ACA UPDATE: EXPERIENCES AND EXPECTATIONS

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1 ACA UPDATE: EXPERIENCES AND EXPECTATIONS Allen Steinberg November 3, 2014

2 Agenda Overview: Framing the discussion Experiences: Pfeiffer University and University of Sioux Falls Some Key Challenges Future Expectations

3 Experiences and Expectations What have been most significant lessons in build up to 2015 regarding: Health plan design HR practices What are your key challenges going into 2015 What are your expectations regarding The future of employer sponsored health insurance The challenges posed by trying to teach employees "health care literacy" to allow them to make purchasing decisions

4 Experiences: Pfeiffer University and University of Sioux Falls Background on your university Employee population Benefits eligible Other (adjunct, variable hour, students) Background on your health care plans (pre ACA compliance changes) Process for addressing administrative challenges posed by ACA The biggest challenges posed for your institution by ACA. Your solution for addressing administrative and employment challenges posed by ACA New rules limiting hours for certain classifications of employees New rules on how employee hours are tracked Changes to the dependent/spouse premium structure Costs of complying with ACA Administrative costs Health care coverage Impact of ACA looking forward Overall employment structure (e.g., fewer part time, more outsourcing) Health care strategy (e.g., more use of HDHPs, new premium strategy)

5 Pfeiffer University 1885 Beginnings United Methodist Connections Small Comprehensive 3 Campuses 85+ Full Time Faculty 56 Adjunct Faculty Approx. 200+

6 Employee Focused Low cost to Employee Self Insured Employee Focused Prevention Incentives Limited cost to families

7 Key Challenges as We Move Into 2015 Reacting to employer mandate what is your strategy? Measuring and tracking service and documenting practices to support employer mandate strategy Driving down health care costs for now and for the future (i.e, 2018) Religious institutions: contraception coverage

8 Key Challenges Moving into 2015: Pay or Play Minimum essential coverage offered to less than 95% of fulltime employees $2,000 Per Year per full-time employee (minus 30 employees) Minimum essential coverage offered to 95% of full-time employees, but does not satisfy affordability requirement Affordability Employee premium for self-only coverage does not exceed 9.5% of employee s income Minimum Value (indirect requirement) Plan Covers At Least 60% of Plan Costs $3,000 Per Year per full-time employee who purchases insurance through an exchange and receives a premium tax credit or subsidy

9 Key Challenges: Understanding Your Options Excise tax for failure of employer mandate has two prongs: Not offering minimum essential coverage to at least 95%* of full time employees and their dependents (4980H(a) penalty): $2,000 per full time employee (minus first 30* employees) Not offering affordable coverage that is minimum essential coverage to any full time employee (4980H(b) penalty): $3,000 per full time employee who receives a tax credit on public exchange Penalty triggered only if any employee receives tax credit through public exchange Minimum essential coverage defined to include a wide range of employer sponsored plans (and does not contain a minimum value standard) * 2015 transitional provisions not reflected

10 Pay or Play It s Complicated Employer Mandate Employee Tax Credit 4980H(a) requires employer offer minimum essential coverage to 95% of employees; 4980H(b) requires coverage be affordable Can include any product on large group market within a state Can include any self insured plan No minimum value standard Employee cannot receive tax credit if eligible for an employersponsored plan if such plan is: Affordable (premium <9.5% of income), and Meets minimum value (60%) Minimum value (60%) standard relevant in calculating employer tax ($3,000/employee who receives tax credit)

11 Pay or Play: Some Twists and Turns Affordable coverage: employee only coverage costs no more than 9.5% of employee s total household pay No required subsidy/cap on cost for spouse or dependent coverage Safe harbor methods for calculating employee pay: Employee s W 2 pay Employee s hourly rate of pay X 130 hours/month Federal poverty level for single individual ($11,670) Minimum value: plan covers, on an actuarial basis, 60% of costs (for general population) Very modest plans can meet this requirement especially managed care (HMO or narrow network plans) Using federal calculator, some skinny plans also seem to pass this test some of these skinny plans are actually anorexic

12 Pay or Plan: Some Considerations For an employer that already provides healthcare, key goal is to avoid the 4980H(a) penalty ($2,000/employee) 4980H(b) penalty is less troubling: Only imposed per employee who receives tax credit Excludes employees with spousal or other coverage In structuring response to pay or play rules: Providing a minimum value plan (60% coverage) is likely to cost approximately $3,500/year Using permitted safe harbor (9.5% of Federal poverty level), can charge $1,100/year; other safe harbors allow you to charge more

13 Pay or Play: Full time Employees Mandates only apply for full time employees those working (on average) 30 hours/week Law requires monthly measurement and assessment IRS has created system of measurement and stability periods employee s status (as calculated during measurement period) remains in effect for duration of stability period (if still employed) Different rules for different classes of employees: Employees with variable, part time or seasonal schedules coverage under mandate not yet know and entry into plan can be deferred pending completion of measurement cycle Regular, full time (>30hours/week) no measurement cycle applied; subject only to 90 day waiting period

14 Pay or Play: Measuring Service Service measured under detailed rules: Hourly employees: counting actual hours Salaried: hours worked or equivalencies (e,g., 8 hours per day for any day that employee worked) These rules a special challenge for higher ed; some relief granted: Adjunct: sum of 2.25 hours/hour of classroom time PLUS 1.0 hours for each additional hour of service required Work study employment does not count Good faith for everything else Other challenges (graduate students, concurrent appointments) abound Does ACA change your actual employment practices?

