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Reform
Strategy & Decision-Making
for 2014 and Beyond
Webinar Handout
Part II Strategy, Total Rewards & the Sweet Spot
Presented by
Healthcare Reform
Strategy & Decision-Making
for 2014 and Beyond
Webinar Handout
Part II Strategy, Total Rewards & the Sweet Spot
Healthcare Reform
Strategy & Decision-Making
for 2014 and Beyond
Part II
Table of Contents
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Resources ................................................ 21
ii
Employer
Shared
Responsibility
Individual
Financial
Analysis Ex.
Part
II
A Strategic
Total Rewards
Approach
Organizational
Financial
Analysis Ex.
Hitting the
Sweet
Spot(s)
Resources
iii
Notes
Chapter 1
Mo. hrs. of PT
FT = 30 HPW avg.
120
= FT Equiv
In determining eligibility,
employer must apply
controlled group and
affiliated service group
rules under Internal
Revenue Code
subsidiaries and affiliated
companies may need to
be combined
Employer
Shared
Responsibility
Penalties
If minimum essential
coverage is NOT offered
to FT employees AND any
FT employee enrolls in
Exchange plan and receives
premium assistance from
federal government:
If minimum essential
coverage IS offered to FT
employees BUT any FT
employee enrolls in Exchange
plan and receives premium
assistance from federal
government:
$2,000 annually
for each FT employee
(first 30 free)
$2,000
Penalty
Bucket
#1
2012
a.k.a.
Pay
$3,000
Penalty
Bucket
#2
a.k.a.
Play
1
Notes
Substantially
All Wording
& Exceptions
IRS Notice 2011-36 (emphasis added):
It is contemplated that the proposed regulations would make clear that an employer
offering coverage to all, or substantially all, of its full-time employees would not be
subject to the 4980H(a) assessable payment provisions. Comments are requested on
the challenges employers may face in being able to offer coverage to certain
categories of employees even after implementation of the changes made by the
Affordable Care Act to the group insurance market, and on other situations where
application of the . . . assessable payment may not be appropriate. Comments are
requested on whether there are appropriate exceptions that should be provided for
under the employer responsibility provisions . . .
Employer
Shared
Responsibility
Full-Time
Employee
Ongoing employees safe harbor
Ongoing = those employed for at least one
IRS Notice
complete standard measurement period
2012-58
Standard measurement period (SMP) is
issued
determined by employer; cannot be less than
Aug. 31,2012
3, and cannot more than 12 consecutive
Employers
calendar months
may rely on
If employee averages at least 30 HPW during
guidance
at least through SMP, then employee is considered FTE for
following stability period, regardless of hours
end of 2014
actually worked during the stability period
Conversely, If employee does not average 30 HPW during
employer
SMP, employee may be treated as not FTE
may employ
during following stability period
a month-bymonth
Stability period must be at least 6 calendar
determination months, or if longer, the length of the
measurement period
Employer may also adopt an administrative
period between SMP and stability period of up
to 90 days
2012
Notes
Employer
Shared
Responsibility
Individual
Subsidies in
Exchanges
Eligible individuals:
Individuals with household incomes
between 100% and 400% of the federal
poverty level (FPL) may purchase
subsidized coverage in an Exchange if:
Not enrolled in
employer (or certain
other) coverage
and
Is priced to the
individual at no
more than 9.5% of
the individuals
household income
Monthly premium
for coverage under
an Exchange plan
or
Monthly
premium for 2ndleast expensive
Silver plan
available
Premium
cost for
benefits
judged to
non-essential
. . . an eligible
employer-sponsored
plan is affordable for an
employee or a related
individual if the portion
of the annual premium
the employee must pay,
whether by salary
reduction or otherwise
(required contribution),
for self-only coverage
for the taxable year
does not exceed [9.5
percent].
