“ PPACA Update May 2012“ IAHU State Convention May 10, 2012

1. “PPACA Update May 2012“IAHU State ConventionMay 10, 2012 Jesse A Patton LUTCF, HIA, MHP, FAHM, EHBA, HIPAAA, PHIAS

2. Federal ACA Funding by Program Category Total: $12.1 Billion SOURCE: KFF Analysis of ACA Funding, April 2, 2012.

3. PPACA in 2014 – Individual Mandate • Requires all American citizens and legal residents to purchase qualified health insurance coverage • Legal challenges to the constitutionality of this requirement took this case to the Supreme Court. • In 2014, those without insurance will pay the greater of $95 or 1% off household income that exceeds personal exemption for that year • Starting in 2016, the penalties rise, to the greater of $695 or 2.5% of income. These penalties apply to EACH family member without coverage

4. PPACA in 2014 – Individual Mandate • Exemptions to individual mandate for: • financial hardship • religious objections (see for reference IRC Sec. 1402 (g)(1)) • American Indians • those without coverage for less than three months • undocumented immigrants, incarcerated individuals • those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold

5. GAO Report on Fixes to the Mandate • Tighten open enrollment, penalize late enrollment • Automatically enroll employees into employer coverage • Automatically enroll individuals into Exchanges • Expand Public Education & Outreach • Provide personalized enrollment assistance

6. GAO Report on Fixes to the Mandate • Tax Uncompensated Care • Increase age-based premium variation • Condition the receipt on government services on proof of health insurance • Reconfigure the role of agents & brokers • Encourage credit rating agencies to consider health coverage

7. How Many Could be Affected by the Individual Mandate in 2016? 32 millionpreviously uninsured affected by the mandate 24 million qualify for exemptions from the mandate 219 million insured by employers, Medicaid, Medicare’s disability coverage, or individual insurance and not affected by the mandate Projected Non-Elderly in 2016 = 275 million Source: Kaiser Family Foundation analysis; Congressional Budget Office; Jonathan Gruber

8. As you may know, the health reform law will require nearly all Americans to have health insurance by 2014 or else pay a fine. Would you say you feel very favorable, somewhat favorable, somewhat unfavorable or very unfavorable about that provision of the law? Could you tell me in your own words what is the main reason you have a favorable/unfavorable opinion? Two-Thirds Have Unfavorable View Of Individual Mandate/Fine REASONS FOR UNFAVORABLE OPINION (among the 67% with unfavorable view) REASONS FOR FAVORABLE OPINION (among the 30% with favorable view) Everyone needs health care/Insurance (32%) Government overreach (30%) Expands coverage (17%) Insurance is too expensive (25%) Favorable People should pay fair share (16%) Complaints about fine (22%) Unfavorable Controls costs (15%) Unconstitutional (5%) Don’t know/ Refused Note: Only the top 4 responses for each opinion listed. Source: Kaiser Family Foundation Health Tracking Poll (conducted January 12-17, 2012)

9. Mandate’s Opponents Want Court To Rule It Unconstitutional; Supporters More Divided In your own opinion, do you think the Supreme Court should rule that it is constitutional or unconstitutional for the federal government to require all Americans to have health insurance, or do you not know enough to say? Don’t know enough to say/Refused Constitutional Unconstitutional Total Unfavorable view of mandate Favorable view of mandate Source: Kaiser Family Foundation Health Tracking Poll (conducted January 12-17, 2012)

10. What Happens If Court Strikes Down The ACA’s Mandate? If the Supreme Court rules that the federal government cannot require Americans to have health insurance, do you expect some parts of the health care law will still be implemented, or do you think this will effectively mean the end of the entire law? Effectively means end of the entire law Some parts of the law will still be implemented Don’t know/ Refused Source: Kaiser Family Foundation Health Tracking Poll (conducted January 12-17, 2012)

11. No Change In Overall Views Of ACA After Supreme Court Arguments As you may know, a health reform bill was signed into law in 2010. Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it? Favorable Unfavorable Don’t know/Refused ACA signed into law on March 23, 2010 2010 2011 2012 Source: Kaiser Family Foundation Health Tracking Polls

12. Favorability Of Provisions Remains Fairly Steady After Oral Arguments Percent who say they feel favorable about each of the following elements of the health reform law: *Trend from June 2010 Health Tracking Poll; **Trend from November 2011 Health Tracking Poll; all other trends from March 2012 Health Tracking Poll. Note: Items asked of separate half samples. Response wording abbreviated. See Topline: http://www.kff.org/kaiserpolls/8302.cfm for complete wording. Source: Kaiser Family Foundation Health Tracking Polls

13. Court heard arguments about four different issues The constitutionality of the individual mandate. The constitutionality of the Medicaid provisions: Are they an illegal commandeering of the states' autonomy? Whether the Anti-Injunction Act bars review of the mandate until after 2014: This centers on whether the penalty for not having insurance is a tax, since the Anti-Injunction Act prohibits lawsuits stopping a tax until after the tax goes into effect. Which other pieces of the law should fall if the mandate is found to be unconstitutional.

