Health Reform What Employers You Can and You Must Need to …comedyce.com/wp-content/uploads/2013/03/Health... · Need to Know Eric Johnson | 817-366-7536 | [email protected] You

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Health Reform

What Employers

Need to KnowEric Johnson | 817-366-7536 | [email protected]

You Can and You Must

Guaranteed Issue

Beginning in 2014, coverage must be offered on a guarantee issue basis in all markets and be guarantee renewable.

No Pre-Ex

Exclusions based on preexisting conditions will be prohibited in all markets. • By 2014, there will be a four types of coverage packages of varying actuarial values.

• The “bronze level” plan is the minimum essential coverage level required to avoid a penalty.

Minimum Essential Coverage

Minimum Essential Coverage

The Individual Mandate: How Sweeping?

• The mandate has emerged as the least popular element of the reform law and the prime target for its opponents.

• In practice, though, the mandate may not be quite as far-reaching as the controversy over it suggests.

• The vast majority of Americans already have insurance.

• According to the CBO, 80% of the 272 million non-elderly people in 2014 would be insured even in the absence of the ACA and would already fulfill the mandate’s requirement.

• The law also allows a series of exemptions.

• That means almost 9 in 10 non-elderly people would either satisfy the mandate automatically or be exempt from it.

• In Massachusetts, where they’ve had a mandate since 2007, about 1% of taxpayers paid a penalty in 2009, and 70% of people uninsured for any part of the year were exempt from it.

Source: Cynthia Cox and Larry Levitt (http://healthreform.kff.org/en/notes-on-health-insurance-and-reform/2012/march/the-individual-mandate-how-sweeping.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NotesOnHL+%28Notes+on+Health+Insurance+and+Reform+%28Headlines%29+-+Kaiser%27s+Health+Reform+Source%29)

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Illustration

To illustrate, the Kaiser Family Foundation constructed an example of a hypothetical family of four with two 40-year-old adults and two children, living in a region with average health care costs, and without access to employer coverage.

Families would be exempt from the mandate at the lowest income levels because they are below the filing threshold for federal income taxes.

Just above this level, the mandate would apply, but families would be eligible for Medicaid and would pay nothing for coverage.

As income increases, the mandate would apply but families would be eligible for substantial government assistance through large premium subsidies in exchanges.

Some families eligible for premium subsidies would have to pay more than 8% of income to enroll in a silver plan in an exchange even after receiving subsidies.

However, they could apply those subsidies to a lower cost bronze plan and could end up paying less than 8% of income. If so, they would still be subject to the mandate.

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Above $98,000 (4x FPL in 2016) they would likely have to pay more than 8% of income for a bronze insurance plan and would therefore be exempt from the mandate.

The exemption would apply up to $150k, at which point the family’s resources would be high enough so that the cost of a bronze plan drops below 8% of income. The Individual Mandate: How Sweeping?

• Of course, even with all the exemptions, the individual mandate is not without controversy.

• Reasonable people can disagree about the mandate as a matter of policy. The vast majority of Americans already have insurance.

• Opponents argue it’s an inappropriate (and unconstitutional) exercise of federal governmental power.

• Proponents see it as necessary and proper to make reforms of the insurance market work.

• Some even suggest that the exemptions are too broad and the penalties too low for it to be effective.

• The requirement has perhaps become the most powerful political symbol associated with the ACA. Yet the reality of it may not be as sweeping as the symbolism.

Source: Cynthia Cox and Larry Levitt (http://healthreform.kff.org/en/notes-on-health-insurance-and-reform/2012/march/the-individual-mandate-how-sweeping.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NotesOnHL+%28Notes+on+Health+Insurance+and+Reform+%28Headlines%29+-+Kaiser%27s+Health+Reform+Source%29)

What’s a tax credit? What’s a subsidy? What’s

the difference?

PremiumTax Credits

Cost SharingSubsidies

Total Exposure

Who is eligible for a premium tax credit or a

subsidy? And how much can they get?

Premium Tax Credits

Source: http://www.kff.org/healthreform/upload/7962-02.pdf



Cost Sharing Subsidies: OOP Max


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Cost Sharing Subsidies: Actuarial Value




Tax Credit Calculator

Source: http://healthreform.kff.org/subsidycalculator.aspx?source=QL

What if someone has group coverage

available? Can she qualify for a subsidy?

