J PeguesCEO

Coventry Health CareAbita Springs, January 2013

Health Care Reform . . .

Denial Is No Longer an Option!

Public Domain

Reform implementation is moving ahead aggressively.

3

2014 Market Rules

Rate Review

EHB, AV and

Accredi-tation

QHP Package

Group Wellness

Incentives

Multistate Plans (OPM)

3RsNotice of Benefit

and Payment

Employer Mandate

(IRS)

3

Recently Proposed Rules Shaping the 2014 Marketplace Today

11/20 11/20 11/20 11/20 11/20 11/30 11/30 12/28

More Rules to Come

Minimum Essential Coverage

ExemptionsJAN 2013

Preventive ServicesFEB 2013

NondiscriminationMAR 2013

Administrative Simplification

MAR 2013

3Rs - FINALMAR / APR 2013

2014 Market Reforms

MAR / APR 2013

Wellness Programs - FINAL

MAR / APR 2013

EHB / AV - FINALMAR / APR 2013

Fees on Health Insurance & ASO

MAR / APR 2013

Reporting of Health Insurance

CoverageMAR / APR 2013

Federally Facilitated Exchange

MAR / APR 2013

Individual Mandate

RequirementMAR / APR 2013

4

Latest Exchange Timelines

Federal Activities

20132014

Ongoing Regulations and Guidance

Partnership Exchange Deadline

FEB 15, 2013

Choose EHB Benchmark

DEC 26, 2012

Start QHP CertificationAPR 2013

Ongoing Grants to States

Still Waiting on:Final Exchange Rules, including

federal exchanges (MAR / APR 2013)

State Activities• EHB = Essential Health Benefits• HHS = Health and Human Services• QHP = Qualified Health Plan

5

Complete QHP CertificationJUL 31, 2013

Plan Preview Period in Federal

ExchangeAUG 2013

Finalize Media Plan

JUN 15, 2013

Outreach and Education PlanMAR 29, 2013

HHS Consultation

MAY-AUG 2013

OCT 1Enrollment

Opens

JAN 1Coverage

begins

6

2013

Imminent Reforms

• Employer coverage mandate (over 50 employees) with penalties for non-coverage

• Individual coverage mandate

• Waiting periods limited to 90 days

• Annual dollar limits prohibited

• Coverage for pre-existing conditions for all ages

• Dependent coverage to age 26 even if child eligible for employer coverage

• Small group plan deductibles limited to $2K / $4K

• Rating based on health status prohibited

2014• Annual FSA contributions

limited to $2,500

• 3.8% Medicare tax on net investment income for individuals with income >$200 / $250K

• Added 0.9% Part A tax on individuals with income >$200K / $250K

• Eliminate employer deduction for Part D drug subsidy

Essential Health Benefits (EHBs)

Ambulatory Services Emergency Care Hospitalization Maternity and

Newborn Care

Mental Health and Substance Use Disorder

Services

Prescription Drugs

Rehabilitative and Habilitative

ServicesLab Services

Prevention, Wellness, and

Chronic Disease Management

Pediatric Services,

including Oral and Dental

7

10 Mandated Benefit Categories

How Will the Value of EHBs in Exchanges Be Determined?

8

Coverage of EHBs can be offered at four “metallic”

levels:

Platinum – 90% of health care expenses are paid by the plan

Gold – 80% of health care expenses are paid by the plan

Silver – 70% of health care expenses are paid by the plan

Bronze – 60% of health care expenses are paid by the plan

Actuarial Value (AV)• HHS plans to allow insurers flexibility to determine specific cost sharing as long as overall AV level is met (+/-2%).

• HHS would develop standard AV calculator states could use or choose to modify.

• Calculator will potentially allow adjustments for innovative plan designs.

Components of 2014+ Market

Component Key ProvisionsIndividual mandate

• Minimum essential benefits (MEB) coverage requirement • Penalty is greater of $95 or 1% of income (2014) rising to $695

or 2.5% (2016) • Premium credits up to 400% FPL ($88,200 for Family of 4)

Employer Penalty

• Employers with >50 FTEs must offer affordable MEBs (≤9.5% of

employee income)

• $2K / $3K penalty per FTE (excludes first 30 FTEs) if employer does not offer coverage or coverage is inadequate and employee receives government assistance

9

Employer and Individual Requirements Concerning Coverage

Employer Requirements

• As of January 2014, employers >50 FTEs must offer minimum essential coverage (60% AV) that is “affordable.”

