The Affordable Care Act
and Collective Bargaining in Connecticut’s Schools
Webinar presented by CABE and CAPSS
March 12, 2014

Richard A. Mills, Partner
Shipman & Goodwin LLP
and
Joseph D. Spurgeon, Senior Health Benefits Consultant
Milliman

Atty. Mills:	I’m Rich Mills.  It’s a pleasure to be here today to talk about the Affordable Care Act with Joe Spurgeon, my colleague, and we’re happy here today to talk about some of the significant collective bargaining issues in particular that arise when we’re talking about the Affordable Care Act.  I think we’d all agree that there are many very substantial challenges facing school districts from a cost perspective and from many perspectives when we talk about healthcare reform and what we’ll focus on today is really strategies that you may be able to use in terms of dealing with these issues primarily in the collective bargaining arenas.  So that will be the focus of our conversation today.  We will do a very brief overview of some of the key provisions of the law but we’re not going to spend a great deal of time focusing on those details because we want to make sure that we have the time to really focus in on the collective bargaining issues that are so important to all of you as you deal with these issues from a collective bargaining perspective.
	What we’ll talk about today is really three major issues under the Affordable Care Act and the first is the area of employer responsibility, dealing with access issues in terms of providing access to benefits for employees and the employer’s obligations with regard to those access issues.  You heard a lot about the term pay or play and this is the first aspect of that pay or play issue dealing with access issues.  The second aspect which is just as important of the pay or play analysis is affordability and we’ll talk about what that means but employers will have a basic obligation to provide affordable coverage to employees that satisfies certain minimum coverage requirements and that’s the second area, again, of the pay or play analysis.  And the third major area we will talk about is something we’ve probably all heard a great deal about in collective bargaining or otherwise and that is the Cadillac tax which is a major tax that will hit all employers in 2018 and it will have in important impact, we believe, on collective bargaining really from this moment forward if it hasn’t already.  I know Joe and I have been involved in negotiations in various school districts where we’ve actually already addressed some of these Cadillac tax issues so we will talk about those issues as we go through today.  
	What we’ll do now is have Joe walk through, again, some of the key provisions of the actual statute and its impact because it’s critical that you understand what that impact will be so that you can address appropriate collective bargaining strategies.  They really go hand in hand and unless you have a good understanding of the major impacts that arise out of healthcare reform, it will be difficult to construct strategies that ultimately will serve your district well.  So we want to make sure that everybody’s got a common level of understanding and a good level of understanding of those key issues.
Mr. Spurgeon:	Great.  Thanks, Rich.  I’m Joe Spurgeon from Milliman and I’m going to walk through briefly these three components:  Access requirement under pay or play, employer responsibility and Cadillac tax.  This first part is just going to be an overview.  Hopefully this is a refresher for most of you.  Either you’ve heard it from your benefit consultants or you were present at the presentation that CAPSS put on towards the - actually Caswell put one on too, Caswell and CAPSS put on towards the end of January.  Under the employer responsibility of what is commonly referred to as the pay or play requirement, there’s really two different components.  There’s an access requirement and we’ll talk about that first.
	What the access requirement is, it requires employers with 50 or more full-time equivalents, the government’s going to redefine full-time equivalents for you by the way, 50 or more full-time equivalents will be subject to penalties if they do not offer coverage to their full-time employees and their dependent children.  The government for Affordable Care Acts regulations has defined full-time as working 30 hours or more.  So any full-time employee working 30 hours or more, this first requirement says you must offer them coverage to the employee and to their dependent children.  There are some key dates.  So there’s been an update since the end of January on the employer responsibility and there’s really two different components of it.  Initially, for January 2015, if you’re an employer group with at least 100 or more full-time employees, again working 30 hours or more, in January of 2015 you will have to start to offer coverage to at least 70% of your full-time employees and their child dependents.  For groups that are renewing in July which I assume is the vast majority of you, you are going to be compliant in July 2015.  For those of you, and there’s a handful in Connecticut, for those of you who have off-fiscal year benefit cycles, it would be the renewal after January 2015 that you must offer coverage.  The 70% threshold was changed from 95% so they reduced it from 95 to 70%.  That’s going to apply to 2015 only and we’ll talk about that in a second.  As of January 2016, employers with 50 or more FTEs must offer coverage to 95% of their full-time equivalents and their children dependents.  So for 2015, groups 100 or more only need to offer coverage to 70% of their full-time equivalents.  As of January, that goes to 95%.  If you’re under 100 - if you’re between 50 employees and 99 employees, you don’t need to comply at all in January 2015, you can wait until January 2016 to comply.  There was a huge requirement component to that which said that employers that are close to 100 lives cannot reduce hours on employees just to get below the 100 employee threshold.  So if you’re at that threshold and you’re thinking, oh I’ll just drop five employees’ hours to below 30, be very careful in doing that.  You could run into some issues with the government.
	If you do not comply with this component, this access requirement, the penalty could be $2,000 for every full-time employee - they’ll actually give you a credit for the first 30 - but for every full-time employee who’s on your plan, if only one, if at least one I should say, employee goes to the Exchange and receives a subsidized premium from the Exchange.  So this requirement has a pretty big liability if you do not comply.  So just one of those folks just goes to the Exchange and gets subsidized coverage, you’re subject to a $2,000 fine times every employee.  
	When we talk about the next requirement under pay or play, it’s going to be a little bit different.  So the next component is the affordability and the minimum coverage requirement and this, again, applies to employees working 30 hours or more.  This penalty will apply if coverage is not deemed affordable or does not satisfy the minimum value standard.  Affordability, and this has been updated - this was discussed in January, the IRS has provided a safe harbor on this - affordability means that the employee’s cost for employee-only coverage cannot exceed 9.5% of the employee wages.  There are some other safe harbors in that safe harbor, there’s actually three different ways that you can test for affordability but this is really the main one.  You probably know about the others or you can easily find out but this is the one you’re going the most important you’re going to drive towards.  Again, just know here, it’s the employee’s cost for employee-only coverage.  The previous slide talked about covering dependents as well.  This slide here, this requirement here only requires that the 9.5% of employee wages for employee-only coverage, meaning that, and paraprofessionals is a good example of this, we have a lot of contracts where the paraprofessionals pay a standard premium contribution rate for single coverage and they might pay 50% or 100% or 75% to cover their dependents.  Those would still be okay as long as the employee cost was not more than 9.5% of the employee-only wages.  For the minimum coverage component, basically the requirement says that the plan must cover at least 60% of the expected benefits by the plan.  In Connecticut we won’t have any issues with the plan designs that are in the public sector today in meeting that requirement.  So this is really kind of a non-issue for us here in the public sector.  
