August 2014 | Vol. I, Issue 1 | Center for Health

Introducing Health Care Reform Update Welcome to the first issue of Health Care Reform Update. Health Care Reform Update was created to support conference benefits officers, conference administrative personnel and other UMC representatives adapting to the evolving health care landscape. This periodic update describes key elements of the Affordable Care Act (ACA, i.e., federal health care reform)—and its impact on you as an employer and plan sponsor. You‘ll find articles focused on United Methodist Church (UMC) annual conferences, local churches, general agencies and other employers. Each article begins with a summary paragraph and includes hyperlinks to more in-depth perspectives (“Read More”). Each issue also lists upcoming ACA-related deadlines, to help UMC employers comply with regulatory requirements. Future issues will feature a forum where conferences and other UMC employers can share their strategies, successes and learnings as we all adjust to the changing health care environment—please contact us at healthcare_reformupdate@gbophb.org if you‘d like to share your organization‘s experience. We hope you‘ll find this publication useful in your decision-making regarding clergy and lay employee health benefits. Please forward Health Care Reform Update to others in your conference or organization as you deem appropriate. Watch for Health Care Reform Update periodically in your e-mail Inbox. Although there is not yet an established “frequency” for this publication, it will most likely be published on a quarterly basis. For the most up-to-date information on ACA federal guidance, visit the General Board of Pension and Health Benefits‘ Health Care Reform webpage frequently at www.gbophb.org/center-for-health/health-care-reform. As always, the General Board of Pension and Health Benefits—through its Center for Health—serves as a resource to help plan administrators assess the ACA‘s impact on health plans and participants. We invite your feedback and article suggestions at healthcare_reformupdate@gbophb.org. Articles Health Plan Strategies and Considerations for Health Coverage ‘Cadillac Plans’ Become More Costly with 2018 Tax—Plan Ahead Cost-Sharing Limits 2015—New Thresholds, Combined Medical/Pharmacy Upcoming Deadlines PLAN SPONSOR/CONFERENCE SPOTLIGHT Health Plan Strategies and Considerations for Health Coverage Annual conferences and other UMC employers are exploring diverse strategies for health coverage. Choosing the best approach is neither simple nor straightforward, as plan sponsors weigh each strategy’s ripple effect on clergy appointments, itineracy, compensation equity, retirement plan contributions, conference average compensation (CAC), personal tax burdens, health coverage equity and more. This summary outlines some pros and cons of potential strategies. Status Quo Continue coverage as is Pros No impact change on appointments and itineracy No major change for participants Cons Individuals: No cost savings from Marketplace premium tax credits (PTCs) Local church/employer: No potential premium savings stemming from PTCs for employees Plan/church/employer: Plan costs continue rising Plan/church/employer: ACA reporting responsibilities and tax or fee burdens   Small Steps Encourage Marketplace enrollment for participants on continuation coverage or unpaid leaves Allow pre-65 retirees to access Marketplace plans with: Federal PTCs; OR “Retiree-only” standalone health reimbursement account (HRA) (employer nontaxable dollars) for premiums—Note: Not eligible for PTC with HRA. Pros Individuals: Possible cost savings Plan/conference/employer: Some cost savings. Conference, church and some clergy/lay introduced to Marketplace Plan/conference/employer: Underlying insurance liabilities removed if funding HRA Cons Plan/conference/employer: Limited cost savings if funding HRA Plan/conference/church/employer: Some ACA administrative complexities   “Employee-Only” Option and Other Dependent Changes (at Plan Sponsor level) Offer coverage for employee/clergyperson only; eliminate coverage for spouse and dependent children Note: Applicable large employers (at least 50 full-time equivalent employees) must offer (but are not required to pay for) coverage to dependent children up to age 26 under the Employer Mandate Pros Spouse, dependents or both would not qualify for “affordable coverage” through plan; could go to Marketplace Individuals: Many clergy spouses/children