Health Policy Essentials: Private Health Insurance. Bernadette Fernandez, Annie Mach, Janemarie Mulvey March 1, 2013

Transcription

1 Health Policy Essentials: Private Health Insurance Bernadette Fernandez, Annie Mach, Janemarie Mulvey March 1, 2013

2 Private Health Insurance Insurance provides protection from economic loss Risk likelihood and magnitude of loss Insurance contract transfer of risk Risk pools Pooling spreads risk across the members of the pool Features of good pools Many people in the pool Pool formation is NOT for insurance purposes Cohesive pool membership CRS-2

3 Sources of Health Coverage among Nonelderly Individuals, 2011 Source: SHADAC Data Center table generator using data from the Current Population Survey Annual Social and Economic Supplement (CPS), Note: The 2012 CPS surveyed individuals about sources of health coverage in Individuals can have coverage from more than one source; therefore, the sum exceeds 100%. CRS-3

4 Private Health Insurance Pre 2014 Insurance Market Segments Nongroup (individual) Group employer sponsored insurance (ESI) Small group: generally 2-50 employees (some states include groups of one ) Large group: at least 51 employees Firm size definitions differ under ACA CRS-4

5 Private Health Insurance Pre 2014 Key Features of Group Coverage Plan sponsor Tax policy favors group coverage Bearing insurance risk State-licensed insurance carrier ( fully-insured ) Plan sponsor ( self-insured or self-funded ) 59% of covered workers in the private sector, 2011 CRS-5

6 Private Health Insurance Pre 2014 Main Players Who purchases private coverage? Individuals and families Employers Average employer share of total premium, 2012 Self-only: 82% Family of four: 72% Who provides private coverage? State-licensed insurance carriers Plan sponsors who self insure CRS-6

7 Private Health Insurance Pre 2014 Voluntary Nature of Private Market Employers are not required to offer coverage (and not yet potentially subject to penalties) State exceptions: Hawaii and Massachusetts Offer rate: 61% (2012) Very large firms (200+ workers): 98% Very small firms (3-9 workers): 50% Individuals are not (yet) required to have health coverage Massachusetts exception Voluntary participation potential for adverse selection CRS-7

8 Private Health Insurance Pre 2014 Adverse Selection Consumers Risk pool has disproportionate share of highcost individuals Top 5% of spenders account for nearly 50% of all personal health care expenditures (2009) Consumer examples Waiting until sickness or injury to obtain insurance Switching from less generous coverage to more generous coverage to time with planned health use (example: pregnancy and childbirth) CRS-8

9 Private Health Insurance Pre 2014 Adverse Selection Insurers Insurer practices to avoid/mitigate adverse selection Medical underwriting (if allowed under state law) Denial of insurance altogether Exclusions for preexisting health conditions Rate ups Post-claims underwriting (infrequent) Cancelations Rescissions More likely to occur in the nongroup market CRS-9

10 Private Health Insurance Pre 2014 Premiums Main Components Expected costs of covered benefits by far the largest component Administrative costs Profit generally the smallest component Underwriting cycle Health may play a role in determining premiums Group market typically not based on health status Nongroup market may be based on health status, if allowed under state law (medical underwriting) CRS-10

11 Private Health Insurance Pre 2014 Employment-Based Premiums Average Annual Total Premiums, Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2012 CRS-11

12 Private Health Insurance Pre 2014 Nongroup Premiums Average Annual Premiums, Selected Years Source: Medical Expenditure Panel Survey-Household Component, Agency for Healthcare Research and Quality CRS-12

13 Private Health Insurance Pre 2014 Cost-sharing Cost-sharing requirements have increased Example: Average deductibles have increased across market segments and plan types Group HMO $401 $503 $699 Group PPO $461 $560 $634 Group HDHP $1,729 $1,812 $1,838 Nongroup self-only Nongroup family $1,972 $2,084 $2,326 $2,610 $2,760 $3,128 Sources: For group plans, Kaiser/HRET Survey of Employer-Sponsored Health Benefits, ; for nongroup policies, The Cost and Benefits of Individual and Family Health Insurance Plans, 2009, ehealthinsurance, December CRS-13

