Quagmire from the
Supreme Court
Decision
SEBC Fall Fly-in
Atlanta, October 2, 2012
Presented by
Robert Davis
Director
Deloitte Consulting LLP
Mark Holloway
Senior Vice President
Lockton Companies, LLC
Wayne Soud
Executive Vice President
Lockton Companies, LLC
1
Health Insurance Exchanges
What Is a Health Insurance Exchange?

A transparent, regulated, competitive marketplace for individuals to
purchase health insurance coverage for themselves and their families
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Established and operated by states
Each Exchange must offer a basic level of comprehensive benefits called
“essential health benefits,” as defined by HHS based on “typical” employer
plan
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Bronze (60% actuarial value)
Silver (70% actuarial value)
Gold (80% actuarial value)
Platinum (90% actuarial value)
Only private insurance products will be available
Customer assistance tools with information about prices, quality, and
physician and hospital networks, et al., will be available
Small employers (100 or fewer employees) may leverage Exchanges
to provide coverage to their employees
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States may extend this option to larger employers beginning in 2017
3
Why Do Employers Care About Exchanges?
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Decision to continue health benefits for employees (and/or retirees)
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Exposure to shared responsibility payments
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Employee perceptions of Exchanges as alternative to employer-sponsored coverage
Cost of Exchange coverage relative to employer-based coverage
Option to offer coverage through Exchange?
Employers offering coverage to full-time employees (30+ hours per week) will need
to design plan and premium subsidy to avoid $3,000 penalty for each full-time
employee who purchases coverage in an Exchange instead
Employers not offering coverage to full-time employees will pay $2,000 per full-time
employee penalty if any full-time employee purchases coverage in an Exchange and
qualifies for a premium tax credit or cost-sharing reduction
Administrative burdens
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Employers must notify employees about Exchanges
Employers must file annual report about health benefits with IRS and communicate
with Exchanges to help determine if shared responsibility payments are required
4
State Progress on Health Exchanges
Source: Kaiser Family Foundation, August 2012
5
Why Exchange-based Coverage Is Expected to Be More
Costly
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Self-funded Employer:
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Administrative fees typically less than 5% of overall costs. No profit, risk
charges, or state taxes.
Tax-deductible expense for company and pre-tax contributions for
employees.
Available to actively-at-work employees and their families who are healthier
than the general population.
Employee contributions based on salary, not age.
Health Insurance Exchanges:
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Insured premiums includes profit, risk charges, and state taxes.
Pool includes adverse selection because healthy lives purchase only as
needed.
Premiums after-tax and age-based with a maximum spread of 3 to 1.
Insurers subject to billions in additional taxes and charges.
6
Sample Projected Exchanges Rates – 2014
Kaiser Family Foundation 2009 Trended 9% to 2014
Age
Single
30
$4,117
$8,235
$8,235
$12,097
$16,414
40
$5,385
$10,770
$10,770
$14,517
$20,202
50
$8,352
$16,703
$16,703
$20,174
$24,865
60
CBO Average -All
Ages
$12,172
$24,344
$24,344
$28,772
$31,081
$4,264
Emp + Sp Emp + Chld Emp + Fam
Area Rates
trended to 2014
Emp + Fam
$11,562
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Anticipated exchange-based premiums were developed from the Kaiser Family Foundation Health
Subsidy Estimator model and validated from several additional sources including recent premiums
under Massachusetts's individual exchange as well as CBO projections.
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An individual-employee rate was developed for each employee’s age, coverage category and location
based on demographic and area factors.
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Federal subsidies were calculated using two methods 1) that consider only the employee’s salary for
determining household income and 2) a spousal income generator (RSIG) that randomly assigns
income based on gender, wage and age of the employee.
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Impact of Pay Option on Employees By Salary Range
8
Strategies to Mitigate Costs
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Restructure work force
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Could raise eyebrows with DOL
Can it be done in your business?
