Health Reform Coverage Expansions: Impact of Insurance Exchanges & Medicaid Expansion on Michigan Health Plans. July 2014 avalere.

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1 Health Reform Coverage Expansions: Impact of Insurance Exchanges & Medicaid Expansion on Michigan Health Plans July 2014 avalere.com

2 Agenda Health Insurance Exchanges: National and Michigan Trends o Enrollment o Plan Participation & Premiums o Benefit Design o Looking Ahead to 2015 Medicaid o Expansion in Michigan o Benefit Design o Growing Role of Managed Care Opportunities and Challenges for the Future 2

3 Post-ACA Environment Yields New Payer and Provider Dynamics and Shift of Focus to Consumers Evolving Insurance Landscape Coverage of new lives; Evolution of employer-sponsored market Transformation of Provider Business Models Rise of integrated systems and consolidation; Providers taking on risk Increased Consumer Engagement Consumer choice in insurance coverage and treatment decisions 4 Quality and Evidence Value-based purchasing; Use of evidence in coverage decisions 5 Role of Government as a Payer Increase in government-sponsored/controlled lives post

4 Government Programs Will Play Larger Role for Managed Care Industry In the Short Term, Growing By More 84 Percent ENROLLMENT BY PAYER TYPE (IN MILLIONS), 2013 & Growing Gov t Role Other Limited Government Role Significant Government Role Uninsured Medicaid Fee-For-Service Medicare Fee-For-Service Non Group Employer Exchanges Medicaid Managed Care Medicare Advantage Enrollment in managed care programs with a significant government role is expected to grow from 23% in 2013 of total managed care business to 35% in Source: Avalere Enrollment Model for All Payers, and Specialized Models for Medicare, and Medicaid, January 2013, Assumes 23 states opt out of the Medicaid expansion). 4

5 Health Insurance Exchanges in 2014

6 Michigan s Exchange Is Operated by the Federal Government Through HealthCare.Gov 2015 INSURANCE EXCHANGE OPERATIONAL MODEL WA OR NV CA ID UT MT WY CO ND SD NE KS MN WI IA MO IL IN MI OH KY WV NY PA VA ME VT NH MA CT NJ DE MD D.C. RI Despite the tumultuous roll-out of the HealthCare.gov website, a total of 273,000 Michiganders 1 enrolled in an exchange plan through the federal site mid-april AZ NM OK AR MS TN AL GA NC SC State-Run (12 + DC) State-Run, transitioning from HealthCare.gov platform to state-based IT (2) AK TX LA FL Transitioning from state-based IT to HealthCare.gov platform (2) Partnership (6) HI Federally-Facilitated Exchange (28) Source: Avalere State Reform Insights, June 13, ASPE Health Insurance Marketplace Summary Enrollment Report For The Initial Annual Open Enrollment Period; For the period: October 1, March 31,

7 MI Exchange Enrollees Are Slightly Younger than the National Average EXCHANGE ENROLLMENT BY AGE 100% 90% 80% 30% 27% 17% 70% 60% 50% 40% 39% 38% 37% 55 and Over Under 18 30% 20% 10% 0% 26% 29% 40% 6% 6% 6% Total US Enrollment* Michigan Enrollment* Potential US Market** (2013) *These numbers are based on the latest HHS Enrollment Report on enrollment through April 19. In general, enrollments reflects those choosing a plan. ** Distribution of Potential Individual Market Enrollees by Age Kaiser Family Foundation analysis of the Survey of Income and Program Participation. December 13, Numbers may not equal 100% due to rounding within each age category. 7

8 The Vast Majority of Exchange Enrollees Receive Financial Assistance and Have Purchased Lower-Premium Plans MICHIGAN EXCHANGE ENROLLMENT BY FINANCIAL ASSISTANCE Without Financial Assistance 13% With Financial Assistance 87% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% EXCHANGE ENROLLMENT BY METAL TIER* 6% 2% 9% 11% 63% 75% 18% 13% 1% 2% Total MI Catastrophic Bronze Silver* Gold Platinum Updated: July 15, 2014, Avalere State Reform Insights These numbers are based on the latest HHS Enrollment Report on enrollment through March 31, In general, enrollments reflects those choosing a plan. Numbers may not equal 100% due to rounding within each age category. FFE = Federally-Facilitated Exchange SBE = State-Based Exchange *Silver tier enrollment includes enrollees with cost-sharing reductions 8

