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Online Conference Takes “Deep Dive” into Affordable Care Act

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PYA, P.C.
PYA, P.C.

PYA’s Martie Ross, Principal, joined three other panelists in a full-day, online conference sponsored by the American Institute of Certified Public Accountants to offer an in-depth look at healthcare reform under the Affordable Care Act (ACA).

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AICPA Online Conference on Healthcare Reform: A Deep Dive into the Affordable Care Act
Panel Mark Dietrich, CPA, ABV Laura Westfall, JD Moderator Associate, King & Spalding American Institute of CPAs® 2
Panel Brian Marks, CEBS Principal, Digital Benefit Advisors American Institute of CPAs® Martie Ross, JD Principal, Pershing Yoakley & Associates 3
Today’s Objectives Overview of the U.S. Healthcare System and Reform Employer Requirements • New Mandates • Reporting requirements, enforcement penalties The New Rules on Health Insurance • Individual, Small Group, Large Group and Self-Insured Markets • Insights into how to obtain the best coverage at the best price American Institute of CPAs® 4
Today’s Objectives (Cont.) How Hospitals and Physicians Charge for Services • The least understood and most important cause of Cost • Reform’s changes to payment mechanisms and how it impacts what you need to understand to spend wisely Prognostications: The Future of Healthcare after Reform American Institute of CPAs® 5
Overview: The U.S. Healthcare System & Healthcare Reform Mark O. Dietrich, CPA, ABV American Institute of CPAs® 6
Mark Dietrich, CPA, ABV AICPA's National Healthcare Industry Conference Committee and Chaired that Conference in 2012 and 2013 Co-Author; The Financial Professional's Guide to Healthcare Reform published by John Wiley and Son's 2012 Partner-in-charge of audit of 80 physician tax-exempt faculty group practice Speaker for over 20 years at national conferences on managed care, healthcare reform, valuation and other topics American Institute of CPAs® 7
Healthcare Spending and Healthcare in the USA American Institute of CPAs® 8
National Health Spending American Institute of CPAs® 9 Source: California HealthCare Foundation (2012)
National Health Spending American Institute of CPAs® 10 Source: California HealthCare Foundation (2012)
National Health Spending American Institute of CPAs® 11 Source: California HealthCare Foundation (2012)
National Health Spending per Person American Institute of CPAs® 12 Source: California HealthCare Foundation (2012)
Healthcare in the USA: A Baker’s Dozen of Key Elements 1. Anti-trust exemption for insurers and Insurer Consolidation 2. Tax deductibility of health insurance and the lack of consumer involvement in the cost of care 1. 3. 4. 5. 6. a/k/a The Cruise Ship Effect Medicare and Cost-Shifting Endorsement of Fee-for-Service models Medicaid and Cost-Shifting Private insurer participation in Medicare American Institute of CPAs® 13
14 Healthcare in the USA: A Baker’s Dozen of Key Elements 7. Self-insurance by Large Employers 8. Federal Government Regulation 9. Prospective Payment Systems 10. Managed Care and Capitation 11. Provider Integration 12. Import of Negotiating Leverage 13. Broad Geographic Disparities American Institute of CPAs® 14
Antitrust: McCarran–Ferguson Act,1945 Federal antitrust laws do not apply to the "business of insurance" so long as the state regulates insurers. Federal antitrust laws only apply in event of boycott, coercion, and intimidation. Bottom Line: Until ACA/Obamacare, health insurance regulation was exclusive to the states, thus it varied widely/wildly across the nation. American Institute of CPAs® 15
Medicare & Cost-Shifting American Institute of CPAs® 16
Cost-Shifting: Not-So-Hidden ―Secret‖ Cause of Insurance Inflation Medicare • $700 billion in Medicare cuts to fund Reform’s cost are supposed to come primarily from Hospitals? • Don’t count on it! Last time this worked was after 1997’s BBA and the hospitals got that repealed in 2000’s Budget Improvement & Protection Act. • Hospitals will attempt to get those savings back from private insurers and the strong hospitals are succeeding. • Result – Under 65 population and the poor will pay. American Institute of CPAs® 17
Balanced Budget Act The Last Time the Proverbial Cost Curve was Bent American Institute of CPAs® Source: The Lewin Group analysis of Medicare cost reports; AHA annual survey data. (1999) 18
Cycle of Cost-Shifting Providers Providers’ budget based budget based on Payor Mix on Payor Mix Health Health insurance insurance premiums go premiums go up up Providers seek Providers seek increases from increases from non-Medicare non-Medicare insurers insurers American Institute of CPAs® Medicare cuts Medicare cuts payments payments Providers have Providers have revenue revenue shortfall shortfall 19
Provider Integration & Negotiating Leverage American Institute of CPAs® 20
Players in the Health Insurance World American Institute of CPAs® 21
Provider Integration Long-term trend among hospitals and physicians due to historic contracting practices with insurers accelerated by new provisions of Reform legislation, especially Accountable Care Organizations or ACOs Simultaneously, small health insurers have been forced out of certain business/markets, strengthening larger insurers ability to set premiums Both trends exacerbate causes of high healthcare spending and premiums Note: As a rule, high insurance premiums are generally driven by the high cost of hospitals, physicians & other healthcare services. American Institute of CPAs® 22
Hospital-Physician Integration American Institute of CPAs® 23
Cycle of Insurance Premium Increases Consolidated Providers Demand Increases Large Insurers Demand Premium Increases from Employers Weaker providers forced out, more Consolidation Reform exacerbates this Cycle Weaker insurers forced out, more Consolidation Strong Providers get New Technologies, Procedures, Hospital Buildings and Physicians American Institute of CPAs® Employers change to higher co-pays, deductibles and benefit reductions for employees ® 24
Consolidation Drives the Healthcare Cost Spiral Hospitals acquire physician practices, move ancillary services, some practices, to hospital settings (Site of service or Venue shift) • Think getting two bills for an ER visit, one from the hospital, one from the doctor. • Services like MRI and CT done in a hospital outpatient department are often dramatically more expensive than when done in a physician office or freestanding setting. • Medicare Payment Advisory Commission is now recommending site-neutral payments (June 2013). Hospitals join other hospitals and physicians in Networks that negotiate higher rates • ACA grants regulatory waivers that permit this! American Institute of CPAs® 25
Case Study Bill for the CT scan. Again, 2 "CT Scan" charges but this time Insurer would not tell me the CPT codes for each charge. They said I had to get that from the Hospital. Odd. Without radiologist charges, CT scan plus contrast drugs charges totaled $7,727.37. They paid $5,215.98 and my portion is $579.55. A lot of money for a very short procedure. 26 American Institute of CPAs®
A Personal Story About Shopping for Healthcare 27 American Institute of CPAs®
Markets: Self-Insured vs. Insured Employers vs. Individuals American Institute of CPAs® 28
Reform and Insurance Some of the least understood things about the Reform include: • The new insurance market rules and Exchanges apply only to small group and individual plans. • Large group and self-insured plans are mostly exempted. • A ―double whammy‖ is set up in 2016 for employers with between 50 and 100 employees, when they will both be subject to the employer mandate and will be forced into the small group market, where premiums are higher and benefits tend to be less and/or more expensive. American Institute of CPAs® 29
Who Can Self-Insure? ―While the health reform law holds self-insured plans responsible for some of the same taxes and fees as fully insured plans, self-insured plans are exempt from exposure to the excise tax on insurance, community rating on premiums and mandates for essential health benefits. Beginning in 2014, PPACA requires modified community rating in the individual and small-group health insurance markets that will allow insurers to vary rates only based on age, geographic location, family size and smoking status. These rating rules will apply to products offered in the state insurance exchanges and to fully insured products purchased outside of the exchanges by employers with up to 100 employees.‖ Small Employers And Self-insured Health Benefits: Too Small To Succeed? Center for Studying Health System Change American Institute of CPAs® 30
Who Can Self-Insure? ―Faced with rising health insurance premiums and the fallout from the economic downturn, many small employers are struggling to maintain health benefits for workers. At the same time, the markets for both third-party-administrative services and stop-loss insurance are becoming increasingly competitive as some carriers offer services to firms with as few as 10 workers. In turn, more small firms are considering self-insurance as an alternative to traditional health insurance products, according to interviews with health plans, stop-loss insurers and third-party administrators.‖ Note: This is how you AVOID a lot of Reform’s impact. Small Employers And Self-insured Health Benefits: Too Small To Succeed? Center for Studying Health System Change American Institute of CPAs® 31
Three (3) Insured Markets  Large Group Market historically more than 50 covered lives but Reform makes it more than 100 (as of 2016)   This is for Underwriting purposes and the Exchanges. The increase creates a larger pool in the Small Group Market to absorb expected actuarial losses!  Small Group Market is historically less than 50 but Reform makes it 100 as of 2016  Individual Market  Note: Massachusetts merged its individual and small group markets into a single risk pool; no other state has done this but if enrollment goals, especially of young and healthy, are not met, this may prove inevitable and will lead to premium increases for small business. American Institute of CPAs® 32
Simple Overview of Insurance Risk From an administrative standpoint, it is cheaper to insure 200 people under a single contract than it is to insure 40 groups of 5 people each under 40 contracts or 200 individuals. The next series of slides are from analysis of Reform in 2010. American Institute of CPAs® 33
50,000 insured lives average cost per member per month (PMPM) is $780 16000 Number of Insureds 14000 12000 10000 8000 6000 4000 2000 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 Cost Per Member Per Month 50000 64% of the population has an expected cost PMPM between $660 and $900, American Institute of CPAs® 34
10,000 insured lives average cost per member per month (PMPM) is $780 2000 1800 Number of Insureds 1600 1400 1200 1000 800 600 400 200 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 Cost Per Member Per Month 10000 46% of the population has an expected cost PMPM between $660 and $900, more variability = higher premiums American Institute of CPAs® 35
5,000 insured and ―adversely selected‖ average cost per member per month (PMPM) is $886 1200 Number of Insureds 1000 800 600 400 200 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 -200 Cos t Pe r Me mbe r Pe r Month 5000 This is what happens when the young do not sign-up! American Institute of CPAs® 36
Healthcare Reform – The Affordable Care Act Newly available and less expensive coverage for some. Limited benefits, higher co-pays, bigger deductibles, greater out-of-pocket expenses, higher premiums for many. The foreseeable and the unforeseen.
Timeline of Healthcare Reform in the United States 1964: The “Great Society:” Medicare and Medicaid Early Reform Efforts 1954: Tax Deductibility of Health Insurance American Institute of CPAs® The 1990s: Rise of Managed Care, The Stark Law, Balanced Budget Act of 1997 Regulation: The Anti-kickback Statute 1970s: Medicare HMOs and ERISA Prospective Payment Systems Failure of Managed Care, Provider Integration Legislation on Medicare Spending Growth 38
How We Got Where We Are Massachusetts passes Reform in 2006 • Principal author of that legislation, later an aide to Senator Kennedy, is key author of federal legislation Patient Protection and Affordable Care Act (now called ACA or Obamacare) modeled on Massachusetts passed in March 2010 Half of states file lawsuit against PPACA in Supreme Court – and lose American Institute of CPAs® 39
Reform’s Model: Massachusetts Highest rate of insured residents in the nation, 97.4% [was 93% before Romneycare] Highest premiums in nation [and still today] • Many mandated benefits, e.g., IVF One of Highest rates of cost increase in nation American Institute of CPAs® May, 2010 40
Reform’s Model: Massachusetts (cont.) Second highest unemployment rate in New England Self-insured employers increasing to avoid merged Individual/Small Group Market premium increases Price/Benefit Gap between Small Group Market and Self-Insured & Large Group Market growing American Institute of CPAs® 41
The Reform of Health Insurance ―If you like your health care plan, you can keep your health care plan‖* *If you can still afford it! In Massachusetts, One Man’s ―Reform‖ was another Man’s Ballooning Cost American Institute of CPAs® 2011 Slide 42
What to expect May, 2010 Slide for AICPA Small Group Premiums go up • Benefit requirements - No pre-existing condition exclusions No Lifetime limits Deductibles limited: $2,000 individuals;$4,000 families If merged w/ Individual Market, will be worse • Note: Deductibles in the individual market have, in fact, proven to be higher; some states have higher deductibles on certain drugs, for example American Institute of CPAs® 43
What to expect Small Group Premiums go up • Ability to manage your costs is limited by the low deductible and maximum out of pocket levels ($6,350/$11,700), requires you to pay greater premiums - If healthy, you may have chosen a higher deductible, this would limit the subsidy you pay to the insurers for those who are not healthy - Analogous to choosing a high deductible on your auto insurance because of a safe-driving record or financial wherewithal • Minimum benefits rule requires buying coverage you may not need, e.g., maternity for a 55 year-old American Institute of CPAs® 44
Financial Professional’s Guide to Healthcare Reform – Young Folks Pages 74-78 of my book on the legislation have a detailed example of how the law would work in numeric fashion and concludes at the top of page 78 “...For example, a healthy 25 year-old sees a premium increase of 32.5 percent ...” This is my FAVORITE prediction! American Institute of CPAs® 45
What to expect Limited Provider Networks • In order to meet ACA standards on benefits, deductibles and out-of-pocket limits, insurers have been compelled to exclude high cost institutions, typically teaching hospitals and related ―high cost‖ physicians, from their networks • There are already multiple lawsuits against insurers by providers. • Impacts ability to continue existing care & relationships with providers American Institute of CPAs® 46
What to expect 35% - See Marriage Penalty next slide http://aspe.hhs.gov/poverty/13poverty.cfm © 2014, Mark O. Dietrich, All Rights Reserved #AICPA_HEALTH 47
ACA Marriage Penalty As written in the text, based upon an analysis by the Congressional Research Service, a government agency. • ―PPACA phases out premium support subsidies based on individuals’ or families’ income relative to poverty. Because the FPL for the married couple is not twice that of a single person, but only 35% higher (i.e., $14,570/$10,830), premium support under PPACA phases out at a faster rate relative to income for a married couple than it does for a single person, even though the phase-out rate relative to the FPL is the same. The structure of the phase-out results in what some might describe as a ―marriage penalty.‖ One or both individuals in a couple who are unmarried might be eligible for premium support subsidies based on their individual incomes, but if they married they might not, based on their combined income; if found eligible, the premium subsidy they might receive as a married couple could be less than the combined premium subsidies they might receive as an unmarried couple.‖ Health Insurance Premium Credits in the Patient Protection and Affordable Care Act, Congressional Research Service, April 28, 2010 American Institute of CPAs® 48
Other Impacts ―People who earn 250 percent of the federal poverty level or less will also have their maximum out-of-pocket spending capped at lower levels than will be the case for others who buy plans on the exchange. In 2014, the out-of-pocket limits for most plans will be $6,350 for an individual and $12,700 for a family. But people who qualify for cost-sharing subsidies will see their maximum out-ofpocket spending capped at $2,250 or $4,500 for single or family coverage, respectively, if their incomes are less than 200 percent of the poverty level, and $5,200 or $10,400 if their incomes are between 200 and 250 percent of poverty.‖ http://www.kaiserhealthnews.org/features/insuring-your-health/2013/070913-michelle-andrewson-cost-sharing-subsidies.aspx American Institute of CPAs® 49
Other Impacts (cont.) ―In California, for example, a standard silver plan will have a $2,000 deductible, a $6,400 maximum out-ofpocket limit and a $45 copayment for a primary care office visit. Someone whose income is between 150 and 200 of the poverty level, on the other hand, will have a silver plan with a $500 deductible, a $2,250 maximum out-of-pocket limit and $15 copays for primary care doctor visits.‖ American Institute of CPAs® 50
Financial Professional’s Guide to Healthcare Reform – Exchanges ―As part of the research for this book -— and after receiving notice of a 64% increase from Massachusetts Blue Cross Blue Shield in my insurance premium — I visited the Health Connector [Exchange] web site to see if I could obtain less expensive insurance. There was, in fact, no less expensive coverage and it took many hours to determine that because of the complexity of comparing one policy against the dozens of others. Abandoning the task due to its clear futility, I called my insurance rep, who confirmed the obvious: there ain’t no bargains. In fact, under Massachusetts’ law insurers are required to offer the same non-subsidized products inside the Exchange as they offer outside of it, so there could not be cheaper plans to begin with.‖ American Institute of CPAs® 51
Coming Up Next… Laura Westfall, JD Associate, King & Spalding American Institute of CPAs® 52
Employee Benefit Administration and Reporting Requirements for Employers Laura R. Westfall, Esq.
Overview Introduction Timeline of Major Healthcare Reforms Affecting Employers What Should Employers Be Doing Right Now? American Institute of CPAs® 54
Overview Items We’re Still Awaiting Guidance On Strategies for Cost Containment American Institute of CPAs® 55
Current State of Employer-Provided Health Plans Average total cost for active employees: $12,136 in 2013 • Up 5.1% from $11,457 in 2012 Employees’ share of total health care expenses, including premiums and out-of-pocket costs, has climbed from 34% in 2011 to 37% in 2013 • More than 80% of large U.S. employers plan to continue to raise the share of premiums that employees pay 66% of large employers offer an account-based health plan (ABHP), such as a health savings account (HSA) or a health reimbursement arrangement (HRA) • Expected to increase to 79% in 2014 American Institute of CPAs® 56
Timeline of Major Healthcare Reforms Affecting Employers American Institute of CPAs® 57
What Should Employers Be Doing Right Now?
