health care reform 2

Health Care Reform “How it will Impact Small Businesses”

Presented by: Brett RichesinCompany: DLR Insurance Solutions

National Insurance MarketNational Insurance Market

• It is estimated that out of our nation’s 310 million people, roughly 46 million nonelderly people are uninsured

• Since 1997, the uninsured rate has hovered close to 15% of the US population

• In 2008, 82% of Americans age 18-64 had either public or private health care coverage

• Reasons for not having insurance range from: being young & healthy, unemployed, considered high risk, illegal immigration, etc.

Polulation 310 Million

Insured82%

Uninsured18%

Insured Uninsured

Small Business FactsSmall Business Facts

• Currently, private SB spends $2.08 per hour (7.5% of total yearly compensation) for each employees health insurance benefits.

• In March 2000, private SB spent only $1.05 per hour (5.5%)

• Currently, the cost of health care is the second highest expense for small businesses, with the highest being payroll

• In 2009, small businesses spent on average 30% of payroll on health benefits for their employees

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Dollars Per Hour

Management Construct. Prod/Trans Sales/Office ServiceWorkers

Occupational Type

Occupation Statistics

2010 Medical Cost Trends2010 Medical Cost Trends

• How much are we spending on Health Care?

• Why are rates rising?

• Where does your premium go?

• What’s driving the high and rising cost of health care?

How much are we spending on Health How much are we spending on Health Care?Care?

• In 2007, national spending on health care reached $2.2 trillion

• In 2010, national spending on health care will likely reach $2.6 trillion

• In 2018, national health care spending will likely reach $4.4 trillion

• To put it into perspective, national spending in 1995 was only $1.02 trillion

$2.20

$2.60

$4.40

$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50

Trillions of Dollars

2007

2010

2018

National Health Care Spending

Why are rates Rising?Why are rates Rising?

• Factors that drive higher treatment costs

• Medical price inflation is driving 51% of the growth in health care spending

• Doctors in the US earn 2 to 3 times as much as other industrialized countries

• More physicians are becoming specialists, which includes higher charges

• The latest in medical technology may lead to improved care, but its contribution to health care spending growth ranges from 38% to 65%

Why are rates rising?Why are rates rising?

• Prescription drug costs and utilization

• Between 1997 and 2007, prices for prescription drugs grew at an average rate of 2.5 times inflation. Increased an average of 8.3% a year ($28.67 to $64.86)

• Specialty drugs can save and extend lives, but can be expensive. A new cancer drug can cost $100,000 or more per treatment regimen

• Half of all adults in the US take at least one drug a day

• 7% of all adults in the US take at least five drugs a day

• 2/3 of people who go into a doctors office walk out with a prescription


• Cost shifting • Government programs- such as Medicaid, SCHIP, and Medicare- pay physicians and hospitals lower rates than private insurers

• Providers adjust prices charged to insurers to offset losses from partial or non-payers

• A Milliman study found cost shifting represents 15% of the amount spent by commercial payers to hospitals and physicians


• Health care fraud and abuse:

1. Health care fraud is a growing problem that is estimated to cost $69 billion, which amounts to $100 million a day

2. Health care fraud and abuse accounted for 5% of the $1.9 Trillion spent on health care in 2004

• Other Factors:

1. Variation in medical treatment- according to RAND Corporation, up to 30% of health care spending goes toward redundant or inappropriate care

2. Adverse selection- healthier individuals or groups dropping coverage or reducing the level of coverage, results in higher premiums for those who remain covered

3. Government taxes and mandates- this may also increase the overall costs of coverage

Where does your premium go?Where does your premium go?

