Last night’s vote was about change, but what will Donald Trump’s presidency mean for healthcare benefits? The ACA will almost certainly change, although it is unclear if we will see full repeal or a major overhaul. With that said, Republicans won’t want to risk the backlash of kicking 25 million constituents off their plans. The task at hand is to “fix” the parts of the ACA that are ineffective. At this point, here’s what we think we know:
- The popular features of the ACA will likely remain, such as expanded eligibility for dependent children to age 26; the ban on pre-existing condition limits; and the closed gap in Medicare prescription coverage
- Repeal of the excise tax could become a reality -- but would a cap on the employee tax exclusion take its place?
- We’ll see a laser focus on how to create new, competitive markets for individuals who don’t get coverage through their employer or public programs, with Trump favoring individual tax preferences
Recent Mercer survey results found employers divided on repealing and replacing the ACA, with clear variation by employer size. While a majority of small employers favors repeal and replace (65% of those with 10-499 employees), that falls to just 36% of those with 20,000 or more employees. Our interpretation is that it is not the “repeal” as much as it is the “replace” that makes employer support uncertain. Given a Trump presidency and a Republican-controlled Congress, here are key issues for employers as they consider the impact on their health program strategies:
- Many employers welcome the promise of repeal of certain ACA requirements, especially the excise tax, the employer mandate, and reporting. But be prepared; it could take time -- a year or two -- for all the transitions to take place. These changes may need to be part of a larger plan for covering the 25 million uninsured who went to the public plans and Medicaid.
- Enrollment in high-deductible health plans continues to grow and there is keen interest in expansion of HSAs. Legislation has been proposed to increase funding limits and allow funds to be used for OTC medications, telemedicine visits, and onsite clinic visits to support further growth.
- While the rise of consumer-directed health plans has been an effective cost-management strategy, it has put financial pressure on employees and their families, so employers need to keep pushing for greater health care price transparency.
- Employers will also need to double down on Rx strategies. Republicans are less likely to go after pharma to control drug prices, and projections are for an additional $25B annually in new drug spend.
- More states passed time-off/sick leave laws. At the same time, employers are working on a proposal to get the federal government to pass ERISA-like safe harbor rules to ease the administrative burden of compliance with state and local laws.
Employers have done a great job of holding health benefit cost growth mostly below 4% in the years after the passage of the ACA, and 2016’s increase of just 2.4% was one of the lowest we’ve seen in decades. The threat of the excise tax was certainly a factor, and some employers made benefit cuts they didn’t want in order to hold down cost. To keep health care cost growth at sustainable levels in the years ahead will mean changing the health care system for the better, to ensure people get the right care, in the right place, at the right time -- and error-free.
Employers provide health care coverage for more than half of the American people and are uniquely positioned to be a driving force for meaningful change in how care is accessed and delivered. It is important that your voice is heard as the new policy debates begin. But don’t wait for the government. All of us must keep working to drive cost-effective care and better outcomes for our employees and their families.
The good news is that employer ACA reporting was delayed for 2014. The bad news is that your employees may be prompted for the new Form 1095 when they file their taxes for 2014. The Form 1040 will prompt filers to indicate whether they had health care coverage in 2014. While a recent press release from the Departments of Treasury and HHS states that, for many with employer-sponsored health insurance, indicating coverage status will be as easy as "checking the box," what makes it more complicated is the taxpayer documentation required in order to "check the box" and/or have on file in the event of an audit later.
Employer messaging with W-2 distribution could prevent employee calls to the payroll and benefits department during tax filing season. To start with, let employees know they may be asked for a 1095 and let them know this was a requirement the government delayed for employers until next year. Then you might suggest what they could use to document their coverage. Here are a few ideas:
- End-of-the-year payroll stub with health insurance deduction information.
- Health insurance ID card.
- Copy of the summary plan description (SPD).
- Enrollment confirmation statement from open enrollment for 2014 (you have yours, right?).
- Exchange Notice (if you completed Part B: Information About Health Coverage Offered by Your Employer)
You might also consider adding a similar message to the benefits and payroll pages on your online systems where employees might go in search of a 1095.
Advance preparation and communications could reduce calls and emails for HR staff, and help employees avoid additional stress during tax season.
Everyone is shifting into planning mode this month, thinking about open enrollment for 2016 benefits. Whether you are making major benefit plan changes, going out to bid for services, or keeping things status quo, here’s what you need to keep in mind relative to the ACA.
