Health Care Reform Planning for the Financial Impact on Businesses

Transcription

1 October 13, 2010 Health Care Reform Planning for the Financial Impact on Businesses Joseph Kra, FSA, MAAA, New York Services provided by Health & Benefits LLC

2 Agenda Future of Employer Sponsored Coverage Financial Modeling Case Studies Appendix: Open Enrollment Checklist 228

3 Future of Employer Sponsored Coverage

4 Planning for Patient Protection and Affordable Care Act (PPACA) This presentation provides an overview of the financial impact of healthcare reform and how employers are likely to respond. While legislative changes are staggered over a series of effective dates, employers plan costs are most affected by changes introduced in three phases: 1.Now: Coverage mandates for plan years beginning on or after September 23, January 1, 2014: Individual insurance market change and additional coverage mandates 3.January 1, 2018: Excise tax on Cadillac plans The first phase of changes have financial implications (as shown in the next section) but have not driven dramatic change in employer benefit plans. The effects of the second and third phases can be more significant. 230

5 Drivers of Change for Employer-Sponsored Plans Legislative provisions, especially starting in 2014, will overhaul the current healthcare insurance market. Employers will respond through adapting or terminating their healthcare benefit plans. Comply Prepare Restructure Plan Options Exit New insurance options: Individual insurance will be available without pre-existing condition limitations. Additionally, eligibility for Medicaid will be expanded. Individual mandate: All individuals will be required to purchase coverage or pay a tax. Additional employees may enroll in employer plans. Employer mandate: Employers must offer qualifying insurance to all full time employees or pay a surcharge. If coverage is offered but is unaffordable, a surcharge is also payable. Vouchers: Employees can buy government coverage using their employer s individual coverage subsidy if employer contribution requirements are too high (but not unaffordable ) Excise tax (effective 2018): Employers must pay 40% tax on the cost of coverage in excess of thresholds. Many employers will likely reduce benefits and discontinue 231

6 New Employer Costs What are the sources of new costs and what risk factors will affect employers significantly? Sources of new costs More employees enrolling More dependents enrolling New benefit coverage requirements Expanding eligibility Raising employer contributions to exceed affordability levels New surcharges and vouchers High-cost plan excise tax (2018) Employer high risk factors High employee opt-out/waiver rate High dependent opt-out rate Low-value plans; cover part-timers Full time employees not benefit eligible High employee contributions Lower-paid workforce High plan costs there are a range of options to mitigate the additional costs 232

7 Retiree Medical Outlook Stand-alone retiree medical plans are not subject to coverage mandates however, healthcare reform has a substantial impact on retiree medical plans. Most employers no longer offer retiree medical coverage. Remaining employers may not see a long-term role in continuing to offer coverage. Currently, pre-medicare retirees may not be able to find adequate coverage. As of 2014, pre-medicare retirees should be able to enroll in a range of individual insurance options. Employers that continue to offer coverage will need to address a range of factors as they set long-term strategy Retiree comparison shopping of employer and individual market plan options Reductions in federal Medicare Advantage funding Loss of Retiree Drug Subsidy (RDS) tax benefit for covering Medicare eligible retirees Evolution of alternate prescription drug coverage options for Medicare eligible retirees, including new discounts available to Group Part D plans Expanding outsourced solutions 233

8 Financial Modeling Case Studies

9 Case Studies The following case studies illustrate how certain provisions will impact sample employers. Case Study 1: 2011: Impact of preventive care and age 26 changes Case Study 2: 2014: Employer that does not cover temporary employees Case Study 3: 2014: Employer that minimizes future benefit plan costs Case Study 4: 2014: Shared Responsibility Surcharge and Free Choice Voucher Case Study 5: 2018: Impact of excise tax for high cost medical plan Note: The examples included should not be relied upon for employer-specific financial modeling. The impact on each employer will vary, depending on a range of factors. 235

10 Case Study # Preventive Care and Age 26 Changes Employer with 10,000 employees will incur $2.2 Million cost increase (2.1% of total plan cost) in 2011 to satisfy preventive care and age 26 coverage mandate Employer will not maintain grandfather status and must cover preventive services at 100%. Most preventive services are currently subject to cost sharing provisions. Based on claim experience, additional cost will be $700,000, assuming no addition utilization of preventive services. All children will be covered until the end of the year that they reach age 26. Currently covers children through the year that they turn age 19, or age 25 if a full-time student, as indicated by the blue lines below. The additional cost is projected to be $1.5 Million annually (e.g. $2,500 per child and 600 children). The red line in the graph below illustrates how enrollment may change Covered Children Children Age as of Jan 1,

