Affordable Care Act and the UMC Update€¦ · 31/10/2014 · • Health Insurance Marketplace...

Affordable Care Act

and the UMC—Update

AUMCPBO Annual Meeting

October 2014

Disclaimer

The material in this update is provided

as general information and education.

It should not be construed as, and does not

constitute, legal advice nor accounting, tax,

or other professional advice or services on

any specific matter, nor does this message

create an attorney-client relationship.

Readers should consult with their counsel or

other professional advisor before acting on any

information contained in this presentation.

Agenda

• ACA* Implementation

• 2014 Outcomes

• 2015 Outlook

• Exchange Plans

• Employer Shared Responsibility and Affordability

• ACA Compliance Burdens and Strategic Pressures

• Employer Strategies

• Conference Strategies

* ACA: Affordable Care Act (Patient Protection and Affordable Care Act, PPACA)

ACA Implementation

Reminder—ACA 2014

• Individual Mandate — Individual insurance market reforms

• Health Insurance Marketplace (“exchanges”) — Government assistance for

modest income premium tax credits (PTCs)

• Employer Shared Responsibility Rule — “Pay or play” or “Employer Mandate”

— January 2015 (100+ FTEEs*)

— January 2016 (50-99 FTEEs)

• Expanded Medicaid (some states)

* FTEEs: Full-time equivalent employees

Status of State ExchangesOctober 2014

State Exchange Federal Exchange (No State Exchange)

State Exchange Using Federal Exchange Support in 2015 State SHOP/Federal Exchange

Partnership Exchange State Exchange Used Federal Exchange Support in 2014

Federal Exchange Litigation

Halbig v. Burwell*; King v. Burwell*

Challenged availability of premium tax credits

through federally-facilitated exchange (FFE)

and partnership marketplaces (“exchanges”)

• Fourth Circuit: King v. Burwell

— Held that PTCs were available through all exchanges

• D.C. Circuit: Halbig v. Burwell

— 3-judge panel held that PTCs are only available for exchanges

“established by a state”

— Whole court (en banc) agreed to rehear the case in December

(vacating three-judge panel’s ruling)

* Sylvia Burwell: Secretary, U.S. Department of Health and Human Services (HHS)

No Expansion Expansion Expansion Pending Considering Expansion

Where States Stand on the ACA’s Medicaid Expansion

October 2014

Tax Credits

• State and federal exchanges eligible for PTCs

— Subject to ongoing federal court litigation challenge

Premium Tax Credits

• Exchange plan premiums subsidized

with federal assistance:

— Premium tax credit (PTC)

— Individuals and families with household income*

between 100-400% of federal poverty level (FPL)

* Household income: Modified adjusted gross income (MAGI)

100% of FPL 400% of FPL

$11,670 (Single)

$23,580 (Family of 4)

$46,680 (Single)

$94,320 (Family of 4)

% FPL Single Family of 2 Family of 3 Family of 4

100% $11,670 $15,730 $19,790 $23,580

138% $16,105 $21,707 $27,310 $32,540

150% $17,505 $23,595 $29,685 $35,370

200% $23,340 $31,460 $39,580 $47,160

250% $29,175 $39,325 $49,475 $58,950

300% $35,010 $47,190 $59,370 $70,740

400% $46,680 $62,920 $79,160 $94,320

>400% $46,681 $62,921 $79,161 $94,321

PTC Eligibility: % of FPL (2014)

For families/households with more than 4 persons,

add $4,020 for each additional person.

Household Income (MAGI)

MAGI (Code §36B)

• Modified adjusted gross income — Taxpayer’s adjusted gross income (AGI) (Code §62)

— Form 1040: Line 37 (last line of page 1)

• Increased by: — Foreign income

— Tax-exempt interest

— Non-taxed Social Security benefits

• Clergy housing/parsonage not included

• Employee 401(k)/403(b)/FSA* contributions reduce MAGI

• Certain “above-the-line” deductions reduce MAGI

* FSA: Flexible spending account

PTC Eligibility Requirements

Two main requirements*

(Both required to be “PTC-eligible”)

• Between 100% and 400% of federal poverty level (FPL)

Inadequate or no employer coverage

• No employer coverage

• Employer coverage is less than “minimum value”

• Employer coverage is not “affordable” to employee

* Other requirements include not being:

1) incarcerated

2) covered by Medicare, Medicaid or other govt. coverage: CHIP, TRICARE, etc.

3) married, filing separately

2014 Outcomes

ACA Enrollment

How many paid

for Marketplace Plans? 8.9 million (approx. 94%)

Off-Marketplace QHPs* 8.0 million (est.)

