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 1 Today’s Conversation 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 2 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 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 4 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) Association of Washington Cities 5 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 Association of Washington Cities 6 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 7 plans Association of Washington Cities 2015: Employer Pay or Play (“Shared Responsibility”) Apply to employers with >50 full-time employees (FTE equivalents) New full-time employee (30 hours/week) definition: • • • 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: • • Coverage provides 60% of total allowed costs Affordable coverage: employee only coverage of lowest plan option does not exceed 9.5% of household income Association of Washington Cities 8 Planning for 2015: Employer Pay or Play (cont.) 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 Association of Washington Cities 9 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. 10 What Local Governments Should be Doing Now What Decisions Do I Have to Make? Workforce Assessment for FTE (30-hour work week, seasonal/variable hour) Pay or Play – Consider Obligations Unions LEOFF Is Ability to pay – municipal budgets & forecasting Do I make plans affordable for everyone? What Actions Do I Have to Take? 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 Identify any workforce planning issues that need to be dealt with before 2014 Model cost impact to employers and employees now and into future (2018) Association of Washington Cities 11 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 12 12 Assessing the Workforce 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 Association of Washington Cities 13 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 Association of Washington Cities 14 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 15 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 16 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 17 Questions HR, Finance, Administration are Asking 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? 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 18 Breaking it down by Employee Groups – Policy ideas Full-Time Permanent Employees (under review) Part-Time Permanent Employees 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 12 month measurement period Clearly define hours work Association of Washington Cities 19 Breaking it down by Employee Groups – Policy ideas Ongoing Variable Employee 12 month measurement period Watch out for lookback period starting July 1 Clearly define hours & stick to it! Association of Washington Cities 20 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 21 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 22 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. Association of Washington Cities 23 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! Association of Washington Cities 24 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% Association of Washington Cities 25 25 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. Association of Washington Cities 26 Strategies for Mitigating the Cadillac Tax #2 Unbundle dental and vision plans Not subject to tax unless bundled with health plan. Association of Washington Cities 27 Strategies for Mitigating the Cadillac Tax #3 Decrease benefits & increase deductibles… … while continuing to offer minimum essential coverage. Association of Washington Cities 28 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. Association of Washington Cities 29 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 30 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 33