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Implications of the Affordable Care Act ACA Background & Fundamentals for Fully-Insured Small Groups

Implications of the Affordable Care Act ACA Background & Fundamentals for Fully-Insured Small Groups.

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Implications of the Affordable Care Act ACA Background & Fundamentals for Fully-Insured Small Groups

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  1. Implications of the Affordable Care ActACA Background & Fundamentals for Fully-Insured Small Groups This presentation is not intended to be a comprehensive review of the content of the legislation, nor should it be interpreted as authoritative and/or legal advice on implementation.  The presentation represents our best understanding as of the date of the presentation.  In the event you have questions applicable to your business or employees, we recommend you request the advice of competent legal counsel. Blue Cross of Northeastern Pennsylvania July 18, 2013

  2. Key Considerations ACA Fundamentals Presentation will focus on 5 key considerations of the ACA • Consumer protections in the ACA • Standardized products – Metallic plans and EHBs • Consumer subsidies • Distinct impact on small groups • Risk-stabilizing programs

  3. Overview of ACA ACA Fundamentals The Affordable Care Act is primarily focused on offering consumer protections and providing financial support to purchase coverage Rights and Protections Reduce Consumer Costs • Premium subsidies • Cost sharing subsidies • Age banding • Minimum amount health plan’s must spend on medical costs (i.e. MLR requirements) • Rate Review • Elimination of annual and lifetime caps • No medical underwriting • Guaranteed Issue • Essential Health Benefits (EHB) • Coverage for preventive services • Coverage for dependents up to 26

  4. PPACA (Patient Protection and Affordable Care Act ) Provisions 2010-2012 ACA Fundamentals Since the enactment of the ACA in March of 2010, many of the law’s provisions have already been put in place March 2010 June/July 2010 September 2010 2012 • Summary of Benefits Coverage (SBC) • Accountable Care Organizations • State Notification of Intent to operate a state-based exchange • PCORI Fee • Enactment • Pre-Existing Condition Insurance Plan (a national high-risk pool) launched at pcip.gov • HHS web portallaunched at Healthcare.gov • Temporary employer reinsurance • Children under 19 may not be excluded for pre-existing conditions • Dependent coverage to age 26 • Limits on rescissions • Medical loss ratios 80% individual/small group; 85% group) • No lifetime limits • No cost-sharing on preventive services

  5. PPACA Provisions 2013+ ACA Fundamentals The ACA will bring about many additional regulations starting in 2014 2013 2014 2018 • Excise tax on “Cadillac plans” • W-2 Reporting of Health Benefits • Medicare Tax Increase • Reduced FSA Contribution Cap • CO-OP Health Insurance Plans • Marketplace open-enrollment • Guaranteed Issue • Individual Mandate • Health Insurance Marketplace • Health Insurance Premium and Cost Sharing Subsidies • No Annual Limits on Coverage • Essential Health Benefits • Temporary Reinsurance Program • Employer “Play or Pay” (delayed to 2015) • Health Insurer Annual Tax

  6. 2013 Pennsylvania Rate Filings ACA Fundamentals Individual and Small Group plans have been developed and rates have been submitted • File • Rate Review • Market Rates Set Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 2014 • April 1stCarriers begin submitting Federally Facilitated Marketplace (FFM) applications • May 3rdAll FFM applications due • July 31stState certification complete • September 4thCarriers notified • October 1stFFM sales begin (open enrollment) • January 1stCoverage effective Note: Large Employers (more than 50 employees) are not impacted

  7. Wellness Benefits ACA Fundamentals Employers may offer incentives to employees for improving their health or obtaining education on how to do so Participatory Programs Health-Contingent Programs • Reward based on achieving measurable improvements in specific health factors • Examples of these programs are: • Activity based: Checking in at activity classes twice a week for 6 months • Outcome based: Quitting smoking or meeting biometric screening goals • Reward limited to 30% of employee premium • Can also receive 30% off dependent coverage if eligible • Reward based on activities that promote health or prevent disease • Examples of these programs are: • Attending health education seminars • Smoking cessation classes (regardless of outcomes) • There is no limit to the amount employers can offer employees Wellness benefit programs have no short-term impact on premiums paid to carrier

