Health care reform getting ready for the next phase
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Health Care Reform: Getting Ready for the Next Phase. October 15, 2013. George Lane [email protected] 202-331-5222 Mercer. The Problem: Health Benefit Cost Growth Dips to 4.1% After Employer Actions, But Still Surpasses Wages and Inflation.

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Health care reform getting ready for the next phase

Health Care Reform:Getting Ready for the Next Phase

October 15, 2013

George Lane

[email protected]

202-331-5222

Mercer


Health care reform getting ready for the next phase

The Problem: Health Benefit Cost Growth Dips to 4.1% After Employer Actions, But Still Surpasses Wages and Inflation

*ProjectedSource: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April) 1990-2012; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2012.

1


Patient protection and affordable care act ppaca goals

Patient Protection and Affordable Care Act (PPACA)Goals

Enacted March 23, 2010, health reform’s goals were:

Provide access for 30+ million uninsured

Cost control

Quality

Focusing on all three goals was a challenge

Health reform is primarily health insurance reform

It does not address major cost saving opportunities

Provider payment

Harmonization across payer programs

Tort reform


Health care reform getting ready for the next phase

  • Health insurance exchange coverage

  • Individual coverage mandate6

  • Financial assistance for exchange coverage of lower-income individuals

  • State Medicaid expansion (possibly only some states)

  • Dependent coverage to age 26 for any covered employee’s child2

  • No annual dollar limits on essential health benefits2 (generally banning standalone HRAs)

  • No pre-existing condition limits2

  • No waiting period over 90 days2

  • Wellness limit increase allowed2

  • Health insurance industry fees

  • Additional standards for non-grandfathered health plans, including limits on out-of-pocket maximums, provider nondiscrimination, and coverage of routine medical costs of clinical trial participants

  • Small market, non-grandfathered insured plans must cover essential health benefits with limited deductibles (initially $2,000/individual, $4,000/family), using a form of community rating

  • Insurers must apply guaranteed issue and renewability to non-grandfathered plans of all sizes

  • Auto enrollment some time after 2014

Health Care Reform Update – Employer Mandate Delayed Until 2015

2013

2018

2015

2014

  • 40% excise tax on “high cost” or Cadillac coverage

  • Temporary reinsurance fees first due in late 2014/early 2015

  • Possible additional reporting and disclosure

  • Employer shared responsibility

  • $2,500 per plan year health FSA contribution cap (plan years on or after January 1, 2013)

  • Comparative effectiveness group health plan fees first due

  • Annual dollar limits on essential health benefits cannot be lower than $2 million

  • Employers notify employees about exchanges by Oct. 1, 2013

  • Medical device manufacturers’ fees start

  • Higher Medicare payroll tax on wages exceeding $200,000/individual; $250,000/couples

  • Change in Medicare retiree drug subsidy tax treatment takes effect

  • Health Insurance exchanges initial open enrollment period

Footnotes

Applies to all plans, including grandfathered plans, effective for plan years beginning on or after Sept. 23, 2010 (Jan. 1, 2011, for calendar year plans).

Applies to all plans, including grandfathered plans, effective for plan years beginning on or after Jan. 1, 2014.

Applies to non-grandfathered plans, effective for plan years beginning on or after Sept. 23, 2010, except that insured plan discrimination ban is delayed until regulations issued.

A temporary exemption applies to certain categories of employers.

Applies to non-grandfathered plans, effective for plan years on or after August 1, 2012.

A temporary exemption applies to employees of employers with non-calendar-year plans.


Key areas of impact 2014 2015 and 2018

Key Areas of Impact2014, 2015 and 2018

In 2014 and 2015, the majority of the key provisions will be effective, such as:

Launch of public exchanges (2014)

Individual mandate (2014)

Medicaid expansion, where applicable (2014)

Shared responsibility penalties (2015)

For employer-sponsored plans, the key areas for potential cost increases include:

Current waivers joining the plan

Cost shifting from public plans (Medicare and Medicaid) to private insurance

Shared responsibility penalties

One area for potential savings for employers is migration of current plan enrollees from the employer plan to Medicaid

This is complicated by the Supreme Court decision as states can independently decide whether or not to expand Medicaid eligibility

In 2018, an excise tax of 40% applies for employer plan costs that exceed certain dollar thresholds

4


Two public programs 2014 medicaid and public exchanges

Two Public Programs 2014: Medicaid and Public Exchanges

Medicaid: States will determine whether to expand Medicaid to anyone below 138% of federal poverty level (FPL)

