Regulatory roundup

March 30th, 2015

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

House passes ‘doc fix’ bill with means testing of higher-income Medicare beneficiaries
The House voted to approve the “Medicare Access and CHIP Reauthorization Act of 2015” (H.R.2). The bill has been sent to the Senate. A short-term extension – to be approved by the House and the Senate – will be necessary to keep physician payments from being reduced by 21% starting April 1.

Early evidence finds premium tax credit likely contributed to expanded coverage
The Government Accountability Office has released a study entitled “Private health insurance: Early evidence finds premium tax credit likely contributed to expanded coverage, but some lack access to affordable plans” (GAO-15-312). The study came about as a result of a mandate by the Patient Protection and Affordable Care Act (ACA) for the GAO to review the affordability of health insurance coverage. The GAO examined: (1) what is known about the effects of the advance premium tax credit (APTC) and (2) the extent to which affordable health benefits plans are available and individuals are able to maintain minimum essential coverage.

To download the entire study, click here.

IRS issues private letter ruling on VEBA income used to pay benefits
The IRS released a private letter ruling on the treatment of income received by a voluntary employees’ beneficiary association (VEB) to pay plan benefits. The IRS ruled that a voluntary employees’ benefit association established by an earlier collective bargaining agreement between a union and a liquidating company to provide health insurance for retired union members is maintained pursuant to a collective bargaining agreement for the purposes of Section 419A(f)(5) of the tax code. Also, employer contributions and any income received by the VEBA and set aside to pay plan benefits is exempt function income under Section 512 and therefore won’t constitute unrelated business taxable income within the meaning of that section.

To read the entire private letter ruling, click here.

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Fixed offer or competitive bid? Choosing the right Medicaid managed care contracting methodology for your state’s needs

March 25th, 2015

By Javier Sanabria

Medicaid revenue to risk-based managed care plans has increased significantly in recent years, and there’s now mounting pressure on state Medicaid agencies to deliver quality care and contain costs. Agencies must consider the long-term stability of their Medicaid programs through changes in population, cost trends, and care practices. How Medicaid contracts are awarded to managed care plans can have a major impact on how well they support strategic outcomes and can have unintended consequences if agencies don’t carefully consider their specific markets and regulatory realities. This Medicaid briefing paper authored by Milliman consultants Jeremy Palmer and Rob Damler provides more perspective.

Ikaso Consulting’s Reiko Osaki and Tom Arnold also contributed to the paper.

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Regulatory roundup

March 23rd, 2015

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

‘Doc fix’ bill to call for means testing of higher-income Medicare beneficiaries
A bipartisan, bicameral agreement on legislation to permanently repeal the Medicare physician payment (the “sustainable growth rate” (SGR)) formula was introduced in the House and Senate on March 19, with House and Senate leaders hoping to clear the proposal before the April 1 date when doctors would otherwise face a 21% cut to the reimbursements they receive under Medicare. The “doc fix” has been extended numerous times in the past via temporary patches without revenue offsets; the new proposal (unnumbered) reportedly includes some revenue raisers, in the form of “means testing” for more affluent Medicare recipients. The agreement is expected to cost about $200 billion (over 10 years), but only about $70 billion would be offset.

The initial legislative language released does not include the revenue provisions. However, documents released earlier from the bill’s negotiating team indicated that the $70 billion in offsets would be split between Medicare providers and beneficiaries. On the beneficiary side, the documents suggested phasing in a requirement that higher-income beneficiaries (possibly, for example, individuals/families with incomes of $133,000/$260,000) pay more for Medicare Parts B and D benefits and that beneficiaries pay more out-of-pocket expenses before Medigap supplemental policies pay out (i.e., it would prohibit first-dollar Medigap policies).

House approves bill exempting volunteer firefighters from ACA mandate
On March 16, the House voted 415-0 to approve the “Protecting Volunteer Firefighters and Emergency Responders Act” (H.R.1191), sending the bill to the Senate.

The bill would amend the tax code to exclude services rendered by bona fide volunteers providing firefighting and prevention services, emergency medical services, or ambulance services to a state or local government or a tax-exempt charitable organization from the category of “employees” under the ACA’s mandate that large employers provide minimum essential health care coverage.

