The Health Care Reform Act What You Need To Know James P. Gelfand, Director of Health Policy THANK YOU __________. After a year and a half of negotiating, the House passed the Senate bill and Reconciliation in late March. During the 2008 presidential campaign, both candidates made health reform a top issue. Last year, President Obama and Speaker Pelosi made it their TOP domestic priority. Further, the escalating cost of health benefits brought all stakeholders to the table in hopes of reaching BIPARTISAN, COMPREHENSIVE COMPROMISE. Unfortunately, this is NOT a bipartisan bill. Throughout the process, we spent a lot of time shaping the important issues for employers. We focused on what we COULD support (next slide)

Learning Objectives Identify key provisions of the legislation that will affect your organization Determine the course of action needed to comply with the new regulations Understand the implications of non-compliance with the regulations Determine the financial implications of the new law

What the Chamber supported… Bending the cost curve A focus on wellness and prevention Insurance market reforms coupled with individual responsibility Payment reforms (addressing cost-shifting & P4P) Medical liability reform Health IT Improved affordability subsidies Comparative effectiveness research AND WHAT WE COULD NOT SUPPORT…

The Patient Protection and Affordable Care of 2010 (H.R. 3590)… Signed into law (P.L. 111-148) on Mar. 22, 2010 Extends health insurance coverage to about 32 million currently uninsured. Subsidies – provides subsidies for up to 400% of FPL Medicaid Expansion – Up to 133%FPL (14,000 ind./29,000 family) Individual Mandate – Starting 2014, with penalty of $695 ind./$2,915 family Employer Mandate – (Free rider) Penalty for lack of “affordable” coverage if 50 or more employees Creates State Insurance Exchanges – Available in 2014, state marketplace for purchasing insurance SOME OF THESE CHANGES ARE IMMEDIATE – OTHERS WILL NOT GO INTO EFFECT UNTIL 2014. State by State – Same options – no cross-state

The Patient Protection and Affordable Care of 2010 (H. R The Patient Protection and Affordable Care of 2010 (H.R. 3590) – continued… Insurance Reforms No rescissions (unless fraud – 2010) Dependents covered until age 26 (2010) No pre-existing condition exclusions (2010 for children; 2014 for everyone) No lifetime limits (2010) or annual limits (2014 for group plans) Requires preventative coverage (2010) Guarantee Issue and rating limitations (2014) Small Employer Credits – Up to 50% of employer’s contributions (up to 5 yrs.) Minimum Benefits Package – All health plans offered through exchanges to provide the essential benefits UNFORTUNATELY, THE LAW DOESN’T REALLY TACKLE THE BIG COST DRIVERS IN OUR SYSTEM… SO THE SUSTAINABILITY OF THIS MAY BE DIFFICULT. They raise revenue for 4 years before the real spending begins.

According to the Congressional Budget Office (CBO)… Cost $$$.... According to the Congressional Budget Office (CBO)… Cost = $938 billion/10 years Deficit reduction = $124 billion/1st-10years, $1.2 trillion/2nd-10 years Doc Fix will cost over $275 billion $569 billion in new taxes and tax increases $528 billion total cuts to Medicare Creates 16,500 new jobs for the IRS Billions more in spending authorized, but not appropriated. CMS Actuaries came out LAST WEEK with a report that said that this will actually INCREASE SPENDING BY AT LEAST $330 billion over the first 10 years. IF Congress does the “doc fix” – a permanent fix will cost $275 billion – MORE THAN NEGATING ANY PROPOSED SAVINGS IN THE BILL. Billions in new spending on studies, grants, etc. were AUTHORIZED in the bill – but may never happen because they lack funding in HHS’s budget. They may never be funded. Medicare cuts – ½ from MA/ ½ from 21% Doc cut Doc Fix = Congress punting down the field – tax extenders likely providing “fix” plus increase until the end of Dec. 2011. At that point, 21% doc cut goes into effect.

