Ted Loftness , MD Vice President & Medical Director, Medica

1. Federal Health Reform and You • Ted Loftness, MD • Vice President & Medical Director, Medica

2. What We’ll Discuss • A broad overview of the Patient Protection and Affordable Care Act • Some key details

3. U.S. Supreme Court Decision, June 2012 • The Individual Mandate • Constitutional under Commerce Clause? • Constitutional under “Necessary and Proper”? • Constitutional as a tax? • Expansion of Medicaid • Constitutional under Congress’ spending power?

4. What’s in the Law • Access • 32 million Americans will be eligible for subsidized coverage • 23 million estimated to remain uninsured • Insurance reform • Guarantee Issue and elimination of coverage limits • Requirements of employers, individuals • “Play or pay”? A new marketplace • The exchange • Costs • Premiums and national spending will go up • Debate on the impact to the federal deficit • Pay-fors • A number of taxes and fees, changes affecting Medicare

5. Employer Mandates • Automatic Enrollment (beginning 2015) • An employer that has more than 200 full-time employees must automatically enroll new full-time employees in a health plan • Employer must include adequate notice and the opportunity for an employee to opt out of any coverage. • Notice to Employees about the exchange • At the time of hiring, employers must give new employees written notice informing them of the existence of the exchange • Employees must be notified that they may be eligible for a premium tax credit through the exchange if the employer benefit plan is unaffordable

6. Employer Penalties • Beginning in 2014, an employer with at least 50 fulltime employees may be subject to a penalty : • Penalty 1: if the employer does not offer minimum essential coverage $2,000 for each full-time employee, minus the first 30 employees • Penalty 2: if the employer offers unaffordable coverage $3,000 for each full-time employee who receives a premium tax credit or cost-sharing subsidy The penalty for offering unaffordable coverage cannot be more than the penalty for not offering coverage

7. From Kaiser Health News, Aug 8, 2012. Political Cartoon: "Customer Care" By Chip Bok, Akron Beacon Journal

8. A Tax, Not An ‘Individual Mandate’ • Takes effect January 1, 2014 • Does not apply if : • Uninsured for less than three consecutive months • The premium exceeds 8% of annual household income • Taxable income is below 100% of the federal poverty level • Penalty is 1/12 of the greater of the following • 2014: 1% of income or $95 • 2015: 2% of income or $325 • 2016: 2.5% of income or $695 • After 2016: $695 multiplied by the cost of living adjustment, rounded to the next lowest multiple of $50

9. Reform Is Driving Profound ChangesThat Will Affect Everyone • Mergers and acquisitions • Hospital consolidation • Insurer consolidation (especially Medicare, Medicaid) • Lines blurring between providers, insurers • Accountable care organizations • Vertically (or virtually) integrated companies that provide both health care and health insurance • Physicians becoming employees • “Pay or Play” decisions for employers, individuals

10. More Patients, Same Number of Doctors From Kaiser Health News, Aug. 7, 2012. By Jerry King, artizans.com.

11. Some Key Details

12. Reform So Far … And Still To Come Already in place • Dependents covered to age 26 • No lifetime benefit limits (for essential benefits) • Begin phase out of annual limit on (essential) benefits • No pre-existing condition exclusion for kids • Preventive services covered at 100% • Medical Loss Ratio (MLR) and rebate requirements • 80% MLR for individual and small group • 85% MLR for large group • Rules for grandfathered/non-grandfathered plans Ahead • Transformation of 1/6th of the U.S. economy

14. What Is Guarantee Issue?” • Requires health plans to accept or renew every individual and every employer (large and small) that applies for coverage • Prohibits any pre-existing condition exclusions or discrimination based on health status • Permits insurers to hold open enrollment periods • Open enrollment for individuals • October 1, 2013 through March 31, 2014 • October 15, through December 7 of each following year • Open enrollment for small group coverage inside the exchange begins on October 1, 2013 • Requires special open enrollment periods for “qualifying events” – those defined under COBRA.

