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Health Care Reform Update

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Health Care Reform Update Presented to: Puget Sound Finance Officers Association July 23, 2013 By: Carol Wilmes AWC Trust Program Manager – PowerPoint PPT presentation

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Title: Health Care Reform Update


1
Health Care ReformUpdate
  • Presented to Puget Sound Finance Officers
    Association
  • July 23, 2013
  • By Carol Wilmes
  • AWC Trust Program Manager

2
Todays Conversation
  • Incremental Change
  • Current State of Play
  • Impact to Employers in 2014
  • What Local Governments Should be Doing
  • Planning for our Benefit Future

3
Key elements of health reform for employers
Key Elements of Health Care Reform
  • Change in tax treatment for over-age dependent
    coverage
  • Accounting impact of change in Medicare retiree
    drug subsidy tax treatment
  • Early retiree medical reinsurance
  • Medicare prescription drug donut hole
    beneficiary rebate
  • Auto-enrollment of full-time employees (effective
    TBD)
  • Break time/private room for nursing moms
  • Employers must distribute uniform benefit
    summaries to participants
  • Employers must provide 60-day advance notice of
    material modifications (TBD)
  • Form W-2 reporting for 2011 health coverage

2011
2012
2013
2010
2014
2018
  • 2,500 health FSA contribution cap (indexed)
  • Medical device manufacturers fees start
  • Higher Medicare payroll tax on wages exceeding
    200,000/ individual 250,000/couples
  • New Medicare tax on net investment income for
    taxpayers with incomes exceeding 200,000/
    individual 250,000/couples
  • Research fees begin
  • Change in Medicare retiree drug subsidy tax
    treatment takes effect
  • Excise tax on high cost or Cadillac plans

Applies to all plans, including grandfathered
plans, effective for plan years beginning on or
after Sept. 23, 2010 (Jan. 1, 2011, for calendar
year plans). Collectively bargained plans may
have a delayed effective date. Applies to all
plans, including grandfathered plans, effective
for plan years beginning on or after Jan. 1, 2014.
4
Breaking News!Employer Mandate of 2014DELAYED
  • It started with the delay in U.S. DOL and IRS
    employer reporting process to be delayed
  • Without reporting, so
  • follows employer
  • Mandate
  • Delayed until 2015
  • The Domino Effect
  • Houses passes repeal
  • of individual mandate
  • And so it goes

5
Health Care Reform 2013
  • Employer must determine FTEs to avoid ACA
    penalties for not offering health care coverage -
    DELAYED
  • 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 womens preventive health
    requirements of no cost sharing and coverage for
    certain in-network preventive health services
  • PCORI fee filing and payment for 2012 due by
    7/1/13 (1 for average number of lives covered)

6
Health Care Reform 2014
  • Employer (DELAYED) and individual mandate
  • State/Federal insurance exchanges begin
  • Patient protections
  • Pre-existing condition exclusions prohibited
  • Annual dollar limits on Essential Health Benefits
    prohibited
  • Maximum 90-day waiting period for coverage
  • Cost-sharing limits for all group health plans,
    not just HDHPs/HSA (deductibles and OOP maximum)
  • Employer reporting of health insurance
    information to government and participants
    (DELAYED)
  • HRAs must be integrated with group health plan
  • Participants must be enrolled in order for
    contributions to be made
  • Existing stand-alone HRAs must be transitioned to
    pension HRAs, if not tied to medical
  • Transitional reinsurance fees begin (proposed fee
    amount is 63 per covered member) insurer fees