What Should Employers Be Doing Right Now? Confirm That Changes Required to Be Made On or Before January 1, 2014 Have Been Made Prepare for Changes Required Beginning Mid-2014 and Later Obtain Necessary Additional Information on Employees Determine if Your Company is an ―Applicable Large Employer‖ That Will Be Subject to the ―Pay or Play‖ Mandate American Institute of CPAs® 61
What Should Employers Be Doing Right Now? (Cont.) Applicable Large Employers: Evaluate the Cost of ―Playing‖ vs. ―Paying‖ Decide Basic Plan Design (if ―Playing‖) Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform American Institute of CPAs® 62
Confirm That Changes Required to Be Made On or Before January 1, 2014 Have Been Made
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective for Plan Years Beginning On or After 09/23/2010 • Required Coverage of Dependents to Age 26 • Prohibition on Lifetime Limits • Restrictions on Annual Limits • Prohibition on Pre-Existing Condition Exclusions for Children Under Age 19 • Prohibition on Rescissions • Changes to Internal & External Appeals Process American Institute of CPAs® 64
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective for Plan Years Beginning On or After 09/23/2010 (con’t.) • • Increased Patient Protections - E.g., requirement not to require pre-authorizations for in-network emergency care Coverage of Preventive Services Without Cost-Sharing • Prohibition on OTC Drug Reimbursements • Higher Taxes on Improper HSA and Archer MSA Distributions - If plan documentation discusses taxation of HSA/Archer MSA distributions, make sure to update additional tax to 20% American Institute of CPAs® 65
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 • Distribution of Summary of Benefits and Coverage (SBC) Generally, must be provided beginning on the 1st day of the first open enrollment period that begins on or after 09/23/12 ―Good Faith Compliance‖ safe harbor for 2013 & 2014 plan years - Plans must provide 60-day advance notice of changes that affect SBC content • Form W-2 Reporting Report aggregate cost of employer-sponsored health coverage on Form W-2s (began with 2012 tax year, with Form W-2s issued to employees by end of Jan. 2013) • $2,500 Limit on Salary Reduction Contributions to Health FSAs Applies on a plan year basis Effective for plan years beginning after 12/31/2012 $2,500 limit is indexed for cost-of-living adjustments in future plan years (still $2,500 for 2014 plan year) American Institute of CPAs® 66
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 (con’t.) • $500,000 Deduction Limit for Executive Compensation Paid to Officers of Health Insurers - Applies for current and deferred compensation paid to officers, directors, employees and service providers of health insurers Effective for plan years beginning after 12/31/2012 (with respect to services performed after 2009) • Patient-Centered Outcomes Research Institute (PCORI) Fee - Applies to grandfathered and non-grandfathered self-insured health plans (including retiree plans) Fee: $2 multiplied by the average number of lives covered under the policy or plan (e.g., covered employees, spouses and dependents) Fee for 2012 had to be paid by July 31, 2013 (filed on Form 720) American Institute of CPAs® 67
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 (con’t.) • Employer Notice of Exchanges and Premium Credits - - - Employers must provide all new hires and current employees with a written notice that: Describes the state health insurance exchanges, and Provides information about premium subsidies that may be available Required to be provided to all current employees by 10/01/2013; within 14 days of new hires’ start dates thereafter DOL announced that there is no fine or penalty for failing to provide the notice • Employer Notice of Restricted Annual Limits Waiver - Required only of group health plans that received a waiver or extension of a waiver of annual limit restrictions 2013 was the last year the restricted annual limits waiver could apply Required to be provided by 12/31/2013 American Institute of CPAs® 68
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 • Prohibition on Annual Limits Annual dollar limits are prohibited on the value of ―essential health benefits‖ (―EHBs‖) for any individual - Note that the exclusion of all benefits for a particular condition is still permitted • Prohibition on Pre-Existing Condition Exclusions (for all enrollees) - Note that plans will no longer need to issue ―certificates of creditable coverage‖ after Jan. 1, 2014 as a result • Prohibition on Waiting Periods for Coverage Exceeding 90 Days - Guidance in recent IRS proposed regulations - 90 calendar day limit (includes weekends and holidays) - Employee must be able to elect coverage that is effective on the 91st day - Coordinating with other eligibility conditions - A plan may impose other eligibility conditions (besides the passage of time) - A waiting period begins only after an employee/dependent has met a plan’s other eligibility conditions for coverage American Institute of CPAs® 69
Confirm Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 (con’t.) • Elimination of Stand-Alone Health Reimbursement Accounts (HRAs) - DOL FAQs state that ―stand-alone‖ HRAs will violate PPACA rule prohibiting group health plans from imposing lifetime or annual limits on essential health benefits • Annual Limits on Out-of-Pocket Maximums - Limits on out-of-pocket expenditures may not exceed the out-ofpocket expense limits for high deductible health plans ($6,350 individual / $12,700 family for 2014) • Annual Deductible Limits for Small Employers - Deductibles under small employer plans may not exceed $2,000 individual / $4,000 family for 2014 American Institute of CPAs® 70
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 (con’t.) • Required Clinical Trial Coverage - Group health plans must cover certain costs in connection with clinical trials, must not discriminate against an individual who participates in a clinical trial for the treatment of life-threatening diseases • Maximum Financial Reward for Wellness Program Participation Increases - Wellness programs that condition rewards on satisfaction of a standard related to a health factor will be able to offer rewards of up to 30% of the cost of coverage (e.g., sum of the employee and employer portions of the cost of coverage) in the aggregate American Institute of CPAs® 71
Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Check Documentation and Administrative Procedures for Compliance Generally • • • Does each ERISA benefit plan have a plan document and an SPD that comply with ERISA’s written plan/SPD requirements? Consider creating a ―wrap‖ plan/―umbrella‖ plan Do written terms match administrative practices? Example: Employee eligibility waiting periods (30 days) Do not assume that your company’s third-party administrators and vendors will create/provide/amend plan documents and SPDs that comply with ERISA, the Code, PPACA, etc. Make sure you know whether your company is expected to create/provide/amend plan documents, SPDs, and other documentation (such as the new SBCs) American Institute of CPAs® 72
Prepare for Changes Required Beginning Mid-2014 and Later
Prepare for Changes Required Beginning Mid-2014 and Later Transitional Reinsurance Report and Fee - 11/15/14 • • • Applies to grandfathered and non-grandfathered self-insured health plans (including retiree plans) and insurers 2014 Fee: $63 ($5.25 per month) per ―covered life‖ (each individual covered by the plan) Plan sponsor must report number of covered lives to HHS by Nov. 15, 2014; must remit the fee to HHS within 30 days after receiving notice of fee liability (which will be sent no later than Dec. 15th) Employer Mandate - ―Pay or Play‖ - 01/01/15 American Institute of CPAs® 74
Prepare for Changes Required Beginning Mid-2014 and Later • • • • Annual Health Insurance Coverage Reporting - 01/01/15 Required information includes whether the employer offers a plan providing ―minimum essential coverage,‖ and if so, other information, including the length of any applicable waiting period and the employer’s share of total allowed costs of benefits Penalties for failure to satisfy reporting requirement for the 2014 plan year will not be enforced Required Automatic Enrollment (Large Employers) 2015(?) Employers with more than 200 employees that offer health insurance coverage (both fully insured and self-insured) will be required to automatically enroll new full-time employees in coverage, along with an opportunity to opt out of the coverage Still awaiting guidance/effective date American Institute of CPAs® 75
Obtain Necessary Additional Information on Employees
Obtain Necessary Additional Information on Employees PPACA’s requirements necessitate the collection of additional information by employers regarding their employees • • • Total family income (unless a safe harbor is used) Availability for, and enrollment in, other health insurance coverage (e.g., by an employee’s spouse) Cultural and language affiliations (for purposes of distributing materials in required languages, etc.) Such additional information needs to be safeguarded against misuse American Institute of CPAs® 77
Determine if Your Company is an “Applicable Large Employer” That Will Be Subject to the “Pay or Play” Mandate
Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate ―Pay or Play‖ Mandate Only Applies to ―Applicable Large Employers‖ Who is the ―Employer?‖ Who is a ―Full-Time Employee?‖ Determining ―Applicable Large Employer‖ Status American Institute of CPAs® 79
Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate ―Pay or Play‖ Mandate Only Applies to ―Applicable Large Employers‖ • ―Applicable Large Employer‖ Employers who employed an average of at least 50 ―fulltime employees‖ on business days during the prior calendar year - Determination must be made annually American Institute of CPAs® 80
Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Who is the ―Employer?‖ • • • IRS proposed regulations apply the ―common law‖ meaning of ―employer‖ All entities treated as a single employer under the controlled group and affiliated service group rules are treated as the same employer for purposes of who is a large employer subject to the employer mandate An employer also includes: Predecessor and successor employers Governmental entities Tax-exempt entities under Section 501(c) American Institute of CPAs® 81
Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Who is a ―Full-Time Employee‖? • A ―full-time employee‖ is an individual who is employed on average at least 30 hours of service per week for a month in the prior calendar year - • • 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, provided the employer applies this equivalency rule on a reasonable and consistent basis ―Full-time employees‖ include ―Full-Time Equivalent Employees‖ (FTEs) Calculating the Number of FTEs - - (A) Determine the total ―hours of service‖ for a month in the prior year for all employees who were not full-time employees, including seasonal workers (up to 120 hours of service for each employee); (B) Divide the number in (A) by 120 Result = Number of FTEs for the month Fractions are taken into account in determining the number of FTEs for each month American Institute of CPAs® 82
Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Determining ―Applicable Large Employer‖ Status • Based on the number of full-time employees on ―business days‖ during the preceding calendar year • IRS Proposed Regulations’ Multi-Step Calculation Method: - Step 1: Calculate the number of full-time employees (including seasonal employees) for each calendar month in the preceding calendar year - Step 2: Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year (using the method described above). - Step 3: Add the number of full-time employees and FTEs in Steps 1 and 2 for each month of the preceding calendar year - Step 4: Add up the 12 monthly numbers from Step 3 and divide the sum by 12 = Average number of full-time employees for the preceding calendar year - Step 5: - If Step 4 < 50, then the employer is not an ―applicable large employer‖ for the current calendar year - If Step 4 => 50, then the employer is an ―applicable large employer‖ for the current calendar year American Institute of CPAs® 83
Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Determining ―Applicable Large Employer‖ Status (con’t.) • • Seasonal Worker Exception: Not a ―large employer‖ if the sum of the employer's full-time employees and FTEs is more than 50 for 120 days or less during the prior calendar year (and the employees in excess of 50 who were employed during the not-more-than-120-days period are seasonal workers) Employer Not In Existence in Prior Calendar Year: Such an employer is a large employer if it is reasonably expected to employ, and actually does employ, an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year American Institute of CPAs® 84
If Your Company is an “Applicable Large Employer,” Evaluate the Cost of “Playing” vs. “Paying”
The Employer Mandate Generally Beginning in 2015, ―applicable large employers‖ must choose to either: • ―Play‖ Offer ―minimum essential coverage‖ to substantially all full-time employees (and their dependents) which is both ―affordable‖ and offers ―minimum value‖ OR • ―Pay‖ Pay a penalty tax (an ―assessable payment‖) for either of the following: - Failing to offer ―minimum essential coverage‖ to substantially all full-time employees (and their dependents), or Offering eligible employer-sponsored coverage that is not ―affordable‖ or does not offer ―minimum value‖ American Institute of CPAs® 86
The Employer Mandate Generally Applicable penalty tax is calculated on a monthly basis • An employer is treated as not offering coverage for the entire month if it fails to offer coverage to a full-time employee for any day of a calendar month The rules for determining liability for and the amount of assessable payment are applied separately to each member of a controlled group. American Institute of CPAs® 87
Evaluating the Cost of ―Playing‖ vs. ―Paying‖ How Much Will ―Playing‖ Cost? • • • Look at actual costs of providing coverage for 2013, estimated costs of providing coverage for 2014, under current plan options Confirm that current plan options comply with applicable PPACA requirements (discussed above) Fixing noncompliant plan options will most likely increase costs of providing coverage Consider hiring outside consultant to review plans for compliance, estimate costs of offering (compliant) current plan options in 2015 How Much Will ―Paying‖ Cost? • • Calculate the Estimated Penalty for Not ―Playing‖ Understand How the Penalties Work Identify Your Full-Time Employees for Purposes of Determining Scope of Liability for Penalties Consider Possible Indirect Costs of Not Offering Coverage American Institute of CPAs® 88
Determine the Cost of ―Paying‖: Understand How the Penalties Work Subpart A Penalty: Opting Out Entirely • An applicable large employer will pay a penalty tax for any month that: - The employer fails to offer substantially all full-time employees (and their dependents) the opportunity to enroll in ―minimum essential coverage‖ under an ―eligible employer-sponsored plan‖ for that month; and - At least one full-time employee has been certified to the employer as having enrolled for that month in a health exchange for which health coverage assistance is allowed or paid • Penalty Amount: - $166.67/month, times each full-time employee (minus up to 30 full-time employees) Before the penalty will apply for a given month, at least one full-time employee must enroll in a qualified health plan through an exchange for that month and must receive an applicable premium tax credit for that month’s coverage American Institute of CPAs® 89
Determine the Cost of “Paying”: Understand How the Penalties Work • Subpart A Penalty (continued) - Defined Terms ―Substantially All‖ IRS proposed regulations clarify that ―substantially all‖ is generally 95% ―Offer‖ Offer must be made no less than once during the plan year ―Dependent‖ Does not include employee's spouse or domestic partner, only employee’s children ―Minimum Essential Coverage‖ Defined by what it does not include, which is ―excepted benefits‖ (e.g., stand-alone dental, vision, etc.; AD&D; workers’ comp; liability insurance, etc.) Should include any major medical-like coverage provided by employer American Institute of CPAs® 90
Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty: Coverage Offered Fails Minimum Value and/or Affordability Requirements • • An applicable large employer will pay a penalty tax for any month that such employer offers coverage to substantially all of its full-time employees and their dependents, but the coverage: Does not have ―minimum value‖; and/or Is not ―affordable‖ Penalty Amount: $250/month, times the number of full-time employees for any month who receive premium tax credits Capped at the amount of the Subpart A Penalty Subpart B will never cost an employer more in penalties than Subpart A American Institute of CPAs® 91
Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty (continued) • Defined Terms ―Minimum Value‖ The plan's share of the total allowed costs of benefits provided under the plan is at least 60% Several methods available to determine minimum value Minimum Value Calculator Design-Based Safe Harbors in the form of checklists Actuarial Certification Amounts contributed by an employer to an HSA are taken into account in determining the plan’s share of costs for purposes of ―minimum value‖ Amounts made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year count if the amounts may be used only for cost-sharing and not to pay insurance premiums American Institute of CPAs® 92
Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty (continued) • Defined Terms (continued) ―Affordable‖ The employer-only premium cost is no more than 9.5% of the employee’s household income - Safe Harbor Relief for Determination of Affordability Available - - Form W-2 Pay Rate of Pay Federal Poverty Line Special Rules: - Integrated HRAs - Wellness Incentives American Institute of CPAs® 93
Determine the Cost of “Paying”: Understand How the Penalties Work Generally: • • • An applicable large employer’s potential penalty tax liability is determined by reference to the number of full-time employees employed in a given month Calculation must be done on a monthly basis - Unlike the annual determination for purposes of determining ―applicable large employer‖ status All part-time employees are excluded - No ―full-time equivalency‖ conversion necessary American Institute of CPAs® 94
Determine the Cost of “Paying”: Identify Full-Time Employees • • Identifying ―Full-Time Employees‖ ―Full-time employee‖: An employee who has an average of at least 30 hours of service/week during a calendar month 30-hour threshold is the same as for purposes of determining whether an employer is an ―applicable large employer‖ Determining ―Hours of Service‖ Includes hours during which no duties are performed because of vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty or leave of absence Hourly Employees: Employers must calculate actual hours of service for employees who are paid on an hourly basis from: Records of hours worked; and Hours for which payment is made or due American Institute of CPAs® 95
Determine the Cost of “Paying”: Identify Full-Time Employees Determining ―Hours of Service‖ (continued) • Non-Hourly Employees: Employers must calculate hours of service for employees paid on a nonhourly basis using one of three methods: - - Actual hours of service, from records of hours worked and hours for which payment is made or due; A days-worked equivalency, under which an employee is credited with 8 hours of service for each day for which the employee must be credited with at least one hour of service under the hourly employee calculation rules; or A weeks-worked equivalency, under which an employee is credited with 40 hours of service for each workweek for which the employee must be credited with at least one hour of service under the hourly employee calculation rules American Institute of CPAs® 96
Determine the Cost of “Paying”: Identify Full-Time Employees (Cont.) • • Employers do not need to use the same method for all non-hourly employees, and may apply different methods for different classifications of non-hourly employees if the classifications are reasonable and consistently applied Note: the definition of ―hours of service‖ is not identical to the definition of ―hour of service‖ for purposes of qualified retirement plans American Institute of CPAs® 97
Determine the Cost of “Paying”: Identify Full-Time Employees • IRS Safe Harbors for Determining ―Full-Time Employee‖ Status Allows employers to identify full-time employees by calculating employees’ hours during a specified period of months (a ―measurement period‖) and then locking in that status (full-time or not) for a separate specified period (a ―stability period‖) Terminology A ―Measurement Period‖ The look-back period over which hours are calculated to determine whether an employee has averaged at least 30 hours per week. There are two types of measurement periods: The ―Standard Measurement Period‖ Used for ongoing employees The ―Initial Measurement Period‖ Used for new employees American Institute of CPAs® 98
Determine the Cost of “Paying”: Identify Full-Time Employees Terminology (continued) • • • • The ―Stability Period‖ - The look-forward period for which an employee’s status (as full-time or not) is locked in, regardless of the employee’s actual hours during this period - The stability period begins at the end of the measurement period (and any administrative period) An ―Ongoing Employee‖ - An employee who has been employed for at least one complete standard measurement period A ―New Employee‖ - An employee who has not been employed for at least one complete standard measurement period An employee is a ―Variable-Hour Employee‖ if it cannot be determined on the employee’s start date that the employee is reasonably expected to work an average of at least 30 hours per week during the initial measurement period (based on the facts and circumstances on the employee’s start date) American Institute of CPAs® 99