Cost increase to job share
Offer all FTEs current plans plus a 60%
plan that is affordable
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Eliminates worry over penalties
Still a cost increase (may be more expensive
than the Pay option depending on the # who
enroll and the PEPY net cost)
Keeps lower paid “winners” from getting
subsidized coverage in Exchange so is it the
right thing to do?
9
Strategies to Mitigate Costs (cont.)
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Offer all FTEs current plans plus a “minimum essential plan”
that costs less than the Exchange subsidized premium
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Plan will have to be very “skinny”
Could still be cost increase to plan but less than penalty
How many Ees will buy this coverage? How many Ees will still go to
Exchange?
Offer coverage to all or substantially all FTEs, but do
not worry about making it affordable
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Some employees for whom it is unaffordable
will not seek subsidized coverage in an exchange
For those that do, it might be cheaper for the employer
to pay the penalty than to subsidize the coverage
10
Summary of Benefits and
Coverage (SBCs)
Summaries of Benefits and Coverage (SBC)
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Two parts of new disclosure requirement for Group Health Plans
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SBC
Uniform Glossary
Supplements, but does not replace, the SPD requirement for ERISA
plans
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SBC requirement also applies to non-ERISA plans
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Must be provided at specified times, including at open enrollment and
upon request
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Notice of material mid-year changes not reflected in most recent SBC
must be given 60 days before such changes take effect
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Effective on the first day of the first open enrollment period beginning
on or after September 23, 2012
12
Summaries of Benefits and Coverage (SBCs)
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Take advantage of new rule that allows
electronic distribution for current enrollees
if plan uses on-line enrollment
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More generous than standard DOL rules for
electronic distribution
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Be mindful of accelerated notice if
contemplating midyear plan changes
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Headache: EAPs that provide counseling
benefits
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What if the required information cannot fit
within the required format?
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E.g., hospital with different plan design for
use of domestic facilities, in-network and
OON benefits
13
Construction and Review of SBCs: Keys to Watch For
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Providing SBCs in a “Culturally and Linguistically
Appropriate” Manner
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Enrollees residing in a county where according to 2010
census at least 10% of population is fluent in the same,
non-English language, and speak English less than “very
well”
Notice in that language, offering translation assistance
(must be prominent)
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If individual requests translation assistance…
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Insurer or TPA should have residence, for mailing of EOBs
Feds have supplied model one-sentence notices, in multiple
languages
Offer oral translation assistance (i.e. translation services
telephone hotline), and (upon request) supply the SBC in the
relevant foreign language
Feds have supplied templates and sample completed SBCs,
in multiple foreign languages: Spanish, Chinese, Navajo and
Tagalog
Recommendation: use the one-sentence notice for
everyone (or at least all those in the same state)
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Summaries of Benefits and Coverage (SBC)
Counties with > 10% individuals fluent only in non-English language
Alaska (2) - Spanish/Tagalog
Illinois (1) - Spanish
New York (3) – Spanish
Arkansas (1) - Spanish
Iowa (2) - Spanish
North Carolina (1) – Spanish
Arizona (3) – Spanish, Navajo
Kansas (8) - Spanish
Oklahoma (1) - Spanish
California (24) – Spanish, Chinese
Minnesota (1) - Spanish
Oregon (3) – Spanish
Colorado (7) - Spanish
Nebraska (3) - Spanish
Texas (72) – Spanish
Florida (8) - Spanish
New Mexico (7) – Spanish, Navajo
Utah (1) – Navajo
Georgia (4) – Spanish
[Atkinson, Echols, Hall, Whitfield]
Nevada (1) - Spanish
Virginia (2) – Spanish
Idaho (4) - Spanish
New Jersey (4) - Spanish
Washington (5) – Spanish
Puerto Rico (78) - Spanish
15
Determining Full-Time Employee
Status
Significance of “Full-Time Employee” Status Under PPACA
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Employer Shared Responsibility rules apply only to “Applicable Large
Employers”
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Employed an average of at least 50 “Full-Time Employees” for more than
120 days during the preceding calendar year
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“Full-Time Equivalent” employees counted for this purpose only
Special rule for seasonal employees
Employer Shared Responsibility penalties apply only with respect to
“Full-Time Employees”
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Potential $2,000 penalty per FTE if coverage not offered to FTEs and their
dependents
Potential $3,000 penalty for each FTE who opts out of the employer’s
coverage if it isn’t “affordable” or doesn’t meet a “minimum value” threshold
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Note: Penalties are “potential” because they are imposed only if a FTE obtains
coverage in a State Health Insurance Exchange and qualifies for a Premium Tax
Credit or Cost-Sharing Subsidy
17
Definition of “Full-Time Employee”
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The Employer Shared Responsibility rules only apply with respect to
“Full-Time Employees”
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“The term ‘full-time employee’ means, with respect to any month, an
employee who is employed on average at least 30 hours of service per
week.” IRC § 4980H(c)(4)(A).
