1. Intercare University | January 29th-30th, 2013
2013 Benefit Legal Update

2. INTERCARE UNIVERSITY:
2013 BENEFIT
LEGAL UPDATE
Ann Murray | Partner
McKenna Long & Aldridge LLP
San Diego: 619.595.8040
Atlanta : 404.527.4940
amurray@mckennalong.com
mckennalong.com

3. WHAT WE’LL COVER TODAY
• Health Care Reform Changes Already in
Place
• Health Care Reform Rules Taking Effect in
2013, 2014, and Later
• Other Legal Changes Impacting Health and
Welfare Programs
3

4. HEALTH CARE REFORM CHANGES
ALREADY IN PLACE

5. Health Care Reform Requirements That
Took Effect in 2010, 2011, and 2012
• No lifetime limits
• Phased-in annual limits
• No pre-existing condition exclusions under age 19
• Dependent coverage to age 26
• Preventive care mandates (no co-pays, contraceptives)
• Patient protections (OB/GYN, emergency services)
• New claims and appeals requirements (IROs)
• No reimbursement of OTC meds by FSAs, HRAs, etc…
5

6. Health Care Reform Requirements That
Took Effect in 2010, 2011, and 2012 (cont.)
• Employer wellness grants (some)
• Small employer health insurance credit
• Retiree reinsurance program
• 4-Page Summary of Benefits/Glossary of Terms
• 60-Day Advance Notice
• Form W-2 reporting
• No rescission of coverage
• Annual comparative effectiveness (PCORI)
• Medical loss ratio rules
6

7. HEALTH CARE REFORM RULES
TAKING EFFECT IN 2013, 2014,
AND LATER

8. Changes Continuing from Prior
Years
– Phase-In of Higher Annual Limits on
Coverage Amount
– PCORI fees
– W-2 Reporting
– 4-Page Summary of Benefits/Glossary
of Terms
mckennalong.com
8

9. PHASE-IN OF ANNUAL LIMITS
Ongoing effective dates
Dollar Value Annual Limits:
Before January 1, 2014, plans may impose restricted annual limits:
• $750,000 for PY beginning between 9/23/10 – 9/22/11
• $1,250,000 for PY beginning between 9/23/11 – 9/22/12
• $2,000,000 for PY beginning between 9/23/12 – 01/1/14
Effective first plan year beginning on or after January 1, 2014, no
annual dollar limits
Note:
– Applies to Essential Health Benefits only
– Does not apply to most vision plans, dental plans, FSAs/HSAs/HRAs, but
be careful!
– Remember to coordinate with MHPA
9

10. COMPARATIVE EFFECTIVENESS
(PCORI) ANNUAL FEES
First effective for 2012
Applies to fully insured and self-funded coverage (2012-2018)
Policy/Plan Years Ending: Fee Rate
After Sept. 30, 2012 $1 per covered life per year
Oct. 1, 2013 through Sept. 30, 2014 $2 per covered life per year
Oct. 1, 2014 through Sept. 30, 2019 Amount adjusted by the Secretary of Treasury
based on the percentage increase in the projected
per capita amount of national health expenditures
• Does not apply to policy or plan years ending after Sept. 30, 2019
Reporting:
– Federal excise tax return (Form 720) first due by July 31, 2013 for
calendar year plans
10

11. EMPLOYER REPORTING
REQUIREMENTS: IRS Form W-2
Effective for 2012 (Form W-2 due Jan 2013)
• Applies to employers filing 250 or more Form W-2s
• Aggregate cost of employer-sponsored coverage must be
reported on Forms W-2
• Must update payroll system and track
• Applies to grandfathered plans
11

12. 4-PAGE SUMMARY OF BENEFITS/
GLOSSARY OF TERMS
First effective in 2012
– Timing Requirements – calendar year plans and plans with PYs
beginning 10/1, 11/1, and 12/1 must provide upon request, to special
enrollees and to new hires after 1/1/13 (even if not required for 2012 OE)
– all other plans must provide beginning with 2013 OE
– Foreign Languages – Based on individual mailing address
• Prominent notice in Summary in applicable non-English language
• Customer service hotline to answer questions in the foreign language
• Translated Summary upon request
– Mid-Year Material Modifications
• 60 day advance notice to all eligible individuals of any mid-year
material modifications affecting the content of the Summary
• Exception for insurance policy renewals, provided no material changes
12

