Future Healthcare Marketplace Post-ACA

1. Future Healthcare Marketplace Post-ACA Alaska State Hospital & Nursing Home Association Annual Meeting Jim Grazko Premera Blue Cross September 11, 2014

2. Exchange Implementation Majority of states are implementing Federally-Facilitated Marketplaces *

3. State Medicaid Expansion 28 states are moving forward to expand Medicaid with a couple of states still debating

4. Premera Membership Individual membership as of August 24, 2014; 99% of our membership have paid premium Bronze plans are the most popular in our other markets Source: Premera Blue Cross

5. Small Risk Pool States – Individual Alaska and a few other states have Individual market risk pools that are arguably too small to absorb all risk under Guarantee Issue • High Risk Pools like ACHIA are dissolving, sending high cost risk into carriers’ Individual pools with Guarantee Issue in place • Pools are too small to absorb the cost associated with risk at the highest cost end of the claims distribution • ACA risk mitigation program (“3 Rs”) are not sufficient at the highest cost end of the claims distribution – and 2 programs sunset after 2016 • Risk mitigation strategy is needed and Premera is working with policymakers to help accomplish that • Group coverage largely unaffected although some self-funded employers could be sending high cost individuals to the Exchange – NOT the government’s intent!

6. National Market Nationally, employer-sponsored insurance is, and is expected to remain, the most common source of health insurance coverage Estimated Market Size (Population in millions) 49 (16%) 27(8%) 59(18%) 149(49%) 51(17%) 157(47%) 60(18%) 40(13%) 31(9%) 15(5%) Total: 304 M Total: 334 M Source: Kaiser Family Foundation (2011 actual) and The Boston Consulting Group (2019 estimate)

7. Impacts of Reform on Premiums Reform will increase access to coverage, but changes to benefit plans and new taxes and fees have already driven costs higher

8. New Taxes and Fees Additional costs to individuals and employers have resulted from new taxes and fees Source: Premera Underwriting

9. Implementation Effort and Employer Market Impacts

10. Individual and Small Employers Biggest impact is due to new federal rating rules • Federally mandated “metallic” benefits – Bronze, Silver, Gold, Platinum and Catastrophic • Rate build up from member level – huge change! • Compressed age slope at 3:1 ratio – must use mandated federal age factors (no gender) • Wellness program with deep discounts for participation • Tobacco usage load – if used in small group market, carrier must offer a wellness program to provide opportunity to offset the load • State defined rating region (no more than 7 regions unless State filed and approved by HHS) – Premera used 3 regions: • Area 1 (Anchorage) • Area 2 (Rural Alaska) • Area 3 (Southeast Alaska)

11. Alaska Rating Regions

12. Large Employers (51+ Employees) Mandates • $6,450 out-of-pocket maximum with new definition • Prohibition on lifetime and annual dollar maximums • Preventive care paid at 100% • Employer mandate to provide minimum and affordable coverage (2015) • Contraceptive coverage for all, including religious organizations • Small group definition change to 1-100 employees (2016) Administrative Requirements • Prohibition on pre-existing condition exclusions and waiting periods • Maximum employee probationary waiting period • Dependents covered to age 26 • Provide notice to all employees about the exchanges • Auto-enrollment

13. Implementation Activities • Interpretation of rules and internal analysis • Product compliance • Network re-contracting • System configuration • Contract and rate filings • Operational process and procedure changes • Communication and education

14. Implementation Challenges for Health Plans • Extremely late finalization of federal/state requirements; FFM obligations becoming health plan issuer obligations • Inability to complete desired level of automation for deliverables leading to many manual work-arounds • Implementation of new product design very complex and resource-intensive • Beginning-of-year filing requirements by regulators for rates and contracts causing work load congestion

15. What’s Ahead?

16. “Like every major piece of legislation– from Social Security to Medicare– the law is not perfect. We’ve had to make adjustments along the way, and the implementation… has had its share of problems… But this law is doing what it’s supposed to do. It’s working.” President Obama April 1, 2014

17. Repeals, Modifications, and Delays of Key ACA Provisions… that have Already Occurred W-2 Reporting Auto-enrollment provision for employers > 200 employees Federal Basic Health Plan Option Essential Health Benefits Package Contraception for Religious Organizations FF-SHOP Employee Choice and Billing Aggregation Out-of-pocket Max for Pharmacy CO-OP (partial) 1099 Reporting Requirement Issuer Reporting Independent Payment Advisory Board (partial) Transition relief: early renewals and grandmothered policies CLASS Act Public Health and Prevention Fund (partial) 51-99 Employer Penalty (2015) Medicaid expansion Free Choice Vouchers Federal Preexisting Condition Insurance Pool Employer Reporting and Penalty (2014) State Partnership Exchanges Repeal Modify Defund Delay

18. What’s Ahead? • Presidential Election • Major ACA and Exchange Go-live • Mid-term elections • Exchange implementation • Supreme Court ruling • Presidential election • Initial ACA implementation • Mid-term elections

19. What’s Ahead? • Continued implementation of federal regulations and provisions, including provisions that were delayed • States’ implementation experiences, including fiscal pressures • Impacts to delivery system • Long term financial sustainability

20. Thank you! Jim Grazko Senior Vice President of Underwriting and President of Blue Cross Blue Shield of Alaska jim.grazko@premera.com