May 6 th , 2013 Jefferson Chamber

May 6th, 2013

Jefferson Chamber

Post-Election Health Care ReformMapping a Strategy

Consulting | U.S. Health & BenefitsProprietary & Confidential | April 2013

Consulting | U.S. Health & BenefitsProprietary & Confidential | April 2013 2

The Future of U.S. Health Care Coverage

Health Insurance Exchanges with Reformed Rules

Expanding/Improving Coverage Paying for Expanded Coverage

OptionalState Expansion of

Medicaid

EmployerMandate

“IndividualMandate”—now a

“Shared Responsibility Payment”

Federal Subsidies To Buy Health Insurance

In Exchanges

Medicare/MedicaidPayment Changes

Taxation of High-Cost Employer

Health Care Coverage

Increase in Other Taxes

= Direct impact to employers

= Indirect impact to employers

= Direct and indirect impact to employers

Increased MedicareTaxes on High-

Income Individuals

ACA Penalties on Employer

1Supreme Court ruled states could decline to expand Medicaid eligibility without losing existing Medicaid funding 2Supreme Court ruled “mandate” is a tax on not having health insurance

Major ACA Provisions—Fees

Direct Employer Fees – Patient Centered Outcomes Research Institute

(PCORI)• per member annual fee of $1 in 2012, $2 in 2013

– Transitional Reinsurance Fee -cover reinsurance programs in state exchanges• $12B in 2014• $8B in 2015• $5B in 2016

Indirect Employer Impacts – Fees on pharmaceutical companies and medical

device manufacturers, effective 2011 and 2013. – Fees on health insurers, effective 2014

Consulting | U.S. Health & BenefitsProprietary & Confidential | January 2013

ACA Timeline—2011 to 2018

2011 Plan Year 2011 2012 2013 2014 2018 Lifetime dollar limits on

Essential Health Benefits (EHB) prohibited*

Preexisting Condition Exclusions Prohibited for Children under 19*

Overly restrictive annual dollar limits on EHB prohibited*

Extension of Adult Child Coverage to Age 26*

Prohibition on Rescissions*

No Cost Sharing and Coverage for Certain In-Network Preventive Health Services**

Effective Appeals Process**

Consumer/patient protections**

Nondiscrimination requirements on fully insured plans** (DELAYED)

Certain Retiree Medical Claims Reimbursable (ERRP)

Retiree Drug Plan FAS Liability Recognition

Over-the-Counter Medicines Not Reimbursable Under Health FSA, HRAs, or from HSAs Without a Prescription, Except Insulin

HSA Excise Tax Increase

Public Long-Term Care Option (CLASS Act) –No Longer Supported by HHS

Medicare Part D Discounts for Certain Drugs in “Donut Hole”

Employer Distribution of Summary of Benefits and Coverage to Participants*

Comparative Effectiveness Fee

Employer Quality of Care Report**

Medical Loss Ratio rebates (insured plans only)*

Employer Reporting of Health Coverage on Form W-2 (due January 31, 2013)

Notice to Inform Employees of Coverage Options in Exchange

Limit of Health Care FSA Contributions to $2,500 (Indexed)

Elimination of Deduction for Expenses Allocable to Retiree Drug Subsidy (RDS)

Medicare Tax on High Income

Addition of women’s preventive health requirements to No Cost Sharing and Coverage for Certain In-Network Preventive Health Services **

Individual Mandate to Purchase Insurance or Pay Penalty

State Insurance Exchanges

Employer Responsibility to Provide Affordable Minimum Essential Health Coverage***

Preexisting Conditions Exclusions Prohibited*

Annual Dollar Limits on EHB Prohibited*

Automatic Enrollment Limit of 90-Day

Waiting Period for Coverage*

Employer Reporting of Health Insurance Information to Government and Participants

Increased Cap on Rewards for Participation in Wellness Program**

Cost-sharing limits for all group health plans, not just HDHPs/HSA (deductibles and OOP maximum)**

Transitional reinsurance fees

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.

4Aon Hewitt | Health & Benefits Consulting Proprietary & Confidential | January 2013

State vs. Federal Exchange: A State-by-State Look

Source: Kaiser Family Foundation

5Consulting | U.S. Health & BenefitsProprietary & Confidential | January 2013

6

Compliance Issues—2013 and 2014

2013 Employer must determine FTEs to avoid

ACA penalties for not offering health care coverage

Notice informing employees of coverage options in exchange

Limit health care FSA contributions to $2,500 (Indexed)

Elimination of deduction for expenses allocable to retiree drug subsidy (RDS)

Additional 0.9% Medicare tax on high income earners

3.8% Medicare tax on investment income of high income earners

Addition of women’s preventive health requirements of no cost sharing and coverage for certain in-network preventive health services

PCORI Fee ($2 PMPY)

