Rachel Arnedt. Vice President Legal

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1 LACERA Board Offsite Retiree Health Care Program Rachel Arnedt Vice President Legal Rachel is a vice president in the Aon Health & Benefits Legal Consulting Group. In this capacity, she consults with clients on plan design, compliance, and communications, on topics such as the Patient Protection and Affordable Care Act and ERISA. Rachel also consults with Aon s National Absence Management Practice on matters such as the FMLA, ADA as well as paid sick leave and paid parental leave. Rachel consults with both public sector and private sector clients. Rachel joined Aon in 2014 and has 19 years of experience as a solutions-focused health and welfare benefits attorney. Rachel has extensive experience working closely with a broad range of taxable and tax-exempt companies. Prior to joining Aon, Rachel practiced at a law firm for many years, in all areas of ERISA and executive compensation. She also spent five years at a Fortune 50 company as an in-house ERISA and executive compensation counsel. A member of the Connecticut bar, Rachel is a graduate of Hamilton College and earned her law degree from Emory University.

2 LACERA Board Offsite Retiree Health Care Program John V. Grosso, FSA, MAAA Senior Vice President and Consulting Actuary Retiree Health Care Sub-Practice Leader John is a Senior Vice President, health care consultant, and actuary in the Health and Benefits practice at Aon Hewitt s Connecticut Center in Norwalk, CT and in Aon Hewitt s New York, NY office. He has 20 years of experience in the health care consulting industry with an additional 3 years of experience with a major U.S. insurer. John specializes in retiree health care design and strategy consulting for large, multi-site employers and has significant experience with postretirement welfare benefits plan valuations. John leads Aon Hewitt s national Retiree Health Care Sub-Practice, which is a team of actuaries and subject matter experts focused on retiree health care market tracking, product innovation, and client consulting. John is one of Aon Hewitt s national subject matter experts on the retiree health care strategy, design, and accounting implications of federal health care reform. He has led many consulting projects for large complex clients interested in exploring both group-based and individual market-based health care strategies for current and future Pre-Medicare and Medicare-eligible retirees. John has been quoted in a number of media outlets and industry journals on the subject of the Affordable Care Act and its impact on retiree health care design and strategy. He also speaks at industry and client conferences at venues across the country and was interviewed on CNBC concerning the implications of the Act on the retiree health care market. Additionally, John leads active and retiree health care design and strategy consulting projects with a particular focus on actuarial analysis including pricing, budgeting, forecasting, and reserving. Some of John s recent clients include Alcatel-Lucent, Moody s Corporation, Norfolk Southern, Siemens Corporation, The Dun & Bradstreet Corporation, United Technologies Corporation, and Verizon Communications Inc. John is a Fellow of the Society of Actuaries (FSA) with a concentration in group health benefits and a Member of the American Academy of Actuaries (MAAA), and has a B.S. in mathematics from Fairfield University.

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5 The Math of Repealing and Replacing the ACA The House 241 Republicans 194 Democrats Repealing some parts of the ACA while keeping others will be difficult when Republicans have only 52 votes in the Senate The Senate 52 Republicans 46 Democrats 2 Independents Paul Ryan (R-WI) Speaker of the House Pass with House majority and Senate supermajority (60 votes) OR Pass via budget reconciliation process (simple majority in both chambers) Mitch McConnell (R-KY) Senate Majority Leader Aon Hewitt Health & Benefits Proprietary & Confidential 12/2016 3

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10 ACA s Impact on California 4 million Californians gained coverage through exchange An additional 4 million gained coverage through Medicaid expansion Rate of increase in health premiums slowed Aon Hewitt Health & Benefits Proprietary & Confidential 12/2016 8

11 ACA s Impact on Medicare Life of Medicare Trust Fund extended by a decade Lower costs for prescription drugs More wellness screenings and preventive care Aon Hewitt Health & Benefits Proprietary & Confidential 12/2016 9

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13 Impact of 2016 Elections on Retiree Health Care Design and Strategy Republican strategy: Move away from the ACA s individual, employer, and health plan federal mandates, taxes, and subsidies and replace them with a variety of targeted tax and insurance market reforms, statebased initiatives, medical liability reforms, and other solutions Stated objectives Provide more choice for consumers Reduce health care costs Provide greater flexibility to patients and providers Spur innovation in health care Reform the current Medicaid system Protect and preserve Medicare Potential changes to the ACA and concepts presented in A Better Way will likely create both challenges and opportunities for plan sponsors supporting retiree medical programs Aon Hewitt Health & Benefits Proprietary & Confidential 12/