7
Taxes, Fees and Cost
Purpose Cost Timeframe Responsible Party
Patient-Centered Outcomes Research Institute Fees (PCORI) Supports medical prevention, treatment and care options research 1/life in 2013 2/life in 2014 and adjusted annually for inflation 2013-2018 Insurers of fully insured plans Sponsors of self-insured plans
Transitional Reinsurance Assessment Fee Helps stabilize premiums in individual market 63 annually per covered life for 2014 42 in 2015 26 in 2016 2014-2016 Insurers of fully insured plans Sponsors of self-insured plans
Health Insurer Fee Supports cost of health care reform Estimates range from 2-3 premium with lower for non-profits (applies to medical, dental, vision insurers) 2014-Ongoing Insurers of fully insured plans Does not apply to self-insured plans
State Exchange Fees Supports Exchange administration To be determined and will vary by state To be determined and will vary by state To be determined and will vary by state
Clinical Trial Fee Supports cost of clinical trials Unknown 2014-? Insurers of fully insured plans Sponsors of self-insured plans
High Cost Health Insurance Tax (Cadillac Tax) Supports cost of health care reform Excise tax of 40 on plan costs that exceed defined thresholds 2018-Ongoing Insurers of fully insured plans Sponsors of self-insured plans
8
2015 Employer Pay or Play (Shared
Responsibility)
  • Apply to employers with gt50 full-time employees
    (FTE equivalents)
  • New full-time employee (30 hours/week)
    definition
  • Permanent
  • Part-time
  • Seasonal or variable hour
  • Employee not eligible for premium tax if employee
    has access to minimum essential coverage
  • Employer-provided coverage is minimum essential
    if
  • Coverage provides 60 of total allowed costs
  • Affordable coverage employee only coverage of
    lowest plan option does not exceed 9.5 of
    household income

9
Planning for 2015 Employer Pay or Play (cont.)
  • Employers who do not offer coverage to 95 of
    employees and their dependent children and have
    an employee who receives a premium tax credit
  • Must pay 2,000 per FTE (after subtracting the
    1st 30 FTEs)
  • Employers who offer coverage and have an employee
    who receives a premium tax credit
  • Must pay 2,000 per FTE OR 3,000 per FTE
    receiving tax credit, whichever is less

10
Employer Penalties in 2015
The employer must pay a penalty for not offering
coverage
Does the employer offer coverage to its workers?
Did at least one employee receive a premium tax
credit or cost sharing subsidy in an Exchange?
Start Here
The penalty is 2,000 annually times the number
of full-time employees minus 30. The penalty is
increased each year by the growth in insurance
premiums.
Yes
Does the insurance pay for at least 60 of
covered health care expenses for a typical
population?
Employees can choose to buy coverage in an
Exchange and receive a premium tax credit.
The penalty is 3,000 annually for each full-time
employee receiving a tax credit, up to a maximum
of 2,000 times the number of full-time employees
minus 30. The penalty is increased each year by
the growth in insurance premiums.
The employer must pay a penalty for not offering
affordable coverage.
Do any employees have to pay more than 9.5 of
family income for the employer coverage (employee
only)?
Those employees can choose to buy coverage in an
Exchange and receive a premium tax credit.
Yes
There is no penalty payment required of the
employer since it offers affordable coverage.
Assumes employer has at least 50 full-time
equivalent employees.
11
What Local Governments Should be Doing Now
  • What Decisions Do I Have to Make?
  • Workforce Assessment for FTE (30-hour work week,
    seasonal/variable hour)
  • Pay or Play Consider Obligations
  • Unions
  • LEOFF Is
  • Ability to pay municipal budgets forecasting
  • Do I make plans affordable for everyone?
  • What Actions Do I Have to Take?
  • Review plans and eligibility rules
  • Understand impact on those currently opting out
    of coverage
  • Understand impact of full time employee
    requirements
  • Are you set up to administer new requirements?
  • Use transition relief for measurement period in
    2013
  • Ensure plans are compliant with PPACA design
    regulations
  • Determine whether plans pass actuarial value and
    affordability tests
  • Identify any workforce planning issues that need
    to be dealt with before 2014
  • Model cost impact to employers and employees now
    and into future (2018)

12
Lets drill it down further
  • Discuss strategies and labor issues related to
  • Play or Pay penalty fulltime/seasonal/variable
    hour employees
  • The Cadillac tax
  • The ACA at the bargaining table
  • The world is not coming to the end, but careful
    planning is essential

13
Assessing the Workforce
  • Full-time employee
  • 30 hours/week
  • New regulations
  • Measurement period (3-12 months)
  • Stability period (at least 6 mos or match
    measurement period)
  • Administrative period (at least 90 days)
  • Penalties kick in when an employee receives a
    premium tax credit