	The penalty for non-compliance here is $3,000 for each employee that goes to the Exchange or receives subsidized coverage.  So it’s not $3,000 time everybody in this case.  It’s only $3,000 times the employee who would actually go to the exchange and get the subsidized coverage.  
	So on this slide here, we just kind of pulled these two things together.  What we are recommending for our clients is that you’re going to do all you can to avoid the $2,000 penalty times everybody and there’s different ways to do that.  You know you can offer coverage to everybody at their full cost.  You can eliminate hours to get to below the 30 hour threshold.  There’s several different way to do that but you’re going to want to avoid the $2,000 penalty times everybody and that, again, that can be, that penalty can be assessed if just one employee goes to the Exchange and gets subsidized coverage.  What you’re then going to do is look at balancing the $2,000 penalty versus, I’m sorry, the $3,000 penalty for not being affordability versus what it might cost to actually offer affordable coverage.  So we have some employers that say, you know, we’re going to go ahead and allow our employees to pay more than 9.5% because $3,000 is actually cheaper than providing an employee with a $30,000 family benefit.  So what you’ll be looking at is, what is the cost of the penalty, the $3,000 versus what would it cost me to actually comply and avoid the $3,000.  You know, I speak easily like this is just a numbers game.  I realize there’s a lot of political and employee relations issues around that as well.  So I don’t want to make it sound as easy as oh I’ll just pay the $3,000 penalty but that is something you’d want to look at.  You’re going to strategically look at, you know, what does it cost to offer coverage versus what would the $3,000 fine look like.
	For the Cadillac tax, really it’s called the excise tax on high cost plans.  It’s a 40% excise tax.  As Rich stated earlier, this tax goes into place in 2018.  The threshold to determine the excise is $10,200 for single coverage and $27,500 for other than single coverage.  So it would be $10,200 for employee-only and $27,500 for a two-person or $27,500 for a family plan.  Again, it’s an excise tax so it’s a tax, it’s a 40% tax on the amount over those thresholds.  So if you had a family plan that was $28,500, you have a 40% excise tax on the $1000 or $400.  It’s not a tax on the entire rate.  Not a tax on the entire $28,500 in my example.  The tax applies to the total number of enrollees.  So it would be each family plan that’s over by a thousand dollars will get that $400 tax.  It’s not a one-time tax because your total plan’s over that amount.  Costs currently include, when we calculate in the Cadillac tax, the premium cost for medical and prescription drugs, employer contributions to the HSA and what’s interesting about that is the current guidelines appear, when they say employer contributions, to actually include any employee contributions that are made through a cafeteria plan.  There’s some debate on the interpretation of that rule.  All the guidance that we’ve gotten so far is if it’s a contribution made by the employer or a contribution made by the employee through a cafeteria plan, it’s going to count towards the Cadillac tax.  For those of you who were involved in the CAPSS presentation back at the end of January, one of the things that came out of that is some talking points from CAPSS and that’s one of the areas they’re going to try to address is should HSA contributions be considered in the calculation at all.  So at some point I believe you’ll be seeing some talking points from CAPSS on how, perhaps, we can influence legislation regarding this item.  And then last your reimbursements from HRAs and FSAs would also be included in that.  If I could just take 10 more seconds to talk about this.  If you think about the impact of those last two bullets, it’s going to be extremely difficult for your staffs to be able to calculate the Cadillac tax.  If I’m in an HSA plan and I choose to not fund my portion - as an employee not fund my portion of the deductible at all, then just the employer contribution would go in.  If I choose to fund 50% of the contribution, then that portion would go towards the tax.  If Rich Mills is also in the plan and chooses to fund the full federal maximum, then his entire contribution would get calculated towards the tax.  So you could in essence have a different tax for every single employee under this plan which will be almost impossible for you to administer.  So a lot of problems with this besides just the pure cost of this.  There’s a lot of other issues administratively for you to even administer trying to calculate the tax.
Atty. Mills:	So we’ll talk now, this is Rich again, and we’ll talk now about collective bargaining strategies arising out of the Affordable Care Act with that as a backdrop.  But again it’s important to understand those key elements because what you will really want to do is look at each of your union contracts and all of - and even in non-union settings as well - take a look at your terms and conditions of employment to make sure that from an overall perspective for all of your employees, certified and non-certified, you’re, number one, in compliance with the law and number two, that you’re positioning yourself well in terms of collective bargaining strategies for trying to reduce exposure to the various penalties that Joe reviewed with you. 
	So the first thing we’ll talk about is accessibility and again that’s the first piece of the pay or play analysis that we walked through.  So we want to make sure that we’re in good shape with regard to this accessibility issue and in particular that’s the case because as Joe reviewed with you, the potential is that if you don’t meet the thresholds, the 70% initially and then the 95% ultimately, if you don’t meet that in terms of providing coverage to employees, full-time employees 30 hours or more, then you are looking at very, very substantial penalties as that large $2,000 penalty for every single full-time employee that you have.  So you really want to work hard to make sure you don’t fall on the wrong side of that penalty and in many cases we think employers will be able to be on the right side of that without a great deal of difficulty but you want to look at this very, very carefully and review your current workforce and make the determination along those lines.  