PTC-eligible 87% (est.)

Previously uninsured 57% (est.)

As of October 2014 Open Enrollment Period

ACA expanded enrollment 16.9 – 19.8 million

Expanded Medicaid enrollees 7.0 – 9.9 million

Marketplaces enrollees 9.9 million

(7.4 million current mid-August)

* QHPs: Qualified health plans

ACA Impact on Uninsured

2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2012 2Q 2013 2Q 2014

% Uninsured U.S.

Source: Gallup

Change in Uninsured Rates

Lower Uninsured Rates

State Category % Uninsured

% Uninsured

2014 (Mid-year)

Change in

Uninsured %

States with expanded

Medicaid and state or

partnership exchange 16.1 12.1 -4.0

States with only one

of the above or neither 18.7 16.5 -2.2%

Greatest Drops in Uninsured

State % Uninsured

% Uninsured 2014

(mid-year)

Change in

Uninsured (%)

Reduction in

Uninsured

Arkansas 22.5 12.4 -10.1 45%

Kentucky 20.4 11.9 -8.5 42%

Delaware 10.5 3.3 -7.2 69%

Washington 16.8 10.7 -6.1 36%

Colorado 17.0 11.0 -6.0 35%

W. Virginia 17.6 11.9 -5.7 32%

Oregon 19.4 14.0 -5.4 28%

California 21.6 16.3 -5.3 25%

New Mexico 20.2 15.2 -5.0 25%

Connecticut 12.3 7.4 -4.9 40%

Source: Gallup

Other State Uninsured Rates

State % Uninsured

% Uninsured 2014

(Mid-year)

Change in

Uninsured (%)

North Carolina 20.4 16.7 -3.7

Florida 22.1 18.9 -3.2

Texas 27.0 24.0 -3.0

Ohio* 13.9 11.5 -2.4

Tennessee 16.8 14.4 -2.4

Wisconsin 11.7 9.6 -2.1

Georgia 21.4 20.2 -1.2

Michigan** 12.5 11.9 -0.6

Missouri 15.2 15.1 -0.1

Virginia 13.3 13.4 +0.1

* Expanded Medicaid January 1, 2014 ** Expanded Medicaid April 1, 2014

Source: Gallup

2015 Outlook

Medicaid Expansion

4 more states seriously examining expansion.

— Indiana, Tennessee, Utah, Wyoming

January 2014 24 states

Expanded Medicaid

January 2015 3* more states

(Total 27)

* Michigan, New Hampshire, Pennsylvania

Cost of Non-Expansion

• 23 non-expansion states:

— Forgo $423 billion federal Medicaid through 2022

— Health systems could lose $167 billion

in enhanced Medicaid payments

— Could cover 6.7 million more uninsured people

through expanded Medicaid

• Three largest health systems—Medicaid

expansion states:

— Hospital admissions: 10%–32%

— Uncompensated care: 47%

2015 Premium Increases

Actual Rates

• Indiana: 15.6% increase

(highest average premium

* 28 states with published proposed or approved premiums rates

Average* premium across all plans 2015:

$384 monthly (before PTCs). Range:

• 23% reduction in Arizona

• 36% increase in Nevada

Proposed Rates:

average increase 7.5%

• 4.2% increase: California

• 13% increase: New York

<0% 10.1%—15% Limited Information Available

0%—5% >15% Data Not Available

5.01%—10%

Average Premium Increases As of September 25, 2014

2015 Benchmark Premiums

8.7 6.6

2.7 2.5

0.8 -0.7 -0.7 -0.8

-4.4 -4.7

-9.8 -11.4

-20 -15 -10 -5 0 5 10

% Change in Premium for Benchmark (Second Lowest Cost Silver) Plan

Source: Kaiser Family Foundation

California (L.A.)

Nevada (Las Vegas)

Michigan (Detroit)

Virginia (Richmond)

Maryland (Baltimore)

Oregon (Portland)

Vermont (Burlington)

Tennessee (Nashville)

Colorado (Denver)

Rhode Island (Providence)

Washington (Seattle)

Connecticut (Hartford)

Maine (Portland)

AVERAGE

Ohio (Cleveland)

New York (New York)

Marketplace Competition

Source: McKinsey & Co.

No Data No Change Fewer Issuers

+ 1=2 Issuers + 3 Issuers + 4 or More Issuers

As of October 1, 2014

Source: McKinsey & Co.

