Time to Implement! Moving Forward with Reform

1. Time to Implement!Moving Forward with Reform By Michael Bertaut, Healthcare Economist and Exchange Coordinator BCBSLA April 2013

2. Disclaimer • All information in this presentation INCLUDING THE OPINIONS OF THE PRESENTER are solely for illustrative purposes. The information is based on certain assumptions, interpretations, and calculations that are not necessarily accurate with regard to provisions of PPACA, HCERA, HIPAA, COBRA, ERISA, and other rules, regulations, guidance and all other documents issued by relevant state and federal agencies with regard to these laws and any other relevant laws. The information provided should not be considered as legal, financial, accounting, planning, or tax advice. You should consult your attorneys, accountants, and other employees or experts of this type of this type of advice based on their own interpretations, calculations, and determinations of applicable laws, rules, regulations, guidance, and any other documents and information that they determine may be relevant. The authors make guarantees or other representations as to the accuracy or completeness of the data in this presentation. • BCBSLA expressly disclaims any liability for information obtained from use of this presentation by any BCBSLA employee or by any other person. No warranty of any kind is given with regard to the contents of the presentation.

3. What Will We Talk About? • New Requirements for Businesses • New Requirements for Health Insurance Companies • New Requirements for Individuals • Financial Impacts of the Act on all stakeholders

4. Do I as an Individual HAVE to have Health Insurance? • Yes. The Individual Responsibility Requirement mandates all Americans to have health insurance policy • Starts 1/1/2014 • Exemptions for unaffordable coverage (above 8% of income), certain religious groups, native Americans. • Failure to comply means confiscation of tax refund starting at $95 for first year and rising to $695 or 2.5% of income by 2017.

5. Where Do I Get Insurance? • Exchanges • An online marketplace for health insurance. Designed to be health-neutral, gender-neutral, and very heavily subsidized by the Federal Government • Medicaid • Free Insurance for certain elements of the population. Louisiana’s Medicaid expansion is still TBD • Employer • Employer coverage is still considered to be the backbone of the health insurance system, albeit with many, many new rules to follow in 2014 and beyond.

6. What’s an Exchange? • WHAT’S THE PLAN? • To create a streamlined, easy to use, consumer friendly, health neutral, gender neutral, FEDERALLY REGULATED market for health insurance. • HOW DOES IT WORK? • Designed specifically to remove the 2 biggest barriers to health insurance: Cost and Health Status, with federal subsidies and no medical questions allowed. • WHEN DOES IT OPEN? • 10/1/2013. Closes again on 3/31/2014 • Subsequent years open enrollment will be about 6 weeks long. • WHAT CAN I BUY THERE? • Health, Dental, and Vision insurance from many major carriers. Each state will have its own unique exchange and product selection.

7. How Will That Insurance Be Priced? From this grid we can see the big winners are older women with health conditions, and the biggest losers the young, healthy males.

8. Males get small rate decreases at ages 56-64, peaking at (-11%) Females get rate decreases at ages 22 through 54, peaking at (-35%) at age 40. Dramatic decrease in Newborn Rates (-67%) Males Age 22-42 get rate increases up to 38%!

9. How Will Insurance Be Priced?

10. Who Can’t Get Help? • Incarcerated. • Income above 400% of FPL. • Offered coverage at work that is affordable and at least 60% AV. • Medicaid or CHIP eligible (income <138% fpl in states that have agreed to expand). • Claimed as a dependant on someone’s taxes. • Unable to attest to residency in a single state. • In the country unlawfully. Once a Subsidy is Accepted, Individual MUST file Tax Return for That year.

11. What About Medicaid? Can I qualify for Free Insurance?

13. Who Gets Left Out? The Healthcare Income Continuum (PPACA) 401% of FPL and above, you are on your own! 11% to 138% New Medicaid Expansion 0-11% Existing Medicaid 139% to 400% Exchange Subsidy Eligible 0% Federal Poverty Level Income PPACA when fully enforced provides coverage and assistance for most Americans from 0 to 400% of Federal Poverty level Income Without Medicaid expansion Louisiana will have no insurance help for citizens between 11% and 100% of FPL unless they have employer coverage. Coverage Gap Around 200,000 people considered “Working Poor” will be without insurance.

14. Who Pays? Small Group Rating Changes (2-50) New Min New Max 2x Minimum Minimum +38%! -19%! A $225 G $375 B $250 F $350 C $275 D $300 E $325 Today, State Law allows a 200% Rate Spread in Small Group Rates In 2014, no Underwriting is allowed in Groups 2-50 Average Rate $200 $400 $300

15. Should Louisiana Expand Medicaid? • 100% FMAP for First 3 years, settling at 90% FMAP going forward. • DiSH money reduced by 50% by 2016, eventually eliminated • PPACA built with expansion in mind, covers working poor. • 500,000+ will get access to no-premium health insurance • Fed does not fund administration of new population • La. Budget already $1.0B in the red • 90% match may not be permanent • 180k+ of expansion population already has private insurance. • Another 90k will be Exchange eligible. • Medical Capacity? Yes EXPAND! No, Don’t EXPAND! 15

16. As an Employer, What 4 Questions Must I Answer? • How many benefit eligible Employees do I have? • Am I an Applicable Large Employer (ALE)? • ALE Yes, or No, What do I do? • To be or not to be Grandfathered?

