HEALTH CARE REFORM:KEY CONCEPTS FOR

EMPLOYERSNOVEMBER, 2010

Greg Dattilo, CEBS04/21/23

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Freemarkethealthcare.com Team Greg Dattilo, CEBS Dave Racer, MLitt

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35 years experience asemployee benefit consultant

President ofDattilo Consulting, Inc.

Wharton School of Business

Incoming PresidentMN AHU - Chair of Legislative Committee

Master of Letters fromOxford Grad School

Thesis: ComprehensiveHealth Care Reform

President ofDGRCommunications, Inc.

Publisher, SpeakerAuthor, Teacher

Lectured in 28 states – Dozens of articles – National Surveys

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Four books since 2004

Your Health Matters: What You Need to Know About U.S. Health Care

Development of government and private insurance plans in the United States

Report on nationalized health care systems of: Canada United Kingdom Germany France Japan

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336 pages – HardcoverReleased April, 2006

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Four books since 2004

FACTS: Not Fiction – What really ails the U.S. health care system

Common myths, misconceptions, and deceptions Infant mortality, life expectancy,

uninsured rate, admin cost Socialized health care –

Discriminating against the most vulnerable

Americanized U.S. health care

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64 pages – paperbackReleased January, 2008Nearly 100,000 Distributed

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Four books since 2004

Why Health Care Costs So Much: Six Book Series The Solution: Consumers -

2009 Governments’ Real Role -

2010 Employers Providers Payers Faith community

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04/21/23

Today’s discussion

Part 1: Why health care costs so much Part 2: Will the new health care law

reduce costs? Part 3: Alternate solutions to the new law Part 4: 2011- Strategies to control

insurance cost

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Patient Driven Health Care

Doctors &hospitals

Payers

Provided care: Inhome and clinic

Decided what to buy and from whom – Options for low-income

Paid catastrophic claims: They were insurance companies

Paid the first dollars for their own health care

How people with health insurance bought health care pre-1966

42%Out ofPocket

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U.S. Health Care Prior to 1966 Individuals paid 42 cents out of each

$1.00 themselves. Someone else paid 58 cents. (1965)

Hospital daily room rate of $17-$19 Health care inflation about the same as

other consumer prices Government delivered care based on

need, at government facilities Everyone had access to care

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U.S. Health Care 1965-1973

Expansion of government entitlements Medicare and Medicaid Medicare: Qualified by age, not financial

or even physical need Medicare changed delivery from

government facilities to private facilities Medicare tax started at .7% of first

$5,480. Maximum annual tax of $39.20 Medicaid benefits were not catastrophic,

but broad and rich (even richer than private plans)

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U.S. Health Care 1973-2002

Congress passed HMO Act – 1973 Prepaid health care

One price, all services included Added maternity, preventive, and elective surgery

coverage Copied government health benefits to private health

insurance Congressional Justification: Short term cost

would increase, but long term cost would be less

“Catch the illness before it became too costly.”

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You are more likely to clean your plate.

Or, you ask for a doggy bag. You do not throw away the extra food.

You eliminate waste.

Prior to HMOs, Ala Carte Health Care

Like ordering off a menu

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How do you measure a buffet’s value?

By how many plates of food you consume.

Three plates of food is “three times the value” of one plate.

HMO is like a buffet dinner

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You may throw away food, but it’s okay. You paid for it.

As others throw away food, the price for everyone will eventually increase.

Waste is accepted at a buffet

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U.S. Health Care 1973-2002

Behavior changed from: Prudence to waste Healthy behavior to unhealthy behavior

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1965 – 2009 Price Trends16

Since 1965: Military spending has increased 1,177% Federal and state public education spending has

increased 2,950%

Spending on health care has increased 6,000%

28 centsa gal1965

$16.80a gal2009

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Hospital Price Spikes

1965: University of Virginia Hospital Daily Rate $17 to $19 “spiked” to $22 a day

2007: According to the American Hospital Association: Average daily room charge is $1,696 7,700 percent increase over 1965