Pay Fors = $569 billion/10 years… 10% excise tax on tanning services $2.7 billion/10 (2010) Modification of tax treatment in certain health organizations $400 million/10 (2010) Codify economic substance doctrine $4.5 billion/10 (2010) Repeal of “black liquor” credit $23.6 billion/10 (2011) Conforming definitions for medical expenses $5.0 billion/10 (2011) Additional tax on distributions from HSA’s and MSA’s other expenses $1.4 billion/10 (2011) Excise tax on manufacturers and importers of drugs $27.0 billion/10 (2011) Corporate reporting requirements (1099 issue) $17.1 billion/10 (2012) Limit flexible spending in cafeteria plans to $2,500 $13 billion/10 (2013) Excise tax on medical device manufacturers $20 billion/10 (2013) Medicare tax on HI earners $210.2 billion/10 (2013) Eliminate Part D subsidy deduction $4.5 billion/10 (2013) Limitations on executive compensation $600 million/10 (2013) 10% medical expense deduction $15.2 billion/10 (2013) Excise tax on insurance providers $60.1 billion/10 (2014) Free Rider penalties $52 billion/10 (2014) Individual Mandate penalties $17 billion/10 (2014) 40% excise tax on Cadillac plans $32 billion/10 (2018) Effects on coverage provisions in revenue $46 billion/10 (Misc.) Other changes in revenue $14.3 billion/10 (Misc.) THE $569 BILLION in NEW TAXES AND TAX INCREASES WILL BE PHASED IN OVER the NEXT 8 YEARS. I won’t spend a lot of time on this – but you have a timeline as a handout that gives more detail on each of these. While many of these taxes appear to be borne by the industries within the health care arena – CBO made it clear that the taxes on INSURERS, PHARMACEUTICALS, and MEDICAL DEVICES will be passed onto the consumer… YOU WILL PAY MORE. Comparative effectiveness - $2 p/enrollee FURTHER – a new reporting requirement on small businesses will increase paperwork burdens! HI earners taxes! Setting up for VALUE ADDED TAX?

1099 reporting requirement… Burdensome reporting requirement that increases the cost of doing business Section 9006 requirement: Submit a separate 1099 form for every single business-to-business transaction in aggregate of $600 each year – GOODS and SERVICES Could affect over 40 million businesses House bill – H.R. 5141 – repeal Section 9006 (Rep. Lungren) / Senate bill – S. 3578 (Sen. Johanns) H.R. 5141 was introduced by Rep. Dan Lungren (R-CA) on 4/26/10 and currently has 94 co-sponsors. Sen. Mike Johanns (R-NE) has introduced the Senate equivalent, and is beginning to whip support for it.

Implementation: What happens and when? Implementation will be a 10 year process Immediate changes: 2010-2011 Longer term changes: 2012-2013 Most significant changes: 2014-2018 and beyond Individual Mandate Employer Mandate Subsidies, Exchanges, Medicaid expansion IMPLEMENTATION WILL BE A 10 YEAR PROCESS. You have a handout with a full description of what happens when – and that will provide a lot of detail - Insurance Reforms – 6 months after passage - prohibits lifetime limits, rescissions, and excessive waiting periods; dependents covered until 26, restricts lifetime limits, first $ coverage for preventative care - FOR MANY OF YOU THIS WILL BE JANUARY 1. Small Business Tax Credits – Up to 50% of employer’s contributions, based on wages FIRST TAXES GO INTO EFFECT – 10% tax on indoor tanning services THE MOST SIGNIFICANT “BENEFITS” DO NOT GO INTO EFFECT UNTIL 2014 – Medicaid expansion, subsidies, individual and employer mandates, exchange will go into effect, and will add additional coverage requirements. WE ARE HOPING FOR HHS TO GRANT “GOOD FAITH COMPLIANCE” TO GIVE EMPLOYERS A PEACE OF MIND IF THEY ARE TRYING TO DO THE RIGHT THING.

Immediate changes… Insurance Reforms – 6 months after enactment Prohibits lifetime limits, rescissions, and excessive waiting periods Dependents covered until 26 No preexisting conditions for under 19 yrs. old First dollar coverage for preventative care Grandfathered plans Insurance Reforms – 6 months after passage - prohibits lifetime limits, rescissions, and excessive waiting periods; dependents covered until 26, restricts lifetime limits, first $ coverage for preventative care - FOR MANY OF YOU THIS WILL BE JANUARY 1.

Small business tax credit… Available to small companies and tax exempt organizations (2010-2015). 2 Phases. PHASE 1 (2010-2013): Employers with less than 25 full-time employees w/ avg. wage of $50,000 or less, and company pays min. of 50% of premiums are eligible for tax credit up to 35% of premiums. Maximum credit if you have 10 or less full-time employees w/ avg. wage of $25,000. Credit claimed on business tax return, not employment tax return. PHASE 2 (2014-2015): Same criteria above; but only available to employers purchasing insurance through the exchange. Credit increases up to 50% of premiums; but only good for 2 years.

Important choices for businesses… What is the Employer “Free Rider” Mandate? Offering vs. Non Offering firms Plan cost considerations for those who are offering Other issues impacting employers

Employer “Free Rider” Mandate… Employers with <50 Full-Time Equivalents (FTE) are exempt from offering. Employers with 50 or more FTE, who do not offer, no fines levied if all employees’ incomes are over 400% of FPL (88 K/family of 4). For employers with 50 or more FTE who don’t offer, if any employee receives tax credit through exchange, fine is equal to $2,000 times the # of employees minus 30. These penalties are also incurred if the employer is not offering a “Qualified” health plan. If an employer with 50 or more FTE does offer health insurance, but it is not “affordable” (employee’s share is more than 9.5% of income), and the employee goes into exchange (and gets tax credit), the penalty is $3,000. THE PENALTY FOR NON-OFFERING EMPLOYERS WAS ORIGINALLY ONLY $750 per employee in the senate bill… was increased in reconciliation to $2000 to offset other spending. NOTE: FULL TIME EMPLOYEES ARE DEFINED AS 30 HOURS PER WEEK – and calculated by hours per month divided by 120. FURTHER, PART TIME WORKERS ARE INCLUDED IN THE CALCULATION TO DEFINTE FULL TIME “EQUIVALENT” EMPLOYEES – WHEN DETERMINING YOUR TOTAL # OF EES.