17. Who is benefit eligble? • Any employee who averaged 30 hours of service per week or more in the previous look-back period (3 to 12 months.) • Any new hire who, after 90 days, is REASONABLY EXPECTED to work more than 30 hours/week • If a REASONABLY EXPECTED determination cannot be made after 90 days, then another 90 day period may be used to make the call. • If eligibility determination is made, and then hours change, coverage must continue for the LONGER of the look-back period or 6 months.

18. What is a Common Law Employee? • FOR THE ALE COMPUTATION, the common law definition of employee must be used: • “Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done.This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.” (www.irs.gov)

19. How Do I Know if I have to Provide Coverage? Controlled Groups and Associated Groups Must be COMBINED for this computation!!!

20. Ok, I’m not an ALE, what now? • No obligations to provide affordable coverage • No obligations to provide valuable coverage • No obligations to offer coverage • No danger of fines under 4980H • Note: ANY GROUP may offer affordable coverage and lock their employees out of Advanced Tax Credits in the Exchange.

21. Ok, I’m an ALE, What Do I do now? • You have many new Federal Obligations that can be condensed into 3 major options: • AVOID FINES--Must offer “affordable”, “minimum value” health coverage to 95% of all eligible employees. Must offer coverage to children under age 26 (but not spouse and subsidy not required). • RISK SOME FINES—Offer coverage that fails one of the tests in #1 above. Employer is fined $250 per month per employee who “leaks” to the Exchange. Max fine is total fine computed under “3” below. • PAY THE FINES –Offer no coverage at all, employer must pay $2,000 per year per uncovered employee minus first 30 lives.

22. What Does “Affordable” Mean? • Federal Poverty Line: • Use 100% of FPL x 9.5% = affordable premium for all employees. • In 2012, would be $11,170 x 9.5% = $1,061.15 • Rate of Pay: • Use hourly rate times 130/month to determine wages x 9.5% to compare to premium. • At $10/hour, $1,300/month x 12 x 9.5% = $1,482.00 • 9.5% of Employee Box 1 W-2 income in premiums for employee-only coverage. • Determined at end of calendar year, and on an employee-by-employee basis. • Partial-year adjustments allowed for new employees who work part of a year. • At $20,800/year ($10/hr, 40 hrs/week) = $1,976.00

23. Why Answer the 4 Questions?Audit Defense: 2015 • By 2015, the IRS will have the ability to match W-2’s issued, to taxpayers, who received Advanced Tax Credits (ATC) on the Exchange in 2014. • They can then contact employers with a list, and a bill for $250 per employee per month they received an ATC ($3,000/year!) • Employers will have just three ways to defend themselves from these fines.

24. How to Defend Against Fines listed in section 4980h a) and b)! • Prove you are NOT AN ALE • Prove the employee in question was never benefit eligible when he worked for your firm • Prove the employee in question was offered an insurance plan that met the federal definitions of affordability, and offered at least 60% AV.

25. What happens without Defense? • Scenario 1: I offer coverage but fail to get an affordable offer to 95% of my benefit eligible employees. • Fine is $250 per employee per month drawing ATC. • Scenario 2: I fail to offer coverage at all to a block or all of my employees. • I must pay a fine computed by the following: • (# of benefit eligibles– 30) x $2,000/year) • BOTH FINES are NOT tax deductible

26. When do ALE’s have to comply? • In general, an ALE must comply with the new rules or face fines by his RENEWAL DATE in 2014, not necessarily 1/1/2014 • BUT…… • If a group today has a fiscal year plan, and offers it to less than 33% of their employees (part timers AND full timers) or currently cover less than 25% of employees, then they MUST comply with the new ALE standards for affordability/actuarial value/offer to 95% • or fines will start on 1/1/2014, not on their renewal date.

27. Grandfathering: Current Benefits to Groups • Not required to add USPTF Schedule B Tests and screenings to the Plan at zero dollar • Not required to add new women’s coverage to the Plan at zero dollar • Not required to add new coverage for FDA clinical experimental trials • Not required to reimburse ER docs at higher rates, especially out of network docs • Will not be charged transitional reinsurance fees • Will be pooled for rates (2-50) with much healthier groups • Avoid sharing cost of exchange fee on premiums. • Will not be subject to rate compression due to Age Rating, or dissolution of State UW Laws (+40% to -18%) “You’re Darn Tootin’ Listen to your Grandfather!!”

