20100922 nccbh avalere employer webinar final

Healthcare Reform:
Implications for Community Behavioral
Health Organizations as Employers

www.TheNationalCouncil.org

Agenda
> Audience poll
> Introduction
> Current Status of Employer Healthcare Coverage
> Health Insurance Provisions in the Affordable Care Act
> Health Reform Impact on Employers
> Retiree Health Benefits
> Implications
> Opportunities and Threats

2

Audience Poll Question #1

• How many employees does your organization have?
a) Fewer than 20
b) Between 20 and 50
c) Between 50 and 200
d) More th 200
M than

3


• Do you currently offer your retirees company-sponsored
health insurance?
a) Yes
b) No

4


• Are you considering dropping health insurance as a
benefit for your employees?
a) Yes, the costs are too high
b) Yes, they will have access to health insurance from the
government due to reform
c) No, I consider it a core benefit
d) Unsure/haven’t considered it
e) Don’t currently offer employees health insurance
) ’ ff

5

Avalere Health, LLC
> Avalere Health delivers research, analysis, insight & strategy to leaders in
healthcare policy and business
> 130+ policy and industry experts with backgrounds in government, academia
and research organizations managed care, industry and healthcare delivery
organizations, care delivery,
financial services and professional societies
> Capabilities in policy analysis, modeling & scoring, evidence reviews, data
analytics, due diligence, qualitative research and market strategy
> Research published b l di f
R h bli h d by leading foundations and j
d ti d journals
l

6

Bonnie Washington
> Bonnie Washington, Senior Vice President, provides clients with strategic policy advice on a wide
range of issues including Medicare policy development, health reform, and commercial strategy.
Bonnie has particular expertise in the Medicare prescription drug benefit, Medicare Advantage,
and pharmaceutical and health plan issues.
> Prior to joining Avalere, Bonnie led health policy development efforts for Novartis Pharmaceuticals
Avalere
Corporation and Ovations, a UnitedHealth Group Company. Prior to her industry experience,
Bonnie led the Office of Legislation at the Centers for Medicare & Medicaid Services, formerly
known as the Health Care Financing Administration. Specifically, Bonnie advised and represented
the CMS administrator on legislation and policy related to Medicare, Medicaid, and the State
Children s
Children's Health Insurance Program (SCHIP) She also represented the administration before
(SCHIP).
members of Congress and congressional staff. Previously, Bonnie served as an analyst with the
Office of Management and Budget (OMB), advising OMB and White House policy officials on
Medicaid and SCHIP policy options.
> Bonnie holds a B.A. from Loyola College in Maryland and a M.Sc. from the London School of
Economics.

7

Eric Hammelman
> Eric Hammelman, Director, provides data-driven analysis of the impact of various legislative and
policy changes on the healthcare industry, with a specific focus on reimbursement for providers.
> Prior to joining Avalere, Eric was an Associate Analyst with JPMorgan, where he analyzed
healthcare service companies and provided investment advice to institutional investors. He built
financial and industry models for hospitals nursing homes dialysis hospice ambulatory surgery
hospitals, homes, dialysis, hospice,
centers, clinical labs, inpatient rehab, long-term acute care, and physician groups. He also
analyzed payment policies for each of these areas, including Medicare, Medicaid, and private
payers.
> Eric has a Bachelors of Music Performance from the University of Illinois at Urbana-Champaign.
He l
H also earned an M B A f
d M.B.A. from th M h ll S h l of B i
the Marshall School f Business (U i
(University of S th
it f Southern C lif i )
California),
as well as a Masters of Music Performance from the Mannes College of Music in New York, N.Y.
Eric is also a CFA charterholder.

8

Current St t of E l
C t Status f Employer
Healthcare Coverage


9

Percent of Employers Offering Health Benefits Has
Declined Slightly Overall In the Last Decade
Percent of Employers Offering Health Benefits, 1999-2009
80%

70% 69% 68%
66% 66% 66% 63% 63%
60% 61% 60% 60%
60%

50%

40%

30%

20%

10%

0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

www.TheNationalCouncil.org Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009

10

Small Employers Are Less Likely To Offer Health Benefits
Than Large Employers
Percent of Employers Offering Health Benefits by Size, 2009
Size
100% 95% 98%
87%
80%
72%
%

60%
46%
40%

20%

0%
3 - 9 Employees 10 - 24 25 - 49 50+ 200+ Employees
Employees Employees Employees

In 2009, 64 percent of employers with a small number of low-wage workers offered health benefits,
compared to 39 percent of employers with a large number of low-wage workers.


