Healthcare Policy: What Businesspersons Need to Know

1. Healthcare Policy: What Businesspersons Need to Know Presented by: Jason Kloc BeneTex Group/Gallagher Benefit Services

2. A simpler time……..

3. My how things have changed……..

4. Paying a Price In 1950 the average person spent less than $100 per year (or $500 in today’s dollars) on healthcare. In 2010 the average person spent over $8,400 per year on healthcare and spending on healthcare is currently 18% of GDP. Future cost of healthcare?

5. Why? • Reasons for increased cost? • One third of the country is obese? • Increased technology? • Lawsuits (Preventive Medicine)? • Advances in medicine/Rx? • Lack of Transparency? • Free Riders? • Treating symptoms and not causes? • Abuse of ER? • Government Regulation? • Inefficiencies and duplications? • Aging demographic?

6. Unsustainable Path • Healthcare costs continue to increase every year and are expected to increase into the future….. • More and more uninsured. • Fewer and fewer employers offering medical coverage. • No one solution that will fix all of the problems. • Nobody stepped up…….so government stepped in.

7. The solution…….

8. Patient Protection and Affordable Care Act - PPACA • Signed into law in March 2010. • Over 2,000 pages. • Over 1,000 times “the secretary shall determine” or something similar • Funded by approximately $500 billion in tax increases and $500(+) billion in Medicare “cuts” over 10 years • Primary focus is to decrease number of uninsured by 30 million • Multiple new regulations on health insurance carriers • Individual and employer mandates • Insurance Exchanges • Community Rates for small group and individuals • Phased in over 8 years – majority in 4 years

9. Last Two Years Have Been Overwhelming

10. Court Challenges Constitutionality of Individual Mandate 3 Unconstitutional 3 Constitutional Appeals Court Rulings Supreme Court Ruling 2 Constitutional 1 Unconstitutional 2 Vacated for Lack of Standing

11. What We Know • Guidance released to date: • Age 26 Requirement • Early Retiree Reinsurance Program • High Risk Pools (State and Federal) • Small Employer Tax Credit • Grandfathered Plan Status • Patient Protections (no pre-ex under 19 yrs) • Preventive Care • Appeals Procedures & Limited Delay • OTC Reimbursement Limitations • HSA Penalties • Annual Limit Waivers • Class Act “LTC” Program (Suspended) • W-2 Reporting • Medical Loss Ratio Requirements (MLR) and Rebates • Student Health Insurance • Summary of Benefits and Coverage • Essential Benefits • Employee Notification Requirements • FSA Limits to $2,500 (1/1/13)

12. What is coming? • Individual Mandate • Employer Mandate • Community Rating • Public and Private Exchanges • Pre-existing conditions & GI • Cadillac Tax • Other: • Comparative Effective Research Fee • Medicare Tax Increase • Part D drug subsidy elimination • Itemized medical expense deduction changes

13. Individual Mandate -2014 • Minimum Essential Coverage • Virtually all group health plans • Virtually all other health benefits • Individual policies • Medicare/Medicaid, CHIP, VA, TRICARE • State risk pools • Other (as recognized by HHS) • Does not include “excepted benefits” • Exclusions: accident/disability, liability, workers’ comp., onsite medical clinics, limited scope dental or vision (if under separate policy), LTC, med. Supp. & hospital indemnity, specified disease or illness Minimum Essential Coverage

14. Individual Mandate -2014 • Exceptions and Exemptions • Unaffordable • Required contribution exceeds 8% of the individual’s household income* • Household income* below income tax filing threshold • Native Americans • Prisoners • Undocumented aliens • Short lapses • Lack Minimum Essential Coverage for 3 months • Religious exceptions • Health care sharing ministry • Conscientious objections Exception * Modified Adjusted Gross Income

15. Individual Penalty/Tax Penalty amount is the greater of*: Penalty $ *Capped at the national average of the annual cost of a bronze level health insurance plan, for the family size, offered through the state exchange. **Halved for dependents under age 18 (but do not halve when determining 300% cap on dollar amount for those NOT insured by taxpayer)

