September 27, 2012

1. Michigan Purchasers Health Alliance: 2012 Annual Fall ConferenceThe Future of Employer Based Healthcare Reform: Will Employers Stay in the Game?  September 27, 2012

2. Presentation Overview • The Supreme Court’s decision • Federal regulations not yet issued • Health insurance exchanges • Medicaid expansion What is the impact on employers?

3. The Supreme Court’s Decision

4. The Supreme Court’s Decision • Procedural history • 26 state AGs (including Michigan) sued HHS • Main argument: individual mandate is unconstitutional • 11th Circuit Court of Appeals (opinion: August 12, 2011) • Individual mandate is unconstitutional, but severable from entire rest of ACA • Medicaid expansion is constitutional • Supreme Court granted certiorari on November 14, 2011

5. The Supreme Court’s Decision • 3 days of oral argument – March 26-28, 2012 • Four issues briefed and argued • Tax Anti-Injunction Act • Individual Mandate • Severability • Medicaid Expansion • Opinion released on June 28, 2012

6. The Supreme Court’s Decision • Tax Anti-Injunction Act: A tax cannot be challenged in court until it is assessed against a taxpayer. • Held: The Tax Anti-Injunction Act does not apply. There is no jurisdictional bar to the Court deciding the case. “Congress’s decision to label this exaction a ‘penalty’ rather than a ‘tax’ is significant because the Affordable Care Act describes many other things it creates as ‘taxes.’ … Where Congress uses certain language in one part of a statute and different language in another, it is generally presumed that Congress acts intentionally.”

7. The Supreme Court’s Decision • Individual Mandate: All U.S. residents must purchase health insurance providing a minimum level of coverage. • Held: The individual mandate is a constitutional exercise of Congress’ power to “lay and collect taxes.” (Art. I, § 8, cl. 1). “The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

8. The Supreme Court’s Decision • Because the individual mandate was upheld, the Court did not reach the issue of severability. • The majority opinion clearly states that imposing a mandate on everyone to buy insurance is NOT an acceptable exercise of Congress’s Commerce Clause, or Necessary and Proper Clause powers. • Dicta, but future implications? Limits on Congress’s power?

9. The Supreme Court’s Decision • Medicaid Expansion: If a state chooses not to expand Medicaid eligibility to all adults up to 133% FPL, it will forego all of its Medicaid funding. • Held: Conditioning a state’s entire Medicaid funding stream upon expansion of the Medicaid program is unconstitutionally coercive because it does not leave states with any real choice. “Congress may attach appropriate conditions to federal…programs to preserve its control over the use of federal funds…Conditions that do not here govern the use of the funds, however, cannot be justified on that basis. When, for example, such conditions take the form of threats to terminate other significant independent grants, the conditions are properly viewed as a means of pressuring the States to accept policy changes.”

10. Federal Regulations

11. Federal Regulations • Imposition of $2,000 penalty if no coverage offered, or $3,000 penalty if not affordable or does not meet minimum value (“pay or play”) • Determining if a plan meets “minimum value” • Treatment of employer contributions to HSAs and HRAs in that calculation • High-cost health plan excise “Cadillac” tax • Notification requirements to employees about exchanges and consequences of selecting coverage in an exchange

12. Federal Regulations • New incentives to encourage participation in employer wellness programs • Requirements for large employers (200+) to automatically enroll employees into a health plan Interim Guidance Issued August 31: • 90-day limit on enrollment waiting periods • Definition of full-time employee (e.g., “on average” 30 hours/week)

13. Medicaid Expansion

14. Medicaid Expansion • States must choose whether to expand Medicaid eligibility to all adults up to 133% FPL* • Medicaid expansion was foundation for achieving near-universal coverage under the ACA (~ 20 million newly insured through Medicaid) • States have MANY questions and need CMS guidance • Timeline/deadline for expansion? • Partial expansions? Phased-in expansions? • Maintenance of Effort requirements? • IT infrastructure concerns/interactions with exchanges? *~ $15,000 for single person; ~$30,600 for family of four

15. Medicaid Expansion • Impact on employers in states that do not expand Medicaid eligibility • COST SHIFTING • Disproportionate Share Hospital (DSH) payments phased out in anticipation of decrease in uncompensated care • Employees between 100% - 138% of FPL are eligible for tax credits on exchange – “pay or play” penalty • Employees may qualify for Medicaid if state does full expansion up to 133% FPL • Multi-state employers – different rules across states

