Presented by: Caroline Pearson at NADP's CONVERGE 2013 Conference at the Bellagio, Las Vegas.

1. Employer Coverage in the
Era of Exchanges
Presented by: Caroline Pearson
1
September 9-12
Bellagio Resort
Las Vegas, Nevada
9/4/2013

2. Employer-Sponsored Insurance: Mandate
Impact and Employer Response
Presented by Caroline Pearson
September 2013
avalerehealth.net
2

3. Agenda
●
Affordable Care Act (ACA) Provisions Impacting Employers
●
Employer Mandate and Decision to Delay
●
Monitoring Employer Behavior to Mitigate Impact of the Mandate
●
Outlook for Other Employer Trends
●
Conclusions
9/4/2013
3

4. ACA Provisions Impacting Employers
4

5. Employers Offer Coverage For Three Main Reasons
Why Employers Offer ESI
1. Employers offer health benefits as part of overall
compensation package to recruit and retain employees
2. Employers offer health benefits because there has been no
viable alternative for employees to obtain comprehensive
coverage on their own
3. Employers offer health benefits to boost worker
productivity
The ACA make significant changes only to the second of these reasons – insurance market
reforms and exchanges could potentially create a viable alternative to ESI
ESI = Employer-sponsored insurance
9/4/2013
5

6. Small Employers Are Less Likely to Offer Health Benefits and the
Offer Rate Has Fallen in Recent Years
Percentage of Firms Offering Health Benefits
92%
87% 85% 87%
85%
95% 95%
94%
93%
91%
99%
98%99% 99%98%
76%
72% 71% 73%
68%
59%
47%
48% 50%
45%
3 - 9 Workers
10 - 24 Workers
2009
25 - 49 Workers
2010
2011
50 - 199 Workers
2012
200+ Workers
2013
Source: Kaiser Family Foundation/HRET, Employer Health Benefits 2012 Survey
9/4/2013
6

7. Employer Coverage Likely to Remain Stable Through 2016
EXPECTED SOURCES OF COVERAGE (IN MILLIONS)
50
52
53
55
5
5
5
5
Medicare
Other Public Programs
Employer
144
144
145
146
Non-Group
Exchanges
Medicaid and CHIP
16
50
49
2013
13
8
12
12
55
57
11
22
Uninsured
58
40
35
26
2014
2015
2016
Source: Avalere Enrollment Model, May 2013, Scenario 3, which assumes 26 states opt out of the Medicaid
expansion.
9/4/2013
7

8. Several ACA Provisions May Affect Employers’ Decisions to Offer
Health Insurance
Provision
Description
Employer
Mandate
Employers with >50 workers will face penalties if they do not
offer affordable coverage
Individual
Mandate
Requires individuals to purchase insurance coverage or pay a
penalty
Exchanges
States must establish an exchange for the individual and small
group markets by 2014 or rely on federal-fallback
Subsidies/
Medicaid
Expansion
ESI
Impact
Provides sliding-scale tax credits to individuals from133 to
400% of FPL; Extends Medicaid coverage to those up to 133%
of FPL
FPL = Federal Poverty Level
9/4/2013
8

9. The ACA Will Increase Costs for Some Employers
Factors Driving Employer Costs Higher
•
Employer
Costs
9/4/2013
•
•
Generosity requirements for companies with
mini-med plans
Higher uptake rates among employees
Coverage requirement for part-time
employees working more than 30
hours/week
9

10. Estimates of ACA’s Impact on ESI Vary Widely Though Modelers
Are Generally Consistent With Each Other
Other policy analysts and
politicians, such as
Capretta and Bredesen
agree with McKinsey and
Holtz-Eakin
Benefit consultants and other experts largely agree
with the models that predict only small net changes
in coverage
2.7%
McKinsey
Holtz-Eakin Booz
Gruber2
CBO1
Lewin
Urban
-3.8%
-3.1%
-2.5%
2.7%
RAND
-1.6%
Estimates reflect different ACA phase-in periods
from 2010 to 2016
-21.5%
-30%
Impact on early retirees not included in microsimulation model
estimates
Source: See Appendix
1CBO and Joint Committee on Taxacion (JCT) estimate a decline of 3 – 5 M people with ESI (graphic above uses 4 million for display
purposes). CBO and JCT modeled 4 scenarios and results ranged from -20 M to + 3 million people with ESI.
2For percent change calculation, Avalere assumed that Gruber used the current/projected CBO ESI baseline for his estimates
9/4/2013
10

