Health Care Reform

Employer Impact: 2013 and Beyond

April 2013 Revision

Presented by: Karan Scigouski

Old National Insurance

Old National Insurance –

3820 Edison Lakes Parkway, Mishawaka, IN 46545 / 574-247-5271

Disclaimer

This presentation is not:

• Legal advice

• The final word on Healthcare Reform

• A political opinion

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Top 100 U.S. insurance broker – 63th largest *

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One of Indiana’s largest independent retail insurance agency

300 insurance associates with over 70 sales professionals *

Full range of professional services offered:

Retail property and casualty – commercial and personal insurance

Employee benefits – healthcare solutions for business owners

Insurance services – benefit and property casualty third party administration; risk management and alternative risk solutions

www.oldnationalins.com consumer website

* Business Insurance Top 100 Brokers Survey

ONI Profile

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ONI Footprint

*Danville, IL

4 producers

*Evansville

15 producers

*Ft. Wayne

17 producers

*Indianapolis

ONI Headquarters

17 producers

Indiana

Jasper

1 producer

Princeton

1 producer

Muncie

1 producer

Mishawaka

4 producers

Owensboro, KY

1 producer

*Terre Haute

15 producers

Bloomington

2 producers

Lafayette

1 producer

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-The individual mandate was deemed constitutional by

imposing a tax.

-Since the individual mandate was upheld, then the

second question on the severability of the law did not

have to be addressed.

-The Expansion of Medicaid - Congress may not threaten

to take away existing Medicaid funding if a State chooses

not to expand Medicaid income limits.

Supreme Court Decision

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Current Provisions

• Coverage for dependent children up to age 26

• Elimination of pre-existing condition exclusion for minors

• Elimination of lifetime coverage limits

• Elimination of coverage rescissions

• Expansion of preventive health coverage (non-grandfathered)

• W-2 Reporting for employers (over 250 W-2’s previous year)

• Summary of Benefits and Coverage for all employers

• Non-Discrimination rules (suspended at this time)

• OTC drugs need prescription for HSA/FSA reimbursement

• Medical Loss Ratio (80% and 85%) fully-insured large group

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Provisions Effective in 2013

• Health FSA limit set at $2,500

• New employee education mandates (Delayed from March 1) – Existence of exchanges

– Potential eligibility for subsidies

– Risk of losing employer contribution if employee buys coverage in an exchange

• W-2 reporting for employers under 250 W-2’s (Transition Relief –

Delayed for under 250 W-2’s previous year)

• New Taxes & Fees

• Open Enrollment begins on October 1st for Public Exchange for individuals and small employers

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Future Provisions 2014

• Individual Mandate & Penalty takes effect

• Employer Mandate takes effect & shared responsibility

• Pre-Existing condition limits prohibited for all

• Modified community rating for small fully insured groups.

– 2-50 in years 2014 and 2015, 2-100 in 2016 and beyond (Indiana)

• Public Exchanges open for individuals and small employers

• Small group and individual (non-grandfathered) plans must comply with maximum deductibles of $2k single/ $4k family

• Must cover clinical trials (non-grandfathered)

• Maximum 90 day waiting period

• Automatic enrollment for 200+ groups

• New Appeals Process

• More fees & taxes 8

A Closer Look: Individual Mandate

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What is Required - Individual Mandate

• To avoid paying a tax penalty, every American citizen must have “minimum essential coverage.”

• Coverage may be obtained in multiple ways, including through an employer (on or off the exchange), individual policy, or though the “public exchange”.

• States to determine what constitutes minimum essential

coverage

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Penalties—Individual Mandate

• January 1, 2014: Individuals must enroll in medical coverage or

pay a penalty • Penalty Amount: The GREATER of a dollar amount or percentage

of income

2014 = $95 or 1% with $285 household max

2015 = $325 or 2% with $975 household max

2016 = $695 or 2.5% with $2,085 household max

-Penalty for an individual under 18 is one half of the adult penalty, household max

assumes two children

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Who is Exempt from the Individual Penalty?

