110636

Employer Benefit Strategies Post-Reform

Considerations and Opportunities

Blue Cross Blue Shield of North Dakota – April 2013

1

110636

Today’s Meeting Agenda

2

• ACA Latest Developments & Key Provisions

• Employer Impact, Analysis & Transition Strategies

• Wrap Up

110636

ACA Latest Developments & Key Provisions

3

110636

PPACA Provisions: Past, Present and Future

4

Latest Developments

110636

Supreme Court Ruling

• Upheld constitutionality of Individual Mandate

– Adults must purchase health insurance or pay a penalty (tax) starting in 2014

> Greater of: % of income (up to 2.5%) or $95 (2014), $695 (2016)

• Declared that Federal Government could not enforce requirement to expand Medicaid by taking away Federal dollars for current program

– Expansion required all Individuals below 133% of FPL to be eligible for Medicaid

5

“The federal government does not have the power to order people to buy health insurance. The federal government does have the power to impose a tax on those without health insurance.” NFIB, et al., v. Sebelius, Chief Justice John Roberts Majority Opinion, p. 44

Latest Developments

The Supreme Court Ruling established the legality of the Individual mandate and allowed the ACA to continue to be implemented

110636 110371

6

Key PPACA Provisions

Understanding the impact of reform is the first step to developing a benefits strategy that aligns with the emerging market landscape

• Guaranteed Issue: All individuals will be able to purchase coverage regardless of health status.

• Benefit Standards: Qualified health plans sold on the exchange are required to cover the essential benefits and have at least a 60% actuarial value. An employee’s contribution to the group premium should not exceed 9.5% of his or her income2. Also, non-grandfathered plans will need to be a “metal tier” plan.

• Consumer Subsidies: Individuals with household incomes at or below 400% of federal poverty level (FPL)1 will be eligible for income-indexed premium subsidies, and those below 250% of the FPL will be eligible for cost-sharing subsidies.

• Public Exchange: Individuals will be able to purchase subsidized individual coverage on public exchanges.

• Employer Penalties: All employers 50 with or over full-time equivalents must provide health benefits to employees or pay a $2,000 penalty per full-time employee per year.

1) In 2012, $44,680 for an individual and $92,200 for a family of four (source: http://aspe.hhs.gov/poverty/12poverty.shtml) 2) If standards are not met, the employee is eligible for subsidies and the employer pays a $3K penalty per employee receiving exchange subsidies

Beginning in 2014

Key Provisions

110387 110387

7

Overview of Premium Subsidies

Estimated Individual Market Subsidies (2014)

Source: BCBSA analysis (1) Premium estimate for 2014 based on an individual between the ages of 46 and 55 (2) Premium cap as described in ACA bill, based on silver level plan

Consumers with household incomes at or below 400% of the FPL will be eligible for individual product premium subsidies on exchanges

• Subsidies will only be available through public exchanges

• Subsidies are based on premiums for the second lowest cost Silver plan (actuarial value of 70%)

• Individuals receiving affordable coverage from an employer are not eligible for subsidies

• Additional cost-sharing subsidies are available for individuals under 250% FPL $-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

100 150 200 250 300 350 400

9.5 % of Income

2.0 % of Income

9.5 % of Income

6.3 % of Income

8.1 % of Income

Estimated Premium

Household FPL Level

Government Subsidies

Estimated Individual Premium: $4,9421

Key Provisions

110636

Health Insurance Exchange:

• Health Insurance Exchange is an online marketplace where individuals and small groups purchase health insurance within their state

– Federal government will establish Individual and Small Group (SHOP) exchange

• Options limited to Standard Benefit (Metallic) Plans:

– Bronze 60%, Silver 70%, Gold 80%, Platinum 90%

– Actuarial value = % of total average costs for covered benefits that a plan will cover

– Catastrophic plan offering available to those under 30 years of age

8

North Dakota declined to run its own exchange, the federal government will manage

Key Provisions

110636 110371

9

Regulations on Grandfathering

Grandfathering allows employers to maintain their health plans without being required to implement certain aspects of PPACA