Only if:

• The group coverage does not meet the “minimum essential coverage” standards OR

• Minimum essential coverage = bronze level 60% actuarial value level OR grandfathered plan

• The group coverage is deemed “unaffordable”

• “Unaffordable” means that the employee’s cost for single coverage after the employer contribution would exceed 9.5% of his householdincome

Where do I start?

2,409 pages + 55 page reconciliation bill PPACA – 10 Titles (chapters)

Source: http://www.healthcare.gov/law/full/index.html

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Not really 2,400 pages Find the regulations here

http://cciio.cms.gov

Some Provisions Have Been Eliminated

1099 Reporting – GONE!!!!

Employers must issue 1099s to all corporate vendors that they pay more than $600 (effective January 1st, 2012)

Class Act – GONE!!

EMPLOYERS ARE REQUIRED TO PAYROLL DEDUCT THIS BENEFIT ON

AN OPT-OUT BASIS.(opt-out enrollment similar to Medicare Part B)

Voucher Program – GONE!!!

Beginning in 2014, employers must give a voucher to use in the individual market or exchange to their lower-income employees who would normally be ineligible to purchase subsidized coverage through the exchange (those paying between 8 and 9.8% of their income for coverage) instead of participating in the employer provided plan.

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Large Employer Shared Responsibility

(“Play or Pay”)

• 100 full-time employees – first 30 = 70 employees

• 70 x $2,000 = $140k in penalties (not tax deductible)

W-2

Premium: $400/EE /moEmployer Pays: 50%Employee Pays: $200/mo or $2,400/yr

$25,300x .095

$2,403

Medicaid Expansion – State Decision

On June 28th, 2012, the Supreme Court ruled that states would be able to decide whether or not to expand Medicaid to 133% of the FPL. Texas has declined the offer.

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Impact of Texas Decision

• Employers will now have to provide coverage to some employees who otherwise would have qualified for Medicaid (those between 100% and 133% of FPL)

• For some employees who earn between 100% and 133% of FPL, the employer’s coverage will be considered unaffordable, so they will qualify for a subsidized plan and the employer will pay a penalty for those who actually purchase a subsidized plan.

Lots of Questions

• Common Ownership

• Carve Outs

• Staffing companies

• Determining full-time employees

• Part-time employees

• Variable hour employees

• Seasonal employees

• Determining large employer penalty

• Employee only or family coverage

• W-2 or family income

• Are dependents eligible for a subsidy?

Shared Responsibility: Proposed Rules

Source: Federal Register, 26 CFR Parts 1, 54, and 301, Shared Responsibility for Employers Regarding Health Coverage; Proposed Rule

How does the safe harbor rule work?

In Notice 2011-73 (2011-40 I.R.B. 474), Treasury and the IRS described a safe harbor under which employers would not be subject to an assessable payment under § 4980H(b) with respect to an employee if the coverage offered to that employee was affordable based on the employee’s Form W-2 wages (as reported in Box 1) instead of household income.

Under the safe harbor, an employer would not be subject to a penalty under § 4980H(b) with respect to an employee if the required contribution for that employee was no more than 9.5 percent of the employee’s Form W-2 wages.

Source: http://www.irs.gov/pub/irs-drop/n-12-58.pdf

Common Ownership

PPACA Section 1513

Rules for Determining Employer Size

Application of Aggregation Rule for Employers – All persons treated as a single employer under subsection (b), (c), (m), or (o), of section 414 of the Internal Revenue Code of 1986 shall be treated as 1 employer.

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Application of Rules to Temporary Staffing

Agencies

The Treasury Department and the IRS recognize that the application of section 4980H may be particularly challenging for temporary staffing agencies because of the distinctive nature of their employees’ work schedules. In particular, several commenters discussed the challenges involved in applying the look-back measurement method to employees of temporary staffing agencies.

Seasonal Workers

Section 4980H(c)(2)(B)(ii) provides that if an employer’s workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers, the employer is not an applicable large employer.


