Society of Human Resource Management

1. Society of Human Resource Management HealthCare Reform Panel Discussion Wednesday, August 8, 2012 Outrigger Guam Resort Presented By: Jerry Crisostomo. NetCare Life & Health Tim Ogata, TakeCare Insurance Francis Santos, Staywell Insurance Frank J. Campillo, Calvo’s SelectCare

2. Objective Provide a synopsis of and the impact on Health Plans by the recently upheld Patient Protection and Affordable Care Act and the Reconciliation Act (collectively “PPACA”)

3. AGENDA Background on Healthcare Cost Overview - Timeline of Reforms Insurance Market Reforms Expansion of Medicaid Premium and Cost-sharing Subsidies Tax Changes related to Health Reform Employer Requirements Individual Mandate State Role Health Insurance Exchanges Medical Loss Ratio Update Summary of Impact

4. Health Expenditures for Selected Services2000–2015 Source: The Commonwealth Fund; Data from A. Catlin et al., “National Health Spending in 2005: The Slowdown Continues,”Health Affairs, Jan./Feb. 2007 26(1):142–53; C. Borger et al., “Health Spending Projections Through 2015: Changes on the Horizon,”Health Affairs Web Exclusive (Feb. 22, 2006):w61–w73.

5. U.S. National Healthcare Expenditures

7. Global Payments HEALTH SPENDING AS GDP% AND PER CAPITA

8. Comparative Cost of ProceduresUSA vs. other Countries http://www.washingtonpost.com/wp-srv/special/business/high-cost-of-medical-procedures-in-the-us/

9. Average Annual Premiums for Single and Family Coverage, 1999-2011 * Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011.

10. PPACA Has Three Basic Goals • Expands Health Insurance Coverage. 94% of all Americans covered by 2019 • Strong regulations and oversight of the insurance industry • Control cost, particularly for Medicare __________________________________ …But what is the intended consequence? A Single Payer System

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13. 2010 – Consumer Focused Provisions • Grandfathered Plans • Early Retiree Reinsurance Program • Online Resources • Appeals and External Review • Cancellation of Coverage (Recissions) • Dependent Coverage up to age 26 • Doctor Choice • Restriction on Annual Limits and a Ban Lifetime Limits • Emergency Care • Prohibition in favor of highly paid individuals • No pre-existing conditions for members under age 19 • Preventive Care Services without cost share • Temporary High Risk Pool • No Unreasonable premium increases • Small Business Tax Credit

14. 2011 – Preparing for Future Provisions • Health Savings Account Distribution Tax Penalty • Medical Loss Ratio -80% for Individual and Small Group -85% for Large Group • Eliminating Medicare Part D Donut Hole • Over The Counter Drug • Rate Review Begins

15. 2012 – Creating Administrative Standards Insurers are required to standardize documents and implement new reporting requirements • Encouraging Integrated Health Systems • Summary of Benefit and Coverage • Quality of Care Reporting • Reducing paperwork and administrative costs • Patient-Centered Outcome Research Fee

16. 2013 – Final Preparations Focus on the final preparations for the new state health insurance exchanges. • Flexible Spending Account Limits • Expanded Authority to Bundle Payments • Increase Medicare Part A tax on wages by 0.9% • Higher Medicare payroll tax of 2.35% for individuals making $200K/$250K

17. 2014 – Key Health Reform Provisions Take Effect PPACA comes to a cresendo in 2014. Many key changes will be implemented • Health Benefit Exchanges • Mandates (Individual, Employer) • No Pre-existing Conditions for ALL adults • Clinical Trials • Guaranteed Availability, Renewability &Rating Variations • Limit on Waiting Periods • Auto Enrollment Implemented • Health Care Excise Tax • Increases access to Medicaid • No Annual Limits on Coverage

18. 2015 – Continuing Innovation and Lower Health Costs • Establishes an Independent Payment Advisory Board aimed at extending the solvency of Medicare • Paying Physicians based on Value and not Volume. A new provision will tie physician payments to the quality of care they provide.