28. Staffing Services Rules (so far) • Invited comments on Staffing Services, rule not finalized. ALE computation paramount. • ANTI-ABUSE rules already being considered: • No employer-owned staffing service splits allowed. • “Further guidance is forthcoming”

29. What Medical Services Must Be Covered? • All Individual and Small Group Plans (2-50 lives) MUST match the Benchmark Essential Health Benefits Plan in breadth of coverage. • For 2014/15, in Louisiana, the Benchmark will be the coverage offered in • BLUE CROSS GROUPCARE PPO on 12/31/2011 • This is a very rich plan. Includes pregnancy coverage on all members, mental/nervous/ autism spectrum disorder, and a very wide formulary.

30. What Services Must Be Covered?: Self Funded • Self-funded plans MUST remove all $ limits on any medical coverage considered “essential”. • Self-funded plan MUST comply with mental/nervous parity or cover no MN at all. • Self-funded plans MAY use visit limits on EHB’s to manage costs, but not $ limits • No lifetime OR annual $ limits on EHB’s and “near-EHB’s”

31. Coverage Example:New Women’s Coverages • Applies to all Non-GF Groups save Churches • Begins with renewals 8/1/2012 • Services are Free to Insured • Includes: • FDA Approved Contraceptive Methods: • “Morning After” Pill • Tubal Ligation • All (generic) pills, IUD’s, other methods • Screening for gestational diabetes • HPV DNA Testing (women over 30) • STD counseling • HIV screening and counseling • Breastfeeding “support”, supplies, counseling • Domestic violence screening and counseling

32. How Much is All this Going to Cost?

33. The Fed’s Gift for Estimating Cost: PCIP • 375,000 Enrollees • $160m/month • Started May 2010 • End January 2014 • Cost $5Billion • Dissolve into Exchanges and Medicaid on1/1/14 • 100,000 members • $200m per month • Covered 27% of PEOPLE for 125% of COST!! • Almost half the spend bought Pharma, compare to 13% in regular insurance market • Projected $426 pmpm • Actual $2,000 pmpm • 370% Miss!!! • $5B ran out 2/1/2013. PLANNED ACTUAL

34. Current Estimates of Program Expenditures

35. Who Pays? The Carrier Tax • PPACA requires insurance carriers and fully insured groups to make “contributions” to support subsidies on the Exchange. • Self-Funded Groups have a separate fee, $63/member/year. • Note that the effect of this new “fee” is enhanced in rates because it is not a deductible business expense.

36. Who Pays? Rebates • All companies must operate three separate pools of business by state. • Each pool must hit targeted Medical Loss Ratio or higher • If Medical expenses don’t reach threshold, excess profits must be converted to cash and rebated to pool • BCBSLA Pools (6) are: • Individual—80% • Group <100--80% • Group >100--85% • 1 Each for Blue & HMO

37. NFP Carriers Already Comply with MLR Requirements 6% Salaries/Admin 5% Commissions 3% Reserves 1% Taxes 85% of Premiums Went to Medical in 2011 In 2011, BCBSLA collected $2.5B in risk premiums, broken out like this: $775M; 31% $357M; 17% $425M; 15% $925M; 37% 10¢Admin Cost Including Taxes, Commissions 3¢Future Claims Reserves/Profits NATIONAL AVERAGES 2¢OtherProfessionalServices 1¢NursingHome 2¢Home Health Care 6¢DentalServices 31¢Hospital 30¢Physician and Clinical Services 13¢Prescription Drugs BCBSLA Audited Financial Results FY 2011 National Averages From NIHCMF 2010 Update (2011)

38. Effective Rate Review/Approval • PPACA established Federal rate audit authority and responsibility given to CCIIO • Criteria established for “effective” process • 9 states (including Louisiana) not effective today • Louisiana carriers will trigger federal audit if any pool increase reaches 10%. • Audit has no authority other than to publicize the “reasonableness” of the rate increase • Attempt to regulate rates through “bad press”

39. Historically Higher Populations of the Government-Insured mean higher premiums Hospital Payment-to-cost Ratios for Medicare, Medicaid and Private Payers1995-2009 “Our research shows 87% of hospitals nationwide either lose money or break even treating Medicare Patients. Of the 13% that don’t lose money the average profit margin is 3%.” John Whittlesey, Healthcare Management Council 2010 Break Even (Payment = Cost) SGR Limits Enacted Note: Payment-to-cost ratios indicate the degree to which payments from each payer covers the costs of treating that provider’s patients. Data are for community hospitals and cover all hospital services. Imputed values were used for missing data (about 35% of observations). Most Medicaid managed care patients are included in the private payers’ category. Source: Adapted from the American Hospital Association and Avalere Health TrendWatch Chartbook 2007: Trends Affecting Hospitals and Health Systems

40. Michael R. BertautHealthcare EconomistLINKED-INRecommendations WELCOME!!!Michael.bertaut@bcbsla.com Office: 225-297-2719 Cell: 225-573-2092