What has contributed to this spending increase? Demand - Entitlement

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U.S. Health Care 2003-2009

Congress endorses consumer managed insurance plans (consumer-directed health plans)

Congress allows individuals to set up Health Savings Accounts, with very few regulations

An attempt to reverse the entitlement mentality and wasteful behavior caused by prepaid health care and government-subsidized health plans

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Covered, by category*

Medicare, aged 65 and over

Medicare, under age 65

Medicaid, CHIP, Military, VHA, and other government programs

2009 CHIP Added

Total Covered - Gov

34 million

7 million

58 million

4 million

103 million* Congressional Budget Office-12/2008

US Population- 3:30 pm 9/9/10: 310,207,152

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Entitlement 201020

Today, three of every 10 are in the wagon

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Part 2:

Will the new health care law reduce cost?

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U.S. Health Care – 2010 to 2013 Congress passed and Pres. Obama

signed the Affordable Care Act of 2010 on March 23, amended on March 30, 2010.

2,800 pages of new laws Tens of thousands of pages of new

regulations Government transition period

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Meet the new CEOs of health care

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159 New commissions, boards,study groups, and grant makers

Kathleen Sebelius

Her title appears more than 3,000 times in the ACA.

Her title appears more than 3,000 times in the ACA.

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Policymakers drive policy

Secretary and presidential appointments are critical

Dr. Donald Berwick Pres. Obama just

appointed as CMS chief

“I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for leaders to do.”

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Payers

Providers

Patients

How Americans will buy health careafter passage of ACA of 2010

The Federal Government willset foundational healthcare policy, and design

basic health plans.

Federal subsidies for you and/or your neighbors

Persons in Family

Poverty Guideline

400 Percent of FPG

1 $10,830 $43,320

2 $14,570 $58,280

3 $18,310 $73,240

4 $22,050 $88,200

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The 2009 Poverty GuidelinesQualified for SubsidyAt $400% of FPG

“Modified” Adjusted Gross Income04/21/23

Federal subsidies for you and/or your neighbors

Persons in Family

Poverty Guideline

400 Percent of FPG

1 $10,830 $43,320

2 $14,570 $58,280

3 $18,310 $73,240

4 $22,050 $88,200

5 $25,790 $103,160

6 $29,530 $118,120

7 33,270 $133,080

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The 2009 Poverty GuidelinesQualified for SubsidyAt $400% of FPG

“Modified” Adjusted Gross Income04/21/23

Making insurance affordable

Policyholder’sAge

Low Cost AreaAnnual Subsidy

Med. Cost Area

Annual Subsidy

High Cost Area

Annual Subsidy

35 $0 $1,036 $2,763

45 $1,264 $3,480 $5,695

55 $4,689 $7,761 $10,834

60 $7,360 $11,100 $14,840

“For most families, the cost of health insurance will go down.”

Consider: Family of 4, with family income of $80,000How? Shifting Cost to someone else.

Kaiser Family Foundation: Health Reform Subsidy Calculator

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Making insurance affordable

Policyholder’sAge

Low Cost AreaAnnual Subsidy

Med. Cost Area

Annual Subsidy

High Cost Area

Annual Subsidy

35 $4,731 $6,458 $8,186

45 $6,686 $8,902 $11,118

55 $10,111 $13,183 $16,256

60 $12,782 $16,522 $20,262

“For most families, the cost of health insurance will go down.”

Consider: Family of 4, with family income of $40,000

Kaiser Family Foundation: Health Reform Subsidy Calculator

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Based on family of 4

Subsidies for upper middle income employees

Poverty level-Family of 4 Two times FPL

82.3 million (31%) Three times FPL

127 million (48%) Four times FPL

163.5 million (62%) Five time FPL

192 million (73%)

$22,050 $44,100

$66,150

$88,200

$110,250

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Modified AdjustedGross Income

With 65 & Over

68% of the population

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New Federal Law: Entitlement - 2014

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Seven of every ten will be in the wagon

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Herding Us Into Health Insurance Delivery Models

