Consulting Health and Benefits

Presentation to Southern Company

IABA Health Care Reform OverviewAugust 2012

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Judicial and Legislative Activity

U.S. Supreme Court has ruled on the Accountable Care Act (ACA) Oral arguments were heard at the end of March 2012 over three days Arguments were heard separately on four issues

– Does the Anti-Injunction Act bar some or all of the challenges to the individual mandate?• Ruled that this did not apply

– Is the individual mandate constitutional?• Upheld by determination that the mandate can be construed as a tax and not a penalty

– Should other provisions law fail if the individual mandate is struck down?– Is the expansion of Medicaid for the poor and disabled constitutional?

• Under PPACA, states that choose not to, lose ALL federal Medicaid funds• Court said the penalty is too severe; Congress can withhold new Medicaid funds but not

existing funds

Congressional Action There is practically no chance that Health Reform will be repealed in 2012

– Senate has twice rejected the House-passed repeal of health reform and health reform funding– Similar fate awaits other recent House-passed bills

Opponents do not want to improve or fix Health Reform Law– Their goal is repeal, viewing it also as a powerful campaign issue for 2012– Targeted repeals of specific provisions have succeeded

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Health Care Reform after 2012 Election

Provisions likely to remain, even if Republicans sweep 2012 election– No lifetime or annual dollar limits – No pre-existing condition exclusions– Cover children to age 26

Provisions likely to go if Republicans win: – Individual and employer mandates– Premium and cost-sharing subsidies– Medicaid expansion – Minimum medical loss ratio– CLASS Act – New high income and unearned income

Medicare tax – Independent Payment Advisory Board– Grandfathering rules

Repeal or significant changes raise practical, technical and political difficulties– Potential cost of repeal estimated to increase

budget deficit– How to address areas where implementation

underway• Plan sponsors that received ERRP

distributions• Grants to states• Beneficiaries that received Medicare Part D

rebates• Beneficiaries receiving coverage for which

they no longer qualify (children younger than age 26, beneficiaries who previously hit lifetime limits)

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Health Reform Overview—Coverage vs. Cost

Health InsuranceExchanges with Reformed Rules

Expanding/Improving Coverage Paying for Expanded Coverage

Expansion of Medicaid

EmployerMandate

IndividualMandate

Federal Coverage Subsidies

Medicare/MedicaidPayment Changes

High-Cost EmployerCoverage Taxation

IncreaseOther Taxes

= Direct impact to employers = Indirect impact to employers = Direct and indirect impact to employers

Taxation of HighIncome Individuals

Free Rider Penalty

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CBO Estimate—New Savings, New Revenue Will Offset Higher Costs

$32

ExciseTaxes

System Savings

$517 billion

New Revenue

$564 billion

Total Cost of Expanded Coverage: $938 BillionImpact: $143 billion reduction to the federal deficit

$65

PenaltyPayments

MedicareAdvantage Cuts

$136

Reduction in Medicare

growth rate

$196

Other Net

Savings

$115

CLASSProgram

$70 $107

IndustryFees

$210

Medicare Taxes

$150

Other Net Revenues

Health Reform Overview—The Original Price Tag

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*Source: NCSL.org

States Are Slow to Set Up Health Insurance ExchangesLegislation Summary – July 2012*

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States Are Limited on Implementation TimeState Timeline – 2012 and 2013

State Legislative Sessions—

Typically Run First Half of Year

HHS Indicates States Must Select EHB

Benchmark Plan by Q3 of 2012

State Applications for

Exchange Certification due

to HHS November 16,

2012

States Must Demonstrate to HHS by End of Year 2012 that

they are Positioned to Operate an Exchange in 2014 to Avoid

Federal Fallback

States Must Decide Whether

to Expand Medicaid Programs

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Establishing the Exchanges - The 3 R’s

Program Reinsurance Risk Corridors Risk Adjustment

What? Provides funding to issuers that incur high claims costs for enrollees

Limits issuer losses (and gains)

Transfers funds from lower risk plans to higher risk plans

Who Participates? All issuers and third party administrators on behalf of group health plans contribute funding; non-grandfathered individual market plans (inside and outside the Exchange) are eligible for payments

Qualified health plans Non-grandfathered individual and small group market plans, inside and outside the Exchange

When? Throughout the year After reinsurance and risk adjustment

Before June 30 of the calendar year following the benefit year

Timeframe 2014-2016 2014-2016 Permanent

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The Individual Mandate – Coverage Requirements

Who Is Exempt from Coverage Requirement? You are part of a religion opposed to acceptance of benefits from a health insurance policy You are an undocumented immigrant. You are incarcerated. You are a member of an Indian tribe. Your family income is below the threshold requiring you to file a tax return ($9,350 for an individual,

$18,700 for a family in 2010). You have to pay more than 8% of your income for health insurance, after taking into account any employer

contributions or tax credits.

