In 1950 the average person spent less than $100 per year (or $500 in today’s dollars) on healthcare. In 2010 the average person spent over $8,400 per year on healthcare and spending on healthcare is currently 18% of GDP. Future cost of healthcare?

Reasons for increased cost?  One third of the country is obese?  Increased technology?  Lawsuits (Preventive Medicine)?  Advances in medicine/Rx?  Lack of Transparency?  Free Riders?  Treating symptoms and not causes?  Abuse of ER?  Government Regulation?  Inefficiencies and duplications?  Aging demographic?

Healthcare costs continue to increase every year and are expected to increase into the future…..  More and more uninsured.  Fewer and fewer employers offering medical coverage.  No one solution that will fix all of the problems.  Nobody stepped up…….so government stepped in.

Signed into law in March Over 2,000 pages. Over 1,000 times “the secretary shall determine” or something similar Funded by approximately $500 billion in tax increases and $500(+) billion in Medicare “cuts” over 10 years Primary focus is to decrease number of uninsured by 30 million Multiple new regulations on health insurance carriers Individual and employer mandates Insurance Exchanges Community Rates for small group and individuals Phased in over 8 years – majority in 4 years

Constitutionality of Individual Mandate 3 Unconstitutional 3 Constitutional Appeals Court RulingsSupreme Court Ruling 2 Constitutional 2 Vacated for Lack of Standing 1 Unconstitutional

Guidance released to date:  Age 26 Requirement  Early Retiree Reinsurance Program  High Risk Pools (State and Federal)  Small Employer Tax Credit  Grandfathered Plan Status  Patient Protections (no pre-ex under 19 yrs)  Preventive Care  Appeals Procedures & Limited Delay  OTC Reimbursement Limitations  HSA Penalties  Annual Limit Waivers  Class Act “LTC” Program (Suspended)  W-2 Reporting  Medical Loss Ratio Requirements (MLR) and Rebates  Student Health Insurance  Summary of Benefits and Coverage  Essential Benefits  Employee Notification Requirements  FSA Limits to $2,500 (1/1/13)

Individual Mandate Employer Mandate Community Rating Public and Private Exchanges Pre-existing conditions & GI Ca dillac Tax Other: Comparative Effective Research Fee Medicare Tax Increase Part D drug subsidy elimination Itemized medical expense deduction changes

Minimum Essential Coverage Virtually all group health plans Virtually all other health benefits Individual policies Medicare/Medicaid, CHIP, VA, TRICARE State risk pools Other (as recognized by HHS) Does not include “excepted benefits”  Exclusions: accident/disability, liability, workers’ comp., onsite medical clinics, limited scope dental or vision (if under separate policy), LTC, med. Supp. & hospital indemnity, specified disease or illness Minimum Essential Coverage

Exceptions and Exemptions Unaffordable Required contribution exceeds 8% of the individual’s household income* Household income* below income tax filing threshold Native Americans Prisoners Undocumented aliens Short lapses Lack Minimum Essential Coverage for 3 months Religious exceptions Health care sharing ministry Conscientious objectionsException * Modified Adjusted Gross Income

Year After 2016 Flat Dollar Amount** (max of 300 % for family) $95 $325 $695 $695, indexed for inflation in $50 increments % of Household Income *Capped at the national average of the annual cost of a bronze level health insurance plan, for the family size, offered through the state exchange. **Halved for dependents under age 18 (but do not halve when determining 300% cap on dollar amount for those NOT insured by taxpayer) Penalty amount is the greater of*: Penalty

No penalty applies! Lesser of: $3,000 per FTE receiving premium assistance* $3,000 per FTE receiving premium assistance*or $2,000 per FTE (minus first 30) $2,000 per FTE (minus first 30) Lesser of: $3,000 per FTE receiving premium assistance* $3,000 per FTE receiving premium assistance*or $2,000 per FTE (minus first 30) $2,000 per FTE (minus first 30) $2,000 penalty per FTE (minus first 30) if at least one FTE receives premium assistance No penalty applies! Is coverage affordable (less than 9.5% of employee’s income? Plan provides minimum required value (60% actuarial value)? Offer Coverage? *Only applies to FTEs with household incomes of 400% of FPL or less Have at least 50 FTEs (30 hours per week avg)?

Employee Contribution as % of Income for employee- only coverage* for employer’s lowest cost plan Employee Contribution as % of Income for employee- only coverage* for employer’s lowest cost plan More employees staying on company plan Fewer employees on premium assistance = fewer federal penalties More employees staying on company plan Fewer employees on premium assistance = fewer federal penalties Low %High % Fewer employees staying on company plan More employees on premium assistance = more federal penalties Fewer employees staying on company plan More employees on premium assistance = more federal penalties Affordable Coverage Unaffordable Coverage * Proposed guidance.