13. Changes Taking Effect for
2013
– FSA limit of $2,500
– Notice of Public Exchanges
– Increased Medicare payroll
taxes
mckennalong.com
13

14. HEALTH FSA LIMIT $2500
Effective 2013
– For plan years beginning after December 31, 2012,
Health Care Flexible Spending Account contributions
are limited to $2,500
– Limit does NOT apply to additional employer
contributions for which the EE does not have the
option to receive cash in lieu of the contribution
– Special short plan year rules apply
14

15. NOTICE OF PUBLIC EXCHANGE
Uncertain effective date- delayed until late summer or fall 2013
- Employers must provide written notice to:
• Existing EEs annually (originally by March
1st, regardless of plan year end, but this may
change)
• New EEs upon date of hire
- Notice must include certain info about the
local State Exchange, possible Exchange
subsidies, and ineligibility for employer
contributions if purchase is made through
Exchange.
- DOL is considering issuing a model notice
15

16. MEDICARE TAX INCREASE
Effective after December 31, 2012
Additional employee Medicare tax of 0.9% to apply to
wages above the following thresholds:
Filing Status Threshold Amount
Married Filing Jointly $250,000
Married Filing Separately $125,000
Single $200,000
Head of Household $200,000
Qualifying Widow(er) $200,000
16

17. Changes Taking Effect for
2014
• No pre-existing condition exclusions
• 90-day max waiting period • State Exchanges
• No annual limits • Individual Mandate
• Changes to wellness programs • Pay or Play Mandate
• Annual plan fees
mckennalong.com
17

18. PRE-EXISTING CONDITIONS
Effective January 1, 2014
No Pre-Existing Condition Exclusions for Anyone!
18

19. ANNUAL LIMITS
Effective first plan year beginning 1/1/14 or later
No Annual Limits on Essential Health Benefits
19

20. MAX 90-DAY WAITING PERIODS
Effective January 1, 2014
• Waiting periods for enrollment must shorten to maximum 90-days.
• Waiting Period = the period that must pass before coverage
begins for an EE or dependent who is otherwise eligible to enroll
under the terms of a group health plan.
• Applies to grandfathered plans
20

21. MAX 90-DAY WAITING PERIODS, cont…
Effective January 1, 2014
• Applies only to eligibility conditions that are based solely on the
lapse of time
• does not preclude a plan from requiring substantive eligibility
conditions such as full-time status, job category, completion of not
more than 1,200 hours of service, or licensing conditions, so long
as the condition is not “designed to avoid compliance with the 90-
day waiting period limitation.”
• Beware “first of month following 60 days of employment” – may
violate 90 day wait!
21

22. MAX 90-DAY WAITING PERIODS, cont…
Effective January 1, 2014
• Safe Harbor Available - if plan only covers EEs “regularly working” a specified
number of hours per week, and you cannot determine whether a newly-hired EE is
reasonably expected to regularly work that number of hours, you may take a
reasonable period of time to determine whether the EE meets the eligibility
requirement.
– can apply 90 days after safe harbor measurement period for determining
whether an EE is full-time for purposes of the “play or pay” penalty (see
discussion below).
– in all events, must cover a variable hour EE who meets the eligibility
requirements within 90 days after the measurement period ends or, if earlier,
within 13 months following his start date (or, if he started mid-month, the first
day of the next calendar month).
• the guidance includes several helpful examples and can be viewed at
http://www.dol.gov/ebsa/newsroom/tr12-02.html.
22

23. WELLNESS PROGRAMS
Effective January 1, 2014
• Max incentive increases from 20% to
30%
• Additional 20% (up to 50% total) if to
prevent/reduce tobacco use
• Alternative standards can be developed
after the fact
• Failure to meet one alternative standard
does not preclude eligibility for other
alternative standards
• Employer may require completion of an
educational program as an alternative
standard at employer’s cost
23