11. ESI Lives Stable in Short-Term; Certain Firms Could Drop
FIRMS WITH LOW WAGE WORKERS OR HIGH COSTS RELATED TO EARLY RETIREES ARE
THE MOST LIKELY TO DROP COVERAGE
Likely to Drop
Firms with Low
Wage Workers
Firms with High
Early Retiree Costs
9/4/2013
Unlikely to Drop
Small Businesses
(<25 Workers and
Microbusinesses)
Large Employers
11

12. Firms Surveyed Anticipate a Very Small Drop in Medical Offer
Rates & a Slight Increase in Dental Offers in 2014
MOST FIRMS EXPECT TO CONTINUE OFFERING BOTH MEDICAL AND DENTAL BENEFITS
FOR EMPLOYEES IN 2014
93.0% 92.4%
77.6% 78.1%
70.1% 68.8%
62.8% 63.0%
15.1% 16.1%
Full-Time
Dependents
Part-Time
14.1% 14.3%
Full-Time
Medical Benefits
Dependents
Part-Time
Dental Benefits
2013
2014
Source: NADP, Employer ACA Implementation Tracking Study, May 2013.
9/4/2013
12

13. Employer Mandate and Decision to Delay
13

14. The Employer Mandate Places Onus on Large Employers to Offer
Coverage
• Under the ACA, large employers are subject to a penalty when:
–
1 Employers do not offer coverage
–
2 Employers offer coverage that is not affordable
• Large employer is ≥ 50 full-time of full-time equivalent (FTE) employees
averaged across all months in the year.
• “Full-time” means an average of at least 30 hours per week.
• The employer mandate goes into effect on January 1, 2014.
FTE = Full-time equivalent
Source: Proposed Rule on Shared Responsibility for Employers Regarding Health Coverage.
http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf.
14

15. Employers With at Least 50 FTEs Must Offer Coverage that
Provides Minimum Essential Value or Face Penalties
Employers trigger penalties under the following scenarios:
Does the employer offer
coverage?
Applicable Penalties
Employer offers coverage that is
not affordable* and has at least
one full-time employee receiving a
premium assistance tax credit to
purchase exchange coverage
Penalty will be the lesser of:
(a) $2,000 times the number of full-time
employees excluding the first 30, or
(b) $3,000 times the number of full-time
employees receiving subsidies in an
exchange
Employer does not offer coverage
to its full-time employees and has
at least one full-time employee
receiving a premium assistance
tax credit to purchase exchange
coverage
Penalty will be $2,000 times the number of fulltime employees in the business, not counting
the first 30
*Unaffordable is defined as coverage with costs that exceed 9.5% of an employee’s household income.
Source: Proposed Rule on Shared Responsibility for Employers Regarding Health Coverage.
http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf.
15

16. HHS Delayed Employer Mandate Requirement by One Year
MOST OTHER KEY REQUIREMENTS, PARTICULARLY THE INDIVIDUAL MANDATE, REMAIN
EFFECTIVE FOR 2014
Employer Mandate
Effective
January 1, 2015
2013
2014
Exchange Open
Enrollment
Begins
October 1 to March
31, 2014
9/4/2013
Exchange
Coverage
Begins
January 1,
2014
2015
Individual
Mandate
Live
April 1, 2014
Exchange Milestone
Employer Milestone
16

17. Delay of Employer Mandate a Marginal Impact
A TEMPORARY REPRIEVE FOR MOST EMPLOYERS; MARGINAL IMPACT ON ENROLLMENT
PROJECTIONS
Impact on Enrollment
●
Small impact on enrollment
projections for 2014
●
95% of large employers already offer
health insurance
●
Some low-wage firms may elect to
not offer coverage in 2014,
potentially shifting these lives to the
exchanges
Impact on Hiring
●
Mandate incentivizes part-time over
full-time hiring for businesses large
and small
●
Businesses on the cusp of 50 fulltime equivalent employees may not
delay hiring in order to avoid
increased benefit costs
Employers, large and small, were primarily concerned about the reporting
requirements, which was the primary impetus in the HHS delay
9/4/2013
17

