Transcript Implications of the Affordable Care Act

Implications of the Affordable Care Act
ACA Background & Fundamentals
for Fully-Insured Small Groups
This presentation is not intended to be a comprehensive review of the content of the legislation, nor should it be interpreted as authoritative and/or legal advice on
implementation. The presentation represents our best understanding as of the date of the presentation. In the event you have questions applicable to your business or employees,
we recommend you request the advice of competent legal counsel.
Blue Cross of Northeastern Pennsylvania
July 18, 2013
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Key Considerations
Presentation will focus on 5 key considerations of the ACA
1.
Consumer protections in the ACA
2.
Standardized products – Metallic plans and EHBs
3.
Consumer subsidies
4.
Distinct impact on small groups
5.
Risk-stabilizing programs
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Overview of ACA
The Affordable Care Act is primarily focused on offering consumer
protections and providing financial support to purchase coverage
Reduce Consumer Costs
• Premium subsidies
• Cost sharing subsidies
• Age banding
• Minimum amount health plan’s must
spend on medical costs (i.e. MLR
requirements)
• Rate Review
Rights and Protections
• Elimination of annual and lifetime
caps
• No medical underwriting
• Guaranteed Issue
• Essential Health Benefits (EHB)
• Coverage for preventive services
• Coverage for dependents up to 26
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PPACA (Patient Protection and Affordable Care Act )
Provisions 2010-2012
Since the enactment of the ACA in March of 2010, many of the law’s
provisions have already been put in place
March 2010
• Enactment
June/July 2010
• Pre-Existing Condition
Insurance Plan (a national
high-risk pool) launched at
pcip.gov
• HHS web portal launched at
Healthcare.gov
• Temporary employer
reinsurance
September 2010
• Children under 19
may not be excluded for
pre-existing conditions
• Dependent coverage to
age 26
• Limits on rescissions
• Medical loss ratios
80% individual/small group;
85% group)
2012
• Summary of Benefits
Coverage (SBC)
• Accountable Care
Organizations
• State Notification of Intent to
operate a
state-based exchange
• PCORI Fee
• No lifetime limits
• No cost-sharing on preventive
services
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PPACA Provisions 2013+
The ACA will bring about many additional regulations starting in 2014
2013
2014
• W-2 Reporting of Health Benefits
• Guaranteed Issue
• Medicare Tax Increase
• Individual Mandate
• Reduced FSA Contribution Cap
2018
• Excise tax on “Cadillac plans”
• Health Insurance Marketplace
• CO-OP Health Insurance Plans
• Health Insurance Premium and
Cost Sharing Subsidies
• Marketplace open-enrollment
• No Annual Limits on Coverage
• Essential Health Benefits
• Temporary Reinsurance Program
• Employer “Play or Pay”
(delayed to 2015)
• Health Insurer Annual Tax
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2013 Pennsylvania Rate Filings
Individual and Small Group plans have been developed and rates have
been submitted
File
Jan
Feb
Mar
Rate Review
Apr
• April 1st
Carriers begin submitting
Federally Facilitated
Marketplace (FFM)
applications
May
June
July
Aug
Market Rates Set
Sept
• July 31st
State certification complete
• September 4th
Carriers notified
Oct
Nov
Dec
2014
• October 1st
FFM sales begin
(open enrollment)
• January 1st
Coverage effective
• May 3rd
All FFM applications due
Note: Large Employers (more than 50 employees) are not impacted
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Wellness Benefits
Employers may offer incentives to employees for improving their health
or obtaining education on how to do so
Participatory Programs
Health-Contingent Programs
Reward based on achieving measurable
improvements in specific health factors
Reward based on activities that promote
health or prevent disease
• Examples of these programs are:
• Examples of these programs are:
‒
‒
Activity based: Checking in at activity
classes twice a week for 6 months
Outcome based: Quitting smoking or
meeting biometric screening goals
• Reward limited to 30% of employee
premium
‒
‒
‒
Attending health education seminars
Smoking cessation classes (regardless of
outcomes)
• There is no limit to the amount employers
can offer employees
Can also receive 30% off dependent
coverage if eligible
Wellness benefit programs have no short-term impact on premiums paid to carrier
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Essential Health Benefits
Essential Health Benefits will provide 10 common categories of
coverage, and are required in all Small Group and Individual plans
10 Categories of Essential Health Benefits
(percentage of Individual plans that currently offer in brackets)
Hospitalization
(100%)
Preventive &
Wellness Services
(100%)
Emergency Services
(100%)
Rehabilitative &
Habilitative Services
(85%)
Prescription Drugs
(82%)
Mental Health &
Substance Abuse
(61%)
Ambulatory
Patient Services
Maternity &
Newborn Care
(99%)
(34%)
Laboratory Services
Pediatric Services
(99%)
(24%)
Individual Plans that currently offer1:
Greater than 90% of Plans offer
70 to 90% of Plans offer
50 to 70 % of Plans offer
