Presentation on Oregon PEBB 2018 excise tax

8/13/2019 Presentation on Oregon PEBB 2018 excise tax

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OREGON PEBB2018 EXCISE TAXNovember 19, 2013

Emery Chen

James MatthisenWade Symons, JD

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MERCER 1November 14, 2013

What is the Excise Tax?

40% excise tax on high cost coverage, including medical, health FSA contributions,onsite medical clinics, and employer contributions to HSAs Does not include stand-alone fully-insured dental and vision coverage or certain

other coverage types VSP coverage is included for self-insured medical plans in the analysis

- Dental costs are currently excluded from analysis as employees have option toselect fully-insured dental plans

- Conservative analysis with ODS Traditional Dental costs applied to all plans is

included in the Appendix- Initial cap set at $10,200/single and $27,500 family Higher thresholds ($11,850/$30,950) for retirees and workers in high-risk

professions Indexed to CPI (for 2019 only, CPI+1%)

Aggregate cost determined using a methodology similar to that used for determiningapplicable COBRA premiums

Employers must determine aggregate cost and report to insurer/administrator onvalue of coverage Insurers responsible for tax for fully-insured coverage Benefit administrators (PEBB) responsible for tax for self-insured coverage Employers responsible for tax for HSA contributions

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Excise Tax Additional Details

Additional adjustments to the Excise Tax include

The thresholds of $10,200 and $27,500 are adjusted by- An age/gender adjustment equal to the excess (if any) of

- The premium cost of the Blue Cross/Blue Shield standard benefit optionunder the Federal Employees Health Benefits Plan (FEHBP) for the type ofcoverage provided such individual in such taxable period if priced for the ageand gender characteristics of all employees of the individuals employer, over

that premium cost for the provision of such coverage under such option insuch taxable period if priced for the age and gender characteristics of thenational workforce.

- The actual percentage increase that the FEHBP for plan year 2018 exceedssuch cost for plan year 2010, excluding 55 percent

- Example if the cost for the BC/BS standard option is 60% greater in 2018

than 2010, the excise tax thresholds would be increased by 5% Conservative analysis of Excise Tax impact excludes these two adjustments

Text of Excise Tax included in Appendix

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MERCER

Employers Taking Steps Now to Avoid the Excise Tax in 2018

39%

4%

6%

28%

48%

54%

Introduce a CDHP or take steps to increase enrollment in an existing CDHP

Drop a higher-cost health plan

Add or expand heal th management programs

Eliminate health care FSAs

Unbundle dental and medical plans

Other change(s)

Based on the 36% of respondents who say changes they are making for2014 are influenced by their concerns over the 2018 excise tax.

3Source: Mercers Survey on Health Care Reform: The Road to Implementation, 2013

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Oregon PEBB Excise Tax ModelingMethodology

Mercer modeled the impact of the Excise Tax on the Oregon PEBB under three

scenarios Scenario 1 uses status quo rates and tier ratios without adjusting fordemographics

Scenario 2 re-tiers plan rates to match the single and family tier ratios set by theactive employee excise tax thresholds- Plan rates set for Kaiser, Statewide, and Choice plans separately

Scenario 3 uses Scenario 2 plan rates but adjusts based on the average age of

the population compared to the national workforce median age- Adjustment is approximately 15% load based on average PEBB age of 47 and

median age of the national workforce of 42- Age adjustment is based on CMS guideline age adjustments- Actual adjustment may differ as estimate is not based on gender

2014 plan rates and March 2013 census was used in modeling Mercer projected using 6%

Tier Ratios Current Scenario 2 & 3

Employee Only 1.00 1.00

Employee & Partner 1.34 2.70

Employee & Child(ren) 1.15 2.70

Employee & Family 1.37 2.70

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Oregon PEBB Excise Tax ModelingResults Actives with 6% Trend Rate

Active Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030

Scenario 1 $24 $30 $36 $44 $53 $80 $116

% of EEs 24% 24% 24% 24% 24% 75% 75%

Scenario 2 $0 $0 $0 $1 $23 $53 $96

% of EEs 0% 0% 0% 16% 77% 98% 99%

Scenario 3 $0 $0 $0 $0 $0 $0 $13

% of EEs 0% 0% 0% 0% 0% 0% 77%

$0

$20

$40

$60

$80

$100

$120

$140

2018 2020 2022 2024 2026 2028 2030

Scenario 1 Scenario 2 Scenario 3

In MillionsIn Millions

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Oregon PEBB Excise Tax ModelingResults Retirees with 6% Trend Rate

