cadillac tax 02 26-15 presentation - internal

CADILLAC TAX US/CAN TOLL FREE: 800-311-0799 PASSCODE: 629516

Facts, Impacts, and Insights February 26, 2015

2 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna

Mark Wilson –Vice President, Health and Employment Policy, and Chief Economist from the HR Policy Association, who has been providing research and analysis on the impact and cost of workplace-related legislation for more than 25 years.

Seth Perretta – Principal with Groom Law Group, who is nationally recognized in the field of ERISA and employee benefits, specifically with respect to the Affordable Care Act.

Leah Katz – Cigna Product Manager, who will share how Cigna's health benefit solutions, including consumer-driven health plans, can be part of a smart strategy for today and in the future.

Purpose of the ACA Excise Tax

Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 3

Indirect way to reduce tax-preferred treatment of employer-provided health care benefits • Largest federal tax

expenditure:

$303 billion in 2013

Reduce excess insurance, lower health care spending • Main objective of all

excise taxes is to change behavior

• CBO forecasts individuals and employers will seek less costly policies

Raise revenue to help finance expansion of coverage under the ACA

ACA Excise Tax on high cost plans

Applies to employee and retiree plans that exceed:


• Non-deductible 40% tax applied to amount of employee benefit that exceeds tax threshold

• Generally, the cost of benefit reported on W-2

• Employers may combine pre- and post-65 retirees

• Scheduled to go into effect in 2018

$10,200 for individual

coverage

$27,500 for family coverage

ACA Excise Tax on high cost plans


Thresholds for early retirees and individuals in certain high-risk professions are:

$1,650 higher for

single coverage

$3,450 higher for

family coverage

• Adjustments to plan costs allowed for age/gender mix of employees

• Higher threshold for collectively bargained multi-employer plans ($27,500)

• Threshold amounts increased by Consumer Price Index beginning 2019

Excise Tax will affect many employers

Over time, more and more employers will be impacted by the tax because cost of health benefits increases faster than other prices • Threshold indexed by CPI, not medical inflation • Similar to Alternative Minimum Tax problem


Average employer family coverage triggers tax

Average individual coverage triggers tax

2031 2038

Excise Tax will affect many employers


AHPI survey of 350 large companies found over 38% will hit the tax in 2018 unless plan design changes are made

But averages mask significant differences

An average $1.0 million in 2018, and $2.1 million per year from 2018 to 2024, or over $2,700 per employee

Large employer plans that trigger tax in 2018 will pay:

It will cost $149 billion from 2018 to 2025 CBO estimates

Cost of the Excise Tax for large employers


2018 2019 2020 2021 2022 2023 2024 2025

$378 million or almost $4,500 per covered life

$284 million or $568 per covered life

Almost $42 million or $978 per employee

Almost $5 million or $302 per covered life

Over $12 million or $111 per covered life

Changes employers are making

Recent National Business Group on Health survey found • 57% implementing or expanding account-based CDHP’s • 53% adding or expanding incentives for wellness programs • 42% are increasing employee cost sharing • 30% are eliminating high cost plans • 20% are narrowing their provider networks to control costs


78% of large employers changing health care plans in response to the tax

Employers are also decoupling dental and vision benefits from their health care plans

The ACA High-Cost “Cadillac” Excise Tax

Seth T. Perretta February 26, 2015

Common issues and questions


Offered or enrolled? How to value? To whom does

it apply?

After-tax HSA amounts?

FSA carryovers and grace period?

Who is liable for self-funded

plans?

Insurer’s liability

Employer’s liability

“Person that administers” self-funded plan liability

Mechanics around determining excise tax liability – i.e., allocation considerations

Liability questions


Defining high costs


Cadillac

“high-cost”

Actuarial value-

based standard

Minimum value v. Cadillac tax


Employer mandate excise tax

High-cost “Cadillac” excise tax

Future guidance

• Follow-up to this week’s initial request for information

• Heavy lobbying from all stakeholders i.e., employers, unions, disability and elder rights groups

• Legislative fix remains unclear


FEES AND REPORTING


Comparative effectiveness research fee

ACA taxes and fees Insured and self-insured plans


• 40% nondeductible excise tax • Liability of HSA contributions to employer • Liability of self-funded coverage to plan

administrator

• $63 for 2014, $44 for 2015, $27 for 2016 • Liability runs to plan itself

• Also known as the Patient-Centered Outcomes Research

Institute “PCORI” fee • $2.08 per capita for plans ending after 9/30/14 and before