Reporting requirements. If you have not yet established processes for ACA reporting for 2015, you are not alone. Many employers are just now focusing on the requirements and looking for resources to support compliance. There are many third-party options available to help if your payroll or HRIS teams don't have the bandwidth. But it’s best to get started now.
Tracking hours. Stay on top of eligibility determinations for variable-hour employees in a measurement period. Now that we are in full ESR compliance mode, be sure that your tracking systems are working well and a process is in place to identify individuals who should be offered benefits at the end of your initial and standard measurement periods. This will be an extra step in planning for open enrollment.
Temporary Reinsurance Fee. Just as a reminder, the annual fee is $44 per covered life for 2015 ($33 payable in January 2016, $11 in December 2016). As you project costs for 2016, remember that the fee will reduce to $27 per covered life, payable in a lump sum or two installments of $21.60 and $5.40.
Excise tax. We were pleasantly surprised to get documentation from Treasury for review and comment (IRS Notice 2015-16). It is the first of two documents they intend to release, with the second coming in a few months. The real takeaway, as it relates to 2016 planning, is that 2018 is not that far away! It is a good idea to look at a projection for 2018, based on what we know today, to determine your risk for hitting the threshold (here’s a calculator you can use that takes your medical plan costs as a starting point). Many employers have been making changes in anticipation of the tax for several years.
Exchange subsidy notices. Now that open enrollment for the public exchange is wrapping up, you may receive a notice if one of your employees signed up for subsidized exchange coverage. If you have multiple locations, you should alert staff at each site that a notice could be sent to their location and let them know where to forward it. It is also a good idea to establish a process for reviewing the notice and deciding how to respond under the various possible scenarios, including communication with the employee and/or the exchange.
Summary of Benefit Coverage (SBC). Be sure to check for updated template language and include the SBC on your open enrollment communication check-list.
Yes, I know it feels like 2015 open enrollment just ended. But with ACA compliance, as with your health, an ounce of prevention is worth a pound of cure.
The ACA reporting deadlines for minimum essential coverage and employer shared responsibility occur in the first quarter of 2016. Individual statements (Form 1095-Cs) have a Monday, February 1, 2016, deadline and the IRS electronic transmittal due date (Form 1094-C) is Thursday, March 31, 2016.
Several months ago, about half of the employers we surveyed did not yet have a plan for how they would comply with the reporting requirements. Some may initially have thought they would handle the work in-house but now have decided to seek outside assistance from one of the many third-party vendors that offer reporting solutions. However, we have been hearing that because of demand and the lengthy implementation that the work requires, some vendors can no longer commit to meeting the reporting deadlines. They are offering to send the 1095-Cs at a later date in February or in March.
Is this feasible? And if so, what are the risks? In fact, the rules clearly allow for an extension for both deadlines (as described in the 2015 reporting instructions):
- 1095-Cs. Per 26 CFR §301.6056-1(g)(1)(ii), you may apply to the IRS in writing for a 30-day extension. A simple letter to the IRS requesting the extension and providing the reasons it is needed can serve as an application. While the IRS has authority to provide procedures for automatic extensions, we are not aware of any plans to do so. The 2015 reporting instructions contain more information on the content of this letter.
- 1094-Cs. Per 26 CFR §301.6056-1(e), referencing 26 CFR §1.6081-8, the IRS will grant an automatic 30-day extension upon an employer’s filing of Form 8809. You can submit a request for a second 30-day extension if submitted before the initial extension period ends but the second extension is not automatic.
For the 1095-C, the obvious risk is that the IRS will not grant the extension. Also, employers should consider employee reaction to a delay. Recall that the 1095-C may be required in order to complete personal income tax filing. (See lines 46 and 61 of Form 1040).
Seeking an extension, though, may become the best choice for employers who do not choose a reporting solution soon. If you haven’t finalized plans for reporting, act now!
- Review the alternative reporting options — i.e., qualifying offer, qualifying offer transition relief, and 98% offer. These options can make reporting somewhat simpler, particularly for fully insured plans.
- Evaluate resources available to see if handling the reporting in-house is feasible. Even though the requirements are pretty complex, a third of employers we surveyed thought it was.
- Consider the pros and cons of filing for an extension.