19. 2016 – Electronic Standards • Health Claims Attachments standards for electronic transmission of health related documents • Encounter, enrollment, disenrollment, premium payment and referral certification standards

20. 2018 – New Tax on Rich Benefits PPACA imposes a Cadillac Excise Tax on plans with rich benefits

21. 2020 – Medicare Donut Hole • Donut Hole coverage gap in Medicare prescription drug benefit is fully phased out. Seniors will continue to pay the standard 25% of their drug costs until they reach the threshold for Medicare Catastrophic coverage

22. 2010 - 2011 PPACA REQUIREMENTS (NetCare's Experience) Unlimited Lifetime Max - 1.44% Non-Participating Emergency Preventive Services -3.48% Care 3.83% OB/GYN Services -1.19% Essential Benefits No Annual Limits - 2.45% Dependent Coverage Up to age 26 - 1.82% Annual Dollar Plan Max Pre-Existing Coverage Increase - 3.62% For Dep age <19 2.31% Preventive Care Coverage Essential Benefit Coverage - No Annual Limits Increase in Annual Dollar Plan Max Pre-Existing Condition Waiver for Dep age <19 Extended Coverage for Dep age >26 No Referrals for OB/GYN Services Emergency Coverage at Non-Participating Facilities Unlimited Lifetime Maximum

24. PPACA Supreme Court Decision

25. Annual Rate Review (individual & group markets) Secretary & states to establish process for annual review of “unreasonable increases in premiums for health insurance coverage” in the individual and small group markets. Insurer must submit prior justification for “unreasonable” premium increases and post on website. State to provide Secretary with trends on premium increases and whether particular insurer should be excluded from Exchange based on pattern or practice of excessive or unjustified premium increases. Insurance Market Reform Effective Date of Enactment – 03/23/10

26. z● State High Risk Pool- Not applicable territories z● Secretary to establish high risk pool for individuals with pre-existing conditions who do not have creditable coverage. z● Will run through 1/1/14 (when Exchange is up and running) z● If Secretary finds insurer or employer has encouraged individuals to disenroll in order to join high risk pool, insurer/employer must reimburse expenses. z● Early Retiree Reinsurance- Not applicable to territories z● Secretary to establish temporary retiree reinsurance program to reimburse claims of retirees age 55 and older who are not Medicare-eligible. Program would pay 80% of eligible claims. Z● Plan only may use reimbursement to reduce costs (premiums, copayments, out-of-pockets costs, etc.). Insurance Market Reform 90 Days of Enactment – 06/23/10

27. Insurance Market Reform Six Months from Enactment - 9/23/10 Annual & Lifetime Limits (insured & self-funded) No annual or lifetime limits on “essential” benefits (ok for nonessential benefits). May have annual limits on certain “restricted” benefits set by Secretary, prior to 1/1/14. No rescissions except for fraud Dependent Coverage to age 26 (insured & self-funded) Not required to cover child of adult child dependent.

28. Insurance Market Reform Six Months from Enactment 9/23/10 Prior to 1/1/14, group not required to cover if dependent is eligible to enroll in employer-sponsored coverage. Secretary to issue regulations to define “dependent.” No Pre-existing Condition Exclusion for enrollees under age 19 (insured & self-funded) Applies to all enrollees as of 1/1/14.

29. Insurance Market Reform Six Months from Enactment 9/23/10 Preventive Health (insured & self-funded) Must cover preventive health without cost sharing Nondiscrimination Based on Income (insured) May not discriminate in favor of highly paid individuals under IRC105(h) (for insured coverage – already applies to self-funded) Choice of Providers (insured & self-funded) Must allow child to designate pediatrician as primary care provider. May not require authorization or referral for participating OB-GYN.

30. ● Must have external review that either meets NAIC Uniform External Review Model Act or standards set by Secretary. Secretary may deem external review process in operation on date of enactment as compliant. Must provide continued coverage pending outcome of appeals. Emergency (insured & self-funded) Must cover emergency services without prior authorization and treat as in-network. Appeals & External Review (insured & self-funded) Must have internal review process. Insurance Market Reform Six Months from Enactment 9/23/10

31. Insurance Market ReformSix Months from Enactment 9/23/10 ANNUAL LIMITS • Restricted annual limits permitted with respect to “essential health benefits” until plan years beginning on or after January 1, 2010. • Restricted annual limits are applied on a per person basis • Restricted annual limits are: • For plan or policy years beginning on or after September 23, 2011 but before September 23, 2012: $1.25M • For plan or policy years beginning on or after September 23, 2012 but before January 1, 2014: $2M • For plan or policy years beginning on or after January 1, 2014: Unlimited

32. Insurance Market ReformSix Months from Enactment 9/23/10 ESSENTIAL HEALTH BENEFITS • The rules defining “essential health benefits” have yet to be finalized by each state and territory based on a benchmark plan. • Until the rules defining “essential health benefits” are finalized and benchmark plans are selected, HHS will “take into account good faith efforts to comply with a reasonable interpretation of the term “essential health benefits”. • For this purpose, a plan or issuer must apply the definition of “essential health benefits” consistently.

33. Insurance Market Reform Two Years from Enactment - 2012 • Summary Documents (insured & self-funded) • Within 24 months of enactment, insurers must provide summary of benefits and coverage using a format issued by HHS (including uniform definitions). • Limited to 4 pages and must state whether provides minimumessential coverage and whether meets 60% actuarial value. • In addition to ERISA SPD requirements. • Must provide 60-day prospective notice of plan changes.