16. Employer Mandate Have at least 50 FTEs (30 hours per week avg)? No penalty applies! NO YES $2,000 penalty per FTE (minus first 30) if at least one FTE receives premium assistance Offer Coverage? NO YES Plan provides minimum required value (60% actuarial value)? NO • Lesser of: • $3,000 per FTE receiving premium assistance* • or • $2,000 per FTE (minus first 30) YES NO Is coverage affordable (less than 9.5% of employee’s income? YES No penalty applies! • Only applies to FTEs with household incomes of 400% of FPL or less

17. Financial Impact 2014: Employer’s Perspective Employee Contribution as % of Income for employee-only coverage* for employer’s lowest cost plan More employees staying on company plan Fewer employees on premium assistance = fewer federal penalties Fewer employees staying on company plan More employees on premium assistance = more federal penalties Low % High % Affordable Coverage Unaffordable Coverage * Proposed guidance.

18. Premium Assistance • To qualify for premium assistance credit, an individual must: • Not be eligible for an employer-sponsored plan that is affordable and has a minimum value • Have a household income between 133% and 400% of the Federal Poverty Level • Not receive benefits through Medicare, Medicaid, CHIP, TRICARE, VA or other coverage as determined by HHS • Be a citizen or legal immigrant • Be a resident of the state where the Exchange is located • Not be claimed as a dependent on anyone’s tax return • Purchase a qualified health plan through the Exchange (not including a catastrophic plan) Premium Assistance $

19. Premium Assistance • Premium assistance is based on: • The cost of the second-lowest cost plan offered through the exchange, AND • The household income of the applicant • Maximum premium allowed to charge is sliding scale from 2% (for 133% of FPL) up to 9.5% (300%-400% of FPL) of household income • Premium assistance covers the remaining cost • Example: Family of 4 • 2014 income: $70,200 (300% FPL) • Silver level plan cost: $11,010 • Premium Assistance: $4,348 (covers 39% of premium) • Family premium cost: $6,669 (covers 61% of premium) Premium Assistance $

20. Premium Assistance • Premium Assistance Credit • Most individuals who are eligible for employer-sponsored coverage will notbe eligible to receive premium assistance • As long as: • The employer-sponsored coverage provides the minimum required value (60% of actuarial value) • The employer-sponsored coverage is affordable (premiums for employee-only coverage of the lowest cost plan do not exceed 9.5% of the employee’s income*) * Proposed regulations

21. Subsidies Happy Company, Inc. • Offers comprehensive medical coverage that meets minimum required value (60% actuarial value) • Contributes 75% toward employee-only coverage and 0% toward dependent coverage

22. Subsidies Employee #1: Arthur Analyst • Employee-only coverage • Annual salary of $44,000 • 404% of the FPL • Does not qualify for subsidy – income over 400% of the FPL • No penalty to employer

23. Subsidies Employee #2: Johnny Janitor • Employee-only coverage • Annual salary of $15,000 • 138% of the FPL • $100 premium contribution is less than 9.5% of income • Coverage is affordable • No penalty to employer

24. Subsidies Employee #3: Annie Admin • Employee-only coverage • Annual salary of $27,225 • 250% of the FPL • $100 premium contribution is less than 9.5% of income • Coverage is affordable • No penalty to employer

25. Annie Admin $27,225/year Subsidies Johnny Janitor $15,000/year 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Affordable Coverage Affordable Coverage Happy Company Contribution Happy Company Contribution Unaffordable Coverage Unaffordable Coverage

26. Financial Impact 2014: Employee’s Perspective HEALTH INSURANCE EXCHANGE Spouse Bronze Plan $ Value of Benefits & Household Income Silver Plan Gold Plan Medicaid Employer Platinum Plan $$ Catastrophic Plan

27. Exchanges - Marketplace • Employer Notice • Call Center • Website • Navigator

28. Exchanges - 2014 CHOICE POOL $ CONSISTENT MARKET RULE BASE $ Individuals PROVIDERS Bronze Plan $ Premium Assistance Silver Plan $ Gold Plan $ Small Group Platinum Plan $ Large Group 2017? Catastrophic Plan

29. Exchanges – Rates • Charge the same premium as plans purchased outside of the Exchange • Community Rates • Actual rates won’t be determined until closer to 2014 • Exchange will determine eligibility for premium assistance credit to help pay premiums • No Wrong Door • Set up by each state??