• Financial hardship • Religious objections • Native Americans • Without coverage for less than 3 months • Undocumented immigrants • Incarcerated individuals • An individual/family that has to pay more than 8% of their

income for health insurance, after taking into account any employer contributions or tax subsidy/credits

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Individual Mandate – 2014 What if Individual Can’t Afford Health Coverage?

• Premium tax credits available throughout the year IF – Coverage is obtained through a public “exchange”, AND

– Income is between 100% and 400% of federal poverty level • Amount of credit is graduated. Person at 100% of poverty level would pay 2% of

their income for health insurance. A person at 400% would pay 9.5% of their income.

– Individuals below 133% of federal poverty level will be eligible for coverage through an expanded Medicaid program, unless their State of residency opts out. (Indiana has opted out at this time)

– Individuals between 100% and 250% of federal poverty level will be eligible for graduated lower cost deductibles and copayments if they obtain coverage through an exchange.

– Employees can receive subsidy in public exchange if employer sponsored health plan does not meet certain requirements 13

First Question: Large or Small Employer?

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What is a “Small Employer”

• Employers with under 50 Full Time Equivalents are considered a “Small Employer”

• Full-Time Employees = 30+ hours per week

• Part time workers are calculated with 120 hours per month on a pro-rated basis

• “Small Employers” with less than 50 FTE’s will be exempt from the employer coverage mandate

• “Small Employers” are exempt from employer penalties

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What is a “Large Employer”

• Employers with over 50 Full Time Equivalents are considered a “Large Employer”

• Full-Time employees = 30+ hours per week

• Part-Time workers are calculated with 120 hours per month on a pro-rated basis

• “Large Employers” with more than 50 FTE’s are subject to the employer mandate to offer coverage to full-time employees or pay a penalty

• Employment records starting January 1, 2013 will be counted

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What is a Full Time Employee? – Common Law

Employee Category Used to determine “large employer” status?

Employer subject penalty if a premium credit received?

Full-time Counted as one employee, based on a 30 hour or more work week

Yes

Part-time Prorated (calculated by taking the hours worked by part-time employees in a month divided by 120)

No

Seasonal Not counted, for those working less than 120 days in a year

Yes, for the month in which a seasonal worker is full-time

Leased IRS code 414(n) declares leased employees to be exempt from calculation

414(n) – Expectation is for staffing company to be “applicable large employer”

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What is a Full Time Employee? – Common Law

Employee Category Used to determine “small employer” status?

Employer subject penalty if a premium credit received?

Full-time Counted as one employee, based on a 30 hour or more work week

No, if you are a small employer with fewer than 50 FTEs

Part-time Prorated (calculated by taking the hours worked by part-time employees in a month divided by 120)

No

Seasonal Not counted, for those working less than 120 days in a year

No

Leased IRS code 414(n) declares leased employees to be exempt from calculation

No

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*Partners, 2% Shareholders in S Corp, not considered employees

How to Calculate # of Employees

• Part time workers are calculated on 120 hours per month on a pro-rated basis to come up with FTEs

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Example: ABC Company has 10 salaried administrative staff, 15 employees that average 40 hours/week and 38 employees averaging 20 hours/week in January, 2013. They also employ 25 seasonal employees in the summer. How many FTEs? 10 salaried 15 full time employees above 30 hours/week 38 part time 20 hrs x 4.2 weeks/month = 3,192 hours 3,192 / 120 = 27 FTEs 25 seasonal employee hours do not count

• This employer has 52 FTs and FTE’s – PLAY OR PAY

Hourly Look Back Periods to Determine Full-Time For employees with fluctuating hours

• Measurement period – between 3-12 months

– Chosen by the employer in a uniform consistent basis

– This has to be determined in 2013

• Stability Period– At least 6 calendar months and no shorter than measurement period

– The employee is treated as a full-time employee during the stability period REGARDLESS of the amount of hours worked during that period

– If the employee does not work full-time during the stability period, the employer may treat the employee as not a full-time employee during the stability period that follows

• Employers with stable salaried workforce can virtually ignore this issue

• For employers with seasonal and variable hourly workforce this will generate real problems. This employer has to begin tracking hours and potentially revising staffing models.