34. Insurance Market Reform • As of 1/1/14 • No Pre-Existing Condition Exclusions (insured & self-funded) • Applies earlier for enrollees under age 19. • Limit on Waiting Periods (insured & self-funded) • Waiting period cannot exceed 90 days. • HIPAA Wellness Reward increased from 20% to 30% (and • Secretary has discretion to increase to 50%)

35. Insurance Market Reform As of 1/1/14 May not discriminate based on health status (insured & self- funded). Cost-sharing limits tied to HSA amounts ($5,000 individual / $10,000 family) (insured & self-funded). For small group market, deductible limit is $2,000 individual / $4,000 family (insured). Expanded coverage of clinical trials (may not impose additional conditions) (insured & self-funded). Must cover “essential benefits” (insured / individual & small group markets only).

37. Expansion of Medicaid • Expand Medicaid to all non-Medicaid eligible individuals under age 65 with incomes up to 133% FPL based on modified adjusted gross income • All newly eligible adults will be guaranteed a benchmark benefit package that meets the essential health benefits available through the Exchanges • To finance the coverage for the newly eligible, states will receive: • 100% federal funding for 2014 – 2016 • 95% federal financing in 2017 • 94% federal financing in 2018 • 93% federal financing in 2019 • 90% federal financing in 2020 and subsequent years • Increase Medicaid payments in fee-for-service and managed care for primary care services provided by primary care doctors to 100% of the Medicare payment rates for 2013 and 2014

38. Premium and Cost-Sharing Subsidies to Individuals • Eligibility • Availability of premium credits and cost-sharing subsidies through the Exchanges to U.S citizens and legal immigrants who meet income limits • Premium Credits • To eligible individuals and families with incomes between 133-400% FPL to purchase insurance through the Exchanges • Tied to the second lowest cost silver plan in the area • Contributions limited to the following percentages of income for specified income levels: • Up to 133% FPL: 2% of income • 133-155% FPL: 3 – 4% of income • 150-200% FPL: 4 – 6.3% of income • 200-250% FPL: 6.3 – 8.05% of income • 250-300% FPL: 8.05 – 9.5% of income • 300-400% FPL: 9.5% of income • Increase the premium contributions for those receiving subsidies annually • Provisions related to the premium and cost-sharing subsidies are effective January 1, 2014

39. Premium and Cost-Sharing Subsidies to Individuals • Cost-sharing subsidies • To eligible individuals and families • Reduce cost-sharing amounts and annual cost-sharing limits • Have the effect of increasing the actuarial value of the basic benefit plan to the following percentages of the full value of the plan for the specified income level: • 100-150% FPL: 94% • 150-200% FPL: 87% of income • 200-250% FPL: 73% of income • 250-300% FPL: 70% of income • Verification • Required for both income and citizenship status in determining eligibility for the federal premium credits • Subsidies and abortion coverage • Ensure that federal premium or cost-sharing subsidies are not used to purchase coverage for abortion if coverage extends beyond saving the life of the woman or cases of rape or incest.

40. Premium and Cost-Sharing Subsidies to Employers • Small business tax credits • Phase I (2010 – 2013), • Provide a tax credit of up to 35% of employer’s contribution toward employee’s health insurance premium if employer contributes at least 50% of the total premium cost or 50% of a benchmark premium • Full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. • Phase II (2014 and later) • For eligible small business that purchase coverage through the state Exchange, provide a tax credit of up to 50% of the employer’s contribution toward employee’s health insurance premium if the employer contributes at least 50% of the total premium cost. • Credit will be available for two years • Full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. • Reinsurance program • Created temporarily for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare • Will reimburse employers or insures for 80% of retire claims between $15,000 and $90,000 • Payments from the reinsurance program will be used to lower the costs for enrollees in the employer plan • Effective 90 days following the enactment through January 1, 2014

41. TAX CHANGES W-2 reporting of value of employer-sponsored health benefits, effective in 2011 ● Employee salary reduction contributions to FSAs limited to $2,500, indexed to CPI-U, effective 2013 Restrictions on the reimbursement of over-the-counter (“OTC”) drugs from FSA, HSA, or HRA, effective in 2011 Exemption for prescribed OTC drugs; difficult to administer Increase additional tax on distributions from HSAs that are not used for qualifying medical expenses from 10% to 20% of the distribution, effective in 2011