Marketplace Competition (Example)

Illinois

Year No. of

Issuers Total Plans

Individual

Marketplace SHOP*

2014 8 165 120 45

2015 10 504 306 198

* SHOP: Small Business Health Options Program

Georgia Marketplace 2014

Five Issuers

• One issuer sold plans statewide—in all 8 geographic regions

• Rural areas—far fewer plan choices

Example: 21-year-old could face $200 difference in average premiums

for same Marketplace plan, depending on region

Four New Issuers • To sell plans in Georgia Marketplace

— Three issuers will sell plans statewide

• Significant increase in Marketplace competition, options

Market Creativity

Disruptive change and health insurance market

• eHealth: ehealthinsurance.com

• Wal-Mart and DirectHealth.com — GoHealthInsurance.com

— Act as “Navigator” to assist in plan selection

— Agents receive commission

to enroll customer in a plan while “in store”

• Brokers used to purchase individual plans—examples: — 39% in California

— 44% in Kentucky

Market Creativity

• Retailer involvement: Walgreens, Target,

Wal-Mart, CVS “Health”

• Issuer structural changes

— ACOs*

— Direct ownership of hospitals and provider networks

(when providers become insurance company employees)

• Hospitals/providers—directly servicing employers

and exchange plans (co-ops)

* ACOs: Accountable Care Organizations

Election 2015—Potential Impact

If GOP retains control of House

and captures majority in Senate

• Repeal ACA? Doubtful (at least until 2017)

• Amend ACA? Possible, through:

— Bipartisan agreement

— “Reconciliation bills” or

— Riders to critical spending bills

Possible ACA Amendments

• Bipartisan possibilities:

— Repeal Medical Device Tax

— Amend definition of full-time

30 hours/week 40 hours/week

— Repeal Employer Mandate altogether

• GOP-preferred possibilities

— Amend age premium rating limits

3:1 ratio limit 5:1 or 7:1 ratio limits

— Greater flexibility for states under Medicaid

— Amend Individual Mandate or change Medical Underwriting

Rules “continuous coverage only”

Exchange (Marketplace) Plans

Exchange Plans

Actuarial Value 58-62% 68-72% 78-82% 88-92% ≥ 60%

Covered Services

Essential health benefits and preventive services

Preventive services (need not cover Essential Health

Benefits)

Essential Health Benefits

No annual limits No annual limits No annual limits No annual limits No annual limits (on covered EHBs)

2014 Deductible Maximums

$2,000 Individual $4,000 Family

$2,000 Individual $4,000 Family None

2014 Out-of-Pocket

Maximums

$6,350 Individual $12,700 Family

Silver plan used to determine any government subsidies through the exchange

Bronze Silver Gold Platinum Group Plans

Exchange Plans Concerns

• High out-of-pocket costs

— Silver Plan 30% cost-sharing for insured

— Silver Plan average OOP* $5,764

— Platinum Plan average OOP $1,855

• Narrow networks

— Example: No “diagnostic radiologists”

in-network in any Chicago-region ACA plan

* OOP: Out-of-pocket maximum

Cost-Sharing Reductions

Second Government Subsidy:

Reduces OOP costs of Silver Marketplace Plan

• Limited to those between 100% and 250% FPL

MAGI Actuarial “Value” Deductible

Out-of-Pocket

Doctor Visit

Co-pay

Hospital

Co-pay

100% —

150% FPL

“Silver” Plan $0 $1,000 $10 $100

151% —

200% FPL

“Silver” Plan

$250 $2,000 $15 $250

201% —

250% FPL

“Silver” Plan $1,000 $4,000 $30 $1,500

≥ 250% FPL 70%

Silver Plan $2,000 $5,500 $30 $1,500

How Narrow Are Networks

Source: National Center for Policy Analysis and American Enterprise Institute

Employer Shared Responsibility

Applies only to large employers

• Applicable large employer:

averages 50 or more full-time

equivalent employees (FTEEs)

Small employers:

(<50 FTEEs)—

exempt

Also called “Employer Mandate”

or “pay or play” rule

Effective date:

• Statute: January 1, 2014

• July 2013 delay for all employers January 1, 2015

• New delay for some employers 2016

UMC Impact

• Employer Shared Responsibility Rule

should not apply to most UMC local churches

• However, each annual conference

will likely have a few (up to a few dozen)

local churches subject to the Rule

• Many annual conference offices affected

• General agencies affected

IRS Standard (for Now)

Churches [e.g., UMC local churches] and conventions and associations of churches [e.g., annual conferences, denominations] may use a “reasonable, good faith interpretation” of [the Tax Code] to determine who is an “applicable large employer” under the Employer Mandate

