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The New Health Insurance Market

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					   Michigan Association of Health Plans

Federal Health Reform and Key Michigan Implications


Joseph T. Aoun, Esq.                                         July 20, 2010
Nuyen, Tomtishen and Aoun, P.C.
2001 Commonwealth Blvd., Ste. 300
Ann Arbor, Michigan 48105
(734) 372-4100
jta@ntalaw.com




                           Nuyen, Tomtishen and Aoun, P.C.                   1
Overview
   Key Areas for Today’s Discussion
       Insurance Market Reforms
       Exchanges, Mandates and Subsidies
       Medicaid Expansion                                     Identify key State issues
       Delivery System Reform
           ACOs
       Strategic Considerations
           Health Plans
           MAHP
   Other important areas, but not addressed today
       Medicare Advantage
       Temporary High Risk Pool and Early Retiree Reinsurance
       Long Term Care (CLASS program)

                             Nuyen, Tomtishen and Aoun, P.C.                        2
Overview
   Health reform ushers in unprecedented change for health
    plans, affecting nearly all aspects of business operations
   Health reform will commoditize many aspects, such as
    benefit design and underwriting, forcing plans to be creative
    and innovative in delivering market place value
   Product distribution will move away from business-to-
    business and to business-to-consumer
   Increasing coverage to millions will strain the delivery
    system, potentially resulting in access to care issues
   The federal government’s role in the sale of commercial
    health insurance is increasing dramatically and changing the
    traditional landscape of state regulation

                         Nuyen, Tomtishen and Aoun, P.C.        3
     The New Health Insurance Market (2014)
             Employer Plans                       Uninsured             Medicaid/        Medicare
              (165 million)                      (31 million)             CHIP          (52 million)
                                                                       (45 million)


                                               Insurance Market Reforms     Medicaid/     Medicare
                                                   Guarantee Issue,          CHIP
   Employer          Employer pays                  No Health Status
benefits exceed     government and                    Underwriting
 minimum plan       employees use
and affordability     Exchanges                     Exchange
   limits for                                  BCBSM, HMOs, Aetna,
  employees                                   CO-Ops, Multi-State Plans




                                                                               Public Payer
                                                                                 Rates
                      Private Payer Rates




                                     Nuyen, Tomtishen and Aoun, P.C.                               4
Michigan Health Coverage Snapshot (2009)
               1,100          Number of Lives (in thousands)


 1,882

                         Total Large                                      2,313
                         Group: 4,362

                                                  2,049
 1,637


         652       584
 Individual                  Small Group                      Medicare
 Medicaid                    Uninsured                        Large Group Insured
 Large Group ASO

                            Nuyen, Tomtishen and Aoun, P.C.                         5
Insurance Market Reforms

    Automatic enrollment                       Employers with more than
        of employees                           200 full time employees (may be
                                               effective March 23, 2010)


       Large Employer                            Employers with more than
         Pay or Play                             50 full time employees



    Small Group—Coverage                       Employers with 1-100 employees
  available through Exchange                   Prior to 2016, state may re-define
                                               to be 1-50

       Small Employer
         Tax Credit                            Employers with fewer than 25
                                               FTEs

                        Nuyen, Tomtishen and Aoun, P.C.                        6
Insurance Market Reforms--2010
                 Prohibits lifetime limits and restricts annual limits
                 Eliminates pre-ex for children under 19
Applies to       Mandates dependent coverage until age 26
GF plans*
                 Prohibits rescissions
                 Requires uniform explanations of coverage (2012)
                 Establishes minimum medical loss ratios

                 Requires internal and external appeals
 N/A to
                 Mandates coverage for preventive health services
GF plans         Prohibits discrimination in favor of highly compensated
                  employees
                 Patient protections, such as coverage for ER services
    •Individual grandfathered health plans are not subject to the restrictions on
    annual limits and pre-ex

                              Nuyen, Tomtishen and Aoun, P.C.                       7
Insurance Market Reforms--2014
                Eliminates pre-ex for all
Applies to
 GF plans       Eliminates waiting periods greater than 90 days



                Rating restrictions
                Guarantee Issue and Renewal
 N/A to         Establishes mandate to offer ―essential health
GF plans
                 benefits‖
                Establishes limits on cost-sharing
                Prohibits discrimination based on health status




                            Nuyen, Tomtishen and Aoun, P.C.        8
Insurance Market Reforms
   Effective Dates
       2010 provisions become effective for plan (policy) years
        beginning on and after September 23, 2010
       2014 provisions become effective for plan (policy) years
        beginning on and after January 1, 2014
       Grandfathered health plans (defined as plans or
        policies with enrollment as of March 23, 2010) may avoid
        certain provisions altogether
           If certain changes are made to the grandfathered health plan, it
            will become subject to all provisions, but effective date may be
            delayed depending on the timing of the changes