In these states, subsidies may be available for certain people to buy coverage

Those ineligible for Medicaid or federal subsidies may have no option for coverage other than employer plan

Public Exchanges: Insurance plan options available on exchanges that are operated by states or the Federal government (or a State/Federal partnership)

Exchanges will conduct open enrollment from October 1, 2013 – February 28, 2014 (expect a communication blitz early to mid summer)

If household income is between 138%-400% of the FPL, and individual does not have access to affordable employer coverage, the Federal government will provide subsidies to buy insurance on exchanges

5


Who is eligible for subsidized government insurance assumes states expand medicaid to 138 fpl

Who is Eligible for Subsidized Government Insurance?Assumes States Expand Medicaid to 138% FPL

Household income < 138% FPL

Eligible for Medicaid*

Household income <400% FPL

Could be eligible for subsidized exchange coverage

6

6


Individual mandate 2014

Individual Mandate2014

  • All individuals must have health coverage*

  • Pay a penalty

    • 2014: Greater of $95(single)/$285 cap (family) or 1% of household income

    • By 2016: Greater of $695(single)/$2,085 cap (family) or 2.5% of household income

OR

7


Employer shared responsibility 2015

Employer Shared Responsibility2015

Employers not offering coverage to full-time employees* (and their dependents)

Subject to penalty of up to $2,000 for each full-time employee if at least one full-time employee receives income-based assistanceto buy coverage on insurance exchange**

Employers offeringcoverage to full-time employees* (and their dependents)

Lesser of: (1) up to $3,000 for each full-time employee eligible for income-based assistance**, or (2) up to $2,000 for every full-time employee

Pay or Play?

Minimum Value Coverage

Employer Shared Responsibility

Affordability

Full-time Employees (and dependents)

* Full time is defined as someone averaging 30 or more hours per week

** No penalties for FT employees enrolled in Medicaid

Note: Penalty not applied to first 30 employees

8


Employer shared responsibility minimum plan value

Employer Shared ResponsibilityMinimum Plan Value

Minimum Plan Value Illustration

Claim $

<40 ¢

>60 ¢

9


Employer shared responsibility 2015 affordable contributions

Employer Shared Responsibility 2015: Affordable Contributions

** Health reform legislation specifies income threshold of 133% FPL but also requires states to apply an “income disregard” of 5% of FPL in meeting income test; effective income threshold for eligibility is 138%

10


Health care reform getting ready for the next phase

Current Lowest-Cost Medical Plan Would Likely be Considered ‘Unaffordable’ for at Least Some Employees in 2014

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

11

11

September 19, 2014

September 19, 2014


Likely to take action to ensure coverage is affordable for all eligible employees

Likely to Take Action to Ensure Coverage is Affordable for all Eligible Employees

Introduce salary-based contributions

Raise employee cost-sharing (deductibles, etc.) to compensate for lower contributions

Raise dependent contributions to compensate for lower employee-only contributions

Add a less expensive plan with lower employee contributions than the current plan

Lower employee contributions in a current medical plan

Based on respondents that have employees for whom coverage would be considered unaffordable

Make no (or minimal) changes and pay shared responsibility penalty as necessary

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

12

12

September 19, 2014

9/19/2014


Health care reform getting ready for the next phase

The Most Disruptive Requirement for the Most Employers: Extending Coverage to all Employees Working 30 or More Hours per Week

One-third of all survey respondents currently do not offer coverage to all employees working 30+ hours per week

Percent of employers that currently do not offer coverage in a qualified plan to all employees working an average of 30 or more hours per week

Retail and hospitality

Health care services

Government

Transportation/Communication/Utility

Other services

Manufacturing

Financial services

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

13

9/19/2014


New concept of full time employee 2015

New Concept of Full-time Employee2015

Employer’s own definition of full-time (and linked benefit eligibility) does not matter for employer shared responsibility

30 or more hours per week on average/130 hours per calendar month

IRS set out optional approaches for variable hour and seasonal employees

Allows a “lookback” measurement period of 3 to 12 months to determine average hours

Requires a “stability” period of at least 6 months (and no shorter than the measurement period) when employees determined to work 30+ hours must be offered coverage

Allows an administrative period up to 90 days

Potentially means that employers should already be monitoring hours

Employers meeting safe harbor won’t be subject to shared responsibility penalties

