Healthcare Reform: The Gathering Storm

1. Healthcare Reform:The Gathering Storm Tampa Bay Association of Health Underwriters David A. Pearson, Esq. Constangy, Brooks & Smith, LLP dpearson@constangy.com (813) 222-1367 September 10, 2009

2. “Change is Coming” • Background: • New administration pledged to change • Financial turmoil – Wall Street, autos, banks, etc. • Unprecedented deficits • Perception that programs must be expanded • More government oversight • Lurking disaster in the healthcare system • Result: • Intense battle to reform healthcare system (or not) • Many interest groups • Outcome uncertain

3. Recent Healthcare Legislation • Michelle’s Law • Extends health coverage to certain students who take medical leave from college • Troubled Assets Relief Program (“TARP”) • Expands mental health and substance abuse coverage • Children’s Health Insurance Program (“CHIP”) • Premium subsidies for private insurance coverage • American Recovery and Reinvestment Act (“ARRA”) – the “stimulus package” • COBRA premium subsidies; TAA extension

4. The Coming Healthcare Train Wreck • Lack of Insurance Coverage • From 10 to 45 million uninsured Americans • Inefficiencies • Nonstandard procedures, billing, etc. • Underutilization of computer resources (e.g., medical records not available on-line) • “Pay per procedure” and defensive medicine • Confusion • Many different health care products • Frequently hard to understand exactly what’s covered • Cost comparisons are difficult

5. Train Wreck (Cont.) • The biggest problem: The high costs of healthcare coverage and inflation in those costs: • Average total annual per-employee cost of employer sponsored health care in 2009 (family coverage): $9,660[Reported by Towers Perrin] [$4.64 per hour] • Average annual employee cost (family coverage): $2,160[Reported by Towers Perrin] [$1.04 per hour]

6. Inflation in Healthcare Costs • Healthcare costs have increased by 160% of the CPI from 1983 to 2001:

7. Inflation (Cont.) • From 2004 through 2008: • Average increase in total corporate health costs: 33% [Reported by Towers Perrin] • Average increase in employees’ share: 42% [Reported by Towers Perrin] • Average increase in CPI-U: 15%[Reported by DOL]

8. Inflation (Cont.) • Expected average increase in total healthcare costs in 2009: 6% [Reported by Towers Perrin] • CPI-U increase in the 12 months ending July, 2009: 2.1% [Reported by DOL]

9. Health Reform in Congress • Senate Committee on Health, Education, Labor & Pensions (HELP) • “Affordable Health Choices Act” [June 9, 2009] • Senate Finance Committee • “Gang of Six” – Bill to be unveiled next week • House Tri-Committee proposal • “America’s Affordable Health Choices Act of 2009 [June 19, 2009]

10. Comparison of Draft Bills • Overall Approach: • Senate: • Individual mandate to have insurance • State-based “gateways” to help individuals and small businesses purchase insurance • Subsidies for low-income individuals • “Pay or play” for large employers • Credit to offset coverage costs for small employers • New regulation of individual and small group insurance markets • Increase income eligibility limits for Medicaid

11. Comparison (Cont.) • Overall Approach (Cont.): • House: • Individual mandate to have insurance • Create “insurance exchange” to help individuals and small businesses purchase insurance • Subsidies for low-income individuals • “Play or pay” for large employers • Credit to offset coverage costs for small employers • New regulation of individual and small group insurance markets • Increase income eligibility limits for Medicaid

12. Comparison (Cont.) • Individual Mandate: • Senate: • Individuals must obtain insurance • Tax penalty of up to $750 per year • Exemptions where state doesn’t have “gateway,” affordable insurance is not available, and short gaps in coverage • House: • Individuals must have “acceptable health coverage” • Tax penalty of 2.5% of AGI up to average cost • Exceptions for dependents, religious, and hardship

13. Comparison (Cont.) • Employer Requirements: • Senate: • Employers required to offer health coverage and contribute at least 60% of premium, OR • Pay $750 for each uninsured full-time employee and $375 for each uninsured part-time employee • Small employer exception • House: • Employers must offer health coverage and contribute at least 72.5% of the premium for single (65% of family), OR • Pay 8% of payroll into the “exchange” • Small employer and hardship exception

14. Comparison (Cont.) • Expansion of Public Programs: • Senate: • Increase Medicaid income threshold • Individuals eligible for CHIP may also enroll in a “gateway” plan • House: • Increase Medicaid income threshold • Extend Medicaid to all newborns who lack acceptable coverage • Require CHIP enrollees to obtain coverage through the “exchange” until transition to CHIP feasible

15. Comparison (Cont.) • Premium Subsidies to Individuals: • Senate: • Premium credits for incomes up to 400% of poverty level • Amount sufficient to cap individual payments at 12.5% of income [between 150% PL and 400% PL], and 1% of income [less than 150% PL]. • Credit only for excess over 12.5% if employer plan • House: • Provide premium and cost-sharing credits up to 12% of income [up to 400% PL] • Subsidies limited to citizens and legal immigrants

16. Comparison (Cont.) • Premium Subsidies to Employers: • Senate: • $1,000 (single) and $2,000 (family) annual credit for employers with < 50 employees, < $50k average wage, and at least 60% employer paid (phase out for larger employers) • Reinsurance program for 80% of retiree health claims (from $15,000 to $90,000) for employees age 55 to 64 • House: • Similar credit, but lower limits • Similar reinsurance program

17. Comparison (Cont.) • Tax Changes: • Senate: • Minimum tax of up to $750 per year on individuals without “qualifying” health care coverage • House: • Tax of 2.5% of modified AGI per year for individuals without “acceptable” health care coverage

