License No. 0451271 Health Care Reform: A New Environment for Benefit Negotiations Cynthia D. Stribling, CEBS Vice President/Training Director Keenan &

License No. 0451271

Health Care Reform: A New Environment for Benefit Negotiations

Cynthia D. Stribling, CEBSVice President/Training DirectorKeenan & Associates

License No. 0451271 Innovative Solutions. Enduring Principles.

Your Unique Challenges

Preparation for health benefit changes in anticipation of 2014Development of a coordinated game plan for 2014, even if some or all of Health Care Reform may changeNegotiation of health benefits when much of the 2014 paradigm is unknown


Our Purpose

Inform you of our view of Health Care Reform’s impact in 2014, recognizing that there is very little guidanceFacilitate your fact and data gatheringAssist in your development of real-life scenariosIdentify issues in advance of their impactFoster an orderly approach to benefit discussions


How Will You HandleAutomatic Enrollment?


Automatic Enrollment - 2014

New FTEs must be enrolled, automatically, in a group health plan – subject to plan waiting periodsFTEs already enrolled in a plan must continue to be enrolled unless a new election is madeEmployees must be given notice and the opportunity to opt-out of health coverage


Automatic Enrollment - Issues

Definition of “Full-Time Employee” Plan and tier of coverage in which to enroll the FTEThe requirements for allowing employees to opt-out


Action Items

1. Definition of FTE - who must be enrolled?2. Ensuring that employees/families receive

the coverage they want - defaults3. New requirements for opt-outs, including

how they relate to cash-in-lieu


How Will The California Health Benefit Exchange Work?


California Health Benefit Exchange

Established January 1, 2011Operational January 1, 2014 for individuals and small employers (50 employees or less)Independent public entity within California government -- not affiliated with any State agency or departmentOverseen by a five-member board selected by the Governor, Speaker and Senate Rules Committee


Exchange Board Members

Diana S. Dooley, Current CA Secretary, HHS (Chair)Kim Belshe, Former CA Secretary, HHSPaul Fearer, Senior Executive Vice President and Director of Human Resources, Union BankSusan Kennedy, Former Schwarzenegger Chief of StaffRobert Ross, MD


Function of California Exchange

Sets standards for insurance companies to “qualify” to offer their products on the ExchangeNegotiates and selects which qualified companies can offer their products on the ExchangeAdministrative powers, determines individual eligibility for coverage, eligibility for Federal subsidies, etcInterfaces with employersCoordinates with other agencies


Exchange Health Plans

Plan Benefits– Bronze: Covers 60% of the benefit costs– Silver: Covers 70% of benefit costs– Gold: Covers 80% of benefit costs– Platinum: Covers 90% of benefit costs

Deductibles: $2,000 single/$4,000 familyOOP Limits: $6,000 single/ $12,000 family


Federally Negotiated Exchange Plans

At Least Two Multi-State Plans Negotiated by Federal Office of Personnel Management– Plan One – Offered by a Non-Profit Entity– Plan Two – Does not cover abortions


Exchange Structure

The California Exchange(Qualified Health Plans)

(Administration)(Eligibility)

CA Commodity Plans Multi-State Plans


Why Purchase Exchange Coverage?

Exchange coverage may be a better fit for the employee– Networks/Hospitals– Coverage (less/more)

Exchange coverage may be less expensive than employer coverageFixed monthly cost may be less than employer’s (although potential overall cost may be higher if benefits are used)Financial incentives to purchase on the Exchange


Action Items

1. Definition of FTE - who must be enrolled?2. Ensuring that employees/families receive

the coverage they want - defaults3. New requirements for opt-outs, including

how they relate to cash-in-lieu4. Comparison of employer plans to Exchange

plans


How Does An EmployeePurchase Health Benefits

On The Exchange?


