{"id":896,"date":"2015-04-01T06:14:13","date_gmt":"2015-04-01T06:14:13","guid":{"rendered":"http:\/\/rovdownloads.com\/blog\/?p=896"},"modified":"2015-04-01T08:56:51","modified_gmt":"2015-04-01T08:56:51","slug":"case-study-employer-sponsored-healthcare-insurance-real-options-strategies-analytics-and-the-u-s-affordable-care-act1","status":"publish","type":"post","link":"https:\/\/rovdownloads.com\/blog\/case-study-employer-sponsored-healthcare-insurance-real-options-strategies-analytics-and-the-u-s-affordable-care-act1\/","title":{"rendered":"CASE STUDY: EMPLOYER SPONSORED HEALTHCARE INSURANCE; REAL OPTIONS STRATEGIES, ANALYTICS, AND THE U.S. AFFORDABLE CARE ACT<sup>1<\/sup>"},"content":{"rendered":"<p>The United States passed major healthcare reform legislation in March 2010, hereafter referred to as the Affordable Care Act (ACA). It is complicated and has many moving parts. Figure 14.149 identifies the key healthcare finance stakeholders and their moving parts. What makes this so important is that public and private healthcare spending within the United States is 17.6% of a $15.8 trillion gross domestic product, which equates to $8,233 per person. As such, the changes brought about by this legislation have created a monumental disruption opportunity as employers strategize what to do with respect to their employer\u2010sponsored insurance offerings. Our focus here is on the employer\u2010sponsored health insurance portion of the ACA because even though this system is currently subsidized through the tax code with the deductibility of the employers\u2019 contributions from the corporation and the exclusion from the taxable income of the employee for these employers\u2019 contributions, employers need to assess and determine what option is optimal in creating value as they define it. Figure 14.150 illustrates a sampling of strategic real options an employer may review when managing its healthcare exposure.<\/p>\n<p><strong>The Decision\u2010Making Process<\/strong><\/p>\n<p>The economic pressures to know, quantify, select, and execute are critical in the control of health\u2010care costs. However, the process begins with setting the goals (Goals), outlining the strategy (Strategy), selecting the tactics (Tactics), implementing the strategy (Implementation) and applying the controls (Control). What follows is a discussion of the interrelationship of these elements and how, as we speak to the strategic options development, financial analytics, and modeling, they are integrated into the overall process.<\/p>\n<p><b>Goals<\/b> \u2014Setting goals involves the systematic approach of developing an understanding of the sources of\u00a0company value. This activity identifies trade\u2010offs between monetary and nonmonetary benefits, increasing revenues versus decreasing expenses, and attempting to attract and retain human capital while trying to effectively manage plans to the market, and so on. The key considerations in alignment may be cost\u2010focused, revenue\u2010focused, market\u2010focused, customer\u2010focused, and employee\u2010focused goals.<\/p>\n<ul>\n<li>Review Corporate Mission Statement<\/li>\n<li>Identify Business Strategy<\/li>\n<li>Discover Key Business Objectives<\/li>\n<li>Align Plan Objectives<\/li>\n<li>Establish Key Performance Metrics<\/li>\n<\/ul>\n<p><strong>Strategy<\/strong>Developing a strategy outlines the logic of the organization\u2019s approach directed at achieving its goals and involves the identification and understanding of the underlying issues, the development<br \/>\nand quantification of strategic options, the narrowing of the options for consideration, and the<br \/>\npresentation of these options for selection and evaluation.<\/p>\n<ul>\n<li>Issue Identification<\/li>\n<li>Strategic Options Development<\/li>\n<li>Strategy Identification<\/li>\n<li>Strategy Evaluation<\/li>\n<\/ul>\n<p><strong>Tactics<\/strong> Tactics comprise the mix of actionable elements that are deployed in support of the desired strategy with the three\u2010fold objective to create, communicate, and deliver value. Value creation defines<br \/>\nthe processes used to capture the value for organization and its employees, value communication brings<br \/>\nthe awareness of the value to the stakeholders, and value delivery transfers the captured value to the<br \/>\norganization and its employees.<\/p>\n<ul>\n<li>Financial Analytics and Modeling<\/li>\n<li>Health Plan Analytics<\/li>\n<li>Health Risk Management<\/li>\n<li>Networks and Network Effectiveness<\/li>\n<li>Pharmacy Analytics<\/li>\n<\/ul>\n<div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1382\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-2-Image-1.jpg\" alt=\"Page-2-Image-1\" width=\"1357\" height=\"760\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-2-Image-1.jpg 1357w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-2-Image-1-300x168.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-2-Image-1-1024x573.jpg 1024w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-2-Image-1-210x117.jpg 210w\" sizes=\"auto, (max-width: 1357px) 100vw, 1357px\" \/><\/p>\n<p><center>FIGURE 14.149 Affordable Care Act structure with employer segment highlighted.