Seasonal Workers

Notice 2011–36 provided that, for this purpose only, four calendar months would be treated as the equivalent of 120 days. In response to comments, and consistent with Notice 2011–36, these proposed regulations provide that, solely for purposes of the seasonal worker exception in determining whether an employer is an applicable large employer, an employer may apply either a period of four calendar months (whether or not consecutive) or a period of 120 days (whether or not consecutive).


Seasonal Workers

Because the 120-day period referred to in section 4980H(c)(2)(B)(ii) is not part of the definition of the term seasonal worker, an employee would not necessarily be precluded from being treated as a seasonal worker merely because the employee works, for example, on a seasonal basis for five consecutive months.


Seasonal Workers

In addition, the 120-day period referred to in section 4980H(c)(2)(B)(ii) is relevant only for applying the seasonal worker exception for determining status as an applicable large employer, and is not relevant for determining whether an employee is a seasonal employee for purposes of the look-back measurement method (meaning that an employee who provides services for more than 120 days per year may nonetheless qualify as a seasonal employee). See section II.C.2. of this preamble for a discussion of the application of the look-back measurement method to seasonal employees.


Seasonal Workers

For purposes of the definition of an applicable large employer, section 4980H(c)(2)(B)(ii) defines a seasonal worker as a worker who performs labor or services on a seasonal basis, as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1) and retail workers employed exclusively during holiday seasons. This definition of seasonal worker is incorporated in these proposed regulations.


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Seasonal Workers

The Department of Labor (DOL) regulations at 29 CFR 500.20(s)(1) to which section 4980H(c)(2)(B)(ii) refers, and that interpret the Migrant and Seasonal Agricultural Workers Protection Act, provide that ‘‘[l]abor is performed on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year. A worker who moves from one seasonal activity to another, while employed in agriculture or performing agricultural labor, is employed on a seasonal basis even though he may continue to be employed during a major portion of the year.’’


Seasonal Workers

After consultation with the DOL, the Treasury Department and the IRS have determined that the term seasonal worker, as incorporated in section 4980H, is not limited to agricultural or retail workers. Until further guidance is issued, employers may apply a reasonable, good faith interpretation of the statutory definition of seasonal worker, including a reasonable good faith interpretation of the standard set forth under the DOL regulations at 29 CFR 500.20(s)(1) and quoted in this paragraph, applied by analogy to workers and employment positions not otherwise covered under those DOL regulations.


Seasonal Workers

Several commenters suggested that seasonal workers not be counted in determining whether an employer is an applicable large employer. However, because section 4980H(c)(2) requires the inclusion of seasonal workers in the applicable large employer determination (and then excludes them only if certain conditions are satisfied), this suggestion is not adopted.


Full-Time Equivalent Employees

Solely for purposes of determining whether an employer is an applicable large employer for the current calendar year, section 4980H(c)(2)(E) provides that the employer must calculate the number of full-time equivalent employees (FTEs) it employed during the preceding calendar year and count each FTE as one full-time employee for that year.



The proposed regulations apply this provision using the calculation method for FTEs that was included in Notice 2011–36. Under that method, all employees (including seasonal workers) who were not fulltime employees for any month in the preceding calendar year are included in calculating the employer’s FTEs for that month by (1) calculating the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not employed on average at least 30 hours of service per week for that month, and (2) dividing the total hours of service in step (1) by 120. This is the number of FTEs for the calendar month.



In determining the number of FTEs for each calendar month, fractions are taken into account. For example, if for a calendar month employees who were not employed on average at least 30 hours of service per week have 1,260 hours of service in the aggregate, there would be 10.5 FTEs for that month.


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However, after adding the 12 monthly full-time employee and FTE totals, and dividing by 12, all fractions would be disregarded. For example, 49.9 full-time employees (including FTEs) for the preceding calendar year would be rounded down to 49 full-time employees (and thus the employer would not be an applicable large employer in the current calendar year).



Some commenters suggested that the definition of FTE in section 45R be used, that equivalencies be used, or that employees not averaging at least 30 hours of service per week be counted at fractions of their hours of service. Because section 4980H(c)(2)(E) prescribes specific definitions and steps in computing FTEs, these suggestions have not been adopted.


