University of MichiganDearborn Faculty Senate

November 11, 2013

Benefits Discussion

Laurita Thomas, Associate Vice President for Human Resources

Rich Holcomb, Interim Senior Director for Benefits

Brian Vasher, Director of Benefit Operations

U-M’s Guiding Principles for Benefits

• Provide quality programs at affordable cost

• Provide market-competitive programs to attract and retain faculty and staff

• Serve as a responsible fiscal agent

• Enable informed decision making

• Leverage internal and external expertise in the development of innovative benefit designs and programs that promote a culture of health

Competitive Market: Peer Groups and Market Position

U-M Ann Arbor Provost Peer Group

• Columbia University• Cornell University• Duke University• Emory University• Harvard University• Indiana University• The Johns Hopkins University• Massachusetts Institute of

Technology• Northwestern University• Ohio State University• Stanford University• University of California

• University of Chicago• University of Maryland• University of North Carolina at

Chapel Hill• University of Pennsylvania• The University of Southern California• University of Texas System• University of Virginia• University of Washington• University of Wisconsin• Washington University in St. Louis• Yale University

Summary 2009 – 2012: Employer Paid Value

All Benefits Retirement Income

Health Care: Active

Health Care: Retiree

Paid Time Off Death Long-Term Disability

Dependent Tu-ition

0

50

100

150

200

250

104 104111

206

98

115

52

0

100

107102

123

97 97

73

0

2009 2012

All Benefits: Retirement Income, Health Care, Paid Time Off, Death, Long-Term Disability, Dependent Tuition Paid Time Off: Holidays, Vacation, Short-Term Disability.

Each year’s results reflect U-M for that year relative to peer benefits for that year. The 2012 numbers include the impact for all announced changes for LTD, retiree health benefits and the elimination of opt-out cash.

Average for Peers = 100

U-M vs. Ann Arbor Provost Peers

All Benefits (100%)

All Benefits Without Paid

Time Off (66%)

Retirement Income (25%)

Health Care: Ac-tive (29%)

Health Care: Re-tiree (3%)

Paid Time Off (38%)

Death (3%) Long-Term Disability (2%)

Dependent Tu-ition (0%)

0

50

100

150

200

250

100 104 107102

123

97 97

73

0

Employer Paid Value

All Benefits: Retirement Income, Health Care, Paid Time Off, Death, Long-Term Disability, Dependent Tuition All Benefits Without Paid Time Off: H&W and Retirement: Retirement Income, Health Care, Death, Long-Term Disability, Short-Term DisabilityPaid Time Off: Holidays, Vacation, Short-Term Disability Percent under the graph labels indicate the percent of the employer-paid All Benefits BI score a particular benefit represents for the U-M faculty

Average for Peers = 100

Faculty Retiree Savings & Health Benefits at Michigan Public Institutions

MICHIGAN PUBLIC INSTITUTIONS

RETIREMENT SAVINGFACULTY CONTRIBUTION

(EC)

RETIREMENT SAVINGINSTITUTION

CONTRIBUTION (UC)RETIREE HEALTH BENEFITS

Central Michigan University None required 10% No access (no coverage)

Eastern Michigan University None required 11% Access only

Ferris State University None required 10%Access + contribution

(contribution for pre-65 faculty only)

Grand Valley State University None required 12%Access + contribution

(capped contribution for retirees and dependents)

Lake Superior State University None required 12% Access only

Michigan State University 5% 10%Access + grandfathered contribution

(access only for new hires as of 7/1/10)

Michigan Technological University 7.5% 7.5% Access only

Northern Michigan University None required 15.64% No access (no coverage)

Oakland University None required

14% for first two years of employment

15% for years three and four 16% beginning in 5th year

Access + grandfathered contribution(access only for new hires as of 2007)

Saginaw Valley State University 4% once earnings exceed $12,000 12% Access only

Wayne State University 5% 10% Access only

Western Michigan University None required 11%Access + grandfathered contribution

(access only for new hires as of 9/1/10)

Committee is Charged to Consider:

• Structure and design of the Retirement Savings Plan for current and future faculty and staff, such as: Levels of University contributions Types of salaries eligible for University contributions Options relating to eligibility Waiting periods, vesting

• Retiree health benefits for new hires Eligibility and options

For more information: http://www.hr.umich.edu/retirementchanges

Visit website http://www.hr.umich.edu/retirementchanges/

Key Elements of Health Reform and U-M Impact

Key Elements of Health Reform and U-M Health Benefit Plan Impact

Federal – Patient Protection Act

TOPIC IMPACT

• No employee cost sharing for certain preventative services • For 2012, UM waived copays, deductibles and coinsurance for specified services including annual physical examinations and office visit charges related to immunizations and screenings; annual increase in health plan expense of $1.1 million was factored into the health plan premium rate setting process for 2012.

• UM will be required to annually monitor and amend offered health plans to conform to changes in the list of ACA mandated preventative services.

TOPIC IMPACT

• Expand child eligibility requirements and permit coverage to age 26 • Previous UM plan eligibility limit was 25 years of age for children• Financial impact approximately $1M annually

• Eliminate lifetime maximums and restrictive annual limits • No financial impact

• Early Retiree Reinsurance Program . Federal reimbursement for a portion of medical and Rx claims for early retirees and their dependents.

• Application approved . Have received reimbursements totaling approximately $1.8 million to date. Reimbursement was applied as a premium rate credit for 2012 reducing health contributions for the University, employees and retirees.

2011

2012

Key Elements of Health Reform and U-M Impact Federal – Patient Protection Act

2013

State of Michigan – New Legislation

TOPIC IMPACT

• $2,500 per plan year health Flexible Spending Account (FSA) contribution cap

• Total employees enrolled in Health Care FSA for 2012:  9,640• Total 2012 employees enrolled over $2,500:  1,071• Total number of potential employee claims lost over $2,500: $1.6 million• Change was communicated in open enrollment for 2013• Potential increase in UM’s employer FICA tax of an estimated $122K

• Temporary new tax Patient Centered Outcomes Research Institute (PCORI) fees applicable to CY 2012-2018.

• Fees basis: $1 per covered health plan member per year for CY 2012, $2 per member per year for CY 2013, with PMPY amounts indexed to per capita increases in National Health Expenditures for years 2014-2018.

• For CY 2012, UM annual PCORI payment of $98,488 was remitted and filed with the IRS by the 7/31/2013 deadline, along with IRS Form 720.

• Annual dollar limits on essential health benefits cannot be lower than $2 million

• Will not impact UM health plans

• Employers notify employees about new health insurance exchanges for 2014

• Benefits Administration Office distributed required notices to current and new employees by 10/1/2013. UM opportunity to package the distribution of this new notice with distribution of revisions mandated in HIPAA Notices of Privacy Practices in September of 2013 to minimize compliance costs.

• Distribute uniform summary of benefits coverage (SBC) of coverage documents; adopt 60-day prior notice requirement for material modifications

• Large administrative effort to develop initial SBCs for 2013. • For 2014 and future years, less intensive, ongoing administrative effort will be required to

update SBCs to correspond with changes in UM health plan design.

• Expansion of Preventive Health Services with no cost sharing for women’s preventive health services

• UM plans amended to waive specified out of pocket expenses in accordance with expansion of preventive health services, including contraceptive prescriptions and devices;

• Annual increase of $700,000 expected in Rx plan expense was factored into health plan rate setting process for 2013.

Federal – Patient Protection Act2014

TOPIC IMPACT

• Health Insurance exchanges open

• Individuals and small employers can purchase health insurance through the state exchanges beginning in 2014. Large employers such as UM cannot purchase coverage through the exchanges until at least 2017.

• Risk Spreading Mechanisms, including: Reinsurance Programs, Risk Corridors and Risk Adjustment Programs

• UM will be impacted and will be required to contribute towards the three year Reinsurance Program, designed to stabilize premiums in individual markets in each state for CY 2014-2016 . Reinsurance Program funds will be used to make reinsurance payments to individual market insurers that cover high-cost individuals in each state, as well as to repay the U.S. Treasury for the amounts appropriated for the Early Retiree Reinsurance Program (ERRP).