14 Private Health Insurance Pre 2014 Out-of-pocket Spending Total out-of-pocket (OOP) spending has increased each year Increase in OOP spending (does not include premiums) From 2007 to 2008 From 2008 to 2009 From 2009 to 2010 From 2010 to 2011 From 2011 to % 5.4% 6.6% 9.2% 5.8% Source: Milliman Inc., 2012 Milliman Medical Index, May 2012 Note: Data for a family of four with employer-provided coverage through a PPO plan. CRS-14

15 Private Health Insurance Pre 2014 Major Medical Insurance Comprehensive coverage Specific benefits vary Generally covers physician services, hospital care, prescription drugs, lab work, medical devices/supplies, etc. Mandated benefits, providers, covered persons vary by state, few (current) federal requirements Cost-sharing requirements deductibles, copayments, coinsurance, out-of-pocket limits What it is not Limited benefit plans Long-term care Medicare supplemental CRS-15

16 Private Health Insurance Pre 2014 Types of Major Medical Plans Indemnity Most flexibility in choice of providers Preferred provider organization (PPO) Largest enrollment share: 56% of covered workers, 2012 Open networks; individuals pay more for non-network care Health maintenance organization (HMO) Features to control utilization (e.g., limited networks, primary care provider, prior authorization) Point of service plan (POS) HMO/PPO hybrid High-deductible health plan (HDHP) Certain HDHPs qualify to be paired with health savings accounts CRS-16

17 Private Health Insurance Pre 2014 Regulation of Private Coverage States State primary regulator Licensure Solvency Coverage Example: high risk pools Mandated benefits, providers, covered persons Example: dependent coverage Consumer protections Example: internal and external appeals Rate review Requirements vary by market segment Rating restrictions Restrictions vary by market segment CRS-17

18 Private Health Insurance Pre 2014 Rating Restrictions States Types of state rating rules Pure community rating no rating based on health or other key factors (e.g., age) Adjusted (modified) community rating No rating based on health factors Rating based on other factors allowed Rating bands Rating based on health factors allowed, but limited Rating based on other factors allowed Potential impact on premiums Lower premiums for good risks Potential for wide variation in premiums based on allowed factors Age rating typical variation of 5/7:1 Rate-ups for those with certain health conditions can increase premiums more than twice the standard premium for persons of same age Rating factors compound Total variation in premiums may be 10x or more CRS-18

19 Private Health Insurance Pre 2014 Regulation of Private Coverage Federal Laws Federal fallback enforcement PHSA (HHS) IRC (Treasury) ERISA (DoL) preemption Example: HIPAA Pre-existing conditions and portability Nondiscrimination Mandated benefits And then ACA in 2014 CRS-19

20 Affordable Care Act: An Overview CRS-20

21 Overview Insurance market reforms Essential health benefits Exchanges Premium tax credits & cost-sharing subsidies Risk programs Small business tax credit Employer requirements Individual mandate CRS-21

22 ACA Expands Coverage: CBO Projections for 2023 (Among Nonelderly) Without ACA With ACA **Other includes Medicare for individuals under age 65, but the effects of ACA are almost entirely on nongroup coverage. Source: CBO Among nonelderly (under age 65). If excluding unauthorized immigrants from the total nonelderly population, uninsured projection with ACA would be 8%. CRS-22

23 ACA Full implementation (2014) Paradigm Individual mandate (& employer requirements) Private insurance market reforms (e.g., no preexisting condition exclusions) Subsidies (exchange credits and Medicaid expansion) CRS-23