Treating appointed clergy as “employee” of local church

that pays their salary and issues their W-2 should be

reasonable, good faith interpretation

Treating local churches a separate employers from

the conference and from each other (generally)

seems reasonable, good faith interpretation

Final Rule Highlights

Mid-sized employers (50–99 FTEEs)

Delay January 1, 2016

Certification required—employer must certify to IRS:

• No layoffs to avoid 100 FTEEs in 2014

• No benefits cutbacks 2014-2015

Large employers (100+ FTEEs)

Transition rules easier compliance for 2015

• Offer coverage to 70% of FTEs in health plan

— 2016: Offer coverage to 95% of FTEs

• Deduct 80 FTEs from “no coverage” penalty in 2015

— 2016: Deduct 30 FTEs

Employer Aggregation

Local Churches

• Day care centers

• Schools and

after-school programs

• Summer camps

• Other ministries

“Controlled Group” rules of Code §414(c) apply—

“lumping together” closely affiliated employers

Conferences

• Summer camps

• Agencies, boards, etc.

• District offices

• Foundations

• Possibly also: schools, hospitals,

retirement homes over which

conference may have control

for board appointments

Employer Aggregation

Common control exists where:

• Test 1: Organizations share EIN**

• Test 2: Organizations share 80% of board members/trustees

(or control 80% of other board), or

• One organization provides 80% of operating funds

for another; and organizations share some common

management or supervision

* Churches and conventions and associations of churches

** EIN: Employer identification number

Rule for churches* “reasonable good faith interpretation”

Counting Employees Employer Shared Responsibility Rule

Is an employer subject to the Rule in 2015?

Counting to 50 (or 100) in 2014

Employee Type Rule or Accommodation

Full-time employees (FTEs) 30 hours/week (130 hours/month)

Part-time employees (PTEs)

(< 30 hours/week )

Added to FTE count to determine:

Is employer subject to Rule?

Aggregate monthly hours worked ÷ 120

(no employee counted >120 hours)

Paid-leave employees

(vacation, jury duty,

disability, leaves of absence)

Added to FTE count to determine:

Is employer subject to Rule?

“Seasonal workers”

Employer not subject to Employer Mandate (“Rule”)

if exceeds 50 FTEEs solely due to

seasonal employees for less than 120 days of year

Employer Offer of Coverage

Large employers must provide

“affordable coverage” with “minimum value” to:

• Full-time employees (FTEs) (30+ hours/week), and

• Dependent children (up to age 26) of FTEs

• … Or else pay a penalty

— Excludes certain seasonal employees (< 6 months)

— Excludes part-time employees

— Spouse coverage not required

Small employers: Exempt

Offer of Coverage 2015-2016

“Large” Applicable Large Employer

(100+ FTEEs) • Offer coverage to 70% of FTEs in 2015

• Offer coverage to 95% of FTEs in 2016

“Mid-sized” Applicable Large Employers

(50–99 FTEEs) • 2015: not required to offer coverage

(must certify to IRS)

• 2016: offer coverage to 95% of FTEs

Penalties

No Coverage

At least one FTE

qualifies for PTC*

Penalty 2015 = $2,000 per FTE

(minus first 80 FTEs)

Penalty 2016 = $2,000 per FTE

(minus first 30 FTEs)

Inadequate Coverage

Employer offers coverage

and at least one FTE

qualifies for PTC*

Penalty = $3,000 per FTE

receiving a PTC

(limited to “No Coverage” penalty)

Penalties adjusted for inflation after 2014

Part-time employees count toward determining applicability of the

Rule—but do not count for penalty assessed.

* PTC: Premium tax credit

Affordability

Three “Affordability” Rules Employee’s Cost for Premium

ACA has several definitions of “affordable”

<9.5% of MAGI for individual coverage

• Employer avoids Employer Mandate penalty (“pay or play”)

• Safe Harbor: <9.5% of W-2 wages (known to employer)

for individual coverage

>8.05% of MAGI for individual coverage

• Employee may avoid Individual Mandate penalty

• Determined separately for spouse, dependent children

>9.56% of MAGI for individual coverage • Employer plan is unaffordable

• Employee is eligible for PTC!