Look-Back Measurement Method for

Determination of Full-Time Employees

As described in section III.A. of this preamble, the assessable payment under section 4980H(a) and section 4980H(b) is computed for each applicable large employer member.




The potential section 4980H(a) liability of an applicable large employer member is determined by reference to the number of full-time employees employed by that member for a given calendar month, and its potential section 4980H(b) liability is determined by reference to the number of full-time employees of that member with respect to whom an applicable premium tax credit or cost-sharing reduction is allowed or paid for a given calendar month.




Section 4980H(c)(4)(A) provides that ‘‘[t]he term ‘‘full-time employee’’ means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.’’




As explained in Notice 2011–36 and subsequent notices, determining full-time employee status on a monthly basis may cause practical difficulties for employers, employees, and Affordable Insurance Exchanges (Exchanges).


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For employers, these difficulties include uncertainty and inability to predictably identify which employees are full-time employees to whom coverage must be provided to avoid a potential section 4980H liability. This problem is particularly acute if employees have varying hours or employment schedules (for example, employees whose hours vary from month to month).




A month-by-month determination may also result in employees moving in and out of employer coverage (and potentially Exchange coverage) as frequently as monthly. This result would be undesirable from both the employee’s and the employer’s perspective, and would also create administrative challenges for the Exchanges.




To address these concerns, and to give employers flexible and workable options and greater predictability, Notice 2011–36, Notice 2012–17, and Notice 2012–58 outlined a potential optional look-back measurement method as an alternative to a month-by-month method of determining full-time employee status. See the discussion in the Background section of this preamble.




The response to this look-back measurement method generally was favorable. Most commenters supported the general structure of the method, although, some expressed concern that the potential difficulties in identifying full-time employees were overstated, that the look-back measurement method might be manipulated by employers, and that there was a need to prescribe rules that would address special workplace situations to ensure that certain classes of employees would be treated as fulltime employees even though their hours might not result in full-time employee treatment under the look-back measurement method described in Notice 2012–58.




After considering all of the comments on the notices, the Treasury Department and the IRS have incorporated in the proposed regulations the optional look-back measurement method described and cross-referenced in Notice 2012–58, with modifications as described in this preamble. See §601.601(d)(2).




While the look-back measurement method prescribes minimum standards to facilitate the identification of fulltime employees, employers always can treat more employees as eligible for coverage, or otherwise offer coverage more widely, than would be required to avoid an assessable payment under section 4980H, assuming they do so consistent with any other applicable law.


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W-2 Reporting (2012)

Beginning with the 2012 tax year, employers issuing 250+ W-2 forms must report the aggregate value of their employer-sponsored coverage on their employees’ W-2s.

Waiting periods of more than 90 days are prohibited for all plans.

Waiting Periods

This is a big issue for employers with a lot of transitional employees.

HHS Guidance on Waiting Periods

Source: http://cciio.cms.gov/resources/files/Files2/2708-guidance-8-31-2012.pdf

Auto Enrollment

• PPACA requires employers of 200 or more employees to auto-enroll all new employees into any available employer-sponsored health insurance plan.

• Waiting periods in existing law can apply.

• Employees may opt out if they have another source of coverage.

How does the safe harbor rule work?

The proposed affordability safe harbor would apply only for purposes of determining whether an employer is subject to the assessable payment under § 4980H(b). For example, the safe harbor would not affect an employee’s eligibility for a premium tax credit under § 36B.

Treasury and the IRS requested and received comments on the safe harbor, and the comments were generally favorable.

Subsequently, Notice 2012-17 (2012-9 I.R.B. 430)7 stated that, as described in Notice 2011-73, Treasury and the IRS intend to issue proposed regulations or other guidance permitting employers to use an employee’s Form W-2 wages (as reported in Box 1) as a safe harbor in determining the affordability of employer coverage.

Source: http://www.irs.gov/pub/irs-drop/n-12-58.pdf

Exchange Participation for Large

Employers

January 1, 2017

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Exchange participation for large employers

Source: PPACA Section 1312

Definition of Small Group 1-100

Source: http://housedocs.house.gov/energycommerce/ppacacon.pdf

PPACA Section 1304(b)

1-50


PPACA Section 1304(b) What will Texas do?

