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Five Strategies for Dealing with ACA and Rising Costs

A NEW REPORT has been issued that recommends strategies for senior executives and business owners on how to deal with the changes wrought by the Affordable Care Act.

The list, compiled by human resources company Mercer L.L.C., contains what it calls emerging strategies in response to the way benefits are delivered to employees. Most of these changes are the result of the sweeping alterations to the benefits landscape that the ACA ushered in.

The ACA also makes enrollees more accountable, requiring them to be more active and involved in their health care.

Mercer predicts movement toward smaller provider networks and fee-for-value reimbursement models, including medical homes and accountable care organizations.

Also, it expects that the increased demand for primary care services will lead to more retail health care settings, and increased use of telemedicine (where people discuss their health problems with a doctor or nurse via video chat).

For now, Mercer recommends that employers consider the following strategies:

Avoiding the Cadillac tax – Starting in 2018, a 40% excise tax will be imposed on the value of health insurance benefits exceeding a certain threshold. The estimated thresholds are $10,200 for individual coverage and $27,500 for family coverage.

The thresholds may be increased depending on actual medical inflation between 2010 and 2018 using a measure that looks to the Federal Employees Health Benefits program. The thresholds may also be increased for individuals in high-risk professions, and pursuant to an age and gender adjustment.

With the tax not being put into effect until 2018, employers that have offered these high-cost health plans still have time “to plan for a ‘soft landing’ by phasing in changes that will reset benefit cost at a level below the threshold,” Mercer writes.

In Mercer’s 2013 “National Survey of Employer-Sponsored Health Plans,” nearly a third of large employers (those with 500 or more employees) say that concern over the excise tax influenced health plan decisions for 2014. The most common strategies are adding, or building enrollment in, low-cost consumer-directed health plans and eliminating the highest-cost plans offered today.

Reconsidering dependent care – In  2015, employers must offer coverage to all employees working 30 or more hours per week or face an employer shared responsibility payment, although for employers of 50-99 workers, the mandate has been delayed to 2016. Concurrently, new rules have relaxed the requirement to offer dependent coverage until 2016.

The ACA’s definition of dependents does not include spouses and it does not require employers to subsidize or make dependent coverage affordable. Many employers have thus started imposing a surcharge for spouse coverage, while some have stopped offering it altogether. Mercer found that larger employers are more likely to require a surcharge, while smaller employers are more likely to exclude spouses with other coverage available.

You should review your spousal coverage and compare your organization to what other companies may be doing, as some may continue offering it without a surcharge in order to better attract talent.

Part-time and variable hour strategies – Under the ACA, employers with more than 50 full-time workers (defined as someone who works 30 or more hours a week) must offer health insurance coverage to all their employees. While there have been reports that some employers will try to avoid providing the benefits and also the fine for not doing so by limiting hours worked, Mercer’s survey has found that most employers will opt to offer coverage to their full-time workers.

Others will add a low-cost plan for the newly eligible, and a small portion will take no action and pay the shared responsibility penalty.

Whatever you decide to do, you need to start preparing for complying with the ACA’s reporting requirements. Now is the time to review and correct your employee classifications, ensure that you have implemented systems and tools to track employee hours, and maintain your records in accordance with the law. If you have more than 99 employees, you should start tracking your employee hours immediately.

Give wellness strategies a second look – One of the best ways to reduce your overall health insurance spending is to improve the overall health of your workforce. Under the ACA, you can give discounts of up to 30% on health plan contributions to those employees who participate in health management programs.

You can take that a step further by offering the discount if those participating employees meet certain measurable health standards. If implemented and managed properly, this may be the best way to improve the health of your workers.

Private exchanges – While much of the focus on the ACA has been on the public exchanges, more employers are gravitating towards private exchanges. A private exchange allows an employer to better manage costs and deliver flexibility and choice to its workforce.

