Post-Election Health Care Reform
Mapping a Strategy
May 6th, 2013
Jefferson Chamber
Consulting | U.S. Health & Benefits
Proprietary & Confidential | April 2013
The Future of U.S. Health Care Coverage
Expanding/Improving Coverage
Paying for Expanded Coverage
Health Insurance
Exchanges with
Reformed Rules
Federal Subsidies
To Buy Health Insurance
In Exchanges
Medicare/Medicaid
Payment Changes
ACA Penalties
on Employer
Optional
State Expansion of
Medicaid
“Individual
Mandate”—now a
“Shared Responsibility
Payment”
Increased Medicare
Taxes on HighIncome Individuals
Increase in
Other Taxes
Employer
Mandate
Taxation of
High-Cost Employer
Health Care
Coverage
= Direct impact to employers
= Indirect impact to employers
= Direct and indirect impact to employers
1Supreme
2Supreme
Court ruled states could decline to expand Medicaid eligibility without losing existing Medicaid funding
Court ruled “mandate” is a tax on not having health insurance
Consulting | U.S. Health & Benefits
Proprietary & Confidential | April 2013
1
Major ACA Provisions—Fees


Direct Employer Fees
– Patient Centered Outcomes Research Institute
(PCORI)
• per member annual fee of $1 in 2012, $2 in 2013
– Transitional Reinsurance Fee -cover reinsurance
programs in state exchanges
• $12B in 2014
• $8B in 2015
• $5B in 2016
Indirect Employer Impacts
– Fees on pharmaceutical companies and medical
device manufacturers, effective 2011 and 2013.
– Fees on health insurers, effective 2014
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
ACA Timeline—2011 to 2018
2011 Plan Year
 Lifetime dollar limits on
Essential Health
Benefits (EHB)
prohibited*
 Preexisting Condition
Exclusions Prohibited
for Children under 19*
 Overly restrictive
annual dollar limits on
EHB prohibited*
 Extension of Adult Child
Coverage to Age 26*
 Prohibition on
Rescissions*
 No Cost Sharing and
Coverage for Certain
In-Network Preventive
Health Services**
 Effective Appeals
Process**
 Consumer/patient
protections**
 Nondiscrimination
requirements on fully
insured plans**
(DELAYED)
 Certain Retiree Medical
Claims Reimbursable
(ERRP)
 Retiree Drug Plan FAS
Liability Recognition
2011
 Over-the-Counter
Medicines Not
Reimbursable
Under Health FSA,
HRAs, or from
HSAs Without a
Prescription,
Except Insulin
 HSA Excise Tax
Increase
 Public Long-Term
Care Option
(CLASS Act) –No
Longer Supported
by HHS
 Medicare Part D
Discounts for
Certain Drugs in
“Donut Hole”
Aon Hewitt | Health & Benefits Consulting
Proprietary & Confidential | January 2013
2012
 Employer
Distribution of
Summary of
Benefits and
Coverage to
Participants*
 Comparative
Effectiveness Fee
 Employer Quality of
Care Report**
 Medical Loss Ratio
rebates (insured
plans only)*
 Employer
Reporting of Health
Coverage on Form
W-2 (due January
31, 2013)
2013
 Notice to Inform
Employees of
Coverage Options
in Exchange
 Limit of Health Care
FSA Contributions
to $2,500 (Indexed)
 Elimination of
Deduction for
Expenses Allocable
to Retiree Drug
Subsidy (RDS)
 Medicare Tax on
High Income
 Addition of
women’s preventive
health requirements
to No Cost Sharing
and Coverage for
Certain In-Network
Preventive Health
Services **
*Denotes group/insurance market reforms applicable to all group
health plans.
**Denotes group/insurance market reforms not applicable to
grandfathered health plans.
*** This requirement applies to full time employees (e.g., 30 hours per
week) and will require coverage that is affordable and satisfies a
certain actuarial value to avoid the penalty. Guidance forthcoming.
2014
2018
 Individual Mandate to  Excise Tax on
Purchase Insurance or
High-Cost
Pay Penalty
Coverage
 State Insurance
Exchanges
 Employer
Responsibility to
Provide Affordable
Minimum Essential
Health Coverage***
 Preexisting Conditions
Exclusions Prohibited*
 Annual Dollar Limits
on EHB Prohibited*
 Automatic Enrollment
 Limit of 90-Day
Waiting Period for
Coverage*
 Employer Reporting of
Health Insurance
Information to
Government and
Participants
 Increased Cap on