11

Higher Healthcare Costs Are Driving Increases in
Employer-Sponsored Insurance Premiums
Average Annual Premium for Single and Family Coverage, 1999-2009
1999 2009

2009 $13,375 Drivers of Increasing
$4,824
Healthcare Costs

remiums
2008 $12,680
$4,704
2007 $12,106
$4,479 General Inflation
2006 $11,480
$11 480

Healt Insurance Pr
$4,242
2005 $4,024
$10,880 Improvements in
2004 $3,695
$9,950 Technology
2003 $9,068
$3,383
Increased Utilization

th
2002 $8,003
$3,083
2001 $7,061
$2,689 Cost-Shifting
2000 $6,438
$2,471
1999 $2,196
$5,791 Lifestyle Choices
$-
$ $2,000
$ $4,000
$ $6,000
$ $8,000
$ $10,000
$ $12,000
$ $14,000
$ $16,000
$

Family Coverage Single Coverage

The average annual family premium in 2009 is 34 percent higher than in 2004, and 131 percent
higher than in 1999.

www.TheNationalCouncil.org Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009

12

Health I
H lth Insurance Provisions in the
P i i i th
Affordable Care Act


13

While Some Employer Requirements Begin in 2010,
Major Requirements and Penalties Begin in 2014

Insurance Market
Reforms

Coverage of Exchanges Begin
Preventive Operations
Services MLR requirements
q

Employer
Elimination of Wellness Program Eliminate Penalties
Lifetime and Incentives Deduction of
Certain Annual Part D Retiree
Auto-Enrollment
Limits Increase Tax on Subsidy
HSA Withdrawal
S t da a Annual Reporting
for Nonqualified Notice of Requirement
Dependent
Expenses Coverage
Coverage
Under Age 26 Options Tax on High-
Free Choice
cost Insurance
Eliminate Vouchers
Plans
Reimbursement Limit
Retiree
on OTCs for Contributions
Reinsurance Annual Fee on
Spending
S di to FSAs
Program Health Plans
Accounts

2010 2011 2012 2013 2014 2015 2016 2017 2018

www.TheNationalCouncil.org FPL= Federal Poverty Level
OTC= Over-the-counter (medication)

14

A Number of Insurance Reforms Take Effect in 2010:
Most Significant Reforms Effective in 2014
2010 Provisions 2014 Provisions

Requires all plans to issue and renew
Prohibits pre-existing condition exclusions
coverage to those seeking it, regardless of
for children under 19 years old
pre-existing conditions.

Prohibits health plans from placing lifetime
Requires modified community rating
g
limits on the dollar value of coverage

Prior to 2014, allows plans to only impose
annual limits on the dollar value of Prohibits plans from placing annual limits
coverage as determined by the Health and on the dollar value of coverage
Human Services Secretary

Fully insured plans will also be required to maintain a Medical Loss Ratio of 85 percent in large
group and 80 percent in small group markets, starting in 2011

Medical Loss Ratio: the ratio of total losses paid out in claims plus
www.TheNationalCouncil.org adjustment expenses divided by the total earned premiums.

15

Legislation “Grandfathers” Existing Plans
• Allows existing employer-sponsored and other insurance plans that were in effect on the
employer sponsored
date of enactment to remain essentially the same.
• Exempts these plans from complying with many of the insurance rules included in
the legislation
• “Grandfathered” l
“G df th d” plans will h ill have t comply with some new requirements b t not all h lth
to l ith i t but t ll health
reform provisions will apply.
• Family members and new employees are permitted to enroll in grandfathered plans
• A plan must continue to p
p provide the same treatment for mental health conditions and
substance use disorder that it currently offers.
• Dropping any portion of the treatment currently offered would result in the plan
being treated as having eliminated all or substantially all benefits for that condition.


16

A Number of Insurance Reforms Take Effect in 2010;
Most Apply to Grandfathered Plans
Applies to
2010 Provisions Grandfathered Plans

Prohibits pre-existing condition exclusions for children under 19 years old. *
Prohibits health plans from rescinding coverage except in the case of fraud.
p g g p
Prohibits health plans from placing lifetime limits on the dollar value of coverage.
Prior to 2014, allows plans to only impose annual limits on the dollar value of
*
coverage as determined by the Secretary.
Requires coverage of d
R i f dependents up t age 26
d t to 26. *
Eliminates cost-sharing for covered preventive services. Services include those
with a USPSTF A or B rating; immunizations recommended by ACIP, children’s
services in the HRSA guidelines, and women’s preventive services in the HRSA
guidelines.
guidelines
Prohibits limitations on waiting periods.
Prohibits employers from limiting coverage eligibility based on employee salary.

