Federal Health Care Reform: Implications for the Marketplace Name Date

Federal Health Care Reform: Implications for the Marketplace

Name

Date

2

▪ Legislative overview

▪ What it means for you

▪ Continuing need for reform

▪ How to stay informed

Agenda

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Patient Protection and Affordable Care Act

Signed March 23, 2010

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Congressional Action on Federal Health Care Reform

3/21/10: House vote on Senate bill

3/21/10: House immediately votes on reconciliation “sidecar”

3/23/10: Final bill signed by President

3/23/10: Senate takes up reconciliation bill; begins 20-hour debate

3/25/10: Senate passes amended reconciliation bill, forcing House vote

3/25/10: House passes amended reconciliation sidecar

3/30/10: Reconciliation bill signed by President

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Federal Reform Key Elements

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Individual Mandate

Employer Mandate

Insurance Exchanges

New Taxes

and Fees

Market Reforms

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Key Elements: New Taxes and Fees

New Taxes and Fees

Effective in 2010:Annual tanning tax: 10% tax on indoor tanning services ($2.7 B)

Effective in 2011:Annual pharmaceutical industry fee: Begins at $2.5 billon per year ($27 B)

Effective in 2012:Annual medical device manufacturer fee: Excise tax of 2.3% on the sale of any taxable medical device ($20 B)

Effective in 2013:Annual Medicare tax on high earners, and unearned income: 0.9% increase in payroll tax. Unearned income tax of 3.8% ($210.2 B)

Effective in 2014: Annual insurer fee: Applies to fully-insured business ($60.1 B)

Effective in 2018:Annual high-cost insurance tax: 40% excise tax on “Cadillac” plans ($32 B)

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Key Elements: Market Reforms

Market Reforms

(2014)

▪ All health insurance products in all markets “guaranteed issue”

▪ No health status rating; rating factors limited to:• Age: 3:1• Tobacco: 1.5:1• Family size• Geography

Small Group (2014+)

▪ Small Group redefined in most states from group size 2-50 to group size 1-100

Products ▪ Health insurance products must meet new benefit mandates and at least exhibit a 60% “actuarial value”

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Key Elements: Insurance Exchanges

Effective in 2014:▪ Insurance Exchanges will act as a new sales channel beginning in 2014

▪Requires states to establish Exchanges for individuals & small employers

▪Subsidies for individuals up to 400% of the federal poverty level, only available in exchange

▪Small employer tax credits available only in exchange

▪Potential role for agents/brokers

Insurance Exchanges

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Key Elements: Individual Responsibility

Individual Mandate

(2014+)

▪ All U.S. citizens and legal residents required to have coverage

▪ Penalty phased in • $95 per year in 2014, phasing in to $695 per year by 2016, or 2.5% of

taxable income• Exempts low-income individuals

Subsidies (2014+)

▪ Sliding scale, up to 400% of federal poverty level ($88,000/year for family of 4)

• Only available through exchanges

Medicaid (2014+)

▪ Expanded to 133% FPL in all states• Mandatory enrollment under 100% of federal poverty level

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Key Elements: Employer Responsibility “Play or Pay”

Requirement: “Play” (2014+)

Employers with >50 full-time employees (FTEs) must offer minimum coverage:

▪ Part-time are included on FTE basis in calculating >50 FTE▪ Full-time employee averages 30+ hours per week▪ No minimum contribution▪ Must provide “essential coverage” with 60% actuarial value minimum

Coverage Penalty: “Pay” (2014+)

Employers with >50 full-time employees:▪ Not offering coverage and at least one FTE receives tax credit

• $2,000 x total number of FTEs (minus first 30 FTEs)▪ Offering coverage at least one FTE receives tax credit but actuarial

value < 60% or employee cost is > 9.5% of household income• Lesser of $2000 x total FTEs or $3000 x number of employees

receiving tax credit

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Key Elements: Other Employer Responsibilities

Free Choice Voucher (2014+)

Employers must provide for use in exchange if:▪ Employee premium cost sharing is 8-9.5% of household income

(>400% federal poverty level)

Auto-Enrollment Employers >200 employees must auto enroll FTE into health plan (employee may opt out)

Treasury Reporting

Employers required to submit annual coverage reports

W-2 Reporting Must disclose cost of coverage

Early Retiree Reinsurance (2010)

Temporary reinsurance for retirees 55-64

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Key Elements: Employer Tax Elements

Small Group Tax Credit

(2010+)

Employers < 25 employees and < $50,000/year average wages contributing > 50% of premium

• 2010-2013: sliding scale credit up to 35% of employer costs (25% if tax exempt)

• 2014+: credit up to 50% of employer costs (35% if tax exempt) for first 2 years; limited to exchange only

Retirees Drug

Subsidy (2013+)

Eliminate tax exclusion for Part D subsidy payments

High Cost Plan Excise Tax (2018+)

40% nondeductible tax▪ For coverage that costs over $10,200 individual; $27,500 family coverage▪ Amounts indexed to standard inflation▪ Excludes dental and vision

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Product Framework (actuarial value)

Four tiers based on actuarial value: 60%, 70%, 80%, 90% effective in 2014. Separate policies for “young invincibles.”

