how much will health-care reform cost my business?

How Much Will Health Reform Cost My Business?

Cory Rutledge, CPA – Partner CliftonLarsonAllen LLP

Today’s Discussion

Overview of the Law

Case Study

Strategies for Success

Health Reform Definitions •  ACA - refers to the 2010 Patient Protection and Affordable Care Act

also known as health reform, Obamacare. •  Employer-Sponsored Insurance (“ESI”) – represents the current

health insurance coverage offered by an employer to its employees. •  Health Insurance Exchange (“Exchange”) – an ACA exchange is

an insurance marketplace where individuals, or certain small business employees, can purchase insurance as part of a large risk pool. Each state must establish its own exchange or the federal exchange option will be provided. Four plan levels will be offered.

•  Full-Time Employee – Working an average of 30+ hours of service per week or 130 hours per month, annually. “Hours of service” include paid time such as vacation, sick, deployment leaves, family medical leave, etc.

•  Waived – A full-time employee who elects not to obtain health insurance through the employer. Future coverage decisions made by these employees will impact the employer’s total health care costs.

Health Reform Definitions (cont’d) •  Exchange Subsidy – Individuals who meet the income and

health insurance affordability criteria will be eligible for premium and cost sharing (e.g. deductibles, co-payments) subsidies in the Exchange. •  Affordable Insurance – Employee premium cost is less than 9.5% of Household Income. Three

employer safe harbor options are also provided under regulations (as of 1/1/2013).

•  Household Income (HHI) – An employee’s modi!ed adjusted gross income (MAGI), as reported on their annual tax return. The HIP Calculator uses employee W-2 taxable wages (Box 1) as a proxy for MAGI. HHI will be assessed in relation to FPL to determine eligibility for subsidies.

•  Federal Poverty Level (FPL) – Government-established income thresholds used to determine eligibility for assistance through various federal programs.

Health Reform Definitions (cont’d) •  Penalty:

•  Individual : Assessed on individuals who fail to obtain adequate health insurance in 2014 and beyond.

•  Employer : Assessed on certain employers who have employees that access subsidies and purchase insurance through the Exchange in 2014 and beyond.

Overview of the Law •  Health Reform law seeks to expand access to

health coverage by: •  Mandating individuals enroll in health insurance •  Establishing new marketplaces for purchasing insurance (“Exchange”) •  Imposing penalties on large employers who do not offer coverage, or

offer coverage that is unaffordable •  Expanding Medicaid Eligibility

•  Subsidizing low and middle-income individuals to purchase insurance via an Exchange

The Individual Mandate •  Individual mandate to obtain health coverage:

Beginning in 2014, most individuals must obtain a minimum-level of health insurance coverage or pay a penalty

•  Minimum essential coverage includes: •  Medicare, Medicaid, TRICARE •  Insurance purchased through an Exchange, or the individual market •  Employer-sponsored coverage that is affordable & provides minimum value •  Grandfathered plans (group plan in effect on 3/23/2010)

•  Penalties for failure to obtain coverage: •  In 2014: greater of $95 or 1.0% of income •  In 2015: greater of $325 or 2.0% of income •  In 2016: greater of $695 or 2.5% of income •  Penalty is capped at three times the per person amount for a family •  Assessed penalty for dependents is half the individual rate

Hardship exemp:on Premium cost for

lowest cost plan > 8% of Household Income

Gov’t Assistance in Coverage •  Medicaid expansion: Expands eligibility to

individuals and families up to 133 % of the federal poverty level (FPL) or Modified Adjusted Gross Income(MAGI) of138% of FPL

•  If cost effective, states can opt to subsidize employer-sponsored premiums for this group

•  Premium and cost share assistance: •  Individuals and families with

household income of 100 - 250% FPL may be eligible for sliding-scale assistance, such as:

•  Tax credits to help pay premiums; and

•  Out-of-pocket reductions to help with cost sharing (e.g., co-payments and co-insurance

138% FPL Individual = $15,856 Family of 4 = $32,499

400% FPL: Individual= $45,960 Family of 4= $94,200

State Medicaid Expansion

Medicaid Eligibility Up to 138% FPL

Exchange Subsidy 139 –

400% FPL

No Subsidy 400% + FPL

Medicaid Eligibility Varies by state Ex. 35% FPL

Exchange

Subsidy 100 – 400%

No Subsidy 400% + FPL

Medicaid Expansion State

No Medicaid Expansion State

Large Employer Penalties

• Large employers subject to one of two “shared responsibility” penalties if any FT employee receives Exchange subsidies

• For employers that own multiple companies, the 50 + employees is determined by control group or affiliated service group

Law does NOT require employers to offer health insurance

Large employer = 50 or more full-‐Eme employee + FTEs

FT employee = avg. 30 or more hours of service per week

FT equivalents = Hours worked in a month by all PT employees divided by 120

For “minimum essenEal coverage”, see IRS NoEce 2012-‐31 at: hVp://www.irs.gov/pub/irs-‐drop/n-‐12-‐31.pdf

Safe Harbor – FT Employee •  IRS Notice 2012-58 and Dec. 2012 IRS/HHS proposed

regulations explain a method employers may use to determine full-time status for ongoing employees, new employees expected to work full-time, and variable hour and seasonal workers.

