Health Care ReformHealth Care ReformChallenges and OpportunitiesChallenges and Opportunities

Association of Chief Business OfficialsAssociation of Chief Business Officials

2012 Fall Conference2012 Fall Conference

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Introduction

Keenan believes that there are six aspects of Health Care Reform that will impact clients:1. The California Health Benefit Exchange

2. The new definition of “Full-Time Employee”

3. The requirements for providing employees “affordable” health coverage of “minimum value” in 2014 and the Cadillac tax in 2018

4. Grandfathering

5. Compliance

6. Ensuring a Healthy Workforce

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What will keep you up at night?

• The Four Principles of ACA• Identifying ACA Full-Time Employees• Predicting Employee Behavior in 2014• Collective Bargaining Issues• Early Retiree Medical Cost• Cadillac Tax• Structural Conflicts of Interest• Health of Your Workforce

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Four Principles of the Affordable Care ActFour Principles of the Affordable Care Act

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Principle OneThe Individual Mandate

“Every individual must have “Minimum Essential Coverage” (MEC) starting in 2014 or

pay a tax”

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Example

• Employee’s Household Income (similar to adjusted gross income) is $50,000

• There are two adults and two children in the household

• If the employee and family members have no MEC, the employee will be taxed for 2014:– Greater of $95 per adult ($47.50) per child or 1% of

HI over the Filing threshold ($19,000 in 2011)– Greater of $285 or $310 (.01 x ($50,000 - $19,000))

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Principle TwoEmployer Shared Responsibility

“An employer is responsible to provide “affordable” MEC with a “minimum value” to its ACA Full-Time Employees starting in 2014 or

risk paying a tax”

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ACA Definitions

• Affordable: Lowest cost single-only coverage offered by the employer must cost the employee no more than 9.5% of his/her Household Income

• Minimum Value: The employee cost of a plan (all in) cannot be greater than 40%

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Example

• Employer has 10 FT employees (30 hours/week) who will be paying more than 9.5% of HI for lowest cost single-only coverage. They decline employer coverage and purchase coverage on the Exchange and receive government subsidies

• Result (simplified): Employer tax is $30,000– 10 x $3,000/employee who receives a subsidy

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Principle ThreeACA Full-Time Employee

“An ACA Full-Time Employee is an employee who works, on average, 30 hours per week or

130 hours in a month”

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ACA FTE

• For salaried employees use actual hours worked or daily/weekly equivalents (e.g. One Day = 8 Hours)

• No guidance on other possible definitions of FTE

• Definition is important because:– It identifies who should be covered– It is used to calculate the tax

• Requires monthly tracking unless the IRS Safe-Harbor is used

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Principle FourGovernment Subsidies to Purchase

Exchange Coverage

“An ACA FTE whose employer does not provide ‘affordable coverage’ or coverage with a

‘minimum value’ may purchase coverage on the Exchange and receive a subsidy from the Federal Government which triggers the

employer’s tax obligation.”

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Example

• Employee’s Annual Salary = $45,000• Household Income = $35,000• Lowest cost Single-Only coverage = $3,360

– $280/month

• Employer coverage is “unaffordable” = 9.6% HI• Under ACA, employee will pay no more than

4.3% of HI for Exchange Family Coverage - $1,505 ($125.42/month)

• Employer pays $3,000 tax

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• Employer cost of medical coverage for the low-paid FTEs may be significantly greater than the tax penalty

• Employee cost of medical coverage on the Exchange may be significantly less than employer coverage when subsidies are available

• Decision: eliminate the possibility of government subsidies (and employer tax penalties); embrace them; ignore them; or something else?

Decision

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Identifying ACA Full-Time EmployeesIdentifying ACA Full-Time Employees

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ACA Full-Time Employee

No penalty tax is imposed on employers who do not provide group medical coverage (i.e. MEC), or affordable coverage or coverage of a minimum value to:– Part-Time Employees– Independent Contractors– Leased Employees– Variable (Seasonal/Temporary) Employees (New

definition!)– Newly Hired ACA Full-Time Employees (New

definition!) for a waiting period up to 90 days

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ACA FTE

• FTE is a misleading definition• FTE really means eligible for affordable group

health coverage that provides minimum value• ACA FTE does not impact:

– Overtime– Cost of benefits as compared to a real FTE– Work rules– Other collective bargaining definitions– Other benefits which are not group health plans– Will employees try to leverage this definition?

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ACA FTE Month-to-Month

• FTE status is a month-to-month determination• A PTE who works overtime in a month could be

an FTE for that month• Tax on employers is calculated on a monthly

basis ($3,000/12 = $250)• IRS Look-Back Stability Safe Harbor

– Look back for a prior period (e.g. one year)– Identify FTEs for that Look-Back Period– Look-Back FTEs will be FTEs for the next year

• Decision: Track employees or Safe Harbor?

