While there is broad agreement that the rise in costs must be controlled, there is disagreement over the driving factors. Some of the major factors that have been discussed in cost growth are: • Technology and prescription drugs–Some analysts state that the availability of more expensive, state-of-the-art medical technologies and drugs fuels health care spending for development costs and because they generate demand for more intense, costly services even if they are not necessarily cost-effective.  • Rise in chronic diseases – It is estimated that health care costs for chronic disease treatment account for over 75% of national health expenditures.  In particular, there has been tremendous focus on the rise in rates of overweight and obesity and their contribution to chronic illnesses and health care spending. • Administrative costs – At least 7% of health care expenditures are estimated to go toward for the administrative costs of government health care programs and the net cost of private insurance (e.g. administrative costs, reserves, taxes, profits/losses). Some argue that the mixed public-private system creates overhead costs and large profits that are fueling health care spending. 1 Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Care Expenditures Data, January 2012. 2 Congress of the United States, Congressional Budget Office. Technological Change and the Growth of Health Care Spending, January 2008. 3 Centers for Disease Control and Prevention. Rising Health Care Costs Are Unsustainable. April 2011. 4 Recent opinions/ reports have focused on the viability of a single-payer system in the U.S. W.C. Hsiao’s article “State-based single-payer health care- as solution for the United States?” explores potential adoption among states, and R. Feldman explores unregulated markets vs. single-payer systems in “Quality of care in single-payer and multipayer health systems.”
The Bill and amendments • I’m Just a Bill
Impact on Employers • Very small groups under 25 lives • Small groups under 50 lives • Large group 50+
Small group market • On average, small businesses pay about 18% more than large firms for the same health insurance policy. And small businesses lack the purchasing power that larger employers have • If you have fewer than 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of your insurance. This credit will increase in 2014 to 50% (35% for non-profits) • In 2014, small businesses with generally fewer than 100 employees can shop in the Health Insurance Marketplace. This is meant to give better choices and lower prices. Open enrollment begins on October 1, 2013 • The Marketplace will offer a choice of plans that meet certain benefits and cost standards. Starting in 2014, members of Congress will be getting their health care insurance through the Marketplace • Employers with fewer than 50 employees are exempt from new employer responsibility policies. Don’t have to pay an assessment if their employees get tax credits through an Exchange
Small Group Market What You Need to Know about the Small Business Health Care Tax Credit • To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year. • For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively. • Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments. • If you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.
HEALTHCARE REFORM - WHY • Improve access to healthcare • Require health insurance • Larger employers must offer comprehensive, affordable coverage • Create healthcare Exchanges • No pre-existing conditions • Coverage becomes guarantee issue • Dependent coverage through age 25 • No cost preventive care • Make coverage more affordable • Federal subsidies for lower income families • Caps on employee contributions • Expanded access to Medicaid • Caps on non-claims costs • Minimize cost-shifting for uninsured care • Pilot programs to address healthcare cost, quality and transparency
HEALTHCARE REFORM- WHAT • Healthcare Exchanges • No pre-existing conditions • Guaranteed issue coverage • No rescission of coverage • Dependent coverage through age 25 • No limits on Essential Health Benefits • Coverage must be Minimum Value (60%) • Improved preventive/women’s healthcare • Limit waiting periods – benefits begin by 91st day • Medical Loss Ratio (MLR) Rebates • 80-85% of premiums must be used for claims • Wellness program premium differential (up to 50%) • Pilot quality of care programs • Pay or Play penalties • FSA limits • Cadillac tax • Various taxes & fees • Subsidies for lower income families • Caps on employee cost for single coverage • Summary of Benefit Coverage (SBC) • Notice of Exchange • W-2 reporting • Automatic enrollment • Monitor status changes • Proof of coverage offering Coverage required - Individual Mandate
Young adult (through age 25) allowed to stay on parent’s plan Grandfathered not req’d to offer if access to other group coverage No pre-existing conditions for members age 18 and younger Temporary ERRP subsidy program established to encourage early retiree benefits programs New claims appeals processes Healthcare Reform - OVERVIEW 2010 2010, cont. • Affordable Care Act passed on March 23, 2010 • Coverage expansion begins almost immediately: • Grandfathered plans • limit plan changes, avoid or delay some ACA mandates • Many preventive care services covered at no cost to member • No rescission (retroactive cancel) in most cases • Direct access to OBGYNs • Access to out-of-network emergency care • No lifetime dollar limits on Essential Health Benefits GF 2011 • Medical Loss Ratio (MLR) levels • 80%-85% of premiums must be paid out in claims costs • Any balance reimbursed
Medicare Tax increase from 1.45% to 2.35% (higher wage earners) Comparative Effectiveness Fee (PCORI) due 7/31/13 $1 PMPY 1st year $2 PMPY thereafter Annual Insurance Carrier Fee Some carriers will begin collecting in 2013 Very little information available Medicare Part D subsidy is taxable to employer State Exchanges must begin enrolling members October 1st Healthcare reform - OVERVIEW 2012 2013, cont. • Accountable Care Organizations (ACOs) introduced • First MLR rebates issued • Plans must provide Summary of Benefit Coverage (SBC) 2013 • W-2s include value of healthcare plan (for 250+ W-2s issued) • Healthcare flexible spending accounts limited to $2,500/individual/employer • Employer notice to employees regarding State Exchanges • Notice must be provided by 10/1/13 for current ee’s • For new ee’s hired on or after 10/1/13 Notice must be provided within 14 days of start date
