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Today’s Meeting Agenda

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General Session: • ACA Latest Developments & Key Provisions

Luther Stueland, Director Health Reform Analysis (BCBSND)Break Out Session:

• Employer Impact, Analysis & Transition Strategies Mike Potts, Director of Consulting & Wellness (BCBSND)

• Accounting and Tax Implications Ross Manson, Partner(Eide Bailly)

• Employee Accounts and Defined ContributionJason Christianson, Sales Director, (Discovery Benefits)

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General Session:ACA Latest Developments & Key ProvisionsLuther Stueland – Director, Health Reform Analysis

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Key ACA Provisions

Understanding the impact of reform is the first step to developing a benefits strategy that aligns with the emerging market landscape

• Guaranteed Issue: All individuals will be able to purchase coverage regardless of health status.

• Benefit Standards: Qualified health plans sold on the exchange are required to cover the essential benefits and have at least a 60% actuarial value. Non-grandfathered plans will need to be a “metal tier” plan.

• Consumer Subsidies: Individuals with household incomes at or below 400% of federal poverty level (FPL)1 will be eligible for income-indexed premium subsidies, and those below 250% of the FPL will be eligible for cost-sharing reduction.

• Public Exchange: Individuals will be able to purchase subsidized individual coverage on public exchanges.

• Employer Penalties: All employers with 50 or more full-time equivalents must provide adequate health benefits to employees or pay a penalty per full-time employee per year. An employee’s contribution to the group single premium should not exceed 9.5% of his or her income.2

1) In 2012, $44,680 for an individual and $92,200 for a family of four (source: http://aspe.hhs.gov/poverty/12poverty.shtml)2) If standards are not met, the employee is eligible for subsidies and the employer pays a $3K penalty per employee receiving exchange subsidies

Beginning in 2014

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Health Insurance Exchange:

• Health Insurance Exchange is an online marketplace where individuals and small groups purchase health insurance within their state

– Federal government will establish Individual and Small Group (SHOP) exchange

• Options limited to Standard Benefit (Metallic) Plans:

– Bronze 60%, Silver 70%, Gold 80%, Platinum 90%

– Actuarial value = % of total average costs for covered benefits that a plan will cover

– Catastrophic plan offering available to those under 30 years of age

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North Dakota declined to run its own exchange, the federal government will manage

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Overview of Premium Subsidies

Estimated Individual Market Subsidies (2014)

Source: BCBSA analysis(1) Premium estimate for 2014 based on an individual between the ages of 46 and 55(2) Premium cap as described in ACA bill, based on silver level plan

Consumers with household incomes at or below 400% of the FPL will be eligible for individual product premium subsidies on exchanges

• Subsidies will only be available through public exchanges

• Subsidies are based on premiums for the second lowest cost Silver plan (actuarial value of 70%)

• Individuals receiving affordable coverage from an employer are not eligible for subsidies

• Additional cost-sharing subsidies are available for individuals under 250% FPL

100125

150175

200225

250275

300325

350375

400 $-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

9.5 % of Income

2.0 % of Income

9.5 % of Income

6.3 % of Income

8.1 % of Income

Estimated Premium

Household FPL Level

Government Subsidies

Estimated Individual Premium: $4,9421

Premium Cap (sliding scale)2

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Exploring Subsidy Eligibility

Government subsidies will be based on the household income and not exclusively on the employee’s salary

Employee A: Single Individual Employee B: Family of 2

Employee Age: 50 30

Employee Salary: $30,000 $30,000

Spousal Salary: None $50,000

Household FPL: 265 525

Estimated Premium: $4,940 $9,010

Government Subsidy: $2,525 None

Scenarios: Employee Subsidy Eligibility in the Individual Market (2014)

Estimated Cost of Coverage: $2,415 (premium cap1) $9,010 (full premium)

Source: BCBSA analysis(1) Premium cap as described in ACA bill, based on Silver level plan

Subsidy Eligible

Non-Subsidy Eligible

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Potential Employer Penalties

There are two ways in which employers may be penalized in the post-reform market

1) Penalties go into effect in 20142) Although the IRS has issued guidance providing a safe harbor for employers, the ACA law itself specifies that affordability be calculated based on the

employee’s total household income rather than the employee’s wage

• Employer has at least 50 full-time equivalent employees• One or more eligible employees purchase subsidized coverage through exchange

General Penalty Criteria:1

• Employer is penalized if employees’ premium contributions exceed 9.5% of wages2 and/or the plan covers less than 60% of health care expenses

Employer Does Not Offer Coverage:

• Employer is penalized on all employees excluding the first 30 full time employees (30+ hours/week)

Employer Offers Unaffordable Coverage:

$2,000 (per full-time employee)

No Coverage Penalty: Unaffordable Coverage Penalty:

$3,000 (per full-time employee obtaining subsidies)

