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					   Focus on the Economy:
Impacts of Health Care Reform



MPCC Public Policy Forum
     April 19, 2013
          Health Care Reform in Brief
 “Patient Protection and Affordable Care Act”


     Three Major Elements of Health Care Reform




 Expanded       Financing Health      Redesigning
 Access to            Care            Delivery of
Health Care         Reform            Healthcare




                                                    2
            Expanded Access to Health Care:
      Projected to Cover 32 Million More People
              A Large Step Towards Universal Coverage
                         Health Reform Bill



                                   Preexisting
                                   Conditions


     Individual                    Insurance
                                                               Employer
      Mandate                        Market
                                                                Impact
• Minimum coverage
                                     Reform
• Individual subsidies      • Limit underwriting options   • “Play or Pay” requirement
• Modification to current   • Health insurance exchange    • Small business subsidy
  public options            • Preexisting conditions


                                                                                  3
          Key Insurance Market Reforms

 2010:
   No lifetime caps.
   Extending coverage to dependent children up to age 26.
   No pre-existing conditions to underwrite for kids.
   Establishes a temporary high risk pool (through 2013)
   Requires plans to spend at least 85% and 80% on medical claims for
    large and small group/individuals respectively.
   Establishes process for reviewing premiums, and violators may be
    excluded from Exchanges.
   Reinsurance program through 2013 for employers covering retirees
    (55+) not eligible for Medicare (claims between $15K-$90K)
 2014:
   No pre-existing conditions for adults
   No rescissions
   Ratings based only on age (3:1 ratio), rating area, family
    composition, and smoking (1 – 1.5 ratio)
   Individual mandate & employer penalties
             Individual Mandate
 Expanding Coverage Via Both Public & Private
                   Avenues


       17                                             15 million
       million




Requires all U.S. citizens and legal residents to obtain coverage by 2014.
                                                                         5
                  Individual Mandate:
      Expansion Via New State-Based Exchanges –
   Broadening Choices & Leveraging Bargaining Power

     Transparency in Plan Offerings, Strict Rules of Play
 American Health Benefit Exchanges                Provision in Brief: Health
        Health Reform Bill                             Benefit Exchanges

                                              •   2014: Exchanges for individuals
                                                  (133%-400% of FPL) and small
                                                  businesses (<100 employees): <50
                                                  Jan 2014; 50-99 Jan 2016. (SHOP)
                                              •   2017 - Larger employers at each
                                                  state’s discretion.
                                              •   Standardized display of plan
                                                  offerings, with multiple levels of
                                                  coverage.
                                              •   Publicly available performance data
                                                  (web-based)
                                              •   User-friendly for easy plan
                                                  comparison



As of April 8, 2013, Calif. Exchange on track…Peter Lee feedback.                  6
                                    Exchanges:
           Stratified Benefits Offerings Put Coverage Within Reach –
                       Penalties May Deter Noncompliance

  Benefits Design Within
  Exchanges
        Platinum Plan
                                                                 Individual Penalty
         Covers 90% of costs


        Gold Plan
         Covers 80% of costs                                      2014: Greater of $95 or 1% of
                                                                   income
        Silver Plan (benchmark plan)
         Covers 70% of costs                                      2015: Greater of $325 or 2% of
                                                                   income
        Bronze Plan
         Covers 60% of costs
                                                                   2016: Greater of $695 or 2.5% of
                                                                   income
        Catastrophic Plan
                                                                   2017 onward: COLA-adjusted
         Individuals under 30 and those
           exempt from mandate

Premium credits available up to 400% of FPL..                IND: 100% FPL = $11,490; 400% FPL = $45,960
                                                             FAM: 100% FPL = $23,550; 400% FPLO = $93,400
Cost share available <250% FPL. All tied to
Silver Plan.