Pay or Play Large Employers (50+) must offer Minimum EssentialCoverage that is Affordable and provides a Minimum Valueto allfull-time employeesand their dependents or risk penalties of: $2,000/employee (less 1st 30 employees) OR $3,000 for each employee that qualifies for subsidized Exchange coverage Penalties triggered if ONE employee enrolled in subsidized exchange coverage Reinsurance Fee $63 PMPY Appears to end in 2017 healthcare reform - OVERVIEW 2014 2014, cont. • Individual Mandate • Most required to have health insurance or penalty is: • 2014: greater of up to $285/family or 1% of family income • 2015: greater of up to $975/family or 2% of family income • 2016: greater of up to $2,085/family or 2.5% of family income • State Exchanges begin offering coverage (individual/small group) • Federal Exchanges provides coverage if no state Exchange • Unclear if Exchanges will be ready – as of 11/29/12 only 17 states + DC stated intent
Cadillac tax 40% tax on plan premiums >$10,200/individual or $27,500/family Higher limits for high risk jobs or older workforces healthcare reform - OVERVIEW 2014, cont. 2018 • No pre-existing conditions • Coverage for clinical trials • Specific criteria will apply • Details pending • Update SBC • Include statement about Affordable, Minimum Essential Coverage • No limits on Essential Health Benefits • Remove annual dollar limits, if needed • All non-grandfathered plans $6,250 out-of-pocket max for employee only coverage • Fully-insured, small group plans $2,000 deductible max for employee only coverage • Limit waiting periods • Benefits begin by 91st day • 6055/6056 reporting to IRS • Includes plan coverage details and information on individuals coverage Delayed • Automatic enrollment (200+) • Enroll full-time employees that don’t elect or waive in single, base-plan coverage • Non-discrimination • Fully-insured plans offer consistent plans, contributions and waiting periods • Self-insured rules should be updated as well
Healthcare Reform Strategy Will employers drop coverage? Although penalties are well below the average employer cost of medical coverage, less than 5% of employers are expected to drop coverage in the next few years. To keep employers in the system, Congress has insinuated that penalties will be increased if a large percent of employers choose to Pay.
healthcare Reform strategy Why will most employers choose to play? Dropping coverage competitive disadvantage increase pay to offset Cost challenges: Hard dollar • Comparable Exchange based coverage more costly • Adverse selection • Higher cost of admin for individual policies • Age-bands for older workers • Tax Issues • Penalties not deductible to employer; unlike healthcare premiums • Additional payroll taxes (FICA) owed by employer/employee • Cost of Exchange coverage generally not deductible for employees • Gross up pay further to offset employee tax increases • Only those ≤ 400% of poverty level eligible for premium subsidies Soft dollar • Loss of ability to manage health and productivity of workforce • Productivity Loss – time spent procuring coverage • Employees lose HR as advocate
Healthcare reform strategy Cost containment approaches
Healthcare reform strategy Reform Review Tool • Tool to review your plans and administrative procedures against the major ACA employer requirements including: • Pay or Play • Plan coverage levels • Administrative processes • Taxes and fees • Tool to document • Administrative elections (e.g., Measuring Period and MLR rebates) • Action plan
ACA TIMELINE Pending Issues • Automatic enrollment • Non-discrimination testing 2014 & Beyond • Individual mandate • Exchanges • Essential Health Benefits • Out-of-Pocket & Deductible Maximums • Pay or Play • Reinsurance fees • Benefits begin by 91th day • No preexisting conditions for all ages • Coverage for clinical trials • Wellness incentives • Proof of coverage • Cadillac Tax 2011 2013 2012 • Medical loss ratio • Over-the-counter drugs • Flexible spending accounts • Notice of exchange • Summary of benefits and coverage • Patient centered outcomes research fee • W-2 reporting • Women’s Health Amendment 2010 • Grandfathered plans • Dependent coverage through age 25 • Preventive coverage • No rescission • New appeals process/external review • Any available Primary Care Provider/Pediatrician • Essential health benefits • Coverage of emergency services • Access to OB/GYN care • Limits on preexisting condition exclusions Pay or Play • Full-time employees • Safe Harbor • Calculating hours • Status changes • Dependents • Penalties • Large employer • Effective date • Affordable • Minimum Essential Coverage • Minimum Value • All
GRANDFATHERED HEALTH PLANS What Grandfathered health plans are not required to comply with all ACA mandates Who Plans that established and have maintained grandfather status since March 23, 2010 How • Must have continuously covered someone since March 23, 2010. • Make limited, allowed plan changes only • Annually notify plan members of grandfathered status GF When Ongoing $100 per day per affected individual Penalty
GRANDFATHERED PLANS How can a grandfathered health plan lose its status? • Significantly cut benefits • Increase out-of pocket costs • Reduce employer contribution towards the cost of the plan • Change insurance carriers before11/07/10 A plan may enhance its coverage or add options without jeopardizing its status. Employer Action! • To maintain grandfathered status, a plan must : • Provide a statement that the plan is a grandfathered plan (at least annually) along with contact information for questions or complaints; • Document the terms of existence on March 23, 2010.