While it’s far from clear where the incoming administration and Congress will land on the “replace” part of “repeal and replace” with regard to the Affordable Care Act, they are signaling interest in promoting the use of health savings accounts by expanding eligibility and allowing funds to be used for more purposes. High-deductible HSA-eligible plans already feature in many employer health benefit programs. In 2016, 21% of all covered employees were enrolled in an HSA-eligible plan. Enrollment has been rising over the past decade as employers -- especially large employers (500+ employees) -- have added HSA-eligible plan choices to their health programs. The threat of the excise tax was a big motivator for employers to move employees into lower-cost plans; while the excise tax may go by the wayside, there is now discussion of capping the individual tax exclusion for employer-provided health coverage, which could still drive cost pressure on employer-sponsored health plans.
It is relatively uncommon for a large employer to offer an HSA-eligible plan as the only plan. Many are concerned that these plans might not be a good fit for all employees in their population. In fact, among employers that have offered an HSA as a choice for at least three years, average enrollment has only reached 38% of covered employees -- even though employee paycheck deductions for these plans are significantly lower. Among large employers, for employee-only coverage in an HSA-eligible plan, employees contribute $84 per month on average, compared to $132 for PPO coverage. For family coverage, the difference is $321 vs. $467. In addition, 75% of large employers offering HSA-eligible plans make a contribution to the employees’ HSA -- typically $500 for an individual.
While per-employee cost for these plans is 22% less, on average, than cost for a traditional PPO, some employers question whether the savings are due largely to selection -- the tendency of younger, presumably healthier employees to choose the HSA plan over a richer PPO or HMO. It is true that when the HSA plan is offered as a full replacement, the average HSA cost is higher than when it is offered as a choice. But perhaps the more meaningful comparison is total health cost per employee -- the cost for all enrolled employees across all medical and dental plans. Among large employers offering an HSA-eligible plan as a choice, total health benefit cost averages $12,529; among those offering a full-replacement HSA, it averages $10,732. Plan design and other factors may account for this difference in cost, but not selection. Studies have shown that the higher cost-sharing levels in an HSA-eligible plan are associated with lower utilization of health services. It has not been demonstrated if, or how, this lower utilization affects the health of enrollees.
Changes in health policy may well have employers reconsidering a full-replacement strategy. And while many employers that already offer these plans also provide financial planning resources, transparency tools, and resources such as telemedicine to help mitigate employees’ growing financial risk, the fact remains that for employees without sufficient savings and significant health expenses, a high-deductible plan can result in financial hardship. On the other hand, for many employees, the HSA is an extremely efficient way to save for future health expenses, and may become even more so under the new administration. The key to making the decision to offer an HSA alone or as a choice is understanding employee needs and preferences, as well as the new resources that are available to help make HSAs work better for everyone.
Time flies. We can finally see the light at the end of the tunnel for ACA compliance. But the last ACA requirement poses the biggest challenges for most employers, and that’s (drum roll) the excise tax slated to go into effect in 2018. Since today is the deadline for the second round of comment letters to the IRS, we thought it would be timely to kick off a series of posts on this important topic. What will follow over the coming days are pieces written by Mercer colleagues with a broad range of expertise, focusing on tax-avoidance strategies and how the excise tax may affect other HR and business objectives.
So how big of a deal is the excise tax for employers? In a webcast that we hosted last week, we posed several questions to employers in an exit survey. Roughly half (52%) of the 100 attendees who took the poll told us they will need to make changes to their current medical plans to avoid the tax in 2018. And remember that health benefit cost rises faster than the excise tax threshold, so even employers that can get by in 2018 will probably need to make changes at some point to avoid the tax.
We asked another question that has important implications for policymakers as well as employers: When employers make changes to their plans that save money, what will they do with the savings? Government projections for revenue stemming from the excise tax are based on the assumption that employers will return a good portion of the savings to employees in their paychecks. Our poll suggests otherwise. Only 5% of respondents said they planned to increase employee compensation. Granted, about half of the respondents had not made changes yet, but even if you double those planning to increase compensation, you only get to about 10%. Employers with savings were more inclined to add health-related benefits not subject to the tax, or to add to the 401(k) match. While we make no claims that this “quick and dirty” survey is at all representative, the results line up with what a lot of us have been hearing from our clients.
