Affordable Care Act Town Hall

September 27, 2012

Jim HardyDeloitte Consulting LLP

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Specific provisions of the ACA are restructuring the market landscape

Government Program Changes

Taxes and Fees

Insurance Exchanges

Specific ACA provisions effective in

2014

Prohibits health plans from denying coverage or rating applicants based on health, requires provision of essential health benefits, introduces actuarial equivalence and metallic levels

Adjusts plan options to a common standard between health plans and mitigates the impact of Guaranteed Issue and pricing uncertainty in the short term

Expansion of Medicaid, Medicare Advantage MLR requirements, and Payment Reforms

Lowers the cost of coverage for the low and middle income populations in the Individual market

Levies against health insurers and other groups to fund subsidies and risk management mechanisms

Additional reporting requirements, penalties for employers who fail to offer affordable comprehensive coverage, auto enrollment of new FTEs

Creates government regulated Individual and Small Group health insurance marketplaces

Risk Management Mechanisms

Employer Changes

Guaranteed Issue (GI) and Rating

Changes

Institutes penalties for failing to purchase health insurance

Individual Mandate

Tax Credits and Subsidies

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Specific Provisions on the Horizon : Individual Mandate

Note: 1. This represents the max flat dollar family penalty. The flat dollar amount is capped at 300% of the Individual amount.

2. Applicable income is defined as the individual’s household income that exceeds the applicable filing threshold for the applicable tax year. The applicable filing threshold is comprised of personal exemptions plus standard deductions

3. Penalty cannot be greater than the national average premium for Bronze level coverage in the Exchange

Beginning in 2014, the Individual Mandate applies penalties to those who do not obtain health insurance coverage

Beginning in 2017, the penalties will be increased by the cost-of-living adjustment

There is no metallic plan level (actuarial value) requirement for coverage in terms of satisfying the individual coverage mandate

Provision Overview

Year Individual Penalty (Greater of the Two)

2014

$95 / Adult / Year

$47.50 / Child / Year

$285 / Family / Year1

Or 1.0% of applicable income2, whichever is greater3

2015

$325 / Adult / Year

$162.50 / Child / Year

$975 / Family / Year1

Or 2.0% of applicable income2, whichever is greater3

2016

$695 / Adult / Year

$347.50 / Child / Year

$2,085 / Family / Year1

Or 2.5% of applicable income2, whichever is greater3

Individuals will be assessed penalties for failing to acquire coverage

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Applicable large employers will be required to pay fees

for providing no coverage or unaffordable coverage

– An applicable large employer is an employer

with more than 50 Full-time Equivalent

Employees

– Affordable coverage does not require an

employee to pay more than 9.5% of their

household income for employee only coverage

and has an actuarial value of at least 60%

Provision Overview Impact to Employers

Applicable Large

Employers

Sponsor Health Plan Coverage

Do not Sponsor

Health Plan Coverage

Monthly Penalty = ($3,000 /12) x #FTEs*

with subsidized coverage

Monthly Penalty = [($2,000/12) x (# FTEs* – 30)]

No Penalty

Provide Unaffordable

Coverage

Provide Affordable Coverage

*Full Time Employee

Specific Provisions on the Horizon : Employer Mandate If an Applicable Large Employer does not provide affordable comprehensive coverage, it will be responsible for paying penalties starting in 2014

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ACA will provide premium tax credits to those below 400% Federal Poverty Level (FPL) and cost sharing subsidies for

individuals with incomes at or below 250% of FPL

Premium tax credits will decrease the cost of insurance and be calculated based on the second lowest priced Silver plan

Federal cost sharing subsidies will be available for individuals who qualify for federal premium credits and are enrolled in a

Silver tier plan

Provision Overview

$1,289

$3,450 $4,656

$1,206

$3367

Consumers’ Net Premium and Government Premium Tax Credit

Illustrative

Individual Income<$16K

Individual Income$22K - $27K

Individual Income>$27K

Specific Provisions on the Horizon : Premium Tax Credits and Cost Sharing Subsidies

Premium tax credits and cost sharing subsidies will lower the cost of coverage for those individuals in the population who fall below specific income thresholds and apply for coverage through the Exchanges.