To qualify for premium assistance credit, an individual must: Not be eligible for an employer-sponsored plan that is affordable and has a minimum value Have a household income between 133% and 400% of the Federal Poverty Level Not receive benefits through Medicare, Medicaid, CHIP, TRICARE, VA or other coverage as determined by HHS Be a citizen or legal immigrant Be a resident of the state where the Exchange is located Not be claimed as a dependent on anyone’s tax return Purchase a qualified health plan through the Exchange (not including a catastrophic plan) Premium Assistance

Premium assistance is based on: The cost of the second-lowest cost plan offered through the exchange, AND The household income of the applicant Maximum premium allowed to charge is sliding scale from 2% (for 133% of FPL) up to 9.5% (300%-400% of FPL) of household income Premium assistance covers the remaining cost Example: Family of income: $70,200 (300% FPL) Silver level plan cost: $11,010 Premium Assistance: $4,348 (covers 39% of premium) Family premium cost: $6,669 (covers 61% of premium) Premium Assistance

Premium Assistance Credit Most individuals who are eligible for employer-sponsored coverage will not be eligible to receive premium assistance As long as: The employer-sponsored coverage provides the minimum required value (60% of actuarial value) The employer-sponsored coverage is affordable (premiums for employee-only coverage of the lowest cost plan do not exceed 9.5% of the employee’s income*) * Proposed regulations

Happy Company, Inc. Offers comprehensive medical coverage that meets minimum required value (60% actuarial value) Contributes 75% toward employee-only coverage and 0% toward dependent coverage

Employee #1: Arthur Analyst Employee-only coverage Annual salary of $44, % of the FPL Does not qualify for subsidy – income over 400% of the FPL No penalty to employer

Employee #2: Johnny Janitor Employee-only coverage Annual salary of $15, % of the FPL $100 premium contribution is less than 9.5% of income Coverage is affordable No penalty to employer

Employee #3: Annie Admin Employee-only coverage Annual salary of $27, % of the FPL $100 premium contribution is less than 9.5% of income Coverage is affordable No penalty to employer

Johnny Janitor $15,000/year Annie Admin $27,225/year 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Happy Company Contribution Unaffordable Coverage Affordable Coverage Happy Company Contribution

Value of Benefits & Household Income Value of Benefits & Household Income $$ Medicaid Spouse Employer Bronze Plan Silver Plan Gold Plan Platinum Plan HEALTH INSURANCE EXCHANGE Catastrophic Plan

Employer NoticeCall Center WebsiteNavigator

Large Group 2017? Premium Assistance Individuals Small Group PROVIDERS CHOICE POOL Bronze Plan Silver Plan Gold Plan Platinum Plan Catastrophic Plan CONSISTENT MARKET RULE BASE

Charge the same premium as plans purchased outside of the Exchange Community Rates Actual rates won’t be determined until closer to 2014 Exchange will determine eligibility for premium assistance credit to help pay premiums No Wrong Door Set up by each state??

Source: The Henry J. Kaiser Family Foundation

Applies to small group and individual coverage Everyone will share in cost Health status and gender will no longer apply. Certain exclusions will still apply  Tobacco Use (1.5 to 1 rating)  Family Size  Geography  Age (maximum 3 to 1 rating)

Who:  Large Employers and Offering Employers What:  Whether employees can enroll in “minimum essential coverage”, what waiting periods apply, premium cost, and employer contribution, & number of FTEs When:  Periods beginning after December 31, 2013 Effective date:  December 31, 2013

Employers with more than 200 full-time employees who offer enrollment in one or more health benefits plans are required to automatically enroll new employees in one of the plans offered Program must include adequate notice and opportunity for employees to opt-out DOL says automatic enrollment guidance will NOT be ready by 2014

No waiting periods longer than 90 days  NOT first of the month after 90 days!  Effective first plan year on or after January 1, 2014 Elimination of Pre-existing Condition Exclusions for all  In 2014, a plan may not impose a pre-existing condition exclusion on any enrollee (no longer up to 19 years)

Formerly the Comparative Effectiveness Research Fee Applies to all plan sponsors and issuers of individual and group policies ending after Sept. 30, 2012  Must pay a fee of $1 per covered life per year  The fee adjusts to $2 per covered life for policy or plan years ending Oct. 1, 2013 Applies to clinical trials to treat cancer or other life-threatening diseases  For policy or plan years ending after Sept. 30, 2014, the shall be adjusted by the Secretary of Treasury based on the percentage increase in the projected per capita amount of national health expenditures. Purpose of Fee is to evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of two or more medical treatments and/or services

Part D drug subsidy deduction eliminated Federal subsidies paid to plan sponsors of retiree prescription drug benefits (Retiree Drug Subsidy - RDS) payments will become taxable in tax years beginning after December 31, Medicare Tax Increase Applies to individuals making more than $200k filing single or $250k filing jointly. Itemized medical expense deduction changes (1/1/13) Threshold changing from 7.5% to 10%.

COBRA Rate ≥ $10,200 for individual or $27,500 for family Special Provisions High risk professions High risk professions Early retirees Early retirees Age & Gender Age & Gender = 40% of plan value that exceeds threshold Excise Tax

Make certain you are receiving expert/qualified counsel Determine health plan strategy as part of total compensation moving forward Perform quantitative and qualitative analyses on approaches Learn about and prepare for Private and Public Exchanges Remain attentive to large changes as well as small details Develop an implementation plan Develop a communication plan

DOL Audits of group health plans have spiked since 1/1  No longer complaint driven  Very small to very large groups  Fully-Insured and Self-Funded  Within and outside Texas Audit focus expanded  Compliance with PPACA  HIPAA Compliance/HITECH Act  Required notices to employees  SPD Delivery  Written policy procedures for obtaining COCC’s.

Repeal and replace  House passed; Failed in Senate Defund the bill or scrutinize the process  Delay or stop funding certain provisions of the law  Highlight certain provisions that are opposed  Scrutinize the regulatory implementation process Actions by States  Oppose Exchanges & Medicaid expansion 2012 Presidential & Congressional Elections

A recent study by consulting company Deloitte predicts that about 1 in 10 employers in the US will drop health coverage for their employees over the next few years, as the Affordable Care Act goes into effect. The report also predicted even more would in the future. Deloitte's findings are less than those released last year by McKinsey, which said up to 3 in 10 employers would drop coverage.

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