National Legislative Update: Health Care Reform Presented by Alicia Scalzo Wilmoth March 2011 © USI Insurance Services LLC All rights reserved.

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Today’s Agenda  Overview  Political and legal landscape  Market reforms  On the horizon 3

Overview  Patient Protection and Affordable Care Act  Overhaul of U.S. health care system  Provide coverage to 32 million uninsured by 2019  Cost of $938 billion over 10 years  Significant changes to all facets of the current health care system  Focus on private sector coverage (employer-sponsored health plans and insurance reform)  No discussion of Medicare and Medicaid changes 4

Overview The Basics  Require most Americans to have health insurance coverage by 2014  Individuals without access to affordable employer coverage may be eligible to purchase insurance through a new marketplace, the Exchange  Government assistance available to lower income individuals ( % FPL)  Penalties on certain large employers who don’t provide affordable coverage if employees receive government assistance  New market reforms that impose requirements on individual and group health plans 5

Overview Paying for Reform  Billions of dollars in fees on pharmaceutical sector and insurance industry  New Taxes  10% tax on tanning services (2010)  2.3% medical device sales tax (2013)  Medicare hospital tax increase on high income earners (2013)  40% high cost plan excise tax (2018)  Penalties on individuals and employers who don’t have or provide health insurance  Reduce or eliminate certain tax breaks  Changes in Medicare and Medicaid 6

Political Challenges Repeal health care reform?  House voted in favor of a repeal, Senate opposed  Insufficient majority to override a veto Where does it go from here?  Delay funding of certain provisions  Additional hearings  Delay in regulations  2012 elections 7

Legal Challenges Finds HCR ConstitutionalFinds HCR Unconstitutional Eastern District of Michigan: Thomas More Law Center v. Obama, Oct 7, 2010  Dismissed claims that individual mandate is unconstitutional Eastern District of Virginia: Commonwealth of Virginia v. Sebelius, Dec 13, 2010  Ruled that individual mandate is unconstitutional  On appeal to 4 th Circuit Court of Appeals Western District of Virginia: Liberty University v. Geithner, Nov 30, 2010  Dismissed case, finding that the individual mandate is constitutional  On appeal to 4 th Circuit Court of Appeals Northern District of Florida: Florida v. Sebelius, Jan 31, 2011  Attorneys general of Florida and 25 other states  Ruled that individual mandate is unconstitutional, but due to lack of severability clause, entire act “must be declared void”  Medicaid expansion is constitutional Source: 8

Market Reforms 2010 – 2011

Market Reforms All group health plans are required to comply with specific market reforms effective the first plan year* that begins on or after September 23, 2010 (January 1, 2011 for calendar-year plan)  Significant design changes for group health plans  Limited exceptions apply to “grandfathered” plans  Most of these reforms also apply in the individual market * For employer-based group health plans, this is the ERISA Plan Year which may (or may not) be the same as the policy year 10

Grandfathered Plans  Built from the premise that “you can keep the health plan coverage you have”  Estimated 40-70% of all group health plans will lose grandfathered status by 2014  A group health plan that is in existence on March 23, 2010 is considered grandfathered  Certain changes will cause a plan to lose this status  Subject to most market reforms, with some exceptions  Many insurance carriers “deeming” their plans non-grandfathered 11

Grandfathered Plans: Requirements & Exceptions Must comply with the following requirements:  Lifetime limits  Annual limits  Cannot cancel coverage  Extension of dependent coverage to age 26  Uniform explanation of coverage  No pre-existing condition exclusions  No waiting periods over 90 days  Notice to employees about Exchange  Automatic enrollment for large employers  Vouchers  Employer coverage penalties  Reporting of employer-sponsored health insurance coverage  High cost plan tax Do not have to comply with the following requirements:  Preventive care  Nondiscrimination in favor of HCIs  New appeals process  Clinical trials  HHS reporting  Comprehensive health insurance coverage for small groups and Exchange plans 12

Market Reforms – All Plans Effective the first plan year on or after September 23, 2010 (January 1, 2011 for calendar year plans)  No lifetime limitations on essential benefits  No annual limitations on essential benefits, except as allowed by HHS until 2014  Cover children to age 26 (special exception applies for grandfathered plans)  No pre-existing condition exclusions on individuals under age 19  No rescission of coverage 13

