Risk Management for Health Care BenefitsIncluding Health Care Reform By the Numbers Presented by: Kate Grangard, CPA, CFO June 25, 2013
Overview of Health Care Reform • PPACA Passed on 3/23/10 • Goal: make coverage affordable, accessible, and comprehensive • Estimated 32 million additional people covered by 2019 • Florida one of six states that represents 50% of uninsured
Corralling Health Care Costs Through PPACA Medicaid Expansion Medicare Reform (Donut Hole, PCMH, MSSP) ERRP High Risk Pool Funding Exchange Funding Credit/Subsidy Elig. – The Hub Legislative Interpretation FFE Medicaid Expansion High Risk Pool Exchange Rate Review EHB Federal Government State Governments No Pre-ex Wellness Appeals Process/Patients’ Bill MLR Rate Review SBC Max Ded/OOP PCORI Preventative EHB/QHP No Lifetime Max Health Ins. Ind. Fee $$$ Health Care Costs • Pay or Play • ERRP • Tax Credit (Sm. Grp.) • Wellness Rewards • Age 26/100 % Preventive/Max. Ded. & Max OOP • PCORI & TRF Fees • SBC • Cadillac Tax • Reporting Compliance • W-2, Exchange, Mandatory discl., Avail Exchange, SBC, Monthly Coverage Insurance Companies Employers Ind. Mandate MEC Subsidy-Exchange Age 26 Medicaid Expansion SBC Risk based payment models PCORI EHR ACO/PCMH Medicare Payment Taxpayers Providers
Exploring the Risks of Health Care Reform • Financial Risk • Audit Risk • Culture Risk • Legal Risk
Healthcare ReformPPACA Highlights Timeline • Individual Mandate • Employers must offer coverage to FT employees or pay a penalty • Health Insurance Exchanges established • Insurers cannot discriminate based on health status • Plans charged Transitional Reinsurance Fee • Plan waiting periods cannot exceed 90 days • Eliminate annual benefit maximums • Eliminate pre-existing condition exclusions for all adults • Dependent coverage to age 26 • Eliminate lifetime benefit maximums on essential health benefits • Restricted annual benefit maximums • Non-grandfathered plans must cover preventive services at 100% • Eliminate pre-existing condition exclusions for children under 19 • Plans must provide SBC with OE materials • Plans must cover additional women’s preventive care at 100% • Plans charged PCORI fee You are here 2010 2011 2012 2013 2014 2018 • Employers must report health coverage costs on W-2 • OTC drugs are “qualified medical expenses” for HSA/FSA/HRA • HCFSA contributions limited to $2,500 • Employers must provide notice to employees regarding Exchanges by Oct. 1, 2013 • Employers begin to pay excise tax on “Cadillac Plans”
Exploring the Risks of Health Care Reform • Financial Risk • Audit Risk • Culture Risk • Legal Risk
Financial Risk • Employer Shared Responsibility Provision (ESRP)a.k.a. Pay or Play The ESRP states that “large” employers must offer coverage that is “affordable” and of “minimum value” to “full-time employees” and their “dependents”.
Financial RiskEmployer Shared Responsibility Provision • ESRP is effective on the first day of the plan year beginning on or after January 1, 2014 • Fiscal Year Plan Transition Relief available • Eligible employees in plan under currently eligibility terms as of 12/27/12 – no potential penalty payment until 1st day of fiscal plan year • No penalty payment for full time employees until month of fiscal plan start in 2014 if: • Employer offered plan to 1/3 of FT and PT employees at most recent open enrollment • Fiscal plan covered > ¼ of employees within specified period (point in time test on any day between 10/31/12 – 12/27/12)
Financial RiskEmployer Shared Responsibility Provision • Penalty is calculated monthly, not annually. • Penalties – Monthly Test • No Coverage Penalty - $2,000 / Full-time employee • Margin of Error Rule: Offer coverage to substantially all full-time employees and deps., a.k.a., the 95% Rule(or 5 employees.) • Note: If Employer offers coverage under the 95% Safe Harbor, Employer will still be subject to $3,000 penalty for those full-time employees who receive tax credits/subsidies from the Exchange. • Also applied if coverage not offered to dependents. • Inadequate Coverage Penalty - $3,000 / Full-time employee • Coverage is unaffordable and employee obtains federally subsidized coverage through an Exchange, OR • Coverage does not meet “minimum value” requirements and employee obtains federally subsidized coverage through an Exchange. • Pay and Play penalty exposure
Financial RiskEmployer Shared Responsibility Provision Determining “Affordability” • Employers may be assessed a penalty for offering coverage to full-time employees that is not “affordable”. • Three Affordability Safe Harbors: • Form W-2 Safe Harbor – Employee contribution for lowest cost employee only coverage does not exceed 9.5% of employee’s Box 1 W-2 wages for the applicable calendar year.