Second wave of plan changes

First renewal after January 1, 2014

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Grandfathering

“If you like your health plan, you can keep it.”

Requirements

• Cannot Raise Co-Insurance Charges.

• Cannot Significantly Raise Co-Payment Charges.

• Cannot Significantly Raise Deductibles.

• Cannot Significantly Lower Employer Contributions.

• Cannot Add or Tighten an Annual Limit on What the Insurer Pays.

Source: http://www.tdi.texas.gov/consumer/documents/cpmfhrhandout.pdf

Grandfathered Benefits – 2010

Lots of non-grandfathered plan changes

The government thought these changes were so important that all plans needed to implement them, whether they were grandfathered or not.

No Lifetime Limits

No lifetime limits on essential benefits.

No Annual Dollar Limits

No annual limit on essential benefits.

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No Rescissions

No rescission of coverage is permitted except in cases of fraud or intentional misrepresentation.

No Pre-Ex for Children

All group and individual plans, including self-insured plans, will have to cover pre-existing conditions for children 19 and under for plan years beginning on or after 6 months after the date of enactment.

The Slacker Mandate

• Changes the definition of “dependent” for purposes of health plan tax exclusions.

• All group and individual plans will have to cover dependents up to age 26.

• Dependents can be married and will also be eligible for the group health insurance income tax deduction.

The Slacker Mandate

• There is no requirement to cover children of covered dependent children.

• No requirements to cover if eligible for other coverage as employee (until 1/1/2014)

• Tax exclusion under 105(b) and 501(c)(9) and 401(h) expanded to include a “child” through age 26

• Potential immediate impact for FSAs/HRAs that define eligibility based on 105(b)

Is there any reason to stay grandfathered at

this point?

Yes!!!

• Initially, there wasn’t much incentive to stay grandfathered, and many groups weren’t even given the choice by their carriers.

• Now, though, any group that is grandfathered should stay that way. Grandfathered group avoid:

• Deductible limits

• OOP limits

• Actuarial value requirements (they are considered to be minimum essential coverage)

• Essential benefits, including coverage of clinical trials

• Modified adjusted community rating

Essential Benefits


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What are essential benefits?

Essential Benefits = Mandates

What are essential benefits? Small Group Mandates in Texas

Source: http://www.tdi.texas.gov/hmo/documents/lhmanben.pdf

What essential benefits are required by the

law?

The law specifies that the essential health benefits package must include at least 10 categories of items and services:

Source: http://healthreform.kff.org/notes-on-health-insurance-and-reform.aspx?tag=Affordability+and+Subsidies

Essential Benefits

• Ambulatory patient services

Essential Benefits


• Emergency services

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Essential Benefits



• Hospitalization

Essential Benefits



• Hospitalization

• Maternity & newborn care

(even on individual plans)

Essential Benefits



• Hospitalization


• Mental health & substance abuse, including behavioral health

Essential Benefits



• Hospitalization


• Mental health & substance abuse

• Prescription drugs

Essential Benefits



• Hospitalization




• Rehabilitative & habilitative services & devices

Essential Benefits



• Hospitalization




• Rehabilitative services

• Laboratory services

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Essential Benefits



• Hospitalization






• Preventive and wellness services

Essential Benefits



• Hospitalization






• Preventive Services

• Pediatric dental & vision care

Are those all the benefits that will be

covered?

No, of course not.

The ACA gives the task of identifying the essential health benefits to the Secretary of Health and Human Services (HHS).

The law just specifies 10 categories that must be covered – HHS can add more.

Source: http://healthreform.kff.org/notes-on-health-insurance-and-reform.aspx?tag=Affordability+and+Subsidies


covered?

On December 16, 2011, the Department of Health and Human Services (HHS) released a Bulletin describing the approach it intends to take in future rulemaking to define the essential health benefits (EHB) under the Affordable Care Act.

Source: http://www.healthexchange.ca.gov/FederalGuidance/Documents/CMS_FAQs_on_Essential_Health_Benefits.pdf


covered?