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Predicting Employee Behavior in 2014Predicting Employee Behavior in 2014

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Exchange Facts

• Exchange Coverage:– Guaranteed Issue– No medical underwriting– Rates: 3:1 ratio based on age– Exchange goal is to have low cost coverage

• It has defined “plan” as consisting of Bronze, Silver, Gold and Platinum (“full metal tier”) levels of benefits including a catastrophic plan within a geographic region

• A health insurance carrier can bid up to three plans for each geographic location– RFPs have been issued in draft form– Carriers/plans will be selected early 2013

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Exchange Facts

• Exchange is very concerned about:– Impact of adverse selection on it– Must be self-sustaining by January 1, 2015– Pricing– Offering too many choices in a region

• Marketing and outreach– 2013 Goal: 3 Billion ad impressions– 2014 Goal: 4 Billion ad impressions– GOP unhappy about use of government money

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Employee Behavior

• Will the availability of Exchange coverage impact employee behavior?– Availability of Subsidies– Cash-in-lieu– Less expensive– Better access to a variety of plans– More for the money– Working just for health benefits (e.g. near retirement

or part-time) don’t need GHP anymore

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Impact of Employee Behavior

• Adverse Selection: A trend of younger, healthier employees going to the Exchange may undermine the financial integrity of a plan, leaving older unhealthier employees to pay higher premiums…and impact Cadillac Tax

• Employer Tax: If low-paid FTE’s opt-out of employer coverage, purchase coverage on the Exchange and receive a government subsidy, a tax is imposed on the employer

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Collective Bargaining IssuesCollective Bargaining Issues

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Represented Employees

• Definition of FTE in collective bargaining agreements – is ACA FTE definition required?

• 2014 requires waiting periods for eligibility of no more than 90 days

• Low-paid FT employees and PT employees may be better off economically on the Exchange

• Unions can be Exchange-trained “Assistors” to help/encourage them to purchase on Exchange

• Will unions become Assistors? Good/Bad?

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Represented Employees

• Schedule regular meetings with representatives:– ACA Education– Identification of ACA issues within CBA– Identification of workforce ACA issues

• Multi-year contracts, or contracts that get into details about plan designs, can limit the flexibility needed to respond to changing legislation

• All parties need to understand that with these complex issues, flexibility is in their best interest

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Early Retiree Medical CostEarly Retiree Medical Cost

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California Exchange and Early Retirees

• Exchange coverage may be less expensive than employer coverage and pricing stable year over year– Loss mitigation and loss prevention strategies– Competition with two federally negotiated plans– Large population of covered lives of all ages and health (2.2

million covered lives by end of 2014) moderate the risk

• Due diligence dictates that a review of Exchange options, costs and availability to early retirees be conducted– Union resistance may moderate if Exchange coverage is a

better deal for early retirees

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California Exchange and Early Retirees

• Fixed monthly cost may be less than employer’s plan• Exchange coverage may be a better fit for an early

retiree (access)– Multiple plans to choose from at variable costs and benefits– Networks/Hospitals– Coverage (less/more)– Annual open enrollment to change plans

• Active rates may drop if early retirees are moved to Exchange

• Private Exchanges– Medicare Exchanges are becoming popular for retirees age 65+

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Cadillac TaxCadillac Tax

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Cadillac Tax – Example - 2018

• Retired Member & Family – Under Age 65• Coverage Value Anthem PPO = $2,328.96/mo• 2018 Monthly Family Coverage Value

Threshold = $2,579.17/month• Excise Tax

– 40% of the Coverage Value exceeding $2,579.17 (as adjusted)

– Per Family– Per Month

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Monthly Premium Retired Member & Family Under 65 - 7.9% Annual Increase

$2,328.96

$2,512.95

$2,711.47

$2,925.68

$3,156.81

$3,406.19

$3,675.28

$2,250.00

$2,500.00

$2,750.00

$3,000.00

$3,250.00

$3,500.00

$3,750.00

2012 2013 2014 2015 2016 2017 2018

Year

Month

ly P

rem

ium

$$ Above Threshold $1,096.12

Monthly Cadillac Tax/ Family = $438.45 ($1,096.12 x 40%)

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Cadillac Tax – Commentary

• Tax is regressive – tax allocated equally to retirees/employees with low incomes and those with high income pensions

• IRC §4980I states that, for fully-insured plans, this tax is the liability of the insurance carrier – Should the carriers allocate the excise tax to

all other plans offered by the carrier within the state…and not back to you?

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Structural Conflicts of InterestStructural Conflicts of Interest

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Structural Conflicts of Interest

• INBH – YNBH – Let’s make a deal• How do you encourage hard choices/decisions

when those choices/decisions impact the decision-makers?– Make decisions neutral to them?– Other incentives?