• Reinsurance pool contributions to be collected from contributing entities total $20 billion over three years ($10 billion in 2014, $6 billion in 2015, and $4 billion in 2016). Additional funds totaling $5 billion ($2 billion in 2014, $2 billion in 2015, and $1 billion in 2016 ) are to be collected for repayment to the U.S. Treasury for the ERRP appropriation; however, the collection of the $2 billion in funds for 2014 may be deferred until 2016, and may lower the proposed contribution rate in 2014.

• The 2014 annualized fee per non-Medicare health plan member is expected to be $63 if the funding target is $12 billion for 2014; the final 2014 rate may be lower if the $2 billion ERRP repayment is deferred until 2016. The annualized reinsurance fee rates are expected to decrease to approximately $42 per member for 2015, and to $31.50 for 2016.

• UM’s annual reinsurance fees based on our current 86,900 non-Medicare health plan members are projected to total:• $5.474 million for 2014• $3.650 million for 2015• $2.737 million for 2016

• Expected reinsurance fee expenses were factored into health plan rates for CY2014.• Payments are expected to be collected from contributing entities at the end of each calendar year.No direct costs to UM health benefit plans for the Risk Corridor and Risk Adjustment programs.

• Health plan annual out-of-pocket maximums cannot exceed $6,350 per individual and $12,700 per family, beginning in 2014.

• For 2014, UM medical benefits will be amended to add the new annual OOP maximums (for network provider copays, deductibles and coinsurance); UM health plan is permitted to retain it’s separate annual Rx drug benefit OOP maximum of $2,500 per individual and $5,000 per family for 2014.

• For 2015 and beyond, maximums are indexed to per capita National Health Expenditures. UM may need to offset the annual medical benefit OOP maximum by the Rx drug benefit OOP maximum, or integrate the medical and Rx benefit OOP maximums.

• Minimal financial impact to UM health plan expected for CY2014.

• Clinical trials. • GUIDANCE RECENTLY

ISSUED

• A plan may not deny a qualifying individual ‘s coverage for participation in certain clinical trials . Currently, UM plans cover standard medical treatment for an individual participating in a clinical trial. The change may require coverage of some experimental treatments or procedures.

• Automatic enrollment for large employers (200+ FTEs)

• DEFERRED UNTIL AFTER 2014 - GUIDANCE AND REGULATIONS HAVE NOT BEEN ISSUED• Administrative Impact should be minimal [potentially more extensive with employer shared responsibility mandates]

TOPIC IMPACT

• Employer Shared Responsibility for Health Care [aka, “ESR”, “pay or play”], effective 1/1/2014 1/1/2015

Proposed Regulations for applicable large employers were issued 12/28/2012.

Per IRS Notice 2013-45, federal government granted transition relief to employers for ESR, delaying penalties, information and reporting requirements for one year, to 1/1/2015.

• UM will be impacted, this applies to all employers with over 50 full-time employees (with hours of service worked or paid averaging at least 30 hours per week). This will include temporary employees who satisfy the minimum average 30 hours of service requirement. UM health plans’ definition of “full-time” for purposes of University and employee contributions will change from a minimum effort of 32 hours/week to 30 hours/week for CY 2014. UM is not offering health coverage to temps for CY 2014.

• Employers can “play” by offering minimum essential (health) coverage to all of its full-time employees and their dependents

• All UM health plans offered are expected to meet the minimum essential coverage criteria.

• Employers that do not offer minimum essential coverage to all FTEs must pay an excise tax of $2,000 times the total number of full-time employees (excluding the first 30 employees) if at least one full-time employee receives government-subsidized coverage through an insurance exchange.

• Benefits Administration Office in conjunction with Office of the General Counsel, external consultants and internal HR community are working to define employees affected and the subsequent administrative and financial risks and impact.

