Impact of Health Care Reform

1. Impact of Health Care Reform RIMS Conference 2013 April 9, 2013 Sam Geraci, Director sam.geraci@libertymutual.com

2. Agenda • Description of the law • Impact on employers • Impact of the law on workers comp • Questions and discussion 1

3. Summary of PPACA as it applies to businesses • Large employers must offer qualifying coverage and premium subsidies to employees close to the poverty line • “Full time” means working more than 30 hours per week; the IRS can look back at the prior 3-12 months; a change cannot be made January 1, 2014 • Subsidized health insurance exchanges for individual and small group market • Private health insurers must provide members premium reimbursements unless they comply with a minimum medical loss ratio of 85% • Employers will have to pay a 40% nondeductible tax on the value of plan costs exceeding $10,200/year for individuals ($27,500/year for families) in 2018 • Employers can grandfather existing plans as long as they are made compliant with certain PPACA rules, but are limited in the plan changes they can make thereafter • Fully insured (as opposed to self insured) plans can no longer discriminate in favor of highly-compensated individuals 2

4. What is a “qualified plan” • Qualifying coverage must comply with the following: • No rescissions, annual/lifetime limits, pre-existing condition exclusions for children • Cover dependents up to 26 years old and certain preventive services • Charge older Americans more than 200% of the cost to younger people • Cover 60% of the actuarial value of a basket of health care services • Must have family deductibles under $4,000 and out-of-pocket totals under $10,000 • The basket of health care services generally must include • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance abuse services • Prescription drugs • Rehabilitative services and devices • Laboratory services • Preventative wellness services and chronic disease management • Pediatric services including oral and vision • Catastrophic coverage is acceptable for employees under 30 3

5. Agenda • Description of the law • Impact on employers • Impact of the law on workers comp • Questions and discussion 4

6. ILLUSTRATIVE Employees may want coverage dropped Employer provided insurance Employer drops coverage Gap Combined net savings by age and % of FPL realized when dropping employer coverage • Employers with at least 50 employees must offer qualifying plans to their employees or face fines of the lesser of: • $2,000 per full time employee (excluding those in their first 3 months of employment) • $3,000 per full time employee receiving a premiums tax credit (a subsidy on the exchange) • Who is eligible for a premium tax credit: employees earning less than 400% of the federal poverty line ($92,200) whose employer does not offer qualifying coverage AND who would have to spend more than 9.5% of their income on premiums in the exchange • $9,000 • $3,000 (Fine paid to the gov’t) • $6,000 (Paid to employee) ($1,000) $10,000 Employer Net savings ($) $2,000 • $1,000 • +$6,000 (From employer) • +$5,000 (From government) • -$12,000 (to insurer) ($1,000) Employee Income (% of FPL) $0 • $2,000 • +$3,000 (From employer) • -$5,000 (To employee) $2,000 Government $0 $12,000 $12,000 Total Employer + Employee $10,000 ($2,000) $12,000 5

7. Employers may be hit by surprise by the excise tax for “Cadillac” plans • Beginning in 2018, plans with group health coverage exceeding $27,500/family ($10,200/individual) will be subject to a 40% non-deductible excise tax (on the balance above the threshold) Research suggests that more than 60% of employers may be subject to the tax in 2018 6

8. The minimum Medical Loss Ratio standard will affect many employer-sponsored plans Types of plans with low MLR Health insurers potential reactions % of insurers meeting MLR standards • New plans • Dropping out of individual or small group market • Stop offering HDHP, mini-med, expat plans • Dropping employers selectively, e.g. those with young, healthy workforce • Mini-Med plans • Expat plans • HDHPs • Plans from small insurers 7

9. PPACA will eliminate mini-med plans Permissible annual limits on health care coverage ($ Thousands) Mini-med plans • Mini-med plans are low-cost plans offering limited coverage to part-time, seasonal or low-wage employees • They fail to comply with several PPACA’s regulations, e.g. qualifying coverage, restrictions on annual and lifetime limits • Waivers have been offered to ~1,500 firms but will expire in 2014 In 2014, employers who used to offer Mini-Med plans will have to offer full coverage, cut hours, or pay a fine 8