2014 Employer must provide affordable health

care coverage to FTEs or risk penalty Individuals must buy health care or pay tax State insurance exchanges begin Preexisting condition exclusions prohibited Annual dollar limits on EHB prohibited Automatic enrollment (guidance delayed) Maximum 90-Day Waiting Period for Coverage Employer Reporting of Health Insurance

Information to Government and Participants Increased Cap on Rewards for Participation in

Wellness Program Cost-sharing limits for all group health plans,

not just HDHPs/HSA (deductibles and OOP maximum)

PCORI Fee ($2 PMPY) Transitional reinsurance fees ($63 PMPY)


7

How the ACA Penalties Works

Employer can be liable for either a “Doomsday Penalty” or a “Targeted Penalty” “Doomsday Penalty”

– Employer does not offer Minimum Essential Coverage to all FTEs (and their eligible dependents) and at least one FTE enrolls in an Exchange and receives a Federal subsidy

• NEW: “All FTEs” changed to “95% of FTEs”

• NEW: dependent coverage must be offered but does not have to meet affordability rules (dependent defined as children up to age 26, no spouses)

– “Doomsday Penalty” applies

• $2,000 per year per each FTE (minus first 30 FTEs) Regardless of whether the FTE elected employer-provided health

care coverage

• NEW: penalty not assessed on Control Group, only on the offending subsidiary/entity


Consulting | U.S. Health & BenefitsProprietary & Confidential 88

Determining Full Time Employees Under the ACA

Establish 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 a uniform period of time set by employer

Establish administrative period—optional (up to 90 days in duration)

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

• Did employee work an average of 30 hours per week during measurement period? If yes, then employee is a FTE If no, then employee is not a FTE and employer has to keep tracking hours of service in

next measurement period Establish stability period

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

• Stability period must be at least as long as measurement period, but not less than six months

– If not an FTE in measurement period, stability period cannot exceed measurement period

• NEW*: Exception for transition measurement period in 2013 which can be as short as six months

* Proposed regulations released 12/28/12 * Proposed regulations released 12/28/12


Defining FTE Status of Ongoing Employees

Measurement Period (MP) Administrative Period (AP) Stability Period (SP)

3 – 12 months Up to 90 daysAt least 6 months but no

shorter than MP

(exception allowed for transition) (exception allowed for transition)

Determines offer of health care coverage for 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

Sample Periods for January 1, 2014 Plan Year using transition reliefMeasurement Period: April 1 – September 30, 2013 (6 months)

Administrative Period: October 1 – December 31, 2013 (90 days)Stability Period: January 1, 2014 – December 31, 2014

Measurement Period Considerations

Longer period reduces number of full-timers given high turnover

Shorter period provides more time to make workforce adjustments to mitigate cost

Stability Period Considerations

Shorter period reduces coverage commitment but creates administrative complexity

Longer period that aligns with calendar years is most practical administratively


Is a New Hire an FTE?

Is the New Hire Reasonably Expected to Work Full-Time at Start Date?

– If a new hire is reasonably expected to work full-time, then the employer can avoid free rider penalty by offering coverage at or before FTE’s first 3 months of employment

Is the New Hire a Variable Hour Employee at Start Date?

– Look at the “facts and circumstances”

– A new employee is a variable hour employee if

• It cannot be determined that the employee is reasonably expected to work on average at least 30 hours/week or

• The initial period of 30 hours/week employment is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours/week over the initial measurement period; e.g.: Retail worker hired at more than 30 hours/week for the holiday season but who is

reasonably expected to work fewer than 30 hours/week after the holiday season Part-time worker hired for 20 hours per week but who could work more

Is the New Hire a Seasonal Employee?

– Reasonable, good faith interpretation of the term “seasonal employee” through at least 2014


Defining FTE Status of Newly Hired Employees

New Variable Hour and Seasonal Employees

Initial Measurement Period (IMP) Administrative Period (AP) Stability Period (SP)

3 – 12 months Up to 90 days Same length as ongoing employees

Considerations

IMP plus AP must not last beyond last day of 1st calendar month following employee’s one-year

anniversary

– No more than 13 months plus a partial month

Transition to ongoing allows for extension of coverage for balance of overlapping ongoing stability

period

Administrative capabilities/limitations will weigh heavily on length of MP/AP decision

Employer Penalty Issues

Who is a “full-time employee”?

– Employee who works 30 hours or more per week, measured monthly

– 130 hours of service in a calendar month is treated as monthly equivalent of 30 hours of service per week

What is “unaffordable coverage?”

– Employer plan is unaffordable if the FTE’s required contribution exceeds 9.5% of taxpayer’s household income for the taxable year

• Employer may calculate affordability using FTE’s W-2 wages (Box 1)

• NEW: Two additional safe harbors for affordability determination: Lowest rate of pay 9.5% of Federal poverty line (about $90 per month for single coverage)

– Affordability is based on cost of self-only coverage, even if employee elects family coverage

What is “minimum actuarial value?”

