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Health Care Reform
May 16, 2013
What Florida’s Local Governments Need To Know
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A transformational moment
Health Care Reform is creating an added catalyst for change in employers’ health care offerings
Employers are considering significant changes in health care strategy to address the anticipated cost of the legislation
It’s really a convergence of several issues: Rising health costs Aging work force with increasing health risks Increasing frustration with provider
reimbursement system
Health care is becoming a total business issue that will ultimately affect:
Financial planning for public and private organizations
Competitive position of products and services
Defining the employee value proposition
Workforce strategies
Benefits and compensation
Administration and payroll
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Despite recent events in Washington, uncertainty remains
How will Supreme Court rule?
Who wins Presidential election?
Will funding be available?
Will public Exchanges be ready?
Who controls Congress in 2013?
What regulatory guidance is coming?
DECIDED DECIDED DECIDED
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Stakeholders all have their own interests
I want to be paid more for the care I
deliver
I want to remain in the lead position of
controlling rate increases and I don’t want to be accountable for
outcomes or service
I want a payer mix that includes
private sector so I can shift costs; I like integrated health systems except for the
expectation for risk sharing
I want access to good doctors and hospitals,
including my own Employers must offer affordable benefits that are not too high or
low
I need a healthy and productive workforce
and affordable solutions
Participants
Hospitals
Employers
Government
Health Plan
Physicians
I want to get out of the health care business if
things don’t change
I want a health plan that doesn’t
cost so much and is easy to
use
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Building blocks of Health Care Reform
Key Element Impact
Individual mandate Potential for additional enrollment in employer plans
Marketplace reformEmployee communication needs and potential future employer benefit design changes
Health Insurance ExchangesPublic Exchanges that will provide individual coverage for retirees and certain employees
Premium and cost-sharing subsidies
Potential for employees to receive subsidies in Exchanges
Employer mandatesAdditional administration requirements; potential change in eligibility for some employees
Expanded public plans Potential for some employees to enroll in Medicaid
Revenue raisers Additional payroll taxes and fees; long-term incentive to reduce plan costs to avoid excise tax
Penalties Delayed / Reporting Relaxed
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2014 individual mandates
All U.S. citizens and legal residents are required to enroll in basic health coverage or pay a penalty (limited exemptions)
Tax penalties for noncompliance equal to the greater of an indexed flat dollar amount or percent of income 2014: $95 or 1% of income
2015: $325 or 2% of income
2016: $695 of 2.5% of income
Family cap: 3x the flat-dollar penalty
Comments
Tax penalties are not expected to significantly influence behavior
INDIVIDUAL MANDATE
Towers Watson is not a law firm and therefore cannot provide legal advice. Please seek qualified legal counsel before finalizing a course of action based on this material.
2014 examples of individual tax penalties
Examples of individual mandate tax penalties: Assume $10,250 single/$20,500 family tax filing threshold in 2014 (for those under
age 65) Assume $11,000 single/$22,000 family tax filing threshold in 2017 (for those under
age 65)
Family SizeHousehold
Income 2014 Penalty Calculation2014
PenaltyEst. 2017 Penalty
Individual $25,000Maximum of:
$95 Flat Dollar OR 1% of ($25,000 – $10,250)$148 $695
Married Couple $40,000Maximum of:
($95 x 2) OR 1% of ($40,000 – $20,500) $195 $1,390
Family of 3 (1 child <18)
$40,000Maximum of:
($95 x 2.5) OR 1% of ($40,000 – $20,500) $238 $1,738
Family of 5 $40,000Maximum of:
($95 x 3) OR 1% of ($40,000 – $20,500) $285 $2,085
Family of 5 $150,000Maximum of:
($95 x 3) OR 1% of ($150,000 – $20,500) $1,295 $3,200
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INDIVIDUAL MANDATE
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Health Care Reform: Provisions already in place
2011
Dependents covered to age 26
No lifetime maximums and restricted annual maximums
No pre-existing condition exclusions for age 18 and under
No reimbursement for over-the-counter drugs from account-based plans (FSAs, HRAs or HSAs)
