Eye On Washington: Health Care Reform

WELLNESS AND CONSUMER FOCUSED SOLUTIONS MAY SLOW HEALTH CARE COSTS
For more than 50 years, annual average per capita health care spending has increased at more than twice the rate of inflation as measured by the Consumer Price Index (CPI).[1]  In fact, there has not been a single year during the last 50 years when the increase in per capita health care spending was equal to or less than the rate of increase in the CPI – it has exceeded the rate of growth in the CPI every single year.

The average cost of health care spending is projected to annually increase 6.1% between 2009 and 2016 according to the Centers for Medicare and Medicaid.

Wellness programs offer the potential to reduce the demand for health care by changing the underlying need for health care as participants improve their lifestyle, and their medical compliance.

Consumer focused solutions – such as High Deductible Health Plans and Incentives – can change participant buying patterns.  The hope is that by economically involving participants in their purchase decisions they will choose higher quality and lower cost solutions.

PLAN DESIGN FLEXIBILITY WILL LIKELY DECREASE
Health Care Reform will require significant re-thinking around benefit design as a result of both coverage mandates, new nondiscrimination rules applicable to fully-insured plans that are expected to become effective in 2014, and a new 40% excise tax that will apply to high cost insurance in 2018, all of which were included in the ACA. The result of these provisions could be a narrowing of differences among employer sponsored health care plans – making it more likely over the next 5 to 10 years that employer sponsored plans will begin to look more and more alike.

Since plan design will likely become less of a differentiator among employers – more employers will likely move toward a Defined Contribution strategy - the value proposition for employer sponsored plans will likely shift to such things as:

• Improving ability to control costs for both the employer and the employee

  – Engaging the employee as a consumer at both the moment of plan selection and at the moment of service being provided
  – Implementing Consumer Driven Health Plans
  – Moving to a defined contribution model for employer sponsored health care

• Ensuring an employer-branded, consistent, and high quality participant benefit experience

EXCHANGES – CHANGING THE PARADIGM
The ACA requires that states establish health insurance exchanges by January 1, 2014 in order to facilitate the purchase of qualified health plans by individuals.  The ACA also provides for the establishment of a Small Business Health Options Program (SHOP) Exchange for businesses that are eligible to receive coverage through the small group market to purchase coverage.  The individual and SHOP Exchanges may be offered through one Exchange.  The Department of Health and Human Services (HHS) will establish and operate a federal exchange for any states that do not establish their own exchange by 2014. Regional and interstate exchanges may also be established. 

A new employer notification requirement will apply that is related to the establishment of the exchanges.  Effective March 1, 2013, all employees and new hires must receive a notification from their employer that includes information about the exchanges and an employee’s ability to shop for coverage on the exchange. The ACA further provides that the notification include the eligibility rules for premium assistance and include language explaining that if the employee chooses coverage through the exchange, the employee will lose the employer’s contribution to coverage which is excludable from income.

Once more specific information on the Exchanges starts becoming available, small employers that will be eligible to purchase coverage through the Exchange may want to consider whether offering coverage through the Exchange is a viable alternative to their current offering.  In addition to the public exchanges, many private exchanges are being established which may provide another coverage alternative for employers.  Some private exchanges are being established solely for large employers that are not eligible to purchase coverage through the public exchanges as of January 1, 2014, while other private exchanges offer coverage to employers of any size. 

Today virtually all employers offer coverage through what is effectively an exchange – although a limited exchange. 

For example, most employers hold an annual enrollment during which their employees can pick a health care plan from among those that are offered and, in most cases, several vendors/carriers are involved.  A typical plan sponsor may offer a choice of one or more plans through an insurance company like United or Aetna or Blue Cross along with one or more HMOs. Employees can compare plan provisions, network coverage, and price and may even be provided with decision support tools (at a minimum some sort of plan comparison capability) to assist them in picking the plan that is best suited to meet their needs.

With this in mind there are really three types of exchanges employers will be considering:

• Limited Exchange: Traditional employer sponsored plans – generally limited to 3 to 6 health care plan choices, and still primarily Defined Benefit in design

• Private Exchange: Dozens of plan choices aggregated by a provider or an outsourcer with employer input as to which ones are offered, with the ability for employers to rapidly embrace a Defined Contribution strategy utilizing a qualified funding vehicle (i.e., 501(c)(9) Trust/VEBA, HSA/HRA – or for Public Sector employers an Integral Part Trust, etc.)

• Public Exchange: The state and/or federal exchanges required under Health Care Reform will vary by jurisdiction in terms of coverage, quality, and participant support/experience

SHARED RESPONSIBILITY – MANAGING COMPLIANCE
Beginning in 2014, employers (with at least 50 employees) must meet the requirements described below, or be subject to a potential penalty:

• Offer full-time employees the opportunity to enroll in minimum essential coverage under an employer plan (Code Sec. 4980H(a)); or

• This minimum essential coverage, among other things, must be affordable (i.e., no more than 9.5% of the employee’s W-2 earnings with the employer).

If the employer fails to do the above, AND the employee purchases coverage through an exchange, AND the employee is eligible for and receives a Federal Tax Credit in order to subsidize the cost of their coverage, THEN the employer will be subject to a penalty.

It is important to keep in mind that employees with household income up to 400% of the Federal Poverty Level (FPL) will be eligible to receive the Federal Tax Credit. For 2011, the FPL was $22,350 for a family of four – meaning that an employee with a family of four earning less than $89,400 would be eligible for a Federal Tax Credit if they enrolled in an exchange. (Note: the FPL is indexed for inflation and will likely be higher in 2014).