15 Pay or Play: How Do You React to ACA? Do you provide minimum affordable coverage with little/no spouse/dependent subsidy? Avoids penalty under employer mandate Prevents employee or family from accessing tax subsidies through federal exchange Do you offer a skinny plan that meets 60% threshold test but preclude employees from obtaining tax credit and leave employees with risk of financial exposure or limited coverage Do you restrict hours for employees near 30/hour per week threshold to reduce cost of employer mandate but distort employment practices Do you offer different tiers of health coverage/subsidies (while meeting nondiscrimination rules) to reduce overall cost of health care

16 Cadillac Tax Effective in 2018 a 40% excise tax imposed on high cost health coverage (the "Cadillac Tax ) The initial annual threshold amounts for the tax are: $10,200 for self only coverage $27,500 for coverage other than self only Threshold applied to COBRA rate not affected by increasing employee contributions Includes employer contributions to a HSA or FSA and employee (pretax) contributions to HSA or FSA Limited exclusions (such as separate insured vision and dental programs) and adjustments (for retirees)

17 Cadillac Tax The threshold amounts are subject to adjustments that are expected to be low medical trend so tax will ultimately impact a broad range of plans The tax is imposed on the insurer (if insured) or on the administrator (if self funded); ultimately, the plan sponsor will bear the cost (unless passed along to employees) Tax likely to accelerate impetus toward higher deductible plans or other lower cost options (e.g., HMOs or narrow networks ) No regulatory guidance issued yet; next few years will see a scramble by employers to avoid tax and by IRS to close loopholes

18 Expectations

19 Expectations: Issues for Consideration The future of employer sponsored health insurance What are employee perspectives on health care? What is employer role in providing health insurance in the future? Key questions: Is there a high deductible plan in your future? Is there a private health care exchange in your future? The challenges posed by trying to teach employees "health care literacy" to allow them to make purchasing decisions How does ACA impact your plan design and your broader HR policies and programs?

20 Employee Perspectives: Extremely/ Very Satisfied With Overall Health Care Plan 90% 80% % 60% 50% 40% 30% 61% 67% 66%^ 64%^ 63% 60%^ 62%^ 57%^ 58%^ 52%* 49%* 47%*^ 48%* 46%* 47%* 43%*^ 40%*^40%* 40%* 41%* 37%* 37%* 35%* 35%*^ 37%* 38%* 31%* 20% 10% 0% Traditional a HDHP b CDHP c Sources: EBRI/Commonwealth Fund Consumerism in Health Care Survey, ; EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey, a Traditional = health plan w/ no deductible or <$1,000 (individual), <$2,000 (family); b HDHP = High deductible health plan w/ deductible $1,000+ (individual), $2,000+ (family), no account; c CDHP = Consumer driven health plan w/ deductible $1,000+ (individual), $2,000+ (family), w/ account.

21 Employee Perspectives: Extremely/ Very Dissatisfied With Health Plan By Type of Plan 90% % 70% 60% 50% 40% 30% 20% 10% 8% 7% 8% 8% 7% 10%^ 11%^ 8% 8%^ 30%* 26%* 27%*^ 24%* 20%*^ 22%* 24%*^23%* 22%* 26%* 21%* 21%*^ 15%*^17%* 17%*^ 19%* 17%* 14%* 0% Traditionala HDHP b CDHP c Sources: EBRI/Commonwealth Fund Consumerism in Health Care Survey, ; EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey, a Traditional = health plan w/ no deductible or <$1,000 (individual), <$2,000 (family); b HDHP = High deductible health plan w/ deductible $1,000+ (individual), $2,000+ (family), no account; c CDHP = Consumer driven health plan w/ deductible $1,000+ (individual), $2,000+ (family), w/ account. * Difference between HDHP/CDHP and Traditional is statistically significant at p 0.05 or better.

