2013 Health Insurance Update

Robert R. PohlsPohls & Associates

Walnut Creek, California

HEALTH INSURANCE LAW UPDATE

Health Insurance Regulation and LitigationAfter NFIB v. Sebelius

Agenda

- PPACA Litigation

- PPACA Scorecard

- Future Changes- Insurance Practices- Insurance Marketplace- Health Care Delivery Systems

- Litigation Hot Spots

- Questions

PPACA: The Basics

- Passed on 3/23/2010

- Effective on 3/30/2010

- Primary Goal:

Increased Access to Affordable Health Care

PPACA: The Basics

Accessibility: - Insurance Practices - Insurance Marketplace - Expansion of Medicaid

Affordability: - Promoting Public Health - Health Care Delivery Systems - Revenue Provisions

PPACA: The Basics

Accessibility: - Insurance Practices - Insurance Marketplace - Expansion of Medicaid

Affordability: - Promoting Public Health - Health Care Delivery Systems - Revenue Provisions

PPACA: Litigation Update

Insurance Practices

- Community rating

- individual or family coverage

- geographic rating area

- age (3:1 ratio)

- tobacco use (1.5:1 ratio)

- Guaranteed-issue

“Congress’s insurance industry reforms . . . will encourage individuals to delay purchasing private insurance until an acute medical need arises.”

Florida v. HHS, 648 F.3d 1235 (11th Cir. 2011)

“The reforms also threaten to impose massive new costs on insurers, who are required to accept unhealthy individuals but prohibited from charging them rates necessary to pay for their coverage.”

NFIB v. Sebelius, 567 U.S. ___ (2012)

The “Individual Mandate”

- All individuals must have “minimum essential coverage” by January 2014 (unless exempt).

- Anyone without minimum essential coverage must make a “shared responsibility payment.”

- Tax Year 2014: $95 (or 1% of HHI) - Tax Year 2015: $325 (or 2% HHI) - Tax Year 2016: $695 (or 2.5% of HHI)

Adverse Selection

“. . . unless the individual mandate forces individuals into the private insurance pool before they get sick or injured, Congress’ insurance industry reforms will be unsustainable by the private insurance companies.”

Florida v. HHS, 648 F.3d 1235 (11th Cir. 2011)

Adverse Selection

“. . . without full market participation, the financial foundation supporting the health care system will fail, in effect causing the entire health care regime to ‘implode’.”

Virginia v. Sebelius728 F.Supp.2d 768 (E.D. Va. 2010)

The Commerce Clause

“The Congress shall have Power . . . To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”

U.S. Const., Art. I, §8, cl. 3

Not Authorized by The Commerce Clause

“The power to regulate commerce presupposes the existence of commercial activity to be regulated.”

“The individual mandate forces individuals into commerce precisely because they elected to refrain from commercial activity.”

The Necessary and Proper Clause

“The Congress shall have the power . . . To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

U.S. Const., Art. I, §8, cl. 18

Not Valid Under The Necessary and Proper Clause

“Each of our prior cases upholding laws under that Clause involved exercises of authority derivative of, and in service to, a granted power.”

“The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power.”

But: Authorized by the Taxing Clause

“The . . . requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax.”

“Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

Expansion of Medicaid

States must cover anyone from a family with an income below 133% of the federal poverty level.

- From 2014 to 2016, the federal government will pay 100% of the increased fees.

- The federal government’s percentage will then drop each year until reaching 90% in 2020.

Expansion of Medicaid

Congress may attach appropriate conditions to federal taxing and spending programs.

If a state does not comply, DHHS may declare that “further payments will not be made to the State.”

42 U.S.C. §1396c

Coercion Doctrine

When “power turns into compulsion,” the legislation runs contrary to our system of federalism.

Steward Machine Co. v. Davis301 U.S. 548, 590 (1937)

Held: Unconstitutionally Coercive

“The threatened loss of over 10 percent of a State’s overall budget . . . is economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.”

“§1396c is unconstitutional when applied to withdraw existing Medicaid funds from States that decline to comply with the expansion.”

Held: Unconstitutionally Coercive

“The Court today limits the financial pressure the Secretary may apply to induce States to accept the terms of the Medicaid expansion. As a practical matter, that means States may now choose to reject the expansion; that is the whole point.”

Employer Mandate

Large employers: 50 or more full-time employees

Annual fees:

- $2,000 per FTE (in excess of 30) if do not offer “minimum essential coverage.”

- $3,000 per FTE with income below 400% of federal poverty level who opts out of the employer’s plan.