1/12th of
Applicable
employees
table
X
household
percentage
income for
year
Cost-sharing subsidies:
Exchanges may reduce out-of-pocket costs
based on income ranges from 94% (for
100%-150% of FPL) to 70% (for 250%-400%
of FPL) of coverage of plans benefits
2012
IRS Regulations on
Health Insurance
Premium Tax Credit
(1.36B-2(c)(3)(v)(A)(1)
(emphasis added):
Table percentage is
a sliding scale from
2% for 133% of FPL to
9.5% of 400% of FPL
Notes
Affordability
Safe Harbor
IRS Notice 2011-73 (emphasis added):
. . . Treasury and the IRS expect to propose an affordability safe harbor . .
. It is contemplated that under the proposed safe harbor, . . . the employer
must offer its full-time employees (and their dependents) the opportunity to
enroll in minimum essential coverage, and . . . the employee portion of the
self-only premium for the employers lowest cost coverage that provides
minimum value (the employee contribution) must not exceed 9.5 percent of
the employees W-2 wages. . . . Application of this safe harbor would be
determined after the end of the calendar year and on an employee-byemployee basis . . .
These rules are
merely being
considered by
regulatory agencies.
No guidance or
proposed regulations
have been issued.
Information comments
from regulatory
officials indicate this
represents agencies
current thinking, and
solicits comments on
these approaches.
Note:
$11,310 =
$7.25/hour for 52
weeks at 30 HPW
Employer
Shared
Responsibility
W-2 income
9.50%
Mo. Prem.
$11,310
$1,074
$90
$20,000
$1,900
$158
$30,000
$2,850
$238
$40,000
$3,800
$317
$50,000
$4,750
$396
$60,000
$5,700
$475
$70,000
$6,650
$554
$80,000
$7,600
$633
$90,000
$8,550
$713
$100,000
$9,500
$792
$110,000
$10,450
$871
$120,000
$11,400
$950
$130,000
$12,350
$1,029
$140,000
$13,300
$1,108
$150,000
$14,250
$1,188
2012
Notes
Chapter 2
Lets take a look at how the Exchange subsidy and Employer Shared Responsibility
safe harbor dynamic would stack up for an individual employee and the employer
that employs him/her.
+ three children
Monthly employee
contribution for
individual coverage
Lowest Cost
Current plan
2012
Monthly employee
contribution for
family coverage
$35,000 x .095 =
$3,325
$3,325 12 = $277.08
See table page 33
Family size = 5
Household income
(HHI)* = $67,525
9.5% trigger is $534.57
Subsidy = cost of 2nd
least expensive silver
plan less $452.98 in
this income/family
size corridor
* HHI = MAGI
For purposes of
calculating MAGI to
determine eligibility
for the premium tax
credit, the statutory
requirements were
amended to include
social security benefits
Notes
Penalty/Tax
If 2012 was 2014 . . .
. . . and the employee decided to decline employer-sponsored coverage and
decline coverage through the exchange the years penalty/tax would be:
$395.25
Calculation:
$95 x 2 adults
$47.50 x 3 children
=
=
$190.00
$142.50
$332.50
$67,525
($28,000)
$39,525
x .01
$395.25
Household income
Deductions
The following year (if 2013 was 2015 and the employees income remained the
same . . .), the penalty/tax would be:
$1,137.50
Calculation:
$325 x 2 adults
=
$162.50 x 3 children =
$650.00
$487.50
$1,137.50
$67,525
($28,000)
$39,525
x .02
$790.50
2012
Household income
Deductions
Notes
Chapter 3
Since the passage of the Patient Protection and Affordable Care Act, a frequent
comment has gone something like this:
We presently pay $10,000 [put your number here] to subsidize our
employees health insurance. It will be much less expensive for us to drop
coverage and pay the $2,000 penalty.
This view ignores a number of crucially important factors, and implies or
presumes a number of factors that may well not be supportable:
Your organization will be able to reduce overall compensation by $8,000
[put your number here] per employee and continue to attract, retain and
engage good talent.