30. Rick Perry Rejects State Exchange for Texas – What does this mean?

31. State Exchange Status Source: The Henry J. Kaiser Family Foundation http://healthreform.kff.org/the-states.aspx

32. Community Rating • Applies to small group and individual coverage • Everyone will share in cost • Health status and gender will no longer apply. • Certain exclusions will still apply • Tobacco Use (1.5 to 1 rating) • Family Size • Geography • Age (maximum 3 to 1 rating)

33. Reporting of Health Insurance Coverage to IRS • Who: • Large Employers and Offering Employers • What: • Whether employees can enroll in “minimum essential coverage”, what waiting periods apply, premium cost, and employer contribution, & number of FTEs • When: • Periods beginning after December 31, 2013 • Effective date: • December 31, 2013

34. Automatic Enrollment • Employers with more than 200 full-time employees who offer enrollment in one or more health benefits plans are required to automatically enroll new employees in one of the plans offered • Program must include adequate notice and opportunity for employees to opt-out • DOL says automatic enrollment guidance will NOT be ready by 2014

35. Patient Protections • No waiting periods longer than 90 days • NOT first of the month after 90 days! • Effective first plan year on or after January 1, 2014 • Elimination of Pre-existing Condition Exclusions for all • In 2014, a plan may not impose a pre-existing condition exclusion on any enrollee (no longer up to 19 years)

36. Patient-Centered Outcomes Research Institute (PCORI) Fee • Formerly the Comparative Effectiveness Research Fee • Applies to all plan sponsors and issuers of individual and group policies ending after Sept. 30, 2012 • Must pay a fee of $1 per covered life per year • The fee adjusts to $2 per covered life for policy or plan years ending Oct. 1, 2013 Applies to clinical trials to treat cancer or other life-threatening diseases • For policy or plan years ending after Sept. 30, 2014, the shall be adjusted by the Secretary of Treasury based on the percentage increase in the projected per capita amount of national health expenditures. • Purpose of Fee is to evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services

37. Changes for 1/1/13 • Part D drug subsidy deduction eliminated • Federal subsidies paid to plan sponsors of retiree prescription drug benefits (Retiree Drug Subsidy - RDS) payments will become taxable in tax years beginning after December 31, 2012. • Medicare Tax Increase • Applies to individuals making more than $200k filing single or $250k filing jointly. • Itemized medical expense deduction changes (1/1/13) • Threshold changing from 7.5% to 10%.

38. “Cadillac” Tax – 2018 Excise Tax $ COBRA Rate ≥ $10,200 for individual or $27,500 for family • Special Provisions • High risk professions • Early retirees • Age & Gender = 40% of plan value that exceeds threshold

39. What should employers do now? • Make certain you are receiving expert/qualified counsel • Determine health plan strategy as part of total compensation moving forward • Perform quantitative and qualitative analyses on approaches • Learn about and prepare for Private and Public Exchanges • Remain attentive to large changes as well as small details • Develop an implementation plan • Develop a communication plan

40. Department of Labor Audits Be Prepared • DOL Audits of group health plans have spiked since 1/1 • No longer complaint driven • Very small to very large groups • Fully-Insured and Self-Funded • Within and outside Texas • Audit focus expanded • Compliance with PPACA • HIPAA Compliance/HITECH Act • Required notices to employees • SPD Delivery • Written policy procedures for obtaining COCC’s.

41. Future of PPACA - Politically • Repeal and replace • House passed; Failed in Senate • Defund the bill or scrutinize the process • Delay or stop funding certain provisions of the law • Highlight certain provisions that are opposed • Scrutinize the regulatory implementation process • Actions by States • Oppose Exchanges & Medicaid expansion • 2012 Presidential & Congressional Elections

42. President Mitt Romney?

43. How Employers Will React? • A recent study by consulting company Deloitte predicts that about 1 in 10 employers in the US will drop health coverage for their employees over the next few years, as the Affordable Care Act goes into effect. The report also predicted even more would in the future. • Deloitte's findings are less than those released last year by McKinsey, which said up to 3 in 10 employers would drop coverage.

44. Online Healthcare Reform Resources GBShealthcarereform.com

45. Questions?