General Disclaimer

1. Overview of the Patient Protection and Affordable Care Act (aka Health Reform, ObamaCare,…) Presentation to IFMA Los Angeles ChapterHilary Frazer, VP of Policy Analysis and ImplementationMarch 20, 2013

2. General Disclaimer • The ACA is an incredibly complex piece of legislation and many of its provisions have been (and are still being) modified. It is designed to affect every aspect of health care delivery and financing in the US. • Like all legislation, effectiveness can only be measured after implementation occurs • The state-federal dynamic is (as always) a game changer… • Differences in underlying market conditions, state fiscal health, provider supply and attitudes, adequacy of the safety net, and a host of other variables, including state median income level, competency of state bureaucrats, power of special interests and the broker community, pre-existing rates of uninsurance, managed care penetration in public and private insurance sectors, degree of erosion that occurs in the employer-sponsored insurance market after 2014, etc. -- all of these and many other factors will also affect reform implementation in each state and major insurance market • At this time, nobody can say with absolute certainty in what ways the ACA will meet its objectives and in what ways it will fail

3. “Improving the U.S. health care system requires simultaneous pursuit of three aims: improving the experience of care, improving the health of populations, and reducing per capita costs of health care.” Donald Berwick

4. Roadmap to this Presentation • ACA Context, Vision, Approach, Goals • Policy Changes Since Enactment • 3. ACA-Driven Insurance Reforms • - Individual • - Small Business • - Large Employer • 4. Exchange Marketplace • - - State variations • -Tax credits (subsidies) • - EHBs & QHPs & actuarial value • 5. ACA in CA • - Individual • - Small group • - Large group • - Public programs (Medi-Cal, CHIP, Medicare)

5. Why is health reform needed?

6. Primary Goal of Health Care Reform: Reduce the Number of US Uninsured About 45 Million Uninsured Total = 300.5 million NOTE: Includes those over age 65. Medicaid/Other Public includes Medicaid, SCHIP, other state programs, and military-related coverage. Those enrolled in both Medicare and Medicaid (1.9% of total population) are shown as Medicare beneficiaries. SOURCE: Kaiser Commission on Medicaid and the Uninsured/Urban Institute analysis of March 2009 CPS

7. Major Design Elements of Health Reform • Individual Mandate • Employer Requirements • Expansion of Public Programs • Premium and Cost-Sharing Subsidies to Individuals • Tax Changes • Health Insurance Exchanges • Benefit Design • Changes to Private Insurance • State Role • Cost Containment • Improving Quality/Health System Performance • Prevention/Wellness • Long Term Care • Other Investments in health care system and workforce training and development

8. Health Reform Goals: August 7, 2009, 6:00 am Lost in the Shuffle: The Overarching Goals of Health Reform By UWE E. REINHARDT NYT 8/2009

9. ACA Coverage and Financing Estimates (prior to Supreme Court Decision and Fiscal Cliff Negotiations) • CBO estimated health reform would provide coverage to an additional 32 million Americans through combination of Exchanges and the Medicaid expansion • Estimated cost of coverage components of new law to be $938 Billion over ten years • Costs financed through savings from Medicare and Medicaid and new taxes and fees, including an excise tax on high-cost insurance • CBO estimated health reform law would reduce the deficit by $124 Billion over ten years

10. Who Benefits from the Affordable Care Act Coverage Expansions?Percentage of the Nonelderly Population With Income Up to Four Times the Poverty levelWho Were Uninsured or Purchasing Individual Coverage, 2010

11. What’s Changed? • Medicaid expansions are the platform upon which all other reforms are premised BUT Supreme Court decision allows States to opt NOT to expand their Medicaid programs • Decision to expand Medicaid has become a state level political litmus test for some conservative Republicans • States that decide against expanding their Medicaid programs (initially expansions are funded almost entirely with federal money) could leave their low and moderate income residents uninsured and with even fewer options than before reform • Being uninsured after reform occurs will likely result in even greater problems in access to appropriate and affordable care because so much of reform approach is reallocation of dollars in US health care system to ensure access to the newly insured • Stay tuned: “Rebel” states and Feds are now looking for compromise solutions….