                              Nuyen, Tomtishen and Aoun, P.C.                  9
Insurance Market Reforms
   Three Key Areas
       Underwriting
       Premium Rating
       Benefit Design

   Additional information on other insurance market reforms
    is available at
    http://www.mahp.org/federalreform.html




                         Nuyen, Tomtishen and Aoun, P.C.       10
Underwriting                                                      N/A to
                                                                 GF plans
   Guarantee Issue (2014)
       Each insurer must accept every individual or group
        applicant
           Applies to small group as well as large group whereas
            existing state law and HIPAA focused on guarantee issue in
            the small group market only
           Insurers may limit enrollment to specified open enrollment
            periods; exceptions also exist for network capacity or
            financial constraints
           All insurers essentially take on the traditional Blue Cross role
            as insurer of last resort
               Michigan implications




                              Nuyen, Tomtishen and Aoun, P.C.             11
Underwriting                                                                  Applies to
                                                                              GF plans*
    Pre-Existing Condition
     Exclusions (2010/2014)
        General prohibition begins January 1, 2014
            Applies to all markets, including large group
        For children under 19 years of age, prohibition begins for
         plan years on and after September 23, 2010
            Regulations interpret pre-ex broadly to cover not only exclusion
             of certain benefits, but refusal to enroll/rejection of applicants
        Michigan law varies the use of pre-ex depending on
         carrier and depending on market

    * Individual grandfathered health plans are not subject to the restrictions on pre-ex

                                    Nuyen, Tomtishen and Aoun, P.C.                         12
Underwriting                                                            Applies to
                                                                         GF plans
   Waiting Periods (2014)
       Cannot exceed 90 days
       Applies to insured and self-funded
       Applies to small and large group
       Health reform law addresses “waiting periods” only; it
        does not address “affiliation periods”
           Both HIPAA and Michigan’ small group reform law contain
            provisions respecting affiliation periods
               Generally limited to 60 days (90 days for late enrollees)
               Under HIPAA, only available for HMO coverage




                                 Nuyen, Tomtishen and Aoun, P.C.                     13
Premium Rating                                                    Applies to
                                                                   GF plans
   Medical Loss Ratios (2011)
       Large group: 85%
       Small group and individual: 80%
       State may establish higher ratios
       Key issue will be what is included within the definition of
        medical expenses
           Claims, but also “activities that improve health care quality”
       HHS to provide definitions by December 31, 2010 after
        obtaining NAIC input
       Michigan law provides minimum loss ratios for
        individual health insurance only (50-65% depending on
        type of coverage)

                               Nuyen, Tomtishen and Aoun, P.C.                 14
Premium Rating                                                  N/A to
                                                               GF plans
   Premium Rate Review (2010)
       Process to review ―unreasonable‖ increases in
        premiums by HHS “in conjunction with States”
           Grants available to the state
           “Unreasonable” not defined, but HHS has invited comment
       Carriers must submit justifications prior to
        implementation and include info on websites
       Unreasonable rate increases may affect continued
        qualification in the Exchange
       Sen. Feinstein (CA) introduced federal legislation creating
        a rate review authority to deny or modify unreasonable
        rate increases if state lacks authority to do so (S. 3078)


                             Nuyen, Tomtishen and Aoun, P.C.              15
Premium Rating                                                N/A to
                                                             GF plans
   Rating Restrictions (2014)
       Generally with respect to the individual and small group
        market (1-100)
       Permitted Rating Factors (case characteristics)
         Age (3:1)

         Tobacco use (1.5: 1)

         Rating area (established by state, not health plan)

       Michigan law varies considerably in terms of permitted rate
        characteristics depending on carrier and market. Examples:
         BCBSM may use age in the individual market, but only if it
           offers a drug benefit
         Commercial carriers may use health status in all markets




                           Nuyen, Tomtishen and Aoun, P.C.              16
Premium Rating
   Rating Restrictions (2014)
       Insurers must consolidate risk pools
           Individual policies both inside and outside of the Exchange
            must be pooled
           Same for small group policies
           Insurance policies issued to grandfathered health plans are
            not to be pooled with reform policies
             Potential for rates to increase significantly due to greater
               volatility and absence of new risks




                              Nuyen, Tomtishen and Aoun, P.C.                17
Premium Rating                                                 N/A to
                                                              GF plans
   Premium Variances
    based on Wellness Programs (2014)
       Similar to existing HIPAA non-discrimination rules:
        reform law prohibits different rules for eligibility based
        on health status-related factors, such as medical
        condition, claims experience and medical history
       Rules for eligibility refer to eligibility, enrollment, waiting
        periods, benefits and cost sharing; current regulations
        also prohibit varying premiums and contribution levels
       Important exception for wellness programs
           Current regulations limit variation to 20%
           Health reform law allows up to 30% (and HHS may allow
            up to 50%)