24. WELLNESS PROGRAMS, cont.
Effective January 1, 2014
• Employers must pay membership or participation fees related
to diet programs
• Physician recommendations must be taken into account
• Medical judgment may be required
• If incentive requires certain results of measurement, test or
screening, a different, reasonable means of qualifying must
be offered
ISSUES CONCERNING “REASONABLE ALTERNATIVES”
– Prior attempts are not disqualifying
– Plans must identify and pay for educational programs
24

25. ADDITIONAL PLAN FEES
Effective 2014-2016
• Transitional Reinsurance - Who Does It Apply To?
– All health insurers and TPAs on behalf of self-insured group health
plans
– Intended to stabilize premiums for coverage in the individual market
during the first 3 years Exchanges are operational
– Paid Quarterly - First payment is due Mid-January 2015
– 2014 Estimate - $5.25 per enrollee per month ($63 per year)
• Insurer Fees
25

26. ADDITIONAL PLAN FEES, cont…
California Department of Insurance
Letter Ruling
(issued to unnamed insurer – 1/4/13)
California health insurers may NOT include either the 2014
annual fee on health insurance providers or the 2014
transitional reinsurance fee in 2013 health insurance
premium rates
26

27. INSURANCE EXCHANGES
Effective January, 2014
– All 50 States to have Exchanges established.
– Known as the “Health Insurance Marketplace”
– Primarily available to individuals
– Tax-credits & cost-sharing subsidies available to certain low-
earning groups
– California received conditional approval in early January 2013 to
operate its State Exchange
– Small employers may be able to use the SHOP Exchange
27

28. INSURANCE EXCHANGES, cont.
Minimum Essential Health Benefits (MEHB’s) for policies offered on
the Exchange will include the following categories of benefits.
-Ambulatory patient services -Rehabilitative and habilitative
-Emergency services services and devices
-Hospitalization -Laboratory services
-Maternity and newborn care
-Mental health and substance -Preventive and wellness
use disorder services, services and chronic disease
including behavioral health mgmt
treatment -Pediatric services, including
-Prescription drugs oral and vision
-HHS can determine others
MEHBs are defined by each state.
28

29. ESSENTIAL HEALTH BENEFITS (EHB)
Effective 2014
Individual and small group market non-grandfathered
insured plans (both inside and outside Exchanges) must
do the following:
– Cover all 10 EHB categories with limited deductibles
– 2014 deductibles - $2000 individual/$4000 family
– Meet annual cost-sharing limits on EHBs
– Will be based on high-deductible health plan allowances when
coordinated with HSAs
– Meet actuarial value limits for EHBs
29

30. INSURANCE EXCHANGES
Where the States Stand – as of January 4, 2013
Source: www.statehealthfacts.org
30

31. INDIVIDUAL MANDATE
Effective 2014
Individuals must have insurance or pay a penalty
YEAR PENALTY
2014 Greater of $95 per person (cap of $285 per
family) or 1% of household income
2015 Greater of $325 per person (cap of $975
per family) or 2% of household income
2016 Greater of $695 per person (cap of $2,085
per family) or 2.5% of household income
Discount:
– Family members under age 18 get 50% penalty reduction
31

32. PAY OR PLAY MANDATE
Who Does It Apply To?
– employers with 50 Full-Time Equivalents on average in prior calendar year
– measured by looking at entire controlled group/affiliated service group
What is a Full-Time Equivalent?
– common law EE who, during the applicable calendar month, was employed
on average at least 30 hours of service per week (or 130 hours total)
– the number of FTEs determined by adding all part-time EE hours (up to 120
hours per EE) for the applicable calendar month divided by 120
– only count U.S. hours
– leased EE rules do not apply (look at who is “common law employer”)
32

33. PAY OR PLAY MANDATE, cont.
When Is Penalty Imposed? Employer must pay penalty if either:
(1) no coverage or no minimum essential coverage (MEC) is offered to EE
(and dependents) and at least one EE receives financial assistance in an
Exchange
Monthly Penalty = $166.67 x total number of full-time EEs (reduced by 30)
(2) coverage is offered but it is not “affordable” or does not provide “minimum
value”
Monthly Penalty = $250 x total number of full-time EEs who receive
assistance for coverage purchased through the Exchange (can not exceed
penalty for failure to provide MEC)
33

