What’s Next for Small Employers?

A Health Care Reform Webinar

Presented by Blue Cross Blue Shield of Michigan and the Detroit Regional Chamber

What is a Small Employer?

• For many health insurance provisions, the federal small group definition effective Jan. 1, 2014 will be 1-50 employees.
  
  
  • This includes full-time, part-time and seasonal employees, unlike prior years.
  • Employer penalties in the form of an excise tax will not be imposed on employers with fewer than 50 employees who decide not to offer coverage.

The Health Care Reform Timeline

Aug. 1, 2012 
– Expansion of Women’s Preventative Services (excludes grandfathered plans & religious employers)

Sept. 23, 2012
– Summary of Benefits and Coverage (no exclusions, joint or sole responsibility by funding arrangement)

Nov. 16, 2012 
– Blueprint application is due to HHS if Michigan wishes to pursue a state-federal partnership for the exchange.

Dec. 31, 2012   
– Contributions to employee flexible spending accounts limited to $2,500 annually

– Inform high-wage employees of new Medicare payroll and investments income taxes ($200,000 individual; $250,000 joint)

– Medical Device Tax – effective Jan. 1, 2.3% of items sold will have tax assessed on the manufacturer of any taxable device.

In 2014…         
– Communicate various reform changes including individual coverage mandate, presence of Exchanges, available subsidies and tax penalties.

– Employers with 50+ employees may be subject to penalty if they do not offer coverage, offer unaffordable coverage, or offer coverage that does not meet the minimum value requirements.

– Employers with 50 or fewer employees must determine whether to purchase coverage through an Exchange, another distribution channel or to drop coverage and transition to Individual.

– Reinsurance fee – payment due Jan. 15.

– Determine eligibility for small business tax credit.

– Remove annual dollar and lifetime limits.

– Remove waiting periods in excess of 90 days.

– Market share tax – payment due on Sept. 30.

**Note: Business growth into the 50+ market space could change your eligibility. The Exchanges
                  could be expanded in 2016 to include groups with up to 100 employees.

Women’s Preventative Services

• Services for women must be covered with no cost-sharing beginning on plan years on or after August 1, 2012. These services include:
  
  
  • Screening for gestational diabetes
  • HPV testing
  • Screening and counseling for interpersonal and domestic violence
  • Contraceptive counseling and methods
  • Breastfeeding supplies

 

• Employers that meet the tax code’s narrow definition of religious employer will be allowed an exemption from only the contraceptive mandate.
  
  
  • Examples of religious-exempt groups include churches, mosques, temples and other houses of worship.

 

• Religious-affiliated groups that meet a different set of criteria may be allowed a one-year delayed implementation of contraceptive benefit coverage.
  
  
  • Examples of religious-affiliated groups can include charitable organizations, schools and hospitals.

 

• Several documents related to drug coverage and religious status must be maintained on an annual basis to ensure benefits are applied appropriately to each group type.
  
  
  • The following groups may require special handling and important documentation:

-Grandfathered groups
-Groups with no prescription drug coverage
-Prescription drug coverage with carve-out arrangement
-Religious groups
-Religious-based employers (temporary safe harbor)

Summary of Benefits Coverage (SBC) Required Capabilities

• Effective Sept. 23, 2012, group health plans and health insurance issuers offering group of individual coverage are required to provide an SBC, coverage examples and a uniform glossary of health insurance terms to enrolled members and prospective members.

 

• Employers offering fully insured coverage are jointly responsible for distribution.

 

• The SBC includes:
  • Summary of Benefits and Coverage
  • Coverage Examples
  • Uniform Glossary

 

 

 

 

	Upon request	Application	Renewal (Automatic)*	SBC Changes Between Application & Enrollment	Special Enrollees	Material Modification
Issuer to Group Health Plan	Within 7 business days of request	7 business days of receipt of application	30 days before plan year. (If 30 days is not given, 7 days after intent to renew)	Before 1st day of coverage	N/A	60 calendar days prior to effective date of change.
Issuer/Group to Participant	Same	Include w/ written app materials or, if none, 1st day eligible to enroll	Same	Same	90 days from enrollment	Same
Issuer to Individual Customer	Same	7 business days of receipt of application	Same	Same	N/A	Same

 

Summary of NHR Taxes and Fees

 

1)      Comparative Effectiveness Research: The fee begins at $1 per covered life for policy years ending in fiscal year 2103, increasing to $2 per covered life for fiscal years 2014-2019. The fee ends after fiscal year 2019. For insured coverage, the health insurance issuer pays the fee.

2)      Market Share Tax: Starting in 2014, the tax will be proportional to each insurer’s share of the national market based on fully insured net premium revenue. Health insurance issuers will pay this annually to the IRS.

3)      Reinsurance Fee: The transitional reinsurance program subsidizes individual market plans (on/off exchange) for at least three plan years, beginning on or after Jan. 1, 2014. The transitional reinsurance program is funded via a market share assessment on insurers and self-insured group health plans.

