Health Care Reform Update

1. Health Care Reform Update UAHU Salt Lake Valley Luncheon Doty Family Education Center—Intermountain Medical Center January 11, 2012

2. Roadmap Insurance Reform Is it Constitutional? Public Health/Quality of Care Payment Reform Crystal Ball

3. Insurance Reform Update

4. Medical Loss Ratio Rebates • Insurers must provide premium rebates to each enrollee on a pro rata basis if the ratio is less than: • 85% in the large group market; and • 80% in the small group and individual markets.

5. Rebates • Calculated for each State and by Line of Business (no aggregation) • Report to HHS by June 1st and distribute by August 1st • Form of payment: premium credit (current enrollees only), lump sum check, lump sum to credit or debit account • No rebate required if less than $5 per subscriber • .

6. MLR Waivers • The ACA allows the states to apply for waivers from application of the MLR requirements if they would “destabilize the individual market”. • Seventeen states have applied for a waiver. • Six waivers have been granted by HHS. • Eight refused. • Victory or failure?

7. MLR Waivers for Maine—a case study • HHS review was meticulous and well-reasoned. • 3 main carriers in individual market; fear that one of them (MEGA Life), with 37% market share, would leave. • Based on prior experience: when Maine implemented a 75% MLR requirement in 2004, MEGA withdrew—at the time, it operated at a 52% MLR in the small group market!

8. Not Just Maine • Texas Waiver Request: • Standard Life and Casualty has a published MLR of 53 percent.

9. Other States • Other waivers are not as dramatic: • New Hampshire • -72% in 2011; 75% in 2012 • Nevada and Kentucky • -75% for 2011 • Iowa • -67% for 2011; 75% for 2012

10. Effect on Commissions • Nationwide cuts by as much as 50%. • NAIFA poll in May—over half of the respondents report reductions of 25% or more. • 44% will start charging for certain services • 23% have reduced services • 11% stopped selling individual • 4% left health insurance altogether

11. NAIC Votes to Protect Producer Comp • After months of waffling, in late November the NAIC finally adopted a resolution urging Congress and HHS to protect producer compensation by: • Approving state waiver requests; • Placing an immediate hold on implementation and enforcement; and/or • Reclassifying an appropriate portion of compensation expense in the calculation.

12. HHS Ignores Request • In early December, HHS issued its Final Rule on MLR’s, without changing the treatment of producer compensation in the MLR calculation.

13. HR 1206 • Sponsored by Mike Rogers (R-MI) and John Barrow (D-GA). • Would remove commissions from the denominator. • Likely would pass the House • Stiffer challenge in the Senate (Rockefeller and Harkin key opponents) • AMA and consumer advocacy groups oppose

14. The New Summary of Benefits and Coverage

15. Nutrition Facts • A standardized summary of key nutrition information. • Implemented in 1994. • Why is he nervous? • Do you read them when making consumption choices?

16. Decisions, Decisions

17. Background • The Affordable Care Act required that, by March 23, 2011 (one year after passage), HHS develop uniform standards for group health plans and insurers in the group and individual markets to provide enrollees with a summary of benefits and coverage (SBC). • These federal standards will preempt state law. • Proposed regulations were finally published on August 22.

18. Statutory Requirements • By March 23, 2012, plans must provide the SBC at the time of application and prior to enrollment/issuance. • Notice of material changes must be provided at least 60 days prior to the date the modification will become effective.

19. Statutory Requirements • The SBC: • Cannot exceed 4 pages in length; • Cannot use smaller than 12-point font; • Must be presented in a culturally and linguistically appropriate manner, using language understandable by the average plan enrollee; and • Has additional, elaborate, content requirements.

20. Statutory Requirements Penalties: Any entity that willfully fails to provide the required information is subject to a fine of not more than $1,000 per enrollee.

21. Proposed Regulations The guidance includes a proposed SBC template and a uniform glossary of common health coverage terms. The proposed SBC template includes instructions, samples, and a guide for providing coverage examples to illustrate benefits provided under the plan for common benefits scenarios.

22. Proposed Regulations • Group health plans with multiple coverage options must provide a separate SBC for each option. • Convenient Math employed.

23. Convenient Math • Examples from SBC Regs • March 23, 2011 = August 21, 2011 • 4 Pages = 8 Pages

24. Practice on Your Own! • Tell the IRS that you’ll respond to their audit request “in 7 days.” • Then respond 7 weeks later. • When they ask about the delay, explain that you didn’t specify which days and decided to count the Tuesdays.

25. Proposed Regulations • Effective Date: • The ACA called for the SBC requirement to become effective on March 23, 2012 (two years after passage); • The proposed regulations requested comment on the whether this is feasible, noting that the comment period for the regs closes on October 21, and it will take time after that to finalize the SBC template and related materials.

26. Proposed Regulations • Effective Date Delayed! • In an FAQ document released in November, the Departments stated that the final regulations will "include an applicability date that gives group health plans and health insurance issuers sufficient time to comply." The FAQs also state that until final regulations are issued and applicable, plans and issuers are not required to comply with the SBC requirements of the ACA.

27. Other Punts and Slides • Free Choice Vouchers—repealed • 1099’s—repealed • CLASS Act (long-term care)—DOA • Discrimination testing—delayed • W-2 Reporting—delayed

28. W-2 Benefit Disclosures • Effective for the 2011 tax year, employers are required to disclose the aggregate cost of applicable health insurance coverage on the employee’s W-2 forms. • But see Notice 2010-69, making this requirement optional for Forms W-2 issued for 2011.