Determine the Cost of “Paying”: Identify Full-Time Employees ―Look-Back‖ Measurement Period - Generally: • • • • Measure each employee’s average hours of service over a look-back measurement period that is 3-12 months long Assign each employee full-time or part-time status based on that measurement Continue that status throughout a stability period that follows the measurement period and is usually the same length Between the measurement period and the stability period, an employer may have an administration period of up to 90 days Documentation is Key • Make sure to properly document the methodology used for determining ―full-time‖ status—including the measurement and stability periods used under the IRS safe harbors—as well as accounting for breaks in service and leaves of absence American Institute of CPAs® 100
Determine the Cost of “Paying”: Consider Possible Indirect Costs of Not Offering Coverage Necessity of Additional Compensation? Company’s Attractiveness to Potential Talent? Affect on Employee Morale/Productivity? Affect on Employee Turnover Rate? Affect on Public Opinion of Company? American Institute of CPAs® 101
Decide Basic Plan Design (if “Playing”)
Decide Basic Plan Design (if “Playing”): Two Basic Design Choices Option One: • Offer a plan that provides ―minimum essential coverage‖ with ―minimum essential value‖ to all full-time employees, and either: - Pay a penalty for those full-time employees for whom the employee-only coverage is ―unaffordable‖ and who elect coverage under an exchange; or Subsidize the cost of coverage for any full-time employees for whom coverage would be ―unaffordable‖ Option Two: • Offer a plan providing ―minimum essential coverage‖ with ―minimum essential value‖ to some (but not all) full-time employees, and pay a penalty for full-time employees electing coverage under an exchange, for whom the plan is ―unaffordable‖ or to whom the plan doesn’t offer ―minimum essential coverage‖ - NOTE: Although FTEs (i.e., part-time employees) are included for purposes of determining whether an employer is a ―large employer,‖ FTEs are not required to be offered ―minimum essential coverage‖ American Institute of CPAs® 103
Decide Basic Plan Design (if “Playing”): Factors to Consider Features of Current Plan(s) Offered • • Eligibility Cost of coverage (and in particular, employee-only coverage) Analyze Characteristics of Company’s Workforce • • • • • Average Employee Age Relative Health Turnover Rate Number/Percentage of Part-Time Employees Any Special Characteristics Affecting Calculation of Penalties Importance of Offering Health Coverage to Company’s Overall Benefits & Compensation Strategy American Institute of CPAs® 104
Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform
Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform The DOL, IRS and HHS continue to issue regulations and guidance with respect to many of PPACA’s healthcare reforms; future guidance may require additional changes to plan design, documentation, administrative process, etc. American Institute of CPAs® 106
Issues We’re Still Awaiting Guidance On
Items We’re Still Awaiting Guidance On Automatic Enrollment Outstanding Worker Classification Issues Offering Dependent Coverage Nondiscrimination Rules for Insured Health Coverage American Institute of CPAs® 108
Strategies for Cost Containment
Strategies for Cost Containment Evaluate Coverage of Dependents and Spouses Compare Fully Insured to Self-Insured Plan Design Assess and Adjust Communication of Benefits to Employees Review Contracts with Vendors Compare Actuarial Value of Current Plan to Available Options American Institute of CPAs® 110
Strategies for Cost Containment (Cont.) Consider Raising Plan Deductible Limits Consider Wellness and Health Risk Improvement Strategies Assess, and if Necessary Amend, Hiring Practices and Use of Full & Part-Time Workforce Impose Annual Limits on Non-―Essential Health Benefits‖ Evaluate (and Possibly Adjust) Costs of Other Benefits American Institute of CPAs® 111
Strategies for Cost Containment Evaluate Coverage of Dependents and Spouses • • • • Raise cost of coverage for dependents (and spouses, if offered) Recall that ―affordability‖ requirement is measured using ―employee-only‖ coverage Offer coverage only for dependents, but not spouses Charge a premium for spouses who are eligible for ―minimum essential coverage‖ through their own employer Charge for each family member that participates in the plan (instead of employee + family) American Institute of CPAs® 112
Strategies for Cost Containment • Compare Fully Insured vs. Self-Insured Plan Design Self-Insured Plans: - - • - Generally not subject to state health insurance regulations and benefit mandates Allows uniformity across state lines for large employers Plan sponsors may have greater control in designing plan benefits, provider networks, and employee cost sharing Costs based on company’s own claims experience Excluded from some of PPACA’s requirements Health insurance industry fee (begins 01/01/2014) Plan sponsor bears some or all of the risk for paying incurred claims Subject to more direct reporting and fee requirements under PPACA Fully-Insured Plans: - - Eligible for coverage under state guarantee programs in the event of carrier’s financial insolvency Transfer risk from plan sponsor to insurance company for all claims for benefits made under the plan Excluded from some of PPACA’s fee and reporting requirements American Institute of CPAs® 113
Strategies for Cost Containment Assess and Adjust Communication of Benefits to Employees • Evaluate Current Communication of Benefits - • How are communications to employees made? Who communicates with employees? How often are / what kind of communications are made? How transparent are communications? Adjust Communication of Benefits - Offer social media tools (online discussion groups, classes, quizzes, etc.) Offer in-person classes Make information about the cost of health services to employees readily available to employees Take advantage of technology - Smartphone apps for pharmacy management Insurer/vendor websites American Institute of CPAs® 114
Strategies for Cost Containment Review Contracts with Vendors • • • Review what services each vendor is providing Consider consolidating services with one vendor (cost efficiency) Consider implementing performance-based contracts (and setting specific performance targets) Compare Actuarial Value of Current Plan to Available Options • Run an actuary-supported financial impact study of the available options Consider Raising Plan Deductible Limits • • Employers can provide plans with higher deductibles, and then offset those higher amounts with contributions to employees’ HSAs or integrated HRAs Encourages employees to make more cost-conscious decisions when purchasing health care services American Institute of CPAs® 115
Strategies for Cost Containment Consider Wellness and Health Risk Improvement Strategies • Implement/Broaden outcome-based wellness programs - - Suggestions A discount of 20% of the cost of employee-only coverage for individuals who have an annual cholesterol test and achieve cholesterol levels below 200. Physical fitness/smoking-cessation program coupled with a financial reward (such as an employer HSA contribution) Offering disease management programs for employees/dependents with chronic medical conditions (e.g., asthma or diabetes), coupled with a financial reward for completing the program’s requirements Note: ―reasonable alternatives‖ must be offered to those for whom it would be unreasonably difficult or medically inadvisable to satisfy the requirements of the incentive due to a medical condition American Institute of CPAs® 116
Strategies for Cost Containment Consider Wellness and Health Risk Improvement Strategies (continued) • Provide education, tools and other resources for wellness - • • Suggestions Hosting a monthly health informational lunch for employees Encouraging a weight-loss club by providing a meeting space and a fringe benefit (such as a company mug) to participants Sponsoring a health fair Adding a ―phone-a-nurse‖ benefit to the plan Offering disease management programs for employees/dependents with chronic medical conditions (e.g., asthma or diabetes) On-site clinics Remember: Premium discounts offered for participation in wellness programs do not generally count toward determination of plan’s ―affordability‖ American Institute of CPAs® 117
Strategies for Cost Containment Assess, and if necessary amend, hiring practices and use of full & part-time workforce • Be careful of potential retaliation claims Impose Annual Limits on Non-―Essential Health Benefits‖ • But note: it’s still not clear what those are Evaluate (and Possibly Adjust) Costs of Other Benefits • Dental, Vision, LTD, STD, Group Life, etc. - • What % of premiums are paid by employees? How rich are the benefits offered by these programs? Does it make sense to focus benefits-related expenses on health coverage instead? American Institute of CPAs® 118
Coming Up Next… Brian Marks, CEBS Principal, Digital Benefit Advisors American Institute of CPAs® 119
Health Insurance Market Update Brian Marks, CEBS Executive Director/Principal VSCPA Benefit Advisors
Today’s overview (of a moving target) 1. Quick review of ACA requirements for 2014/15 • Not a detailed review of the law (I promise) 2. Highlights of major issues and impact to employers 3. The unintended consequences of reform…how we see the market responding heading into 2014 4. How can employers answer? • Six benefit strategies to consider to address the changes American Institute of CPAs® 121
Warning! Pay close attention if you: Have more than 50 FTEs and are not offering coverage Have employees working > 30 hours/week not currently covered by your health plan Have a large percentage of employees opting out Have a significant number of low income employees relative to Federal Poverty Level (FPL) Offer different contributions or waiting periods to sub-groups of employees Provide minimal employer contribution to premium, threatening affordable coverage If warning signals are flashing, a customized assessment is recommended… American Institute of CPAs® 122
ACA overview American Institute of CPAs® 12 3
Key issues and provisions American Institute of CPAs® 124
Individual mandate Individual mandate • Must have minimum essential coverage - Minimum essential coverage is defined as - Coverage under certain government-sponsored plans - Employer-sponsored plans, with respect to any employee - Plans in the individual market - Grandfathered health plans - Any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS Secretary. - Doesn’t include health insurance coverage consisting of excepted benefits American Institute of CPAs® 125
Individual mandate Could drive more employees back into group plan to avoid penalty – increases employer premium contribution liability Penalties for Individuals American Institute of CPAs® 126
Individual mandate Individual mandate exemptions • • • • • • • • • Religious exemption Those not lawfully present in the United States Incarcerated individuals Cannot afford coverage based on formulas contained in the law Income below federal income tax filing threshold Members of Indian tribes Uninsured for short gaps of less than three months Received a hardship waiver from the Secretary Residing outside of the United States, or are bona fide residents of any possession of the United States American Institute of CPAs® 127
Individual mandate: Penalty Transition Relief (IRS Notice 2013-42) Applies to: • Employees and related individuals enrolled in, or eligible to enroll in, an employer’s non-calendar year plan • Where the plan year begins 2013 and ends 2014 Transition Relief: • No individual mandate penalty for months in 2014 prior to the first day of the plan year beginning in 2014 Example: • Employee and minor daughter eligible to enroll in a non-calendar year plan that begins August 1, 2013 and ends July 31, 2014 • Neither employee nor daughter enroll in plan for the 2013-2014 plan year • Employee and daughter eligible for transition relief for 128 January 2014 through July 2014
Individual subsidies Eligibility: For exchange plans – individuals with income between 133% (100% in some states) and 400% of Federal Poverty Level (FPL) without access to minimum essential coverage through their (or spouse’s) employer or are offered coverage that is not ―affordable‖ with 9.5% of income threshold Income ranges for 133% to 400% of FPL An individual making $15,282 will qualify for a subsidy if the monthly EE premium contribution is $121 or more Individual: $15,282 to $45,960 American Institute of CPAs® Target max EE cost/mo.: $121 to $364 Family of 4: $31,322 to $94,200 Target max EE cost/mo.: $248 to $746 Note: Subsidies vary by income level and may be delivered as benefit credits 129
Public exchanges/marketplaces Exchanges were “operational” in October The ―SHOP‖ group exchange and a ―Marketplace‖ for individuals Carrier signals suggest the following: • • • • Targeting the uninsured Some carriers are not participating May offer the minimal number of plans allowed (6), one catastrophic Will be a bias to narrow network options This means carriers do not want to cannibalize current group business in exchanges Exchanges will be a vehicle to manage subsidies but may be unattractive to those with other options – navigating the exchange can be challenging and cumbersome American Institute of CPAs® 130
Individual marketplace/exchange Information from: CIAB -June 28, 2013 WA MT VT ND OR NH ME MN ID MA NY WI SD MI WY NE NV IL UT CA PA IA CO AZ OK NM NC TN AR SC AL GA LA AK FL HI American Institute of CPAs® VA DE RI NJ WV KY MS TX IN MO KS CT OH MD DC Operational State Exchanges (1) State Exchange Established (15+DC) Federally -Facilitated Exchange (27) State Partnership Exchange (7) 131
Health plan requirements Minimum Value Benefits for 50+ employers; generally not a problem No annual maximum benefit limit on any plan < 50 – limits on deductibles and outof-pocket maxima • $2,000/$4,000 deductible limit but there are exceptions Wellness program incentives – up from 20% to 30% and 50% for tobacco free Waiting periods can not exceed 90 calendar days American Institute of CPAs® 132
Employer mandate Applies to > 50 FTEs, 30 hours, at least 95% FTEs must be offered effective in 2015 1. 2. If no coverage offered….$2,000 penalty/full-time employee, less the first 30 If essential coverage is offered but unaffordable (generally >9.5%of Box 1 W-2 wages for employee only on low plan) - $3,000 / FTE enrolled in exchange with subsidy Key Issues: Is current coverage minimally essential? Likely yes. Is it affordable? Harder to tell. Must offer coverage to employees and children (not spouse) Multiple PT jobs with one employer adding to > 30 hours? American Institute of CPAs® 133
Employer mandate penalty delay IRS Notice 2013-45 What does it mean? • Not repealed • Continue preparing - Await final reporting rules - Comply voluntarily - Ensure systems and procedures in place • No effect on other PPACA provisions American Institute of CPAs® 134
Key clarification Measuring FTEs is complex… 1. Need full analysis of part-time, variable hour and seasonal employees, and an understanding of measurement periods 2. Up to 15 month period prior to 2015 (formerly 2014) plan year is critical to 30 hour eligibility for each employee 3. Opportunity now to re-align work force with an understanding of the 30 hour threshold American Institute of CPAs® 13 5
Large employer determination IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year Employee Type Definition Calculating Employees Full-time employees Employees who, on average, work 30 hours or more per week A. Add number of employees employed on business days in the year of evaluation Seasonal employees A worker who performs labor or services on a seasonal basis B. (Add total number of hours worked during year of evaluation, but no more than 120 hours for any one employee in a given month) ÷ 120 All other non-full-time employees All other employees who are not full-time or seasonal C. (Add total number of hours worked during year of evaluation, but no more than 120 hours for any one employee in a given month) ÷ 120 TOTAL Full-time and full-time equivalent employees Add A + B + C for each month Add all months together ÷ 12 American Institute of CPAs® 136
Employer mandate tool IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H ACA - Employer Sharing Responsibility • • • 1 - Full-time employees = total number of employees who work, on average, 30 hours per week 2 – Add all actual hours worked, in each month, by seasonal employees 3 - Add all actual hours worked in the month for those employees who are not accounted for as full-time or seasonal employees Are you mandated to offer coverage under ACA? Enter Year (YYYY) of Evaluation Applicability - 4980H Employers who employed at least 50 full-time employees, including fulltime equivalent employees, on business days during the preceding calendar year Full-Time Equivalent Employees Month Full Time employees1 Hours for all seasonal employees2 Seasonal employees converted to full-time equivalents Hours for all other nonfull-time employees3 January 0 0 0.0 0 February 0 0 0.0 0 Employer mandated to offer coverage per PPACA → American Institute of CPAs® NO 137
Variable hour and seasonal employees IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Type Definition Variable hour employee An employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week or who initially starts at 30 hours per week but is anticipated to do so for a limited duration Seasonal employees The statute does not address how the term “seasonal employee” might be defined for purposes of whether a new employee of an applicable large employer is reasonably expected to work full time for purposes of determining the amount of any assessable payment under § 4980H. Through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee” for purposes of this notice. American Institute of CPAs® 138
Variable hour/seasonal rules IRS Notice 2012-58 Full-time status of newly hired variable hour and seasonal employees Administrative Period • A “look back” period of 3-12 consecutive calendar months • Cannot exceed 90 calendar days Administrative period can be limited further when applying combined duration rule* Applicable Stability Period (IMP = Full-time) • Initial Measurement Period (IMP) Applicable Stability Period (IMP ≠ Full-time) • • • • Must be the same length as the stability period for on-going employees At least 6 consecutive calendar months Cannot be shorter duration than IMP Begins after IMP and any applicable administrative period • Cannot be more than 1 month longer than the IMP Must not exceed the remainder of the SMP plus any associated administrative period in which the IMP period ends. *IMP and administrative period cannot extend beyond, at most, 13 months and a fraction of a month from the employee’s start date American Institute of CPAs® 139
Variable hour determination tool IRS Notice 2012-58 Adding Employees Waiting period New Hire On-Going Employees Will you always add employees on the first of a month? Y/N # of Days Initial Measurement Period (IMP) (in months) Proposed Stability Period (in months) Administrative Period (in days) Standard Measurement Period (SMP) (in months) Proposed Stability Period (in months) Administrative Period (in days) Evaluation: Acceptable Unacceptable Unacceptable Unacceptable Unacceptable Unacceptable Unacceptable Overall validation of proposed eligibility plan Validation messaging provided for each eligibility rule All rules are not satisfied - please try changing some of your options OR Plan appears to satisfy all rules - proceed to Step 3 American Institute of CPAs® 140
Employer mandate/play or pay Key Issues: Is current coverage minimally essential? • Likely yes Is it affordable? • Harder to tell American Institute of CPAs® 141
―Affordability‖ and metal plans Actuarial value (plan cost/total cost) Deductible OOP Max Office Copays Co-insurance Actuarial Value / Expected OOP Metal Level No Deductible $0/ $0 $3,000/ $6,000 $25/$50 20% 88% $1,250 Platinum Traditional Deductible $2,000/ $4,000 facility $4,500/ $9,000 $30/$50 20% 78% $1,750 Gold HDHP $3,000/ $6,000 comprehensive $3,000/ $6,000 None 0% 71% $2,000 Silver HDHP $5,000/ $10,000 comprehensive $5,000/ $10,000 None 0% 62% $2,350 Bronze American Institute of CPAs® 142
Administration Requirements on the rise for employers Status against 30-hour threshold and various measurement periods W-2 reporting Annual reporting on whether/not essential health benefits offered Automatic enrollment for employers with 200+ FTEs (delayed?) < 50 covered lives will be individually rated with one year bands (employees and dependents) Supporting employees who consider the exchange: • • • Exchange interaction Support individual exchange application - Supply EIN numbers, etc. Tracking and reporting penalty status American Institute of CPAs® 143
Individual exchange applications Employer support required! REVISED APPLICATION: 1. 21-page application is now 3-7 pages 2. 2 family members v. 6 family members 3. Questions: a. b. Tax-filing status c. Employer information and access to employer-sponsored coverage d. Household income e. 144 Demographic Who is requesting coverage
New rating impact Current Underwriting Techniques: 1. Experience Rating – 100+ for most carriers • Base rates adjusted for industry, gender, location, claim history • Weighted between group and pool experience 2. Community Rating / Adjusted Community Rating - 26 to 99 • Requires group risk questionnaire • Community (pooled) base rate • Adjustments - demographics (age/sex factor), industry, geographic, loss ratio (claims vs. premium) American Institute of CPAs® 145
New rating impact Current Underwriting Techniques: 3. Medical Underwriting - 2 to 25 • Requires individual health questionnaires • Assign points based on medical conditions within group • Total points translate to a factor which is applied to the base rates - Factors range from 0.7 (favorable risk) to 2.1 (unfavorable risk) for most carriers • Base rates vary by Age, Gender, and Tier - Age bands differ by carrier and range from 4:1 to 7:1 or more American Institute of CPAs® 146