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Calculate Group Size: Full-Time Equivalents

Applicable Large Group : 50+ Full-Time Employees (Average 30 Hours Per Week)

1. Calculate your Full-Time Employees

2. Calculate your (part-time and seasonal) FTEs

3. Add the two numbers in steps 1 and 2

4. Add up the 12 monthly numbers in 3 and divide by 12

5. If less than 50, not applicable large employer

6. If more than 50, was it for greater than 120 days due to seasonal employees?

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Full-Time Employee Coverage

• ACA mandates that employers offer affordable coverage to full-time employees working an average of at least 30 hours/week or 130 hours/month or pay a penalty

• Employer may utilize safe harbor “look-back” measurement option of up to 12 months to determine whether new variable hour and seasonal employees are full-time employees. (See IRS Notice 2012-58 and related)

• Provides the option to use specified measurement and administrative periods for on-going employees and certain newly hired employees to determine future coverage periods known as the stability period.

• Educational institution employees are based on hours worked during expected operating months (school year)

• REG-138006-12, comments due by 3/18/2013, public hearing 4/23/2013

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Key Small Group Provisions

• Existing small groups with non-grandfathered coverage will be placed on a metallic plan that is part of a single, new rating pool

• The new rating pool allows for geographic, age and tobacco rating factors

• Specific group claim experience cannot be a rating factor

• Rating rules expand to groups up to 100 in 2016 & potentially large groups in 2017

• Grandfathered plans are exempt

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Small employers with <50 full-time equivalent employees and non-grandfathered benefits will be affected by new requirements

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Regulations on Grandfathering

Grandfathering allows employers to maintain their health plans without being required to implement certain aspects of ACA

Applicable to Grandfathered Plans Not Applicable to Grandfathered Plans

• No lifetime limits on coverage amounts• A maximum waiting period of 90 days for

new employee coverage• Coverage of dependent children up to the

age of 26

• Required package of essential health benefits and full coverage of preventive services

• Limit on rate variation by age • Limited cost sharing• For small groups, deductible cap of $2K for

an individual and $4K for a family• Non-Discrimination Issues

Criteria for Grandfathered Status

Employers can maintain grandfathered status past 2014 but are restricted from making the following changes: Reducing or eliminating benefits for a specific condition (e.g., diabetes or cystic fibrosis) Raising co-insurance charges or significantly raising co-payments and deductibles Significantly lowering employer premium contributions Materially modifying existing benefits by purchasing coverage from a different insurer

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Health Care Reform

Break Out Session

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Break Out Session Agenda:• Accounting and Tax Implications

Ross Manson, Partner(Eide Bailly)• Employee Accounts and Defined Contribution

Jason Christianson, Sales Director, Discovery Benefits• Employer Impact, Analysis & Transition Strategies

Mike Potts, Director of Consulting & Wellness (BCBSND)

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Ross MansonPartner

HealthCare Reform

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Employers Key Number Is

50

> 50 = Large Employer and subject to penalties

< 50 = Small Employer and NOT subject to penalties

Full-time equivalent employees

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Large Employer ( > 50) NOT Offering Insurance

• Employers NOT offering health insurance:• A penalty of $2,000 per year/per FT employee

(and seasonal employees the month they work full-time)

• Exempts the first 30 employees from computation

• Example: 100 employees and one goes to an Exchange and receives a subsidy

• Penalty = (100-30) x $166.67 = $11,667/month • $140,000 annually

• Triggered on all full-time employees if one full-time employee goes to the exchange and receives a subsidy

• Penalty is NOT tax deductible

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Large Employer ( > 50) Offering Insurance

• Potential $3,000 penalty if employer OFFERS health insurance – must pass 2 tests!

• Subsidy eligibility based on unaffordable or inadequate insurance

• Unaffordable = Employee insurance premiums exceeding 9.5% of HHI (Safe Harbor created for employers – single plan premiums paid by employee cannot exceed 9.5% of wages)

• Inadequate = Insurance policy less than 60% of actuarial value (determined by health plan)

• A penalty of $3,000 per year/per FT employee who goes to the exchange and receives an exchange subsidy

• Capped by the amount of penalty for not offering insurance coverage

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Controlled Group Provisions

• Internal Revenue Codes 1563 and 414:• Parent – Subsidiary – 80% rule;• Brother/Sister corporations – 50% stock;• Combined Group• Section 801 Companies

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Non-discrimination in Insured Health Plans

• Non-grandfathered insured group health plans that impermissibly discriminate in favor of highly compensated employees face significant liability under new rules.

• Relates to the 1986 Tax Law – Internal Revenue Code (IRC) Section 105(h)(2).

• Prohibition on discrimination in favor of highly compensated individuals.

• Effective date for plan years beginning after ___________?

(waiting for final guidance). • The penalty for plans will have an excise tax of $100

per day for the plan per person discriminated against, with a maximum penalty of $500,000!