24 Health Insurance Market Reforms CRS-24

25 ACA Insurance Market Reforms: Pre-2014 Many reforms currently in effect: Rate review No lifetime limits and only restricted annual limits No rescissions (except for fraud) No cost-sharing for preventive services Extend existing dependent coverage for children under age 26 Prohibition of discrimination based on salary Medical loss ratios (MLRs) Establish appeals process for coverage and benefit denials No preexisting condition exclusions for children under age 19 Patient protections related to choice of provider and emergency care Summary of benefits and coverage Reporting requirements related to quality of care CRS-25

26 ACA Insurance Market Reforms: 2014 More become effective in 2014: Nondiscrimination based on health status Limit on length of waiting period for coverage No preexisting condition exclusions, regardless of age Guaranteed issue and renewal Nondiscrimination regarding health care providers No premium adjustments allowed for health status, premiums can only vary by limited amounts based on: age family or self coverage geographic area tobacco use CRS-26

27 ACA Insurance Market Reforms Keep in mind The insurance market reforms apply to plans offered inside and outside exchanges The insurance market reforms apply differently to various segments of the private insurance market Grandfathered Plans New Plans (Non-grandfathered) Provision Extension of Dependent Coverage Coverage of Preventive Services with No Costsharing Coverage of Preexisting Conditions (all ages) Guaranteed Group Market Fully- Insured Self- Insured Individual Market Large Group Market Fully- Insured Self- Insured Small Group Market Fully- Insured Self- Insured Individual Market X X X X Issue X X X X X CRS-27

28 Essential Health Benefits CRS-28

29 Essential Health Benefits (EHB) Beginning in 2014, certain plans must cover selected benefits & services Most nongroup & small group plans must offer the EHB Plans that offer EHB will be available inside & outside exchanges ACA lists 10 categories from which services & benefits must be included: Ambulatory patient services Emergency services Hospitalization Maternity & newborn care Mental health & substance use disorder services (including behavioral health treatment) Prescription drugs Rehabilitative & habilitative services & devices Laboratory services Preventive & wellness services & chronic disease management Pediatric services, including oral & vision care CRS-29

30 Defining the EHB For 2014 and 2015, HHS Secretary asked states to select a benchmark plan to serve as a reference plan States could choose a benchmark plan from 4 types of plans: Largest plan by enrollment in any of the 3 largest small group insurance products in the state Any of the largest 3 state employee health benefit plans Any of the largest 3 national FEHBP plan options by enrollment The largest non-medicaid HMO operating in the state Benchmark plans can include state benefit mandates enacted prior to 2012 CRS-30

31 EHB Benchmark Plans for 2014 & 2015 Note: No states selected one of the largest FEHBP plans for a benchmark plan. CRS-31

32 Exchanges (Marketplaces) Premium Tax Credits Cost-sharing Subsidies

33 Exchanges (Marketplaces) Marketplaces where individuals and small employers can purchase health insurance Individual Exchange Individuals can purchase nongroup insurance for themselves and their dependents and may be eligible to receive financial assistance SHOP Exchange Small employers can purchase coverage to offer to their employees Exchanges must be established in every state Open enrollment begins October 1, 2013 Coverage begins January 1, 2014 Establishment and administration of exchanges State-based Partnership Federally-facilitated CRS-33

34 Exchange Decisions for 2014, as of February 19, 2013 CRS-34

35 What Exchanges Do Eligibility & Enrollment Individual exchanges must screen or determine eligibility for a variety of plans/programs (e.g., Medicaid, premium tax credits) SHOP exchanges must determine employers and employees eligibility for coverage Plan Management Exchanges are responsible for certifying, recertifying, and decertifying plans for exchanges Consumer Assistance Exchanges must provide tools to help consumers access and navigate exchanges e.g., operate a toll-free telephone hotline, establish a Navigator program Financial Management States can apply for federal grants for exchange establishment through 2014 (grants can be used for all types of exchanges) Exchanges must be self-sustaining beginning in 2015 CRS-35