  8. Essential Health Benefits ACA Fundamentals Essential Health Benefits will provide 10 common categories of coverage, and are required in all Small Group and Individual plans 10 Categories of Essential Health Benefits (percentage of Individual plans that currently offer in brackets) Hospitalization (100%) Rehabilitative & Habilitative Services (85%) Preventive & Wellness Services (100%) Prescription Drugs (82%) Individual Plans that currently offer1: Greater than 90% of Plans offer 70 to 90% of Plans offer Emergency Services (100%) Mental Health & Substance Abuse (61%) 50 to 70 % of Plans offer Less than 50% of Plans offer Ambulatory Patient Services (99%) Maternity & Newborn Care (34%) Laboratory Services (99%) Pediatric Services (24%) • HealthPocket.com survey of 11,100 Individual insurance plans

  9. Metallic Level Illustrative ACA Fundamentals Metallic level is associated with actuarial value, which is a measure of the percentage of expected health care costs a health plan will cover Actuarial Value of Essential Health Benefits (not representative of actual premiums1) Estimate of average covered medical costs for population $600 $2,400 $1,800 $1,200 Subscriber Responsibility (e.g. deductible and co-insurance) $5,400 $4,800 $4,200 $3,600 Plan Responsibility (e.g. premiums) $6,000/yr 60% 70% 80% 90% Metallic level of a product is not directly related to richness of benefits, but rather amount that consumer is estimated to spend out-of-pocket relative to premiums • Premiums will be higher than just medical costs as illustration does not show admin costs

  10. Federal Poverty Level ACA Fundamentals Federal Poverty Level (FPL) will be used by the ACA to determine consumers’ eligibility for government subsidies Household Income Family of Four Individual Household FPL Federal Poverty Level (FPL) set annually by the Department of Health and Human Services1 • Adjusted annually for inflation based on the CPI

  11. Premium Subsidies Illustrative ACA Fundamentals Premium subsidies guarantee a maximum cost-exposure level for the 2nd-Lowest Cost Silver Plan Estimated Premiums and Subsidies in 2014 (Single Subscribers) Est. Premium for older demographic • Market rates determine amount of subsidy • Older consumers will receive a much greater share of government subsidies • Price shock after 400FPL will be most significant to older populations • Many younger consumers will have premiums below their premium cap Government Subsidies Estimated Premium 9.5 % of Income Est. Premium for younger demographic Receive no Subsidies 8.1 % of Income Premium Cap (sliding scale)2 6.3 % of Income Household FPL Level 9.5 % of Income 2.0 % of Income

  12. Cost-Sharing Subsidies Illustrative ACA Fundamentals Consumers with household incomes below 250% FPL will be eligible for cost-sharing subsidies that lower exposure to out of pocket costs 87% 94% Total AV: 73% 6% Out of Pocket Share: Silver Plan 70% AV 13% 27% 24% Additional Protection: 17% 3% 70% 70% 70% Base Actuarial Value: Example Individual Coverage: 125FPL 175FPL 225FPL $295 $1,070 $1,900 Est. Premium Cap: $360 $780 $1,620 Out of Pocket Costs1: $655 $1,850 $3,520 Net Cost Exposure: Covered Medical Costs of $6,000 Out-of-pocket maximums set by ACA: If under 200FPL, max is 1/3 of allowed HSA level (1/3 x $6,350 = $2,117), between 200-250 FPL max is fixed at $5,200 Total cost exposure will vary depending on where actual services were rendered along with combination of deductibles, co-payments, and coinsurance within each product

  13. New Requirements and Fees ACA Fundamentals ACA requirements will have varying impact on employer segments In effect prior to 2014 Reinsurance Fee, PCORI fee

  14. Employer Penalties ACA Fundamentals There are two ways in which employers may have to pay a shared responsibility payment (i.e. a penalty) in the post-reform market General Penalty Criteria:1 • Employer has at least 50 full-time equivalent employees (excluding seasonal workers) • One or more eligible employees purchase subsidized coverage through Marketplace Employer Does not Offer Coverage $2,000 penalty Penalty is assessed for every full time employee, regardless if employee currently receives coverage from employer 1 Employer is penalized on all full-time employees excluding the first 30 No penalty for part-time workers 2 Employer Offers Unaffordable Coverage $3,000 penalty Penalty is assessed for each eligible employee that obtains a subsidy on the Marketplace Employer is penalized if employees’ premium contributions exceed 9.5% of household income2 or the plan covers less than 60% of healthcare expenses Note: Penalties are levied as excise tax, so employer must pay penalty after tax which may will increase exposure substantially • Penalties go into effect in 2015 • Although the IRS has issued guidance providing a safe harbor for employers, the ACA law itself specific that affordability be calculated based off of the employee’s total household income rather than the employee’s wage

