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Affordable Care Act: Where do we go from here?

Presented to

2011 Healthcare Forum October 6, 2011


The information in this document is based on preliminary review of the national health care reform legislation and is not intended to impart legal advice. This overview is intended as an educational tool only and does not replace a more rigorous review of the laws applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Blue Cross Blue Shield of Michigan is a nonprofit corporation and independent licensee of the Blue Cross and Blue Shield Association.

Expect big change from ACA A few highlights:


Insurance shopping exchanges Guarantee issue Level playing field Medical loss ratio requirements Individual mandate (minimum essential coverage) Employer mandate to offer coverage New subsidies and tax credits
BCBSM is committed to helping our customers navigate through the complexities of ACA now and in the future.

Opinion of ACA is mixed one year after signing


Kaiser Family Foundation Telephone survey of 1,200 adults in early March 2011 showed mixed feelings
80%

Favorable
ACA signed into law on March 23, 2010

Unfavorable

Dont know/Refused

60%

46%

48% 44%

50% 45%

49% 44% 42% 42% 41%

50%

48%

46%

40%

40%

41%

41% 35%

43%

40%

42%

40%

41%

43%

42%

20%

14%

14% 10%

14%

12%

15% 11%

18%

18% 13% 9% 8%

0%

Mar

Apr

May

Jun

Jul

Aug
2010

Sep

Oct

Nov

Dec

Jan

Feb
2011

Mar

Source: Kaiser Family Foundation Health Tracking Polls

This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation is a non-profit private operating foundation, based in Menlo Park, California, dedicated to producing and communicating the best possible analysis and information on health issues.

Consumer opinion of major ACA elements is even more varied


Keep Tax credits to small businesses Repeal

82% 76% 74% 72% 58% 27% 67%

15% 19% 22% 24% 36%

Gradually close the Medicare doughnut hole

Guaranteed issue Financial help for low and moderate income Americans in need of coverage Increase Medicare payroll tax on wealthy

Individual mandate

Note: Question responses abbreviated. See Topline: http://www.kff.org/kaiserpolls/8166.cfm for complete wording. Keep it but make changes (vol.) and Dont know/Refused answers not shown. This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation is a non-profit private operating foundation, based in Menlo Park, Source: Kaiser Family Foundation Health Tracking Poll (conducted March 8-13, 2011) California, dedicated to producing and communicating the best possible analysis and information
on health issues.

ACA challenges require us to work together to find solutions


Health Care Providers Administrative Complexity Financial Strain
More Medicaid Lower Medicare Reimbursement Balance after Insurance

Insurance Carriers Administrative Complexity Regulatory Burden Financial Strain


Provider Reimbursement Fees and Taxes

Alignment
Employer Sponsors Administrative Complexity New choices Financial Strain
Fees and Taxes Insurance Prices Business Administration Costs

Consumers/Patients Overwhelming Complexity Unprepared for Decision Making Affordability Problem

Where are we with exchange readiness?


2011
Federal Activities Draft Federal Regulation Expected

2012
Final Federal Regulation Expected Final Confirmation of Exchange Readiness

2013

2014

Market Activities

Plan and Pricing Submission Operational Testing

Effective Date

Open Enrollment

Potential State Activities

Enabling Legislation

Establish and Set Policy

Build Operations Go Live


6

What questions are we going to answer?


Are new subsidies available to employees? Can I drop coverage completely?

What is the Exchange?

Are there new administrative regulations?

What are the new taxes and fees?

How will MLR requirements affect me?

What about providers, ACOs, And OSCs?

How will the market shift?

What is BCBSM doing about these changes?

What is the Exchange?

The Exchange is a new way to shop

Insurance exchanges will change the consumer experience


dramatically

Exchanges will help consumers understand their plans and


shop easier

All plans will fall into a classification system of metal tiers The Exchange will present significant challenges

What are the rules of the Exchange?

What is the Exchange? Who can participate? When will it start? Who operates the Exchange?

It is a new, highly regulated retail distribution channel that creates a transparent and competitive administrative mechanism for individual and small-group enrollment Individuals and small businesses with 1-100 employees. Prior to 2016, states may define small employer as 1-50 employees.

Exchange must be effective by 2014

State Exchanges operated by government or nonprofits; states may form regional exchanges or allow more than one exchange (no overlapping geographies)

10

How does the Exchange work?