18. Initial Enrollment Projections Intact Despite Mandate Delay
A TEMPORARY REPRIEVE FOR MOST EMPLOYERS; MARGINAL IMPACT ON ENROLLMENT
PROJECTIONS
Employer-Sponsored
Coverage Number
157 million
156 million
2.3 million
2.6 million
Large Firms Not Offering
Insurance
Congressional
Budget Office*
Updated Projections
Based on Employer
Mandate Delay
Workforce at Employed
Non-Offering Large Firms
Organization
Initial Projections with
Enforced Mandate in
2014
23,000
24,000
Impact
RAND
Corporation**
* CBO Analysis of Employer Mandate Delay. July 30, 2013.
** Price, Carter C and Saltzman, Evan. “Delaying the Employer Mandate.” RAND Corporation.
9/4/2013
18

19. Monitoring Employer Behavior to Mitigate
Impact of the Mandate
19

20. Will Need to Monitor for Possible Employer Changes to Avoid
Mandate Penalties
POTENTIAL AVENUES EMPLOYERS MAY TAKE IN ORDER TO REDUCE HEALTHCARE
COSTS WHILE AVOIDING THE EMPLOYER PENALTY
Reduce number of
employees (<50) or shift
workers to part-time
status
Reduce the employer
contribution to
premiums
Reduce benefit design
to the minimum value
9/4/2013
Reduce or eliminate
contribution for family
coverage
Drop early retirees from
coverage
20

21. Employers with Close to 50 Full-Time
Workers May Cut Hours, Jobs, or Both
●
Under the ACA, the 50-employee threshold is reached based on:
50 full-time
employees
●
Move FTEs / Reduce Workforce
A combination
of FTEs and
PTEs that
Or
equals at least
50
To get around the mandate, employers may reduce employees’ hours to under 30 a week. However, cutting
hours may not be enough—some firms may eliminate jobs entirely:
o Full-time equivalency (FTE) is determined based on the total number of hours worked each month by
PTEs, divided by 120
o If a company has 500 hours worked by PTEs in a month, this would yield an extra 4.1 FTE employees
(500 ÷ 120)
− Notably, employers will not be penalized for PTEs that are uninsured
Employees of Darden Restaurants Inc.* who work fewer than 30 hours a week will be considered part time
and will not be offered insurance, according to the company’s senior vice president of government and
community affairs. Darden Restaurants expects about 75 percent of its workforce to remain part time.
9/4/2013
21

22. Move FTEs / Reduce Workforce
Part-time Hiring a Likely Tactic to Manage Benefit Costs
LOW-WAGE EMPLOYERS LIKELY TO START HIRING PRIMARILY PART-TIME WORKERS IN
2014 TO MINIMIZE IMPACT
Exchange
Market
Part Time Workers in
Retail, Restaurants,
Entertainment, and
Agriculture
Part-time employees will have to find coverage in the individual market
Source: “Fed Ponders Part-Time Shift as Obamacare
Role Questioned.” Bloomberg. July 19, 2013; “Study:
Most workers will keep employer insurance after 2014.”
Politico. December 19, 2012.
9/4/2013
22

23. Move FTEs / Reduce Workforce
The Low-Wage Restaurant Industry Is
Attributing Benefit Changes to ACA Requirements
A SURVEY BY THE INTERNATIONAL FRANCHISE ASSOCIATION FOUND THAT 64% OF
FRANCHISERS AND 72% OF FRANCHISEES SAID THE ACA RAISES SOME UNCERTAINTY
OR SIGNIFICANT UNCERTAINTY IN LONG-TERM PLANNING.
Darden Restaurants
Inc.
ECW Enterprises
White Castle
Management Co.
Owner of Olive
Garden, Red Lobster,
and Longhorn
Steakhouse Chains
Owner of East Coast
Wings & Grille
Owner of White Castle
fast food chain
In 2012, the company
began hiring more
part-time workers in
order to cut healthcare
costs under the ACA
ECW is limiting
franchises to 3-5 units
in order to keep
employment below 50
workers
Still assessing ACA
impact, but plans to
open 2-3 new
restaurants in 2013,
down from about a
dozen three years ago
9/4/2013
23

