IABA Health Care Reform Overview

1. IABA Health Care Reform Overview • August 2012

2. Judicial and Legislative Activity U.S. Supreme Court has ruled on the Accountable Care Act (ACA) • Oral arguments were heard at the end of March 2012 over three days • Arguments were heard separately on four issues • Does the Anti-Injunction Act bar some or all of the challenges to the individual mandate? • Ruled that this did not apply • Is the individual mandate constitutional? • Upheld by determination that the mandate can be construed asa tax and not a penalty • Should other provisions law fail if the individual mandate is struck down? • Is the expansion of Medicaid for the poor and disabled constitutional? • Under PPACA, states that choose not to, lose ALL federal Medicaid funds • Court said the penalty is too severe; Congress can withhold new Medicaid funds but not existing funds Congressional Action • There is practically no chance that Health Reform will be repealed in 2012 • Senate has twice rejected the House-passed repeal of health reform and health reform funding • Similar fate awaits other recent House-passed bills • Opponents do not want to improve or fix Health Reform Law • Their goal is repeal, viewing it also as a powerful campaign issue for 2012 • Targeted repeals of specific provisions have succeeded

3. Provisions likely to remain, even if Republicans sweep 2012 election No lifetime or annual dollar limits No pre-existing condition exclusions Cover children to age 26 Provisions likely to go if Republicans win: Individual and employer mandates Premium and cost-sharing subsidies Medicaid expansion Minimum medical loss ratio CLASS Act New high income and unearned income Medicare tax Independent Payment Advisory Board Grandfathering rules Repeal or significant changes raise practical, technical and political difficulties Potential cost of repeal estimated to increase budget deficit How to address areas where implementation underway Plan sponsors that received ERRP distributions Grants to states Beneficiaries that received Medicare Part D rebates Beneficiaries receiving coverage for which they no longer qualify (children younger than age 26, beneficiaries who previously hit lifetime limits) Health Care Reform after 2012 Election

4. Health Reform Overview—Coverage vs. Cost Expanding/Improving Coverage Paying for Expanded Coverage Health InsuranceExchanges with Reformed Rules Federal Coverage Subsidies Medicare/MedicaidPayment Changes Free Rider Penalty Expansion of Medicaid IndividualMandate Taxation of High Income Individuals IncreaseOther Taxes EmployerMandate High-Cost EmployerCoverage Taxation = Direct impact to employers = Indirect impact to employers = Direct and indirect impact to employers

5. CBO Estimate—New Savings, New Revenue Will Offset Higher Costs Health Reform Overview—The Original Price Tag MedicareAdvantage Cuts ExciseTaxes Medicare Taxes Reduction in Medicare growth rate PenaltyPayments CLASSProgram IndustryFees Other Net Savings Other Net Revenues $32 $210 $65 $107 $150 $136 $196 $70 $115 System Savings $517 billion New Revenue $564 billion Total Cost of Expanded Coverage: $938 BillionImpact: $143 billion reduction to the federal deficit

6. States Are Slow to Set Up Health Insurance Exchanges Legislation Summary – July 2012* *Source: NCSL.org

7. States Are Limited on Implementation Time State Timeline – 2012 and 2013

8. Establishing the Exchanges - The 3 R’s

9. The Individual Mandate – Coverage Requirements Who Is Exempt from Coverage Requirement? • You are part of a religion opposed to acceptance of benefits from a health insurance policy • You are an undocumented immigrant. • You are incarcerated. • You are a member of an Indian tribe. • Your family income is below the threshold requiring you to file a tax return ($9,350 for an individual, $18,700 for a family in 2010). • You have to pay more than 8% of your income for health insurance, after taking into account any employer contributions or tax credits. What Coverage Meets the Requirements to Avoid the Tax? • Medicare • Medicaid or the Children’s Health Insurance Program (CHIP) • TRICARE (for service members, retirees, and their families) • The veteran’s health program • A plan offered by an employer • Insurance bought on your own that is at least at the Bronze level • A grandfathered health plan in existence before the health reform law was enacted.

10. How Will a Person Get Coverage in 2014? Family Income less than 133% of Poverty Family Income less than 400% of Poverty Family Income greater than 400% of Poverty Family may purchase unsubsidized coverage in Exchange Family is eligible for subsidy in Exchange Family is eligible for Medicaid If employer coverage is available, but either inadequate (<60% benefit) or unaffordable (premiums >9.5%) If employer coverage is available If employer coverage is available Family may choose the employer plan or subsidized coverage in Exchange Family may choose the employer plan or unsubsidized coverage in Exchange Family may choose the employer plan or Medicaid If employer coverage is available and adequate and premiums are affordable Family may choose the employer plan or unsubsidized coverage in Exchange

11. The Individual Mandate • Notes • Premiums for health insurance bought in Exchange would be adjusted for age. • The Congressional Budget Office estimates that Bronze level coverage in 2016 will be $4,500-5,000 for individuals and $12,000-12,500 for families. • After 2016, penalty amounts will increase by cost of living.