11 Case Study #2 Employer Does Not Cover Temporary Employees Employer provides qualifying coverage to 7,000 permanent employees. However, 2,500 temporary full-time employees (30+ hours/ week) are not benefit eligible. 3,000 dedicated full-time employees (30+ hours/ week) at contractor are not benefit eligible Employer will incur penalty (not tax deductible) of $5 Million - $19 Million for full time employees who are not benefit eligible It is unclear if the penalty will be computed based on the employees who are not benefit eligible or all employee. Additionally, employer expects subcontractor to pass through $6 Million penalty for dedicated employees 237

12 Case Study 2: Employer Does Not Cover Temporary Employees Shared Responsibility Decision Tree - Effective in Do you have 50 or more full-time equivalent employees? Yes No You will not be subject to any Shared Responsibility penalty. 2. Do you offer a health plan to all full time employees (FTEs) and their dependents? Yes 3. Do all of your employees have a total household income that exceeds 400% of Federal Poverty Level No You will pay a penalty fee of $2,000 annually for every FTE if at least one FTE receives income-based premium assistance to purchase coverage through the exchange. Penalties do not apply to the first 30 FTE s. You will not be subject to any Shared Responsibility penalty. Yes No 4. Does the health plan offered to FTEs pay less than 60% of total benefit costs or is the required employee contribution for plan > 9.5% of total household income? Yes No You will not be subject to any Shared Responsibility penalty. You will pay the lesser of $3,000 times the number of FTE s receiving income based assistance for exchange coverage; or $2,000 times the total number of full-time employees; first 30 FTE s not counted. 238

13 Case Study #3 Employer Minimizes Future Benefit Plan Costs Employer provides comprehensive coverage to 500 employees. Employees pay 20% through payroll contributions Employees pay 10% of provider charges through deductibles and coinsurance 50 employees currently waive coverage and provide evidence of alternate coverage Employer is considering 3 options: Option 1: No change in current benefits Option 2: Terminate all coverage Option 3: Reduce benefits - offer only a high deductible plan and eliminate subsidy for dependent coverage Projected 2014 Costs: Option 1 Status Quo Option 2 Terminate Coverage Option 3 Reduce Benefits Current Enrollment Assumed Migration Gross Cost $5,250,000 $3,500,000 $2,187,500 Employee Contributions ($1,050,000) ($2,100,000) ($1,067,500) ER Cost $4,200,000 $1,400,000 $1,120,000 Penalty $0 $1,100,000 $0 $0 Tax Benefit ($1,470,000) $0 ($490,000) ($392,000) Net ER Cost $2,730,000 $1,100,000 $910,000 $728,000 Projected costs are lower if the employer reduces benefits than if it eliminates coverage! 239

14 Case Study #4 Shared Responsibility Surcharge and Free Choice Voucher For some employers, a significant portion of employees will qualify for Medicaid (e.g. income threshold of $34,314 for family of 5) * Many employees (e.g. below an income threshold of $103,200 for family of 5)* will be eligible for a government exchange plan, triggering employer surcharges or vouchers to subsidize the insurance cost, if contributions are too high, or unaffordable The chart below provides a sample output from our standard model illustrating who could qualify Medicaid / Exchange Qualification - Income Breakpoints Family Size $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 $170 $180 $190 $200 Household Income (in thousands) Qualifies for Medicaid Qualifies for Exchange and Surcharge Applies Employer Pays Free Choice Voucher "Affordable Coverage" (< 400% FPL) Over 400% of FPL * Based on 2010 federal Poverty Level table 240

15 Case Study #5 Projected Excise Tax The projected excise tax for a 5,000 employee company is $6 Million - $13 Million (7% - 12%) in 2018 and $34 Million - $86 Million (17% - 29%) in 2030 Excludes cost of dental plans, on-site clinic and assumes employer terminates healthcare FSA Dramatic plan design reductions would be required to fully avoid tax Due to significant regulatory uncertainty, retiree exposure has not been determined. $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 PPO Plan Option (9.0% Trend) Year 2018 (first year of tax) Projected Excise Tax for Active Plans ($ Millions) 6.5% Annual Trend 9.0% Annual Trend $6.0 $ $7.0 $ $8.0 $ $9.4 $ $11.0 $ $12.9 $ $15.1 $ $17.5 $ $20.2 $ $23.1 $ $26.3 $66.8 $ Employee Only Premium Rate Family Premium Rate Single Tax Threshold Family Tax Threshold 2029 $29.8 $ $33.6 $

