The Affordable Care Act and
Health Benefits:
What You Need to Know
AFSCME International Convention, Chicago, IL
July 15, 2014
Mary Meeker and Sally Tyler
AFSCME Research Department
Agenda
• Review ACA goals
• ACA market reform provisions enacted and
upcoming
• Impact on Employee Benefit Plans and Bargaining
– Wellness programs
– “Pay or Play” - employer 4980H penalties
– New fees/taxes on plans
• Medicaid Expansion and Marketplaces
• Q&A
(Mis)Information?
• Misrepresentation
• Half-Truth
• Dishonesty
• Deception
• Distortion
• Confusion
Implementation:
ACA Goals/Objectives
• Expand Coverage: Create Exchanges and
Expand Medicaid
• Control Costs: Insurance Market Reforms
• Improve Quality: Delivery System/Payment
Reforms
Market Reforms already
implemented
• Young adult coverage
• No lifetime limits
• No annual dollar limits on EHB
• No pre-existing condition limits
• Preventive care with no cost-sharing *
• MLR requirements for fully-insured plans
Market Reforms already
implemented (continued)
• Patient protections *
• Increased penalty for “nonqualified” HSA distributions
• FSA/HRA/HSA can only reimburse prescribed OTC
drugs
• FSA contributions capped at $2500
• No waiting periods over 90 days
Market Reforms already
implemented (continued)
• EHB package *
• “Marketplaces”
• Medicaid Expansion
• Max out-of-pocket ($6350/$12700) – all non-grandfathered
plans
• “Health-contingent” wellness program incentive
increases to 30% of premium
Upcoming Provisions
• Employer Shared Responsibility Payments - 2015
• “Marketplaces” may open to large employers-2017
• Excise tax - 2018
Grandfathering
• A “grandfathered” plan is a plan in existence on
March 23, 2010
• Grandfathered plans are exempt from some of the
mandates - but not all
• Plans lose grandfathered status if they make
significant changes
• Grandfathered status is determined separately for
each plan option
Losing Grandfathered Status
• Elimination of all or substantially all benefits to diagnose or
treat a particular condition;
• Any increase in a percentage cost-sharing requirement
(coinsurance);
• Any increase in fixed-dollar cost-sharing (e.g. deductibles, outof-pocket expenses – not copayments) in excess of the rate
of medical inflation since March 23, 2010, plus 15%;
Losing Grandfathered Status
• Any increase in copayments in excess of the greater
of a) the rate of medical inflation, plus 15%, or b)
$5.00, increased by medical inflation;
• Any decrease in the employer contribution towards
the cost of any tier of coverage by more than 5% of
the contribution rate in effect on March 23, 2010
(measured for each coverage tier).
What it Means to be
Grandfathered
Applies to GF plans:
• Eliminate lifetime & annual
limits
• Cover adult children to
age 26
• Provide rebates if the
medical loss ratio
requirements not met, for
fully-insured plans only
Does not apply to GF plans
• Cover preventative care for
with no cost-sharing
• Eliminate prior authorization
or higher cost sharing for
non-network ER care
• Cap on out-of-pocket costs
• Expanded appeals process
• Essential Health Benefits
ACA & Employee Wellness
Programs
• “Participatory” programs – majority of existing
programs – not required to satisfy requirements
set out in the ACA regulations.