Less than 50% of Plans offer
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(1) HealthPocket.com survey of 11,100 Individual insurance plans
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Metallic Level
Metallic level is associated with actuarial value, which is a measure
of the percentage of expected health care costs a health plan will cover
Actuarial Value of Essential Health Benefits
Estimate
of average
covered medical
costs for population
(not representative of actual premiums1)
Subscriber
Responsibility
$2,400
$1,800
$1,200
$600
$5,400
$4,800
(e.g. deductible and co-insurance)
$4,200
$3,600
Plan Responsibility
$6,000/yr
(e.g. premiums)
60%
70%
80%
90%
Bronze
Silver
Gold
Platinum
Metallic level of a product is not directly related to richness of benefits,
but rather amount that consumer is estimated to spend out-of-pocket relative to premiums
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(1) Premiums will be higher than just medical costs as illustration does not show admin costs
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Federal Poverty Level
Federal Poverty Level (FPL) will be used by the ACA to determine
consumers’ eligibility for government subsidies
Household Income
$95,164
$83,269
Family of Four
$71,373
$59,478
$47,582
Individual
$35,687
$23,791
$11,731
100
$17,597
150
$23,462
200
$29,328
$35,193
250
300
Household FPL
$41,059
350
$46,924
400
Federal Poverty Level (FPL) set annually by the Department of Health
and Human Services1
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(1) Adjusted annually for inflation based on the CPI
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Premium Subsidies
Premium subsidies guarantee a maximum cost-exposure level for the
2nd-Lowest Cost Silver Plan
Estimated Premiums and Subsidies in 2014
(Single Subscribers)
$7,000
Est. Premium for older demographic
• Market rates determine
amount of subsidy
Estimated Premium
$6,000
• Older consumers will receive a
much greater share of
government subsidies
Government Subsidies
$5,000
$4,000
$3,000
Est. Premium for younger demographic
8.1 % of
Income
$2,000
$1,000
9.5 % of
Income
9.5 % of
Income
2.0 % of
Income
6.3 % of
Income
Receive no
Subsidies
• Price shock after 400FPL will
be most significant to older
populations
• Many younger consumers will
have premiums below their
premium cap
$-
Household FPL Level
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Cost-Sharing Subsidies
Consumers with household incomes below 250% FPL will be eligible
for cost-sharing subsidies that lower exposure to out of pocket costs
Silver Plan
70% AV
Total AV:
94%
87%
73%
Out of Pocket Share:
Additional Protection:
6%
24%
13%
17%
27%
3%
Base Actuarial Value:
70%
70%
70%
100-150% FPL
151-200% FPL
201-250% FPL
125FPL
175FPL
225FPL
Est. Premium Cap:
$295
$1,070
$1,900
Out of Pocket Costs1:
$360
$780
$1,620
Net Cost Exposure:
$655
$1,850
$3,520
Example
Individual Coverage:
Covered Medical
Costs of $6,000
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1) Out-of-pocket maximums set by ACA: If under 200FPL, max is 1/3 of allowed HSA level (1/3 x $6,350 = $2,117), between 200-250 FPL
max is fixed at $5,200
2) Total cost exposure will vary depending on where actual services were rendered along with combination of deductibles, copayments, and coinsurance within each product
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New Requirements and Fees
ACA requirements will have varying impact on employer segments
Requirement/Expense
Self-Insured
Plans (ASO)
Fully-Insured
Large Group Plans
Fully-Insured
Small Group Plans
Elimination of Lifetime Caps1
Dependent Coverage to Age 261
Preventive Services1
Minimum Actuarial Value
ACA Fees2
Affordable Coverage Penalty
Compliance with State Mandates
Insurance Premium Taxes
Essential Health Benefits
Modified Community Rating
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1)
2)
In effect prior to 2014
Reinsurance Fee, PCORI fee
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Employer Penalties
There are two ways in which employers may have to pay a shared
responsibility payment (i.e. a penalty) in the post-reform market
General Penalty Criteria:1
• Employer has at least 50 full-time equivalent employees (excluding seasonal workers)
• One or more eligible employees purchase subsidized coverage through Marketplace
1
2
Employer Does not Offer Coverage
Employer is penalized on all full-time
employees excluding the first 30
$2,000 penalty
Penalty is assessed for every full time employee,
regardless if employee currently receives coverage from employer
No penalty for part-time workers
Employer Offers Unaffordable Coverage
Employer is penalized if employees’ premium
contributions exceed 9.5% of household income2 or
the plan covers less than 60% of healthcare expenses
$3,000 penalty
Penalty is assessed for each eligible employee
that obtains a subsidy on the Marketplace
Note: Penalties are levied as excise tax, so employer must pay penalty after tax which may will increase exposure substantially
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1)
2)
Penalties go into effect in 2015
Although the IRS has issued guidance providing a safe harbor for employers, the ACA law itself specific that affordability be calculated based