24. Reduce Employer Contribution
Employer Contributions Could Be a Target
Average Health Insurance Premiums and Worker Contributions
for Single Coverage1
Potential drop in
employer contribution
94% increase in
average total
premium
$4,664
?
$2,617
Employer
Contribution
Worker
Contribution
$951
Employers may reduce
their contribution so that
low wage workers would
qualify for exchange
subsidies.
In this case, the
employer would have to
pay the mandate penalty,
but could maintain
coverage for high-paid
workers.
?
$466
2002
2012
2015+
Source:
1. Kaiser Family Foundation. “Employer Health Benefits Annual Survey 2012.
9/4/2013
24

25. Reduce / Eliminate Family Coverage
Employer Contribution Could Decline
For Those With a Higher Number of Dependents
AVERAGE PERCENTAGE OF PREMIUM PAID BY EMPLOYERS FOR SINGLE AND FAMILY COVERAGE,
2002-2012
84%
84%
84%
72%
73%
72%
2002
2003
2004
84%
84%
84%
84%
83%
74%
73%
72%
73%
73%
2006
2007
2008
2009
2005
Single Coverage
81%
70%
2010
82%
82%
72%
72%
2011
2012
Family Coverage
Because employers will not be penalized for not offering family coverage, some companies
may bring their family premium contributions down to align with those from single coverage.
Businesses may even decide to drop family coverage altogether.
Source: Annual Health Benefits Report: Research Institutes 2013 Benchmarks and Trends for Large Companies;
Kaiser/HRET 2012 Employer Health Benefits Annual Survery.
9/4/2013
25

26. Reduce Benefit to Minimum Value
Skinny Plans an Attractive Alternative for Some Employers
Generous Coverage More
Costly than Penalties…
●
Cost of comprehensive coverage
exceeds $2,000 per employee
penalty
●
Penalties assessed according to the
number of individuals obtaining
subsidized exchange coverage
●
Discouraging employees from buying
coverage on exchanges is a hedge
against paying significant penalties
…But Limited Benefit Plans
May Offer a Workaround
●
“Skinny plans” designed to comply
with ACA
●
Such plans may be more affordable,
yet less generous, than exchange
plans
●
But, they may not cover most
expensive kinds of care may limit
access to drugs and physicians
Source: “Some workplace health plans will be ‘skinny’.”
Politico. July 15, 2013.
9/4/2013
26

27. Although Broad “Employer Dumping” Is Unlikely,
Many May Send Early Retirees to the Exchanges
Drop Early Retirees
“In the past, most employers were reluctant to send their retirees to the individual insurance market
because of concerns about high age-based rates and medical underwriting for pre-existing conditions.
However, the exchanges and related insurance reforms that become effective in 2014 create a
potentially more viable option for retirees.” – Bill Kramer, Pacific Business Group on Health
Plans to Use Retiree Health Accounts
40%
35%
Action taken/Tactic used in 2012
35%
Planning for 2013
Considering for 2014 or 2014
30%
25%
20%
21%
15%
15%
13%
10%
7%
5%
●
Very few private-sector employers
currently offer retiree health benefits,
and the number offering them has
been declining
o In 2010, 18% of workers were
employed at establishments that
offered health coverage to early
retirees, down from 29% in 1997
o Further, recent surveys have
found that use of health accounts
for retiree health benefits is
already expanding rapidly;
starting in 2014, employers can
simply give retirees money in an
HRA to allow them to purchase
exchange coverage
4%
0%
Convert current subsidy to
retiree health account
Offer retiree medical savings
account
Source: http://www.ebri.org/pdf/briefspdf/EBRI_IB_10-2012_No377_RetHlth.pdf
9/4/2013
27

28. Drop Early Retirees
Some Cities Are Turning to the Health Insurance
Exchanges As A Means to Cut Costs and Reduce Deficits
Cities Considering Dropping Early Retirees and Moving Them to the
Exchanges
Detroit
The city’s Emergency Manager announced in June 2012 that Detroit may
stop covering early retirees’ health benefits and instead send them to the
state’s health insurance exchange. The city currently spends $177M on
retiree benefits; by moving these individuals to the exchange, it expects
spending to decrease to between $27M and $40M per year.
Chicago
Chicago plans to phase out retiree health coverage by 2017. The city
projects that healthcare spending would increase to from $109M in 2012 to
$541M in 2023 without changes, according to a Retiree Healthcare Benefits
Commission report published in January.
Retirees have filed a class-action against the city to prevent the transition; it
is anticipated that Chicago will provide more details about its plan before the
end of the year.
Source: “Detroit, Chicago Propose Ending Retirees’ Health Coverage.” June 14, 2013.
http://www.governing.com/news/local/gov-detroit-emergency-manager-proposes-moving-retirees-to-healthexchanges.html
9/4/2013
28

