Published on March 6, 2014
HEALTH CARE REFORM: EMPLOYER STRATEGIES FOR 2014 & BEYOND Presented by: R. Dane Rianhard
2014 SMALL GROUP MARKET Products, Pricing & Other Changes
ACA Rating Methodology Age Rating Standards • Insurance companies are not allowed to charge an older adult more than three time the rate of a 21 year old • States can establish age curve or default to federal age curve • Federal age bands (0-20, one year bands between 21-63, and 64 and older) Family Rating Standards • Number of family members included in rating: • 1 or 2 parents • Up to 3 family members under the age 21 • Unlimited dependent children age 21 to 26 • Family premiums are based on the premiums for each family member’s age and tobacco use • Only the premiums for the first three children under age 21 contribute toward the total family premium • Family rates include per-member rates for dependent children 21 and older
ACA Rating Methodology (cont’d) Geographic Rating Standards • Premiums may reflect geographic rating areas in the state • Rating area is: • Home address for Individual market coverage • Employer’s primary place of business in the state, for small group coverage Tobacco Rating Standards • Insurance companies cannot charge an individual who uses tobacco products more than 1.5 times the non-tobacco user’s rate. • Tobacco rating can vary based on age (e.g. 1.2:1 for those under 35) • For small employers covered individuals will be able to avoid the tobacco surcharge by participating in a wellness program • The rating variation permitted for tobacco use can only be applied to the portion of the premium attributed to the family member affected.
Deductibles • Maximum annual limitation on plan deductibles is $2,000 single/$4,000 family for non-grandfathered small groups. • However, coverage will exceed the annual deductible limit if it cannot reasonably reach a given level of coverage (metal tier) without exceeding the deductible limit.
Essential Health Benefits (EHB) • Insurance carriers are mandated to make sure your plan provides Essential Health Benefits (EHB). • These categories are: • • • • • • • • • • Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse disorder services Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care
Proposal & Premium Invoice Changes • Small group proposals must break out premiums for each employee and all of their dependents (on or off the Exchange). • Invoices must break out the premiums for each employee and all of their dependents (on or off the Exchange). • Invoices must also break out the premium for each employee and their dependents three ways: • Total premium • Employer portion of the premium • Employee portion of the premium
What are Employer Options for those with Fewer than 50 FTE’s in the SMALL GROUP HEALTH MARKETPLACE? 1. Renew Early – as of 12/1/2013 too late to do so • Pros • Cons 2. Self-Funding • Avoid ACA fees and taxes • Transparency • Medically Underwritten
What are Employer Options for those with Fewer than 50 FTE’s? (cont’d) 3. Drop Group Coverage • Pros • Cons Pre and Post Tax Example Pre-Taxed Post-Taxed Gross Income $3,000 $3,000 Pre-Taxed Premium ($500) Taxable Income $2,500 $3,000 Income Tax 40% ($1,000) ($1,200) Post Tax Premium Net Income ($500) $1,500 $1,300 Assume minimum tax bracket: 25% Federal, 7.5% State, 7.65% FICA
What are Employer Options for those with Fewer than 50 FTE’s? (cont’d) 4. Purchase Plans with Much Higher Deductibles • To extent available beyond ACA small group deductible caps • Supplemented by underlying GAP (mini-med plans in states where available) 5. SHOP Exchange for tax credits for those groups eligible
2011-2013 REFORM PROVISIONS
Medical Loss Ratio • Beginning January 1, 2011, health insurers were required by the ACA to spend at least 85% of premium dollars received from policies in the large group market (50+ employees) on a combination of medical care claims and activities to improve health care quality. • Limits the amount that insurers can spend on administrative expenses, overhead, profit, commissions and other non‐claim expenses to 15% of premium dollars received. • Insurance companies were required to pay rebates for 2012 by August 1, 2013.
Limit Employee Contributions to Medical Flexible Spending Accounts (FSA) • Beginning in 2013, employee salary reduction contributions to medical FSAs will be limited to $2,500 per plan year. • Indexed increases allowed in future years to adjust for inflation.
Provide Written Notice About Health Benefit Exchanges (Exchanges) • By October 1, 2013, employers must provide written notice to current and new employees, to inform them of the Exchanges and the circumstances under which they may be eligible for health insurance subsidies. • In addition, the COBRA Model Election Notice was revised to inform qualified beneficiaries of coverage options available through “the Marketplace.”
