Health Care Reform
Update
Presented to: Puget Sound Finance Officers Association
July 23, 2013
By: Carol Wilmes
AWC Trust Program Manager
Association of Washington Cities
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Today’s Conversation
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Incremental Change
Current State of Play
Impact to Employers in 2014
What Local Governments Should be
Doing
Planning for our Benefit Future
Association of Washington Cities
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Key elements of health reform
Key Elements of Health Care Reform
for employers
• Change in tax treatment for overage dependent coverage
• Accounting impact of change in
Medicare retiree drug subsidy tax
treatment
• Employers must distribute
uniform benefit summaries to
participants
• Health insurance exchanges
• Individual coverage mandate
• Early retiree medical reinsurance
• Employers must provide 60-day
advance notice of material
modifications (TBD)
• Financial assistance for
exchange coverage of lowincome individuals
• Medicaid expansion
• Medicare prescription drug
“donut hole” beneficiary rebate
• Form W-2 reporting for 2011
health coverage
• New health plan regulations
• HIPAA wellness limit increases
• Auto-enrollment of full-time
employees (effective TBD)
• Shared responsibility penalties
• Free-choice vouchers
• Break time/private room for
nursing moms
2010
• Dependent coverage to 26
(no other employer coverage
available)*
• No lifetime dollar limits*
• Restricted annual dollar limits*
• No pre-existing condition
limitations for children up to
age 19*
• No rescissions*
• Additional standards for new or
“non-grandfathered” health
plans, including nondiscrimination provisions for
insured plans and mandatory
preventive care with no costsharing
• Additional reporting and
disclosure
2011
2012
• No health FSA/HRA/HSA
reimbursement for nonprescribed drugs
• Increased penalties for nonqualified HSA distributions
• Voluntary long-term care
“CLASS” program slated to start
• Pharmaceutical manufacturers’
fees start
• Medicare, Medicare Advantage
benefit and payment reform
• Insurers subject to medical loss
ratio rules*
2013
2014
• $2,500 health FSA contribution
cap (indexed)
• Medical device manufacturers’
fees start
• Higher Medicare payroll tax on
wages exceeding $200,000/
individual; $250,000/couples
• New Medicare tax on net
investment income for taxpayers
with incomes exceeding
$200,000/ individual;
$250,000/couples
• Research fees begin
• Change in Medicare retiree drug
subsidy tax treatment takes effect
• Dependent coverage to age 26 for
any covered employee’s child**
• No annual dollar limits**
• No pre-existing condition limits**
• No waiting period over 90 days**
• Additional new standards for new
or “non-grandfathered” health
plans, including limited costsharing
• Health insurance industry fees
begin
2018
• Excise tax on “high cost” or
Cadillac plans
* Applies to all plans, including
“grandfathered” plans, effective for
plan years beginning on or after
Sept. 23, 2010 (Jan. 1, 2011, for
calendar year plans). Collectively
bargained plans may have a
delayed effective date.
** Applies to all plans, including
grandfathered plans, effective for
plan years beginning on or after Jan.
1, 2014.
Breaking News!
Employer Mandate of 2014
DELAYED
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It started with the delay in U.S. DOL and IRS employer
reporting process to be delayed
Without reporting, so
follows employer
Mandate
Delayed until 2015
The Domino Effect
 Houses

passes repeal
of individual mandate
And so it goes…
Association of Washington Cities
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Health Care Reform: 2013
 Employer must determine FTEs to avoid ACA penalties for not
offering health care coverage - DELAYED
 Notice informing employees of coverage options in exchange
 Limit health care FSA contributions to $2,500 (Indexed)
 Elimination of deduction for expenses allocable to retiree drug subsidy
(RDS)
 Additional 0.9% Medicare tax on high income earners
 3.8% Medicare tax on investment income of high income earners
 Addition of women’s preventive health requirements of no cost
sharing and coverage for certain in-network preventive health
services
 PCORI fee filing and payment for 2012 due by 7/1/13 ($1 for average
number of lives covered)
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Health Care Reform: 2014
 Employer (DELAYED) and individual mandate
 State/Federal insurance exchanges begin
 Patient protections:
 Pre-existing condition exclusions prohibited
 Annual dollar limits on Essential Health Benefits prohibited
 Maximum 90-day waiting period for coverage
 Cost-sharing limits for all group health plans, not just HDHPs/HSA
(deductibles and OOP maximum)
 Employer reporting of health insurance information to government and
participants (DELAYED)
 HRAs must be integrated with group health plan
 “Participants” must be enrolled in order for contributions to be made