New community rating impact ACA Impact to Current Underwriting Methodologies (< 50): No medical underwriting Standard age bands with a maximum 3:1 cost ratio Able to adjust for Tobacco Users up to 50% One major carrier stated that 40% of groups in the 2 to 99 insured segment will see a rate impact of 50% or more heading into 2014……. HOW? Low Risk High Risk Pinching underwriting bands Upward cost pressure from new benefits and increased demand Impact of currently uninsured New fees and taxes (approaching 4-6% for full year!) American Institute of CPAs® 147
New rating impact Cost Illustration: Scenario 1 Scenario 2 Scenario 3 35 40 49 59% 56% 41% Better than Average Average Average % Change due to Demographics (Age/Gender) 56% 29% -5% % Change due to Medical Conditions 10% 0% 0% % Change due to Pricing Trend 11% 11% 11% 4% 4% 4% 98% 49% 10% Average Age % Male Medical Conditions % Change due to New Taxes & Fees Total % Change American Institute of CPAs® 148
New rating impact <50 individual rating – all rates will be individually rated at the dependent level Employee Age 25 30 35 40 45 50 55 60 65 Tier EE EE EE EE EE EE EE EE EE only only only only only only only only only Rate $339 $339 $339 $339 $339 $339 $339 $339 $339 American Institute of CPAs® < 50 EEs Now Future 1 rate Ind. rates Male – 55 yrs. - $500 Spouse - 50 - $425 Child - 25 - $225 Child - 17 - $180 $1,200 $1,330 Family NOW ER Contrib 80% of EE Rate $271 $271 $271 $271 $271 $271 $271 $271 $271 Rate $225 $250 $275 $325 $380 $425 $500 $550 $625 2014 ER Contrib. 80% of EE Rate $180 $200 $220 $260 $304 $340 $400 $440 $500 Rate diff. problematic in budgeting, discrimination issue? 149
Employer premium contribution Premium contribution discrimination testing likely to apply (was delayed in 2010) Different contributions for different classes creates substantial risk of wage and eligibility test failure Safe harbor – eliminate any class differences in premium contribution; or offset with salary and employee may deduct via the 125 plan Awaiting final regulations; may allow testing within a class…e.g. PT workers American Institute of CPAs® 150
New rating impact Summary: 2 to 50 employees: • • • • • No requirement to offer coverage New age bands / no medical underwriting Individual rates Some individuals drift to individual coverage? Or, Does coverage become unaffordable for many employers? 50 to 100 employees: • • • Required to offer coverage to avoid penalty (2015) in certain states Need to really review FTE equivalents and PT staff impact What’s affordable? 100+ employees: • • • Required to offer coverage to avoid penalty (2015) Still experience rated but higher taxes and trends Treading water may mean average 20-25% rate increases American Institute of CPAs® 151
Financing ACA 152
New taxes/fees ACA Fee Fee $1 per covered life Year 1, Patient-Centered Outcomes Research Institue $2 per covered life Year 2, (Comparative Effectiveness) indexed thereafter until it sunsets in 2018 Estimated to be 2% to 2.5% of premium in 2014 Annual Health Insurance Industry Fee and 3% to 4% in later years $63 per covered life in Transitional Reinsurance Program 2014 and will be indexed Assessment Fee thereafter until it sunsets in 2016 Risk Adjustment Program and Fee Marketplace (i.e., Exchange) User Fees Cadillac Excise Tax (tax for high-cost plans) American Institute of CPAs® Estimated to be $1 per covered life Fully Insured Self-Insured Cost Impact Yes Yes < 0.01% Yes No 2% to 2.5% Yes Yes 2% Yes for employers that participate in the individual and smallgroup markets No < 0.01% 3.5% of the monthly Yes for small groups premium for each policy in offering coverage No federally facilitated through federal marketplaces marketplaces Effective in 2018: 40% of the amount premium over Yes if premiums exceed Yes if budget rates established threshholds for threshholds exceed threshholds single coverage and family coverage 3.5% Varies 153
General thoughts Continuation of employer-based plan seems most common approach in the market • Recruitment and retention requirements • Market uncertainty • Desire for employee support Method of offering likely to change • Private exchange Much still undefined American Institute of CPAs® 154
So what are the strategies? American Institute of CPAs® 155
Beginning the evaluation process Gather documentation: 1. Identify all full-timers according to the new rules. 2. Define current eligibility requirements and waiting period. 3. Itemize current benefit offerings and plans by class of employees . 4. Document all coverage elections and contributions by person and compare to salary. 5. Understand who elects and who does not and why. 6. Determine methodology for additional information gathering from employees. 7. Begin plan for employee education and communication. 156
Potential solutions 1. Operational changes to workforce New hires scheduled < 30 hours Legitimate outsourcing opportunities (e.g. groundskeepers, maintenance, food service) Job sharing Joint ventures or partnerships? American Institute of CPAs® 157
Potential solutions 2. Early renewal took place in 12/2013 Most aspects of PPACA were effective with plan years beginning 1.1.14 or after (such as…underwriting changes, no pre-ex) Many carriers allowed an early renewal. E.g.…renewed as usual 4.1.13. Re-renewed 12.1.13 until 11.30.14. Resulted in avoidance of PPACA requirements for 8 month extension. • Would re-set deductibles and OOP max or maintain as calendar year Delay of rate hike? Administrative burden Lots of strings attached… What will happen in late 2014? American Institute of CPAs® 158
Potential solutions 3. Plan design Carriers mapping to new plan designs • • • Plans must have AV of +/- 2% of metal target (e.g. 61% AV = bronze) Most plans are in the silver/gold range now – can estimate with help HRA – many questions around how/where they fit? Contribution • • Generally 9.5% contribution of Box 1 W-2 wages applies to lowest qualifying plan move to lowest bronze level plan as basis for contribution? Wellness and tobacco incentives Eligibility • ―Carve out‖ lower compensated employees to exchange to take advantage of subsidy • Carve-out spouses from plan American Institute of CPAs® 159
Potential solutions 4. Self-funding and captives If employer pool has healthy risk compared to average, consider self-funding • Will be available down to 10-50 employees, with capped liability, gainsharing and consistent funding Captives can be attractive for employers with similar risk or management characteristics, and especially for groups with a common interest (e.g. schools, retirement communities, religious organizations, industry peer groups) • Needs to be seriously vetted – not for all, devil is in the details Could offset impact of large ACA renewal – the more favorable demographics/medical risk the more advantageous it is American Institute of CPAs® 160
Potential solutions 5. Defined contribution and private exchanges or marketplaces ―Defined contribution‖ means employer budgets and contributes a fixed dollar amount per employee, typically separate dollar buckets for medical and ancillary coverage Private exchanges create a marketplace buying experience for employees – online, multi-choice, service-backed buying experience DBA solution in place Strategies to maintain employee and employer tax preferences American Institute of CPAs® 161
Potential solutions 6. Pay or play? How strategically important is it to offer a health plan? • What do your employees really want/need? • Is the current cost trend sustainable? • Historically, it’s been important to offer health coverage. Is it still? • For 2015, is paying the penalty/tax the best approach? Will penalties increase and when? • Many pay or play models are inferior teasers… American Institute of CPAs® 162
Health Care Reform – 50+ What must employers do before 2015? • • • • Determine applicable large employer status If large employer, decide to pay or play If play, ensure offered coverage is affordable and of minimum value If pay, calculate penalty • Strategic considerations if you ―play‖ – Variable hour employees (how to best manage) – Determine where you will be relating to affordability and minimum value – Maximize positioning American Institute of CPAs® 163
Health Care Reform - <50 What must employers do in 2014? • Determine if you will be aided or harmed by ACA underwriting changes – Age band changes – No risk adjustments • Set strategy based upon determination above – Early renew (delay) – Self-fund – Immediately implement ACA rates American Institute of CPAs® 164
Strategic Considerations • Almost all small groups will have to make plan design changes in 2014 due to market reforms. • Most groups should consider a multi-plan option and defined contribution strategy. Private exchanges could offer a potential solution. • Employees will have to take on more responsibility for healthcare purchasing and behaviors. • Employers will need to support this with decision-support resources, education, and consideration of wellness incentives. • Insurance carriers will be introducing new products to achieve the 60% minimum value featuring performance based/restrictive networks, reduced services, and increased consumer responsibility. 165
Customized solutions required! ACA will impact each employer uniquely. There is no common solution. You will need the tools (e.g. pay or play calculator, metal plan estimator, 30 hour ―look back‖) and expertise and know how to help you design the right path Advanced planning will help to get your house in order Anticipating major rate actions is a must…don’t wait until the renewal execution period to consider your options Contact your consultant sooner rather than later with any questions or concerns American Institute of CPAs® 166
When do I act? Probably not a decision that is best made hastily If you have immediate concerns, please reach out to your consultant Otherwise seek advice as market and rules evolve Might not want to be an early adopter of new world • Exchange not fully vetted, underwriting uncertain, product mix likely thin • Consider the value proposition any decision will portray to your employees American Institute of CPAs® 167
Thank You! Brian Marks Executive Director / VSCPA Benefit Advisors 877-998-7272
Coming Up Next… Martie Ross Principal, Pershing Yoakley & Associates American Institute of CPAs® 169
Impact of Healthcare Provider Community Restructuring AICPA Online Conference on Healthcare Reform: A Deep Dive Into the Affordable Care Act Martie Ross Principal, Pershing Yoakley & Associates
The Back Half of the ACA American Institute of CPAs® 171
―We can’t afford to have a flu clinic this year.‖ - Hospital Chief Executive Officer American Institute of CPAs® ® 17 2
―The one thing that could happen for which we have no contingency plan is a massive outbreak of health.‖ - Physician Practice Administrator American Institute of CPAs® ® 173
Today’s Environment Fee-for-service as primary cost driver • Massive regulatory oversight Defensive medicine as secondary cost driver • Practice by exception Incentives result in provider-centered care American Institute of CPAs® 174
Every system is perfectly designed to achieve exactly the results it gets. -Donald Berwick 175
Flipping Healthcare Today Tomorrow IP Facilities CIN MultiSpecialty Groups OP Facilities Patient Ancillary Services PCPs Specialists ACO Facilities Specialists Facilities Specialists Medical Home Medical Person Home Person American Institute of CPAs® 176
Evolution of Reimbursement Fee for Service P4P Shared Savings Bundled Payments PCP Capitation Global Payment Visitor Patient Person Symptomatic Episode Overall Health Acute Needs Most Common Conditions Community Health Characteristics Services & Supplies Packaged Treatments Manage Well Being Unit Based Efficiency Based Outcome Based No Financial Risk Partial Financial Risk American Institute of CPAs® Full Financial Risk 177
Affordable Care Act – Two Strategies Payment Based on Quality Incentives for Clinical Integration American Institute of CPAs® 178
Payments Based on Quality Hospitals • Readmission Reduction Program • DRG Modifier • HAC/Never Event Penalty American Institute of CPAs® Physicians • PQRS • VBP Modifier • Physician Feedback Reports • SGR Fix Legislation 179
Hospital Readmission Reduction Program Penalty based on 3-year historical 30-day hospital readmission rates for AMI, heart failure, and pneumonia • Same or any other subsection (d) hospital • Reason for readmission irrelevant • List expands in 2015 to include hip/knee arthroplasty and COPD American Institute of CPAs® 180
Penalties Penalty attaches to all DRG payments: FY 2013 1% Reduction 2,200 hospitals penalized $280 million FY 2014 2% Reduction FY 2015 and going forward 3% Reduction Even more costly • Negative perception in community • Commercial insurance/employers © 2014, Mark O. Dietrich, All Rights Reserved #AICPA_HEALTH 181
DRG Modifier Adjustment to DRG payment based on clinical quality measures and patient satisfaction scores • Achievement and improvement • Budget neutral (winners and losers) • Percentage of DRG payments at risk (withhold and re-distribute) • 1.25 percent for FY 2014 American Institute of CPAs® 182
HAC/Never Event Penalty Begins in FY 2015 Top quartile (lowest scores) = 1 percent payment reduction American Institute of CPAs® 183
Measures Proposed ―never events‖ • • • • • • Pressure ulcer rate Volume of foreign object left in the body Iatrogenic pneumothorax rate Post-operative physiologic and metabolic derangement rate Post-operative pulmonary embolism or DVT rate Accidental puncture and laceration rate Proposed HACs • Central line-associated blood stream infection • Catheter-associated UTI American Institute of CPAs® 184
Physician Quality Reporting System Submission of reports, not achievement of scores • Range of reporting options Carrots followed by sticks • 0.5% bonus in 2013 and 2014 • 1.5% penalty in 2015 if ≠ report in 2013 • 2.0% penalty in 2016 ≠ report in 2014 (and thereafter) Meaningful use penalties • 1% penalty in 2015 if not MU in 2014; 2% in 2016; 3% in 2017; 4% in 2018 or 2019 American Institute of CPAs® 185
Physician Value-Based Payment Modifier Phased in between 2015 and 2017 2013 performance determines 2015 modifier for providers in groups of 100+ Budget neutral wRVU x conversion factor x VBPM • Positive number = paid more • Negative number = paid less Far broader impact than Medicare payment American Institute of CPAs® 186
Physician Feedback Reports Individual reports on resource use and quality of care as compared to peer group based on Medicare data Used to calculate Medicare physician value-based payment modifier Schedule • In Spring 2013, reports sent to physicians in groups of 25+ in nine states based on 2011 data (CA, IL, WI, MN, MI, MO, IA, KS, NE) • By February 2014, reports to physicians in groups of 25+ nationwide based on 2012 data • All physicians by 2016 American Institute of CPAs® 187
SGR Fix Three-month fix now in place Three reported bills • Senate Finance • House Ways and Means • House Energy and Commerce American Institute of CPAs® 188
SGR Repeal and Medicare Beneficiary Access Improvement Act Freeze MPFS rates at 2013 levels thru 2023 Sunset PQRS, VBM, and ERH MU penalties on 12/31/16 Single VBP adjustment effective 01/01/17 (4 to 12 percent between 2017 and 2021) • • • • Quality (PQRS measures) Resource use (current VBP program + enhancements) Meaningful use Clinical practice improvement activities (TBA) Providers in APMs receive 5 percent bonus, exempt from VBP adjustment American Institute of CPAs® 189
ACA and Commercial Payers Impact on Providers HEDIS measures • Plan accreditation for exchange participation • Medicare Advantage Five Star ratings Risk-adjusted payments Medical loss ratio American Institute of CPAs® 190
Incentives for Clinical Integration FFS Payment for Care Management Accountable Care Organizations Other APMs Private Payer Initiatives American Institute of CPAs® 191
FFS Payment for Care Management New Medicare payment for post-discharge transitional care management (30 days postdischarge from institutional care) Medicare payment for Chronic Care Management in CY2015 Medicaid health home model Commercial payer PMPM payments for specific populations American Institute of CPAs® 192
Accountable Care Organization Providers who voluntarily work together to improve quality/reduce costs Patient attribution based on PCP Opportunity for shared savings • Total FFS payments – benchmark • Meet and report on specified performance standards American Institute of CPAs® 193
Accountable Care Economics Actual total FFS payments • Payer’s actual total payments for specified services provided to identified patient population during defined time period • All providers, not just ACO participants Benchmark • Predetermined target spend typically based on historical data Performance Standards American Institute of CPAs® 194
Medicare Shared Savings Program ACO Functions Establish and maintain quality assurance and improvement program Promote evidence-based medicine, patient engagement, care coordination, patientcenteredness Compile and report participants’ quality measure scores Distribute shared savings and assess shared losses American Institute of CPAs® 195
Calculating Shared Savings/Losses Each ACO participant continues to bill fee-forservice independently Eligibility for and level of shared savings based on performance score Calculate actual total cost of care for assigned patients against pre-determined benchmark Apply formula to determine share of savings (losses) American Institute of CPAs® 196
MSSP ACO Waivers Stark Law, Anti-Kickback Statute, CMPs on gainsharing, beneficiary inducement Governing body determines financial arrangement promotes MSSP purposes Pre-participation waiver up to one year prior to application submission Participation waiver remains in place so long as part of MSSP American Institute of CPAs® 197
Choosing Wisely Initiative of the American Board of Internal Medicine Foundation started in 2011 46 specialty societies have published ―Five Things Physicians and Patients Should Question‖ 24 Consumer Reports patient education guides American Institute of CPAs® 198
199
200
Aggregate Medicare Spending American Institute of CPAs® 201
Per Capita Medicare Spending American Institute of CPAs® 202
Other APMs Medicare Bundled Payments Center for Innovation Demonstration Projects Private Payer Initiatives • Bundled payments • Shared savings • Primary care capitated payment American Institute of CPAs® 203
The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. - Malcolm Gladwell American Institute of CPAs® ® 204
Healthcare 2.0 1. The industry is learning to purchase value, not volume 2. Providers and payers are struggling to find common solutions to universal challenges because healthcare continues to be a local and regional commodity 3. Stakeholders are searching for their purpose and relevancy in a patient-centered healthcare continuum 4. Consumerism is emerging as a driving force in healthcare 5. Change is accelerating due to knowledge derived from disparate and dynamic data American Institute of CPAs® 205
Provider Response Economic and Clinical Integration American Institute of CPAs® 206
207
Provider Responses Economic Integration Through Consolidation Clinical Integration Through Networks of Independent Providers Hybrid Models 208
Economic Integration Health system mergers and acquisitions Media reports of dramatic and unprecedented hospital employment of physicians AMA’s 2012 Physician Practice Benchmark Study • Nationally representative random sample of post-residency physicians providing care 20+ hours/week and not employed by federal government American Institute of CPAs® 209
Practice Arrangements Practice Owned by Practice Physicians - Owner (48.9) Practice Owned by Practice Physicians - Non-Owner (11.1) Practice Wholly Owned by Hospital (14.7) Practice Partially Owned by Hospital (8.3) Practice Owned by Not-for-Profit Foundation (6) Direct employees of hospital or health system (5.6) American Institute of CPAs® 210
Multi-Specialty Group Practice Performance (MGMA 2011) Best Non-Hospital Rest of Non-Hospital Best Hospital/IDN Rest of Hospital/IDN Overhead % 58.3 60.0 56.8 83.4 Gross Charges per FTE MD $1,372,247 $1,069,530 $995,303 $755,855 Physician wRVU per FTE MD 13,096 12,809 9,714 9,117 Total MD Net Revenue per FTE MD $351,082 $280,439 $261,865 $69,881 211
Alignment Models MSO Services Hospital offers menu of administrative services to support independent practices Medical Director or Administrative Services Hospital retains physician as independent contractor to provide medical director or other administrative services Equipment or Building Joint Venture Hospital and physicians co-own building or equipment leased to hospital or leased to medical practices American Institute of CPAs® 212
Alignment Models Service Line Management or CoManagement Agreement Hospital contracts with physician group to manage or comanage hospital service line (e.g., cardiology, oncology) Gainsharing Hospital pays physician percentage of any reduction in hospital’s costs for patient care attributable in part to physicians’ efforts FMV considerations Quality and performance measures CMP considerations American Institute of CPAs® 213
Alignment Models Medical Foundation/ Professional Services Agreement Relationship Hospital creates non-profit foundation to own and operate medical practice business; physician participation on governing board Foundation enters into professional services agreement with medical group to provide physician services; Foundation bills and collects Medical group employs physicians HospitalOwned Medical Practice Hospital (or separate foundation per above) owns medical practice and employs physicians American Institute of CPAs® 214
Alignment Models Physician Hospital Organization Hospital and physicians co-own entity that facilitates payer contracts Vary in degree of integration from non-risk messenger models to risk-assuming entities that negotiate with payers Economic Credentialing Require certain number of admissions/procedures as condition of medical staff membership Prohibit competition with hospital American Institute of CPAs® 215