The bill defines “bona fide volunteer” must have compensation only in the form of reimbursement for (or reasonable allowance for) reasonable expenses incurred in the performance of volunteer services; or reasonable benefits (including length-of-service awards) and nominal fees customarily paid by similar entities for the services of volunteers.

By regulations, the IRS already does not count volunteer fire departments or ambulances as employers under the ACA mandate, so the bill puts into law what the regulations provide.

Treasury, DOL, HHS release final rule on excepted benefits
The Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) have issued a final rule on excepted benefits to specify requirements for limited wrap-around coverage to qualify as an excepted benefit.

The final rules permit group health plan sponsors, in limited circumstances, to offer wraparound coverage to employees who are purchasing individual health insurance in the private market, including in the health insurance marketplace. The rule sets forth two pilot programs for limited wraparound coverage. One pilot allows wraparound benefits only for multi-state plans in the health insurance marketplace. The other allows wraparound benefits for part-time workers who enroll in an individual health insurance policy or in basic health plan coverage for low-income individuals established under the Patient Protection and Affordable Care Act (ACA). These workers could, under existing excepted benefit rules, qualify for a flexible spending arrangement alternative to this wraparound coverage.

The final rules give employees who otherwise may not be able to get an employer-based benefits access to high-level benefits.

To read the entire final rule, click here.

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Challenges with measuring savings in shared savings arrangements

March 20th, 2015

By Javier Sanabria

Shared savings arrangements attempt to tie provider reimbursement to performance or quality measures and reductions in the healthcare expenditures for an assigned population of patients. The most common form of these arrangements involves networks of providers that form accountable care organizations. The practical task of measuring improvements by providers isn’t easy, especially measuring reductions in expenditure levels due to actions by providers. Milliman consultants Anders Larson and Jill Herbold provide more perspective in this healthcare reform paper.

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Possible changes to Medicare Part D reinsurance programs

March 17th, 2015

By Javier Sanabria

The Medicare Payment Advisory Committee (MedPAC) has previously suggested changes to the Medicare Part D reinsurance and risk corridor program. But several factors—the current state of the Part D market, recent attempts to curtail Medicare spending, and large increases in reinsurance payments—may increase the likelihood that MedPAC and the Centers for Medicare and Medicaid Services will implement changes to Part D. Putting these changes in place will not necessarily result in decreased program spending and could cause an increase in the prevalence of private-sector reinsurance in the Part D market. Milliman’s Nicholas Johnson provides perspective in this paper.

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Regulatory roundup

March 16th, 2015

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

IRS issues publication for ACA applicable large employers
Applicable large employers are subject to the employer shared responsibility provisions of the Patient Protection and Affordable Care Act and related information reporting requirements. Under the ACA, your organization is an applicable large employer for a year if you had an average of at least 50 full-time employees (including full-time equivalent employees) during the prior year.

For this purpose, a full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during that month. An employer determines its number of full-time-equivalent employees by combining the number of hours of service of all non-full-time employees for the month (but no more than 120 hours per employee) and dividing that total number of hours of service by 120.

Also, under a longstanding provision that also applies for other tax and employee benefit purposes, all employers with a common owner or that are otherwise related generally are combined and treated as a single employer for determining applicable large employer status.

For more information, read this IRS publication.

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IRS notice seeks comments on ACA “Cadillac tax” issues

March 12th, 2015

By Employee Benefit Research Group

In its first step to develop guidance on the excise tax that in 2018 will apply to high-cost employer-sponsored healthcare coverage under the Patient Protection and Affordable Care Act (ACA), the IRS issued Notice 2015-16, which provides background information, definitions, and potential approaches the agency may incorporate into future rulemaking. The IRS notice invites comments by May 15, 2015, on three key areas relating to “applicable coverage”: the definition, cost determination, and the application of the annual dollar limit to the cost. A future separate IRS notice will discuss and seek comments on the procedures for calculating and assessing the excise tax (under tax code section 4980I and which commonly is referred to as the “Cadillac tax”). This Client Action Bulletin provides more perspective.