12. The Individual Mandate * Based on Calendar Year CPI-U from CBO Budget and Economic Outlook: Fiscal Years 2011 to 2021, www.cbo.gov/publication/21999

13. Health Reform Overview—Timing Of Major Provisions * Denotes group/insurance market reforms applicable to grandfathered health plans ** Denotes group/insurance market reforms not applicable to grandfathered health plans

14. Guidance Still Coming Estimated Timeline of 2012 PPACA Rule Issuance and Effective Dates Risk-adjustment, Reinsurance and Risk-corridors Final Rule Health Insurer Quality Activity Reporting Medicaid Eligibility Final Rule Individual Mandate/Penalties Proposed Rule Actuarial Value and Cost-Sharing Reductions Bulletin Employer Mandate/Penalties Proposed Rule Insurance Exchanges and Exchange Eligibility Final Rule Actuarial Value and Cost-Sharing Reductions Proposed Rule Student Health Final Rule Essential Health Benefits Proposed Rule Employer Tax Credits Proposed Rule Guaranteed Issue, Rating Renewability, and Prohibition of Existing Conditions Proposed Rule Premium Tax Credit Final Rule Employer Reporting Requirements Draft MA/ Part D Regulation for CY 2014 (likely to include MA MLR regs) Exchange Accreditation Additional Guidance on External Review Details on the Federally-Facilitated Exchange Guidance on Exchange Blueprint Requirements MLR Reporting Requirements Final Rule

15. Guidance Still Coming Estimated Timeline of 2013 PPACA Rule Issuance and Effective Dates Prohibition on 90-day Waiting Periods Proposed Rule Modified Community Ratings and Health Status Proposed Rule Prohibition of Annual Limits Proposed Rule Health Insurance Tax Proposed Rule Guidance on OPM Multi-State Plans Interstate Healthcare Choice Compacts Interim Final Rule Final MA/ Part D Regulation for CY 2014 (likely to include MA MLR regs)

16. A Balancing Act for Carriers Opportunities • Broader insured basis in the exchanges due to the Individual & Employer Mandates • Expansion of availability of coverage to Individual, Medicaid, and Employer Group populations • Increased focus on cost of care through Accountable Care Organizations and Payment Innovation • Preventive Care improving the health of the insured population • Women’s Benefits • Review by United States Preventive Services Task Force • Administrative efficiencies from more standardized product and rating structures Risks • Pricing It Right in a Changing Marketplace • Individual Mandate – Not as strong as it could be initially • Guaranteed Issue – movement away from individual underwriting has been a challenge in some states already • Minimum Loss Ratio requirements • Programs that could be good for the health of a population but don’t fall under allowable numerator expenses could be cut back if MLRs are tight • Rate Review • Funding to states to immediately increase regulatory scrutiny • Increases greater than 10% are flagged by HHS for review • Medicare Reimbursement cuts (worth $271B from 2013 to 2022 according to recent CBO analysis) • Public sector business runs at negative margins already and are supplemented by private payers • If cuts are upheld, will have significant impact on providers • Fully-insured group business may look more at self-insured options to avoid taxes and mandates

17. A Balancing Act for Employers Employer Mandate—Effective 2014 • A penalty will apply if the employer • Fails to offer Minimum Essential Coverage (MEC) to its FTEs (and their eligible dependents) • Penalty is $2,000 per year per FTE • Offers either unaffordable coverage or does not provide a minimum actuarial value plan • Penalty is $3,000 per year per FTE who enrolls in an Exchange and is eligible for a federal subsidy • Affordability Test • The contribution for single coverage can not exceed 9.5% of the Applicable Taxpayer’s household income • Minimum Actuarial Value • Benefits provided under the plan must equal at least 60% of the total cost of benefits Excise (Cadillac) Tax—Effective 2018 • This is solely a tax on high cost employer-sponsored health plans (for active and inactive/retired employees) • The tax is imposed on the cost of coverage that exceeds certain dollar thresholds • The tax is equal to 40% of the excess cost over the dollar threshold • The tax is determined separately for each insured individual • Thresholds are indexed and vary based on different circumstances The Big Squeeze 60% Minimum Actuarial Value + Excise Tax = Trouble

18. Questions?