April 2014

Types of Exchanges

1. State Exchanges – Individual Consumer – Federal or State Run

• Carrier participation will be voluntary
• State determines plan designs:  Bronze (low cost), Silver, Gold, Platinum (high cost); Catastrophic Plan – young invincibles (18 -30)

2. SHOP Exchange – Small Employers

• Open in 2015
• Limited to 50 FTE’s
• Employer picks plan for their EE’s

3. Private Exchanges – Wide variety available through various channels

• Wide variety – Single or Multiple Carrier, Regional or National, Fully or Self-Insured, Defined-Benefit or Defined-Contribution
• Available through various channels – Brokers, Technology Providers offering payroll or enrollment platforms, Insurance Companies
• Pros and Cons – Can help control cost by setting contribution amount for each employee, offer more benefit choices and services for enrollment, claims, billing, employee support. However they charge fees and may be more expensive; carrier participation fee, company enrollment fee or both. Employee pros and cons exist as well; they may or may not like the selection of benefits, may shoulder a great portion of the costs.
• Although they can provide a wide choice of options, employers must be concerned about ‘anti-selection’ and loss of control of the underwriting process vs. being aggregated with poor performers.

Evolving State Exchange Landscape

• State Exchanges open in 2014 for Individuals only (SHOP plans are optional by state)
• Federal subsidies are available in exchanges to individuals with household incomes between 138% and 400% of federal poverty level (FPL = $11,490) who do not have access to qualifying, affordable employer coverage. Employees at or below 250% of FPL will be enrolled in a silver plan with lower cost sharing
• Federal subsidies will be based on silver plan, even if individual chooses bronze or higher metallic plan. Individuals do not get the excess subsidy if a lower cost plan is selected or a higher subsidy if a higher cost plan is selected
• Less than half of states will have an Exchange up and running in 2014. Federal exchange will be the fallback

Potential Challenges with Exchanges

• New enrollees must be cognizant in researching network providers and coverage
• Additional special enrollments (i.e. change in location, employment status or income) all of which would affect eligibility for Medicaid and/or premium assistance
• Age changes and over age dependent cancellations

Under ACA beginning with all new groups and for groups renewing in the 2014 calendar year the following criteria will be used to underwrite group. (In Florida, group size is determined by ATNE, Average Total Number of Employees. ATNE is calculated by averaging the total number all employees, full & part time, seasonal, temporary, etc… for each month.

Group Size below 50 lives – Small Group Underwriting
Small group health insurance carriers will only be allowed to price small groups based on the following criteria:
1. Smoking status (tobacco status can be rated as a 1.5-1.0 limit)
2. Regional rating
3. Limit of a 3-1 ratio in premium charges (mature vs. younger)
4. Family size
5. Participation in a health promotion (wellness) program
Pre-existing condition limitations are removed.

Group Size 51-99 lives – Small or Large Group Underwriting as determined by state
Composite rates based on DOB, gender, home zip code, enrollment status, prior carrier history, renewal rates and group medical questionnaire.

Group Size of more than 100 lives – Large Group Underwriting
Underwriting allows for, in addition to the above, review of each individuals (employee and dependents) medical conditions.

Self-Funded Underwriting, any size group, allows for individual (employee and dependents) medical condition.

What is a Minimum Value Plan?

Coverage that has an actuarial value (AV) of at least 60%. AV is the plan’s share of the total allowed cost of benefits provided to an enrolled individual

• Example, if a plan has an AV of 60% then the individual is theoretically responsible for 40% of the costs for all covered benefits (in addition to the monthly premium) and the plan will pay 60%

The Minimum Value of a group health plan is calculated by dividing anticipated covered spending by total anticipated allowed charges for Essential Health Benefits coverage

• How much an individual spends could be a higher or lower percentile, depending on actual health care needs

ACA Plan Requirements

Requirements apply to both Small and Large Employers

1. Maximum of 90 Day Waiting Period – beginning in 2014 – Employment-Based Orientation Periods were recently introduced, however they cannot Exceed One Month for Purposes of 90-Day Waiting Period Limit.

2. Plan Design Requirements – effective dates vary

• Benefits mandates (e.g. women’s preventive care, clinical trials)
• Eliminate pre-existing condition exclusions
• Eliminate annual limits on essential health benefits
• Cost sharing cannot exceed HDHP levels, $6,350 for self-only and $12,700 for family coverage in 2014. ($6,600 / $13,200 in 2015.)