<\/center>&nbsp;<\/p>\n<\/div>\n<div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1384\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-3-Image-21.jpg\" alt=\"Page-3-Image-2\" width=\"1221\" height=\"754\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-3-Image-21.jpg 1221w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-3-Image-21-300x185.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-3-Image-21-1024x632.jpg 1024w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-3-Image-21-210x129.jpg 210w\" sizes=\"auto, (max-width: 1221px) 100vw, 1221px\" \/><\/p>\n<p><center>FIGURE 14.150 Description of employer\u2010sponsored insurance strategic real options.<\/center>&nbsp;<\/p>\n<\/div>\n<p><strong>Implementation<\/strong> Developing an implementation plan provides an outline of the timeline for executing the strategy and tactics. The two key factors in implementation are the processes that enable the\u00a0company to implement its strategy and tactics and the people managing the processes. The underlying\u00a0processes are the logistics that support the company to achieve its goal and deliver value. The people are\u00a0the human\u2010resources dimension of implementation and the identification of the core skills and\u00a0knowledge of the people involved.<\/p>\n<p><strong>Control<\/strong>The policy for evaluating the performance and monitoring of the effectiveness of the strategy to ensure the adequate progress toward the set goal involves applying controls. A control is designed to\u00a0continually assess the viability of the strategies and tactics through the use of key performance metrics\u00a0and to provide environmental updates from the market that educate and inform as to newly issued regulations or legislation, plan design considerations, and emerging technologies for assessment.<\/p>\n<ul>\n<li>Reporting<\/li>\n<li>Per Capita Results<\/li>\n<li>Plan Utilization Metrics<\/li>\n<li>Productivity Costs<\/li>\n<li>Aggregate Financials<\/li>\n<\/ul>\n<p>This is no small task as there are multiple stakeholders involved in the process (see Figure 14.151)\u00a0and each participant does not have the exact same finance or benefits background or understanding of\u00a0the nuances for each option, yet each is still accountable and responsible for the decisions. Thus it is even more critical to convert any analysis into the level of understanding for the decision makers to make it clear, concise, and actionable.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1389\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/FIGURE-14.151-Organizational-chart..jpg\" alt=\"\" width=\"1042\" height=\"455\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/FIGURE-14.151-Organizational-chart..jpg 1042w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/FIGURE-14.151-Organizational-chart.-300x130.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/FIGURE-14.151-Organizational-chart.-1024x447.jpg 1024w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/FIGURE-14.151-Organizational-chart.-210x91.jpg 210w\" sizes=\"auto, (max-width: 1042px) 100vw, 1042px\" \/><center>FIGURE 14.151 Organizational chart.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p><strong>Strategic Options Development<\/strong><\/p>\n<p>As noted earlier, the ACA has generated many opportunities for an employer\u2019s consideration:<\/p>\n<ul>\n<li>A fully insured employer may elect to self\u2010fund to avoid state\u2010mandated benefits requirements, eliminate insurance premium taxes and take advantage of the favorable experience and pay\u2010asyou go cash flow funding flexibility through Employee Retirement Income Security Act (ERISA) preemption and gain more control over their plan design that meets the minimum value actuarial requirements under the ACA.<\/li>\n<li>An employer may elect to not offer or to terminate their employer\u2010sponsored insurance coverage as an enterprise paying the 4980H(a) annual penalty of $2,000 for each full\u2010time employee not being offered coverage (less the first 30 full\u2010time employees), losing its tax shield (penalty is non\u2010deductible), retaining or distributing the savings in the event the cost is lower than their current arrangement, and shifting the decision to its employees as to whether they will elect to pay the individual mandate penalty, gain coverage as a dependent on another group plan, secure coverage in the private insurance market or opt for coverage in the state\u2010based, state\u2010partnership, federally\u2010facilitated or federally\u2010supported marketplaces.<\/li>\n<li>An employer may elect to continue to provide employer\u2010sponsored insurance through the group\u00a0platform, but decide to adopt a defined contribution strategy for its employees. This may take the\u00a0form of continuing with the current level of coverage and multiple plan options with one or\u00a0multiple carriers, contracting with a carrier to gain access to its private exchange and networks,<br \/>\nor directly contracting with a private exchange to gain access to multiple carriers and networks.