Financial RiskEmployer Shared Responsibility Provision Determining “Affordability” • Rate of Pay Safe Harbor – Test using monthly salary at the beginning of the plan year as base. Employee only cost cannot exceed 9.5% of earnings as of the first day of the plan year • “Federal Poverty Line” (FPL) Safe Harbor – Coverage will be “affordable” if self-only coverage does not exceed 9.5% of Federal Poverty Level for single individual. • Current individual FPL is $11,170
Financial RiskEmployer Shared Responsibility Provision Determining “Minimum Value” • 60% Actuarial Value • Out of pocket max - $6,350 single/$12,700 family • Essential Benefits – Large employers • Physician and mid-level practitioner care • Hospital and emergency room services • Pharmacy benefits • Laboratory and imaging services • Exchange (Marketplace) Bronze equivalent
Financial RiskEmployer Shared Responsibility Provision Defining a “Dependent” • PPACA indicates coverage must be made available to employees and their dependents. Dependents defined through this further guidance as: • Child of an employee who has not attained age 26 • Spouse coverage not necessary to be offered – if offered, not necessary to be “affordable” Maximum Waiting Period • Waiting period for coverage can be no greater than 90 days (not three months)
Financial RiskEmployer Shared Responsibility Provision Defining a “Full-Time Employee” • An employee who is employed on average at least 30 “hours of service” per week or 130 hours per month • Include compensable hours – those worked, also hours paid when no work is performed • Special periods of unpaid leave may not be counted against to reduce average hours of service including: FMLA, Military Service, Leave of absence, Jury duty, Vacation, Sick, Personal, Holiday, Incapacity including disability • Re-hired employees • Breaks in service greater than 26 weeks • Parity rule for breaks in services less than 26 weeks • Qualifying part-time, seasonal and variable employees
Financial RiskEmployer Shared Responsibility Provision Determining Eligibility of Part-TimeSeasonal, & Variable Hour Employees Safe Harbor Rule • Seasonal, Variable and Part-time employees • Measurement, Administrative and Stability Periods to determine average hours of service • All employees of all entities consistently assessed
Financial RiskEmployer Shared Responsibility Provision • Definitions Measurement Period A “standard” look-back period f 3-12 consecutive months used to determine employees’ full time status for purposes of determining benefits eligibility and employer penalty responsibility during subsequent Stability Period for variable/seasonal employees. For new hires, this “initial” period must start no later than the first day of the calendar month following employee start date. Administration Period A period of up to 90 days between the Standard Measurement Period and the associated Stability Period to determine eligibility, notification and enrollment. Stability Period A period of time following a Measurement Period in which a variable or seasonal employee is/is not considered a full time employee for purposes of determining benefits eligibility and accordingly, pay or play penalty, regardless of hours worked during this period as long as still employed.
Testing a Variable EmployeeOngoing Employee 8/1/13 7/31/14 8/1 - 9/30/14 10/1/14 9/30/15 Admin Period Standard Measurement Period Stability Period (Plan Year) 61 days 12 months 12 months Cycle 2 8/1 – 9/30/15 8/1/14 7/31/15 10/1/15 thru 9/30/16 Admin Period Stability Period (Plan Year) Standard Measurement Period 12 months 61 days 12 months Ongoing variable, part-time and seasonal employee assessment cycle: EMPLOYER: Plan Year 10/1/14 Cycle 1
Defining a Variable EmployeeNew Employee 12/1/14 11/30/15 12/1-12/31/15 1/1/16 12/31/16 Admin Period Initial Measurement Period Stability Period (Plan Year) 1mo+13days(44 days) 12 months 12 months 13 + fraction months New variable, part-time and seasonal employee assessment cycle: Employee Start Date: 11/18/14 New Employee: Hillary Clinton – Year of Hire
12/1/14 11/30/15 12/1-12/31/15 1/1/16 12/31/16 Scenario 1 – FT during Initial & Standard Measurement Periods: Full time employee from 1/1/16-9/30/17 Scenario 2 – FT during Initial but NOT FT during Standard Measurement Period: Full time employee from 1/1/16-12/31/16 Admin Period Initial Measurement Period Stability Period (Plan Year) 1mo+13days(44 days) Transition to Ongoing Employee: 12 months 12 months 13 + fraction months 8/1/14 7/31/15 8/1/15 7/31/16 8/1-9/30/16 8/1-9/30/15 10/1/16 9/30/17 10/1/15 9/30/16 Admin Period Admin Period Stability Period (Plan Year) Stability Period (Plan Year) Standard Measurement Period Standard Measurement Period 12 months 12 months 12 months 12 months 61 days 61 days EXAMPLE: Transition from New to Ongoing Employee Employee Start Date: 11/18/14 (Employer A – 10/1 Fiscal Plan) New Employee:
Financial RiskEmployer Shared Responsibility Provision Penalty Assessment Process • IRS will notify employer of potential liability and provide opportunity to respond • Notification will be given after: • Employees’ individual tax returns are due • Employer has filed an informational report (more info to come) identifying full-time employees and describing coverage offered • If penalty deemed assessable, IRS to bill and expect immediate payment • Penalty to employers will not be paid on any tax return