15. What Are ‘Rating Changes’? • Rating limitations apply for all individual and small groupplans • No rating based on health status • Rating variation is only allowed for the following • Age - 3:1 ratio across age bands • Tobacco - 1.5:1 ratio maximum • Individual or family enrollment • Geography • Rating limitations do not apply to large group coverage until/unless a state elects to allow large groups to purchase through the exchange after 1/1/2017

16. Limits on Deductibles and Out-of-Pocket Cost Sharing Out-of-pocket cost sharing limited to the annual limits for High Deductible Health Plans • Current limits • $ 6,050 (Individual) • $12,100 (Family) • Small group deductibles limits • $2,000 for individual coverage and • $4,000 for family coverage • Will apply to all small group plans (inside, outside the exchange)

17. What Are ‘Essential Health Benefits’? • We don’t yet know the answer to this question • States are responsible for defining essential health benefits • Waiting for final guidance on many questions • For example, will services such as these be “essential” • habilitative • Vision • pediatric dental care

18. What Are ‘Actuarial Values’? • Every small group and individual product inside and outside of the exchanges must meet one of the following actuarial values. • 60% - Bronze • 70% - Silver • 80% - Gold • 90% - Platinum • Federal government will develop a calculator for plans to measure actuarial value. • States can use state specific data to fine tune the actuarial value • Deviation of +/- 2% allowed • Employer contributions to HSA or HRA counts toward benefit • Individual HSA contributions do not count toward benefit

19. Product Changes cont. • Additional Product Options/Requirements • Catastrophic plan • Available only to individuals under the age of 30 or individuals exempt from minimum essential coverage requirement • Allows for higher deductibles (up to annual out-of-pocket limits) • Child only policies • If a carrier offers a product then that carrier has to offer a child only version of that product • Two tiered pricing allowed – regular/child only

20. The Exchange: Early Planning in MN • Two Exchanges – Individual and Small Group • Separate risk • Separate products • One ‘portal’ for all consumers; individual, small group, Medicaid • Exchange products must be ‘qualified health plans’

21. Building an Exchange is Challenging

22. Key Timeline: MN Exchange • MN Exchange Expected Timeline • Fall 2012 • Application to federal government for certification • Define ‘Essential Health Benefits’ • Define ‘Qualifying Health Plan’ requirements • January 2013 • Approval by federal government for MN’s exchange plan

23. The Exchange:Navigators andAgents/Brokers Navigator Program Minimum of 2 types of entities must qualify as Navigators; 0ne must be a community and consumer-focused non-profit Also eligible: trade associations, Chambers of Commerce, unions, and licensed agents and brokers Navigators Must Not Be a health insurance issuer or subsidiary; Be an association that includes members of, or lobbies on behalf of, the insurance industry; or Receive any reimbursement directly or indirectly from any health insurance issuer Agent or broker Many unanswered questions about their role Who will compensate them; the exchange or insurers?

24. Federal Health ReformTaxes and Fees Include • Premium tax on insurers and self-insured employers beginning July 31, 2013 ($1 per covered live; rises to $2/per in subsequent years) • $27B annual fees on pharmaceutical manufacturers • 2.3% excise tax on medical device manufacturers • Raise to 10% the floor for tax deductible medical expenses (now 7.5%) • Limit flexible spending account contributions to $2,500 annually • Reinsurance Program Fee, per capita • Assessments on products offered through health insurance exchanges • Medicare Hospital Insurance Tax on employees will go two-tiered • 1.45% rate on wages up to $200,000 single/$250,000 joint • 2.35% rate on wages above those levels • New 3.8% Medicare tax on net investment income (interest, dividends, capital gains, etc.) above the $200,000/$250,000 incomes

25. The Interconnectedness of Reform 1. Insurance market reforms • Guaranteed issue • No pre-ex conditions • Free preventive care “Child” coverage to age 26 • 4. ‘PayFors’ to fund it • • Taxes/fees on employers, insurers, drug/device makers • Fines (individuals, business) • Lower Medicare/Medicaid pay to doctors, hospitals …which requires which requires… 3. Subsidies for lower income consumers • Medicaid expansions to 133-150% of FPL? • Subsidies to 400% FPL? 2. An effective ‘personal responsibility requirement’ (individual mandate) …which requires

26. Questions