14. High Court Has Options On Health Care Law • Supreme Court upholds the law and finds Congress was within its authority to require most people to have health insurance or pay a penalty • The court strikes down the entire law • Court strikes down the individual insurance requirement, but leaves the rest of the Affordable Care Act in place

15. High Court Has Options On Health Care Law • Court strikes down the mandate, and invalidates the parts of the law that require insurance companies to cover people regardless of medical problems • Court throws out only the expansion of the Medicaid program • Wild Card -- Court decides that the constitutional challenge is premature

16. CBO 2019 Estimates of Insurance Coverage Among noneldery (under age 65). ‘Exchanges’ include 2% (5M) that CBO counted as ‘Employer.’ If excluding unauthorized immigrants, CBO’s uninsured projection for PPACA would be 6%.

17. Average Annual Premiums for Single and Family Coverage, 1999-2011 * Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011.

18. Average Annual Health Insurance Premiums and Worker Contributions for Family Coverage, 2009-2011 $15,073 $13,770 $13,375 Worker Contribution Employer Contribution Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009-2011.

19. Cumulative Increases in Health Insurance Premiums, Workers’ Contributions to Premiums, Inflation, and Workers’ Earnings, 1999-2011 Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2011; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2011 (April to April).

20. Physician Fee for Hip Replacement, 2008Adjusted for Differences in Cost of Living Dollars Private payers Public payers THE COMMONWEALTH FUND Source: M. J. Laugesen and S. A. Glied, “Higher Fees Paid to U.S. Physicians Drive Higher Spending for Physician Services Compared to Other Countries,” Health Affairs,Sept. 2011 30(9):1647–56.

21. Market Share of Three Largest Health Plans, by State, 2010 WA NH ME VT MT ND OR MN MA ID NY WI SD MI WY RI CT PA IA NE NJ NV OH IN DE IL UT CA MD WV CO VA KS DC MO KY NC TN OK AZ NM AR SC GA AL MS TX LA FL AK 48%–59% (4 states) 60%–69% (12 states) HI 70%–79% (24 states) 80%–90% (10 states and D.C.) Source: Authors’ analysis of Managed Market Surveyor, Healthleaders-Interstudy (Jan. 2010). HealthLeaders-Interstudy. Used with Permission. All Rights Reserved.

22. Health Insurance CO-OPs • Federal government now pledged $3.8 billion in grants and loans to assist in the establishment of non-profit member-run health CO-OPs. Originally PPACA established $6 billion • Candidates to create a CO-OP Accountable Care Organization Integrated Delivery Systems Chambers of Commerce Associations • Grants that assist CO-OPs with State Solvency/Reserves must be repaid in 15 years. Loans that assist in start-up cost repaid in 5 years

23. CO-OPs Unlike many health insurance companies today, a CO-OP: • Gives its enrollees a say in their health plan.CO-OP members elect the board of directors, a majority of whom must also be enrolled in the CO-OP health plan. • Uses profits to benefit enrollees.CO-OPs are required to use their profits to lower premiums, improve health benefits, improve the quality of health care, expand enrollment or otherwise contribute to the stability of coverage for members. • Educates enrollees about the plan.Because a CO-OP relies on its enrollees to help decide the direction of the plan, communication about key features of the plan will be a high priority.

24. Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2011 1% 1% 1% 1% * Distribution is statistically different from the previous year shown (p<.05). No statistical tests were conducted for years prior to 1999. No statistical tests are conducted between 2005 and 2006 due to the addition of HDHP/SO as a new plan type in 2006. Note: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer-Sponsored Health Benefits for additional information. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.

25. Percentage of All Firms Offering Health Benefits, 1999-2011 *Estimate is statistically different from estimate for the previous year shown (p<.05). Note: Estimates presented in this exhibit are based on the sample of both firms that completed the entire survey and those that answered just one question about whether they offer health benefits. The percentage of firms offering health benefits is largely driven by small firms. The large increase in 2010 was primarily driven by a 12 percentage point increase in offering among firms with 3 to 9 workers. In 2011, 48% of firms with 3 to 9 employees offer health benefits, a level more consistent with levels from recent years other than 2010. The overall 2011 offer rate is consistent with the long term trend, indicating that the high 2010 offer rate may be an aberration. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011.

