Health Care Reform:Roadmap for the Coming MonthsGALLAGHER BENEFITS TEAM | 9.19.2014

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Overview

• Quick Recap• Recent Guidance• Current To Do List– Large Employers– Small Employers

• Strategies & Tactics– Large Employers– Small Employers

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QUICK RECAPHealth Care Reform: Roadmap for the Coming Months

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PPACA in 60 Seconds• Employer Responsibility (“Pay or Play”)• 90-day Eligibility/Waiting Period• Plan Design Requirements

Preventive Care– Dependents up to age 26 Any willing provider– Pre-existing conditions– No benefit limits (annual or lifetime) on Essential Health Benefits Out of pocket maximum limits Clinical Trials Wellness cost differentials Non-discrimination on insured plans

• Administrative Issues External appeals process– Summary Benefits Coverage– 1094 & 1095 Reporting– Health Plan Identifier

Does not apply to grandfathered plans

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RECENT GUIDANCEHealth Care Reform: Roadmap for the Coming Months

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Recent Guidance• Pay or Play Final Regs– Extended delay for 50-100 employers until 2016– $2,000/EE penalty safe harbor drops to 70% for 2015. – Added Monthly Method for hours counting

• Employer Reporting Final Regs & Forms• Forms 1094-B/C & 1095-B/C• HPID registration

• 90-Day Waiting Period Final Regs– Bona Fide Orientation up to 1 month

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WHAT SHOULD YOU BE DOING NOW?Health Care Reform: Roadmap for the Coming Months

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Confirm Applicable Large Employer (ALE)

50 employees during preceding calendar year1. Count Full time: 30 hours/week2. Count Full time equivalents: sum hours (up to

120 per EE) / 120 for monthly determination.3. Sum up monthly totals (1) + (2)4. Add up all 12 months and divide by 12

Controlled Group Rules Apply

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If At Least 50 Full Time and FTE• Self-funded: HPID application (due 11/5/2014)• Self-funded: Tax/Fee Compliance

– Reinsurance Fee enrollment count – 4 methods (due 11/15/2014)• Confirm approach for identifying Full Time EEs and FTEs for reporting purposes –

different from the over/under 50 count• Quantify potential penalty exposure (delayed until 2016 if < 100)• Review potential Cadillac Tax impact (2018)• Review 90-day waiting period and orientation• Review DC approach• Explore alternatives for 1094/1095 reporting

– first due February 1, 2016– Electronic filing if 250 or more EEs

• Review key hurdles for compliance– 90-day waiting period & orientation– Review Minimum Value (60%)– Review Affordable (9.5% Safe Harbor)– Review Minimum Essential Coverage (MEC)

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If Less Than 50 Full Time and FTE

• Review potential Cadillac Tax impact (2018)• Review impact of opting out• Review 90-day waiting period & Orientation• Review potential tax credits (less than 25 EEs)• Review SHOP options• Review DC approach

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STRATEGIES & TACTICSHealth Care Reform: Roadmap for the Coming Months

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Defining Terms

• Sledgehammer Penalty - 4980H(a)– $167/month for all employees less 30 (80 for 2015)

• Tack hammer Penalty – 4980H(b)– $250/month for each employee who receives a tax

subsidy on the public exchange• 50-100 EEs: effective 2016• At least 100: effective 2015

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Before We Over-think This…

• Employers have offered medical coverage for decades with no penalties

• Current plan designs/systems may need minimal tweaks to comply.

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STRATEGIES & TACTICSLarge Plans

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Decide to “Pay” not “Play”

• Some employers only offer medical coverage because their employees have nowhere else to go.

• Guaranteed individual coverage available now through the public exchanges.

• New opportunity to re-evaluate rationale for offering medical benefits

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Important: Analyze All Costs

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Deciding to “Pay” not “Play”Pros Cons

Predictable Annual cost ($2,000 per EE) Employee relations issues(“throwing us to the wolves”)

Possibly less than current costs Tax inefficiency

Eliminate HCRA compliance headaches Recruiting/Retention issues

Potential lower EE cost post-subsidy Increased absenteeism? STD costs?