9 Plans Strive to Keep Premiums Low, But Have Limited Flexibility on Benefit Design Actuarial Value Essential Health Benefits Out of Pocket Limits With Pressure to Keep Premiums Low, Plans Will Be Focused on Select Levers Network Design: Despite requirements that they must offer adequate networks, plans are designing high-value, narrow networks Formulary Design: Tier placement and utilization management will help plans manage drug use while still meeting EHB drug coverage requirements Guarantee Issue & Rating Rules These parameters constrain plan flexibility Cost-Sharing Requirements: Cost-sharing for specialty products in particular is expected to be high, and plans will structure cost sharing to encourage use of lower-cost products EHB: Essential Health Benefits 9

10 BCBS of Michigan and Priority Health Have Major Footprints in Michigan s 2014 Exchange Market Exchange model: Federally-facilitated Actual 2014 enrollment: 1 272,539 Plans by Metal Tier:» Catastrophic: 10» Bronze: 14» Silver: 23» Gold: 21» Platinum: 4 AVERAGE PREMIUMS GOLD $531 PLATINUM $495 SILVER $454 BRONZE $357 Participating Plans* Blue Cross Blue Shield of Michigan Consumer Mutual Insurance of Michigan Number of Regions Catast. Bronze Number of Plan Offerings Silver Currently has over 10% market share in the individual market, in the state. Gold Platin. Total HAP Humana McLaren Health Meridian Molina Priority Health Total Health Care USA Source: Avalere analysis of information available on healthcare.gov at: xusy, accessed October 3, ASPE Health Insurance Marketplace Summary Enrollment Report For The Initial Annual Open Enrollment Period; For the period: October 1, March 31, *OPM plan offerings are included in the counts of the issuer offering the health plan. 10

11 In Other States, Regional and Blue Plans Have Dominated Initial Enrollment, Though Premium Is the Key Driver ENROLLMENT BY ISSUER California Anthem Blue Shield of CA Health Net Kaiser Permanente Other Connecticut Anthem ConnectiCare Other Kentucky Kentucky Health Cooperative Anthem Humana Maryland CareFirst Blue Cross Blue Shield Kaiser Massachusetts Minnesota Neighborhood Health Plan PreferredOne Tuft s BCBS of MA HealthNet BCBS of MN Other Health Partners Other Nevada Nevada Health CO-OP Health Plan of Nevada St. Mary s Anthem BCBS New York Rhode Island Health Republic Fidelis Care MetroPlus Empire BCBS Emblem Excellus Other BCBS of RI Other Vermont BCBS of VT MVP Washington Premera Blue Cross Coordinated Care Group Health LifeWise Other Greatest Share of Enrollment 6 th Greatest Share of Enrollment 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2 nd Greatest Share of Enrollment Other Updated: July 2, 2014, Avalere State Reform Insights 3 rd Greatest Share of Enrollment 4 th Greatest Share of Enrollment 5 th Greatest Share of Enrollment 11

12 Exchange Plan Deductibles Are Much Higher Than Those in Employer Plans, Especially in Bronze and Silver Plans AVERAGE MEDICAL DEDUCTIBLES BY METAL LEVEL $6,000 $5,000 $4,959 MEDICAL DEDUCTIBLE $4,000 $3,000 $2,000 $3,132 $1,713 Employer: $1,135* $1,000 $1,000 $- Bronze Silver Gold Platinum *Average deductible for individual coverage;: Kaiser Family Foundation/ HRET 2013 Employer Health Benefits Survey. Source: Avalere PlanScape, Updated January 28, Avalere analysis HHS data file of all exchange plans in FFM states. 12

13 PCP Silver Plans Largely Offer Copays Between $21-40, and Most Gold Plans Use Copays under $40 for PCP Visits 2014 AND 2015 PCP COST-SHARING BY METAL LEVEL USE OF COPAYS: 100% 14% 2% 2% 0% 1% 4% 10% 0% 13% $0 - $20 $21 - $40 $41 and over PERCENT OF PLANS 50% 27% 22% 14% 14% 15% 40% 3% 38% 28% 65% USE OF COINSURANCE: 0-20 % % 41% or more 8% 44% 16% 20% 0% Bronze Silver Gold Platinum Source: Avalere PlanScape, updated November, PCP: Primary Care Physician Note: When plans indicated no charge in the HHS Landscape file, Avalere assigned the plan to $0 copayment or 0% coinsurance depending on which cost sharing type was most prevalent for the specified benefit. For PCP visits, Avalere used $0 copayment. 13

