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Implications of the Affordable Care Act Employer Impact & Changing Value Proposition for Self-insured Groups 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. Blue Cross of Northeastern Pennsylvania Thursday, July 25, 2013
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Key Considerations Presentation will focus on 5 key considerations of the Affordable Care Act (ACA) Incentive to Offer Coverage Regulatory Changes to Large Groups Emerging Exchange Markets All Aspects of Pay or Play Evaluation Changing Value Proposition for Employers and Employees
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Why employers offer coverage
Incentive to Offer Coverage As employers develop their benefits strategies for 2014 and beyond, it is important to consider the reasons for sponsoring coverage today There are many important considerations to choosing the right benefit strategy: Economics Industry Trends Company Culture Talent Management Financial advantages to sponsor group health care 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
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Unique Aspects of Large Employers
Incentive to Offer Coverage While all employers share similar incentives to offer coverage, there are several unique qualities pertaining to self funded employers Significant tax advantages to sponsoring group coverage Self funded groups achieve cost savings by not paying risk bearing premiums and attain negotiating leverage Employer’s benefits help compete for talent between other large firms within industries Certain industries, e.g. retail and food services, offer more limited benefits Economics Industry Trends Company Culture Talent Management Health benefits reinforce companies’ wellness efforts Large employers are frequently held to higher public standard due to large community presence Offering health benefits is typically table stakes for most large employers1 May offer different benefits to classes of employees 95.5 % of employers over 50 employees offer coverage to employees in PA (2012 Medical Expenditure Panel Survey)
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Subsidy and Tax Implications
Illustrative Incentive to Offer Coverage The tax implications of Group coverage and Individual market subsidies available to employees are key economic factors to consider Equivalent pre- and post-tax costs for each stakeholder Employer-Sponsored (Pre-tax) Individual Market (Post-tax) $6,000 Tax Deduction People think subsidies are new government spending, not necessarily true – currently giving tax breaks Example is premium for 250 FPL individual Income may change, changing who is better off $1,500
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New Requirements and Fees
Changing Value Proposition ACA requirements will impact employers differently based on size and funding type Requirement/Expense Self-Insured Plans (ASO) Fully-Insured Large Group Plans 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 In effect prior to 2014 Reinsurance Fee, PCORI fee
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Individual and Small Group plans restrained by regulations
Benefit Flexibility Regulatory Changes Self-funded groups retain the most flexibility in terms of benefit design Significant flexibility in benefit design for self-funded groups market Individual and Small Group plans restrained by regulations Bronze Silver Gold Platinum ASO ASO Ind Ind Ind Ind SG SG SG SG ASO Benefit Level ASO Products Requirements: Metallic Levels Essential Health Benefits (EHBs) 3:1 Age Banding Community Based Rates Guaranteed Issue ASO ASO ASO Actuarial Value Pricing
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Traditional Group Products Private Group Exchanges
Employer Options Emerging Exchange Market Emerging exchange markets will likely provide increasing options to attain benefits for employees Pre-2014 Typically shop for health benefits by comparing fairly standardized products from different carriers Post-2014 Large employers will have emerging private exchange market to enable employees to take on more responsibility of purchase decision Cost Per Employee Consistent Cost Per Employee Differs 1 CARRIER 2 3 ACME Inc. Traditional Group Products Private Group Exchanges ACME Inc. Employees may seek out options on Public Exchange
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Corporate Tax Deduction
Employer Incentives Pay or Play To make an informed financial assessment on the impact of not offering coverage, all costs should be considered Post-reform Environment Make Whole Payment Payroll Tax Corporate Tax Deduction Penalty Expense Premium Contribution ACA Fees Emphasize how model is calculated/run at the employee level $ Per Employee Expense or Savings
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Employer Incentives Pay or Play 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 Premium Contribution ACA Fees Make Whole Payment Payroll Tax Corp.Tax Ded. Penalty Expense
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Employer Incentives Pay or Play 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 through 2016 $63 per covered life for 2014 Premium Contribution ACA Fees Make Whole Payment Payroll Tax Corp.Tax Ded. Penalty Expense
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Employer Incentives Pay or Play 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 Premium Contribution ACA Fees Make Whole Payment Payroll Tax Corp.Tax Ded. Penalty Expense
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Make Whole Payment Example
Illustrative Pay or Play Employees with similar salaries may require vastly different make-whole payments Scenarios: Employee Subsidy Eligibility in the Individual Market (2014) Employee A: Single Individual Employee B: Family of 2 Employee Age: 50 30 Employee Salary: $35,000 Spousal Salary: None Household FPL: 298 444 Estimated Premium: $4,940 $9,010 Government Subsidy: $1,046 Subsidy Eligible Non-Subsidy Eligible Estimated Cost of Coverage: $2,415 (premium cap1) $9,010 (full premium) Estimate of premium cap as described in ACA bill, based on Silver level plan
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Employer Incentives Pay or Play The tax implications of employer sponsored coverage make dropping coverage potentially more costly than realized 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 Premium Contribution ACA Fees Make Whole Payment Payroll Tax Corp.Tax Ded. Penalty Expense
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Employer Incentives Changing Value Proposition 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 Premium Contribution ACA Fees Make Whole Payment Payroll Tax Corp.Tax Ded. Penalty Expense1 Employer Shared Responsibility Payments (ACA Penalty) delayed until 1/1/2015
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Employee Changing Value Proposition 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
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Evaluating Economic Factors
Changing Value Proposition Changes in consumer incentives to purchase in the Individual market may change employers’ value proposition to offer coverage Pre-Reform Post-Reform Emerging Individual Market Incentives Group Market Individual Market Tax Deductions Pre-tax Dollars Risk Pooling Low-Income Programs State Exchanges Premium Subsidies Cost Share Subsidies Guaranteed Issue Age Banding
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Consumer Value Proposition
Changing Value Proposition Consumers may reassess the value of group coverage due to ACA regulations creating a more consumer-friendly individual market Group Market Value Proposition Individual Market 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 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
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