How Much Will Health Reform Cost My Business? Cory Rutledge, CPA – Partner CliftonLarsonAllen LLP
Today’s Discussion Overview of the Law Case Study Strategies for Success
Health Reform Definitions • ACA - refers to the 2010 Patient Protection and Affordable Care Act also known as health reform, Obamacare. • Employer-Sponsored Insurance (“ESI”) – represents the current health insurance coverage offered by an employer to its employees. • Health Insurance Exchange (“Exchange”) – an ACA exchange is an insurance marketplace where individuals, or certain small business employees, can purchase insurance as part of a large risk pool. Each state must establish its own exchange or the federal exchange option will be provided. Four plan levels will be offered. • Full-Time Employee – Working an average of 30+ hours of service per week or 130 hours per month, annually. “Hours of service” include paid time such as vacation, sick, deployment leaves, family medical leave, etc. • Waived – A full-time employee who elects not to obtain health insurance through the employer. Future coverage decisions made by these employees will impact the employer’s total health care costs.
Health Reform Definitions (cont’d) • Exchange Subsidy – Individuals who meet the income and health insurance affordability criteria will be eligible for premium and cost sharing (e.g. deductibles, co-payments) subsidies in the Exchange. • Affordable Insurance – Employee premium cost is less than 9.5% of Household Income. Three employer safe harbor options are also provided under regulations (as of 1/1/2013). • Household Income (HHI) – An employee’s modified adjusted gross income (MAGI), as reported on their annual tax return. The HIP Calculator uses employee W-2 taxable wages (Box 1) as a proxy for MAGI. HHI will be assessed in relation to FPL to determine eligibility for subsidies. • Federal Poverty Level (FPL) – Government-established income thresholds used to determine eligibility for assistance through various federal programs.
Health Reform Definitions (cont’d) • Penalty: • Individual : Assessed on individuals who fail to obtain adequate health insurance in 2014 and beyond. • Employer : Assessed on certain employers who have employees that access subsidies and purchase insurance through the Exchange in 2014 and beyond.
Overview of the Law • Health Reform law seeks to expand access to health coverage by: • Mandating individuals enroll in health insurance • Establishing new marketplaces for purchasing insurance (“Exchange”) • Imposing penalties on large employers who do not offer coverage, or offer coverage that is unaffordable • Expanding Medicaid Eligibility • Subsidizing low and middle-income individuals to purchase insurance via an Exchange
The Individual Mandate • Individual mandate to obtain health coverage:
Beginning in 2014, most individuals must obtain a minimum-level of health insurance coverage or pay a penalty
• Minimum essential coverage includes: • • • •
Medicare, Medicaid, TRICARE Insurance purchased through an Exchange, or the individual market Employer-sponsored coverage that is affordable & provides minimum value Grandfathered plans (group plan in effect on 3/23/2010)
• Penalties for failure to obtain coverage: • • • • •
In 2014: greater of $95 or 1.0% of income In 2015: greater of $325 or 2.0% of income In 2016: greater of $695 or 2.5% of income Penalty is capped at three times the per person Assessed penalty for dependents is half the individual rate
Hardship exemp:on Premium cost for amount forlowest a family cost plan > 8% of Household Income
Gov’t Assistance in Coverage • Medicaid expansion: Expands eligibility to
individuals and families up to 133 % of the federal poverty level (FPL) or Modified Adjusted Gross Income(MAGI) of138% of FPL • If cost effective, states can opt to subsidize employer-sponsored premiums for this group
• Premium and cost share assistance: • Individuals and families with household income of 100 - 250% FPL may be eligible for sliding-scale assistance, such as:
• Tax credits to help pay premiums; and • Out-of-pocket reductions to help with cost sharing (e.g., co-payments and co-insurance
138% FPL Individual = $15,856 Family of 4 = $32,499
400% FPL: Individual= $45,960 Family of 4= $94,200
State Medicaid Expansion Medicaid Expansion State Medicaid Eligibility Up to 138% FPL
Exchange Subsidy 139 – 400% FPL
