Impact of Health Care ReformRIMS Conference 2013

April 9, 2013

Sam Geraci, Directorsam.geraci@libertymutual.com

Agenda

• Description of the law

• Impact on employers

• Impact of the law on workers comp

• Questions and discussion

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• Employers can grandfather existing plans as long as they are made compliant with certain PPACA rules, but are limited in the plan changes they can make thereafter

• Employers will have to pay a 40% nondeductible tax on the value of plan costs exceeding $10,200/year for individuals ($27,500/year for families) in 2018

• Private health insurers must provide members premium reimbursements unless they comply with a minimum medical loss ratio of 85%

• Large employers must offer qualifying coverage and premium subsidies to employees close to the poverty line

Summary of PPACA as it applies to businesses

• Subsidized health insurance exchanges for individual and small group market

• Fully insured (as opposed to self insured) plans can no longer discriminate in favor of highly-compensated individuals

• “Full time” means working more than 30 hours per week; the IRS can look back at the prior 3-12 months; a change cannot be made January 1, 2014

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• The basket of health care services generally must include– Ambulatory patient services– Emergency services– Hospitalization– Maternity and newborn care– Mental health and substance abuse services– Prescription drugs– Rehabilitative services and devices– Laboratory services– Preventative wellness services and chronic disease management– Pediatric services including oral and vision– Catastrophic coverage is acceptable for employees under 30

• Qualifying coverage must comply with the following:– No rescissions, annual/lifetime limits, pre-existing condition exclusions for children– Cover dependents up to 26 years old and certain preventive services – Charge older Americans more than 200% of the cost to younger people– Cover 60% of the actuarial value of a basket of health care services– Must have family deductibles under $4,000 and out-of-pocket totals under $10,000

What is a “qualified plan”

4

Agenda

• Description of the law

• Impact on employers

• Impact of the law on workers comp

• Questions and discussion

5

• Employers with at least 50 employees must offer qualifying plans to their employees or face fines of the lesser of:

– $2,000 per full time employee (excluding those in their first 3 months of employment)– $3,000 per full time employee receiving a premiums tax credit (a subsidy on the exchange)– Who is eligible for a premium tax credit: employees earning less than 400% of the federal

poverty line ($92,200) whose employer does not offer qualifying coverage AND who would have to spend more than 9.5% of their income on premiums in the exchange

Employees may want coverage dropped

Employer provided insurance Employer drops coverage Gap

Employer $10,000 $9,000• $3,000 (Fine paid to the gov’t)• $6,000 (Paid to employee)

($1,000)

Employee$2,000 $1,000

• +$6,000 (From employer)• +$5,000 (From government)• -$12,000 (to insurer)

($1,000)

Government$0 $2,000

• +$3,000 (From employer)• -$5,000 (To employee)

$2,000

Total $12,000 $12,000 $0

Employer + Employee $12,000 $10,000 ($2,000)

ILLUSTRATIVE

Combined net savings by age and % of FPL realized when dropping employer coverageNet savings($)

Income (% of FPL)

150% 175% 200% 225% 250% 275% 300% 325% 350% 375% 400% >400%

($25,000)($20,000)($15,000)($10,000)

($5,000)$0

$5,000 $10,000 $15,000 $20,000 $25,000

20 years old40 years old60 years old

Employer and employee gain when drop-ping employer coverage

Employer and employee lose when dropping employer coverage

6

Plans for active em-ployees

Plans for retirees

4334

5155

6 11

Likelihood that organization will be subject to excise tax

Likely Unlikely Don't know

Employers may be hit by surprise by the excise tax for “Cadillac” plans

● Beginning in 2018, plans with group health coverage exceeding $27,500/family ($10,200/individual) will be subject to a 40% non-deductible excise tax (on the balance above the threshold)

Research suggests that more than 60% of employers may be subject to the tax in 2018

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The minimum Medical Loss Ratio standard will affect many employer-sponsored plans