One thing we know for sure, employers want the excise tax repealed. Here at Mercer, we are doing our part to support your interests. We joined the Alliance to Fight the 40, a broad-based coalition comprising public- and private-sector employer organizations, unions, health care companies, businesses, and other stakeholders that support employer-sponsored health coverage. In addition, we are frequently invited to Capitol Hill and various branches of the government — HHS, DOL, and Treasury/IRS — to share our survey data and represent employers’ perspectives. And, in the event that repeal efforts fail, we are active in the effort to shape the regulations on the excise tax that would make it more friendly to employers and their workers. Mercer has responded to both of the Treasury’s requests for comments on the tax.
To get this series started, Geoff Manville will provide an “inside the beltway” view of what is happening with the repeal efforts, and Beth Umland will share some interesting data on why we don’t really think it is a “Cadillac” tax. You will be able to identify the pieces in this series by the picture above. For those of you who have not been to Washington, DC, since your high-school field trip here, the picture is of the Treasury Building, right next door to the White House. Enjoy the series!
Plans that implement reference-based pricing (RBP) set a maximum amount payable for specific procedures. Higher-than-normal cost sharing applies for providers charging above reference price. Employers using or considering RBP need to stay on top of ACA rules and guidelines to avoid potential compliance problems:
- The ACA set limits on out-of-pocket expenses for non-grandfathered plans ($6,600 for individual coverage; $13,200 for other than individual coverage).
- An FAQ issued on May 2 indicated that a large insured or self-insured group using RBP would not be considered as failing to comply with the out of pocket limits as long as the plan uses “any reasonable method” to ensure adequate access to quality providers.
- The new FAQ specifies factors to determine if the use of RBP is “reasonable,” which would presumably allow the plan not to count costs beyond the RBP against the out-of-pocket maximum.
So what do employers need to keep in mind with RBP to keep it “reasonable”?
- Type of service: Plans must offer the member sufficient time to make an informed choice of provider after the need for care has been identified; RBP cannot be applied to emergency services.
- Reasonable access and quality standards: Plans must have an adequate number of providers that accept the RBP and ensure those providers meet reasonable quality standards.
- Exceptions process: Plans must establish an exceptions process that is easily accessible by members.
- Disclosures: Plans must automatically provide information about the pricing structure, a list of applicable services, and the exceptions process. Upon request, plans must provide a list of providers that will accept the RBP, a list of providers that will accept a negotiated price above the RBP and the underlying data used to ensure an adequate number of providers who accept the RBP meet reasonable quality standards.
More employers are using RBP — should you?
According to Mercer’s survey data, in 2013, 10% of large employers (500+ employees) used reference-based pricing, and 22% were considering it. This strategy is more common among larger employers, and that’s where we’re seeing growth. Among employers with 10,000 or more employees, 15% used reference-based pricing in 2013, up from 10% in 2012. An additional 30% say they are considering it.
Why all the interest in RBP? There is huge variation in cost for some medical services from one provider to the next. Worse, most often patients don’t know how much a service will cost even when they are at the doctor’s office — they find out only when they receive an explanation of benefits (EOB) in the mail weeks after the care was provided. RBP provides an incentive to the consumer to review pricing information in advance and to select a provider accordingly. Employers typically start off with a short list of services/procedures for RBP and expand as members gain experience with the approach and learn to use tools to support decision making. Services where we see great cost variation without much variation in quality — like an MRI — are often the focus of an RPB strategy. And a side benefit of RBP is that, once it has been introduced in a community, you often see the highest-cost providers lowering their prices so they don’t lose business.
RBP is all about transparency, an issue of growing importance to both employers and employees, who, as out-of-pocket costs rise, are more interested in information on the cost of services because they may be paying for it themselves. The market is responding to the new demand. There are now several specialized vendors providing this service and most insurance companies have built (or contracted for) a tool.
This makes it easier for employers pursuing RBP to meet the requirements for providing a “reasonable method” for finding and accessing quality providers. Transparency is not just about the price. Many of the transparency tools also include access information and some type of quality indicator. A best practice would be to pair pricing transparency with medical decision support, to convey the message to employees that now that they know how much the treatment costs, they might be interested in knowing more about alternatives to consider.
Best-in-class transparency tools can also alert members to cost-saving opportunities without them ever needing to initiate a search, and even target messaging based on member searches. For example, a member who searches for information on pregnancy would receive maternity management program pop-ups. Reminders about employer-specific programs (health assessments or onsite/near-site services, for example) can be sent as well.