No Medicaid Expansion State Exchang Medicaid Eligibility e Subsidy Varies by state 100 – Ex. 35% FPL 400%
No Subsidy 400% + FPL
No Subsidy 400% + FPL
Large Employer Penalties Law does NOT require employers to offer health insurance • Large employers subject to one of two “shared responsibility” penalties if any FT employee receives Exchange subsidies • For employers that own multiple companies, the 50 + employees is determined by control group or affiliated service group
For “minimum essenEal coverage”, see IRS NoEce 2012-‐31 at: hVp://www.irs.gov/pub/irs-‐drop/n-‐12-‐31.pdf
Large employer = 50 or more full-‐ Eme employee + FTEs FT employee = avg. 30 or more hours of service per week FT equivalents = Hours worked in a month by all PT employees divided by 120
Safe Harbor – FT Employee • IRS Notice 2012-58 and Dec. 2012 IRS/HHS proposed regulations explain a method employers may use to determine full-time status for ongoing employees, new employees expected to work full-time, and variable hour and seasonal workers. Measurement Period
Admin-‐ istra:ve Period
Stability Period
• Measurement period: 3 – 12 months (employer determined) • Administrative period(Optional): Up to 90 days for employee eligibility for coverage determinations, notification and enrollment of employees • Stability period: The greater of 6 months or the duration of the standard measurement period
“Shared responsibility” Penalties Penalty only assessed if a FT employee receives Exchange subsidies. Employees ineligible for subsidies if employer coverage affordable No Insurance Coverage Penalty Amount = $2000 x each full-time employee (after first 30 employees)
Unaffordable Employer Coverage Penalty If employer fails to offer coverage that is:
1. Minimum essential coverage -- minimum 60% actuarial value --offered to employees and their children under age 26. 2. Affordable = Employee premium cost for single coverage < 9.5% of household income. Amount = $3000 x # of full-time employees who receive exchange subsidies
“Affordable” = the employee premium contribuEon for single coverage is less than 9.5% of their MAGI household income, or one of three employer safe harbor opEons exist. (e.g., W-‐2 wages) Maximum penalty = no insurance penalty Infla:onary adjustments to penalEes begin in 2015 Employer pays no penalty for MA eligible employees
ACA Deductible and OOP Limits Limits
Individual Coverage
Family Coverage
DeducEble (Small group) Maximum Out of Pocket (all)
$2,000 $6,250 (2013)
$4,000 $12,500 (2013)
• Deduc:ble limits for small group market • 2010 average deducEble for small group = $2,814 (AHIP issue brief, August 2012) • Could result in higher premium costs for small groups to compensate for lower deducEbles. • Limits on out of pocket(OOP)maximums in 2014 :ed to limits established for Health Savings Accounts/High DeducEble Health Plans. • Both limits will be indexed forward by the percentage increase in average per capita premiums.
Health Insurance and Penalty Calculator Sample Senior Living Provider
Case Studies Facility type Size # of employees Employer contribution to single coverage (% of total) Currently waived employees # of Medicaid eligible
Case Study#1
Case Study #2
Case Study #3
Non-‐profit SNF 85 beds 79 FT employees
For-‐profit CCRC 180 Bed SNF 1922 FT employees
SNF + AL 77 Bed SNF 284 FT Employees
$7,632/year (85%) 34% (or 27 FT employees) O FT employees
$4,030/year (81%) 31.3% (or 603 FT employees) 10.7% (206 FT employees)
$5,090/year (66%) 57.7% (or 164 FT employees) 6% (17 FT employees)
26% of FT employees (21 of 79 FT 3.1% of full-‐time employees (59 FT 74.3% of full-‐time employees (211 # of Exchange subsidy eligible employees), many would pay less employees), many would pay less in FT employees), most would pay in the Exchange vs. ESI the Exchange vs. ESI less in the Exchange vs. ESI
Impact of ACA
Cost drivers
Estimated to pay 11% less
Estimated to pay 25% more
Estimated to pay 12.7% more The increased cost is the result of the fact that as a for-‐profit they benefit from the deductibility of 1. Number of waived employees health insurance premiums today that will now enroll in ESI but because of the high number of 2. Few subsidy eligible employees employees who would be eligible (many of whom currently waive ESI) to receive subsidies in the because FT employee contribution Exchange, the company would is affordable for most so most incur $508K in penalties that are employees would enroll in ESI not deductible.
