Post on 25-Dec-2015
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Implications of the Affordable Care ActEmployer Impact & Changing Value Proposition for Fully-Insured Large Groups
Blue Cross of Northeastern PennsylvaniaTuesday, July 23, 2013
This presentation is not intended to be a comprehensive review of the content of the legislation, nor should it be interpreted as authoritative and/or legal advice on implementation. The presentation represents our best understanding as of the date of the presentation. In the event you have questions applicable to your business or employees, we recommend you request the advice of competent legal counsel.
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Key Considerations
1. Incentive to Offer Coverage
2. Regulatory Changes to Large Groups
3. Emerging Exchange Markets
4. All Aspects of Pay or Play Evaluation
5. Changing Value Proposition for Employers and Employees
Presentation will focus on 5 key considerations of the Affordable Care Act (ACA)
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As employers develop their benefits strategies for 2014 and beyond, it is important to consider the reasons for sponsoring coverage today
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Why employers offer coverage
• Financial advantages to sponsor group healthcare coverage
• Talent acquisition, retention and employee engagement
• Company culture and the nature of the social contract with employees
• Industry trends and competitor positioning
• Employee health and wellness
There are many important considerations to choosing the right benefit strategy:
Economics IndustryTrends
CompanyCulture
TalentManagement
Incentive to Offer Coverage
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While all employers share similar incentives to offer coverage, there are several unique qualities pertaining to large employers
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Unique Aspects of Large Employers
Economics IndustryTrends
CompanyCulture
TalentManagement
Incentive to Offer Coverage
• Significant tax advantages to sponsoring group coverage
• Large employers typically have negotiating leverage to achieve better pricing than an individual would
• Health benefits reinforce companies’ wellness efforts
• Larger employers tend to reflect the culture and expectations of the local area
• Employer’s benefits help compete for talent between other large firms within an industry
• Certain industries, e.g. retail and food services, offer more limited benefits
• Offering health benefits is typically table stakes for most large employers1
• Many larger employers offer differentiated benefits to classes of employees
1) 95.5 % of employers over 50 employees offer coverage to employees in PA (2012 Medical Expenditure Panel Survey)
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Individual / Employee
Employer Average Premium
Government Subsidies
Employer "Make Whole" Payment
Individual / Employee
1100 1100
400
$3,700
$2,300
7500
2700
3700
Employer-Sponsored(Pre-tax)
$6,000
Individual Market(Post-tax)
The tax implications of Group coverage and Individual market subsidies available to employees are key economic factors to consider
Tax Deduction
$1,500
Subsidy and Tax Implications
Equivalent pre- and post-tax costs for each stakeholder
IllustrativeIncentive to Offer Coverage
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Requirement/ExpenseSelf-Insured Plans (ASO)
Fully-Insured Large Group Plans
Fully-Insured Small Group Plans
Elimination of Lifetime Caps1
Dependent Coverage to Age 261
Preventive Services1
Out of Pocket Maximums
Minimum Actuarial Value
ACA Fees2
Affordable Coverage Penalty
Compliance with State Mandates
Insurance Premium Taxes
Essential Health Benefits
Modified Community Rating
New Requirements and Fees
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1) In effect prior to 20142) Reinsurance Fee, PCORI fee
Changing Value Proposition
ACA requirements will impact employers differently based on size and funding type
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Bene
fit L
evel
Benefit FlexibilityRegulatory Changes
Large employers will retain most of the flexibility they have today in terms of underwriting and benefit selection
Individual and Small Group plans restrained by regulations
Significant flexibility in underwriting and benefit levels in Large Group market
Products Requirements:• Metallic Levels• Essential Health Benefits (EHBs)• 3:1 Age Banding• Community Based Rates• Guaranteed Issue
Actuarial Value
Pricing
PlatinumGoldSilverBronzeLG
SG
Ind
SG
Ind
SG
Ind
SG
IndLG
LG
LG
LGLG
LG
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Employees may seek out options on Public Exchange
Traditional Group
Products
Private Group
Exchanges
ACME Inc.
Employer Options
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Post-2014 Large employers will have emerging private exchange market to enable employees to take on more responsibility of purchase decision
Pre-2014 Typically shop for health benefits by comparing fairly standardized products from different carriers
Cost Per Employee Consistent Cost Per Employee Differs
Emerging Exchange Market
1CARRIER 2
CARRIER
3CARRIER
ACME Inc.
Emerging exchange markets will likely provide increasing options to attain benefits for employees
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Employer Incentives
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Make Whole
Payment
Payroll Tax
Corporate Tax
DeductionPenalty Expense
Premium Contribution
Post-reform Environment
Per Employee Expense or Savings$
ACA Fees
Pay or Play
To make an informed financial assessment on the impact of not offering coverage, all costs should be considered
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Employer Incentives
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Employers that no longer sponsor coverage can save the funds previously allocated to premiums
Premium Contribution:• Employers are able to purchase group
coverage with pre-tax dollars
• Employers that shift a large share of premiums to employees already, have less to gain from dropping coverage
• Underwritten group premiums will likely face premium pressure under ACA due to:– Increased product requirements– Additional taxes and fees
Make Whole
Payment
Premium Contribution
Payroll Tax
Corp.Tax Ded.
