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Reform Policy and Implementation Update

Trends in Coverage and Insurance RegulationsBy Michael Bertaut

Healthcare EconomistMay 18, 2012

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The opinions expressed in this presentation by the presenter, and in the slides, do not represent the stated positions of the Louisiana Health Services Indemnity Company, Blue Cross and Blue Shield of Louisiana, HMO Louisiana, Southern National Life, Benefit Management Services, Blue Benefit Services, or any associated entities.

Disclaimer

The Issues:

1. Is the Individual Mandate within Congress’ enumerated powers?

2. Is the Individual Mandate severable?

3. If yes to (2), what must be severed?

4. Does the Anti-Injunction Act apply?

5. Is the Medicaid Expansion a “commandeering” of the states authority?

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SCOTUS allocated 6 hours of debate:

Argued March 26-28th, Decision in June 2012 at the latest.

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Has argued 57 cases before the Supreme Court prior to this one

Was Solicitor General in 2007 under GW Bush

“He is the Lebron James of appellate court attorneys” (Mayer-Brown)

Continued his SCOTUS defense of DOMA even when his firm fired him because of gay-rights activist complaints.

For The States: Paul Clement

“One should never stop defending the Constitution of the United States simply because it causes him financial hardship or because it is not popular”

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Solicitor General since June 9, 2011

Succeeded Elena Kagan Hollywood connections,

Lead Counsel for RIAA against file-sharing sites.

Has argued 12 cases in front of SCOTUS

“Very low key, better with paperwork and rule making”

For the Government: Solicitor General Donald Verrilli Jr.

Lead Counsel in the case of RIAA vs Thomas, where the recording industry made an example of a single mom with a teenage son who downloaded music illegally.

Goal: Expand “Meaningful” Health Insurance Coverage in a Revenue Neutral way:

1. Medicaid Expansion2. Health Insurance Exchanges3. Individual Mandates to buy coverage4. Employer mandate to offer coverage

5. Define what health coverage is “essential”. Create federal mandates.6. Redirect future spending from Medicare to 1,2.

7. Redirect Health Insurance, Pharma, Device Manufacturing revenue to 1, 2.

8. New Taxes on Individuals

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The Core of Reform: Expand Coverage

www.census.gov: 2008 Inflation Adjusted Dollars, 2009/2010 FPL guidelines

Adult Medicaid Eligibility.

Today: 15% of FPL, About $3,300 for Fam of 4

Means Testing, signficant assets disqualifies

40 million enrolled at end of 2010

1/1/2014: Up to 138% of FPL, About $30,000 for Family of 4

NO means testing, everybody qualifies

Estimate is 17 million new eligible adults eligible with up to 11 million signing up Year 1

Typically, employees paid $8-$10/hour will be Medicaid eligible, depending on family status.

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May be State Run or Federally Controlled Income ranges from a low of $31,000 per

year up to a maximum level of $92,000 per year (family of 4).

Advanced tax credit to purchase coverage is generated based on FPL level.

Many carriers may be listed, along with Co-Ops and national OPM plan run from DC

Final Reg on STATE-RUN Exchanges issued (644 pages). Federal Fall Back Exchanges still pending.

Exchanges for those over 138% of FPL

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Family Adult 1 Adult 2 Child 1 Child 2Ages 40 36 6 4

Issuer B B(Benchmark) B BMetal Level Bronze Silver Gold Platinum

Premium $9,393 $10,963 $12,524 $15,350

Family Income $35,000/year (149% of FPL)Premium Tax Subsidy $9,393 $9,577 $9,577 $9,577

Family pays: $0 $1,386 $2,947 $5,773 Payment % of Income 0.0% 4.0% 8.4% 16.5%

Family Income $88,000/year (375% of FPL)Premium Tax Subsidy $2,603 $2,603 $2,603 $2,603

Family pays: $6,790 $8,360 $9,921 $12,747 Payment % of Income 7.7% 9.5% 11.3% 14.5%

Exchange Sample Purchases

Incarcerated Income above 400% of FPL Offered qualified coverage at work (affordable

and essential benefit coverage) Accept non-qualified coverage at work Medicaid or CHIP eligible (income <138% fpl) Claimed as a dependant on someone’s taxes In the country unlawfully (but you do get 90

days of Medicaid coverage while your citizenship is being verified)

Unable to attest to residency in a single state.