What Coverage Meets the Requirements to Avoid the Tax? Medicare Medicaid or the Children’s Health Insurance Program (CHIP) TRICARE (for service members, retirees, and their families) The veteran’s health program A plan offered by an employer Insurance bought on your own that is at least at the Bronze level A grandfathered health plan in existence before the health reform law was enacted.

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Family is eligible for subsidy in Exchange

Family Income less than 133% of

Poverty

Family is eligible for Medicaid

If employer coverage is available

Family may choose the employer plan or

Medicaid

Family Income less than 400% of Poverty

If employer coverage is available, but either inadequate (<60% benefit) or unaffordable

(premiums >9.5%)

Family may choose the employer plan or subsidized coverage in Exchange

If employer coverage is available and adequate and premiums are affordable

Family may choose the employer plan or unsubsidized coverage in Exchange

Family Income greater than 400% of Poverty

Family may purchase unsubsidized coverage

in Exchange

If employer coverage is available

Family may choose the employer plan or

unsubsidized coverage in Exchange

How Will a Person Get Coverage in 2014?

2011 FPL Single Individual Family of 4

100% $10,890 $22,350

133% $14,484 $29,726

400% $43,560 $89,400

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The Individual Mandate

2014 2015 2016

GreaterOf

$95/adult; $47.50/child;

Up to $285 per family

$325/adult; $162.50/child;Up to $975 per

family

$695/adult; $347.50/child;

Up to $2,085 per family

1.0% of family income

2.0% of family income

2.5% of family income

Up To National average premium in an Exchange for coverage at the Bronze Level

Notes• Premiums for health insurance bought in Exchange would be adjusted for

age.• The Congressional Budget Office estimates that Bronze level coverage in

2016 will be $4,500-5,000 for individuals and $12,000-12,500 for families.• After 2016, penalty amounts will increase by cost of living.

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The Individual Mandate

1 2 3 4 5 6 7 8 9 10$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Individual Mandate TaxFamily of Four *

2014

2015

2016

Federal Poverty Level

Ind

ivid

ual

Man

dat

e T

ax

* Based on Calendar Year CPI-U from CBO Budget and Economic Outlook: Fiscal Years 2011 to 2021, www.cbo.gov/publication/21999

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Health Reform Overview—Timing Of Major ProvisionsPlan Years on/after

9/23/2010 2011 2012 2013 2014 2018

Restrictions on Lifetime

Dollar Limits* Preexisting Condition

Exclusions Prohibited for

Children under 19* Only Restricted Annual

Limits Permitted (HHS

Guidance Needed)* Extension of Adult Child

Coverage to Age 26* Prohibition on

Rescissions* No Cost Sharing and

Coverage for Certain

Preventive Health

Services** Effective Appeals

Process**—NEW

INTERNAL APPEALS

GRACE PERIOD Nondiscrimination

Requirements Applicable

to Fully Insured Plans**—

DELAYED Certain Retiree Medical

Claims Reimbursable

(ERRP) Retiree Drug Plan Tax

Accounting Recognition

Over-the-Counter

Medicines Not

Reimbursable Under

Health FSA or From

HSA Without a

Prescription, Except

Insulin HSA Penalty Tax

Increase Employer Reporting

of Health Coverage

on Form W-2—

DELAYED Public Long-Term

Care Option

(CLASS Act)—

OFFICIALLY

JETTISONED Medicare Part D

Discounts for Certain

Drugs in “Donut Hole”

Employer Distribution

of Uniform Summary

of Benefits to

Participants* Comparative

Effectiveness Fee Employer Quality of

Care Report**

Form W-2 Reporting

of the Value of Health

Coverage New Women’ s

Preventive Services** Notice to Inform

Employees of

Coverage Options in

Exchange Limit of Health Care

FSA Contributions to

$2,500 (Indexed) Elimination of Tax

Deduction for

Expenses Allocable

to Retiree Drug

Subsidy (RDS) Medicare Tax on High

Income

Individual Mandate to

Purchase Insurance or

Pay Penalty State Insurance

Exchanges Employer Responsibility

to Provide Affordable

Minimum Essential

Health Coverage Free Choice Vouchers—

REPEALED Preexisting Conditions

Exclusions Prohibited* Annual Limits Prohibited* Automatic Enrollment—

DELAYED Limit of 90-Day Waiting

Period for Coverage in

Plan* Employer Reporting of

Health Insurance

Information to

Government and

Participants Increased Cap on

Rewards for Participation

in Wellness Program

Excise Tax on

High-Cost

Coverage

* Denotes group/insurance market reforms applicable to grandfathered health plans** Denotes group/insurance market reforms not applicable to grandfathered health plans