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Health of Your WorkforceHealth of Your WorkforceThree Themes of Health Care ReformThree Themes of Health Care Reform

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Health of Your Workforce

• Unhealthy workforce drives up plan cost– Besides costing more, the higher the cost of a plan,

the greater the likelihood of the Cadillac Tax

• Health of a workforce can be measured by its productivity– One measure of productivity is absenteeism

• A healthy workforce is in everyone’s best interest

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Theme #1: Preventive Care Mandate

• NGF Plans must provide preventive services at no cost to participants– Screenings, counseling, immunizations, well-woman

visits, etc.– Free contraception for women

• You have already paid for these services, why not promote them?– Although plan cost increases in the short-term, the

early detection of illness should lower plan costs long-term

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Theme # 2: Value-Based Health Care Designs

• VBHC is about targeting behavior and using dollars more efficiently– Traditional approach to containing cost focused on

cost-shifting to employees or limiting access to more expensive care

– In contrast, VBHC seeks to deliver the highest health value relative to the quality/cost ratio of services, rather than treating disease only after it is developed

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Theme # 2: Value-Based Health Care Designs

• Value-Based Health Care Designs focus on plan features that produce more effective and efficient care delivery– Financial barriers to essential treatments and certain providers

are removed, “steering” patients toward improved health status– VBHC focuses on lowering the cost of certain treatments to

increase utilization, the opposite of traditional cost containment strategies

– The result should not only be improved health leading to lower costs, but higher productivity

• Should be part of negotiation process– State of Connecticut Collective Bargaining Agreement

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Value-Based Health Care(VBHC)

• Effective VBHC plan incentives are dependent on data and analysis to guide changes in plan benefits – Collecting data on plan participants is the best way to target

certain population segments for intervention. Various types of data can be collected including medical claims, pharmaceutical claims, health risks, absence days, workers’ compensation and participation in wellness and disease management programs.

– Once the appropriate data are collected, the plan sponsor must decide what outcome measures are important; for example, which diseases are most prevalent, which programs have the highest participation or which diseases are most costly.

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• Health risk management programs focus on the health goals of the group. Wellness and disease management programs are used to accomplish this:

– The premise behind wellness programs is promoting and maintaining good health

– Disease management programs assist those who have certain diseases with specific tools that help patients keep symptoms from being detrimental to everyday life

Value-Based Health Care(VBHC)

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Theme #3: Wellness

• Wellness programs are divided into two categories:– Participatory Wellness Programs offer rewards that

are not contingent on meeting a health standard– Health-Contingent Wellness Programs require

meeting a health standard in order to obtain a reward

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• Examples of Participatory Wellness Programs:– Diagnostic testing programs or Health Risk

Assessments that don’t base rewards on test outcomes but on participation

– Waivers of cost-sharing for prenatal or well-baby visits– Reimbursement for smoking cessation aids/classes

regardless of whether the employee quits smoking

– Rewards for attending health education classes

Wellness

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• Examples of Health-Contingent Wellness Programs:– Lower health premium for attaining certain results on

biometric screenings, such as cholesterol below certain levels

– Reimbursement for smoking cessation classes only if you stop smoking

– Cash rewards for exercising a certain amount• These programs will violate non-discrimination rules

unless they conform to allowed exceptions

Wellness

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• Health-Contingent Wellness Programs are allowed under the following conditions:– Total reward for the program is limited to 20% (30% in

2014) of the total cost of employee-only coverage (or of dependent coverage if dependents can participate)

– Program must be reasonably designed to promote health or prevent disease, not be overly burdensome, not be a subterfuge for discrimination and not be suspect in method

Wellness

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• In addition, Health-Contingent Wellness Programs must:– Allow eligible individuals to qualify at least once per year– Make the reward available to all similarly situated

individuals, or a reasonable alternative where it would be unreasonable or inadvisable to satisfy the standard due to a medical condition

– Describe the terms of the program and alternative standards in all plan materials

Wellness

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• Participatory Wellness Programs may give an annual premium discount greater that 20%(30%) because they don’t require satisfaction of a standard related to a health factor in order to qualify for a reward

• Employers may offer both a participatory Wellness Program and a Health Contingent Wellness program

– Allows participant to receive combined rewards exceeding the 20%(30%) limit

Wellness

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Your Interest in Workforce Health

• Your interest in the workforce could leverage mandated preventive services, wellness programs and specific plan design changes focused on channeling employees into health improvement

• This approach should result in improved cost containment and increased employee health and productivity

• However, short term results could be higher claim costs due to increased utilization, data acquisition and analysis costs, plan change and implementation costs, and communication costs

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• Determine whether you want to address employee health, productivity and health plan costs by:– Providing a Health-Contingent Wellness Program– Promoting the plan’s mandated preventive service

coverages– Using VBHC

• If so, you must– Determine the level of medical premium discount– Determine how to promote the preventive services– Identify VBHC opportunities

What Should You Do?

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Questions?