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16 Impact of 2016 Elections on Pre Medicare Individual Market Strategies It is possible that Republican strategies to replace the ACA with a variety of targeted tax and insurance market reforms, state-based initiatives, etc., will create new opportunities for Pre-Medicare retirees and plan sponsors going forward For now, most plan sponsors will wait for the political process to play out before moving retirees into the individual market to secure health coverage for the longterm Most plan sponsors will allow the ACA repeal and replace political process to unfold before seriously considering the ACA marketplaces as a viable, long-term benefit sourcing option Aon Hewitt Health & Benefits Proprietary & Confidential 12/

17 Impact of 2016 Elections on Medicare Eligibles Group Strategies Republicans have expressed a desire to build on the current Medicare Advantage and Medicare Part D programs to further privatize Medicare, and drive innovation, cost management, and quality through competition Republican support for, and further investments in, Medicare Advantage and Medicare Part D should create additional ongoing opportunities for groupbased plan sponsors Medicare Advantage and Medicare Part D are programs with proven cost and health care management advantages relative to traditional Medicare, which drive significant value for plan sponsors and retirees We would only expect these opportunities to expand through the targeted changes Republicans have in mind Group-based Medicare Advantage and Medicare Part D strategies should thrive under the new Republican administration Aon Hewitt Health & Benefits Proprietary & Confidential 12/

18 Impact of 2016 Elections on Medicare Eligibles Individual Market Strategies Republican focus on Further development of the Medicare Advantage and Medicare Part D programs Improving the offerings available in the individual market Changing the current Medigap market to introduce stronger levels of consumerism Driving value in the individual market Republicans also exploring moving the Medicare system to a premium support, exchange-type scheme for new beneficiaries driven by competition Could help plan sponsors who are considering private Medicare exchanges and enhance the individual market Individual market strategies for Medicare-eligibles should continue to gain momentum under the new Republican administration Aon Hewitt Health & Benefits Proprietary & Confidential 12/

19 Impact of 2016 Elections on Medicare Eligibles Individual Market Strategies Repeal of closing of the Medicare Part D donut hole (Scheduled to be completed by 2020 ) Revoking this benefit would negatively impacts 40M+ seniors Senate Democrats could filibuster the idea or Repeal with a deal between Democrats and Pharma HRA-based individual market strategy can generally insulate plan sponsors from the impact of any changes to the Medicare program which might include cost-shifting to traditional, employer-sponsored group-based programs This fact alone will likely encourage many plan sponsors to consider exchange-based strategies It is not expected that ACA repeal and replace initiatives will materially impact the Medicareeligible health care market Aon Hewitt Health & Benefits Proprietary & Confidential 12/

20 Impact of 2016 Elections Overall Outlook We expect that opportunities will continue to flourish for Medicare-eligible populations ACA marketplace instability and limited group-based solutions for Pre- Medicare retirees will result in most plan sponsors taking a wait-and-see approach with respect Since Senate Democrats can block legislative changes to the ACA with a filibuster, it is unclear how successful the Republicans might be with respect to implementing their broader health care reform vision Political compromises will likely be required to address material challenges with the ACA and move toward a new or modified health care system Aon Hewitt Health & Benefits Proprietary & Confidential 12/

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22 What is MACRA? a/k/a the permanent doc fix Passed by Congress and signed by the President in April 2015 Intended to reward quality, cost-effective care (value vs. volume) Makes three major changes to how Medicare pays those who care for Medicare Beneficiaries Ends the Sustainable Growth Rate (SGR) formula for determining Medicare payments for health care providers services Creates a new framework for rewarding health care providers for giving better care not just more care Combines existing CMS quality reporting programs into one new system Aon Hewitt Health & Benefits Proprietary & Confidential 12/

23 How Might MACRA Be Affected By Repeal of the ACA? Components of MACRA are embedded in ACA MACRA builds on the patient-centered outcomes push under the ACA Centers for Medicare and Medicaid Innovation (CMMI) created by the ACA has oversight on changes in payment reforms for Medicare MACRA had wide support from Congress when it was passed 91% of Congress supported MACRA. The House passed the bill The Senate vote was 92-8 Bipartisan law was designed to bring about long needed value-based payment reform and repeal the flawed SGR MACRA data collection began in 2016, first performance measurement year is 2017, and incentive payments commence in 2019 Too soon to tell but providers are being encouraged to proceed with compliance Aon Hewitt Health & Benefits Proprietary & Confidential 12/

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25 ACA Section 1557 Nondiscrimination Regulations An Update Section 1557 of the ACA prohibits discrimination with respect to any health programs or activities on the basis of race, color, national origin, sex, age, or disability Retiree-only health plans are not exempt from Section 1557 As of 12/31/2016: nationwide injunction against enforcement of the final reg with respect to nondiscrimination on the basis of gender identity Still being enforced: everything else including the notice and language assistance requirements Aon Hewitt Health & Benefits Proprietary & Confidential 12/

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