• Dependent coverage affordability “glitch” — Family coverage is “affordable” if cost to employee:

<9.56% of MAGI for self-only coverage

Affordability Safe Harbors

W-2 Wages: Employee contribution for self-only coverage

in lowest-cost plan is less than 9.5% of W-2 wages

Rate of Pay: For any month, employee share of

monthly cost for self-only coverage in lowest-cost plan

is less than 9.5% of 130 hours multiplied by

employee’s hourly rate of pay

FPL*: For any month, employee share of monthly cost

of self-only coverage of lowest-cost plan

is less than 9.5% of 1/12 of FPL for a single individual

Safe harbors for affordability under Employer Shared Responsibility Rule

* FPL: Federal poverty level

Conference Affordability Approaches

Clergy (employee) contribution for self-only coverage

of conference minimum salary:

Similar to “rate of pay” safe harbor

of federal poverty level (FPL)

for 2014:

9.5% of $11,670 = $92.39 per month

ACA Pressures on Employer Plans

Compliance Burdens

• HIPAA compliance (increased by ACA)

— Health plan ID (2014 or 2015)

— HIPAA certification (2015 or 2016)

• Plan compliance with ACA Market Reforms

• ACA reporting requirements (2015 plan year)

— Minimum essential coverage (plan) reporting

— Employer Shared Responsibility reporting

• Looming Cadillac Plan Tax

Strategic Pressures

• Price competition from ACA Marketplaces

• Changing nature of health plans

— Pre-existing exclusions and

medical underwriting—eliminated

— Industry shifting to defined contribution model

• Limits on Tax-Advantaged Employer Coverage

• Looming Cadillac Plan Tax

Health Plan ID

ACA—Health Plan ID

* HPID: Health plan identifier number

** TPA: Third-party administrator

November 5, 2014: Large health plans Annual receipts (claims paid) ≥ $5 million

November 5, 2015: Small health plans Annual receipts < $5 million

• Plan sponsor may obtain separate HPID* for each “sub-health plan”

• Online application with Health Insurance Oversight System (HIOS)

November 7, 2016 Covered entities must use HPIDs in any HIPAA standard transactions

• Self-insured plan sponsors (employers) will rarely use HPID

(don’t perform HIPAA standard transactions)

• But plan’s TPAs** and business associates may use HPID more often

ACA—HPID

As of November 7, 2016 Plan sponsors must use HPIDs in any HIPAA standard transactions

OneExchange plan sponsors

obtain HPID for

OneExchange HRA* plans

• “Small health plans”

(annual receipts < $5 million)

General Board obtains

HPID for HealthFlex

active plans

* HRA: Health reimbursement account, health reimbursement arrangement

ACA—HPID

• Application process completely online

— Technical difficulties in 2014

— Should be smoother in 2015

• Requires “authorized official”

who can bind the organization to approve

• TPA cannot obtain HPID on behalf of the plan

• General Board will publish step-action aid

and other tools to help plan sponsors comply

ACA—HIPAA Certification

Proposed Regulations

* HHS: U.S. Department of Health and Human Services

** EFT: Electronic funds transfer

Certify compliance with HHS*

by December 31, 2015

Obtain certification of

HIPAA compliance in 2015 for:

• Eligibility

• Health claim status

• EFT** remittance

Certify with HHS* by

December 31, 2016

Large Plans Small Plans

(<$5 million)

Penalties for Failure

$1 Per covered life per day

until failure is cured

$2 Per covered life per day

for knowing noncompliance

$20 Per covered life annually

for knowing noncompliance

Maximum Penalties:

ACA Fees

PCORI* Fee

• $2 per covered life for 2013

• $2.08 per covered life for 2014

— Increases with inflation in future years

• “Plan sponsor” pays PCORI Fee for active employees,

retirees and all covered dependents (“covered lives”)

• IRS Form 720 (with payment) submitted by July 31

of year after the plan year (calendar year plans)

— Example: July 31, 2014 for 2013 plan year

• Plan years 2012–2018

* PCORI: Patient-Centered Outcomes Research Institute

Transitional Reinsurance Fee

Applies to fully-insured and self-insured plans for plan years 2014–2016

• Self-insured plans—plan sponsor responsible for fee

• Fully insured plans—insurer responsible for fee

Per Covered Life

January 15, 2015 ($52.50 per life)

November 15, 2015 ($10.50 per life)

January 15, 2016 ($33 per life)

November 15, 2016 ($11 per life)

2016 $25 (estimate)

Pay in two installments to U.S. Department of Health and Human Services (HHS) through Pay.gov

Reinsurance Fee Exceptions

• No express exemption of retiree plans — However, not applied with respect to any covered life

for whom Medicare is primary payer

— OneExchange HRAs should be mainly exempt

• Health flexible spending accounts (FSAs)

• Health savings accounts (HSAs)

• HRAs that are integrated with a group health plan

• Stand-alone vision, dental, prescription drug plans

• Employee assistance programs (EAPs)

