Updated ACA summary Presentation

Presented on May 1, 2014

Saqui Law Group / Salinas GSAby Ed McClements, CLU, ChFC

Individual Market (Supreme Court upholds Mandate)

• Guarantee Issue / No Medical Underwriting / Community Rating

• Simplified Choices - Metallic Plans and Essential Benefits

• Carriers with Rates Regulated (80% claims / 20% expenses, 1 to 3 ratio)

• Access via Exchanges and insurance brokers or carriers directly

Small Group Market (2-50 employees) NO Mandate

• Guarantee Issue / No Medical Underwriting / Community Rating

• Simplified Choices - Metallic Plans and Essential Benefits

• Carriers with Rates Regulated (80% claims/20% expenses, 1 to 3 ratio)

• Access via Exchanges and insurance brokers or carriers directly

Large Group Market (50+ employees) Play or Pay Mandate

• Guarantee Issue / but Groups are underwritten so rates can be HIGH

• Minimum Value (60%) but freedom to vary from Essential Benefits

• Carriers (15% expenses) plus Self Funding Options, Rates NOT regulated

• Access via insurance brokers

The Open Enrollment Deadline delay

The “If you like your current plan, you can

keep it” delay

The Large Employer – Play or Pay Delay

(actually multiple delays)

Originally October 1, 2013 – March 31, 2014

Deadline E X T E N D E D to April 15, 2014

CLOSED TO NEW

ENROLLMENT FOR

THE REMAINDER OF 2014

Except if you have a

“Qualifying Life Event”

A change in income. A change in your status, such as marriage, death of a spouse,

divorce, legal separation or annulment. A change in your number of dependents, including birth,

death, adoption or placement for adoption. A change in your employment status, or the employment

status of your spouse or dependent. A dependent becoming ineligible for existing coverage due

to attainment of age.You will have 60 days from the date of the qualifying event to secure new coverage without incurring a penalty.I have called Covered Ca and their required documentation is not yet defined…

How HARD will it be?

Overall, Exchanges

exceeded the

projected 7mil

estimated enrollment

Under intense public scrutiny over

plan cancelations in the months

leading up to 2014, in November

2013 (and then again in March 2014)

the Obama Administration told State

Insurance Commissioners that they

could, if they wished, extend NON-

COMPLIANT individual plans into

2014 and 2015.

In the Individual and Small Group Markets: 10 Essential Health Benefits Metallic Plans: Bronze / Silver / Gold / Platinum…Concept is that each level will be ACTUARIALLY VALUED to cover 60% / 70% / 80% / 90% of expected expenses for the entire population (which is NOT the same as saying each person will get 60% of their claims paid for)

CMS released the Actuarial Value Calculator (Ind. + Small Group) in Nov. ‘12

CMS released the Minimum Value Calculator (Large Group) in Feb. ‘13

IRS announced (in May ’13) the annual out-of-pocket costs (including deductibles

and co-pays) cannot exceed:

$6,350 for single coverage

$12,700 for family coverage

Unlimited Benefits - NO Annual Benefit Caps allowed

IN LARGE GROUP MARKET – Essential Health Benefits DO NOT HAVE TO BE OFFERED

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SURPRISE! The AV & MV Calculators REQUIRE

BRONZE (60%) plans to have HIGH DEDUCTIBLES

Data source: Milliman, 2012

• Most folks have

little or no claims

• Less than 1% of

the population

has a claim over

$100,000

• Only about 10%

of the population

has a claim over

$10,000

• REMEMBER…

all preventive

care is covered

100% now

• AND 100% of

claims >$6,350

60% Actuarial

Value

Federal Government provides SUBSIDIES to individuals with incomesbetween 133% and 400% of the federal poverty level IF they are NOT OFFERED employer-sponsored ACA compliant coverage

These are Advanced Income Tax Credits: They MIGHT need to be repaid if a person’s income changes or if employer coverage WAS offered