18. Comparison (Cont.) • Insurance Pooling: • Senate: • State-based “gateways” • No coverage if other coverage available • Create community health insurance option to be offered through the gateways • 3 benefit tiers of plans to be offered • Guaranteed issue and no pre-existing condition exclusion • Minimum standards for benefits offered through plans • Initial federal support, followed by 4% premium surcharge to help fund the plans

19. Comparison (Cont.) • Insurance Pooling (Cont.): • House: • Federal health insurance “exchange” • No coverage if other coverage available • Public health insurance option to be offered through exchange • 4 types of benefit plans to be offered • Guaranteed issue and no pre-existing condition exclusion • Minimum standards for benefits offered through plans

20. Comparison (Cont.) • Benefit Design: • Senate: • Create an essential health care benefits package, with comprehensive array of services, and prohibition of annual or lifetime limits • Specify standards for determining the minimum coverage that will meet the individual mandate • House: • Similar regarding creation of plan package • Similar regarding requirement for minimum benefits

21. Comparison (Cont.) • Changes to Private Insurance: • Senate: • Extend “gateway” standards to private insurance regarding guaranteed issue, premium rating, and prohibition of PEC exclusion • Health insurers must offer incentives to providers to improve coordination, case management, and wellness and health improvement activities • Provide dependent coverage for up to age 26 in all insurance policies

22. Comparison (Cont.) • Changes to Private Insurance (Cont.): • House: • Generally treats individual insurance as not satisfying the mandate to have insurance; can purchase qualifying insurance through the “exchange” • Extend “exchange” standards to private insurance regarding guaranteed issue, premium rating, and prohibition of PEC exclusion • Establish the “Health Choices Administration” to establish and enforce standards, and to administer the “exchange”

23. Comparison (Cont.) • State Role: • Senate: • States must establish “gateways” meeting federal standards • States must implement eligibility expansion in Medicaid • States must establish temporary “Right Choices” program to provide uninsured individuals with immediate access to preventive care and treatment for chronic conditions (federal grants are intended to fund this)

24. Comparison (Cont.) • State Role (Cont.): • House: • Similar for implementing eligibility expansion in Medicaid • States must enter into a memorandum of understanding with the “exchange” to coordinate enrollment of individuals

25. Comparison (Cont.) • Cost Containment: • Senate: • Various administrative changes to increase efficiency of health plans, including standards for timely and transparent claims and denial management processes • Create a “Health Care Program Integrity Coordinating Council” to oversee efforts • House: • Similar regarding administrative changes and standards

26. Comparison (Cont.) • Prevention and Wellness: • Senate: • Develop national preventive and health promotion strategy, and provide various grants and incentives to encourage prevention and wellness programs • Create temporary “Right Choice” program to provide uninsured adults with access to preventive services • House: • Similar regarding preventive and health promotion efforts

27. Comparison (Cont.) • Long-term Care: • Senate: • Establish a national, voluntary insurance program to provide individuals who have functional limitations with a cash benefit to purchase non-medical services, and to support community residence • Financed by voluntary payroll deductions • Automatic enrollment for all working adults unless they opt out • House: • Similar

28. Unanswered Questions • Costs of the legislation: • Senate estimates $1 trillion plus over ten years • $3,000 for every man, woman and child in America • Financing the costs: • New taxes? • Borrow more money? • Print more money? • Speed of the legislation (“haste makes waste”)

29. Unanswered Questions (Cont.) • Tort reform: • Reduce the cost of physician malpractice insurance • Cut down on “defensive medicine” • Health care providers: • Enough providers to provide health care to 45 million additional users? • Public option: • Government starring as “The Blob”? • Medicare for everyone? • The demise of private insurance? • Alternatives: Co-op? Public option trigger?

30. Unanswered Questions (Cont.) • Stirring the pot: • Abortion coverage • House bill prohibits discrimination against any provider in health exchange because of willingness or unwillingness to perform abortions • Illegal alien coverage • Rationing • “Death panels”

31. The Legislative Lottery • Supermajority required in Senate to pass most legislation • Debate continues unless 60% vote to cut off • Consequence: Minority can “filibuster” legislation to prevent it coming to a vote unless the majority can garner 60 senators • Issue with the vacant seat in Massachusetts • “Budget reconciliation” only requires 51 senators • Only applies to mandatory spending (entitlements) or revenue programs (tax laws) • Is the health reform legislation too broad? • The “nuclear option”?

32. The Wild Card • 5 committees in Congress must approve the health reform legislation • All but Senate Finance Committee have acted • SFC “Gang of Six” still to be heard from • Chairman Baucus has given clues: • Most of the structural changes in other proposals • No public option • Possible co-op or trigger • 35% tax on insurance companies who offer insurance packages valued at more than $8,000

33. The Obama Intervention • President Obama has now joined the debate • Goals: • Security and stability for those who have insurance • Access for those who do not • Slow the rate of growth of health care costs • Insurance requirements: • No one who has insurance will be forced to change • No pre-existing condition exclusion • No annual or lifetime cap on benefits • Annual limit on out-of-pocket expenses • Must offer preventive care

34. The Obama Intervention (Cont.) • Access to insurance • Quality, affordable insurance for all • Establishment of insurance exchange • Tax credits based on need • Individual mandate • Employers must “play or pay” • Public option should be included in the exchange, but “not essential” to reaching goals

35. The Obama Intervention (Cont.) • Financing health reform • The legislation will be vetoed if it’s not revenue neutral • The bill should contain automatic cutbacks if expected savings don’t materialize • Financing will come from limiting waste and abuse, and making the health care system more efficient • Nothing will be taken from the Medicare system

36. Conclusion “Fasten your seat belts, it’s going to be a bumpy night.” [With apologies to Bette Davis in “All About Eve”]

37. Questions?