•  Measurement period: 3 – 12 months (employer determined)

•  Administrative period(Optional): Up to 90 days for employee eligibility for coverage determinations, noti!cation and enrollment of employees

•  Stability period: The greater of 6 months or the duration of the standard measurement period

Measurement Period Admin-‐istra:ve Period

Stability Period

“Shared responsibility” Penalties

No Insurance Coverage Penalty Amount = $2000 x each full-time employee

(after !rst 30 employees)

Unaffordable Employer Coverage Penalty If employer fails to offer coverage that is:

1.  Minimum essential coverage -- minimum 60% actuarial value --offered to employees and their children under age 26.

2.  Affordable = Employee premium cost for single coverage < 9.5% of household income.

Amount = $3000 x # of full-time employees who receive exchange subsidies

Penalty only assessed if a FT employee receives Exchange subsidies.

Employees ineligible for subsidies if employer coverage affordable “Affordable” = the employee premium contribuEon for single coverage is less than 9.5% of their MAGI household income, or one of three employer safe harbor opEons exist. (e.g., W-‐2 wages) Maximum penalty = no insurance penalty

Infla:onary adjustments to penalEes begin in 2015

Employer pays no penalty for MA eligible employees

ACA Deductible and OOP Limits

Limits Individual Coverage

Family Coverage

DeducEble (Small group) $2,000 $4,000 Maximum Out of Pocket (all) $6,250 (2013) $12,500 (2013)

• Deduc:ble limits for small group market

• 2010 average deducEble for small group = $2,814 (AHIP issue brief, August 2012)

•  Could result in higher premium costs for small groups to compensate for lower deducEbles.

• Limits on out of pocket(OOP)maximums in 2014 :ed to limits established for Health Savings Accounts/High DeducEble Health Plans.

• Both limits will be indexed forward by the percentage increase in average per capita premiums.

Health Insurance and Penalty Calculator

Sample Senior Living Provider

Case Studies Case Study#1 Case Study #2 Case Study #3

Facility type Non-‐profit SNF For-‐profit CCRC SNF + ALSize 85 beds 180 Bed SNF 77 Bed SNF# of employees 79 FT employees 1922 FT employees 284 FT EmployeesEmployer contribution to single coverage (% of total) $7,632/year (85%) $4,030/year (81%) $5,090/year (66%)Currently waived employees 34% (or 27 FT employees) 31.3% (or 603 FT employees) 57.7% (or 164 FT employees)# of Medicaid eligible O FT employees 10.7% (206 FT employees) 6% (17 FT employees)

# of Exchange subsidy eligible 26% of FT employees (21 of 79 FT employees), many would pay less in the Exchange vs. ESI

3.1% of full-‐time employees (59 FT employees), many would pay less in the Exchange vs. ESI

74.3% of full-‐time employees (211 FT employees), most would pay less in the Exchange vs. ESI

Impact of ACA Estimated to pay 11% less Estimated to pay 25% more Estimated to pay 12.7% more

Cost drivers

1. Number of waived employees that will now enroll in ESI 2. Few subsidy eligible employees (many of whom currently waive ESI) because FT employee contribution is affordable for most so most employees would enroll in ESI

The increased cost is the result of the fact that as a for-‐profit they benefit from the deductibility of health insurance premiums today but because of the high number of employees who would be eligible to receive subsidies in the Exchange, the company would incur $508K in penalties that are not deductible.

Case Studies Key Assumptions

BaseAssumption Case Assumption Range" " " " " "

State Medicaid Expansion Undecided Yes, No and UndecidedHealth Insurance Exchange Federal State, Federal, and PartnershipOrganization Tax Structure For Profit For Profit / Non Profit

Today's Waived Employees 100% Converted

Waived / Insured based off Today's Insurance

Premium Annual Increases 9% 2% to 12% per YearEmployee Salary Inflation 2% 0% to 5% per Year

Exchange Premium$10,513

Historical Avg

Based upon ESI Historical Average

Transitional Reinsurance Fee Not Included Est. $63 per plan enrollee (EE +dependents)

Funding Alternative60% of

Premiums $100K Increased Insurance Cost

Simulation Scenarios

2014 Pre-‐Reform ESI – Employer’s current year ESI premium cost increased by projected annual premium growth and health care uElizaEon (volume growth) BEFORE health reform impacts

2014 Post-‐Reform ESI – 2014 ESI insurance premium cost including growth in premium costs and health reform impacts (e.g. penalEes)

2014 No ESI – 2014 Scenario where an employer either does not offer health insurance to its employees or selects to disconEnue offering health insurance coverage. This may result in employees purchasing insurance through the Exchange.