Alignment Models Service Line Joint Venture Hospital and physicians co-own a particular medical service line Examples: ambulatory surgery center, sleep laboratory, diagnostic imaging center Participating Bonds Physician ownership of hospital-issued bonds bear a higher interest rate of interest contingent on hospital achieving desired financial goals Shared Medical Practice Ownership Hospital and physicians co-own the medical practice entity which employs physicians Physicians have role in governance American Institute of CPAs® 216
Clinical Integration Providers accountable to each other and to community to deliver high-quality care in efficient manner • Collectively define and enforce standards of care • Implement efficiencies • Coordinate patient care American Institute of CPAs® 217
Antitrust Origins Per se illegal for independent market participants to negotiate jointly on price-related terms Three options • Messenger model • Economic integration • Clinical integration Pursue clinical integration to achieve higher fee-forservice reimbursement American Institute of CPAs® 218
Clinically Integrated Networks Verb vs. Noun American Institute of CPAs® 219
Clinically Integrated Network Lean infrastructure to support provider accountability Vehicle for independent providers to jointly negotiate with payers • Access to patients • Access to payment • Access to actionable information American Institute of CPAs® 220
CIN Functions Core functions • • • • Promote evidence-based medicine Implement efficiencies Facilitate care coordination Negotiate and manage payer contracts Additional support services American Institute of CPAs® 221
Promote Evidence-Based Medicine EBM = integrating individual clinical expertise with the best available external clinical evidence from systematic research Clinical protocols • • • • Identify (prioritize) Implement (education, technology solutions) Monitor (reporting on quality measures) Remediation (including punitive measures) American Institute of CPAs® 222
Implement Efficiencies Ongoing assessment and improvement of clinical environment and work flow processes Eliminate unnecessary costs to participants Examples • Procedure scheduling and staffing • Standardization of equipment and supplies - Appropriate use criteria • Advise on medical technology planning and capital purchases American Institute of CPAs® 223
Facilitate Care Coordination Identify high-risk, high-cost patients • Disease registries • Data analytics Aggressive interventions • • • • Patient navigator/health coaches Remote monitoring Transitional care management/chronic care management Patient engagement strategies and tools (e.g., shared decisionmaking) American Institute of CPAs® 224
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Online Conference Takes “Deep Dive” into Affordable Care Act

  • 1. AICPA Online Conference on Healthcare Reform: A Deep Dive into the Affordable Care Act
  • 2. Panel Mark Dietrich, CPA, ABV Laura Westfall, JD Moderator Associate, King & Spalding American Institute of CPAs® 2
  • 3. Panel Brian Marks, CEBS Principal, Digital Benefit Advisors American Institute of CPAs® Martie Ross, JD Principal, Pershing Yoakley & Associates 3
  • 4. Today’s Objectives Overview of the U.S. Healthcare System and Reform Employer Requirements • New Mandates • Reporting requirements, enforcement penalties The New Rules on Health Insurance • Individual, Small Group, Large Group and Self-Insured Markets • Insights into how to obtain the best coverage at the best price American Institute of CPAs® 4
  • 5. Today’s Objectives (Cont.) How Hospitals and Physicians Charge for Services • The least understood and most important cause of Cost • Reform’s changes to payment mechanisms and how it impacts what you need to understand to spend wisely Prognostications: The Future of Healthcare after Reform American Institute of CPAs® 5
  • 6. Overview: The U.S. Healthcare System & Healthcare Reform Mark O. Dietrich, CPA, ABV American Institute of CPAs® 6
  • 7. Mark Dietrich, CPA, ABV AICPA's National Healthcare Industry Conference Committee and Chaired that Conference in 2012 and 2013 Co-Author; The Financial Professional's Guide to Healthcare Reform published by John Wiley and Son's 2012 Partner-in-charge of audit of 80 physician tax-exempt faculty group practice Speaker for over 20 years at national conferences on managed care, healthcare reform, valuation and other topics American Institute of CPAs® 7
  • 8. Healthcare Spending and Healthcare in the USA American Institute of CPAs® 8
  • 9. National Health Spending American Institute of CPAs® 9 Source: California HealthCare Foundation (2012)
  • 10. National Health Spending American Institute of CPAs® 10 Source: California HealthCare Foundation (2012)
  • 11. National Health Spending American Institute of CPAs® 11 Source: California HealthCare Foundation (2012)
  • 12. National Health Spending per Person American Institute of CPAs® 12 Source: California HealthCare Foundation (2012)
  • 13. Healthcare in the USA: A Baker’s Dozen of Key Elements 1. Anti-trust exemption for insurers and Insurer Consolidation 2. Tax deductibility of health insurance and the lack of consumer involvement in the cost of care 1. 3. 4. 5. 6. a/k/a The Cruise Ship Effect Medicare and Cost-Shifting Endorsement of Fee-for-Service models Medicaid and Cost-Shifting Private insurer participation in Medicare American Institute of CPAs® 13
  • 14. 14 Healthcare in the USA: A Baker’s Dozen of Key Elements 7. Self-insurance by Large Employers 8. Federal Government Regulation 9. Prospective Payment Systems 10. Managed Care and Capitation 11. Provider Integration 12. Import of Negotiating Leverage 13. Broad Geographic Disparities American Institute of CPAs® 14
  • 15. Antitrust: McCarran–Ferguson Act,1945 Federal antitrust laws do not apply to the "business of insurance" so long as the state regulates insurers. Federal antitrust laws only apply in event of boycott, coercion, and intimidation. Bottom Line: Until ACA/Obamacare, health insurance regulation was exclusive to the states, thus it varied widely/wildly across the nation. American Institute of CPAs® 15
  • 16. Medicare & Cost-Shifting American Institute of CPAs® 16
  • 17. Cost-Shifting: Not-So-Hidden ―Secret‖ Cause of Insurance Inflation Medicare • $700 billion in Medicare cuts to fund Reform’s cost are supposed to come primarily from Hospitals? • Don’t count on it! Last time this worked was after 1997’s BBA and the hospitals got that repealed in 2000’s Budget Improvement & Protection Act. • Hospitals will attempt to get those savings back from private insurers and the strong hospitals are succeeding. • Result – Under 65 population and the poor will pay. American Institute of CPAs® 17
  • 18. Balanced Budget Act The Last Time the Proverbial Cost Curve was Bent American Institute of CPAs® Source: The Lewin Group analysis of Medicare cost reports; AHA annual survey data. (1999) 18
  • 19. Cycle of Cost-Shifting Providers Providers’ budget based budget based on Payor Mix on Payor Mix Health Health insurance insurance premiums go premiums go up up Providers seek Providers seek increases from increases from non-Medicare non-Medicare insurers insurers American Institute of CPAs® Medicare cuts Medicare cuts payments payments Providers have Providers have revenue revenue shortfall shortfall 19
  • 20. Provider Integration & Negotiating Leverage American Institute of CPAs® 20
  • 21. Players in the Health Insurance World American Institute of CPAs® 21
  • 22. Provider Integration Long-term trend among hospitals and physicians due to historic contracting practices with insurers accelerated by new provisions of Reform legislation, especially Accountable Care Organizations or ACOs Simultaneously, small health insurers have been forced out of certain business/markets, strengthening larger insurers ability to set premiums Both trends exacerbate causes of high healthcare spending and premiums Note: As a rule, high insurance premiums are generally driven by the high cost of hospitals, physicians & other healthcare services. American Institute of CPAs® 22
  • 24. Cycle of Insurance Premium Increases Consolidated Providers Demand Increases Large Insurers Demand Premium Increases from Employers Weaker providers forced out, more Consolidation Reform exacerbates this Cycle Weaker insurers forced out, more Consolidation Strong Providers get New Technologies, Procedures, Hospital Buildings and Physicians American Institute of CPAs® Employers change to higher co-pays, deductibles and benefit reductions for employees ® 24
  • 25. Consolidation Drives the Healthcare Cost Spiral Hospitals acquire physician practices, move ancillary services, some practices, to hospital settings (Site of service or Venue shift) • Think getting two bills for an ER visit, one from the hospital, one from the doctor. • Services like MRI and CT done in a hospital outpatient department are often dramatically more expensive than when done in a physician office or freestanding setting. • Medicare Payment Advisory Commission is now recommending site-neutral payments (June 2013). Hospitals join other hospitals and physicians in Networks that negotiate higher rates • ACA grants regulatory waivers that permit this! American Institute of CPAs® 25
  • 26. Case Study Bill for the CT scan. Again, 2 "CT Scan" charges but this time Insurer would not tell me the CPT codes for each charge. They said I had to get that from the Hospital. Odd. Without radiologist charges, CT scan plus contrast drugs charges totaled $7,727.37. They paid $5,215.98 and my portion is $579.55. A lot of money for a very short procedure. 26 American Institute of CPAs®
  • 27. A Personal Story About Shopping for Healthcare 27 American Institute of CPAs®
  • 28. Markets: Self-Insured vs. Insured Employers vs. Individuals American Institute of CPAs® 28
  • 29. Reform and Insurance Some of the least understood things about the Reform include: • The new insurance market rules and Exchanges apply only to small group and individual plans. • Large group and self-insured plans are mostly exempted. • A ―double whammy‖ is set up in 2016 for employers with between 50 and 100 employees, when they will both be subject to the employer mandate and will be forced into the small group market, where premiums are higher and benefits tend to be less and/or more expensive. American Institute of CPAs® 29
  • 30. Who Can Self-Insure? ―While the health reform law holds self-insured plans responsible for some of the same taxes and fees as fully insured plans, self-insured plans are exempt from exposure to the excise tax on insurance, community rating on premiums and mandates for essential health benefits. Beginning in 2014, PPACA requires modified community rating in the individual and small-group health insurance markets that will allow insurers to vary rates only based on age, geographic location, family size and smoking status. These rating rules will apply to products offered in the state insurance exchanges and to fully insured products purchased outside of the exchanges by employers with up to 100 employees.‖ Small Employers And Self-insured Health Benefits: Too Small To Succeed? Center for Studying Health System Change American Institute of CPAs® 30
  • 31. Who Can Self-Insure? ―Faced with rising health insurance premiums and the fallout from the economic downturn, many small employers are struggling to maintain health benefits for workers. At the same time, the markets for both third-party-administrative services and stop-loss insurance are becoming increasingly competitive as some carriers offer services to firms with as few as 10 workers. In turn, more small firms are considering self-insurance as an alternative to traditional health insurance products, according to interviews with health plans, stop-loss insurers and third-party administrators.‖ Note: This is how you AVOID a lot of Reform’s impact. Small Employers And Self-insured Health Benefits: Too Small To Succeed? Center for Studying Health System Change American Institute of CPAs® 31
  • 32. Three (3) Insured Markets  Large Group Market historically more than 50 covered lives but Reform makes it more than 100 (as of 2016)   This is for Underwriting purposes and the Exchanges. The increase creates a larger pool in the Small Group Market to absorb expected actuarial losses!  Small Group Market is historically less than 50 but Reform makes it 100 as of 2016  Individual Market  Note: Massachusetts merged its individual and small group markets into a single risk pool; no other state has done this but if enrollment goals, especially of young and healthy, are not met, this may prove inevitable and will lead to premium increases for small business. American Institute of CPAs® 32
  • 33. Simple Overview of Insurance Risk From an administrative standpoint, it is cheaper to insure 200 people under a single contract than it is to insure 40 groups of 5 people each under 40 contracts or 200 individuals. The next series of slides are from analysis of Reform in 2010. American Institute of CPAs® 33
  • 34. 50,000 insured lives average cost per member per month (PMPM) is $780 16000 Number of Insureds 14000 12000 10000 8000 6000 4000 2000 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 Cost Per Member Per Month 50000 64% of the population has an expected cost PMPM between $660 and $900, American Institute of CPAs® 34
  • 35. 10,000 insured lives average cost per member per month (PMPM) is $780 2000 1800 Number of Insureds 1600 1400 1200 1000 800 600 400 200 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 Cost Per Member Per Month 10000 46% of the population has an expected cost PMPM between $660 and $900, more variability = higher premiums American Institute of CPAs® 35
  • 36. 5,000 insured and ―adversely selected‖ average cost per member per month (PMPM) is $886 1200 Number of Insureds 1000 800 600 400 200 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 -200 Cos t Pe r Me mbe r Pe r Month 5000 This is what happens when the young do not sign-up! American Institute of CPAs® 36
  • 37. Healthcare Reform – The Affordable Care Act Newly available and less expensive coverage for some. Limited benefits, higher co-pays, bigger deductibles, greater out-of-pocket expenses, higher premiums for many. The foreseeable and the unforeseen.
  • 38. Timeline of Healthcare Reform in the United States 1964: The “Great Society:” Medicare and Medicaid Early Reform Efforts 1954: Tax Deductibility of Health Insurance American Institute of CPAs® The 1990s: Rise of Managed Care, The Stark Law, Balanced Budget Act of 1997 Regulation: The Anti-kickback Statute 1970s: Medicare HMOs and ERISA Prospective Payment Systems Failure of Managed Care, Provider Integration Legislation on Medicare Spending Growth 38
  • 39. How We Got Where We Are Massachusetts passes Reform in 2006 • Principal author of that legislation, later an aide to Senator Kennedy, is key author of federal legislation Patient Protection and Affordable Care Act (now called ACA or Obamacare) modeled on Massachusetts passed in March 2010 Half of states file lawsuit against PPACA in Supreme Court – and lose American Institute of CPAs® 39
  • 40. Reform’s Model: Massachusetts Highest rate of insured residents in the nation, 97.4% [was 93% before Romneycare] Highest premiums in nation [and still today] • Many mandated benefits, e.g., IVF One of Highest rates of cost increase in nation American Institute of CPAs® May, 2010 40
  • 41. Reform’s Model: Massachusetts (cont.) Second highest unemployment rate in New England Self-insured employers increasing to avoid merged Individual/Small Group Market premium increases Price/Benefit Gap between Small Group Market and Self-Insured & Large Group Market growing American Institute of CPAs® 41
  • 42. The Reform of Health Insurance ―If you like your health care plan, you can keep your health care plan‖* *If you can still afford it! In Massachusetts, One Man’s ―Reform‖ was another Man’s Ballooning Cost American Institute of CPAs® 2011 Slide 42
  • 43. What to expect May, 2010 Slide for AICPA Small Group Premiums go up • Benefit requirements - No pre-existing condition exclusions No Lifetime limits Deductibles limited: $2,000 individuals;$4,000 families If merged w/ Individual Market, will be worse • Note: Deductibles in the individual market have, in fact, proven to be higher; some states have higher deductibles on certain drugs, for example American Institute of CPAs® 43
  • 44. What to expect Small Group Premiums go up • Ability to manage your costs is limited by the low deductible and maximum out of pocket levels ($6,350/$11,700), requires you to pay greater premiums - If healthy, you may have chosen a higher deductible, this would limit the subsidy you pay to the insurers for those who are not healthy - Analogous to choosing a high deductible on your auto insurance because of a safe-driving record or financial wherewithal • Minimum benefits rule requires buying coverage you may not need, e.g., maternity for a 55 year-old American Institute of CPAs® 44
  • 45. Financial Professional’s Guide to Healthcare Reform – Young Folks Pages 74-78 of my book on the legislation have a detailed example of how the law would work in numeric fashion and concludes at the top of page 78 “...For example, a healthy 25 year-old sees a premium increase of 32.5 percent ...” This is my FAVORITE prediction! American Institute of CPAs® 45
  • 46. What to expect Limited Provider Networks • In order to meet ACA standards on benefits, deductibles and out-of-pocket limits, insurers have been compelled to exclude high cost institutions, typically teaching hospitals and related ―high cost‖ physicians, from their networks • There are already multiple lawsuits against insurers by providers. • Impacts ability to continue existing care & relationships with providers American Institute of CPAs® 46
  • 47. What to expect 35% - See Marriage Penalty next slide http://aspe.hhs.gov/poverty/13poverty.cfm © 2014, Mark O. Dietrich, All Rights Reserved #AICPA_HEALTH 47
  • 48. ACA Marriage Penalty As written in the text, based upon an analysis by the Congressional Research Service, a government agency. • ―PPACA phases out premium support subsidies based on individuals’ or families’ income relative to poverty. Because the FPL for the married couple is not twice that of a single person, but only 35% higher (i.e., $14,570/$10,830), premium support under PPACA phases out at a faster rate relative to income for a married couple than it does for a single person, even though the phase-out rate relative to the FPL is the same. The structure of the phase-out results in what some might describe as a ―marriage penalty.‖ One or both individuals in a couple who are unmarried might be eligible for premium support subsidies based on their individual incomes, but if they married they might not, based on their combined income; if found eligible, the premium subsidy they might receive as a married couple could be less than the combined premium subsidies they might receive as an unmarried couple.‖ Health Insurance Premium Credits in the Patient Protection and Affordable Care Act, Congressional Research Service, April 28, 2010 American Institute of CPAs® 48
  • 49. Other Impacts ―People who earn 250 percent of the federal poverty level or less will also have their maximum out-of-pocket spending capped at lower levels than will be the case for others who buy plans on the exchange. In 2014, the out-of-pocket limits for most plans will be $6,350 for an individual and $12,700 for a family. But people who qualify for cost-sharing subsidies will see their maximum out-ofpocket spending capped at $2,250 or $4,500 for single or family coverage, respectively, if their incomes are less than 200 percent of the poverty level, and $5,200 or $10,400 if their incomes are between 200 and 250 percent of poverty.‖ http://www.kaiserhealthnews.org/features/insuring-your-health/2013/070913-michelle-andrewson-cost-sharing-subsidies.aspx American Institute of CPAs® 49
  • 50. Other Impacts (cont.) ―In California, for example, a standard silver plan will have a $2,000 deductible, a $6,400 maximum out-ofpocket limit and a $45 copayment for a primary care office visit. Someone whose income is between 150 and 200 of the poverty level, on the other hand, will have a silver plan with a $500 deductible, a $2,250 maximum out-of-pocket limit and $15 copays for primary care doctor visits.‖ American Institute of CPAs® 50
  • 51. Financial Professional’s Guide to Healthcare Reform – Exchanges ―As part of the research for this book -— and after receiving notice of a 64% increase from Massachusetts Blue Cross Blue Shield in my insurance premium — I visited the Health Connector [Exchange] web site to see if I could obtain less expensive insurance. There was, in fact, no less expensive coverage and it took many hours to determine that because of the complexity of comparing one policy against the dozens of others. Abandoning the task due to its clear futility, I called my insurance rep, who confirmed the obvious: there ain’t no bargains. In fact, under Massachusetts’ law insurers are required to offer the same non-subsidized products inside the Exchange as they offer outside of it, so there could not be cheaper plans to begin with.‖ American Institute of CPAs® 51
  • 52. Coming Up Next… Laura Westfall, JD Associate, King & Spalding American Institute of CPAs® 52
  • 53. Employee Benefit Administration and Reporting Requirements for Employers Laura R. Westfall, Esq.
  • 54. Overview Introduction Timeline of Major Healthcare Reforms Affecting Employers What Should Employers Be Doing Right Now? American Institute of CPAs® 54
  • 55. Overview Items We’re Still Awaiting Guidance On Strategies for Cost Containment American Institute of CPAs® 55
  • 56. Current State of Employer-Provided Health Plans Average total cost for active employees: $12,136 in 2013 • Up 5.1% from $11,457 in 2012 Employees’ share of total health care expenses, including premiums and out-of-pocket costs, has climbed from 34% in 2011 to 37% in 2013 • More than 80% of large U.S. employers plan to continue to raise the share of premiums that employees pay 66% of large employers offer an account-based health plan (ABHP), such as a health savings account (HSA) or a health reimbursement arrangement (HRA) • Expected to increase to 79% in 2014 American Institute of CPAs® 56
  • 57. Timeline of Major Healthcare Reforms Affecting Employers American Institute of CPAs® 57
  • 58.
  • 59.
  • 60. What Should Employers Be Doing Right Now?