may qualify for PTC if not offered employer coverage. Plan/conference/church/employer: Cost savings Cons Individuals: Equity concerns for families with modified adjusted gross income (MAGI) too high to qualify for PTC, yet income too low to afford independent health coverage Individuals: Families that don’t qualify for PTC pay full premium cost with after-tax dollars Church/employer: May need to raise compensation to keep family “whole,” which may reduce cost savings   “Affordability” Test Option Maintain required coverage for full-time clergy but increase participant’s required contribution (the employee share of the premium) to allow some lower-paid clergy to take advantage of PTC Note: Applicable large employers (at least 50 full-time equivalent employees) must offer “affordable” coverage to full-time employees and dependent children up to age 26 under the Employer Mandate to avoid penalties Pros Individuals: Cost savings through PTC for low-paid clergy Individuals: Allows clergy with “unaffordable” coverage [i.e., coverage where self-only cost (employee share) exceeds 9.5% of MAGI] to seek Marketplace coverage with PTC Can offer standalone “excepted benefits” for clergy with Marketplace plans (e.g., vision, dental, wellness program, flexible spending accounts) Cons Church/conference: Appointment friction if some churches prefer clergy who are Marketplace-eligible, equity concerns among clergy Plan/conference/employer: May need to offset higher plan premium for clergy remaining in the plan, via other nontaxable benefits or taxable compensation   Local Church Option Permit churches to opt out of conference plan (for full-time clergy) Allow clergy whose churches do not offer coverage (i.e., have opted out of the conference plan) to seek Marketplace coverage with possible PTC. Pros Individuals: Clergy from some churches not offering coverage can seek Marketplace coverage and realize cost savings through PTCs Cons Local church: Friction for churches with multiple clergy (some may want conference plan; others may prefer Marketplace) Church/conference: Appointment friction as clergy move from opted-out churches to churches in the conference plan; equity concerns among clergy Plan/conference/employer: Disrupts plan’s risk pool as covered population shrinks; may increase rates for those remaining in plan   “Employee Only” Option and Other Dependent Coverage Changes (at Local Church/Employer level) Permit churches to offer conference plan for clergy only (or for clergy plus dependent children only if an applicable large employer) at the discretion of the local church Note: Applicable large employers (at least 50 full-time equivalent employees) must offer coverage to dependent children up to age 26 under the Employer Mandate Pros Local church: Church chooses coverage available: clergy-only or clergy-plus-family Local church: Cost savings if family coverage not offered Cons Conference: Administrative burden; appointment friction, as some churches may want only clergy without families The options outlined above describe general considerations for UMC plan sponsors. The Center for Health offers more detailed quantitative modeling to help UMC plan sponsors analyze the ACA’s impact on their participant populations and group health plans. The Model (specific to the plan sponsor) is intended to be an informative decision-support tool. More Information ACA model waiver form Share Your Strategies Sharing ideas helps us all learn as we navigate the health care terrain. We invite annual conferences and other UMC organizations to share their strategies, successes and challenges at healthcarereform@gbophb.org. Return to Top HEALTH PLAN SPOTLIGHT ‘Cadillac Plans’ Become More Costly with 2018 Tax—Plan Ahead Starting in 2018, the ACA will impose a 40% excise tax on any health insurance plan cost (i.e., the plan value or “premium”) that exceeds defined thresholds (see table). This “Cadillac Plan Tax” taxes highly generous plans* as an incentive to plan sponsors to control costs for health insurance and health care. The excise tax also works as a disincentive for plan sponsors considering providing or purchasing expensive plans, as such plans are likely to become either less generous to avoid the tax or else even more expensive to accommodate the tax. Plan sponsors will not want their health care premium costs to increase by the amount of the excise tax in addition to normal annual premium increases related to health care cost trend, so