GRANDFATHERED PLANS ACA Mandates that do not apply to Grandfathered Plans: • Any provider designated as PCP • Direct access to OB/GYN • Access to out-of-network emergency services • Coverage for clinical trials • 100% preventive care coverage • Including women’s preventive • Non-discrimination for fully-insured plans • New claims appeals processes • Cover children through age 25 if they are eligible for their own employer’s health plan (until 1/1/2014)
DEPENDENT COVERAGE Through age 25 What Plans must cover children through age 25 Who Any group health plan that covers dependent children • Only requirement is relationship between child and subscriber • Marital, student, residency or tax dependency doesn’t matter How • Plan years starting September 23, 2010 and after • Grandfathered health plans can exclude children that that are eligible for their own employer’s plan until the first plan year on or after January 1, 2014 When $100 per day per affected individual Penalty
PREVENTIVE COVERAGE What • Plans must cover preventive care services with no cost-sharing • this includes women's preventive healthcare services Who Group health plans • Covered with no cost sharing: • deductibles • coinsurance How • copayments • any other payments GF • Plan years starting September 23, 2010 and after • Women’s preventive care applies to plan years starting August 1, 2012 or after When $100 per day per affected individual Penalty
PREVENTIVE COVERAGE What is included under preventive care? • Immunizations • Well-woman visits • Support for breastfeeding equipment* * Women’s preventive care is effective for plan years on or after August 1, 2012. Additional guidance is still pending around religious employers and how the contraceptive coverage applies to them. Religious employers are required to distribute a notice to employees if delaying contraceptive services. • Evidence-informed preventive care • Contraception* • Domestic violence screening* Employer Action!
NO RESCISSION OF COVERAGE Who Group health plans What Cannot retroactively cancel coverage (generally) How • 30-day notice required • Retroactive cancellation allowed ONLY for: • Fraud or intentional misrepresentation IF contract provision specifically allows • Failure to pay required premiums or contributions When Plan years starting on or after September 23, 2010 $100 per day per affected individual Penalty
MEDICAL LOSS RATIO What • For every dollar in premiums • Large groups: 85¢ spent on claims and other medical expenses • Small groups: 80¢ spent on claims and other medical expenses • Insurer must refund any difference to employers Who Fully-insured plans • MLR Claims amounts to improve healthcare quality (total premiums certain taxes and fees) When Beginning on January 1, 2011 $100 per day per affected individual Penalty
MEDICAL LOSS RATIO • Example: Giant Insurance Co. has $900MM in claims and $100MM in health quality expenses. • Total premiums were $1.2B; no taxes or fees • Giant’s MLR = $900MM+$100MM)/ $1.2B = 83.33% • Giant owes the difference between the 85% and the 83.33% they actually spent • Rebates must be provided to employers by August 1 of the following year by premium credit or lump-sum check Employer Action! • What can employer do with funds? • Three basic choices: • Reduce participant premiums • Provide benefit enhancements • Return in cash to participants • Each choice carries considerations, the plan document should be checked first • All three choices not available to all plans
MEDICAL LOSS RATIO Fiduciary – Someone who is legally responsible for acting in the best interest of the plan and participants. $
SUMMARY OF BENEFITS AND COVERAGE (SBC) What • Health insurers and self-insured group health plans are required to provide a SBC to all individuals eligible to enroll in a group health plan including: • Mid-year enrollees • Upon request • Fully-insured and self-funded health plans. • The SBC must be distributed to: • Participants • Beneficiaries • Qualifying event enrollees • Open enrollment Who • Prospective enrollees • Special enrollees How Either print or electronic delivery allowed First open enrollment period on or after September 23, 2012 When Penalty $1,000 per enrollee
SUMMARY OF BENEFITS AND COVERAGE (SBC) SBC Requirements • Be no more than four double-sided pages • Use terms most people understand (including a glossary) • Include description of coverage including cost sharing and limitations • Be written in culturally respectful language • Be printed in 12-point font • Include consumer costs examples based on the specific plan’s benefits • List customer service phone number and a web site • Contain renewability and continuation of coverage provisions (COBRA) • Employers must distribute the SBC with initial enrollment materials. If renewal is automatic, the SBC must be provided at least 30 days before the first day of the new plan year. An SBC must be provided within seven business days when requested. Employer Action! ! • SBCs may be distributed electronically if certain requirements are met.
