HEALTH CARE REFORM: WHAT EMPLOYERS NEED TO

KNOW

Don McDaniel, Sage Growth Partners, LLC

Ron Wineholt, Maryland Chamber of CommerceMay 2010

Intractable Healthcare Problems

PROBLEM #1HEALTH EXPENDITURES AS A PERCENTAGE OF GDP

Source: Centers for Medicare and Medicaid Services

* 2009 – 2018 Projected

PROBLEM #2AVERAGE PERCENTAGE INCREASE IN HEALTH INSURANCE PREMIUMS COMPARED TO OTHER INDICATORS, 1988-2007

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Health Insurance Premiums Workers' Earnings Overall Inflation

3.7%

PROBLEM #3GROWTH IN MEDICARE SPENDING VS.

PRIVATE HEALTH INSURANCE SPENDING

Source: American Hospital Association via the Centers for Medicare & Medicaid Services, Office of the Actuary. Data Released

January 8, 2008

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Medicare Private Health Insurance

5

AGGREGATE HOSPITAL PAYMENT-TO-COST RATIOS FOR PRIVATE PAYERS, MEDICARE,

AND MEDICAID

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals.

(1) Includes Medicaid Disproportionate Share payments

PROBLEM #4NATIONAL SUPPLY & DEMAND PROJECTIONS FOR FTE RNS

Source: National Center For Health Workforce Analysis, Bureau of Health Professions, Health Resources and Services Administration. (2004). What Is

Behind HRSA’s Projected Supply, Demand, and Shortage of Registered Nurses? Link: ftp://ftp.hrsa.gov/bhpr/workforce/behindshortage.pdf.

PROBLEM # 5THE DEMOGRAPHIC TSUNAMI

» One-quarter of all Medicare recipients» Have five or more chronic conditions» See, on average, 13 physicians per year» Secure 50 prescriptions per year

» Over 13,000 different drugs being sold in the U.S. in 2007 – 16x what was available 50 years ago

» Over 900,000 physicians in the U.S. – 75% are in practices of less than 8 physicians

» Payment system issues – hard to support a “system” of care

PROBLEM #6NUMBER OF FULL-TIME AND PART-TIME HOSPITAL

EMPLOYEES

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals.

PROBLEM #7ARRESTED DEVELOPMENT: CONSUMER SOVEREIGNTY

What do things really cost?

» We don’t demand price transparency

» We don’t demand better information to inform our purchase decisions

» Consumer demand should drive supply-side reformSource: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group

Out-of-Pocket12%

Private Insurance

33%

Medicare20%

Medicaid( excluding S-CHIP)

15%

Other Private7%

Other 13%

2008

HEALTH REFORM 2010

H.R. 3590 THE PATIENT PROTECTION AND AFFORDABLE CARE ACT

H.R. 4872 THE HEALTH CARE AND EDUCATION TAX CREDIT RECONCILIATION ACT OF 2010

MAJOR EMPLOYER ISSUES

» Impact of coverage expansion to 32 million people

» Benefit mandates» Employer mandate» Individual mandate» Market restructuring» Health Insurance Exchanges» Tax provisions

HEALTH REFORM - CHRONOLOGY

2010» Small business tax credit (through 2013)– sliding

scale tax credit for businesses with 25 or fewer employees» Average wage of $50,000 or less» 35% subsidy of employer costs if under 10

employees and average wage under $25,000» 25% maximum subsidy for non-profits» FTE = total hrs. /2080; exclude owner & seasonals

< 120 days» Employer must pay at least 50% of premium» No credit for sole proprietors» Can count vision and dental plan expenses» Claim credit on tax return/reduced estimated

payments

HEALTH REFORM - CHRONOLOGY

2010 (cont.)» Up to age 26 – can stay on parent’s policy

» Adult children need not be dependents under IRC» May provide coverage to end of year child

becomes 26» Employer may allow extension and enrollment now

of such adult children, but no later than September 23, 2010

» 30-day open enrollment this year» Many carriers suspending age 25 “age-outs” June

1st» Temporary reinsurance program for employer’s early

retirees» Insurance reforms

» Eliminates lifetime limits» No pre-x for children < 19 or cost sharing for

prevent. services» Auto-enrollment for employers with over 200

employees

HEALTH REFORM - CHRONOLOGY

2011» W-2 reporting – employer-provided health

benefits cost (Issued starting with January 2012 W-2s)

» OTC drugs not eligible for reimbursement from FSA/HSA/HRA

» Federally-subsidized long-term care program (CLASS Act) » Voluntary for employer participation» Auto-enrollment, but employees may opt out » 5 year vesting

HEALTH REFORM - CHRONOLOGY

2011 (cont.)» Wellness grants for employers with under

100 employees» HSA penalty increased to 20% for non-

qualified purchases» Grants for demonstration projects for

alternatives to medical liability litigation

HEALTH REFORM - CHRONOLOGY

2012» Expanded 1099 reporting for businesses

» Currently used for payments to individuals for non-wage income and services by independent contractors

» Will now be required for annual payments over $600:

» Individuals or corporations» Goods or services

» Examples: Buying a computer, airline tickets, gas, or supplies.

