HealthCare Reform: Strategic Planning for Small Employers

1. HealthCare Reform:Strategic Planning forSmall Employers Presented By: Jonathan Cich Associated Financial Group Employee Benefits. Insurance. HR Solutions.

2. Timeline of Major Events 2014-15 • Guaranteed Issue • No PCEs; no health underwriting in individual and small group markets • Individual Mandate • Individuals required to have health coverage or pay a penalty • Expansion of Medicaid Eligibility • Household income less than 133% of federal poverty level • Health Insurance Exchanges • Online market place for purchasing individual and small group policies • Premium Tax Credit for Individuals • Household income between 100%-400% of federal poverty level • Employer “Play or Pay” Penalties (delayed to 2015)

3. Three Components of HCR

4. Individual Mandate • Beginning in 2014…

5. Individual Mandate Where will individuals purchase health insurance? • Through employers • Through a private or public “exchange” – guaranteed issue individual insurance policies • Government health program (e.g. Medicare, Medicaid, Tricare, VA, etc.)

6. Insurance Exchange By 2014, each state must establish their own health insurance exchange In Minnesota, this is MNSure – mnsure.org For individuals and small group market employers in 2014.

7. Premium tax credits • Employer coverage is “affordable” if employee’s cost for single coverage on lowest cost plan is less than 9.5% of household income

8. Strategic Considerations

9. Strategic Planning – Three Steps:

10. Are you a large or Small Employer? Applicable Large Employer • Determines whether employer is subject to “play or pay” penalties • Average of 50 full-time employees (FTE) employed in the preceding calendar year Small / Large Group Market • Determines whether insurance policy is subject to small group market rules • 2014 : Under 50 employees • By 2016: Under 100 employees

11. applicable Large Employer * See slides 40-54 ApplicableLargeEmployer

12. “applicable Large Employer” Example • 20 employees – 40 hours / week • 10 employees – 32 hours / week • 40 employees – 20 hours / week Note: Number of full-time employees is determined separately for each calendar month, totaled, and then divided by 12 to determine average number of full-time employees for the year. This example assumes number of employees and hours worked remains constant for all 12 months. Special rules may apply for employers with large number of seasonal employees. Assume 20 hr/wk = 86 hr/month

13. applicable Large Employer

14. Parent-Subsidiary Brother-Sister applicable Large Employer A B C D E Corp X Corp X Corp Y Corp Y Caution: Controlled group rules are complex. Consult with your tax or legal advisor for details.

15. applicable Large Employer“no coverage” penalty

16. applicable Large Employer“affordability” penalty

17. What if we fluctuate between Large and Small Employer status? Faced with two choices: • Plan to comply with “Play or Pay” mandate; • OR • Take steps to prevent hitting the 50 employee threshold to maintain small employer status

18. What if we fluctuate between Large and Small Employer status? Ways to ensure small employer status • Hire more independent contractors • Be careful! DOL/IRS/workers’ compensation considerations • Outsource through other companies or staffing agencies • Quality of work and logistical feasibility concerns • Hire more part-time employees • Remember, PTE counts as a fraction of FTE Not a solution – Pass work off to a separate business under common ownership **Remember, controlled group rules**

19. Small Group Market 2014: Employers who had, on average, less than 50 employees in the preceding calendar year. 2016: Employers who had, on average, less than 100 employees in the preceding calendar year. How to count employees for this purpose is unclear; HHS has indicated it intends to issue further guidance in the future.

20. Small Group MarkeT Changes affecting small group market • Community Rating • the way premiums are established. • Cost-Sharing Limits • max deductibles and max out-of-pocket costs. • Essential Health Benefits • minimum coverage plans must offer.

21. Community Rating • Today • Small group market premiumsset by insurer based on employer’s claims experience and healthstatus of participants enrolled in plan. • Employer with more claims or more serious health issue claims will generally pay higher premiums than similar employer with fewer claims or less serious health issues.

22. Community Rating • In 2014… Shift to community rating structure.

23. Community Rating • In 2014… Premiums may not be based on any other factor aside from the four in previous slide! • In particular . . . • An individual employer’s premium will not be affected by claims experience or health status of plan participant.

