How Your Carrier Spends Premiums
85% of Premiums Went to Medical in 2009
In 2009, BCBSLA collected
$1.9B in risk premiums, 4% Commissions
broken out like this: 3% Reserves
$703M; $589M; $323M; $285M;
37% 31% 17% 15%
NATIONAL 33¢ 6¢ 2¢ 1¢ 2¢
Hospital Physician Dental Other Nursing Home
and Clinical Drugs Services Professional Home Health
BCBSLA Audited Financial Results FY 2009
National Averages Adapted from Centers for Medicare and Medicaid Services (2008)
The Uninsured: Who are They?
“46.3M Uninsured @
the end of 2008, Undoc
Census 9/10/09” Migrant
Eligible Not 9,400,000,
Signed Up, 20%
September 10, 2009 Census Bureau Conference Call: 2008 Update on Poverty and the Uninsured
How Government Insured Squeeze Medicine
Hospital Payment-to-cost Ratios for Medicare, Medicaid and Private Payers
“The assumption made by us is that cost 1995-2008
shifting is minimal these days. Thus we
believe costs cut out of Medicare will not
show up as costs for the privately
insured.” 131% 133% 131%
Dr. David 124% Harvard Economics
Professor, Presidential Advisor on Reform. 122%
118% 116% 119% Break Even (Payment = Cost)
120% 115% 116% 117%
SGR Limits Enacted
99% 102% 100% 99% 98% 98%
92% 92% 91% 91% 92%
95% 96% 97% 96% 96% 96%
87% 87% 88%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Private Payers Medicare Medicaid
Note: Payment-to-cost ratios indicate the degree to which payments from each payer covers the costs of treating that provider’s patients. Data are for
community hospitals and cover all hospital services. Imputed values were used for missing data (about 35% of observations). Most Medicaid managed 4
care patients are included in the private payers’ category.
Source: Adapted from the American Hospital Association and Avalere Health TrendWatch Chartbook 2007: Trends Affecting Hospitals and Health Systems
Hospital Challenges From Reform
PPACA/HCERA contain provisions that penalize hospitals
on a number of measures. The negative effects on their
Medicare Reimbursements may include:
1. Lack of Value-Based Purchasing (1-2%). VHA consulting
estimates 75% of all hospitals will lose an average of $1M per
2. No Q measures to CMS. (Physicians too) (2%)
3. Lowest Quartile of Hosp. Acquired. Infections (1%)
4. Lowest Quartile of “Preventable” readmissions (1 – 3%)
5. Claims deadline to 12 months.
6. Much tougher guidelines to remain tax-exempt. (Community
health needs assessments, qualified financial assistance
policy, publish limitations on charges to low income,
avoidance of certain collections/billing activities)
Make-Up of the Cabinet—Current Administration
432 Members of the Executive
Cabinet and less than 8% (32)
have ANY private sector
% of Cabinet With Private Sector Experience
70% 59% 57%
60% 52% 50% 50% 52% 52% 53%
47% 46% 45%
50% 38% 39% 40% 42%
40% 29% 31%
American Enterprise Institute: Help Wanted, No Private Sector Experience Required (Nick Shultz 11/25/2009)
New Head of Center for Medicaid and
Medicare Services (CMS)
“Dr Berwick professes a love of
just those evils of a national
health system with which we
(here in the U.K.) are
exasperated: the calculated
rationing of treatment, and the
ruthless enforcement of uniform
cost limits, which often puts the
most advanced medication and
procedures out of reach of
patients whose lives might have
been extended or transformed
by them.” (Janet Daley writing in
Dr. Donald Berwick, KBE, the U.K. Telegraph July 10, 2010)
Professor of Pediatrics at Harvard
D.H.H.S. Office of Consumer
Information and Insurance Oversight
Steve Larsen, Former
Karen Pollitz, Georgetown
of Maryland. Blocked
worked for John
sales of CareFirst Blue to
Rockefeller, Sander Levin,
WellPoint. Had a knack for
and Bill Clinton against
making coverage issues
Director Jay Angoff: Missouri Insurance
Commissioner, Assistant Commissioner of New
Jersey, anti-trust attorney, specializing in
representing clients against insurance carriers.
Administration’s Stated Goals
for Healthcare Reform
1. Expand Coverage (46 million
2. Regulate Insurance Carriers (“Keep
3. Reduce the Federal Deficit/Bend the
healthcare cost curve downward.