it’s not too early to start planning and making adjustments now in order to avoid the Cadillac Plan Tax come 2018. The first step would be to project the 2018 annual premium costs for a plan sponsor’s current plans (or plans it anticipates making available to participants in 2018) and compare the projection to the following Cadillac Plan Tax thresholds: Cadillac Tax Thresholds 2018 (“Costs”—amounts above the thresholds are subject to 40% excise tax) Individual Coverage $10,200 annual cost Family Coverage $26,500 annual cost Early retirees (age 55-64, pre-Medicare) and high-risk professions (e.g., police, firefighters) Individual Family         $11,850 annual cost $30,950 annual cost Annual threshold increases TBD based on Consumer Price Index If the projected premium costs exceed or come close to these thresholds, plan sponsors may want to begin adjusting plan designs now in order to comfortably fall under the Cadillac Plan Tax thresholds by 2018. Since the annual thresholds are likely to be based on the “overall value of the benefit design,” reflected in the annual total premium cost [i.e., the portion of the premium (cost of the plan) paid by the employer/plan sponsor added to the portion paid by the employee], increased premium cost-sharing with participants is not an effective strategy to avoid a Cadillac Plan Tax. Increased premium-cost shifting to participants will not impact the overall plan “cost” (subject to the threshold), but rather simply shift who is responsible for paying what portion of that annual cost. The most effective way to impact the projected annual premium cost is by amending plan designs offered by the plan sponsor. If a plan sponsor anticipates it will need to make significant plan changes by 2018, then it may be better to “phase in” such changes over time, rather than making such a significant change all at once. For example, phasing out its most generous plan designs is the foundation of the HealthFlex multi-year plans strategy. By 2016, all HealthFlex plans will have an individual deductible of at least $1,000—consistent with industry standards for many employer-sponsored plans and ACA marketplace plans. Trend data suggests that higher deductibles and out-of-pocket costs encourage “consumerism” behaviors among participants—for example, using cost-efficient urgent care centers instead of hospital emergency rooms for non-life-threatening needs. Savings to participants in turn translate to savings for the plan sponsor. Questions Remain The federal government has yet to issue final regulatory guidance defining “plan cost” for purposes of assessing the Cadillac Plan Tax. In the meantime, the General Board—in collaboration with the Church Alliance—will advocate for flexible approaches for church plans and church employers. Such flexible approaches might include using an actuarial value approach rather than only the premium cost or church/employer/clergy contribution to determine plan cost. Also yet to be determined are: 1) how regional differences in health care costs will be taken into account; 2) whether age-related considerations will be made for groups with higher average ages (like many UMC plan sponsors); and 3) how employer and employee contributions to account-based plans such as flexible spending accounts (FSAs), health reimbursement accounts (HRAs) and health saving accounts (HSAs) will weigh into defining overall plan cost. While the fine details are not confirmed, one thing is certain: conferences and employers offering high-cost/highly generous plans are likely to be subject to the Cadillac Plan Tax if they don’t make plan design changes by 2018. * Generous health plans under ACA: Plans with annual costs near or above Cadillac Plan thresholds, based on premiums for fully insured plans or per-participant costs/contributions (e.g., full cost for “continuation” or COBRA coverage). Return to Top HEALTH PLAN SPOTLIGHT Cost-Sharing Limits 2015—New Thresholds, Combined Medical/Pharmacy ACA-defined cost-sharing limits are designed to protect covered participants from overly high out-of-pocket costs. An annual “out-of-pocket (OOP) maximum” is one example of a cost-sharing limit—establishing a maximum amount in general that participants can be required to pay annually for health care services they receive, typically in the form of deductibles, co-payments and co-insurance. New for 2015: OOP maximums: $6,600 for individual coverage and $13,200 for family coverage (up from $6,350 and $12,700, respectively, in 2014) OOP maximums include both medical and prescription drug expenses Plan administrators have some flexibility for the combined OOP maximum format: Cumulative OOP maximums, in which medical and prescription drug costs accumulate toward one combined OOP maximum; or Separate OOP maximums for medical and prescription drug benefits that, added together, cannot exceed $6,600 (individual) or $13,200 (family). In this design, medical out-of-pocket costs accumulate toward the separate medical OOP maximum, and prescription drug out-of-pocket costs accumulate to the separate prescription drug OOP maximum; but the two separate OOP maximums cannot exceed the ACA limits when added together. Planning Perspective Plans that choose to implement the cumulative approach yet use different third-party administrators (TPAs) for medical and prescription drug benefit administration should discuss how each TPA will coordinate OOP maximum accumulations across medical and pharmacy benefit platforms. Real-time accumulation of participants’ out-of-pocket expenses by both TPAs, rather than periodic file transfers, may help prevent errors and the need for claims reconciliation or reprocessing. These cost-sharing limits impose restrictions on employer health plans that directly compete with the pressures of the Cadillac Plan Tax. The Cadillac tax discourages highly generous plans (typically plans with minimal out-of-pocket costs to participants), while cost-sharing limits disallow plans that place excessive financial burden on participants (the same minimal out-of-pocket cost exposure that the Cadillac tax discourages). In effect, therefore, these competing guidelines will squeeze most plan designs into a middle ground—typically represented by “bronze” (60% actuarial equivalent) or “silver” (70%) plans under ACA terminology. More Information Cost-sharing limits Essential Health Benefits, Cost-Sharing Limits and Minimum Value Return to Top REGULATORY SPOTLIGHT Upcoming Deadlines Employers, plan sponsors and health insurers are required to submit various information, forms and fees to the federal government. This list of requirements and deadlines will help you meet government timelines. Make note of these important dates and deadlines to meet ACA requirements. Deadline Requirement Who Must Comply More Info July 31, 2014 (calendar year plans) PCORI1 Fee payment due—$2 per covered life Plan sponsors for self-insured plans (except HealthFlex) Health insurers for fully insured plans General Board for HealthFlex plan OneExchange plan sponsors for OneExchange HRAs • PCORI Fee               • PCORI Fee for OneExchange plan sponsors November 5, 2014 HIPAA health plan identifier (HPID) Large health plans—over $5 million in annual claims paid • Health Plan Identifier November 15, 2014 ACA Marketplace open enrollment—through February 15, 2015 Individuals and families • healthcare.gov • ACA and You November 15, 2014 Reinsurance Fee—2014 headcount due to HHS Plan sponsors for self-insured plans (except HealthFlex) Health insurers for fully insured plans General Board for HealthFlex plan • Reinsurance Fee—Counting Number of Lives (p. 5) December 15, 2014 (approx.) Reinsurance Fee—HHS2 sends invoice to plan sponsor based on headcount Plan sponsors for self-insured plans (except HealthFlex) Health insurers for fully insured plans General Board for HealthFlex plan • Transitional Reinsurance Program Fee (pp. 3-6) January 1, 2015 Employer Mandate deadline—Offer affordable health coverage to at least 70% of FTEs3 Applicable large employers—100+ FTEEs4 (annual conferences, local churches and other UMC employers) Employers with 50-99 FTEEs have until January 1, 2016 to comply, as long as they certify certain conditions to the IRS in 2016. • Employer Mandate Timeline January 14, 2015 (30 days after HHS invoice) Reinsurance Fee 2014—First payment due based on HHS-verified headcount Plan sponsors for self-insured plans (except HealthFlex) Health insurers for fully insured plans General Board for HealthFlex plan • Reinsurance Fee—Who Pays These Fees (p. 5) 1 PCORI: Patient-Centered Outcomes Research Institute 2 HHS: U.S. Department of Health and Human Services 3 FTE: Full-time employee 4 FTEE: Full-time equivalent employee (includes part-time and full-time employees) Looking Ahead: 2014 – 2016 Timelines Return to Top Copyright © General Board of Pension and Health Benefits Share your suggestions and comments about Health Care Reform Update