The ACA and YOUR School. April 30, Presented by Borislow Insurance

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1 The ACA and YOUR School April 30, 2014 Presented by Borislow Insurance

2 2014 Individual coverage mandate or penalty Subsidies for those that qualify State exchanges operational Rating rule changes for small groups Insurer taxes (for and not for profit) 10 essential health benefits Medicaid expansion (state by state) 2015 Employer mandate 60% minimum value 9.5% of W2 income Significant penalties apply Impact and Insight New rating rules and additional taxes, fees and assessments are increasing costs for schools is the tipping point for the schools when small group is defined as less than 100. Big decisions with significant business implications for each school. You have choices let s walk through them. 2

3 Impact. Change. Direction? 3

4 Status quo but not really. 4

5 Status Quo but not really. All ACA taxes, fees and assessments apply (2-4% impact) In 2016, small group definition changes to <100 School with less than 100 FT eligible employees will not be allowed to purchase health insurance through AISNE Plan design and premium contribution, only financial levers 5

6 Go it alone. 6

7 Go it Alone. All schools individually underwritten, subject to new small group rating rules or some experience-rated underwriting. Premium shock will be felt by most schools industry factor and group size are biggest drivers Each school can choose and implement its own plan design offering (with limitations) and premium contribution strategy All ACA taxes, fees and assessments apply (2-4% impact) 7

8 Go it Alone. What are the advantages? (size of school influences list) 1. Maintain control of all decisions 2. Maintains flexibility of health insurance carrier options 3. Funding, plan design and premium contribution options 4. It s what you know What are the disadvantages? 1. Lose protection from shared risk pool 2. Rating rule changes will apply for small groups 3. School specific experience will be used for rating 4. ACA will bring more taxes, fees and assessments 5. It s not a long-term strategy Cost pressure will force plan and contribution changes 8

9 Pay the Penalty. Go to the Public Exchange. 9

10 Pay or Play Employers with 50 or more FTEs who do not offer coverage to their full-time employees must pay a Employers with 50 or more FTEs who offer coverage must pay a per full-time employee for each full-time employee receiving a subsidy through the Exchange Employers must provide minimum essential coverage that meets minimum value standards and is deemed affordable 10

11 Pay the Penalty. Go to the Public Exchange. What are the advantages? 1. Out of the business of healthcare 2. Transfers risk of rising healthcare costs to the member 3. Potentially reduces costs What are the disadvantages? 1. Total loss of control 2. Penalties are not tax deductible 3. Ability to attract and retain faculty 4. Additional compensation will be necessary 5. Exchange technology is suspect and process is confusing In most cases, this solution will not be less expensive 11

12 Professional Employer Organization (PEO). 12

13 PEO. PEO Professional Employer Organization outsourced HR As of 2010, there were more than 700 PEOs operating in the United States, covering 2-3 million workers. Outsourced HR service provides employee management tasks: Payroll, employee benefits and workers' compensation Recruiting, risk/safety management, and training and development How does it work? Relationship begins when you engage the PEO and allow it to hire your employees to become their employer of record for tax and insurance purposes "co-employment." 13

14 PEO. Ideal for organizations in the size segment allows them to outsource HR, payroll, worker s compensation and employee benefits in one package. Health insurance offered and individually underwritten but NOT subject to new small group rating rules considered large group. Solution can mitigate premium shock PEO can maintain industry and group size factors in underwriting. Organization can select a health plan from a menu and maintain its own premium contribution strategy 14

15 What are the advantages? (size of organization influences list) 1. Shares/Outsources certain HR functions for all in cost 2. Avoids ACA rating rule changes 3. Gives organization scale for health insurance purchasing 4. Offers plan design and premium contribution options 5. Provides additional layer of compliance protection What are the disadvantages? PEO. 1. Co-employment is a difficult concept 2. Lose autonomy for certain decisions 3. Sharing/Outsourcing certain HR functions is different 4. Disruption of current vendor partnerships 5. Limited insurance carrier and plan design options PEO Providers are NOT created equal 15