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Look-Back Measurement Period Stability Coverage Period

3 Months

6 Months

9 Months

12 Months

6 Months

6 Months

9 Months

12 Months

2012 2013 2014

O N D J F M A M J J A S O N D J F M A M J J A S O N D

2012 2013 2014

O N D J F M A M J J A S O N D J F M A M J J A S O N D

2012 2013 2014

O N D J F M A M J J A S O N D J F M A M J J A S O N D

2012 2013 2014

O N D J F M A M J J A S O N D J F M A M J J A S O N D

Ongoing Employees

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Employer Mandate: Large Employers

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Employer Mandate & Shared Responsibility

January 1, 2014: “Large” employers must offer to their full- time employees (working at least 30 hours on average per week during a month):

– Affordable Coverage – Employee cost must be less than 9.5% of

household income for single coverage* • Safe Harbor allows an employer to use Box 1 from employee’s W-2 • Employer plan does not have to be affordable for spouse and children

– Minimum Value – Plan must meet minimum value requirements. States and HHS have just recently released what plans will need to comply. The IRS has released a calculator.

– The minimum value must cover at least 60% of expected claims costs

– HHS provided guidance that large employers have to offer coverage to full-time employees and their dependents. HHS defined dependents as children under 26 years old. 23

Is Your Plan “Affordable” to Your Employee for Single Coverage?

Hourly Rate

Maximum monthly EE single cost based on hours worked

32 hours 35 hours 40 hours

$8.75

($14,500 - $18,200) $115 $126 $144

$12.00

($19,900 - $24,900) $158 $173 $198

$15.00

($24,900 - $31,200) $197 $216 $247

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What Penalties May Apply to Large Employers? The “Shared Responsibility Fee”

• $2,000 penalty per employee per year if employer doesn’t offer coverage (minus first 30 employees)

(only assessed a penalty if one employee buys an exchange plan and qualifies for a subsidy)

• $3,000 penalty per employee per year if employer plan doesn’t meet affordability or minimum value AND an employee receives a subsidy in the exchange

• Penalties are not tax deductible

• Small employers are exempt from these penalties

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Employer Scenario Example - 1

ABC Company offers a medical plan that meets Minimum Value

Employee Only Premium: $500.00 mo. Employer Pays 66% : $330.00 mo. Employee Pays 34%: $170.00 mo. Bob Jones works 35 hours per week at $9.00 per hr. ($16,380) 9.5% of $16,380 = Max “affordable” contribution = $129.68 mo. Employer Penalized $3,000 for offering “unaffordable” coverage to Bob, if he buys more affordable subsidized insurance in the “exchange”

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Employer Scenario Example - 2

ABC Company offers a medical plan that meets Minimum Value

Employee Only Premium: $500.00 mo. Employer Pays 66% : $330.00 mo. Employee Pays 34%: $170.00 mo. Bob Jones works 38 hours per week at $11.00 per hr. ($21,736) 9.5% of $21,736 = Max “affordable” contribution = $172.08 Employer offering “affordable” coverage. Employer can NOT get penalized, and Bob can’t get a government subsidy for the “exchange”.

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2014 New Small Group Modified Community Rating

What Is It?

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Community Rating

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WHAT IS IT? A NEW way of rating your company’s health plan by insurance companies, based on factors EXCLUDING health condition, industry, health status, gender, or claims history.