26. Concentration of Health Care Spending in the U.S. Population, 2008 Percent of Total Health Care Spending (≥$44,338) (≥$16,336) (≥$9,148) (≥$6,074) (≥$4,374) (≥$825) (<$825) Note: Dollar amounts in parentheses are the annual expenses per person in each percentile. Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included. Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2008.

27. Federal High Risk Pool • Average Cost Per Person in Current States High Risk Pool $12,471.00 • CBO’s Projected Average Cost Per Person in New Federal High Risk Pools $13,026.00 • Actual Average Cost Per Person in Federal High Risk Pools $28,994.00

28. MLR Requirements • The MLR provision of health reform requires insurers to use at least 80% of premium dollars (85% for large employer plans) on health care expenses and quality improvement (rather than overhead and profits). If an insurer doesn’t meet the requirements, it will have to pay rebates to consumers. Rebates based on 2011 experience will have to be paid by August 2012.

29. Summary of Benefits & Coverage • HHS issued final rule on the SBC on February 9, 2012 Rule requires an insurer and health plan provide standardized SBC to consumers When Shopping for coverage Enrolling in Coverage New Plan Year Within Seven Days of a Request

30. SBC Rules • Applies to domestic and international group and individual health plans. To all fully insured and self-insured plans, regardless of grandfather status. Does not apply to Medicare plans • Non-Compliance is $1,000 per enrollee for each failure to comply • May be provider in paper or electronic form under ERISA electronic distribution rules

31. SBC Effective Date Group Plans: • Participants enrolling or reenrolling at open enrollment-prior to the first day of open enrollment beginning on/after 9/23/2012 • Participants enrolling other than open enrollment starting on the first day of the plan year beginning on/after 9/23/2012 • SBC’s provided to insured plan sponsors-immediately on 9/23/2012 upon application, when changes occur, at renewal and upon request

32. SBC Effective Date Individual Plans: • Immediately on 9/23/2012 SBC must be consistent 4-double-sided page format with 12-point font. Individuals must be informed 60 days ahead of significant plan changes that affect SBC other than with a renewal or reissuance of coverage

33. CAP on FSA Salary Reductions • $2,500 Limit on Salary Reductions Contributions for taxable years beginning after December 31, 2012 • Indexed for inflation for taxable years beginning after December 31, 2013 • All Health FSAs must comply-Grandfathering does not apply

34. FSAs Annual Caps • The limit is a flat dollar amount and applies on a per-participant basis. Family members are not permitted to make higher FSA reductions. • Husband and wife with their own employment based FSA will have separate limits. • Employer contributions that allow cash out will count towards the $2,500. • Plans must amend plan documents.

35. Essential Benefits Defined in 2014 Section 1302(b) defines essential health benefits to include: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and Substance use disorder services • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory Services • Preventive and wellness services and chronic disease management • Pediatric services, including oral and vision care

36. Comprehensive & Flexible • HHS propose using a benchmark approach • States would have Flexibility to select benchmark that reflects the scope of a “typical employer plan • Gives the States the flexibility to best meet the needs of their citizens

37. Benchmark Approach States would choose one of the following benchmark health insurance plans: • One of the three largest small group plans in the State by enrollment • One of the three largest State Employee health plans by enrollment • One of the three largest federal employee health plan options by enrollment • The Largest HMO plan offered in the State’s commercial market by enrollment If State choose not to select benchmark, HHS intends to propose the default will be the small group plan with largest enrollment in the State

38. State Funding • To prevent Federal dollars going to State Benefit mandates, PPACA requires States to defray the cost of benefits required by State law in excess of Essential Health Benefits • This will apply for individuals enrolled in any plans through an exchange • 2014 & 2015 transition relief if State elects one of the three largest small group plans as benchmark

39. W-2 Report PPACA GUIDANCE ON W-2 REPORTING OF GROUP HEALTH COVERAGE • The PPACA Rule: Starting in tax year 2011, PPACA requires that employers report the cost of coverage under an employer-sponsored group health plan. • Why this rule? PPACA states that the purpose of the W-2 Reporting is to provide employees useful and comparable consumer information on the cost of their health care coverage. The IRS solidifies this purpose by designating that W-2 data on group health costs as “informational reporting.” • The Exception to the PPACA Rule –IRS Notice 2010-69 “Provides interim relief to employers with respect to reporting the cost of coverage under an employer-sponsored group health plan on form W-2, Wage and Tax Statement …..Specifically, this notice provides that reporting the cost of such coverage will not be mandatory for forms W-2 issued for 2011. Will provide employers additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance.”