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Ineligible for Subsidies

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Law that requires all Americans to have health insurance policy

Starts 1/1/2014 Exemptions for unaffordable coverage

(above 8.5% of income), certain religious groups, native Americans.

Failure to comply means confiscation of tax refund starting at $95 for first year and rising to $695 or 2.5% of income by 2017.

The Individual Responsibility Requirement

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Applies to all firms or control groups that regularly use more than 50 FTE’s of labor.

3 options:

1. Must offer “affordable”, “essential” health coverage to employees.

2. If “no” to 1, may offer “sub-standard” non-QHP coverage. Employer is fined $250 per month per employee who “leaks” to the Exchange

3. May choose not to offer coverage at all, employer must pay $2,000 per year per uncovered employee minus first 30 lives.

The Employer Responsibility Requirement

Goal: Expand “Meaningful” Health Insurance Coverage in a Revenue Neutral way:

1. Medicaid Expansion2. Health Insurance Exchanges3. Individual Mandates to buy coverage4. Employer mandate to offer coverage

5. Define what health coverage is “essential”. Create federal mandates.6. Redirect future spending from Medicare to 1,2.

7. Redirect Health Insurance, Pharma, Device Manufacturing revenue to 1, 2.

8. New Taxes on Individuals

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Cover “essential benefits”

Not be priced on medical/health status

Be guaranteed issue Be age rated only 3:1 Be priced to be gender

neutral May rate up to 50% higher

for tobacco use May alter rates for family

status Have at least 60%

Actuarial Value (Bronze, 70% Silver, 80% Gold, 90% Platinum)

Are never grandfathered14

Exchange Plans Must:

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PPACA lists 10 specific areas of coverage that ALL health plans must include:◦ Ambulatory patient services◦ Emergency services◦ Hospitalization◦ Maternity and newborn care◦ Mental health, substance abuse, behavioral health ◦ Prescription drugs◦ Rehabilitative and habilitative services and devices◦ Laboratory services◦ Preventive, wellness services, chronic disease

mgt. ◦ Pediatric services including oral and vision care

Essential Benefits in PPACA

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Essential Benefits BulletinState Must Select by Q3 2012

STATES will select essential benefits benchmark from following options:◦ 1 of the 3 largest, by

enrollment, small group (<100 lives) products sold in the state.

◦ 1 of the 3 largest, by enrollment, products offered to state government employees

◦ The largest FEHBP offering in the state

◦ The largest commercial HMO offering in the state.

ITEM Individual Group ASO

No Lifetime Limits on Coverage/MLR Restrictions

Existing, New

E, N E, N

No Annual Limits on “essential benefits” (except 1400 waiver groups)

New E,N E,N

Dependents to Age 26 (married is ok) E, N E,N E,N

Rescission (intentional fraud, fact), External Review

E,N E,N E,N

Guarantee issue For <19 year olds. New E, N E, N

Schedule A & B, immunizations at 1st Dollar (45 Tests & Screenings)

New New New

Emergency Room Equal Payment New New New

No discrimination based on salary N/A New New

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Mandated Coverage Changes by 9/23/2010

“Existing” = Grandfathered; “New” = Non-Grandfathered

ITEM Individual Group ASO

W-2 Reporting of all health benefits (pushed back to 2012, 13, or 14 depending on group size)

N/A All All

Uniform Benefit Summaries E,N E,N E,N

Essential Health Benefits(Punted to States)

New New ??

