health care reform: making informed decisions in uncertain times - april 2013

Health Care Reform: Making Informed Decisions in Uncertain TimesApril 25, 2013

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Joe Fleischer, Senior Webcast Producer, CFO Publishing

Since 2008, Joe Fleischer has produced and moderated hundreds of Webcasts on CFO.com. In addition, he has more than 11 years of experience as a writer and editor covering a wide range of topics related to technology and customer care. With Brendan Read, Mr. Fleischer is the co-author of the book The Complete Guide to Customer Support.

Introductions

© Copyright 2013 ADP, Inc.

Disclaimer

This presentation is not:

Legal advice

Tax advice

The final word on Health Care Reform

A political opinion

3© Copyright 2013 ADP, Inc.

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Introductions

Tim CliffordPresident, ADP Benefits & Talent Management Services

Steve GraddyChief Financial Officer, Freeman Health System


Health Care Reform:Potential Impacts to the Bottom Line

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Health Care Reform Is a Transformative Event

Health Care Reform will change the way healthcare is paid for, delivered and consumed in the United States over the next 20-30 years, impacting every:

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Pharmaceutical company and medical device manufacturer

Employer Person residing in the United States

Healthcare provider

Insurance company


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Polling Question #1

Do you feel your organization is prepared for Health Care Reform as of January 1, 2014?

Yes

No

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Why Health Care Reform Matters to CFOs…

Workforce model / Hiring practices Labor costs Administrative burden and HR/IT investment Tax penalties for non-compliance Re-direction of $Billions in consumer spending Distraction of resources away from core business focus

It’s not just an HR Issue© Copyright 2013 ADP, Inc.

The Shortlist: Key Impacts to Employers

Provision Potential Cost Impacts

Imposes tax penalties on employers who do not offer coverage or where coverage is not affordable or provide minimum value to at least 95% of full-time employees

• Penalty of $2,000 per employee per annum, minus the first 30 (if no coverage offered); or

• $3,000 per employee per annum who receives subsidy (if coverage is not affordable or does not provide minimum value). Penalty not tax deductible

Levies various fees to most large employers

• Adds roughly 4% cost increase to affected employers

Levies 40% excise tax on health benefits that exceed specified cost thresholds, starting in 2018

• Creates severe tax penalty for inefficient, high cost health plans starting in 2018


The Shortlist: Key Impacts to Employers

Provision Potential Cost Impacts

Broadens definition of employee eligibility for health coverage (30 hours of service a week / 130 hours of service a month

• May increase total insured lives and total annual premiums

• May force changes to administrative / hiring practices for Part-Time Workforce

Sets minimum requirements for value and affordability of coverage

• May require employers to contribute a larger portion of total health premiums

• May increase individual premiums to meet definition of “Minimum Value”

Imposes a tax on employees who do not obtain adequate health coverage

• May drive higher employee participation rates in employer sponsored insurance

• Redirects 2 – 9.5% of newly insured’s income away from discretionary consumer spending


ACA Impacts Insurer Premium Taxes & Fees by ~4%

Provision Description Effective Date Fee Who's Impacted?

• PCORI Fee (Patient-Centered Outcomes Research Institute Fee)

Funds clinical outcomes research

• Plan years ending on or after 10/1/2012 (Temporary, through 2018)

• $1 PMPY in Year 1

• $2 PMPY in Year 2

• Fully Insured / Self Funded

• Group / Individual

• Health Insurer Fee (Federal guidance pending)

Paid by insurers based on market share. Funds health insurance exchange subsidies

• 1/1/2014 (Permanent Fee)

• Industry fee of $8B in 2014, growing to $14.3B in 2018, with annual adjustments thereafter

• Fully Insured

• Group / Individual

• Reinsurance Fee (federal and state notices of payment rules pending)

Transitional fees to stabilize individual market (e.g., high-risk pool)

• 1/1/2014 (Temporary, through 2016)

• Industry target of $25B through 2016

• Fully Insured / Self Funded

• Group segment

Premiums expected to increase 2-3% going forward just on Health Insurer Fee alone, reported by NFIB.

