Health’Care’Reform’...provide Essential Health Benefits Package Four components of package: Essential Health Benefits 1 • 10 required coverage categories Out-of-Pocket Maximum

Health  Care  Reform  Preparing  Your  Small  Business  for  2014  

Introduc3ons  

•  Tim  Hebert  -­‐  Managing  Partner  at  Sage  Benefit  Advisors  and  also  serves  as  the  President-­‐Elect  of    the  Northern  Colorado  Health  Underwriters  Associa>on.  

•  Kevin  Cruz  -­‐  Partner  at  Sage  Benefit  Advisors.  •  Andy  Hairgrove  -­‐  Founding  Partner  at  Sage  Benefit  Advisors  and  Partner  at  

Unify  Payroll  /  Unify  CPAs.  •  Sage  Support  Team  Members  

–  Tasha  Bell,  Agency  Manager  –  Kara  Donahoe,  Account  Manager  –  Nora  Cook,  Account  Manager  –  Chelsea  Reed,  Individual  Health  Insurance  Specialist  

Our discussion today

• Market influencers

• Key changes – Expanded benefits – Rating changes – Taxes and fees

• Pricing impacts

• The role of Exchanges

3

We are with you every step of the way.

NEW LAWS. NEW BENEFITS.

Market influencers: Movement and more movement

4

Estimates above based on public sources including CBO and Lewin Group publications

30 million newly insured

80 million potentially switching coverage

20 million purchasing through Exchanges

15 million affected by Medicare increases

Success in this complex, ambiguous environment requires continued monitoring, advocacy, education, and collaboration with all stakeholders. There are many unknowns that will require us to be more nimble than ever.

Facing challenges and uncertainties across the health care ecosystem in 2014

5

Affordable Health Care

Government Exchange Design/

Rules, State Exchange Readiness, Essential Health Benefits, Rate

Review, Medicaid Expansion Decision,

Basic Health Plan Decision, Multi-State

Plan, 3 Rs Rules/Funding

Pricing Flexibility Adj. Community Rating,

Guaranteed Issue, Metallic Levels, 3 Rs, Rate Review Scrutiny,

Pent-up Demand/ Risk Profiles

Competition Aggressive Pricing,

Startups/ New Entrants, Delivery Systems,

Medicaid Plans

Providers Consolidation, PCP Supply Shortages,

Commercial/ Gov’t Cost Shifting

Employers Dumping, Effectiveness of Mandate/Penalties, Price Sensitivity, ACR

Disruption, SHOP Participation, Defined

Contribution/PIX

Consumers Take-up Rates, Effectiveness of

Individual Mandate, Pent –up Demand/ Risk Profile, Sophistication Level, Price Sensitivity

• Administrative simplification begins • Annual fee on medical device

sales begins • Deduction for expenses allocable

to the Part D subsidy for “qualified prescription drug plans” eliminated

• Employee notification of access to Exchanges

• FSA contributions limited to $2,500 • High earner tax begins • PCORI fee increases to $2 per

member/year • W-2 reporting on the value

of employer-sponsored health benefits

• 60-day advance notice of material modifications

• Accountable Care Organization requirements

• Appeals provision fully implemented G

• First medical loss ratio rebates to be paid by August

• New women’s preventive services with no cost sharing G

• Patient-centered Outcomes Research Institute (PCORI) fee ($1 per member/year)

• Quality bonus begins for Medicare Advantage plans

• Summary of Benefits and Coverage (SBC) and the Uniform Glossary

G Grandfatherable provision.

Note: some provisions apply only to fully insured business (e.g., MLR and guarantee issue)

• Coverage for all adult children until age 26 including those that have employer coverage (formerly not covered for grandfathered plans)

• Deductible caps cannot exceed $2k for individual and $4k for family G

• Essential health benefits required for small employers G

• Guaranteed issue and renewability G • Health Benefit Exchanges • ICD-10 code adoption • Individual & employer mandates • Insurer fee – permanent • Mandatory coverage for clinical trials G • No annual dollar limits • No pre-existing condition exclusions • OOP limits must comply with OOP limits for

HSA qualified plans G

• Quality of Care Reporting Requirements • Rating restrictions / Adjusted community rating G

• Tax credits and subsidies for individuals and small employers

• Transitional reinsurance fee (2014-2016) • Waiting period limits • Wellness programs

Health care reform timeline

6

2012 2013 2014

On the horizon • Expanded Benefits • Rating Changes • Taxes and Fees • Reporting

Requirements

What happens in 2014?

