The Health Reform Law Post SCOTUS and the 2012 Election:

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1 The Health Reform Law Post SCOTUS and the 2012 Election: New Opportunities for Advisors? That Depends! by John P. Garven, ChHC, CLU, RHU, AIF Benico, Ltd , ext. 202; Mobile: Web: Blog: Twitter: twitter.com/benicoltd

2 It s all about perspective Unfortunately, there seems to be far more opportunity out there than ability... We should remember that good fortune often happens when opportunity meets with preparation. - Thomas A. Edison

3 It s all about perspective A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. - Winston Churchill

4 What are the opportunities with HCR? I believe e there are numerous opportunities for enterprising agents / brokers. The primary ones are: Compliance Defined contribution / Private exchanges Wellness and population health management (given that in 2014 the wellness program incentive cap is raised from 20% of the total cost of coverage to 30%) We will save discussion around wellness consulting opportunities for another time

5 Let s talk first about compliance

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7 Here is one of many (opportunities): The 2014 Pay or Play mandate Employers with 50 or more employees will be required to offer minimum essential coverage to all full-time employees (working 30+ hours). If an employer does not such provide coverage and at least one full-time employee receives coverage through a public Exchange for which h a federal premium or cost sharing subsidy is received, the employer will be assessed a tax penalty. The tax does not apply to the first 30 full time employees, and the "applicable payment amount" for 2014 is $ ($2,000 annually), which will be indexed for inflation in the years that follow.

8 The 2014 Pay or Play mandate If an employee is offered coverage under an employer- sponsored plan that satisfies prescribed Quality and Affordability standards, then the employee is ineligible for a federal premium or cost-sharing sharing subsidy for health insurance purchased through a public Exchange. Employees will generally be eligible for a federal premium / cost sharing subsidy if their income is between 138% to 400% of the federal poverty level and the employer's plan fails to satisfy both of the following standards:

9 The 2014 Pay or Play mandate Quality Standard: The plan must have at least a 60% Actuarial Value (i.e., the plan must be expected to pay at least 60% of covered medical expenses across a typical population). Affordability Standard: The premium for single coverage under the plan cannot exceed 9.5% of the employee's W-2 wages (per the recently announced Affordability Safe Harbor Notice , permitting employers to use an employee's current W-2 wages instead of household income).

10 The 2014 Pay or Play mandate If an employer fails either the Quality or Affordability standard, the tax penalty is equal to $250 (1/12 of $3,000) times the number of full time employees for any month who are in receipt of a federal premium or cost sharing subsidy. The $3,000 figure is for 2014, and will be adjusted for inflation after The number of employees is not reduced by 30 for purposes of calculating this penalty, and dthis penalty tax is capped at an overall limitation it ti equal to the penalty calculation above for an employer who does not offer coverage.

11 Summary of Potential Employer Penalties under PPACA, Congressional Research Service, May 14, 2010

12 Does Group Coverage Meet the Affordability Test? Federal Poverty Limit - FPL 2012 FPL Hourly Rate (40 hr week) Employee Share of Single Premiums per 9.5% income Standard 100% (Possibly Medicaid Eligible) $11,170 $5.37 $ % (Possibly Medicaid Eligible) $14,856 $7.14 $ % $16,755 $8.06 $ % $22,340 $10.74 $ % $27,925 $13.43 $ % $33,510 $16.11 $ % $39,095 $18.80 $ % $44,680 $21.48 $ % family of 4 $92,200 $44.33 $353.72/mo since employer only has to use the single rate for lowest tier plan to calculate affordability

13 Five PorP Scenarios The 17th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care lists 5 PorP scenarios for employers: - Optimal play: Continue as a plan sponsor for all employees. - Play and redirect: Restructure contributions to qualify low-paid employees for federal subsidies. - Selective play: Limit eligibility to employer-sponsored plan and direct ineligibles to public Exchanges. - Pay and redeploy: Discontinue plan sponsorship and provide some financial top-up for employees. - Pay and exit: Discontinue plan sponsorship p with no financial accommodation for employees.

14 Employer plan sponsors need help Employer plan sponsors are in need of guidance around decisions related to whether to play (sponsor a health benefit plan that meets specific minimum requirements) or pay (forgo plan sponsorship, pay a penalty and require employees to secure coverage for themselves through the Exchanges). The decision, however, is actually far more complex than simply pyplay versus pay, and that is where the consulting opportunity lies.

15 The consulting opportunity with PorP is in the financial modeling of an employer s various options around this requirement. Numerous software vendors, health actuaries, etc. are already to market with financial modeling tools that agents / brokers can license for a fee.

16 Some of the commercially available tools that I am aware of Verisight s i PPACAcalc tool - /GGQ3 JPG s comment: EXPENSIVE! as in thousands of dollars. ACA Solutions Tool - JPG s comment: Affordable - $650 for an annual license. Art Tacchino, an Assistant t Professor at The American College who teaches the ChHC curriculum is the one of the firm s founding gprincipals. p I had an occasion to recently provide an analysis for one of our clients using a proprietary p tool through the Benefit Advisors Network that my firm is a member of. I retained this very key account because I was able to offer such.