2013 Federal Poverty LevelsSize of family

100% of FPL 133% 400%

1 $11,170 $14,856 $44,680 2 $15,130 $20,123 $60,520 3 $19,090 $25,390 $76,360 4 $23,050 $30,657 $92,200 5 $27,010 $35,923 $108,040 6 $30,970 $41,190 $123,880 7 $34,930 $46,457 $139,720 8 $38,890 $51,724 $155,560

Cap on Cost of 2nd

least expensive SILVER PLAN

Starting in 2014 there’s a penalty for not having health insurance

The penalty is non-deductible excise tax that is the HIGHER of…

Percentage caps at average cost of the Bronze Level benefit program

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2014 1% of income or $95/adult + $47.50/child: max $285

2015 2% of income or $325/adult + $162.50/child: max $975

2016 2.5% of income or $695/adult + $347.50/child: max $2,085

Question is: IS THIS ENOUGH OF A

PENALTY TO GET PEOPLE TO BUY HEALTH INSURANCE?

Supposed to apply 1/1/2014, for groups with 50+

full time workers (130+ hrs per month)

July 2, 2013, the deadline was extended to

1/1/2015

On February 10, 2014, the deadline was extended

further to 1/1/2016 for employers of groups 50 to 99

(if special conditions are met)

As it currently stands, employers with 100 or

more full time workers need to comply by

1/1/2015 (or face potential fines)

For INTERNAL USE ONLY. Do NOT Distribute. 17

• Seasonal Workers can be excluded (if season is 6 months or less)

• Waiting Period must be < 90 days (60 days for CA Carriers)

• Employer IS NOT MANDATED to offer benefits, but will face fines if ACA compliant coverage it not offered

• All plans should be offered on a non-discriminatory basis

• STRONG PENALTY: Non-deductible penalties of $2,000 per year round F/T worker if employer fails to offer Minimum Essential Coverage to at least 70% of workforce

• WEAK PENALTY: Non-deductible penalties of $3,000 per each F/T worker THAT GETS AN EXCHANGE SUBSIDY (which they qualify for if the Employer’s plan is less than 60% actuarial value or employee has to contribute more than 9.5% of income to get employer’s coverage… “Minimum Value & Affordable”)

• No Self Reporting (so far) – Fines only come after IRS ACA Audit

It’s a NON-Deductible Business Expense

Federal Tax is 35%

California Tax is 8.84%

Combined is just under 44%

Therefore the REAL business expense for not providing

any coverage (the STRONG penalty) is:

▪ $296.77 per employee per month,

▪ $3,561.25 per employee per year

And the REAL business expense for the WEAK penalty is:

▪ $445.15 per employee per month,

▪ $5,341.75 per employee per year

For ALL Full Time Employees

For F/T ees that get Exchange Subsidies

COVER F/T EMPLOYEES with MINIMUM ESSENTIAL COVERAGE

Plan MUST be employer sponsored and cover Preventive Care at 100%

Plan cannot have annual / lifetime benefit maximums Does NOT need a Minimum Actuarial Value of 60%+

In fact the plan CAN eliminate major benefit categories But any benefits that are offered must be offered on an

unlimited basis

Minimum Essential Coverage also allows employees avoid the INDIVIDUAL MANDATE PENALTY

OFFER F/T EMPLOYEES (avg. 30 hrs/wk)… Part-Time employees count in the calculation of Large Employer status,

but do not create any penalties for the Employer

A Plan with Minimum Actuarial Value of 60%+ Use the CMS/HHS Minimum Value Calculator Ok to deviate from Essential Health Benefits, but must

offer unlimited benefits Large Group plans can’t require an Out of Pocket Maximum

> $6,350 Caution #1: If you only OFFER benefits, will enough

employees sign up to allow you to GET coverage? Caution #2: If most employees decline your

plan, will an IRS audit be more likely?

