AFFORDABLE CARE ACT 2014District Roadmap

Association of California School AdministratorsSuperintendents Symposium

January 31, 2014

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Agenda

I. ACA Check-In

II. What Districts Need to Do

A. Timetable of ACA Provisions (Play or Pay)

B. Actuarial Value Assessment

C. Affordability Report

D. Variable Hour Tracking Assessment

E. Cadillac Tax Projection

F. ACA Compliance Audit

III. ACA Taxes and Fees Calculator

IV. ACA Strategies and Cost Control Ideas

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To get a feel of where each of you are on the path to implementing Affordable Care Act requirements, please briefly share:

1. What do you consider your comfort/proficiency level as it relates to leading your district through the ACA mandates? Beginning, Intermediate or Advanced?

2. Is your district rate structure tiered or composite? If composite, are you familiar with tiered rates and how they work?

3. Do you feel your district is strategically engaged in regard to ACA?

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ACA Check-In

Timetable of Key ACA Provisions

Next Steps

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2010 and PY > 9/23/10 2011 2012 2013 2014 2015-2018

• No more lifetime limits on essential health benefits (“EHB”)

• Only restricted annual limits on EHB

• No more pre-existing condition exclusions for those < age 19

• Coverage of adult children to age 26

• No rescissions

• No cost sharing and coverage for certain in-network preventive health services

• New consumer and patient protections

• Early retiree reimbursement program

• New claims and appeals rules

• Small business health care tax credit

• Whistleblower protections

• Nondiscrimination testing for fully insured plans (delayed)

• OTC drugs not reimbursable from FSAs, HRAs, or HSAs without prescription (except insulin)

• Excise tax increase for HSAs

• CLASS Act (repealed)

• Medicare Part D discounts for certain drugs in the donut hole

• Deliver Summary of Benefits and Coverage (“SBC”) beginning 1st open enrollment on or after 9/23/12

• Medical Loss Ratio rebates (fully insured plans) first due for 2011 PY

• No cost sharing for women’s preventive health coverage (generally applies to PYs beginning on or after 8/1/12)

• W-2 Reporting (for 2012 PY)

• Comparative effectiveness fee due 7/31/13 for plans with PY ending 10/1/12-12/31/12

• Notice to inform employees of exchange coverage options

• Health Care FSA contributions limited to $2,500, as indexed

• Deduction for expenses allocable to retiree drug subsidy eliminated

• Medicare tax on individuals making > $200k

• Individual mandate

• Medicaid expansion

• State exchanges

• 90-day waiting period max

• Increased max on wellness program credits

• New cost sharing and OOP limits for group health plans

• No pre-existing condition exclusions

• Guaranteed Issue/ Renewability

• Coverage of adult children to age 26- no exceptions

• Clinical trial coverage requirements

• No annual dollar limitations on EHBs

• Transitional reinsurance fees

• Health insurer fee (fully insured plans)

• Auto enrollment (delayed)

• Employer (“play or pay”) mandate

• New employer reporting requirements (2016 for 2015 PY)

• Large groups (>100 employees) potentially permitted to enroll in exchange for group coverage (2017)

• Excise tax on the high cost coverage (“Cadillac Tax”) (2018)

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Pay Overview: Potential Penalties

Pay: Eliminate coverage and let employees find their own insurance coverage

OPTION

• Annual penalty of $2,000 x all full-time employees• Penalty Enforcement Effective Date Delayed to

January 1, 2015• Applies to all full-time employees, not just benefit eligible• Annual penalty does not apply to first 30 full-time employees• Penalties are non-deductible

• Full-time = all employees working 30 or more hours per week on average

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Play Overview: Potential Penalties

2OPTION

• Possibility of Annual penalty of $3,000 per full-time employee receiving premium subsidy assistance granted by ACA• Penalty Enforcement Effective Date Delayed to January 1, 2015• Penalty ONLY applies if lowest cost plan is deemed unaffordable

(9.5% rule) or doesn’t provide minimum value (60%/bronze level)• Penalty ONLY applies IF:

• Employee is deemed to have unaffordable plan (9.5% rule)• Employee’s plan option doesn’t meet criteria for 60%/bronze level plan• Employee applies for and actually receives federal subsidy

• Full-time = all employees working 30 or more hours per week on average

Play: Continue to provide coverage

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PPACA – Federal Poverty Level Impact

Employer Sponsored PlanEmployee Premium Contribution as a Percent of Household Income

Employee Premium as Percentage of Pay

0.0% - 9.5% 9.5% +

Federal Poverty Level (FPL)