<\/li>\n<li>An employer may elect to continue to provide employer\u2010sponsored insurance, but look at a\u00a0strategy that looks at the implications of dramatically altering coverage geographically as the\u00a0cost of coverage may no longer be sustainable in a particular region of the country. This may\u00a0mean either a hybrid funding arrangement to shift high cost users into a fixed cost environment,\u00a0plan design changes and or a termination strategy that anti\u2010selects against the public exchange.<\/li>\n<li>An employer may decide to effectively provide employee\u2010only coverage with an offer of\u00a0coverage for dependent children to age 26, but specifically excluding an offer of spousal coverage.\u00a0Utilizing both eligibility and contributions, the objectives are to prevent a surge of dependents\u00a0who would be eligible to be covered as dependents on the plan resulting from the termination of\u00a0employer\u2010sponsored insurance coverage by surrounding employers, and to allow the triggering\u00a0of premium tax credits and cost\u2010sharing reductions for its own noncovered dependents which\u00a0are otherwise not available because spouses were eligible for employer\u2010sponsored insurance<br \/>\ncoverage as a dependent.<\/li>\n<\/ul>\n<p>Employers need to know how to model these types of options and risks. One way is to take the\u00a0demographic and financial data of the company, integrate it with the marketplace data and illustrate the\u00a0financial impact of the options by comparing it to the current structure and program. Figure 14.152\u00a0shows how the modeling process is initiated by mapping the data to calculate the options using the Health Quant Data Modeler (HQDM) utility.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1391\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-5-Image-70.jpg\" alt=\"Page-5-Image-70\" width=\"840\" height=\"427\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-5-Image-70.jpg 840w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-5-Image-70-300x152.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/03\/Page-5-Image-70-210x106.jpg 210w\" sizes=\"auto, (max-width: 840px) 100vw, 840px\" \/><center>FIGURE 14.152 Sample of required data elements in data grid.<\/center><\/div>\n<p>After the options have been calculated and the option variables have been settled (i.e., whether to include or exclude part\u2010time employees, to expand premium tax credits to those with family coverage or illustrate for the employee only, to illustrate the individual income tax impact resulting from the loss of the IRC \u00a7 106 tax\u2010favored employer contribution towards employer\u2010sponsored insurance coverage which means the gross income of an employee does not include the contributions that the employer makes to an accident or health plan, etc.), things get more interesting. First we review the strategic options developed and their cost (Figure 14.153) and then progress to the next stage of additional financial analytics and modeling.<\/p>\n<ul>\n<li><strong>Current Option.<\/strong> This is the net cost to the employer under the current employer\u2010sponsored insurance arrangement. It is calculated by deducting employee contributions and the corporate tax shield from the total cost of coverage (Figure 14.153, Reference A).<\/li>\n<li><strong>Termination Option.<\/strong> The option is to not offer minimum essential coverage to full\u2010time employees (FTEs). The net cost is the sum of the Employer\u2010Shared Responsibility assessable payments of $2,000 per full\u2010time employee multiplied by the total number of FTEs minus the first 30 FTEs with the lost tax shield resulting from the non\u2010tax\u2010deductibility of the assessable penalty payments added back (Figure 14.153, Reference B).<\/li>\n<li><strong>Consumer\u2010Driven Health Plan Option.<\/strong> The option is to offer employer\u2010sponsored insurance for all employees using a qualified high deductible health plan (HDHP) with a health savings account (HSA) or a higher\u2010deductible health plan using an integrated health reimbursement arrangement (HRA) with the employer funding $500 in the account for each participant. The net cost for the option is gross premium for the coverage plus the account contribution less employee contributions and corporate tax shields (Figure 14.153, Reference C).<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1394\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-6-Image-71.jpg\" alt=\"Page-6-Image-71\" width=\"840\" height=\"695\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-6-Image-71.jpg 840w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-6-Image-71-300x248.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-6-Image-71-210x173.jpg 210w\" sizes=\"auto, (max-width: 840px) 100vw, 840px\" \/><center>FIGURE 14.153 Employer\u2010sponsored insurance and noninsurance options.<\/center><\/div>\n<p>&nbsp;<\/p>\n<ul>\n<li><strong>Strategic Firewall Option.