Intercare university2013 benefitslegalupdate

Intercare University | January 29th-30th, 20132013 Benefit Legal Update

mckennalong.com

INTERCARE UNIVERSITY:

2013 BENEFIT

LEGAL UPDATE

Ann Murray | Partner

McKenna Long & Aldridge LLP

San Diego: 619.595.8040

Atlanta : 404.527.4940

[email protected]

WHAT WE’LL COVER TODAY

• Health Care Reform Changes Already in

Place

• Health Care Reform Rules Taking Effect in

2013, 2014, and Later

• Other Legal Changes Impacting Health and

Welfare Programs

3

HEALTH CARE REFORM CHANGES

ALREADY IN PLACE

5

Health Care Reform Requirements That

Took Effect in 2010, 2011, and 2012

• No lifetime limits

• Phased-in annual limits

• No pre-existing condition exclusions under age 19

• Dependent coverage to age 26

• Preventive care mandates (no co-pays, contraceptives)

• Patient protections (OB/GYN, emergency services)

• New claims and appeals requirements (IROs)

• No reimbursement of OTC meds by FSAs, HRAs, etc…

6

Health Care Reform Requirements That

Took Effect in 2010, 2011, and 2012 (cont.)

• Employer wellness grants (some)

• Small employer health insurance credit

• Retiree reinsurance program

• 4-Page Summary of Benefits/Glossary of Terms

• 60-Day Advance Notice

• Form W-2 reporting

• No rescission of coverage

• Annual comparative effectiveness (PCORI)

• Medical loss ratio rules

HEALTH CARE REFORM RULES

TAKING EFFECT IN 2013, 2014,

AND LATER

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Changes Continuing from Prior

Years

8

– Phase-In of Higher Annual Limits on

Coverage Amount

– PCORI fees

– W-2 Reporting

– 4-Page Summary of Benefits/Glossary

of Terms

9

PHASE-IN OF ANNUAL LIMITS

Ongoing effective dates

Dollar Value Annual Limits:

Before January 1, 2014, plans may impose restricted annual limits:

• $750,000 for PY beginning between 9/23/10 – 9/22/11

• $1,250,000 for PY beginning between 9/23/11 – 9/22/12

• $2,000,000 for PY beginning between 9/23/12 – 01/1/14

Effective first plan year beginning on or after January 1, 2014, no annual dollar limits

Note:

– Applies to Essential Health Benefits only

– Does not apply to most vision plans, dental plans, FSAs/HSAs/HRAs, but be careful!

– Remember to coordinate with MHPA

10

COMPARATIVE EFFECTIVENESS

(PCORI) ANNUAL FEES

First effective for 2012

Applies to fully insured and self-funded coverage (2012-2018)

• Does not apply to policy or plan years ending after Sept. 30, 2019

Reporting:

– Federal excise tax return (Form 720) first due by July 31, 2013 for calendar year plans

Policy/Plan Years Ending: Fee Rate

After Sept. 30, 2012 $1 per covered life per year

Oct. 1, 2013 through Sept. 30, 2014 $2 per covered life per year

Oct. 1, 2014 through Sept. 30, 2019 Amount adjusted by the Secretary of Treasury

based on the percentage increase in the projected

per capita amount of national health expenditures

11

EMPLOYER REPORTING

REQUIREMENTS: IRS Form W-2

Effective for 2012 (Form W-2 due Jan 2013)

• Applies to employers filing 250 or more Form W-2s

• Aggregate cost of employer-sponsored coverage must be

reported on Forms W-2

• Must update payroll system and track

• Applies to grandfathered plans

12

4-PAGE SUMMARY OF BENEFITS/

GLOSSARY OF TERMS

First effective in 2012

– Timing Requirements – calendar year plans and plans with PYs

beginning 10/1, 11/1, and 12/1 must provide upon request, to special

enrollees and to new hires after 1/1/13 (even if not required for 2012 OE)

– all other plans must provide beginning with 2013 OE

– Foreign Languages – Based on individual mailing address

• Prominent notice in Summary in applicable non-English language

• Customer service hotline to answer questions in the foreign language

• Translated Summary upon request

– Mid-Year Material Modifications

• 60 day advance notice to all eligible individuals of any mid-year

material modifications affecting the content of the Summary

• Exception for insurance policy renewals, provided no material changes

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Changes Taking Effect for

2013

13

– FSA limit of $2,500

– Notice of Public Exchanges

– Increased Medicare payroll

taxes

14

HEALTH FSA LIMIT $2500

– For plan years beginning after December 31, 2012,

Health Care Flexible Spending Account contributions

are limited to $2,500

– Limit does NOT apply to additional employer

contributions for which the EE does not have the

option to receive cash in lieu of the contribution

– Special short plan year rules apply

Effective 2013

15

NOTICE OF PUBLIC EXCHANGE

- Employers must provide written notice to:

• Existing EEs annually (originally by March

1st, regardless of plan year end, but this may

change)

• New EEs upon date of hire

- Notice must include certain info about the

local State Exchange, possible Exchange

subsidies, and ineligibility for employer

contributions if purchase is made through

Exchange.

- DOL is considering issuing a model notice

Uncertain effective date- delayed until late summer or fall 2013

16

MEDICARE TAX INCREASE

Additional employee Medicare tax of 0.9% to apply to

wages above the following thresholds:

Effective after December 31, 2012

Filing Status Threshold Amount

Married Filing Jointly $250,000

Married Filing Separately $125,000

Single $200,000

Head of Household $200,000

Qualifying Widow(er) $200,000

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Changes Taking Effect for

2014

17

• No pre-existing condition exclusions

• 90-day max waiting period

• No annual limits

• Changes to wellness programs

• Annual plan fees

• State Exchanges

• Individual Mandate

• Pay or Play Mandate

18

PRE-EXISTING CONDITIONS

No Pre-Existing Condition Exclusions for Anyone!

Effective January 1, 2014

19

ANNUAL LIMITS

No Annual Limits on Essential Health Benefits

Effective first plan year beginning 1/1/14 or later

20

MAX 90-DAY WAITING PERIODS

• Waiting periods for enrollment must shorten to maximum 90-days.

• Waiting Period = the period that must pass before coverage begins for an EE or dependent who is otherwise eligible to enroll under the terms of a group health plan.



21

MAX 90-DAY WAITING PERIODS, cont…

• Applies only to eligibility conditions that are based solely on the

lapse of time

• does not preclude a plan from requiring substantive eligibility

conditions such as full-time status, job category, completion of not

more than 1,200 hours of service, or licensing conditions, so long

as the condition is not “designed to avoid compliance with the 90-

day waiting period limitation.”

• Beware “first of month following 60 days of employment” – may

violate 90 day wait!


22

MAX 90-DAY WAITING PERIODS, cont…

• Safe Harbor Available - if plan only covers EEs “regularly working” a specified

number of hours per week, and you cannot determine whether a newly-hired EE is

reasonably expected to regularly work that number of hours, you may take a

reasonable period of time to determine whether the EE meets the eligibility

requirement.

– can apply 90 days after safe harbor measurement period for determining

whether an EE is full-time for purposes of the “play or pay” penalty (see

discussion below).

– in all events, must cover a variable hour EE who meets the eligibility

requirements within 90 days after the measurement period ends or, if earlier,

within 13 months following his start date (or, if he started mid-month, the first

day of the next calendar month).

• the guidance includes several helpful examples and can be viewed at

http://www.dol.gov/ebsa/newsroom/tr12-02.html.


http://www.dol.gov/ebsa/newsroom/tr12-02.html



23

WELLNESS PROGRAMS

• Max incentive increases from 20% to30%

• Additional 20% (up to 50% total) if toprevent/reduce tobacco use

• Alternative standards can be developedafter the fact

• Failure to meet one alternative standarddoes not preclude eligibility for otheralternative standards

• Employer may require completion of aneducational program as an alternativestandard at employer’s cost


24

WELLNESS PROGRAMS, cont.

• Employers must pay membership or participation fees relatedto diet programs

• Physician recommendations must be taken into account

• Medical judgment may be required

• If incentive requires certain results of measurement, test orscreening, a different, reasonable means of qualifying mustbe offered

ISSUES CONCERNING “REASONABLE ALTERNATIVES”

– Prior attempts are not disqualifying

– Plans must identify and pay for educational programs


25

ADDITIONAL PLAN FEES

Effective 2014-2016

• Transitional Reinsurance - Who Does It Apply To?