 Existing stand-alone HRAs must be transitioned to pension HRAs, if not tied to medical
 Transitional reinsurance fees begin (proposed fee amount is $63 per
covered member) & insurer fees
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Taxes, Fees and Cost
Purpose
Cost
Timeframe
Responsible
Party
Patient-Centered
Outcomes Research
Institute Fees (PCORI)
Supports medical
prevention, treatment
and care options
research
$1/life in 2013; $2/life in
2014 and adjusted
annually for inflation
2013-2018
• Insurers of fully insured
plans
• Sponsors of self-insured
plans
Transitional
Reinsurance
Assessment Fee
Helps stabilize premiums
in individual market
$63 annually per covered
life for 2014; $42 in
2015; $26 in 2016
2014-2016
• Insurers of fully insured
plans
• Sponsors of self-insured
plans
Health Insurer Fee
Supports cost of health
care reform
Estimates range from 23% premium with lower %
for non-profits (applies
to medical, dental, vision
insurers)
2014-Ongoing
• Insurers of fully insured
plans
• Does not apply to selfinsured plans
State Exchange Fees
Supports Exchange
administration
To be determined and
will vary by state
To be determined and
will vary by state
To be determined and will
vary by state
Clinical Trial Fee
Supports cost of clinical
trials
Unknown
2014-?
• Insurers of fully insured
plans
• Sponsors of self-insured
plans
High Cost Health
Insurance Tax (Cadillac
Tax)
Supports cost of health
care reform
Excise tax of 40% on plan
costs that exceed
defined thresholds
2018-Ongoing
• Insurers of fully insured
plans
• Sponsors of self-insured
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plans
Association of Washington Cities
2015: Employer Pay or Play
(“Shared Responsibility”)
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Apply to employers with >50 full-time employees (FTE
equivalents)
New full-time employee (30 hours/week) definition:
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Permanent
Part-time
Seasonal or variable hour
Employee not eligible for premium tax if employee has
access to minimum essential coverage
Employer-provided coverage is minimum essential if:
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Coverage provides 60% of total allowed costs
Affordable coverage: employee only coverage of lowest plan
option does not exceed 9.5% of household income
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Planning for 2015: Employer
Pay or Play (cont.)
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Employers who do not offer coverage to 95% of
employees and their dependent children and have an
employee who receives a premium tax credit:
• Must pay $2,000 per FTE (after subtracting the 1st 30
FTEs)
Employers who offer coverage and have an employee
who receives a premium tax credit:
• Must pay $2,000 per FTE OR $3,000 per FTE receiving
tax credit, whichever is less
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Employer Penalties in 2015
Start Here
Does the employer*
offer coverage to its
workers?
No
Did at least one
employee receive a
premium tax credit or
cost sharing subsidy
in an Exchange?
No
Employees can
choose to buy
coverage in an
Exchange and
receive a premium
tax credit.
Yes
The employer
must pay a
penalty for not
offering coverage
The penalty is $2,000 annually
times the number of full-time
employees minus 30. The
penalty is increased each year
by the growth in insurance
premiums.
The employer
must pay a
penalty for not
offering
affordable
coverage.
The penalty is $3,000 annually
for each full-time employee
receiving a tax credit, up to a
maximum of $2,000 times the
number of full-time employees
minus 30. The penalty is
increased each year by the
growth in insurance premiums.
Yes
Does the insurance
pay for at least 60%
of covered health
care expenses for a
typical population?
Yes
Do any employees
have to pay more
than 9.5% of family
income for the
employer coverage
(employee only)?
Yes
Those employees
can choose to buy
coverage in an
Exchange and
receive a premium
tax credit.
No
There is no
penalty payment
required of the
employer since it
offers affordable
coverage.
Aon Hewitt | Health & Benefits Consulting
Proprietary & Confidential
*Assumes
employer has at least 50 full-time equivalent employees.
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What Local Governments Should
be Doing Now
What Decisions Do I Have to Make?
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Workforce Assessment for FTE (30-hour work week, seasonal/variable hour)
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Pay or Play – Consider Obligations
 Unions
 LEOFF Is
 Ability to pay – municipal budgets & forecasting
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Do I make plans affordable for everyone?
What Actions Do I Have to Take?
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Review plans and eligibility rules
 Understand impact on those currently opting out of coverage
 Understand impact of full time employee requirements
 Are you set up to administer new requirements?
