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Affordable Care Act and the UMC—Update AUMCPBO Annual Meeting October 2014
Affordable Care Act
and the UMC—Update
AUMCPBO Annual Meeting
October 2014
2
Disclaimer
The material in this update is provided
as general information and education.
It should not be construed as, and does not
constitute, legal advice nor accounting, tax,
or other professional advice or services on
any specific matter, nor does this message
create an attorney-client relationship.
Readers should consult with their counsel or
other professional advisor before acting on any
information contained in this presentation.
3
Agenda
• ACA* Implementation
• 2014 Outcomes
• 2015 Outlook
• Exchange Plans
• Employer Shared Responsibility and Affordability
• ACA Compliance Burdens and Strategic Pressures
• Employer Strategies
• Conference Strategies
* ACA: Affordable Care Act (Patient Protection and Affordable Care Act, PPACA)
ACA Implementation
5
Reminder—ACA 2014
• Individual Mandate — Individual insurance market reforms
• Health Insurance Marketplace (“exchanges”) — Government assistance for
modest income premium tax credits (PTCs)
• Employer Shared Responsibility Rule — “Pay or play” or “Employer Mandate”
— January 2015 (100+ FTEEs*)
— January 2016 (50-99 FTEEs)
• Expanded Medicaid (some states)
* FTEEs: Full-time equivalent employees
Status of State ExchangesOctober 2014
State Exchange Federal Exchange (No State Exchange)
State Exchange Using Federal Exchange Support in 2015 State SHOP/Federal Exchange
Partnership Exchange State Exchange Used Federal Exchange Support in 2014
7
Federal Exchange Litigation
Halbig v. Burwell*; King v. Burwell*
Challenged availability of premium tax credits
through federally-facilitated exchange (FFE)
and partnership marketplaces (“exchanges”)
• Fourth Circuit: King v. Burwell
— Held that PTCs were available through all exchanges
• D.C. Circuit: Halbig v. Burwell
— 3-judge panel held that PTCs are only available for exchanges
“established by a state”
— Whole court (en banc) agreed to rehear the case in December
(vacating three-judge panel’s ruling)
* Sylvia Burwell: Secretary, U.S. Department of Health and Human Services (HHS)
No Expansion Expansion Expansion Pending Considering Expansion
Where States Stand on the ACA’s Medicaid Expansion
October 2014
Tax Credits
10
• State and federal exchanges eligible for PTCs
— Subject to ongoing federal court litigation challenge
Premium Tax Credits
• Exchange plan premiums subsidized
with federal assistance:
— Premium tax credit (PTC)
— Individuals and families with household income*
between 100-400% of federal poverty level (FPL)
* Household income: Modified adjusted gross income (MAGI)
100% of FPL 400% of FPL
$11,670 (Single)
$23,580 (Family of 4)
$46,680 (Single)
$94,320 (Family of 4)
11
% FPL Single Family of 2 Family of 3 Family of 4
100% $11,670 $15,730 $19,790 $23,580
138% $16,105 $21,707 $27,310 $32,540
150% $17,505 $23,595 $29,685 $35,370
200% $23,340 $31,460 $39,580 $47,160
250% $29,175 $39,325 $49,475 $58,950
300% $35,010 $47,190 $59,370 $70,740
400% $46,680 $62,920 $79,160 $94,320
>400% $46,681 $62,921 $79,161 $94,321
PTC Eligibility: % of FPL (2014)
For families/households with more than 4 persons,
add $4,020 for each additional person.
Household Income (MAGI)
12
MAGI (Code §36B)
• Modified adjusted gross income — Taxpayer’s adjusted gross income (AGI) (Code §62)
— Form 1040: Line 37 (last line of page 1)
• Increased by: — Foreign income
— Tax-exempt interest
— Non-taxed Social Security benefits
• Clergy housing/parsonage not included
• Employee 401(k)/403(b)/FSA* contributions reduce MAGI
• Certain “above-the-line” deductions reduce MAGI
* FSA: Flexible spending account
13
PTC Eligibility Requirements
Two main requirements*
(Both required to be “PTC-eligible”)
MAGI
• Between 100% and 400% of federal poverty level (FPL)
Inadequate or no employer coverage
• No employer coverage
• Employer coverage is less than “minimum value”
• Employer coverage is not “affordable” to employee
* Other requirements include not being:
1) incarcerated
2) covered by Medicare, Medicaid or other govt. coverage: CHIP, TRICARE, etc.
3) married, filing separately
2014 Outcomes
15
ACA Enrollment
How many paid
for Marketplace Plans? 8.9 million (approx. 94%)
Off-Marketplace QHPs* 8.0 million (est.)
PTC-eligible 87% (est.)
Previously uninsured 57% (est.)
