NOVEMBER 2016

Industry Snapshot Newsletter

© 2016 Arthur J. Gallagher & Co. All rights reserved. Gallagher Student Health & Special Risk

This document is made available with the intent of providing general information regarding the provisions of current healthcare reform legislation and regulations. It should not be construed as, nor is it intended to provide legal advice. Contact your organization’s general counsel or an attorney specializing in this practice area to address any questions or concerns.

GALLAGHER STUDENT HEALTH & SPECIAL RISK 500 Victory Road Quincy, MA 02171 800.457.5599 info@gallagherstudent.com www.gallagherstudent.com

Understanding the issue:Changes in the ExchangesNovember has been quite the history-making month in the healthcare industry, marking the commencement of the fourth open enrollment season for the health insurance marketplace exchange, as well as the election of the 45th president of the United States. It seems imminent that the President-elect Donald J. Trump, will reach a controversial crossroads with the Affordable Care Act (ACA), also commonly referred to as “Obamacare,” soon after his inauguration on January 20, 2017.

On his website, Mr. Trump states, “[o]n day one of the Trump administration, we will ask Congress to immediately deliver a full repeal of Obamacare.” However, the road to repealing the ACA may take longer than Trump would like to admit. Even though he will be working with a Republican House and Senate, he will likely experience extensive red tape before successfully dismantling ACA reform. Before the law can be stricken, Trump’s administration must have a new detailed plan drafted and equipped to replace the current law.

For now, open enrollment for policy year 2017 is moving forward as planned, and the ACA’s Individual Shared Responsibility Provision remains intact. Individuals and families are still required to have Minimum Essential Coverage (MEC), qualify for a coverage exemption or make an individual shared responsibility payment when filing a federal income tax return.

The number of health insurance plans available on the public exchange is lower than in previous years. Many large insurance carriers are no longer offering marketplace plans in 2017, which will result in adverse effects on those remaining in plans. Consumers can expect higher premiums, higher deductibles and more limited provider networks. Multiple sources report that marketplace premiums are set to rise an average of 20% across all ACA Medicaid expansion states. The chart below provides a three-year comparison of marketplace premiums and deductibles.

16BSD30732C

2015 Average Premium

2016 Average Premium

15-16% Premium Increase

2017 Average Premium

16-17% Premium Increase

2016 Avg. Deductible (Individual)

2017 Avg. Deductible (Individual)

16-17% Deductible Increase

Bronze Plans

231.78 257.68 +11.17% 311.17 +20.76% 5731 6092 +6.30%

Silver Plans

283.16 312 +10.19% 364.91 +16.96% 3117 3572 +14.60%

Gold Plans

334.56 380.98 +13.87% 464.19 +21.84% 1165 1197 +2.75%

Platinum Plans

415.16 482.87 +16.31% 553.15 +14.55% 233 405 +73.82%

Numbers are based on an individual age profile of a 30 year old. *Health plan information was provided by HealthPocket and HealthCare.gov.

Industry Snapshot NewsletterNOVEMBER 2016

Gallagher Student Health & Special Risk

Below is a U.S. map illustrating the current number of carriers remaining in the public health insurance exchange, showing many regions limited to only one provider.

Source: McKinsey Center for U.S. Health System Reform

What does this mean for the higher education community?It is clear that the cost of marketplace health insurance is increasing, with fewer and fewer providers participating in the space. And the ACA regulations surrounding MEC coverage still stands (at least for the time being). However, since college students don’t historically bring in significant income while completing their education, they are more likely to qualify for one or more exemptions under the ACA. Common exemptions include:

1. If an individual makes less than the tax filing threshold (2015 threshold: Single, 65 or younger = $10,300; Married, 65 or younger = $20,600), then they are not required to pay a penalty for being uninsured.

2. If the least expensive ACA-compliant marketplace plan costs more than 8% of an individual’s total household income, then coverage is considered unaffordable, thus deeming the individuals of that household exempt from the penalty for being uninsured.