14
ACA Employee Categories
Full-Time Permanent Employee (30 hpw) Offer affordable, minimum value employee dependent child coverage Offer coverage within 90 days
Part-Time Permanent Employee (lt30 hpw) Dont need to offer coverage No penalty applies
Seasonal Employee (30 hpw) Use a reasonable, good faith definition of seasonal employee Use measurement/lookback period to determine eligibility Offer coverage no later than 13 ½ months from hire date
New Variable Employee (30 hpw) Cant be determined that the employee is reasonably expected to work 30 hpw Use measurement/lookback period to determine eligibility Offer coverage no later than 13 ½ months from hire date
Ongoing Variable Employee (30 hpw) Use measurement/lookback period to determine eligibility (no longer than 12 months) Offer coverage at end of administration period
15
Breaks in Service
  • Recent rules solely for determining when a
    rehired employee may be treated as a new hire for
    look-back measurement period purposes
  • If the period for which no hours of service is
    credited is at least 26 consecutive weeks, an
    employer may treat an employee who has an hour of
    service after that period, for purposes of
    determining the employees status as a full-time
    employee, as having terminated employment and
    having been rehired as a new employee of the
    employer

16
Terminated Employees
Employees who resign/retire/terminate are no
longer subject to measurement and stability
periods and need not be offered health insurance
except for COBRA requirements.
17
Variable Hour Employees
  • Seasonal employees who work other positions
    during non-seasonal periods are not actually
    seasonal employees.
  • Variable hour employees without an annual break
    in employment must be carefully managed.
  • 12 month measurement period 1550 maximum annual
    hours.
  • 1550 hours/52 weeks 29.8 hours
  • 6 month measurement period 775 maximum hours
    every 6 months.
  • 775 hours/26 weeks 29.8 hours
  • Once a variable hour employee is determined to be
    a full-time employee during a measurement period,
    the employee will be treated as a full-time
    employee for the entire stability period. A
    subsequent decrease in hours will not immediately
    cause the employee to lose full-time employee
    status during the stability period because the
    employee is locked in.

18
Questions HR, Finance, Administration are Asking
  • What kind of variable hour employees do we have?
  • How many months of the year do they work?
  • How critical is the service to the community?
  • Are there other ways to get the job done?
  • Temp agency
  • Reduce hours
  • Hire additional staff
  • Job share
  • Decide to benefit
  • Are there other budget impacts to consider (i.e.,
    hiring more workers may mean more equipment)

19
Breaking it down by Employee Groups Policy ideas
  • Full-Time Permanent Employees (under review)
  • Coverage 1st of month following date of hire
  • 6 month measurement period
  • 6 month stability period
  • Watch out for unpaid leave of absence
  • Part-Time Permanent Employees
  • Dont need to offer coverage
  • No penalty applies
  • Seasonal Employees
  • 12 month measurement period
  • Clearly define hours work

20
Breaking it down by Employee Groups Policy ideas
  • Ongoing Variable Employee
  • 12 month measurement period
  • Watch out for lookback period starting July 1
  • Clearly define hours stick to it!

21
Health care reform issues -Finally in 2018
Excise tax on high cost plans
Issue Patient Protection and Affordable Care Act, as amended
40 excise tax on high cost employer coverage 40 excise tax on high cost coverage, including medical, employee and employer health FSA contributions, onsite medical clinics, and employer (but not employee) contributions to HSAs (but not insured stand-alone dental and vision coverage) Employers to determine aggregate cost, report to insurers and TPAs who must pay the tax
Thresholds for excise tax (Indexed to CPI 1 in 2019, CPI thereafter) Thresholds for excise tax (Indexed to CPI 1 in 2019, CPI thereafter)
Self-only Any other tier
General 10,200 27, 500
High-risk professions 11,850 30,950
Retiree aged 55 through 64 11,850 30,950
Multiemployer plan 27,500 27,500
22
Cadillac Tax, an Overview
  • Tax imposed on plans offering premium coverage.
  • Effective January 1, 2018.
  • 10,200 limit for individual plans, 27,500 for
    family plans.
  • Amounts raised to 11,850/30,950 for retirees
    and high-risk professionals (police, fire,
    emergency medical).
  • 40 tax on amounts exceeding the ceiling.
  • Tax calculated based on actual premiums for
    insured plans. COBRA methodologies for
    self-funded plans.
  • Goal of tax to discourage overuse/abuse of
    healthcare system and help finance uninsured
    coverage.

