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CADILLAC TAX US/CAN TOLL FREE: 800-311-0799 PASSCODE: 629516
Facts, Impacts, and Insights February 26, 2015
2 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Mark Wilson –Vice President, Health and Employment Policy, and Chief Economist from the HR Policy Association, who has been providing research and analysis on the impact and cost of workplace-related legislation for more than 25 years.
Seth Perretta – Principal with Groom Law Group, who is nationally recognized in the field of ERISA and employee benefits, specifically with respect to the Affordable Care Act.
Leah Katz – Cigna Product Manager, who will share how Cigna's health benefit solutions, including consumer-driven health plans, can be part of a smart strategy for today and in the future.
Purpose of the ACA Excise Tax
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 3
Indirect way to reduce tax-preferred treatment of employer-provided health care benefits • Largest federal tax
expenditure:
$303 billion in 2013
Reduce excess insurance, lower health care spending • Main objective of all
excise taxes is to change behavior
• CBO forecasts individuals and employers will seek less costly policies
Raise revenue to help finance expansion of coverage under the ACA
ACA Excise Tax on high cost plans
Applies to employee and retiree plans that exceed:
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 4
• Non-deductible 40% tax applied to amount of employee benefit that exceeds tax threshold
• Generally, the cost of benefit reported on W-2
• Employers may combine pre- and post-65 retirees
• Scheduled to go into effect in 2018
$10,200 for individual
coverage
$27,500 for family coverage
ACA Excise Tax on high cost plans
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 5
Thresholds for early retirees and individuals in certain high-risk professions are:
$1,650 higher for
single coverage
$3,450 higher for
family coverage
• Adjustments to plan costs allowed for age/gender mix of employees
• Higher threshold for collectively bargained multi-employer plans ($27,500)
• Threshold amounts increased by Consumer Price Index beginning 2019
Excise Tax will affect many employers
Over time, more and more employers will be impacted by the tax because cost of health benefits increases faster than other prices • Threshold indexed by CPI, not medical inflation • Similar to Alternative Minimum Tax problem
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 6
Average employer family coverage triggers tax
Average individual coverage triggers tax
2031 2038
Excise Tax will affect many employers
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 7
AHPI survey of 350 large companies found over 38% will hit the tax in 2018 unless plan design changes are made
But averages mask significant differences
An average $1.0 million in 2018, and $2.1 million per year from 2018 to 2024, or over $2,700 per employee
Large employer plans that trigger tax in 2018 will pay:
It will cost $149 billion from 2018 to 2025 CBO estimates
Cost of the Excise Tax for large employers
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 8
2018 2019 2020 2021 2022 2023 2024 2025
$378 million or almost $4,500 per covered life
$284 million or $568 per covered life
Almost $42 million or $978 per employee
Almost $5 million or $302 per covered life
Over $12 million or $111 per covered life
Changes employers are making
Recent National Business Group on Health survey found • 57% implementing or expanding account-based CDHP’s • 53% adding or expanding incentives for wellness programs • 42% are increasing employee cost sharing • 30% are eliminating high cost plans • 20% are narrowing their provider networks to control costs
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 9
78% of large employers changing health care plans in response to the tax
Employers are also decoupling dental and vision benefits from their health care plans
Common issues and questions
11 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Offered or enrolled? How to value? To whom does
it apply?
After-tax HSA amounts?
FSA carryovers and grace period?
Who is liable for self-funded
plans?
