2013 Health Insurance Update

Robert R. Pohls
Pohls & Associates
Walnut Creek, California
HEALTH INSURANCE LAW UPDATE
Health Insurance Regulation and Litigation
After NFIB v. Sebelius
1

Agenda
- PPACA Litigation
- PPACA Scorecard
- Future Changes
- Insurance Practices
- Insurance Marketplace
- Health Care Delivery Systems
- Litigation Hot Spots
- Questions
2

PPACA: The Basics
- Passed on 3/23/2010
- Effective on 3/30/2010
- Primary Goal:
Increased Access to Affordable Health Care
3

PPACA: The Basics
Accessibility:
- Expansion of Medicaid
Affordability:
- Promoting Public Health
- Revenue Provisions
4

PPACA: The Basics
Accessibility:
Affordability:
- Promoting Public Health
- Revenue Provisions
5

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
6

“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)
7

“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)
8

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)
9

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)
10

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. Sebelius
728 F.Supp.2d 768 (E.D. Va. 2010)
11

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
12

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.”
13

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
14

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.”
15

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.”
16

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.
17

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
18

Coercion Doctrine
When “power turns into compulsion,” the legislation
runs contrary to our system of federalism.
Steward Machine Co. v. Davis
301 U.S. 548, 590 (1937)
19

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.”
20

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.”
21

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.
22

Employer Mandate
Commerce Clause gives Congress the power to
“regulate the terms of the employment contract.”
Liberty University v. Geithner
W.D.Va. (November 30, 2010)
4th Circuit: Anti-Injunction Act
SCOTUS: Certiorari denied
23

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.
24

Most cases: Dismissed (not ripe)
Two cases: Injunctive relief denied for
insufficient likelihood of success
Eight cases: Injunctive relief granted to
prohibit enforcing preventive
care coverage mandate
25

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.
26

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)
27

PPACA: Scorecard
Pre-Existing Conditions
Coverage 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)
28

PPACA: Scorecard
Small Business Tax Credit
Small 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
29

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
30

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)
31

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
32

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.”
33

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)
34

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
35

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
36

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.
37

PPACA: Scorecard
Independent
External Review
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.
38

PPACA: Scorecard
Independent
External Review
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)
39

PPACA: Scorecard
Medical Loss Ratios
and 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)
40

PPACA: Scorecard
Premium Rate Increases
Review increases over 10%
Unreasonable if:
- Excessive - Unjustified - Unfairly Discriminatory
45 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
41

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)
42

Future Changes
- Individual Mandate
- Employer Mandate
- Health Benefit Exchanges
43

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
44

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
45

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
46

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%
47

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
48

Impact on Agents:
- Individual mandate
- Employer mandate
- Exchanges
- Navigators
- 45 C.F.R. 155.210(d)
49

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%
50

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
51

Future Changes: Expansion of Medicaid
52

Shifting the Focus: Affordability
U.S. Healthcare Spending
1980: $256 Billion 2010: $2.6 Trillion
53

54

55

56

57

Factors:
- technology and prescription drugs
- rise in chronic diseases
- administrative costs
58

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
59

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
60

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
61

62

Litigation Hot Spots
Rescissions
- Only for fraud
- Guaranteed issue
- Community rating
Question: Any other means of showing materiality?
63

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
64

Claim Denials
- Exhaustion of remedies
- Conflict of interest
- Deference to decision-maker?
- “Binding” external review
65

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
66

Medical Loss Ratios and Rebates
What happens if a policy lapses for non-payment of
premiums, but the insurer later gives a rebate?
67

Premium Rates
Sales Practices
Provider Relations
68

Questions?
Robert R. Pohls
Pohls & Associates
1550 Parkside Drive, Suite 260
Walnut Creek, California 94596
T: 925.973.0300 F: 925.973.0330
rpohls@califehealth.com
69

2013 Health Insurance Update

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2013 Health Insurance Update