impact of health care reform
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Impact of Health Care ReformRIMS Conference 2013
April 9, 2013
Sam Geraci, Directorsam.geraci@libertymutual.com
Agenda
• Description of the law
• Impact on employers
• Impact of the law on workers comp
• Questions and discussion
2
• Employers can grandfather existing plans as long as they are made compliant with certain PPACA rules, but are limited in the plan changes they can make thereafter
• Employers will have to pay a 40% nondeductible tax on the value of plan costs exceeding $10,200/year for individuals ($27,500/year for families) in 2018
• Private health insurers must provide members premium reimbursements unless they comply with a minimum medical loss ratio of 85%
• Large employers must offer qualifying coverage and premium subsidies to employees close to the poverty line
Summary of PPACA as it applies to businesses
• Subsidized health insurance exchanges for individual and small group market
• Fully insured (as opposed to self insured) plans can no longer discriminate in favor of highly-compensated individuals
• “Full time” means working more than 30 hours per week; the IRS can look back at the prior 3-12 months; a change cannot be made January 1, 2014
3
• The basket of health care services generally must include– Ambulatory patient services– Emergency services– Hospitalization– Maternity and newborn care– Mental health and substance abuse services– Prescription drugs– Rehabilitative services and devices– Laboratory services– Preventative wellness services and chronic disease management– Pediatric services including oral and vision– Catastrophic coverage is acceptable for employees under 30
• Qualifying coverage must comply with the following:– No rescissions, annual/lifetime limits, pre-existing condition exclusions for children– Cover dependents up to 26 years old and certain preventive services – Charge older Americans more than 200% of the cost to younger people– Cover 60% of the actuarial value of a basket of health care services– Must have family deductibles under $4,000 and out-of-pocket totals under $10,000
What is a “qualified plan”
4
Agenda
• Description of the law
• Impact on employers
• Impact of the law on workers comp
• Questions and discussion
5
• Employers with at least 50 employees must offer qualifying plans to their employees or face fines of the lesser of:
– $2,000 per full time employee (excluding those in their first 3 months of employment)– $3,000 per full time employee receiving a premiums tax credit (a subsidy on the exchange)– Who is eligible for a premium tax credit: employees earning less than 400% of the federal
poverty line ($92,200) whose employer does not offer qualifying coverage AND who would have to spend more than 9.5% of their income on premiums in the exchange
Employees may want coverage dropped
Employer provided insurance Employer drops coverage Gap
Employer $10,000 $9,000• $3,000 (Fine paid to the gov’t)• $6,000 (Paid to employee)
($1,000)
Employee$2,000 $1,000
• +$6,000 (From employer)• +$5,000 (From government)• -$12,000 (to insurer)
($1,000)
Government$0 $2,000
• +$3,000 (From employer)• -$5,000 (To employee)
$2,000
Total $12,000 $12,000 $0
Employer + Employee $12,000 $10,000 ($2,000)
ILLUSTRATIVE
Combined net savings by age and % of FPL realized when dropping employer coverageNet savings($)
Income (% of FPL)
150% 175% 200% 225% 250% 275% 300% 325% 350% 375% 400% >400%
($25,000)($20,000)($15,000)($10,000)
($5,000)$0
$5,000 $10,000 $15,000 $20,000 $25,000
20 years old40 years old60 years old
Employer and employee gain when drop-ping employer coverage
Employer and employee lose when dropping employer coverage
6
Plans for active em-ployees
Plans for retirees
4334
5155
6 11
Likelihood that organization will be subject to excise tax
Likely Unlikely Don't know
Employers may be hit by surprise by the excise tax for “Cadillac” plans
● Beginning in 2018, plans with group health coverage exceeding $27,500/family ($10,200/individual) will be subject to a 40% non-deductible excise tax (on the balance above the threshold)