                            Nuyen, Tomtishen and Aoun, P.C.              18
Benefit Design                                                       N/A to
                                                                    GF plans
   Essential Health Benefits (2014)
       Statute provides that HHS will determine ―essential
        health benefits‖ and that scope will be comparable to
        “benefits under a typical employer plan”
             Ambulatory
             Hospital, including ER
             Maternity and newborn care
             Mental health and substance use disorder
             Prescription drugs
             Rehabilitative services and devices
             Laboratory
             Preventive, wellness and chronic disease management
             Pediatric services, including oral and vision care

                              Nuyen, Tomtishen and Aoun, P.C.                  19
Benefit Design
   Essential Health Benefits (2014)
       Duty applies to insurers for coverage in the individual
        and small group markets
       Requirement to provide applies for coverage issued in
        and outside of the Exchange
       If state requires benefits in addition to essential health
        benefits, it must absorb the cost when such coverage is
        provided within the Exchange




                           Nuyen, Tomtishen and Aoun, P.C.           20
Benefit Design
   Essential Health Benefits (2014)
       The mandate (penalty) provisions of the law focus on
        whether the plan coverage constitutes ―minimum
        essential coverage‖ which is basically defined to mean
        the benefits covered under an employer sponsored plan
        Actuarial value:
           60%--Bronze                           Employers must provide at least this
                                                  level to avoid penalties
           70%--Silver
           80%--Gold
           90%--Platinum




                            Nuyen, Tomtishen and Aoun, P.C.                         21
Benefit Design                                                   N/A to
                                                                GF plans
   Cost Sharing Limitations (2014)
       All group health plans must limit cost sharing
           Applies to small group and large group
           Applies to insured and self-funded
       Two limitations: an overall cost sharing limit and, for
        small group, there is also a deductible limit
       Overall cost sharing limit in 2014 is based on the 2014
        HSA limits:
           $5,950 individual/$11,900 family (2010)
       Deductible limits:
           $2,000 individual/$4,000 family (2014)


                              Nuyen, Tomtishen and Aoun, P.C.              22
Benefit Design
                                                                N/A to
                                                               GF plans
   Preventive Health Services (2010)
       Must provide on a first dollar basis—no cost sharing
        permitted
       Evidence based items or services that have a rating of
        “A” or “B” in the current recommendations of U.S.
        Preventive Services Task Force
           Immunizations, well baby care, and women preventive care and
            screenings (e.g., mammography)
       HHS may develop guidelines promoting value-based
        insurance design



                             Nuyen, Tomtishen and Aoun, P.C.               23
Grandfathered Health Plans
   Requirements for grandfathered health plans
       If employer offers different benefit options, e.g., a PPO option
        and an HMO option, analysis is at the option level
       Addition of family members and new employees after March 23,
        2010 will not adversely affect grandfathered health plan status
         Terminating plan options and transferring employees can
            result in loss of grandfathered status depending on rationale
            and other circumstances
       Must maintain adequate documentation supporting position that
        plan is grandfathered
       Must provide specific notice to participants in “any plan
        materials”
         Model language set forth in regulations


                             Nuyen, Tomtishen and Aoun, P.C.                24
Grandfathered Health Plans
   Loss of grandfathered status
       Switching insurers will result in loss of grandfathered health
        plan status as respects the insured plan or option
           Exception for union plans
           Results in insurer lock-in
       Reduction in all or substantially all benefits for a particular
        condition
           Example: Mental health/eliminating counseling
       Annual limits establishment or changes
           Establishing any annual limits if the plan had no limits previously
           Establishing an annual limit that is less than the plan’s lifetime limit
            (before such limit was eliminated)
           Lowering the annual limit if the plan had an annual limit previously


                                 Nuyen, Tomtishen and Aoun, P.C.                       25
Grandfathered Health Plans
   Loss of grandfathered status
       Changing contribution rates by more than 5
        percentage points
       Cost sharing changes:
           Establishing any increase in co-insurance percentages
           Increasing deductibles or out of pocket maximums by an
            amount greater than CPI Medical + 15 percentage points
           Increasing co-payments by more than the greater of
               $5.0 plus CPI Medical, or
               CPI Medical + 15 percentage points




                               Nuyen, Tomtishen and Aoun, P.C.       26
Grandfathered Health Plans
   Changes that WILL NOT result in the loss of
    grandfathered status
       Changes to premiums
       Changes to comply with state or federal law
       Changes to voluntarily adopt provisions of health
        reform law
       Changes in third party administrators
       Changes in status (insured versus self-funded)*
       Changes in prescription drug formulary*
       Changes in provider network*
                *Agencies invited comment on these changes

                           Nuyen, Tomtishen and Aoun, P.C.   27
Grandfathered Health Plans
   Maintaining grandfathered status—is it worth it?
       Need to weigh benefits of avoiding costly new requirements,
        such as first dollar preventive services and limitations on cost
        sharing, against burden of limited flexibility to change insurers,
        contribution rates and cost sharing
       For insured plans, need to consider rating issues
           Does employer want carrier to use health status and claims
            experience (not permitted for small group beginning in 2014)
           Risk pool associated with grandfathered products is not pooled
            with reform plans
       If offering an insured plan, need to consider ability to switch
        carriers/insurer lock-in
       Agencies estimate of plans losing status by 2013: Small group
        49-80%; Large group 34-64%