7

Premium

ATNE Counting

Methodology

Ban on Pre-Ex

No Medical

Underwriting

Actuarial Value

Essential Health

Benefits

3Rs— Risk Adjustment,

Reinsurance, Risk Corridors

Adjusted Community

Rating

Guaranteed Issue

Exchanges/ Single Risk

Pool

Insurer Fee

The resulting landscape • Fees/taxes and benefit

requirements and rating will affect the cost of health care for employers during the next several years

• 2013 will be the transitional year—portfolio changes, renewal packages and quoting are undergoing system development work now to be ready for January 2014

• Many of the 2014 provisions take effect on a group’s first renewal or new business effective date on or after 1/1/14 (e.g., adjusted community rating, product rules)

Benefit changes

Expanded benefits Reform provisions impacting product & plan design

9

Individual and small group plans must provide Essential Health Benefits Package Four components of package:

Essential Health Benefits • 10 required coverage categories 1

Out-of-Pocket Maximum • New accumulation rules and ceiling 2

Small group deductible ceiling • 2,000 single/$4,000 family 3

Limited to “Metallic” coverage levels • Bronze, Silver, Gold, Platinum 4

* Grandfathered plans exempt from above requirements

Expanded benefits package* Four components impacting plan design

Essential Health Benefits 10 required coverage categories

• Most already provided in prevailing plans • Pediatric dental and vision not typically covered

in small group market • “Habilitative services” not typically covered

explicitly, but are indirectly by UnitedHealthcare • HHS delegated EHB definition via “benchmark

plans” to states • Practical impact - State mandates will be

required by EHB • Pricing impact varies by market • All plans including self-funded that contain any

EHB are required to remove annual and lifetime dollar limits for those services

10

1 EHB Categories

1. Ambulatory patient services

2. Emergency services

3. Hospitalization

4. Laboratory services

5. Maternity & newborn care

6. Mental health and substance abuse services, including behavioral health treatment

7. Prescription drugs

8. Rehabilitative and habilitative services & devices

9. Preventive and wellness services and chronic disease management

10.Pediatric services, including oral and vision care

Other Essential Health Benefit rules

11

1 Prescription drug requirements: Plans must cover the greater of (1) one drug in every therapeutic class, or (2) the same number of drugs in each class as the EHB plan.

Defined focus: EHB does not create limitations related to provider types, cost-sharing, or reimbursement methods.

Special rules for pediatric dental:

• On Exchanges ─ Qualified Health Plan (QHP) may exclude coverage of the pediatric dental if standalone plans are available. Groups/individuals are NOT required to buy the standalone coverage.

• Off Exchanges ─ health plans may exclude pediatric dental IF they are “reasonably assured” that “individuals” have purchased Exchange-qualified standalone dental plan. Groups/individuals MUST buy standalone coverage (even if there are no covered children).

• Cost-sharing limitations do NOT have to cross-accumulate between a medical plan and standalone dental plan. Cost-sharing has to be “reasonable” in the standalone plan.

Benefit substitution: Unless states prohibit substitution, plans may have coverage that slightly differs from benchmark plan. Covered benefits must remain “substantially equal” and actuarially equivalent to those contained in the EHB plan.

Maternity coverage: Coverage must include coverage for dependent children.

Expanded benefits package* Four components impacting plan design

12

2 Out-of-Pocket Maximum – New accumulation rules and ceiling

• OOPM ceiling at HSA level: likely $6,400/$12,800 in 2014 (indexed to inflation) • All cost-sharing (for essential health benefits) must accumulate to OOPM • Applies to small and large fully insured plans and self-funded plans • Transition rules give flexibility for “separate service providers” for one year • Does not apply to out-of-network benefits

* Grandfathered plans exempt from above requirements

3 Small group deductible ceiling – $2,000 single/$4,000 family

• Indexed to inflation • Exception for leaner plans if you cannot “reasonably” design one to hit approved

actuarial values with a $2,000 deductible • Applies to small group fully insured only; NOT to individual, large group, or self-funded • Does not apply to out-of-network benefits

4 Limited to “Metallic” coverage levels (Bronze, Silver, Gold, Platinum)

• Apply on and off Exchange • Defined by actuarial value (plus/minus 2%): Bronze/60%, Silver/70%, Gold/80%,

