Aon: A Health Care Reform Update

Health Care Reform Update: The Road Ahead

AlphaStaff August 29, 2013

Consulting | Health and Benefits

Proprietary & Confidential | 07/10/2013 2 2

Today’s Speaker

Richard Kaufman – Vice President, Aon Hewitt Richard serves as a vice president of Aon Hewitt in the Miami office. In addition to his

account management responsibilities, he also serves as a Compliance Officer for the local practice. Mr. Kaufman has 25 years of experience in employee benefits.

Aon Hewitt is a global leader in health and benefits consulting. Aon helps its clients act on

three fronts: manage their health care spend, maintain the integrity of their core offerings, and meet the needs of their varied employee population. Aon’s services include group life and health plan design, data driven health strategies, audits, absence management and productivity, consumer-driven health care, health care management, individual life and health, benefits administration, and executive benefits. Through its 37,000 professionals worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions.

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Proprietary & Confidential | 07/10/2013 3 Consulting | U.S. Health & Benefits

Proprietary & Confidential | 12/2012 3

Two Rules of Health Care Reform

Rule #1: Deal With What You Know

Rule #2: Apply the Jello Theory


Proprietary & Confidential | 07/10/2013 4

2011 Plan Year 2011 2012 2013 2014 2018

• Small Business Health

Insurance Tax Credit

(effective in 2010)

• Lifetime dollar limits on

Essential Health Benefits

(EHB) prohibited*

• Preexisting Condition

Exclusions Prohibited for

Individuals under 19*

• Overly restrictive annual

dollar limits on EHB

prohibited*

• Extension of Adult Child

Coverage to Age 26*

• Prohibition on

Rescissions*

• No Cost Sharing for

Preventive Health

Services**

• Effective Appeals

Process**

• Patient protections**

• Nondiscrimination

requirements for insured

plans** (DELAYED)

• Expanded MEWA Oversight

(DELAYED)

• Automatic Enrollment

(DELAYED)

• Over-the-Counter

Medicines Not

Reimbursable Under

Health FSA, HRA, or

from HSA Absent a

Prescription, Except

Insulin

• HSA Non-Medical

Expense Tax Increase

• Employer Distribution

of Summary of

Benefits and

Coverage*

• Comparative

Effectiveness Fee

• Employer Quality of

Care Report**

(DELAYED)

• Medical Loss Ratio

rebates (insured plans

only)*

• Employer Reporting of

Health Coverage on

Form W-2 (due

January 31, 2013)

• Insurer Rate Review

and Disclosure

• Notice to Inform

Employees of

Coverage Options in

Exchange

• Limit on Health Care

FSA Contributions to

$2,500 (Indexed)

• Elimination of

Deduction for

Expenses Allocable to

Retiree Drug Subsidy

• Medicare Tax Increase

on High Income

Earners

• Addition of Women’s

Preventive Health

Requirements to No

Cost Sharing for

Preventive Health

Services **

• Individual Mandate to

Purchase Insurance or

Pay Penalty

• State Insurance

Exchanges

• Employer Responsibility

to Provide Affordable

Minimum Essential Health

Coverage*** (delayed)

• Preexisting Conditions

Exclusions Prohibited*

• Annual Dollar Limits on

EHB Prohibited*

• Limit of 90-Day Waiting

Period for Coverage*

• Employer Reporting of

Health Insurance

Information to

Government /Participants

(delayed)

• Increased Cap on

Rewards for Wellness

Program**

• Cost-sharing Limits for All

Group Health Plans

(deductibles and OOP

maximum)**

• Transitional Reinsurance

Contributions

• Coverage of Clinical

Trials**

• Excise Tax on

High-Cost

Coverage

*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.