Penalty for ineligible HSA withdrawals increased to 20%
Medicare Part D “donut hole” begins to close; 50% discount on brand drugs; target cost-sharing is 25% by 2020
2012
Women’s preventive services – effective for plan years beginning ≥ 8/1/2012
Summary of Benefits and Coverage (SBC) – first Open Enrollment ≥ 9/23/2012
W-2 Reporting for 2012 Calendar Year of Aggregate Value of Employees’ Health Coverage
2013
FSA maximum lowered to $2,500
Medicare payroll tax increased for high earners
MARKETPLACE REFORM
Recent guidance requires changes to SBC templates for 2014 -- Adds disclosure regarding Minimum Essential Coverage and whether the plan meets Minimum Value requirements
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DOL Releases Guidance on the Required Notice to Employees on Exchange Operations
By October 1, 2013, employers must provide their employees information on how the Exchanges will operate Includes a description of the services provided by the Exchange (also known as
the Marketplace) and the manner in which the employee may contact the Exchange to request assistance
Shares with employees that if their employer plan does not satisfy Minimum Value requirements, the employee may be eligible for federal subsidies
Confirms that if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefit plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes
Notice must be in writing and can be delivered via first class mail or electronically
MARKETPLACE REFORM
The model language is available on the DOL's website: dol.gov/ebsa/healthreform
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Provisions beginning in 2014Waiting period
Plan may apply an eligibility waiting period of up to 90 days Coverage under the group health plan
must begin no later than the 91st day of employment
Employees in waiting period should not be counted for purposes of determining the employer’s tax assessment regarding play-or-pay mandate
MARKETPLACE REFORM
Comments
Common waiting periods:
— Immediate eligibility
— 1st of month following date of hire
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PPACA provides that a group health plan (which includes insured andself-insured plans of large employers) may not require out-of-pocket (OOP) payments that exceed the out-of-pocket limits for HSA-compliant HDHPs (e.g., for 2014 $6,350 for an individual, $12,700 for a family)
Under HDHPs, OOP limits must be ‘comprehensive’ (i.e., all OOP costs, including medical and Rx, must count toward OOP limit and all expenses, which again include medical and Rx, must be covered at 100% once OOP limit is met (rules apply to in-network services) This differs from prevalent practice for non-HDHPs under which: (a) Rx benefits are
carved out from medical and do not apply to medical OOP limit, and: (b) copays for services such as Rx and office visits continue to apply after medical OOP limit reached
Recent federal guidance confirms that OOP limits must be comprehensive starting in 2014; one year delay is allowed for plans that carve Rx out to separate administrator
MARKETPLACE REFORM
Provisions beginning in 2014Maximum out-of-pocket limits
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Significant implications for non-HDHP plans: Plan value becomes richer, thus impacting plan cost, unless changes to OOP limit or
other design features are adopted to offset this increased cost
Rx and medical vendors need to share claim data for combined accumulation toward comprehensive OOP limits
MARKETPLACE REFORM
Provisions beginning in 2014Maximum out-of-pocket limits (continued)
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Employers with more than 200 full-time employees that offer health coverage are required to automatically enroll employees in health coverage
Employees must be given notice and opportunity to opt-out or enroll in another option
Employers can subject employees to waiting period
U.S. Department of Labor to issue guidance
13MARKETPLACE REFORM
Automatic enrollment (delayed until 1/1/2015…or later
Comments
Administrative burden:
— Continuous turnover can create challenges
— Process and procedures will have to be evaluated and adjusted
Significant employee communication considerations
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Health insurance exchange defined
HEALTH INSURANCE EXCHANGES
Private Exchanges Fall into two general categories:
An arrangement where participating employers would offer their employees and/or retirees a pre-defined selection of health plans that have been designed and selected by a third party
Medicare exchanges supporting transition from group to individual coverage