  • 61. What Should Employers Be Doing Right Now? Confirm That Changes Required to Be Made On or Before January 1, 2014 Have Been Made Prepare for Changes Required Beginning Mid-2014 and Later Obtain Necessary Additional Information on Employees Determine if Your Company is an ―Applicable Large Employer‖ That Will Be Subject to the ―Pay or Play‖ Mandate American Institute of CPAs® 61
  • 62. What Should Employers Be Doing Right Now? (Cont.) Applicable Large Employers: Evaluate the Cost of ―Playing‖ vs. ―Paying‖ Decide Basic Plan Design (if ―Playing‖) Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform American Institute of CPAs® 62
  • 63. Confirm That Changes Required to Be Made On or Before January 1, 2014 Have Been Made
  • 64. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective for Plan Years Beginning On or After 09/23/2010 • Required Coverage of Dependents to Age 26 • Prohibition on Lifetime Limits • Restrictions on Annual Limits • Prohibition on Pre-Existing Condition Exclusions for Children Under Age 19 • Prohibition on Rescissions • Changes to Internal & External Appeals Process American Institute of CPAs® 64
  • 65. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective for Plan Years Beginning On or After 09/23/2010 (con’t.) • • Increased Patient Protections - E.g., requirement not to require pre-authorizations for in-network emergency care Coverage of Preventive Services Without Cost-Sharing • Prohibition on OTC Drug Reimbursements • Higher Taxes on Improper HSA and Archer MSA Distributions - If plan documentation discusses taxation of HSA/Archer MSA distributions, make sure to update additional tax to 20% American Institute of CPAs® 65
  • 66. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 • Distribution of Summary of Benefits and Coverage (SBC) Generally, must be provided beginning on the 1st day of the first open enrollment period that begins on or after 09/23/12 ―Good Faith Compliance‖ safe harbor for 2013 & 2014 plan years - Plans must provide 60-day advance notice of changes that affect SBC content • Form W-2 Reporting Report aggregate cost of employer-sponsored health coverage on Form W-2s (began with 2012 tax year, with Form W-2s issued to employees by end of Jan. 2013) • $2,500 Limit on Salary Reduction Contributions to Health FSAs Applies on a plan year basis Effective for plan years beginning after 12/31/2012 $2,500 limit is indexed for cost-of-living adjustments in future plan years (still $2,500 for 2014 plan year) American Institute of CPAs® 66
  • 67. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 (con’t.) • $500,000 Deduction Limit for Executive Compensation Paid to Officers of Health Insurers - Applies for current and deferred compensation paid to officers, directors, employees and service providers of health insurers Effective for plan years beginning after 12/31/2012 (with respect to services performed after 2009) • Patient-Centered Outcomes Research Institute (PCORI) Fee - Applies to grandfathered and non-grandfathered self-insured health plans (including retiree plans) Fee: $2 multiplied by the average number of lives covered under the policy or plan (e.g., covered employees, spouses and dependents) Fee for 2012 had to be paid by July 31, 2013 (filed on Form 720) American Institute of CPAs® 67
  • 68. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 (con’t.) • Employer Notice of Exchanges and Premium Credits - - - Employers must provide all new hires and current employees with a written notice that: Describes the state health insurance exchanges, and Provides information about premium subsidies that may be available Required to be provided to all current employees by 10/01/2013; within 14 days of new hires’ start dates thereafter DOL announced that there is no fine or penalty for failing to provide the notice • Employer Notice of Restricted Annual Limits Waiver - Required only of group health plans that received a waiver or extension of a waiver of annual limit restrictions 2013 was the last year the restricted annual limits waiver could apply Required to be provided by 12/31/2013 American Institute of CPAs® 68
  • 69. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 • Prohibition on Annual Limits Annual dollar limits are prohibited on the value of ―essential health benefits‖ (―EHBs‖) for any individual - Note that the exclusion of all benefits for a particular condition is still permitted • Prohibition on Pre-Existing Condition Exclusions (for all enrollees) - Note that plans will no longer need to issue ―certificates of creditable coverage‖ after Jan. 1, 2014 as a result • Prohibition on Waiting Periods for Coverage Exceeding 90 Days - Guidance in recent IRS proposed regulations - 90 calendar day limit (includes weekends and holidays) - Employee must be able to elect coverage that is effective on the 91st day - Coordinating with other eligibility conditions - A plan may impose other eligibility conditions (besides the passage of time) - A waiting period begins only after an employee/dependent has met a plan’s other eligibility conditions for coverage American Institute of CPAs® 69
  • 70. Confirm Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 (con’t.) • Elimination of Stand-Alone Health Reimbursement Accounts (HRAs) - DOL FAQs state that ―stand-alone‖ HRAs will violate PPACA rule prohibiting group health plans from imposing lifetime or annual limits on essential health benefits • Annual Limits on Out-of-Pocket Maximums - Limits on out-of-pocket expenditures may not exceed the out-ofpocket expense limits for high deductible health plans ($6,350 individual / $12,700 family for 2014) • Annual Deductible Limits for Small Employers - Deductibles under small employer plans may not exceed $2,000 individual / $4,000 family for 2014 American Institute of CPAs® 70
  • 71. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 (con’t.) • Required Clinical Trial Coverage - Group health plans must cover certain costs in connection with clinical trials, must not discriminate against an individual who participates in a clinical trial for the treatment of life-threatening diseases • Maximum Financial Reward for Wellness Program Participation Increases - Wellness programs that condition rewards on satisfaction of a standard related to a health factor will be able to offer rewards of up to 30% of the cost of coverage (e.g., sum of the employee and employer portions of the cost of coverage) in the aggregate American Institute of CPAs® 71
  • 72. Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Check Documentation and Administrative Procedures for Compliance Generally • • • Does each ERISA benefit plan have a plan document and an SPD that comply with ERISA’s written plan/SPD requirements? Consider creating a ―wrap‖ plan/―umbrella‖ plan Do written terms match administrative practices? Example: Employee eligibility waiting periods (30 days) Do not assume that your company’s third-party administrators and vendors will create/provide/amend plan documents and SPDs that comply with ERISA, the Code, PPACA, etc. Make sure you know whether your company is expected to create/provide/amend plan documents, SPDs, and other documentation (such as the new SBCs) American Institute of CPAs® 72
  • 73. Prepare for Changes Required Beginning Mid-2014 and Later
  • 74. Prepare for Changes Required Beginning Mid-2014 and Later Transitional Reinsurance Report and Fee - 11/15/14 • • • Applies to grandfathered and non-grandfathered self-insured health plans (including retiree plans) and insurers 2014 Fee: $63 ($5.25 per month) per ―covered life‖ (each individual covered by the plan) Plan sponsor must report number of covered lives to HHS by Nov. 15, 2014; must remit the fee to HHS within 30 days after receiving notice of fee liability (which will be sent no later than Dec. 15th) Employer Mandate - ―Pay or Play‖ - 01/01/15 American Institute of CPAs® 74
  • 75. Prepare for Changes Required Beginning Mid-2014 and Later • • • • Annual Health Insurance Coverage Reporting - 01/01/15 Required information includes whether the employer offers a plan providing ―minimum essential coverage,‖ and if so, other information, including the length of any applicable waiting period and the employer’s share of total allowed costs of benefits Penalties for failure to satisfy reporting requirement for the 2014 plan year will not be enforced Required Automatic Enrollment (Large Employers) 2015(?) Employers with more than 200 employees that offer health insurance coverage (both fully insured and self-insured) will be required to automatically enroll new full-time employees in coverage, along with an opportunity to opt out of the coverage Still awaiting guidance/effective date American Institute of CPAs® 75
  • 77. Obtain Necessary Additional Information on Employees PPACA’s requirements necessitate the collection of additional information by employers regarding their employees • • • Total family income (unless a safe harbor is used) Availability for, and enrollment in, other health insurance coverage (e.g., by an employee’s spouse) Cultural and language affiliations (for purposes of distributing materials in required languages, etc.) Such additional information needs to be safeguarded against misuse American Institute of CPAs® 77
  • 78. Determine if Your Company is an “Applicable Large Employer” That Will Be Subject to the “Pay or Play” Mandate
  • 79. Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate ―Pay or Play‖ Mandate Only Applies to ―Applicable Large Employers‖ Who is the ―Employer?‖ Who is a ―Full-Time Employee?‖ Determining ―Applicable Large Employer‖ Status American Institute of CPAs® 79
  • 80. Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate ―Pay or Play‖ Mandate Only Applies to ―Applicable Large Employers‖ • ―Applicable Large Employer‖ Employers who employed an average of at least 50 ―fulltime employees‖ on business days during the prior calendar year - Determination must be made annually American Institute of CPAs® 80
  • 81. Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Who is the ―Employer?‖ • • • IRS proposed regulations apply the ―common law‖ meaning of ―employer‖ All entities treated as a single employer under the controlled group and affiliated service group rules are treated as the same employer for purposes of who is a large employer subject to the employer mandate An employer also includes: Predecessor and successor employers Governmental entities Tax-exempt entities under Section 501(c) American Institute of CPAs® 81
  • 82. Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Who is a ―Full-Time Employee‖? • A ―full-time employee‖ is an individual who is employed on average at least 30 hours of service per week for a month in the prior calendar year - • • 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, provided the employer applies this equivalency rule on a reasonable and consistent basis ―Full-time employees‖ include ―Full-Time Equivalent Employees‖ (FTEs) Calculating the Number of FTEs - - (A) Determine the total ―hours of service‖ for a month in the prior year for all employees who were not full-time employees, including seasonal workers (up to 120 hours of service for each employee); (B) Divide the number in (A) by 120 Result = Number of FTEs for the month Fractions are taken into account in determining the number of FTEs for each month American Institute of CPAs® 82
  • 83. Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Determining ―Applicable Large Employer‖ Status • Based on the number of full-time employees on ―business days‖ during the preceding calendar year • IRS Proposed Regulations’ Multi-Step Calculation Method: - Step 1: Calculate the number of full-time employees (including seasonal employees) for each calendar month in the preceding calendar year - Step 2: Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year (using the method described above). - Step 3: Add the number of full-time employees and FTEs in Steps 1 and 2 for each month of the preceding calendar year - Step 4: Add up the 12 monthly numbers from Step 3 and divide the sum by 12 = Average number of full-time employees for the preceding calendar year - Step 5: - If Step 4 < 50, then the employer is not an ―applicable large employer‖ for the current calendar year - If Step 4 => 50, then the employer is an ―applicable large employer‖ for the current calendar year American Institute of CPAs® 83
  • 84. Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Determining ―Applicable Large Employer‖ Status (con’t.) • • Seasonal Worker Exception: Not a ―large employer‖ if the sum of the employer's full-time employees and FTEs is more than 50 for 120 days or less during the prior calendar year (and the employees in excess of 50 who were employed during the not-more-than-120-days period are seasonal workers) Employer Not In Existence in Prior Calendar Year: Such an employer is a large employer if it is reasonably expected to employ, and actually does employ, an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year American Institute of CPAs® 84
  • 85. If Your Company is an “Applicable Large Employer,” Evaluate the Cost of “Playing” vs. “Paying”
  • 86. The Employer Mandate Generally Beginning in 2015, ―applicable large employers‖ must choose to either: • ―Play‖ Offer ―minimum essential coverage‖ to substantially all full-time employees (and their dependents) which is both ―affordable‖ and offers ―minimum value‖ OR • ―Pay‖ Pay a penalty tax (an ―assessable payment‖) for either of the following: - Failing to offer ―minimum essential coverage‖ to substantially all full-time employees (and their dependents), or Offering eligible employer-sponsored coverage that is not ―affordable‖ or does not offer ―minimum value‖ American Institute of CPAs® 86
  • 87. The Employer Mandate Generally Applicable penalty tax is calculated on a monthly basis • An employer is treated as not offering coverage for the entire month if it fails to offer coverage to a full-time employee for any day of a calendar month The rules for determining liability for and the amount of assessable payment are applied separately to each member of a controlled group. American Institute of CPAs® 87
  • 88. Evaluating the Cost of ―Playing‖ vs. ―Paying‖ How Much Will ―Playing‖ Cost? • • • Look at actual costs of providing coverage for 2013, estimated costs of providing coverage for 2014, under current plan options Confirm that current plan options comply with applicable PPACA requirements (discussed above) Fixing noncompliant plan options will most likely increase costs of providing coverage Consider hiring outside consultant to review plans for compliance, estimate costs of offering (compliant) current plan options in 2015 How Much Will ―Paying‖ Cost? • • Calculate the Estimated Penalty for Not ―Playing‖ Understand How the Penalties Work Identify Your Full-Time Employees for Purposes of Determining Scope of Liability for Penalties Consider Possible Indirect Costs of Not Offering Coverage American Institute of CPAs® 88
  • 89. Determine the Cost of ―Paying‖: Understand How the Penalties Work Subpart A Penalty: Opting Out Entirely • An applicable large employer will pay a penalty tax for any month that: - The employer fails to offer substantially all full-time employees (and their dependents) the opportunity to enroll in ―minimum essential coverage‖ under an ―eligible employer-sponsored plan‖ for that month; and - At least one full-time employee has been certified to the employer as having enrolled for that month in a health exchange for which health coverage assistance is allowed or paid • Penalty Amount: - $166.67/month, times each full-time employee (minus up to 30 full-time employees) Before the penalty will apply for a given month, at least one full-time employee must enroll in a qualified health plan through an exchange for that month and must receive an applicable premium tax credit for that month’s coverage American Institute of CPAs® 89
  • 90. Determine the Cost of “Paying”: Understand How the Penalties Work • Subpart A Penalty (continued) - Defined Terms ―Substantially All‖ IRS proposed regulations clarify that ―substantially all‖ is generally 95% ―Offer‖ Offer must be made no less than once during the plan year ―Dependent‖ Does not include employee's spouse or domestic partner, only employee’s children ―Minimum Essential Coverage‖ Defined by what it does not include, which is ―excepted benefits‖ (e.g., stand-alone dental, vision, etc.; AD&D; workers’ comp; liability insurance, etc.) Should include any major medical-like coverage provided by employer American Institute of CPAs® 90
  • 91. Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty: Coverage Offered Fails Minimum Value and/or Affordability Requirements • • An applicable large employer will pay a penalty tax for any month that such employer offers coverage to substantially all of its full-time employees and their dependents, but the coverage: Does not have ―minimum value‖; and/or Is not ―affordable‖ Penalty Amount: $250/month, times the number of full-time employees for any month who receive premium tax credits Capped at the amount of the Subpart A Penalty Subpart B will never cost an employer more in penalties than Subpart A American Institute of CPAs® 91
  • 92. Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty (continued) • Defined Terms ―Minimum Value‖ The plan's share of the total allowed costs of benefits provided under the plan is at least 60% Several methods available to determine minimum value Minimum Value Calculator Design-Based Safe Harbors in the form of checklists Actuarial Certification Amounts contributed by an employer to an HSA are taken into account in determining the plan’s share of costs for purposes of ―minimum value‖ Amounts made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year count if the amounts may be used only for cost-sharing and not to pay insurance premiums American Institute of CPAs® 92
  • 93. Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty (continued) • Defined Terms (continued) ―Affordable‖ The employer-only premium cost is no more than 9.5% of the employee’s household income - Safe Harbor Relief for Determination of Affordability Available - - Form W-2 Pay Rate of Pay Federal Poverty Line Special Rules: - Integrated HRAs - Wellness Incentives American Institute of CPAs® 93
  • 94. Determine the Cost of “Paying”: Understand How the Penalties Work Generally: • • • An applicable large employer’s potential penalty tax liability is determined by reference to the number of full-time employees employed in a given month Calculation must be done on a monthly basis - Unlike the annual determination for purposes of determining ―applicable large employer‖ status All part-time employees are excluded - No ―full-time equivalency‖ conversion necessary American Institute of CPAs® 94
  • 95. Determine the Cost of “Paying”: Identify Full-Time Employees • • Identifying ―Full-Time Employees‖ ―Full-time employee‖: An employee who has an average of at least 30 hours of service/week during a calendar month 30-hour threshold is the same as for purposes of determining whether an employer is an ―applicable large employer‖ Determining ―Hours of Service‖ Includes hours during which no duties are performed because of vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty or leave of absence Hourly Employees: Employers must calculate actual hours of service for employees who are paid on an hourly basis from: Records of hours worked; and Hours for which payment is made or due American Institute of CPAs® 95
  • 96. Determine the Cost of “Paying”: Identify Full-Time Employees Determining ―Hours of Service‖ (continued) • Non-Hourly Employees: Employers must calculate hours of service for employees paid on a nonhourly basis using one of three methods: - - Actual hours of service, from records of hours worked and hours for which payment is made or due; A days-worked equivalency, under which an employee is credited with 8 hours of service for each day for which the employee must be credited with at least one hour of service under the hourly employee calculation rules; or A weeks-worked equivalency, under which an employee is credited with 40 hours of service for each workweek for which the employee must be credited with at least one hour of service under the hourly employee calculation rules American Institute of CPAs® 96
  • 97. Determine the Cost of “Paying”: Identify Full-Time Employees (Cont.) • • Employers do not need to use the same method for all non-hourly employees, and may apply different methods for different classifications of non-hourly employees if the classifications are reasonable and consistently applied Note: the definition of ―hours of service‖ is not identical to the definition of ―hour of service‖ for purposes of qualified retirement plans American Institute of CPAs® 97
  • 98. Determine the Cost of “Paying”: Identify Full-Time Employees • IRS Safe Harbors for Determining ―Full-Time Employee‖ Status Allows employers to identify full-time employees by calculating employees’ hours during a specified period of months (a ―measurement period‖) and then locking in that status (full-time or not) for a separate specified period (a ―stability period‖) Terminology A ―Measurement Period‖ The look-back period over which hours are calculated to determine whether an employee has averaged at least 30 hours per week. There are two types of measurement periods: The ―Standard Measurement Period‖ Used for ongoing employees The ―Initial Measurement Period‖ Used for new employees American Institute of CPAs® 98
  • 99. Determine the Cost of “Paying”: Identify Full-Time Employees Terminology (continued) • • • • The ―Stability Period‖ - The look-forward period for which an employee’s status (as full-time or not) is locked in, regardless of the employee’s actual hours during this period - The stability period begins at the end of the measurement period (and any administrative period) An ―Ongoing Employee‖ - An employee who has been employed for at least one complete standard measurement period A ―New Employee‖ - An employee who has not been employed for at least one complete standard measurement period An employee is a ―Variable-Hour Employee‖ if it cannot be determined on the employee’s start date that the employee is reasonably expected to work an average of at least 30 hours per week during the initial measurement period (based on the facts and circumstances on the employee’s start date) American Institute of CPAs® 99
  • 100. Determine the Cost of “Paying”: Identify Full-Time Employees ―Look-Back‖ Measurement Period - Generally: • • • • Measure each employee’s average hours of service over a look-back measurement period that is 3-12 months long Assign each employee full-time or part-time status based on that measurement Continue that status throughout a stability period that follows the measurement period and is usually the same length Between the measurement period and the stability period, an employer may have an administration period of up to 90 days Documentation is Key • Make sure to properly document the methodology used for determining ―full-time‖ status—including the measurement and stability periods used under the IRS safe harbors—as well as accounting for breaks in service and leaves of absence American Institute of CPAs® 100
  • 101. Determine the Cost of “Paying”: Consider Possible Indirect Costs of Not Offering Coverage Necessity of Additional Compensation? Company’s Attractiveness to Potential Talent? Affect on Employee Morale/Productivity? Affect on Employee Turnover Rate? Affect on Public Opinion of Company? American Institute of CPAs® 101
  • 102. Decide Basic Plan Design (if “Playing”)
  • 103. Decide Basic Plan Design (if “Playing”): Two Basic Design Choices Option One: • Offer a plan that provides ―minimum essential coverage‖ with ―minimum essential value‖ to all full-time employees, and either: - Pay a penalty for those full-time employees for whom the employee-only coverage is ―unaffordable‖ and who elect coverage under an exchange; or Subsidize the cost of coverage for any full-time employees for whom coverage would be ―unaffordable‖ Option Two: • Offer a plan providing ―minimum essential coverage‖ with ―minimum essential value‖ to some (but not all) full-time employees, and pay a penalty for full-time employees electing coverage under an exchange, for whom the plan is ―unaffordable‖ or to whom the plan doesn’t offer ―minimum essential coverage‖ - NOTE: Although FTEs (i.e., part-time employees) are included for purposes of determining whether an employer is a ―large employer,‖ FTEs are not required to be offered ―minimum essential coverage‖ American Institute of CPAs® 103