“The Secretary, in consultation with the Secretary of Labor, shall prescribe
such regulations, rules, and guidance as may be necessary to determine the
hours of service of an employee, including rules for the application of this
paragraph to employees who are not compensated on an hourly basis.” IRC
§ 4980H(c)(4)(B).
Because of the potential penalties associated with not offering coverage
to “Full-Time Employees”, this definition raises many concerns
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Can part-time employees become full-time employees from time to time, just
because they work too many hours in a given month?
What about new employees, if the employer isn’t sure how much they will
work?
Are there any special rules for temporary and seasonal employees?
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IRS Notice 2012-58
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Describes safe harbors employers will be allowed to use to determine
which employees are “full-time employees”
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Different safe harbors will be available for different categories of
employees
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New employees
New variable hour or seasonal employees
Ongoing employees
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Employers will be able to rely on the guidance provided in Notice 201258 at least through the end of 2014
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Unanswered questions persist
19
Determining Full-time Employees
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Remember: PPACA contains no mandate to offer coverage to
employees averaging 30+ hours per week
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If you don’t, you are at-risk for penalties if the employee purchases
Exchange coverage
You really don’t have to track hours, if all you have are regular, fulltime employees and you’ll concede their “full-time” status under health
reform
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For other employees, where full-time status might be in doubt, start in
2013…
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Your obligation to offer FTEs health insurance—or risk penalties—begins January
1, 2014 (unless authorities will defer this…)
Even if it’s clear the employee is part-time, you’ll need to show the
hours to prove it, if you’re not offering qualifying and affordable
coverage to him or her
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Determining Full-time Employees
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Loose ends:
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What hours, precisely, do we count?
What if we re-hire a seasonal employee? Do we get to treat him or her as a
new hire?
Any special rules for staffing companies?
What about employees covered under a Taft-Hartley plan?
What measurement and stability periods do we use in the wake of a merger
or acquisition?
Managing hours < 30?
21
2012 Elections
Decision 2012 – The Future of Health Reform
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How Does the Election Shake Out?
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White House: President enjoys narrow lead in the polls, and is a gifted
campaigner
House: GOP likely to retain majority
Senate: Too close to call, but Dems probably deny GOP a majority
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Today: 51-47 Democrats lead, plus 2 independents who caucus/vote with
Democrats
33 seats up for grabs
GOP has 47 continuing, solid or leaning GOP seats
Dems have 47 continuing, solid or leaning Democrat seats
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Decision 2012 – The Future of Health Reform
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Possibilities…and Effect on Health Reform
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President wins re-election
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Romney wins, Dems hold the Senate
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Status quo, no matter who wins Senate
Status quo
Romney wins, GOP wins Senate and holds
House
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GOP lacks votes for cloture, but…
Can strip budget-related items from the law,
and…
Romney can imperil implementation
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Any Questions?
Robert Davis
Director
Deloitte Consulting LLP
[email protected]
Mark Holloway
Wayne Soud
Lockton Companies, LLC
[email protected]
Lockton Companies, LLC
[email protected]
Senior Vice
President
Executive Vice
President
25
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Quagmire from the Supreme Court Decision SEBC Fall