Case Studies Key Assumptions Base Assumption "" State Medicaid Expansion Health Insurance Exchange Organization Tax Structure Today's Waived Employees Premium Annual Increases Employee Salary Inflation Exchange Premium Transitional Reinsurance Fee Funding Alternative
Case ""
Assumption " " Range
Undecided Federal For Profit 100% Converted 9%
Yes, No and Undecided State, Federal, and Partnership For Profit / Non Profit Waived / Insured based off Today's Insurance 2% to 12% per Year
2%
0% to 5% per Year
$10,513 Historical Avg
Based upon ESI Historical Average
Not Included Est. $63 per plan enrollee (EE +dependents) 60% of Premiums
$100K Increased Insurance Cost
Simulation Scenarios 2014 Pre-‐Reform ESI – Employer’s current year ESI premium cost increased by projected annual premium growth and health care uElizaEon (volume growth) BEFORE health reform impacts 2014 Post-‐Reform ESI – 2014 ESI insurance premium cost including growth in premium costs and health reform impacts (e.g. penalEes) 2014 No ESI – 2014 Scenario where an employer either does not offer health insurance to its employees or selects to disconEnue offering health insurance coverage. This may result in employees purchasing insurance through the Exchange. 2014 Employer-‐Funded Alterna:ve – 2014 scenario an employer no longer offers health insurance coverage but elects to provide a cash benefit (e.g., wage increase, HRA) to its non-‐ subsidized employees.
Health Insurance Costs
Impact of Employer Health Insurance Reforms Full-Time Employees 62 (16 Insured / 46 Waived) Total Staffed 130 (0 PT Insured/68 PT No ESI)
Midwest Senior Living
2014 PPACA FTEs
Baseline Premium Cost
123
HEALTH REFORM KEY DRIVERS
HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTS
($000s)
75%
Medicaid Eligible Employees Employer Estimated Cost Savings
$
-
($000s)
113 $
113 21
113
134
134
73
87
87
Previously Waived FT Employees Penalty: Subsidy Eligibles & ESI
-
138 64
-
Health Reform Increased Cost
-
202
-
Medicaid Employee ESI
-
-
-
Subsidy Eligible FT Employees ESI
-
(20)
-
-
(20)
-
Tax Adjusted Premium Costs PLUS: Additional Reform Impact
6,535
113 $
21
2014 Average Single Employer Cost
Total FT Medicaid Enrollees
$
Coverage Don't Offer -
Pre-Reform Projected Premium Cost
Current Employer Contribution %
Cost
2012-2014 Premium Increase (9.0% / Yr)
Single Coverage Employer Premium Cost $
Today's 2014 Offer 2014 Drop/
Employer Unaffordable Coverage Penalty Subsidy Eligible Full-Time Employees Subsidy ($3,000)
$
28 3
Estimated Subsidy Penalty
$
84
% Total Full-Time Employees
45.2% 62 (30)
Adjusted Full-Time Employees No Insurance Penalty ($2,000)
32 $
($000s)
Health Reform Decreased Cost
No Minimal Essential Coverage
Employer No ESI Insurance Penalty Total Full-Time Employees Less: 30 Employees
LESS: Previous Premium Liabilities
2
Less: 2014 Inflation Adjusted HC Cost Plus: Subsidy Eligible Penalty Health Reform No ESI Cost Post Reform HC Costs
Estimated Subsidy Penalty
$
64
($000s) HC Cost Change to 2014 Projected
2014 Pre Reform Projected HC Costs Estimated Net Savings
$ $
87 23
($000s) % HC Cost Change to 2014 Projected ($000s) Tax Adjusted HC Costs
$
$
-
-
(134) 64
-
-
(70)
113 $
316
$
182
73 $
64 $
(70)
136%
-52%
228
64
Employer Cost Components Today's vs 2014 HC Cost
$250
$228