Employees will be able to go to the Exchange in 2014 and purchase
acceptable coverage with the amount they presently pay for subsidized
coverage through your organization.
Employees will prefer negotiating health insurance issues over the
Internet through the Exchange to relying on you for assistance and
support.
Making a poor decision in these areas could present significant challenges to the
competitiveness and success of your organization.
Lets take a look at an example to throw some light on the first of these issues.
2012
$14,400
$4,800 = $400/mo
$19,200 = $1,600/mo
Employer 75%
Employer 100%
Individual
$7,600
$0 = $0/mo
$7,600 = $633/mo
Employee 25%
Employee 0%
Notes
$2,088,000
$1,064,000
$3,152,000
($729,000)
$2,423,000
Family units
Individual units
Savings to drop coverage
$2,000 per FTE, first 30 free*
Savings
an additional $4,202,620 . . .
resulting in an overall cost increase of
$1,777,620.
Even if the City decided to add back just $12,000 for just the top 175 earners
(leaving in this example at least 110 employees with significantly less in total
compensation), grossed up to $16,000 to account for taxes, the result:
an additional $2,800,000 . . .
resulting in an overall cost increase of
$377,000.
We believe that a more in-depth, targeted analysis is appropriate for any
organization that wants to maintain its competitiveness.
2012
Notes
Individual
$12,480
$6,840
$6,720 = $560/mo
$760 = $63/mo
$19,200 = $1,600/mo
$7,600 = $633/mo
Employee 35%
Employee 10%
of
of
of
of
Important note:
$760 is 9.5% of
$8,000. For any
employee making this
amount or more (W-2
income), the employer
would be in the
Employer Shared
Responsibility
affordability safe
harbor, and would not
be subject to a
penalty (and $8,000 is
less than minimum
wage for an employee
working 30 HPW).
$453/month
$5,436/year
2012
Notes
$1,920 is the
difference between
the original employee
contribution for family
coverage and the
new contribution for
family coverage.
$760 is the difference
between the original
employee contribution
for single coverage
and the new
contribution for single
coverage.
If the City of Mosquito Heights decided to add $1,920 in cash compensation for
the 140 employees with family coverage (grossed up to $2,560 to account for
taxes) and $760 for the 135 employees with single coverage (grossed up to
$1,013) to account for taxes, the outcome would be:
an additional $495,155 . . .
resulting in an additional cost of
$13,755
(0.4% of original cost essentially break-even)
If, instead, the City decided to add back $1,500 in cash compensation for the top
175 earners, grossed up to $2,000 to account for taxes, the result would be
an additional $350,000 . . .
resulting in a net savings of
$131,400
Of course, these hypothetical results are based on a number of challenging
presumptions/forecasts. The point is that each employer needs to take a careful,
reasoned, analytical and strategic approach to total rewards management and
strategic benefits design/management.
The objective must be for each organization to determine what approach, what
unique benefits design, and what overall strategy best supports its overall
organizational strategy. In this way, the organization has a far better chance of
remaining competitive and successful.
10
2012
Notes
Chapter 4
Professional Development
Attract
talent
Performance management
Training & organization devel.
Career development
Work-Life Programs
Work flexibility
Wellness
Dependent support
Benefits
Health Life Disability
Retirement
Paid time off
Compensation
Base pay
Variable pay
Merit pay
2012
11
Notes
Traditional Process
Compensation
General
assumptions
Employer
Informal input
and/or
intermittent
surveys
Employees
12
Benefits
External
benchmarks
Cost & risk
concerns
Wellness
& Work-Life
Professional & Org.