34. PAY OR PLAY MANDATE, cont.
Minimum Value
• does not provide minimum value if coverage pays for less than
60% of all plan benefits, without regard to co-pays, deductibles,
co-insurance, and EE premium contributions
• Benchmark plans, checklists and other processes have been
approved for satisfying this requirement.
34

35. PAY OR PLAY MANDATE, cont.
Affordable
• not affordable if premium required to be paid by EE for EE-only coverage under
lowest cost option exceeds 9.5% of EE’s household income
• Safe harbor allows ER to use W-2 wages to determine, but other safe harbor
methods can be relied upon to determine affordability and may work better (e.g.
based on hourly rates)
OUTSTANDING QUESTION:
Does this mean employer can charge unlimited
amount for dependents or spouse?
35

36. PAY OR PLAY MANDATE, cont.
Example - Variable Hour EE Safe Harbor for
Ongoing Employees
Standard Measurement Administrative Stability Period #1
Period #1 Period * (1/1-1/1)
(11/1-10/31) (10/31-1/1)
John Worked an average of Treated as a full-time
36 hours per week employee
Mary Worked an average of Not treated as a full-
24 hours per week time employee
*could be as long as 90 days
36

37. PAY OR PLAY MANDATE, cont.
Example of Variable Hour EE Safe Harbor for
New Employees
5/1/13 4/30/14 7/1/14 6/30/16
Initial Measurement Administration Stability Period #1
Period Period #1
11/1/14 10/31/15 1/1/16 12/31/16
Standard Measurement Period Administration Stability Period #2
Period #2
Assume calendar year plan. If John works less than 30 hrs/week in Initial Measurement
Period – he is offered coverage for Stability Period #1 through June 30. Measured again
during Standard Measurement Period to determine if John would receive entire year of
coverage (worked greater than 30 hrs/week) or if coverage would end on June 30
(dropped to working less than 30 hrs/week during Standard Measurement Period)
37

38. FORECAST FOR 2014
MOST Employers will avoid the • Meet minimum plan design and
penalty and Exchanges in 2014 contribution requirements
• Keep EEs in employer risk pool and
out of Exchanges
• Avoid employer tax penalties
Variation #1: Enable access to public • Set “affordable” EE premium levels to
programs allow lower wage EEs to qualify for tax
credits to purchase coverage through
the Exchange
Variation #2: Take proactive steps to •Limit scheduled hours for part-timers
limit liabilities • Adopt measurement periods for
variable hour EEs
• Restructure entities
38

39. HEALTH CARE REFORM DOES NOT:
• Prevent you from covering more people
• Mandate spousal or non-child dependent coverage
• Limit (currently) the price charged to a spouse, children or other
dependents
• Require affordable coverage for those below the Medicaid threshold
• Require employer plans to cover all essential health benefits
(although insurance products may be limited)
• Require coverage of non-U.S. workers, independent contractors,
leased employees, or part-time employees (but beware how you
classify!)
39

40. Changes Taking Effect in
Future Years
– Nondiscrimination rules
– Automatic enrollment
– 2018 Cadillac tax
mckennalong.com
40

41. NONDISCRIMINATION FOR INSURED
PLANS
Effective date delayed (likely 2014 or later)
Non-Grandfathered plans can NOT discriminate in favor of highly-
compensated individuals (HCIs) as to eligibility or availability of benefits
• HCI definition = 5 highest paid officers; more than 10% owner, or
highest paid 25% of all EEs.
• Applies on a controlled group basis
**If plan fails, severe penalties apply to Employer**
41

42. NONDISCRIMINATION FOR INSURED PLANS,
cont.
Effective date delayed (likely 2014 or later)
Employer Action Items
• Must identify possible discriminatory arrangements and plan to modify
– Executive medical and management carve-out plans are likely a problem
– Beware of vendor claims!
• Check existing promises of extended health coverage made in
separation agreements, executive employment, severance
agreements, change in control agreements
• Avoid creating additional issues
42