WHO DOES IT AFFECT? Groups with 2-50 Employees in 2014 and 2015 Groups with 2-100 Employees in 2016 and Beyond

WHAT ARE THE FACTORS? 1.Age (3:1 Ratio) 2.Geographic Area 3.Tobacco Use (1.5:1 Ratio) 4.Family status (EE, F)

Community Rating

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VERY Basic Example: •Employer A has 10 Employees, all age 40. They are all in perfect health. Currently the insurance rate for a single is $200 per month •Employer B has 10 Employees, all age 40. They all have multiple chronic conditions. Currently the insurance rate for a single is $800 per month. • In 2014, both groups would pay the same amount, $500 per month.

Insurance companies are estimating that 45% of employers will see an increase to premiums of 14%-35% simply from the removal of the risk adjustment factors in underwriting. Some employers will see rates increase by more than 50% due to this new rating.

Questions You Will Need to Have Answers To Regarding Community Rating

2 – 50 Today, 2 – 100 in 2016

• Will community rating have a positive or negative impact to my rates?

• What is my current risk factor rating with my current health carrier?

• If I have a 4 tier composite rate today, how will the age rated bands impact my employee contribution?

• What strategies can I have to avoid/delay community rating?

• If community rating has a positive impact to my rates, how soon can I move to this platform?

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A Closer Look at Incomes Between 100% and 400% of FPL

and the Income Threshold if Indiana Expands Medicaid in

2014

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Income Levels for 400% of FPL

No. Persons in

Family

Federal Poverty

Level 2013

400% of FPL

1 $11,490 $45,960

2 $15,510 $62,040

3 $19,530 $78,120

4 $23,550 $94,200

5 $27,570 $110,280

A Look at the FPL and 400%

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No. Persons in Family Estimated 133% FPL

1 $15,282

2 $20,628

3 $25,975

4 $31,322

5 $36,668

If Indiana expands Medicaid to 133% of Federal Poverty Level in 2014

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Exchanges “Public Marketplace”

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State and Federal Exchanges • State Based – Funded and run by the State

• Federally Facilitated – Funded and run by the Fed

• Hybrid Exchange – Shared responsibilities

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Public Exchanges/Marketplace – What Is A Public Exchange?

• It’s a place where individuals are able to “easily” compare available health insurance options

• It’s where individuals earning 400% of Federal Poverty Level can receive a premium subsidy/credit

• It’s NOT an entity that actually provides the insurance – merely oversees the options that are available

• Similar to Travelocity® or Expedia® for travel tickets, but recent guidance shows it will be closer to TurboTax®

• HHS recently renamed “Exchange” to “Marketplace”

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Public Exchanges – What is the Impact to the Employer?

• IF an employer doesn’t provide affordable minimum value coverage, the employee can go into the exchange: – Affordability is defined as Employee Cost for Single coverage less than

9.5% of household income. – Safe harbor now allows an employer to use Box 1

from employees W-2

– If “unaffordable” the employee may receive a tax subsidy if they’re between 100%-400% FPL (see chart)

– The employee can qualify for reduced cost-sharing benefits

– The employee is no longer tied to the employer for benefits

– Small group health plans are not penalized by not offering affordable coverage

– Large group health plans are penalized either $2,000 or $3,000

– Low wage earners will be comparing the cost of employer sponsored health insurance and public exchange subsidized coverage

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The Impact to the Hourly Working That Has “Affordable Coverage” at Work

Example 1

$10.00 an hour worker

40 hours a week

Spouse and 2 children

Household income is $20,800 + $16,000 = $36,800 or 160% of FPL

• Your employer plan is deemed affordable with single coverage cost of $100 per month

• To cover employee, spouse and children your plan costs $450 per month

Your hourly employee, spouse and children are prevented from going into exchange to purchase subsidized coverage for $115 - $150 per month for silver level plan

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The Impact to the Hourly Working That Has “Affordable Coverage” at Work

Example 2

$14.00 an hour worker

38 hours a week

Single parent with 3 children

Household income is $27,664 or 120% of FPL

• Your employer plan is deemed affordable with single coverage cost of $100 per month

• To cover employee and children your plan costs $250 per month

Your hourly employee and children are prevented from going into exchange to purchase subsidized coverage for $40 - $50 per month for silver level plan