Public Exchanges As enacted under Health Care
Reform, public exchanges will offer plans with standardized relative values to individuals and small groups, with federal subsidies based on income to offset premium cost
May be operated at state or federal level
Scheduled to become operational in 2014 for all eligible individuals under age 65 (will not apply for individuals eligible for Medicare)
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Public health insurance exchanges
Comprehensive "one-stop shopping" market for commercial health insurance that brings together buyers (employers, individuals) and sellers (insured health plans) by providing Plans that meet specified standards in terms of design and underwriting, and Centralized services to support plan assessment, comparison, enrollment and
administration
For all eligible individuals under age 65 (will not apply for individuals eligible for Medicare) U.S. citizens and legal residents Reside in state in which exchange operates Not incarcerated
May be operated at state or federal level Employer eligibility to participate in Exchange
Small employers (≤100 employees; States could lower to ≤50 employees) - DELAYED Exchanges may allow large employers (200+ employees) same options in 2017+
HEALTH INSURANCE EXCHANGES
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Family Income Less Than 400% of Poverty
Family Income Greater Than 400% of Poverty
Family Income Less Than 133% of
Poverty
Family may purchase unsubsidized coverage in
Exchange
If employer coverage is available
Family may choose the employer plan or
unsubsidized coverage in Exchange
2014 FPL
Single Individual
Family of 4
100% $11,850 $24,454
133% $15,796 $32,597
400% $47,401 $97,815
Family may also participate in Exchange
Family is eligible for Medicaid
Family may choose the employer plan or Medicaid
If employer coverage is available
Family is eligible for subsidy in Exchange
If employer coverage is available, but either inadequate (<60% benefit) or unaffordable
(premiums >9.5%)
Family may choose the employer plan or subsidized coverage in Exchange
If employer coverage is available and adequate and premiums are affordable
Family may choose the employer plan or unsubsidized coverage in Exchange
Estimated for 2014
HEALTH INSURANCE EXCHANGES
How will an individual likely get coverage in 2014?
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Platinum (90% Value)
Gold
(80% Value)
Silver
(70% Value)
Bronze
(60% Value)
Guarantee issue
No medical underwriting
No pre-existing condition limits
Rating rules (highest age bracket can be no more than 3 times lowest age bracket)
Plan Offerings
Essential health benefits
Preventive care at 100%
No lifetime or annual limits
Maximum Out-of-Pocket limits
Key Requirements
As enacted under Health Care Reform, public exchanges will offer planswith standardized relative values to individuals and small groups, with
federal subsidies based on income to offset premium cost
HEALTH INSURANCE EXCHANGES
What kind of exchange coverage will be available?
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Roles in exchange development and operation
States can choose: How many exchanges there will be:
— More than one in state?— Separate for individual and small group?— Participation in a regional exchange?— No state-sponsored exchange (federal
exchange)— State-federal partnership?
Whether it’s a governmental or not-for-profit entity
Exchange governance Regulatory role with insurers Determine product offering requirements within
HHS guidelines in the exchange Interaction between products and rates in the
exchange vs. those sold outside of the exchange
Health and HumanServices (HHS) must:
Issue rules regarding implementation and operations of exchange
Issue rules around broad qualified health plan requirements
Issue standards for “Navigators” Develop IT systems to help exchanges:
— Rate qualified health plans— Evaluate member satisfaction — Make eligibility determinations for
federal programs and subsidies— Provide standardized information
Develop streamlined application for income based plans and subsidies
Provide funding until 2015
HEALTH INSURANCE EXCHANGES
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Play or Pay Decision Possible exchange participantsExchange Interactions with
employer
Play coverage is always affordable
Medicaid eligible employees COBRA participants Non-FTEs Early retirees
Administrative (verifying access to affordable coverage, etc.)
No employer penalties
Play coverage is unaffordable
Employees with unaffordable coverage
Medicaid eligible employees COBRA participants Non-FTEs Early retirees
Major administrative (verifying access, appeals re: status of affordable coverage, etc.)