• UM will have to offer coverage to an estimated 900-1100 temporary employees who satisfy the minimum average 30 hours per week of service, with an estimated University cost of between $1.5M and $4.8M depending on how many employees take up coverage.

• In recognition of potential inadvertent errors in the offer of coverage to every FTE, proposed regs allow for a 5% margin of error. The full penalty will not apply initially, If an employer if found to offer coverage to at to at least 95% of its FTEs for a month (allows for a margin of error to recognize potential inadvertent errors in the offer of coverage)

• Maximum penalty the UM could incur if coverage is not provided to all FTEs and at least one employee receives a subsidy: $73M (based on 36K employees).

• If an employer offers minimum essential coverage to all FTEs the employer would only be subject to an excise tax of $3000 for each FTE enrolled in a qualified exchange plan who receives a premium tax credit or cost-sharing reduction as a result of the employer’s coverage being “unaffordable” or failing to provide minimum value

• Actuary opinion has confirmed that all UM health plans meet the “minimum value” criteria; UM’s CMM plan is expected to meet the “affordability” test for all employees.

• Benefits Administration Office in conjunction with Office of the General Counsel, external consultants and internal HR community are analyzing the “safe Harbor” rules to assess risk and begin assessing administrative impacts

“Unaffordable” = (safe harbors) employee contribution for single coverage in employer’s lowest cost plan is: (a) greater than 9.5% of W2 [box 1] earnings; (b) greater than 9.5% of employees annualized pay rate at beginning of year; or ( c) greater than 9.5% of the Federal Poverty Level for a single individual.

New reporting requirements (to employees and to federal government) related to the ESR program may require significant administrative effort and systems modifications for compliance during 2014-2015.

Federal – Patient Protection Act2014 2015

Key Elements of Health Reform and U-M ImpactFederal – Patient Protection Act

TOPIC IMPACT

• Excise Tax on High Cost Plans (also known as the ‘Cadillac Tax’) GUIDANCE AND REGULATIONS HAVE NOT BEEN ISSUED

• 40% excise tax will be levied on the value of plans over a high cost threshold

• $10,200 for individual coverage• $27,500 for family coverage

• Thresholds will be adjusted for: retirees, high risk professions, age/gender, annual CPI changes

• Excludes stand alone dental and vision plans• Aon Hewitt actuarial forecast s indicate UM health plan would not be

subject to the excise tax between 2018 and 2034. Earliest projected date the tax may apply to UM plans is 2035 based on latest projections.

• Need to re-assess when guidance has been issued

TOPIC IMPACT

• Exchanges open to large employers/purchasers GUIDANCE AND REGULATIONS HAVE NOT BEEN ISSUED

• UM will be able to purchase plans on the exchange for UM employees• Potential impact to be determined based on robustness and

competitiveness of exchange market

2017

2018

2013 & 2014 Key Elements of Health Reform and U-M Impact

State of Michigan – New Legislation

TOPIC IMPACT

• 1% state of Michigan tax on health care claims for MI residents receiving care in MI:.

• Initial public law limited this assessment to two year, 2012 and 2013, with the assessment sunsetting by 12/31/13.

• Public Act No. 58 of 2013, signed by governor on 6/11/2013, eliminates the sunset, and continues this assessment on health care claims through 12/31/2017.

• Initially applied to UM medical, Rx & dental plans for 2012 & 2013; under PA 58 of 2013 expense will continue through at least 2017.

• Expected to add $4 million to health plan expenses for CY 2012 and $4.3 million for CY 2013.

• Annual expense for CY 2014-2017 expected to increase at same rate as increases in UM health claims costs.

• UM 2014 health plan rates factored in continuing annual cost for this item.

• Mandatory Autism coverage for fully insured health plans and decision to cover autism benefits in fully-insured health plans.

• New coverage for an estimated 200 individuals• BCBSM and BCN actuaries predict U-M’s combined medical and Rx cost

increase will be approximately $660K or 0.17% of projected claims in year 1. Expenses could range from 0.44% to 1% of claims in future years

• Potential State of MI reimbursement to offset expense