Rewards for
Participation in
Wellness Program**
 Cost-sharing limits for
all group health plans,
not just HDHPs/HSA
(deductibles and OOP
maximum)**
3
 Transitional
reinsurance fees
State vs. Federal Exchange: A State-by-State Look
Source: Kaiser Family Foundation
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
4
Compliance Issues—2013 and 2014
2013
 Employer must determine FTEs to avoid
ACA penalties for not offering health care
coverage
 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 ($2 PMPY)
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
2014
 Employer must provide affordable health
care coverage to FTEs or risk penalty
 Individuals must buy health care or pay tax
 State insurance exchanges begin
 Preexisting condition exclusions prohibited
 Annual dollar limits on EHB prohibited
 Automatic enrollment (guidance delayed)
 Maximum 90-Day Waiting Period for Coverage
 Employer Reporting of Health Insurance
Information to Government and Participants
 Increased Cap on Rewards for Participation in
Wellness Program
 Cost-sharing limits for all group health plans,
not just HDHPs/HSA (deductibles and OOP
maximum)
 PCORI Fee ($2 PMPY)
 Transitional reinsurance fees ($63 PMPY)
5
How the ACA Penalties Works
Employer can be liable for either a “Doomsday Penalty” or a “Targeted Penalty”
 “Doomsday Penalty”
– Employer does not offer Minimum Essential Coverage to all FTEs (and their
eligible dependents) and at least one FTE enrolls in an Exchange and
receives a Federal subsidy
• NEW: “All FTEs” changed to “95% of FTEs”
• NEW: dependent coverage must be offered but does not have to meet
affordability rules (dependent defined as children up to age 26, no
spouses)
– “Doomsday Penalty” applies
• $2,000 per year per each FTE (minus first 30 FTEs)
 Regardless of whether the FTE elected employer-provided health
care coverage
• NEW: penalty not assessed on Control Group, only on the offending
subsidiary/entity
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
6
Determining Full Time Employees Under the ACA
 Establish measurement period
– Period of time over which employer tracks employee’s hours of service
• Cannot be less than three months or more than twelve months in duration
– Initial measurement period for new employees will be based on each employee’s start date
– Standard measurement period for ongoing employees will be a uniform period of time set by
employer
 Establish administrative period—optional (up to 90 days in duration)
– Employer looks back at employee’s hours of service in measurement period
• Did employee work an average of 30 hours per week during measurement period?
 If yes, then employee is a FTE
 If no, then employee is not a FTE and employer has to keep tracking hours of service in
next measurement period
 Establish stability period
– Period of time for which employer must offer coverage to FTE to avoid ACA penalties
• Stability period must be at least as long as measurement period, but not less than six months
– If not an FTE in measurement period, stability period cannot exceed measurement period
• NEW*: Exception for transition measurement period in 2013 which can be as short as six
months
* Proposed regulations released 12/28/12
Consulting | U.S. Health & Benefits
Proprietary & Confidential
7
Defining FTE Status of Ongoing Employees
Measurement Period (MP)
Administrative Period (AP)
Stability Period (SP)
3 – 12 months
Up to 90 days
At least 6 months but no
shorter than MP
(exception allowed for transition)

Determines offer of health care
coverage for stability period
Average hours worked

(exception allowed for transition)


Buffer between MP and SP
Allows for measuring and enrolling
full-timers

Measurement Period Considerations

Longer period reduces number of
full-timers given high turnover

Shorter period provides more time to
make workforce adjustments to
mitigate cost
Eligibility period for employees
averaging 30 hours or more during
MP
Stability Period Considerations

