The Affordable Care Act and Health Benefits:

What You Need to Know

AFSCME International Convention, Chicago, IL

July 15, 2014Mary Meeker and Sally Tyler

AFSCME Research Department

Agenda

• Review ACA goals• ACA market reform provisions enacted

and upcoming• Impact on Employee Benefit Plans and

Bargaining– Wellness programs– “Pay or Play” - employer 4980H penalties– New fees/taxes on plans

• Medicaid Expansion and Marketplaces• Q & A

(Mis)Information?

• Misrepresentation• Half-Truth• Dishonesty• Deception• Distortion• Confusion

Implementation:ACA

Goals/Objectives• Expand Coverage: Create

Exchanges and Expand Medicaid

• Control Costs: Insurance Market Reforms

• Improve Quality: Delivery System/Payment Reforms

Market Reforms already implemented

• Young adult coverage • No lifetime limits• No annual dollar limits on EHB• No pre-existing condition limits• Preventive care with no cost-sharing *• MLR requirements for fully-insured plans

Market Reforms already implemented

(continued)

• Patient protections *• Increased penalty for “nonqualified” HSA

distributions • FSA/HRA/HSA can only reimburse prescribed

OTC drugs• FSA contributions capped at $2500• No waiting periods over 90 days

• EHB package * • “Marketplaces”• Medicaid Expansion• Max out-of-pocket ($6350/$12700) – all non-

grandfathered plans

• “Health-contingent” wellness program incentive increases to 30% of premium

Market Reforms already

implemented (continued)

Upcoming Provisions

• Employer Shared Responsibility Payments - 2015

• “Marketplaces” may open to large employers-2017

• Excise tax - 2018

Grandfathering• A “grandfathered” plan is a plan in

existence on March 23, 2010• Grandfathered plans are exempt from

some of the mandates - but not all• Plans lose grandfathered status if they

make significant changes• Grandfathered status is determined

separately for each plan option

Losing Grandfathered Status

• Elimination of all or substantially all benefits to diagnose or treat a particular condition;

• Any increase in a percentage cost-sharing requirement (coinsurance);

• Any increase in fixed-dollar cost-sharing (e.g. deductibles, out-of-pocket expenses – not copayments) in excess of the rate of medical inflation since March 23, 2010, plus 15%;

Losing Grandfathered Status

• Any increase in copayments in excess of the greater of a) the rate of medical inflation, plus 15%, or b) $5.00, increased by medical inflation;

• Any decrease in the employer contribution towards the cost of any tier of coverage by more than 5% of the contribution rate in effect on March 23, 2010 (measured for each coverage tier).

What it Means to be Grandfathered

Applies to GF plans: • Eliminate lifetime &

annual limits• Cover adult children

to age 26• Provide rebates if the

medical loss ratio requirements not met, for fully-insured plans only

Does not apply to GF plans• Cover preventative care

for with no cost-sharing• Eliminate prior

authorization or higher cost sharing for non-network ER care

• Cap on out-of-pocket costs • Expanded appeals process• Essential Health Benefits

ACA & Employee Wellness Programs

• “Participatory” programs – majority of existing programs – not required to satisfy requirements set out in the ACA regulations.

• “Health-contingent” programs must satisfy the five conditions set out in the ACA regulations

ACA & Employee Wellness Programs

• Participatory Programs (no incentive or incentive not based on a health factor)– Reimbursing gym membership– Filing out HRA– No cost education seminars or “lunch and learns”

• Health Contingent Programs (incentive based on health factor)– Activity-only: walking programs, diet or exercise

programs– Outcome-based: tobacco surcharge, biometric

screening with certain levels required to earn incentive (BMI or cholesterol levels) or requirement for further action if over certain levels

ACA & Employee Wellness Programs (continued)

5 requirements for “health-contingent” programs:

1. Qualify once per year

2. Maximum reward of 30% (50% for tobacco related)

3. Reasonably designed to promote health or prevent disease

4. Available to all with a reasonable alternative

5. Disclose the availability of alternative

Insuran

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e

Compan

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No Pre-

existin

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Condition

Discrim

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ation

Individual

Individual

Mandate(Greater of)

2014: 1% or $95

2015: 2%

or $3252016: 2.5%

or $695

EmployerPenalties for Large Employers*

“Shared Responsibility” for Coverage

Individual MandateCoverage Requirements and

Exemptions• Coverage

Employer sponsored coverageExchange coverageMedicaid, Medicare, CHIP, Tricare

• ExemptionsReligious objections Incarcerated Indian tribesUndocumented residentCoverage costs more than 8% of income

Is Employer a “Large” Employer?

• Applicable large employer (ALE) has at least 50 full-time employees (including FTEs) during preceding calendar year– Full-time employee: 30hrs/week or 130 hrs/month – FTE calculation includes hours of part-timers and seasonal

workers

• Controlled Group Employers (IRC § 414)– Hours are aggregated for all “members” to determine ALE

status – but 4980H penalties determined member by member

• Seasonal Worker Exception– If employer exceeded 50 employees on only 120 or fewer days,

and seasonal workers were the only reason, then not an ALE

• Applies to employers with 100+ FTEs in 2015 **50+ FTEs in 2016 and thereafter

• Penalty (a) no coverage offered to at least 70% FT empls/dependents (95% in 2016) Penalty amount = $2000 times number of full-time employees

(excluding first 80, decreasing to 30 in 2016)

• Penalty (b) unaffordable or inadequate coverage offered Penalty amount = $3000 per full-time employee receiving subsidized

coverage

• Both penalties are triggered by employee getting subsidized coverage

Employer Shared Responsibility

“play or pay”

Additional 1 year delay…

• Employers with 50-99 FT employees not subject to penalty in 2015 if:

1. Employ 50 – 99 FT employees on business days during 2014; and

2. Do not reduce the size of workforce or overall hours of service for employees between 2/9/14 and 12/31/14; and

3. Do not eliminate or materially reduce the health coverage offered as of 2/9/14

Employer “Play or Pay” 2015

Does Employer have 100 FTEs?