Insurers must offer 1 Essential Benefits

Insurers cannot medically 5 underwrite or apply preexisting condition clauses Price parity required if 6 same product sold on and off exchange

Products should conform 2 to metal tiers

Insurers must offer at least 3 one Silver and one Gold product Restricted rating factors to 4 Age, Smoking, Geography and Family Status

Minimum network adequacy requirements

Approval and qualification 8 process for plans and prices


11

What are the metal tiers?

The Exchange is introducing a new system of classifying health plans. The new labels are called metal tiers, and they correspond to the actuarial value of the plan.

Bronze 60% Silver 70% Gold 80% Platinum 90%


Actuarial value: Example: a plan with an actuarial value of 70% means that for a standard population, the plan will pay 70% of their essential health care benefit expenses, while the enrollees themselves will pay 30% through some combination of deductibles, copays, and coinsurance.
12

Administrative requirements for exchanges


While exchanges will make the customer experience easier, there are many administrative challenges:

State exchange must provide: toll-free call center, website with


QHP comparison tools, and personalized calculator to determine subsidies and cost of coverage. SHOP exchange must send a single bill to employers Insurers that participate must offer at least one silver and one gold plan Must allow for special enrollment if customers meet certain criteria (gain a dependent, become a citizen, etc.) Individual exchange initial enrollment period Oct. 1, 2013 through Feb. 28, 2014. Rolling enrollment for SHOP exchange begins Oct. 1, 2013
13

What new subsidies are available to my employees?

14

Premium tax credits and cost-sharing subsidies are available, but there are rules Tax credits can pay for a portion of the plan premium for those
who are eligible

Premium tax credits are available depending on income levels Subsidies cover a portion of out-of-pocket costs, depending on
income levels

The policies of an employer can affect whether an employee


can get a subsidy

Subsidies and tax credits are only available on the Exchange

15

What is the premium tax credit?


Premium tax credit = Silver plan premium maximum % of income a consumer must pay

FPL 138-150%* 150-200% 200-250% 250-300% 300-400%

% of income 3.11-4% 4-6.3% 6.3-8.05% 8.05-9.5% 9.5%

FPL: Federal Poverty Level; Medicaid eligibility is generally extended to 133 percent FPL calculated with a 5 percent income disregard. Thus, Medicaid eligibility is effectively up to 138 percent FPL
*There are situations in which an individual with less than 138% FPL could be eligible such as legal immigrants who are not yet eligible for Medicaid.

16

Who is eligible for the premium tax credit?

Employees can only access premium tax credit on the exchange if:

OR
The employee share of premium cost exceeds 9.5 percent of the employees household income The employer provided coverage does not pay for 60 percent of the expected essential benefit costs. (does not have at least a 60% actuarial value)

Employer does not offer coverage


17

What is the cost sharing subsidy?


Must have 138-400% of FPL Individual income- $15,000 - $43,000 Family of 4 income- $31,000 - $89,000

FPL

Subsidys reduction of outof-pocket max 2/3 1/2

FPL

Actuarial value 94% 87% 73%

138-200%* 200-300%

138-150% 150-200% 200-250%

*There are situations in which an individual with less than 138% FPL could be eligible such as legal immigrants who are not yet eligible for Medicaid.

18

What employees qualify for a subsidy?


Beginning Jan. 1, 2014 Unless:

Employees qualify if they:

Have income 138-400% FPL Purchase through the


exchange and,

x Coverage is available through


an employer plan

x Employer offers a plan of at


least bronze level equivalent (60% actuarial value) and,

US citizen or legal immigrant

x The employees contribution to


premium would not exceed 9.5% of household income

FPL: Federal Poverty Level; Medicaid eligibility is generally extended to 133 percent FPL calculated with a 5 percent income disregard. Thus, Medicaid eligibility is effectively up to 138 percent FPL
19

Can I drop coverage completely?

20

There is a choice, but it may be costly

Employers may elect to not offer coverage Applicable large employers that do not offer benefits may pay
an excise tax

The excise tax that must be paid depends on how many


employees go without employer coverage

21

What happens if we drop coverage?

Excise tax

Excise tax

This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation is a non-profit private operating foundation, based in Menlo Park, California, dedicated to producing and communicating the best possible analysis and information on health issues.

22

How is the excise tax calculated?


While the definition of a large group is determined on an annual basis, the excise tax penalty is assessed on a monthly basis. There are multiple scenarios which could be used to calculate the excise tax:

1
Employers that do not offer minimum essential coverage, and have at least one full-time employee that receives a premium tax credit on the exchange: Excise tax = $2,000 X (# of full-time employees 30 employees)

2
Employers that offer minimum essential coverage and have at least one fulltime employee that receives a premium tax credit on the exchange. The excise tax is the lesser of: $3,000 for each full-time employee receiving a tax credit OR $2,000 for each full-time employee 30 employees

23

Are there new administrative regulations?