4)      Exchange User Fee: Beginning Jan. 1, 2014, Exchanges will charge assessments or user fees to participating health insurance issuers to achieve self-sustainment by Jan. 1, 2015.

5)      Excise (“Cadillac”) Tax: Beginning in 2018, a 40% excise tax will be assessed on the value of employer-provided benefits that exceed certain thresholds. Plans are subject to the tax if the total premium (including employer and employee share) exceeds $10,200 for an individual or $27,500 for a family. Threshold values will be indexed in 2019.

-Not applicable to most small employers.

• Medical device tax: Effective for sales made after Dec. 31, 2012, this tax is assessed on the manufacturer, producer or importer of any taxable medical device. The tax is a 2.3 percent of the value of the sold item.

 

• Pharmaceutical tax: In 2011, manufacturers of brand-name pharmaceutical drugs were taxed based on the total amount of their drug sales compared to overall national drug sales.

 

• The Comparative Effectiveness fee is paid by the plan sponsor for self-funded business.

 

Timing of Affordable Care Act Taxes and Fees

Initial Payment Dates:
Comparative Effectiveness: July 13, 2013
Reinsurance: Jan. 15, 2014
Market Share: Sept. 30, 2014

Reform Impacts on Small Group

The Affordable Care Act has defined effective dates for group health insurance  reforms based on plan year. Small groups will be impacted the most in 2014.

Where to “SHOP”

• Small Business Health Options Program (SHOP)
• Purchasing coverage on the Exchange is required to receive the small business tax credit in 2014.
• Open enrollment begins on Oct. 1, 2013 for coverage effective on Jan. 1, 2014. Rolling enrollment is available through the year to allow an open enrollment period that coincides with the group’s plan year.
• Medicare Advantage and Medicare complementary plans will not be available on the Exchange.
• Insurance exchanges will be available to individual consumers and small businesses.
• All plans will conform to a classification system of “metal tiers” – Bronze, Silver, Gold and Platinum.
  • The new labels correspond to the actuarial value of the plan:

The Exchange is the New Way to Shop

-Bronze: 60%

-Silver: 70%
-Gold: 80%
-Platinum: 90%

• Actuarial value: Percentage of expenses that the plan will pay for essential health benefits. (Enrollees pay the remainder through some combination of deductibles, copays and coinsurance.
• Michigan is expected to have a state-federal partnership exchange in 2014.
• Plans on the exchange must be deemed “qualified health plans”.
• The employer-sponsored coverage must have at least a 60% actuarial value and provide essential health benefits.
• The employee share of premium cost cannot exceed 9.5% of the employee’s household income.

A Closer Look at the Exchange

The Exchange is a competitive list of plans; a provider directory. It is a competitive marketplace for individuals and small employers to directly compare available private health insurance options on the basis of price, quality and other factors.

• Purpose and Function of an Exchange
  • Offers consumers a choice of health plans and focuses competition on price.
  • Provides information to consumers.
  • Creates an administrative mechanism for enrollment.
  • Moves toward portability of coverage.

- Coverage through an Exchange can be de-linked from employment, helping make health insurance more portable for people moving from job to job.

• Reforms the insurance market.

- Health reform proposals require insurers to accept all applications without consideration of the applicant’s health and further prohibits or significantly limits premium variation related to health status.

 

• Who can participate?
  • Individuals and small businesses with 1-100 employees. Prior to 2016, states may define small employer as 1-50 employees.

 

• Individuals
  • Ability to compare and select plans
  • Can receive Advance Premium Tax Credit
  • Can receive subsidies (cost-sharing, 90-day grace period)
  • Individual enrollment    
                   
  • Small Group (SHOP)
    • No premium/cost-share subsidies
    • Ability to compare and select plans
    • Group enrollment
    • Group member enrollment
    • Billing aggregation

- Consolidates into one payment

• Small Business Tax Credit (2 years only)
  - Business with approx. 25 or fewer full-time employees/average wage of $50K               

How Will the Exchange Work?

1. Insurers must offer Essential Benefits
2. Products should conform to metal tiers (Bronze, Silver, Gold, Platinum)
3. Insurers must offer at least one Silver and one Gold product.
4. Restricted rating: Past area/industry ratings will be eliminated in favor of community rating.

-Only age, tobacco use, geography and family status will be used.

1. Insurers can not medically underwrite or apply pre-existing condition clauses.
2. Price parity required if same product sold on and off exchange.
3. Minimum network adequacy requirements.
4. Approval and qualification process for plans and prices.

 

Group to Individual Transition

After careful consideration, some groups may determine that they will no longer offer employer-sponsored health coverage to employees. The Blues have a comprehensive process to assist in transitioning employees to a BCBSM individual plan. This process is available to groups, agents and individuals to support them through this transition.