Shorter period reduces coverage
commitment but creates
administrative complexity

Longer period that aligns with
calendar years is most practical
administratively
Sample Periods for January 1, 2014 Plan Year using transition relief
Measurement Period: April 1 – September 30, 2013 (6 months)
Administrative Period: October 1 – December 31, 2013 (90 days)
Stability Period: January 1, 2014 – December 31, 2014
Consulting | U.S. Health & Benefits
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8
Is a New Hire an FTE?
 Is the New Hire Reasonably Expected to Work Full-Time at Start Date?
– If a new hire is reasonably expected to work full-time, then the employer can avoid free rider
penalty by offering coverage at or before FTE’s first 3 months of employment
 Is the New Hire a Variable Hour Employee at Start Date?
– Look at the “facts and circumstances”
– A new employee is a variable hour employee if
• It cannot be determined that the employee is reasonably expected to work on average at
least 30 hours/week or
• The initial period of 30 hours/week employment is reasonably expected to be of limited
duration and it cannot be determined that the employee is reasonably expected to work on
average at least 30 hours/week over the initial measurement period; e.g.:
 Retail worker hired at more than 30 hours/week for the holiday season but who is
reasonably expected to work fewer than 30 hours/week after the holiday season
 Part-time worker hired for 20 hours per week but who could work more
 Is the New Hire a Seasonal Employee?
– Reasonable, good faith interpretation of the term “seasonal employee” through at least 2014
Consulting | U.S. Health & Benefits
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9
Defining FTE Status of Newly Hired Employees
New Variable Hour and Seasonal Employees
Initial Measurement Period (IMP)
Administrative Period (AP)
Stability Period (SP)
3 – 12 months
Up to 90 days
Same length as ongoing employees
Considerations
 IMP plus AP must not last beyond last day of 1st calendar month following employee’s one-year
anniversary
– No more than 13 months plus a partial month
 Transition to ongoing allows for extension of coverage for balance of overlapping ongoing stability
period
 Administrative capabilities/limitations will weigh heavily on length of MP/AP decision
Consulting | U.S. Health & Benefits
Proprietary & Confidential
10
Employer Penalty Issues
 Who is a “full-time employee”?
– Employee who works 30 hours or more per week, measured monthly
– 130 hours of service in a calendar month is treated as monthly equivalent of
30 hours of service per week
 What is “unaffordable coverage?”
– Employer plan is unaffordable if the FTE’s required contribution exceeds 9.5%
of taxpayer’s household income for the taxable year
• Employer may calculate affordability using FTE’s W-2 wages (Box 1)
• NEW: Two additional safe harbors for affordability determination:
 Lowest rate of pay
 9.5% of Federal poverty line (about $90 per month for single coverage)
– Affordability is based on cost of self-only coverage, even if employee elects
family coverage
 What is “minimum actuarial value?”
– Plan must pay at least 60% of covered expenses
– Guidance recently provided from IRS on minimum actuarial value
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
11
Safe Harbor for New Hire—FTE in Initial Measurement Period
 New hire on February 1, 2013 works 30 hours per week in initial measurement period and is entitled
to health care coverage during initial stability period
 Employer then tracks hours during standard measurement period to determine whether he is entitled
to coverage in ongoing stability period
Initial Measurement Period (IMP)*
2/1/2013 to 1/31/2014
Admin Period*
2/1 to 2/28 2014
*IMP must be between
3 and 12 months
*IMP+ AP < 13 months
Initial Stability Period (ISP)*
3/1/2014 to 2/28/2015
Stability Period (1/1/15 to 12/31/15)
*must be same duration
as for ongoing employees
Standard Measurement Period
10/15/2013 to 10/14/2014
(overlaps with ISP)
Consulting | U.S. Health & Benefits