Individual market

Small group market

Large group market

43

70 77

> 80% MLR rule > 85% MLR rule

• Mini-Med plans

• New plans

• Plans from small insurers

Types of plans with low MLR

• Expat plans• HDHPs

Health insurers potential reactions

• Dropping out of individual or small group market

• Stop offering HDHP, mini-med, expat plans

• Dropping employers selectively, e.g. those with young, healthy workforce

% of insurers meeting MLR standards

8

PPACA will eliminate mini-med plans

Sep 23 2010

Sep 23 2011

Sep 23 2012

Jan 1 2014

$750

$1,250

$2,000

Unlimited

Permissible annual limits on health care coverage ($ Thousands)

Mini-med plans

● Mini-med plans are low-cost plans offering limited coverage to part-time, seasonal or low-wage employees

● They fail to comply with several PPACA’s regulations, e.g. qualifying coverage, restrictions on annual and lifetime limits

● Waivers have been offered to ~1,500 firms but will expire in 2014

In 2014, employers who used to offer Mini-Med plans will have to offer full coverage, cut hours, or pay a fine

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Grandfathered plans are exempt from some but not all PPACA requirements…

Exempt from…

● Coverage of preventive services without cost sharing

● Exemption from the “essential benefits” package as of 2014

● Exemption from limits on out-of-pocket costs to participants

Must comply with…

● No lifetime or “restricted” annual limit

● No rescissions of coverage

● Extension of parents’ coverage to young adults 26 and under

● No coverage exclusions for children with pre-existing conditions

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… and can lose their grandfather status

Plan feature Change allowedCo-insurance or other cost sharing agreement No increase allowed

Deductible or out-of-pocket limit Cumulative increase limited to medical inflation + 15%

Fixed-dollar copayment Cumulative increase limited to greater of $5 (inflation-adjusted) or medical inflation+15%

Employer contribution to premium Cannot decrease by more than 5%

Annual limit on benefits No new limit or reduction in existing limit allowed

Loss of grandfather status implies becoming fully compliant with the law

● Routine changes can be made without losing grandfather status, e.g.

− Cost adjustments to keep pace with medical inflation

− Adding new benefits or modestly adjusting existing benefits

− Voluntarily adopting new consumer protections

● But some changes lead to loss of grandfather status:

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Agenda

• Description of the law

• Impact on employers

• Impact of the law on workers comp

• Questions and discussion

12

Medical inflation driver PPACA impact Data…

PPACA impact on medical inflation

2008 2010 2015 2020

699 710 736 760

2002 2003 2004 2005 2006 2007 2008 2009

43%57%

43% 43%

79%60% 67%

39%

Before AfterPhysician shortages after Mass. reformHigher

waiting times for treatment

Supply of MDsLimited supply of doctors and nurses

• Number of doctors limited by Medicare

• Availability of substitutes remains limited by law

• Greater waiting times for treatment

2008 2009P 2010P 2011P 2012P 2013P 2014P 2015P 2016P 2017P 2018P 2019P

Number of insured AmericansIndividual

mandate startsMore insured Americans

• ACA requires all Americans to have a qualifying medical plan

• Medicaid expansion

Insured consume more, and more is covered

• ACA bans lifetime limits and coverage exclusions

• ACA requires free preventative care

Children stay on parents plans until 26

Free preventative care

Aging of Americans

Obesity epidemic

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Medical costs represent an increasing share of Workers Compensation losses

1987 1997 2007 2011

54% 47% 41% 40%

46% 53% 59% 60%

Medical Share of WC benefits

Medical Indemnity

14

States with the most uninsured and fewest doctors will see the greatest medical inflation

% population lacking health insurance

Population without health insurance vs. Active Patient Care MDs per 1,000 capita

U.S median

X = 3.4%Y = 3.1

6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26%1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