– All health insurers and TPAs on behalf of self-insured group health

plans

– Intended to stabilize premiums for coverage in the individual market

during the first 3 years Exchanges are operational

– Paid Quarterly - First payment is due Mid-January 2015

– 2014 Estimate - $5.25 per enrollee per month ($63 per year)

• Insurer Fees

26

ADDITIONAL PLAN FEES, cont…

California Department of Insurance

Letter Ruling

(issued to unnamed insurer – 1/4/13)

California health insurers may NOT include either the 2014

annual fee on health insurance providers or the 2014

transitional reinsurance fee in 2013 health insurance

premium rates

27

INSURANCE EXCHANGES

Effective January, 2014

– All 50 States to have Exchanges established.

– Known as the “Health Insurance Marketplace”

– Primarily available to individuals

– Tax-credits & cost-sharing subsidies available to certain low-

earning groups

– California received conditional approval in early January 2013 to

operate its State Exchange

– Small employers may be able to use the SHOP Exchange

28

INSURANCE EXCHANGES, cont.

Minimum Essential Health Benefits (MEHB’s) for policies offered on

the Exchange will include the following categories of benefits.

MEHBs are defined by each state.

-Ambulatory patient services-Emergency services-Hospitalization-Maternity and newborn care

-Rehabilitative and habilitative services and devices-Laboratory services

-Mental health and substance use disorder services, including behavioral health treatment-Prescription drugs

-Preventive and wellness services and chronic disease mgmt-Pediatric services, including oral and vision-HHS can determine others

29

ESSENTIAL HEALTH BENEFITS (EHB)

Individual and small group market non-grandfathered

insured plans (both inside and outside Exchanges) must

do the following:

– Cover all 10 EHB categories with limited deductibles

– 2014 deductibles - $2000 individual/$4000 family

– Meet annual cost-sharing limits on EHBs

– Will be based on high-deductible health plan allowances when

coordinated with HSAs

– Meet actuarial value limits for EHBs

Effective 2014

30

INSURANCE EXCHANGES

Where the States Stand – as of January 4, 2013

Source: www.statehealthfacts.org

31

INDIVIDUAL MANDATE

Individuals must have insurance or pay a penalty

Discount:

– Family members under age 18 get 50% penalty reduction

Effective 2014

YEAR PENALTY

2014 Greater of $95 per person (cap of $285 per

family) or 1% of household income

2015 Greater of $325 per person (cap of $975

per family) or 2% of household income

2016 Greater of $695 per person (cap of $2,085

per family) or 2.5% of household income

32

PAY OR PLAY MANDATE

Who Does It Apply To?– employers with 50 Full-Time Equivalents on average in prior calendar year

– measured by looking at entire controlled group/affiliated service group

What is a Full-Time Equivalent?– common law EE who, during the applicable calendar month, was employed

on average at least 30 hours of service per week (or 130 hours total)

– the number of FTEs determined by adding all part-time EE hours (up to 120

hours per EE) for the applicable calendar month divided by 120

– only count U.S. hours

– leased EE rules do not apply (look at who is “common law employer”)

33

PAY OR PLAY MANDATE, cont.

When Is Penalty Imposed? Employer must pay penalty if either:

(1) no coverage or no minimum essential coverage (MEC) is offered to EE

(and dependents) and at least one EE receives financial assistance in an

Exchange

Monthly Penalty = $166.67 x total number of full-time EEs (reduced by 30)

(2) coverage is offered but it is not “affordable” or does not provide “minimum

value”

Monthly Penalty = $250 x total number of full-time EEs who receive

assistance for coverage purchased through the Exchange (can not exceed

penalty for failure to provide MEC)

34


Minimum Value

• does not provide minimum value if coverage pays for less than

60% of all plan benefits, without regard to co-pays, deductibles,

co-insurance, and EE premium contributions

• Benchmark plans, checklists and other processes have been

approved for satisfying this requirement.

35


Affordable

• not affordable if premium required to be paid by EE for EE-only coverage under

lowest cost option exceeds 9.5% of EE’s household income

• Safe harbor allows ER to use W-2 wages to determine, but other safe harbor

methods can be relied upon to determine affordability and may work better (e.g.

based on hourly rates)

OUTSTANDING QUESTION:

Does this mean employer can charge unlimited

amount for dependents or spouse?

