HEALTHCARE REFORM
IMPAC T ON THE FOOD INDUSTRY
THE IMPACT OF
HEALTHCARE REFORM ON THE FOOD INDUSTRY A SUMMARY OF KEY DATES, NE W REQUIREMENT HIGHLIGHTS
The health care reform law – the Affordable Care Act (ACA) – has many complex requirements for employers and health plans. The following is a high level summary addressing many common questions and highlighting specific components pertinent to the food manufacturing industry.
This executive summary will cover the following: Key Dates New Eligibility Rules Employer Shared Responsibility New Taxes Implications for Small Group Plans
KEY DATES OCTOBER 1, 2013 Employers must provide all new hires and current employees with a written notice about ACA’s health insurance market places which are state-based or federally managed competitive marketplaces where individuals and certain small businesses can purchase health insurance. In general, the notice must: •
• •
•
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Inform employees about the existence of the Marketplace and give a description of the services provided; Explain how employees may be eligible for a premium subsidy if the employee meets certain requirements; Inform employees that if they purchase coverage through the Marketplace, they will lose any employer contribution toward the cost of their coverage, and will pay for their coverage with after tax dollars; and Include contact information for the Marketplace and an explanation of appeal rights.
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Health plans (both insured and self-funded) must provide a Summary of Benefits and Coverage (SBC) to participants and beneficiaries. The SBC is a succinct document that provides simple and consistent information about health plan benefits and coverage in plain language. For insured plans, issuers will provide the SBC to the plan sponsor. The plan sponsor is responsible for making sure that this document is distributed to all eligible employees. For self-insured plans, the sponsor is responsible for drafting the SBC. The SBC also must be provided to newly eligible and special enrollees.
JANUARY 1, 2014 Employer Coverage Requirements. Employers with 50 or more full time equivalent employees will be subject to penalties if they do not provide health coverage to employees that meets minimum levels of coverage or if the coverage they provide is not affordable.
THE IMPACT OF HEALTHCARE REFORM ON THE FOOD INDUSTRY
NEW ELIGIBILIT Y RULES The food manufacturing industry is an industry that could be specifically vulnerable to new eligibility rules. Not only does it mandate that all employees who work, on average, 30 or more hours a week, be eligible for health insurance coverage, ACA also creates a new classification of employee called a “variable hour” employee. An employee is a variable hour employee if, at the point of hiring, it cannot be determined if the employee is reasonably expected to work on average at least 30 hours per week. It allows an employer to defer eligibility for a period of time until it has been determined the hours that the new employee has worked. In order to hire a new employee as a “variable hour” employee, employers must measure the hours these employees work for a period of time. That measurement period can be no shorter than 3 months and no longer than 12. Once the measurement period has been identified and the hours worked are measured, the employer can determine if the employee has met the requirement to attain eligibility. The employee will then come onto the plan (if they choose) but will continually be measured for each successive period going forward to determine if the employee will retain eligibility. Under ACA, certain classes of employees may be treated differently with regards to the benefits that are offered and/or the contribution that is made to those options. Those classes are: 1) Collectively bargained employees and those that are not; 2) Salary versus hourly employees; and 3) By state at which a facility is maintained
SNAPSHOT OF EMPLOYER SPONSORED HEALTH PLANS IN 2014 & BEYOND In a Healthcare Reform conducted in early 2013 over 4,400 respondents provided feedback on how their organizations are changing their employee benefit plans as a result of Healthcare Reform legislation.* WHICH ACTIVE EMPLOYEES ARE OFFERED COVERAGE UNDER YOUR ORGANIZATION’S HEALTH PLANS? 62.4%
63.8%
11.8%
PART-TIME PART-TIME EMPLOYEES EMPLOYEES WORKING > 30 WORKING 30-39 HRS/ WEEK HRS/ WEEK
FULL-TIME EMPLOYEES WORKING 40+ HRS/ WEEK
Many employers are still unaware of how variable employees will impact their org anization. Offering or denying benefits to this categor y of employee may no longer be optional.
