presented by: jonathan cich associated financial group employee benefits. insurance. hr solutions....

PRESENTED BY:

JONATHAN CICH

Associated Financial GroupEmployee Benefits. Insurance. HR Solutions.

HEALTHCARE REFORM:STRATEGIC PLANNING FORSMALL EMPLOYERS

2

2010 2011 2012 2013 2014 2015

• Guaranteed IssueNo 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 EligibilityHousehold income less than 133% of federal poverty level

• Health Insurance ExchangesOnline market place for purchasing individual and small group policies

• Premium Tax Credit for IndividualsHousehold income between 100%-400% of federal poverty level

• Employer “Play or Pay” Penalties (delayed to 2015)

TIMELINE OF MAJOR EVENTS

2014-15

THREE COMPONENTS OF HCR

Individual Mandate

Employer Mandate

Insurance Exchanges

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

Where will individuals purchase health

insurance?

Through employers

Through a private or public “exchange” – guaranteed issue individual insurance policies

Government health program (e.g. Medicare, Medicaid, Tricare, VA, etc.)

INSURANCE EXCHANGE

Purpose of exchange:

Improve choice of affordable health insurance

Improve purchasing power for individuals and small businesses

Provide common vehicle for everybody

Enhance competition in marketplace

By 2014, each state must establish their own health insurance exchange

In Minnesota, this is MNSure – mnsure.org

For individuals and small group market employers in 2014.

PREMIUM TAX CREDITS

Individual Exchange Policies

Only

Household income between

100%-400% of FPL

Not eligible for

affordable, employer coverage

Not eligible for gov’t health

program

Amount of credit

decreases as income increases

• Employer coverage is “affordable” if employee’s cost for single coverage on lowest cost plan is less than 9.5% of household income

STRATEGIC CONSIDERATIONS

STRATEGIC PLANNING – THREE STEPS:

1• Are you a large or small employer?

2• Evaluate impact of individual and small group rates.

3• What “coverage” and how to fund it?

Applicable Large Employer

• Determines whether employer is subject to “play or pay” penalties

• Average of 50 full-time employees (FTE) employed in the preceding calendar year

ARE YOU A LARGE OR SMALL EMPLOYER?

Small / Large Group Market

• Determines whether insurance policy is subject to small group market rules

• 2014 : Under 50 employees

• By 2016: Under 100 employees

APPLICABLE LARGE EMPLOYER

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Average of 50 FTEs

• Prior calendar year• FT = 30 hrs/week*• PT count as fraction

Common law

employees

• Anyone issued a W-2• Union• Seasonal• Casual• Temporary?

Controlled Group

• Separate legal entities treated as a single employer

• Tax Code § 414 (b), (c), (m) or (o)

ApplicableLargeEmployer

* See slides 40-54

“APPLICABLE LARGE EMPLOYER”

Example 20 employees – 40 hours / week 10 employees – 32 hours / week 40 employees – 20 hours / week

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.

12

Assume 20 hr/wk = 86 hr/month


13

• 20 @ 40 hours / week• 10 @ 32 hours / week• Total FTs = 30

Full-Time Employees

• Total hours worked by all PTs = 3,440 hours

• Divide by 120 = 28.66 FTEs

Part-Time Employees

• 58.66 FTEs• “Play or Pay” Penalties ApplyTotal FTEs

14


• Parent-Subsidiary • Brother-Sister

Corp X

Corp Y Corp X Corp Y

A B C D E

Caution: Controlled group rules are complex. Consult with your tax or legal advisor for details.

APPLICABLE LARGE EMPLOYER“NO COVERAGE” PENALTY

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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

APPLICABLE LARGE EMPLOYER“AFFORDABILITY” PENALTY

16

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

WHAT IF WE FLUCTUATE BETWEEN LARGE AND SMALL EMPLOYER STATUS?

Faced with two choices:

Plan to comply with “Play or Pay” mandate;

Take steps to prevent hitting the 50 employee threshold to maintain small employer status

OR

WHAT IF WE FLUCTUATE BETWEEN LARGE AND SMALL EMPLOYER STATUS?

Ways to ensure small employer status

Not a solution – Pass work off to a separate business under common ownership

**Remember, controlled group rules**

Hire more part-time 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

SMALL GROUP MARKET

2014:

Employers who had, on average, less than 50 employees in the preceding calendar year.

Employers who had, on average, less than 100 employees in the preceding calendar year.

2016:

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.

• Coverage category (i.e., family vs individual)• Geographic rating area (set by each state)• Age (one year tiers); and• Tobacco use

Insurers will only be allowed to set

premiums based on four factors:

In particular . . . An individual employer’s premium will not be affected by

claims experience or health status of plan participant.

COMMUNITY RATING

• In 2014…

Premiums may not be based on any other factor aside from the four in previous slide!

COMMUNITY RATING

Coverage Category – Family Size1

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.

Family with two adults and three children under age 21 pay same premium as family with two adults and four children under age 21.

For Example

COMMUNITY RATING

Geographic Rating Area2

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

Geographic Rating Area2

COMMUNITY RATING

Three broad age bands:

Age3

Children under 21(prohibits higher

premiums for newborns).

Adults 64 and olderAdults 21-63

(banded by year)

COMMUNITY RATING

Tobacco Use4

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?


Region 8


Pros• May result in cost savings to

employees and employers

• Employer does not have to administer a group health plan

Cons• Loss of tax savings for both

employee and employer

• 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 exchange, must offer

coverage to employees who work 30+ hours per

week

Can only receive Small Employer Tax Credit

through SHOP Exchange

If you offer affordable coverage, employees and

their family will be ineligible for premium tax

credit


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


Group Plans

Deductible < $2000 single $4000 family – unless necessary to meet AV

OOP Max < $6350 single $12700 family

Must cover Essential Health Benefits


Group Plans

Maximum 90-day waiting period

Non-discrimination with respect

to Highly Compensated

Individuals (delayed)

Revised SBCs


Individual Plans

Employee Eligibility for Premium Tax

Credits

Employer contributions

Employee Education & Assistance


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 noticebut 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 do not offer a health plan: http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf

Model notice for employers who offer a health plan to some or all employees: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf

COBRA model election notice: http://www.dol.gov/ebsa/modelelectionnotice.doc

DOL has revised model COBRA election notice to inform qualified beneficiaries of the exchange and premium tax credit.

Start using in December/January

UPDATED COBRA ELECTION NOTICES

Revised COBRA Model Election Noticehttp://www.dol.gov/ebsa/modelelectionnotice.doc

PCORI (PATIENT CENTERED OUTCOME RESEARCH INSTITUTE) FEE

What plans are subject to the fee?

• Fully-insured and self-funded major medical

• Individual policies• Retiree plans• HRAs

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)

PCORI 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

Who pays the fee?

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


• Fully-insured and self-funded major medical

• Retiree plans


• Dental & vision plans• EAP, disease management and wellness



TRP FEE

Fully-Insured – Insurance Carrier


Self-Funded – Plan Sponsor

• Typically the employer but may be other entities in some cases, e.g. board of trustees of union-sponsored plan

Who pays the fee?

TRP FEE


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


• Fully-insured major medical• Fully-insured individual plans• Fully-insured dental plans• Fully-insured visions plans• Fully-insured retiree plans


• Self-funded plans• EAP, disease management and wellness



TRP FEE

Insurance Carrier


Who pays the fee?

TRP FEE


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 ContainmentWellness, new products, cost-

sharing

THANK YOU!

[email protected]

presented by: jonathan cich associated financial group employee benefits. insurance. hr solutions....

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