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K12 Health Care Reform and Exchanges FERMA July 10, 2013. How to Cover, How to Pay. Expanding/Improving Coverage. Paying for Expanded Coverage. Health Insurance Exchanges with Reformed Rules. Federal Coverage Subsidies. Medicare/Medicaid Payment Changes. Free Rider Penalty.

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how to cover how to pay
How to Cover, How to Pay

Expanding/Improving Coverage

Paying for Expanded Coverage

Health InsuranceExchanges with Reformed Rules

Federal Coverage

Subsidies

Medicare/MedicaidPayment Changes

Free Rider Penalty

Expansion of

Medicaid

IndividualMandate

Taxation of High

Income Individuals

IncreaseOther Taxes

EmployerMandate

High-Cost EmployerCoverage Taxation

= Direct impact to employers

= Indirect impact to employers

= Direct and indirect impact to employers

start preparing for 2014 provisions
Start Preparing for 2014 Provisions
  • Guiding Principles
  • Focus on participant actions
  • Stay objective
  • Simplify messages
  • Provide guidance
  • Capitalize on the opportunity
exchange update
Exchange Update
  • Coverage through the exchanges will begin in every state on January 1, 2014, with enrollment beginning October 1, 2013.
  • States can elect to:
    • build a fully state-based exchange,
    • enter into a state-federal partnership exchange, or
    • default into a federally-facilitated exchange.
  • The Affordable Care Act (ACA) directs the Secretary of Health and Human Services (HHS) to establish and operate a federally-facilitated exchange in any state that is not able or willing to establish a state-based exchange.
  • In a federally-facilitated exchange, HHS will perform all exchange functions. States entering into a state-federal partnership exchange may administer plan management functions, in-person consumer assistance functions, or both, and HHS will perform the remaining exchange functions. Federal exchanges may have more carriers than state exchanges.
exchange update cont d
Exchange Update (cont’d)
  • Exchange health plans options will vary from state to state and carriers will selectively participate state by state.
    • Aetna – 14 exchanges
    • CIGNA – 5 exchanges
    • Humana – 14 exchanges
    • United Healthcare – 10 – 25 exchanges
  • There will be four types of medical plans offered through an Exchange:
    • Bronze (60% actuarial value)
    • Silver (70% actuarial value)
    • Gold (80% actuarial value)
    • Platinum (90% actuarial value)
    • Catastrophic plan for those under 30
  • Exchanges will first be made available to individuals and small employers of <50 employees. States will retain option to include large employers in 2017.
public exchange status by state
Public Exchange Status by State

MAINE

ALASKA

NH

WA

WA

VT

VT

ND

MONTANA

MINN

MASSACHUSETTS

MASSACHUSETTS

ORE

WIS

IDAHO

NY

NY

SD

MN

WYO

RI

IOWA

PA

NEB

NJ

NEV

OHIO

HA

IND

UTAH

IL

CO

W VA

VA

CT

KANSAS

MO

KY

CA

NC

TN

OK

Creating Exchange

ARIZ

SC

DE

Ark

NM

GA

Won’t Create Exchange

ALA

MS

MD

LA

TEXAS

Partnership Exchange with Feds

Democrat Governor

FLORIDA

Republican Governor

state medicaid expansion possibilities
State Medicaid Expansion Possibilities
  • States can expand Medicaid entitlement to individuals with incomes up to 133% of Federal Poverty Level (FPL), covering up to 17 to 22 million new Medicaid beneficiaries
  • Less than half of states are expanding Medicaid in 2014
  • If a state sets up an exchange but does not expand Medicaid, individuals with incomes between 100% and 133% of FPL would be eligible for federal subsidies to purchase insurance in the exchange
    • Without Medicaid expansion, individuals below 100% of FPL but not currently eligible for Medicaid (approximately 11.5 million individuals*) would remain uninsured
  • Impact to employers would result from
    • Cost-shifting due to uninsured
    • Potentially higher Shared Responsibility Payments if do not offer minimum essential benefits or minimum affordable coverage to full-time employees between 100% and 133% of the FPL