	So first what you want to do is you certainly want to review all of your current benefit thresholds for compliance.  So if you’ve got non-union employees, you want to look at what your standards are for coverage for insurance.  Do you have, for example, thresholds that are higher than 30 hours, 32 or 35 or 40, for the provision of health insurance coverage.  If you do, that clearly will impact those 70 to 95% thresholds for compliance as those get phased in over the next couple of years.  Similarly in your union contracts, I would venture to say, and Joe and I when we were talking about this, we believe that most of you don’t have thresholds over 30 hours for the provision of health insurance but some of you do and I know of one situation at least where if you don’t work 35 hours a week in a particular bargaining unit that I’m thinking of for non-certified employees, you are not eligible for health insurance.  Well that’s potentially a problem for that employer because if there are a large number of employees in that bargaining unit who are 30 hours plus and they’re not eligible for benefits, that’s going to count against that employer when you do the analysis for that accessibility issue.  So you want to look at your benefit thresholds and make sure that they are going to position you well in terms of that accessibility issue and remember for this issue it is simply making benefits available to the employee and the child dependents.  We don’t get yet, we will shortly, but we don’t get for this purpose to the affordability and the minimum value standards.
	The next thing you want to do is look at your current workforce and I know many of you are probably working with consultants or others within your various employer organizations to take a look at your current workforce to see how you measure up.  You’re actually doing some testing to figure out whether you would be okay under this accessibility threshold that’s in the law but you want to have a very good handle on that and like everything else, you don’t want to be close.  You want to create a cushion for error there.  If your workforce shifts by an employee or two, or you’ve reduced a position because of layoffs or other budgetary considerations, you really want to make sure that you’re on the right side of that accessibility issue.  So take a look at your workforce and see where you are in terms of those, again the 70% and ultimately the 95% standards.  Even though those aren’t in effect today, we would strongly urge you to take a look at them, take a measurement today to see how you would fare if they applied today and then do a projection over how you would fare over the next couple of years because you don’t want to be looking at that very substantial accessibility penalty.  Make sure also that you don’t have, and take a look at whether you have contracts that restrict your ability to reduce certain positions below 30 hours.  You may have contracts, for example, in the non-certified areas, you may have contracts that say all positions shall be x number of hours and you may have given away some of your flexibility to reduce those below 30 hours.  You want to take a look and try to eliminate those kinds of restrictions because in some cases where it’s practical, you may be able to reduce at least certain kinds of positions below 30 hours so there’s not eligibility for benefits.  In many situations, as a practical matter, and I want to underscore what Joe said too, this is not just a cost issue, there’s practicality involved here too and there’s service to students.  And so, for example, most of you will not be able to reduce, take your school secretary positions out in the schools.  Most of you would have a hard time reducing those below 30 hours even if you could because you need secretaries to be in those schools and the idea of having split shifts or splitting up the workday isn’t really feasible and probably not real efficient but you want to take a look and make sure you don’t have any artificial limitations on your ability to reduce positions below 30 hours where that would be practical.
Mr. Spurgeon:	Rich, I don’t know if it makes sense to add in here at this point, remember the Affordable Care Act does not impact your collective bargaining agreements.  It does not override them, you’re not excluded from it because of them so, you know, clearly your collective bargaining agreements can be better than the Affordable Care Act, we offer coverage to employees working 25 hours or more, you just can’t be worse.  Right.  So if your threshold is 35 hours to work and somebody - you still have to meet the 30 hour threshold in this case.  
	Rich got our first question.  The 30 hours relates to - the question is:  does the 30 hour relate to year average or the position such as overtime.  It would be the actual hours worked for each individual.  So what most groups are going to do is anybody who’s offered coverage because they’re presumed to either be at 30 hours or more or they meet your lower threshold 25 hours or more, you don’t have to worry about tracking them.  It’s really the employees that are under 30 hours that potentially could be over 30 hours that you need to track.  One other thing, and this actually fits into what I was going to say next, one other thing to consider here:  I was with a client yesterday who has some part-time teachers and those part-time teachers also do continuing education outside of the real employment contract so they’re teaching adult ed.  Those hours for those part-time teachers will count against the 30 hour threshold even though it’s a different position.  You know, if you have a part-time teacher who also coaches or a part-time paraprofessional who also coaches, those coaching hours should be counted towards the 30 hours.  I think the answer to this question is you’re going to count everybody who you think potentially could be, who’s less than 30 hours that could go over 30 hours and that’s how you’re going to count.  If you already offer coverage to somebody who’s working 30 hours or more or close to it, you don’t need to worry about them because you’re offering them coverage.  It’s the folks you’re not offering coverage to that you need to worry about.
Atty. Mills:	And we won’t spend a lot of time going through this today because I know we’ve covered this in other programs, but you will want to make sure you have a good system for monitoring those hours and as Joe is alluding to, having very clear tracking and reporting systems so that you know what those thresholds are and how your employees measure against those thresholds over the measurement period.  So you want to be very careful to have good tracking systems and you should get those going now even though some of those requirements aren’t in place yet at this time.
Mr. Spurgeon:	If I could just add in real quick, Rich.
Atty. Mills:	Sure.
Mr. Spurgeon:	So we’re recommending clients start tracking as of April, our July clients start tracking as of April 2014.  So yes, this April.  That’ll give you a full year to measure which will take you through March and then that would, by taking you through March, it gives you a 90 day waiting period which is the most that’s allowed under Affordable Care Act.  So you’re going to want to start counting in the next three weeks probably.
Atty. Mills:	Okay, so we have a question about whether there are prohibitions on cutting hours or cutting part-time positions altogether.  That will depend on your contracts and you want to look very carefully at your contracts to find out whether or not you are prohibited from doing that.  I would also urge you to exercise caution.  The ability, for example, to reduce an entire full-time workforce down to part-time has both practical limitations and, again, in terms of provision of service to children and others in your school district, but there are - there can be legal restrictions as well.  If it becomes clear, for example, and you’re attempting to avoid providing benefits altogether under a contract and so you take the entire workforce or the entire bargaining unit and move it to below that threshold, that may cause you some issues in terms of some exposures.  So I would say you have to look very carefully at this and you can’t just decide, well the way we’re going to deal with this is we’re going to cut all of our positions below 30 hours.  Again, practically, that’s probably not viable anyway and if you do that on a large scale basis, you may run into some claims that cause you a problem by the employees and/or the unions in those situations.  However, there can certainly be individual assessments made of - take a look at a school or a central office status and taking a look at what serves you best in terms of your business operations and educational operations and you’re allowed to make those kinds of determinations legitimately just as you would now in deciding whether a position needs to be 35 hours or 25 hours or what have you, as long as you have legitimate reasons for doing that in each case.