$0

$1

$1

$2

$2

$3

$3

$4

2018 2020 2022 2024 2026 2028 2030

Scenario 1 Scenario 2 Scenario 3

In MillionsIn Millions

Retiree Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030

Scenario 1 $1 $1 $1 $2 $2 $3 $3% of Retirees 39% 45% 45% 45% 45% 45% 48%

Scenario 2 $0 $0 $0 $0 $0 $0 $0

% of Retirees 0% 0% 0% 0% 0% 3% 42%

Scenario 3 $0 $0 $0 $0 $0 $0 $0

% of Retirees 0% 0% 0% 0% 0% 0% 0%

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Oregon PEBB Excise Tax ModelingResults

Scenario 1 reaches the Excise Tax threshold in 2018 for all plans and both trend

rates Employee only tier is the only tier that reaches threshold in 2018

Kaiser and Statewide Family tiers reach the threshold in 2027

Changing tier ratios in Scenario 2 delays first year of tax

The first year of the excise tax is 2024 for actives

Adding 15% load for demographics difference in Scenario 3 delays first year of tax

further The first year of the excise tax is 2029 for actives

Retirees reach excise tax threshold later due to identical cost estimates and higherthresholds

Exception is Scenario 1 which reaches threshold in 2018

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MERCER 11/14/2013

Mercer has prepared these projections exclusively for Oregon PEBB, to estimate the range of the impact of federal

Health Care Reform. These estimates may not be used or relied upon by any other party or for any o ther purpose than

for whi ch they were issued by Mercer. Mercer is not responsible for the consequences of any unauthor ized use.

Al l pro jections are based on the information and data available at a point in t ime and the project ions are not a

guarantee of result s which might be achieved. The projections are subject to unforeseen and random events and so

must be interpreted as having a potentially wide range of variability from the estimates.

Further, the estimates set forth in this report have been prepared before all regulations needed to implement the Patient

Protection and Af fordable Care Act (PPACA) and Health Care Education and Reconcil iation Act (HCERA) have been

issued, including c larifications and technical corrections, and withou t guidance on complex financial calculations that

may be required. (For example, some Health Care Reform provisions wil l likely involve calculations at the indiv idual

employee level.) Accordingly, these estimates are not Actuarial Opinions. Oregon PEBB is responsible for

all financial and design decisions regarding PPACA and HCERA. Such decisions shou ld be made only after Oregon

PEBBs careful consideration of alternative future financial conditions and legislative scenarios, and not solely on the

basis of the estimates illustrated here.

Oregon PEBB understands that Mercer is not engaged in the practice of law and this report, which may include

commenting on legal issues or regulations, does not constitu te and is not a substitute for legal advice. Accordingly,

Mercer recommends that Oregon PEBB secures the advice of competent legal counsel with respect to any legal matters

related to this report or o therwise.

The information contained in this document and in any attachments is not intended by Mercer 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.

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9November 14, 2013

APPENDIX

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Oregon PEBB Excise Tax ModelingActives with 6% Trend Rate Includes ODS Traditional Dental in Costs

Active Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030

Scenario 1 $30 $36 $44 $55 $84 $120 $168% of EEs 24% 24% 24% 56% 75% 83% 96%

Scenario 2 $0 $0 $5 $30 $63 $105 $156

% of EEs 0% 0% 77% 77% 98% 99% 100%

Scenario 3 $0 $0 $0 $0 $1 $24 $61

% of EEs 0% 0% 0% 0% 16% 77% 98%

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Oregon PEBB Excise Tax ModelingRetirees with 6% Trend Rate Includes ODS Traditional Dental in Costs

Retiree Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030

Scenario 1 $1 $1 $2 $2 $3 $3 $4% of Retirees 45% 45% 45% 45% 45% 49% 65%

Scenario 2 $0 $0 $0 $0 $0 $1 $1

% of Retirees 0% 0% 0% 0% 27% 43% 71%

Scenario 3 $0 $0 $0 $0 $0 $0 $0

% of Retirees 0% 0% 0% 0% 0% 0% 3%

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Legal Text of Excise Tax

(a) Imposition of tax

If

(1) an employee is covered under any applicable employer-sponsored coverage of an employer at anytime during a taxable period, and

(2) there is any excess benefit with respect to the coverage,

there is hereby imposed a tax equal to 40 percent of the excess benefit.