Summary of Benefits and Coverage (SBC) • On or after Sept. 23, 2012, group health plans and health insurance issuers are required to use standards in compiling and providing an SBC that accurately describes the benefits and coverage. • Group health plans must issue an SBC to plan participants and beneficiaries (including COBRA participants) free of charge in the following circumstances: • Participants and beneficiaries must receive an SBC for each benefit package offered • • • • under the plan for which they are eligible, no later than the first date of eligibility. The SBC(s) must be provided with any written application materials for enrollment, or if there are no written application materials, prior to the first date the employee is eligible to enroll in the group health plan. If there is any change to benefits and coverage between enrollment and the first day of coverage, no later than the first day of coverage. Within 90 days after special enrollment. Special enrollment is when employees and dependents have the right to enroll in coverage midyear upon specified circumstances. Upon renewal of coverage (i.e., annual enrollment), not later than 30 days prior to the first day of the new plan year. Upon request, as soon as possible, but no later than 7 business days following request.
Summary of Benefits and Coverage (SBC) (cont’d) • The regulations provide a two‐part rule for electronic delivery: • For those already covered under the plan, the employer must satisfy the Department of Labor’s electronic disclosure regulations. See the following notice from the DOL: http://www.dol.gov/ebsa/newsroom/tr11‐03.html • For those eligible but not enrolled, the employer may provide electronically if the format is readily accessible, and a paper copy is available free of charge upon request.
Employer Mandate • Mandate is effective January 1, 2014, regardless of grandfathered status. However, as of July 2, 2013, the Department of Treasury and the White House delayed the enforcement of the penalties associated with the mandate until 2015. • Employers with 100+ full‐time employee equivalents must offer medical coverage that is “affordable” and provides “minimum value” to their full‐time employees (and their dependent children to age 26) or be subject to penalties to at least 70% of its employees in 2015. In 2016 employers with 50+ FTEs must offer health insurance to at least 95% of its FTEs. • Employees who work 30 hours per week are deemed full‐time. • Coverage is affordable if the employee’s contribution of the self‐only coverage for the lowest cost plan is less than 9.5% of: • the Federal Poverty Level for a single individual. (2013 ‐ $ 11,490 for single) • an employee’s box 1 W‐2 wages • an employee’s monthly wages (hourly rate x 130 hours per month) • A plan must pay actuarially 60% of the costs of covered health services to be considered as providing “minimum value.”
Employer Mandate Penalties • The penalty for employers not offering any coverage to their employees is $2,000 per FTE (minus the first 30 employees). • The penalty for employers offering a plan that is not “affordable” or does not provide “minimum value” is the lesser of: • $3,000 per FTE receiving the tax credit for exchange coverage, or • $2,000 per FTE (minus the first 30 employees).
Full‐time Employee Determination Definitions • IRS recognized potential issues with full‐time employee determination on a month‐by‐month basis. • Created an optional “look‐back measurement method” as an alternative way to determine the number of full‐time employees. • Look‐back method essentially provides safe harbor methods for determining which ongoing employees, new employees, employees rehired after a termination of employment and employees returning to service after certain unpaid leaves of absence are considered full‐time.
Full‐time Employee Determination Definitions (cont’d) • Measurement Period ‐ • Time period selected by the employer of at least 3 but not more than 12 consecutive calendar months during which the employer determines whether an employee is considered a full‐time employee based on that employee’s average number of hours of service per week. • Stability Period ‐ • Time period selected by the employer that immediately follows, and is associated with, an applicable measurement period (and any applicable administrative period, defined below), during which an employee who qualified as a full‐time employee based on the measurement period is treated as a full‐time employee (i.e., is “locked into” full‐time status) for purposes of the Play‐or‐Pay mandate’s tax penalty. • Administrative Period ‐ • An optional period of no longer than 90 days beginning immediately after the end of a measurement period and ending before the associated stability period. The purpose of this period is to allow an employer time to count employees and coordinate health coverage. The administrative period must overlap with the prior stability period to ensure that no gaps in coverage occur.
Automatic Enrollment (200+) • Delayed until after additional guidance is issued • Employers that offer coverage must automatically enroll new full time employees with the opportunity to opt out. • Until the Department of Labor issues regulations, employers are not required to comply with Automatic Enrollment in Health Plans. • The DOL intends to complete this rulemaking by 2014.
