Emily Ehrstein March 20, 2012 STATE OF THE HEALTH INSURANCE INDUSTRY

State Of…Uncertainty How does healthcare reform affect me? What’s this I hear about grandfathered plans? What does this really mean? How is healthcare reform going to affect the employee benefits provided by my employer? I have pre-existing conditions. How will healthcare reform affect me? How will healthcare reform affect our industry? Are our plans grandfathered? If so, how does this limit our ability to make product/benefit changes? How will the Medical Loss Ratio requirements affect our products? How will our profitability change in a guaranteed issue market? Are there any new product opportunities that will result due to healthcare reform? ConsumersInsurance Companies

Agenda Health Care Reform Opening Discussion Short Video What is it? Need for Reform Key Provisions of the Affordable Care Act Important Implications What’s Coming Next?

Poll: As you may know, a health reform bill was signed into law in Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it?

Public Remains Largely Split On ACA ACA signed into law on March 23, 2010 Source: Kaiser Family Foundation Health Tracking Polls Don’t know/RefusedUnfavorableFavorable As you may know, a health reform bill was signed into law in Given what you know about the health reform law, do you have a generally favorable or generally unfavorable opinion of it?

Quiz Time—What Do You Know About Healthcare Reform?

Movie Time! :

Health Care Reform: What Is It? Affordable Care Act (ACA) Aims to improve the current health care system in the US by increasing access to health coverage for Americans and introducing new protections for people who have health insurance Puts into place the framework for reform of the deliverance and financing of health care Applies to typical comprehensive medical care (HMO’s, PPO’s, etc.) Two Pieces of Legislation Patient Protection and Affordable Care Act (PPACA): March 23, 2010 Health Care and Education Reconciliation Act of 2010: March 30, 2010 Amended Some PPACA Provisions Trivia Question 1

Why the ACA? As stated on healthreform.gov, the legislation will: Rein in the worst excesses and abuses of the insurance industry with some of the toughest consumer protections this country has ever known. Hold insurance companies accountable to keep premiums down and prevent denials of care and coverage, including for pre-existing conditions. Make health insurance affordable for middle class families and small businesses with one of largest tax cuts for health care in history – reducing premiums and out-of-pocket costs. Provide the security of knowing that if you lose your job, change your job, or start that new business, you’ll always be able to purchase quality, affordable care in a new competitive health insurance market that keeps costs down. Strengthen Medicare benefits with lower prescription drug costs for those in the ‘donut hole,’ chronic care, free preventive care, and nearly a decade more of solvency for Medicare. Improve our nation’s fiscal health by reducing our deficit by more than $100 billion over the next decade, and more than $1 trillion in the decade after that. Source:

Pre-Reform Markets Individual Market Small Non-Elderly Population with Private Coverage Voluntary Coverage Health Status Underwriting (most states) Premium Differences by Age Small Group Market No Requirement to Offer Coverage Guaranteed Issue Premium Variations (group experience, average age, geographic location, industry, et.)

Need For Reform US Health Costs Too High Quality of Healthcare Too Low Access to Healthcare Insufficient (Especially for Uninsured)

ACA: Key Provisions (not an exhaustive list) Elimination of Lifetime Limits (all plans) Extension of Dependent Coverage to Age 26 (all plans) Prohibits Pre-Existing Condition Exclusions For Kids Guaranteed Issue Allowable Rating Factors: Age (limits imposed) Geography Family Size Tobacco (limits) Short Video: wlSZKIdaTk&feature=BFa&list=PL31 A2EF2179B97E26&lf=plpp_video wlSZKIdaTk&feature=BFa&list=PL31 A2EF2179B97E26&lf=plpp_video Individual Mandate Premium/Cost-Sharing Subsidies for Individuals Premium Review Process Medical Loss Ratio Reporting & Rebate Requirements Creation of Health Insurance Exchanges CLASS Act

Grandfathered Plans Plans in place or purchased on or before when PPACA was signed into law. Exempt from some aspects of ACA Can lose status if certain changes are made

Financial Penalty for Those Without Coverage Penalty Phased In: 2014: $95/person or 1% of family income 2015: $325/person or 2% of family income 2016+: $695/person (& indexed) or 2.5% of family income Currently Before the Supreme Court Important due to guaranteed issue & community rating Premium Subsidies Offered up to 400% of Federal Poverty Level Trivia Question 2 Cost-Sharing Subsidies up to 250% of Federal Poverty Level Short Video: =WHwoVvxsAZ0&feature=BFa&list =PL31A2EF2179B97E26&lf=plpp_vid eo =WHwoVvxsAZ0&feature=BFa&list =PL31A2EF2179B97E26&lf=plpp_vid eo Individual Mandate Premium Subsidies/Cost-Sharing

Premium Review Process Annual Review of “Unreasonable” Rate Increases by Health & Human Services (HHS) Not Applicable to Grandfathered Plans 2011 Threshold: 10% “Unreasonable” if Excessive, Unjustified, or Unfairly Discriminatory HHS Does Not Have Rate Approval Authority States With an “Effective Rate Review Program” Will Still Retain Authority to Review Rate Changes 6 States Do Not Have an “Effective Rate Review Program”

Medical Loss Ratio Requirements If Medical Loss Ratio is Below Threshold, Then Rebates Must be Paid Threshold 80%: Individual & Small Group 85%: Large Group States Were Able to Apply for Downward Adjustment on Ind. Threshold 18 States Applied (10 Denied, 6 Modified, 2 Pending) Includes Grandfathered Plans

Health Insurance Exchanges (HIX) PPACA Requires the Establishment of Public HIX in All States by 2014 Will Allow Individuals to: Compare Health Plans Get Answers to Questions Determine Insurance Tax Credit Eligibility Determine Eligibility for Public Health Plans (ex. Medicaid, CHIP) Enroll in a Health Plan that Meets Their Needs State Are Currently Working to Establish These Exchanges Short Video: =PL31A2EF2179B97E26&lf=plpp_video =PL31A2EF2179B97E26&lf=plpp_video

CLASS Act CLASS: Community Living Assistance Services & Support Government Run Long-Term Care Program Financed Through Voluntary Payroll Deductions No Underwriting Funding withheld and program “on hold” due to concerns with severe adverse selection Actuarially Unsustainable

Expansion of Medicaid Program Short Video: B97E26&index=4&feature=plpp_video B97E26&index=4&feature=plpp_video

NAIC Video

Important Implications Size vs Health Status of Insured Lives Will the Mandate Be Effective? Winners vs Losers

What’s Coming Next? Opportunities Stemming from Health Care Reform Potential shift from Defined Benefit to Defined Contribution Health Plans for Employees Increased Demand for Supplemental Health Products Potential Growth of Health Savings Accounts

Questions?