association of washington cities 1 health care reform update presented to: puget sound finance...

Association of Washington Cities 1

Health Care ReformHealth Care ReformUpdateUpdate

Presented to: Puget Sound Finance Officers Association

July 23, 2013By: Carol Wilmes

AWC Trust Program Manager


Today’s Conversation

Incremental Change Current State of Play Impact to Employers in 2014 What Local Governments Should be

Doing Planning for our Benefit Future

Key elements of health reform for employers

2011 2012 20132010 2014

• 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

• $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

• Health insurance exchanges• Individual coverage mandate• Financial assistance for exchange

coverage of low-income individuals• Medicaid expansion • New health plan regulations • HIPAA wellness limit increases• Shared responsibility penalties• Free-choice vouchersFree-choice vouchers• Additional reporting and disclosure

• Dependent coverage to age 26 for any covered employee’s child**

• No annual dollar limits**• No pre-existing condition limits**• No waiting period over 90 days**• Additional new standards for new

or “non-grandfathered” health plans, including limited cost-sharing

• Health insurance industry fees begin

• 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.

2018

• Dependent coverage to 26 (no other employer coverage available)*

• No lifetime dollar limits*• Restricted annual dollar limits*• No pre-existing condition

limitations for children up to age 19*

• No rescissions*• Additional standards for new or

“non-grandfathered” health plans, including non-discrimination provisions for insured plans and mandatory preventive care with no cost-sharing

• No health FSA/HRA/HSA reimbursement for non-prescribed drugs

• Increased penalties for non-qualified HSA distributions

• Voluntary long-term care Voluntary long-term care “CLASS” program slated to start“CLASS” program slated to start

• Pharmaceutical manufacturers’ fees start

• Medicare, Medicare Advantage benefit and payment reform

• Insurers subject to medical loss ratio rules*

Key Elements of Health Care Reform


Breaking News!Employer Mandate of 2014

DELAYED 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 repealof individual mandate

And so it goes…


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 women’s 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)


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


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


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



Clinical Trial Fee Supports cost of clinical trials

Unknown 2014-? • Insurers of fully 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



2015: Employer Pay or Play (“Shared

Responsibility”) Apply to employers with >50 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


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

Aon Hewitt | Health & Benefits Consulting Proprietary & Confidential 10

Start HereStart HereStart HereStart HereDoes the employer* offer coverage to its

workers?

Does the employer* offer coverage to its

workers?

No

Did at least one employee receive a

premium tax credit or cost sharing subsidy in

an Exchange?

Did at least one employee receive a

premium tax credit or cost sharing subsidy in

an Exchange?

The employer must pay a penalty for

not offering coverage

The employer must pay a penalty for

not offering coverage

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?

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.

Employees can choose to buy coverage in an

Exchange and receive a premium tax credit.

The employer must pay a penalty

for not offering affordable coverage.

The employer must pay a penalty

for not offering affordable coverage.

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.

Yes

Do any employees have to pay more than 9.5% of family income

for the employer coverage (employee

only)?

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.

Those employees can choose to buy coverage

in an Exchange and receive a premium tax

credit.

Yes

No

There is no penalty payment required of the employer since it offers affordable

coverage.

There is no penalty payment required of the employer since it offers affordable

coverage. *Assumes employer has at least 50 full-time equivalent employees.

No

Yes

Employer Penalties in 2015


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)


Discuss strategies and labor issues related to:

a. “Play or Pay” penalty: fulltime/seasonal/variable hour employees

b. The Cadillac tax

c. The ACA at the bargaining table

d. The world is not coming to the end, but careful planning is essential

12

Let’s drill it down further …


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


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 (<30 hpw)

• Don’t 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)

• Can’t 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


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 employee’s status as a full-time employee, as having terminated employment and having been rehired as a new employee of the employer


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.

Terminated 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.”

Variable Hour Employees


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)


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 Don’t need to offer coverage No penalty applies

Seasonal Employees 12 month measurement period Clearly define hours work


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!


Health care reform issues -Finally in 2018 – Excise tax on

high cost plansIssue 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)

Self-only Any other tier

General $ 10,200 $ 27, 500

High-risk professions

$ 11,850

$ 30,950

Retiree aged 55 through 64

Multiemployer plan

$ 27,500 $ 27,500


• 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.

Cadillac Tax, an Overview


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.


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 year2014 $23,3282015 $25,1942016 $27,2102017 $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!


• 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.

25

An Escalade-ing Cadillac Tax

• Other ACA mandates will increase cost of coverage, including increased administrative overhead.

• Medical inflation continues to rise, annual trend of 8-10%


#1 Get the Numbers

Apply appropriate trend to 2013 rates.

Estimate to 2018.

Are totals above $10,200/$27,500?

Start planning now.

Strategies for Mitigating the Cadillac Tax


#2 Unbundle dental and vision plans

Not subject to tax unless bundled with health plan.



#3 Decrease benefits & increase deductibles…

… while continuing to offer minimum essential coverage.



#4 Begin increasing employee cost-sharing

Cost-sharing does not avoid the tax, but…

1)cost-sharing may alter employee behavior and usage.

2)Cost-sharing helps pay for the tax, if necessary.


• Washington’s 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).

04/21/23 30

Mandatory Subject of Bargaining

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, “It’s the City’s 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.

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.


Questions….

Carol WilmesProgram ManagerAWC Employee Benefit Trust1-800-562-8981 or (360) [email protected]/employeebenefits

association of washington cities 1 health care reform update presented to: puget sound finance...

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