National Health Care Reform

1. National Health Care Reform Now the Hard Work Begins: September 23, 2010 Peter Pratt Senior Vice President

2. The Impetus for Reform • Increasing numbers of uninsured • Rising health care costs for individuals, businesses, and government • Wide variations in quality of care, inefficient use of resources (paying for quantity) • 14,000 people a day are losing their health insurance • Families with health insurance pay $1,000 to subsidize care for the uninsured www.pscinc.com

3. Areas of Agreement Believe it or not, there was bipartisan agreement in theory at the start: • (Most) everyone will be required to have health insurance—public or private—DONE • Health care costs are rising too rapidly and must be controlled—NOT REALLY DONE • People with public or private coverage can keep it—DONE • Private insurers need more regulation (no denials for pre-existing conditions, no annual or lifetime limits) —DONE • Health care quality must improve, and the way we pay providers must foster this improvement—NOT REALLY DONE • Reconciling these areas of agreement has led to considerable disagreement www.pscinc.com

4. Major Aspects of Reform • Covering more of the uninsured through public and private means • Mandates for individuals & employers, with subsidies and exemptions for small business & individual hardship • Expansion of Medicaid • Public plan option—not in final bills • Health insurance exchanges and regulation • Cost containment and quality improvement • Paying for reform www.pscinc.com

5. Covering Everyone? • New 2009 data: 50.7 million uninsured, up from 46.3 million in 2008 • Covers 32M, leaves 22M uninsured (95% of population excluding unauthorized aliens), but may cover up to 40M if everyone eligible signs up • How cover? • Individual mandate—or penalty—with exemptions • Employer mandate—or penalty—with exemptions • Tax credits/subsidies for premiums, copays and deductibles • Medicaid expansion to 133% FPL • Temporary coverage for uninsured people with pre-existing conditions (October 2010-January 2014)—applications taken starting August 31 in Michigan; $141M over three years; PHP to administer plan; 3,500 to be covered • Michigan • Estimated 1M people will be eligible for subsidies through the exchanges; 640,000 will actually enroll (includes insured and uninsured) • Estimated 969,000 newly eligible for Medicaid; 400,000-600,000 will actually enroll www.pscinc.com

6. Mandates for Individuals • Must have coverage that meets minimum standards • Penalties: Higher of • $95 (2014), $325 (2015), and $695 (2016)/yr/family member up to $2,085 or • 2.5% of household income, if above filing threshold ($9,350/individual or $18,700/couple in 2009) • Exemptions: financial hardship (income below filing threshold or spend more than 8% of income on insurance), religion, American Indians • Individuals whose employers don’t offer health insurance are NOT exempt • Individuals who don’t take employer-offered coverage are NOT exempt www.pscinc.com

7. Subsidies for Individuals • Two kinds: for premiums and for out-of-pocket costs (copays and deductibles) • Sliding scale premium tax credits up to 400% FPL ($88K for family of four) • Subsidies set to limit premium contribution to 2% of income if total income 133% FPL to 9.5% of income if total income 300-400% FPL (133% FPL=$29,000 for family of four; subsidy covers all but $600) • Increases cost-sharing subsidies for <250% FPL www.pscinc.com

8. Requirements for Employers • No employer mandate for employers < 50 employees • Penalty for employers > 50 NOT offering HI is $2K/year/worker • If employer does offer HI and has one or more employees receiving premium tax credit, pay lesser of $3,000 for each employee receiving the credit or $2,000 for each FTE • First 30 employees exempt from calculation of penalty • Employers > 200 must enroll employees automatically into employer’s lowest cost plan if they don’t opt out • 98% of businesses unaffected, either because already offer coverage or they are exempt. • This all takes effect in 2014 www.pscinc.com

9. Subsidies for Employers • Credits for small businesses (<25 employees): 35% from 2010-2013; 50% starting 2014. Credits phase out as firm size & average wage increase. Families USA: 132,000 Michigan small businesses eligible for credit (85% of small business in state) • Credits may not be attractive enough to get smallest businesses to offer health insurance (and no penalty if they don’t) • No mandate, no credits for employers 26-50 employees • Temporary reinsurance program for employers covering retirees > age 55 not on Medicare. Pays 80% of retiree claims between $15K and $90K. In effect now. State, many cities and universities, GM, Kellogg, Dow Chemical, and others have qualified. www.pscinc.com