Employer penalties for those who enroll in exchange when unaffordable, or broader if coverage unavailable
Pay All categories of active, inactive and retired employees
Considerable administrative effort in verifying no access to employer plan, etc.
Employer penalties for all active full-time employees
HEALTH INSURANCE EXCHANGES
Employer interaction with exchangesFrequency and intensity will vary based on play-or-pay strategy
Penalties Delayed / Reporting Relaxed
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Key Exchange functions
Key Functions:
Determine eligibility For Exchange participation
For insurance affordability programs (Medicaid, CHIP, premium tax credits, Basic Health Plan)
Notify individuals and employers about determinations; provide appeals process
Certify, rate and communicate qualified health plans
Maintain Web site and call center with toll-free number
Notify IRS and enrollees of Exchange coverage
HEALTH INSURANCE EXCHANGES
Concerns
Interactions and administrative requirements related to eligibility determinations
Potential for adverse selection— Overall member experience in
exchanges and perceptions on quality and value of coverage
Uncertainty surrounding exchange development, readiness for 2014 and future viability
Coverage expansions likely to strain primary care capacity due to additional demand of the newly covered
Relaxed
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HEALTH INSURANCE EXCHANGES
State Exchanges by Model and Certification Status
WA*
OR*
CA*
NV*
ID*
UT*
AZ
MT
TX
NM*
AK
HI*
CO*
WY
NE
OK
KS
ND
SDMI
WIMN*
IA*
MO
AR*
LA
INIL*OH
KY*
TN
MS** AL
FL
GA
SC
NC
VAWV*
MD*
DE*
PA
ME
NH*
VT*
RI*NY*
CT*NJ
MA*
Source: Towers Watson, as of April 17, 2013
DC*
State exchange Partnership exchange Federally-facilitated exchange Unknown* Conditional certification by HHS** State-based exchange blueprint rejected by HHS
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HHS Bulletin: Verification of Access toEmployer-sponsored Coverage
HHS Bulletin: Verification of Access to Employer-Sponsored Coverage
Requests input on interim (2014 and 2015 plan years) and long-term (2016+ plan years) strategies for the purpose of verifying an employee’s eligibility for federal subsidies to purchase Exchange-based coverage
Proposed interim strategy:
— Provide a standardized way for employees and employers to voluntarily collect and communicate employer-sponsored coverage information needed to complete an Exchange application
— Allow Exchanges to verify employer-sponsored coverage through use of limited pre-enrollment verification based on data sources available to an Exchange and a post-enrollment verification screening process where data sources are not available during the eligibility determination process
HEALTH INSURANCE EXCHANGES
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HHS Bulletin: Verification of Access to Employer-sponsored Coverage
Proposed long-term strategy:
— HHS is looking for ways to foster the identification and/or development of data sources that would facilitate real-time verification of access to employer-sponsored coverage information during the enrollment process
— HHS seeks comment from employers and other stakeholders on data sources so as to minimize the need for employers to respond to requests from employees or Exchanges for information
— Interest in leveraging any data accumulated through other reporting requirements; agencies considering a number of existing reporting mechanisms to identify opportunities for streamlining, with the goal of minimizing the burden on employers
The preamble of the August 2011 proposed Exchange regulations requested comment on two proposed interim strategies: (1) a sample template that could be used voluntarily by employers and employees to assist applicants in filling out the Exchange application; and (2) a database that employers could voluntarily populate with relevant information and that Exchanges could access
HEALTH INSURANCE EXCHANGES
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Employer mandate – 2014
Generally, beginning in 2014, applicable large employers must either:
Offer coverage to 95% of full-time employees (and their child dependents) that is affordable and meets minimum value
Pay tax penalties for those employees who receive tax credits/subsidies for Exchange coverage
OR
Comments
Many State and Local Government employees are likely to qualify for federal subsidies
Estimated 2014 FPL levels
Family Size 1x FPL 4x FPL
Individual $11,850 $47,401
Family of four $24,454 $97,815
EMPLOYER MANDATES
Delayed
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Definitions: Full-time employee (FTE)
Full-time is defined as working an average of 30 hours or more per week each month
Regulations provide that 130 hours of service in a calendar month will be treated as the monthly equivalent of 30 hours/week