The Exchange – 1/1/2014

Could be state, or could be federal, but “must be”

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IndividualInsuranceIndividualInsurance

Small Group

Insurance

Small Group

Insurance

One Exchange for both

One Exchange for both

Secretary of HHS

State Government

Individuals Small Groups All Subsidized Plans Gov’t Plans

Comparative EffectivenessCMSInternal Revenue ServiceAssess penalties for uninsuredVerification of financial dataCollection of penalties

Analyze health dataCreate practice guidelines

Health Data from insurance

companies

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Exchange Health Plan Selection Question for Individuals Basic health information Identify doctor and hospital of choice Concern: Cost, provider, overall quality

(quality in a particular area) Choose plan level (bronze, silver, gold,

platinum) Exchange calculator example: Part D

Medicare

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Exchange data management Secretary (HHS) will develop rating

system of qualified health plans Dashboard: Performance of insurance

company customer service and claim accuracy

Chosen plans with data from preferred physicians and hospitals

Identify high cost chronically ill members whom insurance companies will be required to contract after enrollment

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Exchange Employer (ER) Enrollment Employer registers – secure login –

exchange verifies small ER eligibility – unemployment tax filings

ER chooses health plan tier – amount EE contributes for individual or family per benchmark plan

ER signs electronic agreement regarding equal treatment of employees

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Exchange Employer (ER) Enrollment ER discloses name, date of birth, SSN of

each eligible EE Exchange must verify ER requirement of

minimum payment to EE insurance, both in and out of the exchange

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Exchange Employee (EE) Enrollment EE goes to Internet or calls call center or

insurance agent EE gives information to match with ER.

May undergo screening for Medicaid eligibility

EE selects plan, pays required premium. For benchmark plan, plus any buy up plan difference

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Exchange Premium Payment Options All premium paid to the exchange –

exchange pays insurance company, accurately tracks those breaking or not breaking the law

First payment to exchange then to insurance company (multiple ER payments to insurance company)

All payments to insurance company (does not allow accurate tracking and multiple ER payments to insurance companies)

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Individual tax credits for premium Tax credit to pay for second lowest silver

plan Tax credit amount equals the excess

premium based on percent of your incomeIncome Level Percent Allowed to

Pay

Below 133% of FPL 2%

134%-150% 3%-4%

151%-200% 4%-6.3%

201%-250% 6.3%-8.05%

251%-300% 8.05%-9.5%

301%-400% 9.5%04/21/23

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Cost Sharing Subsidies

Out of pocket cost is limited to individual between 100%-250%

Subsidy pays up to the following actuarial values:

Percent of FPL Actuarial Value

100%-150% FPL 94% value

150%-200% FPL 87% value

200%-250% FPL 73% value

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Small Employer Health Plan - Tax Credit

No more than 25 full time equivalent employees

Less than $50,000 average annual wages

Employer pays 50 percent or more of employee coverage

Excludes owners and family members

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Tax Credit

For-Profit Organization: Best Scenario Assumption: 13 employees earning

minimum wage of $7.25 per hour Single coverage - $4,704 average annual

premium in MN 35 percent tax credit of $21,403

received only if credit equals tax from profitable year

Cost to profit: $39,749, $1.76 per hour: 24.3 percent of additional compensation

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Tax Credit

Non-Profit Organization: Best Scenario Assumption: 13 employees earning

minimum wage of $7.25 per hour Single coverage - $4,704 average annual

premium in MN 25 percent tax credit - $15,288 received

only if payroll tax equals or exceeds Cost to non-profit: $45,864, $2.03 per

hour, 28 percent of additional compensation

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New Laws in 2010

Unlimited health care benefits for all fully-insured and self-insured groups and individual plans that begin or renew on or after October 1, 2010. (No more $1 million/$2 million maximums.)