Employer Mandate

Commerce Clause gives Congress the power to “regulate the terms of the employment contract.”

Liberty University v. GeithnerW.D.Va. (November 30, 2010)

4th Circuit: Anti-Injunction Act

SCOTUS: Certiorari denied

Preventive Care Coverage Mandate

Certain preventive services must be covered without co-payments, co-insurance or deductibles.

- Preventive services include contraception

- Regulations exempt certain religious employers.

Most cases: Dismissed (not ripe)

Two cases: Injunctive relief denied forinsufficient likelihood of success

Eight cases: Injunctive relief granted to prohibit enforcing preventive care coverage mandate

Updated Regulations

- Employers who morally object to providing coverage for contraception may omit it from their health insurance plans.

- Insurers must inform employees they are eligible for separate plans that cover contraceptives.

- Insurers must pay cost of additional coverage.

PPACA: Scorecard

Dependent Coverage

Parents may keep children on family coverage until age 26.

- Before PPACA: 13 million uninsured (ages 19-29)

- After PPACA: 10.5 million uninsured (as of 2011)

PPACA: Scorecard

Pre-Existing ConditionsCoverage for children (under 19) cannot be denied or limited because of pre-existing conditions.

- Before PPACA: 10% - 13.3% uninsured (under 18)

- After PPACA: 7% uninsured (as of 2011)

PPACA: Scorecard

Small Business Tax CreditSmall employers (<25 employees) can offset as much as 35% of employee health insurance costs.

- Before PPACA: 4.4 million eligible employers $2 billion reserved for tax credits

- After PPACA: 309,000 employers claimed $416 million in tax credits

PPACA: Scorecard

Early Retiree Reinsurance

ERRP reimburses employers up to 80% of early retirees’ medical claims costs.

- Effective June 1, 2010

- $5 billion in funding

- February 2012: $4.73 billion in claims processed

PPACA: Scorecard

Early Retiree Reinsurance

Problem: How to manage the rising cost of insuring retirees.The analysis may depend on “the language of the relevant documents, considered against the background of employee benefits law and labor law precepts.”

Aldo v. Raytheon Corp. (9th Cir. 2012)

PPACA: Scorecard

Lifetime / Annual Limits

No lifetime limits.

Annual limits:

- 9/23/2010: Not less than $750,000

- 9/23/2011: Not less than $1.25 M

- 9/23/2012: Not less than $2 M

- 1/1/2014: Unlimited

PPACA: Scorecard

Lifetime / Annual Limits

- Individual mandate?

- Stop loss?

- Stop loss sold to a self-funded plan is not reinsurance, but direct insurance subject to state regulation.

Texas DOI v. American National Ins. Co. (Texas 2012)

- State law may set “attachment points.”

PPACA: Scorecard

Rescissions

No rescissions without fraud . . . but what is material?

- Guaranteed-issue

- Community rating: - individual or family coverage - geographic rating area

- age (0-20; 21-63; 64+) - tobacco (cannot rescind)

PPACA: Scorecard

Internal Appeals

Group: 29 C.F.R. 2560.503-1

Individual: State law

DHHS Standards (for plan years after 1/1/2012):

- Includes rescissions- Decision-makers must have no conflict of interest- “Culturally and linguistically appropriate” notices

PPACA: Scorecard

Internal Appeals

Group: 29 C.F.R. 2560.503-1

Individual: State law

DHHS Standards (for plan years after 1/1/2012):

- Any new evidence or rationale must be shared - Reasonable opportunity to respond- Coverage must be provided pending outcome

PPACA: Scorecard

Independent External Review

Required if claim involves medical judgment or rescission.

As of January 1, 2014: Applies to all benefit determinations that do not relate solely to eligibility.

PPACA: Scorecard

Self-funded ERISA: federal

All others:- state external review program (if it includes consumer protections found in NAIC’s Model Act).

- If not, choose between federal program run by DHHS or federal program run by DOL and Treasury.

PPACA: Scorecard

Independent 3rd Party

Decision is “binding”

“Binding” means the plan or insurer must provide benefits pursuant to the external reviewer’s final decision, regardless of whether the plan or insurer intends to seek judicial review.

76 Fed. Reg. 37217 (June 24, 2011)

PPACA: Scorecard

Medical Loss Ratiosand Rebates

Individual: 80%Group: 85%

- 80 million people insured by plans subject to MLR

- 12.8 million (14%) received rebates

- $1.1 billion in rebates (average of $151)

PPACA: Scorecard

Premium Rate Increases

Review increases over 10%

Unreasonable if:

- Excessive - Unjustified - Unfairly Discriminatory45 CFR §154.205(a)

CMS Reviews: 20 of 28 increases “unreasonable”State Reviews:

- 27 of 35 states reduced or rejected increases- 2 states approved only decreases

PPACA: Scorecard

Premium Rate Increases

Judicial review?