42. TAX CHANGES - Individuals • Additional Taxes on High Income Individuals • Additional HI payroll tax of 0.9% for wages • in excess of $250,000 (joint filers) and • $200,000 (all others) • Effective for remuneration received after • December 31, 2012 • Also 3.8% tax on same filers on investment income

43. TAX CHANGES - Individuals • Itemized deduction for medical expenses • Floor for claiming goes from 7.5% to 10% of AGI • Effective tax years beginning after December 31, 2012 • o● Delayed effective date to 2017 for those age 65 or • over • Tax on indoor tanning services • 10% of amount paid • Effective for services performed after July 1, 2010

44. New fees on health care companies beginning in 2011 Pharmaceutical manufacturing companies 2014 -- $8 billion; 2015, 2016 -- $11.3 billion; 2017 -- $13.7 billion; 2018 -- $ 14.3 billion Medical device manufacturers ▪ 2.9% tax on sale of medical device after 12/31/12 Health insurance companies (certain nonprofits exempted) ● 2014 -- $8 billion; 2015 -- $11.3 billion; 2016 -- $11.3 billion; 2017 -- $13.9 billion; 2018 –- $14.3 billion; Thereafter – indexed to medical cost growth Fee is allocated based on market share Fee expected to be passed on to consumers as higher health care costs TAX CHANGES Others

45. TAX CHANGES Others Health Insurance Company Compensation Denial of deduction for compensation in excess of $500,000 for health insurance providers Applies to deferred compensation also No performance-based compensation exception Applies to more than top-5 executives Officer, director or employee Anyone who provides services to insurer What does this mean for doctors?

46. ● Applies to employers who employed an average of at least 50 full- time employees on business days during the preceding calendar year (full-time employee = average of 30 hours per week). Must pay a fee if coverage IS NOT offered to full-time employees AND any full-time employee receives premium assistance from federal government. $2,000 annual fee for each full-time employee employed (minus the first 30 employees) Must pay a fee if coverage IS offered to full time employees BUT any full-time employee still receives premium assistance from federal government. the lesser of $3,000 annual fee for each employee receiving premium assistance OR $2,000 annual fee per employee for each full-time employee employed (minus the first 30 employees) Generally effective beginning in 2014. Employer Requirements Currently unknown if applicable to territories

47. Automatic Enrollment Employers with more than 200 employees that offer coverage must automatically enroll new full-time employees in coverage with the opportunity to opt-out. Notification To Employees Regarding Exchange (effective 3/1/13) Cafeteria Plan Exchange coverage is considered “qualified” under a cafeteria plan only for qualified employers that are permitted to offer a choice of Exchange plans to their employees. W-2 Reporting Employers must report, for information purposes, the aggregate cost of employer-sponsored coverage on an employee's W-2. Employer Requirements Other Provisions Currently unknown if applicable to territories

48. Automatic Enrollment Employers with more than 200 employees that offer coverage must automatically enroll new full-time employees in coverage with the opportunity to opt-out. Notification To Employees Regarding Exchange (effective 3/1/13) Cafeteria Plan Exchange coverage is considered “qualified” under a cafeteria plan only for qualified employers that are permitted to offer a choice of Exchange plans to their employees. W-2 Reporting Employers must report, for information purposes, the aggregate cost of employer-sponsored coverage on an employee's W-2. Employer Requirements Other Provisions Currently not known if applicable to territories

49. ● Free Choice Voucher: Used by "Qualified Employees" to purchase qualified health plan coverage through the Exchange. Qualified employees: those whose required contribution for minimum essential coverage through the employer’s plan exceeds 8% but is less than 9.5% of the employee’s taxable income for the year, whose household income is less than 400% FPL and who do not participate in a health plan offered by the employer. Amount: The most generous amount the employer would have contributed for self-only (or family, if applicable) coverage under the employer’s plan. Employers may deduct the amount paid in vouchers as an amount paid for personal services. Employees that receive free choice vouchers do not trigger the fee on employers who have employees receive coverage through an Exchange. Employer Requirements Vouchers Currently not known if applicable to territories

50. ● Individuals are required to maintain "minimum essential coverage" for each month beginning in 2014. Failure to maintain coverage for the entire year will result in a penalty. The monthly penalty is 1/12thof the greater of: For 2014, $95 per uninsured adult in the household or 1% of household income over the filing threshold, For 2015, $325 per uninsured adult in the household or 2% of household income over the filing threshold, and For 2016 and beyond, $695 per uninsured adult in the household or 2.5% of household income over the filing threshold. ● The penalty will be one-half of the amounts listed above for individuals under 18. ● The total household penalty may not exceed: (i) 300 percent of the per adult penalty or (ii) the national average annual premium for bronze level health coverage offered through the Exchange. Individual Mandate Penalty Currently not known if applicable to territories