24

There are many new responsibilities for employers, but we are here to help Regulations will pose new administrative challenges for
employers

Employers must inform employees of many provisions


including their appeal rights and reform changes

Employers must track data such as how many employees they


cover and the employees contribution level

Employers may also need to make provisions for languages


other than English

25

What are the new regulations?


2011 2012

HSA tax penalty for nonqualified


expenses increases from 10% to 20% Prohibit health account reimbursement for over-the-counter drugs without a prescription (HRA, FSA, HAS) Inform employees about the higher penalties for withdrawal of HSA funds for non-medical expenses Requirement for employers to report health coverage value on employees 2011 W-2 forms (mandatory for tax year 2012 for employers that issue 250 or more W-2s.)

Summary of Benefits and Coverage and


Uniform Glossary

Benefits and reimbursement programs


that improve health and promote wellness must be reported to HHS no later than March 23rd

Self-insured plans and insurers must pay


$1 per enrollee to fund comparative effectiveness research. Increases to $2 in 2014

W-2 Health plan cost reporting Include womens preventive services for
plan years after Aug 1
26

What are the new regulations?


2013 2014 +

FSA cap of $2,500 Medicare payroll tax rate increase for high income Inform high income employees of Medicare payroll and investment income taxes Must notify people of the Exchange

Communicate reform changes to all employees Large employers must offer sufficient coverage or be subject to penalty Some large employers must autoenroll employees in a health plan Small employers should determine whether to shop on an Exchange Remove waiting periods in excess of 90 days
27

What are the new taxes and fees?

28

There are several new taxes and fees, but some are more significant than others

Plans with extremely rich benefits may fall under the new
Cadillac tax

Excise taxes must be paid if employers fail to provide


coverage

Everyone in health care is affected

29

What taxes and fees will impact us the most?


2018 2014 2012-2013 Market Share Tax Comparative Effectiveness Fee
Fee on insurers and self-insured plans will be used to fund comparative-effectiveness research $1 per covered life for policy years ending in fiscal year 2013, and increases to $2 per covered life for fiscal years 2014-2019 Terminates after fiscal year 2019, applies to all fully insured and self-insured plans (if self-insured, employer remits) Major source of funding Assessed to carriers based on their national market share Applies to insurers, though the value of premiums used to calculate tax liability is reduced by 50 percent for federally tax exempt HMOs like BCN Self insured business not included in the calculation BCBSM and BCN will likely face a significant market share tax 40% excise tax will be assessed on the value of employer provided health benefits that exceed certain thresholds Insurers remit the tax for the fully insured benefits; employers or ERISA plan administrators (normally the employer) remits for self-insured benefits Diminish the value of the tax exemption for employer provided benefits Incentive for employers to offer cheaper, less generous policies, which could lead to slightly lower health care costs overall

Cadillac Tax

30

What other taxes and fees will affect us?


Tax on non-qualifying HSAs 1/1/11 Tax years beginning after 12/31/12 1/1/11

Health FSA cap Prescriptions required for HSAs, HRAs and FSAs Branded drug market share tax

2011

Medical device tax Increase Medicare payroll tax rate for high-income earners

Sales after 12/31/12

01/01/13

31

Is there a fee for the individual mandate?


Legal residents who dont purchase minimum essential coverage may have to pay a tax. This tax is the greater of two calculations:

$695 per person per year up to a maximum of $2,085 per family

OR

2.5% of household income (the $2,085 max does not apply)

32

How will MLR requirements affect me?

33

MLR will only affect fully-insured employers

Medical loss ratio (MLR) is the percent an insurance company


pays out of premiums for clinical services and quality improvements versus administration expenses

ACA requires plans to adhere to certain MLR thresholds Large and small group MLR requirements differ New MLR rules require extra data collection and also require
that rebates be provided if thresholds arent met

34

What are the MLR requirements?

Large group market

85%

Individual market Small group market

80%

If an insurance issuer does not meet these ratios, it must provide rebates to its members to meet the threshold.
35

Are there other changes regarding MLR?

Other important changes:


Companies that fail to meet MLR thresholds must provide rebates for the difference Insurers will need to collect more information from employers Total number of employees (including seasonal/part time) Employee contribution levels

36

What about providers, ACOs, and OSCs?

37

There is a new incentive to be accountable and work together

Reform may change how providers behave and how they are
structured

ACA changes how providers and insurance companies


interact

Regulation encourages providers to consolidate Groups of providers operate differently than solo practitioners

38

What may change for providers?