Gives certainty at least through end of 2015

14


Lookback and stability examples

Lookback and Stability Examples

  • Employee A

    • Worked an average of 35 hours per week

  • Employee A

    • Treated as a full-time employee

Oct. 15

Oct. 15

Jan. 1

Jan. 1

Standard Measurement Period #1

Administration Period #1

Stability Period #1

  • Employee B

    • Worked an average of 27 hours per week

  • Employee B

    • Not treated as a full-time employee

Example 1: Ongoing Employees

15


Health care reform getting ready for the next phase

Likely Response to ACA’s Requirement That all Employees Working 30 or More Hours per Week be Eligible for Coverage

Make all employees eligible for the full-time employee plan(s)

Add a new lower-cost plan option for all employees

Use segmentation strategy: Offer a lower-cost plan to newly eligible employees

Pay shared responsibility penalty as necessary

Terminate medical coverage for all employees after the insurance exchanges become available

Based on employers that do not currently offer coverage to all employees working 30 or more hours per week

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

16

9/19/2014


Health care reform getting ready for the next phase

Over One in 10 of all Surveyed Employers Will Reduce Some Workers’ Hours to Limit the Number of Newly Eligible Employees

Will not change workforce strategy to limit the number of newly eligible employees

Will ask employees already eligible for coverage to work more hours

Already provide coverage to employees working 30+ hours

Will reduce hours to limit the number of eligible employees

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

17

September 19, 2014


Health care reform getting ready for the next phase

After Taking These Steps, About Half of Respondents Affected by the Rule Still Expect a Significant Increase in Eligible Employees in 2014

Number of eligible employees will increase

Number of eligible employees will decrease

Don’t know

Number of eligible employees will stay about the same

Based on respondents that currently do not cover all employees working 30+ hours

Among those expecting an increase in number of eligible employees, average increase:

All respondents: 11%

Retail/Hospitality: 19%

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

18

September 19, 2014


Health care reform getting ready for the next phase

How the Individual Mandate and Expanded Eligibility Will Affect Enrollment – and Budgeting – Remains a Tough Question for Many Employers

Have budgeted for an increase in enrollment in 2014

Will not budget for an increase in enrollment in 2014

Don’t know yet whether or not to budget for an increase

Those budgeting for an increase assumed enrollment would rise by 10% on average (16% for retail & hospitality)

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

19

September 19, 2014


Summary and cost implications key drivers of potential costs under employer mandate provisions

Summary and Cost ImplicationsKey Drivers of Potential Costs Under Employer Mandate Provisions

  • Low Scenario

  • 0% of current waivers w/ affordable coverage elect CLIENT’s plan

  • 50% of current waivers w/ unaffordable coverage elect exchange

  • Best Estimate Scenario

  • 25% of current waivers w/ affordable coverage elect CLIENT’s plan

  • 50% of current waivers w/ unaffordable coverage elect exchange

  • High Scenario

  • 50% of current waivers w/ affordable coverage elect CLIENT’s plan

  • 50% of current waivers w/ unaffordable coverage elect exchange

Total Net Cost After Reform

$5.57M

$5.72M

$5.88M

$ Change

% Change

+ $247K

+ 4.5%

+ $403K

+ 7.4%

+ $90K

+ 1.6%

Note: Compares CLIENT’s 2014 net cost after HCR against status quo plans with 8% medical trend applied.

- Does not include ACA premium tax, estimated to be $160K for CLIENT

- Totals do not add up to sum of components due to rounding

- Assumes 67 US opt-outs based on census provided

20


Health care reform fees summary

Health Care Reform FeesSummary

21

21

September 19, 2014


Excise tax 2018

Excise Tax2018

Based on current enrollment

22


Excise tax calculation scenario 1 bundled plans medical dental vision fsa

Excise Tax CalculationScenario 1 – Bundled Plans (Medical/Dental/Vision/FSA)

CLIENT

-

Estimated Excise Tax (in $000's)

$1,400

$1,264

$1,200

$1,110

$966

$1,000

$835

$800

$714

$603

$600

$497

$400

$400

$312

$234

$182

$200

$137

$108

$0

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Based on current plan costs and FSA elections, CLIENT’s plans are expected to trigger an Excise Tax in the first year: 2018

Since the Excise Tax thresholds are indexed by CPI (~3%) and historical trends are higher, the Excise Tax is expected to grow exponentially in future years

23


Excise tax calculation scenario 2 unbundled plans medical fsa only

Excise Tax CalculationScenario 2 – Unbundled Plans (Medical & FSA Only)

Client

-

Estimated Excise Tax (in $000's)

$1,200

$989

$1,000

$854

$800

$725

$608

$600

$500

$400

$400

$306

$222

$172

$200

$126

$85

$47

$24

$0

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

If CLIENT decides to “un-bundle” the dental and vision benefits and leave them on a fully-insured basis, then the Excise tax is estimated to be lower

Despite this change, the tax will continue to grow in a similar exponential manner in future years

24


Excise tax calculation considerations

Excise Tax CalculationConsiderations

The estimates provided were performed under the current interpretation of the law. Final regulations have not been written.