713.2875787

4765.2997112

2909.0727299

6561.1691823

37634.300504

5027.867544

3517.3938961

902.68475919011.66177

9682.7574583

1339.7471191

3033.4865266

1574.2241698

12710.658993

6352.6387928

2814.194821

4310.1538072

4505.9781323

5811.6185688

1329.7395368

9702.6276297

5285.2680062

5897.8847524

2933.9690709

986.26958839505.3054962

675.3130145

1825.0836937

1301.1781003

8651.9709531

2038.6826873

2684.3926787

19340.690425

11319.56293

3767.4198649

3855.9594694

12715.544079

1038.301184

4612.313819811.5616182

6336.6742729

25592.0877042813.858445

7976.0032019

616.402564

6817.20056015686.2399038

1825.4018153

563.1434828

MA Size: = 6.5M population

Activ

e Pa

tient

Car

e M

Ds p

er 1

,000

capi

ta

U.S median

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Health care reform will not stop the other factors which are increasing health care demand (Aging)

0-19 20-39 40-64 65-84 85+ $-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2000 Per capita health care expenditure by age cohort ($000)

1930 1940 1950 1960 1970 1980 1990 2000 201010

12

14

16

18

20

Life expectancy by age and year

16

Health care reform will not stop the other factors which are increasing health care demand (Obesity)

No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%

19851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

(per 100 FTE) Obesity class III (BMI>40) Recommended weightClaims 11.65 5.80Lost workdays 183.63 14.19Medical costs $51,091 $7,503Indemnity costs $59,178 $5,396

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0 500 1000 1500 2000 2500-10%

0%

10%

20%

30%

40%

50%

60%

70%

Change in average daily US calorie consumption by food group from 1970 to 2010

Fats, oils

Flour, cereal

Meat, eggs, nuts

Sugar

Fruit

VegetablesDairy2

Item Name, Calories, Rank

Nathan's Fish and Chips 1,537 (#1)

Burger King WhopperWith Cheese 760 (#193)

Hardee’s Monster Thick Burger 1,420 (#3)

Carl Jr. Double Six Dollar Burger 1,520 (#2)

% in

crea

se 1

970-

2010

Cumulative calories in 1970

Big Mac 550 (not in the top 272)

McDonald’s hamburger250 (not in the top 272)

Health care reform will not stop the other factors which are increasing health care demand (Obesity)

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As consumers pay less, they demand more

2004

2005

2006

2007

2008

2009

P

2010

P

2011

P

2012

P

2013

P

2014

P

2015

P

2016

P

2017

P

2018

P

2019

P

13% 13%12% 12% 12%

12% 11%11% 11% 11% 11% 11% 11% 11% 11% 10%

% of health care spending paid for by consumers

● PPACA lowers out of pocket costs for certain services, e.g. preventive care

● Prevention, health and wellness incentives’ impact on medical spend are mixed

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But the supply of doctors will grow slowly

2008 2010 2015 2020

699 710 736

760 Supply of MDs in the US (000)

What’s limiting the supply of doctors?

●Limited number of residency positions ●Medical schools are adding few seats●Doctors are retiring baby boomers ●Security and immigration laws burden

foreign doctors willing to practice in the US, even in underserved areas

Shortage of 91,500 doctors by 2020 based on a huge increase in demand and little increase in supply

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PPACA may impact the waiting times for primary care and specialty physicians…

Impact of Massachusetts reform on physician shortage

Pre-reform Post-reform2005 2006 2009

Anesthesiology

Cardiology

Emergency Medicine

Family Medicine

Gastroenterology

General Surgery

Internal Medicine

Neurosurgery

OB/GYN

Orthopedics

Pediatrics

Psychiatry

Radiology

Vascular Surgery

% with shortage 43% 79% 39%

Critical shortage

Severe shortage

No Shortage

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… thus increasing claim durations and costs

Shortage No Shortage

55.4

39.2

59.0

40.2

2006 2009

STD durations for specialties with and with-out physician shortage

Shortage No Shortage

$8.02

$7.85

$8.54

$7.85

2006 2009

STD claims cost for specialties with and without physician shortage

Short-term disability durations for diagnoses associated with specialists in short supply increased since the introduction of the reform in Massachusetts

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Agenda

• Description of the law

• Impact on employers

• Impact of the law on workers comp

• Questions and discussion

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