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License No. 0451271
Health Care Reform: A New Environment for Benefit Negotiations
Cynthia D. Stribling, CEBSVice President/Training DirectorKeenan & Associates
License No. 0451271 Innovative Solutions. Enduring Principles.
Your Unique Challenges
Preparation for health benefit changes in anticipation of 2014Development of a coordinated game plan for 2014, even if some or all of Health Care Reform may changeNegotiation of health benefits when much of the 2014 paradigm is unknown
License No. 0451271 Innovative Solutions. Enduring Principles.
Our Purpose
Inform you of our view of Health Care Reform’s impact in 2014, recognizing that there is very little guidanceFacilitate your fact and data gatheringAssist in your development of real-life scenariosIdentify issues in advance of their impactFoster an orderly approach to benefit discussions
License No. 0451271 Innovative Solutions. Enduring Principles.
How Will You HandleAutomatic Enrollment?
License No. 0451271 Innovative Solutions. Enduring Principles.
Automatic Enrollment - 2014
New FTEs must be enrolled, automatically, in a group health plan – subject to plan waiting periodsFTEs already enrolled in a plan must continue to be enrolled unless a new election is madeEmployees must be given notice and the opportunity to opt-out of health coverage
License No. 0451271 Innovative Solutions. Enduring Principles.
Automatic Enrollment - Issues
Definition of “Full-Time Employee” Plan and tier of coverage in which to enroll the FTEThe requirements for allowing employees to opt-out
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
1. Definition of FTE - who must be enrolled?2. Ensuring that employees/families receive
the coverage they want - defaults3. New requirements for opt-outs, including
how they relate to cash-in-lieu
License No. 0451271 Innovative Solutions. Enduring Principles.
How Will The California Health Benefit Exchange Work?
License No. 0451271 Innovative Solutions. Enduring Principles.
California Health Benefit Exchange
Established January 1, 2011Operational January 1, 2014 for individuals and small employers (50 employees or less)Independent public entity within California government -- not affiliated with any State agency or departmentOverseen by a five-member board selected by the Governor, Speaker and Senate Rules Committee
License No. 0451271 Innovative Solutions. Enduring Principles.
Exchange Board Members
Diana S. Dooley, Current CA Secretary, HHS (Chair)Kim Belshe, Former CA Secretary, HHSPaul Fearer, Senior Executive Vice President and Director of Human Resources, Union BankSusan Kennedy, Former Schwarzenegger Chief of StaffRobert Ross, MD
License No. 0451271 Innovative Solutions. Enduring Principles.
Function of California Exchange
Sets standards for insurance companies to “qualify” to offer their products on the ExchangeNegotiates and selects which qualified companies can offer their products on the ExchangeAdministrative powers, determines individual eligibility for coverage, eligibility for Federal subsidies, etcInterfaces with employersCoordinates with other agencies
License No. 0451271 Innovative Solutions. Enduring Principles.
Exchange Health Plans
Plan Benefits– Bronze: Covers 60% of the benefit costs– Silver: Covers 70% of benefit costs– Gold: Covers 80% of benefit costs– Platinum: Covers 90% of benefit costs
Deductibles: $2,000 single/$4,000 familyOOP Limits: $6,000 single/ $12,000 family
License No. 0451271 Innovative Solutions. Enduring Principles.
Federally Negotiated Exchange Plans
At Least Two Multi-State Plans Negotiated by Federal Office of Personnel Management– Plan One – Offered by a Non-Profit Entity– Plan Two – Does not cover abortions
License No. 0451271 Innovative Solutions. Enduring Principles.
Exchange Structure
The California Exchange(Qualified Health Plans)
(Administration)(Eligibility)
CA Commodity Plans Multi-State Plans
License No. 0451271 Innovative Solutions. Enduring Principles.
Why Purchase Exchange Coverage?
Exchange coverage may be a better fit for the employee– Networks/Hospitals– Coverage (less/more)
Exchange coverage may be less expensive than employer coverageFixed monthly cost may be less than employer’s (although potential overall cost may be higher if benefits are used)Financial incentives to purchase on the Exchange
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
1. Definition of FTE - who must be enrolled?2. Ensuring that employees/families receive
the coverage they want - defaults3. New requirements for opt-outs, including
how they relate to cash-in-lieu4. Comparison of employer plans to Exchange
plans
License No. 0451271 Innovative Solutions. Enduring Principles.
How Does An EmployeePurchase Health Benefits
On The Exchange?
License No. 0451271 Innovative Solutions. Enduring Principles.
The Exchange TransactionThe Exchange Transaction
CA Exchange Plans(Exchange Insurers)
Multi-State Plans(OPM Insurers)
The California Exchange(Central Administrator)
Employee 2012 Form
1040 & Proof of
Citizenship
HHS
Social Security
IRS
Immigration
License No. 0451271 Innovative Solutions. Enduring Principles.
General Rules - 2014
Mandate: Individuals and their dependents must have health coverage or pay a tax penaltyExempt: If the cost of self-only coverage costs more than 8% of Household Income
License No. 0451271 Innovative Solutions. Enduring Principles.
