VHA Georgia 2010 Trustee Institute:

1. VHA Georgia 2010 Trustee Institute: Health Care Reform – The Good, The Bad, & The Ugly Ronald E. Bachman President & CEO Healthcare Visions, Inc. ronbachman@healthcarevisions.net 404-697-7376

2. Megatrends, and Consumerism Megatrendsrepresent major movements so powerful that the direction of change cannot be stopped. Federal laws can speed up or slow down megatrend forces. But, like dammed rivers megatrends will redirect themselves to achieve the inevitable result. Healthcare consumerism is such a force.

3. Healthcare Consumerism Healthcare Consumerism is about transforming a health benefit plan into one that puts economic purchasing power—and decision-making—in the hands of participants. It’s about supplying the information and decision support tools they need, along with financial incentives, rewards, and other benefits that encourage personal involvement in altering health and healthcare purchasing behaviors.

4. Healthcare Consumerism Healthcare consumerism is independent of plan design. Healthcare consumerism is a compelling force because it embraces lowering costs, improving quality, enhancing choice, and expanding access by empowering individuals and reinforcing personal responsibility. It is the force operating throughout our economy and is just beginning to be structured into healthcare and insurance.

5. AAA Consumerism Study The 2009 American Academy of Actuaries multi-year study of healthcare consumerism concluded that first year claims could be lowered by 12-20% with future cost trends decreased by 3-5%. More than fifty percent (50%) of employers now offer consumer-driven options. In 2010, nearly 18 million lives will be covered by consumer-driven plans. While HSA are disfavored in PPACA, employers and insurers would be wise to consider healthcare consumerism as allowed.

6. Consumerism Megatrend • Americans who: • bank electronically at ATMs, • purchase stocks over the internet, • buy and sell goods through eBay, • maintain their music with iTunes, • keep personal videos on facebook, • seek employment through LinkedIn, and • control television programming with Tivo, will not tolerate the government controlling their health, their most personal asset.

7. Patient Protection and Affordability Care Act (PPACA) • PPACA deals with limited plan choices, mandated benefits, and premium controls. • PPACA is fighting healthcare consumerism and broad cultural movements to personal responsibility, individual ownership, self-reliance, convenience, choice, and transparency.

8. PPACA Fighting Consumerism Megatrend • The health mandates violate the growth of personal responsibilityand self-reliance. • Government required plan designs violate the cultural movement to choice.

9. PPACA Fighting Consumerism Megatrends • Added bureaucracies create barriers to responsive plan designs and convenient medical services. • Federal subsidies violate the concept of individual ownership. • Backroom dealing between big government and lobbying interests violate transparency.

10. PPACA Restricts Consumerism Value of HSAs • PPACA restricts HSA options in insidious ways that will delay, deny, defeat and will ultimately kill HSAs. Senate Favors Premiums over Savings • In 2010, HSA eligible plans for singles can have a maximum deductible of $5,950 with offsets using health savings. PPACA includes a maximum deductible for small group plans of $2,000 for a singles, thus eliminating lower cost plans with the option of putting the difference into an HSA. • PPACA limits out-of-pocket costs to the same amount as applicable to HSAs. With the same out of pocket exposure, citizens are forced to pay for medical services through insurance premiums rather than health savings.

11. PPACA Restricts Consumerism Value of HSAs Excise Tax Limits Potential of HSAs • Lost in the reform debate is the fact that regulations will determine actual benefits and coverage requirements for all plans, including HSAs. • A 40% excise benefits tax applies if health plan costs exceed $8,500 for an individual. If one puts the maximum $4,050 into an HSA (including a $1,000 catch- up provision for ages 55 and older), that leaves $4,450 regardless of age to purchase medical, dental coverage, vision, and any other federally designated health coverage.

12. PPACA Restricts Consumerism Value of HSAs Regulations May Stifle HSAs • In the proposal, broad categories of healthcare are listed without any specifics on treatment or financial limits that may apply. • Regulations are to ensure that coverage is “equal to the benefits provided under a typical employer plan.” • By definition, HSA eligible plans are not “typical.” A one size fits all government approach that regulates, restricts, and approves only a narrow range of “typical” products will stifle creative solutions.

13. PPACA Restricts Consumerism Value of HSAs Regulatory Powers Can Make HSAs Illegal • Broad regulatory powers can easily outlaw HSA eligible plans by requiring essential health benefits to include coverages that violate HSA eligibility. • For example, in the proposed bill a special low cost non-group catastrophic plan is allowed for individuals under age 30. Rather than designating an HSA eligible plan, the proposal requires three primary care visits that disqualify the plan from being HSA eligible.