17 Are Employers Likely to Drop Coverage? Conflicting assessments in 2011 by McKinsey and Company (30% of employers would drop) vs. the Congressional Budget Office (CBO), Rand Corporation, and the Urban Institute all suggesting minimal impact. Truven Health Analytics Study Finds No Short- or Long- Term Advantage for Employers to Drop Group Health Insurance Under PPACA July 3, 2012 Deloitte: One in 10 U.S. Employers to Drop Health Coverage - July 24, 2012 Will PPACA Cause Employers to Drop Employee Health Insurance? - April 5, 2012, Wolters Kluwer

18 The Truven Health Analytics Study Using claims and wage data from 33 large employers with 933,000 employees, the research examines the direct benefit and tax cost of eliminating group health benefits. It also projects costs for under four different scenarios in which: 1) employers subsidize the full cost of obtaining coverage through an exchange, 2) employers subsidize exchange coverage without spending more per employee than their current group plan, 3) employers provide subsidy, but reduce overall costs by 20 percent, and 4) employers remove group health with no additional subsidy to employees to purchase their own healthcare.

19 The Truven Health Analytics Study s Findings 1. Federal Insurance Exchanges Twice as Expensive as Group Health Plans Employers will bear a burden of as much as $17,269 per employee (roughly $9,000 more than they currently spend) to shift their benefits to federally-subsidized coverage obtained through a federal exchange in 2014 rather than continuing existing group health plans.

20 The Truven Health Analytics Study s Findings 2. Cost Shift to Employees Would Create Significant Reduction in Compensation Should employers choose to eliminate group health without t providing a subsidy to employees to obtain coverage through an exchange, employer costs would fall to $2,000 per employee (the cost of fines imposed by the PPACA for not providing coverage to employees), but each employee would be responsible for paying an average of $16,551 per year for health coverage in Because employers must provide market value to retain skilled workers, this cost differential should encourage most companies to continue offering group health benefits.

21 Defined contribution (DC) health insurance There is a decided trend, a tsumani if you will, from defined benefit (DB) toward defined contribution (DC) health insurance. This trend in health insurance parallels the shift from DB to DC that we have seen in the qualified retirement plan space over the last years. Employer-sponsored group health insurance costs too much, and even though trend has moderated recently, at current premium levels even 7%-8% year-over-year rate increases are not sustainable long term. Because of HCR and other market factors we are also transitioning i to more of an individual id product model in the future.

22 Defined contribution (DC) health insurance In the past the advantage of group over individual coverage has been its deductibility as a business expense, it s tax-free for employees, and coverage is guaranteed issue. In 2002 the IRS gave tax parity to individual policies through its HRA regulations (with respect to employer tax-free contributions), and in 2009 Premium Reimbursement Accounts (PRAs) for employee tax-free contributions. Once guaranteed issue is available in the individual market in 2014 individual coverage will be on par with group with respect to tax treatment t t and access to coverage.

23 Defined contribution (DC) health insurance Zane Benefits ( is a terrific resource for agents around DC Health. I recommend viewing any number of the archived I recommend viewing any number of the archived webinars featured on Zane Benefits YouTube Channel

24 DC Health and Private Exchanges DC Health plays right into the concept of private exchanges. According to Oliver Wyman ( Private Healthcare Exchanges: An FAQ - Exchanges are going to be a permanent, significant part of the healthcare world going forward because they are a powerful, adaptable way of meeting a variety of employer needs. For many employers, the appeal is not just lower costs but the predictable costs made possible by shifting to a defined-contribution model.

25 Private Exchanges 4 key components of a private health insurance exchange: 1. Choice of 2 or more medical plans with multiple l carriers 2. Health insurance advice and decision support 3. Automatic billing 4. Ongoing support There is now a whole host of firms offering end-to-end webbased exchange automation solutions. Examples are: Array Health - hcentive Private Exchange - InsureXSolutions - Choice Administrators Exchange Solutions -

26 Emerging Players in Private Exchanges Bloom Health which works with WellPoint, Health Care Service Corporation, BCBS Michigan BlueCross BlueShield of MN Highmark Towers Watson ADP AON Hewitt CaliforniaChoice ehealthinsurance Extend Health Health Connector Walgreens

27 Recent Private Exchange Announcements 1 A J Gallagher (7/24/12) ly/sn02pp 1. A. J. Gallagher (7/24/12) Extend Health (8/22/12) Medica / Bloom Health (9/6/12) Flexible Benefit Service Corporation (9/6/12) -

28 Takeaways 1. First off, remember that complexity (i.e., HCR, market changes, etc.) creates opportunity. 2. Do a SWOT (strengths, weaknesses, opportunities, and threats) analysis of your practice. Focus on core competencies, and retool where needed. d 3. Clearly there are terrific prospecting opportunities in the areas of compliance, DC health / private exchanges, and wellness. Determine how you need to position yourself to competently address these areas. 4. Become a New School Advisor. Don t be caught flatfooted. 5. Give serious thought as to how to monetize the services you will be providing in a changing employee benefits market.

29 Thank you for your valuable time and attention! John P. Garven, ChHC, CLU, RHU, AIF Benico, Ltd , ext. 202; Mobile: Web: Blog: Twitter: twitter.com/benicoltd