	Okay, let’s just talk about a couple of specific and special concerns that can arise when we deal with these accessibility issues and the first is substitute teachers and we’ve gotten questions, I know Joe has gotten questions about, you know, how do they count, do they count and how is that going to affect us because many school districts, for example, don’t provide at least all substitute teachers benefits.  Sometimes they do if it’s after a certain number of days or months of service but substitute teachers don’t work in many cases on a regular basis, they may trigger the requirements of this statute and so you have to look at how those will impact that accessibility issue and I know that at least in some cases school districts, for reasons unrelated to healthcare reform, have moved to organizations like Kelly Services or other private vendors for substitute services and I know there’s been some discussion with school districts that in part because of healthcare reform there may be a greater interest in exploring the use of Kelly or other private vendors for substitute services and that may be appropriate.  That’s obviously got to be determined at the individual district level in terms of what works best but in that example suppose hypothetically a district were to move away from employing certain substitute teachers and move to some private vendor for that purpose, those individuals would no longer be employed at all by the school district and so they wouldn’t count in any way when we look at these Affordable Care Act issues.  Obviously the flip side of that is that they would be a part of the employment force of the private vendor and so the private vendor then has Affordable Care Act issues to contemplate and to deal with and we may find that they have greater obligations to make benefits available to people who don’t currently have access to benefits and obviously from a cost perspective, they’re going to be looking to pass those costs back to their clients, you, with regard to the provision of services.  So I don’t think this is an issue that can simply be looked at as a very simplistic issue.  I think that there are ripples to it and it can be a complicated issue that you’ll want to explore if you have an interest in using a private vendor and I would add that I don’t think you want to make this decision just based solely on healthcare reform issues.  That may be a factor but I think you want to do what ultimately works best for you in the provision of services for your district.  Also, let me just add that at least in some cases there may be concerns with subcontracting issues and you just want to be attentive to those and rather than get into a discussion about that now, I would say that if you’re considering a move in this direction, you should consult with your legal counsel, whoever that happens to be, to make sure that you’re on solid ground in terms of making that kind of change with regard to substitute services or other similar services.  By the way, that’s also true not just of teachers but other per diem employees or substitute employees that you may have for other positions as well.  And the same thing, there can be some special concerns with seasonal employees.  If you employ seasonal employees during the summer or otherwise and employees with irregular schedules, and you want to just have a very good handle on how they measure up, again, when we do the tracking and the reporting and determine whether or not we have to provide certain people benefits or not.  So you want to just be focused on some of those - on those issues.
	As we’ve talked about with regard to accessibility, the coverage test that we’re talking about for this purpose applies only to the provision of coverage for employees and dependent children.  And so, Joe, one possibility the districts, I suppose, could consider is whether they want to look at modifying eligibility for spouses because for this purpose at least, this is not a requirement or this is not a point at all in the analysis.  That’s a possible area for consideration but don’t you think, Joe, that there are practical and PR issues and political issues that would affect the employer’s analysis of that possibility of reconsidering eligibility for spouses?
Mr. Spurgeon:	Yeah, absolutely.  And I think a lot of this language about eligibility for spouses and even when we get to the affordability piece which we’ll talk about in a second, being employee-only driven and not based on their contributions for their family members, it really comes out of if the rest of the non-public world and really even outside of the northeast, but the rest of the non-public world, public sector world typically have rules in place on eligibility that if a spouse has other coverage they’re not going to be covered under the plan.  That if a, you know, you’re going to have a dependent buy up for your children.  So I think the law was trying to recognize that spouses aren’t always treated under the plan if they have other coverage.  I think that’s why the law specifically carves them out.  But yes, I think it does give you an opportunity to look at that.
Atty. Mills:	And Joe, what about the second aspect that we have here that in terms of contribution strategies or premium waiver strategies, how would you see this affecting potentially school districts in these areas with regard to accessibility?
Mr. Spurgeon:	You know, I guess what we’re trying to get at here is as you start to look at, and again for those of you who were at the end of January presentation at CAPSS and previously the business folks at the Caswell meeting, we talked about the financial impact of the Affordable Care Act and, you know, we talk about regardless of your feelings on it, whether you agree with the Affordable Care Act or disagree with it, there are significant costs that are going to come on to your plan especially in 2018 but a lot of those costs are already in the plan today in the form of taxes and things that we didn’t go into.  So when we’re looking at this, what you want to try to say is are there ways that we can reduce costs in other areas of our plan and always look at your contribution levels is one way to do that.  You know, do you have buy ups for your dependent children, things like that.  Buy ups for your spouses.  On the premium waiver, I’m not a fan of them typically especially for larger groups but as you sit down to look at the overall impact of the Affordable Care Act and the cost and how you’re going to be modifying your contribution strategies, you might want to look at, okay what are all the options available to me and it might mean too that you’re eliminating any premium waiver strategies which we would probably be more of a fan of than offering them newly but there may be an instance where it makes sense to offer a premium waiver in lieu of doing something else.  So you want to look at the entire contribution methodology that you have.
Atty. Mills:	And Joe, just to clarify the premium waiver reference refers to a payment that would be made to somebody for not taking either full coverage or perhaps any coverage.
Mr. Spurgeon:	Yeah, opt out.  It’s an opt out incentive.