14 Specialty Tiers Are Much More Common in Exchanges & Part D Compared to Employer Plans DISTRIBUTION OF FORMULARIES BY NUMBER OF TIERS, BY MARKET SEGMENT PERCENT OF PLANS 23% 91% 94% 59% 9% 3% 19% 3% Exchange (2014) Medicare Part D (2014) Employer (2013)* Two or Fewer Tiers Three Tiers Four or More Tiers *Employer data represented distribution of covered workers whereas exchange and Part D data represent distribution of plans. Source for Exchange Data: Avalere PlanScape, Updated November Avalere collected plan information from both federally-facilitated and state-based exchanges and captured a sample of over 600 plans for the analysis. Source for Employer Data: Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits 2013 Annual Survey. Source for Part D Data: Avalere Health analysis using DataFrame, a proprietary database of Medicare Part D plan features, Updated October

15 Over 50% of Bronze and Silver Plans, Which Have the Highest Enrollment, Use Coinsurance on Their Specialty Tiers PLAN SPECIALTY TIER COST SHARING IN FFM STATES, BY METAL LEVEL FREQUENCY OF COST SHARING TYPE 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6% 2% 14% 15% 8% 16% 17% 17% 25% 28% 25% 18% 8% 6% 73% 27% 37% 42% 16% Bronze Silver Gold Platinum Co-Payment No Charge After Deductible Coinsurance: 0%-29% Coinsurance: 30%-49% Coinsurance: 50% and Higher Source: Avalere PlanScape, Updated January 28, Avalere used a deduped version of the official HHS data file of all plans and benefit designs in FFM states to determine cost sharing. 15

16 Silver Plan Variations Are Most Likely to Reduce Deductibles, Least Likely to Reduce Formulary Tiers 3 & 4 PERCENT OF SILVER PLAN VARIATIONS THAT ALTER COST-SHARING STRUCTURE** FROM THE STANDARD SILVER PLAN* 74% 96% 96% 61% 70% 52% 64% 57% 68% 75% 69% 63% 58% 73% AV CSR Plan 87% AV CSR Plan 94% AV CSR Plan 53% 39% 31% 25% 22% 22% 13% 5% Medical Deductible Primary Care Cost Sharing Specialist CostFormulary Tier Formulary Tier Formulary Tier Formulary Tier Sharing 1 Cost Sharing2 Cost Sharing3 Cost Sharing4 Cost Sharing *Data in the Landscape file is structured into four formulary tiers. For plans that have fewer or more than four formulary tiers, the data in this file may be inaccurate. ** For the purposes of this analysis, Avalere used the coinsurance and copayments amounts that applied after the deductible was met. Plans that noted that there was no charge, or no charge after the deductible was met were excluded. Amounts are rounded to the nearest dollar or percent. Source: Avalere PlanScape, updated March, Avalere collected plan information that was publically available in the 11th volume of the HHS Landscape File, accessed via: The file contained 5,800 silver plans spanning 34 FFM states. AV = Actuarial Value CSR = Cost Sharing Reduction 16

17 Looking Ahead to 2015

18 As the 2015 Benefit Year Approaches, Carriers Must Meet Major Milestones in the QHP Application and Certification Process Initial FFM Review of QHP Applications FFM Reviews of Corrected QHP Applications Oct 14- November 3: Certifications announced and agreements signed with HHS Jan. 1: FF-SHOP goes live 2014 June July Aug Sept Oct Nov Dec 2015 Jan Feb Aug. Nov.: 2015 Rates Released Nov 15-Feb 15: 2015 Open enrollment FFM = Federally Facilitated Marketplace SHOP = Small Business Health Options Program QHP = Qualified Health Plan HHS = Department of Health and Human Services 18

19 New Carriers Will Enter Michigan s Exchange in 2015 and Existing Carriers Will Expand Their Product Offerings UnitedHealthcare Community Plan, Inc. Joining ~24 exchanges in 2015 Offering plan in 2 Regions 2 Bronze 5 Silver 2 Gold 1 Platinum Physicians Health Plan Offering plan in 5 Regions 1 Catastrophic 3 Bronze 3 Silver 2 Gold 1 Platinum Harbor Health Plan Offering plans in 1 Region 1 Bronze 1 Silver 1 Gold Total Number of Plans Offered in 2014: 60 Total Number of Plans Offered in 2015: 187 Source: Avalere State Reform Insights, June 26, 2014 Based on publically available proposed rate filings and press as of June 26,