12. Perspective is everything when you’re talking about health reform….

13. ACA Reforms Three Insurance Marketplaces Individual Market (Individual Mandate) • Guarantee issue/No medical underwriting • Metal Plans (bronze, silver, platinum) and Essential Benefits • Carriers with regulated rates • Access via Exchanges and insurance brokers or carriers directly Small Group Market (2-50 employees) (NO Mandate) • Guarantee issue/No medical underwriting • Metal Plans and Essential Benefits • Carriers with regulated rates • Access vie Exchanges and insurance brokers or carriers directly Large Group Market (50+ employees) (Pay or Play Mandate) • Guarantee Issue but groups are underwritten so rates can be high • Minimum actuarial value (60%) for plans but freedom to vary from essential benefits • Carriers (15% expenses) plus self-funding options, rates not regulated • Access via insurance brokers

14. Individual Mandate • Starting in 2014 there’s a penalty for not having health insurance • The penalty is non-deductible excise tax that is the HIGHER of… • Flat $ penalties are capped at three persons per family (300% of above figures) • Percentage caps at average cost of the Bronze Level benefit program • No penalty for not having insurance IF no access to affordable health insurance through an employer AND cost of individually purchased insurance exceeds more than a certain percentage of annual income (percentage is based on annual income and tops out at 9.5%)

15. 2013 Annual Income/Federal Poverty Levels

16. Federal Tax Credits/Subsidies • Health Insurance Premium subsidies for individuals with annual incomes between 133% up to 400% of the federal poverty level (FPL) • On paper estimates indicate tax credits could help up to 25 million low-income Americans • No tax credit for those who end up earning more than 400% FPL ($92,200) for a family of 4 (and tax credits claimed for the year will need to be repaid) • No tax credit for married couples who don’t file jointly • Much of the final regulation around the subsidies is still being completed by Treasury

17. What are Essential Benefits? Applies to Small Group and Individual Markets • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance abuse • Prescription drugs • Rehabilitative care and Habilitative care (such as learning disabilities) • Laboratory services • Preventive and wellness services • Pediatric services, including oral and vision care • California Benchmark Plan (for tax credits) is Kaiser’s Small Group $30 Copay HMO Plan

18. How Will Insurers Set Rates?

20. Exchanges Exchanges are government run internet-based health insurance “shopping malls” meant to assist individuals and small businesses in finding the best possible coverage Open for business by October 2013 (for coverage starting on January 1, 2014 www.hbex.ca.gov Only Citizens and Legal Immigrants can access the Exchanges and therefore qualify for Federal Subsidies

23. Benefit Levels • In the Individual and Small Group Markets: Bronze, Silver, Gold & Platinum Benefit Qualified Health Plans (QHPs) will be offered • Each level will be ACTUARIALLY VALUED to cover 60% / 70% / 80% / 90% of costs • CMS has released the Actuarial Value Calculator (Ind. + Small Group) • CMS has released the Minimum Value Calculator (Large Group) • Expectation is that annual out-of-pocket costs (including deductibles and co-pays) cannot exceed: • $6,500 for single coverage • $13,000 for family coverage • NO Annual Benefit Caps • Actuarially equivalent plans don’t have to be equal in terms of benefits etc. so it will be very important to confirm that a plan truly meets an individual’s/family’s needs

24. National Map of Exchanges State Run State + Fed Run Fed State Run State + Fed Run Fed State Run State + Fed Run Fed

25. Small Group Employers (2-50 FTE workers) Beginning in 2014, Exchanges will also operate a Small Business Health Options Program – or SHOP – that offers small businesses and their employees Qualified Health Plans (QHPs). SHOPs are meant to: • Simplify Choices. Provide side-by-side comparisons of Qualified Health Plans, their benefits, premiums, and quality. • Expand Employee Options. Offer employees a choice of Qualified Health Plans from several insurers, much as large employers can. • Preserve Employer Control. Employers can decide whether and when to participate in SHOP.  You will be able to choose your own level of contribution toward your employees’ coverage, and make a single monthly payment via SHOP rather than to multiple plans.   • Lower costs. SHOPs spread insurers’ administrative costs across more employers. In addition, very small businesses may be eligible for small business tax credits when employee coverage is purchased through a SHOP. For information on Covered CA’s SHOP go to www.hbex.ca.gov

26. What about Large Group Market? (Employers with 50+ FTE employees) • Starting 1/1/2014, the ACA requires large employers (defined as having 50+ full-time equivalent workers in 2013) to either Play (offer affordable health coverage to their workforce) or Pay a penalty to the federal gov’t • § 4980H(a) If NO COVERAGE is offered (to 5% or more of your full time workers) – the penalty is $166.67 per mo. ($2,000/year) for ALL full-time workers (the employer is not charged a penalty for the first 30 workers) • § 4980H(b) If coverage IS offered but is deemed unaffordable or falls short of minimum essential benefits, then certain low income employees can potentially expose the employer to penalties of up to $250 per employee per mo. ($3,000 per year) • Groups of employers are treated as one employer if applicable under IRC § 414 (b) (c) (m) or (o)