*Only applies to grandfathered group plans.
www.TheNationalCouncil.org USPSTF = U.S. Preventative Services Task Force; ACIP = Advisory Committee on
Immunization Practices; HRSA = Health Resources and Services Administration
17

In Order to Maintain Grandfathered Status, Employer
Plans Must Deviate from Current Cost Shifting Trend
• In recent years employer plans have shifted costs to employees
years,
• However, in order to maintain grandfathered status, employer plans must limit increases in cost-sharing
• Permitted increases in cost-sharing are tied to medical inflation
• Co-insurance percentages cannot increase
Sample Impact of Grandfather Rules on Tier 2
Cost-Sharing for Prescription Drugs

Grandfathered
status exempts ESI Trend
Pre-Reform
e eo
plans from some
requirements in the
Tier 2 Rx Cost-

ACA. However,
Sharing ($)

CMS projects that
Permitted Growth for
39-69 percent of all Grandfathered Plans
existing employer
plans will loose
grandfathered
status by 2013. ACA Signed into
Law,
Law March 23

ESI = Employer-Sponsored Insurance; Sample cost-sharing scenario based on actual average Tier 2 cost-sharing for
www.TheNationalCouncil.org employer sponsored coverage from 2000-2009 as reported by the KFF and HRET 2009 employer health benefits survey.
Grandfathered plan limits based on historical medical inflation for 2001-2009.
18

Tax Credits for Small Employers Also Begin in 2010

Provision Details

Tax Credits for Provides sliding scale tax credit to certain small employers with fewer
Small Employers than 25 employees and average annual wages below $50,000 who
offer and contribute at least 50% of the cost of their employees’ health
employees
insurance coverage.
Full credit given to employers of ≤10 and average annual wages less
than $25,000.
Credit offered to small employers that newly begin offering coverage.
Credit continues through the first two years in which coverage is
offered.


19

MLR Requirements Effective January 1, 2011*
Impacts
Insurance Reforms Grandfathered Plans

Requires all plans, excluding self-insured, to report the proportion of
premium dollars spent on non claims costs
Requires 85% MLR in large group market and 80% MLR in the small
group and non-group market
d k t
Requires plans to give rebates to enrollees for the amount in which the
proportion of premium dollars spent on claims costs (minus
reimbursement for clinical services; activities that improve q
p quality; and,
y
other non-claims cost) is less than 85% for group plans and 80% for
small group and individual plans

MLR = medical loss ratio; *NAIC is required to give their recommendations by Dec 31, 2010.
www.TheNationalCouncil.org MLR requirements go into effect for plan years beginning six months after enactment. NAIC is currently aiming to send
recommendations to the HHS Secretary by July 2010.
20

Changes to HSAs and FSAs Begin in 2011 and 2013
Provision Details

HSA Penalties for Increases the additional tax for HSA withdrawals prior to age 65 that
Non-Qualified are used for purposes other than qualified medical expenses from
Expenses 10% to 20% beginning January 1, 2011
The additional tax for Archer Medical Savings Account withdrawals
not used for qualified medical expenses would increase from 15% to
20% beginning January 1, 2011

Reimbursement Eliminates reimbursement for over-the-counter medications from
for OTCs HSAs, FSAs, or HRAs beginning in 2011

Limit FSA Limits tax deductible contributions to health flexible spending
tax-deductible
contributions arrangements to $2,500 per employee, per year beginning in 2013

HSA = health savings account
www.TheNationalCouncil.org FSA = flexible spending account
HRA = health reimbursement account
21

Employers Also Face New Notification Reporting
Requirements in 2011 and 2013
Provision Details

Reporting Cost of Requires employers to report the aggregate value of medical benefits,
Coverage on W 2
C W-2 dental, i i
d t l vision, and supplemental i
d l t l insurance coverage on th each
the h
employee’s Form W-2 beginning January 1, 2011

Notice of No later than March 1 2013 requires employers to provide a written
1, 2013,
Coverage Options notice to all employees informing employees about the new
exchanges and related rules


22

Wellness Program Incentives Begin in 2013

Provision
P i i Details
D t il

Wellness Allows employers to reduce premiums by up to 30 percent to reward
Program employee participation in wellness programs
Incentives
» The Secretary may increase the available reward to up to 50
percent if deemed appropriate

Some employers already have this kind of program in place
y y g

» Alabama State Employees’ Insurance Board


23

Major Insurance Reforms Begin in 2014
Impacts
I t
Grandfathered
Insurance Reforms Plans

Requires all plans to issue and renew coverage to those seeking it, regardless of pre-existing
conditions. *
Prohibits insurers from dropping or denying coverage for individuals participating in approved
clinical trials.
Requires modified community rating allowing insurers to vary premiums based only on
geography; family composition; age, variation limited to 3:1; and, tobacco use, variation limited
to 1.5:1.
Prohibits individual and group plans from placing annual limits on the dollar value of coverage.
Plans may apply annual or lifetime per beneficiary limits to any non-essential health benefits.
Requires plans to meet minimum coverage requirements for the essential benefit package.

