Association of Washington Cities 1 Health Care Reform: What’s Next for Local Government Employers? Presented at: WCMA Summer Conference August 22, 2014 By: Carol Wilmes AWC Trust Program Manager

Health Care Reform n Goals of Reform: u Expand coverage through employer-sponsored plans, private insurance market and public programs. u Remove perceived barriers to coverage. u Address affordability issues. n Accomplished through multi-year, incremental change n So far, it is questionable whether reform is reducing trend n It’s been a bumpy ride of regulatory guidance Association of Washington Cities 2

2014: State of the State Marketplace n 17 state-based exchanges n 7 partnership exchange n 27 federal marketplace

Washington’s Experience “Washington did an outstanding job of getting people covered … It is clear that Washington State made the right choice to create a unique, state-based online health insurance marketplace for our residents and to expand Medicaid.” -- Governor Jay Inslee

Association of Washington Cities : Employer Mandate (“Pay or Play”) n Final rules released February 10, 2014 n “Play” u Offer affordable, minimum value health insurance to FTEs and their children n “Pay” u Penalties apply if do not “play” n Applies to employers of >50 FTE and FT equivalents n New full-time employee (30 hours/week) definition: Full-time Part-time Variable hour Seasonal

Association of Washington Cities 6 Is Your Jurisdiction a Large Employer? 1.# of year-round FTEs 2.# of FT equivalents -Part-time, variable hour only -No seasonals of 6 months or less -Total hrs worked/12 = monthly average -Monthly average/120 – FT equivalents 3.Add 1. and 2. for total FTEs (Note: refer to more detailed worksheet)

Association of Washington Cities 7 Small or Large Employers n <50 FTEs = NOT subject to Employer Mandate (but stay tuned… many other aspects of the ACA do apply) n FTEs = Transition relief to comply by January 1, 2016 n >100 FTEs = Comply by January 1, 2015

Association of Washington Cities 8 Workforce Assessment & Decisions n The Mandate: Offer affordable, minimum value health insurance to FTEs and their children u Affordable – no more than 9.5% of employee’s salary for single employee coverage on lowest cost plan (about $90) u Minimum value – plan pays more than 60% of allowed costs n The Goal: is NOT to figure out how not to insure people n The Goal IS: u to assess workforce needs u collaborate with department heads, unions, council to adopt workforce decisions within budget

Association of Washington Cities 9 ACA Employee Categories Full-Time Employee (30+ hpw) Offer affordable, minimum value employee + dependent child coverage Offer coverage within 90 days Part-Time (<30 hpw) Don’t need to offer coverage No penalty applies Seasonal (30+ hpw) Hired or rehired in customary annual employment Six months or less in “same season” each calendar year Subject to measurement period policy adopted by employer After 13 weeks service break, considered new employee Variable Hour (30+ hpw) Can’t be determined that the employee is reasonably expected to work 30 hpw during the measurement period Subject to measurement period policy adopted by employer After 13 weeks service break, considered new employee Volunteer Provide services on a voluntary basis Compensation limited to: 1) reasonable expense reimbursement; 2) reasonable fringe benefits excluding health; and 3) nominal fees or honorarium

Association of Washington Cities 10 Workforce Assessment & Decisions n Work Hour Parameters for Part Time & Variable Hour u 1550 hours annually (130 hours weekly) u Consider a policy with lower limits (i.e., 1500/125) n Policy must include: u Administrative Period u Measurement Period (3-12 months) u Stability Period (“insurance period” no less than 6 mos or match measurement period)

Association of Washington Cities 11 Adopt a Policy & Monitor n Initial Administrative & Measurement Periods (New PT, Variable Hour, Seasonal) u Initial Administrative Period 1 (date of hire to month end) u Initial Measurement Period F 1 st of month following hire date F 12 months duration u Initial Administrative Period 2 (1 st of month following full calendar month after Initial Measurement Period) n Initial Stability Period (12 months) (Note: Sample template policies available upon request.)