Platinum/90% • Federal requirement to offer one Silver, one Gold plan on Exchanges • All as calculated by the new “actuarial value calculator” (released on 2/20)

90% actuarial

value

80% actuarial

value

60% actuarial

value

70% actuarial

value

Target + or –2%

Applies in small

group market in and out of Exchange

Exchanges must

offer a silver/ subsidized silver

and gold plan

Current portfolio

centers substantially around the Gold plan level, although this varies by market

Metallic levels and actuarial value

13

Platinum Plan

Gold Plan

Bronze Plan

Silver Plan

Plans falling between the defined levels are NOT permitted

New final AV calculator

New benefit & coverage rules

Employer Impacts Description Small Group Fully Insured

Large Group Fully Insured

Self-Funded

Individual

1 Essential Health Benefits (EHB) *

• Health plans must provide Essential Health Benefits for individual and small group

Yes

No

No

Yes

2 OOP Max * • OOP limits must comply with OOP limits

for HSA plans • All cost sharing (including copays) for

EHB services must count toward OOPM

Yes Yes Yes Yes

3 Deductible Limits *

• Beginning 2014 plan design deductibles may not exceed a $2,000 (self-only) or $4,000 (other than self-only) annual limitation

Yes No No No

4

Metallic Levels

• Four tiers of coverage for EHB packages: Bronze, Silver, Gold, and Platinum and catastrophic coverage (under 30-year-olds only)

• Requirement to meet actuarial value of one of four plans

• Requirement in and out of Exchange

Yes No No Yes

Pre-existing Condition Exclusion (All Ages)

• Beginning in 2014, pre-existing condition exclusions must be removed for all members, not just those under age 19

Yes Yes Yes Yes

For many 2014 provisions, we are awaiting further guidance. Information will be updated.

14

* Not required for grandfathered plans

New benefit & coverage rules

Employer Impacts Description Small Group Fully Insured

Large Group Fully Insured

Self-Funded

Individual

Employer Mandate And Minimum Essential Coverage

• Employers 50+ (average # of employees definition) must provide full-time employees (and dependents) with minimum essential coverage to avoid paying a shared responsibility payment (i.e., tax penalty)

• Minimum essential coverage must: ‒ Be affordable (employee contribution must

not exceed 9.5% of employee’s household income); and

‒ Provide minimum value (employer pays more than 60% of covered plan expenses)

Over 50+ only Yes Yes No

Max 90-day waiting period

• Waiting period before coverage is in place cannot exceed 90 days

Yes Yes Yes No

Guaranteed Issue and Renewability**

• Issuers required to offer and accept to any individual, small or large group ALL products that are approved for sale in the market with limited exceptions

• Coverage must be renewed at the option of the plan sponsor or individual

Yes Yes No Yes

FSA Limits • Beginning in 2013, employee contributions to health FSAs will be limited to $2,500 per year, with indexed increases allowed in future years to adjust for inflation

Yes Yes Yes N/A

Expanded Women’s Preventive Services *

• Beginning August 2012, women’s preventive benefits will be expanded to include additional screening, prenatal office visits, breast-feeding support and some contraceptives.

• Impact Range ~.32% or $1 pmpm

Yes Yes Yes Yes

15

For many 2014 provisions, we are awaiting further guidance. Information will be updated.

* Not required for grandfathered plans ** Grandfathered aspects TBD

Employer obligations “Play or Pay”

16

Employer Mandate Coverage Requirements

• Applies to employers with 50+ FTEs (based on avg. count full- and part-time in prior calendar year)

• Must provide “minimum essential coverage” – Medical plan offered in small group or large group health

insurance market

– NOT a cafeteria/flex, disability, accident, critical illness, indemnity plan

• Uses IRS aggregation rules to determine if subsidiaries and jointly owned companies treated as one

• Applies to both fully insured and self-funded groups • Applies to grandfathered groups • Must offer coverage to dependents up to 26, but NOT to

spouses • Effective on first new plan year on or after January 1,

2014

• Must be affordable – Single employee contribution for

lowest cost plan must not exceed 9.5% of employee’s W2 income Box 1

• Must provide minimum actuarial value – Plan pays more than 60% of medical

costs across a typical population

• Applies to same populations as Employer Mandate

Penalty Assessment A: If employer does not offer coverage at all Penalty is $2,000 per full-time employee total (minus 30-employee buffer)

Penalty Assessment B: If coverage fails these tests Penalty is $3,000 per employee receiving subsidy in Exchange

Five key employer questions

17

Do you have 50 or more

full-time equivalents?