Research suggests that more than 60% of employers may be subject to the tax in 2018
7
The minimum Medical Loss Ratio standard will affect many employer-sponsored plans
Individual market
Small group market
Large group market
43
70 77
> 80% MLR rule > 85% MLR rule
• Mini-Med plans
• New plans
• Plans from small insurers
Types of plans with low MLR
• Expat plans• HDHPs
Health insurers potential reactions
• Dropping out of individual or small group market
• Stop offering HDHP, mini-med, expat plans
• Dropping employers selectively, e.g. those with young, healthy workforce
% of insurers meeting MLR standards
8
PPACA will eliminate mini-med plans
Sep 23 2010
Sep 23 2011
Sep 23 2012
Jan 1 2014
$750
$1,250
$2,000
Unlimited
Permissible annual limits on health care coverage ($ Thousands)
Mini-med plans
● Mini-med plans are low-cost plans offering limited coverage to part-time, seasonal or low-wage employees
● They fail to comply with several PPACA’s regulations, e.g. qualifying coverage, restrictions on annual and lifetime limits
● Waivers have been offered to ~1,500 firms but will expire in 2014
In 2014, employers who used to offer Mini-Med plans will have to offer full coverage, cut hours, or pay a fine
9
Grandfathered plans are exempt from some but not all PPACA requirements…
Exempt from…
● Coverage of preventive services without cost sharing
● Exemption from the “essential benefits” package as of 2014
● Exemption from limits on out-of-pocket costs to participants
Must comply with…
● No lifetime or “restricted” annual limit
● No rescissions of coverage
● Extension of parents’ coverage to young adults 26 and under
● No coverage exclusions for children with pre-existing conditions
10
… and can lose their grandfather status
Plan feature Change allowedCo-insurance or other cost sharing agreement No increase allowed
Deductible or out-of-pocket limit Cumulative increase limited to medical inflation + 15%
Fixed-dollar copayment Cumulative increase limited to greater of $5 (inflation-adjusted) or medical inflation+15%
Employer contribution to premium Cannot decrease by more than 5%
Annual limit on benefits No new limit or reduction in existing limit allowed
Loss of grandfather status implies becoming fully compliant with the law
● Routine changes can be made without losing grandfather status, e.g.
− Cost adjustments to keep pace with medical inflation
− Adding new benefits or modestly adjusting existing benefits
− Voluntarily adopting new consumer protections
● But some changes lead to loss of grandfather status:
11
Agenda
• Description of the law
• Impact on employers
• Impact of the law on workers comp
• Questions and discussion
12
Medical inflation driver PPACA impact Data…
PPACA impact on medical inflation
2008 2010 2015 2020
699 710 736 760
2002 2003 2004 2005 2006 2007 2008 2009
43%57%
43% 43%
79%60% 67%
39%
Before AfterPhysician shortages after Mass. reformHigher
waiting times for treatment
Supply of MDsLimited supply of doctors and nurses
• Number of doctors limited by Medicare
• Availability of substitutes remains limited by law
• Greater waiting times for treatment
2008 2009P 2010P 2011P 2012P 2013P 2014P 2015P 2016P 2017P 2018P 2019P
Number of insured AmericansIndividual
mandate startsMore insured Americans
• ACA requires all Americans to have a qualifying medical plan
• Medicaid expansion
Insured consume more, and more is covered
• ACA bans lifetime limits and coverage exclusions
• ACA requires free preventative care
Children stay on parents plans until 26
Free preventative care
Aging of Americans
Obesity epidemic
13
Medical costs represent an increasing share of Workers Compensation losses
1987 1997 2007 2011
54% 47% 41% 40%
46% 53% 59% 60%
Medical Share of WC benefits
Medical Indemnity
14
States with the most uninsured and fewest doctors will see the greatest medical inflation
% population lacking health insurance
Population without health insurance vs. Active Patient Care MDs per 1,000 capita
U.S median
X = 3.4%Y = 3.1