401%

139% - 400% Not Eligible for Premium Subsidy Eligible for Premium Subsidy

0% - 138%Medicaid Eligible

No Employer Penalties for Medicaid-Enrolled Employees

Not Eligible for Premium Subsidy

Eligible for Premium Subsidy

Please note, Medicaid Eligible are not eligible for premium subsidy

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Individual Decision Tree – 2014

Stay on employer plan

Pay Tenthly EE portion of Kaiser - $100.00HMO - $600.00PPO - $1,900.00

Go to exchange

Pay annual EE portion of exchange premium (assumed to

be between $1,200 - $1,700)

No health insurance

Pay annual penalty of $95 or 1% of household income in 2014

(increases thereafter)

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Next Steps for My District

• Conduct ACA financial modeling by end of 1st quarter 2014

• Share report with union groups and other District partners

• Determine “Affordability” plan protection• Most plans offered by Carriers, JPA’s and Trust will

exceed 60% minimum value (Bronze)

What Districts Need To Do

Actuarial Value Test

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The ACA requires employers to offer plans that meet a Minimum Actuarial Value (MAV) of 60%.

• All offered plans must meet the MAV of 60%

• Actuarial Value Calculator provided by Department of Health and Human Services (HHS) @ www.hhs.gov

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SAMPLE TEST RESULT: PASS (All plans meet MAV)

PLAN ACTUARIAL VALUE TEST RESULT100-A, $20 OV, $0 Deductible 99.4% PASS100-D, $10 OV, $300 Deductible 95.6% PASS$2,500 HSA 60.7% PASS

What Districts Need To Do

Affordability Test

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An employee's affordability of the District's plan is based on the lowest cost plan option that also meets the MAV of 60%.

• Safe harbor method for determining affordability is 9.5% of an employee’s W-2 wages

• Measured against Employee Only contribution portion of the lowest cost single rate (offered to all employees)

• Potential for federal subsidies

• Federal Poverty Level (FPL) ranges

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Affordability Test

Affordability Test

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• HMO Employee Annual Cost: $258.77

• W-2 Salary Threshold (9.5% rule): $258.77 / 0.095= $2,723.89

• Hourly Rate/30 Hours = $1.75

• Hourly Rate/40 Hours = $1.31

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What Districts Need To Do

Affordability Test

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Penalty Enforcement Delayed to January 1, 2015

Annual penalty of $3,000 per Full-Time employee (30+ hours) receiving federal subsidy:

Penalty ONLY applies if:

1. Employee’s plan option doesn’t meet the criteria for a bronze level plan (60% MAV) and / or2. Employee is deemed to have unaffordable coverage (9.5% rule) and3. Employee applies for and actually receives federal subsidy

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Safe Harbor Provisions – Special Employee Groups

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Seasonal/Short Term/Hourly Employees• Treat as variable hour employees

Teachers• General rule: treat traditional school breaks as paid leaves• Unpaid leaves of more than 4 consecutive weeks (other than

FMLA/USERRA/jury duty leaves)• Use averaging method so that employee who works full-time

during the active portions of the academic year is treated as FT for full measurement period OR credit employee with average weekly rate

• Max 501 hours during calendar year

Adjunct faculty, Bus Driver, Coaches, Stipend employees• Use reasonable method consistent with the purposes of ACA• W-2 vs. 1099 Employees• Take into account classroom preparation time (adjunct faculty,

substitute teachers)

What Districts Need To Do

Variable Hour Employees

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Measurement Period (MP) Administrative Period (AP) Stability Period (SP)   

3–12 months Up to 90 days (60 days in CA) Same Length MP

1. Take inventory of your variable hour employee groups to assess potential exposure based on current employee population (e.g., use 2012 or 2013 year as a guide). Provide to Burnham for assessment.

2. Identify employment classification for new hires – is new hire reasonably expected to work full-time (FT) or is he or she a variable hour or seasonal employee?

3. Design plan eligibility rules to ensure compliance with the look-back and stability period requirements; full-time employee definition

4. Measure and track hours worked

What Districts Need To Do

Variable Hour Employees

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Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

5th MP (6 mos.) AP (2 mos.) 5th SP (6 mos.)

2016

AP (2 mos.) 4th SP (6 mos.)4th MP (6 mos.)

Initial SP (6 mos.)Initial MP (6 mos.)

2017

AP (2 mos.) 3rd SP (6 mos.)3rd MP (6 mos.)

AP (2 mos.)

AP (2 mos.) 2nd SP (6 mos.)2nd MP (6 mos.)

2014 2015

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

3rd MP (12 mos.)

AP (2 mos.)

AP (2 mos.)