Development
Segmented design
Siloed delivery
2012
Notes
Benefits
Wellness & Work-Life
Defined
business
value
Core
talent
2012
13
Notes
Total
Rewards
Strategy
Align total rewards strategy with organizations
vision/mission/strategy
Determine competitive position in marketplace
for various employee groups
Determine optimal mix of elements for various
employee groups
Determine manner in which reward elements
will be earned & allocated
Total
Rewards
Conduct
Assessments
Issues to
Consider
14
Culture
Role of HR
Measurements
Organization needs
Employee needs
Quantitative measurements
Employee attraction,
retention & engagement
Legal compliance
Results of performancebased rewards
Overall costs
Productivity
Qualitative measurements
2012
Budget
Administration
Readiness for change
Notes
Chapter 5
As the significant changes planned under healthcare reform for 2014 and
2018 approach, each employer will need to engage in careful analysis and
planning to find important benefit sweet spots. The first is the sweet
spot between the cost increases anticipated as a result of PPACAs benefit
mandates, and the Cadillac or high-cost plan taxes that will be imposed
in 2018 on plans with values in excess of legislated high cost limits.
PPACA
Mandates
Cadillac Plan
Tax
Sweet Spot
2018
Based on
annual trend
of 10%
2012
15
Notes
Employee
Contribution
Household
Income
Low
Percentage
Sweet Spot
High
Percentage
Lower underlying health
plan cost to employer
Abandonment of
ER-sponsored
Health Benefits
Remember that Treasury and the IRS are expected to propose an affordability safe harbor for
employers within which the assessable payment (penalty) would not apply based on this formula:
Employee contribution for self-only coverage for lowest-cost plan
providing minimum essential coverage
Employees wages as shown on W-2 form
9.5%
Regulatory agencies have stated that basing affordability calculations in this way would provide a
more workable and predictable method for both employers and employees. However, the
employees eligibility for the premium tax credit would continue to be based on the
affordability of employer-sponsored coverage relative to the employees household income.
16
2012
Notes
Sweet Spot
Anticipation
of Movement
in 2014
Away from the employers plan
To Medicaid
To Exchange with subsidy
To spouses plan
To other unsubsidized
coverage
To uninsured
Movement
Driven By
Key Information
Needed
Employee contribution
requirement and out-of-pocket
costs versus similar costs for
other coverage
Employers premium
classifications/categories
Contribution stratification
by income level?
Financial trends
Underlying medical costs
Plan claims experience
2012
Plan specifics/terms
Where people are covered who
are not presently on your plan
Degree of flexibility by
collective bargaining units and
agreements
What competitors for labor are
doing
17
Notes
Option #2
Insurer #1
Insurer #2
Insurer #3
Insurer #4
Insurer #1
Insurer #2
Insurer #3
Insurer #4
Insurer #1
Insurer #2
Insurer #3
Insurer #4
Insurer #1
Insurer #2
Insurer #3
Insurer #4
Option #2
Single
Single +1
Family
18
2012
Notes
Subsidy is approx. the cost for 2nd least expensive Silver plan less amount in last column.