Y

Do you offer minimum essential

health coverage to

your employees?

Y

Does the coverage

offered meet minimum

value requirements

?

Y Is the

coverage offered

affordable? Y Requirement

has been met

Mandate does not

apply

Penalties are not assessed

Penalty A applies

Penalty B applies

N N

Y Y

N

Any FTEs getting a

subsidy for Exchange coverage?

Any FTEs getting a

subsidy for Exchange coverage?

Penalties are not assessed

17

1 2 3 4

5 5

Individual mandate

18

• Individual Exchange subsidies are available if no other available coverage is affordable or meets minimum value requirement

• Penalties phase in beginning in 2014 as part of tax return:

– 2014: Greater of $95 (adult)/$47.50 (child) or 1.0% of family income – 2015: Greater of $325/$162.50 or 2.0% of family income – 2016: Greater of $695/$347.50 or 2.5% of family income

• IRS cannot use normal enforcement mechanisms to force people to pay

In 2014, individuals (for themselves and dependents) MUST…

OR OR Pay a penalty

Qualify for an exemption based on income, religion or status (native American, undocumented immigrant,

or incarceration)

Obtain coverage through government program/Exchange,

employer or individual insurance market

Pricing changes and Adjusted Community Rating (ACR)

Adjusted Community Rating

Small Group Definition will be changing • Small Group definition is < 50 until 2016, unless the state defines differently • Counting methodology is average total number of employees (ATNE). However, there is

some uncertainty regarding counting methodology over the next couple of years for several ACA provisions including adjusted community rating, small group deductible ceiling, metallic level requirement, Essential Health Benefits, and eligibility for SHOP Exchanges.

Price Restrictions – Fair Health Insurance Premiums

• Plan years (or policy years for individual market) on or after January 1, 2014 • Applies to Individual and fully insured small group health insurance

20

• Gender • Health Status • Claims History • Medical Underwriting • Group Size • Industry

• Geographic Area • Age (3:1 limit) • Tobacco Use (1.5:1 limit)

Group Rate Factors are limited to Rates may not vary by

Pricing today and beginning 2014

Additional Rating Factors Being Eliminated or Changed • Size Factors (eliminated) • Gender differentiation (eliminated) • Typically 10-1 Age slope (changed/reduced)

21

Healthiest or Newest groups and Lowest Rate

Less Healthy or Longest Duration groups and Highest Rate

Current State High

MRRF

Future State MRRF

1.0

Current State Low

MRRF

Individual Market Premium Increase

Small Group Market Premium Increase

Avg Rate Increase

15%

Taxes / Fees 3.8%

Product 4 to 11%

Pre-Reform Post-Reform

15%

25% to 50% Rating Rules for Healthiest Groups 25%

Avg Rate Increase

12%

Taxes / Fees 3.8%**

Rating Rules / Product 100%+*

Pre-Reform Post-Reform

12%

Range +/-116%

Reform Compliance Drives Significant Price Increase

Community Rating Causes Material Price Disruption For Healthiest Groups

* Individual rates expected to increase 100% to up to 200% due to product and rating changes. ** May be partially offset by reinsurance payments, net impact not yet known.

Product 3 to 6%

Pre-Reform Post-Reform

15%

20% to 25%

Avg Rate Increase

15%

Taxes / Fees 3.8%

Avg Rate Increase

15%

Avg Rate Increase

15%

Avg Rate Increase

12%

Large Group Premium Increase

Incremental Increase to rates beginning in 2013 to cover taxes, fees, and benefit Δs

2014 reform premium impact assessment • Impact of benefit expansion, pricing restrictions and taxes and fees • Consumers (both group and individual buyers) will face substantial price increases, further

pressuring the system • New pricing rules and new product design mandates will have a significant impact on the

price consumers pay for insurance in 2014 and beyond

22

1. 2014 guaranteed issue applies

2. No pre-ex

3. Women’s preventive, FSA limits and OOP max changes apply

4. Deductible limits and EHB do not apply

5. New taxes and fees apply

1. 2014 – SG definition may be different by state (50 vs. 100)

2. No pre-ex

3. 2014 guaranteed issue applies

4. 2014 – No medical underwriting and moving to adjusted community rating (ACR)

5. 2014 SHOP Exchange available

6. Essential Health Benefits (EHB) applies to non-grandfathered groups

7. Women’s preventive, FSA limits and OOP max changes apply

8. New taxes and fees apply

Health care reform landscape 2013-2014 Key things you need to know

23

Small Groups Large Groups

Risk programs ‒ 3Rs

The purpose of 3Rs is to provide stability to insurance markets when Exchanges are introduced in 2014. It is expected that 30+ million new members who were previously uninsured or under insured will impact the system.