In a private exchange, you can offer an array of choices that give employees the opportunity to opt instead for lower-cost coverage and use the remaining funds they’ve been allocated for benefits to purchase other coverage, such as voluntary life, accident, disability and critical illness.

This gives the employees more control over how they spend their benefit dollars.

Mercer found that 25% of all employers are considering switching to a private exchange to deliver benefits to their employees in the next two years. Nearly 50% would consider switching within five years.

IRS Releases Health Savings Account Caps for 2015

THE IRS has announced the contribution limits to health savings accounts for 2015.

The new maximum contributions increase by $50 for individuals and by $100 for families, starting next year.

The maximum contribution that can be made to an HSA in 2015 will be $3,350 for employees with single coverage, up from $3,300 this year.

The HSA contribution for those with family coverage will be capped at $6,650, up from $6,550.

The maximum out-of-pocket employee expense, including deductibles, will increase next year, as well:

•             To $6,450 for single coverage, from $6,350 this year.

•             For family coverage, it will increase to $12,900, from $12,700.

Increases in the HSA limits, which are detailed in Revenue Procedure 2014-30, are tied to changes in the cost of living.

401(K) Participation Rates Lower Among Women, Study Finds

A NEW STUDY by Wells Fargo has found that more men participate in 401(k) plans than do women.

Wells Fargo analyzed 401(k) data from 2,036 of its business clients in 2013, and where gender was indicated, 49% of the men and 43% of women were enrolled in their workplace retirement plan. And men also contributed a greater percentage of their income to 401(k) plans than did women. The bank found that 43% of men were contributing a minimum of 10% of their earnings to their plans, compared with 39% for women.

While the amount may seem small, it can translate into big differences further down the road as income is compounded.  Compounding allows 401(k) plan money to grow steadily over time, especially if you keep plowing money into your plan, and don’t take any of it out before retirement.

“In general, all men and women need to take full advantage of their workplace retirement plan and embrace the 401(k) as the primary retirement benefit,” Joe Ready, director of Wells Fargo Institutional Retirement and Trust, said in a prepared statement. “In our view, if people have access to a 401(k) they should try to save at least 10%. The power of saving regularly, coupled with the compounding effect of time, can create a financial foundation for people that results in much greater retirement security.”

The study did find that women were, however, a tad bit more diversified in their 401(k) investments, with 70% of women meeting a minimum level of diversification – defined as a minimum of two equities and a fixed fund, and less than 20% in employer stock – in their 401(k) account investments, versus 67% of men. The difference has been stable for the last two years.

One potential driver of this difference in diversification is the use of managed investment options: 74% of women have money in managed investments, versus 71% of men.

If the difference in 401(k) participation rates between men and women grows wider, female 401(k) investors may face a bigger uphill climb to financial security than their male counterparts.

It might behoove you during your next staff meeting to share the results of this study with your employees and illustrate the pitfalls.

Other findings in the study include:

•             For all of 2013, employees who contributed to their 401(k) plan saw their average balance rise 19%, and 35% over the past two years combined, largely due to stock market gains.

•             20% of participants now have an outstanding 401(k) loan, compared with 19% two years ago – an increase of 5.4%.

•             26% of participants who left their employers in 2013 cashed out their 401(k) accounts, versus leaving their balances in the plan or immediately rolling over to IRAs. Upon cashing out of their workplace plans, employees have 60 days to decide if they will roll their cash into an IRA. This of course is one of the worst things and individual can do, as it significantly erodes their retirement savings.

•             Usage of Roth 401(k) plans, when offered by employers, jumped from 8.6% of participants to 10.4%. Millennials are the biggest users of the Roth 401(k), which takes after-tax contributions and allows participants to withdraw funds tax-free in retirement: 15.3% of millennials use a Roth 401(k), up 2.4 percentage points from the prior year.

•             The percent of participants who have some money in a managed option increased 4.9 percentage points over two years. New hires are more likely to use managed investments than long-term employees. The change in recent years to using managed investments (especially target-date funds) is having a real impact on participant diversification.