• Most wellness programs

Reinsurance Program Fee

Timeline for 2014 Fee

• November 15:

Head count to HHS

• December 15:

Invoice from HHS

• January 15:

1st installment due

• November 15:

2nd installment due

ACA Reporting and Tax Forms

ACA Tax Reporting Regime

Individual Mandate

• Form 1095-A, Form 1095-B, or Form 1085-C

• Form 8965, Form 1040

Employer Mandate

• Form 1095-C

• Form 1095-A, Form 1095-C

• Form 8962, Form 1040

Tax Forms

• Form 1040

— Line 61 (New):

Individual Mandate

• Form 8962 Premium tax credit

• Form 1095

— 1095-A: Marketplace coverage

— 1095-B: Plan coverage

(insured or self-funded

employer plans)

— 1095-C: Employer-provided

coverage

Reporting Mandates

Minimum essential coverage

• Issuers—Form 1095-A

• Plan sponsors—Form 1095-B

— Regardless of size

• Employers—Form 1095-C

— Applicable large employers only (ALEs)

• ALEs—Form 1095-C

Nondiscrimination

Highly compensated employee (HCE)

defined differently than for retirement plans • Highest-paid 25% of all employees

Every employer has HCEs (even small churches)

Non-Discrimination Rule

Could present significant challenge for churches

• Penalties for non-compliance are different — Self-funded: Health benefits of HCE become taxable

— Insured: Excise tax ($100/day per HCE), civil money penalty,

or a civil action to compel nondiscrimination

• Enforcement of Section 105(h): “on hold”

pending further IRS guidance

• Strange legislative and regulatory history…

Late 2014 (Est.)

Excise Tax Penalties

• Code §4980D — $100 per day per “affected individual” …

can accumulate quickly

— Applies to church plans

• ACA provisions—already in place — SBC*, no pre-existing condition exclusions,

no annual/lifetime limits, dependent child coverage,

preventive health coverage, health plan reporting,

claims and appeals, patient protections

* SBC: Summary of benefits and coverage (standardized)

Penalties for violations—plan sponsor

Marketplace Competition

Marketplace Premiums Compared to Employer Plans

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Silver Gold Employer Platinum

Lowest

Median

Employer

Source: PwC’s Health Research Institute

Employer Plans Compared to Marketplace Plans

$6,119 $5,844 $4,885

Employer

Single-Employee

ACA Marketplace

Median Premium*

ACA Marketplace

Average of

Lowest premiums*

* Blend of gold and platinum premium rates

4% lower 20% lower

Cadillac Plan Tax

Excise Tax on high-cost plans:

ACA Section 9001(a) …added Tax Code §4980I

• Applies to “tax-excluded employer-provided

health plans”—self-insured or fully-insured

• Provided to employee, former employee (retiree),

surviving spouse or other “primary insured”

• Towers Watson Survey:

— 73% of companies are concerned about Excise Tax

— 62% are using “glide paths” of plan changes 2015 to 2018

— 48% likely to trigger Excise Tax in 2018

— 82% likely to trigger Excise Tax by 2023

Cadillac Plan Tax—2018

Applies to fully-insured and self-funded plans

Assessed on “cost of coverage” for plans in excess of certain thresholds

40% excise tax on plan’s cost in excess of:

• $10,200 for individual coverage

• $27,500 for family (“other than individual”) coverage

Increased threshold for plans that cover pre-Medicare retirees

or employees in high-risk jobs

• $1,650 individual or $3,450 family

Adjusted for inflation (CPI-U*)+1% (2018-2020); CPI-U only after 2020

* CPI-U: Consumer Price Index-Urban

Cadillac Plan Tax

• Statute 4980I “cost” is:

— Employer-paid portion and

— Employee-paid portion (cafeteria plan) of

Premium cost for fully-insured plans

“COBRA cost” for self-insured plans

• Plus: Account-based supplemental coverage — HRA contributions by employer

— HSA contributions by employer

— FSA contributions by employer and employee

• Plus: vision and dental benefits that are not

“excepted benefits”

Cadillac Plan Tax

• Key items for implementing regulations:

— Inflation adjustment in 2018 (possible)

If per-employee cost of BCBS option under FEHBP*

for plan year 2018 exceeds such cost for plan year 2010

by more than 55%

— Demographic adjustment factor possible

— Geographic adjustment factor possible

• Unions benefit §4980I(b)(3)(B)(ii): — Union plans only subject to family coverage

threshold—no matter the type of coverage

* FEHBP: Federal Employee Health Benefit Plan

Cadillac Plan Tax

$5,000

$10,000

$15,000

$20,000

$25,000

2018 2020 2022 2026 2030 2034

Cadillac Tax

Average HealthFlexPlan

Average Employer Plan

Minimum Value

Employer plan must pay 60% of total costs of

typical employer plan (actuarial determination)