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Federal Poverty Level –> 400% The chart below shows the maximum employee premium payment in the

Federal exchange under ACA if household income is at or below 400% of FPL – Silver Medal Platform Plan

* Average subsidy of $5,000-$6,000 per subsidized enrollee

* An estimated 87% of Americans qualify for some level of subsidy

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Percent of FPL Max Premium as %

of Income (2014)

Maximum Amount of Monthly Premium By Family Size

1 2 3 4

FPL in 2013 $11,490 $15,510 $19,530 $23,550

100% 2.00% $19 $26 $33 $39

133% 2.00% $25 $34 $43 $52

133.01% 3.00% $38 $52 $65 $78

150% 4.00% $57 $78 $98 $118

200% 6.30% $121 $163 $205 $247

250% 8.05% $193 $260 $328 $395

300% 9.50% $273 $368 $464 $559

350% 9.50% $318 $430 $541 $653

400% 9.50% $364 $491 $618 $749

Exchanges – Small Group and Individual

What Coverage's Must Include? • To be determined by each State, reflective of a “typical

employer plan” that covers “essential health benefits” in the following ten categories:

Small Group & Individual Platform Only – Ambulatory patient services

– Emergency services

– Hospitalization

– Maternity and newborn care

– Mental health and substance use disorder services, including behavioral health treatment

– Prescription drugs

– Rehabilitative and habilitative services and devices

– Laboratory services

– Preventive and wellness services and chronic disease management

– Pediatric services, including oral and vision care . 42

Questions & Concerns Around Public Exchanges and Affordability

1. How much of your workforce would be impacted?

2. Does the hourly employee today purchase your employer sponsored health coverage for themselves and/or spouse and children?

3. By raising the cost for single coverage to above 9.5%for lower hourly workers, how does this impact everyone else’s premium?

4. Long-term concern is lower earners will find jobs that do not offer employer sponsored health insurance or affordable coverage.

43

Public Exchanges – Individuals and Small Groups

Particulars of Plans • Individual deductibles can not be more than $2,000, and a family deductible can

not be more than $4,000 (indexed against increases in average premiums).

• HHS just ruled deductibles might be higher to meet 60% AV

• Annual out of pocket maximums can not exceed the limits for health savings account high deductible plans. For 2013, $6,250 individual/$12,500 family.

• Will offer Platinum/Gold/Silver/Bronze coverage levels

• Catastrophic Plans for the under 30 year old

• Carriers might have “narrow” networks

• The Federal government will have a health plan in the public exchange

• Anthem is the only carrier in Indiana (so far) that has announced their intention to participate in the public exchange

• HHS has released guidance that if employer’s plan meets affordability and 60% AV then not only is the employee prevented but also the spouse and children are prevented from receiving subsidized coverage in the exchange

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SHOP Exchanges (for Small Groups)

• SHOP Exchange – Small business Health Options Program

– Employers 2-50 in 2014 and 2015 / 2-100 in 2016 can shop for coverage in the exchange environment

– Employer may be eligible for a temporary two year tax credit

– Beginning in 2017, States will have the option to make SHOP exchanges available to large employers (more than 100 employees).

– Individual government subsidies not available

– Very few plan options will be available

– HHS just announced on 4/1/2013 the Federally Facilitated SHOP Exchange will be delayed until 2015

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Timeline for Indiana’s Federal Facilitated Public Exchange

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March 31, 2013 May 1, 2013 July 31, 2013 October 1, 2013

Plans & Rates have to be built

Plans & Rates have to be filed with the State

Plans & Rates have to be

approved by the State

Open enrollment begins for 1/1/2014

effective date

Taxes and Fees

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Taxes and Fees

• Tax on high earners (0.9% Medicare surtax on $200k single/$250k family)

• 3.8% tax on unearned income for taxpayers with MAGI in excess of $200k single/$250k family