6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26%1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8
713.2875787
4765.2997112
2909.0727299
6561.1691823
37634.300504
5027.867544
3517.3938961
902.68475919011.66177
9682.7574583
1339.7471191
3033.4865266
1574.2241698
12710.658993
6352.6387928
2814.194821
4310.1538072
4505.9781323
5811.6185688
1329.7395368
9702.6276297
5285.2680062
5897.8847524
2933.9690709
986.26958839505.3054962
675.3130145
1825.0836937
1301.1781003
8651.9709531
2038.6826873
2684.3926787
19340.690425
11319.56293
3767.4198649
3855.9594694
12715.544079
1038.301184
4612.313819811.5616182
6336.6742729
25592.0877042813.858445
7976.0032019
616.402564
6817.20056015686.2399038
1825.4018153
563.1434828
MA Size: = 6.5M population
Activ
e Pa
tient
Car
e M
Ds p
er 1
,000
capi
ta
U.S median
15
Health care reform will not stop the other factors which are increasing health care demand (Aging)
0-19 20-39 40-64 65-84 85+ $-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2000 Per capita health care expenditure by age cohort ($000)
1930 1940 1950 1960 1970 1980 1990 2000 201010
12
14
16
18
20
Life expectancy by age and year
16
Health care reform will not stop the other factors which are increasing health care demand (Obesity)
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
19851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010
(per 100 FTE) Obesity class III (BMI>40) Recommended weightClaims 11.65 5.80Lost workdays 183.63 14.19Medical costs $51,091 $7,503Indemnity costs $59,178 $5,396
17
0 500 1000 1500 2000 2500-10%
0%
10%
20%
30%
40%
50%
60%
70%
Change in average daily US calorie consumption by food group from 1970 to 2010
Fats, oils
Flour, cereal
Meat, eggs, nuts
Sugar
Fruit
VegetablesDairy2
Item Name, Calories, Rank
Nathan's Fish and Chips 1,537 (#1)
Burger King WhopperWith Cheese 760 (#193)
Hardee’s Monster Thick Burger 1,420 (#3)
Carl Jr. Double Six Dollar Burger 1,520 (#2)
% in
crea
se 1
970-
2010
Cumulative calories in 1970
Big Mac 550 (not in the top 272)
McDonald’s hamburger250 (not in the top 272)
Health care reform will not stop the other factors which are increasing health care demand (Obesity)
18
As consumers pay less, they demand more
2004
2005
2006
2007
2008
2009
P
2010
P
2011
P
2012
P
2013
P
2014
P
2015
P
2016
P
2017
P
2018
P
2019
P
13% 13%12% 12% 12%
12% 11%11% 11% 11% 11% 11% 11% 11% 11% 10%
% of health care spending paid for by consumers
● PPACA lowers out of pocket costs for certain services, e.g. preventive care
● Prevention, health and wellness incentives’ impact on medical spend are mixed
19
But the supply of doctors will grow slowly
2008 2010 2015 2020
699 710 736
760 Supply of MDs in the US (000)
What’s limiting the supply of doctors?
●Limited number of residency positions ●Medical schools are adding few seats●Doctors are retiring baby boomers ●Security and immigration laws burden
foreign doctors willing to practice in the US, even in underserved areas
Shortage of 91,500 doctors by 2020 based on a huge increase in demand and little increase in supply
20
PPACA may impact the waiting times for primary care and specialty physicians…
Impact of Massachusetts reform on physician shortage
Pre-reform Post-reform2005 2006 2009
Anesthesiology
Cardiology
Emergency Medicine
Family Medicine
Gastroenterology
General Surgery
Internal Medicine
Neurosurgery
OB/GYN
Orthopedics
Pediatrics
Psychiatry
Radiology
Vascular Surgery
% with shortage 43% 79% 39%
Critical shortage
Severe shortage
No Shortage
21
… thus increasing claim durations and costs
Shortage No Shortage
55.4
39.2
59.0
40.2
2006 2009
STD durations for specialties with and with-out physician shortage
Shortage No Shortage
$8.02
$7.85
$8.54
$7.85
2006 2009
STD claims cost for specialties with and without physician shortage
Short-term disability durations for diagnoses associated with specialists in short supply increased since the introduction of the reform in Massachusetts
22
Agenda
• Description of the law
• Impact on employers
• Impact of the law on workers comp
• Questions and discussion
23
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