• “Health-contingent” programs must satisfy the
five conditions set out in the ACA regulations
ACA & Employee Wellness
Programs
• Participatory Programs (no incentive or incentive not based
on a health factor)
– Reimbursing gym membership
– Filing out HRA
– No cost education seminars or “lunch and learns”
• Health Contingent Programs (incentive based on health
factor)
– Activity-only: walking programs, diet or exercise programs
– Outcome-based: tobacco surcharge, biometric screening
with certain levels required to earn incentive (BMI or
cholesterol levels) or requirement for further action if over
certain levels
ACA & Employee Wellness Programs
(continued)
5 requirements for “health-contingent” programs:
1. Qualify once per year
2. Maximum reward of 30% (50% for tobacco related)
3. Reasonably designed to promote health or prevent
disease
4. Available to all with a reasonable alternative
5. Disclose the availability of alternative
“Shared Responsibility” for Coverage
Individual
Insurance
Company
No Pre-existing
Condition
Discrimination
Individual
Mandate
(Greater of)
2014: 1% or $95
2015: 2% or $325
2016: 2.5% or $695
Employer
Penalties for
Large
Employers*
Individual Mandate
Coverage Requirements and Exemptions
• Coverage
 Employer sponsored coverage
 Exchange coverage
 Medicaid, Medicare, CHIP, Tricare
• Exemptions
 Religious objections
 Incarcerated
 Indian tribes
 Undocumented resident
 Coverage costs more than 8% of income
Is Employer a “Large” Employer?
• Applicable large employer (ALE) has at least 50 full-time
employees (including FTEs) during preceding calendar year
– Full-time employee: 30hrs/week or 130 hrs/month
– FTE calculation includes hours of part-timers and seasonal
workers
• Controlled Group Employers (IRC § 414)
– Hours are aggregated for all “members” to determine ALE
status – but 4980H penalties determined member by member
• Seasonal Worker Exception
– If employer exceeded 50 employees on only 120 or fewer days,
and seasonal workers were the only reason, then not an ALE
Employer Shared Responsibility
“play or pay”
• Applies to employers with 100+ FTEs in 2015
**50+ FTEs in 2016 and thereafter
• Penalty (a) no coverage offered to at least 70% FT
empls/dependents (95% in 2016)
 Penalty amount = $2000 times number of full-time employees (excluding
first 80, decreasing to 30 in 2016)
• Penalty (b) unaffordable or inadequate coverage offered
 Penalty amount = $3000 per full-time employee receiving subsidized
coverage
• Both penalties are triggered by employee getting subsidized
coverage
Additional 1 year delay…
• Employers with 50-99 FT employees not subject to
penalty in 2015 if:
1.
Employ 50 – 99 FT employees on business days during 2014; and
2.
Do not reduce the size of workforce or overall hours of service
for employees between 2/9/14 and 12/31/14; and
3.
Do not eliminate or materially reduce the health coverage
offered as of 2/9/14
Employer “Play or Pay” 2015
Does Employer have 100
FTEs?
No
Employer is not subject to
penalties.
Yes
Is min essential coverage
offered to at least 70% fulltime employees/dependents?
No
Subject to penalty (a) if one
full-time emp gets subsidized
coverage on exchange
Yes
Does plan pay for at least
60% of cost of covered
benefits? (Adequate)
No
Subject to penalty (b) if
employee gets subsidized
coverage on exchange
Yes
Is employee contribution for
single coverage no more than
9.5% of income? (Affordable)
Yes
Employer does not owe
penalty
No
To Cover or Not to Cover…
• Not covered by “employer mandate:”
– Spouses
– Pre-65 retirees
– Part-timers (under 30 hrs/wk)
• Consider options and consequences
Full-Time Employee
• Works on average at least 30 hrs/week (130 hrs/mo)
• Includes all paid hours – regardless of whether actual
work is performed
• Optional “safe harbors” for employers to use when
they can’t reasonably determine full-time status
– Measurement period – (3-12 months)
– Stability period – (greater of 6 months or length of measurement period)
Employer Assistance and
“Marketplace” plans
• Employers not permitted to offer tax favored
arrangements to purchase individual market coverage
• HRA may be used for actives if “integrated” with
another group health plan
• Employer cannot meet “responsibility” by paying
premiums on Exchange plans.