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Taxes and Fees


Polling Question #2

Have you estimated the potential impact of the 2018 Excise Tax?

Yes

No


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Risk Factors for Employers:

Location in high cost states Health Plans with low co-pays / deductibles Aging workforce / presence of chronic conditions Limited tools/emphasis on preventive health No controls for cost / quality review—especially for

catastrophic cases


*limits subject to annual adjustments

*

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CFO’s Perspective

Which aspects of the Affordable Care Act have the greatest potential financial impact to Freeman Health System?

• Changes in eligibility impacting hourly / part-time workers

• Participation rates

• Premiums per employee

• 2018 Excise Tax

• Administrative challenges


Strategic Planning for Health Care ReformMitigating the Impact to the Bottom Line

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Strategic Conundrum: Play or Pay

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Pay

Stop providing healthcare

coverage and pay a flat,

nondeductible penalty for all

full-time employees -

essentially those averaging

30 or more hours of service

per week.

Play

Continue to offer

healthcare coverage to

employees and

dependents and make

certain the coverage is

affordable and has

minimum value.

ACA rules generally support a binary approach – offer coverage to all eligible employees or none (including management). A recent survey suggests that most large employers will continue to offer health coverage.


Source: ADP Research Institute

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What Companies Have Done to Date

Source: ADP Research Institute Survey of Employers, May 2012© Copyright 2013 ADP, Inc. 18

Planning Checklist to Drive Strategy

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Is the company a “large” employer?

How many full-time (30 or more hours of service per week or 130 hours of service per month) employees do you have?

Do you have any seasonal employees?

With the new definition of full-time, who will be newly eligible for healthcare coverage?

Will there be an increased cost, based on the newly eligible employees?

Will the company continue to offer healthcare coverage, based on those increased costs?What other considerations are there when determining whether to continue offering healthcare coverage?

How will employee morale/satisfaction be affected by changes in hours or a decision to not offer healthcare coverage?


Planning Checklist to Drive Strategy

Determine number of definite full-time and part-time employees.

Determine number of variable hour employees (those on the bubble around 30 hours per week).

Determine number of seasonal employees and for how many months they are employed each year (using a “good-faith” determination of “seasonal” based on existing DOL guidance).

Run calculations to determine if the coverage is “affordable” - determine whether the cost of self-only coverage is greater than 9.5% of any full-time employee's W-2, box 1 wages or other safe harbors (i.e., rate of pay, federal poverty limit).


CFO’s Perspective—Strategic Planning for Health Care Reform

When did Health Care Reform first appear on the radar for Freeman Health System as an important financial issue?

What types of analyses and scenario planning have you conducted to date?

– What activities were most valuable in helping the executive team formulate a strategy?

– Were there any key insights or surprises?

– What additional plans are in place for follow up?

How did you organize your team?

– Who has responsibility for tracking critical Health Care Reform issues?

– How do you coordinate cross-functional issues? (e.g. that touch Finance, Risk Management, HR, Legal, or other functions?

– What are the key challenges of coordination, and how have you overcome them?


Leveraging Health Benefits to Attract and Retain TalentThe Impact of Health Care Reform

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Type Purpose Everyday Language

Base Pay Rewards capabilities• “I make $xx,000 per year.

Variable Pay Rewards accomplishments • “We hit our target…”

Benefits Rewards community

• I joined the …• I signed up for…• I am a plan member…•I contribute to my…

Benefits in the Context of Total Compensation

Benefits are an effective gauge of an employer’s culture and unity of purpose, closely tied to the employer’s workplace brand.


CFO’s Perspective—Role of Health Benefits in Recruiting and Retention

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What are Freeman Health System’s core objectives for pay and benefits?

– What challenges do you face to recruit and retain a competitive, cost-effective workforce today?

– What role do health benefits play in recruiting and retention?

– How will Health Care Reform change/impact your ability to recruit and retain a high quality workforce in 2014 and beyond?

– Health Care Reform permits employers to use up to 30% of total health premiums to create employee incentives to participate in health prevention and employee wellness programs. How important is this provision in your future planning?


Polling Question #3

Do you anticipate that the health insurance offered to employees will become more or less important in attracting and retaining the right talent over the next five years?