*Source: The Urban Institute

half of states are expanding medicaid in 2014
Half of States Are Expanding Medicaid in 2014

ME

AK

NH

WA

VT

ND

MO

MN

MA

OR

WI

ID

NY

SD

WY

MI

PA

RI

IA

NB

NJ

OH

NV

HI

IN

UT

IL

WV

CO

VA

CT

KS

MO

KY

CA

NC

TN

DE

OK

AZ

SC

AR

NM

GA

AL

MS

MD

LA

TX

14 States Will Expand Medicaid

Democrat Governor

FL

6 States Leaning toward expanding Medicaid

Republican Governor

8 States Won’t Expand Medicaid

6 States Leaning toward Not Expanding Medicaid

16 States Undecided on Medicaid Expansion

9

2014 employer mandate postponed until 2015
2014—Employer Mandate (Postponed until 2015)
  • The Employer Mandate is also referred to as
    • The free rider penalty (historical terminology), shared responsibility payment, the assessable payment, and the employer responsibility payment
  • A Large Employer is one that employs 50 or more full-time employees (FTEs)
    • FTE generally means an individual, with respect to any month, who is employed on average at least 30 hours of service per week
  • The Employer Mandate requires a Large Employer to offer:
    • Minimum Essential Coverage that meets Minimum Actuarial Value requirements
    • Coverage that is “affordable”
    • Available to “substantially all” (i.e., 95% or more) FTEs
      • Employers must also offer coverage to dependent children up to age 26, however this coverage does not need to be affordable
      • The dependent definition does not include spouses
2014 employer mandate postponed until 20151
2014—Employer Mandate (Postponed until 2015)
  • $2,000 Tax Penalty
    • Applies when an employer fails to offer its FTEs the opportunity to enroll in Minimum Essential (health) Coverage (MEC)
      • If one full-time employee goes to an Exchange and qualifies for a subsidy, then the employer would be subject to a $2,000 penalty for each individual that was not offered coverage that met MEC guidelines
      • There is a waiver for the first 30 full-time employees.
      • The penalty is calculated on a monthly basis.
  • $3,000 Tax Penalty
    • Applies when an employer offers its FTEs the opportunity to enroll in MEC and the employee contribution for single coverage exceeds 9.5% of their income, thus being considered unaffordable
      • The penalty generally is $3,000 per year for each full-time individual who enrolls in an Exchange and qualifies for a subsidy
      • There is no 30 life waiver
      • Example of 9.5%: Employee earning $35,000/year; 9.5% of salary = $3,325 annually or $277 per month. This is the most that an employee can be asked to contribute for single coverage.
what keeps employers up at night

What Keeps Employers Up at Night

Variable Workers: Uncertain Scheduling

what keeps employers up at night cont d
What Keeps Employers Up At Night (cont’d)

Measurement period

Period of time over which employer tracks employee’s hours of service

Cannot be less than three months or more than twelve months in duration

Initial measurement period for new employees will be based on each employee’s start date

Standard measurement period for ongoing employees will be uniform period of time set by employer

Administrative period—optional (up to 90 days in duration)

Employer looks back at employee’s hours of service in measurement period

May be utilized for conducting calculation and open enrollment

Stability period

Period of time employer must offer coverage to FTE to avoid ACA penalties

Stability period can be between six months and one year but not less than Measurement Period

If employee is considered full-time in measurement period but falls to part-time in stability period, benefits must be offered through the end of the stability period

Special note for schools: Summer and winter recess may not be used as part of measurement period

14

Consulting | U.S. Health & Benefits

Proprietary & Confidential | 12/2012

slide17

Affordable Care Act – Your Compliance Timeline****

*Denotes group/insurance market reforms applicable to all group health plans.