43. AUTOMATIC ENROLLMENT
Effective date unclear - probably 2015 or later
Impact on Employers
• Employers with more than 200 full-time EEs must provide automatic
enrollment to new EEs
– Waiting periods can apply
– Existing elections carry over from year to year
• Notice regarding automatic enrollment and opportunity to opt out
must be provided
• Applies to grandfathered plans
43

44. AUTOMATIC ENROLLMENT, cont.
Many Unknowns
• All employees or just full-time EEs?
• Automatically enroll upon release of guidance or at next plan year
or open enrollment?
• Can EEs add dependents mid-year if automatically enrolled mid-
year?
• What if EEs already have coverage through a spouse?
• Notice requirements?
• 200+ EEs determined by controlled group?
• What kind of coverage required?
44

45. CADILLAC TAX
Effective 2018
40% excise tax will apply on health insurance benefits exceeding a
certain threshold – known as “high cost” or Cadillac coverage
Thresholds (indexed to inflation)
• $10,200 for individual coverage
• $27,500 for family coverage (indexed to inflation)
Thresholds increase for:
• individuals in high-risk professions
• employers that have a disproportionately older population
45

46. OTHER LEGAL CHANGES
IMPACTING HEALTH AND
WELFARE PROGRAMS

47. FEDERAL CHANGES
FINAL HIPAA REGULATIONS
released January 2013

48. CALIFORNIA SPECIFIC ITEMS
1. 4-Page Summary Of Benefits – foreign language
mandates for most CA counties
Counties where 10% or more literate in 1 language have foreign
language requirement
*Different than DOL SPD requirement – 25% of less than 100 or
500Ps or 10% if greater than 100
48

49. CALIFORNIA SPECIFIC ITEMS
2. New San Francisco HCSO rates
Requires medium and large-sized employers to spend a
minimum amount of money on health care for their workers
who work in San Francisco.
49

50. CALIFORNIA SPECIFIC ITEMS
3. Pregnancy Disability Leave Protection
• Effective 2012
• Applies to ERs with 5 or more EEs
• Must maintain and pay for health coverage under group health
plan for any eligible female EE who takes up to 4 mos of leave
due to pregnancy, childbirth or a related medical condition in a
12-month period.
• Same level and under the same conditions as coverage would
have been provided had the EE continued in employment
continuously for the duration of the leave.
• This closes a gap that existed for employers with less than 50
EEs (the FMLA threshold).
50

51. CALIFORNIA SPECIFIC ITEMS
4. Additional:
• CA left off mandatory DOL CHIP Notice (be sure to
check)
• Coverage of dependents to age 26 in employer-
provided life coverage permitted beginning in 2012
• Employers can not demand/request access to CA EE’s
social media accounts or content beginning in 2013
(AB 1844)
• Employers must comply with new personnel
recordkeeping and access requirements (AB 2674)
• Increased classification issues and audits.
51

52. CALIFORNIA SPECIFIC ITEMS
4. Additional:
• Commission agreements with any CA employee must
now be in writing (AB 2675)
• Religious dress and grooming practices require
reasonable accommodations (AB 1964)
• “Sex” protected under FEHA includes breastfeeding
and related medical conditions (AB 2386)
• Easier definition of “injury” creates higher likelihood of
successful wage statement violation claims (SB 1255)
• Fixed salary agreements are payment only for regular
non-overtime hours (AB 2103).
52

53. Questions?
Ann Murray | Partner
McKenna Long & Aldridge LLP
This presentation is for San Diego: 619.595.8040
informational purposes only and
Atlanta: 404.527.4940
does not constitute specific legal
advice or opinions. Advice and
amurray@mckennalong.com
opinions are provided by the firm
only upon engagement with
respect to specific factual
mckennalong.com
situations. 53

54. Intercare University, January 2013
Tom Ghering, CEO

55. How will things change?

56. Four important precepts
• This is not a good news story – my apologies
• I’m politically agnostic
• Ask questions in real time
• Actionable items are few…
I heard this is the scariest part of the ride!