16 Appendix: Open enrollment checklist

17 Open enrollment checklist Topic Description To do list Done Age 26 mandate and expanded tax-free treatment Health plans offering coverage to dependent children must extend eligibility to adult children to age 26. For plan years before 2014, grandfathered plans may limit extended coverage to adult children ineligible to enroll in another employer-sponsored plan. Craft open enrollment materials to describe new eligibility terms; update other employee communications accordingly. Update administrative processes to offer adult children a special enrollment opportunity of at least 30 days, which may run concurrently with the general open enrollment period. Coverage, if elected, must be effective as of the first day of the plan year. The health reform law also expands the tax-free nature of health plan coverage for these young adults, allowing tax-free treatment to continue regardless of student or marital status through the end of the year in which the child turns 26. Employers payroll and tax-reporting operations will require adjustment. Plans offering dependent child coverage must provide a one-time written notice about an adult child s special enrollment opportunity. The notice may be included in open enrollment materials if prominently placed. Grandfathered plans limiting coverage to adult children ineligible for another employer plan must state that requirement in employee communications. Employers may include an attestation, to be signed by the employee, representing that a dependent isn t eligible for other employer plan coverage. Coordinate revised eligibility category with vendors (including stop-loss carriers) and update vendor contracts as necessary. For insured plans, analyze and coordinate all applicable state mandates on dependent child coverage. 243

18 Open enrollment checklist Topic Description To do list Done Lifetime limits Insured and self-insured group health plans can t impose lifetime dollar limits on individual coverage, but may impose lifetime per-beneficiary limits on nonessential benefits. Open enrollment materials must expressly state that plan has no lifetime dollar limit on the value of total plan benefits and that individuals previously affected by such limits are again eligible for plan benefits. Where applicable, describe per-beneficiary limits on nonessential benefits. Position this information prominently in enrollment materials. Update other employee communications accordingly. Update administrative processes to offer individuals who reached the lifetime limit a special enrollment opportunity running at least 30 days, which may be concurrent with the general open enrollment period. If elected, coverage must be effective as of the first day of the plan year. Plans must provide a notice about the individual special enrollment opportunity described above. While not specifically mentioned in the recent regulatory guidance, we believe this notice may be included in open enrollment materials. Coordinate with vendors and stop-loss carriers and update service contracts as necessary. 244

19 Open enrollment checklist Topic Description To do list Done Annual limits Insured and self-insured group health plans generally cannot impose annual dollar limits on individual coverage, but may impose annual perbeneficiary limits on nonessential benefits. For plan years before 2014, plans can impose restricted annual dollar limits on essential health benefits. Recent regulatory guidance provides specific dollar amounts (increasing over the next three years) that qualify as permitted restricted annual dollar limits. Craft open enrollment materials to describe permitted annual limits ($750,000 minimum for 2011) for essential health benefits and describe any applicable perbeneficiary limit on nonessential benefits. Update other employee communications accordingly. Coordinate with vendors and stop-loss carriers and update service contracts as necessary. Pre-existing condition exclusions for kids under 19 Insured and self-insured plans cannot impose pre-existing condition exclusions for children under age 19. This ban will apply to all enrollees beginning in Craft open enrollment materials to delete pre-existing condition exclusions for children under age 19 and update other employee communications accordingly. Coordinate with vendors and stop-loss carriers and update vendor contracts as necessary. 245

20 Open enrollment checklist Topic Description To do list Done Preventive Services* No cost sharing permitted for preventive services such as immunizations and women s preventive care. Craft open enrollment materials to delete cost sharing provisions for preventive services and update other employee communications accordingly. Coordinate with vendors and update vendor contracts as necessary. Physician designations * Plans calling for designation of primary care physicians and pediatricians must ensure participants choices are not too restrictive. Craft open enrollment materials to amend designation requirements and update other employee communications accordingly (see model language in recently issued regulations). If designation is part of an electronic enrollment process, reprogramming may be necessary. Coordinate with vendors and update vendor contracts as necessary. * Only required for new and non-grandfathered plans. A grandfathered plan is one in place before March 23, 2010, that meets certain limitations regarding plan changes made since that date. 246