As of October 2014 Open Enrollment Period
ACA expanded enrollment 16.9 – 19.8 million
Expanded Medicaid enrollees 7.0 – 9.9 million
Marketplaces enrollees 9.9 million
(7.4 million current mid-August)
* QHPs: Qualified health plans
16
ACA Impact on Uninsured
10
11
12
13
14
15
16
17
18
19
2Q 2008 2Q 2009 2Q 2010 2Q 2011 2Q 2012 2Q 2013 2Q 2014
% Uninsured U.S.
Source: Gallup
13.4
18
16.9
14.4
16.1
17.4
16.4
17
Change in Uninsured Rates
18
Lower Uninsured Rates
State Category % Uninsured
2013
% Uninsured
2014 (Mid-year)
Change in
Uninsured %
States with expanded
Medicaid and state or
partnership exchange 16.1 12.1 -4.0
States with only one
of the above or neither 18.7 16.5 -2.2%
19
Greatest Drops in Uninsured
State % Uninsured
2013
% Uninsured 2014
(mid-year)
Change in
Uninsured (%)
Reduction in
Uninsured
Arkansas 22.5 12.4 -10.1 45%
Kentucky 20.4 11.9 -8.5 42%
Delaware 10.5 3.3 -7.2 69%
Washington 16.8 10.7 -6.1 36%
Colorado 17.0 11.0 -6.0 35%
W. Virginia 17.6 11.9 -5.7 32%
Oregon 19.4 14.0 -5.4 28%
California 21.6 16.3 -5.3 25%
New Mexico 20.2 15.2 -5.0 25%
Connecticut 12.3 7.4 -4.9 40%
Source: Gallup
20
Other State Uninsured Rates
State % Uninsured
2013
% Uninsured 2014
(Mid-year)
Change in
Uninsured (%)
North Carolina 20.4 16.7 -3.7
Florida 22.1 18.9 -3.2
Texas 27.0 24.0 -3.0
Ohio* 13.9 11.5 -2.4
Tennessee 16.8 14.4 -2.4
Wisconsin 11.7 9.6 -2.1
Georgia 21.4 20.2 -1.2
Michigan** 12.5 11.9 -0.6
Missouri 15.2 15.1 -0.1
Virginia 13.3 13.4 +0.1
* Expanded Medicaid January 1, 2014 ** Expanded Medicaid April 1, 2014
Source: Gallup
2015 Outlook
22
Medicaid Expansion
4 more states seriously examining expansion.
— Indiana, Tennessee, Utah, Wyoming
January 2014 24 states
Expanded Medicaid
January 2015 3* more states
(Total 27)
* Michigan, New Hampshire, Pennsylvania
23
Cost of Non-Expansion
• 23 non-expansion states:
— Forgo $423 billion federal Medicaid through 2022
— Health systems could lose $167 billion
in enhanced Medicaid payments
— Could cover 6.7 million more uninsured people
through expanded Medicaid
• Three largest health systems—Medicaid
expansion states:
— Hospital admissions: 10%–32%
— Uncompensated care: 47%
24
2015 Premium Increases
Actual Rates
• Indiana: 15.6% increase
(highest average premium
$514)
* 28 states with published proposed or approved premiums rates
Average* premium across all plans 2015:
$384 monthly (before PTCs). Range:
• 23% reduction in Arizona
• 36% increase in Nevada
Proposed Rates:
average increase 7.5%
• 4.2% increase: California
• 13% increase: New York
25
<0% 10.1%—15% Limited Information Available
0%—5% >15% Data Not Available
5.01%—10%
Average Premium Increases As of September 25, 2014
26
2015 Benchmark Premiums
8.7 6.6
6 4.5
2.7 2.5
2 1.7
0.8 -0.7 -0.7 -0.8
-4.4 -4.7
-9.8 -11.4
-15.6
-20 -15 -10 -5 0 5 10
% Change in Premium for Benchmark (Second Lowest Cost Silver) Plan
Source: Kaiser Family Foundation
California (L.A.)
Nevada (Las Vegas)
D.C.
Michigan (Detroit)
Virginia (Richmond)
Maryland (Baltimore)
Oregon (Portland)
Vermont (Burlington)
Tennessee (Nashville)
Colorado (Denver)
Rhode Island (Providence)
Washington (Seattle)
Connecticut (Hartford)
Maine (Portland)
AVERAGE
Ohio (Cleveland)
New York (New York)
27
Marketplace Competition
Source: McKinsey & Co.
28
No Data No Change Fewer Issuers
+ 1=2 Issuers + 3 Issuers + 4 or More Issuers
As of October 1, 2014
Source: McKinsey & Co.