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Specific Provisions on the Horizon : Guaranteed Issue and Rating Changes

ACA outlines three provisions that are designed to mitigate the potential impact of adverse selection. These provisions include:

Age (variation is limited to a 3 to1

ratio)Rating Area Family Composition

Tobacco Use (variation is limited to

a 1.5 to1 ratio)

Risk Management Mechanisms

Individual MandatePremium Tax Credits

and Cost Sharing Subsidies

Guaranteed Issue/Rating Rules Overview

In 2014, health plans will no longer be able to deny coverage based upon pre-existing conditions and will be allowed to vary rates based on only the following criteria:

Adverse Selection Mitigation

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IL Total population in 2011: 12,830,632

Age - The young adult population (18-25 year olds) is the least likely to have health insurance (24% of young adults are uninsured). Insurance coverage prevalence increases as age increases.

Household Income - Insurance coverage increases as income increases. Only 5% of persons living in households with incomes over 400% of the Federal Poverty Level (FPL) are uninsured whereas 34% of persons living in households with incomes less than 138% FPL are uninsured.

Geographic Regions – The adult (18-64) uninsurance rate ranges from 12% in the Urban Counties to 19% in the Rural Counties4.

Insurance Adequacy - Of Illinoisans who are currently insured, the majority (83%) report that they are at least “adequately” insured while 13% report being underinsured. The remaining 4% are not sure.

What it Means for Illinois – The Uninsured Population

*Deloitte’s Review of the Current Illinois Health Coverage Marketplace: Background Research Report. September 2011.

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As income increases, consumers are increasingly likely to have health insurance coverage.

Illinois population (18-64) by insured status and income level (2011 IHIS)

According to the 2011 Illinois Health Insurance Survey (IHIS) 34% of those having incomes below 138% FPL are uninsured, while only 5% of those above 400% are uninsured.

*Deloitte’s Review of the Current Illinois Health Coverage Marketplace: Background Research Report. September 2011.

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Specific Provisions on the Horizon : Health Insurance Exchanges The Affordable Care Act (ACA) establishes Exchanges as a new marketplace for the individual and small group market.

Individual Exchanges / SHOP Exchanges: By 2014, States shall establish an Exchange that facilitates the purchase of coverage for individuals and small employers; States can establish Exchanges in geographically distinct markets and/or participate in regional Exchanges

Group Size: Exchanges will cover individuals and small groups up to 100.* In 2017, States may allow groups of 100+ to join the Exchanges

Standard Plans: Health plans must cover the minimal essential benefits, offer at least Silver (68-72% actuarial equivalence) and Gold (78-82% actuarial equivalence) products, and charge the same premium for plans inside and outside the Exchange

Underwriting Requirements: Restricted underwriting rules and guaranteed issue requirements for the market.

Simplified Enrollment: A standard form and single electronic interface will be used to determine eligibility and enroll in the Exchange, Medicaid, CHIP, and State Basic Plan (if applicable)

Quality & Patient Satisfaction Ratings: The Secretary of HHS will develop a system to rate health plans on quality, price and enrollee satisfaction and publish that information on the Exchanges

Specific Exchange Provisions

* Note: For plan years beginning prior to January 1, 2016, a state may define small employer groups as groups of 1-50 employees.

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Exchange Eligibility: US citizen or legal alien

Not incarcerated

Resident of the state in which Exchange is based

Access to Premium Tax Credits and Cost Sharing Subsidies: Between 133% and 400% FPL

Not offered affordable coverage through an employer

Exchange Eligibility: Full-time employees of small businesses from 1 to 100

employees

State option to limit to businesses of 50 or less until 2016

States will decide on the degree of choice offered to employees through the small business Exchange and how employers can provide contributions toward employee coverage

Beginning in 2017, states will have the option to open the Exchanges to large employers (100+)

Individual ExchangeSmall Business Health

Options Program

Specific Provisions on the Horizon: Health Insurance Exchanges

States have a considerable amount of flexibility in deciding how to structure their Individual and Small Group Exchanges

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Functions of a Health Insurance Exchange