• In the group insurance market 87 cents for every premium dollar is spent on medical services and products

• 10 cents of every dollar goes toward insurers’ administrative costs

• That leaves 3 cents of every dollar for profit

• The combined annual profits of the top 10 health insurers are equal to just two days worth of national health care expenditures- or 0.5% of $2.5 Trillion for 2009

Premium Dollar Breakdown

10%3%

87%

Administrative Costs Health Insurer Profits Medical Services & Products

Life style factors driving costsLife style factors driving costs

• Multiple chronic health conditions:

1. Chronic disease accounts for about 75% of the more than $2.2 trillion in yearly health care spending

2. 80% of seniors have at least one chronic condition, while 50% have at least two chronic conditions

3. In 1996, 7% of Americans had more than three chronic conditions, that percentage risen to 13% in 2010-ages 45-64, it went from 13 to 22%-ages 65-79, it went up to 45%-ages 80+, it went from 38 to 54%

• Preventable risk factors:

1. Obesity- 10% of total claims costs are directly attributable to obesity

2. Tobacco use- 25% of Americans smoke and accounts for 10% of total claims costs

3. Sedentary lifestyle- 60% of Americans don’t exercise and only 3% follow basic wellness goals

4. Poor nutrition- 60% of Americans exceed their ideal body mass index (BMI)

Patient Protection and Affordable Care Patient Protection and Affordable Care Act (PPACA)Act (PPACA)

• On March 23rd 2010, President Obama signed the landmark legislation into effect

• The bill passed in the House of Representatives with a vote count of 219 “yes” and 212 “no” votes

• The current outline of the bill is 2,700 pages, early projections have the bill topping out at a record 200,000+ pages

• There are two major elections, including 2012 Presidential elections, before the 2014 comprehensive effective date

• This means a lot can change from now until 2014, so it is essential you stay up to date with the latest legislative changes

• Currently, 22 states are in the process of determining the constitutionality of the bills mandate for individuals to have health insurance or pay a fine by 2014. It has already reached Virginia’s supreme court

Year-by-Year Preview

2010 2011• No pre-tax reimbursements from health No pre-tax reimbursements from health

accounts for non-prescribed, over-the-counter accounts for non-prescribed, over-the-counter medications medications

• 20% Tax for non-qualified H.S.A withdrawals20% Tax for non-qualified H.S.A withdrawals• Reporting the value of employer sponsored Reporting the value of employer sponsored

coverage on W-2s coverage on W-2s • Automatic enrollment in new long-term care Automatic enrollment in new long-term care

program, with ability for employees to opt program, with ability for employees to opt out out

• Small employer grants for wellness programs Small employer grants for wellness programs for fiscal year 2011, so technically starts for fiscal year 2011, so technically starts on October 1st 2011 on October 1st 2011

1.1. As of March 23As of March 23rdrd • Early retiree reinsurance program• Temporary high risk pool for individuals with

pre-existing conditions• Small group tax credit, effective for tax years

beginning after December 31, 2010

2. Implemented on the next plan year 2. Implemented on the next plan year for all plan years (grandfathered or for all plan years (grandfathered or not) on or after September 23, 2010not) on or after September 23, 2010

• Dependent coverage for adult children up to age 26

• No lifetime coverage limits• 100% coverage for preventive services in-

network• No annual limits on certain types of benefits• No pre-existing exclusions for children • No prior authorization for emergency services

or higher cost sharing if out-of-network


2012• Uniform explanation of coverage• Pre-enrollment document explaining

benefits and exclusions• 60-day notice for material

modifications, if not provided in uniform explanation of coverage

Note: These regulations already existed in California law

2013• Employee notification of government

exchanges, premium subsidies and free choice vouchers

• Fee for comparative effectiveness research agency for fiscal year 2013

• FSA contributions limited to $2,500 per year


2014• Individual coverage mandate• State based exchanges for individuals and small businesses• Small employer tax credits only available through exchanges• Free choice voucher required to be provided to qualified employees • Elimination of health status rating and other rating factors if used by an insurer*• Small group re-defined as 1-100 employees• Employer requirement to offer minimum essential coverage (50+ employees)• HIPAA nondiscrimination rules on wellness programs • 30% incentive cap for wellness programs• New fee on fully insured coverage• 90-day limit on waiting periods for coverage