29
Marketplace Competition (Example)
Illinois
Year No. of
Issuers Total Plans
Individual
Marketplace SHOP*
2014 8 165 120 45
2015 10 504 306 198
* SHOP: Small Business Health Options Program
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Georgia Marketplace 2014
Five Issuers
• One issuer sold plans statewide—in all 8 geographic regions
• Rural areas—far fewer plan choices
Example: 21-year-old could face $200 difference in average premiums
for same Marketplace plan, depending on region
Four New Issuers • To sell plans in Georgia Marketplace
— Three issuers will sell plans statewide
• Significant increase in Marketplace competition, options
2014
2015
31
Market Creativity
Disruptive change and health insurance market
• eHealth: ehealthinsurance.com
• Wal-Mart and DirectHealth.com — GoHealthInsurance.com
— Act as “Navigator” to assist in plan selection
— Agents receive commission
to enroll customer in a plan while “in store”
• Brokers used to purchase individual plans—examples: — 39% in California
— 44% in Kentucky
32
Market Creativity
• Retailer involvement: Walgreens, Target,
Wal-Mart, CVS “Health”
• Issuer structural changes
— ACOs*
— Direct ownership of hospitals and provider networks
(when providers become insurance company employees)
• Hospitals/providers—directly servicing employers
and exchange plans (co-ops)
* ACOs: Accountable Care Organizations
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Election 2015—Potential Impact
If GOP retains control of House
and captures majority in Senate
• Repeal ACA? Doubtful (at least until 2017)
• Amend ACA? Possible, through:
— Bipartisan agreement
— “Reconciliation bills” or
— Riders to critical spending bills
34
Possible ACA Amendments
• Bipartisan possibilities:
— Repeal Medical Device Tax
— Amend definition of full-time
30 hours/week 40 hours/week
— Repeal Employer Mandate altogether
• GOP-preferred possibilities
— Amend age premium rating limits
3:1 ratio limit 5:1 or 7:1 ratio limits
— Greater flexibility for states under Medicaid
— Amend Individual Mandate or change Medical Underwriting
Rules “continuous coverage only”
Exchange (Marketplace) Plans
36
Exchange Plans
Actuarial Value 58-62% 68-72% 78-82% 88-92% ≥ 60%
Covered Services
Essential health benefits and preventive services
Essential health benefits and preventive services
Essential health benefits and preventive services
Essential health benefits and preventive services
Preventive services (need not cover Essential Health
Benefits)
Essential Health Benefits
No annual limits No annual limits No annual limits No annual limits No annual limits (on covered EHBs)
2014 Deductible Maximums
$2,000 Individual $4,000 Family
$2,000 Individual $4,000 Family
$2,000 Individual $4,000 Family
$2,000 Individual $4,000 Family None
2014 Out-of-Pocket
Maximums
$6,350 Individual $12,700 Family
$6,350 Individual $12,700 Family
$6,350 Individual $12,700 Family
$6,350 Individual $12,700 Family
$6,350 Individual $12,700 Family
Silver plan used to determine any government subsidies through the exchange
Bronze Silver Gold Platinum Group Plans
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Exchange Plans Concerns
• High out-of-pocket costs
— Silver Plan 30% cost-sharing for insured
— Silver Plan average OOP* $5,764
— Platinum Plan average OOP $1,855
• Narrow networks
— Example: No “diagnostic radiologists”
in-network in any Chicago-region ACA plan
* OOP: Out-of-pocket maximum
38
Cost-Sharing Reductions
Second Government Subsidy:
Reduces OOP costs of Silver Marketplace Plan
• Limited to those between 100% and 250% FPL
MAGI Actuarial “Value” Deductible
Max
Out-of-Pocket
Doctor Visit
Co-pay
Hospital
Co-pay
100% —
150% FPL
94%
“Silver” Plan $0 $1,000 $10 $100
151% —
200% FPL
87%
“Silver” Plan
$250 $2,000 $15 $250
201% —
250% FPL
73%
“Silver” Plan $1,000 $4,000 $30 $1,500
≥ 250% FPL 70%
Silver Plan $2,000 $5,500 $30 $1,500
39
How Narrow Are Networks
Source: National Center for Policy Analysis and American Enterprise Institute
Employer Shared Responsibility
41
Applies only to large employers
• Applicable large employer:
averages 50 or more full-time
equivalent employees (FTEEs)
Small employers:
(<50 FTEEs)—
exempt
Also called “Employer Mandate”
or “pay or play” rule
Employer Shared Responsibility
Effective date:
• Statute: January 1, 2014
• July 2013 delay for all employers January 1, 2015
• New delay for some employers 2016
42
UMC Impact
• Employer Shared Responsibility Rule
should not apply to most UMC local churches
• However, each annual conference
will likely have a few (up to a few dozen)
local churches subject to the Rule
• Many annual conference offices affected
• General agencies affected
43
IRS Standard (for Now)
Churches [e.g., UMC local churches] and conventions and associations of churches [e.g., annual conferences, denominations] may use a “reasonable, good faith interpretation” of [the Tax Code] to determine who is an “applicable large employer” under the Employer Mandate
Treating appointed clergy as “employee” of local church
that pays their salary and issues their W-2 should be
reasonable, good faith interpretation
1
Treating local churches a separate employers from
the conference and from each other (generally)
seems reasonable, good faith interpretation
2
44
Final Rule Highlights
Mid-sized employers (50–99 FTEEs)
Delay January 1, 2016
Certification required—employer must certify to IRS:
• No layoffs to avoid 100 FTEEs in 2014
• No benefits cutbacks 2014-2015
Large employers (100+ FTEEs)
Transition rules easier compliance for 2015
• Offer coverage to 70% of FTEs in health plan
— 2016: Offer coverage to 95% of FTEs
• Deduct 80 FTEs from “no coverage” penalty in 2015
— 2016: Deduct 30 FTEs
45
Employer Aggregation
Local Churches
• Day care centers
• Schools and
after-school programs
• Summer camps
• Other ministries
“Controlled Group” rules of Code §414(c) apply—
“lumping together” closely affiliated employers
Conferences
• Summer camps
• Agencies, boards, etc.