Sets out-of-pocket limits on cost sharing at HSA levels ($5,950 in 2010 for individuals).

*Based on current law

24

State Exchanges Create New Market in 2014
Provision Details

Establishing State Requires each state to establish an exchange for individual market
Exchanges and separately for small group market by 2014

Allows states to form regional or interstate exchanges subject to
exchanges,
approval by Secretary

Employer Requires states to allow small businesses with up to 100 employees to
Eligibility purchase coverage through the small employer exchange

» States may allow employers with more than 100 employees into the
state exchange in 2017

» F plan years b f
For l before J
January 1, 2016 a state may limit the small
1 2016, t t li it th ll
group market to 50 employees


25

Employer Coverage and Auto-Enrollment Requirements
Begin in 2014
Provision Details

Employer Sets penalties, effective December 31, 2013, as follows:
Mandate
» F employers that offer coverage, fee will be lesser of
For l th t ff f ill b l f
$3,000/employee receiving tax credit or $2,000/full-time worker

» For employers that do not offer coverage, fee will be $2,000/
full-time
full time worker

» For purposes of calculating total penalty, number of full-time
employees is reduced by 30

Auto-Enrollment Requires employers with 200 employees or more to auto-enroll
employees in employer coverage, but allows employees to opt out if
they can show proof of other coverage


26

New Administrative Requirements and Insurer Fees Take
Effect in 2014
Provision Details

Annual Fee on Imposes an annual fee for all U.S. health insurance providers phased
Health Plans in from $8 billion in 2014 to $14.3 in billion per year in 2018,
distributed among insurers by relative market share

» Increases fee from the preceding year by the rate of premium
growth

» Excludes self-insured plans

» Excludes 50 percent of net premiums for non-profit plans


27

Excise Tax on High Cost Health Plans Begins in 2018
Provision Details
Excise Tax on High Imposes an excise tax on employer health insurance plans that offer policies with
Cost Health Plans generous levels of coverage, effective 2018
» The tax would be levied on group health insurance plans as well as plan
administrators f self-insured companies
d i i t t for lf i d i
Tax is equal to 40% of the plan’s value that exceeds $10,200 for an individual and
$27,000 for family coverage, beginning in 2018
Threshold will increase beginning in 2019 by the cost-of-living adjustment plus 1%
cost of living
Imposes a penalty for employers that under-report excise tax liability to insurers
» The penalty is equal to the difference between the actual and reported liability
amount, plus interest from the date the tax was due to the date paid by the
employer
l


28

Reform Impacts Employers Differently Depending
on Group Size and Current Plan Offerings
New Plans Grandfathered Plans

Provisions Effective Date Individual 1-100 100+ Self-funded Individual Group Plan

Small employer tax credits 2010 ***
MLR requirements 1/1/2011

Employer penalties 12/31/2013

New benefit requirements 1/1/2014 **
Annual fees on health plans 1/1/2014
Employer participation in the exchange 1/1/2014 * **
Wellness prevention program initiatives 1/1/2011 Unclear

Current Current
Guaranteed issue requirements 1/1/2014 law law

Tax on high cost plans 1/1/2018

*Prior to 2016, a state may limit the small group market to 50 employees.
www.TheNationalCouncil.org ** Beginning in 2017, states may allow employers with more than 100 employees into the state exchange
***Applies to employers with 25 or fewer workers
29

Health Reform Impact on
Employers


30

Primary Impacts of Health Reform on Employers
Employer Mandate
1 Requires certain e p oye s to o e health co e age for
equ es ce ta employers offer ea t coverage o
employees

Health Insurance Exchanges
2
Allows some employers to enroll employees in Exchange plans

Insurance Market Reforms
3
Requires all commercial health plans to comply with new rules
q p py

Essential Benefit Requirements
4
Requires small group health plans to offer minimum requirements

Taxes and Fees
5 Imposes new taxes and fees on select health plans and
employers


31

Certain Employers Must Offer Health Coverage for
Employees
Employer Mandate Auto-Enrollment

Starting in 2014, most employer groups Requires employers with 200 employees
must offer coverage or face penalties or more to auto-enroll employees in
Penalties are as follows: employer coverage
l
• Employers offering coverage but who Allows employees to opt out if they can
have at least one employee receiving show proof of other coverage
a tax credit subsidy to purchase
Exchange coverage fee will be lesser
coverage,
of $3,000/employee receiving tax
credit or $2,000/full-time worker
• For employers that do not offer
coverage, fee will be $2,000/
g , ,
full-time worker


