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Implications of the Affordable Care Act ACA Background & Fundamentals for Fully-Insured Large Groups. - PowerPoint PPT Presentation
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Implications of the Affordable Care Act ACA Background & Fundamentals for Fully-Insured Large Groups
Blue Cross of Northeastern PennsylvaniaJune XX, 2013
This presentation is not intended to be a comprehensive review of the content of the legislation, nor should it be interpreted as authoritative and/or legal advice on implementation. The presentation represents our best understanding as of the date of the presentation. In the event you have questions applicable to your business or employees, we recommend you request the advice of competent legal counsel.
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Key Considerations
1. Consumer protections in the ACA
2. Employer penalties
3. Implications of Safe-Harbor Guidance
4. Distinct impact on large groups
5. Risk-stabilizing programs
Presentation will focus on 5 key considerations of the ACA
ACA Fundamentals
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Overview of ACA
Rights and Protections
• Elimination of annual and lifetime caps
• No medical underwriting
• Guaranteed Issue
• Coverage for preventive services
• Coverage for dependents up to 26
Reduce Consumer Costs
• Premium subsidies
• Cost sharing subsidies
• Age banding
• Minimum amount health plan’s must spend on medical costs (i.e. MLR requirements)
• Rate Review
The Affordable Care Act primarily focused on offering consumer protections and providing financial support to purchase coverage
ACA Fundamentals
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PPACA (Patient Protection and Affordable Care Act ) Provisions 2010-2012
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March 2010 June/July 2010 September 2010 2012
Since the enactment of the ACA in March of 2010, many of the law’s provisions have already been put in place
ACA Fundamentals
• Enactment • Pre-Existing Condition Insurance Plan (a national high-risk pool ) launched at pcip.gov
• HHS web portal launched at Healthcare.gov
• Temporary employer reinsurance
• Children under 19 may not be excluded for pre-existing conditions
• Dependent coverage to age 26
• Limits on rescissions
• Medical loss ratios (80% individual / small group; 85% group)
• No lifetime limits
• No cost-sharing on preventive services
• Summary of Benefits Coverage (SBC)
• Accountable Care Organizations
• State Notification of Intent to operate a state-based exchange
• PCORI Fee
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PPACA Provisions 2013+
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ACA Fundamentals
2013 2014 2018
• W-2 Reporting of Health Benefits
• Medicare Tax Increase
• Reduced FSA Contribution Cap
• CO-OP Health Insurance Plans
• Marketplace open-enrollment
• Guaranteed Issue
• Individual Mandate
• Health Insurance Marketplace
• Health Insurance Premium and Cost Sharing Subsidies
• No Annual Limits on Coverage
• Essential Health Benefits
• Temporary Reinsurance Program
• Employer “Play or Pay” (delayed to 2015)
• Health Insurer Annual Tax
• Excise tax on “Cadillac plans”
The ACA will bring about many additional regulations starting in 2014
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Wellness BenefitsACA Fundamentals
Employers may offer incentives to employees for improving their health or obtaining education on how to do so
Participatory ProgramsHealth-Contingent ProgramsReward based on activities that promote health or prevent disease• Examples of these programs are:
‒ Attending health education seminars‒ Smoking cessation classes (regardless of
outcomes)
• There is no limit to the amount employers can offer employees
Reward based on achieving measurable improvements in specific health factors• Examples of these programs are:
‒ Activity based: Checking in at activity classes twice a week for 6 months
‒ Outcome based: Quitting smoking or meeting biometric screening goals
• Reward limited to 30% of employee premium
‒ Can also receive 30% off dependent coverage if eligible
Wellness benefit programs have no short-term impact on premiums paid to carrier
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“Minimum Value” means that plans should provide at least 60% actuarial value, similar to Bronze plans in the exchange
Maximum annual out-of-pocket is $6,350 for individuals and $12,700 for families
Large employers must offer plans that provide “essential minimum value” to avoid a penalty
ACA Fundamentals
Essential Minimum Value
Hospital and emergency room services
Physician and mid-level practitioner care
Pharmacy benefits Laboratory and imaging services
Benefits cover the following four “core” categories:
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Metallic Level
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Actuarial Value of Essential Health Benefits(not representative of actual premiums1)
Plan Responsibility(e.g. premiums)