•             Because of these changes, total assets in managed investment options grew to 26% from 22% last year from the year prior.

•             Fixed-income investments or cash equivalents now represent 18% of 401(k) assets, down from 26% two years ago.

•             The percent of participants who do not use a managed investment option and have their entire balance in a single investment is down to 10%, from 12% two years ago.

Small Group Deductible Limit Regulations Repealed

PRESIDENT OBAMA has signed legislation that repeals a provision of the Affordable Care Act that limited deductibles in small group health insurance plans to $2,000 for individuals and $4,000 for family coverage.

The repeal was part of a larger measure – the Protecting Access to Medicare Act of 2014 – that delays for a year a scheduled 24% reduction in payment for doctors who treat Medicare patients.

The removal of the deductible cap applies to plans for employers of 50 or fewer full-time workers, up until 2016, when the definition of small group changes to 100 or fewer full-time employees.

The deductible limit was originally intended to come into effect for plans that take effect this year.

The repeal takes effect immediately and retroactively to March 10, 2010,

Implementing ACA regulations had barred insurance companies from taking into account an employer’s health flexible spending accounts or health retirement account contributions for the purposes of determining compliance with deductible limits.

Unfortunately, the rule had the unintended effect of basically forcing some small employers to purchase plans with lower deductibles if they were to continue offering coverage. And the lower-deductible plans included significantly higher premiums in many cases.

But not all small group plans were affected. Insurance companies in some states were able to avoid the deductible limit rules thanks to exceptions created by the Centers for Medicare and Medicaid Services, as well as in Health and Human Services regulations.

These changes allowed plans to exceed the $2,000 and $4,000 deductible limits if it helped the plan achieve the lowest allowable actuarial value of 60% (meaning that 60% of health services are covered by the insurer).

At this point, we will have to wait and see if insurers in the small group market start offering policies that exceed the now-repealed limits. If they do, it will give small employers more choice.

As your broker, we will let you know during your next renewal if small group plans with higher deductibles come back on the market as a result of this law change.

One-third of Enrollees May See 2015 Rate Decreases

A NEW GOVERNMENT study predicts that about 35% of the individuals and families who get their insurance through small group plans will see rate decreases in 2015.

The rest of the market will see rate hikes, but the prediction in the report by the Centers for Medicare and Medicaid Services (CMS) shows that rate hikes will not be across the board. The report did not estimate just how premiums would change, as the goal was just to give an indication of how many people would see increases in the premiums they pay.

But, some health insurance analysts and industry statisticians are predicting that premium rates will increase by an average of just 7% in 2015, which is well below the double-digit increases that some observers have anticipated in recent months.

Besides general cost inflation, a recent article in Forbes magazine notes that health care spending skyrocketed in February of this year by $13 billion nationwide, compared to February 2013. That additional spending could also spur insurers to raise rates.

But increases are not likely to be dramatic because insurers have less leeway than before to raise rates, due to the Affordable Care Act.

The ACA requires adjusted community rating for plan years beginning on or after January 1, 2014. Specifically, premium rates in the individual and small group market charged for non-grandfathered health insurance coverage may only be varied on the basis of the following four characteristics:

•             Individual or family enrollment

•             Geographic area  – premium rates can vary by the area of the country

•             Age – premium rates can be higher for an older applicant than for a younger one, but the ratio of premiums cannot exceed 3:1 for adults

•             Tobacco use – premium rates can be higher for smokers, but the ratio cannot exceed 1.5

Prior to the enactment of the ACA, health insurers were able to vary premiums based on the health status of a group, group size, and industry code or classification. Smaller firms could charge higher premiums for high-risk work and groups with sick employees, and could increase premiums after a single employee received a new diagnosis.

But, since the ACA took effect, insurers may no longer have the ease of variability with insurance premiums. Consequently, CMS acknowledges the considerable uncertainty that exists in whether small employers will terminate existing health insurance coverage for employees, or send employees to the individual market exchanges.

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