57. Doom & Gloom vs.
Situational Awareness
• Pessimist complains about the
wind,
• Optimist expects it to change,
• Realist adjusts the sails
~ William Arthur Ward
• Realist has situational awareness
to anticipate the future!
~ Tom Gehring

58. It’s difficult
to make predictions -
particularly about the future
Yogi Berra

59. A political decision
is one that is made
in the absence of,
or contravention of,
the facts
Tom Gehring

60. Those who do not learn from
(or understand) history
are doomed to repeat it!
Many smart guys, starting with the Romans

61. The
Environmental
Scan

63. Supremes have sung!
Three major findings re PPACA:
1- Individual mandate a tax, and therefore legal
2-Feds cannot force states into “all or nothing” on
Medicaid
3- Interstate commerce clause not a
“catch-all”

64. Takeaways
1. ACA is the law of the land – get over it…

65. XMAS 12
SGR 27% cut to
Medicare Part B
Federal debt limit Sequestration 2%
must be raised cut to Medicare Part B
Chaos
@ the
Capital
Bush & Obama 2012/3 Budget must
tax cuts expire be approved
Really mad
lame ducks

66. The daredevils of the 112th congress

67. Takeaways
1. ACA is the law of the land – get over it…
2. The wild ride in DC continues…

69. PPACA goals
• Reduce uninsured
• Bend the “cost curve”
• Increase access to care
• Give group purchasing power to individuals
• Reform health insurance
and many more…
But as written,….
• Uninsured => underinsured
• Bend the “cost curve” => up…
• Increase access to care => ..on paper

70. PPACA simplified
2013
Health Insurance administrative simplification
Increased Medicaid to PCPs (2013/2014)
2014
Multiple consumer friendly reforms to HI
Individual mandate (weak) + Guaranteed issue
+ Community rating
Medi-Cal coverage up to 138% FPL ($11K
individual, $22K family of four)
State based health insurance exchanges
coverage 133% to 400% FPL (w/ subsidies)
IPAB

71. PPACA Problems (1)
• IPAB – unelected/unaccountable rate setter @
national level
• Non-standard essential health benefits package
o State-state variation
o California deeper benefits package w/ same $$$ =
fewer $$$ for providers
• # of new Medicaid/Medi-Cal enrollees
underestimated (3 million in California)

72. PPACA Problems (2)
• Employers (and employees) dumped into HIEx
• Administrative/technical nightmare w/ HIEx
• More HIEx insureds = more subsidies = more $$$
• Abysmal Medi-Cal rates in California = no Physician
takers….
• Office visit – Medicare - $73
• Office visit - Commercial Payers - $64 to $71
• Office visit - Medi-Cal - $23
– Abysmal access to doctors, particularly specialists
– Long lines at the ER…..

73. PPACA Problems (3)
• Guaranteed Issue (you can buy it anytime, even
after you get sick)
• Community Rating (insurance company severely
limited in how it risk modifies the policy)
• Weak Mandate (penalty/tax for not having
insurance low)
“ACA’s penalties are too low to prod the healthy to purchase
insurance, even given ACA’s subsidies for purchasers.”…
“ … the penalty for refusing to purchase insurance counts as a tax
only if it remains so small as to be largely ineffective.”

74. Takeaways
1. ACA is the law of the land – get over it…
2. The wild ride in DC continues…
3. Underlying ACA economic assumption flawed
=> long term ACA financial instability
4. Huge influx of new underinsured patients
5. Massive downward pressure on federal
reimbursements

75. 2/3 2/3

76. Medi-Cal
• Huge (and growing) expense for California
• Rich benefits (compared to other states)
• Medi-Cal rates worst in the nation
• Gov. Brown proposing an additional 10% cut
(perhaps retroactively)
• Access to doctors abominable

77. Kids to Medi-Cal Managed Care
• All 863,000 Healthy Families kids to Medi-Cal
by Sept. 1, 2013.
• Moved in four phases, depending on whether
their doctors & health plans already accept
Medi-Cal.
• State plans to start notifying parents next
month.
• Eliminating Healthy Families projected to save
the state $13M FY-13 and $73M annually once
the transition is completed.