16. ACA Health Insurance Exchanges

17. ACA Health Insurance Exchanges • States must choose: own exchange, Federal Fallback Exchange (FFE), or “partnership model” • Michigan governor expressed interest in partnership exchange and Michigan received a federal planning, but no action from the legislature • Still awaiting regulations and guidance on FFE (and partnership model) • Regulations expected “before the end of the summer” • Some speculation that HHS will not be ready to run FFEs/partnerships by 2014 because more states than expected are not running their own exchanges

18. ACA Health Insurance Exchanges • Tax credits available (ACA § 1401) to assist consumers with premium payments • 100 – 400% FPL, sliding scale • Below 100% FPL, assume Medicaid or hardship exemption from individual mandate • Implications in states that do not expand Medicaid to all adults up to 133% FPL? ACA assumes no tax credits to purchase on exchange • Credits not available in FFE? • July 2012 Case Western Reserve University Law Review Article (Adler and Cannon) – Section 1401’s tax credits are only available on exchanges set up through section 1311 (state exchanges), not section 1321 (FFE) • HHS/IRS maintains use of “state” exchanges is a drafting error; credits available on all exchanges, state, partnership, and FFE

19. ACA Health Insurance Exchanges • “Pay or Play” triggered only if an employee applies for and receives a tax credit on an exchange • Employee eligible for tax credit only if • employer plan is not “minimum essential coverage” (60% actuarial value) or • premium exceeds 9.5% of annual household income • No penalty if employee is eligible for employer coverage through a spouse or family member

20. ACA Health Insurance Exchanges • Implications for employers • Exchanges must work with employers to verify eligibility • Multi-state employers need to monitor exchange development because high potential for different rules across states • Advocate for “active purchasing” through exchanges to enhance opportunities for working with health plans to implement value-based purchasing • If exchanges are successful, potential for private exchanges? Future of employer-based coverage?

21. Private Health Insurance Exchanges

22. Private Health Insurance Exchanges • Employers in a changing and uncertain environment requiring a re-thinking of benefit strategies • Affordable Care Act • Lingering effects of recession • Rising health care costs • All options are on the table for employers; growing sense that employers are thinking about a shift • Status quo (probably unsustainable) • Get out of the game (think about “pay or play” carefully) • Middle ground – offer benefits, but with a very different approach such as defined contribution and use of an exchange, or more sophisticated value-based purchasing strategies • Similar to shift in employer pensions strategies • Potential effect of high-cost plan excise (“Cadillac”) tax in 2018

23. Private Health Insurance Exchanges • Shift in overall approach to employee health insurance from defined benefit to defined contribution; private exchanges may be best way for employers to approach this shift • State exchanges/FFE – not available to large employers • State exchanges/FFE – not good option for multi-state employers • Potential for employers to have more influence and control in private exchange than in state exchanges/FFE • Still achieves goals of exchanges generally – individual choice for consumers and increase competition among plans

24. Private Health Insurance Exchanges • Aon Hewitt • Owns and operates its own exchange • All 20,000 U.S. employees used exchange in 2012; 93% satisfaction rating • No change in overall costs, but allowed Aon to budget health care costs accurately • Opening to “several large employers” on January 1, 2013 • Towers Watson • Acquired Extend Health, Inc., which operates the largest private Medicare exchange in the United States, in May of 2012 • Innovative retiree health benefit solutions; transitions to Medicare • Bloom Health • WellPoint and BCBS of Michigan purchased stakes in September of 2011

25. Private Health Insurance Exchanges • Many considerations in making decision • How will employees feel? • Employer’s continued competitiveness in recruitment and retention of a talented workforce • Employer’s level of control over health management of employees • Employers watching carefully to see if exchanges (public and private) are successful • Exchanges could cause improvement in overall quality of health care if emphasis placed on importance of quality reporting • Success could indicate willingness to move away from employer-based coverage models • Already some appetite for decoupling health insurance from employment

26. Conclusion • Questions? Comments? Colleen Bruce, Esq. Director of Value Based Purchasing and Public Policy (202) 775-9300 ext. 14 cbruce@nbch.org