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If not FTE in SMP,
then continue coverage
for ISP, but no coverage for
Stability Period
Admin Period
Stability Period (1/1/15 to 12/31/15)
10/15 to 12/31
2014
If FTE in SMP, FTE is
entitled to coverage for
this stability period
12
Safe Harbor for New Hire—Not an FTE in Initial Measurement Period
 New hire on February 1, 2013 does not work 30 hours per week in initial measurement period and is
not entitled to health care coverage during initial stability period
 Employer then tracks hours during standard measurement period to determine whether he is entitled
to coverage in ongoing stability period
Initial Measurement Period
2/1/2013 to 1/31/2014
Admin Period for IMP
2/1 to 2/28 2014
Does not work 30 hrs/wk
Initial Stability Period (ISP)
Stability Period (1/1 to 12/31/2015)
3/1/2014 to 2/28/2015
No coverage for ISP;
if not FTE in SMP, no coverage in
Stability Period
Not FTE no coverage—but see below*
Admin Period for SMP
Standard Measurement Period (SMP)
10/15/2013 to 10/14/2014
(overlaps ISP)
Consulting | U.S. Health & Benefits
Proprietary & Confidential
10/15 to 12/31
2014
Stability Period (1/1 to 12/31/2015)
*If FTE in SMP, FTE is
entitled to coverage for
this stability period
13
Other FTE Determination Rules
 Employers may vary Measurement Periods and Stability Periods for following categories of
employees
– Union and Non-Union
– Salaried and Non-Salaried
– Employees of different entities
– Employees located in different states Employer is not required to offer coverage to any particular
employee or class of employees, including part-time employees
– However, an otherwise eligible employee (or dependent) cannot be required to wait more than 90
days before coverage becomes effective
 Eligibility conditions based solely on the lapse of time cannot be longer than 90 days
– the employer cannot impose a waiting period that conditions enrollment on the first day of the
month after completing 90 days
 Employer may condition eligibility on an employee regularly working a specified number of hours per
period (or working full time)
– the employer may take a reasonable period of time to determine whether the employee meets the
plan’s eligibility condition
Consulting | U.S. Health & Benefits
Proprietary & Confidential
14
What is an Exchange?
An exchange is a competitive marketplace that consists of
suppliers and buyers
Exchange
Expedia
Amazon
iTunes
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
How Corporate Exchanges Work
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
16
Plan Design Highlights
Bronze
Bronze Plus
Silver
Gold
Platinum
$2,750 / $5,500
$2,000 / $4,000
$1,500 / $3,000
$600 / $1,200
None
20%
20%
20%
10%
0%
$3,750 / $7,500
$3,000 / $6,000
$1,500 / $3,000
Medical Plan Design
INN Deductible
(single/family)
INN Coinsurance
INN OOP max (inc ded)
$5,950 / $11,900 $5,000 / $10,000
Hospital Inpatient Per
Admission
20%
20%
20
10%
$250 Copayment
Primary Care / Specialist
20%
20%
20%
$20 / $35
Copayment
$20 / $35
Copayment
Emergency Room
20%
20%
20%
10%
$100 Copayment
Included w/
medical
Included w/
medical
Included w/
medical
N/A
N/A
Retail Generic
20%
20%
20%
$5 Copay
$4 Copay
Retail Brand Formulary
20%
20%
20%
20% (up to $50
maximum)
$20 Copay
Retail Brand NonFormulary
20%
20%
20%
40% (up to $100
maximum)
$40 Copay
Actuarial Value
66%
71%
75%
81%
92%
Rx Plan Design
Deductible & OOP
Maximum
Aon Hewitt | Health & Benefits
Proprietary & Confidential | 2013
17
Which Path to Take?
Consumerism
Health
Improvement
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
Still About An Evolving Health Care System
Individual Solutions
System Overload
Rapid Consolidation
Health Plans
Providers
Broad Adoption
Technology
Insureds
US
Health
Care
System
More Strategic Options
Exchanges
New Normal
Employers
Consulting | U.S. Health & Benefits
Proprietary & Confidential | January 2013
Government
programs
Expanded Coverage
19
Speakers
Denny Ebersole
Denny.Ebersole@AonHewitt.com
O: 504-681-2103
C: 504-451-0886
Consulting | U.S. Health & Benefits
Proprietary & Confidential
20