  • 104. Decide Basic Plan Design (if “Playing”): Factors to Consider Features of Current Plan(s) Offered • • Eligibility Cost of coverage (and in particular, employee-only coverage) Analyze Characteristics of Company’s Workforce • • • • • Average Employee Age Relative Health Turnover Rate Number/Percentage of Part-Time Employees Any Special Characteristics Affecting Calculation of Penalties Importance of Offering Health Coverage to Company’s Overall Benefits & Compensation Strategy American Institute of CPAs® 104
  • 105. Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform
  • 106. Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform The DOL, IRS and HHS continue to issue regulations and guidance with respect to many of PPACA’s healthcare reforms; future guidance may require additional changes to plan design, documentation, administrative process, etc. American Institute of CPAs® 106
  • 108. Items We’re Still Awaiting Guidance On Automatic Enrollment Outstanding Worker Classification Issues Offering Dependent Coverage Nondiscrimination Rules for Insured Health Coverage American Institute of CPAs® 108
  • 110. Strategies for Cost Containment Evaluate Coverage of Dependents and Spouses Compare Fully Insured to Self-Insured Plan Design Assess and Adjust Communication of Benefits to Employees Review Contracts with Vendors Compare Actuarial Value of Current Plan to Available Options American Institute of CPAs® 110
  • 111. Strategies for Cost Containment (Cont.) Consider Raising Plan Deductible Limits Consider Wellness and Health Risk Improvement Strategies Assess, and if Necessary Amend, Hiring Practices and Use of Full & Part-Time Workforce Impose Annual Limits on Non-―Essential Health Benefits‖ Evaluate (and Possibly Adjust) Costs of Other Benefits American Institute of CPAs® 111
  • 112. Strategies for Cost Containment Evaluate Coverage of Dependents and Spouses • • • • Raise cost of coverage for dependents (and spouses, if offered) Recall that ―affordability‖ requirement is measured using ―employee-only‖ coverage Offer coverage only for dependents, but not spouses Charge a premium for spouses who are eligible for ―minimum essential coverage‖ through their own employer Charge for each family member that participates in the plan (instead of employee + family) American Institute of CPAs® 112
  • 113. Strategies for Cost Containment • Compare Fully Insured vs. Self-Insured Plan Design Self-Insured Plans: - - • - Generally not subject to state health insurance regulations and benefit mandates Allows uniformity across state lines for large employers Plan sponsors may have greater control in designing plan benefits, provider networks, and employee cost sharing Costs based on company’s own claims experience Excluded from some of PPACA’s requirements Health insurance industry fee (begins 01/01/2014) Plan sponsor bears some or all of the risk for paying incurred claims Subject to more direct reporting and fee requirements under PPACA Fully-Insured Plans: - - Eligible for coverage under state guarantee programs in the event of carrier’s financial insolvency Transfer risk from plan sponsor to insurance company for all claims for benefits made under the plan Excluded from some of PPACA’s fee and reporting requirements American Institute of CPAs® 113
  • 114. Strategies for Cost Containment Assess and Adjust Communication of Benefits to Employees • Evaluate Current Communication of Benefits - • How are communications to employees made? Who communicates with employees? How often are / what kind of communications are made? How transparent are communications? Adjust Communication of Benefits - Offer social media tools (online discussion groups, classes, quizzes, etc.) Offer in-person classes Make information about the cost of health services to employees readily available to employees Take advantage of technology - Smartphone apps for pharmacy management Insurer/vendor websites American Institute of CPAs® 114
  • 115. Strategies for Cost Containment Review Contracts with Vendors • • • Review what services each vendor is providing Consider consolidating services with one vendor (cost efficiency) Consider implementing performance-based contracts (and setting specific performance targets) Compare Actuarial Value of Current Plan to Available Options • Run an actuary-supported financial impact study of the available options Consider Raising Plan Deductible Limits • • Employers can provide plans with higher deductibles, and then offset those higher amounts with contributions to employees’ HSAs or integrated HRAs Encourages employees to make more cost-conscious decisions when purchasing health care services American Institute of CPAs® 115
  • 116. Strategies for Cost Containment Consider Wellness and Health Risk Improvement Strategies • Implement/Broaden outcome-based wellness programs - - Suggestions A discount of 20% of the cost of employee-only coverage for individuals who have an annual cholesterol test and achieve cholesterol levels below 200. Physical fitness/smoking-cessation program coupled with a financial reward (such as an employer HSA contribution) Offering disease management programs for employees/dependents with chronic medical conditions (e.g., asthma or diabetes), coupled with a financial reward for completing the program’s requirements Note: ―reasonable alternatives‖ must be offered to those for whom it would be unreasonably difficult or medically inadvisable to satisfy the requirements of the incentive due to a medical condition American Institute of CPAs® 116
  • 117. Strategies for Cost Containment Consider Wellness and Health Risk Improvement Strategies (continued) • Provide education, tools and other resources for wellness - • • Suggestions Hosting a monthly health informational lunch for employees Encouraging a weight-loss club by providing a meeting space and a fringe benefit (such as a company mug) to participants Sponsoring a health fair Adding a ―phone-a-nurse‖ benefit to the plan Offering disease management programs for employees/dependents with chronic medical conditions (e.g., asthma or diabetes) On-site clinics Remember: Premium discounts offered for participation in wellness programs do not generally count toward determination of plan’s ―affordability‖ American Institute of CPAs® 117
  • 118. Strategies for Cost Containment Assess, and if necessary amend, hiring practices and use of full & part-time workforce • Be careful of potential retaliation claims Impose Annual Limits on Non-―Essential Health Benefits‖ • But note: it’s still not clear what those are Evaluate (and Possibly Adjust) Costs of Other Benefits • Dental, Vision, LTD, STD, Group Life, etc. - • What % of premiums are paid by employees? How rich are the benefits offered by these programs? Does it make sense to focus benefits-related expenses on health coverage instead? American Institute of CPAs® 118
  • 119. Coming Up Next… Brian Marks, CEBS Principal, Digital Benefit Advisors American Institute of CPAs® 119
  • 120. Health Insurance Market Update Brian Marks, CEBS Executive Director/Principal VSCPA Benefit Advisors
  • 121. Today’s overview (of a moving target) 1. Quick review of ACA requirements for 2014/15 • Not a detailed review of the law (I promise) 2. Highlights of major issues and impact to employers 3. The unintended consequences of reform…how we see the market responding heading into 2014 4. How can employers answer? • Six benefit strategies to consider to address the changes American Institute of CPAs® 121
  • 122. Warning! Pay close attention if you: Have more than 50 FTEs and are not offering coverage Have employees working > 30 hours/week not currently covered by your health plan Have a large percentage of employees opting out Have a significant number of low income employees relative to Federal Poverty Level (FPL) Offer different contributions or waiting periods to sub-groups of employees Provide minimal employer contribution to premium, threatening affordable coverage If warning signals are flashing, a customized assessment is recommended… American Institute of CPAs® 122
  • 124. Key issues and provisions American Institute of CPAs® 124
  • 125. Individual mandate Individual mandate • Must have minimum essential coverage - Minimum essential coverage is defined as - Coverage under certain government-sponsored plans - Employer-sponsored plans, with respect to any employee - Plans in the individual market - Grandfathered health plans - Any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS Secretary. - Doesn’t include health insurance coverage consisting of excepted benefits American Institute of CPAs® 125
  • 126. Individual mandate Could drive more employees back into group plan to avoid penalty – increases employer premium contribution liability Penalties for Individuals American Institute of CPAs® 126
  • 127. Individual mandate Individual mandate exemptions • • • • • • • • • Religious exemption Those not lawfully present in the United States Incarcerated individuals Cannot afford coverage based on formulas contained in the law Income below federal income tax filing threshold Members of Indian tribes Uninsured for short gaps of less than three months Received a hardship waiver from the Secretary Residing outside of the United States, or are bona fide residents of any possession of the United States American Institute of CPAs® 127
  • 128. Individual mandate: Penalty Transition Relief (IRS Notice 2013-42) Applies to: • Employees and related individuals enrolled in, or eligible to enroll in, an employer’s non-calendar year plan • Where the plan year begins 2013 and ends 2014 Transition Relief: • No individual mandate penalty for months in 2014 prior to the first day of the plan year beginning in 2014 Example: • Employee and minor daughter eligible to enroll in a non-calendar year plan that begins August 1, 2013 and ends July 31, 2014 • Neither employee nor daughter enroll in plan for the 2013-2014 plan year • Employee and daughter eligible for transition relief for 128 January 2014 through July 2014
  • 129. Individual subsidies Eligibility: For exchange plans – individuals with income between 133% (100% in some states) and 400% of Federal Poverty Level (FPL) without access to minimum essential coverage through their (or spouse’s) employer or are offered coverage that is not ―affordable‖ with 9.5% of income threshold Income ranges for 133% to 400% of FPL An individual making $15,282 will qualify for a subsidy if the monthly EE premium contribution is $121 or more Individual: $15,282 to $45,960 American Institute of CPAs® Target max EE cost/mo.: $121 to $364 Family of 4: $31,322 to $94,200 Target max EE cost/mo.: $248 to $746 Note: Subsidies vary by income level and may be delivered as benefit credits 129
  • 130. Public exchanges/marketplaces Exchanges were “operational” in October The ―SHOP‖ group exchange and a ―Marketplace‖ for individuals Carrier signals suggest the following: • • • • Targeting the uninsured Some carriers are not participating May offer the minimal number of plans allowed (6), one catastrophic Will be a bias to narrow network options This means carriers do not want to cannibalize current group business in exchanges Exchanges will be a vehicle to manage subsidies but may be unattractive to those with other options – navigating the exchange can be challenging and cumbersome American Institute of CPAs® 130
  • 131. Individual marketplace/exchange Information from: CIAB -June 28, 2013 WA MT VT ND OR NH ME MN ID MA NY WI SD MI WY NE NV IL UT CA PA IA CO AZ OK NM NC TN AR SC AL GA LA AK FL HI American Institute of CPAs® VA DE RI NJ WV KY MS TX IN MO KS CT OH MD DC Operational State Exchanges (1) State Exchange Established (15+DC) Federally -Facilitated Exchange (27) State Partnership Exchange (7) 131
  • 132. Health plan requirements Minimum Value Benefits for 50+ employers; generally not a problem No annual maximum benefit limit on any plan < 50 – limits on deductibles and outof-pocket maxima • $2,000/$4,000 deductible limit but there are exceptions Wellness program incentives – up from 20% to 30% and 50% for tobacco free Waiting periods can not exceed 90 calendar days American Institute of CPAs® 132
  • 133. Employer mandate Applies to > 50 FTEs, 30 hours, at least 95% FTEs must be offered effective in 2015 1. 2. If no coverage offered….$2,000 penalty/full-time employee, less the first 30 If essential coverage is offered but unaffordable (generally >9.5%of Box 1 W-2 wages for employee only on low plan) - $3,000 / FTE enrolled in exchange with subsidy Key Issues: Is current coverage minimally essential? Likely yes. Is it affordable? Harder to tell. Must offer coverage to employees and children (not spouse) Multiple PT jobs with one employer adding to > 30 hours? American Institute of CPAs® 133
  • 134. Employer mandate penalty delay IRS Notice 2013-45 What does it mean? • Not repealed • Continue preparing - Await final reporting rules - Comply voluntarily - Ensure systems and procedures in place • No effect on other PPACA provisions American Institute of CPAs® 134
  • 135. Key clarification Measuring FTEs is complex… 1. Need full analysis of part-time, variable hour and seasonal employees, and an understanding of measurement periods 2. Up to 15 month period prior to 2015 (formerly 2014) plan year is critical to 30 hour eligibility for each employee 3. Opportunity now to re-align work force with an understanding of the 30 hour threshold American Institute of CPAs® 13 5
  • 136. Large employer determination IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year Employee Type Definition Calculating Employees Full-time employees Employees who, on average, work 30 hours or more per week A. Add number of employees employed on business days in the year of evaluation Seasonal employees A worker who performs labor or services on a seasonal basis B. (Add total number of hours worked during year of evaluation, but no more than 120 hours for any one employee in a given month) ÷ 120 All other non-full-time employees All other employees who are not full-time or seasonal C. (Add total number of hours worked during year of evaluation, but no more than 120 hours for any one employee in a given month) ÷ 120 TOTAL Full-time and full-time equivalent employees Add A + B + C for each month Add all months together ÷ 12 American Institute of CPAs® 136
  • 137. Employer mandate tool IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H ACA - Employer Sharing Responsibility • • • 1 - Full-time employees = total number of employees who work, on average, 30 hours per week 2 – Add all actual hours worked, in each month, by seasonal employees 3 - Add all actual hours worked in the month for those employees who are not accounted for as full-time or seasonal employees Are you mandated to offer coverage under ACA? Enter Year (YYYY) of Evaluation Applicability - 4980H Employers who employed at least 50 full-time employees, including fulltime equivalent employees, on business days during the preceding calendar year Full-Time Equivalent Employees Month Full Time employees1 Hours for all seasonal employees2 Seasonal employees converted to full-time equivalents Hours for all other nonfull-time employees3 January 0 0 0.0 0 February 0 0 0.0 0 Employer mandated to offer coverage per PPACA → American Institute of CPAs® NO 137
  • 138. Variable hour and seasonal employees IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Type Definition Variable hour employee An employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week or who initially starts at 30 hours per week but is anticipated to do so for a limited duration Seasonal employees The statute does not address how the term “seasonal employee” might be defined for purposes of whether a new employee of an applicable large employer is reasonably expected to work full time for purposes of determining the amount of any assessable payment under § 4980H. Through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee” for purposes of this notice. American Institute of CPAs® 138
  • 139. Variable hour/seasonal rules IRS Notice 2012-58 Full-time status of newly hired variable hour and seasonal employees Administrative Period • A “look back” period of 3-12 consecutive calendar months • Cannot exceed 90 calendar days Administrative period can be limited further when applying combined duration rule* Applicable Stability Period (IMP = Full-time) • Initial Measurement Period (IMP) Applicable Stability Period (IMP ≠ Full-time) • • • • Must be the same length as the stability period for on-going employees At least 6 consecutive calendar months Cannot be shorter duration than IMP Begins after IMP and any applicable administrative period • Cannot be more than 1 month longer than the IMP Must not exceed the remainder of the SMP plus any associated administrative period in which the IMP period ends. *IMP and administrative period cannot extend beyond, at most, 13 months and a fraction of a month from the employee’s start date American Institute of CPAs® 139
  • 140. Variable hour determination tool IRS Notice 2012-58 Adding Employees Waiting period New Hire On-Going Employees Will you always add employees on the first of a month? Y/N # of Days Initial Measurement Period (IMP) (in months) Proposed Stability Period (in months) Administrative Period (in days) Standard Measurement Period (SMP) (in months) Proposed Stability Period (in months) Administrative Period (in days) Evaluation: Acceptable Unacceptable Unacceptable Unacceptable Unacceptable Unacceptable Unacceptable Overall validation of proposed eligibility plan Validation messaging provided for each eligibility rule All rules are not satisfied - please try changing some of your options OR Plan appears to satisfy all rules - proceed to Step 3 American Institute of CPAs® 140
  • 141. Employer mandate/play or pay Key Issues: Is current coverage minimally essential? • Likely yes Is it affordable? • Harder to tell American Institute of CPAs® 141
  • 142. ―Affordability‖ and metal plans Actuarial value (plan cost/total cost) Deductible OOP Max Office Copays Co-insurance Actuarial Value / Expected OOP Metal Level No Deductible $0/ $0 $3,000/ $6,000 $25/$50 20% 88% $1,250 Platinum Traditional Deductible $2,000/ $4,000 facility $4,500/ $9,000 $30/$50 20% 78% $1,750 Gold HDHP $3,000/ $6,000 comprehensive $3,000/ $6,000 None 0% 71% $2,000 Silver HDHP $5,000/ $10,000 comprehensive $5,000/ $10,000 None 0% 62% $2,350 Bronze American Institute of CPAs® 142
  • 143. Administration Requirements on the rise for employers Status against 30-hour threshold and various measurement periods W-2 reporting Annual reporting on whether/not essential health benefits offered Automatic enrollment for employers with 200+ FTEs (delayed?) < 50 covered lives will be individually rated with one year bands (employees and dependents) Supporting employees who consider the exchange: • • • Exchange interaction Support individual exchange application - Supply EIN numbers, etc. Tracking and reporting penalty status American Institute of CPAs® 143
  • 144. Individual exchange applications Employer support required! REVISED APPLICATION: 1. 21-page application is now 3-7 pages 2. 2 family members v. 6 family members 3. Questions: a. b. Tax-filing status c. Employer information and access to employer-sponsored coverage d. Household income e. 144 Demographic Who is requesting coverage
  • 145. New rating impact Current Underwriting Techniques: 1. Experience Rating – 100+ for most carriers • Base rates adjusted for industry, gender, location, claim history • Weighted between group and pool experience 2. Community Rating / Adjusted Community Rating - 26 to 99 • Requires group risk questionnaire • Community (pooled) base rate • Adjustments - demographics (age/sex factor), industry, geographic, loss ratio (claims vs. premium) American Institute of CPAs® 145
  • 146. New rating impact Current Underwriting Techniques: 3. Medical Underwriting - 2 to 25 • Requires individual health questionnaires • Assign points based on medical conditions within group • Total points translate to a factor which is applied to the base rates - Factors range from 0.7 (favorable risk) to 2.1 (unfavorable risk) for most carriers • Base rates vary by Age, Gender, and Tier - Age bands differ by carrier and range from 4:1 to 7:1 or more American Institute of CPAs® 146
  • 147. New community rating impact ACA Impact to Current Underwriting Methodologies (< 50): No medical underwriting Standard age bands with a maximum 3:1 cost ratio Able to adjust for Tobacco Users up to 50% One major carrier stated that 40% of groups in the 2 to 99 insured segment will see a rate impact of 50% or more heading into 2014……. HOW? Low Risk High Risk Pinching underwriting bands Upward cost pressure from new benefits and increased demand Impact of currently uninsured New fees and taxes (approaching 4-6% for full year!) American Institute of CPAs® 147
  • 148. New rating impact Cost Illustration: Scenario 1 Scenario 2 Scenario 3 35 40 49 59% 56% 41% Better than Average Average Average % Change due to Demographics (Age/Gender) 56% 29% -5% % Change due to Medical Conditions 10% 0% 0% % Change due to Pricing Trend 11% 11% 11% 4% 4% 4% 98% 49% 10% Average Age % Male Medical Conditions % Change due to New Taxes & Fees Total % Change American Institute of CPAs® 148
  • 149. New rating impact <50 individual rating – all rates will be individually rated at the dependent level Employee Age 25 30 35 40 45 50 55 60 65 Tier EE EE EE EE EE EE EE EE EE only only only only only only only only only Rate $339 $339 $339 $339 $339 $339 $339 $339 $339 American Institute of CPAs® < 50 EEs Now Future 1 rate Ind. rates Male – 55 yrs. - $500 Spouse - 50 - $425 Child - 25 - $225 Child - 17 - $180 $1,200 $1,330 Family NOW ER Contrib 80% of EE Rate $271 $271 $271 $271 $271 $271 $271 $271 $271 Rate $225 $250 $275 $325 $380 $425 $500 $550 $625 2014 ER Contrib. 80% of EE Rate $180 $200 $220 $260 $304 $340 $400 $440 $500 Rate diff. problematic in budgeting, discrimination issue? 149
  • 150. Employer premium contribution Premium contribution discrimination testing likely to apply (was delayed in 2010) Different contributions for different classes creates substantial risk of wage and eligibility test failure Safe harbor – eliminate any class differences in premium contribution; or offset with salary and employee may deduct via the 125 plan Awaiting final regulations; may allow testing within a class…e.g. PT workers American Institute of CPAs® 150
  • 151. New rating impact Summary: 2 to 50 employees: • • • • • No requirement to offer coverage New age bands / no medical underwriting Individual rates Some individuals drift to individual coverage? Or, Does coverage become unaffordable for many employers? 50 to 100 employees: • • • Required to offer coverage to avoid penalty (2015) in certain states Need to really review FTE equivalents and PT staff impact What’s affordable? 100+ employees: • • • Required to offer coverage to avoid penalty (2015) Still experience rated but higher taxes and trends Treading water may mean average 20-25% rate increases American Institute of CPAs® 151
  • 153. New taxes/fees ACA Fee Fee $1 per covered life Year 1, Patient-Centered Outcomes Research Institue $2 per covered life Year 2, (Comparative Effectiveness) indexed thereafter until it sunsets in 2018 Estimated to be 2% to 2.5% of premium in 2014 Annual Health Insurance Industry Fee and 3% to 4% in later years $63 per covered life in Transitional Reinsurance Program 2014 and will be indexed Assessment Fee thereafter until it sunsets in 2016 Risk Adjustment Program and Fee Marketplace (i.e., Exchange) User Fees Cadillac Excise Tax (tax for high-cost plans) American Institute of CPAs® Estimated to be $1 per covered life Fully Insured Self-Insured Cost Impact Yes Yes < 0.01% Yes No 2% to 2.5% Yes Yes 2% Yes for employers that participate in the individual and smallgroup markets No < 0.01% 3.5% of the monthly Yes for small groups premium for each policy in offering coverage No federally facilitated through federal marketplaces marketplaces Effective in 2018: 40% of the amount premium over Yes if premiums exceed Yes if budget rates established threshholds for threshholds exceed threshholds single coverage and family coverage 3.5% Varies 153