I will be interested to learn if employers think the most recent FAQ on “reasonable” application of RBP is supportive of medical management and consumerism techniques — or viewed as an additional constraint that makes the effort less worthwhile. For employers in the latter camp, I would encourage at least looking into transparency tools to see if they can smooth the way.
This week, all eyes are on the presidential hopefuls as the primary election season kicks into high gear. With health care on the docket as one of the key domestic policy issues of this election, it’s important for voters to know where each candidate stands, relative to the ACA and Medicare.
Our blog team put together the following summary that we share with a caveat -- these are our impressions of the candidate’s views based on what we have read in the news and seen on TV.
On the Democratic Side:
- Hillary Clinton is a proponent of the Affordable Care Act, albeit with a few tweaks that she says would reduce consumers’ out-of-pocket and prescription drug costs. For instance, she proposes having Medicare administrators negotiate with drug companies for lower prices for beneficiaries, requiring health insurers to cap out-of-pocket drug spending at $250 per month, and mandating that all plans (including employer-sponsored) provide individuals with three sick visits per year before needing to meet their deductible. She opposes any plans to privatize Medicare and she supports the state expansion of Medicaid under the ACA.
- A supporter of universal health care, Bernie Sanders thinks the ACA didn’t go far enough, creating an interesting rift in the Democratic Party. Sanders wants to expand Medicare to create a “Medicare-for-all” single-payer national health insurance. This tax-supported single-payer system would entail no premiums, deductibles or cost-sharing, and private health insurance would only exist to provide supplemental coverage. Until then, he supports the expansion and improvement of Medicaid for low-income families.
On the Republican Side:
- Ted Cruz wants to repeal the ACA (as do most of the Republican candidates) and cut the link between health insurance and employment. He also wants to expand health savings accounts and allow insurers to sell plans across state lines. But he has kept mum on what he would do to maintain the ACA’s coverage expansion, if he were to abolish the law. As for Medicare, he would raise the eligibility age and move to a premium-support system in which beneficiaries are given a fixed government contribution to buy a Medicare insurance plan; if the plan exceeds this amount, individuals would be accountable for the difference. Cruz also opposes Medicaid expansion under Obamacare.
- Donald Trump opposes both the ACA and the idea of a single-payer system. He says he would repeal the ACA and allow consumers to buy plans from insurers in any state, no matter where they live, and he supports the use of HSAs to pay for medical expenses not covered by insurance. He has said that he would preserve Medicare by strengthening the economy enough to support the program.
- Marco Rubio would like to repeal the ACA and replace it with a refundable tax credit to help people purchase health insurance, which would increase each year with a gradual reduction in the tax exclusion for employer health plans. He would also establish high-risk pools funded by the federal government to cover those with pre-existing conditions, allow insurers to sell plans across state lines, and expand HSAs to pay for medical expenses not covered by insurance. He says he would preserve traditional Medicare for current beneficiaries, but future generations would be transitioned into a defined-contribution, premium-support system. He also says he’d convert Medicaid into a capped state block grant program.
- The M.D. of the presidential hopefuls, Ben Carson advocates repealing the ACA and replacing it with health empowerment accounts (HEAs) to be given to all US citizens along with their social security numbers. Citizens would contribute to their HEAs tax-free and would be able to use the accounts to pay for medical expenses for themselves and their family members. The money is theirs, whether they change jobs or move across state lines, and would be paired with high-deductible health plans for catastrophic medical costs. In terms of Medicare, he’d give beneficiaries a fixed contribution with which to buy private health insurance, and if their plan of choice costs less than the government contribution, the remaining dollars would go straight into their HEAs (and if it costs more, the difference could come out of their HEAs). He’d also increase the Medicare eligibility age from 65 to 70, with beneficiaries able to use their HEAs for out-of-pocket expenses, deductibles, and co-pays.
- Like his Republican counterparts, Jeb Bush wants to repeal the ACA, but his plan seems to rely on the employer-based system more than the others. He says he’d offer a tax break for workers on health benefits they receive through their employers and let small businesses make tax-free contributions toward their employees’ plans. In addition, he’d provide a tax credit for catastrophic insurance plans and increase contribution limits for HSAs from $3,350 to $6,550. He’d also cap the employer tax exclusion so that employer-sponsored plans costing more than $12,000 for individuals or $30,000 for families would be taxed. He wants to privatize Medicare and provide lower government subsidies to wealthier people.