Scenario-based decision making is recommended. Timing is critical because of downstream impacts to your business model and your employees and their families.

• Health care reform will shift definitions and decision timing
  • Plan Year vs. Renewal Year – reform provisions are most often effective on plan year, while business decisions and rate changes occur at renewal year.
  • Complex and flexible plan designs vs. simplified and standard plan designs.

-All plans must offer essential health benefits

-Actuarial value requirements limit flexibility to “tweak” cost-sharing

• Some rating categories may be eliminated based on the new definition of “small group” in favor of community or experience rating, depending on group size.
• Some migration of small group membership to the individual to the individual market is expected in 2014-2017.

 

Availability of Premium Tax Credits and Cost-Sharing Subsidies

• Tax credits can pay for a portion of the plan premium for those who are eligible.
• The policies of an employer can affect whether an employee can get a subsidy.
• Premium tax credits and cost-sharing subsidies are only available on the individual market Exchange.
• Premium tax credits are available depending on income levels.
• Subsidies cover a portion of out-of-pocket costs, depending on income levels.

 

• What is the premium tax credit?
  • Premium Tax Credit  =  (Silver plan premium)   –  (Maximum % of income a consumer must pay) 

Federal Poverty Level                    Percentage of Income

100 - 150%                                           2.0 - 4.0%
150 - 200%                                           4.0 - 6.3%
200 - 250%                                           6.3 - 8.05%
250 - 300%                                           8.05 - 9.5%
300 - 400%                                           9.5%

* Medicaid eligibility is generally extended to 133% FPL calculated with a 5.0% income disregard. Thus, Medicaid eligibility is effectively up to 138% FPL. There are situations in which an individual with less than 138% FPL could be eligible, such as legal immigrants who are not yet eligible for Medicaid.

• What employees would qualify for financial assistance?
  
  
  • Employees qualify if the meet the following criteria:
    -Have income 100% to 400% FPL
            -Single individual income: $11, 170 - $44,680

                -Family of 4 income: $23,050 - $92,200

                       -Purchase coverage through the Exchange, and
                       -U.S. citizen or legal immigrant

• However, they will not qualify if:
  -Employer offers a plan of at least bronze level equivalent (60% actuarial value)
  AND
  -The employee’s contribution to premium would not exceed 9.5% of household income
   OR
  -Other coverage (not including individual market) is available, such as through Medicaid or Medicare.
• How is the penalty for the individual mandate calculated?

 

• Legal residents who don’t purchase minimum essential coverage may have to pay a tax. This tax is the greater of two calculations:

 

A) $695 per person per year, up to a maximum of $2,085 per family
                                                        OR
B) 2.5% of household income (the $2,085 max does not apply)

 

• The annual penalty is $95 in 2014, $325 in 2015 and $695 in 2016. In 2017 and subsequent years, the $695 penalty is indexed to a cost of living adjustment.
• The percentage of income penalty is assessed using the amount of the taxpayer’s income that exceeds the applicable tax filing threshold for the taxpayer for that year. The percentage is equal to 1% of income for 2014, 2% of income for 2015, and 2.5% for 2016 and beyond.
• How is the excise tax calculated?
  • Excise tax applies to “applicable large employers.” An applicable large employer is an employer with an average of 50 or more full-time equivalent employees in the preceding calendar year.
  • The excise tax that must be paid depends on whether the employer offers coverage and whether any employees receive subsidies on the individual market exchange.
  • While the definition of applicable large employer is determined on an annual basis, the excise tax penalty is assessed on a monthly basis and there are multiple scenarios to calculate the excise tax:

 

Employers that do not offer coverage, and have at least one full-time employee that receives a premium tax credit on the exchange:
              Excise tax = $2,000 X (# of full-time employees – 30 employees)

                                Employers that offer coverage and have at least one full-time employee that receives a                                               premium tax credit on the exchange. The excise tax is the lesser of:

A)     $3,000 for each full-time employee receiving a tax credit
                                        OR

B)      $2,000 for each full-time employee – 30 employees

 

 

 

 

• Individuals who purchase on the Exchange may be eligible for subsidies

Who is eligible for subsidy?

Individual market participants: 100% and 400% of federal poverty level (FPL)

                                -Single Individual Income: $11,170 - $44,680

                                -Family of 4 income: $23, 050 - $92,200

• Not if group coverage is available

 Subsidy = Silver plan premium – Maximum payable

Premium Subsidy

Limit on Premium:                                                           Applies to:

“Maximum Premium Payable”                                   Sliding scale: 100 - 400% FPL
 (% of income): 2% - 9.5

Cost-Sharing Subsidy

Cost Sharing Change:                                                     Applies to:

-Out-of-Pocket Limit                                                      Sliding scale: 100 - 400% FPL

Reduction: 1/3 - 2/3

-Actuarial Value                                                                Sliding scale: 100 - 250% FPL
Improvement: 3% - 24%