24

Reinsurance

Protects insurers in the individual market from members with

catastrophic claims

Risk Adjustment

Protects insurers against enrolling a disproportionate share

of high risk individuals

Risk Corridors

Protects insurers against inaccurate pricing in early years

when experience data will be inadequate

Taxes and fees

Taxes and fees overview

26

Description Effective Date

Timing / Duration

Payment Cycle

Segment Impact

Basis of Assessment

PCORI Research Fee

• Help fund Patient-Centered Outcomes Research Institute

• Will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings

10/1/12

Begins 2012 Phases out

2019

July 31 (calendar year

following end of plan year)

FI and ASO (ASO paid and

remitted by customer)

Groups and Individuals

$1 pmpy in year 1 $2 pmpy in year 2

Insurer Fee

• Annual fee on health insurance sector, allocated by market share, to fund health insurance exchange subsidies

• Fees assessed on net written health insurance premiums, with certain exclusions.

• No federal guidance received to date

1/1/14 Permanent No later than

September 30 of calendar year

FI Only

Groups and Individuals

Industry wide targets $8B – 2014

$11.3B – 2015 $11.3B – 2016 $13.9B – 2017 $14.3B – 2018

~ 2.3% of premium

Transitional Reinsurance Fee

• Transitional fees to stabilize individual market; assessed on a per capita basis for both fully insured and ASO members

• Fee funds reinsurance for high claimants in non-grandfathered individual market plans, on and off Exchange

• Final rule pending

1/1/14 3 Years

(2014-2016)

Annual basis for state and federal

First payment to be remitted by

1/15/15 for 2014 calendar year

FI and ASO

Groups and Individuals

Industry-wide federal targets, to which states

may add: $12B – 2014 $8B – 2015 $5B – 2016 ~ $6 pmpm

Risk Adjustment Fee

• Administrative expenses for the risk adjustment program will be supported by a user fee, estimated to be no more than $1.00 per enrollee per year

• This user fee will be collected from issuers of risk adjusted plans in June of the year following the benefit year

1/1/14 Permanent

June (calendar year

following end of plan year)

Individual and small group plans

in and out of Exchange

Zero sum redistribution of premiums from plans with healthier populations to plans with unhealthier

populations Administrative costs is

~$1 pmpy in year 1

Projections based on analysis of study by Oliver Wyman & AHIP 2012

Exchanges

State activity on Exchanges

28

Planning to Operate State-Based Exchange, Submitted Blueprint Application to HHS (18+DC)

Pursuing Federal/State Partnership Exchange (7)

No State-Based Exchange, Some States May Still Consider Partnership Exchange (25)

Conditional Exchange Approval from HHS (8+DC)

Subject to State Legislative Approval (1)

Seeking Approval for Existing Exchange to Be Minimum Federal Standard (1)

Updated February 25, 2013

* # +

CT* RI*

MA*

DE* MD*

NJ

ME

AL

AR* AZ

FL

IA IL*

MO

LA

MI

MS

SC

PA NE

NY*

TX

UT+

WI

CA* VA CO*

KS

MN*

NC

OH IN WV

NV*

NM*

ND

OK

OR*

WA*

GA

SD

MT

WY ID#

AK HI*

DC*

What’s next

WHAT YOU SHOULD KNOW WHAT YOU SHOULD DO

Review and next steps

2014 • Expanded benefits

• Adjusted community rating

• Pricing impacts and market changes

• Taxes and fees

• Employer mandate

30

Inform your employees of availability of Exchanges in late summer or fall as required by ACA

Review employer mandate, premium changes and develop strategy for your business

Prepare for potentially more individuals needing coverage, more fees and potentially premium increases due to expanded coverage and fees and fewer eligibility restrictions

Talk to us. We have affordable solutions compliant in the new world

Thank  You!  

If  you  have  any  addi>onal  ques>ons,  please  don’t  hesitate  to  contact  us!  

970.484.1250  [email protected]  

sageba.com