- Reviewing entity may be entitled to deference.Kirsch v. Department of Consumer and Business Services (Oregon 2012)

- Can be difficult to challenge when making a profit.Anthem Health Plans of Maine, Inc. v. Superintendent of Insurance

40 A.3d 380 (Maine 2012)

Future Changes

- Individual Mandate

- Employer Mandate

- Health Benefit Exchanges

- Expansion of Medicaid

Future Changes: Individual Mandate

Exceptions:

- illegal aliens

- recognized Indian Tribes

- certain religious sects

- incarcerated people

- anyone with coverage gap of < 3 months

- income less than 133% of FPL

133% - 400% of FPL:

- eligible for health benefit exchanges

- subsidies will cap premiums at 9.5% of HHI

- 400% FPL = $112,176 (family of 4)

- 9.5% of HHI = $10,657

- alternative: make shared responsibility payment of not more than $2,085

Over 400% of FPL:

- exempt if cheapest plan in exchange is >8% of HHI

- 400% of FPL: $112,176

- 8% of HHI: $8,974

- “bronze” coverage:

- between $12,000 and $15,000/year

- $12,000 is 8% of $150,000

Future Changes: Employer Mandate

Large Employers: 50 or more FTEs (or FTEEs)

Penalties:

- No coverage: $2,000/employee (over 30)

- Opt-outs: $3,000/employee (if <400% FPL)

Projected Impact:

- GAO: 2.5% decrease to 2.7% increase

- Employers: decrease between 2% and 20%

Future Changes: Health Benefit Exchanges

Effective Date: January 1, 2014

- funding for states to establish and run

- DHHS will establish and run if state does not

Projected Impact:

- 24 states will establish and run

- 26 states will rely on DHHS

Open Enrollment: Begins in October 2013

Impact on Agents:

- Individual mandate

- Employer mandate

- Exchanges

- Navigators

- 45 C.F.R. 155.210(d)

Impact on Agents:

- Medical Loss Ratios

- NAIC: accommodate producer compensation in MLR regulations

- DHHS: states may seek waivers

- H.R. 1206 / S.B. 2288

NAIFA: 70% reported commissions decrease

53% of those reported decrease of >25%

Future Changes: Expansion of Medicaid

Projections:

- increased enrollment by 24 million

- between $20B and $42B in new costs to states

SCOTUS: states may choose not to participate

- 26 states joined in constitutional challenge

- 13 states already have opted out

Future Changes: Expansion of Medicaid

Shifting the Focus: Affordability

U.S. Healthcare Spending

1980: $256 Billion 2010: $2.6 Trillion

Factors:

- technology and prescription drugs

- rise in chronic diseases

- administrative costs

Healthcare Delivery Systems

Health Information Technology

- federal incentives for “meaningful use”

- significant implementation costs

Value Based Purchasing

- increased payments if meet quality measures

- reduced payments for “excess readmissions”

- reduced payments for HACs

Patient Centered Medical Homes

- prompt access to primary care provider

- primary care provider acts as “gatekeeper”

Accountable Care Organizations

- responsible for defined Medicare populations

- Medicare cost-savings shared if deliver quality care while reducing costs

Impact of Changes

- Small medical groups are being absorbed

- Hospitals are acquiring practice groups for ACOs

- Payment models are changing

- Medicare

- Insurance

- Other private financing

Litigation Hot Spots

Rescissions- Only for fraud - Guaranteed issue- Community rating

Question: Any other means of showing materiality?

Rescissions

“Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.”

California Insurance Code §334

Claim Denials- Exhaustion of remedies- Conflict of interest- Deference to decision-maker?- “Binding” external review

Medical Loss Ratios and Rebates- Public reporting- Medical claims- Quality improvement measures

- Improve health outcomes- Prevent hospital readmissions- Improve patient safety; reduce medical errors- Wellness and health promotion activities

Medical Loss Ratios and Rebates

What happens if a policy lapses for non-payment of premiums, but the insurer later gives a rebate?

Premium Rates

Sales Practices

Provider Relations

Questions?

Robert R. PohlsPohls & Associates1550 Parkside Drive, Suite 260Walnut Creek, California 94596T: 925.973.0300 F: 925.973.0330rpohls@califehealth.com

2013 Health Insurance Update

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