• Premiums cannot exceed 9.5%

income or penalties apply in LG.

• Small employers are exempt whether self- or fully-insured.

• Self-insured / LG do not have essential health benefits requirement but SG does.

Individual Requirements

• As of January 2014, individuals must obtain and maintain minimum essential coverage or pay a penalty.

• Exceptions to the mandate for certain individuals.– For example, if cost of available

coverage >8% of income • 3-month grace period during the

year, but then penalties are cumulative.

Taxes / Fees Impacting Premium in 2014

Comparative Effectiveness

Health Insurer Tax

Risk Adjustment

Fee

Transitional Reinsurance

Exchange User Fees

National Total • $200MM annually• $1 PMPY (FY2013)• $2 PMPY (FY2014)

• $8B (2014)• $11.3B (2015-16)• $13.9B (2017)• $14.3 (2018)

• No national total • $10B in 2014 ($+2B)• $6B in 2015 (+$2B)• $4B in 2016 (+$1B)

• No national total

Key Facts • Starts 10/01/2012• Indexed to NHE growth• Sunsets in 2019• MLR exempt• Payable to IRS by plan sponsor

• Levied by prior year market share based on net premiums• NFP taxed at 50%• MLR exempt

• Fee imposed on • Only individual market plans (inside/outside exchanges) eligible• States may require supplemental fees• Flat per capita fee

• Exchanges must be self-sustaining from a funding perspective starting in 2015

CVH PMPM Est. $0.17 TBD $0.08 $5.25 Up to 3.5% in FFE

Fully-insured - SG & IND inside and outside

- exchange only

Self-insured Medicare CCP Medicare Part D Medicaid

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Major Reform Impacts for Groups

Rate Driver SG Fully-insured LG Fully-insured

Community Rating +/- 25% depending on group characteristics N/A

Compression of age / sex bands

+30% to -15% depending on group

agesN/A

Coverage of EHBs (Most uncertain: habilitative) +5% (estimate) N/A

Risk Pool Changes +15% (estimate)Uncertain due to

unknown shift to self-insured

Commissions TBD state-by-state Pass through

New taxes / fees+2 – 5% (estimate)

PCORI fee, Health Insurer Tax, Re-insurance, Exchange User Fees

+2 – 5% (estimate)PCORI fee, Health Insurer Tax, Re-

insurance

12

How Do the Employer Mandate and Individual Mandate Fit Together?

Essential Health

Benefits Requirement

Minimal Value and

Affordability Requirement

(60% value and premiums ≤9.5%

employee salary)

Mandate Tax Penalty Triggered if Minimal Value

or Minimum Essential Coverage Standard Not

Met

Employer Employee / Individual

Self-insured

Large Group Small Group N/A

Fully-insuredOutsideExchange

Large Group Small Group N/A Individual

Fully-insuredInside Exchange

Small Group N/A

Individual

100-133% FPL

134-150% FPL

151-200% FPL

201-250% FPL

251-300% FPL

301-400% FPL

>400% FPL

Family of 4 income

$23,425$31,155

$31,389$35,137

$35,372$46,850

$47,084$58,562

$58,797$70,275

$70,509$93,700

Over $93,934

Projected Annual and Monthly Silver (70% Actuarial Value) Premiums for Medium-cost Market

Age 20 Age 30 Age 40 Age 50 Age 60

$7,108 – ($592 per mo.)$7,862 – ($655 per mo.)$9,435 – ($786 per mo.)

$13,112 – ($1,093 per mo.) $18,700 – ($1,558 per mo.)