Provide Employees increased wages? Decreased productivity?

Completely portable coverage(no COBRA premium shock)

Employees still look to employer for guidance

Public relations issues (Wal-mart & Medicaid)

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Sledgehammer Shield• Offer all employees opportunity to enroll in

inexpensive Minimum Essential Coverage• Employees can pay 100% of cost• May limit to those ineligible for current plans• Minimum Essential Coverage broadly defined– Cannot consist of Excepted Benefits only– No 60% Value requirement– No 9.5% Affordability

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Sledgehammer ShieldPros Cons

No premium cost to the employer Adverse selection impact

Eliminate $167/month penalty risk Increased administration

Limited impact on current plan designs Still subject to $250/month penalty for each employee who gets a subsidy on the public exchanges

Easy to administer Still subject to ACA administrative requirements (e.g., SBC, SMM, etc.)

95% of all EEs: simplified reporting (70% 2015)

Potential 125 election issues

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Tack hammer Shield

• Offer all employees opportunity to enroll in 60% minimum value medical coverage

• Limit employees’ contribution for single coverage to 9.5% of 133% Federal Poverty Rate ($122.86 in 2014)

• May be in addition to current plans

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Tack hammer ShieldPros Cons

Bronze products cost employer less than the $250/month penalty

Potential adverse selection impact on current plans

Employer only has to contribute to single coverage (not dependents)

Increased administration

Eliminate sledgehammer and tack hammer penalty risk

Employer premium subsidy costs for those electing single coverage

Limited impact on current plan designs Still subject to ACA administrative requirements (e.g., SBC, SMM, etc.)

Easy to administer

98% of all EEs: simplified reporting

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Premium Reduction Strategies

• Reduce Cost of Offering MV plan– Integrated Delivery Systems (e.g., ACOs)– Coverage Category Elimination– Reference Pricing

oCaution: limit prohibitions– Limited Networks

oCaution: effective access– Pay for Performance

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Premium Reduction StrategiesPros Cons

Same pros as tack hammer shield Same cons as tack hammer shield

Reduce employer cost of compliance Potential Employee relations issues

Potential Public relations issues

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Monthly Method w/ True-Up

• Offer MV/Affordable coverage each month to all employees who COULD work 30 hrs/week

• Loan employees any employer contribution • Track actual hours worked during each month• < 30 hours/week: withhold from future

paychecks. • Similar to 401(k) loan processing

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Monthly Method w/ True-UpPros Cons

Same pros as tack hammer shield Administrative and documentation issues (tracking hours and back-due premiums)

Employer will only have to pay portion of premium for those who are actually full time.

Potential to lose out on back premiums if employee terminates or otherwise does not earn enough (usury laws)

Limited impact on current plan designs Still subject to ACA administrative requirements (e.g., SBC, SMM, etc.)

Eliminate sledgehammer and tack hammer penalty risk

Employer premium subsidy costs for those actually full time

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Change Funding Approach

• Self-Funding – Save on premium taxes– Not required to offer Essential Health Benefits– Make plan design changes independent of state

mandates• Captive Insurance– Cheaper / more stable Stop-Loss– Limited self-funding

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Change to Self-Funding / CaptivePros Cons

Avoid Health Insurer Premium Taxes Increased Risk Retention

Avoid State Benefit Mandates Stop-Loss Insurance Issues (e.g., leveraged trend and lasers)

Increased Design Flexibility Potential Network Disruption

Increased Claims Data Increased Employer Responsibility

Improved Cashflow Reserve requirements may apply

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Controlled Group Structure

• May impact availability of Sledgehammer Safe Harbor• Only need to offer MEC to 95% of FTEs (70% in 2015)• Applies on employer-by-employer basis within a

controlled group• An offer of coverage by ANY employer within the

controlled group counts as an offer by ALL• Controlled group employer determined by employer

with most hours.• If multiple employers tie: designate

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Sledgehammer Safe Harbor Example 1:Shared Employees