32

Employer Mandate Applies to Both Fully-Insured and Self-
Funded Employer Plans
Employer Plans
Provision
Fully-Insured Fully-Insured
Self-funded
1-100* 100+
Imposes a penalty on employers that do not
offer coverage and/or have at least one
employee receiving a tax credit. *

Requires employers with 200 employees or
more to auto-enroll employees in employer
coverage, but allows employees to opt out if **
they can show proof of other coverage

www.TheNationalCouncil.org * Over 50 full-time equivalents (accounts for part-time employees)
** Over 200 employees
33

State-level Insurance Exchanges Will Be a Major Vehicle
for Expanding Access in 2014, Even for Some Employers

Health Plans Consumers

States must create separate exchanges for All U.S. residents are eligible to participate
individuals and primarily small employers
Individuals must purchase some form of
Qualified health benefit plans must cover coverage or face financial penalties
specified set of services, including prescription
Premium subsidies available for some
drugs, mental health benefits and substance
consumers; limit premiums to a percent of
use
income
i
Establishes four tiers of benefit design based on
Employers face a penalty if they do not offer
actuarial value
coverage to workers


34

Self-Funded Employer Plans Restricted from Participation
in Exchanges
Employer Plans
Provision Fully-Insured Fully-Insured
Self-funded
1-100* 100+**

Allows small employers to enroll
employees in health plans offered in
state-based Exchanges

www.TheNationalCouncil.org *For plan years before January 1, 2016, a state may limit the small group market to 50 employees
**Reform only applies to larger groups if state allows into the exchange starting in 2017
35

New Requirements Affect Nearly Every Type of Employer
Employer Plans
Effective date Self funded
Self-funded
1-100
1 100 100+
100
Prohibits pre-existing condition exclusions for
children under 19 years old 9/23/2010
Prior to 2014, allows plans to only impose annual
limits on the dollar value of coverage as determined 9/23/2010
by the Secretary
Prohibits individual and group health plans from
placing lifetime limits on the dollar value of 9/23/2010
coverage
Requires 85% MLR in large g p market and 80%
q g group
MLR in the small group and non-group market 1/1/2011
Requires all plans to issue coverage to those
seeking it, regardless of pre-existing conditions 1/1/2014
Requires modified community rating allowing
insurers to vary premiums only by age gender
age, gender, 1/1/2014
tobacco use, and geographic area.
Prohibits individual and group plans from placing
annual limits on the dollar value of coverage 1/1/2014

MLR: Medical loss ratio. The percent of premiums spent on medical costs

36

Most Fully-Insured Health Plans Must Also Cover
Essential Benefits
Provision Details Effective Date

Benefit Requirements Ambulatory patient services Prescription drugs 2014
Emergency services Laboratory services
Hospitalization Preventive and wellness services and
Mental health and substance chronic di
h i disease management t
abuse services Maternity and newborn care
Rehabilitative and habilitative Pediatric services
services and devices

Employer Plans
Self-funded
1-100 100+

Plans must meet minimum coverage requirements
* **
(for essential benefit package)

www.TheNationalCouncil.org *For plan years before January 1, 2016, a state may limit the small group market in the Exchange to >50 employees;
** Reform only applies to large groups participating in the Exchange (at the discretion of the state starting in 2017)

37

Both Fully-Insured and Self-Funded Plans Must Cover
Select Preventive Services

Employer Plans
Self-funded
1-100 100+

Coverage of and elimination of cost sharing for
preventive services with an A or B rating by the
USPSTF

While the ACA requires coverage of certain services, there is still great uncertainty
around how to cover these preventive services.


38

ACA Requires Coverage and Eliminates Copays for Over
Twenty Select Preventive Services
Provision USPSTF Recommendations Priorities
Coverage of Screening for: Phenylketonuria Counseling for
and elimination Abdominal aortic aneurysm Rh incompatibility (24-28 weeks tobacco use: adults
of cost sharing gestation) and pregnant women
Anemia
for preventive Aspirin to prevent
Bacteriuria Syphilis
services cardiovascular
recommended Blood pressure Visual acuity in children
disease
by the U.S.
b th U S Breast cancer (mammography) Counseling f
C li for:
Screening for blood
Preventive Alcohol misuse
Cervical cancer pressure
Services Task
Chlamydial infection BCRA gene screening Screening for
Force
(USPSTF); Cholesterol abnormalities Breast feeding cholesterol
requirement Diet abnormalities
Colorectal cancer
depends on Obesity Screening for
Depression
grandfathered depression
Diabetes Sexually transmitted infections
status Screening for
Gonorreha: women Tobacco use: adults and pregnant
colorectal cancer
woman
Hearing loss
Aspirin to prevent cardiovascular disease
Hemo-globinopathies
Chemoprevention of breast cancer
p
Hepatitis B
Chemoprevention of dental caries
HIV
Supplementation with folic acid
Congenital hypothroidism
Prophylactic medication for gonorrhea:
Obesity
newborns
Osteoporosis
Iron supplementation in children