• Comparative Effectiveness Research Fees

− This fee funds research on the effectiveness, risks and benefits of medical treatments

− 2012-2018 plan years

− Fully-insured and self-funded plans sponsors

− September 30, 2012: $1 per covered life per year; October 1, 2013: $2 per covered life per year; After September 30, 2014 the rate increases each year by the medical inflation rate of CPI

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Taxes and fees…

• ACA Transitional Reinsurance Program Fees − To support the transitional reinsurance program that aims to stabilize

premiums for coverage in the individual market

− Effective 2014-2016

− Fully-insured and self-funded plan sponsors

− Estimated cost of $63 per member per year in 2014, declining in 2015 and 2016

• ACA Insurer Fee − Annual excise tax on health insurance to fund premium subsidies and

Medicaid expansion

− Effective in 2014 on all fully-insured plans

− Estimated 2.46% of premium

− Estimated to collect $8 billion in 2014 and increasing to $14 billion by 2018 49

Taxes and Fees

• 10% sales tax on indoor tanning (2010)

• Pharmaceutical industry fee – an annual fee on branded prescription drug manufacturers (2011)

• Medical device manufacturer fee – an annual fee

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How Do These Fees Impact My Plan’s Costs in 2014?

Fully Insured Employer

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100 Covered Members

500 Covered Members

1,000 Covered Members

Comparative Effective Research Fee

$200 $1,000 $2,000

Transitional Reinsurance Fee

$6,300 $31,500 $63,000

Insurer Fee $8,600 $43,000 $86,000

Total Annual Estimate

$15,100 $75,500 $151,000

How Do These Fees Impact My Plan’s Costs in 2014?

Self Funded Employer

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500 Covered Members

1,500 Covered Members

2,500 Covered Members

Comparative Effective Research Fee

$1,000 $3,000 $5,000

Transitional Reinsurance Fee

$31,500 $94,500 $157,500

Total Annual Estimate

$32,500 $97,500 $162,500

How do we prepare?

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How do we prepare?

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Old National Insurance’s Pay or Play Calculator

How much will you pay in

penalties for your plan?

Using our Health Care

Reform Pay or Play

Calculator, we can determine

how much you could be

required to pay in penalty

taxes with your current health

plan, as well as model

changes that may protect you

from being assessed fines.

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HHS Actuarial Value Calculator

Actuarial Value (AV) is calculated

as the percentage of total average

costs for covered benefits that a

plan will cover. For example, if a

plan has an AV of 70 percent, on

average, a consumer would be

responsible for 30% of the costs of

all covered benefits.

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How do we prepare?

• Determine if you are considered a “Large Employer” or a “Small Employer” and subject to the employer mandate.

• Determine if your current plan meets minimum benefits and affordability standards by running your census and plan design through a Pay or Play calculator and an AV calculator

• Calculate cost of employer mandate penalty scenarios (dropping coverage, continue as-is, hybrid scenarios)

• Review strategies around your low hourly workforce

• Make strategic staffing decisions

• Communicate with your workforce

• Determine your Measurement Period in 2013

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How do we prepare?

• Examine how the exchanges and subsidies affect your overall benefits strategy

• Focus your corporate wellness program on a healthier workforce and more productive population if over 100 employees

• Focus your corporate wellness program on smoking cessation, as insurers can rate a tobacco user 50% higher if you’re under 100 employees

• Provider access will be a huge problem when 20,000,000 more Americans have coverage by 2016. Educate your workforce on the importance of getting a Primary Care Physician now.

• Develop your Compliance Strategy and understand what you have to report and when it has to be completed.

• Wait on further guidance from HHS, Treasury, DOL and CMS

• Work with a benefit consultant to determine and evaluate your best options (Private Exchange, Self-Funding, PEOs, Temp Services, etc)

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Questions

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Karan Scigouski

Pat Carney

Karan.scigouski@oldnationalins.com

Pat.Carney@oldnationalins.com

574-247-5271

812-478-6007