<\/strong> This option is to offer employer\u2010sponsored insurance for employeesonly and dependent children up to age 26. The net cost to the employer under the current employer\u2010sponsored insurance arrangement is calculated by deducting employee contributions and the corporate tax shield from the total cost of coverage (Figure 14.153, Reference D).<\/li>\n<li><strong>Minimum Compliance Option.<\/strong> This option is to offer employer\u2010sponsored insurance for<br \/>\nemployees only and dependent children up to age 26 and minimize the employer\u2019s contribution toward the cost of coverage to the level that meets the minimum affordability requirement established by the IRS, that is, the level where the employee\u2019s contribution for self\u2010only premium for the lowest\u2010cost coverage that provides minimum value that is less than 9.5% of the employee\u2019s W\u20102. The net cost to the employer under the employer\u2010sponsored insurance<br \/>\narrangement is calculated by deducting employee contributions and the corporate tax shield from the total cost of coverage (Figure 14.153, Reference E).<\/li>\n<li><strong>Attraction and Retention Option.<\/strong> This option is to offer employer\u2010sponsored insurance coverage and use it as a talent attraction and retention instrument. It offers coverage with the employer contributing 100% for all tiers of coverage. The net cost to the employer is the total cost of<br \/>\ncoverage less the corporate tax shields (Figure 14.153, Reference F).<\/li>\n<li><strong>Defined\u2010Contribution Option.<\/strong> This option is for the employer to define an amount as a percentage of salary, a flat dollar, or a combination toward the cost of employer\u2010sponsored insurance. This illustration uses a formula with a cap of $5,000 per participant. The employer continues to offer coverage on a group basis with its contributions structured under a tax\u2010favored approach (i.e., integrated health reimbursement arrangements [HRA], employer\u2010funded health savings accounts [HSA], or a credit\u2010based cafeteria plan [IRC \u00a7 125]). The coverages offered are assumed to be multiple options administered by one carrier directly contracting with the employer where the actuarial values of the options range from 60% to 80%. The net cost to the employer under<br \/>\nthis option is the employer\u2019s defined contribution amount less the corporate tax shields (Figure<br \/>\n14.153, Reference G).<\/li>\n<\/ul>\n<p>Strategic options development is an important first step, but additional steps are required in the review process for each option before a decision can be made. In other words, the options create the framework and the additional modeling and analytics assist in facilitating a decision. To provide one illustration, we will focus on the termination option with the understanding that the other options also create similar types of derivatives.<\/p>\n<p><strong>Termination Option Example<\/strong><\/p>\n<p>We see in Figure 14.154 that the net cost of this option is $6,777,780 compared to the current net cost of coverage at $15,502,684. In what follows (see Figure 14.154), this cost includes the penalty plus the cost of the lost tax shield. As shown, there is a net savings of $8,724,903, and should an employer continue to sponsor health coverage this spread would be perennially realized as the difference between the trended healthcare costs and the cost for termination (the required penalty and lost tax shield).<\/p>\n<p>In short, a large employer must either offer at least 95% of its full\u2010time employees the opportunity to enroll in an employer\u2010sponsored health insurance program or pay an annual penalty of $2,000 for each full\u2010time employee less the first 30 full\u2010time employees. If the employer offers such coverage, it is considered to have met the definition of an \u201coffer\u201d of minimum essential coverage. If the full\u2010time employees elect not to take up the coverage, this has no impact on the penalty calculation because the only issue is whether coverage has been offered.<\/p>\n<p>Notwithstanding the offer of coverage as previously noted, if the offer of coverage is either not affordable (i.e., the employee\u2010only contribution for the lowest cost self\u2010only coverage is greater than 9.5% of the employee\u2019s W\u20102 income) or it does not meet the minimum value requirement (i.e., the value of the coverage is less than an actuarial value of 60%), the employer will be responsible for a 4980H(b) assessable payment penalty of $3,000 for each full\u2010time employee to which these conditions apply and who also receives a premium tax credit. However, the accumulation of these penalties will never exceed the penalty amount that would be assessed if the employer did not offer coverage (4980H(a) penalty amount, which, as noted, is the total number of full\u2010time employees less the first thirty full\u2010time employees multiplied by $2,000. This termination option illustrates the cost for the employer if it elected to not offer coverage.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1395\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-8-Image-72.jpg\" alt=\"Page-8-Image-72\" width=\"841\" height=\"693\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-8-Image-72.jpg 841w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-8-Image-72-300x247.