PPACA OutlinePPACA Outline

Effective September 23Effective September 23rdrd 2010 2010

• Small Employer Tax Credit Small Employer Tax Credit

• Grandfathered Health PlansGrandfathered Health Plans

• Dependents Covered to Age 26Dependents Covered to Age 26

• Pre-Existing for Children under 19Pre-Existing for Children under 19

• Coverage of Preventive CareCoverage of Preventive Care

Small Business Tax CreditSmall Business Tax Credit

• Tax credits of 35%-50% available for qualified small employer contributions toward health coverage for employees

• Calculation does not include owners, partners and their family members

• Qualifications for 35% tax credit:1. No more than 25 full-time employee equivalents2. Pay average annual wages of less than $50,000 and provide qualifying

coverage

• Qualifications for 50% tax credit:1. 10 or fewer full-time equivalent employees 2. Average annual wages of less than $10,000

• Tax credit will count for premiums paid starting at January 1, 2010


• California’s average premium limit is $4,628 for single employee and $10,957 for family coverage

• This example uses $4,000 max for an employee

• Calculation: (20 x $4,000)=$80,000($80,000 x .35)=$28,000


• Credit Calculation: 1. Initial amount of credit determined

before any reduction: (35% x $96,000) = $33,600

2. Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480

3. Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/$25,000) = $6,720

4. Total credit reduction: ($4,480 + $6,720) = $11,200

5. Total 2010 tax credit: ($33,600 – $11,200) = $22,400.

• In 2014 the credit will only be awarded to businesses purchasing insurance through the government run exchanges

Example 3: Transportation Company with 12 FTE’s gets $22,400 Credit for 2010

CVT:Employees: 12Wages: $360,000 total, $30,000 per workerEmployee Health Care Costs: $96,000

2010 Tax Credit: $22,400 (35% Credit)

2014 Tax Credit: $32,000 (50% Credit)

• www.irs.gov-Search: Small Business Tax Credit

http://www.irs.gov/

Grandfathered Health PlansGrandfathered Health Plans

• All health plans – whether or not they are grandfathered plans – must provide certain benefits to their customers for plan years starting on or after September 23, 2010 including:1. No lifetime limits on coverage for all plans; 2. No rescissions of coverage when people get sick and have previously made

an unintentional mistake on their application; 3. Extension of parents’ coverage to young adults under age 26

• For the vast majority of Americans who get their health insurance through employers, additional benefits will be offered, irrespective of whether their plan is grandfathered, including:1. No coverage exclusions for children with pre-existing conditions; and 2. No “restricted” annual limits (e.g., annual dollar-amount limits on coverage

below standards to be set in future regulations.)

Grandfathered RegulationsGrandfathered Regulations

• Cannot Significantly Cut or Reduce Benefits-Cannot Significantly Cut or Reduce Benefits- For example, if a plan decides to no longer cover care for people with diabetes, cystic fibrosis or HIV/AIDS.

• Cannot Raise Co-Insurance Charges-Cannot Raise Co-Insurance Charges- Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% of a hospital bill). Grandfathered plans cannot increase this percentage.

• Cannot Significantly Raise Co-Payment Charges-Cannot Significantly Raise Co-Payment Charges- Frequently, plans require patients to pay a fixed-dollar amount for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points. For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status.

• Cannot Significantly Raise Deductibles-Cannot Significantly Raise Deductibles- Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000, or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points. In recent years, medical costs have risen an average of 4-to-5% so this formula would allow deductibles to go up, for example, by 19-20% between 2010 and 2011, or by 23-25% between 2010 and 2012. For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year.

Grandfathered RegulationsGrandfathered Regulations

• Cannot Significantly Lower Employer Contributions-Cannot Significantly Lower Employer Contributions- Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).

• Cannot Add or Tighten an Annual Limit on What the Insurer Pays-Cannot Add or Tighten an Annual Limit on What the Insurer Pays- Some insurers cap the amount that they will pay for covered services each year. If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010. Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees).

• Cannot Change Insurance Companies-Cannot Change Insurance Companies- If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan. This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

Grandfather FAQ’sGrandfather FAQ’s

1.1. Who will tell me whether or not my plan or coverage is grandfathered?Who will tell me whether or not my plan or coverage is grandfathered?

