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Healthcare Update Panelists Jeffrey Lundgren, U.S. Chamber of Commerce Jeffrey Lundgren, U.S. Chamber of Commerce Mike Kahley, SrVP at Lockton Companies.

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Presentation on theme: "Healthcare Update Panelists Jeffrey Lundgren, U.S. Chamber of Commerce Jeffrey Lundgren, U.S. Chamber of Commerce Mike Kahley, SrVP at Lockton Companies."— Presentation transcript:

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2 Healthcare Update Panelists Jeffrey Lundgren, U.S. Chamber of Commerce Jeffrey Lundgren, U.S. Chamber of Commerce Mike Kahley, SrVP at Lockton Companies Mike Kahley, SrVP at Lockton Companies Don Fox, CEO of Firehouse Subs Don Fox, CEO of Firehouse Subs David Barr, Chairman of PMTD Restaurants David Barr, Chairman of PMTD Restaurants

3 The PPACA – Where is Washington Taking This Thing? Jeff Lungren U.S. Chamber of Commerce

4  64% franchise / 53% non-franchise businesses believe the health care law will have a negative impact on their businesses  29% franchise / 41% of non-franchise businesses are already seeing health care costs increase due to the law  29% franchise / 41% of non-franchise businesses are already seeing health care costs increase due to the law  More than 50% of franchise and non-franchise businesses are planning to make decisions, such as reducing employee’s hours, to comply with the law’s employer mandate Source: Chamber/IFA survey November 13, 2013 PPACA Impact on Business

5 PPACA Regulatory Onslaught  Red Tape Tower — 300+ pounds — 7 feet 3 inches — 20,000+ pages

6 “Despite all of the good news, there’s plenty of horror stories being told. All of them are untrue, but they’re being told all across America.” -- Sen. Harry Reid -- Sen. Harry Reid Remarks on the Senate Floor February 26, 2014 Political Reality – PPACA Has Ardent Defenders in Powerful Places

7  Law is here to stay – glaring warts and all  Administration frantically trying to put out political fires caused by implementation — debacle — Wave of cancellation notices — Employer mandate blowback (volunteer firefighters/adjunct professors) PPACA – Where Are We?

8  Republicans pushing hard to undercut implementation — Targeted repeal votes — Seeking other ways to gum up implementation  Democrats unsure of their message and approach — Tout its benefits and argue GOP wants to go back to bad old days — Tout its benefits and support targeted fixes PPACA – Where Are We?

9  Administration’s Theme: do almost anything to mitigate political problems — Possible areas of action — Addressing policy cancellations — Addressing rate shock — Open network requirements PPACA – Where Are We Going?

10  Regulatory side: — Do not expect any new regulations impacting 2015 — Fall of this year: start seeing regulations governing 2016  Legislative side: — 40 hour work week definition — Medical device tax? PPACA – Where Are We Going?

11  July 2, 2013 – delayed until 2015 for all employers  February 10, 2014 – “transition relief” for 2015 and 2016 for employers with more than 100 full-time equivalent employees (FTEs) — 70% coverage in 2015 — 95% coverage in 2016 Employer Mandate Delay + “Transition Relief”

12  February 10, 2014 – “transition relief” in 2015 and 2016 for those with more than 50 BUT less than 100 FTEs — Maintain workforce and hours of service — Maintain previously offered coverage — Certify that it meets these requirements Employer Mandate “Transition Relief”

13  Opportunity for enactment this year?  Passed House April — 18 Democrats supported  Some Democratic support in Senate — 2 Ds cosponsor legislation  White House veto threat 40 Hours Full Time Legislation

14 For more information: Jeff Lungren, U.S. Chamber of Commerce or

15 Today’s ACA Measurement & Workforce Strategy Mike Kahley Lockton Companies

16 ACA: It’s a Continual Planning and Decision Process Plan Design & ContributionsParticipation & UnderwritingMeasurement Period & EligibilityCompliance & CommunicationRenewal Costs

17 Qualifying & Affordable Coverage:  Must be offered in order to some to avoid Nuclear Penalty ($2k)  Must be offered to employees and dependent children  Must be “affordable” based on 9.5% of W-2 or Federal Poverty Level Employer Play or Pay Full-time employees & dependents Qualifying Coverage: 60% AV Affordable Cost: 9.5% W-2 or FPL Employer’s “Play or Pay”

18 How Many Employees are Likely to Enroll in Coverage? Employees less than 26 years old may elect to get coverage under a parent’s plan Employer mandate requires coverage offered to full-time employees (work 130 hours per month/30 hours per week) Variable and Seasonal employees may be eliminated from offering until full time status is determined Employees eligible for Government programs (i.e. Medicaid, Medicare, Tricare, Indian Nation) not likely to elect employer coverage Other employees may opt out due to cost or availability of coverage through spouse; employer only required to offer coverage Determine number of employees likely to elect employer coverage or to purchase coverage on exchange

19 Serving Three Employee Populations I am excited about the insurance plan offered to me for the first time. I don’t qualify for the Employer Plan and need to buy individual coverage. I like the coverage I have and want to keep it.

