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Health Care Reform Happened…Now What?

International Association of Black Actuaries | August 2010

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Aspects of Health Care Reform

Health InsuranceExchanges with Reformed Rules

Expanding/Improving Coverage Paying for Expanded Coverage

Medicaid and Affordability

Credits

EmployerResponsibility

IndividualResponsibility

Medicare/MedicaidPayment Changes

AdministrativeSimplification

High-Cost EmployerCoverage Taxation

IncreaseOther Taxes

= direct impact to employers

= indirect impact to employers

= direct and indirect impact to employers

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Timing of Key Reform Provisions

2012 2013 2014 and beyond2011

Early Retiree Reinsurance (2010)

Lifetime Limits Prohibited

Extension of Dependent Coverage to Age 26

Preexisting Conditions Exclusions Prohibited for Children under 19

Only Reasonable Annual Limits Permitted

Effective Appeals Process

Over-the-Counter Medicines Not Reimbursable Under FSA

HSA Excise Tax Increase

Employer Reporting of Health Coverage on Form W-2

Phase-out of Part D Donut Hole

Medicare Advantage payments lower

Coverage for Preventive Health Services*

105(h) Non-discrimination rules apply to insured plans*

Employer Distribution of Uniform Summary of Benefits to Participants

Quality of Care Report

Limit of Health Care FSA Contributions

Notice to Inform Employees of Coverage Options in Exchange

Automatic Enrollment for 2014**

Medicare Tax on High-Income Individuals

Medicare Part D Subsidy No Longer Tax-Free

Employer Responsibility to Provide Minimum Health Coverage

Free Choice Vouchers

Individual Responsibility to Purchase Insurance or Pay Penalty

State Insurance Exchanges

Preexisting Condition Exclusions Prohibited

Annual Limits Prohibited

Automatic Enrollment**

Limit of 90-Day Waiting Period for Coverage in Plan

Increased Rewards Cap for in Wellness Participation

Employer Reporting of Health Insurance Information to Participants and the Government

Excise Tax on High-Cost Coverage (2018)

*Grandfathered**Effective date unclear

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The Price Tag

CBO Estimate of Combined H.R. 3590 and H.R. 4872, 2010–2019

MedicareAdvantage Cuts

Reduction in Medicare Growth Rate

Excise Taxes

System Savings

$517 billion

New Revenue

$564 billion

$32 billion

Other Net Savings

Total Cost of Expanded Coverage: $938 BillionNet Budget Impact: $143 billion reduction to the deficit (without “doc fix”)

Total Cost of Expanded Coverage: $938 BillionNet Budget Impact: $143 billion reduction to the deficit (without “doc fix”)

$65billion

PenaltyPaymentsCLASS

Act

$136 billion $196 billion $115billion

$70billion

$107billion

Industry Fees

$210 billion

Medicare Taxes

$150billion

Other Net Revenues

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Potential Impact on Employers

Design Must create design structure that meets minimum coverage criteria

Must change design to meet expanded coverage requirements

Short-Term/ImmediateShort-Term/Immediate Long-TermLong-Term

Administration/Communication

Need to develop appropriate communication, reporting, and administrative infrastructure

Will continue to increase given absence of true delivery system reforms

Likely to increase depending on organization’s characteristics Active Plan Costs

FAS Liability Immediate and long-term cost impact

Strategy Should address broader health and productivity as well as benefit philosophy May be more compliance focused

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Compliance – What am I required to change?

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Plan Design Requirements

Increased Benefits for Participants

Lifetime limits must be removed

“Unreasonable” annual limits not permitted

– Annual limits will be phased out by 2014

Preventive benefits must be covered at 100%

Children must remain eligible for the plan until they turn age 26

Financial barriers to out-of-network emergency care are limited

Barriers to PCPs, pediatricians and OB/GYNs are not permitted

Deductibles and out of pocket maximums will be limited beginning in 2014

Plans must meet 60% minimum actuarial value beginning in 2014

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Other Requirements

Increased Protection for Individuals

Minimum loss ratios for insured plans

Prohibition of rescissions in most cases

Guaranteed issue and renewal rules

Waiting periods limited to 90 days

No discrimination based on health status

Limited age and tobacco rating

Expanded communication and documentation requirements

Expanded appeals policies and procedures

Affordability and nondiscrimination rules for employer-sponsored plans

Excise tax on high cost employer-sponsored insurance

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Compliance Strategy

Compliance will increase the cost of health insurance

– …but does it have to?

Employers and insurance companies will be searching for ways to mitigate cost increases and limit new risks

– Grandfathering delays some new costs, but limits flexibility

– Losing grandfathering forces bigger strategic decisions…and vice versa

Step out of the silo

– Long term strategic thinking must guide all decisions

– Opportunities abound and can influence strategy as much as risks

> New retiree programs and funding

> Changing market dynamics

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Something about opportunities?

Overview

ERRP

New Medicare Part D funding

New competitive landscape

Changing market dynamics

Changing employer perceptions

Changing public expectations

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Looking Ahead – What really needs to change?

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Health Care Reform’s Impact

New 2020 Realities

Exchanges

Federal Subsidies

Insurance Reform

Employer Responsibility

Individual Mandate

Delivery ReformEmployers

Refine and redefine commitments

Regulation and taxationGovernment

Insurance Industry

Competition based on volume and innovation

IndividualsIncreased

responsibility with the power of knowledge

The employer-sponsored system will endure…the federal budget depends on it

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Five Employer Realities by 2015

1. Employer health care cost will rise over 60% on a “stand still” basis; employer actions will mitigate this increase to 40%

2. Very few, if any, large employers will exit health care benefits, but the market trend to move from DB to DC will have begun

3. Plan designs will be leaner and meaner

4. The explosion of technology-enabled information will (finally) trickle down to our world, but will not lower employer cost

5. Employer-sponsored retiree medical benefits will cease to exist, except for collectively bargained and some grandfathered plans

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Employer costs will rise 60% on a “stand still” basis

Downward Pressures

↓ Plan design value

↓ Discretionary purchasing

↓ Uncompensated care

↓ Brand drug patent expirations

↓ Focused care management programs

Annual gross trend of 10% per year; net trend of 7% per year

Upward Pressures

Demographics

Obesity-related chronic illness—including children

New therapies

Cost shift from Medicare

Industry fee pass-throughs

New coverage provisions

Individual mandate

These rates of increase are unsustainable; there needs to be a “new normal”

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Consumers

Government Providers

Employers

What Needs to Change

Reset and Prioritize

Liability, Payment, and

Delivery System

Reform (via Medicare)

Embrace IT and P4P

Pay Attention and Take Action