In short, if a college student falls into either of the categories above, they will not be penalized for an uninsured status.Forbes predicts that in 2017, nearly 600,000 more Americans will become exempt from paying the individual shared responsibility penalty, as rising health insurance premiums are growing much faster than wages and household income.

From a broker’s perspective, non-exempt college students are likely better off buying their school’s student health insurance plan (SHIP) offering, as opposed to a marketplace plan; these school-sponsored plans are designed to cater to the students’ needs - SHIPs remain the most robust coverage for college students, at the most affordable price, especially with the marketplace coverage rates rising.

Until the Trump administration formally addresses their plan of action regarding the ACA, none of the aforementioned public exchange marketplace trends should influence SHIPs. However, if Trump is able to follow through on his campaign promise to, “deliver a full repeal of Obamacare,” then both the public insurance marketplace exchange and the SHIP market will likely experience significant changes, for better or for worse. We will have to wait and see what transpires in the coming months.

We strongly encourage all industry partners to familiarize themselves with this topic, and to contact Gallagher Student Health & Special Risk with any questions or for more information.

Below is a U.S. map illustrating the current number of carriers remaining in the public health insurance exchange, showing many regions limited to only one provider.

Source: McKinsey Center for U.S. Health System Reform

What does this mean for the higher education community?It is clear that the cost of marketplace health insurance is increasing, with fewer and fewer providers participating in the space. And the ACA regulations surrounding MEC coverage still stands (at least for the time being). However, since college students don’t historically bring in significant income while completing their education, they are more likely to qualify for one or more exemptions under the ACA. Common exemptions include:

1. If an individual makes less than the tax filing threshold (2015 threshold: Single, 65 or younger = $10,300; Married, 65 or younger = $20,600), then they are not required to pay a penalty for being uninsured.

2. If the least expensive ACA-compliant marketplace plan costs more than 8% of an individual’s total household income, then coverage is considered unaffordable, thus deeming the individuals of that household exempt from the penalty for being uninsured.

In short, if a college student falls into either of the categories above, they will not be penalized for an uninsured status.Forbes predicts that in 2017, nearly 600,000 more Americans will become exempt from paying the individual shared responsibility penalty, as rising health insurance premiums are growing much faster than wages and household income.

From a broker’s perspective, non-exempt college students are likely better off buying their school’s student health insurance plan (SHIP) offering, as opposed to a marketplace plan; these school-sponsored plans are designed to cater to the students’ needs - SHIPs remain the most robust coverage for college students, at the most affordable price, especially with the marketplace coverage rates rising.

Until the Trump administration formally addresses their plan of action regarding the ACA, none of the aforementioned public exchange marketplace trends should influence SHIPs. However, if Trump is able to follow through on his campaign promise to, “deliver a full repeal of Obamacare,” then both the public insurance marketplace exchange and the SHIP market will likely experience significant changes, for better or for worse. We will have to wait and see what transpires in the coming months.

We strongly encourage all industry partners to familiarize themselves with this topic, and to contact Gallagher Student Health & Special Risk with any questions or for more information.

It is important to note that state insurance regulators are aggressively reviewing carriers’ rate requests, and approving rate hikes only if found to be absolutely necessary.

USA Today reports that some of the factors leading to these higher rates are increasing prescription drug costs, sicker patients entering the marketplace due to the ACA anti-discriminatory rules; which leads to higher claims costs. Additionally, according to a recent Blue Cross Blue Shield study, marketplace enrollees are 22% more costly to insure than employer-sponsored members.

Such factors have caused many of the large carriers (i.e. Aetna, United Healthcare and Humana) to pull out of the exchange in several regions of the country. In 2016, Aetna incurred $350 million in ACA losses, and in 2017, they significantly dropped the number of U.S. states in which they will provide marketplace plans, from 15 states to 4. In 2017, Humana will be offering coverage in 90% fewer counties than in 2016.