Employer Mandate and Penalties…

Plan considerations for offering… Whether you are a self-insured or fully insured, may trigger different requirements. Here are some items to think about: Self-Insuring – New requirements for self-insured plans – Reporting value on W-2, will not need to cover “essential benefits” but will need to meet actuarial value (60%), will be exempt from new tax on insurers, but may be subject to “Cadillac Tax” in 2018 Sending Employees to the Exchange – Starting 2017, large employers (over 100) may be able to participate in the exchange Grandfathering of plans – What changes to your plan will trigger loss of “grandfather” status? IF YOU ARE OFFERING BENEFITS – WHETHER YOU ARE FULLY-INSURED OR SELF-INSURED MAY TRIGGER DIFFERENT REQUIREMENTS. HERE ARE SOME ITEMS TO THINK ABOUT. GRANDFATHERING – YOU MAY BE ABLE TO KEEP YOUR CURRENT PLAN, AS-IS, WITHOUT CHANGING TOO MUCH – BUT WE DO NOT KNOW WHAT WILL CONSTITUTE THE TRIGGER YET.

Grandfathering rule – How it works… “Plans will lose their grandfather status if they choose to make significant changes that reduce benefits or increase costs to employees.” Changing carriers Any changes in coinsurance that increases employee share of medical payments (i.e. Going from 80/20 to 70/30) Any increase in a fixed payment amount (except co-payments) of more than medical inflation plus 15%; applies to deductible, max out of pocket, etc. (since 3/23/10) Any increase in co-payment that exceeds the greater of medical inflation plus 15% or $5 plus medical inflation (since 3/23/10) Decrease employer contribution to premiums by more than 5% below the level (since 3/23/10) Eliminating any benefit for diagnosis or treatment or any part of treatment for a particular condition (since 3/23/10)

Issues impacting employer plans… Long-Term Care – Starting 2011, employers permitted to automatically enroll employees into CLASS program Retiree Prescription Drug Plans – In 2013, employers who receive 28% for RDP’s will no longer be able to deduct subsidy Compensation: Salary vs. Benefits – Employers may prefer compensation through income rather than health benefits. Consumer-Directed Account Options – Penalties for non-qualified purchases; limits on contributions There are also other issues that will impact employer plans that you will need to consider. CLASS Act – New entitlement program – 5 yr. waiting period for benefit CONSUMER DIRECTED: While we do believe that HSA Products will be able to continue to be offered, there will be many changes to FSAs, HSAs, and MSAs. IRS will need to conform their definitions. ALSO – No purchase of OTC medicines, FSAs limited to $2500, and higher penalties for using them for non-health items. Transition: NOW THAT THIS IS THE LAW OF THE LAND – HOW IS THE PUBLIC RESPONDING???

What’s next? Political – 2 election cycles before 2014 Legislative – Ongoing fixes in future Congresses, opportunities to improve the law. Regulatory – Guidance & Rulemaking – DOL, HHS, & IRS Good Faith Compliance/Medical Loss Ratio Legal – Legal challenge; 21 states have filed suit on constitutionality FULL REPEAL OF THE LAW IS HIGHLY UNLIKELY. OBAMA WILL NOT SIGN ANY REPEAL LEGISLATION – SO EVEN IF R’s TAKE OVER CONGRESS AND PASS REPEAL, THEY WILL NOT LIKELY TO HAVE THE 2/3 MAJORITIES TO OVERRIDE THE VETO… BUT THERE WILL BE OPPORTUNITIES TO CHANGE AND IMPROVE THIS BILL – AND THE CHAMBER WILL BE PURSUING OM 4 MAJOR WAYS: POLITICAL: New President? New Congress? LEGISLATIVE: opportunities for technical and substantive fixes REGULATORY: Over next 5-10 years LEGAL: 19 State AGs have filed suit on constitutionality of Individual Mandate. Supreme court may end up reviewing some or all. Regs may cause further legal challenges. ADVOCACY: WE WILL CONTINUE TO ENGAGE YOU ALL!

Chamber resources… Vote For Business Health Care Toolkit www.voteforbusiness.com Health Care Toolkit www.uschamber.com/chambers/healthcare Primer: Critical Employer Issues in the Patient Protection and Affordable Care Act http://www.uschamber.com/publications/reports/100426_critical_employer_issues_ppaca.htm Health Reform Impacts www.healthreformimpacts.com

Questions?