Health Insurance Update

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1 VLCT Risk Management Services Health Insurance Update presented by David Sichel Deputy Director, Risk Management Services Vermont League of Cities and Towns

2 Today s Topics Legislative Update Vermont Health Connect for 2016 Federal Cadillac Tax

3 Legislative Update Considered in : Health Reform S.139 $6.3 million, state and federal Likely to increase cost shift

4 Vermont Health Connect Vermont Health Connect (VHC) is Vermont s health benefit exchange our online marketplace for purchasing health insurance. Contracted and operated by the state Website problems continue Most recent deadline: get the Change of Circumstance function working

5 Vermont Health Connect VHC Changes for 2016: Required for groups with up to 100 employees. This is new for groups with employees. New plan: Gold level High Deductible (i.e. HSA compatible), $2500/$5000, similar to what many towns offered to employees before VHC. Some other plans have been tweaked. BCBSVT has requested an 8.4% rate increase. MVP has requested a 3% rate increase.

6 Accessing the Exchange Your municipality will continue to conduct your group s business directly with your carrier. You can receive assistance from carrier, navigator/consumer assister, insurance broker, or VLCT.

7 Plan Designs in the Exchange The basic benefits are all the same: the only difference is how claim costs are shared between the insurer and the subscriber. Provider networks and medical management may differ between insurers. Platinum Plan: 90% insurer paid Similar to rich municipal health plans Gold: 80% insurer paid Silver: 70% insurer paid Includes High Deductible Plan option and Traditional Plan option Bronze: 60% insurer paid Includes High Deductible Plan option and Traditional Plan option

8 Employee Choice in the Exchange Employer will select the choice model of plans and how much they will contribute. Two Choice Options: Employer selects the carrier and plan(s) made available to employees. Employee selects the plan from all choices offered by the carrier selected by the employer.

9 Cadillac Tax What? When? How? Who will pay? Issues & Strategies

10 What? A federal excise tax on high-cost health insurance plans (with excess benefit ) A 40% tax rate On the portion of the total annual cost 1 that s over a specific Premium Tax Attachment Point 2 Tax is due from the insurer = employer if self-insured

11 What? 1 Total annual cost = ALL PREMIUMS Contributed by both EMPLOYER and EMPLOYEE ALL applicable plans together: Health insurance e.g. BCBS or MVP + HRA + HSA pre-tax dollars only + FSA for health expenses But Not: employees of out-of-pocket payments employees after-tax contributions to HSAs Dependent Care FSAs

12 What? 2 The Premium Tax Attachment Point, presumably a typical/reasonable benefit level, is set for most employees in 2018 as shown here. The amount above this point will be taxed. Premium Tax Attachment Point Self-only Plan Other-than-self-only Plan Most employees $10,200 $27,500 However, some employees might be exceptions

13 What? Exceptions to Premium Tax Attachment Point Age and gender adjustments IF characteristics differ from the national workforce Pre-age 65 retirees High-risk professions including public safety, electrical line workers, and construction Incl. retirees with 20 or more years in high-risk profession Only applies if a majority of employees in a plan are in a high-risk profession

14 What? Excepted employees have higher attachment points. Premium Tax Attachment Point Self-only Plan Other-than-self-only Plan Most Employees $10,200 $27,500 Excepted Employees $11,850 $30,950

15 When? Effective for health plans beginning January 1, 2018 Premium tax attachment point adjusted by CPI +1% starting in 2019 Premium tax attachment point adjusted by CPI only beginning in 2021

16 How? Imposed on insurance carriers or on employer if self-insured HSA, HRA and Health FSA are considered employer self-insured health plans for purposes of the tax Rules are still being written, likely to be complex

17 How? For the Cadillac Tax, Health Insurance does NOT include: Stand-alone Dental and Vision plans Stand-alone Employee Assistance Program (EAP) Dependent Care FSAs Employees after-tax contributions to HSAs

18 How? Health Savings Accounts (HSA) Considered self-insurance Pre-tax contributions from both employer and employee must be counted as premiums Equity issues arise because each employee can make and receive different contributions. Example: Employees over age 55 on a family plan who max out their contribution to a total of $7,750 vs. employees who contribute a minimal amount.

19 How? Health Reimbursement Arrangements (HRAs) Considered self-insurance Employer-only funded What is the premium value of the HRA? It is proposed to be the amount that would be charged for continuation of HRA coverage through COBRA. This COBRA calculation is not simple.

20 How? Health Flexible Spending Accounts (FSAs) Employer and employee contributions How will this be valued? Equity issues are similar to HSA, though maximum contributions are lower

21 How? Calculating the total cost of coverage Self-only plan cost is pretty clear Other-than-self-only plan cost is more complicated. What if employer offers more than one plan option for employees to choose?

22 How? For other-than-self-only plans, calculate by plan tier? Or by average cost for all tiers? Proposed rules are by the average cost of all tiers, but give the option to keep tiers for calculation Averaging two-person and family plan premiums is less likely to trigger the tax. Base calculations on actual enrollments, not on which plans are offered

23 How? What if employer offers more than one plan option for employees to choose? Average by plan or all rolled together? Proposed rule is by plan, then split into tiers Remember, plans include HSA, HRA and Health FSA plans that will be added to base health plan premiums in determining applicability of the excise tax.

24 How? Reporting and Paying the Tax Each insurer is responsible for reporting premium and paying tax: Employer will determine if tax is due and notify insurers and the IRS. It seems that this would have to be done by employee. Multiple plan costs are to be applied pro rata for tax Example: if commercial health insurance premium is 85% of the total cost (including HSA, etc.), insurer will be assessed 85% of the tax, even if the premium for that plan is below the attachment point.

25 How? Premium Determination Period (proposed) Plans would elect the method of calculating cost before the determination period for which the cost is determined The amount of the tax would be known at the beginning of the taxable year. An alternative would be to use actual costs The amount of the tax would not be known until the end of the year.

26 How? Frequency of Reporting Regulations not yet issued Likely monthly Frequency of Tax Remittance Regulations not yet issued

27 Who Will Pay? Who will really pay the tax? Cost will pass through to employer Will the cost also flow to employees?

28 Issues Many towns are on a path to being affected by this tax in 2018 or soon after Potential cost could be significant Administratively complex Collective Bargaining Rules are still being developed Politics

29 Strategies Begin planning now. Consider health plan changes. Consider how HSA, Health FSA, and HRA plans fit into your overall health benefits. Consider a rebalance between pay and benefits but remember pay is taxable.

30 Strategies Consider flat amount for employee health benefits. If employees have plan choices, consider equity issues. Consider paying the tax (with employees sharing the cost). Stay tuned!

31 Questions? Thank You

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