36 Standards for Exchange Coverage Generally, exchange plans must: Cover the EHB Limit cost-sharing Prohibit any deductible applicable to preventive health services Cap deductibles in the small group market Cap annual cost-sharing limits Meet a generosity level based on actuarial value Levels Actuarial Value Bronze 60% Silver 70% Gold 80% Platinum 90% CRS-36

37 Exchange Plans & Actuarial Value Actuarial value: Is expressed as the percentage of medical expenses estimated to be paid by the issuer for a standard population & set of allowed charges Reflects the relative share of cost-sharing that may be imposed Can be used to compare how overall cost-sharing differs across plans Limitations of actuarial value: Based on a standard population of varying value to individuals Does not incorporate certain plan characteristics e.g., premiums, provider network adequacy, and covered benefits CRS-37

38 Health Plans That Can Be Offered Through Exchanges Type of Plan Qualified Health Plan (QHP) Availability to Individuals Generally available to all Child-only QHP Available to individuals under age 21 Catastrophic Plan Medicaid Managed Care Bridge Plan Stand-alone Dental Plan Multi-state Plan (MSP) Consumer Operated & Oriented Plan (CO-OP) Available to individuals under age 30, and certain individuals exempt from individual mandate Only available in the individual exchange Only available to certain populations Generally available to all Generally available to all Generally available to all CRS-38

39 Financial Assistance: Premium Tax Credits Premium tax credits are only available through individual exchanges Eligibility criteria: Part of a tax-filing unit Enrolled in an exchange plan Household income 100% - 400% FPL Not eligible for minimum essential coverage Exceptions for individual coverage, certain employersponsored plans Amount of credit generally based on: Income Premium for the exchange plan in which individual/family enrolls CRS-39

40 Financial Assistance: Premium Tax Credits Maximum Percentage of Income, as Measured by FPL to go toward Premium Contributions CRS-40

41 Example: If Premium Credits Were Available in 2012 Maximum Monthly Premium Contributions, by Family Size For the 48 Continuous States and the District of Columbia Federal Poverty Level (FPL) Maximum Premium Contribution as a % of Income Maximum Monthly Premium Contribution (2012), by Family Size % 2.0% $19 $ % 2.0% $25 $ % 3.0% $37 $77 150% 4.0% $56 $ % 6.3% $117 $ % 8.05% $187 $ % 9.5% $265 $ % 9.5% $354 $730 CRS-41

42 Financial Assistance: Cost-sharing Subsidies Cost-sharing subsidies are only available through individual exchanges Eligibility criteria: Qualify to receive a premium tax credit Enrolled in a silver plan through an exchange Subsidies work in two ways: Reduce the cost-sharing limit for individuals with income between 100% and 400% FPL Reduce cost-sharing requirements for individuals with income between 100% and 250% FPL CRS-42

43 Example: If Cost-sharing Subsidies Were Available in 2012 Reducing the Cost-sharing Limit Exchange plan could impose an annual cost-sharing limit up to $6,050 for self-only coverage For individuals receiving cost-sharing subsidies with income at 200% FPL: Reducing Cost-sharing Requirements For individuals receiving cost-sharing subsidies with income at 200% FPL: a plan must reduce costsharing requirements to meet an actuarial value of 87% a plan must reduce the limit by 2/3; resulting in a cost-sharing limit of approximately $2,000. CRS-43

44 Risk Programs CRS-44

45 Risk Programs Beginning in 2014, ACA establishes 3 risk programs to help mitigate the potential for adverse selection Reinsurance Temporary program Health insurance issuers & TPAs of group plans must contribute to program Estimated contribution rate for 2014: $63 per covered life Only non-grandfathered nongroup plans are eligible for payments from program Risk Corridors Temporary program All QHPs in the individual and small group markets (inside and outside exchanges) must participate Risk Adjustment Permanent program, begins after end of benefit year 2014 All non-grandfathered individual and small group market (inside and outside exchanges) are subject to risk adjustment CRS-45