“THE FOOD INDUSTRY COULD BE SPECIFICALLY VULNERABLE TO NEW ELIGIBILITY RULES.” www.thehortongroup.com
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THE IMPACT OF HEALTHCARE REFORM ON THE FOOD INDUSTRY
EMPLOYER SHARED RESPONSIBILIT Y The ACA imposes different requirements on employers based on whether they qualify as a “large employer” or a “small employer.” A large group employer employs at least 50 full-time employees, or a combination of fulltime and part-time employees that exceeds 50. Small group status is defined as less than 50 full time equivalent employees. Penalties will be imposed on large group employers who do not offer health insurance that meets minimum standards. That penalty equals $2,000 for every full time employee minus the first 30. Penalties also apply to large group employers who offer minimum
insurance but have employers who purchase their coverage through the marketplace and qualify for a subsidy. The two tests that must be met to qualify for a subsidy are: 1) The individual makes less than 400% of the federal poverty level; AND 2) The plan the employer offers is deemed unaffordable in that it exceeds 9.5% of wages earned by the employee based on the lowest cost option for the employee only coverage that is offered. The penalty in this case is $3,000 for every employee that buys coverage and qualifies for a subsidy. The gross amount of this penalty cannot exceed the total amount of the penalty for not offering insurance.
RISING COSTS OF THE CADILLAC In 2018, a 40 percent excise tax will be imposed on the excess benefit on high-cost employer-sponsored health insurance. The annual value limit for purposes of calculating the tax is $10,200 for individuals and $27,500 for other than individual coverage.
2%
Yes No Not Sure N/A
26.5%
NOT VERY LIKELY
25%
UNLIKELY
15.8%
LIKELY
15%
31.5%
DON’T KNOW 15.9%
WHAT IS THE LIKELIHOOD THAT YOUR ORGANIZATION WILL NEED TO REDUCE COVERAGE TO STAY BELOW THESE LEVELS?
HAS YOUR ORGANIZATION TAKEN ANY ACTION RELATED TO THE CADILLAC PLAN TAX?
58%
VERY LIKELY
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Chart and survey data was provided by Zywave from their 2012 Employers Survey & 2013 Health Care Survey. This survey was anonymous, so responses have not been validated for statistical significance or margin of error. The information contained herein, including its attachments, contains proprietary and confidential information. Any distribution of these materials to third parties is strictly prohibited. © 2013 Zywave, Inc. All rights reserved.
NEW TAXES COMPARATIVE EFFECTIVENESS RESEARCH TAX (CER)
The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute (Institute) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is to be funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans. These fees are widely known as Patient-Centered Outcomes Research Institute fees (PCORI fees), although they may also be called PCOR fees or comparative effectiveness research (CER) fees. These CER fees apply for plan years ending on or after Oct. 1, 2012 and before Oct. 1, 2019. The first possible payments will be due on July 31, 2013. For plan years ending before Oct. 1, 2013, the fee is $1 per covered life under the plan. For plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014, the fee increases to $2 per covered life. For plan years ending on or after Oct. 1, 2014, the fee amount will grow based on increases in the projected per capita amount of National Health Expenditures.
REINSURANCE TAX
ACA established a risk-spreading program, called the transitional reinsurance program, to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation (2014 through 2016) when individuals with higher-cost medical needs gain insurance coverage. ACA requires health insurance issuers and plan sponsors of self-insured group health plans to pay fees to support the reinsurance program. For 2014, HHS proposes a national contribution rate of $63 per year. An issuer’s or plan sponsor’s reinsurance fee would be calculated by multiplying the average number of covered lives (employees and their dependents) during the benefit year for all of the entity’s plans and coverage that must pay contributions, by the national contribution rate for the benefit year.
HEALTH INDUSTRY TAX
The health insurance providers fee applies to all “covered entities,” defined as any entity that provides health insurance for any United States health risk. The fee will be assessed on health insurers’ premium revenue above $25 million. Beginning in 2019, the cost of the fee will increase based on the rate of premium growth. This fee will not apply to plans that are self funded.
CADILLAC TAX
For taxable years beginning in 2018, ACA imposes a 40 percent excise tax on high-cost group health coverage. The Cadillac tax provision taxes the amount, if any, by which the monthly cost of an employee’s applicable employer-sponsored health coverage exceeds the annual limitation ($10,200 annualized single premium and $27,500 annualized family premium).