A Large Employer’s plan will be considered

AFFORDABLE if the cost for employee only coverage is

less than 9.5% of the Total Household Taxable Income

(employers can use W-2 income instead)

Coverage must also be offered for dependent children

(up to age 26) but the employee can be required to pay

100% for the dependents

Spouses can be EXCLUDED from coverage, but this is

not mandatory

Our RECOMMENDATION is to have a plan that the

employer funds 100% of the employee cost

Bronze+ Plans, for about $230+

(high deductibles, but with some

$20 doctor visit copays)

Cedar* Network plans for $200+

* Limited provider network options, but

with lower deductibles (7/1 eff. dates)

Minimum Essential Coverage

• Employer Avoids STRONG penalty + Employee Avoids Individual Penalty

• Employer Sponsored, No Annual or Lifetime $ limits, Preventive Care 100%

• Individual or Gov’t coverage (Medicare/MediCAL/etc.) also count as MEC

Minimum Value (60%+

Actuarial

Value)

• Employer avoids BOTH STRONG AND WEAK Penalties

• Gov’t created actuarial value calculator used to “score” benefit plan

• Employee contribution cannot exceed 9.5% of employee’s household income

• DOES NOT have to include all areas of typical health plan coverage (EHBs)

Essential Health

Benefits

• Individual and Small Group plans are mandated to include these benefits

• 10 categories (i.e., hospitalization, rehabilitative care, prescription drugs, etc.)

• All METAL plans offer ALL EHBs

• EHBs DO NOT have to be present in LARGE EMPLOYER plans

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The ACA proclaimed that medical plans would be subject to NON-DISCRIMINATION requirements

Retirement plans for years have had testing for non-discrimination

Self Funded medical plans also already have non-discrimination rules (poorly crafted and even less poorly understood)

BUT 4 years have passed and the needed details have not been provided

Our RECOMMENDATION – offer all your plans uniformly to all full time workers to assure ACA compliance

The ACA Large Employer Play or Pay rules apply to the common law employer

Very recent regulations indicate some indecision on the part of Washington on how to treat PEOs and Staffing Agencies (no direct mention of FLC’s but FLC’s are certainly fall into a similar category)

Our RECOMMENDATION – Get EXPERT LEGAL ADVICE and to be safe, make sure all your FLC’s are fully ACA compliant

Success will depend upon aligning the employer’s specific goals and circumstances with the appropriate ACA compliance strategy

We engage the employer in an

interactive analysis in which each

of the 6 strategies are rated for

each CONCERN

Strategic Advantages and Disadvantages

A Strategic Solution to Large Employer ACA

“Play or Pay” Compliance (specially constructed for currently UNINSURED groups)

Program Manager: Exclusive Trust: Exclusive Marketing Partner: Exclusive TPA:

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Rationale for Employee Contributions:

Basic level of $0 assures all F/T workers get 60%+ MV plan (to prevent IRS AUDITS)

Better level of $35 is < 3% of Min. Wage for 130 hrs (Better than Covered CA subsidy)

Best level of $110 is < 9.5% of Min. Wage for 130 hrs

For INTERNAL USE ONLY. Do NOT Distribute. 30

Since the ACA

allows large

employers to

have plans

that exclude

some EHBs,

we have

created a

benefit plan

that pushes

the concept to

the limit

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A HEMV plan is the BASIC plan, but it is not sold alone HEMV is used in combination with buy-up options to BETTER

and BEST level plans (which include all EHBs) employees can get remarkable coverage options at an affordable price

A Self Funded plan using a HEMV design typically projects out to a monthly cost of about $100 PEPM (there is no stop loss needed since benefits are limited to low cost categories)

B3 puts Employer in the best position to avoid IRS audits Employees avoid extra taxes (since HEMV is more than MEC) Employees get (potentially) better options than the

government-run exchanges can offer them

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Provider Network

Plan Designs

Enrollment

Compliance

Stay INFORMED –Because the details in

the pending regulations could have a huge impact on your

compliance and business strategy

Ed McClementsemcclements@barkleyins.com

Barkley Insurance & Risk Management143 West 5th StreetOxnard, CA 93030

(805) 483-1995Dept of Ins. # 0B75139www.barkleyins.com