Annual benefit limits will be allowed only through plan years beginning prior to January 1, 2014, and only on DHHS-defined, non-essential benefits. Example:

2010 Rx Maximum $ 7,5002011 Rx Maximum $ 750,0002012 Rx Maximum $1,250,0002013 Rx Maximum $2,000,0002014 Rx Maximum Unlimited 04/21/23

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New Laws in 2010

All health insurance plans, including self-insured plans, renewing on or after October 1, 2010, will have to cover dependents up to age 26. Extended to grandfathered plans. Dependents could be married and would be eligible for the

group health insurance income tax exclusion. Through 2014, grandfathered group plans would only have

to cover dependents that do not have another source of employer-sponsored coverage.

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New Laws in 2010

All group and individual health plans, including self-insured plans, will have to cover preexisting conditions for children 19 and under for plan years beginning on or after October 1, 2010. Grandfathered status applies for group health plans

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New Laws in 2011

The tax penalty on distributions from a health savings account that are not used for qualified medical expenses increases from 10% to 20%.

Cost of over the counter drugs will no longer be an eligible expense under HSAs, FSAs, HRAs and Archer MSAs (unless prescribed by a doctor).

Creates the CLASS Act, a new public long-term care program and requires all employers to enroll employees: The employee may elect to opt out.

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New Laws in 2012

• All employers must include on each employee’s W2 the aggregate cost of employer-sponsored health benefits. Applies to benefits provided during taxable years after

December 31, 2010.

If employee receives health insurance coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage, but exclude all contributions to HSAs and Archer MSAs and salary reduction contributions to FSAs.

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New Laws in 2012

All employers, including those with self-funded plans, must provide a summary of benefits and a coverage explanation to all enrollees, in addition to the current Summary Plan Description (SPD), that meets the following criteria (notices must be provided 60 days in advance): when they apply for coverage, when they enroll or reenroll in coverage, when the policy is delivered, and identify any material modification made to their coverage.

The summary and explanation can be provided electronically or in written form, and there is a $1,000 per enrollee fine for

willful failure to provide the information. 04/21/23

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New Laws in 2013

The threshold for the personal itemized deduction for unreimbursed medical expenses increases from 7.5% of AGI to 10% of AGI. The increase would be waived for individuals age 65 and

older for tax years 2013 through 2016. $2,500 Cap on Medical FSA contributions, annually

indexed for inflation begins.

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New Laws in 2014

Guarantee issue coverage, with no pre-existing condition exclusion, for all health insurance policies (wait until you’re sick, and then buy insurance).

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New Laws in 2014

Strict modified community rating standards All individual health insurance policies and all fully insured group policies 100 lives and under (and larger groups purchasing coverage through the exchanges) must abide by with premium variations only allowed for age (3:1), tobacco use (1.5:1), family composition and geographic regions to be defined by the states and experience rating would be prohibited.

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New Laws in 2014

The current workplace wellness incentives has a maximum of 20 percent of employee premium. This maximum increases to 30 percent, and possibly to 50 percent (if the federal government agency approves).

Redefines small group coverage as 1-100 employees. States may apply for a waiver to reduce this number to 50

for plan years prior to January 1, 2016.04/21/23

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New Laws in 2014

An employer with more than 50 employees that offers coverage, but has at least one FTE receiving the premium assistance tax credit, will pay the lesser of $3,000 for each of those employees receiving a tax credit, or $750 for each of their full-time employees total. (Breakeven is 13 employees receiving the tax credit.)

An individual with family income up to 400% of FPL is eligible for a premium assistance tax credit if the actuarial value of the employer’s coverage is less than 60%, or the employer requires the employee to contribute more than 9.5% of the employee’s family income toward the cost of coverage.

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New Laws in 2014

Requires employers to give a voucher to use in the individual market or exchange instead of participating in the employer-provided plan.  Employees must be ineligible for subsidies The value of vouchers the employer contribution adjusted for age Employee can also keep amounts of the voucher in excess of the cost of

coverage elected in an exchange without being taxed on the excess amount. 

Establishes standards for qualified coverage, including mandated benefits, cost-sharing requirements, out-of-pocket limits and a minimum actuarial value of 60%.

Allows catastrophic-only policies for those 30 and younger.