• Applies to non-grandfathered individual & group plans both inside & outside the exchange

• Cannot discriminate based on age, disability, or expected length of life

• Must consider the health care needs of diverse segments of the population

• States must defray costs of additional mandates beyond EHB (for subsidized plans & Medicaid)

• EHBs define covered services and any limits on coverage, not the plan’s cost-sharing features, such as deductibles, copayments, and coinsurance

• HHS is letting states select a benchmark plan to determine EHBs for next 2 years

Source: http://www.healthexchange.ca.gov/FederalGuidance/Documents/CMS_FAQs_on_Essential_Health_Benefits.pdf

Benchmark Plan Options in Texas

Benchmark Plan Options in Texas

Source: http://www.tdi.texas.gov/health/documents/ehbsummary.pdf

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Which benchmark plan is Texas going with?

Texas has decided to go with the default plan – the largest small group plan in the state (BCBS BestChoice PPO).

Which benchmark plan is Texas going with?

• What this means is that, beginning the first renewal after January 1, 2014, all small group and individual plans in Texas will cover the same mandated benefits as the benchmark BCBS PPO plan (which is basically the mandated small group benefits in Texas).

• The benchmark plan covered mental health and habilitative services, so the only supplemental benchmark plan that is being selected is the Federal Employee Benefits Plan as the benchmark for pediatric dental and vision.

• Net effect = not much added premium as a result of the new essential benefits in the small group market. Individual plans will see a significant increase due to the new requirements.

• Most of the premium increases will be the result of cost-sharing limitations, new rating rules (in the individual and small group markets), and no pre-existing condition limitations.

Cost Sharing Limits

What type of cost-sharing limits are required

by the legislation?

3 types:

• Actuarial value requirements (metallic levels)

• Out-of-pocket limits

• Deductible limits

PPACA Section 1302(d)


What is meant by actuarial value?

PPACA Section 1302(d)



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90% 80% 70% 60%


“Metallic Plans”


Cost Sharing Subsidies: Increase Actuarial Value


What will the out-of-pocket limit be?

Under the ACA, out-of-pocket limits for health plans are subject to the limit that currently applies to health savings account qualified health plans, which is $6,050 for single coverage in 2012, and we estimate it to be $6,350 in 2014.

Note: the HSA out of pocket limit was increased to $6,250 for single coverage and $12,500 for family coverage for 2013.

Source: http://www.kff.org/healthreform/upload/8303.pdf

OOP limit will make HSAs more attractive

• This may require a reduction in OOP exposure for some copay plans

• The family limit on copay plans will be reduced from 3x to 2x

• This requirement should result in a bigger price separation between HSA-qualified plans and traditional copay plans since HSAs already meet the OOP max requirement, which will lead to higher HSA enrollment.

What will the out-of-pocket limit be?

Cost Sharing Subsidies: OOP Max reduced


What are the deductible limits and which

market segments do they apply to?

• $2,000 single / $4,000 family deductible maximum

• Applies to small group market only


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• Higher deductible allowed with FSA, HRA, or HSA


Will deductible-reimbursement HRAs still be

allowed?

Maybe.

Carriers price plans based on expected consumer behavior. If they know that the maximum deductible, for example, is $2,000, then they would expect a consumer to behave the same regardless of whether the employee has a $2,000 deductible and the insurance pays all costs above this amount OR the employee has a $2,000 deductible, the employer pays the next $3,000 in claims, and the insurance company pays all costs above $5,000.

Therefore….

The discounts for higher deductible plans may not be as great beginning in 2014 since the higher deductibles are unlikely to motivate a change in consumer behavior (utilization).

Recent development: this may not be allowed to comply with the maximum deductible requirements. Stay tuned…

Is it even possible to design a plan that will

meet the requirements?

HHS has created an actuarial value calculator that will help determine whether a plan will meet the minimum essential coverage requirements (bronze level) and fit into the pre-determined actuarial value levels (within 2% of 60, 70, 80, or 90% actuarial value).



• Deductible limit cannot impact actuarial value of bronze level plan.

• Recent development: HHS is allowing higher deductibles if the carrier cannot “reasonably design a plan that complies with the maximum deductible requirement. The carriers seem comfortable with this guidance.

