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PPACA: What’s in Store for 2013 and Beyond

Friday, October 5 2012 Employment Law SummitPW SHRM

Presented byBrian NearyMark Holloway

Lockton Companies, LLC

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• No lifetime maximum dollar limits on essential health benefits

• Children eligible to age 26

• No preexisting condition restriction for enrollees under age 19

• OTC medication not eligible for FSA or HRA reimbursement without a prescription

2011 2012 2013 2018

• Individual Mandate• Free-rider surcharge

• Health Insurance Exchanges for Individual and Small Group Market

• No annual dollar limits on essential health benefits

• Waiting periods limited to 90 days

• Automatic enrollment (deferred)

• No preexisting condition restriction for any enrollee

• Health FSA benefits capped at $2,500. Taxes on high wage earners

• Elimination of deductibility of Medicare Part D subsidies

• Excise tax on medical device manufacturers

2014

Health Reform Impact Timeline

Comple

te

d

Cadillac Tax

• Summary of Benefits Coverage• Medical Loss Ratio Refunds. W-2 Reporting of Health Coverage• Comparative Effectiveness Research Fees• HCR Preventive Care Benefits

What’s New?

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Supreme Court upheld the law and the individual mandate (5-4) States will need to decide whether to expand Medicaid coverage

Now the dust has settled and regulators are turning the crank on critical issues for 2014 How to determine who is a full-time employee (guidance issued last month) Guidance still needed on many critical issues

And the clock is ticking Practical issue: will the State exchanges be ready for 2014?

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SCOTUS Decision

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Summaries of Benefits and Coverage (SBCs)

Summary of Benefits Coverage Plans must distribute “plain English”

summary in a standard format of no more than four double-sided pages, 12-pt font

Up to a $1,000 fine, per violation, for failure to meet requirements

Applies with first open enrollment beginning on or after 9/23/2012

New guidance allows electronic distribution for current enrollees if plan uses on-line enrollment Good news!

Accelerated notice of midyear plan changes

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Preventive Care Benefits (Non-GF Plans)

Wide variety of well-woman care, including contraception Plan years beginning on or after August 1,

2012

Obesity screening and counseling (if BMI > 30) Plan years beginning on or after July 1,

2013 About 30% of population qualifies as obese Cover 12 – 26 weight management sessions

for first year But no requirement to cover surgery or drugs

for weight loss

Cost Impact of “Pay or Play”

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Employer “Play or Pay” (a.k.a. Free Rider Surcharge)

QUICK REVIEW Applies in 2014

Applies to employers with at least 50 full-time equivalent employees in the “controlled group”

Controlled group = 80% common ownership

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Employer “Play or Pay”Fu

ll-tim

e em

ploy

ees

& d

epen

dant

s

Qualifying C

overage

Affordable Cost

The Employer’s “Play or Pay”

Puzzle

Offer… Full-time employees (and

their dependents)… FTE = 30+ hours per week

Qualifying coverage… “Minimal essential coverage”

that satisfies a “minimum value” requirement

At an affordable cost Not more than 9.5% of

W-2 pay

…or risk penalties…

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Financial Impact of Law Will Vary

Issue OK Possible Problems

Major Problems

Current Eligibility=30 hours Yes No but not many PT workers

No and a large PT work force

Types of Plans Traditional Limited Medical

Employer Subsidy High Low to mod and low paid work

force

Low

Current Participation Rate High Low

Wage Spectrum High Low

Regular vs. Seasonal Workers Regular Seasonal

Employer Culture Do they need a plan to attract and retain? Financial savings of greater value? How does Play or Pay

impact their employees? What will their peer group do?

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Employer “Play or Pay”

EMPLOYER’S OTHER OPTIONS: Drop all coverage for all companies in corporate family tree

(controlled group) PAY: $2,000 annual nondeductible penalty x (all FTEs – 30)

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Employer “Play or Pay”

EMPLOYER’S OTHER OPTIONS: Controlled group offers coverage to all

FTEs, but it’s not qualifying and/or affordable to some: Pay $3,000 annual nondeductible penalty

for each such FTE who obtains subsidized, Exchange-based coverage

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Employer “Play or Pay”

EMPLOYER’S OTHER OPTIONS: Controlled group offers coverage to some but not substantially all

FTEs: Penalty not yet clear; IRS is considering this, but may be leaning toward

assessing the $2,000 penalty x all FTEs The “nuclear option”

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Employer “Play or Pay”

GOOD NEWS! How to determine “FTEs”

Average employee’s hours over a “look back period” of up to 12 months Would save the bacon of seasonal employers Would help employers with fluctuating work hours Would help, to some extent, “vulnerable” non-

seasonal employers Details still to be ironed out

Actuarial Modeling and Strategies for 2014

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Actuarial Modeling by Industry

GENERAL CONCLUSIONS: Most employers can continue to offer coverage with minimal cost

impact due to play-or-pay

Most employers could save a lot by terminating group coverage and allowing employees to find coverage in the insurance exchanges

Most employees begin to “lose” when shopping in the exchanges, once household income reaches 2x federal poverty level

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Strategies to Mitigate Costs – The Art of Fine Tuning

Dual Option Input

ControlledGroup Input

WellnessSurchargesMin. Essential

Coverage

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Strategies to Mitigate Costs

Restructure work force Could raise eyebrows with DOL Can it be done in your business? Cost increase to job share

Offer all FTEs current plans plus a 60% plan that is affordable Eliminates worry over penalties Still a cost increase (may be more expensive

than the Pay option depending on the # who enroll and the PEPY net cost)

Keeps lower paid “winners” from getting subsidized coverage in Exchange so is it the right thing to do?

Help mitigate effect of auto-enrollment

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Strategies to Mitigate Costs (cont.)

Offer all FTEs current plans plus a “minimum essential plan” that costs less than the Exchange subsidized premium Plan will have to be very “skinny” Could still be cost increase to plan but less than penalty How many Ees will buy this coverage? How many Ees will still go to

Exchange?

Offer coverage to all or substantially all FTEs, but do not worry about making it affordable Some employees for whom it is unaffordable

will not seek subsidized coverage in an exchange For those that do, it might be cheaper for the employer

to pay the penalty than to subsidize the coverage

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Predictions: 2014 and Beyond

Most employers will continue to provide medical coverage to their full-time employees With possible exception of

retail/restaurant/hospitality But things could change if there is a weak

job market coupled with robust state exchanges

State exchanges will be off to a rocky start in 2014 Unclear if they will become robust in

future years

Pre-65 retiree medical will be extinct soon after exchanges go on-line

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Any Questions?Mark C. Holloway,

Senior Vice President

Lockton Benefit Group

mholloway@lockton.com

816-960-9567

www.lockton.com

Brian Neary

Vice President

Lockton Companies, LLC

bneary@lockton.com

202-414-2611

www.lockton.com