                               Nuyen, Tomtishen and Aoun, P.C.               28
Key State Issues
   Insurance Market Reform
       Risk adjustment will become exceptionally important in
        2014
           To be established and administered by the state
               HHS to provide standards
           Need to identify how much variation should be eliminated via
            adjustment
       Guarantee issue obligation may be limited by open
        enrollment periods
           Critical to ensure plan solvency in light of risk of adverse
            selection/jumper & dumper risk



                                Nuyen, Tomtishen and Aoun, P.C.            29
Key State Issues
   Insurance Market Reform
       Need to determine whether to create a singular process
        to review premium rates and determine reasonableness
           Ability to obtain grant funds
           Will all rates become “file and approve”?
       State must define permitted geographic rating areas
       State may merge individual and small group markets
           Massachusetts experience: Lowered individual premium rates
            but increased small group rates
       Numerous Insurance Code provisions need to be
        revised in light of federal reform, such as pre-ex,
        premium rating (permitted characteristics)
                             Nuyen, Tomtishen and Aoun, P.C.         30
Key State Issues
   Insurance Market Reform—PA 350
       Continuation of tax-exemption in light of changes in
        insurer of last resort obligation?
       Provider payment
           Duty to cover full financial requirements
           Most favored nation clauses
       Regulatory framework
           Provisions regarding “provider class plans” applicable to
            traditional, but not PPO business
           Premium rate filing and approval provisions
               IMR debate: Make BCBSM more like commercial carriers
               Health Reform: Make commercial carriers more like BCBSM

                              Nuyen, Tomtishen and Aoun, P.C.             31
Exchanges, Mandates and Subsidies
   Operational January 1, 2014—to be a state governmental
    agency or nonprofit entity
       Akin to Orbitz for health insurance
   Applies to the individual market and small group (Small
    Business Health Options Program—SHOP Exchange)
   Exchange is not required to offer all carriers and all
    products, and carriers are not required to sell coverage in
    the Exchange
   Input in the design phase will be very important
       One of the most critical issues for health plans as it will change
        the way individual and small group products are marketed and
        sold

                              Nuyen, Tomtishen and Aoun, P.C.                32
Exchanges, Mandates and Subsidies
   Standardization of benefits (essential health benefits
    package)
       Bronze, Silver, Gold and Platinum
         Insurers must offer at least one silver and one gold

       Catastrophic plan—maximum cost sharing limits (except for 3
        primary care visits); only available if under 30
       All plans offered in Exchange must be certified as “qualified
        health plans”
   Requires “cost sharing transparency” to allow for
    comparison shopping, in addition to published metrics
    like claims processing, number of denials, out of network
    coverage, enrollment and disenrollment

                             Nuyen, Tomtishen and Aoun, P.C.            33
Exchanges, Mandates and Subsidies
   Unique Employer-Exchange Issues
       Participating employers specify level of support (e.g.,
        silver) and employees can select among qualified health
        plans that offer that level
           Implies the potential for employees to be enrolled in multiple
            insurance plans
       Participating employer must make Exchange coverage
        available to all full time employees
           It is not clear whether an employer participating in the
            Exchange can maintain coverage outside of the Exchange
            (e.g., the self-funded option)
       Ability to receive small employer premium credit after
        2013 is conditional upon obtaining Exchange coverage

                              Nuyen, Tomtishen and Aoun, P.C.                34
Exchanges, Mandates and Subsidies
   Individual Mandate
       With limited exceptions (such as incarcerated
        individuals and illegal immigrants), all individuals must
        maintain ―minimum essential coverage‖
           Government provided coverage, e.g. Medicare, Medicaid
           Employer sponsored coverage, including grandfathered health
            plans
           Exchange coverage, as well as coverage outside of the
            Exchange
       Exemption from mandate applies if required
        contribution exceeds 8% of household income


                             Nuyen, Tomtishen and Aoun, P.C.              35
Exchanges, Mandates and Subsidies
       Individual Mandate
        Penalty is the lesser of
        A. The national average premium for a bronze plan, or
        B. The larger of:
                      2014                         2015       2016
    (1) Flat $ Amount $95                          $325       $695*
    (2) % of Income    1%                           2%         2.5%

         *For years after 2016, this amount is increased by the
         CPI


                            Nuyen, Tomtishen and Aoun, P.C.           36
Exchanges, Mandates and Subsidies
       Individual Mandate
           Significant concerns whether mandate is large enough
            to mitigate risk of adverse selection
           Will individuals choose to pay penalty rather than
            purchase coverage or wait until they “really need it”?
            Recall guaranteed issue without pre-ex
            No ability for insurers to rate based on health status
           Will hospital emergency rooms become a place where
            insurance applications are completed?
           Massachusetts experience with “jumpers and
            dumpers”
            Individual enrollment increased 128% (2006-08), but those
             dropping coverage within six months increased 390%