EMPLOYER MANDATES
Comments
Will require monitoring to ensure that part-time employees do not inadvertently becomefull-time — even temporarily, which could generate penalties
If an employer cannot determine whether an employee will work a consistent, full-time schedule, coverage can be delayed during measurement period Measurement period must be at least 3 months and cannot exceed 12 months If during measurement period employee is determined to be full-time, coverage must
be offered going forward for a period of time at least equivalent to the measurement period, but not less than 6 months
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No Employer Plan Employer OffersMinimum Value Coverage
$2,0001 x all full-time employees (FTEs) Triggered if any employee receives
subsidized coverage through Exchange
Penalties nondeductible by employer
Employee contributions for self-only coverage exceed 9.5% of household income and employee household income at or below 400% of federal poverty level (FPL)
Pay lesser of: $3,0001 for each subsidized FTE that
receives Exchange-based premium subsidy, or
$2,0001 x all FTEs in controlled group
1 Indexed to national average increases in health care premiums
EMPLOYER MANDATES
Overview of employer penaltiesDelayed
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Premium and cost sharing subsidies – 2014
Federal premium subsidies available for low-/middle-income individuals with household income at or below 400% of the federal poverty level (FPL) Available only for Exchange-based
coverage; unavailable to those offered affordable minimum coverage by employer
Sliding scale: Individual to pay2% - 9.5% of income toward premiums
Cost-sharing subsidies also available
Comments Employees earning below 133% of
FPL may be able to enroll in Medicaid for no monthly premium
Next tranches of employees may actually be better off in Exchange plans, depending on required contribution levels
Family income
as % of FPL
Max premium cost as a % of family income
Actuarial Value
< 133% 2.0% 94%
133% - 150% 3.0% - 4.0% 94%
150% - 200% 4.0% - 6.3% 87%
200% - 250% 6.3% - 8.05% 73%
250% - 300% 8.05% - 9.5% 70%
300% - 400% 9.5% 70%
PREMIUM / COST SHARING SUBSIDIES
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Yes
No employees eligible for federal premium subsidies
to purchase Exchange coverage
No $3,000 employer “play”
penalty per employee obtaining subsidies
No
Is family income ≤ 4x Federal Poverty Level?
Yes
Employee may qualify for federal premium subsidies for Exchange coverage (if
declines employer plan)
Employer pays $3,000 "play" penalty per employee
No
Employee does not qualify for federal premium subsidies to purchase Exchange coverage (unlikely to decline employer
plan)
Employer not subject to $3,000 “play” penalty per employee
Affordability and the 9.5% ruleIs employer coverage “affordable”?
1) Lowest single contribution ≤ 9.5% of family income, and
2) plan pays at least 60% of plan eligible expenses (based solely on plan design)
PREMIUM / COST SHARING SUBSIDIES
Employees with access to family coverage that costs more than 9.5% of family income will NOT qualify for federal subsidies if single contribution is set at or below 9.5% of family income
Delayed
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A difficult decision regarding Medicaid expansion
Federal government can offer states 90% of the cost of expanding Medicaid to millions of new individuals
States may agree to expand coverage in exchange for those new federal funds
If a state accepts the Medicaid expansion funds, it must obey the new rules and expand coverage
However, a state must be able to decline participation in the expansion without losing all of its Medicaid funds States have the option to continue a current Medicaid plan – as is – without losing the
50% federal share of the costs for original Medicaid
Federal tax credits for Exchange-based premiums do not extend to individuals under 100% of FPL A potential gap in access to premium tax credits for those not meeting states’ current
Medicaid eligibility guidelines, but under 100% of FPL
EXPANDED PUBLIC PLANS
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Medicaid expansion: Where states stand
Source: The Advisory Board, April 1, 2013. The District of Columbia plans to participate in Medicaid expansion and will operate its own exchange.http://www.advisory.com/Daily-Briefing/2012/11/09/MedicaidMap#lightbox/1/
WA
OR
CA
NV
ID
UT
AZ
MT
TX
NM
AK
HI
CO
WY
NE
OK
KS
ND
SD
MI
WIMN
IA
MO
AR
LA
INILOH
KY
TN
MS AL
FL
GA
SC
NC
VAWV
MD
DE
PA
ME
NH
VT
RINY
CTNJ
MA
Participating (25) Leaning Toward Participating (2) Undecided/No Comment (6) Leaning Toward Not Participating (3) Will Not Participate (14)
25 Governors Support Medicaid Expansion
?