Association of Washington Cities 12 Adopt Policy & Monitor! (cont.) n Standard Measurement Periods (Ongoing PT, Variable Hour, Seasonal) u 12 months duration u December 1 of [Year 1] – November 30 of [Year 2] n Standard Administrative u December n Standard Stability Period u 12 months u January 1 – December 31

Association of Washington Cities 13 What If You Don’t Comply? n Two types of pay or play penalties: u No coverage penalty u Insufficient coverage penalty n Applicable to full-time employees (FTEs) n Only apply if an FTE purchases coverage on an exchange and receives a premium tax credit for that coverage

Association of Washington Cities : No Coverage Penalty n Employers who do not offer “minimum essential coverage” to at least 95%* of FTEs and their children u Children by birth or adoption u Under final rule, stepchildren and foster children EXCLUDED n One or more FTEs receive a premium tax credit on the Exchange plan n “Minimum essential coverage” – no requirement that MEC be affordable or provide minimum value (need to offer annual opt out to employees) * Transition relief in 2015: substitute 70% for 95%

Association of Washington Cities : No Coverage Penalty n Calculating no coverage penalty: u Monthly penalty of $2,000 per FTE (after subtracting first 30 FTEs) u Divide by 12 u Payable to State

Association of Washington Cities : Insufficient Coverage Penalty  Imposed when: – Employer does not offer coverage to 95%* or more of FTEs – FTE receives a premium tax credit – Monthly penalty is lesser of following, divided by 12: $2,000 per FTE (after subtracting first 30** FTEs) $3,000 per FTE receiving premium tax credit * Transition relief in 2015: substitute 70% for 95% **Transition relief in 2015: substitute 80 for 30

Association of Washington Cities : Insufficient Coverage Penalty No penalty if offer affordable GHP coverage with MV Safe harbor affordability rule for employers (in lieu of 9.5% of household income rule): the lowest cost option for employee-only coverage does not exceed: – 9.5% of employee’s W-2 wages – 9.5% of employee’s monthly pay (final rules change rate-of-pay safe harbor to apply on a monthly basis) – 9.5% of federal poverty line for a single individual – Not applicable to dependents’ coverage

Association of Washington Cities for YE 2015: Employer (or health plan) reporting Code Section 6055 – Enrollment in Minimum Essential Coverage (MEC) – Transmission by insurer, multiple employer or plan sponsor: – Form 1094-B (to IRS) – Form 1095-B (to employee) – Transmission by employer: – Form 1094-C (to IRS) – Form 1095-C (to employee) Code Section 6056 – Offer of MEC that is affordable and provides minimum value: – Transmission by employer: – Form 1094-C (to IRS) – Form 1095-C (to employee)

Association of Washington Cities 19 Taxes, Fees and Cost PurposeCostTimeframeResponsible Party Patient-Centered Outcomes Research Institute Fees (PCORI) Supports medical prevention, treatment and care options research $1/life in 2013; $2/life in 2014 and adjusted annually for inflation Insurers of fully insured plans Sponsors of self-insured plans Transitional Reinsurance Assessment Fee Helps stabilize premiums in individual market $63 annually per covered life for 2014; $42 in 2015; $26 in Insurers of fully insured plans Sponsors of self-insured plans Health Insurer Fee Supports cost of health care reform Estimates range from 2- 3% premium with lower % for non-profits (applies to medical, dental, vision insurers) 2014-Ongoing Insurers of fully insured plans Does not apply to self- insured plans State Exchange Fees Supports Exchange administration To be determined and will vary by state Clinical Trial Fee Supports cost of clinical trials Unknown2014-? Insurers of fully insured plans Sponsors of self-insured plans High Cost Health Insurance Excise Tax (Cadillac Tax) Supports cost of health care reform Excise tax of 40% on plan costs that exceed defined thresholds 2018-Ongoing Insurers of fully insured plans Sponsors of self-insured plans

Longer Term Strategy – Impacts of Health Care Reform Patient Protection and Affordable Care Act, as amended 40% excise tax on high cost employer coverage ■ 40% excise tax on high cost coverage, including medical, employee and employer health FSA and HRA contributions, onsite medical clinics, and employer (but not employee) contributions to HSAs. Does not apply to stand-alone dental and vision coverage. Thresholds for excise tax ( Indexed to CPI + 1% in 2019, CPI thereafter) Self-onlyAny other tier General$ 10,200$ 27, 500 High-risk professions $ 11,850 $ 30,950 Retiree aged 55 through 64 Multiemployer plan $ 27,500