Atty. Mills:	Okay.  Okay, so we’re going to move into the affordability area and talk about some of the contribution issues that Joe touched upon because, again, here the issue is we have to make sure that we don’t have a problem or at least we need to do the analysis to make sure that we don’t have situations where we have the employee cost for employee-only coverage exceeding that 9.5% threshold, 9.5% of their wages, and there may be situations and this is, again, it’s very important that you take a look at your current situations with regard to this issue and have a good handle on which categories of employees might pose a problem in this area and which might not.  So for example, I would suspect with certified employees this largely will not be an issue, I think, in the vast majority of cases.  In non-certified areas where you have lower, at least relatively speaking, you have lower income employees - if you have, for example, a paraprofessional who makes $12,000, and that employee’s paying, you know, 20 or 25% of the cost of the individual coverage and the coverage costs, you know, whatever that dollar figure happens to be, you may have a situation where that employee’s cost in that non-certified example actually exceeds that 9.5% threshold.  So what can you do about that?  Again remember that with regard to this penalty, and I’m going to use that term loosely, this is not, it’s not like a fine, you’re not going to get thrown in jail, it’s not illegal to have that cost exceed 9.5% but if you have that and if the employee goes to the Exchange and gets subsidized coverage, you will have a $3,000 penalty for that one individual and so there’s a basic strategy discussion that you need to undergo, an analysis that you need to undergo which is:  which is better for the employer?  Is it better to get that cost down below the 9.5% so as not to even trigger the $3,000 potential penalty or are we better off just to pay the penalty?  You may have situations in which, I know of one situation where there’s coverage available to employees but they pay the full cost.  Obviously in that situation, that’s going to be a problem on the 9.5% test but I’ve talked to employers who’ve said we’ve looked at this and at least in some of our situations, we’re going to make the determination that it’s actually less expensive to us as an employer to simply pay the penalty.  So I want to stress that the penalty is not like some fine that’s going to go on your record as being a bad employer, it’s an economic consequence and you get to decide and should decide strategically what is best for you.  And part of what you can do is the second bullet we have here is to take a look at splitting contribution percentages.  Some of you theoretically could decide and Joe, I’d be curious as to your thoughts on this, you might decide that it actually makes sense for some of your employee groups to reduce, and I know that sounds strange coming from us, but to reduce the percentage contributions on the employee coverage only, the individual coverage, but increase substantially, potentially, the dependent coverage contributions because, again, for this analysis, it’s only the individual coverage.  Joe, what are your thoughts on that?
Mr. Spurgeon:	Yeah, absolutely.  So, you know, after you do the analysis that Rich has talked about, you know the $3,000 fine versus offering coverage, then if you’ve leaned towards we want to offer coverage and you have an employee group that is above the 9.5% because of whatever premium contribution you have set, one way to look at that is say well can reduce the employee-only coverage, increase the dependent, so what we call dependent buy up, you know, make them pay more to cover their dependents and you can do that in a way where the net impact is the same to you.  You know, so if you were trying to generate 20% employee contributions, you know, rather than charging 20% across single, two-person and family, I’ll make up a number, you can charge the employee 8% and charge two-person and family 25%.  So yes, it’s that entire strategy around how much the contributions are going to be and what you, what your overall goal is.  Do I want to avoid the $3,000 penalty if it’s going to be applicable or do I want to design a plan that can avoid it or am I okay with it?  Just one note too, Rich was talking about the bullet above that, you know, in some cases, you know, you might just choose to pay the $3,000 penalty.  In some cases for your variable wage employees that have very large families, they might actually be better off if their plan isn’t 9.5% of their wages because if they go to the Exchange, the Federal Exchange which is operated here in Connecticut by the State, so the State Exchange they might find a lower cost plan option available to them, however, if they do have coverage through their employer that’s less than 9.5, or 9.5% or less than their own coverage, than they would not qualify for that subsidy.  So in some cases it might be better for your employees if your cost to them is more than 9.5%.  Do you have a question Rich?  
	Okay.  I’ve been told the ACA does not look at waivers favorably.  Is that true?  I’m not sure exactly what that means.  Your obligation under the ACA is to offer coverage.  So you avoid the penalty as long as you’re offering coverage to the 30 hour employee and then subsequently if it’s 9.5% or less of their wages.  There’s no penalties anywhere in ACA that apply to waivers so - but what I’ll say is if somebody waives coverage because they have a waiver, that is not putting additional liability on you as long as the plan is deemed affordable and covers minimum value.  So hopefully I’m answering that to the full extent.  
	The next one is would employer contributions to an HSA be factored into the employee cost or is it just the premium?  It’s just the premium.  So for the Cadillac tax cost calculation, we say that the HSA contributions are included in the total cost of the premium.  For the affordability portion of the Affordable Care Act, we’re just looking at the total premium.  So employee’s funding of the deductible, the employee’s out-of-pocket cost whether they be co-pays or deductible expenses do not get factored into that.  So it’s just their cost for premium.
Atty. Mills:	So I think we’ve actually addressed in our conversation so far, we’ve actually addressed the next couple of slides so we’re going to move through those.  Sorry about that everybody.  And let’s move into the Cadillac tax and I think again that the key take away from the affordability piece is you really want to get a handle on where you are now and make a decision with regard to whether you’re better off paying the penalty or whether you’re better off changing and getting below that 9.5% threshold.  So we’ll move now to the Cadillac tax and again this is a very - it has a huge impact and I know there’s been a lot of conversation about this and Joe and I will touch on this, I think there’s been this assumption that it would go away or would never come into existence.  On the books right now, this is going into law in - it is law and it’s going into effect in 2018.  Whether it gets modified or restructured in some way remains to be seen but I think it’s fair to say that every employer needs to be very much focused on this because the cost potential for every employer, public, private or other, is huge here in terms of the Cadillac tax and there are, as Joe and I will talk about, there are some things you can do to eliminate or better yet reduce your exposure because elimination may be impossible but there are limits, honestly, as to what you can do and this tax may hit virtually every employer in some way in 2018 but it is important to be aware of it and take steps now to try to address it.  The one thing we should say at the outset is that until now when we’ve done union negotiations, for example certified negotiations as you know most of those contracts are three year contracts.  So this fall, the fall of 2014, we’ll be negotiating contracts that will run most likely from 2015 into 2018 so the tax will hit during the term of the contracts that we’re negotiating this fall.  So we believe that it’s critical, and I know again in some places Joe and I negotiated last fall together, we did in fact address this Cadillac tax issue but it is very important that you address it now because the time is up.  We can no longer say:  well we’ve got another round of negotiations coming, we’ll just wait to see what happens.  That time is now and that’s true for both certified and we would say non-certified as well.