10. Cost of Covering More People • Two kinds of costs are competing for public’s attention: cost to government and cost to individuals, families, and businesses • Most talk in Washington DC was about former; now focus has shifted to the latter • Every dollar that defrays cost of health insurance for businesses, families, and individuals will add to the government’s cost—and who pays for government? • Individual and employer mandates—even with subsidies and limits, will people decide to buy HI or pay penalties? • Equity: How much should people and employers w/HI pay for those without it? ($1,000 a year now) • Equity: Big 2010 jump in firms 3-9 offering HI (46% to 59%) • Equity: How much should employer and employee pay for employer-sponsored HI? Family coverage in 2010: $13,770. Employer share: 71% Employee share: 29% and rising (25% in 2000) www.pscinc.com

11. Expansion of Public Programs • Expand Medicaid to all individuals (133% FPL)—Michigan covers childless adults now up to 35% FPL • States can expand coverage before 2014, but at current FMAP • Feds fund 100% of expansion population from 2014-16, 95% for 2017, 94% for 2018, 93% for 2019, 90% after that • Require states to maintain current income eligibility levels for children in Medicaid & CHIP until 2019 & extends funding for CHIP through 2015. In 2015, states get 23% increase in CHIP match rate up to 100%. • Increase Medicaid payment rates to PCPs to 100% of Medicare rates for 2013-14 only • Increase payments to community health centers for new eligibles • Why does this matter? For businesses, fewer uninsured. For providers, better payment but not great payment; pent-up demand www.pscinc.com

12. The Public Plan or Not • NOT. www.pscinc.com

13. Health Insurance Exchanges • State-based exchanges starting in 2014 called American Health Benefits Exchange & Small Business Health Options Programs, administered by government or non-profits. • Goal: Sustainable, financially viable options that offer meaningful coverage • HHS to give up to $1M/state for designing exchanges • Standardization of presentation of insurance benefit options (transparency) • Big question: How active a regulator will the exchanges be? www.pscinc.com

14. Health Insurance Regulation • Guaranteed issue and renewability • No pre-existing condition exclusions—for children, goes into effect 9/23/10 for group, but not individual, plans • No lifetime limits or rescissions (effective 9/23 for new plan year—January 1 for many) • Limit rating variation to family size, geography, age, tobacco use (not allowed for health status, gender, occupation) • Tighter oversight of health plans: • HHS secretary can require plans to lower rates • More requirements for existing plans: med loss ratios (2010), cover <26 years old (9/23/10), preexisting condition exclusion prohibition (2014), cover preventive services (new plans, 9/23/10; grandfathered plans, 2018) • Essentially, all consumer protections except underwriting will apply to grandfathered plans www.pscinc.com

15. Benefits • Essential benefits package • HHS sec’y recommends essential benefit package that covers 60% of actuarial value of covered benefits • Limits cost sharing to $5,950 or $11,900, no annual or lifetime limits on coverage • July 14: New rules requiring insurers to provide free (no copays, deductibles) coverage for many screenings, lab tests, and other preventive services recommended by US Preventive Svs TF • Applies to new plans after 9/23/10 and existing plans that make significant changes after that date • Will increase premiums 1.5% • Plan categories through exchanges • Bronze (plan pays 60% of costs), silver (70%), gold (80%), platinum (90%), up to age 30 (catastrophic plan). www.pscinc.com

16. Cost Containment • Encourage adoption and use of health IT • Reduce fraud, waste, and abuse • Simplify HI administration through standardization • Reduce payments to Medicare Advantage plans; after 2014, MA plans can earn 5% quality bonuses • Add $9.9B in reductions for IP hospitals, SNF, home health, and others from expected productivity gains • Reduce Medicaid and Medicare DSH allotments • Increase Medicaid drug rebates • Create Independent Payment Advisory Board—to rationalize and de-politicize cost control efforts www.pscinc.com

17. Quality Improvement • Develop a national strategy to improve quality • Cover proven preventive services and eliminate cost-sharing for them (Medicare) • Offer incentive pmts to providers for coordinated care • Lower payments for avoidable rehospitalizations, hospital-acquired infections • Bundle payments for acute and post-acute care • Provide grants for H system efficiency improvements • Offer Medicare and Medicaid bonus payments for primary care and care coordination • Intensify comparative effectiveness research • Foster accountable care organizations www.pscinc.com

18. Quality Improvement: ACOs • Medicare Shared Savings Program • By 1/1/12, HHS sec’y establishes program to promote accountability for a patient population, coordinate services for M’care FFS beneficiaries, & encourage investment in infrastructure and redesigned care processes • ACOs must have formal legal structure; shared governance of group practices, hospitals, joint ventures; enough PCPs to meet needs (5,000 minimum beneficiaries) • ACOs must define processes for EBM & patient engagement, report quality and cost measures, coordinate care through telehealth and remote patient monitoring, and demonstrate patient centeredness • Pediatric ACO Demonstration Project • State makes application to HHS • Allows state to recognize certain pediatric providers as ACOs and receive incentive payments • Must demonstrate savings—incentive pmt is portion of savings www.pscinc.com