40. PPACA GUIDANCE ON W-2 REPORTING • The New PPACA W-2 Reporting Rule –The Exception to the Exception –IRS Notice 2011-28 provides interim guidance that generally applies beginning with 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to provide employees in January 2013). Employers are not required to report the cost of health coverage on any forms required to be furnished to employees before January 2013. • However –there is another exception and that is that employers that are subject to the reporting requirement for 2012 W-2 forms may choose to voluntarily comply with the PPACA regulations in 2011. [The cost of employer-sponsored health coverage is to be reported in Box 12 using Code DD.] Now we are finally clear –PPACA W-2 reporting requirements require employers to provide the cost of health coverage for all employees definitely in 2012. WELL!!!!!! THERE ARE SOME EXCEPTIONS TO THAT STATEMENT

41. GUIDANCE ON W-2 REPORTING • The PPACA Rule –Employers -all employers that provide "applicable employer-sponsored coverage" under a group health plan are subject to the reporting requirement. This includes federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families), churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements, but does not include federally recognized Indian tribal governments. • The Exception to the PPACA Rule –Employers and applicable coverage -For certain employers and with respect to certain types of coverage, the requirement to report the value of coverage will not apply for the 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to provide employees in January 2013) and will not apply for future calendar years until the IRS publishes guidance giving at least six months of advance notice of any change to the transition relief. AND THE EXCEPTIONS ARE !!!!!

42. Exceptions (1) employers filing fewer than 250 Forms W-2 for the previous calendar year (for example, employers filing fewer than 250 2011 Forms W-2 (meaning Form W-2s for the calendar year 2011, which generally are filed with the SSA in early 2012) will not be required to report the cost of coverage on the 2012 Forms W-2 (which generally are filed with the SSA in early 2013); (2) multiemployer plans; (3) Health Reimbursement Arrangements; (4) dental and vision plans that are not integrated into another group health plan; (5) self-insured plans of employers not subject to COBRA continuation coverage or similar requirements; and (6) employers furnishing Forms W-2 to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year.

43. GUIDANCE ON W-2 REPORTING The PPACA RULE -The Affordable Care Act requires employers to report the total cost of all “applicable employer-sponsored coverage.” • The Exception to the PPACA Rule -Certain types of coverage are excluded from the definition of applicable employer-sponsored coverage and are not included in the amount reported. These types of coverage are: (1) coverage for long-term care; (2) coverage for the following HIPAA "excepted benefits": coverage only for accident, or disability income insurance, or any combination of these coverage's; • supplemental liability insurance; liability insurance (including general liability insurance and automobile liability insurance); workers’ compensation or similar insurance; automobile medical payment insurance; credit-only insurance; and other similar insurance coverage specified in regulations, if the benefits for medical care are secondary or incidental to other insurance benefits.

44. GUIDANCE ON W-2 REPORTING (3) any coverage under a separate policy, certificate, or contract of insurance which provides benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth) or for treatment of the eye; and (4) coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance, if the employee pays the premiums for the coverage on an after-tax basis. • In addition, employers should not include the following amounts in calculating an employee’s total cost of coverage: (1) the amount contributed to any Archer MSA; (2) the amount contributed to any Health Savings Account; and (3) the amount of any salary reduction election to a flexible spending arrangement (FSA).

45. PPACA in 2014 • Coverage must be offered on a guarantee issue basis in all markets and be guarantee renewable • Rates are restricted to 3 to 1 for age and no health status • Exclusions based on preexisting conditions would be prohibited in all markets • Redefines small group coverage as 1-100 employees. Possible waiver until 2016

46. Health Insurance Exchanges

47. Health Insurance Exchange • A health insurance exchange is an organized marketplace for the purchase of health insurance • Exchanges do not bear risk themselves – they are not insurers • They would contract with private insurers to cover specified populations

48. Exchanges A web portal “marketplace” for health insurance Small Businesses If up to 100 employees, can buy thru Exchange Individuals (no subsidies for ones offered employer-based coverage, unless that coverage is “unaffordable”) Self-insured plans not eligible to Participate States • each sets up own Exchange • will be involved in premium reasonableness reviews; can approve/reject as provided under state law Federal Government • sets criteria for plan participation • and purchaser eligibility • provides subsidies for small businesses and individuals • sets up Exchange if a state fails to ©2010 Steptoe & Johnson LLP

49. PPACA in 2014 • Creates sliding-scale tax credits for non-Medicaid eligible individuals with incomes up to 400% of FPL to buy coverage through the exchange • The requirement that the subsidies are only available through the exchange is significant

50. Medicaid vs. Subsidized Exchange Coverage: Differences in Eligibility and Benefits Source: “Determining Income for Adults Applying for Medicaid and Exchange Coverage Subsidies: How Income Measured With a Prior Tax Return Compares to Current Income at Enrollment”, Focus on Health Reform, the Kaiser Family Foundation, March 2011.