Employee with No Health Coverage
Individual Mandate tax penalty as follows:– 2014: Greater of $95/adult ($47.50/child) or 1% of
HI to $285 maximum– 2015: Greater of $325/adult ($162.50/child) or 2%
of HI to $975 maximum– 2016: Greater of $695/adult ($347.50/child) or
2.5% of HI to $2,085 maximum
License No. 0451271 Innovative Solutions. Enduring Principles.
General Rules - 2014
If self-only coverage costs 9.5% or more of HI, it is “unaffordable” orIf the plan’s share of benefit cost is less than 60%Then the employee is eligible for a Federal subsidy if health coverage is purchased on the Exchange
License No. 0451271 Innovative Solutions. Enduring Principles.
Income Illustration
Monthly Premium as a Percentage of Household Income Self-Only
$0$50
$100$150$200$250$300$350$400$450
Household Income
Month
ly P
rem
ium
8% HI
9.5% HI
License No. 0451271 Innovative Solutions. Enduring Principles.
The Exchange Transaction
Exchange Analysis for employee eligibility for a Federal subsidy:– Is the employee’s Household Income between one
and four times the Federal Poverty Level?– What is the employee’s cost, as a percentage of
Household Income, toward self-only coverage of the employer’s medical plan?
License No. 0451271 Innovative Solutions. Enduring Principles.
Federal Poverty Level
Household Income as a Multiple of FPL:Examples of FPL (2011):Fam. Size FPL 2 x FPL 4 x FPL
1 $10,890 $21,780 $43, 5602 $14,710 $29,420 $58, 8403 $18,530 $37,060 $74, 1204 $22,350 $44,700 $89, 400
License No. 0451271 Innovative Solutions. Enduring Principles.
The Exchange Transaction
Federal subsidies are:– Premium Assistance Tax Credit payable directly in
advance to the insurance company by U.S. Treasury, or to employee as a reimbursement at year-end, and
– Reduced Cost Sharing lowering the Exchange Plan cost sharing requirements
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Family Size: 4Salary: $45,000Household Income: $35,000Employer Self-only coverage: $280/moEmployer Family coverage: $450/monthExchange Silver family coverage: $800/monthExchange Bronze family coverage: $600/month
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Jones is eligible for a tax credit– Jones Household Income is between 1.38 and 4
times FPL– Cost of self-only coverage exceeds 9.5% HI
What is the amount of the tax credit?– Based on sliding scale multiple of Household
Income to the Federal Poverty Level
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Jones HI = $35,000FPL for a family of four = $22, 350Jones’ HI is 1.56 (156%) x FPLJones’ cost for the second lowest cost Silver level coverage on the Exchange is 4.3% of Household Income
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Household Income as Percent of FPL
Initial Premium(percentage)
Final Premium (percentage)
150% through 200% 4.0 6.3
200% through 250% 6.3 8.05
250% through 400% 9.5 9.5
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Full cost of Silver Level Family Coverage is $800/monthJones cost, using the credit, will be $125/monthMonthly tax credit amount is $675/monthAnnual Tax Credit = $8,100
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Jones can purchase any coverage on the Exchange and receive the same credit amount, or a lesser amount if the cost of coverage is less than the credit. For example, Bronze coverage at $600/month would cost Jones $0.
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
If Jones actually purchases Silver level coverage, there is reduced cost sharing:– OOP Maximum reduced from $11,000 to: $4,000– Other costs are reduced to ensure that Jones’
share of the total allowable cost of the plan is no greater than a fixed percentage.
License No. 0451271 Innovative Solutions. Enduring Principles.
Comparison – Jones Family
Employer Coverage– Family – $450/mo– 15.4% HI– Paid Pre-Tax– Deductibles - ?– OOP Max - ?
Subsidized Coverage– Silver Family -$125/mo– 4.3% HI– Paid After-Tax– Tax Credit - $8,100– OOP Max - $4,000– Other cost reductions– Bronze Family - $0/mo
OOP max - $11, 900– Deductible - $4,000
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
5. Identification of groups most likely eligible for tax credits using a broad definition of FTE
6. Develop an approach to estimating HI7. Estimate employee cost for self-only
coverage as a percentage of HI for those groups
License No. 0451271 Innovative Solutions. Enduring Principles.
How Does The Exchange Transaction Work For The Employer?
License No. 0451271 Innovative Solutions. Enduring Principles.
The Exchange TransactionThe Exchange Transaction
CA Exchange Plans(Exchange v. Insurers)
Multi-State Plans(OPM v. Insurers)
The California Exchange(Central Administration)
Employee 2012 Form
1040 & Proof of
Citizenship
HHS
Social Security
IRS
Immigration
Employer
License No. 0451271 Innovative Solutions. Enduring Principles.