20 Total Rewards & ACA

21  Do you need to apply the correct measurement and stability periods for each employee group?  Do you offer the right coverage for each group’s unique needs?  Are your contributions set appropriately to avoid penalties?  Can you pass Section 105(h) discrimination testing?  With varying needs, do you need unique communication and education solutions for each group? Your Decisions

22  Somehow, you need to get elections to the right carriers correctly.  Since you don’t know who specifically will enroll, how do you determine the premium and financial impact?  How will Automatic Enrollment potentially change your strategy? Your Decisions

23 Total Rewards & ACA

24 Components of a Group Exchange Employer Sponsored Marketplace/Shopping Experience for the Consumer Employer Funded Defined Contribution Online Technology PlatformEnrollment Advocacy Resources Enrollment Decision Support Tools Shifting the Paradigm from Payroll Deduction to Providing Funds and Choice Integrated with or Potential Replacement for Benefits Administration System Online and Call Center

25 What’s the Hype?  Predictable Long-term Costs for the Employer  Cost Reduction – Buy downs  Employee Choice = Higher Satisfaction  “Free” Benefits Administration  The Ability to “Get Out of Benefits”  Defined Contribution vs. Defined Benefit

26  Advisory Services Should be Independent from the Exchange Owner — 69% of Employers Agree that Independence is Very Important *  Employer Remains Plan Sponsor — Own Financial Results — Accountable to Employees — Compliance Requirements Remain  Health Plan Optimization Strategies Should be Customized to the Employer We Believe… *Source: PWC Private Exchange Evaluation Collaborative (PEEC) employer survey, Dec 2013

27  Defined Contribution and Private Exchanges Alone Do Not Stop/Slow Medical Trend — CDHP Migration can Reduce Costs — Health Outcomes and Unit Costs Matter  Multi-Year Agreements Only Work when the Cost and Performance are Guaranteed  ACOs, Evolving Networks and Redirection Represent Significant Savings Potential — Exchanges Need to Support and Enable this Transformation  Employee Choice Helps Drive Satisfaction but Not Necessarily Lowest Cost We Believe… *Source: PWC Private Exchange Evaluation Collaborative (PEEC) employer survey, Dec 2013

28 What Should You Be Doing Now? Stratifying employees (full, part, seasonal, variable) Measuring variable hour employeesUnderstand and quantify exposure Decide offer strategy (pay/play/somewhere in between) Develop timeline for action

29 Mike’s Information & Experience Mike Kahley Lockton Dunning Benefits Senior Vice President Contact Information: Phone: Food Service Representation Boston Market Corporation Raising Cane’s Consilient Restaurants Dominos Franchise Association Famous Dave’s of America Jack In The Box Association MAC Pizza Sonic Drive-Thru Corp TOMS King Holdings LLC Uncle Julio’s Village Tavern Wingstop Restaurants As a husband of sixteen years and father of three, Mike is especially proud of the unique professional, family-oriented atmosphere at the Lockton office. The Kahleys’ live in Highland Village, Texas and enjoy being thoroughly involved in the church and all the Kahleys’ either coach or participate in youth sports. When Mike finds a moment to slow down, you might find him reading history and planning the next adventurous Kahley trip. Speaking Engagements Chain Restaurant Total Awards Conference Corner Bakery Leadership Conference Multi-Unit Franchise Conference The Dominos Franchisee Association Famous Dave’s Franchises GE Capital Franchise Finance Seminars Jack in the Box Franchise Association Nations Restaurant News Panel People Report Best Practices Conference Sonic Advisory Council Popeye’s Chicken Fox News Radio

30 Our Mission To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management Our Goal To be the best place to do business and to work © 2014 Lockton, Inc. All rights reserved. Images © 2014 Thinkstock. All rights reserved.