Today's HC Costs
$196
$200
Est 2014 ESI HC Cost
$150
No ESI
$100
$73
$64 2013-2014 Increased Premiums
$50
$14 $-
$-
Medicaid Qualified Employees
$(50)
Waived to ESI
$(100) $(150)
$(120)
Net Subsidy Impact
Exchange Eligibility Factors Health Insurance Affordability 0.0% - 6.5%
11
17.7%
6.5% - 8.0% 12.9% 8 8.0% - 9.5%
24.2%
9.5% - 11.0%
40.3%
11.0% -…
15 25
4.8% 0.0%
15.0%+
3 -
-
25
50
75
Income as a % Above FPL 400%+
15%
250% - 400%
13%
9 8
73%
100% - 250%
0%
<100%
0
45 -‐
10
Exchange Subsidy Eligibility = Affordability + 133-‐400% of FPL In 2014, employer pays penalty when a FT employee is eligible for Exchange Subsidy.
20
30
40
50
2014 Coverage Breakdown Post Reform ESI FT Employee Mix
0 , 0% 34 , 55% Medicaid Eligible Subsidy Eligible
28 , 45%
ESI Coverage
We es%mate 45% of this en%ty’s full-‐%me employees will be eligible for Exchange subsidies, 0% for Medicaid as this state has elected not to expand Medicaid, and the remaining 55% enrolled in ESI.
Premium Cost Breakdown <= 100% FPL
101% -250% FPL 10,781
-‐ -‐
Today
-‐ -‐
2014 P re Reform ESI
Employer Share
-‐ -‐
2014 P ost Reform ESI
Employee Share
-‐ -‐
2014 P ost Reform No ESI
Gov't Subsidy
0/0% T o ta l (0/0% F T E m p l o yees + 0/0% Wa i ved C o n ver ted )
15,295
5,463
4,598 8,276 Today
9,832 2014 P re Reform ESI
Employer Share
7,477 1,438 2,000
2014 Pre Reform ESI 2014 Post Reform ESI2014 Post Reform No ESI
Employer Share
Employee Share
Gov't Subsidy
45/73% T o ta l (7/44% F T E m p l o yees + 38/83% Wa i ved C o n ver ted )
400+% FPL
12,018 -‐
14,017
3,824 8,194
9,049 2,968 2,000
2014 P ost Reform ESI 2014 P ost Reform No ESI
Employee Share
1,644 4,430
7,117
5,990
251%-400% FPL
12,874
4,707
2,747
2,312
Today
10,915
9,864
8,302
Gov't Subsidy
8/13% T o ta l (4/25% F T E m p l o yees + 4/9% Wa i ved C o n ver ted )
13,927
11,722
4,793
4,034 7,688
9,134
Today
2014 P re Reform ESI
Employer Share
11,622 3,634 7,988
13,622
11,622 2,000
2014 P ost Reform ESI 2014 P ost Reform No ESI
Employee Share
Gov't Subsidy
9/15% T o ta l (5/31% F T E m p l o yees + 4/9% Wa i ved C o n ver ted )
Cost Sharing Subsidies
• Federal government will pay insurers to reduce the cost sharing for individuals: • Enrolled in a silver-‐level plan through an Exchange and • Whose household income is between 100-‐250% FPL Household income as % of FPL
Cost sharing Reduc:on
100-‐200% FPL
Two-‐thirds
200-‐250% FPL
50%
• Reduc:ons don’t apply to benefits not included in the federal defini:on of “essen:al health benefits”
Key Cost Drivers for Sample
• Waived employees : 46 or about 74% of SAMPLE’s full-‐Eme employees waive ESI today and as such, do not cost the employer anything today. In 2014, if all waived employees enrolled in ESI due to the individual mandate, we would anEcipate an addiEonal cost of $302,000. • The impact net of the Exchange subsidy is approximately $120,000. • Roughly 86% of FT employees would income qualify for Exchange Subsidies • Affordability of coverage for full-‐:me employees results in 55% of FT employees remaining on the employer-‐sponsored insurance. • Penal:es are not a penalty: The cost of premium contribuEons by the employer in 2014 exceeds the $3,000 annual per employee penalty. Therefore, for each employee that goes to the Exchange, the employer incurs a net savings.