21 Open enrollment checklist Topic Description To do list Done OB/GYN preauthorization * Plans may not require a referral for OB/GYN services. Craft open enrollment materials to delete these preauthorization and referral requirements and update other employee communications accordingly Coordinate with vendors and update vendor contracts as necessary. Emergency services* Emergency services coverage cannot require preauthorization, be limited to in-network providers or impose higher cost sharing for out-of-network services. Craft open enrollment materials to delete preauthorizations, network limits and higher cost sharing; update other employee communications accordingly Coordinate with vendors and update vendor contracts as necessary. * Only required for new and non-grandfathered plans. A grandfathered plan is one in place before March 23, 2010, that meets certain limitations regarding plan changes made since that date. 247

22 Open enrollment checklist Topic Description To do list Done Over-thecounter medications Starting Jan. 1, 2011, costs of overthe-counter medications will not be reimbursable from health flexible spending accounts (FSA), health savings accounts, Archer medical savings accounts or health reimbursement arrangements. Taxfree reimbursements will be available only for medicines or drugs (other than insulin) prescribed by a physician. Coordinate with service providers, such as health FSA and payroll vendors, to determine their administrative capabilities regarding these reimbursements. Clarify expectations related to expenses vendors will reimburse and adjust service agreements to reflect new responsibilities. Craft descriptions of new limitations for inclusion in open enrollment materials if plan currently permits tax-free reimbursement for over-the-counter medications and drugs; update other employee communications accordingly and claim forms if necessary. With respect to health FSAs, consider differing implications this new rule may have on non-calendar year and calendar year plans with a post year-end grace period. Employers using debit cards to pay for certain medical expenses must coordinate with card vendors to ensure non-prescribed, over-the-counter medications and drugs (except insulin) can no longer be purchased with the debit card. Employee communications related to debit card use should reflect this change. * Only required for new and non-grandfathered plans. A grandfathered plan is one in place before March 23, 2010, that meets certain limitations regarding plan changes made since that date. 248

23 Open enrollment checklist Topic Description To do list Done CLASS program Employers can voluntarily participate in the CLASS program, a national, government-run long-term care program set to begin Jan. 1, Because the law doesn t require the Department of Health & Human Services to release draft program details until 2012, transition rules or delayed implementation may occur. Participating employers must automatically enroll employees and facilitate payroll deductions. Craft open enrollment materials to describe the program and related costs; update other employee communications accordingly. Coordinate with payroll vendors and update service contracts as necessary. Rescission Insured and self-insured group health plans may not retroactively terminate coverage, except in limited situations, such as when the covered individual commits fraud against the plan or makes intentional misrepresentations. When rescission is permitted, plan must give prior notice. Update employee communications to describe coverage cancellation practices meeting the new standards and update other employee communications accordingly. Work with vendors to ensure individuals will not be improperly dropped from coverage beginning in Prepare a notice of coverage rescission to distribute beginning in Notice content rules are not specified in the law, but should likely include plan name, notification of rescission, date coverage ends and reason for the rescission. Notice must be provided at least 30 calendar days before coverage is rescinded. 249

24 Open enrollment checklist Topic Description To do list Done HSA and Archer MSA penalties for nonqualified distributions Beginning Jan. 1, 2011, individuals must pay income tax and a 20 percent penalty tax on improper distributions from health savings accounts and Archer medical savings accounts. While compliance burdens fall on the account owner, employers may consider updating employee communications related to these accounts and describe the updated penalties. Employers working with financial institutions offering HSA or MSA accounts may want to confirm the third party is aware of these changes and will timely update explanatory materials. 250

25 Disclaimers has prepared this document exclusively for seminar attendees to reflect the impact of federal Health Reform. This document may not be used or relied upon by any other party or for any other purpose. is not responsible for the consequences of any unauthorized use. Further, final Health Reform regulations have not been issued, including clarifications and technical corrections. Actual plan experience will differ from potential assumptions: future changes in enrollment, in claims and administrative costs and in administrative process may have a material impact. Some Reform provisions will likely involve calculations at the individual employee level. Financial and design decisions should be made only after each employer s careful consideration of alternative future financial conditions and legislative scenarios, and not on the basis of the items illustrated here. The information contained in this document and in any attachments is not intended by to be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or imposed by any legislative body on the taxpayer or plan sponsor. 251

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