Insurer’s liability
Employer’s liability
“Person that administers” self-funded plan liability
Mechanics around determining excise tax liability – i.e., allocation considerations
Liability questions
12 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Defining high costs
13 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Cadillac
“high-cost”
Actuarial value-
based standard
Minimum value v. Cadillac tax
14 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Employer mandate excise tax
High-cost “Cadillac” excise tax
Future guidance
• Follow-up to this week’s initial request for information
• Heavy lobbying from all stakeholders i.e., employers, unions, disability and elder rights groups
• Legislative fix remains unclear
15 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
FEES AND REPORTING
16 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Comparative effectiveness research fee
ACA taxes and fees Insured and self-insured plans
17 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
• 40% nondeductible excise tax • Liability of HSA contributions to employer • Liability of self-funded coverage to plan
administrator
• $63 for 2014, $44 for 2015, $27 for 2016 • Liability runs to plan itself
• Also known as the Patient-Centered Outcomes Research
Institute “PCORI” fee • $2.08 per capita for plans ending after 9/30/14 and before
10/1/15 • Liability runs to plan sponsor
Reinsurance fee
Cadillac tax
• Insurers and self-funded plan sponsors must return information to IRS and individuals enrolled in “minimum essential coverage” – Insured coverage: Insurer’s responsibility – Self-funded coverage: Plan sponsor’s responsibility
• Original effective date moved from 2014 to 2015 calendar year (first reporting to occur in January 2016)
• Questions now arising as taxpayers prepare 2014 Forms 1040 – Insurers and plan sponsors are not required to report any
2014 coverage – Clarifying FAQs hoped for and believed in development at IRS
MEC reporting IRC section 6055
18 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
CIGNA CDHP AND LOCALPLUS
19 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Leah Katz Cigna, Product Manager
Analysis assumes Annual Premium of $11k per Employee per Year prior to enrolling in the CDHP option, 12% CDHP savings in Year 1 and a 9% annual trend.
Cigna HSA/HRA vs. Traditional Plans
Year 1 Year 2 Year 3
$1,300
$2,700
$6,000
Year 4 Year 5
$4,300
$7,900
Source: 8th Annual Cigna Choice Fund Experience Study, April 2014
And will grow over time
Cigna’s 8 year study showed Health Saving & Health Reimbursement Account customers had 13% lower medical trend
20 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
CUMULATIVE SAVINGS PER EMPLOYEE
Over five years, HSA/HRA plans could cumulatively save up to $7,900 per employee when compared to a traditional plan
Our HRA and HSA can be combined with any of our PPO, Open Access Plus, EPO, LocalPlus®, helping employees: • Become more engaged in their health care decisions • Have more control over their plan utilization and overall cost
Both offer • Preventive care covered at 100% • Integrated customer service • Electronic access to claims and
account balances • Educational online tools and resources
Cigna consumer driven health plans HRA, HSA highlights
HRA features • Employer funded account • Unused funds rollover • Flexible plan design options • Debit card option
HSA features • Employer and employee
contributions • Individual employee owns the account • Choice of HSA administrators for
account administration
Choice of HSA Administrators
22 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Cigna partners with three leading financial services companies who can establish and administer individual Health Savings Account for employees. Client selects to offer one of the following integrated banking partners.
(Formerly ACS|BNY Mellon HSA Solution))
LocalPlus – A local quality, cost-effective option that delivers savings
Cigna's LocalPlus® is a local network solution designed to guide customers to a select network of quality local health care professionals and facilities
* Percentage of savings is estimated based on an internal national Cigna study conducted in 2013 comparing Cigna’s Open Access Plus and Open Access Plus IN plans with the same benefit structure, deductibles, copay and out-of-pocket maximum limits. Savings will vary based on plan design, geographic distribution and utilization patterns.
** Not all LocalPlus® service areas include Cigna Collaborative Care arrangements
Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 23
• Local, narrow networks are improving outcomes for customers and driving savings of up to 15% lower medical costs*
• Health care professionals who have earned the Cigna Care Designation, and participate in our Collaborative Care arrangements are incentivized to deliver better outcomes and better motivated to improve health**
CADILLAC TAX
24 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Q&A
Visit our Website www.InformedonReform.com • News alerts, fact sheets,
timeline, FAQs and more
Meet with Groom Law Group • Cigna has an arrangement with
Groom Law Group to provide our clients and broker partners with legal and educational resources.
• Your Cigna representative can arrange a meeting with Groom to help you get your questions answered.
Resources
25 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
THANK YOU
26 Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna
Offered by: Connecticut General Life Insurance Company or Cigna Health and Life Insurance Company. “Cigna” and the “Tree of Life” logo are registered service marks, and “Together, all the way.” is a service mark, of Cigna Intellectual Property, Inc., licensed for use by Cigna Corporation and its operating subsidiaries. All products and services are provided by or through such operating subsidiaries, including Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company, and not by Cigna Corporation. All models are used for illustrative purposes only. 882284 02/15 © 2015 Cigna. Some content provided under license.