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-8-Image-72-210x173.jpg 210w\" sizes=\"auto, (max-width: 841px) 100vw, 841px\" \/><center>FIGURE 14.154 Termination option.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p>What the additional modeling illustrates are the additional dimensions of such a decision. For example, what if an employer offers minimum essential coverage and either prices it such that it is not affordable or offers a plan that does not meet the minimum value test (or both)? What is often not taken into consideration is that penalties are not assessed if the full\u2010time employee is not receiving a premium tax credit from a state\u2010based, state\u2010partnership, federally\u2010facilitated or federally\u2010supported marketplace (as of this writing). There are multiple reasons when a full\u2010time employee whose wage alone is the basis for the premium tax credit would never realize the tax credit. The chart in Figure 14.155 shows the low end of the range (i.e., 100% of the federal poverty level) and the high end of the range (i.e., 400% of the federal poverty level) for each tax dependent level that is used as the basis for premium tax credit calculations. An example of someone not realizing the premium tax credit would be an employee who earns $50,000 per year, has two tax dependents (i.e., employee + spouse coverage), and calculates the standalone situation as eligible for a premium tax credit ($50,000 is greater than $15,730 and less than $62,290 for two tax dependents). However, the employee and spouse\u2019s modified adjusted gross income might be $85,000 (greater than $62,290) and, therefore, pushes them out of the range.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1396\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-9-Image-73.jpg\" alt=\"Page-9-Image-73\" width=\"623\" height=\"430\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-9-Image-73.jpg 623w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-9-Image-73-300x207.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-9-Image-73-210x144.jpg 210w\" sizes=\"auto, (max-width: 623px) 100vw, 623px\" \/><center>FIGURE 14.155 Premium tax credit federal poverty level calculation range.<\/center><\/div>\n<p>What if the employees opted for coverage on their spouse\u2019s plan? What if they opted to pay the higher contributions and remain on the employer\u2019s plan? What if they elected to go uninsured and pay the individual mandate tax? The following examples (see Figure 14.156) illustrate:<\/p>\n<ul>\n<li>The employer elects not to offer the minimum essential coverage. It has 2,685 full\u2010time employees and its calculated penalty is $5,310,000 (2,685 \u2013 30 = 2,655 x $2,000). This represents the employer\u2019s maximum liability and is referred to as the 4980H(a) penalty.<\/li>\n<li>The employer elects to offer an employer\u2010sponsored group plan. This meets the requirement to offer minimum essential coverage, but the plan itself does not meet the minimum 60% actuarial value requirement. In addition, of the 2,685 full\u2010time employees it is determined that 1,877 could be eligible for some kind of premium tax credit based solely on the salary from the employer and comparing it to the range of 100% to 400% of the federal poverty level tables (see Figure 14.155). If we assume in this example that all premium tax credit\u2013eligible full\u2010time employees were certified as recipients of a premium tax credit, this would mean the employer would be liable for a $3,000 assessable payment per person and is referred to as the 4980H(b) penalty. This penalty would calculate to $5,631,000 (1,877 x $3,000), but the law caps this liability to not exceed the 4980H(a) amount which, in this example, is $5,310,000.<\/li>\n<li>Let\u2019s further assume that the employer has made an estimate that of the 1,877 premium tax credit\u2013eligible employees, a certain percentage goes to the state\u2010based, state\u2010partnership, federally\u2010facilitated or federally\u2010supported marketplaces and realizes the premium tax credit, another percentage gets covered under their spouse\u2019s plan, another percentage remains uninsured and pays the individual mandate penalty, and the largest percentage actually represents dual\u2010income households whose modified adjusted gross income will make them<br \/>\nineligible for the premium tax credits. This estimate would leave the total number of certified premium tax credit\u2013eligible full\u2010time employees at 608. The result of this estimate would be a 4980H(b) liability calculation of $1,824,000 (608 x $3,000).<\/li>\n<\/ul>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1397\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-10-Image-74.jpg\" alt=\"Page-10-Image-74\" width=\"972\" height=\"499\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-10-Image-74.jpg 972w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-10-Image-74-300x154.