20 Average Premiums in Michigan Will Decrease and the Variation in Premiums Will Narrow Slightly in 2015 AVERAGE SILVER PLAN PREMIUMS FOR 40 YEAR OLD NONSMOKER Lowest Premium Average Premium Highest Premium $500 $484 $483 $400 MONTHLY PREMIUM $300 $200 $328 $190 $317 $219 $100 $ Number of Carriers in 2014: 9 Number of Carriers in 2015: 13 Source: Proposed MI rate filings. 20

21 Some of the Low-Cost Carriers in 2014 Are Increasing Rates in 2015 AVERAGE SILVER PLAN PREMIUMS FOR A 40-YEAR-OLD NON-SMOKER IN MI Issuer Average 2014 Rate Average 2015 Rate Source: Proposed MI rate filings. * Blue Cross BlueShield of MI includes Blue Care Network of Michigan products. ** Both rates for 2014 and 2015 represent the average premium for all products offered by Blue Cross Blue Shield of Michigan and Blue Care Network of Michigan. ^ HAP include Alliance Health and Life Insurance Company products. *** Rates for 2015 represent the average premium for all products offered by HAP and Alliance Health and Life Insurance Company. % Change Humana. $191 $ % Total Health Care. $224 $ % Meridian $263 $ % McLaren $275 $ % Blue Cross Blue Shield of Michigan* $287** $316** +10.1% HAP^ $324 $302*** -6.8% Molina $327 $ % Priority Health $340 $ % Consumers Mutual $414 $ % United Healthcare $245 Harbor Health Plan $302 Physician s Health Plan $334 Michigan Average $328 $ % 21

22 Automatic Renewals Allow Plans to Maintain Current Customers, but Some Enrollees Will Face Avoidable Premium Increases The proposed renewal process gives plans broad flexibility to re-enroll individuals in their current plans potentially leading to higher costs for enrollees. $300 $250 Monthly Premium and Subsidies for Sue, $243 $224 $200 $150 $167 $171 Sue s Story: Earnings: $17,235/ year (150% FPL) Silver Plan Change: 2014 benchmark plan is 11 th -lowest-cost silver plan in 2015 If Sue keeps her plan in 2015, she will pay 26% more in premiums $100 $50 $- $57 $ Premium Subsidy Enrollee Premium 22

23 Medicaid

24 Michigan Joins 27 Other States And DC in Expanding Medicaid Eligibility STATE COMMITMENT TO EXPAND MEDICAID ELIGIBILITY WA ME OR CA NV ID AZ UT* MT WY CO NM ND SD NE KS OK MN WI IA* MO AR* IL MS NY MI PA* OH IN** WV VA KY NC TN* SC GA AL VT NH* MA CT NJ DE MD DC RI AK TX LA FL Will Expand (28 + DC) Will Not Expand (19) HI States to Watch (3) Source: Avalere State Reform Insights, Updated June 23, 2014 *Denotes states pursuing premium assistance models using exchange plans for part of their expansion populations: AR and IA have received waiver approval; PA submitted a waiver request for a plan using premium assistance that would take effect in 2015; NH will begin enrolling newly-eligible beneficiaries in MCOs in July 2014 with coverage effective August 15, and plans to move these beneficiaries into premium assistance in 2016, pending waiver submission and approval; if TN, VA, or UT expand, it is likely to be via premium assistance or another source of private coverage. **IN s expansion received CMS approval of the Healthy Indiana Program 2.0 waiver and will likely take effect in

25 Michigan s Expansion Plan Is Rooted in a Unique, Commercial- Style Approach MICHIGAN S PLAN CALLS FOR THE STATE TO USE TWO WAIVERS FOR COST- SHARING FLEXIBILITY Waiver 1 - Approved Waiver 2 Proposed for Approval in 2015 Creates Health Savings Accounts for beneficiaries The plan includes costsharing requirements for all enrollees and premium contributions for those over 100% of the Federal Poverty Level (FPL) Some beneficiaries >100% FPL would pay cost sharing (up to 7% of income) or enter the exchange after 4 years Cost sharing reduced (to 2%) for healthy behaviors Trigger mechanism to rollback expansion if the second waiver not approved before 2016 OR if state savings are inadequate to offset costs when federal funding drops from 100% 25