27. How much is the penalty for non-offering large CA employers? • It’s a NON-Deductible Business Expense • Federal Corporate Tax Rate is 35% • California Corporate Tax Rate is 8.84% • Combined Tax Rate is 43.84% • For every $1.00 of non-deductible expenses a business has, it must make $1.78 (and the $.78 goes in corporate taxes and then the $1.00 can be paid to the IRS as the penalty) • Therefore the REAL penalty for not providing coverage is: • $296.77 per employee per month, • $3,561.25 per employee per year

28. Definition of Full Time Equivalent • Full-time employees are those working 30 or more hours per week • Part Time employees (i.e., those working less than 30 hours per week) are counted as fractions of a full-time employee, on a monthly basis, by taking their total number of monthly hours worked divided by 120 hrs. (some sources say 130 hrs.) • EXCLUDE S seasonal employees (if they work for less than 120 days during the year and excluding them leaves fewer than 50 remaining FTE workers)

29. Full Time Equivalent Example A company has 35 full-time employees (30+ hours). In addition, the company has 20 part-time employees who all work 24 hours per week (96 hours per month). These 20 part-time employees’ hours would be treated as equivalent to 16 full-time employees, based on the following calculation: 20 employees X 96 hours/120 = 1920/120 = 16 16 + 35 = 51 Full Time Equivalent Workers Therefore this is a LARGE Employer under ACA rules

30. Large Employer Minimum Coverage • Defined as 60% or better coverage of the actuarially determined expected claims as applied to the large group/self-funded employer plan population • Use Minimum Value Calculator • Large Group plans can deviate from Essential Benefits, but must offer unlimited benefits • Large Group plans can offer any combination of deductibles, copays, etc. but may NOT require Out of Pocket costs higher than $6,500 per person per year

31. What is Affordable Coverage in Large Group Market? • A Large Employer’s plan will be considered AFFORDABLE if the cost for employee only coverage is less than 9.5% of the Total Household Taxable Income • Employers can use the employee’s W-2 income • Coverage must also be offered for dependent children (up to age 26) but the employee can be required to pay 100% for the dependents • Spouses can be offered coverage, but this is not mandatory (the employee can be required to pay for the spouse 100%)

32. ACA targets waste and overutilization incentives in public programs • Drug rebate changes for Medicare and Medicaid • New provider screening and enhanced oversight periods for new public program suppliers and providers (especially DME suppliers) • New enrollment moratoria in areas identified as at elevated risk for fraud in all public programs • New requirements for Medicare and Medicaid (Medi-Cal) providers and suppliers to establish compliance programs • Development of a database to share data across federal and state programs to identify waste, fraud, abuse

33. Government Program Changes in CA: Medi-Cal & CHIP (Healthy Families) • Medi-Cal expansions to all non-Medicare eligible individuals under age 65 with income up to 133% FPL (includes childless adults!) (100% federal $ through 2016; tapers to 90% federal $ by 2020 and beyond) • PCP payment rates increased to 100% of Medicare rates for 2013 and 2014 (both FFS & Managed Care) • Healthy Families program enrollees transitioned to Medi-Cal • New “Bridge Plan” for those with annual incomes that fluctuate between Medi-Cal eligibility and Individual Exchange Tax Subsidy eligibility (134% to 200% FPL) to ensure continuity of care

34. Government Program Changes: Medicare (Physicians, Hospitals, and Medicare HMOs) • Payment restructuring to recalibrate Medicare Advantage (MA) plans to Medicare FFS rates • Provides bonuses to MA plans receiving 4 or more stars based on current 5-star quality rating system for MA plans (qualifying plans in qualifying areas receive double bonuses) • Modify rebate system based on MA plan’s quality rating • MA plans must partially pay back premiums if have an MLR of less than 85% (i.e. 15% or more spent on administrative/overhead/salary costs); ongoing too low MLRs lead to suspension of future plan enrollment and, ultimately, Medicare contract termination • Major reductions in Medicare Disproportionate Share Hospital (DSH) payments to hospitals • Allows providers organized as ACOs that meet quality thresholds to share in Medicare program cost savings • Reduces Medicare payments to hospitals by specified percentages to account for preventable hospital readmissions • Reduces Medicare payments to certain hospitals for hospital acquired conditions • Reduces Medicaid DSH allotments (final methodology for distribution of remaining DSH $ under development)

36. Special Thanks to…. • Rick Curtis, President, Institute for Health Policy Solutions, Washington, DC (www.ihps.org) • Ed McClements, Senior Vice President – Benefits, Barkley Insurance & Risk Management Phone 805.483.1995Fax 805.483.0703EMcClements@barkleyins.com