Potential changes to help mitigate Excise Tax implications include:

“Unbundling” of benefits

Eliminating FSA (affecting approximately 13% of enrolled population)

Medical plan design changes

Move towards CDHPs

25


Health care reform getting ready for the next phase

Other Strategic Considerations


Option self insurance vs fully insured potential impact of health trend reduction 2014 2017

OPTION: Self-insurance vs. Fully-insuredPotential Impact of Health Trend Reduction (2014 – 2017)

Remaining fully-insured may create a significant barrier to achieving lower trend.

Cumulative four-year difference: $1.9M

$380K annual average savings

Cumulative four-year difference: $3.0M

Annual Cost (in millions)

$600K annual average savings

TREND

  • Rx Carve-Out

  • Funding

  • Wellness

  • Focus on High Cost Population

  • Plan Design with Incentives

  • No ACA Premium Tax

27

September 19, 2014


Option private health care exchanges

OPTION: Private Health Care Exchanges

Percent of employers that would consider offering a private exchange

Advantages for Employers and Employees

Employer advantages

  • Cost control.

  • Choice for employees.

  • Streamlined management and administration.

Employee advantages

  • Cost-efficient, convenient buying.

  • Comprehensive coverage.

  • Personalized portfolios.

28


How does defined contribution relate to exchanges

How Does Defined Contribution Relate To Exchanges?

Defined contribution = Funding arrangement where employers manage their year-over-year increase in health and welfare benefits spend to a pre-defined amount

  • With private exchanges, employers can successfully implement defined contribution.

    • Offer employees an array of choices.

    • Encourage employees to “buy down” to lower-cost medical coverage and use remaining dollars for other purchases.

  • Best achieved when employees can purchase other attractive products (life, accident, disability, critical illness, auto, etc.).

    • Better meets employees’ personal needs.

    • Helps manage their benefit spend.

29


How do private exchanges work

How Do Private Exchanges Work?

Funding: DB or DC

Employee support

Administration

Employer defined contribution

Employee contribution or combination

Online

Call center

Print & e-mail

Eligibility determination

Data-driven events

Election management

Contribution calculation

Election data

Carriers

Payroll

Deductions

Reporting & premium data

HR profes-sionals

Integrated benefit processes

30


How cost would affect the decision to switch to a private exchange model

How Cost Would Affect the Decision to Switch to a Private Exchange Model

Might be willing to pay more than currently for easier administration, more attractive benefit

Doesn’t matter what the cost savings, would not consider switching

Might be willing to switch if change was cost neutral

Would not need immediate savings, but would need greater control over future cost

Would need immediate savings over current health insurance

Source: Mercer’s Survey on Health Care Reform: The Road to Implementation – June 2013

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31

September 19, 2014

September 19, 2014


Option limit eligibility exclude spouses

OPTION: Limit Eligibility/Exclude Spouses

What does it mean to “offer coverage”?

Must offer to dependents under age 26 but not spouses

Do not have to subsidize or make dependent coverage “affordable”

Medical claim cost for spouse vs. child

Options: spousal surcharge; exclude spouse with access to other coverage; totally exclude spouses

If spouse is excluded from employer coverage, might qualify for subsidized coverage in the public exchange (whereas if employer 60% value affordable coverage is offered to spouse, spouse not considered subsidy-eligible)

  • Average annual claims paid by medical plan (after deductible, coinsurance, etc.)

  • Employee/Self$4,088.72

  • Spouse/Partner$5,540.64

  • Child/Other Dependent$1,999.34

32

September 19, 2014


Survey data on spouse coverage

Survey Data on Spouse Coverage

Larger Employers More Likely to Require a Surcharge Than to Exclude Spouses With Other Coverage Available

Source: 2012 National Survey of Employer Sponsored Health Plans

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