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New Laws in 2014

Requires all American citizens and legal residents to purchase qualified health insurance coverage. Exceptions are provided for : religious objectors, individuals not lawfully present incarcerated individuals, those who cannot afford coverage, taxpayers with income under 100 percent of poverty, members of Indian tribes, those who have received a hardship waiver those who were not covered for a period of less than three months during the

year People with no income tax liability

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New Laws in 2014

Penalty for non compliance to either a flat dollar amount per person or a percentage of the individual’s income, whichever is greater.

In 2014 the percentage of income determining the amount of the fine will be 1%, then 2% in 2015, with the maximum fine of 2.5% of taxable (gross) household income capped at the average bronze-level insurance premium (60% actuarial) rate for the person’s family beginning in 2016.

The alternative is a fixed dollar amount that phases in beginning with $95 per person in 2014 to $695 in 2016.

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New Laws in 2014

All employers must provide coverage documentation to covered individuals and the IRS.

Requires employers of 200 or more employees to auto-enroll all new employees into any available employer-sponsored health insurance plan. Waiting periods subject to limits may still apply. (Employer is fined

for waiting periods greater than 60 days) Employees may opt out if they have another source of coverage. Implementation date is unclear, may change to earlier via regulation

Requires all employers provide notice to their employees informing them of the existence of an Exchange. 

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New Laws Beyond 2014

CHIP Reauthorized in 2015 Groups 100+ may be allowed into the Exchanges in 2017 if state

elects 40% excise tax on insurers of employer-sponsored health plans with

aggregate values that exceed $10,200 for singles and from $27,500 for families takes effect in 2018. Delayed from 2013 by reconciliation bill. Transition relief would be provided for 17 identified high-cost states. Values of health plans include reimbursements from FSAs, HRAs and employer

contributions to HSAs. Stand-alone vision and dental are excluded from the calculation.

Reconciliation bill reduced the formula for indexing the thresholds even further (to just inflation, not inflation plus 1%) so that more plans will fall under the tax faster, but also allows plans to take into account age, gender and certain other factors that impact premium costs.  

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Today: Pieces [sort of] fit together

04/21/23Copyright 2010: DGRCommunications, Inc.

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?ACA

Neat, orderly, rigid, managed top down

04/21/23Copyright 2010: DGRCommunications, Inc.

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?ACA

A look at your future health care system

04/21/23Copyright 2010: DGRCommunications, Inc.

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?ACA

Where this leads

04/21/23Copyright 2010: DGRCommunications, Inc.

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ACA

Part 3:

Alternative solutions to the new law

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Real Solutions

Sensible Redesign of Health Care Delivery Emptying, not loading, the Wagon

(GovCare) Common sense, private health care reform

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04/21/23

Emptying, not loading, the Wagon Who should be in the wagon? Where should those in the

wagon receive their health care?

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Who should be in the wagon?

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Category Situation

Disabled Unable to work: No financial assetsUnable to work: With financial assetsAble to work: With financial assets

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Who should be in the wagon?

Category Situation

Chronically Ill Unable to work: No financial assetsUnable to work: With financial assetsAble to work: With financial assets

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04/21/23

Who should be in the wagon?

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Category Situation

Healthy, Able Bodied

In-between jobs: No financial assetsIn-between jobs: With financial assetsEmployed: No financial assetsEmployed: With financial assetsChoose unemployment: No financial assetsChoose unemployment: With financial assets

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Where should those in the wagon receive their health care? A place with minimal admin cost, but

maximum dollars spent on medical care Medicaid services in 2009 spent $180

billion on admin – 26% lost to admin cost: Replace with GovCare

As many as 50% of doctors refuse new Medicaid patients today (low reimbursements) creating long wait times, and potential shortage of critical care: Replace with GovCare

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04/21/23

Where should those in the wagon receive their health care? The truly poor cannot afford out-of-pocket

costs: Replace with GovCare Complicated government forms and

procedures discourage the neediest from enrolling in Medicaid: Replace with GovCare

Medicaid billing fraud wastes at least $30 billion a year: Replace with GovCare

Out of control Medicaid spending threatens state budgets: Replace with GovCare

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04/21/23

Where should those in the wagon receive their health care? As much as 30% of medical expense results

from defensive medicine: Replace with GovCare

Lack of individual medical history at time of medical need results in unnecessary spending: Replace with GovCare

Difficulty in managing an individual’s health care needs: Replace with GovCare

High cost of emergency room care for routine, minor illness: Replace with GovCare

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Who qualifies for GovCare?