Association of Washington Cities 21 Effective January 1, ―Goal of tax to discourage overuse/abuse of healthcare system and help finance uninsured coverage. All employer-sponsored plans affected, regardless of size Guidance on how the tax will be paid remains vague Overview: High Cost Plans Excise Tax

Association of Washington Cities 22 Overview: High Cost Plans Excise Tax (cont.) 40% tax on amounts exceeding the ceiling: ―$10,200 limit for individual plans ―$27,500 for family plans. ―$11,850/$30,950 for retirees and high-risk professionals (police, fire, emergency medical). Dental and vision plans are not subject to tax unless bundled with a health plan.

Association of Washington Cities 23 Overview: High Cost Plans Excise Tax (cont.) Tax calculated based on actual premiums for insured plans; COBRA methodologies for self-funded plans. Calculation includes: Both employer and employee contributions Health plans, prescription drug plans, administrative fees Employer contributions to FSAs, HSAs, and HRAs.

Association of Washington Cities 24 Tax will increase from 40% and continue to escalate. 2018: potential increase tied to federal employee plans. 2019: 1% plus adjustments for inflation. 2020: annual adjustments for inflation. 24 An Escalade-ing Tax Other ACA mandates will increase cost of coverage, including increased administrative overhead. Medical inflation continues to rise, annual trend of 7-10%

Association of Washington Cities 25 Calculating the Excise Tax 2014 rates for full family coverage $1,650 employer share +$150 employee share = $1,800 per month total cost $1,800 x 12 months = $21,600 annual cost Growth of $21,600 at 7% per year 2015$23, $24, $26, $28,313 (maximum ceiling of $27,500 exceeded) In 2018, $813 of “compensation” subject to 40% excise tax. Total tax paid: $325

Consulting | Health & Benefits Proprietary & Confidential 26 Challenges Ahead

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Consulting | Health & Benefits Proprietary & Confidential 28

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AWC Trust Board adopted policy on June 6, 2014 Effective , terminate Regence HealthFirst Plan and Group Health $10 Copay Plans Effective , discontinue new enrollment onto the Regence HealthFirst and Group Health $10 CoPay Plans Monitor all other plans and alert Trustees when a plan is 4 years’ out from meeting High Cost Plan Excise Tax threshold Remain attentive to regulatory change and report back to Trustees

Association of Washington Cities 31 1.Incurring the tax is the worst outcome for the employer and for employees Getting past the economic vs. social justice debate 1.Avoiding the tax will require reductions in benefit levels Shifting premiums to employees does not work 2.Reducing benefit levels will put upward pressure on wages that may need to be addressed in bargaining 3.We cannot wait to address the tax No certainty (likelihood?) that tax will be changed Reducing the growth of benefits will be far easier than cutting them Strategies for Mitigating the Tax

Association of Washington Cities 32 nWith your employees nWith the union groups nWith your fellow elected officials  Expect that you will be starting from scratch, especially with employees  Do the math ―Calculate the current value of all elements subject to tax ―Project the costs to 2018 and beyond  Help everyone visualize the problem Preparing for Discussions

Taxable Value Employee Only $ 7, Summit Law Group

Taxable Value Employee + Family $23, Summit Law Group

Association of Washington Cities 35 Identify and eliminate any “low hanging fruit” ―Unbundle dental and vision from health ―Reduce or eliminate FSA, HRA, employer HSA Introduce reduce benefit plan designs Introduce High Deductible Plan Unwind cost-sharing to trade for reduced benefit Strategies for Mitigating the Tax

Association of Washington Cities 36 Making and/or bargaining changes will require clear direction and substantial perseverance Expect protests from unions/employees about benefit reduction Sensitivity to community perception of public sector benefits (“Cadillac Tax”) “Our goal collectively is to adopt an approach to not pay the tax.” n Change cannot happen without support from elected officials. Challenges on the Horizon

Association of Washington Cities 37 Questions…. Carol Wilmes Program Manager AWC Employee Benefit Trust or (360)