2010 Product “To Do” List
ITEM Individual Group ASO
No Lifetime Limits on Coverage/MLR Existing, E, N E, N
No Annual Limits on “essential New E,N E,N
benefits” (if doesn’t raise premiums)
Dependants to Age 26 (married is ok) E, N E,N E,N
Rescission (intentional fraud, fact) E,N E,N E,N
Guarantee issue For <19 year olds. New E, N E, N
Schedule A & B, immunizations at 1st New New New
Dollar (45 Tests & Screenings)
Emergency Room Equal Payment New New New
No discrimination based on salary N/A New New
“Existing” = Grandfathered; “New” = Non-Grandfathered
What’s a Grandfathered Plan?
A grandfathered plan is a group health plan or health
insurance coverage in which an individual was
enrolled on March 23, 2010.
Employer-sponsored grandfathered plans can
continue to add family members and new employees.
Plans can add dependant coverage to age 26 without
losing grandfathered status
The PPACA has no cutoff date for grandfathered
plans. Thus, a grandfathered plan can remain
Grandfathering must be Asserted and Published by
Grandfathered Plans are Immune from:
USPSTF Schedule A & B/First $ Wellness (2010).
Equal payments to non-network providers in emergency
New rules about discrimination for groups >50 FTE’s (2010)
May exclude dependants if offered employer coverage
elsewhere (2010 until 1/1/2014).
New Rating Rules (No medical U/W, 3:1 age, no pre-x, GI, GR)
beginning in 2014.
Payments for clinical trial side-effects/hospitalizations.
Requirement to develop new 4-page EOC document.
New quality measures and federal reporting requirements.
Open appeals process with testimony from outside experts.
New OB/GYN and Pediatrician substitutions for PCP/GP/FP.
Essential benefit coverage required.
Immune from Regs 2701,2702,2703,2705,2706,2707,2709,2715,2716,2717,2719,2719A
First Dollar Wellness-For Non-
45 Screening Exams Total
No co-pay, coinsurance, or deductible
May require in-network provider
More screenings and testing to come…
How to Lose Your
Change Carriers (fully insured groups).
Any change in coinsurance that increases employee share of
medical payments (like going from 80/20 to 70/30).
Any increase in a fixed payment amount (except co-payments)
of more than medical inflation plus 15%. This applies to
deductible, max out of pocket, etc.
Any increase in a co-payment that exceeds the greater of
medical inflation since 3/23/2010 plus 15%, OR $5 plus medical
Decrease of employer contribution to premiums by more than
5% below the level on March 23, 2010. (Ex. If employer lowers
contribution on family coverage from 80% to 70% this violates
How to Lose Your
“Medical inflation is defined in these
interim final regulations by reference to
the overall medical care component of
the Consumer Price Index for All Urban
Consumers, unadjusted (CPI),
published by the Department of Labor
(utilization is not included).”
Department of the Treasury: Interim Final Regulations on Grandfathering; pages 21-22 15
How to Lose Your
Eliminating any benefit for diagnosis or treatment or any part of
treatment for any particular condition that was covered by the plan on
Failure to create and have ready for inspection a plan document fully
delineating the group plan’s coverage on 3/23/2010. This document
must be available for inspection by federal, state, or local officials and
must be viewable by insured employees as well.
The lapse of a collective bargaining agreement that was in force on
Failure to disclose and assert to the IRS, HHS, and covered
individuals through their benefit documents that the plan sponsor
maintains a grandfathered plan. Grandfathering must be declared.
How to Lose Your
Business Changes including:
Engage in merger, acquisition, or restructuring
with the express purpose of growing or shifting
employees to a grandfathered plan.
Transferring employees from a terminated
grandfathered plan into another grandfathered
plan en masse to lower costs without a bona fide
employment-based reason for doing so.
Switching from insured to self-funded, or
HRA/H.S.A./CDHP to PPO?
Network changes: What magnitude triggers loss
of grandfathered status?
Formulary changes: What magnitude and nature
of change triggers loss of grandfathered status?
“Substantial” changes to overall benefit design
not covered in current regulation.
To Stay, or not to Stay Grandfathered??
2010 New Programs
Reinsurance for early retirees 55-64 (by
Small Business Tax Credits.
High Risk Pools.
Rate Review, carrier justifications.
MLR Reporting, Limits and Rebates.
Generic Biologics. (12-year protection)
The “Dependant to Age 26” Rules
Dependant = Your Child. No other restrictions.
Starts with an open enrollment 9/30/2010 (or sooner at
At least until 26th birthday. Company may opt to 27th
birthday and keep tax-free status.