Maintaining Coverage
This scenario results in a roughly $141K increased cost to the organizaEon over current costs adjusted for tax. • 28 full-‐Eme employees (45%) would be eligible for Exchange subsidies because ESI is unaffordable for them, resulEng in a savings to the employer. These employees are projected to pay less through the Exchange than under ESI. • Employees earning more than 400% FPL would conEnue to benefit from employer contribuEons toward their premiums. • The employer penalty isn’t really a penalty: The $3,000 penalty cost for each FT employee receiving Exchange subsidies is actually less than the employer’s current per employee contribuEons toward single coverage ($5,501 before deducEbility in 2012 dollars).
Drop Coverage
This scenario represents the lowest cost opEon to SAMPLE, under the current provisions of health reform resulEng in a $23K Decrease. Impact on employees earning 100-‐400% FPL (86% of employees): Exchange premiums are esEmated to be slighter less than ESI. Those employees earning between 100-‐250% are eligible for cost sharing subsidies. Impact on Employees earning more than 400% FPL (15% of employees): This group will be disproporEonately disadvantaged because they are not eligible for any Exchange subsidies and so will bear the full premium cost.
Other considera:ons: If drop coverage, how will this change be communicated to employees? Is there a way to increase wages or offer an alternaEve cash benefit for those employees who would not be eligible for Exchange subsidies?
Strategies for Success
Achieving a “WIN / WIN” scenario
Achieving a WIN / WIN
OpportuniEes may exist where “WIN / WIN” scenarios for both employers and employees may be constructed
Employer Wins 1) Profitability 2) CompeEEve Workforce
WIN / WIN Where Employer & Employee interests meet, & Government subsidies are maximized
Employee Wins
1) Adequate Insurance 2) Affordable Coverage
Strategies
Reduce number of Full-‐Time Employees: OrganizaEons may consider adjusEng the number of employees working an average of 30 hours a week or more to bring down its potenEal liability. Evaluate current benefit offerings to determine if a different benefit plan with a lower actuarial value (60% or more) may offer lower overall premium costs. Result is more costs are shioed to the employee through cost sharing (co-‐payments, co-‐insurance and deducEbles) but only if they access health care services. Typically, this plan should have lower premium costs.
Strategies
(cont’d)
Measurement Period Selec:on: Select measurement period with fewest full Eme employees
If not offering ESI: Limit full Eme employees to 30 across all businesses is this important? Why
• Employers must offer full-time employees and their children under age 26 health insurance coverage or pay a penalty. • Penalties are assessed for full-time employees only • Current FT employees who waive coverage may enroll in ESI in 2014 adding bottom line, non-penalty costs to employers. • Now is the time to make strategic decisions to limit penalty risk
www.cliftonlarsonallen.com/HIP
THANK YOU! Cory Rutledge, CPA Partner CliftonLarsonAllen LLP 612-376-4524 Cory.Rutledge@cliftonlarsonallen.com