Those who do not have private insurance

Those who are unable to pay for private health care

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What is GovCare?

GovCare is the health care delivery system used prior to 1966 for those who could not afford private health care

In GovCare days, health care spending increased at the same rate as CPI

In GovCare days, health care was affordable for most, and available for everyone

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What is GovCare?

GovCare is what we have now, but for those without private health insurance, delivered at government facilities Community health centers (more than 8,000

today) County hospitals Other government hospitals

GovCare is provided by government-employed medical professionals

It completely eliminates the issue of individuals who are uninsured

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Common sense, private health care reform

Stop paying medical providers who have to correct their own mistakes (gross errors) - Some examples: Hospital-borne infections Repeating procedures to get it right Missed diagnosis “Non-Events”

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04/21/23

Common sense, private health care reform

The GAP Plan: Guaranteed, Affordable, Portable coverage

Guaranteed issue with no pre-existing condition exclusions

Affordable, low-cost catastrophic policy: An alternative to high cost COBRA

Portable insurance to take with you in-between employment

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Common sense, private health care reform

The APT Plan: Affordable, Price Transparent

Affordable, as a result of a scheduled reimbursement Based on Medicare

reimbursements You choose the reimbursement

level, set at a percent above the Medicare schedule (Ex. 130% - 150% -170%)

You can go to any doctor you choose in the United States

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Doctor charges:$200.00

Medicare allows$100.00

You have a 150%APT plan

Plan pays $150

You pay $50

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Common sense, private health care reform

PAS Plan: Predictable, Affordable, Stable Pass the claim on to the Pool 2% of the population drives 50% of health

care spending in any given year Pools the high cost claims, and pays the

cost through a Health Care User Tax (2%) Recycling money: Tax pays the providers Like a gasoline tax Money pays for care, not for insurance

premiums

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Part 4:

2011 strategies to control insurance cost

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STRATEGIES TO CONTROL INSURANCE COST FINDING WASTED DOLLARS IN

MEDICAL INSURANCE PREMIUM Spousal surcharge program Defined Contribution Medicare-eligible employees – retirement Health Reimbursement Arrangements

(HRA)

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STRATEGIES TO CONTROL INSURANCE COST CHANGE EMPLOYEE HEALTH CARE

BUYING BEHAVIOR Pay less to insurance companies, and more

to your employees Engage your employees in health purchase

decisions with their money Teach employees to ask, “How much does

this cost?” when they receive medical care

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STRATEGIES TO CONTROL INSURANCE COST USING TAX INCENTIVES TO

MOTIVATE EMPLOYEES Employer paid disability benefit is 100%

taxable to employees at time of disability Make the disability payment 100% tax free

at the time of disability 

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STRATEGIES TO CONTROL INSURANCE COST GIVE CHOICES TO EMPLOYEES TO

CAP YOUR COST Dual-option medical plans Use different plan designs or different

networks

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STRATEGIES TO CONTROL INSURANCE COST STRATEGIES TO COST-EFFECTIVELY

RETAIN KEY EMPLOYEES Structure employee classes Executive medical reimbursements

insurance

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STRATEGIES TO CONTROL INSURANCE COST USE EMPLOYER SIZE TO LEVERAGE

LESS COSTLY EMPLOYEE OPTIONS Using your employees as a purchasing

group to reduce individual cost No direct employer cost, except payroll

expense Voluntary benefits for employees and

dependents

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HEALTH CARE REFORM:KEY CONCEPTS FOR

EMPLOYERSNOVEMBER, 2010

Greg Dattilo, CEBS04/21/23

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