A: A: The new rule requires your employer or insurer to provide you notice of its decision to remain a grandfathered plan. If you buy your own insurance, you should ask your

insurer if your plan is grandfathered 2. What if I don’t like my current coverage and want to change?2. What if I don’t like my current coverage and want to change?

A: A: You are free to choose and shop plans that work best for you. Your new plan will include all the new provisions

3.3. Will this new insurance regulation drive up my health insurance costs?Will this new insurance regulation drive up my health insurance costs?A: A: Only time will tell. It is unclear at this point whether or not grandfathered plans will have a different rating system since those plans do not have to cover the new provisions

4.4. Won’t employer plans eventually lose their grandfathered status?Won’t employer plans eventually lose their grandfathered status?A: A: Most likely yes. Small to midsize groups frequently change plans in order to avoid yearly premium increases. Large groups typically stay with a particular carrier for longer periods, but they too switch plans every once in a while

5.5. Realistically, can employers make routine these allowable routine changes and Realistically, can employers make routine these allowable routine changes and still remain grandfathered?still remain grandfathered?A: A: It is very unlikely. At this point, the current plans carriers offer do not have benefit changes that are small enough to fit within the allowable provisions set in PPACA

Dependents to Age 26Dependents to Age 26

1. What plans will this apply to?-All group and individual plans, including self insured

2. Does the dependent have to live or be listed as a dependent on the parents taxes?-No, after 9/23/10

3. Must the dependent be single?- Upon group renewal on or after 9/23/10, dependents may be married or unmarried

4. Will dependents spouse and/or children be covered?- No

5. What disqualifies a dependent from coverage?-Offer of other group coverage, enrollment in group coverage, upon 26th birthday

6. What if dependent lives out of state?-Parent or employer need to contact the carrier and determine whether they offer coverage in that state. If not, the carrier does not have to cover them

Dependents to Age 26Dependents to Age 26

• How does this policy apply to Individual/Family Plan’s?- Dependents 19-23 eligible to enroll only if proof of student status is provided. All dependents under the age of 26 are eligible to enroll, but will still be subject to underwriting.

• Important:-Make sure to check with your carrier to see what their individual regulations are regarding the status of dependents under the age of 26-It is up to the employee/parent to determine whether or not their dependent is to be covered by the plan-This does not have to be a financial burden on the employer.

Pre-Existing for 19 and underPre-Existing for 19 and under

• All group and individual health plans, including self-insured plans, will have to cover pre-existing conditions for children 19 and under.

• What is a pre-existing condition?-A condition that is known to the carrier prior to acceptance. Typically carriers will not cover a pre-existing condition for the first six months of a policy

• How will this be implemented? -Most likely a National open enrollment period or on an individual plan basis starting the 1st month prior to renewal

Coverage of Preventive CareCoverage of Preventive Care

• Mandates coverage of specific preventive services with no cost sharing. The services that must be covered at a minimum are:

-Evidence based items or services with a rating of “A” or “B”, recommended by the Preventive Services Task Force (PSTF). This list can be found at: http://www.ahrq.gov/clinic/uspstfix.htm

-Immunizations recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention

-For infants, children and adolescents, evidence informed preventive care and screenings provided for in guidelines supported by Health Resources and Services Administration (HRSA)

-For women, HRSA and PSTF will both provide additional recommended preventive care services

What can you do to prepare?What can you do to prepare?

• Stay informed with all the latest changes before they become effectiveStay informed with all the latest changes before they become effective

• Find a health insurance consultant who truly has your best interests in Find a health insurance consultant who truly has your best interests in mind and will keep you routinely up dated mind and will keep you routinely up dated

• Do your own independent research to verify what your being toldDo your own independent research to verify what your being told

-www.warnernavigator.com-www.warnernavigator.com

-www.kaiserhealthnews.org -www.kaiserhealthnews.org

• Whether your for or against PPACA, make sure to vote in every election Whether your for or against PPACA, make sure to vote in every election leading up to 2014!leading up to 2014!

The EndThe EndThank you for attending this presentationThank you for attending this presentation

health care reform 2

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