105h Discrimination Update(GF Safe Harbor)

N/A E,N E,N

New External Review Processes New New New

New Women’s Coverages New New New

MLR Requirements E,N E,N N/A

Rate Review (reasonable?) E,N E,N N/A

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Mandated Coverage Changes 2011-12

“Existing” = Grandfathered; “New” = Non-Grandfathered

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Applies to all Non-GF Groups save Churches Begins with renewals 8/1/2012 Services are Free to Insured Includes:

◦ FDA Approved Contraceptive Methods: “Morning After” Pill Tubal Ligation All (generic) pills, IUD’s, other methods

◦ Screening for gestational diabetes◦ HPV DNA Testing (women over 30)◦ STD counseling◦ HIV screening and counseling◦ Breastfeeding “support”, supplies, counseling◦ Domestic violence screening and counseling

New Women’s Coverages

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Auto-enrollment for groups >200 lives delayed beyond 2014

Under employer mandate, all employees 30 hrs/week or above must be offered coverage (up to 12 month look-back period allowed)

No waiting periods >90 days long W-2 Wages will be used to determine “affordability”,

not household income SBC/UBS in effect 9/23/2012 GRANDFATHERING AUDITS CURRENTLY

UNDERWAY!!!! Small self-funded plans, reinsurance with low

attachment points, under attack from CMS.

Latest Guidance IRS/DOL

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Created to honor President’s promise “if you like the insurance you have, you can keep it”

Provides a safe harbor against some changes in PPACA, delays others

Impact varies by size of Group and type of coverage

Over 75% of fully insured groups and 60% of ASO groups are still grandfathered (EOY 2011)

Grandfathering

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Avoid the claims cost of new first dollar coverages (See Women’s Coverage slide).

Avoid coming fully insured rate compression.

Avoid paying for USPTF Schedule “A” and “B” testing at first dollar.

Avoid paying for experimental treatments. Avoid higher payments to ER Docs without

protection from balance billing.

Why Stay Grandfathered?

Change Carriers or certain plan changes (fully insured groups). Any change in coinsurance that increases employee share of

medical payments (like going from 80/20 to 70/30). Any increase in a fixed payment amount (except co-payments)

of more than medical inflation plus 15%. Any increase in a co-payment that exceeds the greater of

medical inflation since 3/23/2010 plus 15%, OR $5 plus medical inflation.

Decrease of employer contribution to premiums by more than 5% below the level on March 23, 2010. (Ex. If employer lowers contribution on family coverage from 80% to 70% this violates grandfathering)

Eliminating any benefit for diagnosis or treatment or any part of treatment for any particular condition that was covered by the plan on 3/23/2010.

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How to Lose Granfathering

Goal: Expand “Meaningful” Health Insurance Coverage in a Revenue Neutral way:

1. Medicaid Expansion2. Health Insurance Exchanges3. Individual Mandates to buy coverage4. Employer mandate to offer coverage

5. Define what health coverage is “essential”. Create federal mandates.6. Redirect future spending from Medicare to 1,2.

7. Redirect Health Insurance, Pharma, Device Manufacturing revenue to 1, 2.

8. New Taxes on Individuals24

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Source Type

2011-2019 Amount

($B)Medicare Reimbursements I.P.A.B. Changes, F,W,A. Changes $285

Medicare Premiums Increased for higher income individuals $210

Medicare Advantage Subsidies Reduction in Subsidy to MA Plans $136

CLASS ACT Mandatory long term insurance program $76

Health Insurance Providers Annual Fee to Sell Insurance in U.S. $60

Medicare Part D Claims Increased rebate requirements to Pharma $43Health Insurance Tax on Premiums Tax on high value health insurance $32

Drug Manufacturers Annual Fee to Sell drugs in U.S. $27

Medical Device Manufacturers Impose 2.3% VAT on sales $20

Taxpayers with medical expensesMedical expense deduction to 10% (fr. 7.5%) $15

Individuals, Businesses Fines for Non-Compliance $15

EmployeesLimit contributions to FSA's to $2,500 annually $13

Medicare Part D Premiums Reduction in Subsidy $10

PAYING FOR PPACA: THE FIRST 10 YEARS

$942B in REVENUE FOR FIRST 10 YEARS

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Regulatory Absorption

Cost $$

On 1/15/2012, we were able to identify 177 different new sets of regulations/bulletins comprising over 30,000 pages spawned specifically by PPACA/HCERA so far.

4 separate university and Congressional analysis show costs may be understated by up to 50%.

Former CBO Director Douglas Holtz-Eakin says PPACA will overspend by $560B in first 10 years.