31 The Affordable Care Act Making Lemonade out of Lemons

32 Establishing a Budget  Variables: — Cost of a qualifying policy — Employee portion of the premium — Number of full time employees — % of full time employees who will accept

33 Establishing a Budget  Employer portion of the premium — Minimum safe harbor for employee portion: — $7.25 X 30 hours X 9.5% = — $20.66 per week, 1,074 per year

34 Establishing a Budget  Number of full time employees — Determined by 2013 payroll history  % of full time employees who will accept — ?????

35 So What Happened at Firehouse?

36 Firehouse Subs Company Restaurant Example  $791K AUV  $89K EBITDA  17 employees — 1 manager — 16 hourly — 3 full time — 13 part time

37 Firehouse Policy Highlights  Premium - $5,138 — Employee portion = 20% ($1,028 annually; $86 monthly)  Deductible $4K  Out of pocket max: $6250 (network) $10K (out of network)  Co Pay: $40 (Primary) $80 (specialist) $100 (urgent) $200 (emergency)

38 The Result  Silver Plan offered to full time Firehouse employees  Firehouse pays 80% of premium  65% of employees accepted (two per restaurant)  $8K expense per location; 3% sales increase needed to recoup expense

39 What to do next?  Determine your status  Decide whether to offer health insurance or not  Design scheduling protocols that support your decision

40 Avoid Minefields  Employees drifting above and below 30 hours, creating unbudgeted risk  Cutting employees hours due to poor planning  Lawsuits and partial unemployment claims due to cutting hours

41 Thank You! Thank You! CEO, Firehouse of America, LLC

42 Affordable Care Act David Barr One Lonely Operator Trying to Make Sense Out of This

43 PMTD Restaurants LLC – 23 KFC/Taco Bells/KT’s A franchisee owner/operator of restaurants in small towns of Alabama and Georgia. A Case Study

44 Total Currently Eligible Pre-ACA Currently Enrolled Pre-ACA # of active employees # of full time # of part-time30300 Full time employees are defined using a one year measurement period. Of the 109 full time employees, 36 are salaried and 73 are hourly. PMTD Restaurants LLC – 23 KFC/Taco Bells/KT’s

45 PMTD’s Plan Currently Qualifies as Affordable to Employees Employee Only Family Coverage Annual premium$5,028$12,612 Paid by Employer -$-%-$-% $4,073 81% $4,349 34% Total $ paid by Employer$129,000 Paid by Employee$955$8,263 PMTD’s plan will meet the affordability test (less than 9.5% of employees pay) for its employees as full time employees make at least $10,000 per year and PMTD’s plan is at 84% actuarial value.

46 ACA Could Increase Insurance Cost To Employer Total $ Paid by Employer Currently pre-ACA$129,000 Estimate under ACA with no change to plan$444,000 This approx. $300,000 increase represents 1.5% of sales. Assumption: All eligible individuals accept plan as currently designed and employer maintains same contribution.

47 The Bigger Question – Will Employees Sign Up? They will have different choices Employer Plan Government Exchange Do Nothing 30+ hours employees with household income > $16,800 (est. Medicaid threshold) $955/yr. 9.5% of Income $4,800/yr. (Subsidized only if employer doesn’t offer plan at 9.5%) $120/yr $695/yr. Penalty on taxes 30+ hours employees with household incomes < $16,800 (est. Medicaid threshold) $955/yr. 9.5% of Income Enroll in Medicaid $0/yr. N/A

48 Summary of Costs and Employees # of Employ # of Salaried Employ # of Hourly EmployTotal Cost Total Less: Non-fulltime employees(303) Sub-total of FT Employees $444,000 Less: Reducing hour employees (1/2 of 35) (17) ($69,200) Less: Est. Employees that do not sign-up (10% sign-up) (50) ($203,700) Less: Employees On Spouse Plan(6) ($24,400) Benefit of Employees Pay More (36 employees x $100) ($3,600) Change in Plan design (36 employees x approx. $275) ($10,000) Ending Total36306$133,100

49 As a Result of Planning for ACA, Costs Can be Managed Exchange is calculated as 109 employees less exemption for 30 full time employees times $2,000 per employee Total $ Paid by Employer Currently Pre-ACA$129,000 Calculated Estimate under ACA$133,100 Everyone goes into the Exchange (not tax deductible) $158,000

50 Healthcare Update Panelists Jeffrey Lundgren, U.S. Chamber of Commerce Jeffrey Lundgren, U.S. Chamber of Commerce Mike Kahley, SrVP at Lockton Companies Mike Kahley, SrVP at Lockton Companies Don Fox, CEO of Firehouse Subs Don Fox, CEO of Firehouse Subs David Barr, Chairman of PMTD Restaurants David Barr, Chairman of PMTD Restaurants

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