Financial RiskCadillac Tax • 40% excise tax on “Cadillac Plans” • $10,200 for single coverage (High Risk Employees: $11,850) • $27,500 for family coverage (High Risk Employees: $30,950) • Excludes dental and vision • Includes health plan, FSA, HSA, HRA and supplemental • Employers must calculate and report excess value and tax PENDING GUIDANCE
Financial RiskNon-Compliance Penalties • Reporting • Form W-2 • Form 720 • Notifications • Plan amendments • Grandfather Plan • Exchange Availability • Updated COBRA notice • SBC
Financial RiskNon-Compliance Penalties Summary of Benefits & Coverage (SBC) 2012 Culturally and Linguistically Appropriate Services (CLAS) Florida County Data http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/clas-data.html
Financial RiskNon-Compliance Penalties *If policy not issued by renewal date, SBC must be issued within 7 business days after the either of: a) the date the policy is issued, or b) receipt of written confirmation of intent to renew. Summary of Benefits & Coverage Compliance/Logistics: Triggers, Timing and to Whom
Financial RiskNon-Compliance Penalties W-2 Reporting of Employer Sponsored Health Coverage General Rules • Reportable cost is ER contribution + EE contribution of group health coverage for entire family – including adult dependents and domestic partners. If group health plan includes dental & vision – report entire premium. • Do not report clinics, Wellness or EAP plans unless separate COBRA premium is charged. • Do not include HRA, Employee contributions to FSA, HSA or Archer MSA’s. • Calendar year calculation • Three methods to calculate value: • Premium charged method – Fully insured • COBRA applicable premium method – Self-insured, HDHP, Minimum Premium • Modified COBRA premium method – where employer subsidizes cost of COBRA • CONSISTENCY • Keep documentation • Further guidance with Q&A Notices 2012-9 and 2011-28.
Financial RiskNon-Compliance Penalties • Benefit Plan Design • No annual max • No lifetime max • Max waiting period • Wellness HIPAA violation • Medical FSA • HRA • Discrimination
Financial RiskBudget Exposure Industry Related Fees • PCORI Fee • Health Insurance Industry Fee • Transitional Reinsurance Program
Financial RiskBudget Exposure PCORI Fee $1 PMPY in year 1; $2 PMPY in years 2-7 (indexed for medical inflation) Fee applies to policy or plan years ending on or after 10/1/12 and before 10/1/2019. Fee is due in July of the calendar year that follows the end of applicable plan or policy year for self-funded plans on Form 720. (Expect fee built into rates of fully insured plan.) First payment due by 07/31/2013 for calendar year plans or those with plan years ending in October, November or December of 2012. Plans with policy years ending after 12/31/2012, will make first payment in July, 2014. Plan sponsor is responsible to file report on behalf of all participating employer groups in plan. Recommend payment not made from plan assets
Financial RiskBudget Exposure PCORI Fee Form 720
Financial RiskBudget Exposure PCORI Fee What plans are subject to the PCORI Fee?
Financial RiskBudget Exposure If two or more self-insured plans cover the same individuals and have the same plan year, do not pay the fee twice. All Plans Self Insured: (i.e. Medical & Rx, or Medical & HRA) If major medical is fully insured and fee is paid by insurance carrier, the plan sponsor (employer) is responsible for payment of fee for all covered lives in the HRA, thus double counting the participants Mixed Fully Insured and Self Insured: (i.e. Medical & HRA) PCORI Fee • Special rules for multiple plans: • For multiple plans running on same plan year:
Financial RiskBudget Exposure Actual Count Method The plan sponsor counts the number of individuals covered by the plan each day of the plan year and divides by the number of days in the plan year. The plan sponsor counts the number of individuals covered by the plan on one or more dates during each quarter of the plan year and divides by the number of dates on which the count was made. (Dates must be within three days of the date used in the first quarter.) Snapshot Method Allows employer to count all “self only” participants, and use a factor of 2.35 for any employee with other than “self only” coverage. Snapshot Factor Method The plan sponsor uses the plan’s annual Form 5500 filed for the plan year – adding the count of participants at the beginning of the year and at year end to arrive at the average number of covered lives. Form 5500 Method PCORI Fee Three methods for determining the average number of covered lives based on entire plan year:
Financial RiskBudget Exposure Health Insurance Industry Fee Fee to assist the government in subsidizing coverage for lower income individuals and families Paid by the carrier providing fully insured plans Fee is ongoing (no planned end) Result = premium increase of 2.3 – 3.5% for 2014
Financial RiskBudget Exposure Transitional Reinsurance Program • Temporary program intended to stabilize premiums in the individual market from 2014 – 2016. • Protects insurers from uncertainty in rate setting. (PCIP and other high risk pools to flow into Exchange(s)) • Applies to: • Fully insured grandfathered and non-grandfathered plans • Insurance carrier pays fee • Self insured grandfathered and non-grandfathered plans • TPA’s may make payment on behalf of plan sponsor or plans may pay directly, although plan liable for the fee.