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Key Definitions

• Government Entity• Government of United States• Any State or Political subdivision thereof• Indian Tribal Government or agency

• Hours of service• Paid for work, vacation, holiday, illness,

incapacity, layoff, jury duty, military duty or leave of absence

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Determining Full Time Employees

• Hourly• Non Hourly

• Actual hours• Days worked equivalency• Weeks worked equivalency• You cannot intentionally use a method to lower

their actual hours (3 ten hour days using days worked would be an example)

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Permissible employee categories

• Collectively Bargained employees and non-collectively bargained employees

• Each group of collectively bargained employee under separate agreements

• Salaried and hourly employees• Employees in different states

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Section 1411 Certification

• Department of Health and Human services will establish a process to notify employers of those employees receiving Premium tax credit or cost sharing reductions

Discovery BenefitsJason Christianson

• History

• Growth and Stability• 96% client retention rate

• Market Presence• 7,500 clients• 450,000 benefit participants• 1 million covered lives (COBRA)

Our Clients

Reimbursement Accounts

Updates

Flexible Spending Accounts• 2013 Medical FSA max - $2500• “Use it or lose it” being reconsidered

Health Reimbursement Arrangements• 1/1/2014 – All HRA plans must be tied to a medical plan • Employee must be enrolled in Health plan to access HRA

Health Savings Accounts• Seeing increase in employers offering HDHP with an HSA• Employer and Employee contributions to the HSA available

Defined Contribution Plans

Defined Contribution Plans

• What are they?

• Why are employers considering Defined Contribution Plans?• Predictable Budgets• Flexibility for Employees• Employees can continue to pay their portion of premiums

on a pre-tax basis• Administration is simplified for employer using BCBS ND’s

enrollment platform

Individual Exchange

• Individual Exchange- • If employer is dropping group coverage and directing

employees to the state exchange

• Things to consider:• Employer contribution to FSA/HSA to attract and

retain employees with rich benefit offerings• HRA not applicable as it’s no longer tied to a health

plan

Thank You

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Impact, Analysis & Transition Strategies Mike Potts, Director Employer Consulting & Wellness

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Refining Benefit Strategy

As employers develop their post-reform benefits strategies, it is important to consider key factors for sponsoring coverage

• Financial incentives to sponsor group healthcare coverage

• Talent acquisition, retention, and employee engagement

• Company culture and the nature of the social contract with employees

• Industry trends and competitor positioning

• Employee health and wellness

There are many important considerations to choosing the right benefit strategy:

Economics IndustryTrends

CompanyCulture

TalentManagement

Employer Impact

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Group Analysis Steps

Next Steps:

1. Assess Group Goals & Current Status

2. Review Financial Impact Analysis Report From BCBSND

3. Review 2014 Baseline Renewal

4. Explore Alternative Options

5. Decide on 2014 Plan

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Analysis & Transition Strategies

BCBSND will be proactive in engaging with employers to help consult and provide solutions for the group market

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Understanding Employer Impact

The economic impact of reform to employers will vary depending on existing benefit solutions and characteristics of the workforce

Factors that Impact Decisions around Healthcare Reform

Employer Specific:

• Employer size

• Employer premiums

• Premium cost sharing levels

• Employee participation rate

• Grandfather Status

Employer Impact

Employee Specific:

• Average employee incomes

• Workforce demographics (e.g., family structure and age)

Market Based:

• Individual premiums

• Penalties and subsidies

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Employer Incentives

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Employer incentives are determined by the net savings or cost to each employee if coverage is dropped

Make Whole

PaymentPayroll

Tax

Corporate Tax

DeductionPenalty Expense

Est. 2014 Premium

Contribution

Post-reform Environment

Per Employee Expense or Savings

$

Methodology

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Net Employer Incentive

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Calculate Incentives Per Employee

An employer’s net financial incentive to drop or keep coverage is assessed through the evaluation of the financial impact to each of its employees

Sum Employee Incentives to Calculate Net Employer Impact

Employee 1: Cost of $500

Employee 2: Savings of $200

Employee 3: Savings of $150

Employees Incented to Maintain Coverage

Employees Incented to Drop Coverage

Employer ABC Aggregate Savings: $100K

Total Savings: $500K Total Cost: -$400K

Methodology

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Group A Report

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Grand Fathered Group

Non-Grand Fathered

Group

Public Exchanges Individual

•How Does ACA Affect 2014 premium? •What is Potential Financial Impact of Public Exchanges?•Stay Grandfathered?

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Range of Scenarios

BCBSND will help employers evaluate their current position and determine the best options for 2014.

•Maintain or Modify Current Coverage?•Defined Contribution?•SHOP or Private Exchange?•Self-Funding (>25)?•Out of Pocket Impact to Employees on Exchanges?

Key Questions: Options:

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Questions

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