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Affordable Care Act Part 2: Impact on Self-Funded Employers

December 12, 2013

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Webinar Recording and Evaluation Survey

• This webinar is being recorded and will be made available online to view later.

– Recording will also be available at www.naco.org/webinars

– Copies of the slides will be located at http://www.naco.org/programs/csd/Pages/Health-Reform-Resources.aspx

• After the webinar, you will receive a notice asking you to complete a webinar evaluation survey. Thank you in advance for completing the webinar evaluation survey. Your feedback is important to us.

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Today’s Speakers: Lisa Buerkley Assistant County Administrator Boone County, Kentucky Lisa Stamm, Esq. Vice President, Consulting Services Sherrill Morgan Consultant to Boone County, Kentucky Scott Stevens, RHU, CDHC Employee Benefits Consultant S.M. Stevens and Associates, LLC Douglas County, Nebraska

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How many people are attending this webinar from your computer? a. 1

b. 2

c. 3

d. 4

e. 5 or more

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Is your county self-insured?

a. Yes

b. No

c. Considering becoming self-insured

d. Not sure

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Do you know which provisions of the ACA do not apply to self-insured employers?

a. Yes

b. No

c. Not Sure

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Disclaimer

• The information provided during this webinar is for informational purposes only and does not constitute legal advice.

• Counties should consult legal counsel for detailed information about how certain provisions and related regulations should be interpreted and applied to their plans specifically.

Self Funding – Impact on Employers

Presented to:

Scott M. Stevens, RHU, CDHC Employee Benefits Broker/Consultant sms@thehsatoolkit.com Sstevenshealthcare.blogspot.com

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

What is funding? • Funding is the means by which employers pay for health insurance coverage

• Fully insured contracts require the insured to pay premiums in advance (Note: sometimes fully insured plans with high deductibles are referred to as “partial” or “split” funded plans. These are NOT self insured plans!)

• Partially self insured contracts only require fixed costs plus actual claims incurred.

Today, many employers elect to pay for their health insurance using a self-insured option

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Partial Self Funding helps employers save money

*Source: the Kaiser family foundation employer health benefits survey, 2003

1998 1999 2000 2001 2002 2003

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Fully insured Self-funded

9.4%

6.1%

9.7%

12.4%

13.5%

15.6%

4.5%

12.4%

12.3%

9.3%

6.7%

4.5%

Premium

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Benefits of Partial Self Funding

• Escape the fully insured risk pool • Pay the right price • Preclude state mandates; lower costs • Participate in good claims experience • Improve cash flow • Full disclosure of claims data through advanced reporting • Manageable and budgetary • Litigation in Federal rather than State court

A comprehensive solution to rising health care costs

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Fully Insured

Premium Dollar Shrinkage

70¢ Medical Claims

28¢ Reserves, Risk,

Inflation, Premium Taxes, Overhead,

Margin

2¢ Profits

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

With Partial Self Funding…

Premium Dollar Maximization

80¢ Medical Claims

20¢ Administrative

Fees & Reinsurance

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Fully insured

• Insurance carrier assumes claims risk in excess of premium; retains savings below premium

• Claims costs do not fluctuate based on actual claims incurred by plan members

• Fixed premiums include reserves, fixed costs, claims and administrative fees

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Partial Self Funding

• Claims costs based on actual claims incurred by plan members

• Employer pays insurance carrier a fixed fee to administer its claims

• Stop-loss insurance is provided to limit employer’s potential loss to a specified amount

Partial Self Funding is budgetary, year in and year out

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Components of fully insured premium

Fixed costs • Basic operating expenses incurred by the

insurance company

Claims • Dollars collected by the fully insured carrier

to pay claims during the plan year

Reserves • Money set aside for payment of claims

incurred prior to plan termination, but submitted for payment after plan termination

Claims

Fixed costs

Reserves

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Partial Self Funding

Fixed costs • The minimum amount an employer pays

each month for administrative services

Claims • Whatever amount isn’t used here, the

employer keeps. Not the insurance company.

Reserves • Employers hold the reserves until

termination. This money stays in your account earning interest for you, not the insurance company.

Claims

Fixed costs

Reserves

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Claims liability example – Partial Self Funding

With Partial Self Funding, employers only pay for claims each month, not a premium, which allows them to participate in plan savings

High

Low

Incu

rred

claim

s

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Employer health plan

Incu

rred

claim

s

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Employer health plan

Fully insured

premium Employer savings

Stop loss protection

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Partial Self Funding – Better Control of YOUR Destiny!