Source: http://housedocs.house.gov/energycommerce/ppacacon.pdf Source: http://www.kff.org/kaiserpolls/upload/8321-F.pdf

Why it’s not workableWhy it’s not workable Catastrophic Policy for 30 & Under

A separate catastrophic-only policy will be available for those 30

and younger (must be pooled with everything else, in or out of the

exchange)

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Modified adjusted community rating


What is modified community rating?

• Community rating is a way for insurance companies to calculate the average cost of insurance. In this manner, an insurer evaluates the risk factors of an entire market area, and not those of any one individual person, when determining insurance premiums.

• Modified community rating allows for premium variation based on individual risk factors, with some limitations. This concept helps maintain price fairness among high-risk individuals and the rest of the population as costs are spread across a group of people.

Source: http://www.bcbsm.com/content/microsites/health-care-reform/en/reform-alerts/cms-issues-proposed-rule-modified-community-rating.html

What are the current rating rules for small

groups in Texas?

Small group rating is a two step process in Texas.

Actuaries rate based on case characteristics

• Group size (20% variation allowed)

• Industry (15% variation allowed)

• Age mix of group

• Gender mix of group

• Location

Underwriters rate based on risk characteristics

• Medical conditions

• Longevity with carrier

• Other risk characteristics

• “Rate up” of 67% allowed year one and 15% at renewal time

Note: These rules do not currently apply to the individual market in Texas.

How are the rating rules changing?

Beginning in 2014, all individual and fully insured group policies must abide by strict modified community rating standards.


Premium variations onlyallowed for:

• Age (3 to 1)



• Age (3 to 1)

• Tobacco use (1.5 to 1)

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• Age (3 to 1)


• Family composition



• Age (3 to 1)



• Geographic regions to be defined by the states



• Age (3 to 1)



• Geographic regions

• Wellness discounts are allowed for groups in specific circumstances



• Age (3 to 1)



• Geographic regions

• Wellness discounts

• Cannot rate based on health or gender

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Has HHS issued final rules on how group and

individual plans will be rated?

No, but the proposed rules were issued November 26th, 2012 and published in the Federal Register. The comment period ended December 26th, 2012.

http://www.gpo.gov/fdsys/pkg/FR-2012-11-26/pdf/2012-28428.pdf

Exchange Notice Requirements

March 1, 2013

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Exchange Notice (3/1/13)

Requires all employers provide notice to their employees informing them of the existence of an Exchange.

Exchange Notice

Effective 3/1/2013, employers must notify employees at time of hiring:

• Of the existence of the exchange

• That the employee may be eligible for a subsidy under the exchange if the

employer’s plan does not meet bronze level actuarial value or if the

employee’s premium exceeds a certain percentage of income

• That if employee purchases a policy through the exchange without

employer providing a voucher, he or she may lose the employer

contribution to any health benefits offered by the employer

Exchange Notice – Delayed

Source: Blue Cross Blue Shield of Texas

Individual and SHOP Exchanges

October 1, 2013

What is an Exchange? What is an Exchange?

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What is a Health Insurance Exchange? State or Federally-Facilitated Exchange?

Under the health reform legislation, each state must decide whether to establish its own exchange or let the federal government do it.

Will Texas establish its own exchange?

“No Exchange in Texas”Will Texas establish its own exchange?

Source: http://healthreform.kff.org/State-Exchange-Profiles-Page.aspx

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Will Texas establish its own exchange?

• On July 9, 2012, Governor Rick Perry (R) announced that Texas would not establish an exchange.

• Prior to this announcement, the Department of Insurance and the Health and Human Services Commission had partnered to explore exchange implementation plans.

• Using federal grant funding they identified subcontractors to assist with the exchange planning process, to collect stakeholder feedback, and to investigate the state’s policy options. In addition, Texas held a public exchange planning symposium and solicited public comments in early 2011.

• Unless Texas reverses its decision not to run a state exchange, the federal government will assume responsibility for running a health insurance exchange in the state.

Source: http://healthreform.kff.org/State-Exchange-Profiles-Page.aspx

What will the individual exchange look like?

Web-based portal Tax credit calculator Determines public

program eligibility


• Sort of like Travelocity

• Multiple plans from multiple carriers

• Presented in a like format

• Sorted by category – bronze, silver, gold, platinum

• Number of plans per carrier will likely be limited to 2 or 3

• On entry, the exchange will ask if the individual would like to apply for a subsidy

• If yes, the individual will automatically be screened for Medicaid/CHIP


Source: www.Medicare.gov

Who is likely to enroll through the individual

exchange?