  15. Penalty Assessment Illustrative ACA Fundamentals The financial impact of the penalty for not offering coverage are frequently underestimated Penalty per Full Time Employee(by firm size) Penalty Breakdown $404 $3,683 $3,279 ($2,000 grossed up for taxes) $1,279 $3,279 Penalty per Employee $2,000 If not offering coverage, hiring of 50th employee in 2015 creates $60,000+ in post-tax penalties 2 1 Firm Size • Penalty is levied as an excise tax, so employer must pay penalty after tax. 39% average Federal + State tax rate used for illustrative purposes, which will vary depending upon employer-specific details • Base penalty increases each year at the rate of medical cost inflation, assumed to be 6% in this example

  16. Impact From Community Rating Illustrative ACA Fundamentals Individual and Small group market will face varying levels of premium adjustments Example of Potential Premium Cost Adjustments by Historic Risk Profile Considerations: • Individuals & Small Groups must meet modified community rating guidelines1 • Premium increases post-reform correlated to flexibility in underwriting pre-reform • Premiums adjusted only by age, and modified for smoking and regional factors Post-ACA Avg. Increase ~1% to 10% High Risk Profile Average Risk Profile Low Risk Profile Premiums for low risk groups may rise by more than 50% 1) Employers with less than 50 employees must meet modified community rating and age adjusted premiums in 2014, same for employers with less than 100 employees in 2016

  17. Risk Stabilization Programs Established by the ACA ACA Fundamentals HHS has created three programs to minimize risk associated with the emerging Individual market Mechanism Description Impact On Implications Enables transfer of funds from carriers with lower-risk populations to those with higher risk to protect against adverse selection Small Group Individual Shifts margin away from lower-risk individuals to higher-risk individuals Risk Adjustment (Permanent) Provides funding to Plans that incur high claim costs for enrollees for all non-grandfathered individual market products (on and off Marketplace) Reinsurance (2014-2016) Offsets claims on the highest claimants through 2016 Individual Limits insurer losses (and gains) by adjusting for incorrect estimation of members’ total medical costs Small Group Individual Can mitigate but not eliminate losses—initial pricing will be very important Risk Corridors (2014-2016) Source: Office of Policy and Representation. Risk Stabilization Program Guide. Issue brief. Washington, D.C.: Blue Cross Blue Shield Association, n.d. Print.

  18. Health Insurance Exchanges ACA Fundamentals States have option to create their own exchanges, to partner with the Federal government, or opt for the federally facilitated marketplace State and Federal Functions/Responsibilities in Exchanges State-based exchange Federal partnership exchange Federally facilitated marketplace • State operates all exchange activities but may rely on HHS for these activities: • Premium tax credit and cost-sharing reduction determination • Exemptions • Risk Adjustment program • Reinsurance program • State operates activities for: • Plan management, or • Consumer assistance, or • Both • States may perform these functions or rely on HHS: • Medicaid/CHIP eligibility determination or assessment • HHS operates; states may perform: • Medicaid/CHIP eligibility determination or assessment • HHS will also handle the following activities: • QHP Certification • Rate Review • Eligibility Determination Source: HHS, “Blueprint for Approval of Affordable State-Based and State Partnership Insurance Exchanges”

  19. State Status of Health Insurance Exchanges ACA Fundamentals Approximately half of the states have chosen to default to the federally facilitated marketplace WA ME MT ND VT NH MN MA OR NY WI ID SD RI MI WY CT PA NJ IA MD OH NE DE NV IN IL WV UT VA CO KY CA MO KS NC TN SC OK AZ AR NM Default to federally facilitated marketplace GA AL MS LA Planning for partnership exchange TX FL AK Declared state-run exchange HI Pennsylvania will be use the Federally Facilitated Marketplace (“FFM”) Source: Kaiser Family Foundation as of June 20, 2013

  20. Employer Options ACA Fundamentals Employers have increasing options to evaluate benefit options for their employees Pre-2014 Typically shop for health benefits by comparing group products from different carriers Post-2014 Options become much more complex as they will have multiple channels as well as carriers to evaluate ACME Inc. ACME Inc. Cost Per Employee Consistent Cost Per Employee May Differ 3 1 CARRIER Traditional Group Products Public Marketplace CARRIER 2 Private Group Exchanges CARRIER

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