3. Deductible and out-of-pocket limits in the small group markets

• Recent legislation signed eliminates the Affordable Care Act’s annual limitation on deductibles. Those limits were set at $2,000 for employee only coverage and $4,000 when adding a dependent(s); however, certain small group plans were allowed to exceed the limits if necessary to reach a given level of coverage, or metal tier.
• The annual limitation on out-of-pocket expenses for non-grandfathered group plans was not eliminated.  Annual out-of-pocket expenses (including coinsurance and copayments, but not premiums) for a plan year beginning in 2014 may not exceed $6,350 for self-only coverage or $12,700 for other than self-only coverage. For 2015, these limits increase to $6,600 and $13,200, respectively.
• Out-of-pocket costs must include all co-pays/deductibles/co-insurance and RX co-pays

ACA Employer Responsibility Affordable Coverage Requirement
Companies are only required to offer at least one medical plan that meets the “affordability” requirement (at the employee-only coverage level). Regulatory guidance allows companies to calculate affordability based on the employee’s income, using one of three IRS safe harbors. The Safe Harbors are:

• 9.5% of W-2 wages from previous year
• 9.5% of Rate of Pay (hourly rate of pay × 130 hours; excludes tipped employees and employees paid solely on a commission basis)
• 9.5% of the Federal Poverty Level

What are the tax penalties if a large employer does not comply with the ACA Employer Responsibility Requirements? (Now effective in 2015 or 2016, based on employer’s FTE count)
If the employer does not offer minimum essential coverage

• $2,000 per each full-time employee if one full-time employee obtains Marketplace coverage using a subsidy
• Waived for first 30 full-time employees

If the employer does offer minimum essential coverage, but coverage does not meet minimum value and affordability requirement, and at least one full-time employee obtains Marketplace coverage using a subsidy

• Penalty is $3,000 for every full-time employee that purchases insurance coverage through the Marketplace using a subsidy

ACA Employer Responsibility: “Pay or Play” (Delay Announced)  Large Employer Subject to “Pay” if they do not “Play” – Starting in 2015, applies to employers with 100 or more FTEs (Full Time Equivalents)

• Offer Minimum Essential Health Care to 70% of employees effective on the start of the plan year beginning on or after January 1, 2015 to 95% of employees for plan years that begin in 2016
• Offer Health Plans that have “Minimum Value”
• Offer Affordable Health Plans using one of three IRS safe harbor formulas

Starting in 2016, applies to employers with 50 – 99 FTEs

• Offer Minimum Essential Health Care to 95% in 2016 and beyond
• Offer Health Plans that have “Minimum Value”
• Offer Affordable Health Plans using one of three IRS safe harbor formulas

Failure to Meet Above, Employer “Pays” ACA Employer Responsibility Full Time Employee ≠ FTE  For 2015, most of the ACA provisions apply to “large employers” with 100 FTEs or a combination of full-time and part-time employees that equals 100 “full-time equivalent” (FTE) employees. FTE count is not the same as “full-time employee” count. The employer will need to calculate its FTE count by adding:

• Full-time employees that work 30 or more hours per week, plus
• Part-time and seasonal employees (add total monthly hours worked by these employees ÷ 120 hours per month), then
• Adjust for seasonal employees who worked no more than 120 days
• (Remember to count employees that work for a controlled group or under a predecessor employer)

To determine 2015 large employer status, an employer may use a consecutive 6-month period during 2014 instead of the full 12 months Variable Hour Employees  The ACA shared responsibility taxes hinge on whether a large employer (100+ FTEs in 2015, 50+ in 2016) offers eligible health coverage to “full time” employees. If at the time of hire, it cannot be determined that an employee is reasonably expected to work at least 30 hours per week, that individual is a “variable hour employee.” Large employers will identify which variable hour employees are treated as “full time” and benefits eligible by:

1. Calculating hours during a specified period of months (a look back/measurement period), and then
2. Locking in their employee status (e.g. full-time) for a subsequent specified period of time (a stability period)

Timeline differs for new employees vs. ongoing employees

• Measurement period: A look-back period during which hours the employee works are tracked to determine whether the employee is working, on average, 130 hours per month and is considered to be full time. The measurement period can be 3 to 12 months.
• Stability period: A look-forward period during which an employees’ status is locked in. Worksite employees determined to be full-time based on hours worked during the measurement period are eligible for coverage, regardless of the number of hours worked during the stability period. The stability period can be no shorter than 6 months or the length of the measurement period if longer.
• Administrative period: Up to 90 days; provides employers with time to review the results of the measurement period, determine which employees are “full-time” and benefits eligible during the stability period, and then provide those employees with an opportunity to elect coverage.