 Use transition relief for measurement period in 2013
 Ensure plans are compliant with PPACA design regulations
 Determine whether plans pass actuarial value and affordability tests
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Identify any workforce planning issues that need to be dealt with before 2014
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Model cost impact to employers and employees now and into future (2018)
Association of Washington Cities
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Let’s drill it down further …
Discuss strategies and labor issues related to:
a. “Play or Pay” penalty:
fulltime/seasonal/variable hour
employees
b. The Cadillac tax
c. The ACA at the bargaining table
d. The world is not coming to the end, but
careful planning is essential
Association of Washington Cities
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Assessing the Workforce
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Full-time employee
• 30+ hours/week
• New regulations
• Measurement period (3-12 months)
• Stability period (at least 6 mos or match
measurement period)
• Administrative period (at least 90 days)
Penalties kick in when an employee receives a premium
tax credit
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ACA Employee Categories
Full-Time Permanent
Employee (30+ hpw)
•
•
Offer affordable, minimum value employee + dependent child
coverage
Offer coverage within 90 days
Part-Time Permanent
Employee (<30 hpw)
•
•
Don’t need to offer coverage
No penalty applies
Seasonal Employee
(30+ hpw)
•
•
•
Use a reasonable, good faith definition of “seasonal employee”
Use measurement/lookback period to determine eligibility
Offer coverage no later than 13 ½ months from hire date
New Variable
Employee (30+ hpw)
•
Can’t be determined that the employee is reasonably expected to
work 30 hpw
Use measurement/lookback period to determine eligibility
Offer coverage no later than 13 ½ months from hire date
Ongoing Variable
Employee (30+ hpw)
•
•
•
•
Use measurement/lookback period to determine eligibility (no
longer than 12 months)
Offer coverage at end of administration period
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Breaks in Service
•
Recent rules solely for determining when a rehired
employee may be treated as a new hire for look-back
measurement period purposes:
–
If the period for which no hours of service is credited is at least
26 consecutive weeks, an employer may treat an employee who
has an hour of service after that period, for purposes of
determining the employee’s status as a full-time employee, as
having terminated employment and having been rehired as a
new employee of the employer
Association of Washington Cities
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Terminated Employees
Employees who resign/retire/terminate are no longer
subject to measurement and stability periods and need
not be offered health insurance except for COBRA
requirements.
Association of Washington Cities
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Variable Hour Employees
• “Seasonal” employees who work other positions during non-seasonal
periods are not actually seasonal employees.
• Variable hour employees without an annual break in employment must
be carefully managed.
• 12 month measurement period = 1550 maximum annual hours.
• 1550 hours/52 weeks = 29.8 hours
• 6 month measurement period = 775 maximum hours every 6 months.
• 775 hours/26 weeks = 29.8 hours
• Once a variable hour employee is determined to be a full-time
employee during a measurement period, the employee will be treated
as a full-time employee for the entire stability period. A subsequent
decrease in hours will not immediately cause the employee to lose fulltime employee status during the stability period because the employee
is “locked in.”
Association of Washington Cities
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Questions HR, Finance,
Administration are Asking
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What kind of variable hour employees do we have?
How many months of the year do they work?
How critical is the service to the community?
Are there other ways to get the job done?
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Temp agency
Reduce hours
Hire additional staff
Job share
Decide to benefit
Are there other budget impacts to consider (i.e., hiring more
workers may mean more equipment)
Association of Washington Cities
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Breaking it down by Employee
Groups – Policy ideas
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Full-Time Permanent Employees (under review)
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Part-Time Permanent Employees
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Coverage 1st of month following date of hire
6 month measurement period
6 month stability period
Watch out for unpaid leave of absence
Don’t need to offer coverage
No penalty applies
Seasonal Employees
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12 month measurement period
Clearly define hours work
Association of Washington Cities
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Breaking it down by Employee
Groups – Policy ideas
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Ongoing Variable Employee
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12 month measurement period
Watch out for lookback period starting July 1
Clearly define hours & stick to it!