» Huge additional paperwork burden for employers

HEALTH REFORM - CHRONOLOGY

2013» New FSA limits of $2,500» Medical device 2.3% excise tax» Medicare payroll tax base increase

» +.9% tax on earned income > $200,000/$250,000

» Medicare investment tax – 3.8%» Medicaid reimbursements to increase to

100% of Medicare» Eliminate deduction for Medicare Part D

employer subsidy

HEALTH REFORM - CHRONOLOGY

2014» Medicaid eligibility expansion – up to 133% of FPL» Premium credit subsidies – up to 400% of FPL» Insurance Exchanges come online – “qualified” plans

for individuals and small businesses (up to 100 employees)

» Individual mandate – “carry or penalty” - $695/year to $2,085 or 2.5% of household income

» Federal health insurance premium tax – will raise almost $70 Billion through 2019 - passed on through premiums

» DSH cuts for certain hospitals» Pre-x and annual limits prohibited» Small employer tax credits

» 50% of employer’s cost (35% for non-profits)» Limited to 2 years

HEALTH REFORM - CHRONOLOGY

2014 (cont.)» DHHS sets “Essential Health Benefit

Package”» Employer Mandate

» Employees averaging > 50 employees must provide qualifying insurance or incur penalty – up to $2,000/$3,000 per employee

» Insurance must cover 60% of claim costs and be under 9.5% of employee’s total household income

» No penalty if no employees claim insurance tax subsidy

» No penalty if over 50 employees due to seasonal workers for 120 or fewer days

» Compute 50 employee threshold by:» Employees > 30 hours/week; and» Part-time employee hours worked in month/120

HEALTH REFORM - CHRONOLOGY

2015» Creates Independent Medicare Payment Advisory

Board – reductions in Medicare spending?2016» Interstate Health Choice Compacts

» Qualified health plans offered in participating states

2018» Cadillac Tax – 40% excise tax for annual health

coverage above:» $10,200 single/$27,500 family» Higher thresholds for high-risk professions and

retirees over 55» Thresholds indexed at CPI + 1% until 2020, then at

CPI

HOW TO PAY FOR IT?

» Projected funding sources for health reform – 10 years:» High earner taxes – Medicare – income and

investment - $210B» Individual penalties - $17B» Employer penalties - $52B» Trim health-related tax breaks - $29B» New Taxes/Assessments on Industry - $107B» Reimbursement/DSH/Fraud reductions ~

$300B» Medicare Advantage reductions - $177B» Cadillac Tax on High Premiums - $32B» Reductions in Medicare reimbursement - ????

Source: Congressional Budget Office

BELLWETHER? THE MASSACHUSETTS EXPERIENCE

MASSACHUSETTS REFORM PLATFORM

» Individual Mandate» Employer Mandate

» All employers with 10 or more employees. $295 fine per employee if insurance is not offered

» Middle-Class Subsidies» Commonwealth Care for all families with

income up to 300% of the federal poverty level

» The Connector» Acts as an exchange for individuals and small

business

» Very familiar to National legislation

ACCESS TO CARE

» Health insurance does not guarantee access to care» An additional 400,000 people are attempting

to access the same number of physicians» Wait time went from 33 days to ~ 50 days» 75% of non-urgent ED visits are due to

physician shortages

WAIT TIME ACROSS THE US - 2007

City % of Population Uninsured

Number of Physicians per 1,000 people

Average wait to see a specialist

Boston, Mass 9.4% 4.53 49.6

Philadelphia, PA 11.3% 3.32 27.0

Los Angeles, CA 20.5% 2.60 24.2

Houston, TX 27.1% 2.15 23.4

Minneapolis, MN 9.6% 2.81 19.8

New York, NY 15.2% 4.00 19.2

Denver, CO 18.4% 2.65 15.4

Miami, FL 24.2% 2.53 15.4

Seattle, WA 13.6% 2.62 14.2

Source: National Center for Policy Analysis

MASSHEALTH: MASSCOST?

» State spending on healthcare has increased by 45% ($595 million) since 2006

» Commonwealth Care was estimated at $725 million annually: 2010 projection is at $880 million

» Health insurance premiums are growing at a rate of 8-10% a year, nearly twice the national average.

IMPLICATIONS FOR BUSINESS

» Small business already at a disadvantage» Highly regulated markets in small group» Little choice in concentrated insurance

markets» Highest growth in premiums » Higher cost per benefit – most cost-shifted

market

» New mandates, new taxes and expansion of entitlement programs – not good for business

» Industry taxes on medical devices, pharmaceuticals and health insurers will likely be passed on

» Small business credits not meaningful for most

IMPLICATIONS FOR BUSINESS

» Incentives point to “Pay vs. Play” for many employers

» Small employers face no coverage mandate and will likely allow employees to take State Health Exchange subsidies

» Little innovation in plan design, benefits and financing

» Employers lose control of minimum plan design

» Significant shift in decision making to feds» Likely erosion of employer-based health

care» Ongoing debate and evolution of health

care coverage during next decade

IMPLICATIONS FOR BUSINESS

» State Implementation» Maryland Health Care Coordinating Council» Interim report July 15th/ Final Report January

1st

» Expect implementing legislation in 2011 and 2012 sessions

» Individual market» Small group» Small employer subsidy program» MHIP» Set up Exchanges» Medicaid

For More Information, Visit:

Sage Growth Partnerswww.sage-growth.com/

Maryland Chamber of Commercewww.mdchamber.org