(b) Excess benefit

For purposes of this section

(1) In general

The term excess benefit means, with respect to any applicable employer-sponsored coverage madeavailable by an employer to an employee during any taxable period, the sum of the excess amountsdetermined under paragraph (2) for months during the taxable period.

(2) Monthly excess amount

The excess amount determined under this paragraph for any month is the excess (if any) of

- (A) the aggregate cost of the applicable employer-sponsored coverage of the employee for the month,over

- (B) an amount equal to 1/12 of the annual limitation under paragraph (3) for the calendar year in

which the month occurs. (3) Annual limitation

For purposes of this subsection

(A) In general

The annual limitation under this paragraph for any calendar year is the dollar limit determined undersubparagraph (C) for the calendar year.

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Legal Text of Excise TaxContinued

(B) Applicable annual limitation

- (i) In general Except as provided in clause (ii), the annual limitation which applies for any month shallbe determined on the basis of the type of coverage (as determined under subsection (f)(1)) providedto the employee by the employer as of the beginning of the month.

- (ii) Multiemployer plan coverage Any coverage provided under a multiemployer plan (as defined insection 414 (f)) shall be treated as coverage other than self-only coverage.

(C) Applicable dollar limit

- (i) 2018 In the case of 2018, the dollar limit under this subparagraph is

- (I) in the case of an employee with self-only coverage, $10,200 multiplied by the health costadjustment percentage (determined by only taking into account self-only coverage), and

- (II) in the case of an employee with coverage other than self-only coverage, $27,500 multiplied bythe health cost adjustment percentage (determined by only taking into account coverage other thanself-only coverage).

- (ii) Health cost adjustment percentage For purposes of clause (i), the health cost adjustmentpercentage is equal to 100 percent plus the excess (if any) of

- (I) the percentage by which the per employee cost for providing coverage under the BlueCross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan forplan year 2018 (determined by using the benefit package for such coverage in 2010) exceeds suchcost for plan year 2010, over 55 percent.

- (iii) Age and gender adjustment

- (I) In general The amount determined under subclause (I) or (II) of clause (i), whichever isapplicable, for any taxable period shall be increased by the amount determined under subclause(II).

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Legal Text of Excise TaxContinued

- (II) Amount determined The amount determined under this subclause is an amount equal to theexcess (if any) of

- (aa) the premium cost of the Blue Cross/Blue Shield standard benefit option under the FederalEmployees Health Benefits Plan for the type of coverage provided such individual in such taxableperiod if priced for the age and gender characteristics of all employees of the individualsemployer, over

- (bb) that premium cost for the provision of such coverage under such option in such taxableperiod if priced for the age and gender characteristics of the national workforce.

- (iv) Exception for certain individuals In the case of an individual who is a qualified retiree or whoparticipates in a plan sponsored by an employer the majority of whose employees covered by the plan

are engaged in a high-risk profession or employed to repair or install electrical or telecommunicationslines

- (I) the dollar amount in clause (i)(I) shall be increased by $1,650, and

- (II) the dollar amount in clause (i)(II) shall be increased by $3,450, [1]

- (v) Subsequent years In the case of any calendar year after 2018, each of the dollar amounts underclauses (i) (after the application of clause (ii)) and (iv) shall be increased to the amount equal to suchamount as in effect for the calendar year preceding such year, increased by an amount equal to theproduct of

- (I) such amount as so in effect, multiplied by- (II) the cost-of-living adjustment determined under section 1 (f)(3) for such year (determined by

substituting the calendar year that is 2 years before such year for 1992 in subparagraph (B)thereof), increased by 1 percentage point in the case of determinations for calendar yearsbeginning before 2020. If any amount determined under this clause is not a multiple of $50, suchamount shall be rounded to the nearest multiple of $50.

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Presentation on Oregon PEBB 2018 excise tax