This could be a significant issue for employers with hourly employees regularly scheduled to work less than 30 hours per week – many of whom are likely to have both W-2 wages and household income that will be less than 400% of the FPL.

The solution is to actively manage these potential issues by integrating automated Time & Labor Management tools, Payroll, and Benefit Administration.

Large employers (generally defined as employers that have more than 50 full-time equivalent employees) should also begin planning for the ACA’s shared responsibility provisions which become effective in 2014.  Effective January 1, 2014, an individual can purchase health coverage through the public exchange and apply for premium assistance to reduce the required monthly contribution amount.  If an individual has been offered employer-sponsored coverage, the individual will only be eligible for assistance if the employee’s income falls within 400% of the FPL and the coverage is either: (1) “insufficient” (meaning that the plan does not provide minimum value); or (2) “unaffordable” (the premium cost to the employee exceeds 9.5% of the employee’s household income).

The exchange will notify an employer when one of its employees qualifies for premium assistance because the employer’s plan does not meet the minimum value test or it is deemed unaffordable.  The notice to employers will include information about potential assessments and any appeal process.  There are two different assessment structures; one for employers that do not offer coverage to full-time employees and another structure that applies to employers that do offer coverage to full-time employees that fail either the minimum value or affordability test. 

Under the first structure, employers that do not provide coverage may face an annual assessment of up to $2,000 for each full-time employee, excluding the first 30 full-time employees.  Under the second structure, employers that offer coverage to full-time employees that fail either the minimum value or affordability test may face an annual assessment that is equal to the lesser of: (1) $3,000 for each full-time employee that receives subsidized coverage through the exchange, or (2) $2,000 for each full-time employee, excluding the first 30 full-time employees.  All assessments will be calculated on a monthly basis. 

AUTOMATIC ENROLLMENT FOR HEALTH BENEFITS
The ACA requires that all employers with more than 200 full-time employees who offer health insurance must automatically enroll employees into health coverage.  At this time no additional guidance has been released, but rulemaking authority has been delegated to the Employee Benefits Security Administration within the Department of Labor.  An FAQ (http://www.dol.gov/ebsa/faqs/faq-aca5.html) indicates that employers will be required to comply at some point after regulations are released.  The Department of Labor intends to release regulations prior to 2014.  Although large employers are not required to comply with the automatic enrollment provisions until the regulations are issued, employers should begin reviewing their internal systems and programs in anticipation of the future release of these regulations. 

We anticipate that, among other things, employers will have to:

• Determine how to administer the auto-enrollment requirements for their specific populations (both those currently enrolled and those who have waived coverage, as well as those who elect to opt out of coverage)

• Communicate to employees regarding the auto-enrollment process, including their ability to opt out of coverage.

FORM W-2 REPORTING FOR VALUE OF EMPLOYER-PROVIDED HEALTH BENEFITS
The value of employer-provided health insurance benefits offered after January 1, 2012 will be required to be reported in Box 12 of the Form W-2 with code DD sent to employees in January 2013.  Employers who filed fewer than 250 2011 Forms W-2 are not subject to the 2012 reporting requirements.

If the amount of the health FSA for the plan year exceeds the salary reduction elected by the employee for the plan year, then the amount of the employee’s FSA minus the employee’s salary reduction for the FSA is reportable.  In addition, the IRS provides an example of employee and employer contributions to an FSA (Q & A-19) breaks down into:

– ER has a Section 125 cafeteria plan including an FSA
– ER has a flex credit that matches EE salary reduction
– EE makes a $700 FSA salary reduction election
– ER matches with $700
– FSA = $1,400
– EE $700 does not exceed $1,400, so the FSA is reportable
– ER must include $700 in reportable cost ($1,400 FSA minus EE $700 salary reduction)

Benefits not included in the calculation of the aggregate reportable cost include amounts contributed to any Archer MSA, Health Reimbursement Arrangement or Health Savings Account.  Employee assistance programs, wellness programs or on-site medical clinics are only to be included in the aggregate reportable cost if the employer charges a premium for such benefits.  These items are not required to be reported if the employer does not charge a premium with respect to that type of coverage provided under COBRA to a qualifying beneficiary.

For additional information, see IRS Notice 2012-9 Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance (http://www.irs.gov/pub/irs-drop/n-12-09.pdf).

INSURANCE REBATES
The medical loss ratio (MLR) provisions of ACA became effective in 2011. The MLR provisions require health insurance companies to spend at least 80% of their premiums collected on medical care or quality improvement or 85% for large-group plans. If the MLR does not meet this threshold then a rebate must be provided to policyholders. Any rebates must be determined by June 1, 2012 and be issued no later than August 1, 2012. Employers should check with their insurance carriers to determine whether any rebates are required to be issued and whether the insurance carrier will require any information from the employer in order to facilitate the issuance of any rebates.

UNIFORM SUMMARY OF COVERAGE
In addition to other plan disclosures required by ERISA, a new uniform summary of coverage requirement was added by the ACA. Under the ACA, plans and insurers are required to provide a 4-page uniform summary of coverage to all eligible individuals. This requirement was initially slated to become effective March 23, 2012. The Department of Labor recently released guidance at the end of 2011 that provides that plans and insurers will not be required to distribute the summaries until final regulations are issued.