29. Outlook for Other Employer Trends
29

30. Exchange Market Could Impact Employer Offerings
Exchange benefit designs may have spillover effects by setting a new standard for coverage
generosity
Benefit Design Generosity
Less Generous
More Generous
Commercial
Exchange
Catastrophic
Medicaid
Lives Served by Market Today
Anticipated Future Market
9/4/2013
30

31. While Modelers Predict Stability of ESI in the Short Term, Many
Expect the Nature of ESI May Change Considerably
Continue to
Offer
Coverage
Restructure
Contributions
Offer ESI to
Limited Group
Drop Coverage
and Gross-up
Wages
Drop Coverage with
No Wage Gross-up
Employers may shift toward a defined contribution model of coverage.
Private exchanges are a new delivery mechanism that could encourage
this trend.
Based on “Performance in an Era of Uncertainty”, 17th Annual Towers Watson/National Business Group on Health
Employer Survey on Purchasing Value in Health Care , March 2012.
9/4/2013
31

32. Lack of Clarity Around Private Exchanges
Private Exchanges Are Largely Unregulated and Undefined

The lack of a definition for a “private exchange” is reflected in the assertions that have been made as to
the number of private exchanges in operation:
“HealthPass [is] one of ‘no
more than a dozen Health
exchanges [that] are
thought to exist
nationwide.’”
- HealthPass website, May 18,
2012 (citing report from May
2010)1
“Over 100 private exchanges
are in existence today and
cumulatively represent more
than one-third of most
insurance carriers’ distribution
efforts.”
“Bloom Health Launches
Nation's First Private
Exchanges With Two
Health Plans.”
- PR Newswire, July 6, 20113
- Bernard DiFiore, President and
CEO of BenefitMall, March 17, 20112
1.
2.
3.
http://www.healthpass.com/about-healthpass.html
http://www.healthcareexchange.com/blog/bernard-difiore/need-private-exchanges-co-exist-public-exchanges
http://www.prnewswire.com/news-releases/bloom-health-launches-nations-first-private-exchanges-with-twohealth-plans-125081889.html
HHS = Department of Health and Human Services
SHOP = Small Business Health Options Program
9/4/2013
32

33. Current Private Exchanges Serve a Diverse Set of Customers
Private Exchange Types
Online Brokers/Web Portals
eHealth1
Individual,
Under- 65
Market
Medicare
Advantage
Medigap
Medicare drug
coverage
Extend Health
(Recently acquired by
benefits consultant
Towers Watson)2
Array Health 3
Self-insured
employers
Fully-insured
employers
HealthPass New
York4
Insurer-Operated Exchanges
Contracted Exchanges
Many private exchanges serve multiple markets, while others specialize in
particular product offerings or customer types
For more examples of exchanges, see appendix
1 http://www.ehealthinsurance.com
2 http://www.extendhealth.com
3 http://www.arrayhealth.com
4 http://www.healthpass.com
9/4/2013
33

34. Private Exchanges Typically Offer Both Medical and Dental
Products
Health
Insurance
Other
Ancillary
Products*
Dental/
Vision
Insurance
Private
Exchange
Employee
Wellness
Programs
Health
Savings
Accounts
Life
Insurance
*Other ancillary products include: pet insurance, retirement-related products, disability insurance, and long-term care insurance,
travel insurance, critical illness insurance, accident insurance and discount cards for services such as chiropractic care and
prescription drugs
9/4/2013
34

35. Conclusions
35

36. Dental Coverage Is Likely Stable in Near-Term, But Future
Threats Remain Uncertain
•
Employer coverage will be stable in the near-term
– No signs that employers are seeking to drop ancillary benefits
•
Ongoing cost-pressure could result in continued, slow erosion of
benefits
– A few employers may drop all coverage (health and dental)
– Others are increasing cost-sharing to offset premium costs
– Are ancillary benefits at risk for increasing cost pressure?
•
Impact of defined contribution model and private exchanges is uncertain
– Will defined contribution apply to all benefits in aggregate?
– May shift decision about whether to purchase dental insurance to the
employee—no mandate for adult dental
9/4/2013
36

37. Online Evaluation
Pearson.questionpro.com
37
9/4/2013