 **Denotes group/insurance market reforms not applicable to grandfathered health plans.

*** This requirement applies to full time employees (e.g., 30 hours per week) and will require coverage that is affordable and satisfies a certain actuarial value to avoid the penalty. Guidance forthcoming.

**** Where effective date determined by plan year, assumes plan year is calendar year.

after health care reform it s decision time
After Health Care Reform, It’s Decision Time
  • Employers need a health care compliance strategy, but they also need a health care strategy.
  • The headwinds are strong – demographics, lifestyle, advanced treatment, legislation – all push costs upward.
  • The stakes for your organization are high – Medical is the most highly valued employee benefit, by a margin of 2 to 1.
  • There will be continued risk.
national council on compensation insurance study
National Council on Compensation Insurance Study
  • Indemnity benefit duration of obese workers’ compensation claimants is over five times longer than non-obese claimants
  • Medical costs for morbidly-obese employees were 6.8 times higher than for recommended-weight employees
  • Morbidly-obese employees were also twice as likely to have a workers’ compensation claim
  • Morbidly-obese employees missed 13 times more days at work
  • Recent study by Workers’ Compensation Research Institute showed that half of the states in the study hada 43% higher cost for shoulder surgery for Workers Compensation claims than for other medical should surgery claims.
unsustainable health care cost increases
Unsustainable Health Care Cost Increases

Since 2006

Today 2012

Employer

40% increase

$8,000 average spent per employee

Employee

82% increase of out-of-pocket and payroll contributions

$5,000 average spent per year

Total Cost

52% increase

Nearly $13,000 per employee annually

With employee pay typically rising at 3%

per year, compare a 19% pay increase to an82% health care cost increase

over the past 5 years.

Experts estimate that health care costs will continue to rise at 8-9% per year

Source: Aon Hewitt HHVI Database

start with targeting behaviors and risks that impact health and performance
Start With Targeting Behaviors and Risks That ImpactHealth and Performance

The Opportunity: Companies that target 3 major modifiable risk factors by changing individual behaviors can save an average of $700/employee/year in health care costs and productivity improvements

Source: 2010 World Economic Forum

reform rising cost declining health what now

“Play by New Rules”

“Play on aDifferent Field”

“Stay”

“Pay”

Reform. Rising Cost. Declining Health. What Now?

2013

Given the uncertainty of reform, employers must developcontingency plans for the possibility of each path

house money house rules
House Money, House Rules
  • Key Questions Employers Are Asking About House Money, House Rules
    • How do I get my leadership on board?
    • How do I get my employees to take ownership of their health behaviors and outcomes?
    • What are the legal limitations on what I can do, and does reform help or hurt that?
    • How aggressive do I need to be?
    • Can anyone measure the impact of different tactics to improve health and reduce cost?

Play by New Rules

leveraging subsidizing exchanges
Leveraging/Subsidizing Exchanges
  • Key Questions Employers are Asking About Exchanges
    • Will the state exchanges happen? And if they do, will that work for any of my population?
    • What are private or “corporate” exchanges?
    • How do they work?
    • What is my role as the employer?
    • How will they affect my cost? How about my employees’ cost?
    • What are the reform compliance implications if I pursue this path?

Play on a New Field

key questions that influence your approach
Key Questions That Influence Your Approach

How do health care benefits fit into your long-term total rewards strategy?

How committed is your organization to covering and funding health care for non-employees?

What level of cost increase can your company afford for health care benefits over the next 3 years?

Are you willing to hold business managers accountable for improving the overall health of their workforce?

?

?

How comfortable is your company with rewarding, penalizing or requiring employees (and covered dependents) to complete specific actions or achieve results or specific outcomes?

Is your organization willing to invest in additional vendor expenses or add internal staff to accommodate the increasing complexity of health care in the next 3 to 5 years?

Are you willing to relinquish control of some of your plans to third-party vendors?

How important is the competitive landscape to your organization?

?

Are you willing to re-think your workforce composition?

Where do you want to be by 2015 with your Benefit Strategy?