Financial RiskBudget Exposure Transitional Reinsurance Program • How much is the fee? *State has option to add an additional a state-level fee.**To be confirmed through HHS Notice of Benefit and Payment Parameters 2014-2015
Financial RiskBudget Exposure Transitional Reinsurance Program • Budget Calculation Example • 10/1 Fiscal plan year / 2600 Total Members
Financial RiskBudget Exposure Transitional Reinsurance Program • When is it due and how is it paid? • Fee is a calendar year fee • Fully insured: pay in/with monthly premiums starting plan years that extend into 2014 • Self insured: likely remit to TPA monthly or annually • Enrollment count submitted to HHS by November 15th of years 2014, 2015, and 2016 • HHS issued invoice expected by December 15th • Payment due within 30 days of invoice NOTE: Fee is tax deductible expense.
Financial RiskBudget Exposure Transitional Reinsurance Program What plans are subject to the fee?
Financial RiskBudget Exposure If two or more self-insured plans cover the same individuals and have the same plan year, do not pay the fee twice. All Plans Self Insured: (i.e. Medical & Rx, or Medical & HRA) If integrated major medical is fully insured and HRA or Rx plan self-insured – treat as a single group health plan to calculate fee. Mixed Fully Insured and Self Insured: (i.e. Medical & HRA) Transitional Reinsurance Program • Special rules for multiple plans: • For multiple plans running on same plan year:
Financial RiskBudget Exposure Actual Count Method The plan sponsor counts the number of individuals covered by the plan each day of the first 9 months of the applicable year and divides by the number of days in the first 9 months of the year. Snapshot Method The plan sponsor counts the number of individuals covered by the plan on one or more dates during the first three quarters of the plan year and divides by the number of dates on which the count was made. (Dates must be within three days of the date used in the first quarter.) Allows employer to count all “self only” participants, and use a factor of 2.35 for any employee with other than “self only” coverage during first three quarters of the year. (Not available for groups with both fully insured and self insured options) Snapshot Factor Method Form 5500 Method Add the total count of participants at the beginning of the year and at year end, as reported on 5500, and divide by two. (May not be used if plan sponsor has multiple self insured plans or both fully insured and self insured plans.) Transitional Reinsurance Program Three methods for determining the average number of covered lives based on entire plan year:
Financial RiskBudget Exposure Trend and Plan Design Impact • “Too good to be true” renewals • Under 100 market manual rate increases • Guaranteed issue, guaranteed renewability, but no credible experience • Small group composite rate elimination • Specialty drug rising costs / Clinical trials • Medical trend • Max out of pocket limits • Elimination of lifetime/annual maximums • Smoker surcharge/Wellness rewards • Adverse risk entering small group market • Special change in election/marketplace enrollment
Financial RiskBudget Exposure Trend and Plan Design Impact • Special Change in Election Amendment – Section 1.125-4 • Availability of Exchange is NOT a change in status • Transition Relief • Large Employers • Fiscal Plan Years Starting in 2013 • Section 125 Plan doc amendment • Accident & Health plans only • Allows 1 change prospectively to • Revoke, change current election (go to exchange) • Make salary reduction election for fiscal plan that began in 2013 (go in ER plan) • Must incorporate rules into Section 125 plan doc by 12/31/14 and must be retro to first day of fiscal plan year started in 2013.
Audit Risk Regulatory Agencies • Internal Revenue Service • Pay or Play Penalty / ESRP • FSA; $2,500 max • Form W-2 reporting of employer sponsored health coverage • Form 720 • Elimination of stand alone HRA • Imputed Income
Audit Risk Regulatory Agencies • Department of Labor - Compliance • Mandatory disclosures • MLR rebate distribution • Max waiting period • Summary of Benefits and Coverage (SBC) • Content and distribution • Amended plan documents • FSA, $2,500 max • Special change in election amendment