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-10-Image-74-210x107.jpg 210w\" sizes=\"auto, (max-width: 972px) 100vw, 972px\" \/><\/div>\n<p>However, all three examples are based on estimates. The first example represents the maximum liability and the third example, a single\u2010point estimate for one calculated guess. This is where using Monte Carlo risk simulation adds value in getting a better view of the possibilities. The chart in Figure 14.157 is a histogram of a probability distribution of possible outcomes based on a set of input assumptions for this option (i.e., for each tier of coverage whether none, an educated guess, or all would receive a premium tax credit).<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1398\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-75.jpg\" alt=\"Page-11-Image-75\" width=\"936\" height=\"343\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-75.jpg 936w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-75-300x109.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-75-210x76.jpg 210w\" sizes=\"auto, (max-width: 936px) 100vw, 936px\" \/><center>FIGURE 14.157 Simulating 4980H(b) assessable payment penalties.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p>The Monte Carlo risk simulation uses 10,000 trials and exhibits a 90% confidence interval that the expected penalty range is between $1.5M and $3.6M with a mean of $2.5M. This example illustrates the potential to save an additional $2.8M ($5.3M \u2212 $2.5M) on top of the $8,700,000 if the employer offers coverage and creates a design strategy with some level of risk assumption that may or may not be of interest to the employer. What is important to note from this exercise is that the identification, quantification, and simulation of the option allows the employer to know what can be done, have an opportunity to review it, and accept it or veto it.<\/p>\n<p>In parallel, the employer reviews each additional option with its special considerations as well and models its current arrangement to see what has happened in the past, what is expected to happen in the future, and some of the considerations in the analysis. Figures 14.158 through 14.164 are examples of considerations in this parallel process.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1399\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-76.jpg\" alt=\"Page-11-Image-76\" width=\"610\" height=\"281\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-76.jpg 610w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-76-300x138.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-11-Image-76-210x96.jpg 210w\" sizes=\"auto, (max-width: 610px) 100vw, 610px\" \/><center>FIGURE 14.158 PEPM control chart.<\/center><\/div>\n<p>Figure 14.158 is a 36\u2010month control chart that calculates the per capita cost of the total healthcare cost on a per\u2010employee per\u2010month (PEPM) basis.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1400\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-77.jpg\" alt=\"Page-12-Image-77\" width=\"609\" height=\"283\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-77.jpg 609w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-77-300x139.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-77-210x97.jpg 210w\" sizes=\"auto, (max-width: 609px) 100vw, 609px\" \/><center>FIGURE 14.159 PMPM control chart.<\/center><\/div>\n<p>Figure 14.159 is a 36\u2010month control chart that calculates the per capita cost of the total healthcare cost on a per\u2010member per\u2010month (PMPM) basis.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1401\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-78.jpg\" alt=\"Page-12-Image-78\" width=\"499\" height=\"298\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-78.jpg 499w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-78-300x179.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-12-Image-78-210x125.jpg 210w\" sizes=\"auto, (max-width: 499px) 100vw, 499px\" \/><center>FIGURE 14.160 PEPM forecast.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p>Figure 16.160 is an example of a forecast for future healthcare costs using historical data and forecasting expected medical claims liability on per\u2010employee per\u2010month per\u2010capita basis.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1402\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-79.jpg\" alt=\"Page-13-Image-79\" width=\"499\" height=\"293\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-79.jpg 499w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-79-300x176.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-79-210x123.jpg 210w\" sizes=\"auto, (max-width: 499px) 100vw, 499px\" \/><center>FIGURE 14.161 Incurred medical forecast.<\/center><\/div>\n<p>Figure 14.161 is an example of the monthly aggregate dollar forecast of the medical claims liability for future healthcare costs using historical data.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1403\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-80.jpg\" alt=\"Page-13-Image-80\" width=\"841\" height=\"693\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-80.jpg 841w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-80-300x247.