Fam. Size
1
1
1
1
1
1
FPL 2012
$
11,170
$
11,170
$
11,170
$
11,170
$
11,170
$
11,170
% of FPL
1.33
1.50
2.00
2.50
3.00
4.00
Hhld income
$ 14,856.10
$ 16,755.00
$ 22,340.00
$ 27,925.00
$ 33,510.00
$ 44,680.00
Table factor
Fam. Size
2
2
2
2
2
2
FPL 2012
$
15,130
$
15,130
$
15,130
$
15,130
$
15,130
$
15,130
% of FPL
1.33
1.50
2.00
2.50
3.00
4.00
Hhld income
$ 20,122.90
$ 22,695.00
$ 30,260.00
$ 37,825.00
$ 45,390.00
$ 60,520.00
Table factor
Fam. Size
3
3
3
3
3
3
FPL 2012
$
19,090
$
19,090
$
19,090
$
19,090
$
19,090
$
19,090
% of FPL
1.33
1.50
2.00
2.50
3.00
4.00
Hhld income
$ 25,389.70
$ 28,635.00
$ 38,180.00
$ 47,725.00
$ 57,270.00
$ 76,360.00
Table factor
Fam. Size
4
4
4
4
4
4
FPL 2012
$
23,050
$
23,050
$
23,050
$
23,050
$
23,050
$
23,050
% of FPL
1.33
1.50
2.00
2.50
3.00
4.00
Hhld income
$ 30,656.50
$ 34,575.00
$ 46,100.00
$ 57,625.00
$ 69,150.00
$ 92,200.00
Table factor
Fam. Size
5
5
5
5
5
5
FPL 2012
$
27,010
$
27,010
$
27,010
$
27,010
$
27,010
$
27,010
% of FPL
1.33
1.50
2.00
2.50
3.00
4.00
Hhld income
$ 35,923.30
$ 40,515.00
$ 54,020.00
$ 67,525.00
$ 81,030.00
$108,040.00
Table factor
Fam. Size
6
6
6
6
6
6
FPL 2012
$
30,970
$
30,970
$
30,970
$
30,970
$
30,970
$
30,970
% of FPL
1.33
1.50
2.00
2.50
3.00
4.00
Hhld income
$ 41,190.10
$ 46,455.00
$ 61,940.00
$ 77,425.00
$ 92,910.00
$123,880.00
Table factor
2012
0.0300
0.0400
0.0630
0.0805
0.0950
0.0950
0.0300
0.0400
0.0630
0.0805
0.0950
0.0950
0.0300
0.0400
0.0630
0.0805
0.0950
0.0950
0.0300
0.0400
0.0630
0.0805
0.0950
0.0950
0.0300
0.0400
0.0630
0.0805
0.0950
0.0950
0.0300
0.0400
0.0630
0.0805
0.0950
0.0950
9.5%
$
$
$
$
$
$
trigger/12
117.61
132.64
176.86
221.07
265.29
353.72
9.5%
$
$
$
$
$
$
trigger/12
159.31
179.67
239.56
299.45
359.34
479.12
9.5%
$
$
$
$
$
$
trigger/12
201.00
226.69
302.26
377.82
453.39
604.52
9.5%
$
$
$
$
$
$
trigger/12
242.70
273.72
364.96
456.20
547.44
729.92
9.5%
$
$
$
$
$
$
trigger/12
284.39
320.74
427.66
534.57
641.49
855.32
9.5%
$
$
$
$
$
$
trigger/12
26.09
367.77
490.36
612.95
735.54
980.72
$
$
$
$
$
$
37.14
55.85
117.29
187.33
265.29
353.72
$
$
$
$
$
$
50.31
75.65
158.87
253.74
359.34
479.12
$
$
$
$
$
$
63.47
95.45
200.45
320.16
453.39
604.52
$
$
$
$
$
$
76.64
115.25
242.03
386.57
547.44
729.92
$
$
$
$
$
$
89.81
135.05
283.61
452.98
641.49
855.32
$
$
$
$
$
$
102.98
154.85
325.19
519.39
735.54
980.72
19
Notes
* Subsidy is approx. the cost for 2nd least expensive Silver plan less amount in last column.
