State of the Health Insurance Industry

1. State of the Health Insurance Industry Emily Ehrstein March 20, 2012

2. State Of…Uncertainty Consumers Insurance Companies • How does healthcare reform affect me? • What’s this I hear about grandfathered plans? What does this really mean? • How is healthcare reform going to affect the employee benefits provided by my employer? • I have pre-existing conditions. How will healthcare reform affect me? • How will healthcare reform affect our industry? • Are our plans grandfathered? If so, how does this limit our ability to make product/benefit changes? • How will the Medical Loss Ratio requirements affect our products? • How will our profitability change in a guaranteed issue market? • Are there any new product opportunities that will result due to healthcare reform?

3. Agenda • Health Care Reform • Opening Discussion • Short Video • What is it? • Need for Reform • Key Provisions of the Affordable Care Act • Important Implications • What’s Coming Next?

4. Poll: • As you may know, a health reform bill was signed into law in 2010. Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it?

5. Public Remains Largely Split On ACA • As you may know, a health reform bill was signed into law in 2010. Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it? Favorable Unfavorable Don’t know/Refused ACA signed into law on March 23, 2010 2010 2011 2012 Source: Kaiser Family Foundation Health Tracking Polls

6. Quiz Time—What Do You Know About Healthcare Reform?

7. Movie Time! • : http://healthreform.kff.org/the-animation.aspx

8. Health Care Reform: What Is It? • Affordable Care Act (ACA) • Aims to improve the current health care system in the US by increasing access to health coverage for Americans and introducing new protections for people who have health insurance • Puts into place the framework for reform of the deliverance and financing of health care • Applies to typical comprehensive medical care (HMO’s, PPO’s, etc.) • Two Pieces of Legislation • Patient Protection and Affordable Care Act (PPACA): March 23, 2010 • Health Care and Education Reconciliation Act of 2010: March 30, 2010 • Amended Some PPACA Provisions • Trivia Question 1

9. Why the ACA? • As stated on healthreform.gov, the legislation will: • Rein in the worst excesses and abuses of the insurance industry with some of the toughest consumer protections this country has ever known. • Hold insurance companies accountable to keep premiums down and prevent denials of care and coverage, including for pre-existing conditions. • Make health insurance affordable for middle class families and small businesses with one of largest tax cuts for health care in history – reducing premiums and out-of-pocket costs. • Provide the security of knowing that if you lose your job, change your job, or start that new business, you’ll always be able to purchase quality, affordable care in a new competitive health insurance market that keeps costs down. • Strengthen Medicare benefits with lower prescription drug costs for those in the ‘donut hole,’ chronic care, free preventive care, and nearly a decade more of solvency for Medicare. • Improve our nation’s fiscal health by reducing our deficit by more than $100 billion over the next decade, and more than $1 trillion in the decade after that. Source: http://www.healthreform.gov/about/index.html

10. Pre-Reform Markets • Individual Market • Small Non-Elderly Population with Private Coverage • Voluntary Coverage • Health Status Underwriting (most states) • Premium Differences by Age • Small Group Market • No Requirement to Offer Coverage • Guaranteed Issue • Premium Variations (group experience, average age, geographic location, industry, et.)

11. Need For Reform • US Health Costs Too High • Quality of Healthcare Too Low • Access to Healthcare Insufficient (Especially for Uninsured)

12. ACA: Key Provisions (not an exhaustive list) • Elimination of Lifetime Limits (all plans) • Extension of Dependent Coverage to Age 26 (all plans) • Prohibits Pre-Existing Condition Exclusions For Kids • Guaranteed Issue • Allowable Rating Factors: • Age (limits imposed) • Geography • Family Size • Tobacco (limits) • Short Video: http://www.youtube.com/watch?v=4wlSZKIdaTk&feature=BFa&list=PL31A2EF2179B97E26&lf=plpp_video • Individual Mandate • Premium/Cost-Sharing Subsidies for Individuals • Premium Review Process • Medical Loss Ratio Reporting & Rebate Requirements • Creation of Health Insurance Exchanges • CLASS Act

13. Grandfathered Plans • Plans in place or purchased on or before when PPACA was signed into law. • Exempt from some aspects of ACA • Can lose status if certain changes are made

14. Premium Subsidies/Cost-Sharing Individual Mandate • Financial Penalty for Those Without Coverage • Penalty Phased In: • 2014: $95/person or 1% of family income • 2015: $325/person or 2% of family income • 2016+: $695/person (& indexed) or 2.5% of family income • Currently Before the Supreme Court • Important due to guaranteed issue & community rating • Premium Subsidies Offered up to 400% of Federal Poverty Level • Trivia Question 2 • Cost-Sharing Subsidies up to 250% of Federal Poverty Level • Short Video: http://www.youtube.com/watch?v=WHwoVvxsAZ0&feature=BFa&list=PL31A2EF2179B97E26&lf=plpp_video

15. Premium Review Process • Annual Review of “Unreasonable” Rate Increases by Health & Human Services (HHS) • Not Applicable to Grandfathered Plans • 2011 Threshold: 10% • “Unreasonable” if Excessive, Unjustified, or Unfairly Discriminatory • HHS Does Not Have Rate Approval Authority • States With an “Effective Rate Review Program” Will Still Retain Authority to Review Rate Changes • 6 States Do Not Have an “Effective Rate Review Program”

16. Medical Loss Ratio Requirements • If Medical Loss Ratio is Below Threshold, Then Rebates Must be Paid • Threshold • 80%: Individual & Small Group • 85%: Large Group • States Were Able to Apply for Downward Adjustment on Ind. Threshold • 18 States Applied (10 Denied, 6 Modified, 2 Pending) • Includes Grandfathered Plans

17. Health Insurance Exchanges (HIX) • PPACA Requires the Establishment of Public HIX in All States by 2014 • Will Allow Individuals to: • Compare Health Plans • Get Answers to Questions • Determine Insurance Tax Credit Eligibility • Determine Eligibility for Public Health Plans (ex. Medicaid, CHIP) • Enroll in a Health Plan that Meets Their Needs • State Are Currently Working to Establish These Exchanges • Short Video: http://www.youtube.com/watch?v=sCustemxpIE&feature=BFa&list=PL31A2EF2179B97E26&lf=plpp_video

18. CLASS Act • CLASS: Community Living Assistance Services & Support • Government Run Long-Term Care Program • Financed Through Voluntary Payroll Deductions • No Underwriting • Funding withheld and program “on hold” due to concerns with severe adverse selection • Actuarially Unsustainable

19. Expansion of Medicaid Program • Short Video: http://www.youtube.com/watch?v=D31Xr_1Scxg&list=PL31A2EF2179B97E26&index=4&feature=plpp_video

20. NAIC Video • http://www.youtube.com/watch?v=gZfuHkT9m-g

21. Important Implications • Size vs Health Status of Insured Lives • Will the Mandate Be Effective? • Winners vs Losers

22. What’s Coming Next? • Opportunities Stemming from Health Care Reform • Potential shift from Defined Benefit to Defined Contribution Health Plans for Employees • Increased Demand for Supplemental Health Products • Potential Growth of Health Savings Accounts

23. Questions?