The common denominator is that providers are facing less than amiable medical loss ratios (MLR). The ACA dictates that health insurance companies should aim for an 80% MLR to balance profit, administrative costs and claims paid. For example, if a carrier reports 113% MLR for the year, this means they are paying $1.13 for every $1.00 collected in premium (in other words, losing money). Inversely, if a company reports 34% MLR for the year, the carrier was making $1.66 for every $1.00 collected in premium (thus collecting profit). The New York Times reports that in 2016, Blue Cross Blue Shield paid out $1.26 for every $1.00 on Texas claims, and $1.38 for every $1.00 in Oklahoma.

Below is a U.S. map illustrating the current number of carriers remaining in the public health insurance exchange, showing many regions limited to only one provider.

What does this mean for the higher education community? It is clear that the cost of marketplace health insurance is increasing, with fewer and fewer providers participating in the space. And the ACA regulations surrounding MEC coverage still stands (at least for the time being). However, since college students don’t historically bring in significant income while completing their education, they are more likely to qualify for one or more exemptions under the ACA. Common exemptions include:

1. If an individual makes less than the tax filing threshold (2015 threshold: Single, 65 or younger = $10,300; Married, 65 or younger = $20,600), then they are not required to pay a penalty for being uninsured.

2. If the least expensive ACA-compliant marketplace plan costs more than 8% of an individual’s total household income, then coverage is considered unaffordable, thus deeming the individuals of that household exempt from the penalty for being uninsured.

In short, if a college student falls into either of the categories above, they will not be penalized for an uninsured status. Forbes predicts that in 2017, nearly 600,000 more Americans will become exempt from paying the individual shared responsibility penalty, as rising health insurance premiums are growing much faster than wages and household income.

From a broker’s perspective, non-exempt college students are likely better off buying their school’s student health insurance plan (SHIP) offering, as opposed to a marketplace plan; these school-sponsored plans are designed to cater to the students’ needs - SHIPs remain the most robust coverage for college students, at the most affordable price, especially with the marketplace coverage rates rising.

Until the Trump administration formally addresses their plan of action regarding the ACA, none of the aforementioned public exchange marketplace trends should influence SHIPs. However, if Trump is able to follow through on his campaign promise to, “deliver a full repeal of Obamacare,” then both the public insurance marketplace exchange and the SHIP market will likely experience significant changes, for better or for worse. We will have to wait and see what transpires in the coming months.

We strongly encourage all industry partners to familiarize themselves with this topic, and to contact Gallagher Student Health & Special Risk with any questions or for more information.

Our parent company, Arthur J. Gallagher & Co. has published a detailed summary/evaluation of the 2016 presidential election and health care reform speculation in response to questions concerning the recent fluctuations in the public marketplace exchange.

Source: McKinsey Center for U.S. Health System Reform

Industry Snapshot NewsletterNOVEMBER 2016

© 2016 Arthur J. Gallagher & Co. All rights reserved. Gallagher Student Health & Special Risk

Share the opportunity to subscribe with your colleagues:Click here to receive future editions!

Appendix:

• Abelson, Reed, and Margot Sanger-Katz. “Obamacare Options? In Many Parts of Country, Only One Insurer Will Remain.” The New York Times. The Upshot, 19 Aug. 2016. Web.

<http://www.nytimes.com/2016/08/20/upshot/obamacare-options-in-many-parts-of-country-only-one-insurer-will-remain.html?_r=0>.

• Olson, Sheila. “Aetna Posts Profits, Beats Expectations (AET).” Investopedia. N.p., 06 Nov. 2016. Web. <http://www.investopedia.com/news/aetna-posts-profits-beats-expectations-aet/>.

• Williams, Sean. “Here’s Why You’ll Be Paying More for Obamacare in 2017 (Hint: It’s More Than Just Rising Premiums).” The Motley Fool. N.p., 01 Jan. 1970. Web. <http://www.

fool.com/investing/2016/11/06/heres-why-youll-be-paying-more-for-obamacare-in-20.aspx>.

• “Individual Shared Responsibility Provision – Exemptions: Claiming or Reporting.” Internal Revenue Service. N.p., n.d. Web. <https://www.irs.gov/affordable-care-act/individuals-and-

families/aca-individual-shared-responsibility-provision-exemptions>.