2014 Employer-‐Funded Alterna:ve – 2014 scenario an employer no longer offers health insurance coverage but elects to provide a cash benefit (e.g., wage increase, HRA) to its non-‐subsidized employees.

Health Insurance Costs

Impact of Employer Health Insurance Reforms HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTSFull-Time Employees 62 (16 Insured / 46 Waived) Midwest Senior Living Today's 2014 Offer 2014 Drop/Total Staffed 130 (0 PT Insured/68 PT No ESI) ($000s) Cost Coverage Don't Offer

2014 PPACA FTEs 123 Baseline Premium Cost 113$ 113$ 113$

HEALTH REFORM KEY DRIVERS 2012-2014 Premium Increase (9.0% / Yr) - 21 21

Single Coverage Employer Premium Cost Pre-Reform Projected Premium Cost 113 134 134

2014 Average Single Employer Cost 6,535$ Tax Adjusted Premium Costs 73 87 87 Current Employer Contribution % 75% PLUS: Additional Reform ImpactMedicaid Eligible Employees Previously Waived FT Employees - 138 - Total FT Medicaid Enrollees - Penalty: Subsidy Eligibles & ESI - 64 -

Employer Estimated Cost Savings -$ ($000s) Health Reform Increased Cost - 202 -

Employer Unaffordable Coverage PenaltySubsidy Eligible Full-Time Employees 28 LESS: Previous Premium LiabilitiesSubsidy ($3,000) 3$ Medicaid Employee ESI - - - Estimated Subsidy Penalty 84$ ($000s) Subsidy Eligible FT Employees ESI - (20) - % Total Full-Time Employees 45.2% Health Reform Decreased Cost - (20) - Employer No ESI Insurance Penalty No Minimal Essential CoverageTotal Full-Time Employees 62 Less: 2014 Inflation Adjusted HC Cost - - (134) Less: 30 Employees (30) Plus: Subsidy Eligible Penalty - - 64 Adjusted Full-Time Employees 32 Health Reform No ESI Cost - - (70) No Insurance Penalty ($2,000) 2$ Post Reform HC Costs 113$ 316$ 64 Estimated Subsidy Penalty 64$ ($000s) HC Cost Change to 2014 Projected 182$ (70)$ 2014 Pre Reform Projected HC Costs 87$ ($000s) % HC Cost Change to 2014 Projected 136% -52%Estimated Net Savings 23$ ($000s) Tax Adjusted HC Costs 73$ 228$ 64

Employer Cost Components

$73

$228

$64

$14 $-

$196

$(120)$(150)

$(100)

$(50)

$-

$50

$100

$150

$200

$250 Today's vs 2014 HC Cost

Today's HC Costs

Est 2014 ESI HC Cost

No ESI

2013-2014 Increased Premiums

Medicaid Qualified Employees

Waived to ESI

Net Subsidy Impact

Exchange Eligibility Factors

-

3

25

15 8

11

0.0%

4.8%

40.3%24.2%

12.9%17.7%

- 25 50 75

15.0%+

11.0% -…

9.5% - 11.0%

8.0% - 9.5%

6.5% - 8.0%

0.0% - 6.5%

Health Insurance Affordability

-‐

45

8

9

0%

73%

13%

15%

0 10 20 30 40 50

<100%

100% - 250%

250% - 400%

400%+

Income as a % Above FPL

Exchange Subsidy Eligibility =

Affordability

+ 133-‐400% of FPL

In 2014, employer pays penalty when a FT

employee is eligible for Exchange Subsidy.

2014 Coverage Breakdown

0 , 0%

28 , 45%

34 , 55%

Post Reform ESI FT Employee

Mix

Medicaid EligibleSubsidy Eligible

ESI Coverage

We es%mate 45% of this en%ty’s full-‐%me employees will be eligible for Exchange subsidies, 0% for Medicaid as this state has elected not to

expand Medicaid, and the remaining 55% enrolled in ESI.