- John Kasich wants to repeal the ACA, though he expanded Medicaid in Ohio under the law as governor, and he has said that he supports coverage for pre-existing conditions. He thinks there needs to be more of an emphasis on patient-centered primary care, and he criticizes the fee-for-service system, wanting to reward value instead of volume.
We offer a few general observations about any possible changes being discussed:
- First thing to keep in mind is that more people have health insurance today than before the law was passed -- 12.7 million are enrolled in the public exchange with most getting a subsidy and an additional 7 million are covered by expanded Medicaid or CHIP. Those who favor ACA repeal need to keep in mind the challenge to make sudden any changes that would adversely impact 18 million new beneficiaries.
- From an employer perspective, over the past five years we have made benefit changes, taken on more administrative responsibilities and communication requirements, and paid significant fees to support the ACA. Several of the ACA requirements were very popular with employees -- expanded dependent eligibility to age 26 and the elimination of lifetime maximum benefits to name just two. While we might be happy to see all the ACA requirements go away, we realize some features may be hard to roll back. On the other hand, some of the candidates favor approaches that would rely even more on employer support.
- Finally, the excise tax on high-cost plans has long been the number one ACA concern for employers. The two-year delay is a step in the right direction and we are hopeful that step is actually a step closer to repeal of the excise tax provision. Stay tuned for a separate post on the lack of meaningful impact of the proposed changes in the 2017 budget.
Fasten your seat belts, it will be an interesting ride!
Mercer met with Congressional staff on June 11 to provide input on developing legislation that would modify the ACA’s 40% excise tax on high-cost plans. Mercer recently submitted comments to the IRS on how to implement the tax starting in 2018, but more fundamental reform can only be achieved through enactment of new legislation.
In our meeting, we outlined guiding principles that should provide a framework for evaluating any legislative change to the excise tax. These principles include:
- Plan value — The tax should not apply to typical plans, regardless of plan cost. Employers should not be penalized if costs are high due to factors such as geography, coverage of a high-cost population, and industry.
- Plan cost — The tax should not apply to plans that effectively control costs, regardless of actuarial value. Employers — and their employees — should continue to benefit from cost management initiatives, including health management and network/ supply-side strategies.
- Innovation — The legislation should promote programs and plan features that encourage optimal healthcare use.
- Predictability — The tax should be predictable when setting future year plan offerings or negotiating collective bargaining agreements. The calculation methodology should appropriately combine standardization and actuarial judgment.
- Simplicity — The process for determining and submitting the tax should be straightforward.
The excise tax passed as part of the ACA does not meet these objectives. We explained the benefits of legislation that would allow plans to avoid the tax by either maintaining costs below a dollar threshold (with adequate annual increases) or by satisfying a safe harbor through offering plans with an actuarial value no higher than a specified threshold. We shared Mercer survey data and other statistics illustrating the dramatic relief that could be achieved if the proposed legislation becomes law. Hill staff was keenly interested in the issues we raised and the supporting data. We will continue to share data and our perspective to support new legislation that can benefit plan sponsors.
Federal guidance issued in May addresses the interaction of COBRA with the ACA. The Department of Labor (DOL) has updated its model COBRA general and election notices for employers to use; Spanish versions of the notices also are available. Accompanying DOL proposed regulations and interagency “frequently asked questions” guidance explain that public exchanges may offer better coverage options than COBRA in some situations, and to optimize their decisions individuals need to understand the somewhat complex interaction of COBRA and exchange enrollment, including eligibility for exchange subsidies. Final rules published May 27 by the Department of Health and Human Services further clarify some of these issues.
Under guidance from the Centers for Medicare and Medicaid Services, dropping COBRA coverage normally isn’t an exchange special-enrollment event, but individuals who currently have or are eligible for COBRA coverage can enroll in federally run exchanges through a one-time special-enrollment period until July 1.
In Congress, Senators are poised to consider President Obama’s pick to lead the Health and Human Services Department, Sylvia Mathews Burwell. Currently the director of the Office of Management and Budget, Burwell would succeed Secretary Kathleen Sebelius, who announced her resignation last month. Republican senators will continue to press for a vote on repealing the law’s medical device tax, although leaders of the Democratic-controlled chamber aren’t likely to oblige.
Traditionally, employers have not thought of opt-out credits as increasing the cost of employee coverage. But in a recent HIPAA FAQ unrelated to affordability, regulators said that cash payments — or opt-outs — offered only to employees likely to generate high claims costs violate HIPAA’s prohibition against discrimination on the basis of health status.