• “Individual Shared Responsibility Provision – Reporting and Calculating the Payment.” Internal Revenue Service. N.p., n.d. Web. <https://www.irs.gov/affordable-care-act/individuals-

and-families/aca-individual-shared-responsibility-provision-calculating-the-payment>.

• Coleman, Kevin. “Aging Consumers without Subsidies Hit Hardest by 2017 Obamacare Premium & Deductible Spikes.” HealthPocket. N.p., 26 Oct. 2016. Web. <https://www.

healthpocket.com/healthcare-research/infostat/2017-obamacare-premiums-deductibles#.WCTYzdIrJQL>.

• Coleman, Kevin, and Jesse Geneson. “2016 Affordable Care Act Market Brings Higher Average Premiums for Unsubsidized.” HealthPocket. N.p., 02 Nov. 2015. Web. <https://www.

healthpocket.com/healthcare-research/infostat/2016-obamacare-premiums-deductibles#.WCTZmtIrJQJ>.

• Jost, Timothy. “Day One And Beyond: What Trump’s Election Means For The ACA.” Health Affairs Blog. N.p., 09 Nov. 2016. Web. <http://healthaffairs.org/blog/2016/11/09/day-one-

and-beyond-what-trumps-election-means-for-the-aca/>.

• Pear, Robert. “Insurers, Pushing for Higher Rates, Challenge Key Component of Health Law.” The New York Times. N.p., 16 July 2016. Web. <http://www.nytimes.com/2016/07/17/

us/politics/insurers-pushing-for-higher-rates-challenge-key-component-of-health-law.html?_r=0>.

• “State Approval of Health Insurance Rate Increases.” National Conference of State Legislatures. N.p., 18 Sept. 2016. Web. <http://www.ncsl.org/research/health/health-insurance-rate-

approval-disapproval.aspx>.

• Lee, Jacquie, and Jayne O’Donnell. “Regulators Approve Higher Health Premiums to Strengthen Obamacare Insurers.” USA Today. N.p., 19 Oct. 2016. Web. <http://www.usatoday.

com/story/news/politics/2016/10/18/regulators-approve-higher-health-premiums-strengthen-obamacare-insurers/92286590/>.

• Smedsrud, Jeff14. “600,000 New Reasons The Affordable Care Act Is Sinking.” Forbes. Forbes Magazine, 14 Oct. 2016. Web. <http://www.forbes.com/sites/

jeffsmedsrud/2016/10/14/600000-new-reasons-the-affordable-care-act-is-sinking/2/#4ca77b0f3eb6>.

This resource is intended to provide general information regarding the provisions of current healthcare reform legislation and regulation. It may not fully address all issues specific to you or your organization, and it should not be construed as, nor is it intended to provide, legal advice. Your organization’s general counsel or an attorney specializing in this practice area should address any questions regarding your specific issues.

Follow-upSince our September Newsletter on Proposed Changes to Short-Term Medical Plans & Travel Insurance, further guidance was released on October 31, 2016. The Internal Revenue Service, Employee Benefits Security Administration, and the Health and Human Services Department documented final regulations titled Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance. The outcome is that the previously discussed June 2016 proposed rule will stand and will apply for policy years beginning on or after January 1, 2017. The rule amended the definition of short-term plans, stating that insurers will only be able to offer these policies for less than three months, and coverage cannot be renewed at the end of the three-month period.

Additional relevant publications:As research best practices indicate, multiple sources/opinions should be evaluated in any major change or decision-making process. To this end, below is a list of scholastic and media publications examining the possible catalysts of change in the health insurance marketplace and the potential impact on the health care industry:

1. Health Affairs Blog: Day One And Beyond: What Trump’s Election Means For The ACA 2. Centers for Medicare & Medicaid Services: The Center for Consumer Information & Insurance Oversight - Rate Review Data 3. The Henry J. Kaiser Family Foundation: Explaining Health Care Reform: Questions About Health Insurance Subsidies 4. Health Pocket: 2016 Affordable Care Act Market Brings Higher Average Premiums for Unsubsidized 5. Journal of the American Medical Association/Medical Xpress: Why private health insurers are losing money on the Affordable Care Act