39

Both Fully-Insured and Self-Funded Employer Plans Subject
to Excise, or “Cadillac,” Tax in 2018

Employer Plans
Provision
Fully-Insured Fully-Insured
Self-funded
1-100 100+
Imposes an excise tax on employer health
insurance plans that offer policies with
generous levels of coverage

Imposes a a ua flat fee (c a g g in
poses an annual at ee (changing
each subsequent year) on the health
insurance sector

Requires employers to disclose the value of
the benefit provided by the employer for
each employee’s health insurance coverage
on the employee’s annual Form W-2


40

CBO Assumes Employer Coverage After Health Reform
Remains Relatively Stable
Individuals with Employer
Coverage as Primary Source
(in millions) CBO discusses three separate trends in
employer coverage:
180 162 159
150 Plus 6 - 7 million people due to
160
140 individual mandate
120 Minus 8 - 9 million other people who
100 would lose offer of ESI
80
60 Minus 1 - 2 million people who would
40 get coverage through the exchanges
20
0
2010 2019 w/out 2019 w/
ACA ACA

Congressional Budget Office, letter to the Honorable Nancy Pelosi, providing a preliminary analysis of the Manager’s
www.TheNationalCouncil.org Amendment to the reconciliation proposal, March 20, 2010.
http://www.cbo.gov/ftpdocs/113xx/doc11379/Manager'sAmendmenttoReconciliationProposal.pdf
41

Retiree Health Benefits

42

Percent of Large Employers* Offering Coverage to
Retirees Has Dropped Significantly in Past 20 Years
80% Percent of Large Employers Offering Retiree Coverage 1988 2009
Coverage, 1988-2009

66%
60%

46%
40% 40% 40% 38%
40% 37%
36% 35% 36% 36% 35%
33% 33% 31%
29%

20%

0%
1988 1991 1993 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Large employers are much more likely to offer retiree health benefits than small employers. In
2009, only five percent of employers with fewer than 200 workers offered coverage to retirees.

*Graph shows employers with at least 200 workers that offer health benefits to active workers.
43

Legislation Attempts to Slow Decline in Retiree Coverage
by Implementing Reinsurance Program

Provision Details

Reinsurance for Establishes a $5B temporary reinsurance program to reimburse
Retirees
R ti employer-based plans f b
l b d l for benefits provided t retirees ages 55 64
fit id d to ti 55-64
from 2010-2014

Reimbursement provided for 80% of the cost of benefits per enrollee
in excess of $15 000 and below $90 000
$15,000 $90,000

Could provide funding to offset spending on high-cost retirees

Limit on available funds means companies that apply early will receive
p pp y y
greatest benefit


44

Employers Are Eligible To Receive a Tax Subsidy for
Providing Prescription Drug Coverage to Retirees
> Under the retiree drug subsidy (RDS), the federal government subsidizes the
provision of drug benefits by employers who offer coverage that meets a
minimum standard.

> RDS is a tax-free Medicare payment to employer-sponsored plans worth 28
percent of allowable drug costs between $310 and $6,300 .

• A li t each covered retiree not enrolled in Part D i 2010
Applies to h d ti t ll d i P t in

www.TheNationalCouncil.org Source: CMS cost threshold and cost limit announcement:
http://rds.cms.hhs.gov/news/announcements/costthreshold11.htm
45

Health Reform Could Reduce the Attractiveness of the
RDS
Several reform provisions could further reduce the attractiveness of the RDS
» Coverage of drugs in the coverage gap
• Makes PDP coverage more attractive
» Elimination of the tax deduction for the RDS
» Legislation does not enrich RDS payments to balance out these changes

New environment could encourage some employers to drop retiree coverage
and lead retirees to obtain coverage through a conventional Part D plan


46

Companies Claim RDS Changes Will Increase Costs
A number of large employers have stated that the elimination of the tax
deduction for the RDS will lead to reduced earnings
> Although the RDS change does not take effect until 2013, accounting
standards require that a deferred income tax asset be written down in the
period legislation changing the tax law is enacted
The American Benefits Council, the trade group that represents employer-
sponsored health plans, is calling for Congress to “fix” this provision
plans fix