Example Jones Family - Continued
Exchange contacts the employer and advises that Jones, one of its employees, is eligible for a Federal SubsidyThe employer can appeal this determinationPersonal tax information of the employee must be made available as part of the appeals process
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Employer Tax Penalty: If just one FTE purchases coverage on the Exchange and receives a Federal subsidy, the tax penalty is:– Lesser of:• $3,000/FTE who receives a subsidy; or • $2,000/FTE whether or not receiving a subsidy
(excluding first 30 FTEs)
License No. 0451271 Innovative Solutions. Enduring Principles.
Example – Jones Family
Jones’ employer has 500 FTEs 50 FTEs enrolled in the Exchange and received a Federal Subsidy Employer tax penalty is the lesser of:– $150,000 (50 x $3,000) or – $940,000 (470 x $2,000)
License No. 0451271 Innovative Solutions. Enduring Principles.
Comparison – Jones Family
Employer– Employer cost of Family
Coverage for Jones - $0– Tax Penalty – ($3,000)– Cash-in-lieu – ($1,200)– Savings: $5,800
Jones– Silver Family -$125/mo– Tax Credit - $8,100– Cash-in-lieu - $1,200– Cash Benefit - $9,300
License No. 0451271 Innovative Solutions. Enduring Principles.
Adverse Incentives Create
Adverse Selection
License No. 0451271 Innovative Solutions. Enduring Principles.
The Effect of Adverse Incentives A purchaser of health care chooses insurance that is to their
economic advantage A healthy individual may choose not to buy insurance, or
choose the leanest benefit available An individual with known health conditions will try to obtain
a richer benefit plan This “adverse selection” means that the out-of-pocket cost
of a health plan often becomes the most important part of the decision, NOT the appropriateness of the benefits
Anything that adds financial incentives to the purchase decision, such as cash-in-lieu of benefits, can drive healthier people out of the plan, resulting in a smaller sicker population remaining and driving up costs.
License No. 0451271 Innovative Solutions. Enduring Principles.
Comparison – Jones Family
Employer– Employer cost of Family
Coverage for Jones - $0– Tax Penalty – ($3,000)– Cash-in-lieu – ($1,200)– Cash Savings: $5,800
Jones– Silver Family -$125/mo– Tax Credit - $8,100– Cash-in-lieu - $1,200– Cash Benefit - $9,300
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
8. Evaluate cash-in-lieu with respect to potential subsidy eligible employees
9. Evaluate potential tax penalties for employer – is this a good/bad thing?
10. What employee behaviors should be encouraged?
License No. 0451271 Innovative Solutions. Enduring Principles.
2012? – Uniform Summary of Benefits
Original Requirement: By March 23, 2012, employees must receive a statement of whether the plan or coverage:– Provides “minimum essential coverage” and– Ensures that the plan or coverage provides not less than
60% of the benefits and cost
Implementation delayed on 11/17/11, “until final regulations that take into account stakeholder feedback”Why is this important?
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
1. Definition of FTE – who must be enrolled?2. Ensure that employees/families receive the
coverage they want – defaults3. New requirements for opt-outs, how do
they relate to cash-in-lieu?4. Comparison of employer plans to Exchange
plans5. Identify groups most likely eligible for tax
credits and subsidized cost sharing
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
6. Develop an approach to estimating employee HI for planning purposes
7. Estimate employee cost for self-only coverage as a percentage of HI for those groups
8. Evaluate cash-in-lieu with respect to potential subsidy eligible employees
9. Evaluate potential tax penalties for employer – is this a good/bad thing?
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items
10. What employee behaviors should be encouraged?
License No. 0451271 Innovative Solutions. Enduring Principles.
Employee Negotiations
Negotiations are a year-round activityEach contract ratified sets the stage for subsequent negotiationsMulti-year contracts, or contracts that get into details about plan designs, can limit the flexibility needed to respond to changing legislationEmployee Associations also need to understand that with these complex issues, flexibility is in their best interest
License No. 0451271 Innovative Solutions. Enduring Principles.
Action Items – Start the Discussion
11. Set up a schedule and begin regular educational meetings with your employee associations on the issues we’ve discussed today
12. Review your existing employee agreements regarding health plan coverage; identify vague/unclear language
13. Review your current health plan renewal schedule and determine when decisions must be made in time for open enrollment
14. Start creating some scenarios based on your own employees and try to cost out the effect
15. Convene benefits committees to review benefit plans
License No. 0451271 Innovative Solutions. Enduring Principles.
Employee Negotiations
A Memorandum of Understanding can be useful in giving both management and labor the opportunity to work on these important issues outside of the regular bargaining scheduleEmployee understanding of the possible effects of the new law on their benefits will be key in creating consensus on benefit issues
License No. 0451271 Innovative Solutions. Enduring Principles.
Close
Addressing the Future:– Caution about extending agreements beyond
2013– Address ways to re-open benefits portion of
agreement for those agreements that will be in force beyond 2013
– Plan for maximum flexibility
License No. 0451271 Innovative Solutions. Enduring Principles.
Questions?Disclaimer– Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting firm. We do not give legal advice or tax advice and neither this presentation, the answers provided during the Question and Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this information affects you.