• District offices
• Foundations
• Possibly also: schools, hospitals,
retirement homes over which
conference may have control
for board appointments
46
Employer Aggregation
Common control exists where:
• Test 1: Organizations share EIN**
• Test 2: Organizations share 80% of board members/trustees
(or control 80% of other board), or
• One organization provides 80% of operating funds
for another; and organizations share some common
management or supervision
* Churches and conventions and associations of churches
** EIN: Employer identification number
Rule for churches* “reasonable good faith interpretation”
47
Counting Employees Employer Shared Responsibility Rule
Is an employer subject to the Rule in 2015?
Counting to 50 (or 100) in 2014
Employee Type Rule or Accommodation
Full-time employees (FTEs) 30 hours/week (130 hours/month)
Part-time employees (PTEs)
(< 30 hours/week )
Added to FTE count to determine:
Is employer subject to Rule?
Aggregate monthly hours worked ÷ 120
(no employee counted >120 hours)
Paid-leave employees
(vacation, jury duty,
disability, leaves of absence)
Added to FTE count to determine:
Is employer subject to Rule?
“Seasonal workers”
Employer not subject to Employer Mandate (“Rule”)
if exceeds 50 FTEEs solely due to
seasonal employees for less than 120 days of year
48
Employer Offer of Coverage
Large employers must provide
“affordable coverage” with “minimum value” to:
• Full-time employees (FTEs) (30+ hours/week), and
• Dependent children (up to age 26) of FTEs
• … Or else pay a penalty
— Excludes certain seasonal employees (< 6 months)
— Excludes part-time employees
— Spouse coverage not required
Small employers: Exempt
49
Offer of Coverage 2015-2016
“Large” Applicable Large Employer
(100+ FTEEs) • Offer coverage to 70% of FTEs in 2015
• Offer coverage to 95% of FTEs in 2016
“Mid-sized” Applicable Large Employers
(50–99 FTEEs) • 2015: not required to offer coverage
(must certify to IRS)
• 2016: offer coverage to 95% of FTEs
50
Penalties
No Coverage
At least one FTE
qualifies for PTC*
Penalty 2015 = $2,000 per FTE
(minus first 80 FTEs)
Penalty 2016 = $2,000 per FTE
(minus first 30 FTEs)
Inadequate Coverage
Employer offers coverage
and at least one FTE
qualifies for PTC*
Penalty = $3,000 per FTE
receiving a PTC
(limited to “No Coverage” penalty)
Penalties adjusted for inflation after 2014
Part-time employees count toward determining applicability of the
Rule—but do not count for penalty assessed.
* PTC: Premium tax credit
Affordability
52
Three “Affordability” Rules Employee’s Cost for Premium
ACA has several definitions of “affordable”
<9.5% of MAGI for individual coverage
• Employer avoids Employer Mandate penalty (“pay or play”)
• Safe Harbor: <9.5% of W-2 wages (known to employer)
for individual coverage
>8.05% of MAGI for individual coverage
• Employee may avoid Individual Mandate penalty
• Determined separately for spouse, dependent children
>9.56% of MAGI for individual coverage • Employer plan is unaffordable
• Employee is eligible for PTC!