                               Nuyen, Tomtishen and Aoun, P.C.           37
Exchanges, Mandates and Subsidies
   Three new mechanisms to reduce impact of adverse
    selection (not available for grandfathered plans):
       Transitional Reinsurance (2014-2016)
           Assessments apply to all health plans, including self-funded
           Recoveries available only for high risk enrollees in individual
            market
       Risk Corridors (2014-2016)
           Applies to individual and small group coverage via Exchange
           50% to plan if between 103% and 108% of target; 80% for
            portion over 108%
           50% from plan if between 92% and 97% of target; 80% for
            portion under 92%
       Risk Adjustment
           Applies to insured and self-funded plans that are not subject to
            ERISA in the individual and small group market (even if outside
            of Exchange)

                             Nuyen, Tomtishen and Aoun, P.C.                   38
Exchanges, Mandates and Subsidies
       Individual Mandate
           Duty to purchase coverage is mitigated by premium credits and
            cost sharing subsidies
           Generally available to individuals with incomes between 100%-
            400% federal poverty limit
             400% for a family of four in 2010: $88,200
             Expected that individuals with incomes below 133% of FPL will be
              enrolled in Medicaid ($29,326 for a family of four)
           Premium credit and cost sharing subsidy is not available if
            individual has access to employer provided coverage UNLESS:
             Too Skinny: Employer coverage provides less than 60% actuarial
              value
             Too Expensive: Required contribution under employer plan
              exceeds 9.5% of household income

                                Nuyen, Tomtishen and Aoun, P.C.                  39
Exchanges, Mandates and Subsidies
       Individual Mandate
           In Michigan, it is estimated that 2.4 million
            individuals with incomes between 133-400% FPL are
            covered in employer plans
             Potentially eligible for a premium credit/cost sharing subsidy
              for Exchange coverage if the employer coverage provides less
              than 60% actuarial value or the required contribution is
              greater than 9.5% of household income
             If premium credit/cost sharing subsidy is sought and
              obtained, then employer will be subject to penalty
           In Michigan, it is estimated that 363,000 uninsured
            individuals would be eligible for the credit/subsidy

                               Nuyen, Tomtishen and Aoun, P.C.                 40
Exchanges, Mandates and Subsidies
       Employer Mandate
           Applies to employers that have more than 50 full time
            employees (full time = 30 hours/week)
            FTEs are counted (aggregate monthly part-time employee
             hours/120)
           If coverage is offered to employees and dependents,
            penalty applies if an employee obtains coverage from
            the Exchange and receives a premium credit/cost
            sharing subsidy
            Penalty: $3,000 x Number of employees obtaining premium
             credit/cost sharing subsidy, subject to an overall limit
                Overall limit: $2,000 x Total number of employees, less 30

                                 Nuyen, Tomtishen and Aoun, P.C.              41
Exchanges, Mandates and Subsidies
       Employer Mandate
           If coverage is not offered to employees and
            dependents, penalty applies if an employee obtains
            coverage from the Exchange and receives a premium
            credit/cost sharing subsidy
            Penalty: $2,000 x Total number of full time employees, less 30
           The economics of maintaining employer-based
            coverage
            “savings” from discontinuation potentially more than offset
             by non-deductible penalty assessment and increased
             salary/wages
            May be cheaper to continue plan, but with modifications

                              Nuyen, Tomtishen and Aoun, P.C.                 42
Exchanges, Mandates and Subsidies
       Employer Mandate
           Significant challenges for employers “doing the right
            thing”
            How does employer know if employee contribution exceeds
             9.5% of household income?
            Competing interests at play: employee privacy regarding
             household income; employer right to ensure accuracy of any
             penalty assessment
                Agencies to study and make recommendation by January 1, 2013




                                Nuyen, Tomtishen and Aoun, P.C.                 43
Application Flow
    Employee applies for                             Exchange collects information
    coverage through the Exchange                    on family size, household
                                                     income, employer coverage




If eligibility for credit is determined,
employee receives credit (advanced to insurer)                Exchange forwards
and notice provided to employer                               information to HHS
                                                              for verification



                    HHS forwards income data to IRS for verification

                          Nuyen, Tomtishen and Aoun, P.C.                       44
Exchanges, Mandates and Subsidies
       Employer Mandate
        Free Choice Vouchers are to be provided if required
         contribution is more than 8% but less than 9.8%
        Only for those employees whose household income is
         below 400% of FPL
        Amount of voucher is the amount employer would
         have contributed if employee selected coverage from
         the employer
        Employee can use the voucher to purchase coverage
         in the Exchange
        If a voucher is available to an employee, he or she is
         not eligible for a premium credit/cost sharing subsidy