24. Community Rating 1 Coverage Category – Family Size • Premiums for family coverage are to be developed by adding up the rates of covered family members, but insurers are capped at including no more than the three oldest “covered children” under age 21. • Family with two adults and three children under age 21 pay same premium as family with two adults and four children under age 21. For Example

25. Community Rating 2 Geographic Rating Area • State establishes rating areas – rates set based on claims experience for all small groups in that rating area. • Rates for individual market plans use same rating areas but based on individual policy claims experience in that rating area.

26. Community Rating 2 Geographic Rating Area

27. Community Rating 3 Age Three broad age bands: • Children under 21 • (prohibits higher premiums for newborns). • Adults 64 and older • Adults 21-63 • (banded by year)

28. Community Rating 4 Tobacco Use • Insurers may impose a tobacco rating factor only if a tobacco user can avoid paying the full amount of that factor by participating in a wellness program. MN carriers have so far not indicated they intend to impose tobacco rates.

29. Community Rating

30. Community Rating Strategic Options

31. Individual rates in Minnesota

32. Individual rates in MinnesotA Region 8

33. Individual rates in Minnesota Pros • May result in cost savings to employees and employers • Employer does not have to administer a group health plan Cons • Loss of tax savings for both employee and employer • How user friendly will exchanges be? • Functionality • Too many choices • Lack of education • How long will individual rates last? • Impact on ability to attract and retain talent • Impact on employee morale

34. Coverage & Logistics issues

35. Coverage & Logistics issues Small Employer Tax Credit Eligibility Less than 25 FTEs Average annual wages less than $50,000 per FTE (note: for this purpose FTE = 2080 hours per year) Contribute at least 50% towards the cost of employee-only health coverage Credit may be up to 50% of employer’s premium costs Amount of credit decreases if number of FTEs exceeds 10 and/or average annual wages exceeds as $25,000 Can claim credit for a total of two consecutive years

36. Coverage & Logistics issues

37. Coverage & Logistics issues

38. Coverage & Logistics issues

39. Coverage & Logistics issues Employer contributions towards individual plans Recent guidance makes it impossible for employers to contribute towards the cost of individual coverage on a tax-free basis. Any employer contributions will be taxable income Increased income taxes for employees Individual premiums are not fully tax deductible Increased payroll taxes for employees and employers Indirect cost increases tied to taxable wages, e.g. work comp premiums, 401(k) contributions, unemployment taxes Employees may not pay for individual exchange policies using pre-tax payroll deductions. Unclear if employees can pay for individual non-exchange policies through pre-tax payroll deductions

40. Miscellaneous Issues

41. Exchange Notices Notice must be provided to all employees, regardless of full- or part-time status or benefits eligibility. For employees hired before 10/1/13, notice must be provided no later than 10/1/13. For employees hired after 10/1/13, within 14 days of start date. DOL has stated there is no fine for failing to issue the noticebut do you want to give DOL a reason to look at what else you may not have been doing?

42. Exchange Notices • DOL Technical Release 2013-02 • http://www.dol.gov/ebsa/newsroom/tr13-02.html • Model notice for employers who offer a health plan to some or all employees: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf • Model notice for employers who do not offer a health plan: http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf • COBRA modelelectionnotice: http://www.dol.gov/ebsa/modelelectionnotice.doc

43. Updated cobra election Notices DOL has revised model COBRA election notice to inform qualified beneficiaries of the exchange and premium tax credit. Start using in December/January • Revised COBRA Model Election Notice • http://www.dol.gov/ebsa/modelelectionnotice.doc

44. PCORI (Patient Centered Outcome Research Institute) Fee

45. PCORI Fee Who pays the fee?

46. PCORI Fee When is the fee due? Fee is due for plan years ending between 9/30/2012 - 9/30/2019 • Due date is July 31 of the calendar year following the last day of the plan year for which the fee is being assessed. • Plans with plan years beginning after January 1, 2012 but prior to October 2, 2012 will not have to report and pay the PCORI fee until July 31, 2014. What is the amount of the fee? • Year 1: $1 per member per year (PMPY) • Year 2: $2 PMPY

47. TRP (Temporary Reinsurance Program) Fee

48. TRP Fee Who pays the fee?

49. TRP Fee When is the fee due? Fee is due for calendar years 2014-2016 • Report to HHS due by November 15 of each applicable year. • Fee generally due by January 15th of following year. What is the amount of the fee? • Year 1: $63 per member per year (PMPY) • Years 2 & 3: Unknown (but should decrease)

50. Health insurers fee