29. W-2 Benefit Disclosures • On March 29, 2011, IRS released Notice 2011-28, which provides detailed guidance on how and what to report. • This guidance includes several categories of transition relief, including for: employers filing fewer than 250 W-2’s, who have at least until 2013 (filed in 2014); HRA’s; certain dental and vision plans; etc.

30. W-2 Benefit Disclosures • Breaking News: • On January 4, 2012, IRS released Notice Notice 2012-9, which updated and replaced Notice 2011-28, and provides significant additional detail. • Requirement doesn’t apply to Health FSA’s. • Report can be based on information available on December 31, and need not be adjusted for later elections or notifications with retroactive effect.

31. Exchanges • Update on the Utah Health Exchange • Total Employer Groups – 205 • Covered Lives – 5,091 • Avg. Employer DC Amount – $430 • Highest Employer DC Amount – $1,855 • Percentage of groups without prior coverage – 23%

32. Exchanges • UHE – Work in Progress • Cost and Quality Transparency (utilizing the APCD) • Navigator (no wrong door) • Aggregation of premiums • Preparing for ACA functional requirements • Approach to the Feds: divided house

33. Exchanges – The Feds • Series of regulations issued over the summer. • Industry and Intermountain responded. • Late in 2011: the federal regulators announce their intention to be more flexible— “federally facilitated exchanges” and hybrid models.

34. Exchanges – The Feds • Grant money flying off the shelves (Nov. 29 announced $220M to 13 states). • Some of these states among the plaintiffs in the federal litigation. • Utah still has a decision to make, but the new guidance should make it easier. • Upcoming legislation session will be key.

35. Essential Health Benefits • Background • Non-grandfathered plans in the individual and small group markets, both inside and outside of exchanges, must cover “essential health benefits” (ESB) beginning in 2014. • Large and self-insured group health plans are not required to cover ESB.

36. Essential Health Benefits Statute: Ten Benefit Categories • Ambulatory patient services; • Emergency services; • Hospitalization; • Maternity and newborn care; • Mental health and substance use disorder services; • Prescription drugs; • Rehabilitative and habilitativeservices and devices; • Lab services; • Preventive and wellness services and chronic disease management; and • Pediatric services, including oral and vision care.

37. Essential Health Benefits • Statutory Mandate • Secretary of HHS must define EHB. • The scope of EHB should equal the scope of benefits provided under the typical employer plan. • Establish an appropriate balance among coverage categories, but not make coverage decisions, determine reimbursement rates, or establish incentive programs.

38. Essential Health Benefits • Statutory Mandate [cont.] • Must not be designed in ways that discriminate based on age, disability, or expected length of life. • But must consider the health needs of diverse segments of the population.

39. Essential Health Benefits Is this starting to sound familiar?

41. Essential Health Benefits • Institute of Medicine • In order to balance cost and comprehensiveness, recommended that EHB reflect plans in the SE market and that the EHB package be guided by a national premium target, with flexibility across the States to implement actuarially equivalent substitutes.

42. Essential Health Benefits—MI5 • From the HHS Listening Tour • Some consumer groups were upset at IOM’s emphasis on cost (v. comprehensiveness). • Some consumer groups requested that specific benefits should be spelled out by HHS. • Employers and insurers stressed concerns about cost and urged adoption of a more moderate package. • Some consumers requested a uniform benefits package. • Employer, insurance industry and State reps pointed out the need for State flexibility to reflect local preferences and practices.

43. Essential Health Benefits • HHS Bulletin (Trial Balloon Proposal) • On December 16, HHS proposed that EHB be defined by a benchmark plan selected by each State. • The benchmark would serve as a reference plan, reflecting both the scope of services and limits offered by a typical employer plan in that State. • Issuers would be required to offer plans that are “substantially equal” to the benchmark, with flexibility to adjust benefits as long as they covered all 10 statutory EHB categories.

44. Essential Health Benefits • Four Benchmark Plan Types—Glossary • “Product” refers to the package of services covered by an issuer, which may have several cost-sharing options and riders. • “Plan” refers to the specific benefits and cost-sharing provisions available to an enrolled consumer. • Thus, there are multiple “plans” (cost-sharing and rider options) within a single “product”.

45. Essential Health Benefits • Four Benchmark Plan Types • States may choose their benchmark from: • Largest plan by enrollment in any of the three largest products in the State’s SE market; • Any of the three largest State employee health benefit plans by enrollment; • Any of the largest three national FEHBP options, by enrollment; or • Largest insured commercial HMO in the State.

46. Essential Health Benefits Default Benchmark Plan If a State does not exercise the option to select a benchmark, the default benchmark for that State would be the largest plan by enrollment in the largest product in the State’s SE market.

47. Essential Health Benefits • Impact on States/Mandated Benefits • The ACA requires States to defray the cost of any benefits required by State law to be covered by qualified health plans beyond the EHB.

48. Essential Health Benefits 2014-2015 Transition The proposal allows States a “transition period” for 2014 and 2015, to coordinate their benefit mandates while minimizing the likelihood that they will be required to defray costs of additional benefits beyond EHB. State can avoid the cost by choosing as its benchmark an SE plan subject to State mandates.

49. Essential Health Benefits • Kudos to HHS! • Provides remarkable State flexibility • Recognizes that sponsors and issuers make “a holistic decision” in constructing plans, balancing the competing needs for comprehensiveness and affordability.

50. Essential Health Benefits • Still Coming • The Bulletin clarifies it only relates to covered services and that future guidance will address cost-sharing and actuarial value (i.e., the “metals”, gold, silver, etc.). • HHS is still tinkering with the most problematic areas, “habilitative” services and pediatric dental and vision, and requests input on several aspects of these areas.