Lifetime Limitations  What is an essential benefit? No clear guidance – good faith standard based on the following categories:  Ambulatory patient services, hospitalization, ER, Rx  Maternity & newborn care, pediatric services (incl. oral & vision)  Mental health & substance use disorder services, including behavioral health treatment  Rehabilitative and habilitative services and devices  Preventive care & wellness services  Chronic disease management  Laboratory services  Plans/carriers are removing limits on transplants, preventive and rehab services 14

Annual Limitations  Permitted annual limitations on essential benefits until 2014  9/23/2010-9/23/2011: $750,000  9/23/2011-9/23/2012: $1.25 million  9/23/2012-1/1/2014: $2 million  Waivers  HHS waiver program available to plans in existence on September 23, 2010 if compliance with the required limits would result in a significant decrease in access to benefits or a significant increase in premiums for affected individuals 15

Other Market Reforms – All Plans  Children up to age 26 are eligible under a parent’s health plan  Generally cannot condition eligibility on student status, residing with parent, tax dependent status, marital status or employment  Grandfathered plans may exclude children who have employer- based group health plan coverage that is not provided by a parent  No rescission of coverage except in the case of fraud or intentional misrepresentation of material fact  Prospective cancellation of coverage and cancellation for nonpayment of premiums are not rescissions  No pre-existing condition exclusions on individuals under age 19 16

Market Reforms – Non-Grandfathered Plans Effective the first plan year on or after September 23, 2010 (January 1, 2011 for calendar year plans)  Cover preventive care at 100% in-network  If a PCP designation is required, allow enrollees to designate any in-network doctor (including OB/GYN and pediatrician)  Emergency services covered as in-network and no required preauthorization  New claims, appeals and external review processes  105(h) nondiscrimination rules apply to insured plans – prohibit discrimination in favor of HCIs as to eligibility or benefits 17

2011

Medical Loss Ratios  Insurance companies will be required to satisfy certain medical loss ratios (MLR)  80% in the small market  85% in the large market  Requires $0.80/0.85 of every premium dollar that the carrier receives be spent on medical care and activities to improve health care quality  Failure to maintain these thresholds results in rebates 19

More 2011 Requirements  Optional W-2 Reporting  Mandatory 2012  OTC & Tax Favored Accounts  Requires a prescription for reimbursement through a health FSA, HRA or HSA  HSA Penalty Increase  From 10% to 20% penalty  Small Employer Wellness Grants  Grants become available to certain eligible employers that establish Comprehensive Workplace Wellness Programs  CLASS Act  Government-run long-term care program  Employers may elect to enroll employees and withhold premium amounts  Appears to be delayed 20

On the Horizon

2012/2013  Uniform summary of benefits (2012)  HHS reporting (2012)  New fees in pharmaceutical manufacturing sector ( )  $2,500 health FSA cap (2013)  Medicare tax on high income earners (2013)  Fee on health plans for Patient Centered Outcome Research program (2013)  Excise tax (2.3%) on medical device sales (2013) 22

2014 Market Reforms – All Plans Effective the first plan year on or after January 1, 2014  No pre-existing condition exclusion clauses on any individuals  No waiting periods in excess of 90 days  All annual limits are prohibited  Cover children to age 26 23

2014 Market Reforms – Non- Grandfathered Plans Effective the first plan year on or after January 1, 2014  Coverage for individuals participating in approved clinical trials  Includes approved clinical trials for cancer treatment  Cannot deny (or limit or impose additional conditions on) coverage of routine patient costs for items and services furnished in connection with the clinical trial  Mandated coverage in the small market and through the Exchange 24

On the Horizon  New fees on insurance companies ($8 billion in 2014)  Exchange established (2014)  New marketplace for individuals and small employers to purchase health insurance coverage  Individual mandate (2014)  Individuals must have insurance coverage or pay a penalty  Large employer penalties and additional compliance burdens (vouchers and automatic enrollment) (2014)  Cadillac plan tax (2018) 25

Thank you! ALICIA SCALZO WILMOTH, JD Kibble & Prentice, a USI Company p