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Health
Care
Reform
Employer
Impact
HealthCareReform,
as
currentlyproposed,wouldexpandaccesstohealthcaretomillions
of
Americansandattemptstostrengthenthehealthcaresystem.However,Verizonandotherlargeemployersareconcernedaboutprovisionsthatwillhaveanegativefinancialimpact
on
largeemployersand/ortheiremployees.Additionally,thereareprovisionsthatwillcauseadditionaladministrativecomplexityandcostandERISAerosion.Ofparticularconcern
is
thatlargeemployers,likeVerizon,thatofferhealthcarecoveragewould
be
requiredto
be
responsibleforpayingforthecostofgeneralreformthroughincreasedemployertaxesandwhilecontinuingtopayforhealthcarecoveragethatmaygoup
in
costduetoshifting
of
increasedtaxes/feesfromtheproviderandinsuranceindustriestoemployers/employees.Belowisalistoftheprovisionsthatwouldhavesignificantimpact
on
employerprovidedhealthcarecoverage.
ExciseTaxonHighCostHealthCareCoverage
•Thisprovisionwouldimpose
an
excisetaxof40percent
on
healthplans
on
costsaboveaspecifiedfederalthreshold-Manyofcharacterizedthistax
as
a'passthrough'totheconsumer
(in
Verizon'scaseemployeesandretirees);however,therewill
be
significantlegalandbargainingriskstoovercomeforthisto
be
thecaseforVerizon-
In
additiontotheannualcashcost,thereisaone-timecharge
of
$X•Employersalsowouldhavetheadministrativeburdenforcalculatingthetaxandreporting
it
tothehealthplans
Senate-passedBillVerizon
ImpactPresident's
Proposal-Directional
Change
•Effectivedate2013•Projectedexcisetaxof$131.3M•Effectivedatedelayeduntil2018•Includesthecostofmedical,(cash)
in
2013•Excludesthecost
of
dentalandprescriptiondrugs,dentalvision•120,000employeesandretireesvisionandcontributionstoFSAs,HSAs
in
plansthatwould
be
impacted•Thresholds(2018)andHRAsbythistax•Thresholds(2013)•Theleveragingeffectofmedical-Actives:
$10,200/$27,500
-Actives:
$8,500/$23,000
trendcomparedtogeneral-Retirees:
$11,250/$29,700
inflationwillresult
in
ever-Retirees:
$9,8501$26,000
increasingtaxes
in
lateryears-Higherthresholdswouldnotapplyto
17
"high-cost"states-Higherthresholdsapplyto
17
•Positivedirectionalchange"high-cost"statesprimarilyduetothedelayedeffectivedate;however,potentialincreasedtax
in
2018resultingfromthedifference
in
healthcaretrendandgeneralinflation-Projectedexcisetaxof$255.3M(cash)
in
2018-
In
2018,190,000employeesandretirees
in
plansthatwould
be
impactedbythistax
HealthCareReformImpact
03/03/2010
CONFIDENTIALVZ-HEC00006
 
Elimination
of
FavorableTaxTreatmenttoRetireeDrugSubsidy(RDS)
•Thisprovisionwouldeliminate
an
employer'sabilitytodeduct
an
amountequaltotheMedicareRDSthattheemployerreceivesformaintainingretireeprescriptiondrugcoveragethat
is
actuariallyequivalenttocoverageunderMedicarePartD•Theeliminationofthisdeductioncreatesamaterialone-timeafter-taxaccountinglossatthemomentofenactmenttoVerizonofapproximately$1.2B•TheRDSfavorabletaxtreatmentwasinitiatedtoprovideincentivesforemployerstocontinueMedicareprescriptiondrugcoverageafterMedicarePartDwasenacted-Eliminatingthededuction,coupledwiththeproposedchangetophaseoutthe"donuthole,"willresult
in
lowersubsidies(highercoststoemployers)andleadmanyemployerstodiscontinuecoverage,movingretireestothegovernmentsponsoredplan-Therewill
be
significantlegalandbargainingrisksifVerizondiscontinuescoverageforcertaingroupsofretireesSenate-passed
Bill
VerizonImpactPresident'sProposal-DirectionalChange•Effective
date
2011
•
Projected
annual
increase
in
•Effective
datedelayeduntil
2012
corporate
tax
ofapproximately•
Positive
directional
changedue
to
$32M
andFAS
106
expense
ofthe
delayed
effective
date
$120M
(based
on
2009)
GrandfatheredPlans
•
In