Cost share is also subsidized based on FPL, bringing value of plan to 94% for lowest FPL vs. 70%.       7
    Complex Financial Calculus of Individual Mandate:
     Incentive to Not Purchase & Take Penalty Exists


                  Cost of Plans Offered Through Exchange
    Family of Four, by Percentage of Federal Poverty Level
                            (FPL)
    FPL           Premium After Subsidy          Likely Penalty in      Maximum Savings
                   (Based on Silver Plan)              2016             for Not Purchasing
                      M ax set at 2% -         (Greater of 2.5% - or         Coverage
                      9.8% of income                   max*)
  150%                    $1,505                $ 825 - $2,085                ($580)
  200%                    $2,778                $1,100 - $2,085                $693
  250%                    $4,438                $1,375 - $2,085               $2,353
  300%                    $6,483                $1,650 - $2,085               $4,398
  350%                    $7,563                $1,925 - $2,085               $5,478
  400%                    $8,636                $2,200 - $2,085               $6,436

* $2,085 = max penalty, which is max for family of 3 or greater. ($695 individual
penalty in 2016)                                                                             8
         Individual Mandate Implications


 Concern about healthy individuals opting out.

 Health insurers raising rates in anticipation?

 ACA ruling: “Transitional Reinsurance Fee” on health plans
  and TPAs on behalf of self-insured employers ($63/covered
  life to cover adverse selection in beginning years, 2014 –
  2016).
                           Monterey Employer Profile

                                             Number of Businesses by Size Category

   Total             0-4           5-9       10-19         20-49          50-99   100-249   250-499   500-999    1000+

     13,012        8,675        1,677        1,136           887           351       188        59        24        15


Monterey
County:          66.67%       12.89%         8.73%        6.82%          2.70%     1.44%     0.45%     0.18%     0.12%
Monterey
Co. Cum.:                     79.56%       88.29%       95.10%           97.80%   99.25%    99.70%    99.88%    100.00%


National %:      54.40%       74.70%       87.10%       95.00%


   Penalty
   doesn't
  apply to:      12,375
   Penalty
applies to:          637

      Monterey County Statistics: 3rd Qtr, 2011, Employment Dev. Dept.
      National: 2005 Depart of Labor statistics

                                                                                                                   10
                    Small Employer Impact:
    Subsidies Designed to Bolster Employer-Based Coverage


                         Provision in Brief:
                      Small Business Tax Credits
•  Open to employers with 25 or fewer full-time employees + average annual wages
<50K

• Employer must contribute 50% of premium cost or 50% benchmark premium to
qualify for subsidy

• 2010-2013: Employers receive tax credit of up to 35% employer contribution

• 2014 onward: employers receive credit of up to 50% employer contribution

• Full credit for 10 or fewer employees + average annual wages <$25K)


                                                                               11
         Larger Employer Impact (50+ F/T EEs):
Penalties Designed to Keep Larger Employers Compliant



                         • Only employers 50+ full time employees
                         (F/T = 30 hours per week)
                         • First 30 employees exempt from
                         penalties (Ex: 50 EEs = 20 x $2k = $40k)
                         • Penalties prorated and assessed on
                         monthly basis.


                         Example: 50 full time employees &
                         10 receiving tax credits in Exchange:

              $2K
                         $3K x 10 = $30K or
                         $2K x (50 – 1st 30 EEs) = $40k
     Importance of F/T Employees & FTEs

 50 Full time Employees or Full time equivalents
  30 hours/week equals a full time employee.
  Less than 30 hours/week is part time, no applicable
   penalty, but P/T hours are included in calculating F/T
   equivalents.
  Seasonal work hours also are included in calculation,
   though no penalty applies to this group of employees.
 Unintended consequences:
  Not hiring past 49 FT employees or FTEs
  Incentive to hire under 30 hours/week.