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IMPLICATIONS FOR SMALL GROUP PLANS Effective for plan years beginning on or after Jan. 1, 2014, health insurance issuers in the small group market will be generally prohibited from determining premium rates based on health status. Issuers will be able to vary premium rates based only on age, rating area, sex, and tobacco use. This reform, which is often referred to as “community rating,”
does not apply to grandfathered plans nor does it apply to large group plans. Additionally, rates for these plans will no longer be offered on a composite basis but instead a different premium will apply for every individual on the plan – a mechanism called “List Bill”.
PAY OR PLAY DECISION
In 2014, employers with more than 50 employees are required to offer minimal essential health coverage to employees or be subject to a penalty. In an employer survey conducted in early 2013, there are indications that many employers will “play” and continue to offer health coverage to their employees.
HOW LIKELY IS YOUR ORGANIZATION TO CONTINUE OFFERING HEALTH BENEFIT COVERAGE TO YOUR EMPLOYEES ONCE THIS REQUIREMENT KICKS IN?
Retain Employees
73.2%
30.6%
89.9%
54.1%
IF YOU PLAN TO KEEP COVERAGE, WHAT ARE YOUR REASONS FOR DOING SO?
Maintain/increase employee satisfaction
63.0%
Recruit talented new employees
0.2%
Maintain/increase employee productivity
2.2%
31.9%
0.4%
40.0%
12.5%
Avoid paying penalties
18.0%
Maintain tax benefits Required by collective bargaining agreement
8.1%
Don’t know Have already discontinued coverage Will definitely discontinue coverage & pay any applicable penalty Likely will discontinue coverage & pay any applicable penalty Likely will continue to offer health benefit coverage for employees Definitely will continue to offer health benefit coverage for employees
ABOUT THE AUTHOR RICK KLEIN, RIA, GBA
SENIOR VICE PRESIDENT HORTON BENEFIT SOLUTIONS PH: 708.845.3123 RICK.KLEIN@THEHORTONGROUP.COM LINKEDIN.COM/IN/RICKLKLEIN
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Rick Klein is a Principal and Senior Vice President of The Horton Group. With more than 20 years in financial services, Rick serves as an employee benefits and financial risk management consultant. He is a licensed Life and Health Producer, Registered Investment Advisor and General Securities Principal.
THE IMPACT OF HEALTHCARE REFORM ON THE FOOD INDUSTRY
HORTON’S FOOD INDUSTRY PRACTICE
SPECIALIZING IN BUSINESS INSURANCE, RISK MANAGEMENT AND EMPLOYEE BENEFITS The Horton Group features a full menu of products and services that cater to manufacturers, distributors, processors and other food-related industry groups. Our objective is to assist companies in lowering their overall cost of their risk, in addition to helping them attract and retain the best employees to work within their operation. Horton’s capabilities range from basic insurance procurement to advanced consultation and implementation of specialized services. The Horton Group delivers superior solutions in all lines, including business insurance, risk management and employee benefits. For more information about Horton’s Food Industry Practice, visit us online at www.thehortongroup.com/food.
PAUL JOHNSON, CPCU, CWCA FOOD INDUSTRY PRACTICE HORTON RISK MANAGEMENT PH: 312.917.8628 PAUL.JOHNSON@THEHORTONGROUP.COM
ALAN HARDER
FOOD INDUSTRY PRACTICE HORTON RISK MANAGEMENT PH: 312.917.8634 ALAN.HARDER@THEHORTONGROUP.COM LINKEDIN.COM/IN/ALANHARDER
LINKEDIN.COM/IN/PAULCJOHNSONCPCU
FOR MORE INFORMATION ABOUT HEALTCARE REFORM, GO TO WWW.THEHORTONGROUP.COM/HCR
ABOUT THE HORTON GROUP Founded in 1971, The Horton Group is one of the largest privately held insurance brokers in the country, ranking fifth in the metro Chicago market. Horton employs a model that focuses on driving down cost and workload resulting in a comprehensive insurance program. Our unique combination of service capabilities and business excellence gives Horton’s clients real solutions to complex issues. Our company’s tools, techniques and talent come together to form Horton’s aggressive, growth-oriented culture of quality.
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