                         Nuyen, Tomtishen and Aoun, P.C.          45
Key State Issues
   Exchanges
       Critical decision point: Will the Exchange be a vehicle to
        effect wide-ranging health reform at the state level or will
        it simply be the “digital white pages” for insurance?
       If the Exchange is to be responsive to the market and act
        as a market change agent, it argues for a private nonprofit
        organization, as opposed to a state agency
           Need to assure accountability if a private nonprofit structure
           Need to identify state agency if state agency structure (e.g.,
            OFIR, MDCH)



                              Nuyen, Tomtishen and Aoun, P.C.                46
Key State Issues
   Exchanges
       How will the Exchange determine which plans are
        qualified?
           Will competitive bidding be required or desired?
           Will plans have flexibility to adjust OFIR approved premium
            rates as part of the bidding?
       Will state create a “public option” to be offered in the
        Exchange?
       Regional and Multistate Options
           UP Exchange
           Midwest States Exchange (Compact)


                             Nuyen, Tomtishen and Aoun, P.C.              47
Key State Issues
   Exchanges
       Will Michigan re-define small group as 1-50?
           Strategically important to carriers and employers
           Action needs to occur prior to 2016
       Will Michigan permit large groups to participate in the
        Exchange (permitted after January 1, 2017)?
       Will Michigan require carriers to adhere to mandated
        benefits beyond those specified in the essential health
        benefits package?
           State to assume cost
       How will costs of Exchange be financed?

                              Nuyen, Tomtishen and Aoun, P.C.     48
Medicaid Expansion
   Individuals (under age 65) with incomes below 133% of
    FPL will become eligible for Medicaid beginning January 1,
    2014
       About one-half of the expected decrease in the uninsured will be
        covered by Medicaid
       Sole focus is income
           The new face of Medicaid
   The federal government will finance the expansion as
    follows:
               2014-2016:             100% FMAP
               2017:                   95% FMAP
               2018:                   94% FMAP
               2019:                   93% FMAP
               2020 and beyond:        90% FMAP

                              Nuyen, Tomtishen and Aoun, P.C.              49
Medicaid Expansion
   In addition to the expansion population, individuals who
    are currently eligible but not enrolled in Medicaid are
    expected to be covered
       FMAP will be at standard rate; not enhanced rate
           Currently 73.27% with ARRA relief; pre-ARRA 58-60%
   Overall Michigan Medicaid enrollment is expected to grow
    by 450,000-600,000 individuals
       Many are currently eligible and not enrolled
       Most of the increase will be in the categories of parents and
        childless adults
       Potential that one out of every four residents in the state has
        Medicaid coverage

                               Nuyen, Tomtishen and Aoun, P.C.            50
Medicaid Expansion
   Potential access problems—delivery system capacity to
    absorb newly insured coupled with low provider rates
       Medicaid payment to Michigan hospitals was approximately 83% of
        cost (2007)
       Michigan’s Medicaid physician fee schedule is among the lowest in
        the country (44th)
           Payment is 63% of the Medicare physician fee schedule
            (and Medicare fees are about 78% of average commercial
            fees)
       Federal law provides that primary care services are to be paid at
        100% of Medicare fee schedule for 2013 and 2014
           100% FMAP
   Massachusetts experience—recent bill introduced to
    require physicians to participate in government programs as
    a condition of licensure

                               Nuyen, Tomtishen and Aoun, P.C.              51
Key State Issues
   Medicaid Expansion
       Process to determine Medicaid and CHIP eligibility to be
        streamlined with Exchange
           Will Michigan require that determination of Exchange premium
            credits/cost sharing subsidies be done by Exchange or by
            MDCH or DHS?
       New eligibility process for expansion population differs
        from current process
           Challenge to run two processes concurrently
           What is role of existing enrollment service contractors?




                              Nuyen, Tomtishen and Aoun, P.C.          52
Key State Issues
   Medicaid Expansion
       Review and updating of FFS rates in light of access issues
           Limitations given resource constraints
       Expanding primary care services through changes in
        scope of licensure for mid-level providers?
       Defining expansion population’s benefit package
           Not necessarily same as current Medicaid package
           Based on a benchmark, but will include essential health benefits
       Establishing appropriate capitation rates and changes to
        Medicaid managed care contracts


                              Nuyen, Tomtishen and Aoun, P.C.                  53
    Delivery System Reform
   The reform law addresses nearly every aspect of
    health insurance
       Underwriting
       Premium rating
       Benefit design
   The reform law generally does not address provider
    payment other than in the context of Medicare and
    Medicaid payment cuts
   The new “level playing field” will benefit plans with
    superior provider payment rates

                         Nuyen, Tomtishen and Aoun, P.C.    54
       Health Reform Implications – Leveling
       the playing field for all
                     Underwriting                                              Premium Rating