36


Example - Variable Hour EE Safe Harbor for

Ongoing Employees

*could be as long as 90 days

Standard Measurement

Period #1

(11/1-10/31)

Administrative

Period *

(10/31-1/1)

Stability Period #1

(1/1-1/1)

John Worked an average of

36 hours per week

Treated as a full-time

employee

Mary Worked an average of

24 hours per week

Not treated as a full-

time employee

37


Example of Variable Hour EE Safe Harbor for

New Employees

Assume calendar year plan. If John works less than 30 hrs/week in Initial Measurement

Period – he is offered coverage for Stability Period #1 through June 30. Measured again

during Standard Measurement Period to determine if John would receive entire year of

coverage (worked greater than 30 hrs/week) or if coverage would end on June 30

(dropped to working less than 30 hrs/week during Standard Measurement Period)

Initial Measurement

Period

Administration

Period #1

Stability Period #1

Standard Measurement Period Administration

Period #2

Stability Period #2

5/1/13 4/30/14 7/1/14 6/30/16

11/1/14 10/31/15 1/1/16 12/31/16

38

FORECAST FOR 2014

MOST Employers will avoid the

penalty and Exchanges in 2014

• Meet minimum plan design and

contribution requirements

• Keep EEs in employer risk pool and

out of Exchanges

• Avoid employer tax penalties

Variation #1: Enable access to public

programs

• Set “affordable” EE premium levels to

allow lower wage EEs to qualify for tax

credits to purchase coverage through

the Exchange

Variation #2: Take proactive steps to

limit liabilities

•Limit scheduled hours for part-timers

• Adopt measurement periods for

variable hour EEs

• Restructure entities

39

HEALTH CARE REFORM DOES NOT:

• Prevent you from covering more people

• Mandate spousal or non-child dependent coverage

• Limit (currently) the price charged to a spouse, children or other

dependents

• Require affordable coverage for those below the Medicaid threshold

• Require employer plans to cover all essential health benefits

(although insurance products may be limited)

• Require coverage of non-U.S. workers, independent contractors,

leased employees, or part-time employees (but beware how you

classify!)

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Changes Taking Effect in

Future Years

40

– Nondiscrimination rules

– Automatic enrollment

– 2018 Cadillac tax

41

NONDISCRIMINATION FOR INSURED

PLANS

Non-Grandfathered plans can NOT discriminate in favor of highly-compensated individuals (HCIs) as to eligibility or availability of benefits

• HCI definition = 5 highest paid officers; more than 10% owner, or highest paid 25% of all EEs.

• Applies on a controlled group basis

**If plan fails, severe penalties apply to Employer**

Effective date delayed (likely 2014 or later)

42

NONDISCRIMINATION FOR INSURED PLANS,

cont.

Employer Action Items

• Must identify possible discriminatory arrangements and plan to modify

– Executive medical and management carve-out plans are likely a problem

– Beware of vendor claims!

• Check existing promises of extended health coverage made in

separation agreements, executive employment, severance

agreements, change in control agreements

• Avoid creating additional issues

Effective date delayed (likely 2014 or later)

43

AUTOMATIC ENROLLMENT

Impact on Employers

• Employers with more than 200 full-time EEs must provide automatic

enrollment to new EEs

– Waiting periods can apply

– Existing elections carry over from year to year

• Notice regarding automatic enrollment and opportunity to opt out

must be provided


Effective date unclear - probably 2015 or later

44

AUTOMATIC ENROLLMENT, cont.

Many Unknowns

• All employees or just full-time EEs?

• Automatically enroll upon release of guidance or at next plan year or open enrollment?

• Can EEs add dependents mid-year if automatically enrolled mid-year?

• What if EEs already have coverage through a spouse?

• Notice requirements?

• 200+ EEs determined by controlled group?

• What kind of coverage required?

45

CADILLAC TAX

40% excise tax will apply on health insurance benefits exceeding a certain threshold – known as “high cost” or Cadillac coverage

Thresholds (indexed to inflation)

• $10,200 for individual coverage

• $27,500 for family coverage (indexed to inflation)

Thresholds increase for:

• individuals in high-risk professions

• employers that have a disproportionately older population

Effective 2018

OTHER LEGAL CHANGES

IMPACTING HEALTH AND

WELFARE PROGRAMS

FEDERAL CHANGES

FINAL HIPAA REGULATIONS

released January 2013

48

CALIFORNIA SPECIFIC ITEMS

1. 4-Page Summary Of Benefits – foreign language mandates for most CA counties

Counties where 10% or more literate in 1 language have foreign

language requirement

*Different than DOL SPD requirement – 25% of less than 100 or

500Ps or 10% if greater than 100

49


2. New San Francisco HCSO rates

Requires medium and large-sized employers to spend a minimum amount of money on health care for their workers who work in San Francisco.