Applicable to Grandfathered Plans Not Applicable to Grandfathered Plans

• No lifetime limits on coverage amounts

• A maximum waiting period of 90 days for new employee coverage

• Coverage of dependent children up to the age of 26

• Required package of essential health benefits and full coverage of preventative services

• Limit on rate variation by age

• Limited cost sharing

• For small groups, deductable cap of $2K for an individual and $4K for a family

• Non-Discrimination Issues

Criteria for Grandfathered Status

Employers can maintain grandfathered status past 2014 but are restricted from making the following changes: Reducing or eliminating benefits for a specific condition (e.g., diabetes or cystic fibrosis) Raising co-insurance charges or significantly raising co-payments and deductibles Significantly lowering employer premium contributions Materially modifying existing benefits by purchasing coverage from a different insurer

Key Provisions

110636

Key Small Group Provisions

• Existing small groups with non-grandfathered coverage will be placed on a metallic plan that is part of a single, new rating pool

• The new rating pool allows for geographic, age and tobacco rating factors

• Claim experience cannot be a rating factor

• Guaranteed issue for non-grandfathered small group business

• Grandfathered plans are exempt

10

Small employers with <50 Full Time Equivalent Employees and non-grandfathered benefits will be affected by new requirements

Key Provisions

110636 110371

11

Potential Employer Penalties Key Provisions

There are two ways in which employers may be penalized in the post-reform market

1) Penalties go into effect in 2014 2) Although the IRS has issued guidance providing a safe harbor for employers, the ACA law itself specific that affordability be calculated based off of the

employee’s total household income rather than the employee’s wage

• Employer has at least 50 full-time equivalent employees • One or more eligible employees purchase subsidized coverage through exchange

General Penalty Criteria:1

• Employer is penalized if employees’ premium contributions exceed 9.5% of wages2 and/or the plan covers less than 60% of healthcare expenses

Employer Does Not Offer Coverage:

• Employer is penalized on all employees excluding the first 30 full time employees (30+ Hours/Week)

Employer Offers Unaffordable Coverage:

$2,000 (per Full Time Employee)

No Coverage Penalty: Unaffordable Coverage Penalty:

$3,000 (per Full Time Employee obtaining subsidies)

110636 110371

Legal and Tax Advice and Compliance Disclosure: The information provided in this document is not intended to advise any company on how it may comply with any provisions of the referenced law or regulations, nor it is otherwise intended to impart any legal or tax advice. If you have any questions about how to comply with this or any other law or regulation, we recommend that you consult with appropriate legal and tax experts.

12

ACA Readiness: Pay or Play in 2014?

110636

Impact, Analysis & Transition Strategies

13

110636

What are Employers Thinking About?

14

Reform law could fuel self-funding

- Business Insurance

Employer Impact

110636 110371

15

Refining Benefit Strategy

As employers develop their post-reform benefits strategies, it is important to consider key factors for sponsoring coverage

• Financial incentives to sponsor group healthcare coverage

• Talent acquisition, retention, and employee engagement

• Company culture and the nature of the social contract with employees

• Industry trends and competitor positioning

• Employee health and wellness

There are many important considerations to choosing the right benefit strategy:

Economics Industry Trends

Company Culture

Talent Management

Employer Impact

110636

Reports

16

Legal and Tax Advice and Compliance Disclosure: The information provided in this document is not intended to advise any company on how it may comply with any provisions of the referenced law or regulations, nor it is otherwise intended to impart any legal or tax advice. If you have any questions about how to comply with this or any other law or regulation, we recommend that you consult with appropriate legal and tax experts.

110636 110371

17

For More Information

Please reference the materials below for more information regarding healthcare reform

1. Blue Cross and Blue Shield of North Dakota: Health Reform Facts https://www.bcbsnd.com/healthreform/

2. Ask Blue Healthcare Reform: Interactive Tool http://www.askbluereform.com/

3. Kaiser Family Foundation: Implementation Timeline http://healthreform.kff.org/timeline.aspx

4. Additional Health Reform Information http://healthcare.gov

Wrap-Up

110636

Thank You