16 Private Insurance Exchange. Cafeteria Plan meet Technology. 16

17 Private Insurance Exchange. Private insurance exchanges enable defined contribution 17

18 What are the advantages? Private Insurance Exchange. 1. Avoids morale bruising school responsibility 2. Expands individual choice 3. Delivers complete control of total benefit budget 4. Wide range of options for all stages of life 5. Improves communication and decision-support What are the disadvantages? 1. Unfamiliarity and novelty 2. Emerging technology with certain challenges 3. Concerns about maintaining competitive benefits 4. Additional administrative work for everyone 5. Uncertainty of health reform and tax implications PIE providers are NOT created equal 18

19 Self-insurance. 19

20 Self-Insurance. Referred to as Self-Funded or Administrative Services Only (ASO) plans. Self-insured plans are not tied to community rating for determining premiums like fully insured arrangements. Self-funded plans enable transparency of all costs fixed and variable. With this information, employers can develop population health management strategies more effectively. Self-funded plans are likely to be in a better position to manage future uncertainty because they escape greater regulation that the health insurance industry faces. 20

21 Self-Insurance. HHS rate review doesn t apply to self-funded plans. Premium increases are based on claims experience. Self-funded health plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA). ERISA preempts state insurance regulations, meaning employers with self-funded medical benefits are not required to comply with state insurance laws. Self-funded plans avoid the essential health benefits. In most cases, appropriate for employers with

22 Self-Insurance. Employer pays a flat administrative fee per employee per month for administrative services (called fixed costs). A self-funded plan may either be: bundled all components of the plan are administered by a third-party administrator (TPA) such as provider network, claims payment, customer service. unbundled employer may choose a TPA, pharmacy benefit manager, provider network, stop loss carrier, or other components separately to customize their plan. Employer pays for claims directly incurred by the members and transfers risk for catastrophic claims through stop loss Specific stop loss coverage after a deductible on individual claimants Aggregate stop loss umbrella coverage to protect the plan as a whole against large losses 22

23 Self-Insurance. What are the advantages? 1. Greater plan design flexibility 2. Hold own reserves and interest 3. No margin or premium taxes 4. Avoid HIT tax (2-7%) 5. Potentially lower costs for good claims experience What are the disadvantages? 1. Assumes risk for poor claims experience 2. Assumes administrative responsibilities to run the plan 3. More challenging to budget Challenging for smaller organizations to save money 23

24 Self-insurance with a twist. 24

25 Think Differently The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking. Albert Einstein 25

26 Self-insurance with a twist. The Healthcare Captive Solution Every business has risks inherent in its operations healthcare is a big one. Self-funding is an effective way to manage healthcare costs. Claim volatility can make it less attractive to small-mid-sized employers. The Captive insurance arrangement is self-funding with a twist. It is an elegant healthcare financing vehicle used by 90% of the Fortune 500. There are 5,003 Captives in operation worldwide. Bermuda is home to 20%. A Captive provides insurance to, and is controlled by it s owner members. Captives can be formed as a single parent, group or association. They can be homogenous or heterogeneous. 26

27 The Healthcare Captive Solution The Captive insurance arrangement replicates the size and stability of a larger employer to help small-mid-sized employers self-fund. Owner members share a common cause to improve the efficiency of healthcare financing, save money and improve overall health. Mechanically, a Captive reinsures the stop loss policies of multiple employers. Aggregating risk minimizes volatility and improves the stability of the pool. All members share in the financial results of proactive population health management. Because a Captive is self-funded, it avoids the Health Insurance Company Tax a cost aversion between 2% - 7%. 27