• Dependent coverage affordability “glitch” — Family coverage is “affordable” if cost to employee:
<9.56% of MAGI for self-only coverage
53
Affordability Safe Harbors
W-2 Wages: Employee contribution for self-only coverage
in lowest-cost plan is less than 9.5% of W-2 wages
Rate of Pay: For any month, employee share of
monthly cost for self-only coverage in lowest-cost plan
is less than 9.5% of 130 hours multiplied by
employee’s hourly rate of pay
FPL*: For any month, employee share of monthly cost
of self-only coverage of lowest-cost plan
is less than 9.5% of 1/12 of FPL for a single individual
Safe harbors for affordability under Employer Shared Responsibility Rule
* FPL: Federal poverty level
54
Conference Affordability Approaches
Clergy (employee) contribution for self-only coverage
of conference minimum salary:
Similar to “rate of pay” safe harbor
of federal poverty level (FPL)
for 2014:
9.5% of $11,670 = $92.39 per month
ACA Pressures on Employer Plans
56
Compliance Burdens
• HIPAA compliance (increased by ACA)
— Health plan ID (2014 or 2015)
— HIPAA certification (2015 or 2016)
• Plan compliance with ACA Market Reforms
• ACA reporting requirements (2015 plan year)
— Minimum essential coverage (plan) reporting
— Employer Shared Responsibility reporting
• Looming Cadillac Plan Tax
57
Strategic Pressures
• Price competition from ACA Marketplaces
• Changing nature of health plans
— Pre-existing exclusions and
medical underwriting—eliminated
— Industry shifting to defined contribution model
• Limits on Tax-Advantaged Employer Coverage
• Looming Cadillac Plan Tax
Health Plan ID
59
ACA—Health Plan ID
* HPID: Health plan identifier number
** TPA: Third-party administrator
November 5, 2014: Large health plans Annual receipts (claims paid) ≥ $5 million
November 5, 2015: Small health plans Annual receipts < $5 million
• Plan sponsor may obtain separate HPID* for each “sub-health plan”
• Online application with Health Insurance Oversight System (HIOS)
November 7, 2016 Covered entities must use HPIDs in any HIPAA standard transactions
• Self-insured plan sponsors (employers) will rarely use HPID
(don’t perform HIPAA standard transactions)
• But plan’s TPAs** and business associates may use HPID more often
60
ACA—HPID
As of November 7, 2016 Plan sponsors must use HPIDs in any HIPAA standard transactions
OneExchange plan sponsors
obtain HPID for
OneExchange HRA* plans
• “Small health plans”
(annual receipts < $5 million)
General Board obtains
HPID for HealthFlex
active plans
* HRA: Health reimbursement account, health reimbursement arrangement
61
ACA—HPID
• Application process completely online
— Technical difficulties in 2014
— Should be smoother in 2015
• Requires “authorized official”
who can bind the organization to approve
• TPA cannot obtain HPID on behalf of the plan
• General Board will publish step-action aid
and other tools to help plan sponsors comply
62
ACA—HIPAA Certification
Proposed Regulations
* HHS: U.S. Department of Health and Human Services
** EFT: Electronic funds transfer
Certify compliance with HHS*
by December 31, 2015
Obtain certification of
HIPAA compliance in 2015 for:
• Eligibility
• Health claim status
• EFT** remittance
Certify with HHS* by
December 31, 2016
Large Plans Small Plans
(<$5 million)
63
Penalties for Failure
$1 Per covered life per day
until failure is cured
$2 Per covered life per day
for knowing noncompliance
$20 Per covered life annually
$20 Per covered life annually
for knowing noncompliance
Maximum Penalties:
ACA Fees
65
PCORI* Fee
• $2 per covered life for 2013
• $2.08 per covered life for 2014
— Increases with inflation in future years
• “Plan sponsor” pays PCORI Fee for active employees,
retirees and all covered dependents (“covered lives”)
• IRS Form 720 (with payment) submitted by July 31
of year after the plan year (calendar year plans)
— Example: July 31, 2014 for 2013 plan year
• Plan years 2012–2018
* PCORI: Patient-Centered Outcomes Research Institute
66
Transitional Reinsurance Fee
Transitional Reinsurance Fee
Applies to fully-insured and self-insured plans for plan years 2014–2016
• Self-insured plans—plan sponsor responsible for fee
• Fully insured plans—insurer responsible for fee
Per Covered Life
2014
$63
January 15, 2015 ($52.50 per life)
November 15, 2015 ($10.50 per life)
2015
$44
January 15, 2016 ($33 per life)
November 15, 2016 ($11 per life)
2016 $25 (estimate)
Pay in two installments to U.S. Department of Health and Human Services (HHS) through Pay.gov
67
Reinsurance Fee Exceptions
• No express exemption of retiree plans — However, not applied with respect to any covered life
for whom Medicare is primary payer
— OneExchange HRAs should be mainly exempt
• Health flexible spending accounts (FSAs)
• Health savings accounts (HSAs)
• HRAs that are integrated with a group health plan
• Stand-alone vision, dental, prescription drug plans
• Employee assistance programs (EAPs)
• Most wellness programs
68
Reinsurance Program Fee
Timeline for 2014 Fee
• November 15:
Head count to HHS
• December 15:
Invoice from HHS
• January 15:
1st installment due
• November 15:
2nd installment due
ACA Reporting and Tax Forms
70
ACA Tax Reporting Regime
Individual Mandate
• Form 1095-A, Form 1095-B, or Form 1085-C
• Form 8965, Form 1040
Employer Mandate
• Form 1095-C
PTCs
• Form 1095-A, Form 1095-C
• Form 8962, Form 1040
71
Tax Forms
• Form 1040
— Line 61 (New):
Individual Mandate
• Form 8962 Premium tax credit
• Form 1095
— 1095-A: Marketplace coverage
— 1095-B: Plan coverage
(insured or self-funded
employer plans)
— 1095-C: Employer-provided
coverage
72
Reporting Mandates
Minimum essential coverage
• Issuers—Form 1095-A
• Plan sponsors—Form 1095-B
— Regardless of size
• Employers—Form 1095-C
— Applicable large employers only (ALEs)
Employer Shared Responsibility
• ALEs—Form 1095-C
Nondiscrimination
74
Highly compensated employee (HCE)
defined differently than for retirement plans • Highest-paid 25% of all employees
Every employer has HCEs (even small churches)
Non-Discrimination Rule
Could present significant challenge for churches
• Penalties for non-compliance are different — Self-funded: Health benefits of HCE become taxable
— Insured: Excise tax ($100/day per HCE), civil money penalty,
or a civil action to compel nondiscrimination
• Enforcement of Section 105(h): “on hold”
pending further IRS guidance
• Strange legislative and regulatory history…
Late 2014 (Est.)
75
Excise Tax Penalties
• Code §4980D — $100 per day per “affected individual” …
can accumulate quickly
— Applies to church plans
• ACA provisions—already in place — SBC*, no pre-existing condition exclusions,
no annual/lifetime limits, dependent child coverage,
preventive health coverage, health plan reporting,
claims and appeals, patient protections
* SBC: Summary of benefits and coverage (standardized)
Penalties for violations—plan sponsor
Marketplace Competition
77
Marketplace Premiums Compared to Employer Plans
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Silver Gold Employer Platinum
Lowest
Median
Employer
Source: PwC’s Health Research Institute
78
Employer Plans Compared to Marketplace Plans
$6,119 $5,844 $4,885
Employer
Single-Employee
Rate
ACA Marketplace
Median Premium*
ACA Marketplace
Average of
Lowest premiums*
* Blend of gold and platinum premium rates
4% lower 20% lower
Cadillac Plan Tax
80
Cadillac Plan Tax
Excise Tax on high-cost plans:
ACA Section 9001(a) …added Tax Code §4980I
• Applies to “tax-excluded employer-provided
health plans”—self-insured or fully-insured
• Provided to employee, former employee (retiree),
surviving spouse or other “primary insured”
• Towers Watson Survey:
— 73% of companies are concerned about Excise Tax
— 62% are using “glide paths” of plan changes 2015 to 2018
— 48% likely to trigger Excise Tax in 2018
— 82% likely to trigger Excise Tax by 2023
81
Cadillac Plan Tax—2018
Applies to fully-insured and self-funded plans
Assessed on “cost of coverage” for plans in excess of certain thresholds
40% excise tax on plan’s cost in excess of:
• $10,200 for individual coverage
• $27,500 for family (“other than individual”) coverage
Increased threshold for plans that cover pre-Medicare retirees
or employees in high-risk jobs
• $1,650 individual or $3,450 family
Adjusted for inflation (CPI-U*)+1% (2018-2020); CPI-U only after 2020
* CPI-U: Consumer Price Index-Urban
82
Cadillac Plan Tax
• Statute 4980I “cost” is:
— Employer-paid portion and
— Employee-paid portion (cafeteria plan) of
Premium cost for fully-insured plans
“COBRA cost” for self-insured plans
• Plus: Account-based supplemental coverage — HRA contributions by employer
— HSA contributions by employer
— FSA contributions by employer and employee
• Plus: vision and dental benefits that are not
“excepted benefits”
83
Cadillac Plan Tax
• Key items for implementing regulations:
— Inflation adjustment in 2018 (possible)
If per-employee cost of BCBS option under FEHBP*
for plan year 2018 exceeds such cost for plan year 2010
by more than 55%
— Demographic adjustment factor possible
— Geographic adjustment factor possible
• Unions benefit §4980I(b)(3)(B)(ii): — Union plans only subject to family coverage
threshold—no matter the type of coverage
* FEHBP: Federal Employee Health Benefit Plan
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Cadillac Plan Tax
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2018 2020 2022 2026 2030 2034
Cadillac Tax
Average HealthFlexPlan
Average Employer Plan
Minimum Value
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Minimum Value
Employer plan must pay 60% of total costs of
typical employer plan (actuarial determination)
• Employees whose employer plan does not
cover minimum value can opt out
and seek PTCs for exchange coverage
• Minimum value disclosed on employer “Marketplace
Notice,” Summaries of Benefits and Coverage (SBCs)
• Minimum value calculator published by HHS
— Plan sponsors can also rely on actuary
to determine compliance
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Minimum Value vs. Cadillac Tax
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
2018 2020 2022 2026 2030 2034
Cadillac Tax
Average HealthFlexPlan
Average Employer Plan
Minimum ValueEmployer Plan
ACA "Bronze" Plan