78. Medi-Medi to Medi-Cal Managed Care
• San Diego one of several counties in the expanded
Dual Eligibles/Mandatory Managed Care “pilot”
• CMS sitting on final approval until after election
• Effective “start date” moved to March 1st, 2013.
• Savings about $663M

79. Takeaways
1. ACA is the law of the land – get over it…
2. The wild ride in DC continues…
3. Underlying ACA economic assumption flawed => long term ACA financial instability
4. Huge influx of new underinsured patients
5. Massive downward pressure on federal reimbursements
6. Massive downward pressure on state
reimbursements
7. Big uptick in Medi-Cal Managed Care
8. Be very, very afraid of a 2/3 2/3 majority

80. California’s
Health Insurance Exchange (HIEx)

81. HIEx Basics (1)
• Independent public entity within state government
• Governed by 5 member board appointed by Governor
& Legislature
• Exchange Board in CA will be an active purchaser,
not agnostic marketplace

82. HIEx Basics (2)
• In 2014 (really October 2013),
– Individuals: 133 – 400 % FPL ($25K to $74K for a family of 3)
&
– Small employers: (up to 50 employees*) ( *100 employees in 2016)
– May purchase coverage through HIEx from qualified health plans
(“QHPs”)
– QHPs have 4 plan levels (Bronze, Silver, Gold and Platinum)
– 4 “metallic” plan levels offer the same essential health benefits
(EHB) but different premium and cost sharing arrangements.
– Income adjusted subsidies to purchase insurance and (in some
cases) for co-pays
– May not participate if …
• offered affordable coverage through employer
• undocumented
• eligible for public programs

83. Coverage Tiers
Category % medical costs % of cost-share
covered
Bronze 60% 40%
Silver 70% 30%
Gold 80% 20%
Platinum 90% 10%

84. Premium Support & Cost Sharing
Assistance
Single – max out of pocket = $2.2K (<133%FPL)
to $9.9K (>400fpl)
Family of 4 – max out of pocket = $4.5K (<133%FPL)
to $20.9K (>400fpl)

85. Enrollment Projections
Health Insurance Coverage by Source
2009 2016
Employer 45%/17M 35%/14M -3M
Individual 6%/2.2M 1%/0.5M -1.7M
Medi-Cal 19%/7M 22%/9M +2M
Medicare 10%/3.7M 12%/4.8M +1.1M
Uninsured 19%/7M 7-8%/3M -4M (approx)
HIEx 21-22%/8.5M +8.5M

86. Potential Impact
• Premium subsidies, an individual mandate, and
guaranteed issue will significantly expand (and
change) the individual market starting in 2014
• “The Exchange will be a catalyst for change in
California’s health care system, using its market role
to stimulate new [care delivery] strategies . . .”
• Pathway to single payer (Medi-Cal for all…) in
California

87. Imperfect Competition
• Monopoly – one seller – many buyers
• Monopsony – one buyer – many sellers
• Either
– California HIEx will approach a monopsony as market power of Covered
California expands, or
– Covered California goes broke/becomes broken

88. Takeaways
1. ACA is the law of the land – get over it…
2. The wild ride in DC continues…
3. Underlying ACA economic assumption flawed => long term ACA financial instability
4. Huge influx of new underinsured patients
5. Massive downward pressure on federal reimbursements
6. Massive downward pressure on state reimbursements
7. Big uptick in Medi-Cal Managed Care
8. Be very, very afraid of a 2/3 2/3 majority
9. In 2014, HIEx will significantly (and proactively)
change the California health insurance market ,
causing major changes in California’s payer mix
10. Focus is on California’s HIEx regulators

89. The Long Term
Prognosis
Your prognosis is tied
to the outcome of the election!

90. Costs will increase
Massachusetts
Uninsured to near zero
Increased demand => longer lines (initially)
Increased cost => Govt mandated cost cutting &
revenue increase from providers
Decreased indirect cost (uninsured)
$1B $1.8B

91. Insurance rates will increase
New York
Weak mandate +
guaranteed issue =
unaffordable HI for
individuals
# paying
$/pp

92. Macroeconomics Unsustainable!
% of Mean Family Income for Health Insurance for
family of 4
6 yrs ago 7%
now 17%
6 yrs in future 33%