1. People who qualify for a subsidy (those earning between 100% and 400% of FPL who do not have affordable employer coverage available)

2.

Who is likely to enroll through the individual

exchange?

• Most individual purchasers will probably buy coverage through the exchanges.

• Premium tax credits and cost-sharing subsidies will only be available to those purchasing coverage through exchanges.

• The Congressional Budget Office (CBO) estimates that 22 million individuals will be buying coverage through the exchanges by 2016, and that 18 million of them will be receiving federal tax credits to help them pay for their premiums.

• This leaves a substantial market for non-group and small-group coverage outside of the exchanges.

• CBO projected during the congressional health reform debate that about 9 million people would continue to buy coverage on their own, not through the exchanges.

Source: Kaiser Family Foundation

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Can individuals wait until they get sick to

purchase coverage through the exchange?

Source: PPACA Section 1311

What will the SHOP Exchange look like? What will the SHOP exchange look like?

Multiple options from multiple carriers. A few problems…

1. Enrollment meetings

What will the SHOP exchange look like?


1. Enrollment Meetings

2. Customer Service




2. Customer Service

3. Billing & Enrollments

Government




2. Customer Service


4. New Business PaperworkGovernment

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2. Customer Service


4. New Business Paperwork

5. Premium Increases




2. Customer Service




6. Composite Rating




2. Customer Service




6. Composite Rating

7. New Hires




2. Customer Service




6. Composite Rating

7. New Hires

8. Too Many Choices




2. Customer Service




6. Composite Rating

7. New Hires

8. Too Many Choices

9. The Private Market Can Do It Better

…for all groups not receiving a tax credit.

Small Employer Tax Credit

Retroactive to January 1, 2010

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2-10 Employees

• Groups with 2-10 employees and $25k or less in average wages (not counting owners or family members) are eligible for a tax credit.

• 2010-13: 35% of what the employer pays (25% for non-profits)

• 2014: 50% of what the employer pays (35% for non-profits) but ONLY if purchased through the Exchange. Only available for 2 years.

Two Steps

1. Determine full-time equivalents based on a 40 hour work week. (Total hours worked by all full- and part-time workers divided by 2,080).

2. Determine average wages by adding up all wages earned by full- and part-time employees and dividing by number of FTEs.

Note: Owners and family members do not count toward FTE or average wage.

Better than a Deduction

10 person group, $25k in average wages

– $400 premium, 75% ER contribution

– ER pays $300/mo x 12 mos x 10 EEs = $36k

Assuming a 20% tax bracket, with a deduction only the employer would save $7,200 in taxes.

$36,000 x .20 = $7,200

Until 2014




Until 2014, the maximum credit is 35% of what the employer is contributing.

$36,000 x .35 = $12,600

$23,400 x .20 = $4,680

$12,600 + $4,680 = $17,280

Better than a Deduction – 2014




With a 50% tax credit, the employer would save much more.

$36,000 x .50 = $18,000

$18,000 x .20 = $3,600

$18,000 + $3,600 = $21,600

11-25 Employees

The credit gradually phases out for groups with more than 10 employees or more than $25k in average wages. It goes away completely after 25 employees or $50k in average wates.

• Max credit at 10 or fewer employees

• No credit after 25 employees

• 25 – 10 = 15

• For each additional employee after #10, you lose 1/15th of your credit

• Max credit at $25k or less in average wages

• No credit after $50k in average wages

• 50 – 25 = 25

• For each additional $1,000 in average wages after $25k, you lose 1/25th

of your credit

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Phase Out Example – 2014




• Max credit = $54,000 x .50 = $27k

• Lose 5/15 or 1/3 for too many workers ($9k)

• Lose 5/25 or 1/5 for too much pay ($5,400)

$27,000 – $9k – $5,400 = $12,600

$41,400 x .20 = $8,280

$12,600 + $8,280 = $20,880

Phase Out Example – 2014




With a deduction only, the employer would save considerably less.

$54,000 x .20 = $10,800 Questions?