Account-Based Plans and Excepted Benefits
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Health Reimbursement Arrangements
IRS Notice 2013-54: restrictions on
health reimbursement arrangements (HRAs)
• No “stand-alone” HRAs for active employees
• HRAs allowed if “integrated” with group plan — Allows establishment of “private exchanges”
— Prohibits combining HRAs with public exchanges
• Stand-alone HRAs allowed for “retiree-only” plans — However, no PTC for those retirees
(i.e., no “double dip” on tax benefits)
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Employer Payment Plans
Restricts 1961 IRS rule (Rev. Rul. 61-146)
that allowed employers to reimburse premiums paid
for individual health insurance policies on
tax-favored basis (“employer payment plans”)
• Many local churches relied on this practice
— Lay employees, deacons, part-time clergy
• Individual policies (through exchanges or
private market) can only be paid with taxable income!
Marketplace plans cannot be paid tax-free:
• By employer, or
• Through cafeteria plan pre-tax (other than SHOP)
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Flexible Spending Accounts
• FSAs are permissible if they qualify
as “excepted benefits”
(not subject to ACA Market Reforms)
• FSA qualified if:
— Offered with employer group health plan
— Contributions do not exceed 2x
employee salary deferral
FSAs should not be offered to employees
who are not offered group health plan coverage.
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Excepted Benefits
• Separate insurance policy—if insured; or
• Separate contract and participant’s separate election
—if self-funded
“Excepted benefits” plans
Vision plans
Dental plans
Employee assistance programs (EAPs)
Wrap-around plans (new—not finalized)
Stand-alone HRAs—if limited to excepted benefits
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Employee Assistance Plans
• 2014: Excepted benefit if EAP does not provide “major medical coverage”
— Reasonable “good faith” interpretation
• 2015: Excepted benefit if: — EAP does not “provide significant benefits in the nature
of medical care”
— EAP’s benefits are not coordinated with another group
health plan (e.g., not gatekeeper, EAP not paid by plan)
— No employee premiums or contributions are required
— No cost-sharing is involved
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Excepted Benefits
Excepted benefits plans—not subject to
these ACA Market Reforms
PROS Employees covered in excepted benefits plans
are eligible for premium tax credit
CONS Excepted benefits coverage does not satisfy
Individual Mandate
No annual limits
No lifetime limits
Preventive services—coverage at no cost
Essential health benefits—coverage required
Employer Strategies
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Cost-Shifting to Employees
U.S. Employers
Have or are considering
Have not and are notconsidering
85%
15%
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Growth in HDHPs*
0%
10%
20%
30%
40%
50%
60%
70%
PPO HDHP HMO
2009
2010
2011
2012
2013
2014
-16%
+225%
-29%
* HDHP: High-deductible health plans
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Private and Public Exchanges
32%-45% of U.S. employers
considering moving active employees
to a private exchange
25% of U.S. employers
considering ways to move active employees
to public Marketplaces
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Exiting Health Plan Business
• Recent Investor Report:
S&P 500 companies employ 138 million
(20% of U.S. large employer workforce)
• Predicts S&P 500 transition employees
to ACA Marketplaces:
— 10%: coverage will be shifted by 2016
— 30%: by 2017
— 70%: by 2019
— 90%: by 2020
Source: S&P Capital IQ
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Exiting Health Plan Business
• Low- and middle-income workers (qualify for PTCs)—
will be steered into exchanges
• Higher-income employees—eventually will be pushed
to Marketplaces and provided a stipend
• Over time, stipends will not keep pace
with health care inflation—employers will save money
• Health stipends—eventually will morph into
employee pay
— Will complete corporate departure
from providing health care benefits
Source: S&P Capital IQ
Conference Strategies
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Conference Strategies
Connectional and Policy Considerations
• Book of Discipline ¶639.7
• Judicial Council Decisions 674, 866, 935 and 1014
• ACA Employer Shared Responsibility Rule
• State’s (or states’) embrace of ACA
• Appointment process and itineracy concerns
• Equity of health coverage
• Tax implications
• Unintended consequences (example: increased DAC*)
* DAC: Denominational average compensation
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Conference Strategies Status Quo
PROS
Mandatory plan for all conference clergy possible
Maintains ease of appointment
No “disruptive change” for covered participants
CONS
Forgoes cost savings in exchange plans with PTCs
May cause more tension with local churches
(seeking cost savings)
Plan costs continue to rise
New ACA burdens (fees, reporting, taxes, etc.)