Mr. Spurgeon:	And it’s not a hundred percent clear right now when 2018 is.  Meaning are they going to look at it as what was the value of your plan on January 1, 2018 or are they going to wait until upon renewal so is it really your July 2018 rates.  For all the benefit changes and eligibility changes that have been part of the Affordable Care Act, they’ve all come into play upon renewal.  All of the taxes to date have gone into effect as of January.  So we’re not sure exactly where this is going to fall.  Right now our estimate, when we’re estimating cost impact, we’ve been using July but it potentially could be that you get six months’ worth of it for the January 2018 through June 2018.  Rich, I think what we will do, let’s skip these three and then do this slide and go backwards.  I think this will feed into those slides.
Atty. Mills:	Sure.  We’ve got some examples that we’ll walk through and that’s why we skipped over those slides but when you look at the issues in terms of the Cadillac tax and points for negotiation, there are several things you need to do.  Obviously when you have those thresholds, $10,200 for individual coverage, $27,500 for family coverage, those are in the law.  Those are fixed and so if your plan costs more than those thresholds, you will, in fact, be subject or the excise tax will be imposed upon you.  So in an ideal world you want to be below those thresholds and do what you can to keep below those thresholds in terms of having any tax exposure at all.  In a less than ideal world, you at least want to minimize your exposure.  So what kinds of things can you do?  When we talk about plan design changes, many of you have tried through the years for all sorts of reasons not related to healthcare reform but I think this puts increased pressure on you now to try to basically reduce your plan costs.  And when we talk about health insurance costs, we rarely talk about costs actually going down.  What we really talk about is a term that Joe introduced me to several years ago which is cost mitigation meaning try to reduce your increase costs as they go forward.  But you need to look at your plans.  
	Let’s say, for example, you have a PPO plan and you’ve got a $15 office visit co-payment.  We’d say well that’s really low and you need to push aggressively upward on that in your collective bargaining negotiations whether it’s, again, certified or non-certified.  That’s just an example but you need to look at those PPO plans or whatever kind of plan you have in existence.  And I would say at the outset, that it is very important as you prepare for any set of negotiations that you talk with whomever your consultant is for insurance and really sit down and have a very good strategy session on what are our current benefits and how best can we position ourselves to try to address some of these issues specifically on healthcare reform.  That needs to be part of the conversation and what can we do to reduce our plan costs.  There are other things you can do and we reference this down below.  Many of you have moved to high deductible plans as a way to, again, reduce your overall cost exposure over the years.  Some of you have done those as being the only plan and we’re seeing more and more of that or at least as the core plan.  Some of you have done it in options.  You want to take a look at that and do whatever you can fairly aggressively but reasonably in terms of what you can accomplish in collective bargaining to try to reduce those costs.  Just remember, as Joe mentioned earlier, that when it comes time to do the Cadillac tax analysis, it’s not just the premium, it’s the contributions into the HSA as well that will count so the HSA plans are only going to help you so much and you want to make sure when you do the analysis that you’re looking at contributions into HSAs as well.  For example, these days in Connecticut kind of a standard number for the employer contribution into the HSA is about 50% of the Health Savings Account amount - of the deductible amount I should say.  That may well continue but you need to look at that because that does have an impact on how this tax will be calculated.  So you’ve got to do a strategic analysis of what is viable in your workforce.  Also, again I go back to the point that Joe made earlier, this is not only about dollars and only about saving costs.  Obviously you want to have a reasonable level of insurance for your employees.  There are employee relations issues that are important here.  You are not looking to have lousy benefits for your employees.  That creates its own set of issues.  So you have to look at this from a total perspective and not purely cost.  
	What plan management provisions might you look at?  We’ve looked over the past couple of years at things like wellness incentives, disease management programs, prescription drug, managed care kinds of aspects as a way, number one, to improve health certainly, short term and long term, and secondly, again, to try to reduce costs of these plans as we go forward.  So all those things really need to be part of the equation.
Mr. Spurgeon:	I think what, you know, you’re going to look at more - there may have been, you know, a tendency to say:  hey we can implement prior authorization rule for physical therapy but the overall impact to the cost was pretty minimal and it created an employee relations issue for us so let’s focus on the co-pays instead.  What I think we’re going to get to a point is that, and I’m sort of pessimistic - I have a pessimistic approach to the Cadillac tax.  I think all of you on the phone are going to be there if not in 2018, very shortly thereafter, you’re going to be looking at any way you can to help mitigate that and so looking at some of these things like disease management, prescription management, care management, you know, tiered networks, may come back into play now more than they were before.
	We’re looking at some questions that came on.  Bear with us for one second.  So one question:  I know the question’s from the beginning of the presentation but I’m not sure what it means to offer coverage to 75% or 95% of FTEs.  So going back to the accessibility, what it says is if, you know, if you have 200 employees in 2015, if you have 200 employees working 30 hours or more, you have to offer coverage to at least 140 of them to be compliant in 2015.  In 2016, it goes to 95% so you’d be closer to 180, 190 employees.  So you can - another way to look at this is you avoid the penalty if only 5% of your 30 hour employees in 2016 aren’t offered coverage or 30% in 2015.
	We have a question - is the tax the burden of the employer or the employee or both?  Maybe I’ll let Rich answer that.  Let me just say it this way, the Affordable Care Act does not specify who is responsible for the tax.  We consider it to be a plan tax and what I mean by that is if you were a fully insured plan, then your premium will include the tax in the premium amounts.  Who pays that will probably be up to negotiations.  So Rich, you want to . . .