Affordable Care Act – Your Compliance Timeline****



Employer Checklist—Act on 2013 Provisions Now

2013 Provisions

Administrative & Communication Actions

Medicare taxes for high-income Do calculations Coordinate with payroll Tell affected employees (optional)

$2,500 FSA Limit Communicate in off-cycle enrollments Provide decision support Update SPDs

Women’s preventive health coverage Communicate in off-cycle enrollments Update SPDs

Notifying employees about state exchanges

Communicate to all employees about exchanges (eligibility, services and contact information)

Patient-Centered Outcomes Research Institute (PCORI) Trust Fund Fee

Based on average covered lives $1 for 2013; $2 for 2014 Reporting and payment of fees on IRS

Form 720



Start Preparing for 2014 Provisions

2014 Provisions Administrative & Communication Actions

Employer mandate (Postponed until 2015)

Free-rider penalties

Premium tax credits

Automatic enrollment (Delayed)

Minimum essential benefits

Fully-effective group market and insurance reforms

Educating employees on how state exchanges will work

Transitional Reinsurance Fee

Health Insurance Industry Fee

Increased wellness rewards cap 30% of cost of health coverage

Incorporate provisions into enrollment

Develop a communication strategy and tactics

Provide decision support

Create or update SBCs/ SPDs/ SMMs

Guiding Principles

Focus on participant actions

Stay objective

Simplify messages

Provide guidance

Capitalize on the opportunity



Recent Delays

The Employer Mandate and associated reporting has been delayed until 2015. All other market reforms are still expected to be implemented on time.

– What was postponed?

• Employers required to offer a reasonable and affordable plan to full-time employees

• Full-time employee definition of 30 hours a week

• Need to establish measurement, administrative, and stability periods

• Employer reporting

– What has not been postponed?

• All fees and taxes

• Market reforms

• Individual mandate

• Public exchanges

• Federal subsidies for public exchanges

Health Care Reform will require copayments and deductibles to be applied to out of pocket maximums

– What was delayed?

• If an employer uses a separate pharmacy administrator from the medical administrator, then this has been postponed until 2015. Otherwise, it takes effect in 2014.



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 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

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




What Keeps Employers Up At Night

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



Defining Full-Time Employees—Ongoing

2013 Measurement Period

(MP)

2013 Administrative Period

(AP)

2014 Stability Period

(SP)

3 – 12 months Up to 90 days At least 6 months but no

shorter than MP

Determines coverage in

stability period

Average hours worked

Buffer between MP and SP

Allows for measuring and

enrolling full-timers

Eligibility period for employees

averaging 30 hours or more

during MP

MP Considerations

Longer period reduces number

of full-timers given high

turnover

Shorter period provides more

time to make workforce

adjustments to mitigate cost

SP Considerations

Shorter period reduces

coverage commitment but

creates administrative

complexity

Longer period that aligns with

calendar years is most

practical administratively



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 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

CA

ORE

WA

NEV

UTAH CO

IDAHO

WYO

NM ARIZ

ND

SD

NEB

KS

OK

TX

MINN

IOWA

MO

Ark

LA

MS

FLORIDA

GA

SC

KY

WIS MN

IL IND OHIO

PA

W VA VA

NC TN

NY

NJ

MD

DE

CT

VT NH

MAINE

MASSACHUSETTS

MT

ALASKA

ALA

HA

Won’t Create Exchange

Creating Exchange

Partnership Exchange with Feds

Democrat Governor

Republican Governor

WA

NY

VT

MASSACHUSETTS

15



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

CA

OR

WA

NV

UT CO

ID

WY

NM AZ

ND

SD

NB

KS

OK

TX

MN

IA

MO

AR

LA

MS

FL

GA

SC

KY

WI

MI

IL IN

OH

PA

WV VA

NC TN

NY

NJ

MD

CT

VT NH

ME

MA

MO

AK

AL

HI

8 States Won’t Expand Medicaid

14 States Will Expand Medicaid

16 States Undecided on Medicaid Expansion

Democrat Governor

Republican Governor

6 States Leaning toward expanding Medicaid

6 States Leaning toward Not Expanding Medicaid

DE

17