theoriginalhealthcarereformproposals,theintentofthisprovisionwastoallowindividualstokeeptheplansthey
have
todayCGrandfatheredPlans');however,otherstipulations
have
beenadded•ThePresident'sproposalwouldimposecertainrequirements
on
grandfatheredemployerplans(effectivedatesvaryfrom6monthsafterenactmentofbillto2018);thosewiththegreatestimpacttoemployersinclude:-Extendcoverageforadultdependentsuptoage26;
if
notataxdependentthenincomewill
be
imputed
(effective
6monthsafterenactment)-Require
an
independentappealsprocess
(effective
6monthsafterenactment)-Prohibitplansfromimposingannualandlifetimelimits(effective2014)-Prohibitplansfromimposingpre-existingconditionexclusions(effective2014)-Requireplanstocoverpreventiveserviceswith
no
costsharing
(effective2018)
ChangestoMedicare
•ThereareproposedchangesMedicarebeneficiariesandemployerplanswithbothpositiveandnegativeimpacts•Provisionswithpositiveimpacts:-Creationof
an
independentMedicareAdvisoryBoardtaskedwithpresentingtheirbestideastoimprovethequalityofMedicareandreducecostsforMedicarebeneficiaries-Release
of
Medicareclaimsdata-Increase
in
preventivecareservicesbywaiving
co
paysformostpreventivecareservicesandfullycovering
an
annualwellnessvisitandpersonalizedpreventionplans•ProvisionswithnegativeimpactstoEmployersare:
CONFIDENTIAL
2
HealthCareReformImpact
03/03/2010
VZ-HEC00007
 
-Medicareproviderpaymentreductions-MedicareAdvantagepaymentreductions-Phasingoutofthe"donuthole"by2020providesmorecomprehensivecoverageforMedicare-eligibleindividuals;however,
it
makesitharderforemployertoqualifyforRDS(not
an
immediateissueforVerizonduetoveryrichplandesignsandabilitytoaggregatepopulations)
PotentialCostShiftstoEmployers
•Thereareseveralprovisions
in
healthcarereformthatwillhaveadirectcostimpact
on
employerprovidedhealthcoverage•Generally,theseprovisionsarefeesorexcisetaxesimposedtohealthmanufacturesandhealthinsuranceprovidersthatwill
be
shiftedtoemployersthroughincreasedfeesandrates;theseprovisionsinclude:-Annualfee
on
brandeddrugmanufacturers/importers-Excisetax
on
medicaldevicemanufacturers/importers-Annualfee
on
healthinsuranceproviders-PerparticipanttaxforComparativeEffectivenessresearch
Pre-MedicareRetireeReinsuranceProgram
•TheSenatebillincludesareinsuranceprogramforemployersthatofferhealthinsurancetoearlyretirees•Theprogramcreatesatemporaryfederalprogramwith
$58
in
fundingtohelpoffsetthecostofhealthcareclaims•Theproposalprojectsasavingsupto$1,200foreveryfamilyenrolled;however,like'cashforclunkers'thelimitedamountoffundsavailablewillprobably
be
spentquicklywithnomaterialsavingsforVerizon.
"FreeRider"Assessment
•Companiesthatdonotoffercoveragetotheiremployeesorthatoffercoverageconsideredunaffordable,would
be
requiredtopay
an
assessment•Eventhoughtheproposedassessmentsarematerial,theyaremodestwhencomparedtotheaveragecost
of
healthcare-Toavoidadditionalcostsandregulations,employersmayconsiderexitingtheemployerhealthmarketandsendemployeestotheExchangesSenate-passed
Bill
VerizonImpactPresident'sProposal-DirectionalChange•If
coverage
not
offered:
$750
per
•
Potentialassessmentfor
•If
coverage
notoffered:
$2,000
full-time
employee
approximately
3,000
employees
per
full-time
employee
•If
unaffordable
coverage:
$3,000
considered
tohave
unaffordable
•If
unaffordable
coverage:
$3,000
per
full-time
employeecoverage
per
full-time
employee
•
Noreal
changetoVerizon
Medicare
Hospital
Insurance
(HI)TaxBaseforHigh-IncomeTaxpayers
•Thisprovisionwouldnotdirectlyimpactemployersbutwouldhaveasignificantfinancialimpacttohighincomeemployees
CONFIDENTIAL
3
HealthCareReformImpact
03/03/2010
VZ-HEC00008
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