2nd SP (12 mos.)2nd MP (12 mos.)

20162013 2014 2015

AP (2 mos.) Initial SP (12 mos.)Initial MP (12 mos.)

MP = Measurement PeriodAP = Administrative PeriodSP = Stability Period

12 Month Option

6 Month Option

What Districts Need To Do

Variable Hour Employees

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Hours per WeekAnnualized Hours

(potential full impact)Number of Employees

40 or more hours per week 2,080 1,052

30 - 39.99 hours per week 1,560 - 2,079.5 652

24 - 29.99 hours per week 1,248 - 1,559.5 326

20 - 23.99 hours per week 1,040 - 1,247.5 120

19.99 hours per week and below 1,039.5 543

Average/Total: 1,554.4 - 1,594.6 2,693

• How will hours be monitored?

• What is the best way to ensure all applicable employees have benefits access?

• What is the potential premium impact?

• Who are the employees who fit into the 24-29.99 range?

What Districts Need To Do

Cadillac Tax Test

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Beginning January 1, 2018, “Cadillac” plans will be subject to a 40% excise tax on the amount of premium that exceeds an annual limit.

• Employer and employee contributions are included

• For 2018, the limits are $10,200 for individuals and $27,500 for families (indexed)

• Stand alone dental and vision benefits are excluded, but employer contributions to HSAs and Archer MSAs are included, and health FSAs and HRAs are included

• Who pays?• The insurer, if fully insured• The employer, for HSAs and Archer MSAs• The person that administers the plan, if self-funded

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Sample Cadillac Tax Analysis:(Super Composite Rate)

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2013 2014 2015 2016 2017 2018PPO PPO PPO PPO PPO PPO

Gross Annual Premium

Actual EE Annual Premium $17,670.24 $19,172.21 $20,955.23 $22,945.97 $25,125.84 $27,512.79

Excise Tax Threshold EE Only $6,551.00 $7,107.84 $7,768.87 $8,506.91 $9,315.07 $10,200.00

Difference from Actual ($11,119.24) ($12,064.37) ($13,186.36) ($14,439.06) ($15,810.77) ($17,312.79)

Pass (YES/NO) NO NO NO NO NO NO

Actual EE+SP Annual Premium $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Excise Tax Threshold EE+SP $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Difference from Actual $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Pass (YES/NO) N/A N/A N/A N/A N/A N/A

Actual EE+CH(REN) Annual Premium $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Excise Tax Threshold EE+CH(REN) $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Difference from Actual $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Pass (YES/NO) N/A N/A N/A N/A N/A N/A

Actual Family Annual Premium $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Excise Tax Threshold Family $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Difference from Actual $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Pass (YES/NO) N/A N/A N/A N/A N/A N/A

Tier Subs 40% of Difference Tax

EE Only 364 ($6,925.12) ($2,520,742.89)EE+SP 0 $0.00 $0.00

EE+CH(REN) 0 $0.00 $0.00FAMILY 0 $0.00 $0.00

($2,520,742.89)

- Year-over-year changes in premium are based upon the 10 year cost projection performed by Milliman. The changes include 8.5% for 2014, 9.3% for 2015, 9.5% for 2016, 9.5% for 2017, and 9.5% for 2018.

Sample Cadillac Tax Analysis: (4 Tier Rates)

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2013 2014 2015 2016 2017 2018PPO PPO PPO PPO PPO PPO

Gross Annual Premium

Actual EE Annual Premium $7,074.24 $7,675.55 $8,389.38 $9,186.37 $10,059.07 $11,014.68

Excise Tax Threshold EE Only $6,551.00 $7,107.84 $7,768.87 $8,506.91 $9,315.07 $10,200.00

Difference from Actual ($523.24) ($567.71) ($620.51) ($679.46) ($744.00) ($814.68)

Pass (YES/NO) NO NO NO NO NO NO

Actual EE+SP Annual Premium $14,148.48 $15,351.10 $16,778.75 $18,372.73 $20,118.14 $22,029.37

Excise Tax Threshold EE+SP $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Difference from Actual $3,513.54 $3,812.19 $4,166.73 $4,562.57 $4,996.01 $5,470.63

Pass (YES/NO) YES YES YES YES YES YES

Actual EE+CH(REN) Annual Premium $12,733.63 $13,815.99 $15,100.88 $16,535.46 $18,106.33 $19,826.43

Excise Tax Threshold EE+CH(REN) $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Difference from Actual $4,928.39 $5,347.30 $5,844.60 $6,399.84 $7,007.83 $7,673.57

Pass (YES/NO) YES YES YES YES YES YES

Actual Family Annual Premium $21,222.72 $23,026.65 $25,168.13 $27,559.10 $30,177.22 $33,044.05