46 Employer Requirements CRS-46

47 Potential Employer Penalties Only large employers who have at least one fulltime worker receiving a premium credit through an exchange plan can be subject to a penalty, whether or not they provide health insurance. How is large employer defined? What type of employees trigger a penalty? What are the coverage requirements? How is the penalty calculated? What is considered adequate and affordable coverage? CRS-47

48 How is Large Employer Defined? Large employers have an average of at least 50 full-time equivalent (FTE) employees during the preceding calendar year Full-time employees include those working 30 or more hours per week Excludes those full-time seasonal employees who work for less than 120 days during the year Part-time workers hours prorated by dividing total monthly hours worked by 120 CRS-48

49 Employer Penalty Calculation Employee category Full-time Part-time Seasonal Temporary Agency Franchise How is this category of employee used to determine large employer? Counted as one employee, based on a 30-hour or more work week Prorated (calculated by taking the hours worked by part-time employees in a month divided by 120) Not counted, for those working up to 120 days in a year Generally, counted as working for the temporary agency (except for those workers who are independent contractors ) All companies and their employees within a franchise controlled by a single entity are counted Yes No Once an employer is determined to be a large employer, could the employer be subject to a penalty if this type of employee received a premium credit? Not likely under current safeharbor options Yes, for those counted as working for the temporary agency and who are full-time, on average, for up to 12 months Yes, for those counted as working for the franchise and are full-time, on average, for up to 12 months Source: CRS analysis of P.L and P.L CRS-49

50 What are the Coverage Requirements? To avoid the penalty, health insurance coverage must be offered to employees and their dependents Dependent is defined as children under age 26, does not include spouse Coverage must be: Adequate: Plan covers at least 60% of the costs of health benefits, remaining 40% paid through deductibles and co-pays Affordable: Employee s contribution for self-only coverage cannot exceed 9.5% of household income Safe Harbor: Can use employee s wage income as initial test CRS-50

51 How Much is the Penalty? Potential penalty for employer not offering coverage In 2014 monthly penalty 1/12 x $2,000 x (number of full-time employees 30) Potential penalty for employer offering coverage In 2014, the monthly penalty is lesser of 1/12 x $3,000 x (number of full-time employees receiving premium credit) 1/12 x $2,000 X (number of full-time employees 30) After 2014, the penalty indexed by a premium adjustment percentage CRS-51

52 CRS-52

53 Implementation Issues for Employer Penalty How is full-time determined for purposes of the penalty payments? What are effective dates? Other employer responsibilities? CRS-53

54 Determining Full-Time Status Definition Measurement Period Measure (on average) whether employees are full time or not Administrative Period Identify and enroll fulltime employees Type of Employee On-going Employees Up to 12 months Up to 90 days (may neither reduce nor lengthen the measurement or stability period, can overlap prior stability period) New employees hired as full-time New variable hour and seasonal employees Stability Period Period in which penalty is due if found to be full-time during measurement period At least 6 months but cannot be shorter in duration than measurement period Not Applicable Up to 90 days to enroll Not applicable 3 to 12 months Up to 90 days (measurement period and administrative period cannot exceed 13 months) 3 to 12 months but cannot be longer than measurement period Source: CRS analysis of proposed IRS regulations issued on December 28 th : [ CRS-54

55 Effective Dates To Begin Measuring Whether Current Employees Are Full-Time Health Plan Start Date Transitional Measurement Period Administrative Period Stability Period Calendar Year April 15, Oct. 14, 2013 Fiscal Year Starting: Oct. 15, Dec. 31, 2013 Jan. 1, Dec. 31, 2014 April 1, 2014 July 1, Dec July 1, 2014 June 15, 2013 April 14, 2014 Nov. 1, 2014 Sept. 1, 2013 August 31, 2014 Jan. 1, 2013 March 31, 2014 April 15, June 30, 2014 August 31, 2014 Oct. 31, 2014 March 31, March 31, 2015 July 1, 2014 July 1, 2015 Oct Oct. 31, 2015 Source: CRS analysis of proposed IRS regulations issued on December 28, 2012 [ CRS-55