Strategic market and industry pressures weigh against
status quo
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Conference Strategies Changes at the Margins
• Encourage Marketplace enrollment for continuation
(COBRA) participants and clergy on unpaid leaves
(where conference plan is costly)
• Allow access to Marketplace for pre-65 retirees—
purchase with non-taxed employer dollars or federal PTC
— “Retiree-only” stand-alone HRAs allowed, but no PTC
PROS Some cost savings related to certain beneficiaries
Conference/church/clergy familiarization with Marketplaces
CONS
Cost savings of PTCs not fully realized
Some administrative complexities
Participant populations have different coverages
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Conference Strategies Dynamic Plan Strategies
Consumer-Driven Plan Designs: Greater out-of-pocket at front end (except preventive care), account-based features (HSA/HRA)
Private Exchanges: Defined contribution strategy and consumerism in choice and utilization
Outside-the-Box Thinking: Local co-op networks, narrow networks and ACOs*, cash pricing with local providers, self-administering, changing plan’s risk-pool (e.g., adding lay employees)
PROS
Maintains single conference employer plan
Embraces strategies trending among employers and
insurers, and socializes participants to the new paradigm
CONS
Some disruptive change for participants
Some cost-shifting to participants
Administrative costs and efforts
* ACOs: Accountable Care Organizations
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Dependent Coverage Options Spouse and Dependent Changes
Version 1: Conference ceases covering spouses
and dependents at conference/plan level
Version 2: Local churches cease covering spouses, dependents
or both at the local level (with conference permission)
PROS
No spouses or dependents would have affordable coverage
PTCs available for many families, based on MAGI
(cost savings to clergy/churches/conferences)
CONS
Equity concern for families that do not qualify for PTCs
(MAGI too high)
• They pay full premium on exchange with after-tax $
• Compensation may need to be increased
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Conference Strategies Affordability Option
• Maintain required full-time clergy coverage,
but increase required individual contributions…
• Clergy for whom coverage is not “affordable”
(e.g., cost exceeds 9.56% of MAGI) seek exchange coverage
PROS
Captures savings of premium tax credits
to low-paid clergy and families
May be able to support clergy in Marketplaces with
“excepted benefits” and other wrap-around coverage
CONS
May create appointment frictions and equity concerns
May require way to offset increased health plan
premium contribution for clergy remaining in the plan
• Other nontaxable benefits
• Taxable compensation
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Conference Strategies Local Church Option
• Allow local churches to “opt out” of conference plan
(for full-time clergy)…
• Clergy at churches opting out no employer coverage
PROS Lower-paid can seek exchange coverage and tax credits
CONS
Appointment frictions and equity concerns
Disruptions to conference plan “risk pool”
• Diminution in size
• Change in risk profile
Problem for churches with multiple clergy?
• Some would want to remain in the plan; some would not
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Conference Strategies Exit Option
Terminate health plan entirely
PROS
Significantly reduce conference administrative costs
Rely on Marketplaces for individuals—most local churches
Rely on SHOP1 for applicable large employers in conference
(e.g., large churches, conference office)
CONS
Increase taxable salary for some or all
• Unintended consequences Increases CAC and DAC; increases
CRSP DC2, CPP3 and UMPIP4 contributions based on compensation
• Unintended distortions Uniform salary increases may have disparate
impacts for single vs. married vs. family; PTC eligibility
Add/increase other non-taxable benefits (UMPIP, UMLifeOptions)
Increased tax burden to clergyperson (SECA and income taxes);
or employee (income taxes) and employer (FICA)
1 SHOP: Small Business Health Options Program 2 CRSP DC: Clergy Retirement Security Program Defined Contribution 3 CPP: Comprehensive Protection Plan 4 UMPIP: United Methodist Personal Investment Plan
General Board Supports
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General Board Supports Health Care Reform Resources
General Board website www.gbophb.org/ center-for-health/
health-care-reform
E-mail HealthCareReform
@ gbophb.org
112
113
© 2014 General Board of Pension and Health Benefits
of The United Methodist Church, Incorporated in Illinois.
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1-800-851-2201
www.gbobphb.org