SubscriberResponsibility
(e.g. deductible and co-insurance)
ACA Fundamentals
Estimate of average
covered medical costs for population
(1) Premiums will be higher than just medical costs as illustration does not show admin costs
Illustrative
Metallic level is associated with actuarial value, which is a measure of the percentage of expected health care costs a health plan will cover
Metallic level of a product is not directly related to richness of benefits, but rather amount that consumer is estimated to spend out-of-pocket relative to
premiums
Bronze Silver Gold Platinum
60% 80%
$2,400
70%
$1,800 $1,200 $600
90%
$3,600
$4,800$4,200
$5,400
$6,000/yr
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9Federal Poverty Level (FPL) set annually
by the Department of Health and Human Services1
Federal Poverty LevelACA Fundamentals
Household FPL
100 150 200 250 300 350 400
$11,731$17,597
$23,462$29,328
$35,193$41,059
$46,924
$23,791
$35,687
$47,582
$59,478
$71,373
$83,269
$95,164 Family of Four
Individual
Household Income
(1) Adjusted annually for inflation based on the CPI
Federal Poverty Level (FPL) will be used by the ACA to determine consumers’ eligibility for government subsidies
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FPL 110 125 140 160 175 190 210 225 240 260 275 290 310 325 340 360 375 390 410 $-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
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Premium Subsidies
Premium subsidies guarantee a maximum cost-exposure level for the 2nd-Lowest Cost Silver Plan
ACA Fundamentals
2.0 % of Income
9.5 % of Income
Estim
ated
Pre
miu
m
Household FPL Level
Government Subsidies
Est. Premium for older demographic
Premium Cap (sliding scale)2
6.3 % of Income
8.1 % of Income
9.5 % of Income
Estimated Premiums and Subsidies in 2014(Single Subscribers)
Est. Premium for younger demographic Receive no Subsidies
• Market rates determine amount of subsidy
• Older consumers will receive a much greater share of government subsidies
• Price shock after 400FPL will be most significant to older populations
• Many younger consumers will have premiums below their premium cap
Illustrative
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Cost-Sharing Subsidies
Consumers with household incomes below 250% FPL will be eligible for cost-sharing subsidies that lower exposure to out of pocket costs
Silver Plan 70% AV
100-150% FPL 151-200% FPL 201-250% FPL
70% 70%
3%24%6%
27%Out of Pocket Share:
Base Actuarial Value:
Additional Protection:
1) Out-of-pocket maximums set by ACA: If under 200FPL, max is 1/3 of allowed HSA level (1/3 x $6,350 = $2,117), between 200-250 FPL max is fixed at $5,2002) Total cost exposure will vary depending on where actual services were rendered along with combination of deductibles, co-payments, and coinsurance
within each product
Est. Premium Cap: $1,900$295
Out of Pocket Costs1: $1,620$360
$3,520$655Net Cost Exposure:
94%
70%
17%13%
125FPL 225FPLIndividual Coverage: 175FPL$1,070
$780
$1,850
87% 73%Total AV:
Example
ACA Fundamentals
Covered Medical Costs of $6,000
Illustrative
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Requirement/ExpenseSelf-Insured Plans (ASO)
Fully-Insured Large Group Plans
Fully-Insured Small Group Plans
Elimination of Lifetime Caps1
Dependent Coverage to Age 261
Preventive Services1
Minimum Actuarial Value
ACA Fees2
Affordable Coverage Penalty
Compliance with State Mandates
Insurance Premium Taxes
Essential Health Benefits
Modified Community Rating
New Requirements and Fees
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1) In effect prior to 20142) Reinsurance Fee, PCORI fee
ACA Fundamentals
ACA requirements will have varying impact on employer segments
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Employer Penalties
1) Penalties go into effect in 20152) Although the IRS has issued guidance providing a safe harbor for employers, the ACA law itself specific that affordability be calculated based off of the
employee’s total household income rather than the employee’s wage
ACA Fundamentals
Note: Penalties are levied as excise tax, so employer must pay penalty after tax which may will increase exposure substantially
• Employer has at least 50 full-time equivalent employees (excluding seasonal workers)• One or more eligible employees purchase subsidized coverage through the Marketplace
General Penalty Criteria:1
$2,000 penaltyPenalty is assessed for every full time employee,
regardless if employee currently receives coverage from employer
Employer Does not Offer CoverageEmployer is penalized on all full-time employees excluding the first 30
No penalty for part-time workers1
Employer is penalized if employees’ premium contributions exceed 9.5% of household income2 or the plan covers less than 60% of health care expenses
Employer Offers Unaffordable Coverage
2 $3,000 penaltyPenalty is assessed for each eligible employee
that obtains a subsidy on the Marketplace
There are two ways in which employers may have to pay a shared responsibility payment (i.e. a penalty) in the post-reform market