Company A Company B Company C Total

FTE offered 700 200 50 950

FTE not offered 0 0 47 47

Total FTE 700 200 97 997

% FTE not offered 0% 0% 48.45% 4.71%

Sledgehammer Pass Pass Fail Pass

Company A Company B Company C Total

FTE offered 700 200 50 950

FTE not offered 35 10 2 47

Total FTE 735 210 52 997

% FTE not offered 4.76% 4.76% 3.85% 4.71%

Sledgehammer Pass Pass Pass Pass

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Sledgehammer Safe Harbor Example 2:Offer of Coverage

Company A Company B Company C Total

FTE offered 700 200 50 950

FTE not offered 0 0 47 47

Total FTE 700 200 97 997

% FTE not offered 0% 0% 48.45% 4.71%

Sledgehammer Pass Pass Fail Pass

Company A Company B Company C Total

FTE offered 700 200 93 993

FTE not offered 0 0 4 4

Total FTE 700 200 97 997

% FTE not offered 0% 0% 4.12% 0.40%

Sledgehammer Pass Pass Pass Pass

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Controlled Group Caveats

• Needs to be bona fide business rationale• Careful of “tail wagging the dog”• Documentation will be important• Definitely need good legal advice

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STRATEGIES & TACTICSSmall Plans

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Opt-out of Medical Benefits

• Small employers do not face the Pay or Play penalty

• Guaranteed individual coverage available now through the public exchanges.

• New opportunity to re-evaluate rationale for offering medical benefits

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Deciding to Opt-OutPros Cons

Eliminate plan sponsorship headaches Employee relations issues(“throwing us to the wolves”)

Eliminate HCRA compliance headaches Tax inefficiency

Provide Employees increased wages? Recruiting/Retention issues

Completely portable coverage(no COBRA premium shock)

Decreased productivity?

Increased absenteeism? STD costs?

Employees still look to employer for guidance

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SHOP Approach

• Small Business Health Options Program• Increase to 100 employees in 2016• State option: over 100 employees after 2016• Employees sign up through public exchange• Employer may still subsidize the benefit• Employer may continue to use a broker for

assistance• Potential Tax Credit (under 25 employees)

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SHOP Employer Tax Credit

• Must have 25 or fewer FTEs (2080 hours)• Average pay must not exceed $50,000

(adjusted after 2013)• Employer premium support at least 50%• Tax Credit = 50% (35% tax-exempt) employer

premium share• Credit phases out over 10 FTE or $25,000

(adjusted) average pay

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SHOP ApproachPros Cons

Employer may subsidize coverage without taking responsibility for plan selection

Employer loses control of plan design

Employer may receive Tax Credit Employees may not receive federal subsidy

Employee wider plan design options Potential for individual market premium volatility

Employee more premium options Less Open Enrollment flexibility

Potential to avoid adverse selection

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OTHER THOUGHTSAll Sizes

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Defined Contribution Model

• Private Exchanges widely available– Medical / Ancillary / Voluntary / 401(k) / etc.– Single provider vs. multiple provider– Fully-insured vs. self-insured

• Cafeteria plan + decision support tools– Plan sponsor selects

o exchange / carrier(s)o Employer contribution level

– Employees select benefits

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Defined Contribution ModelPros Cons

Increased employer cost control Employer loses some control of plan design

Responsive to diverse employee benefit needs

Employees may not receive federal subsidy

Consistent with Total Rewards approach Employees may perceive as benefit reduction

Decision support tools help employee Significant communication necessary

Actively engages employees Requires change in philosophy

2012Employee only premium: $5,808 ($484 per month)

2014$7,028

2018$10,289

Cadillac Tax as Change Agent

10% Annual Trend

Excise Tax:40% x $89 = $35.60

•Independent of cost-sharing•May shift tax to employees•Use as plan design change driver

2018 : $10,200 Single/$27,500 Other