Estimated Monthly Premium Based on Family Premium Contribution Limit (Tied to % of Income)

Limit Age 20 Age 30 Age 40 Age 50 Age 60

2.0%

$39 - $52 (all ages)

3.0 – 4.0%

$78 - $117(all ages)

4.0 – 6.3%

$118 - $246 (all ages)

6.3 – 8.05%

$247 - $393(all ages)

8.05 – 9.5%

$394 - $556(all ages)

9.5%

$558 - $742(all ages)

No Limit$592$655$786

$1,093$1,558

Cost Sharing Subsidies: Actuarial Value “Buy Up” and Annual Out-of-Pocket Limits

AV / Co-paySubsidy

94% AV 94% AV 87% AV 73% AV None None None

OOP Limit (all ages)

$4,16233% of

HSA limit*

$4,162 $4,162 $6,25050% of

HSA Limit*

$12,500100% of

HSA Limit

$12,500 $12,500

Family Purchase DecisionSilver Plan “Benchmark” Premiums and Out-of-Pocket

*Subject to change in annual HHS AV noticeSource: Coventry calculations based on Kaiser Family Foundation estimates

Small Business Coverage Decisions in 2014 Exchange World

Small Business (<50 Employees) Offering Coverage Today

CONTINUE COVERAGE

OPTION 1: Continue offering coverage – purchase full risk plan INSIDE small group (SHOP) exchange

OPTION 2: Continue offering coverage – purchase full risk plan OUTSIDE exchange

OPTION 3: Continue offering coverage – convert to self-insured (ASO) with stop loss limit and avoid reform rating impact

DROP COVERAGE

OPTION 4: Drop coverage and send employees to individual exchange – NO PENALTY

15

16

Reform and Small Group Employers What Will They Do?

Percent of Federal Poverty

LevelIncome1 Tax

Bracket2

Wage Equivalent

of Employer Health Plan3

Federal Subsidies4

Required Pay Raise5

Employer Free Cash

Flow6

Employer Decision7

133% $31,521 15% $14,048 $14,176 ($128) $11,941 Drop?

150% $35,550 15% $14,048 $13,385 $663 $11,941 Drop?

200% $47,400 25% $15,921 $10,985 $4,936 $11,941 Drop?

250% $59,250 25% $15,921 $7,530 $8,391 $11,941 Drop?

300% $71,100 25% $15,921 $5,187 $10,734 $11,941 Drop?

400% $94,800 28% $16,585 $2,935 $13,650 $11,941 Keep?

1. Income calculated based on 2009 FPL for a family of four (HHS), indexed to CPI projections (CBO)

2. Tax bracket based on 2010 tax brackets, indexed to CPI projections (CBO)

3. Computed as CBO estimate of Silver Plan in 2016, indexed to 2014 ($11,941) and divided by (1 – Tax Rate)

4. Estimated federal insurance subsidy

5. Wage equivalent minus subsidies

6. Value of insurance plan

7. Drop if required pay raise is greater than free cash flow

Source: “Labor Markets and Health Care Reform: New Results,” American Action Forum. Douglas Holtz-Eakin (May 2010)

Small group employer offers fully-insured coverage inside or outside exchange Self-only Premiums >9.5% salary?

Employee accepts coverage from employer?No penalty for employee

Does employee buy coverage through exchange?*- No penalty for employee- SUBSIDY if <400% FPL

Are exchange premiums for self-only coverage >8% of income

No penalty for employee

Employee penalty

Employee accepts coverage from employer?No penalty for employee

Does employee buy coverage through exchange?-No penalty

NO SUBSIDY

Are exchange premiums for self-only coverage >8% of income

No penalty for employee

Employee penalty

17

Small group employers (<50 FTE employees) do not face employer penalties even if an employee receives a premium tax credit or cost sharing subsidy in an Exchange.

No

No

No

No

Yes

Yes

Yes

Yes

*Employee may elect to go to exchange for insurance but will not be penalized if they do not.

Small Group Decisions in 2014Implications for Employees

No

Yes

No

Yes

No

Yes

2014 Market Rules

Major Provisions

Applies to plan years starting on or after January 1, 2014

HHS proposes standardization in rating methodologies, including per-member rating but with family cap (three oldest members)

Issuers will be required to use standard 3:1 age band and age rating curve » Single age band for children age 0 – 20 » One-year age bands for adults age 21 – 63 » Single age-band for adults age 64+» 1.5x for tobacco users

No more than seven rating areas in state without HHS approval

Aligns open enrollment periods inside / outside exchanges

18

HHS Proposed Standard Age Curve

19

J PeguesCEO

Coventry Health CareAbita Springs, January 2013

Health Care Reform . . .

Denial Is No Longer an Option!

Public Domain