                              Post-Reform                                                Post-Reform
Flexibility




                                                            Flexibility
              Commercial   HMOs   Blue Cross                              Commercial   HMOs   Blue Cross
               Insurers                                                    Insurers



                                        Nuyen, Tomtishen and Aoun, P.C.                               55
        Health Reform Implications – Leveling
        the playing field for all
                    Benefit Design                                        Provider Payment Rates
                                                                                     Post-Reform
                               Post-Reform                                           (No Change!)
Flexibility




                                                            Advantage

              Commercial Blue Cross   HMOs                              Blue Cross   HMOs   Commercial
               Insurers                                                                      Insurers


                                       Nuyen, Tomtishen and Aoun, P.C.                              56
Delivery System Reform
   Competitive provider rates will be necessary to succeed
   Reform law significantly cuts payments to hospitals under
    Medicare and to a lesser extent under Medicaid (DSH)
       Most significant is Medicare market basket reductions ($115 billion
        over 10 years)
       CMS Actuary has stated that these may not be sustainable
   Increased cost shifting pressure from providers can be
    anticipated since the cuts are “here and now” whereas the
    reductions in the number of uninsured are farther out and
    more speculative



                               Nuyen, Tomtishen and Aoun, P.C.                57
Delivery System Reform

   Double whammy for providers:
       Government payments are inadequate
           Most recent data show Michigan hospitals recovering on average
            92% of cost from Medicare and 83% of cost from Medicaid
       Government program enrollment is growing
           Medicare 30% due to aging
           Medicaid 27.5% due to reform law




                               Nuyen, Tomtishen and Aoun, P.C.               58
 Community Hospital Payment-to-Cost Ratios,
 by Source of Revenue, 1980-2007
140%          Private Payers               Medicare   Medicaid


130%


120%

110%


100%


90%

80%


70%
     80

     81

     82

     83

     84

     85

     86

     87

     88

     89

     90

     91

     92

     93

     94

     95

     96

     97

     98

     99

     00

     01

     02

     03

     04

     05

     06

     07
  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  19

  20

  20

  20

  20

  20

  20

  20

  20
                    Nuyen, Tomtishen and Aoun, P.C.              59
    Delivery System Reform

   PA 350:
    “No portion of the health care
    corporation’s fair share of hospitals’
    reasonable financial requirements shall be
    borne by other health care purchasers.”




                    Nuyen, Tomtishen and Aoun, P.C.   60
                      Cohen Report
                    www.lowerhospitalcosts.org

                       Payment as a % of Hospital Costs

          200.00

                   Required Level: 130.90
          160.00



          120.00
Percent




                                                                186.43
           80.00


                            107.10
           40.00

                               70%                                 30%
            0.00

                      Blue Cross (PHA)         Other Commercial Payers

                              Nuyen, Tomtishen and Aoun, P.C.            61
   Multiplier Effect on other Commercial
   Rates of Raising Blue Cross Rates
                                                                     Paying more than their
                          Blue Cross
                                                                     share of the cost shift
                             Rate
                          INCREASE
                              5%


                                                                             Other Commercial
                                                                                   Rate
                                                                               DECREASE
                                                                                  11.7%

Not paying its fair
share of the cost shift
due to government
underfunding


                                       Nuyen, Tomtishen and Aoun, P.C.                          62
Delivery System Reform
   Massachusetts Health Reform
       After two years, the focus is almost entirely on the drivers behind large
        premium rate increases
       Hospital rate increases have been identified as a major factor
       Report by Attorney General, with expert economic and actuarial support,
        found that hospital rate increases are not correlated with quality, teaching
        status, or indigent volume—but are correlated with market
        share/leverage
       Special Commission has recommended global capitation to be
        implemented in five years, with appropriate waivers from Medicare and
        Medicaid
       Politicizing premium rate increases and finger pointing
           “Bay State hospital and insurance heavies blamed fat-slob consumers rather
            than their own practices for escalating health-care costs, sparking a blaming-
            the-victim outcry from public health experts.” Boston Herald



                                  Nuyen, Tomtishen and Aoun, P.C.                            63
Delivery System Reform
   Rhode Island Establishes Health Plan/Hospital
    Payment Conditions
       Recognizes link between premium rate increases and
        underlying health care costs
       Established six new conditions for hospital contracts
        renewing prior to 7/1/2011
           Fixed payment, e.g. DRGs,
           Rate increases not to exceed Medicare market basket
           Pay for Performance not less than 2% of overall payment
           Transparency/Release of rates
           Administrative Efficiency
           Clinical Communications



                               Nuyen, Tomtishen and Aoun, P.C.        64
Delivery System Reform
   MedPAC Analysis
       Takes position that cost shifting occurs but not due to
        government underfunding
       Market leverage leads to greater commercial payor revenue
        which in turn leads to higher costs and thus losses under
        Medicare
       Empirical analyses of hospitals under low margin pressure
        (high margin from non-Medicare sources) show that they have
        higher than average costs