Nondiscrimination Provisions Applicable to Insured Group Health Plans • Delayed until after additional guidance is issued • In the past, an insured group health plan could provide non‐taxable benefits to executives and other highly compensated individuals even if the plan discriminated in favor of those individuals with regard to eligibility to participate or benefits provided. • If, however, self‐funded group health plans discriminated in favor of highly compensated employees, the benefits for the highly compensated individuals would be subject to taxation under Internal Revenue Code 105(h). • The ACA states that Non‐Grandfathered insured group health plans will be subject to similar rules as those contained within Internal Revenue Code 105(h) if they discriminate in favor of these persons.
W-2 Reporting • Employers that file 250 or more W‐2 forms in the prior year will be required to report the cost of health coverage to employees. • This amount shows up in box 12 with the code DD. • Transition relief has been given to those employers filing under 250 W‐2 forms until further notice.
Waiting Period • Employers cannot have more than a 90‐day waiting period after an employee becomes eligible for coverage. • Waiting periods longer than 90 days must be amended prior to or at 2014 renewal.
TAXES AND FEES
Patient-Centered Outcomes Research Institute (PCORI) Fee • For plan years ending on or after Oct. 1, 2012, the Act imposed a fee on health insurance issuers and employers sponsoring self‐funded group health plans. • For fully insured plans, the temporary fee is rolled into the premium rates and is not called out separately on the invoice. • The annual fee begins at the rate of $1 per each covered life (employee, spouse and dependents) per year in the first year, increases to $2 per covered life per year in the second year and is then indexed for the remaining five years.
Insurer Fee • Will be collected from health insurance providers based on net written premiums for fully insured groups. • The annual fee is permanent and expected to total $8 billion in 2014 for all insurers, increasing each year to $14.3 billion in 2018, and indexed to premium trend thereafter. • Based on the government rule and industry analysis • Impact on premium is approximately 2.3 percent in the first year, and will increase to 3 – 4% in future years.
Transitional Reinsurance Fee • Will be collected from health insurance providers for years 2014 • • • • to 2016. Funds are distributed to insurers in the non‐grandfathered individual market that disproportionately attract individuals at risk for high medical costs. The intent is to spread the financial risk across all health insurers to provide greater financial stability. Based on the government rule and industry analysis, the impact for the first year of the Transitional Reinsurance Fee is about $5 to $6 per member per month.
Risk Adjustment Fee • Fee of about $1 per member per year is assessed on issuers of risk‐adjusted plans in the non‐grandfathered individual and small group markets, whether in or out of the Exchanges. • The permanent fee helps fund the administrative costs of running the Risk Adjustment Program. • The program is intended to protect health insurance issuers of risk‐adjusted plans against adverse selection by redistributing premiums from plans with low‐risk populations to plans with high‐risk populations. • The Risk Adjustment Fee begins in 2014.
Medicare Tax • Will require employers to withhold an additional 0.9% of employee wages exceeding $200,000. • While the 1.45% income tax withholding is still in place for all employees and employers, the new Medicare tax adds an additional 0.9% on employee earned income above $200,000. • The additional tax is only assessed on the individual, who is ultimately responsible for the tax. • However, employers who do not withhold this additional income tax will be liable.
Annual fee on pharmaceutical manufacturers (2011) and medical devices (2013) • May increase claim expenses to your plan. • Pharmaceutical companies that make or import brand‐name drugs are paying fees that totaled $2.5 billion in 2011, the first year. • Companies that make medical equipment sold chiefly through doctors and hospitals, such as pacemakers, artificial hips and coronary stents, will pay a 2.3 percent excise tax on their sales.
“Cadillac Tax” • Will subject health plans to a 40% excise tax on the value of health • • • • • insurance benefits exceeding a specific threshold (2018). In 2018, the thresholds are $10,200 for single coverage and $27,500 for family coverage. (Over age 55 or high‐risk professional thresholds are $11,850 and $30,950 for individuals and families respectively) If a plan’s annual premiums for single coverage exceed $10,200, the dollar amount over that threshold will be taxed at 40% rate. For example, if an individual’s annual premiums in 2018 are $12,200 – or $2,000 over the $10,200 threshold – the Cadillac tax would equal 40% of $2,000, or $800. The thresholds may increase depending on actual medical inflation between 2010 and 2018. The health issuer will be responsible for paying this fee if the plan is fully insured, and will apply to both grandfathered and non‐grandfathered plans.
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