  • 154. General thoughts Continuation of employer-based plan seems most common approach in the market • Recruitment and retention requirements • Market uncertainty • Desire for employee support Method of offering likely to change • Private exchange Much still undefined American Institute of CPAs® 154
  • 155. So what are the strategies? American Institute of CPAs® 155
  • 156. Beginning the evaluation process Gather documentation: 1. Identify all full-timers according to the new rules. 2. Define current eligibility requirements and waiting period. 3. Itemize current benefit offerings and plans by class of employees . 4. Document all coverage elections and contributions by person and compare to salary. 5. Understand who elects and who does not and why. 6. Determine methodology for additional information gathering from employees. 7. Begin plan for employee education and communication. 156
  • 157. Potential solutions 1. Operational changes to workforce New hires scheduled < 30 hours Legitimate outsourcing opportunities (e.g. groundskeepers, maintenance, food service) Job sharing Joint ventures or partnerships? American Institute of CPAs® 157
  • 158. Potential solutions 2. Early renewal took place in 12/2013 Most aspects of PPACA were effective with plan years beginning 1.1.14 or after (such as…underwriting changes, no pre-ex) Many carriers allowed an early renewal. E.g.…renewed as usual 4.1.13. Re-renewed 12.1.13 until 11.30.14. Resulted in avoidance of PPACA requirements for 8 month extension. • Would re-set deductibles and OOP max or maintain as calendar year Delay of rate hike? Administrative burden Lots of strings attached… What will happen in late 2014? American Institute of CPAs® 158
  • 159. Potential solutions 3. Plan design Carriers mapping to new plan designs • • • Plans must have AV of +/- 2% of metal target (e.g. 61% AV = bronze) Most plans are in the silver/gold range now – can estimate with help HRA – many questions around how/where they fit? Contribution • • Generally 9.5% contribution of Box 1 W-2 wages applies to lowest qualifying plan move to lowest bronze level plan as basis for contribution? Wellness and tobacco incentives Eligibility • ―Carve out‖ lower compensated employees to exchange to take advantage of subsidy • Carve-out spouses from plan American Institute of CPAs® 159
  • 160. Potential solutions 4. Self-funding and captives If employer pool has healthy risk compared to average, consider self-funding • Will be available down to 10-50 employees, with capped liability, gainsharing and consistent funding Captives can be attractive for employers with similar risk or management characteristics, and especially for groups with a common interest (e.g. schools, retirement communities, religious organizations, industry peer groups) • Needs to be seriously vetted – not for all, devil is in the details Could offset impact of large ACA renewal – the more favorable demographics/medical risk the more advantageous it is American Institute of CPAs® 160
  • 161. Potential solutions 5. Defined contribution and private exchanges or marketplaces ―Defined contribution‖ means employer budgets and contributes a fixed dollar amount per employee, typically separate dollar buckets for medical and ancillary coverage Private exchanges create a marketplace buying experience for employees – online, multi-choice, service-backed buying experience DBA solution in place Strategies to maintain employee and employer tax preferences American Institute of CPAs® 161
  • 162. Potential solutions 6. Pay or play? How strategically important is it to offer a health plan? • What do your employees really want/need? • Is the current cost trend sustainable? • Historically, it’s been important to offer health coverage. Is it still? • For 2015, is paying the penalty/tax the best approach? Will penalties increase and when? • Many pay or play models are inferior teasers… American Institute of CPAs® 162
  • 163. Health Care Reform – 50+ What must employers do before 2015? • • • • Determine applicable large employer status If large employer, decide to pay or play If play, ensure offered coverage is affordable and of minimum value If pay, calculate penalty • Strategic considerations if you ―play‖ – Variable hour employees (how to best manage) – Determine where you will be relating to affordability and minimum value – Maximize positioning American Institute of CPAs® 163
  • 164. Health Care Reform - <50 What must employers do in 2014? • Determine if you will be aided or harmed by ACA underwriting changes – Age band changes – No risk adjustments • Set strategy based upon determination above – Early renew (delay) – Self-fund – Immediately implement ACA rates American Institute of CPAs® 164
  • 165. Strategic Considerations • Almost all small groups will have to make plan design changes in 2014 due to market reforms. • Most groups should consider a multi-plan option and defined contribution strategy. Private exchanges could offer a potential solution. • Employees will have to take on more responsibility for healthcare purchasing and behaviors. • Employers will need to support this with decision-support resources, education, and consideration of wellness incentives. • Insurance carriers will be introducing new products to achieve the 60% minimum value featuring performance based/restrictive networks, reduced services, and increased consumer responsibility. 165
  • 166. Customized solutions required! ACA will impact each employer uniquely. There is no common solution. You will need the tools (e.g. pay or play calculator, metal plan estimator, 30 hour ―look back‖) and expertise and know how to help you design the right path Advanced planning will help to get your house in order Anticipating major rate actions is a must…don’t wait until the renewal execution period to consider your options Contact your consultant sooner rather than later with any questions or concerns American Institute of CPAs® 166
  • 167. When do I act? Probably not a decision that is best made hastily If you have immediate concerns, please reach out to your consultant Otherwise seek advice as market and rules evolve Might not want to be an early adopter of new world • Exchange not fully vetted, underwriting uncertain, product mix likely thin • Consider the value proposition any decision will portray to your employees American Institute of CPAs® 167
  • 168. Thank You! Brian Marks Executive Director / VSCPA Benefit Advisors 877-998-7272
  • 169. Coming Up Next… Martie Ross Principal, Pershing Yoakley & Associates American Institute of CPAs® 169
  • 170. Impact of Healthcare Provider Community Restructuring AICPA Online Conference on Healthcare Reform: A Deep Dive Into the Affordable Care Act Martie Ross Principal, Pershing Yoakley & Associates
  • 171. The Back Half of the ACA American Institute of CPAs® 171
  • 172. ―We can’t afford to have a flu clinic this year.‖ - Hospital Chief Executive Officer American Institute of CPAs® ® 17 2
  • 173. ―The one thing that could happen for which we have no contingency plan is a massive outbreak of health.‖ - Physician Practice Administrator American Institute of CPAs® ® 173
  • 174. Today’s Environment Fee-for-service as primary cost driver • Massive regulatory oversight Defensive medicine as secondary cost driver • Practice by exception Incentives result in provider-centered care American Institute of CPAs® 174
  • 175. Every system is perfectly designed to achieve exactly the results it gets. -Donald Berwick 175
  • 177. Evolution of Reimbursement Fee for Service P4P Shared Savings Bundled Payments PCP Capitation Global Payment Visitor Patient Person Symptomatic Episode Overall Health Acute Needs Most Common Conditions Community Health Characteristics Services & Supplies Packaged Treatments Manage Well Being Unit Based Efficiency Based Outcome Based No Financial Risk Partial Financial Risk American Institute of CPAs® Full Financial Risk 177
  • 178. Affordable Care Act – Two Strategies Payment Based on Quality Incentives for Clinical Integration American Institute of CPAs® 178
  • 179. Payments Based on Quality Hospitals • Readmission Reduction Program • DRG Modifier • HAC/Never Event Penalty American Institute of CPAs® Physicians • PQRS • VBP Modifier • Physician Feedback Reports • SGR Fix Legislation 179
  • 180. Hospital Readmission Reduction Program Penalty based on 3-year historical 30-day hospital readmission rates for AMI, heart failure, and pneumonia • Same or any other subsection (d) hospital • Reason for readmission irrelevant • List expands in 2015 to include hip/knee arthroplasty and COPD American Institute of CPAs® 180
  • 181. Penalties Penalty attaches to all DRG payments: FY 2013 1% Reduction 2,200 hospitals penalized $280 million FY 2014 2% Reduction FY 2015 and going forward 3% Reduction Even more costly • Negative perception in community • Commercial insurance/employers © 2014, Mark O. Dietrich, All Rights Reserved #AICPA_HEALTH 181
  • 182. DRG Modifier Adjustment to DRG payment based on clinical quality measures and patient satisfaction scores • Achievement and improvement • Budget neutral (winners and losers) • Percentage of DRG payments at risk (withhold and re-distribute) • 1.25 percent for FY 2014 American Institute of CPAs® 182
  • 183. HAC/Never Event Penalty Begins in FY 2015 Top quartile (lowest scores) = 1 percent payment reduction American Institute of CPAs® 183
  • 184. Measures Proposed ―never events‖ • • • • • • Pressure ulcer rate Volume of foreign object left in the body Iatrogenic pneumothorax rate Post-operative physiologic and metabolic derangement rate Post-operative pulmonary embolism or DVT rate Accidental puncture and laceration rate Proposed HACs • Central line-associated blood stream infection • Catheter-associated UTI American Institute of CPAs® 184
  • 185. Physician Quality Reporting System Submission of reports, not achievement of scores • Range of reporting options Carrots followed by sticks • 0.5% bonus in 2013 and 2014 • 1.5% penalty in 2015 if ≠ report in 2013 • 2.0% penalty in 2016 ≠ report in 2014 (and thereafter) Meaningful use penalties • 1% penalty in 2015 if not MU in 2014; 2% in 2016; 3% in 2017; 4% in 2018 or 2019 American Institute of CPAs® 185
  • 186. Physician Value-Based Payment Modifier Phased in between 2015 and 2017 2013 performance determines 2015 modifier for providers in groups of 100+ Budget neutral wRVU x conversion factor x VBPM • Positive number = paid more • Negative number = paid less Far broader impact than Medicare payment American Institute of CPAs® 186
  • 187. Physician Feedback Reports Individual reports on resource use and quality of care as compared to peer group based on Medicare data Used to calculate Medicare physician value-based payment modifier Schedule • In Spring 2013, reports sent to physicians in groups of 25+ in nine states based on 2011 data (CA, IL, WI, MN, MI, MO, IA, KS, NE) • By February 2014, reports to physicians in groups of 25+ nationwide based on 2012 data • All physicians by 2016 American Institute of CPAs® 187
  • 188. SGR Fix Three-month fix now in place Three reported bills • Senate Finance • House Ways and Means • House Energy and Commerce American Institute of CPAs® 188
  • 189. SGR Repeal and Medicare Beneficiary Access Improvement Act Freeze MPFS rates at 2013 levels thru 2023 Sunset PQRS, VBM, and ERH MU penalties on 12/31/16 Single VBP adjustment effective 01/01/17 (4 to 12 percent between 2017 and 2021) • • • • Quality (PQRS measures) Resource use (current VBP program + enhancements) Meaningful use Clinical practice improvement activities (TBA) Providers in APMs receive 5 percent bonus, exempt from VBP adjustment American Institute of CPAs® 189
  • 190. ACA and Commercial Payers Impact on Providers HEDIS measures • Plan accreditation for exchange participation • Medicare Advantage Five Star ratings Risk-adjusted payments Medical loss ratio American Institute of CPAs® 190
  • 191. Incentives for Clinical Integration FFS Payment for Care Management Accountable Care Organizations Other APMs Private Payer Initiatives American Institute of CPAs® 191
  • 192. FFS Payment for Care Management New Medicare payment for post-discharge transitional care management (30 days postdischarge from institutional care) Medicare payment for Chronic Care Management in CY2015 Medicaid health home model Commercial payer PMPM payments for specific populations American Institute of CPAs® 192
  • 193. Accountable Care Organization Providers who voluntarily work together to improve quality/reduce costs Patient attribution based on PCP Opportunity for shared savings • Total FFS payments – benchmark • Meet and report on specified performance standards American Institute of CPAs® 193
  • 194. Accountable Care Economics Actual total FFS payments • Payer’s actual total payments for specified services provided to identified patient population during defined time period • All providers, not just ACO participants Benchmark • Predetermined target spend typically based on historical data Performance Standards American Institute of CPAs® 194
  • 195. Medicare Shared Savings Program ACO Functions Establish and maintain quality assurance and improvement program Promote evidence-based medicine, patient engagement, care coordination, patientcenteredness Compile and report participants’ quality measure scores Distribute shared savings and assess shared losses American Institute of CPAs® 195
  • 196. Calculating Shared Savings/Losses Each ACO participant continues to bill fee-forservice independently Eligibility for and level of shared savings based on performance score Calculate actual total cost of care for assigned patients against pre-determined benchmark Apply formula to determine share of savings (losses) American Institute of CPAs® 196
  • 197. MSSP ACO Waivers Stark Law, Anti-Kickback Statute, CMPs on gainsharing, beneficiary inducement Governing body determines financial arrangement promotes MSSP purposes Pre-participation waiver up to one year prior to application submission Participation waiver remains in place so long as part of MSSP American Institute of CPAs® 197
  • 198. Choosing Wisely Initiative of the American Board of Internal Medicine Foundation started in 2011 46 specialty societies have published ―Five Things Physicians and Patients Should Question‖ 24 Consumer Reports patient education guides American Institute of CPAs® 198
  • 199. 199
  • 200. 200
  • 201. Aggregate Medicare Spending American Institute of CPAs® 201
  • 202. Per Capita Medicare Spending American Institute of CPAs® 202
  • 203. Other APMs Medicare Bundled Payments Center for Innovation Demonstration Projects Private Payer Initiatives • Bundled payments • Shared savings • Primary care capitated payment American Institute of CPAs® 203
  • 204. The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. - Malcolm Gladwell American Institute of CPAs® ® 204
  • 205. Healthcare 2.0 1. The industry is learning to purchase value, not volume 2. Providers and payers are struggling to find common solutions to universal challenges because healthcare continues to be a local and regional commodity 3. Stakeholders are searching for their purpose and relevancy in a patient-centered healthcare continuum 4. Consumerism is emerging as a driving force in healthcare 5. Change is accelerating due to knowledge derived from disparate and dynamic data American Institute of CPAs® 205
  • 206. Provider Response Economic and Clinical Integration American Institute of CPAs® 206
  • 207. 207
  • 209. Economic Integration Health system mergers and acquisitions Media reports of dramatic and unprecedented hospital employment of physicians AMA’s 2012 Physician Practice Benchmark Study • Nationally representative random sample of post-residency physicians providing care 20+ hours/week and not employed by federal government American Institute of CPAs® 209
  • 210. Practice Arrangements Practice Owned by Practice Physicians - Owner (48.9) Practice Owned by Practice Physicians - Non-Owner (11.1) Practice Wholly Owned by Hospital (14.7) Practice Partially Owned by Hospital (8.3) Practice Owned by Not-for-Profit Foundation (6) Direct employees of hospital or health system (5.6) American Institute of CPAs® 210
  • 211. Multi-Specialty Group Practice Performance (MGMA 2011) Best Non-Hospital Rest of Non-Hospital Best Hospital/IDN Rest of Hospital/IDN Overhead % 58.3 60.0 56.8 83.4 Gross Charges per FTE MD $1,372,247 $1,069,530 $995,303 $755,855 Physician wRVU per FTE MD 13,096 12,809 9,714 9,117 Total MD Net Revenue per FTE MD $351,082 $280,439 $261,865 $69,881 211
  • 212. Alignment Models MSO Services Hospital offers menu of administrative services to support independent practices Medical Director or Administrative Services Hospital retains physician as independent contractor to provide medical director or other administrative services Equipment or Building Joint Venture Hospital and physicians co-own building or equipment leased to hospital or leased to medical practices American Institute of CPAs® 212
  • 213. Alignment Models Service Line Management or CoManagement Agreement Hospital contracts with physician group to manage or comanage hospital service line (e.g., cardiology, oncology) Gainsharing Hospital pays physician percentage of any reduction in hospital’s costs for patient care attributable in part to physicians’ efforts FMV considerations Quality and performance measures CMP considerations American Institute of CPAs® 213
  • 214. Alignment Models Medical Foundation/ Professional Services Agreement Relationship Hospital creates non-profit foundation to own and operate medical practice business; physician participation on governing board Foundation enters into professional services agreement with medical group to provide physician services; Foundation bills and collects Medical group employs physicians HospitalOwned Medical Practice Hospital (or separate foundation per above) owns medical practice and employs physicians American Institute of CPAs® 214
  • 215. Alignment Models Physician Hospital Organization Hospital and physicians co-own entity that facilitates payer contracts Vary in degree of integration from non-risk messenger models to risk-assuming entities that negotiate with payers Economic Credentialing Require certain number of admissions/procedures as condition of medical staff membership Prohibit competition with hospital American Institute of CPAs® 215
  • 216. Alignment Models Service Line Joint Venture Hospital and physicians co-own a particular medical service line Examples: ambulatory surgery center, sleep laboratory, diagnostic imaging center Participating Bonds Physician ownership of hospital-issued bonds bear a higher interest rate of interest contingent on hospital achieving desired financial goals Shared Medical Practice Ownership Hospital and physicians co-own the medical practice entity which employs physicians Physicians have role in governance American Institute of CPAs® 216
  • 217. Clinical Integration Providers accountable to each other and to community to deliver high-quality care in efficient manner • Collectively define and enforce standards of care • Implement efficiencies • Coordinate patient care American Institute of CPAs® 217
  • 218. Antitrust Origins Per se illegal for independent market participants to negotiate jointly on price-related terms Three options • Messenger model • Economic integration • Clinical integration Pursue clinical integration to achieve higher fee-forservice reimbursement American Institute of CPAs® 218
  • 219. Clinically Integrated Networks Verb vs. Noun American Institute of CPAs® 219
  • 220. Clinically Integrated Network Lean infrastructure to support provider accountability Vehicle for independent providers to jointly negotiate with payers • Access to patients • Access to payment • Access to actionable information American Institute of CPAs® 220
  • 221. CIN Functions Core functions • • • • Promote evidence-based medicine Implement efficiencies Facilitate care coordination Negotiate and manage payer contracts Additional support services American Institute of CPAs® 221
  • 222. Promote Evidence-Based Medicine EBM = integrating individual clinical expertise with the best available external clinical evidence from systematic research Clinical protocols • • • • Identify (prioritize) Implement (education, technology solutions) Monitor (reporting on quality measures) Remediation (including punitive measures) American Institute of CPAs® 222
  • 223. Implement Efficiencies Ongoing assessment and improvement of clinical environment and work flow processes Eliminate unnecessary costs to participants Examples • Procedure scheduling and staffing • Standardization of equipment and supplies - Appropriate use criteria • Advise on medical technology planning and capital purchases American Institute of CPAs® 223
  • 224. Facilitate Care Coordination Identify high-risk, high-cost patients • Disease registries • Data analytics Aggressive interventions • • • • Patient navigator/health coaches Remote monitoring Transitional care management/chronic care management Patient engagement strategies and tools (e.g., shared decisionmaking) American Institute of CPAs® 224

Hinweis der Redaktion

  1. This is a story a colleague sent me for teaching purposes. The Cat Scan should have cost no more than $750. This is an example of billing for “same day contiguous body part scans” in order to enhance payments.
  2. Let me highlight one of the problems we face in paying for healthcare with a personal story. Heart disease is hereditary on my father’s side and I am a runner, competing several times a year in 5K races and have been known to sprint for position at the end of a race. My internist thinks I am crazy and therefore has me take a stress-echo every two years. This year, I had to switch to a plan with a $2000 deductible, with an additional $1000 deductible for teaching hospitals – where my internist happens to practice. I therefore decided to call and find out how much I would be charged for the test. Blue Cross would not tell me, they said I had to call the hospital. The hospital did not know exactly what test the doctor had ordered so they could only give me a range of charges – but not what I would pay, because that was based upon the allowed charge under their contract with Blue Cross. My doctor’s secretary told me they had no record of him ordering the test and I had to call the Echo lab. I finally did that. The tech was not able to tell me the Billing code for some policy reason but did offer a possible charge – but he did not know the Blue Cross contracted amount either. On top of that, the contracted allowables are considered confidential! Thus, even for someone like me who has done this kind of work my entire life and knows exactly what to ask for, I could not get an answer.
  3. Just another poke! I have tried to focus this piece of the presentation, which is more technical, on elements of the legislation that have received attention in the general press and/or that are important to an audience of CPAs.
  4. Safe harbor for wait period is 60 days following first of month after employment.
  5. If no coverage offered….$2,000 penalty per employee less the first 30. If 60, then 30 x 2000= $60,000 if ONE employee gets subsidy!
  6. Administrative, look back and standard measurement periods, also “stability periods” – we have a tool for thatOur tools can help with the min value calculation as well as the affordable question….
  7. If no coverage offered….$2,000 penalty per employee less the first 30. If 60, then 30 x 2000= $60,000 if ONE employee gets subsidy!
  8. Detailed review better on group specific basis
  9. Detailed review better on group specific basis