Impact of the Patient Protection and Affordable Care Act on Captives Presented by: William J. Thompson, FSA, MAAA Principal and Consulting Actuary
Session Objective Identify aspects of the Patient Protection and Affordable Care Act (PPACA) that may affect captives and their owners. Discuss the associated opportunities and challenges. 2
Agenda Why do we need to reform healthcare? Overview of PPACA Who is affected When they are affected How they are affected Possible effect on captives Single employer captives (stop loss) Group captives and similar arrangements (stop loss) Provider captives New opportunities 3
Why do we need to reform healthcare? Milliman Medical Index (MMI) Annual Medical Cost for Family of Four $25,000 $20,000 $15,000 $10,000 $5,000 $0 $19,393 $18,074 $16,771 $15,609 $14,500 2007 2008 2009 2010 2011 Year MMI 2011 Costs for American Family of Four Covered by Employer Health Insurance Cost has doubled in less than nine years 4
Why do we need to reform healthcare? Healthcare Cost as % GDP: over 17% Military spending as % GDP: less than 5% 5
Why do we need to reform healthcare? Distribution of Americans by Health Insurance 1% 17% Commercial Insurance 12% 54% Medicaid Medicare 16% Other Government Uninsured 6 Source: United States: Health Insurance Coverage of the Total Population, states (2008-2009), U.S. (2009), statehealthfacts.org
Overview of PPACA Healthcare Reform Bill signed into law on March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) Amended by Health Care and Education Reconciliation Act of 2010 on March 30, 2010 Known collectively as Affordable Care Act (ACA) 7
Overview of PPACA What does it do? Uninsureds Improve access Medicaid Eligibility Expansion (to 133% of FPL) Employers Enrich Benefits provided Offer coverage or pay a penalty Limit ability to restrict eligibility for coverage Insurers Eliminate medical underwriting Set minimum loss ratio requirements Impose mandatory regulatory filing for rate increases Health Care Exchanges Marketplace for insurers and individuals/small groups to access insurance coverage 8
Overview of PPACA What doesn t it do? Doesn t directly reduce the cost of health care What does it influence? Care coordination and integration Accountable Care Organizations CO-OP Arrangements Patient Centered Medical Homes Patient accountability for their healthcare How is it funded? Individual Mandate Employer Mandate Taxes on Insurers and Self-Funded Plans Taxes on medical device manufacturers and drug manufacturers 9
Short Term Effect of PPACA (through 2013) Changes to Employer plans $0 preventive care (no cost sharing) Unlimited lifetime benefit max Dependent coverage to age 26 No pre-existing condition limitations for children under 19 Tax credits for small employers (up to 25 employees) W-2 notices of value of employer health benefits Standardized benefit statements Grandfathering for some plans Postpones implementation of certain changes above 10
Major Changes Starting in 2014 Health Care Exchanges operational in all states Coverage mandate for individuals Penalties for Employers that do not offer coverage New fees/taxes (e.g. Medical devices, insurance company fee, self-insured fee) 2018 Cadillac Tax on Rich Plans 11
Possible Effect of PPACA on Captives Single parent captives writing medical stop loss Unlimited maximum benefit could create more exposure and more volatility of experience Change in risk pools with exchanges may change expected values and variability in results Tactics: Purchase reinsurance for very high exposures (either spec or agg) Purchase reinsurance for chronic high cost claimants (if available) Revisit amount of financial risk from stop loss relative to total capital Increase premium paid to captive to cover additional risk Enhance capital of captive to be able to absorb more risk 12
Possible Effects of PPACA on Captives Groups of ERs coming together to create self-insured "pools Why: Avoid new fees that insured plans will need to pass along to customers Reduce costs by pooling of risks at net cost of claims instead of fully loaded premiums by stop loss carrier Limit volatility of results from year to year via pooling with other employers Possible alternative for smaller employers who can t normally consider selfinsurance on their own How: Pooling of claims experience (RRG)? Fronted captive arrangements? MEWA? (Could it be an association captive?) 13
Possible Effects of PPACA on Captives Provider captives (Hospitals, physician groups) Liability issues as they take on more care management (holistic approach to patient care) More patient-centered arrangements with 24 hour possible liability for care of patient Coordination of care among providers that may not have worked together before More financial risk for provider groups as they take on insurance risk Return to capitation arrangements Incentive arrangements for compliance with preventive screenings, disease management plans, etc. Risk of loss relative to traditional fee for service arrangements (if utilization exceeds budgets, not enough to pay fee for service charges) New integration of care coordination and financial integration among provider groups and hospitals that needs to be structured and properly financed ACO arrangements? 14
Accountable Care Organizations and CO-OPs By 2012, Development of Accountable Care Organization (ACO) 15 Integration of hospitals and private practice physicians More responsibility for total quality care Financial risk New financial risk partners: hospitals and physicians together Growth in physician practices owned by hospitals Might be licensed insurance entity Captive? CO-OPs to be encouraged and funded under PPACA Nonprofit Health Insurance Entity Affiliation of large and small businesses, individuals, or other entities to create health care delivery and financing vehicle Need to have a licensed insurer involved that is run by the CO-OP leaders Could licensed entity be a captive? Federal Grants and loans available to get started
Questions & Discussion