Atty. Mills:	Yeah, we actually have a - I see a few questions about this issue and this I think is going to become a critical issue as we go forward in negotiations and we’ve actually included it in the PowerPoint presentation this morning a sample proposal.  This is for something you certainly can consider.  You’re not obviously obligated to use this and you may have a variation you’re considering yourselves but this whole question of who pays the tax and who’s responsible for the tax.  It has become and will continue to be a subject of negotiation and, again, we think it’s important that employers, all employers, have a very clear position on this and get into making proposals on this issue and let me just explain what we’ve put together and Joe and I have worked on this together with some districts and this is - we’ve actually tweaked this a little bit based on the reality that we may not be able to avoid the tax in all cases or maybe even in any cases.  So what this proposal language says, so this will be something you could consider proposing for either a certified or a non-certified bargaining unit, and the language basically says that if the total cost as determined in accordance with the law triggers the excise tax under healthcare reform or any other excise tax, then the board reserves the right to offer an alternate group health plan with a lower total cost such that the total cost of the alternate plan or plans, the alternate plan falls below the excise tax threshold or reduces the amount of any applicable tax.  Again, the goal is always going to try to be to get it below the tax threshold but that may not be able to be possible and so the second piece of this is that the goal becomes to reduce it.  So in this example, the employer has a choice.  So let’s assume that Joe and I are a board of education where the family, the plan cost for family coverage is $30,000 which is obviously over the threshold of $27,500.  This language if it were in a contract would give that board of education the right to implement an alternate plan to be selected by the board that would either fall below that $27,500 threshold or at least fall closer to it than the $30,000 plan that we currently offer.  Under this language, eligible employees would still have a choice and they can choose either plan.  So they can choose a $30,000 plan in my example or they can choose, if we came up with one, one that costs $26,000, just to pick an example where it would be below the threshold.  If the employee were to choose to enroll or remain enrolled in the coverage option that triggered the tax, in my example the $30,000 premium cost plan, then the employee under this proposal would pay the full amount of that tax.  Now that’s a proposal.  We have seen, I’ve seen at least a contract or two that has language somewhat like this in these situations and I think we’re going to see these kinds of proposals or variations on them as we go through negotiations but this is absolutely something that you want to address in your collective bargaining.  Again, it doesn’t have to be in this way.  Some employers might want to propose that the employee not have a choice and that all employees would be forced to go into the lower cost plan.  The employers that I’ve worked with in the situations I’ve had have wanted to preserve choices for employees and have only proposed that the employee pay the full amount of the tax if the employee has selected an option that triggers that tax.  As we sit here today, we understand that boards don’t get to write contract language unilaterally, we have to negotiate this and it’s not going to surprise anybody out there that the unions may have a very different take on this issue and they have different proposals in mind when it comes to payment of costs but you need to address this in the negotiations and I think the key point is that we can no longer assume that healthcare reform is going to go away or the Cadillac tax will go away or that we can just deal with this two or three years down the road because this will hit during the term or your next certified contracts.
	Joe, any thoughts on that?
Mr. Spurgeon:	Yeah, no, Rich and I worked on this language together.  I would just avoid language that says we’re going to offer a plan that reduces - that eliminates the tax because it’s potential - the potential’s there that you won’t be able to do that or the plan design structure would be so much different, you might run into some other issues or you just wouldn’t be comfortable offering it.  And Rich maybe it makes sense now to kind of flip back and kind of walk through the sample cost slides.
Atty. Mills:	Sure.
Mr. Spurgeon:	So I’ll ask you all to flip back or you can look on the screen anyway.  So this first slide makes some general assumptions that says my plan will hit the Cadillac tax plan - will become a Cadillac tax plan in 2018.  So I’ll hit that threshold right in 2018.  Actually I worked out here that you didn’t have to pay a tax so you’re right at the threshold in 2018.  I did this slide for two reasons:  (1) to show you what your monthly premium rates would have to be today in order to get to just hit the threshold in 2018.  So basically if you have a single rate of $578, a two-person rate of $1,156 and a family rate of just under $1,500, that’s going to trend forward, I’m using an 8% trend - you can see that in the right corner - using an 8% trend, that’s going to just hit the threshold in 2018.  So this - what this should help you figure out to some degree is if my rates are higher than that today, I know I’m a Cadillac tax plan in 2018 if I get an 8% increase and I don’t make any plan changes.  What it will also show you is if I’m at that level or just, maybe just below it, I’m likely going to be a Cadillac tax plan in 2019 and 2020 anyway.  
	The next slide down, this says, okay let’s say I hit the Cadillac tax thresholds in 2016, I don’t have to pay the taxes until 2018 but my plan hits the $10,200 and the $27,500 in 2016.  So what this shows you is what a plan would cost today to get there.  So $685 for single, $1,371 for two-person and just under $1,800 for a family.  It shows you what the tax impact on that plan would be:  $757 on the single rate and $1,522 on the family rate.  I don’t know if you can see my mouse?  Can you see my mouse?  Okay.  So there’s the $1,522 and the $757.  And what this also shows you is if you have a 500 life group, and this is general assumptions here and I use standard, kind of our average spread in the public sector, this is how many singles you have, how many two-person you’d have, how many family you would have.  So if your rates were at this level today and you got an 8% rate increase every single year, in 2018 you’d have a $757 tax on your singles, a $1,500 tax on your family, nothing on your two-person.  Your total tax across all your employees would be $436,000.  I just did some math behind the scenes here.  Your premium without the tax would have been about $11 million, your premium with the tax $11,500,000 or you’re adding 4% in that year just because of Cadillac tax.  Alright?  Another way to look at this slide, and I don’t have it broken out for you but if you want to jot it down, to get back to this level, right, the 2018 - I don’t hit the tax until 2018 - I’d have to have a 16% reduction - I’m sorry, moved the slide - I’d have to have a 16% reduction in these rates to just hit the Cadillac tax plan in 2018.  So if your plan is at or about this level today, in order to only just hit the Cadillac tax in 2018, you have to have a 16% reduction.  
	The next slide says, okay, what if I’m already at the Cadillac threshold today which I have many groups that are.  Not all, but many groups that are.  Your Cadillac tax plan - your Cadillac tax impact would be $1,900 for single, $990 for two-person and $5,000 for family.  Same math over here to the right on the 500 life group:  $1.5 million in taxes, right?  Your premium would be $14 million goes to $15 million or 10.4%.  That’s going to be unaffordable for anybody.  It’s a significant issue.  In order to, again, get back to slide one, meaning my plan doesn’t pay Cadillac tax until 2018, it would require a 32% reduction in my cost today to avoid, to just be at the Cadillac tax threshold in 2018.  