Sources: “Boeing will take $150M charge due to health reform” Business Insurance, March 31, 2010 accessed at :
www.TheNationalCouncil.org http://www.businessinsurance.com/apps/pbcs.dll/article?AID=2010100339982
“American Benefits Council Vows To Fight For Repeal Of Part D Subsidy Provision In Reform Law” Inside Health Policy, March 29, 2010 accessed at:
http://insidehealthpolicy.com/secure/health_docnum.asp?f=health_2001.ask&docnum=3292010_council&DOCID=3292010_council
47

Implications


48

New Environment Could Lead Some Employers to Drop
Retiree Coverage, Increasing Part D Enrollment
> Under the retiree drug subsidy (RDS) the federal government subsidizes the provision
(RDS),
of drug benefits by employers who offer coverage that meets a minimum standard
• Applies to each covered retiree not enrolled in Part D
> Several reform provisions could further reduce the attractiveness of the RDS

• Closing the Part D coverage gap
• Elimination of the tax deduction for the RDS
> These changes could encourage some employers to drop retiree coverage and require
retirees to obtain coverage through a conventional Part D plan

> A number of large employers have stated that the elimination of the tax deduction for the
RDS will lead to reduced earnings

Increased CMS scrutiny of plans and regulatory oversight may lead to additional market disruption.
Specifically, the meaningful differences policy will require some sponsors to eliminate plans.


49

As Employers Grapple with Implementation, Industry
Stakeholders Recognize the Need for Payment Reform
Aetna CEO Ron Williams on payment reform: “To be certain, the system’s lack of focus on value is easy to see.
Today’s health care payment structure rewards the volume, rather than the quality or efficacy, of services
provided – a problem that results in pervasive overuse and misuse of health care resources….Aetna’s efforts to
extract greater value for each health care dollar spent for our customers are instructive, and can help shape
our discussion about controlling costs and improving access.”

Former CEO Pacific Business Group on Health, Peter Lee, on payment reform: “Our health care system pays
providers for the number of treatments and procedures they provide and pays more for using expensive
technology or surgical interventions. It is neither designed to reward better quality, care coordination or
gy g g q y,
prevention nor to encourage patients to get the right care at the right time.”

National Partnership for Women and Families President Debra Ness: “Delivery system reform is critical to
getting us to where we want to go, which is creating a quality-based affordable health care system for everyone
-- but we can't get there without transformational changes ”
changes.”


50

ACA Attempts to Address Employers’ Concerns About
Systemic Problems that Drive Cost Growth

Care Delivery

Transparency HIT
vizes

Supports
System
Incentiv

Infrastructure

Measurement Evidence (e.g. CER)

Payment Methods

HIT: Health Information Technology
CER: Comparative Effectiveness Research

51

ACA E
Experiments with C
i t ith Care D li
Delivery and Payment S t
dP t System
Models and Lays Groundwork for Future Exploration
Demo / Pilots Requires Secretary to establish a Medicare Shared Saving (i e ACO) program
(i.e.,
Grants funds to implement multidisciplinary “Health Teams” to support
implementation of the PCMH model
Directs Secretary to establish a pilot program for bundling payments for post-
acute care and establishes a Medicaid bundled payment demonstration
Establishes a series of chronic disease management programs

New Entities / Creates new Center for Medicare and Medicaid Innovation (CMI)
Structures Establishes an Independent Payment Advisory Board

New Initiatives/ Requires the President to convene an Interagency Working Group on Health
Authorities Directs the Secretary to award grants to entities that offer medication therapy
management (MTM) services by licensed pharmacists

Expansion of Increases MTM requirements for Medicare plans
Existing Entities / Expands value-based purchasing program across multiple settings
Authorities

ACO: Accountable Care Organization
www.TheNationalCouncil.org PCMH: Patient Centered Medical Home
MTM: Medication Therapy Management
52

Employer Plans Face Additional Pressures to Limit
Premium Growth and Generosity of Coverage
Plans will need to reduce premiums in 2018 to avoid the “Cadillac tax”
Cadillac tax
» ACA imposes a tax equal to 40% of the plan’s value that exceeds $10,200 for an
individual and $27,000 for a couple

Likely erosion of high-value high-premium plans due to the tax
high value, high premium

Sample Impact of Cadillac Tax on Premium
Trend for High-Cost Plans
25,000

20,000 High-Value Plan
Pre-Reform
Premium

15,000
($)