More Important

Same Role

Less Important

Don’t Know


Mitigating the Impact of Health Care ReformPreparation and Execution

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Strategic Trade-Off for Part-Time Workforces

Business results versus benefits costs

Two Options:

1. Consider workforce realignment (active management of part-time employees to <30 HRs/WK, 130/month)

Expand part-time workforce (training / scheduling costs)

Retrain HR / Front Line Supervisors on scheduling, record keeping, and reporting practices

Implement integrated HR IT infrastructure to monitor work schedules, hours worked, benefits eligibility, and unpaid absence

2. Offer affordable benefits to all employees, with focus on recruiting / retaining a skilled workforce

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Case in Point—The Upscale Restaurant on Valentine’s Day:

• Do you focus on an outstanding customer experience?; or • Change shifts at 8 P.M. to avoid benefits costs?


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Avoiding Excise Tax and Cost Control

Employers:

…must consider plans to lower costs while meeting coverage minimums by considering

– CDHP, spending accounts

– Wellness offerings and health incentives

– Data analytics and reporting

Employees:

…must be empowered to make personal health care choices through

– Actionable information and tools

– Communication and education

– Health and wellness programs

Cost Control and

Consumerism

Employee Role

Employer Role


Eligibility and Compliance: What You Need to Know

Two Methods for Determining Part-Time Eligibility:

– “Real Time”: Requires active management of hours

– “Look back”: Reviews historical hours worked, but has more complex rules to account for PTO, Family and Medical Leave, Disability, and rehires

Compliance requires coordination of Time & Labor, Payroll, Benefits Administration, and Leave of Absence

– Systems, policies, and procedures

– Audit Trail

– Integrated reporting to the IRS, HHS, DOL, and Public Exchanges

– Must accommodate anticipated new regulations (e.g. auto-enrollment)

Retroactive finding of non-compliance could subject company to major tax penalties

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CFO’s Perspective—Risk Mitigation and Execution

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How has Freeman Health System prepared for:

– Managing Shared Responsibility provisions?

– Preparing for increases in benefits-eligible employees both from a coverage and administrative perspective?

– Minimizing the impact of the 2018 Excise Tax?

In order to comply with reporting requirements, what changes will Freeman Health System undertake for:

– HR IT and administrative practices

– HR policies and procedures

– Labor schedule and procedures used by front line supervisors

What key challenges do you anticipate in communicating about Health Care Reform to your employees?


Final Thoughts for CFOs

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The Affordable Care Act requires both a strategic and a tactical response:

– Do we need to rethink our approach to recruiting, retention, managing, and rewarding our people?

– What are the potential costs (and cost variances) associated with the ACA, under different scenarios?

– How will we fund cost increases? (e.g. higher premiums, less expensive plans, pass-through to customers)

– What critical HR IT and administrative changes are required to support on-going compliance and reporting?

– How will we communicate with our employees and our customers?


Final Thoughts for CFOs

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Expect to make investments in people and technology

Reserve against potential budget variances in 2014—especially estimates for plan participation rates for part-time and hourly employees

Involve operations / front-line supervisors in discussions around management of employee hours

Drive cross-functional teamwork within the organization. Hold all departments accountable for providing input, evaluating alternatives, and implementing change.

Invest heavily in customer / employee communications to ensure a successful rollout.

Follow your competitors—they must also comply with the law. Look for risks and opportunities.


Additional Health Care Reform Resources

Visit ADP.com

ADP.com > Tools & Resources > Health Care Reform

Valuable information regarding Health Care Reform and its impact on employers

Subscribe to receive EYE on WASHINGTON email alerts: www.adp.com/healthcare

Frequently Asked Questions and Answers ADP has received on the topic of the ACA, please visit and bookmark:

– www.adp.com/acafaqs

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http://www.adp.com/healthcare

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Questions

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The ADP logo and ADP are registered trademarks of ADP, Inc. In the Business of Your Success is a service mark of ADP, Inc. This material is subject to change and is provided for informational purposes only and nothing contained herein should be taken as legal opinion, legal advice, or a comprehensive compliance review. Copyright © 2013 ADP, Inc.

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