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Future Healthcare MarketplacePost-ACA

Alaska State Hospital & Nursing Home Association Annual Meeting

Jim GrazkoPremera Blue Cross

September 11, 2014

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Exchange ImplementationMajority of states are implementing Federally-Facilitated Marketplaces

*

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28 states are moving forward to expand Medicaid with a couple of states still debating

State Medicaid Expansion

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Metallic Products (inside/outside

Exchange)

Non-Metallic Products

Total

7,096 6,003 13,099

Premera MembershipIndividual membership as of August 24, 2014; 99% of our membership have paid premium

Source: Premera Blue Cross

Bronze Silver Gold

2,375 3,703 1,018

Bronze plans are the most popular in our other markets

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Small Risk Pool States – Individual

• High Risk Pools like ACHIA are dissolving, sending high cost risk into carriers’ Individual pools with Guarantee Issue in place

• Pools are too small to absorb the cost associated with risk at the highest cost end of the claims distribution

• ACA risk mitigation program (“3 Rs”) are not sufficient at the highest cost end of the claims distribution – and 2 programs sunset after 2016

• Risk mitigation strategy is needed and Premera is working with policymakers to help accomplish that

• Group coverage largely unaffected although some self-funded employers could be sending high cost individuals to the Exchange – NOT the government’s intent!

Alaska and a few other states have Individual market risk pools that are arguably too small to absorb all risk under Guarantee Issue

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Nationally, employer-sponsored insurance is, and is expected to remain, the most common source of health insurance coverage

Estimated Market Size (Population in millions)

Total: 304 M Total: 334 M

149(49%)51

(17%)

49 (16%)

59(18%)

60(18%)

157(47%)

National Market

Source: Kaiser Family Foundation (2011 actual) and The Boston Consulting Group (2019 estimate)

40(13%)

15(5%)

31(9%)

27(8%)

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Impacts of Reform on Premiums

Near Term Provisions (2010) 2014 Provisions

● No dollar lifetime maximums

● Restrictions on annual limits

● Preventive care with no cost sharing

● No pre-existing condition exclusions for enrollees under age 19

● Dependent age extension to age 26

● Mandated “Essential Health Benefits” package

● Guaranteed issue with weak individual mandate

● Adjusted community rating

● Health insurer tax

Reform will increase access to coverage, but changes to benefit plans and new taxes and fees have already driven costs higher

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Additional costs to individuals and employers have resulted from new taxes and fees

Source: Premera Underwriting

New Taxes and Fees

ACA Taxes and Fees Rate Impact (% of Premium)

Pharmaceutical Manufacturer Tax Pass through via higher claims cost

Medical Device Manufacturer tax on durable medical equipment

Pass through via higher claims cost

Comparative Effectiveness Research Fee

$2 Per Employee per year

Health Insurer Tax 2% rising to 3% of premium; does not expire

Exchange Assessment 3.5% of premium; does not expire

Reinsurance Program Fee $3.67 PMPM for 2015, expires in 2016

Cadillac Plan Tax (2018) 40% excise tax on employer sponsored plans that exceed $10,200 a year and $27,500 for families; does not expire – BIG DEAL for Alaska

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Implementation Effort and Employer Market Impacts

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• Federally mandated “metallic” benefits – Bronze, Silver, Gold, Platinum and Catastrophic

• Rate build up from member level – huge change!• Compressed age slope at 3:1 ratio – must use

mandated federal age factors (no gender)• Wellness program with deep discounts for participation• Tobacco usage load – if used in small group market,

carrier must offer a wellness program to provide opportunity to offset the load

• State defined rating region (no more than 7 regions unless State filed and approved by HHS) – Premera used 3 regions:— Area 1 (Anchorage)— Area 2 (Rural Alaska) — Area 3 (Southeast Alaska)

Biggest impact is due to new federal rating rules

Individual and Small Employers

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Alaska Rating Regions

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Mandates•$6,450 out-of-pocket maximum with new definition•Prohibition on lifetime and annual dollar maximums•Preventive care paid at 100%•Employer mandate to provide minimum and affordable coverage (2015)•Contraceptive coverage for all, including religious organizations•Small group definition change to 1-100 employees (2016)

Administrative Requirements•Prohibition on pre-existing condition exclusions and waiting periods•Maximum employee probationary waiting period•Dependents covered to age 26•Provide notice to all employees about the exchanges •Auto-enrollment

Large Employers (51+ Employees)

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• Interpretation of rules and internal analysis

• Product compliance

• Network re-contracting

• System configuration

• Contract and rate filings

• Operational process and procedure changes

• Communication and education

Implementation Activities

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• Extremely late finalization of federal/state requirements; FFM obligations becoming health plan issuer obligations

• Inability to complete desired level of automation for deliverables leading to many manual work-arounds

• Implementation of new product design very complex and resource-intensive

• Beginning-of-year filing requirements by regulators for rates and contracts causing work load congestion

Implementation Challenges for Health Plans

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What’s Ahead?

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“Like every major piece of legislation– from Social Security to Medicare– the law is not perfect. We’ve had to make adjustments along the way, and the implementation… has had its share of problems… But this law is doing what it’s supposed to do. It’s working.”

President ObamaApril 1, 2014

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Repeals, Modifications, and Delays of Key ACA Provisions… that have Already Occurred

Repeal Modify Defund Delay

1099 Reporting Requirement

CLASS Act

Free Choice Vouchers

CO-OP (partial)

Federal Preexisting Condition Insurance

Pool

Public Health and Prevention Fund

(partial)

Independent Payment Advisory Board (partial)

State Partnership Exchanges

Medicaid expansion

Transition relief: early renewals and

grandmothered policies

Employer Reporting and Penalty (2014)

W-2 Reporting

Issuer Reporting

Federal Basic Health Plan Option

FF-SHOP Employee Choice and Billing

Aggregation

Auto-enrollment provision for employers

> 200 employees

Contraception for Religious Organizations

Essential Health Benefits Package

Out-of-pocket Max for Pharmacy

51-99 Employer Penalty (2015)

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What’s Ahead?

• Initial ACA implementation

• Mid-term elections

• Supreme Court ruling

• Presidential election

• Exchange implementation

• Major ACA and Exchange Go-live

• Mid-term elections

• Presidential Election

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What’s Ahead?

• Continued implementation of federal regulations and provisions, including provisions that were delayed

• States’ implementation experiences, including fiscal pressures

• Impacts to delivery system

• Long term financial sustainability

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Thank you!

Jim Grazko

Senior Vice President of Underwriting and President of Blue Cross Blue Shield of Alaska

jim.grazko@premera.com