10/1/15 • Liability runs to plan sponsor

Reinsurance fee

Cadillac tax

• Insurers and self-funded plan sponsors must return information to IRS and individuals enrolled in “minimum essential coverage” – Insured coverage: Insurer’s responsibility – Self-funded coverage: Plan sponsor’s responsibility

• Original effective date moved from 2014 to 2015 calendar year (first reporting to occur in January 2016)

• Questions now arising as taxpayers prepare 2014 Forms 1040 – Insurers and plan sponsors are not required to report any

2014 coverage – Clarifying FAQs hoped for and believed in development at IRS

MEC reporting IRC section 6055


CIGNA CDHP AND LOCALPLUS


Leah Katz Cigna, Product Manager

Analysis assumes Annual Premium of $11k per Employee per Year prior to enrolling in the CDHP option, 12% CDHP savings in Year 1 and a 9% annual trend.

Cigna HSA/HRA vs. Traditional Plans

Year 1 Year 2 Year 3

$1,300

$2,700

$6,000

Year 4 Year 5

$4,300

$7,900

Source: 8th Annual Cigna Choice Fund Experience Study, April 2014

And will grow over time

Cigna’s 8 year study showed Health Saving & Health Reimbursement Account customers had 13% lower medical trend


CUMULATIVE SAVINGS PER EMPLOYEE

Over five years, HSA/HRA plans could cumulatively save up to $7,900 per employee when compared to a traditional plan

Our HRA and HSA can be combined with any of our PPO, Open Access Plus, EPO, LocalPlus®, helping employees: • Become more engaged in their health care decisions • Have more control over their plan utilization and overall cost

Both offer • Preventive care covered at 100% • Integrated customer service • Electronic access to claims and

account balances • Educational online tools and resources

Cigna consumer driven health plans HRA, HSA highlights

HRA features • Employer funded account • Unused funds rollover • Flexible plan design options • Debit card option

HSA features • Employer and employee

contributions • Individual employee owns the account • Choice of HSA administrators for

account administration

Choice of HSA Administrators


Cigna partners with three leading financial services companies who can establish and administer individual Health Savings Account for employees. Client selects to offer one of the following integrated banking partners.

(Formerly ACS|BNY Mellon HSA Solution))

LocalPlus – A local quality, cost-effective option that delivers savings

Cigna's LocalPlus® is a local network solution designed to guide customers to a select network of quality local health care professionals and facilities

* Percentage of savings is estimated based on an internal national Cigna study conducted in 2013 comparing Cigna’s Open Access Plus and Open Access Plus IN plans with the same benefit structure, deductibles, copay and out-of-pocket maximum limits. Savings will vary based on plan design, geographic distribution and utilization patterns.

** Not all LocalPlus® service areas include Cigna Collaborative Care arrangements


• Local, narrow networks are improving outcomes for customers and driving savings of up to 15% lower medical costs*

• Health care professionals who have earned the Cigna Care Designation, and participate in our Collaborative Care arrangements are incentivized to deliver better outcomes and better motivated to improve health**

CADILLAC TAX


Q&A

Visit our Website www.InformedonReform.com • News alerts, fact sheets,

timeline, FAQs and more

Meet with Groom Law Group • Cigna has an arrangement with

Groom Law Group to provide our clients and broker partners with legal and educational resources.

• Your Cigna representative can arrange a meeting with Groom to help you get your questions answered.

Resources


http://www.informedonreform.com/

THANK YOU


Offered by: Connecticut General Life Insurance Company or Cigna Health and Life Insurance Company. “Cigna” and the “Tree of Life” logo are registered service marks, and “Together, all the way.” is a service mark, of Cigna Intellectual Property, Inc., licensed for use by Cigna Corporation and its operating subsidiaries. All products and services are provided by or through such operating subsidiaries, including Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company, and not by Cigna Corporation. All models are used for illustrative purposes only. 882284 02/15 © 2015 Cigna. Some content provided under license.

cadillac tax 02 26-15 presentation - internal

Economy & Finance

tax threshold

unpublished property

aca excise tax confidential

employers confidential

cost of health benefits

high cost plans confidential

employer plans

single coverage