Excise Tax Threshold Family $17,662.02 $19,163.29 $20,945.48 $22,935.30 $25,114.16 $27,500.00

Difference from Actual ($3,560.70) ($3,863.36) ($4,222.65) ($4,623.80) ($5,063.06) ($5,544.05)

Pass (YES/NO) NO NO NO NO NO NO

Tier Subs 40% of Difference Tax

EE Only 85 ($325.87) ($27,699.26)EE+SP 32 $0.00 $0.00

EE+CH(REN) 19 $0.00 $0.00FAMILY 72 ($2,217.62) ($159,668.71)

($187,367.97)

- Year-over-year changes in premium are based upon the 10 year cost projection performed by Milliman. The changes include 8.5% for 2014, 9.3% for 2015, 9.5% for 2016, 9.5% for 2017, and 9.5% for 2018.

District: Financial Modeling Results

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Play or Pay Financial Model: • The following Play or Pay model is an example.• The District passes the minimum actuarial value test for all plans

(The minimum accepted actuarial value is 60% for all plans).• Kaiser – 91.4%• HMO – 89.9%• PPO – 86.8%

Cadillac Tax:• All 3 plans have at least one tier that exceeds a Cadillac Tax

threshold ($10,200-EE, $27,500-any family tier).• Total potential Cadillac Tax liability in 2018 - $637,115.83

• Kaiser - $0.00• HMO - $0.00• PPO - $637,115.83

District ACA Taxes and Fees Calculator

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Total Subscribers 2,862 Total Subscribers 2,862Total Members (2.55 ACS based upon census) 7,298 Total Members (2.55 ACS based upon census) 7,298

2012 Data 2013 DataMonthly Premium $3,668,800.04 Monthly Premium $3,980,648.04Annual Premium $44,025,600.48 Annual Premium $47,767,776.52

2013 Annual ACA Taxes and Fees 2014 Annual ACA Taxes and FeesPCORI Fee $1.00 $7,298.00 PCORI Fee $2.00 $14,596.00Insurer Fee (UHC only) 0.25% $119,769.94 Insurer Fee (UHC only) 0.33% $174,544.72Transitional Reinsurance Fee $3.94 $344,830.50 Transitional Reinsurance Fee $5.25 $459,774.00Average Monthly Taxes and Fees $39,324.87 Average Monthly Taxes and Fees $54,076.23

2013 Renewal 2014 RenewalMonthly Premium $3,980,648.04 Monthly Premium $4,350,848.31Annual Premium $47,767,776.52 Annual Premium $52,210,179.74

Proposed Increase Over Current 8.50% Proposed Increase Over Current 9.30%

2013 Proposed Premium minus ACA Taxes and Fees 2013 Proposed Premium minus ACA Taxes and FeesMonthly Premium without Taxes and Fees $3,941,323.17 Monthly Premium without Taxes and Fees $4,296,772.08Annual Premium without Taxes and Fees $47,295,878.08 Annual Premium without Taxes and Fees $51,561,265.01

Value of Taxes and Fees 0.99% Value of Taxes and Fees 1.24%Proposed Increase without fees 7.51% Proposed Increase without fees 8.06%

* Projections based on analysis of study by Oliver Wyman & AHIP 2012

October 1, 2013 October 1, 2014

ACA Cost Control Strategies

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• Evaluate 2, 3, or 4 tier rate structures• Gather District demographic information to make

educated decisions on tiered rates• Review medical plans offered and if “Bronze” plan is

needed• Meet or form benefits committee to include union

groups• Explore ACA new Wellness options/regulations

2014 Creative Cost Savings Options

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• Offer bronze level plan in benefits portfolio• Narrow HMO network option• Participating HMO contract• Explore self-funded medical inside or outside JPA or

Trust• Tie District cap to participation in Wellness• Incentives to reduce spouse enrollment on plan• Go to market; explore options

What Districts Need To Do

Next Steps

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• Conduct ACA financial modeling & Assess need for variable hour tracking(1) Actuarial Value Assessment, (2) Affordability Report, (3) Cadillac Tax Projection, (4) ACA Compliance Audit, (5) Variable Hour Tracking

• Work with consultant, broker, JPA or trust

• Educate & Communicate effectively with all district partners

• Develop a long term strategy through 2018

• Explore all medical benefit options, consider unbundling, tiered rates, lower cost plan options

• Evaluate the financial implications associated with moving from a composite rate to a tiered structure

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Questions

Dan ExceenSr. Vice President949.252.4586exceen@burnhambenefits.com