• Employees whose employer plan does not

cover minimum value can opt out

and seek PTCs for exchange coverage

• Minimum value disclosed on employer “Marketplace

Notice,” Summaries of Benefits and Coverage (SBCs)

• Minimum value calculator published by HHS

— Plan sponsors can also rely on actuary

to determine compliance

Minimum Value vs. Cadillac Tax

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2018 2020 2022 2026 2030 2034

Cadillac Tax

Average HealthFlexPlan

Average Employer Plan

Minimum ValueEmployer Plan

ACA "Bronze" Plan

Account-Based Plans and Excepted Benefits

Health Reimbursement Arrangements

IRS Notice 2013-54: restrictions on

health reimbursement arrangements (HRAs)

• No “stand-alone” HRAs for active employees

• HRAs allowed if “integrated” with group plan — Allows establishment of “private exchanges”

— Prohibits combining HRAs with public exchanges

• Stand-alone HRAs allowed for “retiree-only” plans — However, no PTC for those retirees

(i.e., no “double dip” on tax benefits)

Employer Payment Plans

Restricts 1961 IRS rule (Rev. Rul. 61-146)

that allowed employers to reimburse premiums paid

for individual health insurance policies on

tax-favored basis (“employer payment plans”)

• Many local churches relied on this practice

— Lay employees, deacons, part-time clergy

• Individual policies (through exchanges or

private market) can only be paid with taxable income!

Marketplace plans cannot be paid tax-free:

• By employer, or

• Through cafeteria plan pre-tax (other than SHOP)

Flexible Spending Accounts

• FSAs are permissible if they qualify

as “excepted benefits”

(not subject to ACA Market Reforms)

• FSA qualified if:

— Offered with employer group health plan

— Contributions do not exceed 2x

employee salary deferral

FSAs should not be offered to employees

who are not offered group health plan coverage.

Excepted Benefits

• Separate insurance policy—if insured; or

• Separate contract and participant’s separate election

—if self-funded

“Excepted benefits” plans

Vision plans

Dental plans

Employee assistance programs (EAPs)

Wrap-around plans (new—not finalized)

Stand-alone HRAs—if limited to excepted benefits

Employee Assistance Plans

• 2014: Excepted benefit if EAP does not provide “major medical coverage”

— Reasonable “good faith” interpretation

• 2015: Excepted benefit if: — EAP does not “provide significant benefits in the nature

of medical care”

— EAP’s benefits are not coordinated with another group

health plan (e.g., not gatekeeper, EAP not paid by plan)

— No employee premiums or contributions are required

— No cost-sharing is involved

Excepted Benefits

Excepted benefits plans—not subject to

these ACA Market Reforms

PROS Employees covered in excepted benefits plans

are eligible for premium tax credit

CONS Excepted benefits coverage does not satisfy

Individual Mandate

No annual limits

No lifetime limits

Preventive services—coverage at no cost

Essential health benefits—coverage required

Employer Strategies

Cost-Shifting to Employees

U.S. Employers

Have or are considering

Have not and are notconsidering

Growth in HDHPs*

PPO HDHP HMO

* HDHP: High-deductible health plans

Private and Public Exchanges

32%-45% of U.S. employers

considering moving active employees

to a private exchange

25% of U.S. employers

considering ways to move active employees

to public Marketplaces

Exiting Health Plan Business

• Recent Investor Report:

S&P 500 companies employ 138 million

(20% of U.S. large employer workforce)

• Predicts S&P 500 transition employees

to ACA Marketplaces:

— 10%: coverage will be shifted by 2016

— 30%: by 2017

— 70%: by 2019

— 90%: by 2020

Source: S&P Capital IQ

Exiting Health Plan Business

• Low- and middle-income workers (qualify for PTCs)—

will be steered into exchanges

• Higher-income employees—eventually will be pushed

to Marketplaces and provided a stipend

• Over time, stipends will not keep pace

with health care inflation—employers will save money

• Health stipends—eventually will morph into

employee pay

— Will complete corporate departure

from providing health care benefits

Source: S&P Capital IQ

Conference Strategies

Connectional and Policy Considerations

• Book of Discipline ¶639.7

• Judicial Council Decisions 674, 866, 935 and 1014

• ACA Employer Shared Responsibility Rule

• State’s (or states’) embrace of ACA

• Appointment process and itineracy concerns

• Equity of health coverage

• Tax implications

• Unintended consequences (example: increased DAC*)

* DAC: Denominational average compensation

Conference Strategies Status Quo

Mandatory plan for all conference clergy possible

Maintains ease of appointment

No “disruptive change” for covered participants

Forgoes cost savings in exchange plans with PTCs

May cause more tension with local churches

(seeking cost savings)

Plan costs continue to rise

New ACA burdens (fees, reporting, taxes, etc.)