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Guidance Still ComingEstimated Timeline of 2012 PPACA Rule Issuance and Effective Dates

January - March April - June July- September October -

December

Draft MA/ Part D Regulation for CY 2014

(likely to include MA MLR regs)

Employer Reporting Requirements

Risk-adjustment, Reinsurance and Risk-corridors Final Rule

Individual Mandate/Penalties Proposed RuleEmployer Mandate/Penalties Proposed Rule

Insurance Exchanges and Exchange Eligibility Final Rule

Premium Tax Credit Final Rule

Medicaid Eligibility Final Rule

Essential Health Benefits Proposed Rule

Details on the Federally-Facilitated Exchange

Additional Guidance on External Review

Employer Tax Credits Proposed Rule

Actuarial Value and Cost-Sharing Reductions Bulletin

Guidance on Exchange Blueprint Requirements

Actuarial Value and Cost-Sharing Reductions Proposed Rule Student Health Final

Rule

MLR Reporting Requirements Final Rule

Guaranteed Issue, Rating Renewability, and Prohibition of Existing Conditions

Proposed Rule

Exchange Accreditation

Health Insurer Quality Activity Reporting

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Guidance Still ComingEstimated Timeline of 2013 PPACA Rule Issuance and Effective Dates

January - March April - June July- September October -

December

Interstate Healthcare Choice Compacts Interim Final Rule

Prohibition on 90-day Waiting Periods Proposed RuleModified Community Ratings and Health Status Proposed RuleProhibition of Annual Limits Proposed Rule

Final MA/ Part D Regulation for CY 2014 (likely to include MA MLR regs)

Guidance on OPM Multi-State Plans

Health Insurance Tax Proposed Rule

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A Balancing Act for Carriers

Opportunities Broader insured basis in the exchanges due to the Individual & Employer Mandates Expansion of availability of coverage to Individual, Medicaid, and Employer Group populations Increased focus on cost of care through Accountable Care Organizations and Payment Innovation Preventive Care improving the health of the insured population

– Women’s Benefits– Review by United States Preventive Services Task Force

Administrative efficiencies from more standardized product and rating structuresRisks Pricing It Right in a Changing Marketplace

– Individual Mandate – Not as strong as it could be initially– Guaranteed Issue – movement away from individual underwriting has been a challenge in some states already

Minimum Loss Ratio requirements– Programs that could be good for the health of a population but don’t fall under allowable numerator expenses

could be cut back if MLRs are tight Rate Review

– Funding to states to immediately increase regulatory scrutiny– Increases greater than 10% are flagged by HHS for review

Medicare Reimbursement cuts (worth $271B from 2013 to 2022 according to recent CBO analysis)– Public sector business runs at negative margins already and are supplemented by private payers– If cuts are upheld, will have significant impact on providers

Fully-insured group business may look more at self-insured options to avoid taxes and mandates

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A Balancing Act for Employers

Employer Mandate—Effective 2014 A penalty will apply if the employer

– Fails to offer Minimum Essential Coverage (MEC) to its FTEs (and their eligible dependents)• Penalty is $2,000 per year per FTE

– Offers either unaffordable coverage or does not provide a minimum actuarial value plan• Penalty is $3,000 per year per FTE who enrolls in an Exchange and is eligible for a federal subsidy

Affordability Test– The contribution for single coverage can not exceed 9.5% of the Applicable Taxpayer’s household income

Minimum Actuarial Value– Benefits provided under the plan must equal at least 60% of the total cost of benefits

Excise (Cadillac) Tax—Effective 2018 This is solely a tax on high cost employer-sponsored health plans (for active and inactive/retired employees) The tax is imposed on the cost of coverage that exceeds certain dollar thresholds

– The tax is equal to 40% of the excess cost over the dollar threshold– The tax is determined separately for each insured individual– Thresholds are indexed and vary based on different circumstances

The Big Squeeze60% Minimum Actuarial Value + Excise Tax = Trouble

Questions?

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