Fam. Size
1
1
2
1
2
3
1
3
FPL 2012
$
11,170
$
11,170
$
15,130
$
11,170
$
15,130
$
19,090
$
11,170
$
19,090
% of FPL
1.33
1.50
1.33
2.00
1.50
1.33
2.50
1.50
Hhld income
$ 14,856.10
$ 16,755.00
$ 20,122.90
$ 22,340.00
$ 22,695.00
$ 25,389.70
$ 27,925.00
$ 28,635.00
Table factor
0.0300
0.0400
0.0300
0.0630
0.0400
0.0300
0.0805
0.0400
9.5%
$
$
$
$
$
$
$
$
trigger/12
117.61
132.64
159.31
176.86
179.67
201.00
221.07
226.69
Fam. Size
2
4
1
4
5
2
3
FPL 2012
$
15,130
$
23,050
$
11,170
$
23,050
$
27,010
$
15,130
$
19,090
% of FPL
2.00
1.33
3.00
1.50
1.33
2.50
2.00
Hhld income
$ 30,260.00
$ 30,656.50
$ 33,510.00
$ 34,575.00
$ 35,923.30
$ 37,825.00
$ 38,180.00
Table factor
0.0630
0.0300
0.0950
0.0400
0.0300
0.0805
0.0630
9.5%
$
$
$
$
$
$
$
trigger/12
239.56
242.70
265.29
273.72
284.39
299.45
302.26
Fam. Size
5
6
1
2
4
6
3
FPL 2012
$
27,010
$
30,970
$
11,170
$
15,130
$
23,050
$
30,970
$
19,090
% of FPL
1.50
1.33
4.00
3.00
2.00
1.50
2.50
Hhld income
$ 40,515.00
$ 41,190.10
$ 44,680.00
$ 45,390.00
$ 46,100.00
$ 46,455.00
$ 47,725.00
Table factor
0.0400
0.0300
0.0950
0.0950
0.0630
0.0400
0.0805
9.5%
$
$
$
$
$
$
$
trigger/12
320.74
326.09
353.72
359.34
364.96
367.77
377.82
Fam. Size
5
3
4
2
6
5
4
FPL 2012
$
27,010
$
19,090
$
23,050
$
15,130
$
30,970
$
27,010
$
23,050
% of FPL
2.00
3.00
2.50
4.00
2.00
2.50
3.00
Hhld income
$ 54,020.00
$ 57,270.00
$ 57,625.00
$ 60,520.00
$ 61,940.00
$ 67,525.00
$ 69,150.00
Table factor
0.0630
0.0950
0.0805
0.0950
0.0630
0.0805
0.0950
9.5%
$
$
$
$
$
$
$
trigger/12
427.66
453.39
456.20
479.12
490.36
534.57
547.44
Fam. Size
3
6
5
4
6
5
6
FPL 2012
$
19,090
$
30,970
$
27,010
$
23,050
$
30,970
$
27,010
$
30,970
% of FPL
4.00
2.50
3.00
4.00
3.00
4.00
4.00
Hhld income
$ 76,360.00
$ 77,425.00
$ 81,030.00
$ 92,200.00
$ 92,910.00
$108,040.00
$123,880.00
Table factor
0.0950
0.0805
0.0950
0.0950
0.0950
0.0950
0.0950
9.5%
$
$
$
$
$
$
$
trigger/12
604.52
612.95
641.49
729.92
735.54
855.32
980.72
20
2012
$
$
$
$
$
$
$
$
37.14
55.85
50.31
117.29
75.65
63.47
187.33
95.45
$
$
$
$
$
$
$
158.87
76.64
265.29
115.25
89.81
253.74
200.45
$
$
$
$
$
$
$
135.05
102.98
353.72
359.34
242.03
154.85
320.16
$
$
$
$
$
$
$
283.61
453.39
386.57
479.12
325.19
452.98
547.44
$
$
$
$
$
$
$
604.52
519.39
641.49
729.92
735.54
855.32
980.72
Chapter 6
Notes
Resources
Government
Resources
Resources
Gallagher
Resources
GBS Internet website link
http://www.gbshealthcarereform.com
2012
21
Notes
Informational
Resources
Resources
Healthcare
Reform
www.gallagherbenefits.com
Federal health care reform legislation and the desire of employers to limit
their health insurance costs are likely to fuel interest in "defined
contribution" (DC) health benefits and private health insurance exchanges,
according to a new report
22
Workforce
Evaluation
2012
Notes
Resources
23
Notes
Wellness
Consulting
24
Compliance
Consulting
Resources
2012
Healthcare
Reform
Planner
2012
Notes
Resources
25
Notes
Resources
Financial
Outlook Tool
26
2012