1. Health Care Reform Update Presented by Patrick W. McAlpine Vice President & General Counsel Stephens Insurance, LLC August 11, 2011

2. Learning Objectives In today’s session, we will: Cover a “big-picture” overview of the Health Care Reform act. Learn some of the high points and controversial aspects of Health Care Reform. Discuss current legal challenges in the court system.

3. Terms and Definitions PPACA=Patient Protection and Affordable Care Act of 2010 (the “Health Care Reform” bill). Exchange=The state-run insurance markets to be set up as alternatives to employer-sponsored health care plans. Grandfathering=Keeping old (pre-March 2010) plans without being subject to the more expansive reforms of PPACA. MLR=“Minimum Loss Ratios”- Percentage of premiums collected that must be paid out in claims (85%>100, 80%<100).

5. A Few Initial Observations  Law passed March 23, 2010 on a partisan basis through reconciliation process in spite of polls showing the majority of Americans opposed bills.  The most expansive social legislation since Medicare.  The initial stated objective was to improve accessibility and affordability of care to Americans. The final bill, however, focused primarily on accessibility and insurance market reform with little emphasis on cost. Many provisions such as mandated increased and new benefits, along with expanded eligibility, will actually increase costs.  Law is phased in over several year period, with major provisions including exchanges and mandates being effective in 2014. Health Care Reform Summary

7. To retain status, Grandfathered Health Plans...  Cannot significantly cut or reduce benefits  Cannot raise coinsurance percentage  Cannot significantly raise co-pays  Cannot significantly raise deductibles Health Care Reform Grandfathered Plans

8. Health Care Reform Individual mandate requires most American citizens and legal residents to purchase qualified health insurance. Violators are subject to an excise tax penalty the higher of: Flat dollar amount ($95 in 2014, $325 in 2015 & $695 in 2016) Percentage of the individual’s income (1% in 2014, 2% in 2015, & 2.5% in 2016) Large employers (200+) required to auto-enroll new employees into company health plan (employee may opt out). Individual Mandate/ Auto-Enrollment

9. If employers do not offer health insurance, they must pay an annual fine of $2,000 per employee minus the first 30 full-time employees if one employee is eligible for an exchange subsidy; or If an employer does offer coverage but it is not qualified AND affordable, the employee can opt out. Employer is fined $3,000 for each opt out who receives a subsidy up to a maximum of $2,000 times every full-time employee. Health Care Reform “Pay or Play”

10. If coverage offered, it must be “qualified” and “affordable”  A qualified plan includes “essential benefits” and is expected to pay at least 60% of the allowed charges.  An affordable plan must not exceed 9.5% of employee’s household income. Health Care Reform “Pay or Play”

11. New Developments Proposed exchange rules issued on July 11, 2011. The rules set forth the proposed standards for state-run health insurance exchanges. New internal appeal and external review rules were issued on June 24, 2011; amendments to those rules were issued on July 26. Recommendations issued on July 19 on new types of services for women’s health that must be covered at no cost to patients under PPACA. Controversial inclusion of contraception in the list of recommended services to be added.

12. 1. Michigan: lower court found law constitutional; 6 th Circuit Court of Appeals affirmed on June 29, 2011. 2.Virginia: lower court found individual mandate unconstitutional, but declined to strike down entire law- found that it could be severed. 3.Florida: lower court found entire law unconstitutional based on individual mandate and no severability. 4.DC: found constitutional. D.C. Circuit to hold arguments on September 23. Litigation Overview

13. The Michigan Litigation Thomas More Law Center v. Obama, No. 10-2388 (6 th Cir. June 29, 2011). Three-judge panel found the law was not unconstitutional Found that PPACA was a valid exercise of congressional power under the Commerce Clause Key point is that the Court found that individuals are, “in the aggregate” active in the health care market, and “virtually everyone requires health care services at some unpredictable point.” See Thomas More at *25.

14. The Florida Litigation 26 States brought suit against the federal government Several challenges to the law were asserted Court’s opinion focused on the individual mandate: the part of health care reform requiring individuals to be insured, or to face a penalty beginning in 2014 Court found the individual mandate was unconstitutional because it was not supported by the Commerce Clause Court also found the ENTIRE act unconstitutional because there was no “severability clause”

15. The Virginia Litigation 2 federal courts in the same state held differently on the individual mandate Both cases are on appeal to the 4 th Circuit; Arguments heard on May 10, 2011; awaiting 4 th Circuit decision Heard at the same time as one case Big difference between Florida and Virginia litigation: -Florida court found the entire law unconstitutional, Virginia only struck down individual mandate -Also, Virginia doesn’t involve multiple states

16. What Happens Next? 1.Michigan: 6 th Circuit Court of Appeals issued ruling June 29. Possible appeal to U.S. Supreme Court or request for rehearing by 6 th Circuit is next. Petition for Certiorari filed August 1, 2011. 2.Virginia: Argued May 10, 2011 before 4 th Circuit Court of Appeals; awaiting decision. 3.Florida: Argued June 8, 2011 before the 11 th Circuit Court of Appeals; awaiting decision. 4.DC: Arguments before D.C. Circuit set for September 23, 2011.

17. Supreme Court Outlook Most commentators and constitutional lawyers believe that the individual mandate will be upheld at the Supreme Court. However, the makeup of the Supreme Court currently consists of five Republican appointees and four Democratic appointees. The biggest question now is which case will the Supreme Court take- Michigan is ripe-6 th Circuit has made a decision; Florida is most wide ranging-numerous states are involved via attorneys general; Virginia presents an interesting middle ground as “unconstitutional but severable.”

18. Congressional Reform Some feel that the Republican majority in the House may pass a limiting amendment removing some of the more controversial aspects of PPACA. But the House’s attention has been focused on the debt crisis issue for the last few months. Also, the Democrats control the Senate, so any amending bill would likely get stopped there. The general sense is hoping that the courts will make a decision to “solve” the issue; or at least a Supreme Court decision will provide the needed push to create a proper amendment.

19. Wellness Litigation PPACA contains provisions favoring wellness programs. It allows companies to provide an incentive to their employees who participate in wellness programs, for instance, a reduction in health insurance premiums rewarding participation. The allowable bonus percentage increases over time from 20%, to 30%, and ultimately to 50%. However, the EEOC has issued and opinion that this may violate the ADA in certain circumstances. A lawsuit was brought in Florida against an employer, was certified as a class action, but then was dismissed by the judge.

20. Sources and Further Information Stephens Insurance http://www.stephens.com/insurance/health_care_reform/news__information.aspx Arkansas Insurance Department http://www.insurance.arkansas.gov/administration/Reform.html Department of Health and Human Services Health Care Reform Site http://www.healthcare.gov/ U.S. Department of Justice’s Site on HCR Litigation http://www.justice.gov/healthcare/

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