Penalty Expense
ACA Fees
Pay or Play
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Employer Incentives
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Employers that no longer sponsor coverage may also save funds set aside allocated to various new fees under the ACA
ACA Fees:• Patient-Centered Outcomes Research Institute
(PCORI) Fee. Issuers of individual and group health insurance policies are required to pay a new fee to help fund the new organization.
$1 PMPY (‘14) / $2 PMPY (‘15)
• Transitional Reinsurance Program Fee. Program to help stabilize premiums for coverage in the individual market during calendar years 2014 through 2016
$63 per covered life for 2014
Make Whole
PaymentPayroll
TaxCorp.Tax
Ded.Penalty Expense
ACA FeesPremium
Contribution
Pay or Play
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Employer Incentives
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Employers are anticipated to provide employees with additional compensation to offset costs of purchasing Individual coverage
Make Whole Payment:
• Employees will need varying levels of make whole payments depending on the amount of subsidies available to them
• Employers will likely consider labor market conditions when estimating amount to make employees ‘whole’
• In order for employees to be eligible for subsidies on the Individual Exchange, employers cannot provide a compensation increase through a tax exempt savings account such as an HRA
Make Whole
Payment
Premium Contribution
Payroll Tax
Corp.Tax Ded.
Penalty Expense
ACA Fees
Pay or Play
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Employees with similar salaries may require vastly different make-whole payments
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Make Whole Payment Example
Employee A: Single Individual Employee B: Family of 2
Employee Age: 50 30
Employee Salary: $35,000 $35,000Spousal Salary: None $35,000Household FPL: 298 444Estimated Premium: $4,940 $9,010
Government Subsidy: $1,046 None
Scenarios: Employee Subsidy Eligibility in the Individual Market (2014)
Estimated Cost of Coverage: $2,415 (premium cap1) $9,010 (full premium)
(1) Estimate of premium cap as described in ACA bill, based on Silver level plan
Subsidy Eligible
Non-Subsidy Eligible
Pay or Play Illustrative
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Employer Incentives
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The tax implications of employer sponsored coverage make dropping coverage potentially more costly than is commonly believed
Payroll Tax:
• Employer must take into account additional payroll taxes when making employees whole through a salary increase
Corporate Tax Deduction:
• Will depend on tax status of employer
• If make whole payment is larger than previous premium contribution, employer tax deduction would increase
• Employer tax deduction will be based on employer’s decision to apply savings to profits or to business expense
Make Whole
Payment
Premium Contribution
Payroll Tax
Corp.Tax Ded.
Penalty Expense
ACA Fees
Pay or Play
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Employer Incentives
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As small employers are exempt, the penalty will most likely not be a factor in the decision to offer coverage
Penalty Expense:
• Employers that have 50 or more full time equivalent employees will be evaluated against criteria for a penalty
• The penalty is applied to each full time employee minus the first 30 employees
• Penalty is assessed as an excise tax, meaning that it is levied after corporate taxes are paid
Make Whole
Payment
Premium Contribution
Payroll Tax
Corp.Tax Ded.
Penalty Expense1
ACA Fees
Changing Value Proposition
(1) Employer Shared Responsibility Payments (ACA Penalty) delayed until 1/1/2015
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Employee
Employers must take into account several variables before making final benefit decisions
Factors that Will Impact Employer Decisions to Sponsor Coverage Post-reform
Employer Specific:
• Employer size
• Employer premiums
• Premium cost sharing with employees
• Employee participation rate
Employee Specific:
• Distribution of employee incomes
• Workforce demographics (e.g. family sizes and ages)
• Premium contribution to group plan
Market Based:
• Individual market premiums
• Exchange viability
• Penalties and subsidies
Changing Value Proposition
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Evaluating Economic Factors
Changes in consumer incentives to purchase in the Individual market may change employers’ value proposition to offer coverage
Post-ReformPre-Reform
Changing Value Proposition
Group Market Individual Market
Emerging Individual Market Incentives
Guaranteed Issue Age Banding
Premium Subsidies
Cost Share Subsidies
State Exchanges
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Consumer Value Proposition
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Consumers may reassess the value of group coverage due to ACA regulations creating a more consumer-friendly individual market
Changing Value Proposition
• Provide richer benefits at a lower cost than in Individual market
• Employer reduces exposure of premium cost to employee
• Burden of payments and product selection taken care of by employer
• Health insurance is differentiator to attract and retain talent
Group Market Value Proposition
Individual Market Value Proposition
• Possible increase in salary due to lack of group coverage
• Government reduces exposure of premium cost to employee
• Benefits are portable and not tied to specific employer
• Much broader range of potential options that fit personal needs
• Health insurance is not a differentiator for targeted jobs