Association of Washington Cities
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Health care reform issues Finally in 2018 – Excise tax on high cost
plans
Issue
40% excise
tax on “high
cost”
employer
coverage
Patient Protection and Affordable Care Act, as amended
■ 40% excise tax on “high cost” coverage, including medical, employee and employer health FSA
contributions, onsite medical clinics, and employer (but not employee) contributions to HSAs
(but not insured stand-alone dental and vision coverage)
Thresholds for excise tax
(Indexed to CPI + 1% in 2019, CPI thereafter)
General
Self-only
Any other tier
$ 10,200
$ 27, 500
$ 11,850
$ 30,950
$ 27,500
$ 27,500
High-risk
professions
Retiree aged
55 through
64
Multiemployer
plan
■ Employers to determine aggregate cost, report to insurers and TPAs who must pay the tax
Association of Washington Cities
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Cadillac Tax, an Overview
• Tax imposed on plans offering premium coverage.
• Effective January 1, 2018.
• $10,200 limit for individual plans, $27,500 for family plans.
• Amounts raised to $11,850/$30,950 for retirees and high-risk
professionals (police, fire, emergency medical).
• 40% tax on amounts exceeding the ceiling.
• Tax calculated based on actual premiums for insured plans.
COBRA methodologies for self-funded plans.
• Goal of tax to discourage overuse/abuse of healthcare system and
help finance uninsured coverage.
Association of Washington Cities
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Cadillac Tax, an Overview
(cont.)
• Calculation includes both employer and employee
contributions.
• Includes health plans, prescription drug plans,
administrative fees, FSAs (capped at $2,500), HRAs,
and employer-paid HAS contributions.
• Dental and vision plans are not subject to tax unless
bundled with a health plan.
• Employers with composite plans may calculate cost
based on composite rate, so long as composite rate is
uniform for all employees.
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An Example of the Cadillac Tax
2013 rates for full family coverage
$1,650 employer share
+
$150 employee share
=
$1,800 per month total cost
$1,800 x 12 months = $21,600 annual cost
Growth of $21,600 at 8% per year
2014
$23,328
2015
$25,194
2016
$27,210
2017
$29,387 (maximum ceiling of $27,500 exceeded)
2018
$31,737
In 2018, $4,237 of “compensation” subject to 40% excise tax.
Total tax paid: $1,695!
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An Escalade-ing Cadillac Tax
• Tax will increase from 40% and continue to escalate.
• 2018:
potential increase tied to federal employee plans.
• 2019:
1% plus adjustments for inflation.
• 2020:
annual adjustments for inflation.
• Other ACA mandates will increase
cost of coverage, including
increased administrative overhead.
• Medical inflation continues to rise,
annual trend of 8-10%
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Strategies for Mitigating the
Cadillac Tax
#1 Get the Numbers
Apply appropriate trend to 2013 rates.
Estimate to 2018.
Are totals above $10,200/$27,500?
Start planning now.
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Strategies for Mitigating the
Cadillac Tax
#2 Unbundle dental and vision plans
Not subject to tax unless bundled with health plan.
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Strategies for Mitigating the
Cadillac Tax
#3 Decrease benefits & increase deductibles…
… while continuing to offer minimum essential coverage.
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Strategies for Mitigating the
Cadillac Tax
#4 Begin increasing employee cost-sharing
Cost-sharing does not avoid the tax, but…
1) cost-sharing may alter employee behavior and usage.
2) Cost-sharing helps pay for the tax, if necessary.
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Mandatory Subject of Bargaining
• Washington’s Public Employment Relations Commission
(PERC) has held that health benefits and health insurance
premiums are mandatory subjects of bargaining that cannot
be unilaterally changed by the employer.
• “The Commission consistently holds that health insurance
benefits, representing a form of wages, are a mandatory
subject of bargaining.” Spokane County, Decision 11627
(PECB, 2013).
• Any change impacting benefit levels or employee costs must
be bargained. University of Washington, Decision 10771
(PECB, 2010).
4/9/2015
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Bargaining Pointers
• Look to definition of part-time employee to ensure no
problems with full-time test.
• Educate employees regarding impact of the Cadillac tax.
• How to address perception, “It’s the City’s problem, not
mine….”
• Think from the perspective of the employee in order to
“sell” new approaches to health insurance.
• Unresolved issues with fire and police are subject to
interest arbitration.
Bargaining Pointers (cont.)
• Bargaining to shift more premium share to employees does
not help avoid the Cadillac tax.
• Employer contributions to Health Savings Accounts (HSAs)
or Health Retirement Accounts (HRAs) are added to
premium and may defeat philosophy of high deductible
plans and costing of such plans.
Questions….
Carol Wilmes
Program Manager
AWC Employee Benefit Trust
1-800-562-8981 or (360) 753-4137
carolw@awcnet.org
www.awcnet.org/employeebenefits
Association of Washington Cities
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