Strategic market and industry pressures weigh against

status quo

Conference Strategies Changes at the Margins

• Encourage Marketplace enrollment for continuation

(COBRA) participants and clergy on unpaid leaves

(where conference plan is costly)

• Allow access to Marketplace for pre-65 retirees—

purchase with non-taxed employer dollars or federal PTC

— “Retiree-only” stand-alone HRAs allowed, but no PTC

PROS Some cost savings related to certain beneficiaries

Conference/church/clergy familiarization with Marketplaces

Cost savings of PTCs not fully realized

Some administrative complexities

Participant populations have different coverages

Conference Strategies Dynamic Plan Strategies

Consumer-Driven Plan Designs: Greater out-of-pocket at front end (except preventive care), account-based features (HSA/HRA)

Private Exchanges: Defined contribution strategy and consumerism in choice and utilization

Outside-the-Box Thinking: Local co-op networks, narrow networks and ACOs*, cash pricing with local providers, self-administering, changing plan’s risk-pool (e.g., adding lay employees)

Maintains single conference employer plan

Embraces strategies trending among employers and

insurers, and socializes participants to the new paradigm

Some disruptive change for participants

Some cost-shifting to participants

Administrative costs and efforts

* ACOs: Accountable Care Organizations

Dependent Coverage Options Spouse and Dependent Changes

Version 1: Conference ceases covering spouses

and dependents at conference/plan level

Version 2: Local churches cease covering spouses, dependents

or both at the local level (with conference permission)

No spouses or dependents would have affordable coverage

PTCs available for many families, based on MAGI

(cost savings to clergy/churches/conferences)

Equity concern for families that do not qualify for PTCs

(MAGI too high)

• They pay full premium on exchange with after-tax $

• Compensation may need to be increased

Conference Strategies Affordability Option

• Maintain required full-time clergy coverage,

but increase required individual contributions…

• Clergy for whom coverage is not “affordable”

(e.g., cost exceeds 9.56% of MAGI) seek exchange coverage

Captures savings of premium tax credits

to low-paid clergy and families

May be able to support clergy in Marketplaces with

“excepted benefits” and other wrap-around coverage

May create appointment frictions and equity concerns

May require way to offset increased health plan

premium contribution for clergy remaining in the plan

• Other nontaxable benefits

• Taxable compensation

Conference Strategies Local Church Option

• Allow local churches to “opt out” of conference plan

(for full-time clergy)…

• Clergy at churches opting out no employer coverage

PROS Lower-paid can seek exchange coverage and tax credits

Appointment frictions and equity concerns

Disruptions to conference plan “risk pool”

• Diminution in size

• Change in risk profile

Problem for churches with multiple clergy?

• Some would want to remain in the plan; some would not

Conference Strategies Exit Option

Terminate health plan entirely

Significantly reduce conference administrative costs

Rely on Marketplaces for individuals—most local churches

Rely on SHOP1 for applicable large employers in conference

(e.g., large churches, conference office)

Increase taxable salary for some or all

• Unintended consequences Increases CAC and DAC; increases

CRSP DC2, CPP3 and UMPIP4 contributions based on compensation

• Unintended distortions Uniform salary increases may have disparate

impacts for single vs. married vs. family; PTC eligibility

Add/increase other non-taxable benefits (UMPIP, UMLifeOptions)

Increased tax burden to clergyperson (SECA and income taxes);

or employee (income taxes) and employer (FICA)

1 SHOP: Small Business Health Options Program 2 CRSP DC: Clergy Retirement Security Program Defined Contribution 3 CPP: Comprehensive Protection Plan 4 UMPIP: United Methodist Personal Investment Plan

General Board Supports

General Board Supports Health Care Reform Resources

General Board website www.gbophb.org/ center-for-health/

health-care-reform

E-mail HealthCareReform

@ gbophb.org

of The United Methodist Church, Incorporated in Illinois.

1-800-851-2201

www.gbobphb.org

Affordable Care Act and the UMC Update€¦ · 31/10/2014 · • Health Insurance Marketplace...

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