off of the employee’s total household income rather than the employee’s wage
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Penalty Assessment
The financial impact of the penalty for not offering coverage are
frequently underestimated
Penalty
Breakdown
Penalty per
Full Time Employee
(by firm size)
$4,500
$4,000
$2,000
$3,279
$3,683
$3,279 ($2,000 grossed up for taxes)
$3,500
Penalty per Employee
$404
$1,279
$3,000
$2,500
$2,000
If not offering coverage,
hiring of 50th employee
in 2015 creates $60,000+
in post-tax penalties
$1,500
$1,000
$500
$0
0
100
200
300
400
Firm Size
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(1) Penalty is levied as an excise tax, so employer must pay penalty after tax. 39% average Federal + State tax rate used for illustrative purposes,
which will vary depending upon employer-specific details
(2) Base penalty increases each year at the rate of medical cost inflation, assumed to be 6% in this example
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Impact From Community Rating
Individual and Small group market will face varying levels of premium
adjustments
Example of Potential Premium
Cost Adjustments by Historic Risk Profile
$7,500
Premiums
$6,500
$5,500
$4,500
$3,500
Avg. Increase
~1% to 10%
Premiums for
low risk groups
may rise by
more than 50%
$2,500
Considerations:
• Individuals & Small
Groups must meet
modified community
rating guidelines1
• Premium increases postreform correlated to
flexibility in underwriting
pre-reform
• Premiums adjusted only
by age, and modified for
smoking and regional
factors
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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1) Employers with less than 50 employees must meet modified community rating and age adjusted premiums in 2014,
same for employers with less than 100 employees in 2016
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Risk Stabilization Programs Established by the ACA
HHS has created three programs to minimize risk associated with the
emerging Individual market
Mechanism
Description
Risk Adjustment
(Permanent)
Enables transfer of funds
from carriers with lower-risk
populations to those with
higher risk to protect against
adverse selection
Reinsurance
(2014-2016)
Risk Corridors
(2014-2016)
Provides funding to Plans that
incur high claim costs for
enrollees for all non-grandfathered
individual market products (on and
off Marketplace)
Limits insurer losses (and gains)
by adjusting for incorrect
estimation of members’ total
medical costs
Impact On
Implications
Small Group
Shifts margin away
from lower-risk individuals
to higher-risk individuals
Individual
Individual
Small Group
Individual
Offsets claims on the highest
claimants through 2016
Can mitigate but not eliminate
losses—initial pricing will be
very important
Source: Office of Policy and Representation. Risk Stabilization Program Guide. Issue brief. Washington, D.C.: Blue Cross Blue Shield
Association, n.d. Print.
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Health Insurance Exchanges
States have option to create their own exchanges, to partner with the
Federal government, or opt for the federally facilitated marketplace
State and Federal Functions/Responsibilities in Exchanges
State-based exchange
State operates all exchange
activities but may rely on HHS
for these activities:
• Premium tax credit and
cost-sharing reduction
determination
• Exemptions
• Risk Adjustment program
• Reinsurance program
Federal partnership
exchange
State operates activities for:
• Plan management, or
Federally facilitated
marketplace
HHS operates; states may
perform:
• Both
• Medicaid/CHIP eligibility
determination or
assessment
States may perform these
functions or rely on HHS:
HHS will also handle the
following activities:
• Medicaid/CHIP eligibility
determination or
assessment
• QHP Certification
• Consumer assistance, or
• Rate Review
• Eligibility Determination
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Source: HHS, “Blueprint for Approval of Affordable State-Based and State Partnership Insurance Exchanges”
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State Status of Health Insurance Exchanges
Approximately half of the states have chosen to default to the federally
facilitated marketplace
WA
ME
MT
OR
ID
NV
ND
WY
MN
WI
SD
CA
CO
MI
IA
NE
UT
NY
IL
MD
OH
IN
WV
KY
MO
KS
PA
OK
NM
MS
TX
AL
RI
VA
SC
AR
CT
NJ
DE
MA
NC
TN
AZ
VT
NH
GA
LA
Default to federally facilitated marketplace
Planning for partnership exchange
FL
AK
Declared state-run exchange
HI
Pennsylvania will be use the Federally Facilitated Marketplace (“FFM”)
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Source: Kaiser Family Foundation as of June 20, 2013
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Employer Options
Employers have increasing options to evaluate benefit options
for their employees
Pre-2014
Post-2014
Typically shop for health benefits by
comparing group products from different
carriers
Options become much more complex as they
will have multiple channels as well as
carriers to evaluate
Cost Per Employee Consistent
Cost Per Employee May Differ
ACME Inc.
ACME Inc.
1
CARRIER
2
CARRIER
3
CARRIER
Traditional
Group
Products
Private
Group
Exchanges
Public
Marketplace
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