10. Grandfathered plans are exempt from some but not all PPACA requirements… Exempt from… Must comply with… • Coverage of preventive services without cost sharing • Exemption from the “essential benefits” package as of 2014 • Exemption from limits on out-of-pocket costs to participants • No lifetime or “restricted” annual limit • No rescissions of coverage • Extension of parents’ coverage to young adults 26 and under • No coverage exclusions for children with pre-existing conditions 9

11. … and can lose their grandfather status • Routine changes can be made without losing grandfather status, e.g. • Cost adjustments to keep pace with medical inflation • Adding new benefits or modestly adjusting existing benefits • Voluntarily adopting new consumer protections • But some changes lead to loss of grandfather status: Loss of grandfather status implies becoming fully compliant with the law 10

12. Agenda • Description of the law • Impact on employers • Impact of the law on workers comp • Questions and discussion 11

13. PPACA impact on medical inflation Number of insured Americans • ACA requires all Americans to have a qualifying medical plan • Medicaid expansion Individual mandate starts More insured Americans • ACA bans lifetime limits and coverage exclusions • ACA requires free preventative care Insured consume more, and more is covered Obesity epidemic Children stay on parents plans until 26 Free preventative care Aging of Americans Supply of MDs • Number of doctors limited by Medicare • Availability of substitutes remains limited by law Limited supply of doctors and nurses Physician shortages after Mass. reform Higher waiting times for treatment • Greater waiting times for treatment 12

14. Medical costs represent an increasing share of Workers Compensation losses Medical Share of WC benefits Indemnity Medical 13

15. States with the most uninsured and fewest doctors will see the greatest medical inflation Population without health insurance vs. Active Patient Care MDs per 1,000 capita X = 3.4% Y = 3.1 MA Size: = 6.5M population Active Patient Care MDs per 1,000 capita U.S median % population lacking health insurance U.S median 14

16. Health care reform will not stop the other factors which are increasing health care demand (Aging) 2000 Per capita health care expenditure by age cohort ($000) Life expectancy by age and year 15

17. Health care reform will not stop the other factors which are increasing health care demand (Obesity) 1987 1988 1989 1992 1990 1991 1997 1993 1994 1995 1996 1998 1999 2001 2000 2002 2003 2008 2005 2006 2007 2004 2010 2009 1985 1986 No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30% 16

18. Health care reform will not stop the other factors which are increasing health care demand (Obesity) Change in average daily US calorie consumption by food group from 1970 to 2010 Item Name, Calories, Rank Nathan's Fish and Chips 1,537 (#1) Fats, oils Carl Jr. Double Six Dollar Burger 1,520 (#2) % increase 1970-2010 Flour, cereal Hardee’s Monster Thick Burger 1,420 (#3) Fruit Sugar Burger King Whopper With Cheese 760 (#193) Meat, eggs, nuts Vegetables Dairy2 Big Mac 550 (not in the top 272) Cumulative calories in 1970 McDonald’s hamburger 250 (not in the top 272) 17

19. As consumers pay less, they demand more • PPACA lowers out of pocket costs for certain services, e.g. preventive care • Prevention, health and wellness incentives’ impact on medical spend are mixed 18

20. But the supply of doctors will grow slowly Supply of MDs in the US (000) • What’s limiting the supply of doctors? • Limited number of residency positions • Medical schools are adding few seats • Doctors are retiring baby boomers • Security and immigration laws burden foreign doctors willing to practice in the US, even in underserved areas Shortage of 91,500 doctors by 2020 based on a huge increase in demand and little increase in supply 19

21. PPACA may impact the waiting times for primary care and specialty physicians… Critical shortage Severe shortage No Shortage 20

22. … thus increasing claim durations and costs Short-term disability durations for diagnoses associated with specialists in short supply increased since the introduction of the reform in Massachusetts 21

23. Agenda • Description of the law • Impact on employers • Impact of the law on workers comp • Questions and discussion 22