	So that’s why I’m a pessimist.  I think it’s going to be very difficult to avoid the Cadillac tax altogether.  What you’re going to do is try to minimize that tax any way that you can.  And again this assumes the current thresholds.  There’s been talk about those thresholds being raise but those have not been raised.  There’s talk about well those are the values today, not what they’re going to be in 2018 - that’s incorrect.  Right now the thresholds in 2018 are these thresholds:  the $10,200 and $27,500.  
	You have a bunch of questions you wanted to address, Rich.
Atty. Mills:	Sure.
Mr. Spurgeon:	Alright.  We’ll work backwards.  That’ll be easier.  There’s a question here that we’re not quite following:  how does the employer choose who is left out?  I’m wondering if they’re talking about the 30 hour employees and how would you exclude.  You know, I’ll leave that more to Rich, you know, if you can unilaterally choose which employees can’t work 30 hours or more anymore, if you have to do that by class of employee?  I’m not sure that’s the question anyway.
Atty. Mills:	If that’s the question, obviously you’d probably have contractual restrictions on that in terms of - well you have practical and contractual limitations on that in terms of operationally you may not be able, again, to have certain employees work below 30 hours, it just may not work for you as a school district but if you have some latitude, what you have to do, number one is comply with a contract and you may have contracts that, for example, require you to make those determinations on a seniority basis.  If you do, you’d have to comply with those.  If you don’t have those, then your obligation would be to do that on a legitimate, non-discriminatory basis.  So you can’t just pick an employee because you don’t like the employee or use some other improper factor.  There’d have to be some legitimate reason that you can point to consistent with the contract that you’ve selected a particular employee.  If that’s not what you meant by that, we’ll be happy - if you want to send a modified question or a clarification, we’ll be happy to address that.  
Mr. Spurgeon:	Can Cadillac tax be passed to the employee?  Yes, so as Rich said, you know, there’s no specification who pays the tax.  So I think that’s going to be a discussion that you’re going to have with the unions and with your labor counsel and your insurance consultants.  Oh, regarding - the next question - regarding the application of the Cadillac tax, where do health benefits for retired employees fall?  Yeah, in order to be concise, we didn’t include that.  The federal government allows a higher threshold for retirees that are on your plan.  It’s 11 - my mind’s going blank - $11,200 and a little over $30,000 for the family.  So there’s a higher threshold for retirees.  In that case, if a retiree, like for most of your certified employees who pay 100% of the premium, then I would assume they’re clearly going to pay 100% of the tax in that case.  Maybe I shouldn’t assume but that would be my assumption.
	Next question.
Atty. Mills:	This is clarification of the earlier question.  So the question is, with regard to the 70% and 95% requirements, how does an employer get to choose who is left off insurance?  My understanding is that you can only - you cannot pick and choose who gets insurance.  Again, you have to be careful.  If you make determinations that certain employees are not going to get insurance, you cannot target specific employees as individuals.  Usually you’re going to do that on a structural basis based on the position.  So you’re either going to have position requirements, you’re going to have hours requirements or some other legitimate business justification for deciding whether someone gets benefits or does not and if you have any latitude at all in making those judgments, you’re going to have to always make sure that you have a legitimate, non-discriminatory reason for electing who’s getting benefits and who is not getting benefits.  You know, in our experience I think this accessibility issue is not likely to be a huge factor.  It’s important to do the testing that this calls for but we really think ultimately most employers will be able without too much difficulty to make the coverage available and satisfy that standard thereby avoiding that accessibility penalty.  We think the larger focus of this will end up being on the affordability issues and ultimately on the Cadillac tax issues.
Mr. Spurgeon:	Yeah, I think the hardest part of the accessibility piece, the 70 and 95%, it is probably not the strategy that you’re going to implement once you know.  It’s finding out how many employees you have that might be at the threshold that you don’t think are.  You know, you’ve got a part-time paraprofessional who coaches and how they just went over 30 hours.  So I think the tracking is going to be harder part and then you’ll probably be able to fairly quickly come to a decision easily about how to handle those folks because the rest of your folks are really covered by the collective bargaining agreement anyway so you’re probably already offering coverage to them.
	So the last slide we have here - just bear with me here.  So the final slide here, and we didn’t go into a lot of detail on this.  I think it does impact bargaining to some degree.  The federal government now requires you to send out summary of benefits of coverage.  They’re also called uniform benefit summaries.  These are an attempt - I’ll leave my opinion out - an attempt to clarify the big SPDs and then the carrier fact sheets that get generated.  It’s kind of a meld between those two documents.  What’s important here is you are required to send those out 30 days prior to renewal every year now and if you’re making any changes off renewal cycle, it requires a 60 day notice.  Why does this impact bargaining?  It impacts bargaining probably because your non-certified contracts which often go beyond the end of their contract, so you’re negotiating a July 2013 contract perhaps still today, what that means is that if you negotiate changes finally, it’s going to take you at least 60 days to implement those changes.  So you should just be aware when you’re calculating the financial impact, what that means to have an extra 30 or maybe even 60 days added to the implementation of the plan.
Atty. Mills:	So we’ve come to the end of the presentation and I’m just going to check to see if there are any other questions.  No, it looks like we’ve answered all the questions that are pending.  We hope that’s been helpful.  Obviously this is an overview and in a nutshell those are some of the concerns you’ve got to be watching for when you deal with collective bargaining and healthcare reform.  Again, we hope that’s been helpful.  If there are any follow-up questions, if you want to focus questions - well Marie, I’m sure, will be happy to, we’d certainly be happy to get back to you with answers if we haven’t answered your questions.  And again, it’s been a pleasure for both Joe and I to be able to talk through these important issues and hopefully you’re armed with some information that enables you to kind of strategically review where you are today and hopefully where you need to go as you collectively bargain with your various unions.  So thanks very much for your attention.
Mr. Spurgeon:	Yeah and there were a couple of people that had asked, or at least one person had asked about sending out the document.  I think it was sent out, but we see your email address here and we’ll make sure that gets sent to you.  Do you lose this once it gets shut off or no?  Alright, so let us write that down before we log off.  
Atty. Mills:	So thank you very much.
Mr. Spurgeon:	Thank you very much.