56 Additional Employer Requirements W-2 reporting requirements of value of health insurance coverage beginning in 2013 (> 250 employees) Reporting requirements regarding health insurance coverage (type of plan, AV, etc.) in 2014 (> 50 FTEs) Information about health insurance exchanges (delayed, was to be March 2013) CRS-56

57 Small Business Options CRS-57

58 SHOP Exchange Designed to assist qualified small employers and their employees with the purchase of coverage To be qualified a small employer must make, at a minimum, all full-time employees eligible for coverage Before 2016, small is either 100 or fewer employees or 50 or fewer employees, at state option Beginning in 2016, small is 100 or fewer employees A small employer that uses a SHOP exchange: May limit the selection of plans available to its employees (to the extent permitted by ACA and the SHOP exchange) Is not required by ACA to contribute to employees premiums ACA is silent as to whether a SHOP exchange can require a minimum contribution from employers Small employers with more than 50 FTEs that use a SHOP may be subject to ACA employer requirements CRS-58

59 Small Business Tax Credit Must contribute at least 50% for cost of coverage Full credit (35%) available between 2011 and 2013, after 2014 only available for 2 years through SHOP exchange Full credit available if following criteria is met: 10 or fewer full-time equivalents (FTEs) Average taxable wages are $25,000 or less Credit is phased out as: Number of FTEs increase from 10 to 25 Avg. employee compensation increases from $25,000 to $50,000 Does not apply to owner or family members CRS-59

60 Individual Mandate CRS-60

61 Individual Mandate Most individuals must maintain minimum essential coverage for themselves and their dependents or pay a penalty. What is considered minimum essential coverage? What is the penalty for noncompliance? Who is exempted? CRS-61

62 Plans Considered Minimum Essential Coverage Government sponsored programs (e.g., Medicare Part A, Medicaid, CHIP...) Employer-Sponsored Plans Plans in the individual market Grandfathered health plans Other health benefits coverage recognized by HHS Secretary in coordination with the Treasury Secretary Minimum essential coverage does not include health insurance coverage consisting of excepted benefits, such as dental-only coverage CRS-62

63 What is the Penalty? Penalty is the greater of either: % of household income exceeding the personal exemption for the tax year 1.0% in 2014, 2.0% in 2015, and 2.5% thereafter Flat dollar amount $95 in 2014, $325 in 2015, and $695 in 2016 (inflationadjusted thereafter) assessed for a taxpayer and any dependents, up to the family cap of 300% ½ flat dollar amount for dependent under 18 Penalty limited to the national average premium for bronze-level qualified health plans offered through exchanges (for relevant family size) CRS-63

64 Who Is Exempt? Required contribution for self-only coverage exceeds 8% of household income Household income less than personal exemption amount for the tax year Has a qualifying religious exemption or is part of a health care sharing ministry Not lawfully present in the U.S. Incarcerated Member of an Indian tribe Resides outside of the U.S. Resident of any possession of the U.S. No coverage for less than 3 months (only 1 gap per year) Anyone the HHS Secretary determines to have suffered a hardship CRS-64

65 A bit more about the penalty How do you pay the penalty? Pay penalty for yourself (and dependents) in tax return What happens if you don t pay the penalty? Notice from IRS that you owe the penalty IRS can reduce the amount of the tax refund in the future No criminal prosecution or penalty Secretary cannot file notice of lien or file a levy on any property CRS-65

66 A Sample of CRS Reports on ACA s PHI Provisions R42663: Exchanges R41137: Premium credits R41159: Employer requirements R41331: Individual mandate R42069: Market reforms R42735: Medical Loss Ratio Health Affordable Care Act CRS-66