23
Cadillac Tax, an Overview (cont.)
  • Calculation includes both employer and employee
    contributions.
  • Includes health plans, prescription drug plans,
    administrative fees, FSAs (capped at 2,500),
    HRAs, and employer-paid HAS contributions.
  • Dental and vision plans are not subject to tax
    unless bundled with a health plan.
  • Employers with composite plans may calculate cost
    based on composite rate, so long as composite
    rate is uniform for all employees.

24
An Example of the Cadillac Tax
2013 rates for full family coverage 1,650
employer share 150 employee share
1,800 per month total cost 1,800 x 12 months
21,600 annual cost Growth of 21,600 at 8
per year 2014 23,328 2015 25,194 2016 27,210
2017 29,387 (maximum ceiling of 27,500
exceeded) 2018 31,737 In 2018, 4,237 of
compensation subject to 40 excise tax. Total
tax paid 1,695!
25
An Escalade-ing Cadillac Tax
  • Tax will increase from 40 and continue to
    escalate.
  • 2018 potential increase tied to federal
    employee plans.
  • 2019 1 plus adjustments for inflation.
  • 2020 annual adjustments for inflation.
  • Other ACA mandates will increase cost of
    coverage, including increased administrative
    overhead.
  • Medical inflation continues to rise, annual trend
    of 8-10

26
Strategies for Mitigating the Cadillac Tax
1 Get the Numbers Apply appropriate trend to
2013 rates. Estimate to 2018. Are totals above
10,200/27,500? Start planning now.
27
Strategies for Mitigating the Cadillac Tax
2 Unbundle dental and vision plans Not subject
to tax unless bundled with health plan.
28
Strategies for Mitigating the Cadillac Tax
3 Decrease benefits increase deductibles
while continuing to offer minimum essential
coverage.
29
Strategies for Mitigating the Cadillac Tax
  • 4 Begin increasing employee cost-sharing
  • Cost-sharing does not avoid the tax, but
  • cost-sharing may alter employee behavior and
    usage.
  • Cost-sharing helps pay for the tax, if necessary.

30
Mandatory Subject of Bargaining
  • Washingtons Public Employment Relations
    Commission (PERC) has held that health benefits
    and health insurance premiums are mandatory
    subjects of bargaining that cannot be
    unilaterally changed by the employer.
  • The Commission consistently holds that health
    insurance benefits, representing a form of wages,
    are a mandatory subject of bargaining. Spokane
    County, Decision 11627 (PECB, 2013).
  • Any change impacting benefit levels or employee
    costs must be bargained. University of
    Washington, Decision 10771 (PECB, 2010).

31
Bargaining Pointers
  • Look to definition of part-time employee to
    ensure no problems with full-time test.
  • Educate employees regarding impact of the
    Cadillac tax.
  • How to address perception, Its the Citys
    problem, not mine.
  • Think from the perspective of the employee in
    order to sell new approaches to health
    insurance.
  • Unresolved issues with fire and police are
    subject to interest arbitration.

32
Bargaining Pointers (cont.)
  • Bargaining to shift more premium share to
    employees does not help avoid the Cadillac tax.
  • Employer contributions to Health Savings Accounts
    (HSAs) or Health Retirement Accounts (HRAs) are
    added to premium and may defeat philosophy of
    high deductible plans and costing of such plans.

33
Questions.
Carol Wilmes Program Manager AWC Employee Benefit
Trust 1-800-562-8981 or (360) 753-4137 carolw_at_awcn
et.org www.awcnet.org/employeebenefits
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