Cost-sharing limits tied to the HDHP limits. Additionally, small group deductibles may not exceed $2,000/$4,000.

Medical Loss Ratio Requirements

In 2011, MLR is set at 85% for large group and 80% for small group and individual markets.

Insurance Rate Review

Beginning in 2010, federal government to establish a process with states to require insurers to justify rate increases

Medicare Advantage

Cuts Medicare Advantage by a total of $202 billion by freezing benchmarks for one year in 2011 and then reducing benchmarks to different percentages of fee-for-service Medicare spending, with bonuses for quality and enrollee satisfaction. Increases ability to reduce MA plan payments because of plan coding practices.

Administrative Simplification

Requires the Secretary to adopt and regularly update standards, implementation specifications, and operating rules for the electronic exchange and use of health information for the purposes of financial and administrative transactions.

Other Federal Reform Key Elements

For internal and other select audiences

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Agenda

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Immediate Provisions

Effective for the 2010 tax year:▪ Tax credits for certain small employers▪ $250 rebate to Medicare beneficiaries who reach the Part

D “donut hole”

Effective 90 days after enactment:▪ Temporary high-risk pools and early-retiree reinsurance

programs

Effective for plan years starting 6 months after enactment:

▪ Dependent coverage for adult children up to age 26▪ No lifetime coverage limits▪ No cost-sharing for preventive services (applies only to

individuals not “grandfathered”)

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Dependent Coverage for Adult Children Up to Age 26

Who:▪ Existing members’ dependents who would have lost dependent benefits on

or after June 1, 2010, based on their birthday, will now be eligible to continue benefits

▪ This includes specialty products such as vision, dental and pharmacy

▪ Exceptions noted below

When: ▪ Beginning June 1, 2010

Why:▪ The extension is designed to fill the coverage gap between June and

September 23, 2010, when the dependent care provision in health care reform legislation takes effect

Exceptions:▪ Administrative Services Only (ASO), fully or partially self funded accounts

with more than 100 lives, and fully insured accounts with more than 100 lives are able to opt out of the extension – we will work with these groups individually to meet their needs

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Immediate Provisions

“Grandfathering” of existing members

▪ Grandfather provision allows existing members to keep their products, except, requires all products renewed after September 23, 2010 to:

• Allow members to add dependents up to age 26 regardless of student status

• Eliminate lifetime limits on policies

▪ For new sales and subscribers who change policies after 3/23/10, we will be required to make additional changes beginning in approximately six months, such as removing any member cost sharing for "preventive" benefits, as defined by the legislation.

Delete this slide if not relevant to audience

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Effective Dates of Reform Provisions Beyond 2010

2011-2013 2014 2018

Medicare Advantage cuts

Grants for small employer wellness programs

All working adults enrolled in Community Living Assistance Services and Supports (CLASS) long-term care program, unless they opt out

Cost-sharing for preventive services in Medicare eliminated

Limit FSA contributions to $2,500 per year

Individual mandate

Individual market guaranteed issue

Rating reforms for Individual and Small Group

Employer mandate

Insurance exchanges, with subsidies up to 400% of the federal poverty level

Medicaid expansion

Insurer fee, $8B, increasing to $14B in 2018

High-cost insurance tax – 40% on single coverage over $10,200 and family coverage over $27,500

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Effective Dates of Reform Provisions2010 2011-2013 2014 2018

Rate justification

New product requirements (dependents to age 26, no lifetime limits, etc.)