Dependant price must be same regardless of age in group
No grandchilren have to be covered.
Covering child does not damage grandfathering.
Estimate is 1% added to Medical Trend in 2011.
Pregnancy coverage for dependant unchanged.
Early Retiree Reinsurance
(Data Requests to Regional Office)
Covered employees/dependants who retired but are 55-64
Starts at $15k of annual spend (including out-of-pocket
80% reinsurance to max of $90k of spend in calendar
year. ($60k benefit)
$5B max funding for entire nation.
Application Process has begun: Address—
HHS ERRP Application Center,
4700 Corridor Place, Suite D,
Beltsville, MD 20705
The Employer Mandate
Applies if employer averaged over 50 full-time
employees on business days in the previous
Count only hours worked, not scheduled.
Count FTE’s to reach 50. (add up part-time
hours in each month and divide by 120)
“TRUE” seasonal workers <120 days can be
Aggregate based on controlled group rules
for taxes. (80% common ownership)
Employer must offer “Affordable,
Essential Benefit Plan”
“Affordable” means less than 9.5% of
employee’s household income.
“Essential Benefit Plan” is TBD.
$2,000 fine for failing to offer (x full-time
workers only, minus first 30) or
$3,000 fine per each employee who receives
a subsidy to buy on exchange. (whichever is
Must offer exchange voucher for any
employee who pays between 8 and 9.8% of
household income for his share of premiums.
WARNING: New “pay to opt out” rules
If a company offers an employee an incentive
to leave his or her health plan, and then that
employee turns up in new high risk pools…
The employer must REPAY the high risk pool
for all the claims the pool paid on behalf of
No insurance for that!
What I’m Worried About
(The Short List)
When to Protect grandfathered plans.
Absorbing insurance industry fixed fees ($8B in 2014,
rising to $14.3B by 2017) without raising rates
Providing affordable coverage in an environment where all
the products have to be guarantee issue, community
rated, 3:1 age, include vision and dental for kids, subject
to a weak individual mandate, and with no gender
Will enrollment periods be tight enough (30 days, 60)?
Will rate increases become political football?
What if “essential benefits” means adding high cost
procedures that are not covered today? 25
The Core of Reform: Expand Coverage
0% to 133% of Federal Poverty Level = 23.3% of
population or about 71 million Americans.
Will Be Given Access to Medicaid (Free Coverage)
Current Medicaid Population ~ 45 million people
0% to 400% of Federal Poverty Level = 66.9% of
population or about 204 million Americans…
Will be able to purchase health insurance with
federal subsidies on State Exchanges (if employer
does not offer FQHBP-level coverage)
www.census.gov: 2008 Inflation Adjusted Dollars, 2009/2010 FPL guidelines
The Core of Reform: Subsidies
Average Family of 4 Premium Upon Implementation estimated to be
$13,500/year. A Family making $55,000 cannot pay more than 8.1% of
income for health insurance. Thus they will receive $13,500 - $4,455 =
$9,045 in Federal Aid to purchase health policy, 67% Subsidy.
3/23/2010 Grandfathered Date of Record
6/23/2010 Key HHS guidance due.
9/23/2010 All 2010 insurance regulations begin with renewals.
3/23/2011 State gets exchange grants.
7/1/2012 HHS specifies open enrollment periods for exchanges.
1/1/2014 Exchanges go online, payments due ($8B, Reinsurance,
PCORI trust fund.) “The Big Dance!”
1/1/2016 All groups with up to 100 ee’s allowed to purchase in
1/1/2018 Cadillac Tax goes into effect.
AHIP/Blues Goals for Reform
Reduce growth in Pay for value, not
healthcare costs volume
Build information about Transparency from
appropriate use of medical system to
Optimize healthcare Integrated (Medical
workforce Home Model) delivery
Public/Private of care
partnerships to address Examine motives of
chronic diseases provider consolidation
Properly fund government programs and pay fairly
for services 29
What about Brokers?
Requires the Secretary of HHS to establish procedures to allow
agents and brokers to enroll individuals in any qualified health benefits
plan in the individual or small group markets as soon as the plan is
offered through an Exchange. The procedures also will allow them to
assist individuals in applying for premium credits and cost-sharing
subsidies for plans sold through an Exchange. (Exchange Section)
Qualified Health Benefit Plans: Requires FQBHP to be
offered by a health insurance issuer that:
…agrees to charge the same premium rate without
regard to whether the plan is offered through an
exchange or directly through an Agent. (Exchange