The Exchange TransactionThe Exchange Transaction

CA Exchange Plans(Exchange Insurers)

Multi-State Plans(OPM Insurers)

The California Exchange(Central Administrator)

Employee 2012 Form

1040 & Proof of

Citizenship

HHS

Social Security

IRS

Immigration


General Rules - 2014

Mandate: Individuals and their dependents must have health coverage or pay a tax penaltyExempt: If the cost of self-only coverage costs more than 8% of Household Income


Employee with No Health Coverage

Individual Mandate tax penalty as follows:– 2014: Greater of $95/adult ($47.50/child) or 1% of

HI to $285 maximum– 2015: Greater of $325/adult ($162.50/child) or 2%

of HI to $975 maximum– 2016: Greater of $695/adult ($347.50/child) or

2.5% of HI to $2,085 maximum


General Rules - 2014

If self-only coverage costs 9.5% or more of HI, it is “unaffordable” orIf the plan’s share of benefit cost is less than 60%Then the employee is eligible for a Federal subsidy if health coverage is purchased on the Exchange


Income Illustration

Monthly Premium as a Percentage of Household Income Self-Only

$0$50

$100$150$200$250$300$350$400$450

Household Income

Month

ly P

rem

ium

8% HI

9.5% HI


The Exchange Transaction

Exchange Analysis for employee eligibility for a Federal subsidy:– Is the employee’s Household Income between one

and four times the Federal Poverty Level?– What is the employee’s cost, as a percentage of

Household Income, toward self-only coverage of the employer’s medical plan?


Federal Poverty Level

Household Income as a Multiple of FPL:Examples of FPL (2011):Fam. Size FPL 2 x FPL 4 x FPL

1 $10,890 $21,780 $43, 5602 $14,710 $29,420 $58, 8403 $18,530 $37,060 $74, 1204 $22,350 $44,700 $89, 400


The Exchange Transaction

Federal subsidies are:– Premium Assistance Tax Credit payable directly in

advance to the insurance company by U.S. Treasury, or to employee as a reimbursement at year-end, and

– Reduced Cost Sharing lowering the Exchange Plan cost sharing requirements


Example – Jones Family

Family Size: 4Salary: $45,000Household Income: $35,000Employer Self-only coverage: $280/moEmployer Family coverage: $450/monthExchange Silver family coverage: $800/monthExchange Bronze family coverage: $600/month



Jones is eligible for a tax credit– Jones Household Income is between 1.38 and 4

times FPL– Cost of self-only coverage exceeds 9.5% HI

What is the amount of the tax credit?– Based on sliding scale multiple of Household

Income to the Federal Poverty Level



Jones HI = $35,000FPL for a family of four = $22, 350Jones’ HI is 1.56 (156%) x FPLJones’ cost for the second lowest cost Silver level coverage on the Exchange is 4.3% of Household Income



Household Income as Percent of FPL

Initial Premium(percentage)

Final Premium (percentage)

150% through 200% 4.0 6.3

200% through 250% 6.3 8.05

250% through 400% 9.5 9.5



Full cost of Silver Level Family Coverage is $800/monthJones cost, using the credit, will be $125/monthMonthly tax credit amount is $675/monthAnnual Tax Credit = $8,100



Jones can purchase any coverage on the Exchange and receive the same credit amount, or a lesser amount if the cost of coverage is less than the credit. For example, Bronze coverage at $600/month would cost Jones $0.



If Jones actually purchases Silver level coverage, there is reduced cost sharing:– OOP Maximum reduced from $11,000 to: $4,000– Other costs are reduced to ensure that Jones’

share of the total allowable cost of the plan is no greater than a fixed percentage.


Comparison – Jones Family

Employer Coverage– Family – $450/mo– 15.4% HI– Paid Pre-Tax– Deductibles - ?– OOP Max - ?

Subsidized Coverage– Silver Family -$125/mo– 4.3% HI– Paid After-Tax– Tax Credit - $8,100– OOP Max - $4,000– Other cost reductions– Bronze Family - $0/mo

OOP max - $11, 900– Deductible - $4,000


Action Items

5. Identification of groups most likely eligible for tax credits using a broad definition of FTE

6. Develop an approach to estimating HI7. Estimate employee cost for self-only

coverage as a percentage of HI for those groups


How Does The Exchange Transaction Work For The Employer?


The Exchange TransactionThe Exchange Transaction

CA Exchange Plans(Exchange v. Insurers)

Multi-State Plans(OPM v. Insurers)

The California Exchange(Central Administration)

Employee 2012 Form

1040 & Proof of

Citizenship

HHS

Social Security

IRS

Immigration

Employer


Example Jones Family - Continued

Exchange contacts the employer and advises that Jones, one of its employees, is eligible for a Federal SubsidyThe employer can appeal this determinationPersonal tax information of the employee must be made available as part of the appeals process



Employer Tax Penalty: If just one FTE purchases coverage on the Exchange and receives a Federal subsidy, the tax penalty is:– Lesser of:• $3,000/FTE who receives a subsidy; or • $2,000/FTE whether or not receiving a subsidy