Individual market rescission reform

Prohibition on pre-ex exclusion for children

Early retiree reinsurance program

Federal-required high risk pool

Tax credits for small employers

Insurer compensation cap on deductibility of $500,000 per year

Coverage of recommended preventive services

Internet comparison shopping tool

Consumer appeal process (inc. ASO)

No benefit differences by employee salary

Grants for states to enhance health insurance ombudsman programs

Medical loss ratio requirement – 80% for Individual and Small Group; 85% for Large Group beginning in 2011

Medicare Advantage cuts

Grants for small employer wellness programs

Increased tax on non-qualified medical expenses for Archer Medical Savings Accounts

Quality initiative reporting

Limit FSA contributions to $2,500 per year

Uniform coverage summaries

Standard terms and conditions

Individual mandate

Employer mandate

Individual market guarantee issue

Rating reforms for Individual and Small Group

Expands Small Group from 2-50 in most states to 1-100

Insurance exchanges (with government-run plan), subsidies up to 400% federal poverty level

New product framework

Medicaid expansion

Insurer fee, $8B, increasing to $14B in 2018

High-cost insurance tax – 40% on single coverage over $10,200 and family coverage over $27,500

For relevant internal audiences

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Insurance Reforms / Plan Requirements

• Review of “unreasonable” rates

EnactmentEnactment

• National high National high risk poolrisk pool

• HHS web portalHHS web portal

• Temporary Temporary employer employer reinsurancereinsurance

Sept 2010+

• No pre-ex for kids*

• Dependent coverage to 26*

• Limits on rescissions

• Internal/external appeals*

• MLRs (80% individual/ small group; 85% group)

• No lifetime limits*

• No preventive cost-sharing*

• Patient protections*

2014

• GI/CRGI/CR

• Age band (3:1)Age band (3:1)

• Risk adjustmentRisk adjustment

• ExchangesExchanges

• SG = 1-100SG = 1-100

* Impact all plans

Plan YearsPlan Years Beginning Beginning

3/23/10 June/July ’10

For relevant internal audiences

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What It Means for You:Implications for our customers

▪ No immediate changes to benefits, premiums, physician or hospital networks

▪ Future impacts will vary depending on product type and company size

▪ Legislation will be phased in over several years, and many provisions require federal agencies to issue more detailed regulations

▪ Premiums may be impacted in future

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What It Means for Large GroupsEffective in 2010:

▪ New product requirements at renewal after 9/23/10▪ Early retiree reinsurance for certain eligible early retirees

Effective in 2011:

▪ Employees automatically enrolled in Community Living Assistance Services and Supports (CLASS) long-term care program, unless they opt out

Effective in 2013:▪ Tax deduction for Medicare Part D retiree drug subsidies eliminated▪ Flexible Spending Account (FSA) contributions limited to $2,500 per

year

Effective in 2014:▪ Employer mandate (with auto-enrollment)▪ Products must meet new requirements, 60% actuarial value▪ Health Insurance Exchange vouchers required for some employees

Effective in 2018:

▪ High-cost insurance tax – 40% on Single coverage over $10,200 and family coverage over $27,500


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What It Means for Small Groups


Effective in 2010:▪ New product requirements for renewals after 9/23/10▪ Tax credits for certain employers

Effective in 2011:▪ Grants for wellness programs▪ Employees automatically enrolled in Community Living Assistance Services

and Supports (CLASS) long-term care program, unless they opt out

Effective in 2013:

▪ Limits Flexible Spending Account (FSA) contributions to $2,500 per year

Effective in 2014:▪ Elimination of premium rate variables may result in a significant premium

increase or reduction▪ New product requirements, prohibition on deductibles over $2,000/$4,000▪ Health insurance exchange as new sales channel▪ New taxes built into premium costs

Effective in 2018:

▪ High-cost insurance tax – 40% on Single coverage over $10,200 and family coverage over $27,500

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What It Means for Individual Members

Effective in 2010:▪ New product requirements for renewals after 9/23/10

Effective in 2014:▪ Rating reforms with weak individual mandate will lead to

substantial premium increases for many members

▪ New product requirements with new framework

▪ Health insurance exchange as new sales channel

▪ New taxes built into premium costs


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What It Means for Senior Members

Effective in 2010:

▪ $250 rebate to offset the Part D “donut hole”

• Coinsurance rate phases down to 25% by 2020

Effective in 2011:

▪ Reductions to Medicare Advantage program payments, which may result in reduced benefits and/or increase member cost-sharing

▪ Cost-sharing for preventive services in Medicare eliminated

▪ Discounts on prescriptions in the Medicare Part D “donut hole” begin to phase in


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What It Means for Brokers

Effective in 2010: ▪ Grandfather provision requires all products renewed after

September 23, 2010 to:• Allow members to add dependents up to age 26

regardless of student status • Eliminate lifetime limits on policies

▪ For new sales and subscribers who change policies after 3/23/10, we will be required to make additional changes beginning in approximately six months, such as removing any member cost sharing for "preventive" benefits, as defined by the legislation.