YesIs min essential

coverage offered to at least 70% full-time employees/dependents? Ye

sDoes plan pay for at least 60% of cost of covered benefits? (Adequate) Ye

sIs employee contribution for single coverage no more than 9.5% of income? (Affordable)Ye

s

Employer does not owe penalty

Employer is not subject to penalties.

Subject to penalty (a) if one full-time emp gets subsidized coverage on exchange

Subject to penalty (b) if employee gets subsidized coverage on exchange

No

No

No

No

To Cover or Not to Cover…

• Not covered by “employer mandate:”

– Spouses

– Pre-65 retirees

– Part-timers (under 30 hrs/wk)

• Consider options and consequences

Full-Time Employee

• Works on average at least 30 hrs/week (130 hrs/mo)

• Includes all paid hours – regardless of whether actual work is performed

• Optional “safe harbors” for employers to use when they can’t reasonably determine full-time status – Measurement period – (3-12 months)– Stability period – (greater of 6 months or length of

measurement period)

Employer Assistance and “Marketplace” plans

• Employers not permitted to offer tax favored arrangements to purchase individual market coverage

• HRA may be used for actives if “integrated” with another group health plan

• Employer cannot meet “responsibility” by paying premiums on Exchange plans.

• 40% tax on costs (“excess benefit”) of employer-sponsored health coverage above: $10,200 single and $27,500 family*

• Threshold amounts include employer and employee:– Health plan premium contributions– Contributions to FSAs, HRAs HSAs and MSAs

• Dental and vision excluded if covered separately

Excise Tax – 2018

• Thresholds adjusted for pre-Medicare retirees and plans with majority of employees in “high risk” jobs

• $11,850/single and $30,950/family• Adjustments for demographic composition of

pool• Details concerning these adjustments

unknown• Indexed for inflation

– CPI + 1% 2019– CPI 2020 and beyond

Excise Tax - 2018

Fully-insured plans– Health insurance company liable for tax

Self-insured plans– Plan sponsor/benefit administrator

(employer) liable

*No provisions preventing insurers/employers from passing cost on to employees

Excise Tax – 2018

Act Now or Later?• No implementing regulations for

excise tax yet – need clarity and still unknowns• Determination of cost

• Rules “similar” to COBRA rate calculation• Employee HSA contributions included?• Determining exactly which coverage needs

to be accounted for – wellness plans? Which ones?

• “Separate” dental/vision coverage – self-funded or just insured?

• Possible changes or delays?

Solutions or Strategies?

Possible options to consider (but still uncertainties…)

• High performance networks or centers of excellence• Wellness programs/VBID that target chronic

conditions• Carve out dental and vision if not separate• Auditing claims for waste, errors (or dependent

audit)• Evaluate new financial terms and performance

standards with vendors• HDHPs with shift of some compensation into wages

or elsewhere• Explore parsing of covered employees (active,

retired, high risk) for impact on tax• ACOs down the road when tested

Other Fees/Taxes on Plans

• Comparative Effectiveness Research Fee or PCORI (thru 2019)

• Transitional Reinsurance Fee (thru 2016)

• Health Insurance Provider Fee

PCORI Fees

• All plans (insured and self-insured) must pay a fee to fund comparative effectiveness research

• Paid by July 31 of calendar year following end of plan year– 1st year (plans ending after 9/30/2012): $1 per

average number of covered lives– 2nd year (plans after 9/30/13): $2 per covered

life– 3rd year thru 2019: amount adjusted by

inflation

• Sunsets in 2019

Transitional Reinsurance Fee

• Used to stabilize the individual insurance market

• Both insured and self-insured* plans must pay fee

• Temporary fee – 2014 thru 2016– 1st year: $5.25/mo per covered life or $63/year per

person (total of $12 billion collected in first year)– 2nd year: $3.67/mo per covered life or $44/year per

person ($8 billion total)– 3rd year: TBD ($5 billion total)

• Fees apply to “major medical coverage”

Health Insurance Provider Fee/Tax

• Annual, permanent tax on insurers beginning 2014

• Amount paid by each insurer is based on market share– $8 billion total in 2014, increasing to $14.3 billion

in 2018 then indexed

• Likely reflected in premium rates– Estimated premium impact: 2 - 3%

Issues to Look Out For• Attempts to outsource work to get head count

down• Reducing hours worked to cut down on

number of FT• Increased OT instead of hiring new employees• Attempts to drop spousal coverage or add

surcharge• Decreasing employer contribution toward

other than single coverage• Downgrading coverage to “bronze” level or

offering “skinny” plan to avoid larger penalty (a)

• Move to defined contribution approach and “private” exchange

How Does the ACA Expand Health Insurance Coverage?

• CBO estimates decrease in uninsured by 26 million by 2017 – reducing rate by half.

• 56% of uninsured eligible for financial assistance.

• 39% eligible for Medicaid/CHIP.• 27% eligible for tax credits in marketplace.• 10% in coverage gap.

Exchanges or “Marketplaces”

• Individuals and small group in 2014

• State option to open to large employers in 2017

• Plans grouped by “metal tier” – Platinum (90%), Gold (80%), Silver (70%), Bronze (60%)

• Income based premium subsidies available on a sliding scale for those with incomes up to 400% FPL

More Information

1. www.afscme.org/healthcare2. www.healthcare.gov (24/7 toll free 1-

800-318-2596)

3. www.dol.gov/ebsa/healthreform4. www.irs.gov/uac/Affordable-Car

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