(excluding first 30 FTEs)



Jones’ employer has 500 FTEs 50 FTEs enrolled in the Exchange and received a Federal Subsidy Employer tax penalty is the lesser of:– $150,000 (50 x $3,000) or – $940,000 (470 x $2,000)



Employer– Employer cost of Family

Coverage for Jones - $0– Tax Penalty – ($3,000)– Cash-in-lieu – ($1,200)– Savings: $5,800

Jones– Silver Family -$125/mo– Tax Credit - $8,100– Cash-in-lieu - $1,200– Cash Benefit - $9,300


Adverse Incentives Create

Adverse Selection


The Effect of Adverse Incentives A purchaser of health care chooses insurance that is to their

economic advantage A healthy individual may choose not to buy insurance, or

choose the leanest benefit available An individual with known health conditions will try to obtain

a richer benefit plan This “adverse selection” means that the out-of-pocket cost

of a health plan often becomes the most important part of the decision, NOT the appropriateness of the benefits

Anything that adds financial incentives to the purchase decision, such as cash-in-lieu of benefits, can drive healthier people out of the plan, resulting in a smaller sicker population remaining and driving up costs.



Employer– Employer cost of Family

Coverage for Jones - $0– Tax Penalty – ($3,000)– Cash-in-lieu – ($1,200)– Cash Savings: $5,800

Jones– Silver Family -$125/mo– Tax Credit - $8,100– Cash-in-lieu - $1,200– Cash Benefit - $9,300


Action Items

8. Evaluate cash-in-lieu with respect to potential subsidy eligible employees

9. Evaluate potential tax penalties for employer – is this a good/bad thing?

10. What employee behaviors should be encouraged?


Uniform Summary of Benefits


2012? – Uniform Summary of Benefits

Original Requirement: By March 23, 2012, employees must receive a statement of whether the plan or coverage:– Provides “minimum essential coverage” and– Ensures that the plan or coverage provides not less than

60% of the benefits and cost

Implementation delayed on 11/17/11, “until final regulations that take into account stakeholder feedback”Why is this important?


Recap of Action Items


Action Items

1. Definition of FTE – who must be enrolled?2. Ensure that employees/families receive the

coverage they want – defaults3. New requirements for opt-outs, how do

they relate to cash-in-lieu?4. Comparison of employer plans to Exchange

plans5. Identify groups most likely eligible for tax

credits and subsidized cost sharing


Action Items

6. Develop an approach to estimating employee HI for planning purposes

7. Estimate employee cost for self-only coverage as a percentage of HI for those groups

8. Evaluate cash-in-lieu with respect to potential subsidy eligible employees

9. Evaluate potential tax penalties for employer – is this a good/bad thing?


Action Items

10. What employee behaviors should be encouraged?

License No. 0451271

How Will These Issues Affect Employee Negotiations?


Employee Negotiations

Negotiations are a year-round activityEach contract ratified sets the stage for subsequent negotiationsMulti-year contracts, or contracts that get into details about plan designs, can limit the flexibility needed to respond to changing legislationEmployee Associations also need to understand that with these complex issues, flexibility is in their best interest


Action Items – Start the Discussion

11. Set up a schedule and begin regular educational meetings with your employee associations on the issues we’ve discussed today

12. Review your existing employee agreements regarding health plan coverage; identify vague/unclear language

13. Review your current health plan renewal schedule and determine when decisions must be made in time for open enrollment

14. Start creating some scenarios based on your own employees and try to cost out the effect

15. Convene benefits committees to review benefit plans


Employee Negotiations

A Memorandum of Understanding can be useful in giving both management and labor the opportunity to work on these important issues outside of the regular bargaining scheduleEmployee understanding of the possible effects of the new law on their benefits will be key in creating consensus on benefit issues


Close

Addressing the Future:– Caution about extending agreements beyond

2013– Address ways to re-open benefits portion of

agreement for those agreements that will be in force beyond 2013

– Plan for maximum flexibility


Questions?Disclaimer– Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting firm. We do not give legal advice or tax advice and neither this presentation, the answers provided during the Question and Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this information affects you.

License No. 0451271

Innovative Solutions. Enduring Principles.

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Documents

License No. 0451271 Health Care Reform: A New Environment for Benefit Negotiations Cynthia D. Stribling, CEBS Vice President/Training Director Keenan &