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Penalty Assessment
0 29 58 87 116145174203232261290319348377406$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
Penalty Breakdown
ACA Fundamentals
$3,279 ($2,000 grossed up for taxes)
(1) Penalty is levied as an excise tax, so employer must pay penalty after tax. 39% average Federal + State tax rate used for illustrative purposes, which will vary depending upon employer-specific details
(2) Base penalty increases each year at the rate of medical cost inflation, assumed to be 6% in this example
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$2,000
$404$1,279
$3,683$3,279
Illustrative
If not offering coverage, hiring of 50th employee
in 2015 creates $60,000+ in post-tax penalties
Penalty per Full Time Employee
(by firm size)
Pena
lty p
er E
mpl
oyee
Firm Size
The financial impact of the penalty for not offering coverage are frequently underestimated
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Affordability Safe Harbor
Initial ACA Guidance Safe Harbor Provision
Issues surrounding ability of employers to know household income of employees led to creation of a safe harbor clause from IRS
ACA Fundamentals
Employer must offer affordable1 coverage to
employee and family
1) Affordable defined by employee contribution of more than 9.5% of household income
2) Affordable defined by employee contribution of more than 9.5% of employee gross wage
Employer must offer affordable2 coverage to
employee only
If employee receives “affordable” employee-only coverage, family would not be eligible for subsidies on
the public marketplace
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Risk Stabilization Programs Established by the ACAACA Fundamentals
Source: Office of Policy and Representation. Risk Stabilization Program Guide. Issue brief. Washington, D.C.: Blue Cross Blue Shield Association, n.d. Print.
Mechanism Description Impact On Implications
Risk Adjustment(Permanent)
Enables transfer of funds from carriers with lower-risk populations to those with higher risk to protect against adverse selection
Small Group
Individual
Shifts margin away from lower-risk individuals to higher-risk individuals
Reinsurance(2014-2016)
Provides funding to Plans that incur high claim costs for enrollees for all non-grandfathered individual market products (on and off marketplace)
Individual Offsets claims on the highest claimants through 2016
Risk Corridors(2014-2016)
Limits insurer losses (and gains) by adjusting for incorrect estimation of members’ total medical costs
Small Group
Individual
Can mitigate but not eliminate losses— initial pricing will be very important
HHS has created three programs to minimize risk associated with the emerging Individual market
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Health Insurance ExchangesACA Fundamentals
State and Federal Functions/Responsibilities in Exchanges
State-based exchange Federal partnership exchange
Federally facilitated marketplace
State operates all exchange activities but may rely on HHS for these activities:• Premium tax credit and
cost-sharing reduction determination•Exemptions•Risk Adjustment program•Reinsurance program
State operates activities for:• Plan management, or•Consumer assistance, or•Both
States may perform these functions or rely on HHS:• Medicaid/CHIP eligibility
determination or assessment
HHS operates; states may perform:• Medicaid/CHIP eligibility
determination or assessment
HHS will also handle the following activities:• QHP Certification• Rate Review• Eligibility Determination
Source: HHS, “Blueprint for Approval of Affordable State-Based and State Partnership Insurance Exchanges”
States can create their own exchange, to partner with the Federal government, or to opt for the federally facilitated marketplace
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18Pennsylvania will be using the Federally Facilitated Marketplace (“FFM”)
State Status of Health Insurance ExchangesACA Fundamentals
Source: Kaiser Family Foundation as of March 8, 2013
Default to federally facilitated marketplace
Declared state-run exchange
Planning for partnership exchange
WY
OR
WA
CACO
AZ
NV
NM
TX
SD
MT
ID
ND
LA
OK
NE
KS
MN
IA
MOUT
WI
AR
IL
MS
PA
IN
KY
OH
MI
TN
VA
AL GA
NC
ME
SC
WV
NJ
NH
DE
NY
VT
MD
MA
RICT
HI
AK FL
Approximately half of the states have chosen to default to the federally facilitated marketplace
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Employer Options
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Employers have increasing options to evaluate benefit options for their employees
Post-2014 Options become much more complex as they will have multiple channels as well as carriers to evaluate
Pre-2014 Typically shop for health benefits by comparing group products from different carriers
Cost Per Employee Consistent Cost Per Employee May Differ
ACA Fundamentals
1CARRIER 2
CARRIER
3CARRIER
ACME Inc.
Traditional Group
ProductsPrivate Group
Exchanges
Public Marketplace
ACME Inc.