50


3. Pregnancy Disability Leave Protection

• Effective 2012

• Applies to ERs with 5 or more EEs

• Must maintain and pay for health coverage under group health

plan for any eligible female EE who takes up to 4 mos of leave

due to pregnancy, childbirth or a related medical condition in a

12-month period.

• Same level and under the same conditions as coverage would

have been provided had the EE continued in employment

continuously for the duration of the leave.

• This closes a gap that existed for employers with less than 50

EEs (the FMLA threshold).

51


4. Additional:

• CA left off mandatory DOL CHIP Notice (be sure to check)

• Coverage of dependents to age 26 in employer-provided life coverage permitted beginning in 2012

• Employers can not demand/request access to CA EE’s social media accounts or content beginning in 2013 (AB 1844)

• Employers must comply with new personnel recordkeeping and access requirements (AB 2674)

• Increased classification issues and audits.

52


4. Additional:

• Commission agreements with any CA employee must now be in writing (AB 2675)

• Religious dress and grooming practices require reasonable accommodations (AB 1964)

• “Sex” protected under FEHA includes breastfeeding and related medical conditions (AB 2386)

• Easier definition of “injury” creates higher likelihood of successful wage statement violation claims (SB 1255)

• Fixed salary agreements are payment only for regular non-overtime hours (AB 2103).

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Questions?

Ann Murray | PartnerMcKenna Long & Aldridge LLP

San Diego: 619.595.8040

Atlanta: 404.527.4940

[email protected]

53

This presentation is for

informational purposes only and

does not constitute specific legal

advice or opinions. Advice and

opinions are provided by the firm

only upon engagement with

respect to specific factual

situations.

Intercare University, January 2013

Tom Ghering, CEO

How will things change?

I heard this is the scariest part of the ride!

Four important precepts

• This is not a good news story – my apologies

• I’m politically agnostic

• Ask questions in real time

• Actionable items are few…

Doom & Gloom vs. Situational Awareness

• Pessimist complains about the

wind,

• Optimist expects it to change,

• Realist adjusts the sails

~ William Arthur Ward

• Realist has situational awareness

to anticipate the future!

~ Tom Gehring

It’s difficult

to make predictions -

particularly about the futureYogi Berra

A political decision

is one that is made

in the absence of,

or contravention of,

the factsTom Gehring

Those who do not learn from

(or understand) history

are doomed to repeat it!Many smart guys, starting with the Romans

The

Environmental

Scan

Supremes have sung!

Three major findings re PPACA:

1- Individual mandate a tax, and therefore legal

2-Feds cannot force states into “all or nothing” on

Medicaid

3- Interstate commerce clause not a

“catch-all”

Takeaways

1. ACA is the law of the land – get over it…

XMAS 12

Sequestration 2%

cut to Medicare Part B

Really mad

lame ducks

SGR 27% cut to

Medicare Part B

2012/3 Budget must

be approved

Bush & Obama

tax cuts expire

Federal debt limit

must be raised

Chaos

@ the

Capital

The daredevils of the 112th congress

Takeaways


2. The wild ride in DC continues…

PPACA goals

• Reduce uninsured

• Bend the “cost curve”

• Increase access to care

• Give group purchasing power to individuals

• Reform health insurance

and many more…

But as written,….

• Uninsured => underinsured

• Bend the “cost curve” => up…

• Increase access to care => ..on paper

PPACA simplified

2013

Health Insurance administrative simplification

Increased Medicaid to PCPs (2013/2014)

2014

Multiple consumer friendly reforms to HI

Individual mandate (weak) + Guaranteed issue

+ Community rating

Medi-Cal coverage up to 138% FPL ($11K

individual, $22K family of four)

State based health insurance exchanges

coverage 133% to 400% FPL (w/ subsidies)

IPAB

PPACA Problems (1)

• IPAB – unelected/unaccountable rate setter @

national level

• Non-standard essential health benefits package

o State-state variation

o California deeper benefits package w/ same $$$ =

fewer $$$ for providers

• # of new Medicaid/Medi-Cal enrollees

underestimated (3 million in California)

PPACA Problems (2)

• Employers (and employees) dumped into HIEx

• Administrative/technical nightmare w/ HIEx

• More HIEx insureds = more subsidies = more $$$

• Abysmal Medi-Cal rates in California = no Physician

takers….