• Rewards for favorable claims experience • Reduce administrative plan related

expenses • Control your own claim reserves, improve

cash flow! • Customize your own plan design/benefits • Predictable costs – fixed + claims

maximum • Reports for plan management

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Partial Self Funding Protection •Specific Coverage – protects against large, individual catastrophic claims •Aggregate Coverage – protects against catastrophes and an increase in claim frequency or excessive plan utilization •Aggregate Accommodation – limits an employers exposure to year to date aggregate amount •Specific Advance – limits the employers exposure to the actual amount of the specific deductible •Run out – covers claims incurred but not reported/processed at the end of the plan year

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

• Avoidance of minimum loss ratio requirements and other mandates • Lower cost increases to accommodate reform mandates compared

with fully insured carriers • Ability to participate in claims up to a protected limit/spectrum of

exposure • Enhanced flexibility in plan designs • Transparent renewal/plan utilization data • Data to drive informed decisions • Full reporting for groups, regardless of the no. of enrolled employees • Ability to develop strategic wellness plans/strategies • Long term perspective, a true strategic approach to managing costs

Advantages for Small to Mid-Size Employer Groups

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Partial Self Funding – The Process of Migration

• Broker/Consultant gathers relevant information and sends RFP’s to several markets

• Rates are negotiated and finalized • Vendors are selected • Plan is implemented, employees

are oriented • Plan is monitored on a monthly

basis

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Health Care Reform Impact – 2014 Self-Funding comes with many traditional advantages over Fully Insured. Specifically, employers

avoid premium tax, risk charge, state mandates. They experience best in class data reporting and typically have 30-50% lower fixed costs than a typical Carrier. Provision Fully Insured Self-Funded

Community Rating Required Avoided Sector Tax $8 Billion Direct Impact Avoided Administrative Reporting Direct Impact Some Avoided Transitional Reinsurance Tax Direct Impact Direct Impact Patient Centered Outcome Research Tax

Direct Impact Direct Impact

Minimum Essential Benefits Direct Impact Plan Flexibility Medical Loss Ratio Direct Impact Avoided Prohibition of discrimination based on salary

Direct Impact Avoided

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Self Funding and the ACA – Anticipated Affects Over the Next 3 Years

Source: Expert Benefit Solutions; 2013

© S.M. Stevens and Associates, LLC. 2013, Use With Permission Only

Questions ?

Scott M. Stevens, RHU, CDHC Employee Benefits Broker/Consultant

402-699-8873 or sms@thehsatoolkit.com Subscribe to my blog: sstevenshealthcare.blogspot.com

Implications of the ACA for Boone County Fiscal Court’s

Self-Funded Health Plan

Lisa Buerkley, Assistant County Administrator/HR Director

Lisa Stamm, Esq., VP, Consulting Services, SHERRILL MORGAN

• Coverage of children to age 26 (initially excluded those who had employer-sponsored coverage)

• Removal of lifetime maximum (was $1 million) and annual maximums on Essential Health Benefits (EHB) (Note: stop loss implications)

• No pre-ex for children under 19

Initial ACA Provisions

Grandfathered status lost 1/1/13 when County changed coinsurance and prescription drug copays • Coverage of children to age 26 regardless of whether

eligible for employer-sponsored coverage • Preventive Care (including Women’s Preventive Care) • External Appeals • Out-of-network emergency services at in-network level

($100 copay instead of ded./50% coinsurance)

Provisions in Effect after 1/1/13

• PCORI Fee (est. $873) • Transitional Reinsurance Fee (est. $55,000) • No pre-ex • Elimination of additional annual maximums on Essential

Health Benefits • New rules regarding wellness programs • Out-of-pocket maximums

2014 Provisions

• No annual maximum on EHB, now known to include some specialty drugs in Kentucky

• County previously had $35K annual max. on prescription drugs and a $35K annual max. on outpatient drugs

• Specialty drugs can cost hundreds of thousands of dollars per year

• Alternatives are not attractive – Leave plan exposed; stop loss implications – Exclude some specialty drugs altogether – Per prescription/per treatment limits

Elimination of Annual Maximums

• County’s wellness program will include tobacco surcharge beginning in 2014

• Prior to ACA, could have opted out of non-discrimination provisions of HIPAA

• Now must comply with stringent new rules regarding outcome-based wellness programs

• County must provide alternative to tobacco users; will be providing reward to those who complete tobacco cessation program, regardless of whether they quit

New Wellness Regulations

• $6,350 single; $12,700 family maximum on deductibles, coinsurance, and copays

• County’s out-of-pocket max. is currently $3,000 single; $6,000 family, but does not include copays

• Alternatives are not attractive – Include copays in the existing out-of-pocket maximums – Raise out-of-pocket maximum to highest level allowed (lesser benefit

for some) – Run two concurrent out-of-pocket maximums (lower one for

deductibles/coinsurance and maximum allowed for deductibles/coinsurance/copays)

Out-of-Pocket Maximums

• County employs hundreds of seasonal employees at golf courses, parks, etc.

• Currently can work 9 months of year with no hourly restrictions without violating Kentucky retirement system rules

• Hours will need to be reduced for many to avoid exceeding 30 hours per week on average

2015: Employer Mandate

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NACo Resources

• Health Reform Implementation Site

– www.naco.org/healthreformimplement

– Here you can find:

• Counties as Employers Toolkit (Updated) at www.naco.org/healthreformtoolkit

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Type your question into the questions box and the moderator will read the question on your behalf during the Q&A session. If we are unable to answer all of the questions during the Q&A session, we will send you the questions and answers in an email.

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2014 Healthy Counties Forum What: During this forum, counties will learn how they can achieve better health, better care, and lower costs through Accountable Care Communities. Participants will discuss many topics including developing multi-sector partnerships, justice-involved individuals, behavioral health, and wellness.

When: January 30-31, 2014

Where: San Diego County, CA

www.naco.org/healthycountiesinitiative

Please contact Emmanuelle St. Jean, MPH, Program Manager, 202.942.4267 or estjean@naco.org