Structural changes

Possible conduct changes

Provider consolidation Cross-provider integration Acceleration of trend towards


alternative delivery models

Stronger push for cross-payer


subsidization

Focus on medical risk and


population management

Increased focus on efficiency


and productivity

Greater differentiation of value


proposition

Emergence of new provider


models

39

What are Accountable Care Organizations?


Requirements
Accept responsibility for at least 5,000 Medicare fee-for-service beneficiaries Retrospective attribution based on majority of primary care Data and infrastructure including >50% meaningful electronic medical record users by year 2 Notify patients that they participate in ACO program Report on 65 quality measures Prohibits avoiding at-risk patients or limiting care Patients can go to any doctor or hospital with prior approval Provider participation in ACOs is voluntary ACOs must demonstrat ability to repay losses to Medicare

Obligations Controls

Shared Savings

ACOs have their choice of two risk tracks in the first year: Amount of shared savings/losses depend on performance on quality measures and lowering cost ACOs may be eligible for higher shared savings depending on percent of beneficiaries visiting FQHCs/RHCs. CMS will withhold 25% of shared savings until completion of 3 year performance period
40

What are Organized Systems of Care?

OSCs
Measure performance

Responsible for patients across settings of care

Coordinate care

Share responsibility and accountability

Have designated populations


41

How will the market shift?

42

The new marketplace will offer more choices for customers

New rules give consumers many more options Regulation may also change what market employers belong to The face of the insurance market will likely change drastically

43

What provisions will shape the market?

Medicaid expansion Subsidies for individuals Insurance reforms Penalties for not having or offering Medicare fee-for-service payment changes Health insurance exchanges Funding (fees and taxes)
44

What will the effects on the market be? Pressure on employer-group coverage Increased individual market Downward pressure on payments to hospital and physicians Price competition and benefit standardization Administrative complexity and compliance risks

Market shift
45

What will the market shift look like?


Coverage landscape pre- and post-reform Percent of lives, 2010 - 16 9.8m 10 12 25 29 17 4 Individual MA/Medigap1 Medicare FFS Managed Medicaid2 0 Medicaid FFS Uninsured 10 320 ASO 10.0m = 100% 5 Small group 8 Large group -25 Total growth 3 Percent

Group sponsor challenges and decline in group coverage Individual and consumer market growth Financial challenges for provider community Price sensitivity and potential commoditization Administrative complexity and compliance risks New category of disruptive competitors

7 10 12
4

8 10
21 7

75

12
2010

2016

SOURCE: BCBSA Strategy Collaborative; Moodys Economy.com; Michigan Dynamic Coverage Model; Census; McKinsey analysis; and State Health Facts Database

46

What is BCBSM doing about all this?

47

BCBSM has many new tools designed to help customers through these changes BCBSM will help employers craft their benefit strategy through
Health Care Path ForwardSM

GlidePath will assist defined-contribution employers with


SM

decision-making and administration

Bloom will also help employees navigate the insurance


process

BCBSMs product design principles will align with the OSC


model, promoting better relationships and enhanced care

48

What is Health Care Path Forward?

Health Care Path Forward is employer-specific analytics designed to help employers understand and craft their benefits strategy
2011 Deliverables in Process 2012 Deliverables
Michigan Employer Health Care Reform Analysis

Reform Action Guide


For Employers with 100+ Employees

EmployerSpecific Path Forward Strategy


Plan Innovations Funding Options Transition Strategies

Business Health Insurance Tax Credit

Reform Action Guide

Managing the Cadillac Tax

These materials are for informational purposes only and not for the purpose of providing legal, actuarial, accounting or other advice. The information in this document is based on BCBSMs and BCNs current understanding of the Patient Protection and Affordable Care Act, Pubic Law No: 111-148 (ACA); however, interpretations of ACA vary and the federal government continues to issue guidance on how it should be interpreted and applied. Although we strive to ensure our information is accurate and useful, you should contact your attorney or other consultants to obtain advice on the impact of various reforms on your individual situation and professional assurance that our information, and your interpretation of it, is appropriate to your particular issue or problem.