Effective in 2014:▪ Health insurance exchange will exist as a new sales channel

for individual and small group


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Some Early Impacts:Employers Facing New Expenses

Major American companies say they will face hundreds of millions of dollars in new health care costs:

▪ AT&T ($1 billion charge in 2010)

▪ Deere & Company ($150 million charge in 2010)

▪ Caterpillar ($100 million charge in 2010)

▪ 3M Company ($85-90 million charge in 2010)

Source: Associated Press articles, March 2010

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The legislation faced immediate legal challenges from several parties:

▪ At least 21 states

▪ Association of American Physicians and Surgeons (AAPS)

▪ New Jersey Physicians Inc.

Some Early Impacts:Legal Challenges

Source: FierceHealthcare news, March 30, 2010

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Agenda

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Medical Costs Continue to Rise

U.S. National Health Expenditures (trillions)

$1.35$1.47

$1.60$1.73

$1.85$1.98

$2.11$2.24

$2.40 (P)

6.1% (P)

7.0%

8.6%9.0%

6.1%

6.7%

8.3%

6.8%

6.9%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 (P)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Source: National Health Expenditure Accounts, CMS

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Profit Misperceptions

How much profit do consumers think insurers make?

A. Less than 5%

B. 15%

C. 30%

D. 50%

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Profit Misperceptions

Many consumers have an inaccurate perception of health insurer profits

6%

14%

21%

20%

15%

25%

0-5%

6-10%

11-20%

21-30%

31-40%

41%+

% profit % consumers

40% of consumers surveyed think we make a profit of 30% or more.

Delete this slide for external presentations

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Where Does YourHealth Insurance Dollar Go?

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Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

Cost shift

Hospital Cost-Shifting

Aggregate Hospital Payment-to-Cost Ratios, 1981-2006

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Lessons From Massachusetts

The results from Massachusetts demonstrate continued need to implement responsible reform that addresses cost and quality:

▪ Covered about half of the uninsured (already exhibited lowest uninsured rate in U.S.)

▪ Premium costs for individuals in Massachusetts are the second highest in the U.S.

▪ Overall, the costs of Massachusetts health reforms have been much higher than expected

▪ Lack of an effective, enforceable individual mandate only exacerbates the cost issue in Massachusetts, and there is evidence of enrollment gaming

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Agenda

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Implementation Communications

▪ Several teams are working on implementing the various provisions with 2010 and 2011 implementation dates

▪ We will be sending communications to employers, individuals, and brokers about upcoming changes

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Health Action Network

▪ One-stop platform to follow and participate in the debate on health care reform

▪ Contact Members of Congress

▪ Register to receive weekly news on health care reform

▪ Tell others about the Health Action Network

www.HealthActionNetwork.com

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Health Action Network on Facebook

www.facebook.com/thehealthactionnetwork

▪ Articles and dialogue about health care reform

▪ Take Action tab allows for conversions from fans to advocates

▪ Interactive widget allows fans to easily promote health care reform to their friends

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Anthem Blue Cross and Blue Shield is the trade name of: In Colorado and Nevada: Rocky Mountain Hospital and Medical Service, Inc. In Connecticut: Anthem Health Plans, Inc. In Indiana: Anthem Insurance Companies, Inc. In Kentucky: Anthem Health Plans of Kentucky, Inc. In Maine: Anthem Health Plans of Maine, Inc. In Missouri (excluding 30 counties in the Kansas City area): RightCHOICE® Managed Care, Inc. (RIT), Healthy Alliance® Life Insurance Company (HALIC), and HMO Missouri, Inc. RIT and certain affiliates administer non-HMO benefits underwritten by HALIC and HMO benefits underwritten by HMO Missouri, Inc. RIT and certain affiliates only provide administrative services for self-funded plans and do not underwrite benefits. In New Hampshire: Anthem Health Plans of New Hampshire, Inc. In Ohio: Community Insurance Company. In Wisconsin: Blue Cross Blue Shield of Wisconsin ("BCBSWi"), which underwrites or administers the PPO and indemnity policies; Compcare Health Services Insurance Corporation ("Compcare"), which underwrites or administers the HMO policies; and Compcare and BCBSWi collectively, which underwrite or administer the POS policies. Independent licensees of the Blue Cross and Blue Shield Association. ® ANTHEM is a registered trademark of Anthem Insurance Companies, Inc. The Blue Cross and Blue Shield names and symbols are registered marks of the Blue Cross and Blue Shield Association.

Documents

Federal Health Care Reform: Implications for the Marketplace Name Date