High-Value
10,000
P

Plan Post
Post-
Cadillac tax level
is $10,200 for
Reform
5,000 (grows at
individuals in 2018
CPI+1%)
0
2010 2012 2014 2016 2018 2020 2022 2024

Sample premium trajectory based on a hypothetical plan with a $7,000 individual premium in 2010. Plan premium
www.TheNationalCouncil.org inflated based on average medical inflation (CPI-M) for 2000-2009. Post-reform scenario shows plan with premium of
$10,200 for an individual growing at inflation (CPI) plus 1%, based on average CPI for 2000 to 2009.
53

Will Employers Drop Coverage?
> Nearly 60% of Americans obtain coverage through an employer
> Various incentives in legislation aim to prevent “crowd out”
crowd out
• Tax credits for small business
• Penalties for large business
> Some large companies have reported that the law will “adversely affect” their ability to
provide employee health benefits due to increased costs
> Expected trends from employer coverage:
• Plus 6 - 7 million people due to individual mandate
• Minus 8 - 9 million other people who would lose offer of ESI
• Minus 1 - 2 million people who would get coverage through the exchanges

The Massachusetts Experience:
Despite concerns of “crowd out”, the state has not experienced a drop in employer coverage post-reform.
Employer offer rates have increased since implementation. From 2007 to 2009, employer offer rates increased
from 72 percent to 76 percent, while the national employer offer rate remained steady at 60 percent.

www.TheNationalCouncil.org CBO March 20, 2010 Cost Estimate of the combined effect of H.R. 4872, the Reconciliation Act of 2010, and H.R.
3590, the Patient Protection and Affordable Care Act, as passed by the House March 21, 2010.

54

Recent Study Suggests Employer Coverage Will Expand
> Number of workers offered coverage will
All Firms
increase from 115 1 million to 128.7
115.1 128 7
million ( from 84.6% to 94.6% of US Workers Offered Coverage, after Reform 87.5 5.9
workers). Workers offered Coverage, before Reform 90.2

Total Workers 94.8
> The probability of being offered
coverage increases proportionately Firm Size, ≤ 50
for workers at small firms
> Of the 13.6 million workers newly Workers Offered Coverage, after Reform 10 25.4
offered coverage, only 3.2 million will Workers offered Coverage, before Reform 24.9
be employed by firms that would be Total Workers 41.2
subject to employer penalties

Firm Size, > 50
> If large employers are allowed to
participate in exchanges, both current Workers Offered Coverage, after Reform 97.5 31.2

and new insurance offerers will probably Workers offered Coverage, before Reform 115.1
do so Total Workers 136

0 20 40 60 80 100 120 140 160
Total Traditional Exchanges
Millions of Workers

55
www.TheNationalCouncil.org Source: The New England Journal of Medicine, “The Effects of the Affordable Care Act on Workers'’ Health Insurance
Coverage,” September 20, 2010. Spotlights data from RAND;s Comprehensive Assessment Reform Efforts (COMPARE)
microsimulation model.

Opportunities and Threats
For Employers


56

Fully-Insured Employer Health Plans

Opportunities Threats

Paying the penalty may be more cost-effective Insurance market reforms and new taxes may
than complying with mandate have downstream impact as health insurers
may pass these costs on to employers in the
Employees cannot be denied coverage in non-
form of higher premiums
employer health plans due to health status
Cost of maintaining grandfathered status may
Option to purchase healthcare coverage for
be too high
employees in Exchanges (for certain
employers)
l ) Employers f
E l face penalties f not providing
lti for t idi
coverage
Essential benefit requirements likely to enhance
access for employees Larger employers must auto-enroll employees,
potentially increasing operational burden
Avoid MLR and other requirements by
q y
becoming self-insured


57

Self-Funded Employer Health Plans

Opportunities Threats

Accepting employer mandate penalty may be Like fully-insured employers, self-insured
more cost-effective than complying with employers face penalties for not providing
mandate g
coverage
MLR exemption and avoidance of insurance Self-insured plans must auto-enroll employees,
industry fee provides financial advantage to potentially increasing operational burden
self-funded plans
Cadillac tax will place de facto limits on
Self-funded
Self funded plans also have greater autonomy coverage for generous self insured employer
self-insured
in designing benefits and implementing plans
innovative payment and delivery reforms


58

Conclusion
> It’s clear that there will be some new direct costs for employers due to health reform
> There will also be new opportunities to help employers offer coverage and offset costs
> However, much of the impact is unknown at this point
• Definition of grandfathered plans is unclear
• Impact of broader insurance reform and benefit design requirements on premiums
and employer offerings
• Will penalties be enough to prevent employers from dropping coverage?
> Can payment and delivery reforms help employers and other private payers control
underlying healthcare costs?


59

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