• Office visit – Medicare - $73

• Office visit - Commercial Payers - $64 to $71

• Office visit - Medi-Cal - $23

– Abysmal access to doctors, particularly specialists

– Long lines at the ER…..

PPACA Problems (3)

• Guaranteed Issue (you can buy it anytime, even

after you get sick)

• Community Rating (insurance company severely

limited in how it risk modifies the policy)\

• Weak Mandate (penalty/tax for not having

insurance low)

“ACA’s penalties are too low to prod the healthy to purchase

insurance, even given ACA’s subsidies for purchasers.”…

“ … the penalty for refusing to purchase insurance counts as a tax

only if it remains so small as to be largely ineffective.”

Takeaways



3. Underlying ACA economic assumption flawed

=> long term ACA financial instability

4. Huge influx of new underinsured patients

5. Massive downward pressure on federal

reimbursements

2/3 2/3

• Huge (and growing) expense for California

• Rich benefits (compared to other states)

• Medi-Cal rates worst in the nation

• Gov. Brown proposing an additional 10% cut

(perhaps retroactively)

• Access to doctors abominable

Medi-Cal

• All 863,000 Healthy Families kids to Medi-Cal

by Sept. 1, 2013.

• Moved in four phases, depending on whether

their doctors & health plans already accept

Medi-Cal.

• State plans to start notifying parents next

month.

• Eliminating Healthy Families projected to save

the state $13M FY-13 and $73M annually once

the transition is completed.

Kids to Medi-Cal Managed Care

• San Diego one of several counties in the expanded

Dual Eligibles/Mandatory Managed Care “pilot”

• CMS sitting on final approval until after election

• Effective “start date” moved to March 1st, 2013.

• Savings about $663M

Medi-Medi to Medi-Cal Managed Care

Takeaways



3. Underlying ACA economic assumption flawed => long term ACA financial instability


5. Massive downward pressure on federal reimbursements

6. Massive downward pressure on state

reimbursements

7. Big uptick in Medi-Cal Managed Care

8. Be very, very afraid of a 2/3 2/3 majority

California’s

Health Insurance Exchange (HIEx)

HIEx Basics (1)

• Independent public entity within state government

• Governed by 5 member board appointed by Governor

& Legislature

• Exchange Board in CA will be an active purchaser,

not agnostic marketplace

HIEx Basics (2)

• In 2014 (really October 2013),

– Individuals: 133 – 400 % FPL ($25K to $74K for a family of 3)

&

– Small employers: (up to 50 employees*) ( *100 employees in 2016)

– May purchase coverage through HIEx from qualified health plans

(“QHPs”)

– QHPs have 4 plan levels (Bronze, Silver, Gold and Platinum)

– 4 “metallic” plan levels offer the same essential health benefits

(EHB) but different premium and cost sharing arrangements.

– Income adjusted subsidies to purchase insurance and (in some

cases) for co-pays

– May not participate if …

• offered affordable coverage through employer

• undocumented

• eligible for public programs

Coverage Tiers

Category % medical costs

covered

% of cost-share

Bronze 60% 40%

Silver 70% 30%

Gold 80% 20%

Platinum 90% 10%

Premium Support & Cost Sharing Assistance

Single – max out of pocket = $2.2K (<133%FPL)

to $9.9K (>400fpl)

Family of 4 – max out of pocket = $4.5K (<133%FPL)

to $20.9K (>400fpl)

Enrollment Projections

Health Insurance Coverage by Source

2009 2016

Employer 45%/17M 35%/14M -3M

Individual 6%/2.2M 1%/0.5M -1.7M

Medi-Cal 19%/7M 22%/9M +2M

Medicare 10%/3.7M 12%/4.8M +1.1M

Uninsured 19%/7M 7-8%/3M -4M (approx)

HIEx 21-22%/8.5M +8.5M

Potential Impact

• Premium subsidies, an individual mandate, and

guaranteed issue will significantly expand (and

change) the individual market starting in 2014

• “The Exchange will be a catalyst for change in

California’s health care system, using its market role

to stimulate new [care delivery] strategies . . .”

• Pathway to single payer (Medi-Cal for all…) in

California

Imperfect Competition

• Monopoly – one seller – many buyers

• Monopsony – one buyer – many sellers

• Either

– California HIEx will approach a monopsony as market power of Covered

California expands, or

– Covered California goes broke/becomes broken

Takeaways






6. Massive downward pressure on state reimbursements



9. In 2014, HIEx will significantly (and proactively)

change the California health insurance market ,

causing major changes in California’s payer mix

10.Focus is on California’s HIEx regulators

Your prognosis is tied

to the outcome of the election!