28 Presented by Borislow Insurance 28

29 Vision for the Future 29

30 Vision for the Future Philosophy put the consumerism back into Consumer-Driven Health Plans by empowering faculty & staff to make informed decisions and live a healthier lifestyle Principles transparency, responsibility and opportunity to create a consumer-centric culture of health and wellness Business model accountable, transparent, consensus building among members while enhancing the effectiveness of strategic partners Secret Sauce designed to engage, educate and empower members to learn about healthcare, making it less confusing building confidence 30

31 Vision for the Future Sometimes referred to as a rent-a-captive EmCapTM by Berkley Insures the risks of participants (cell owners/renters) Assets of each cell are shielded from the other cells (no co-mingling) Lower upfront capital requirements for renters Bermuda based (state regulations apply for stop loss insurance) Ideal solution for schools who are forward-thinking risk managers that embrace consumerism, health and wellness as a business strategy. Financially attractive to schools who have the ability to assume a portion of the financial risk. Homogenous risk pool which creates greater predictability of claims in the most predictable area of cost. Captivated Health will better manage population health 31

32 Vision for the Future Built on the principles of consumerism, health and wellness. Designed to improve member level healthcare confidence both clinical and administrative. Blends the best of eastern and western medicine to ensure members get the right care, in the right place, at the right time and by the right provider. Providing access to white glove service and self-service tools and resources for trusted advice and guidance. A business strategy to improve school culture by improving overall health and productivity and lower healthcare costs for everyone. Captivated Health builds healthcare confidence 32

33 Vision for the Future Created for schools, faculty and staff it s healthcare the way you ve always wanted it easier Provides more control over your healthcare dollars Access to tools and resources to build member healthcare confidence with health plan requirements and healthcare choices Data to drive decisions about wellness programming Improved faculty and staff decision-making and overall health and wellbeing creates a culture of wellness It is a shared responsibility model with other like-minded schools 33

34 Vision for the Future Captivated Health is a risk management strategy that helps schools retain control of their plan, cut costs and retain profit of their own experience Captivated Health will perform poorly if there is a high frequency of claims not severity Captivated Health can perform well even if some schools do not Berkley does not have to have a good year for Captivated Health to have a good year and provide distribution Captivated Health will return excess premiums to members on a pro-rata basis, rewarding schools that do an effective job of managing health risks 34

35 How does it work? 35

36 SEVERITY Predictability and Probability TRANSFER RETAIN SHARE Self-Funded Retention (Variable Costs) Captive Layer (Variable Costs) Insurance (Fixed Costs) FREQUENCY

37 Contractual Responsibility Model School: Self- Funds Plan* Captive Agreement Stop Loss Policy Join Captive: Turnkey and Established Purchase Stop Loss: Berkley Life & Health Reinsurance Agreement 37

38 Financial Responsibility Model Unpredictable Claims Transferred Risk Layer ($250k+) Less Predictable Claims Shared Risk Layer $25k/50k up to $250k 13% - 20% to Total Exposure Collateral for Reserves Most Predictable Claims Retained Risk Layer Less than $25k/50k 58% (expected) - 65% (maximum) of Total Exposure 38

39 What are the advantages? 1. Removes state lines barriers to growth 2. Invisible to faculty, staff and their families 3. Avoidance of unanticipated fully-insured rate increases 4. Information, cost and communications transparency 5. Shared risk to control volatility and improve cash flow 6. Retention of underwriting profit and investment income What are the disadvantages? 1. Assumes risk for poor claims experience 2. Assumes administrative responsibilities to run the plan 3. More difficult to budget Strategic short and long-term answer 39

40 The ACA and YOUR School Closing Thoughts The rising cost of healthcare is a significant business challenge. The ACA will exacerbate this challenge with additional taxes, fees and assessments. Schools have choices need guidance and advice. BI is passionately prepared to help guide and advise you. 40

41 Questions & Answers Mark S. Gaunya, GBA Principal David A. Shore VP Employee Benefits Practice Leader Borislow Insurance One Griffin Brook Drive Methuen, MA Phone:

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