                                                            13
                 Additional Rules to Consider

 If you offer coverage, are you free from penalties? Not
  necessarily:
   Can be penalized if cost to an employee for “single
    coverage” is greater than 9.5% of household income.
   Or if employer doesn’t cover at least 60% of the plans’
    actuarial value (premiums, deductibles, coinsurances, &
    copayments)
         Plus must conform to 10 essential health benefits (<100 EEs) or core 4
          EHBs for employers >100 EEs.
   Or if employee seeking premium credit on the Exchange
    has household income of 400% or less of FPL.
   And if employee waives coverage.

                                                                                   14
                                                Projecting Employer Transition to the Exchange
              55% of the workers in the state are employed by firms of less than 100 employees, firms most likely to
              push employees to the exchange (prepared by California Hospital Association)

                                                                                          Potential Movements
                                                                                     to the Exchange by Firm Size
                                                                                                                                                                                   Up to 38%
                                                                                                                                                     Up to 5%                      Conversion
Number of Employees




                         14,000,000                                                                                                                 Conversion
                                                                                                                    Up to 10%
                         12,000,000                                                                                 Conversion

                         10,000,000
                                                                                    Up to 25%
                           8,000,000                                                Conversion
                                                    Up to 50%
                           6,000,000                Conversion


                           4,000,000

                           2,000,000

                                        0
                                 Commercial 0-49                                        50-99                         100-999                          1000+                             Total
                                 Exchange                                                                            Firm Size
                      Source: State of California, Employment Development Department, Labor Market Information Division, Deloitte Analysis
                      Note: Conversion rates are estimates based on national conversations w ith employers, payers, and opinion leaders. Actual conversion rates w ill depend on the state of the
                      legislation post-Supreme Court decision and existing incentives

                      CBO projected 7%. McKinsey & Company projected 30% (50% for those familiar w/ legislation).
Employers Pick Up Lion’s Share of Cost: Far More
               Than $2K Penalty




                                           16

                 15% 18%
  Pros & Cons of Driving Business to Exchanges


• Benefits of understandable and standardized health
  coverage will be realized.
• U.S. downward trend of employer-based health
  insurance* will likely accelerate on Jan. 1, 2014.
• Commercial carriers are already trying to pay providers
  less for business through Exchange, and will leverage
  growing Exchange volume.
• Belief that carriers will ultimate ratchet down
  reimbursement closer to Medicare rates, which is not
  sustainable for many hospitals and physicians.
* 64.4% in 1996, 55.1% in 2011 (U.S. Census Bureau, Feb 2013)
                                                                17
         Health Care Reform in Brief


              Elements of Health Care Reform




 Expanded          Financing Health                   Redesigning
 Access to               Care                         Delivery of
Health Care            Reform                         Healthcare




                   CBO restates costs at 39% higher
                         regarding subsidies
                                                                    18
                  Paying for Reform :
     Taxes, Fees, Rate Cuts Designed to Pay for Bill




Decrease Expenses                  Increase Revenues

1.Medicare FFS Rate Cuts: $157B    1.Industry Taxes: $107B
2.Medicare Advantage Scale-back:   2.Passive Income Tax: $210B
$136B                              3.Part A Hospital Insurance Payroll Tax: $87B
3.DSH Rate Cut: $36B               4.“Cadillac” Tax: $32B (2018)
4.Other Reductions: $96B           5.Tanning Salon Tax: $2.8B
5.Fraud/RAC: $2.98

                                                                             19
         New Fees & Taxes in Detail

      Medicare FFS Rate Cuts:                Industry Taxes: $107B
       $157B                                   Excise Tax on Medical Devices
                                                2.9%
                                               Insurance Industry Annual Fee
   Projected Annual Federal                     $8B
  Savings from Market Basked                   Pharma Excise Tax
     Update Over 10 Years                      10% Tanning Salon Tax
         Health Reform Bill     $36B          Passive Income Tax: $210B
                                               3.8% on unearned income
                                                (interest & dividends)
                                              Part A Hospital Insurance
                                               Payroll Tax : $87B
                                               Marginal tax rate increases from
$100M                                           1.45% to 2.35% on income
                                                > $200K/yr (single) or >$250K/yr
2010                          2019              filing jointly.
         Health Care Reform in Brief