Health Insurance Exchange Business Process and Systems

Customers

• Screen

• Compare plans and enroll

• Change plans

• Request mandate exemption

Brokers, Navigators,Community Partners

Small Employers

Employees of Small Businesses

• Help customers enroll

• Provide information

• Role will likely vary by State

• Select plan level

• Pay premiums

• Track fines

• Screen

• Compare plans

• Enroll

• Change plans

Exchange Administrators

Customer Serviceand Operations

Federal and StateAgencies / Systems

• Certify plans

• Rate plans

• Approve exemptions

• Send/receive tax, premium, and other information used for verification, enrollment, and risk adjustment

• Support phone and mail enrollments

• Help customers

• Manage grievances

Health Plans

• Submit plan for listing

• Maintain plan info, benefits, quality, cost, and providers

• Receive enrollments and premiums

Social Services Programs

• Receive eligibility referrals

Participation on the exchange will require plans to understand and integrate with the various roles across the Exchange value chain

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What Employers decide to do will determine the size and impact of ExchangesEmployer responses will vary dramatically in navigating the challenges presented by the Exchange

Our hypotheses

Small Group Employers (1-50)

Small group employers will be highly price sensitive and could gravitate towards the lowest cost options

Employers might opt to drop coverage and pay the penalty

The role of brokers will evolve

Large Group Employers (100+)

Large employers should balance demands for talent against the rising cost trend – shifting health care costs from a benefit towards defined contribution

q Companies where intellectual capital is critical could continue to offer benefits to retain talent

q Other industries, like manufacturing and retail, could see employers shift workers to part time or offer medical benefits as defined contributions

Specific employers within each sector may determine when and how enrollment gravitates to exchanges

Mid-Sized Employers (51-100)

The behavior of small and mid-sized employers could differ from those who have more than 100 employees – leading to greater market segmentation

Small to mid-sized employer reactions will vary based on their:

q Industry

q Workforce Structure

q Worker Wage Mix

q Current Benefit Program

The size of the Exchange market could well exceed 46M lives if employers drop coverage en masse or large employers opt to use the Exchange in 2017

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The individual mandate is anticipated to reduce the amount of charity care

For hospitals it is more complicated – while charity care is expected to decline, hospitals will also see a decline in supplemental payments they receive from Medicaid and Medicare that previously helped defray some of their charity care costs

A specific question is whether providers – especially physicians – have the capacity to meet the needs of all the newly insured

Health care delivery systems especially in urban areas may experience significant impact due to newly insured populations seeking care

Implications for Providers of the Individual Mandate

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ACA impact on insurance, providersThree core strategies: (1) replace fee for service incentives, (2) leverage information technology to reduce cost and improve quality, (3) increase integration/coordination

Insurance system changes

• Elimination of pre-existing condition, lifetime and annual limits for insurance plans

• Required coverage of preventive health services without co-payments

• Creation of health insurance exchanges in each state to facilitate access to affordable insurance and manage subsidized purchases by individuals and employers

• Federal-state regulation of insurance plan coverage, premiums, and medical expenditures

Delivery system changes

• Increased linkage between performance (outcomes, costs) and payments/incentives

• Increased integration of physicians, hospitals and long term care providers

• Increased access to health services by under-served populations

• Increased alignment of coverage with evidence

ConsumerismEngaged,

accountable, Preventive health, individual

insurance, PHR

Comparative EffectivenessWhat works best, at what cost?

Personalized medicine, bundled payments, provider adherence/performance-based payments liability reforms

Health Information TechnologyInformation driven health: cost, quality, safety

Electronic medical records, health information exchanges, fraud detection, administrative simplification, clinical data ware-housing, ICD-10, direct to consumer e-medicine

Primary Care 2.0The front door and “home”

Home monitoring, retail medicine, LTC, medical homes, retail medicine, medical homes, health

coaching

The Anticipated “New Normal” Delivery System

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What role will Health Insurance Exchanges play in changing the individual insurance market?

How will Health Insurance Exchanges impact the small and large group markets?

Will Insurers be attracted and remain committed to the transformed individual market?

Will Health Insurance Exchanges, the individual mandate and other ACA provisions lead to more affordable health care?

AND…

WHAT HAPPENS AFTER THE ELECTION????

Specific questions going forward

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