The regulators reasoned that when an employer offers these cash opt-out incentives, the targeted “unhealthy” employees who enroll in the employer’s group health plan are effectively paying more than other “healthy” employees who enroll without losing any cash payment. While all employees ostensibly pay the same cost for coverage under the plan’s terms, the targeted employees’ true cost is the stated premium contribution plus the cash opt-out payment they forgo by enrolling in the employer’s health plan. Clear as mud, right?
Some employers offer a cash payment more broadly to all employees who waive the employer’s group health plan. If the reasoning of the high-cost claims opt-out provision applies generally to opt-outs, the required contribution of any employee eligible for an opt-out would be the premium contribution plus the opt-out amount — raising the required employee contribution by the amount of the opt-out.
Admittedly, this could be a stretch. For now, it is unclear whether the same analysis applies when calculating the affordability of coverage under ACA’s play-or-pay requirements, individual mandate, and eligibility standards for public exchange subsidies. To date, IRS has not indicated that it will apply this HIPAA opt-out analysis to affordability calculations. Because of the lack of direct IRS guidance on this opt-out issue as it applies to affordability — and because employers have not traditionally thought of opt-outs as increasing the cost of employee coverage — it’s not clear that IRS would require employers to include opt-outs in the cost of employee coverage without addressing this issue explicitly.
But to be on the safe side, employers should consider whether their opt-out credits may adversely affect the affordability of their coverage. If you have an opt-out design, you will want to monitor future guidance and review your plan’s affordability with legal counsel.
While the recent IRS request for comment on implementing the 2018 excise tax on high-cost coverage gave us insight into what the IRS is thinking, it isn’t the formal guidance that we desperately need. This makes it tough on employers heading to the bargaining table this year. A recent article in The Wall Street Journal highlights the challenges facing the big three automakers as they prepare to negotiate this summer with the UAW, which historically has been very protective of its members’ health benefits. In other words, benefits are rich and costs are high. The law imposes a 40% excise tax on the annual cost of health plan premiums above $10,200 for individual coverage and $27,500 for family coverage. While it’s not clear whether UAW workers are enrolled in plans with costs that currently exceed the threshold, the employers and the UAW are concerned that, if costs continue to rise at their current rate, by 2018 the plans could face significant penalties. If they do, who pays?
Of course, the other option is to find ways to reduce plan cost and avoid triggering the tax. Typically, this would mean higher out-of-pocket cost for plan members, which unions have resisted. The big three automakers aren’t alone in facing this dilemma. Mercer survey data shows that, across all industries, large employers with at least 65% of their employees in unions have higher average costs — $13,659 per employee, compared to $11,421 among large employers with no employees in unions. What’s driving the higher cost? Only 8% of their employees are enrolled in a low-cost consumer-directed health plan, compared to 23% nationally. When a PPO is offered, the median individual deductible is $300, compared to $500 nationally, and 18% of sponsors don’t require any deductible, compared to just 8% nationally. In fact, virtually all cost-sharing provisions are lower among heavily unionized employers. And while these employers provide similarly robust health management programs, they are less likely to provide financial incentives to participate in the programs or to improve health habits. For example, only 13% provide an incentive for non-tobacco use, compared to 30% of employers with no employees in unions.
Where union plans are even more generous, however, is with premium contribution levels. Nearly a fifth of the unionized employers require no contribution at all for employee-only PPO coverage, compared to just 4% of the non-union employers, and the average contribution is just 15% of premium, compared to 24%. And when the unionized employers do offer a high-deductible health plan with an HSA, only 57% require any employee contribution, compared to 92% of the non-union employers. Low employee contributions don’t increase the risk of triggering the tax, since the threshold is based on total plan cost, but they do increase cost of the employer. Union employers looking for ways to avoid the tax could focus on plan design changes — like raising deductibles — to lower the total premium cost and yet still maintain union-friendly contributions that are below market.
Union plans also have cost drivers beyond their control — perhaps most significantly, their employees tend to be older. Adjustments for employee demographics is one of the many areas where we await guidance. That’s where these early challenges facing unionized employers could benefit the masses. This is a rare time where we find employers and unions on the same side of the table in Washington — pushing the government for guidance.
Do you know when your plans will hit the threshold? Our excise tax calculator will help you estimate exposure for the medical plan cost component — you just need to enter your number of employees and annual cost by medical plan tier.