Premium Cost Breakdown

0/0% Total (0/0% F T Employees + 0/0% Waived C onverted) 45/73% Total (7/44% F T Employees + 38/83% Waived C onverted)

8/13% Total (4/25% F T Employees + 4/9% Waived C onverted) 9/15% Total (5/31% F T Employees + 4/9% Waived C onverted)

-‐ -‐ -‐ -‐-‐ -‐ -‐-‐ -‐ -‐ -‐

Today 2014 Pre Reform ESI 2014 Post Reform ESI 2014 Post Reform No ESI

Employer Share Employee Share Gov't Subsidy

<= 100% FPL

5,990 7,117 4,430 2,000

2,312 2,747 1,644

1,438

4,707 7,477

8,302 9,864

10,781 10,915

Today 2014 Pre Reform ESI 2014 Post Reform ESI2014 Post Reform No ESI


101% -250% FPL

8,276 9,832 8,194 2,000

4,598 5,463 3,824 2,968

-‐

9,049

12,874 15,295 12,018

14,017



251%-400% FPL

7,688 9,134 7,988 2,000

4,034 4,793 3,634 11,622

11,722 13,927

11,622 13,622



400+% FPL

Cost Sharing Subsidies

Household income as %

of FPL Cost sharing Reduc:on

100-‐200% FPL Two-‐thirds

200-‐250% FPL 50%

• Federal government will pay insurers to reduce the cost sharing for individuals:

• Enrolled in a silver-‐level plan through an Exchange and • Whose household income is between 100-‐250% FPL

• Reduc:ons don’t apply to benefits not included in the federal defini:on of “essen:al health benefits”

Key Cost Drivers for Sample

•  Waived employees : 46 or about 74% of SAMPLE’s full-‐Eme employees waive ESI today and as such, do not cost the employer anything today. In 2014, if all waived employees enrolled in ESI due to the individual mandate, we would anEcipate an addiEonal cost of $302,000.

•  The impact net of the Exchange subsidy is approximately $120,000.

•  Roughly 86% of FT employees would income qualify for Exchange Subsidies

•  Affordability of coverage for full-‐:me employees results in 55% of FT employees remaining on the employer-‐sponsored insurance.

•  Penal:es are not a penalty: The cost of premium contribuEons by the employer in 2014 exceeds the $3,000 annual per employee penalty. Therefore, for each employee that goes to the Exchange, the employer incurs a net savings.

Maintaining Coverage

This scenario results in a roughly $141K increased cost to the organizaEon over current costs adjusted for tax.

•  28 full-‐Eme employees (45%) would be eligible for Exchange subsidies because ESI is unaffordable for them, resulEng in a savings to the employer. These employees are projected to pay less through the Exchange than under ESI.

•  Employees earning more than 400% FPL would conEnue to benefit from employer contribuEons toward their premiums.

•  The employer penalty isn’t really a penalty: The $3,000 penalty cost for each FT employee receiving Exchange subsidies is actually less than the employer’s current per employee contribuEons toward single coverage ($5,501 before deducEbility in 2012 dollars).

Drop Coverage

This scenario represents the lowest cost opEon to SAMPLE, under the current provisions of health reform resulEng in a $23K Decrease.

Impact on employees earning 100-‐400% FPL (86% of employees): Exchange premiums are esEmated to be slighter less than ESI. Those employees earning between 100-‐250% are eligible for cost sharing subsidies.

Impact on Employees earning more than 400% FPL (15% of employees): This group will be disproporEonately disadvantaged because they are not eligible for any Exchange subsidies and so will bear the full premium cost.

Other considera:ons: If drop coverage, how will this change be communicated to employees? Is there a way to increase wages or offer an alternaEve cash benefit for those employees who would not be eligible for Exchange subsidies?

Strategies for Success

Achieving a “WIN / WIN” scenario

Achieving a WIN / WIN

OpportuniEes may exist where “WIN / WIN” scenarios for both employers and employees may be constructed

Employee Wins 1)  Adequate Insurance 2)  Affordable Coverage

WIN / WIN Where Employer & Employee interests meet, & Government

subsidies are maximized

Employer Wins 1)  Profitability 2)  CompeEEve

Workforce

Strategies

Reduce number of Full-‐Time Employees: OrganizaEons may consider adjusEng the number of employees working an average of 30 hours a week or more to bring down its potenEal liability.

Evaluate current benefit offerings to determine if a different benefit plan with a lower actuarial value (60% or more) may offer lower overall premium costs.

Result is more costs are shioed to the employee through cost sharing (co-‐payments, co-‐insurance and deducEbles) but only if they access health care services.

Typically, this plan should have lower premium costs.

Strategies (cont’d)

Measurement Period Selec:on: Select measurement period with fewest full Eme employees

If not offering ESI: Limit full Eme employees to 30 across all businesses

Why is this important? •  Employers must offer full-time employees and their children under age 26 health insurance

coverage or pay a penalty.

•  Penalties are assessed for full-time employees only

•  Current FT employees who waive coverage may enroll in ESI in 2014 adding bottom line, non-penalty costs to employers.

•  Now is the time to make strategic decisions to limit penalty risk

www.cliftonlarsonallen.com/HIP

THANK YOU!

Cory Rutledge, CPA Partner

CliftonLarsonAllen LLP 612-376-4524

[email protected]

how much will health-care reform cost my business?

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