19. Patient-Centered Medical Home • New Center for Medicare & Medicaid Innovation suggests PCMH as model to be tested • Grants and contracts to establish community-based, interdisciplinary health teams to support primary care practices (State or state-designated entity must apply) and PCMH • Primary Care Extension Program: Education and support for PCPs by “health extension agents” for PCMH, process redesign, cultural competence ($120M/yr for FY11 and FY12) www.pscinc.com

20. Primary Care Workforce Grants: $250M on June 16 • Investments to train 16,000 new providers • $168M for 500 primary care residency slots • $32M for training PAs in primary care • $30M to encourage 600 nursing students to attend school full time • $15M for operation of 10 nurse-managed health clinics to help train NPs • $5M for states to plan and implement innovate expansion of primary care workforce by 10-25% www.pscinc.com

21. Other Workforce Grants: $159M on August 5 • Nursing workforce development • Advanced education for nurses as PCPs/faculty • Support for clinical nurse specialists • CRNA training • Expansion of nursing school capacity and retention • Workforce diversity • Faculty development in health IT • Interdisciplinary geriatric nursing and training • Centers for Excellence grants to improve recruitment and performance of minorities www.pscinc.com

22. Paying for Reform • HC reform can’t add to deficit, so must tax and/or cut spending • Net cost is $940B, cuts deficit by $138B over 10 yrs • Higher taxes for high-income individuals/households: • Part A payroll tax rate rises from 1.45% to 2.35% • 3.8% assessment on unearned income for high-income taxpayers • Taxes on policies with benefits over a certain threshold • 40% tax on plan >$10.2K indiv/$27.5K family (2018) • Vision and dental plans excluded from calculation • Penalties for individuals & large employers who don’t get/offer HI • Cuts in plan and provider payments • Insurers, medical device makers, Rx mfgers pay fees of more than $100B over 10 years, but with later start dates www.pscinc.com

23. The Public and Reform • Public divided on reform in general, but objected to the process more than the content • Public not wild about mandates • Public strongly supports most major features of reform: tax credits, exchanges, expand Medicaid, prohibit pre-existing condition exclusions, leave most people’s coverage unchanged www.pscinc.com

24. Changes in 2010 • Dependent children can remain on parents’ HI until age 26 • Seniors will get more help paying for drugs under Medicare ($250 for donut hole) • Some Medicare preventive care will be free of copays and deductibles (1/1/11) • Uninsurable people could qualify for temporary high-risk pool • Employers of early retirees (55-64) reimbursed 80% claims between $15K and $90K • Small biz (<25 employees) gets tax credits • 10% tax on indoor tanning services • More oversight of health plan premium increases • Ban on lifetime limits on HI coverage and on retroactive cancellation of policies • Prohibit new health plans from denying children coverage based on pre-existing conditions • Most of the big stuff goes into effect in 2013 and 2014 www.pscinc.com

25. Michigan Roles and Decisions, I • Health Insurance Reform Coordinating Council • Members are all senior administration officials • Evaluate ACA and its impact on state’s health care system; identify actions necessary to comply w/act • Identify & recommend mechanisms to assure coordinated, efficient implementation • Engage with relevant stakeholders to assist in developing implementation recommendations • Identify federal grants, pilots, and other non-state funding sources to assist with implementation • Submit strategic plan to governor and MDCH director—MDCH drafting, likely to be out in October www.pscinc.com

26. Michigan Roles and Decisions, II • Expand Medicaid before 2014 (current FMAP rate)? • Two sets of criteria for Medicaid eligibility • Medicaid eligibility and enrollment coordination with the exchange • Michigan has said “yes” to high-risk pool—will cover thousands, not hundreds of thousands. • Pool won’t cover those who have coverage now • Health insurance ombudsperson established • Down the road: is the exchange run by the government or a nonprofit? • New administration in 2011 www.pscinc.com

27. What Did We Get? • Centrist-left reform that preserves and expands government and private market for health insurance and health care—no single-payer or public option • Focus more on expanding coverage than controlling costs, but no universal coverage • Government cost control—no addition to the budget deficit—trumps affordability for small biz, families—affordability is the big question! • Health plans have begun offering lower cost plans with restricted networks (employers interested?) • Penalties for individuals, biz • Modest quality improvement/changing delivery of health care • Repeal unlikely, but public education on what’s really in the bill and implementation will determine public acceptance www.pscinc.com