49

How will the Reform Action Guide and the analytics work?
Each employer will be assessed by our analytics model and assigned a Reform Strategy Profile
Profile A
Reform Subsidy Penalties

>

Additional Premium Contribution

Likely to Maintain Benefits Sponsor Role and strategically adopt plan innovations Likely to Continue Some Form of Benefits Sponsorship and take immediate steps to ensure affordability

Profile B

Reform Subsidy Penalties

Additional Premium Contribution

Profile C

Reform Subsidy Penalties

<

Additional Premium Contribution

Likely to strongly consider

Changing Benefits Sponsorship Role

These profiles will be articulated with employer-specific financials that highlight the most relevant available strategy paths into 2014 schedule a discussion with your account manager.
These materials are for informational purposes only and not for the purpose of providing legal, actuarial, accounting or other advice. The information in this document is based on BCBSMs and BCNs current understanding of the Patient Protection and Affordable Care Act, Pubic Law No: 111-148 (ACA); however, interpretations of ACA vary and the federal government continues to issue guidance on how it should be interpreted and applied. Although we strive to ensure our information is accurate and useful, you should contact your attorney or other consultants to obtain advice on the impact of various reforms on your individual situation and professional assurance that our information, and your interpretation of it, is appropriate to your particular issue or problem.

50

What is GlidePath ?
SM

A defined-contribution model with flexibility, freedom and support for your members.

51

How does GlidePath work?


SM

Bloom Health is a separate company that provides decision making support for employees and a defined contribution framework for Blue Cross Blue Shield of Michigans GlidePath solution

52

What is Bloom Health?

Based in Minneapolis, Bloom Health helps employers of all sizes and industries better define and control their health care spending. Bloom then guides employees through the complex world of health insurance, helping them find the right health plan for them and their families with its proprietary search and recommendations engine.

Bloom Health was founded in 2009. Bloom Health is partially owned by the Blue Cross Blue Shield Venture Partners, L.P., a corporate venture fund sponsored by Blue Cross Blue Shield Association. For more information, visit www.gobloomhealth.com.
Bloom Health is a separate company that provides decision making support for employees and a defined contribution framework for Blue Cross Blue Shield of Michigans GlidePath solution

53

What guiding principles will BCBSM use?


Key Principles Compliance with Reform Mandates Enhanced Primary Care: Patient/Physician Relationship Care Management
54

Encourage Primary Care Access Financial Incentives and Disincentives (Non-ACO/OSC) Build Stronger Referral Relationships Comprehensive Preventive Care within OSC Value-Based Design (Essential Medications)

Manage health care quality Manage cost Improve the health of our members

Wellness Incentives

BCBSMs future product design will align with the OSC network model and goals:

Questions?

For more information please visit www.bcbsm.com/healthreform


55

D EMOGRAPHIC AND S OCIAL T RENDS OF B ENEFITS

W ORKFORCE D EMOGRAPHICS D EFINED


Great Generation
Before 1945

Baby Boomers
1946 1964

Gen X
1965 1980

Gen Y
1980 - 1994

W ORKFORCE
D EMOGRAPHICS

Todays Workforce
Great Generation Baby Boomers Gen X Gen Y

T HE Q UESTION I SN T

How Old are You?

Question IS

WHEN WERE YOU YOUNG???

TALK IN TERMS OF THE OTHER PERSON ' S INTEREST

I MPORTANCE OF E DUCATION AND C OMMUNICATION


Help employees focus on what they can control.

Focus on the employees needs, not the companys.

Keep it simple, clear, and relevant.

N OT JUST O PEN E NROLLMENT A NYMORE


Good short term decisions = long term health and financial security.

Gen Y is under financial stress.

Most Boomers are not prepared for retirement.

B ENEFITS M ARKETING PART OF C ULTURE


Market company benefits to the employees so they

feel valued as individuals.

What you don't want is to offer a good benefit program, only to have employees perceive that the company is providing it reluctantly.

The messages must express a real concern for and commitment to employees and their families.

2 OF THE TOP T EN T RENDS

#3 Increased competition for jobs, markets and talent #6 Large numbers of baby boomers (1945-1964) leaving the workforce at about the same time

J OB S ATISFACTION E LEMENTS

62%: Job Security 60%: Opportunities to use Skills/Abilities 60%: Compensation / Pay 59%: Relationship with Immediate Supervisor 53%: Benefits

SHRM2011 Employee Job Satisfaction Research Report

W HAT D OES T HIS M EAN TO YOU?

Two thirds or 53% of employed adults are open to a new job or actively looking for a new job!
Based on U.S. Census Bureau 2010 data

T HE T IE

TO

TALENT

In the race for talent, your benefit plan


can make the difference in a competitive offer.

K NOW Y OUR W ORKFORCE

No Jumping The Shark!


and Remember

N O O NE L IKES C HANGE
But A Wet Baby!

Q UESTIONS ??
Nancy McKeague Michigan Health & Hospital Association Julie Mann JMann Consulting Group The Rock Star Factory

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