– Plan must pay at least 60% of covered expenses

– Guidance recently provided from IRS on minimum actuarial value



Safe Harbor for New Hire—FTE in Initial Measurement Period

New hire on February 1, 2013 works 30 hours per week in initial measurement period and is entitled to health care coverage during initial stability period

Employer then tracks hours during standard measurement period to determine whether he is entitled to coverage in ongoing stability period

Initial Measurement Period (IMP)*2/1/2013 to 1/31/2014

*IMP must be between3 and 12 months

Admin Period*2/1 to 2/28 2014

*IMP+ AP < 13 months

Initial Stability Period (ISP)*3/1/2014 to 2/28/2015

*must be same duration as for ongoing employees

Standard Measurement Period10/15/2013 to 10/14/2014

(overlaps with ISP)

Admin Period

10/15 to 12/31 2014

Stability Period (1/1/15 to 12/31/15)

If FTE in SMP, FTE isentitled to coverage for

this stability period

Stability Period (1/1/15 to 12/31/15)

If not FTE in SMP, then continue coverage

for ISP, but no coverage for Stability Period


Safe Harbor for New Hire—Not an FTE in Initial Measurement Period

New hire on February 1, 2013 does not work 30 hours per week in initial measurement period and is not entitled to health care coverage during initial stability period

Employer then tracks hours during standard measurement period to determine whether he is entitled to coverage in ongoing stability period

Initial Measurement Period2/1/2013 to 1/31/2014

Does not work 30 hrs/wk

Admin Period for IMP2/1 to 2/28 2014

Initial Stability Period (ISP)

3/1/2014 to 2/28/2015

Not FTE no coverage—but see below*

Standard Measurement Period (SMP)10/15/2013 to 10/14/2014

(overlaps ISP)

Admin Period for SMP

10/15 to 12/31 2014

Stability Period (1/1 to 12/31/2015)

*If FTE in SMP, FTE isentitled to coverage for

this stability period

Stability Period (1/1 to 12/31/2015)

No coverage for ISP;if not FTE in SMP, no coverage in

Stability Period


Other FTE Determination Rules

Employers may vary Measurement Periods and Stability Periods for following categories of employees

– Union and Non-Union

– Salaried and Non-Salaried

– Employees of different entities

– Employees located in different states Employer is not required to offer coverage to any particular employee or class of employees, including part-time employees

– However, an otherwise eligible employee (or dependent) cannot be required to wait more than 90 days before coverage becomes effective

Eligibility conditions based solely on the lapse of time cannot be longer than 90 days

– the employer cannot impose a waiting period that conditions enrollment on the first day of the month after completing 90 days

Employer may condition eligibility on an employee regularly working a specified number of hours per period (or working full time)

– the employer may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition

What is an Exchange?

An exchange is a competitive marketplace that consists of suppliers and buyers

Exchange

Expedia

Amazon

iTunes


How Corporate Exchanges Work


Aon Hewitt | Health & Benefits Proprietary & Confidential | 2013 18

Plan Design Highlights

18

Bronze Bronze Plus Silver Gold Platinum

Medical Plan Design

INN Deductible (single/family)

$2,750 / $5,500 $2,000 / $4,000 $1,500 / $3,000 $600 / $1,200 None

INN Coinsurance 20% 20% 20% 10% 0%

INN OOP max (inc ded) $5,950 / $11,900 $5,000 / $10,000 $3,750 / $7,500 $3,000 / $6,000 $1,500 / $3,000

Hospital Inpatient Per Admission

20% 20% 20 10% $250 Copayment

Primary Care / Specialist 20% 20% 20%$20 / $35

Copayment

$20 / $35

Copayment

Emergency Room 20% 20% 20% 10% $100 Copayment

Rx Plan Design

Deductible & OOP Maximum

Included w/ medical

Included w/ medical

Included w/ medical

N/A N/A

Retail Generic 20% 20% 20% $5 Copay $4 Copay

Retail Brand Formulary 20% 20% 20%20% (up to $50

maximum)$20 Copay

Retail Brand Non-Formulary

20% 20% 20%40% (up to $100

maximum)$40 Copay

Actuarial Value 66% 71% 75% 81% 92%

Which Path to Take?

Health Improvement

Consumerism


20

Still About An Evolving Health Care System

Individual Solutions

System Overload

More Strategic Options

Expanded Coverage

New Normal

Broad Adoption

Rapid Consolidation


Speakers

Denny Ebersole

[email protected]

O: 504-681-2103

C: 504-451-0886


Documents

May 6 th , 2013 Jefferson Chamber