EXPANDED PUBLIC PLANS
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Transitional reinsurance fee
WHY? Meant to stabilize premiums for coverage in the individual market during the first
three years public exchanges are operational (2014-2016) Reinsurance payments provided to individual market issuers that cover individuals with
high medical costs
WHO PAYS? “Contributing entities,” (i.e., health insurance issuers and self-insured group health
plans), are required to make reinsurance contributions for “major medical coverage”
HOW MUCH? For the 2014 benefit year, the national per capita contribution rate will be $5.25
per covered life per month (or $63 per covered life per year) Expected to decline to ≈$42 per covered life in 2015 and ≈$26 per covered life in 2016
REVENUE RAISERS
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Transitional reinsurance fee
WHEN? Contributing entities will be required to make the first reinsurance contributions
payment in December 2014 or January 2015
WHAT ELSE? Plan expense: The Department of Labor indicated that the reinsurance
contributions constitute a permissible plan expense under ERISA; this means that plan assets may be utilized to pay the reinsurance contributions
REVENUE RAISERS
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Patient-Centered Outcomes Research Institute (PCORI)
WHY? Established by PPACA to research comparative effectiveness of treatments for health
issues; evidence-based information may affect plan design and consumer behavior
WHO PAYS? Sponsoring employer – single employer self-insured health plans
Multi-employer fund – multi-employer health plans
Insurer – insured health plans (including HMOs)
HOW MUCH? $1 per year/covered life (employee, spouse, dependent) in the first year; $2 per
year/covered life in the second year, and indexed for the remaining five years
WHEN? Self-insured plan years and insured policy years ending on or after 10/1/12 and before
10/1/19 No later than July 31 of the year following the last day of the plan year or policy year (i.e., 7/31/13
for calendar year plans)
REVENUE RAISERS
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© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson Client Use Only.Towers Watson is not a law firm and therefore cannot provide legal advice. Please seek qualified legal counsel before finalizing a course of action based on this material.
40% non-deductible excise tax on high-cost group health benefits* Plans whose cost exceeds $10,200 for
single coverage, $27,500 for family coverage annually
Indexed CPI-U+1% in 2019, CPI beginning in 2020
Adjustments for age, gender, high-risk populations, early retirees and cost growth greater than benchmark
Aggregate premium for employer-sponsored health benefits* NOT applicable to separate fully-insured
vision and dental plans, and dread disease and fixed-dollar indemnity policies
*Group health benefits includes: medical (e.g., PPO, HDHP), health FSA, HRA, employer and employee pre-tax HSA contributions, EAP, on-site primary care medical clinics (and self-insured dental and vision plans)
Comments Without significant design or
contribution changes, many employer plans will hit the excise tax limit in 2018
Many employers will be reviewing their medical benefits strategy in order to manage costs below the excise tax threshold
Employers will look for proactive health plan management strategies that reflect: business, workforce and reward strategies; engagement strategies and ways to improve the workforce health and productivity
REVENUE RAISERS
Excise tax on “Cadillac” plansEffective 2018
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Discussion
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© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson Client Use Only.Towers Watson is not a law firm and therefore cannot provide legal advice. Please seek qualified legal counsel before finalizing a course of action based on this material.
Thank you