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NFP Carriers Already Comply with MLR Requirements

BCBSLA Audited Financial Results FY 2011National Averages From NIHCMF 2010 Update (2011)

31¢Hospital

30¢Physician

and Clinical Services

10¢Admin

Cost Including Taxes,

Commissions

13¢Prescription

Drugs

6¢Dental

Services

2¢ Other

ProfessionalServices

1¢NursingHome

2¢Home Health Care

$925M; 37%

$775M; 31%

$357M; 17%

In 2011, BCBSLA collected $2.5B in risk premiums,

broken out like this:

$425M; 15%

3¢Future Claims

Reserves/Profits

NATIONAL

AVERAGES

85% of Premiums Went to Medical in 20116% Salaries/Admin

5% Commissions

3% Reserves

1% Taxes

Medicaid1,12624%

Medicare50211%

Dual Eligibles1794%

Blue Cross Group1,23427%

Blue Cross Indi-vidual1273%

Commerical Group73916%

Commercial Indi-vidual

782%

Uninsured59013%

Louisianans (in Thousands)

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Louisiana Insurance Status: 1/1/2012

n = 4,574,836Government Insures 39.5%

BC Share 30%

Data from Variety of sources including (but not limited to) U.S. Census Bureau, LIMRA, BCBSLA internal membership counts, DHH, Kaiser StateHealthFacts, CMS

Medicaid 1.43m 32%

Medicare 0.64m 14%

Dual Eligibles 0.11m 3%

BC Group 0.97m 21%

BC Individual 0.052m

1%

Comm. Grp0.542m

12%

Comm. Ind 0.035m1%

Uninsured 0.106m

2%

EXCHANGE0.632m 14%

Louisianans (in Millions)

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Louisiana Insurance Status: After 1 Year of Exchange (1/1/2015)

n = 4.533m Government Insures 49%

BC Share 23%

Historically Higher Populations of the Government-Insured mean higher premiums

124%122%

118% 116% 115% 116% 117%119%

122%

129% 129%133% 131% 132%

99%104% 102% 100% 99% 98% 98%

95%92% 92% 91% 91% 92% 91%

94% 95% 96% 97% 96% 95% 96% 96%92%

90%87% 88% 88%

86%

131%

102%

87%80%

100%

120%

140%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*

Paym

enr-t

o-co

st R

atio

Private Payers Medicare Medicaid

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Note: Payment-to-cost ratios indicate the degree to which payments from each payer covers the costs of treating that provider’s patients. Data are for community hospitals and cover all hospital services. Imputed values were used for missing data (about 35% of observations). Most Medicaid managed care patients are included in the private payers’ category.Source: Adapted from the American Hospital Association and Avalere Health TrendWatch Chartbook 2007: Trends Affecting Hospitals and Health Systems

Hospital Payment-to-cost Ratios for Medicare, Medicaid and Private Payers

1995-2009

Break Even (Payment = Cost)

“Our research shows 87% of hospitals nationwide either lose money or break even treating Medicare Patients. Of the 13% that don’t lose money the average profit margin is 3%.” John Whittlesey, Healthcare Management Council 2010

SGR Limits Enacted

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New Carrier Challenges $8B (in 2014) to $14.3B (in

2017) in new taxes for carriers (BCBSLA Share $36m in 2014, projection is 2% of trend going forward).

$1-2 per head tax for Patient Centered Outcomes Research Institute (2013).

$18-24B in risk adjustment pool funding by 2014.

MLR adjustments. Rate Caps (over 10%

increase “unreasonable”).

PPACA

Health Insurance Carriers

PPACA indicates children must be covered on parent’s policies without regard to Pre-Existing Conditions

HHS expanded to “Guaranteed Issue for all Children” before Mandate.

Four of Five Individual Carriers have left Louisiana.

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Adjustments: Children more dependant on Employer Coverage

In an Emergency, PPACA orders carriers to pay out of network Emergency Departments the same as in-network without limiting balance billing.

ER’s Docs are leaving networks in droves Patients insurance will provide no protection

in the ER, even in an in-network hospitals. Around 1/3rd of Network Hospitals have

O.O.N. ER Docs.

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Adjustments: ER Network Clarity

Michael R. BertautHealthcare Economist

www.bertautonhealthcare.wordpress.com

LINKED-IN Recommendations WELCOME!!!

Office: 225-297-2719Cell: 225-205-4628

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