Thursday, March 27, 2014

ACA Transition Relief/Delay Extended...Maybe

On March 5, 2014, the White House announced a two-year extension to the previously announced one-year transition relief allowing individual and small group insured members to "keep the plans they liked".  In other words, delay the implementation of several Affordable Care Act (ACA) provisions for another two years.  This extension is subject to the same stipulation affecting the initial one year delay announced on 11/14/13, which is that both insurers and States must allow and approve of the relief/delay.  A previous blog post addressed the initial delay.

To access the complete article, click - https://smstevensandassociates.com/ResourceLibrary/tabid/192/Default.aspx

Wednesday, March 19, 2014

ACA Tampering...The New Jenga!


Anyone that has ever played the game – Jenga – or any other “stacking” game appreciates the challenge, if not the risk, associated with removing individual pieces of a constructed mass.  If just a single piece is yanked out of the construct, the entire design crashes down, leaving a mess of pieces, and nothing resembling the original design.  Approaching its 4th anniversary, the Affordable Care Act (ACA), or Obamacare, is gradually turning into a great big game of Jenga!  Ironically, a law that was passed on a 100% partisan, party-line basis is now being attacked directly and indirectly, from both sides of the aisle, democrat and republican alike. 
To date, a number of ACA provisions (or in Jenga terms – pieces) have been delayed, repealed, or had legislation introduced in an effort to change it somehow.  Some examples include:  the employer mandate (delayed); the individual mandate (legislation proposed); the CLASS Act (repealed); medical device tax (legislation proposed); non-discrimination standards (delayed); minimum loss ratio; 1099 provision (repealed); and now, the risk mitigation programs.  Sadly, if not frighteningly, the rationale for delaying, repealing, or removing various provisions of the ACA now seem to be based less on making the law better (or work),  and more on gaining political favor among the voting electorate.  Again, this is happening on both sides of the political aisle, and is dangerous at best, perilous at worst!
The latest ACA provisions coming under threat of removal by way of congressional action are the “risk mitigation” programs carefully embedded in the law.  These elaborate risk mitigation programs – 1. Risk Corridor; 2. Transitional Reinsurance; and 3. Risk Adjustment - were designed to stabilize the dramatically revised health insurance marketplace, particularly for the first three (3) years of the law’s rollout.   The changes to our healthcare financing and delivery sectors (whether you agree or disagree with the end product) brought about by the ACA, required very careful and precise treatment of the elaborate and decentralized insurance mechanisms in existence at the time. 
It’s important to keep in mind that our U.S. healthcare system is still based on a private marketplace, albeit with a very high degree of government regulation.  Any attempt to improve, reform, or modify the system relies on the involvement and participation of private sector, mostly for-profit companies.    Accordingly, the risk mitigation programs designed and included in the ACA were meant to address of number of critical aspects:
  1. Provide the necessary protections, if not confidence, to encourage as many insurers to remain in the market and offer coverage as possible.  Insurance company actuaries had no historical basis with which to calculate premiums in the post ACA era.
  2. Offset the elimination of previous barriers to health insurance coverage, such as pre-existing condition limitations, underwriting, and premium rate setting.  These historical insurance techniques allow insurers to offer generous insurance protection at reasonable rates.  Without these and other historically relied upon and used techniques, insurers needed carefully crafted ways to continue offering coverage at reasonable rates.
  3. Limit resultant market disruption which would lead to higher rates and fewer insured individuals…exactly the opposite of the overall goal of the ACA.
  4. Keep the premium subsidies at reasonable and affordable levels, and avoid skyrocketing subsidy amounts tied directly to potentially escalating premiums.
My Jenga game analogy is by no means, meant to diminish the potentially devastating effects of dismantling the ACA, piece by piece.  Well intended or otherwise, efforts to pick apart the ACA, piece by piece, provision by provision, will without question lead to undesirable results.  The old saying – “be careful what you wish for” applies quite well here.  With respect to risk mitigating programs, these are neither new nor heretofore unseen.  Barely a decade ago, the Bush administration’s Part D Medicare Drug program relied on a strikingly similar program, and like the ACA’s risk corridor program, had a finite time frame associated with it (six years, compared to the ACA risk corridor’s three).  There are a host of other private sector insurance programs that rely on very similar, government collaborative risk stabilizing programs (e.g., flood insurance, crop insurance, and terrorism risk coverage).
Those looking for more of a “return on investment” or ROI rationale for leaving the ACA’s risk stabilizing programs intact might find the Congressional Budget Office’s (CBO) recent report interesting.  The CBO projects that under the risk corridor program, participating insurers will pay in $16 billion, while the federal government will pay out $8 billion.  Not a bad ROI.  Ironically, the CBO projected that the one year delay in the employer mandate (a previous ACA piece meal tweak) would result in a loss of a little over $8 billion in lost fine revenue in 2014.  I believe we just found a way to “clean up” the mess left by this bit of incremental tinkering, by leaving the law alone!
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Wednesday, March 12, 2014

