Mike Gaal, FSA, MAAA Actuary

Health Care Reform: What’s Been Accomplished? What’s Next?

Employer Benefits Perspective:How Businesses are Responding Mike Gaal, FSA, MAAAActuary

October 24, 2014

This presentation and Q&A is not intended to be an actuarial opinion or advice, nor is it intended to be legal advice. Any statements made during the presentation and subsequent Q&A shall not be a representation of Milliman or of their views or opinions, but only of those of the presenter.

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Today’s Discussion

Health Care Reform Implementation

– What’s been accomplished?

– What’s on the horizon?

Employer Shared Responsibility

“Cadillac Plan” Excise Tax

Potential Strategies for Cost Control?

October 24, 2014

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Health Care Reform ImplementationWhat’s Been Accomplished?

Broad Employee/Employer Impact Retiree-Specific Impact

• New fees on plans and insurers

• Expanded coverage of adult dependents

• Consumer protections (e.g., elimination of pre-existing conditions, lifetime limits, etc.)

• Preventive care covered at 100% (for non-grandfathered plans only)

• Limitations on tax-free accounts

• Summary of benefits and coverage (SBC)

• W-2 reporting

• Essential health benefit cost-sharing limits

• Increases to allowable wellness rewards

• Individual shared responsibility/mandate

• Medicare Part D beneficiary rebates

• Early retiree reinsurance program

• Closing of Medicare Part D drug coverage gap

• Elimination of tax deductibility of retiree drug subsidy (RDS) payments

• Health insurance exchanges and insurance reforms (e.g., 3 to 1 bands)

Other significant items potentially impacting employer-sponsored insurance include:• Minimum medical loss ratios (MLR)• Medicaid expansion


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This presentation and Q&A is not intended to be an actuarial opinion or advice, nor is it intended to be legal advice. Any statements made during the presentation and subsequent Q&A shall not be a representation of Milliman or of their views or opinions, but only of those of the presenter.October 24, 2014

Health Care Reform ImplementationWhat’s on the Horizon?

All plans must obtain a unique Health Plan Identification Number (HPID)– By November 4, 2014 for “large plans”, November 5, 2015 for “small plans”

Additional employer reporting requirements– Beginning in 2015 (reporting occurs in early 2016)

– Self-insured plans required to file a single, combined form

Expanded definition of small group in 2016 (up to 100 employees)

Employer Shared Responsibility provisions– Beginning in 2015 (2016 for employers with 100 or fewer employees)

– Often referred to as the “pay or play” provision

“Cadillac Plan” Excise Tax provisions– Beginning in 2018

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Employer Shared ResponsibilityPay or Play Decision

Why do employers offer health insurance?– Individual market had pre-existing conditions and health status rating issues

(which could have restricted coverage or been cost prohibitive)

– Tax-advantaged benefit to employee

– Significant part of the total compensation strategy

– Competitive reasons

– Culture of wellness

Is it more cost-effective to “pay” or “play”?

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Pay or Play DecisionCost/Benefit Analysis Many large employers have evaluated and discovered the following…

– Attraction and Retention Concerns • Employees will expect higher cash compensation to offset loss of health benefits

– Tax Issues• Penalties are not tax-deductible• Employees will have to purchase coverage with after-tax dollars

– Winners and Losers Emerge on Exchanges• Higher-paid employees will likely not qualify for subsidies• Those with family coverage experience a greater loss of income than those with

individual only coverage (due to historical subsidies)• A recent survey1 indicates 77% of employers lack confidence in public insurance

exchanges as a viable alternative to employer-sponsored coverage, and almost all respondents have no plans to exit active medical in favor of exchanges

But what if tax treatment changes or other employees opt out?1 Towers Watson 2014 Health Care Changes Ahead Survey (September 2014)

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“Cadillac Plan” Excise TaxOverview

Becomes effective in 2018

Aims to discourage very rich benefit plans

Equals 40% of the excess of actual costs over base costs

Base costs equal:– $10,200 for self-only coverage

– $27,500 for other coverage, including all multi-employer plan coverage

– Increased for retirees, high-risk professions, and telecommunication/electrical lines installers by $1,650 for self-only coverage and $3,450 for other coverage

– Adjusted for excess BCBS FEHBP trend

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

6% Trend 8% Trend

10% Trend Excise Tax Threshold

October 24, 2014

“Cadillac Plan” Excise TaxHow are Employers Preparing?

As 2018 nears, health care costs are becoming a focal point– CEOs and CFOs have taken a heightened interest

– High-level projections with our clients indicate typical plans (without changes) will exceed excise tax thresholds between 2018 and 2022• Those with richer benefits and plans that cover more dependents are at risk to

exceed thresholds even before 2018

Given the long-term projections, employers

are considering any and all options for

reducing overall costs to avoid excise tax

PROJECTED FAMILY PREMIUMS AT VARIOUS TREND SCENARIOS

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Potential Strategies for Cost Control?What Tactics are Employers Considering?

Increased focus on wellness and population health improvement– Greater use of incentives, spurred by changes under ACA

– Return on Investment (ROI) is still a leap of faith, and may never emerge in an organization with high turnover

Continued migration toward “consumer-driven” health plans– Marketplace still lacks the price transparency necessary to effect significant

behavior change from consumers

– Employers are getting more comfortable shifting additional risk to employees through higher deductibles

– In a choice environment, pricing/contribution strategy is crucial to long-term success and cost control

Because the ACA has not controlled costs, employersare looking far and wide for cost control ideas.

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Population stratification– Part-time employees

• Due to “30-hour rule,” many part-timers are seeing their hours cut• Some employers are reducing/eliminating part-time benefits• Public exchanges could yield a win-win with employers realizing savings and

employees getting lower-cost coverage as a result of subsidies

– Medicare-eligible retirees• Movement away from RDS to Employer Group Waiver Plans (EGWPs)• Continued migration to private retiree exchanges (more manageable liability)

– Pre-Medicare retirees• Outside of NY, market reforms in the individual market (guaranteed issue, 3 to 1

age rating) make the health insurance marketplace a viable solution for this group

– Spouses• Many employers are strongly considering spousal surcharges and spousal carve-

outs to encourage spouses to elect coverage from their primary employer

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Private Exchanges for active employees– Purchasing opportunity should be considered independent of plan changes

– Does the private exchange help you achieve your goals and objectives or can you meet your objectives through traditional approaches?• Defined contribution approach• Population health improvement / wellness culture• Migration to consumer-driven plans• Excise tax avoidance

– Is the cost/benefit of the outsourcing effective?• Are you ready for a five-year commitment?

– Are you getting unbiased advice?• Private Exchanges are generally sold by consultants who profit from their

implementation

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Thank You!

Mike [email protected]

October 24, 2014

mailto:[email protected]

mailto:[email protected]

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Mike Gaal, FSA, MAAA Actuary