14. PPACA Restricts ConsumerismValue of HSAs Restrictions on Use of HSAs • New HSA restrictions limit paying for over-the-counter medications. • The penalty for non-medical HSA withdrawals is increased from 10 to 20 percent.

15. PPACA Restricts Consumerism Value of HSAs HSA Rewards Left Out • New generation consumer-driven plans include rewards and incentives for healthy behaviors. • PPACA outlaws health status rewards and incentives in determining premium rates. The proposal does include certain “wellness program” rewards based on health status. • However, employer and insurer HSA contributions are not listed in the allowable uses of rewards.

16. PPACA Restricts Consumerism Value of HSAs Price Controls • The PPACA proposal limits young adult premiums to 33% of older adult premiums. • Actuarially, young adult claims are about 20% of older adults. • This restrictive price control will substantially raise the cost of premiums by 50 to100 percent or more for younger population a key market for HSAs.

17. You Can’t Fight Megatrends

18. The Power of The Consumerism Megatrend • Insurance with personal savings accounts (HSAs and FSAs), while not killed, are seriously limited in PPACA. • But these are not the only forms of healthcare consumerism. • In 2002, health reimbursement arrangements (HRAs) were established by the Treasury Department. • HRAs can be used with any plan that the Secretary mandates. Congress either forgot about or ignored the many uses and flexibility of HRAs.

19. PPACA , Consumerism & Good News Under PPACA, financial rewards based health status are increased from 20% to 30%. The Secretary of Health and Human Services has the authority to increase that limit to 50%. PPACA still allows unlimited rewards and incentives for participation and engagement.

20. The New Direction of Consumerism • The real world has moved to next generation healthcare consumerism with member engagement, rewarding healthy behaviors, and promoting personal responsibility. • Plans are now focusing on rewards and incentives. Health Incentive Accounts (HIAs) are a special form of HRA that builds value only from rewards and incentives. There are many other special use HRAs that may become the channels for healthcare consumerism.

21. Rewards & Incentives Rewards can include activities such as: • Participation in a wellness assessment, • Compliance with a condition management program (e.g. taking medications, diet, exercise, office visits), and • Maintenance of good health characteristics (e.g. blood pressure, cholesterol, nicotine use, body mass index) using bio-metrics.

22. The Future • Government and the quest for political power is a strong force in and of itself. • Cynics will point to increasing demands for federal support and government dependency by large parts of our population. • That may be a current political direction, but growing welfare and expanding entitlements is not a financially sustainable path and therefore cannot be a megatrend. • The future is not the opiate of government welfare, but the citizen empowerment of “Healthcare Consumerism.”

23. PPACA Next Steps • GET OVER IT! • IT’S THE LAW

24. Four Phases • Legislation • Regulation • Compliance • Litigation

25. Legislation • PPACAwilllikely require a large “technical corrections” bill. • Politicians and special interests can use a technical corrections bill to pass new provisions and mandates. • A technical corrections bill could include entirely new provisions not a part of the original law. • For example, the public option could return as a “technical correction

26. Regulation • The regulatory process is likely to be a nightmare of delays, missed deadlines, and confusing interpretations. • In the bill there are scores of references to decisions to be made by the Secretary of H.H.S. • Major areas of implementation and coverage determinations for “essential benefits” are left to the discretion of the Secretary. • Lobbyists from every provider and self-interest group will converge on the bureaucracies to have their services included through regulation. • Ultimate coverage mandates are likely to go beyond what employer plans typically consider as medical/surgical benefits.

27. Compliance • Consultants and lawyers will find expanded needs for their services. • Insurers will need to determine if they are in compliance. • Employers not in compliance will be subject to large penalties and fines. • Self-insured employers will require compliance audits to assure required essential coverages and mandates are included. • Each employee contribution will need to be measured against the government affordability standard. • Each year will likely produce new regulations and changes that must meet with compliance standards or employers will suffer penalties and fines.

28. Litigation • Courts will decide what the language of the laws 2700+ pages mean. • New laws require a period of adjustment that can take decades to sort out the meanings and conflicts of legal interpretations. • Given the national impact and financial consequence of any single coverage requirement, every self-interest group wanting to be included in the essential benefits package will push litigation to add or solidify their coverage demands.

29. The Circle of Life The never ending cycle will then repeat itself, as new laws will be passed to respond to court decisions and off it goes again to repeat the four phases of legislation, regulation, compliance and litigation.