93. Macroeconomics Unsustainable!

94. What’s next?
We are almost out of

95. Takeaways
1. ACA is the law of the land – get over it…
2. The wild ride in DC continues…
3. Underlying ACA economic assumption flawed => long term ACA financial instability
4. Huge influx of new underinsured patients
5. Massive downward pressure on federal reimbursements
6. Massive downward pressure on state reimbursements
7. Big uptick in Medi-Cal Managed Care
8. Be very, very afraid of a 2/3 2/3 majority
9. In 2014, HIEx will significantly (and proactively) change the California health insurance market , causing
major changes in in California’s payer mix
10. Our focus is on California’s HIEx regulators
11. Current health care financing system is systemically
unsustainable in the long run (6-10 years)

96. The Medium Term
Prognosis
What’s the second best medicine?

97. Longer lines
• PCP – demand driven
• Specialists – reimbursement driven
• ER – I-now-have-insurance driven
LONGER WAITS

98. Greater demand
• More underinsured (MediCal ↑ ), but fewer uninsured
• Aging population (Medicare ↑ )
• Demanding population (pressure to do more)
• More gizmos (pressure to do more)
• More drugs (pressure to do more)
• Everyone trying to make a living (pressure to do more)
DEMAND GOES UP

99. Reduced supply
• Fewer docs (per person), plus wrong flavor of docs
– But, lifetime employment
– And, (theoretically) more economic power
• “Scope of practice” expansions by non-Physicians
• Not nearly enough PCPs
• Urban solo primary care is dead
• Urban specialist solo is on life support
• Not enough hospital capacity - same number of
beds/nurses/etc...
SUPPLY GOES DOWN

100. The Long Term (National)
Treatment Plan – or what are
we going to in a five years?
We’re going to negotiate first!

101. Changing reimbursements
• Increased (willing or unwilling) integration – share
the same or fewer $$$
• Reimbursements down to keep total cost down (see
Mass. & Ca.)
• Reduce differences between specialty and PCP
• Premium for innovation
• Penalty for re-work/re-admit

102. Increased macro-economic cost
• Demand => cost increase (see MA, CO, WI)
• Fatally flawed insurance model => cost increase
(see NY)
• Consolidation driven market control => cost increase
(see MA)
INCREASED COST

103. Increased quality
• Because it's the right thing to do for the patient
• But, understand macro-issue is to reduce cost
• Innovate locally
INCREASED QUALITY

104. Increased innovation
• High tech innovation
– Gizmos, processes, research
• Low tech innovation
– Wellness
INCREASED INNOVATION & WELLNESS

105. Takeaways
1. ACA is the law of the land – get over it…
2. The wild ride in DC continues…
3. Underlying ACA economic assumption flawed => long term ACA financial instability
4. Huge influx of new underinsured patients
5. Massive downward pressure on federal reimbursements
6. Massive downward pressure on state reimbursements
7. Big uptick in Medi-Cal Managed Care
8. Be very, very afraid of a 2/3 2/3 majority
9. In 2014, HIEx will significantly (and proactively) change the California health insurance market ,
causing major changes in in California’s payer mix
10. Our focus is on California’s HIEx regulators
11. Current health care financing system systemically unsustainable in the long run (6-10 years)
12. Longer lines, greater demand, reduced supply,
greater cost, reduced reimbursement, greater
quality, innovation at both ends of the tech
spectrum

106. Patches, patches, and more patches
Current system is unsustainable - we are putting patches
on top of patches
The cost will (eventually) bring the system to it’s knees
We will either:
• Keep putting patches on top of patches on top of
patches, or
• Revolutionary change (see 9/11 or FDR - March 1933 or
Paris - 1793)
2016 (or perhaps 2020) election will be about a
revolutionary approach to health care

107. It’s déjà vu all over again….

108. Mr. Churchill says…
"Americans can always be
counted on to do the
right thing...
….after they have
exhausted all other
possibilities”
Churchill

109. Look to Switzerland !
Universal mandate & guaranteed issue & national
(community) rating
Citizens pay for insurance up to 8% of income –
government subsidy if cost >8%
Insurance:
• Compulsory - standardized national minimum coverage
at one price for all w/ no profit
• Complimentary (additional) insurance – risk based,
competitive
No first dollar coverage – annual minimums
Bad behavior penalized

110. gehring@sdcms.org
619-206-8282
www.sdcms.org

111. THANK YOU!