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Captive insurance considerations for group life and long-term disability sponsors

March 12th, 2015

By Javier Sanabria

Captive insurance can help employers reduce the costs of group term life or long-term disability (LTD) benefits. This arrangement provides employers with greater control over invested assets and possible tax savings. However, sponsors need to assess the underlying risks associated with these types of captives because they are different from the risks related to traditional captives in the property and casualty (P&C) sector.

In this issue of Benefits Perspectives, Milliman’s Paul Correia presents an overview of the evolving captive insurance market for large benefit plan sponsors. He also discusses significant risks that employers should think about regarding these funding arrangements. The following excerpt highlights some key risk considerations:

• Risk diversification—Employers with existing captive arrangements for P&C coverages may see opportunities for improving their enterprise risk management practices by adding group life and disability programs to the mix. Because P&C risks are often uncorrelated with group life and LTD risks, combining the different coverages under one roof may provide a better spread of risk. The resulting diversification may help mitigate risk by reducing volatility of claims experience. Similarly, an employer that does not have an existing captive and wants to establish one for employee benefits programs may also consider funding its P&C insurance through the captive, in order to diversify the captive’s risk attributes.

• Counterparty risk—Due to the nature of captive transactions that involve U.S. employee benefits, captives depend on the fronting companies to underwrite the risks and adjudicate the claims. The underwriting for group life and LTD insurance depends in large part on very company-specific perceptions of the underlying risks, such as LTD claim termination run-out patterns (i.e., whether benefits are paid for months or decades, depending on the cause of the disability) and group life mortality improvement. The adjudication of group life and LTD claims also tends to vary substantively from one company to another. The fronting company’s ability to effectively underwrite the risks and administer claims is an important risk consideration for employers that use captives to reinsure group life and LTD programs.

• Catastrophic risk—All insurance companies that provide group life and disability coverages are exposed to catastrophic risk. One random event, such as a plane crash, can cause extraordinary losses. This is a particularly important issue for group insurance writers due to the concentrations of risk by employer group and location. Catastrophic risk is a big concern, even for group insurers that have many group customers. It is an even greater concern to captive insurers that insure only one group. The impact of a catastrophic event can be reduced by entering into reinsurance and stop-loss agreements.

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2016 HHS risk adjuster coefficient updates

March 10th, 2015

By Javier Sanabria

The Department of Health and Human Services finalized an update to the risk adjustment model coefficients used to determine the payment transfer amounts for the 2016 ACA market. The impact of these changes depends on each carrier’s mix of enrollees. But there are several consistent themes when comparing the updated coefficients with the current ones. For example, carriers that enroll a disproportionate share relative to the market of sicker or higher risk individuals are likely to receive higher risk transfer payments. And carriers that enroll a disproportionate share of healthier individuals are likely to receive lower transfer payments or will have to pay higher amounts to other carriers. Milliman consultants Hans Leida and Scott Katterman provide some perspective in this healthcare reform paper.

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Insurers may leave federal exchange market if SCOTUS repeals subsidies

March 9th, 2015

By Javier Sanabria

Many insurers are contemplating the financial implications that a Supreme Court ruling against federal healthcare subsidies would have on their business. This Wall Street Journal article (subscription required) quotes Milliman’s Tom Snook discussing a potential exodus from the federal exchange if tax credits are rescinded.

Here is an excerpt from the article:

Insurers offering products in the federal-exchange states are worried that they could be caught short this year. An antisubsidy ruling could potentially take effect—and prompt consumers to drop coverage—as soon as this summer. Insurers are locked into rates for 2015 and typically wouldn’t be able to raise prices midyear. And partly because of state regulations, it isn’t clear if or when insurers would be able to withdraw from the federal marketplace before January.

But for 2016, if the federal insurance tax credits are unavailable in a state, “the impact would be substantial enough that I would expect many carriers to consider pulling from the market,” says Tom Snook, an actuary with consultants Milliman Inc. who is working with a number of insurers offering exchange plans. “There’s a question, if the subsidies are struck down, if it’s an insurable market.” That could leave consumers with fewer, and far pricier, choices.

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