                          Nuyen, Tomtishen and Aoun, P.C.        65
Delivery System Reform
   Accountable Care Organizations
       Requirements under reform law:
           mechanism for shared governance in order to distribute shared
            savings
           sufficient primary care physicians for Medicare fee-for-service
            beneficiaries assigned to the ACO (at least 5,000 beneficiaries must
            be assigned)
           management that includes clinical and administrative systems
           promote evidence-based medicine and patient-centeredness criteria
       Potentially more than a new name for PHOs
       ACO must enter into an agreement with CMS (minimum 3
        years) to participate in Medicare Shared Savings Program
        (MSSP)
           Preference for ACOs with commercial plan experience

                                Nuyen, Tomtishen and Aoun, P.C.                    66
Delivery System Reform
   Accountable Care Organizations
       Potential to align incentives to reduce unnecessary utilization
        and improve quality
       Not clear whether ACOs will reduce unit cost
       Center for Studying Health System Change site visits to 6
        regions in California
           High level of integration often led to greater leverage and higher prices
           Some benevolent ACOs—forcing all commercial payors to pay the
            same rate; avoiding full use of leverage to keep premiums affordable
           Advocated for greater consideration of all-payer rate setting to
            counteract market leverage



                                 Nuyen, Tomtishen and Aoun, P.C.                    67
Delivery System Reform
   Maryland Rate Setting Model
       All payors pay essentially the same rate
       Rate developed based on cost and uncompensated care
       Efficient hospitals are to recover cost plus uncompensated care plus a
        margin
       Requires payors to compete on a basis other than hospital rates (service,
        network size, benefit design, quality)
       Maryland hospitals have among the lowest charges in relation to costs—
        results in more affordable charges to uninsured
       More Maryland hospitals are investment grade than in any other state
       Market responsive?
           Recently rejected proposed rate increases as mutually agreed upon by insurers
            and hospitals to reduce readmissions



                                  Nuyen, Tomtishen and Aoun, P.C.                           68
Health Plan Strategic Considerations
    ―It’s tough to make predictions, especially
      about the future‖
                         --Yogi Berra
   Some parting observations:
       Market opportunities
       Hospital payment reform
       Premium rates




                        Nuyen, Tomtishen and Aoun, P.C.   69
Health Plan Strategic Considerations
   Market opportunities
       Growing individual market and Medicaid
       Medicare Advantage
           Declining cap rates, but may result in more opportunities for
            local plans that have superior care management programs
               Provider rate parity
       Small group employers with less than 25 FTEs may be
        eligible for premium credits (even before establishment
        of Exchange)
       Self-funding with stop loss
           Lower administrative costs/taxes; greater benefit flexibility


                                 Nuyen, Tomtishen and Aoun, P.C.            70
Health Plan Strategic Considerations
   Hospital Payment Reform
       Medicare ACO and bundled payment initiatives may
        provide platform to explore similar arrangements with
        providers
           May help improve use, less likely to deal with market leverage
            problem (and it may make it worse)
       Increased cost sharing transparency and benefit design
        changes may make consumers more sensitive to provider
        rates
           Potential for narrower networks to succeed
   Premium Rates
       Timing of correcting deficient rates
           Was WellPoint a fool or wizard?

                              Nuyen, Tomtishen and Aoun, P.C.                71
MAHP Strategic Considerations
       Exchanges
        MAHP must take the lead and be proactive in the
         development/modeling of Michigan’s insurance exchange and
         work with new Legislature (as necessary) and incoming
         Administration.
       Medicaid Expansion
        Natural extension for Medicaid Health Plans
        MAHP must begin the process of developing proposals/funding
         for expansion and implementation schedule and address issues of
         provider rates and provider access
        Alignment with work on the Exchange and automating eligibility
         and enrollment is assumed as is work toward integration of MI
         CHILD with Medicaid

                            Nuyen, Tomtishen and Aoun, P.C.            72
MAHP Strategic Considerations
       Insurance Market Reforms
        MAHP should establish and maintain an internal workgroup to
         develop recommended statutory (Insurance Code and PA 350)
         changes as part of the 2011 legislative agenda
       Communication
        MAHP and members should coordinate reform-related
         communication to consumers, employers and providers using
         various social media, websites and standard communication
         programs to highlight health plan performance, initiatives, and
         compliance
       New Opportunities
        MAHP should evaluate new collaboration opportunities (e.g.
         ACOs), as well as new roles in Medicare and Special Needs Plans
        MAHP should continue to facilitate these opportunities among
         members and identify and address state or federal barriers to
         implementation

                             Nuyen, Tomtishen and Aoun, P.C.               73
For more information on health
reform, please visit MAHP’s website
(www.mahp.org) and newly updated
links:

    http://www.mahp.org/federalreform.html




                Nuyen, Tomtishen and Aoun, P.C.   74

				
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