ACA EMPLOYER Reporting Requirements



Last week (March 5, 2014), the IRS and the Department of Treasury (DOT) released FINAL rules related to some very important Affordable Care Act (ACA) requirements addressing health insurance plan reporting.  These reporting requirements (originally set to take effect at the end of this year, but delayed one year along with the employer mandate) affect employers with 50 or more full-time employees (including full-time equivalents) starting in early 2016 for plans in force during the 2015 calendar year (regardless of anniversary or ERISA plan date).   Reporting is voluntary for 2014/2015, although it might not be a bad idea to consider a "dry run" in preparation for the 2016 requirement.  This week's post provides a very general overview of the final rules and their impact on what the rules refer to as ALE's or applicable large employers, which again, are those with 50 or more FT or FTE's.

To access the complete article, click - https://smstevensandassociates.com/ResourceLibrary/tabid/192/Default.aspx

Wednesday, March 5, 2014

ACA's Cadillac Tax


Ordinarily, this blog addresses current events in the health insurance and health care spaces.  But this week I'm making an exception and informing about a provision of the Affordable Care Act (ACA) that is not set to take effect until 2018.  Many of the clients, colleagues, friends and audiences I encounter are talking (if not worrying) about the so called Cadillac tax...now!  Accordingly, this week's post is meant to provide some background on this provision, if not for those merely worrying about it, but for those that are long term planners.  Please keep in mind that final regulations addressing the Cadillac tax have not been released to date.  Here is what we do know...

  • The Cadillac tax provision is set to take effect - "for tax years beginning in 2018".
  • It is an excise tax of 40%, applicable to "high-cost group health coverage" (more on that).
  • It applies to all group health plans (i.e., governmental, private-sector, fully insured, self insured).  The tax does NOT apply to excepted benefits, which include the following coverages:
  1. Long term care 
  2. Dental 
  3. Vision
  4. Accident
  5. Disability Income
  6. Supplemental liability
  7. Workers compensation (or similar coverage)
  8. Automobile medical
  9. Credit-only
  10. Other similar coverage under which benefits for medical care are secondary/incidental
  • The tax is applicable to an employee's "excess benefit" and is calculated by the employer, and paid either by the employer or the employer's coverage provider (i.e., insurer, employer, third party administrator).  There are two (2) separate excise benefit tax annual limits (or thresholds), based on distinct classifications of employee:
  1. Most employees$10,200 (employee only); $27,500 (employee + dependent(s)); and
  2. Qualified Retirees/High Risk Professions/Employees that repair/install electrical/telecommunication lines:($11,850 (employee only); $30,950(employee+dependent(s) Note: high risk professions include law enforcement, fire protection, emergency medical technicians, paramedics, first responders, individuals in the construction/agriculture/forestry/fishing industries, long shore work; and retirees from one or more high risk professions for a minimum of 20 years.  
These amounts may change in 2018, based on significant changes to the cost of health care between 2010 - 2018.  The annual limitation will be adjusted annually to reflect cost of living changes, and may also increase based on age and gender adjustments.
  • Self funded plans utilize COBRA premium rate equivalencies for tax calculation purposes.
  • In short, premium (and spending account) amounts that exceed the aforementioned annual limits are subject to the 40% excise or Cadillac, tax.  For example, an employee with family coverage having a total (employer + employee share) annual premium of $32,500 would subject an employer to a Cadillac tax for that employee of $32,500 - $27,500 = $5,000 x .40 = $2,000.
  • Special rules apply in determining the cost of spending account based coverage (i.e., HSA, HRA, and FSA) as follows:
    • FSA - the amount of an employee's salary reduction contribution is subject to the tax.
    • HSA - employer contributions and employee contributions that are made on a pre-tax basis are subject to the tax. (Note: after-tax employee contributions are not.)
    • HRA - since these are 100% employer funded, the entire amount of the HRA is subject to the tax.
  • Penalties for non-compliance equal 100% of the underpayment plus interest
According to a projection published by benefits consulting firm TowersWatson, 60% of large employer plans will be subject to the Cadillac tax in 2018.  Also, based on projections published by the Kaiser Family Foundation for 2018, the average cost of employee only coverage will be $9,040; and family coverage will be $25,350.  If you consider the additional costs associated with spending accounts, it will not be difficult to arrive at Cadillac tax exposure.
 
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