Health Care Reform Happened …Now What?

1. International Association of Black Actuaries | August 2010 Health Care Reform Happened…Now What?

2. Aspects of Health Care Reform Paying for Expanded Coverage Expanding/Improving Coverage Administrative Simplification Medicare/MedicaidPayment Changes Medicaid and Affordability Credits Health InsuranceExchanges with Reformed Rules IndividualResponsibility EmployerResponsibility High-Cost EmployerCoverage Taxation IncreaseOther Taxes = direct impact to employers = indirect impact to employers = direct and indirect impact to employers

3. Timing of Key Reform Provisions • Early Retiree Reinsurance (2010) • Lifetime Limits Prohibited • Extension of Dependent Coverage to Age 26 • Preexisting Conditions Exclusions Prohibited for Children under 19 • Only Reasonable Annual Limits Permitted • Effective Appeals Process • Over-the-Counter Medicines Not Reimbursable Under FSA • HSA Excise Tax Increase • Employer Reporting of Health Coverage on Form W-2 • Phase-out of Part D Donut Hole • Medicare Advantage payments lower • Coverage for Preventive Health Services* • 105(h) Non-discrimination rules apply to insured plans* • Employer Distribution of Uniform Summary of Benefits to Participants • Quality of Care Report • Limit of Health Care FSA Contributions • Notice to Inform Employees of Coverage Options in Exchange • Automatic Enrollment for 2014** • Medicare Tax on High-Income Individuals • Medicare Part D Subsidy No Longer Tax-Free • Employer Responsibility to Provide Minimum Health Coverage • Free Choice Vouchers • Individual Responsibility to Purchase Insurance or Pay Penalty • State Insurance Exchanges • Preexisting Condition Exclusions Prohibited • Annual Limits Prohibited • Automatic Enrollment** • Limit of 90-Day Waiting Period for Coverage in Plan • Increased Rewards Cap for in Wellness Participation • Employer Reporting of Health Insurance Information to Participants and the Government • Excise Tax on High-Cost Coverage (2018) 2011 2013 2014 and beyond 2012 *Grandfathered**Effective date unclear

4. $196 billion $115billion $70billion $136 billion The Price Tag • CBO Estimate of Combined H.R. 3590 and H.R. 4872, 2010–2019 MedicareAdvantage Cuts Excise Taxes Medicare Taxes Reduction in Medicare Growth Rate PenaltyPayments CLASSAct Other Net Revenues Industry Fees Other Net Savings $32 billion $150billion $107billion $65billion $210 billion System Savings $517 billion New Revenue $564 billion Total Cost of Expanded Coverage: $938 BillionNet Budget Impact: $143 billion reduction to the deficit (without “doc fix”)

5. Design Must create design structure that meets minimum coverage criteria Potential Impact on Employers Short-Term/Immediate Long-Term • Must change design to meet expanded coverage requirements • Need to develop appropriate communication, reporting, and administrative infrastructure • Administration/Communication • Likely to increase depending on organization’s characteristics • Will continue to increase given absence of true delivery system reforms • Active Plan Costs • Immediate and long-term cost impact • FAS Liability • May be more compliance focused • Should address broader health and productivity as well as benefit philosophy • Strategy

6. Compliance – What am I required to change?

7. Plan Design Requirements • Increased Benefits for Participants • Lifetime limits must be removed • “Unreasonable” annual limits not permitted • Annual limits will be phased out by 2014 • Preventive benefits must be covered at 100% • Children must remain eligible for the plan until they turn age 26 • Financial barriers to out-of-network emergency care are limited • Barriers to PCPs, pediatricians and OB/GYNs are not permitted • Deductibles and out of pocket maximums will be limited beginning in 2014 • Plans must meet 60% minimum actuarial value beginning in 2014

8. Other Requirements • Increased Protection for Individuals • Minimum loss ratios for insured plans • Prohibition of rescissions in most cases • Guaranteed issue and renewal rules • Waiting periods limited to 90 days • No discrimination based on health status • Limited age and tobacco rating • Expanded communication and documentation requirements • Expanded appeals policies and procedures • Affordability and nondiscrimination rules for employer-sponsored plans • Excise tax on high cost employer-sponsored insurance

9. Compliance Strategy • Compliance will increase the cost of health insurance • …but does it have to? • Employers and insurance companies will be searching for ways to mitigate cost increases and limit new risks • Grandfathering delays some new costs, but limits flexibility • Losing grandfathering forces bigger strategic decisions…and vice versa • Step out of the silo • Long term strategic thinking must guide all decisions • Opportunities abound and can influence strategy as much as risks • New retiree programs and funding • Changing market dynamics

10. Something about opportunities? Overview • ERRP • New Medicare Part D funding • New competitive landscape • Changing market dynamics • Changing employer perceptions • Changing public expectations

11. Looking Ahead – What really needs to change?

12. Government Regulation and taxation Insurance Industry Competition based on volume and innovation Employers Refine and redefine commitments Individuals Increased responsibility with the power of knowledge Health Care Reform’s Impact New 2020 Realities Exchanges Federal Subsidies Insurance Reform Employer Responsibility Individual Mandate Delivery Reform The employer-sponsored system will endure…the federal budget depends on it

13. Five Employer Realities by 2015 • Employer health care cost will rise over 60% on a “stand still” basis; employer actions will mitigate this increase to 40% • Very few, if any, large employers will exit health care benefits, but the market trend to move from DB to DC will have begun • Plan designs will be leaner and meaner • The explosion of technology-enabled information will (finally) trickle down to our world, but will not lower employer cost • Employer-sponsored retiree medical benefits will cease to exist, except for collectively bargained and some grandfathered plans

14. Employer costs will rise 60% on a “stand still” basis • Annual gross trend of 10% per year; net trend of 7% per year • Upward Pressures • Demographics • Obesity-related chronic illness—including children • New therapies • Cost shift from Medicare • Industry fee pass-throughs • New coverage provisions • Individual mandate • Downward Pressures • Plan design value • Discretionary purchasing • Uncompensated care • Brand drug patent expirations • Focused care management programs These rates of increase are unsustainable; there needs to be a “new normal”

15. What Needs to Change Reset and Prioritize Employers Embrace IT and P4P Providers Government Liability, Payment, and Delivery System Reform (via Medicare) Consumers Pay Attention and Take Action