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-13-Image-80-210x173.jpg 210w\" sizes=\"auto, (max-width: 841px) 100vw, 841px\" \/><center>FIGURE 14.162 Plan option benchmarks.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p>Figure 14.162 is an example of comparing eight plan options and their respective per\u2010capita cost on per\u2010employee per\u2010year basis using demographic data and cost factors for each option.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1404\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-81.jpg\" alt=\"Page-14-Image-81\" width=\"839\" height=\"553\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-81.jpg 839w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-81-300x197.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-81-210x138.jpg 210w\" sizes=\"auto, (max-width: 839px) 100vw, 839px\" \/><center>FIGURE 14.163 Original optimization.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p>Figure 14.163 is an example of the current employer contribution structure (i.e., 100% for employee and 50% for all other tiers of coverage) and the net cost of coverage to the employer of $23.6M, which is 80.6% of the total cost of coverage.<\/p>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-1405\" src=\"http:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-82.jpg\" alt=\"Page-14-Image-82\" width=\"841\" height=\"557\" srcset=\"https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-82.jpg 841w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-82-300x198.jpg 300w, https:\/\/rovdownloads.com\/blog\/wp-content\/uploads\/2015\/04\/Page-14-Image-82-210x139.jpg 210w\" sizes=\"auto, (max-width: 841px) 100vw, 841px\" \/><center>FIGURE 14.164 Revised optimization.<\/center><\/div>\n<p>&nbsp;<\/p>\n<p>Figure 14.164 is an example of a revised employer contribution structure where the target is set at 78% of coverage, which allows for the adjustment of whatever tiers of coverage are selected. In this case the employer contributes $22.8M at 78% of the total cost, which represents a reduction of $760,000 from its current cost of coverage.<\/p>\n<p><strong>Conclusion<\/strong><\/p>\n<p>This business case is intended as an overview of how the modeling of risk is valuable in the field of employee benefits. There is so much more to each of the options as each has its own special considerations, but by focusing on one and comparing it the employer\u2019s current arrangement, we trust the point has been sufficiently made about how important this process is in providing insight into very costly decisions.<\/p>\n<div style=\"padding-bottom:20px; padding-top:10px;\" class=\"hupso-share-buttons\"><!-- Hupso Share Buttons - http:\/\/www.hupso.com\/share\/ --><a class=\"hupso_toolbar\" href=\"http:\/\/www.hupso.com\/share\/\"><img decoding=\"async\" src=\"https:\/\/static.hupso.com\/share\/buttons\/share-medium.png\" style=\"border:0px; padding-top:5px; float:left;\" alt=\"Share Button\"\/><\/a><script type=\"text\/javascript\">var hupso_services_t=new Array(\"Twitter\",\"Facebook\",\"Google Plus\",\"Linkedin\");var hupso_background_t=\"#EAF4FF\";var hupso_border_t=\"#66CCFF\";var hupso_toolbar_size_t=\"medium\";var hupso_image_folder_url = \"http:\/\/rovdownloads.com\/blog\/wp-content\/plugins\/hupso-share-buttons-for-twitter-facebook-google\/img\/services\/\";var hupso_url_t=\"\";var hupso_title_t=\"CASE STUDY: EMPLOYER SPONSORED HEALTHCARE INSURANCE; REAL OPTIONS STRATEGIES, ANALYTICS, AND THE U.S. AFFORDABLE CARE ACT1\";<\/script><script type=\"text\/javascript\" src=\"https:\/\/static.hupso.com\/share\/js\/share_toolbar.js\"><\/script><!-- Hupso Share Buttons --><\/div>","protected":false},"excerpt":{"rendered":"<p>The United States passed major healthcare reform legislation in March 2010, hereafter referred to as the Affordable Care Act (ACA). It is complicated and has many moving parts. Figure 14.149 &hellip; <a class=\"readmore\" href=\"https:\/\/rovdownloads.com\/blog\/case-study-employer-sponsored-healthcare-insurance-real-options-strategies-analytics-and-the-u-s-affordable-care-act1\/\">Continue Reading &amp;rarr;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[189,187,188],"class_list":["post-896","post","type-post","status-publish","format-standard","hentry","category-blog","tag-employer","tag-goals","tag-strategy"],"acf":[],"_links":{"self":[{"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/posts\/896","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/comments?post=896"}],"version-history":[{"count":15,"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/posts\/896\/revisions"}],"predecessor-version":[{"id":1409,"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/posts\/896\/revisions\/1409"}],"wp:attachment":[{"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/media?parent=896"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/categories?post=896"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/rovdownloads.com\/blog\/wp-json\/wp\/v2\/tags?post=896"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}