              Elements of Health Care Reform




 Expanded          Financing Health      Redesigning
 Access to               Care            Delivery of
Health Care            Reform            Healthcare




                                                       21
 On the Path Toward Accountability

 Bill Spring-Loads Broad Implementation of New Payment Models


              Episodic Costs                          Total Costs



Prospective                  Hospital-               Shared-
                 Pay-for-                Episodic
 Payment                     Physician               Savings    Capitation
  System       Performance   Bundling    Bundling
                                                    Model/ACO




                   Provider Cost Accountability
                                                                             22
                     Ian Morrison’s
   Fee-For-Service Not Sustainable, Moving
                Towards IPM

     First Curve                      Second Curve




Fee-for-Service $$                      Population Mgt: $$ to
for episodic care                       keep people healthy




                                                            23
                    Our demographic challenge

 Patient revenue by source
                     Private
                    Insurance     Self Pay
                       25%          5%

                                             Total Government: 70%
     Other Gov't.
         6%

       Medi-cal
         9%

                                        Medicare
                                         55%




                                                                 24
                   Cost Shifting

               $407 million
450

400

350
                                                              Gap
300

250                                    $125 m
                                       (tax)
      $287 m




200




                                                                    $162 m
150

100

 50

  0
                      Cost                              Payments

               Medicare                      Medi-Cal
               CHAMPUS/Workers Comp/ Other   Workers Comp
               Commercial                    Self-Pay



                                                                             25
Fundamental Realization Driving Change




    The paradigm of “more sick care –
 the better” is a non-sustainable, terminal
   health care industry business model

 Need to move to integrated population
management model with focus on keeping
people healthy and out of ED and hospital


                                              26
          Embracing the“Triple Aim”




Improve the      Enhance the        Reduce or
health of an        patient        moderate per
   entire         experience       capita cost of
 population          - Quality          care
                    - Access
                    -Reliability



BETTER HEALTH     BETTER CARE       LOWER COSTS
                   CHOMP Initiatives:
                  Ushering in the Future


   Preparing for risk-based products
   Patient Centered Medical Home
   Embedded Care Managers
   Primary Care supply: PPC Carmel & Marina + Physician
    Recruitment Loan Program
   Health Information Exchange: Sharing information between
    caregivers and patients
   Wellness & Primary Prevention
   Disease Management – Life Connections
   Two Risk-Based Products: Captive & Medicare Advantage
    (HMO)

                                                               28
                      Resources


 Covered California (CA’s Health Ins. Exchange)
 www.coveredca.com

 Minimum Value & Actuarial Value Calculators
 http://cciio.cms.gov/resources/regulations/index.html#pm

 293 Q&As of Health Care Reform Impact:
 www.gallagherbenefits.com/HCReform/QA



                                                            29
                      Questions?




             ???
Dan Limesand
Director, Business Development
(831) 622-2671
dan.limesand@chomp.org
  Profitability Challenges at Medicare Rates

  While many hospitals report operating profits today, most will likely be unprofitable as reimbursement
  approaches Medicare rates



                                             100%
        Percentage of California Hospitals




                                             90%                       20%
                                             80%
                                             70%
                                                                                                                                         74%
                                             60%
                                             50%                                                                                                           Not profitable
                                                                                                                                                           Profitable
                                             40%                       80%
                                             30%
                                             20%
                                                                                                                                         26%
                                             10%
                                              0%
                                                                      Today                                                     Simulated Medicare Rates



                                                              A substantial proportion of the hospitals that are profitable today
                                                                            will not be profitable at Medicare rates
Source: OSPHD 2010, Deloitte Analysis
Methodology: Percentage of CA hospitals profitable under Medicare calculated using per episode Market Basket cost and revenue

				
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