The Long Term

Prognosis

Costs will increase

Massachusetts

Uninsured to near zero

Increased demand => longer lines (initially)

Increased cost => Govt mandated cost cutting &

revenue increase from providers

Decreased indirect cost (uninsured)

$1B $1.8B

New York

Weak mandate +

guaranteed issue =

unaffordable HI for

individuals

Insurance rates will increase

# paying

$/pp

Macroeconomics Unsustainable!

% of Mean Family Income for Health Insurance for

family of 4

6 yrs ago 7%

now 17%

6 yrs in future 33%

Macroeconomics Unsustainable!

What’s next?

We are almost out of

Takeaways









9. In 2014, HIEx will significantly (and proactively) change the California health insurance market , causing

major changes in in California’s payer mix

10. Our focus is on California’s HIEx regulators

11.Current health care financing system is systemically

unsustainable in the long run (6-10 years)

The Medium Term

Prognosis

What’s the second best medicine?

Longer lines

• PCP – demand driven

• Specialists – reimbursement driven

• ER – I-now-have-insurance driven

LONGER WAITS

Greater demand

• More underinsured (MediCal ↑ ), but fewer uninsured

• Aging population (Medicare ↑ )

• Demanding population (pressure to do more)

• More gizmos (pressure to do more)

• More drugs (pressure to do more)

• Everyone trying to make a living (pressure to do more)

DEMAND GOES UP

Reduced supply

• Fewer docs (per person), plus wrong flavor of docs

– But, lifetime employment

– And, (theoretically) more economic power

• “Scope of practice” expansions by non-Physicians

• Not nearly enough PCPs

• Urban solo primary care is dead

• Urban specialist solo is on life support

• Not enough hospital capacity - same number of

beds/nurses/etc...

SUPPLY GOES DOWN

We’re going to negotiate first!

The Long Term (National)

Treatment Plan – or what are

we going to in a five years?

Changing reimbursements

• Increased (willing or unwilling) integration – share

the same or fewer $$$

• Reimbursements down to keep total cost down (see

Mass. & Ca.)

• Reduce differences between specialty and PCP

• Premium for innovation

• Penalty for re-work/re-admit

Increased macro-economic cost

• Demand => cost increase (see MA, CO, WI)

• Fatally flawed insurance model => cost increase

(see NY)

• Consolidation driven market control => cost increase

(see MA)

INCREASED COST

Increased quality

• Because it's the right thing to do for the patient

• But, understand macro-issue is to reduce cost

• Innovate locally

INCREASED QUALITY

Increased innovation

• High tech innovation

– Gizmos, processes, research

• Low tech innovation

– Wellness

INCREASED INNOVATION & WELLNESS

Takeaways









9. In 2014, HIEx will significantly (and proactively) change the California health insurance market ,

causing major changes in in California’s payer mix

10. Our focus is on California’s HIEx regulators

11. Current health care financing system systemically unsustainable in the long run (6-10 years)

12.Longer lines, greater demand, reduced supply,

greater cost, reduced reimbursement, greater

quality, innovation at both ends of the tech

spectrum

Patches, patches, and more patches

Current system is unsustainable - we are putting patches

on top of patches

The cost will (eventually) bring the system to it’s knees

We will either:

• Keep putting patches on top of patches on top of

patches, or

• Revolutionary change (see 9/11 or FDR - March 1933 or

Paris - 1793)

2016 (or perhaps 2020) election will be about a

revolutionary approach to health care

It’s déjà vu all over again….

"Americans can always be

counted on to do the

right thing...

….after they have

exhausted all other

possibilities”

Churchill

Mr. Churchill says…

Look to Switzerland !

Universal mandate & guaranteed issue & national

(community) rating

Citizens pay for insurance up to 8% of income –

government subsidy if cost >8%

Insurance:

• Compulsory - standardized national minimum coverage

at one price for all w/ no profit

• Complimentary (additional) insurance – risk based,

competitive

No first dollar coverage – annual minimums

Bad behavior penalized

[email protected]

619-206-8282

www.sdcms.org

THANK YOU!

Documents

Intercare university2013 benefitslegalupdate