SUMMARY OF BENEFITS AND COVERAGE (SBC) What plans require an SBC? • Generally required for any group health plan, some exceptions exist • Excepted benefits do not need an SBC A group health plan is any employer-sponsored plan that provides medical care to employees directly or through insurance, reimbursement, or otherwise ?
SUMMARY OF BENEFITS AND COVERAGE ! • Remember, excepted benefits do not need an SBC
PATIENT CENTERED OUTCOMES RESEARCH FEE What Also known as the Comparative Effectiveness Fee, will fund a private, non-profit corporation is to assist providers, payers and policy makers in making informed health decisions. Both self-funded medical plans and health insurance carriers Who • $1 multiplied by the average number of covered lives under the plan • $1 fee doubles to $2 the following year • Covered lives is defined as the average number of lives covered under a plan – this includes employees and dependents. How When The first plan year ending after September 30, 2012.
REINSURANCE FEES What TPAs of group health plans and insurers are required to contribute to a temporary reinsurance program for the individual market to offset risk of high-cost claims (in effect shifting risk from insurers to reinsurers) Who TPAs and insurance carriers • TPAs and insurance carriers are likely to pass these fees along to employers. • Fee based on the number of covered lives and applies to major medical coverage. • For benefit year 2014, HHS expects the per capita contribution rate to be $5.25 per month ($63 per year). How Effective no later than 1/1/14. This fee only lasts for three benefit years — 2014, 2015 and 2016. (A benefit year = calendar year and is not based on a health plan‘s specific plan year.) When
ANNUAL FEES FOR INSURANCE CARRIERS What Annual fee on covered entities that provide health insurance Who • Fully-insured plans • No guidance yet on how fee is calculated or collected • Insurance carriers likely to pass it along to policyholders • Likely significant variation in how fees applied— in some cases, fee may be included in rates or charged as a separate line item How • Payable to the government sometime in 2014 • Some insurance carriers may begin collecting fee from policyholders in 2013 When
MEDICARE PART D SUBSIDY Taxable What Previously employers could subtract the cost of providing retiree prescription drug benefits, plus collect a subsidy (in effect, getting a deduction for expenses they did not actually pay) Who Employers receiving Medicare Part D subsidy Starting in 2013, employers will be taxed on subsidies (can still deduct cost of prescription drug program) How Tax years beginning January 1, 2013 When
W-2 REPORTING What Value of applicable employer-sponsored group health plan coverage is reported on employee's W-2 Form Employers that distribute ≥ 250 W-2s for the previous tax year including: • Private employers • Federal, state and local government entities • Churches and other religious organizations Who When 2012 tax year (provided to employees in January 2013) Value printed on W-2; delivered to employee by mail, online or other standard delivery method How $100 for each reporting failure Penalty
W-2 REPORTING How does this rule apply to control groups? In a controlled group, each employer is considered separately (i.e., aggregation rules don’t apply). ? Will employees get taxed on the amount reported? • No. W-2 reporting is done for informational purposes only. An amount is not taxable simply because it is reported on the Form W-2. ? What coverage is reported? • Employer-sponsored coverage provided to an employee and his/her family, including coverage under a group health plan, such as major medical coverage. ?
W-2 REPORTING – COST OF COVERAGE $ Employee contribution Employer contribution Cost of coverage Cost of coverage is determined on a month by month, employee-by-employee basis Employer can select between three methods to calculate cost of coverage: COBRA Applicable Premium – Reportable cost = COBRA premium under traditional COBRA rules Premium Charged – Fully-insured plans only. Employer uses premium charged by insurer for employee’s coverage. Modified COBRA Premium – Only available for employers that subsidize cost of COBRA coverage or that set cost of COBRA coverage by applying COBRA premium from prior year. Employers subsidizing COBRA coverage use good faith estimate of COBRA premium. Employers using prior year's COBRA premium for current year report that COBRA premium. Employer Action!
W-2 REPORTING – COVERAGE EXCEPTIONS W-2 reportable amount Health FSA benefit Employee contribution