22 Employee Perspectives: Extremely or Very Satisfied With Out of Pocket Costs, Type of Plan 90% 80% 70% 60% 50% 40% 30% 20% 10% 52%^ 45% 46% 46% 45% 44% 44% 44% 41% %* 20%* 16%* 17%* 16%*^16%* 18%* 20%* 13%* 31%*^ 29%*^ 27%*^ 24%*^23%* 22%*^24%* 18%* 20%* 0% Traditional a HDHP b CDHP c Sources: EBRI/Commonwealth Fund Consumerism in Health Care Survey, ; EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey, Note: survey question changed in 2009 from asking about "Out of pocket health care costs for my health care" to "Out of pocket health care costs for my other health care" because of the introduction of a question specifically asking about out of pocket costs for drugs. a Traditional = health plan w/ no deductible or <$1,000 (individual), <$2,000 (family); b HDHP = High deductible health plan w/ deductible $1,000+ (individual), $2,000+ (family), no account;

23 Employee Perspectives: Extremely or Very Satisfied With Choice of Doctors, % 80% 70% 60% 72% 77% 74%^ 75% 75%^ 76% 73% 72%^ 71%^ 72%^ 72% 69%* 70%* 71%* 72% 71% 67%* 60%* 80%* 76% 78%* 78% 76%^ 71%* 68%* 79% 75%^ 50% 40% 30% 20% 10% 0% Traditional a HDHP b CDHP c Sources: EBRI/Commonwealth Fund Consumerism in Health Care Survey, ; EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey, a Traditional = health plan w/ no deductible or <$1,000 (individual), <$2,000 (family); b HDHP = High deductible health plan w/ deductible $1,000+ (individual), $2,000+ (family), no account; c CDHP = Consumer driven health plan w/ deductible $1,000+ (individual), $2,000+ (family), w/ account. * Difference between HDHP/CDHP and Traditional is statistically significant at p 0.05 or better. ^ Estimate is statistically different from the prior year shown at the p 0.05 or better.

24 Employee Satisfaction With Current Plans: Likelihood of Keeping Current Plan 90% 80% % 60% 50% 40% 30% 63% 64% 64% 63%^ 60% 61%^ 61% 58%*^ 58%^ 40%* 38%*^38%* 37%*^ 34%*^ 31%* 32%*^ 34%* 30%* 52%* 49%* 49%*^48%* 46%* 45%*^45%* 44%*^ 36%* 20% 10% 0% Traditional a HDHPb CDHP c Sources: EBRI/Commonwealth Fund Consumerism in Health Care Survey, ; EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey, a Traditional = health plan w/ no deductible or <$1,000 (individual), <$2,000 (family); b HDHP = High deductible health plan w/ deductible $1,000+ (individual), $2,000+ (family), no account; c CDHP = Consumer driven health plan w/ deductible $1,000+ (individual), $2,000+ (family), w/ account. * Difference between HDHP/CDHP and Traditional is statistically significant at p 0.05 or better.

25 Employee Perspectives: Confidence in Employer Choices How confident are you that (your/your spouse s) employer or union has selected the best available health insurance for its workers? Among those who have health coverage through their employer or union (2014 n=1,207) % 29% 29% 30% 44% 42% 37% 32% 20% 14% 11% 11% 12% 14% 11% 9% 10% 7% 4% 4% Extremely confident Very confident Somewhat confident Not too confident Not at all confident Source: Employee Benefit Research Institute and Greenwald & Associates, Health Confidence Surveys, Health and Voluntary Workplace Benefits Surveys.

26 Employee Perspectives: Preference for Employer Role Some employers are thinking about changing the way they provide health insurance to workers. Which of these three choices would you prefer? (2014 n=1,517) You choose your health insurance. Your employer then pays the same amount they currently spend toward that insurance, and you pay any remaining amount, if there is any. 36% 41% 45% 40% Employers continue to choose and pay for health insurance the way they do now. 35% 40% Your employer gives you the money they currently spend on health insurance, and you decide whether to purchase health insurance and how much to spend. 19% 21% 24% Source: Employee Benefit Research Institute and Greenwald & Associates, Health and Voluntary Workplace Benefits Surveys.

27 The Private Health Exchange Universe Insurer Once geared to retirees and the individual market, but also expanding to current employer clients in the group market. Broker/Consultant Growing quickly, typically offers fixed products and integrated consulting services. Funded by commissions, fees, or a combination of both. Technology model Provides cloud, software, and data analytics solutions to insurers, states, brokers/ consultants, and also large employers looking for a custom exchange. Pure Play A more mature model, once rooted in small group but now also in the midto-large employer market. Known for decision support and technology.

28 Employee Perspectives: Priorities in Comparing Plans When you last compared different plans to choose the health insurance plan that was best for you, to what extent did you consider each of the following factors? Among those offered a choice of plan or purchase coverage on own (2014 n=934) Major consideration Minor consideration Not a consideration The deductibles and copayments 82% 16% 3% The premiums The annual limit on out of pocket expenses 71% 82% 24% 14% 3% 5% The list of doctors and hospitals included in the plan 60% 33% 7% Prescription coverage 59% 35% 6% The exclusions (things the plan does not cover) 57% 37% 7% Independent quality measures 25% 53% 22% Source: Employee Benefit Research Institute and Greenwald & Associates, 2014 Health and Voluntary Workplace Benefits Survey.

29 In Closing Short term challenges are more administrative in nature; long term challenges more fundamental Reminiscent of transitions under ERISA and Tax Reform Act of 1986 short term disruption and longterm learning how to cope Questions? Contact information: Allen Steinberg