26 Healthy Michigan Offers Newly Eligible Beneficiaries A Benefits Package Similar to That Offered to Currently Eligible Beneficiaries Annual Health Risk Assessment Physical activity Nutrition Alcohol, tobacco, and substance use Mental Health Flu Vaccination Covered Services 10 Essential Health Benefits Additional services include: Non-Emergency Medical Transportation Family Planning Vision Services Hearing Services Adult Dental Services Cost Sharing Co-pays range from $1-$3 for all services except inpatient hospital stays ($50) Co-pays are applied to Emergency Room visits that are not true emergencies Groups and Services Exempt from Cost Sharing Certain groups are exempt from copays (e.g., beneficiaries under 21, nursing home residents, etc.) Certain covered services do not have a co-pay requirement (e.g., Emergency Services, Family Planning Services, etc.) By selecting an alternative benefit package (ABP) that aligns with Michigan s exchange benchmark plan, essential health benefits (EHB) will be consistent between the exchange and Medicaid in the state. 26

27 Medicaid MCOs are Participating in Both the Healthy Michigan Expansion Plan and The Traditional MI Medicaid Program Traditional MI Medicaid Program 13 Medicaid MCOs Participate in MI Healthy Michigan Plan Medicaid MCO enrollment is projected to increase by 485,000 in MI from 2013 to The 8 MCOs offering both Medicaid health plans and QHPs in the exchange are well positioned to care for beneficiaries who may churn between Medicaid and the exchange. "Source: Avalere Analysis using Avalere Medicaid Managed Care Enrollment Model, scenario 2, in which 23 states do not expand Medicaid; updated April 23, 2014." 27

28 Nationwide, 72% of Medicaid Beneficiaries Will Receive Medical Benefits Through Managed Care Plans by the End of PROJECTED MEDICAID NON-DUAL, MEDICAL BENEFIT ENROLLMENT (IN MILLIONS), % % 32 65% 15 28% 40 72% 14 25% 43 75% 13 23% 44 77% FFS MCO 10 63% Source: Avalere Analysis using Avalere Medicaid Managed Care Enrollment Model, scenario 2, in which 23 states do not expand Medicaid; updated April 23, FFS: Fee-for-service MCO: Managed Care Organization 28

29 Meanwhile, States Will See Churn Between Medicaid and Other Sources of Coverage Problems Created by Churn Disrupts continuity of care & medication adherence Medicaid 6.9M Churn Annually Exchanges Creates possible gaps in coverage Discourages insurer investment in longerterm wellness Increases administrative burden to states Source: Urban Institute analysis of 2001 and 2004 Survey of Income and Program Participation, Churning Under the ACA and State Policy Options for Mitigation, June 2012, Matthew Buttgens, Austin Nichols, and Stan Dorn. 29

30 Opportunities and Challenges for the Future

31 Exchange Benefit Design May Accelerate Shift to Narrower Commercial Coverage by Employers EXCHANGE BENEFIT DESIGNS MAY HAVE SPILLOVER EFFECTS BY SETTING A NEW STANDARD FOR COVERAGE GENEROSITY Benefit Design Generosity Less Generous More Generous Commercial Exchange Catastrophic Medicaid Lives Served by Market Today Anticipated Future Market 31

32 Continued Cost Growth and the ACA Are Leading Employers to Consider Alternatives To Current Benefit Structures Continue to Offer Coverage Restructure Contributions Offer Coverage to Limited Group Drop Coverage and Gross-up Wages Drop Coverage with No Wage Gross-up DEFINED CONTRIBUTION HEALTH BENEFIT STRATEGIES Impact of Defined Contribution Benefit Strategies on Employers: Administrative simplification (fewer decisions on behalf of employee) More predictable financial exposure to health care costs Eventual decrease in financial burden Employees: Increased choice in insurance options Increased variation in premiums and out-of-pocket costs between plans Eventual increase in financial burden Based on Performance in an Era of Uncertainty, 17th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care, March

33 Hospital Mergers & Increasing Integration with Physicians Yields More Provider Consolidation in Many Markets PERCENT OF PHYSICIANS INTERESTED IN PURSING INTEGRATION, 2010* % Currently in this Model % Intend to Pursue within 2 Years Employment Joint Venture Co-Mgmt Company Leasing Directorships, Stipends & Management Contracts No Integration

34 Recent Acquisitions Position Commercial Health Plans to Grow Government Segments & Serve Integrated Providers United Healthcare Aetna WellPoint Humana Cigna Universal American XLHealth Coventry Amerigroup Metropolitan Health Networks HealthSpring Collaborative Health Systems AIM Healthcare Active Health CareMore American Eldercare APS Healthcare Axolotl Medicity Resolution Health Picis Monarch Healthcare 34

35 For additional questions Caroline Pearson Vice President