Excise Tax – 2018
• 40% tax on costs (“excess benefit”) of employersponsored health coverage above: $10,200 single
and $27,500 family*
• Threshold amounts include employer and
employee:
– Health plan premium contributions
– Contributions to FSAs, HRAs HSAs and MSAs
• Dental and vision excluded if covered separately
Excise Tax - 2018
• Thresholds adjusted for pre-Medicare retirees and plans
with majority of employees in “high risk” jobs
• $11,850/single and $30,950/family
• Adjustments for demographic composition of pool
• Details concerning these adjustments unknown
• Indexed for inflation
– CPI + 1% 2019
– CPI 2020 and beyond
Excise Tax – 2018
Fully-insured plans
–
Health insurance company liable for tax
Self-insured plans
– Plan sponsor/benefit administrator (employer) liable
*No provisions preventing insurers/employers from
passing cost on to employees
Act Now or Later?
• No implementing regulations for excise tax
yet – need clarity and still unknowns
•
Determination of cost
•
•
•
•
Rules “similar” to COBRA rate calculation
Employee HSA contributions included?
Determining exactly which coverage needs to be
accounted for – wellness plans? Which ones?
“Separate” dental/vision coverage – self-funded or just
insured?
• Possible changes or delays?
Solutions or Strategies?
Possible options to consider (but still uncertainties…)
•
•
•
•
•
•
•
•
High performance networks or centers of excellence
Wellness programs/VBID that target chronic conditions
Carve out dental and vision if not separate
Auditing claims for waste, errors (or dependent audit)
Evaluate new financial terms and performance standards with
vendors
HDHPs with shift of some compensation into wages or elsewhere
Explore parsing of covered employees (active, retired, high risk)
for impact on tax
ACOs down the road when tested
Other Fees/Taxes on Plans
• Comparative Effectiveness Research Fee or PCORI
(thru 2019)
• Transitional Reinsurance Fee (thru 2016)
• Health Insurance Provider Fee
PCORI Fees
• All plans (insured and self-insured) must pay a fee to
fund comparative effectiveness research
• Paid by July 31 of calendar year following end of plan
year
– 1st year (plans ending after 9/30/2012): $1 per average
number of covered lives
– 2nd year (plans after 9/30/13): $2 per covered life
– 3rd year thru 2019: amount adjusted by inflation
• Sunsets in 2019
Transitional Reinsurance Fee
• Used to stabilize the individual insurance market
• Both insured and self-insured* plans must pay fee
• Temporary fee – 2014 thru 2016
– 1st year: $5.25/mo per covered life or $63/year per person
(total of $12 billion collected in first year)
– 2nd year: $3.67/mo per covered life or $44/year per person
($8 billion total)
– 3rd year: TBD ($5 billion total)
• Fees apply to “major medical coverage”
Health Insurance Provider Fee/Tax
• Annual, permanent tax on insurers beginning 2014
• Amount paid by each insurer is based on market share
– $8 billion total in 2014, increasing to $14.3 billion in 2018 then
indexed
• Likely reflected in premium rates
– Estimated premium impact: 2 - 3%
Issues to Look Out For
• Attempts to outsource work to get head count down
• Reducing hours worked to cut down on number of FT
• Increased OT instead of hiring new employees
• Attempts to drop spousal coverage or add surcharge
• Decreasing employer contribution toward other than
single coverage
• Downgrading coverage to “bronze” level or offering
“skinny” plan to avoid larger penalty (a)
• Move to defined contribution approach and “private”
exchange
How Does the ACA Expand
Health Insurance Coverage?
• CBO estimates decrease in uninsured by 26 million
by 2017 – reducing rate by half.
• 56% of uninsured eligible for financial assistance.
• 39% eligible for Medicaid/CHIP.
• 27% eligible for tax credits in marketplace.
• 10% in coverage gap.
Exchanges or “Marketplaces”
• Individuals and small group in 2014
• State option to open to large employers in 2017
• Plans grouped by “metal tier” – Platinum (90%), Gold
(80%), Silver (70%), Bronze (60%)
• Income based premium subsidies available on a
sliding scale for those with incomes up to 400% FPL
More Information
1.
2.
3.
4.
www.afscme.org/healthcare
www.healthcare.gov (24/7 toll free 1-800-318-2596)
www.dol.gov/ebsa/healthreform
www.irs.gov/uac/Affordable-Care-ActTax-Provisions-Home