Health Care Reform: What Employers Need to Know

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A presentation on the new federal health care law by:

Don McDaniel, Sage Growth Partners, LLC
Ron Wineholt, Maryland Chamber of Commerce

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Health Care Reform: What Employers Need to Know

  1. 1. HEALTH CARE REFORM: WHAT EMPLOYERS NEED TO KNOW<br />Don McDaniel, Sage Growth Partners, LLC<br />Ron Wineholt, Maryland Chamber of Commerce<br />May 2010<br />
  2. 2. Intractable Healthcare Problems<br />
  3. 3. PROBLEM #1HEALTH EXPENDITURES AS A PERCENTAGE OF GDP<br />* 2009 – 2018 Projected<br />Source: Centers for Medicare and Medicaid Services<br />
  4. 4. 3.7%<br />PROBLEM #2AVERAGE PERCENTAGE INCREASE IN HEALTH INSURANCE PREMIUMS COMPARED TO OTHER INDICATORS, 1988-2007<br />
  5. 5. PROBLEM #3GROWTH IN MEDICARE SPENDING VS. PRIVATE HEALTH INSURANCE SPENDING<br />Source: American Hospital Association via the Centers for Medicare & Medicaid Services, Office of the Actuary. Data Released January 8, 2008<br />5<br />
  6. 6. AGGREGATE HOSPITAL PAYMENT-TO-COST RATIOS FOR PRIVATE PAYERS, MEDICARE, AND MEDICAID<br />Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals. <br />(1) Includes Medicaid Disproportionate Share payments<br />
  7. 7. PROBLEM #4NATIONAL SUPPLY & DEMAND PROJECTIONS FOR FTE RNS<br />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.<br />
  8. 8. PROBLEM # 5The demographic Tsunami<br />One-quarter of all Medicare recipients<br />Have five or more chronic conditions<br />See, on average, 13 physicians per year<br />Secure 50 prescriptions per year<br />Over 13,000 different drugs being sold in the U.S. in 2007 – 16x what was available 50 years ago<br />Over 900,000 physicians in the U.S. – 75% are in practices of less than 8 physicians<br />Payment system issues – hard to support a “system” of care<br />
  9. 9. PROBLEM #6NUMBER OF FULL-TIME AND PART-TIME HOSPITAL EMPLOYEES<br />Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals. <br />
  10. 10. PROBLEM #7ARRESTED DEVELOPMENT: CONSUMER SOVEREIGNTY <br />What do things really cost?<br />We don’t demand price transparency<br />We don’t demand better information to inform our purchase decisions<br />Consumer demand should drive supply-side reform<br />Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group<br />
  11. 11. HEALTH REFORM 2010H.R. 3590 THE PATIENT PROTECTION AND AFFORDABLE CARE ACTH.R. 4872 THE HEALTH CARE AND EDUCATION TAX CREDIT RECONCILIATION ACT OF 2010<br />
  12. 12. MAJOR EMPLOYER ISSUES<br />Impact of coverage expansion to 32 million people <br />Benefit mandates<br />Employer mandate<br />Individual mandate<br />Market restructuring<br />Health Insurance Exchanges<br />Tax provisions<br />
  13. 13. HEALTH REFORM - CHRONOLOGY<br />2010<br />Small business tax credit (through 2013)– sliding scale tax credit for businesses with 25 or fewer employees<br />Average wage of $50,000 or less<br />35% subsidy of employer costs if under 10 employees and average wage under $25,000<br />25% maximum subsidy for non-profits<br />FTE = total hrs. /2080; exclude owner & seasonals < 120 days<br />Employer must pay at least 50% of premium<br />No credit for sole proprietors<br />Can count vision and dental plan expenses<br />Claim credit on tax return/reduced estimated payments<br />
  14. 14. HEALTH REFORM - CHRONOLOGY<br />2010 (cont.)<br />Up to age 26 – can stay on parent’s policy<br />Adult children need not be dependents under IRC<br />May provide coverage to end of year child becomes 26<br />Employer may allow extension and enrollment now of such adult children, but no later than September 23, 2010<br />30-day open enrollment this year<br />Many carriers suspending age 25 “age-outs” June 1st<br />Temporary reinsurance program for employer’s early retirees<br />Insurance reforms<br />Eliminates lifetime limits<br />No pre-x for children < 19 or cost sharing for prevent. services<br />Auto-enrollment for employers with over 200 employees<br />
  15. 15. HEALTH REFORM - CHRONOLOGY<br />2011<br />W-2 reporting – employer-provided health benefits cost (Issued starting with January 2012 W-2s)<br />OTC drugs not eligible for reimbursement from FSA/HSA/HRA<br />Federally-subsidized long-term care program (CLASS Act) <br />Voluntary for employer participation<br />Auto-enrollment, but employees may opt out <br />5 year vesting<br />
  16. 16. HEALTH REFORM - CHRONOLOGY<br />2011 (cont.)<br />Wellness grants for employers with under 100 employees<br />HSA penalty increased to 20% for non-qualified purchases<br />Grants for demonstration projects for alternatives to medical liability litigation<br />
  17. 17. HEALTH REFORM - CHRONOLOGY<br />2012<br />Expanded 1099 reporting for businesses<br />Currently used for payments to individuals for non-wage income and services by independent contractors<br />Will now be required for annual payments over $600:<br />Individuals or corporations<br />Goods or services<br />Examples: Buying a computer, airline tickets, gas, or supplies.<br />Huge additional paperwork burden for employers<br />
  18. 18. HEALTH REFORM - CHRONOLOGY<br />2013<br />New FSA limits of $2,500<br />Medical device 2.3% excise tax<br />Medicare payroll tax base increase<br />+.9% tax on earned income > $200,000/$250,000<br />Medicare investment tax – 3.8%<br />Medicaid reimbursements to increase to 100% of Medicare<br />Eliminate deduction for Medicare Part D employer subsidy<br />
  19. 19. HEALTH REFORM - CHRONOLOGY<br />2014<br />Medicaid eligibility expansion – up to 133% of FPL<br />Premium credit subsidies – up to 400% of FPL<br />Insurance Exchanges come online – “qualified” plans for individuals and small businesses (up to 100 employees)<br />Individual mandate – “carry or penalty” - $695/year to $2,085 or 2.5% of household income<br />Federal health insurance premium tax – will raise almost $70 Billion through 2019 - passed on through premiums<br />DSH cuts for certain hospitals<br />Pre-x and annual limits prohibited<br />Small employer tax credits<br />50% of employer’s cost (35% for non-profits)<br />Limited to 2 years<br />
  20. 20. HEALTH REFORM - CHRONOLOGY<br />2014 (cont.)<br />DHHS sets “Essential Health Benefit Package”<br />Employer Mandate <br />Employees averaging > 50 employees must provide qualifying insurance or incur penalty – up to $2,000/$3,000 per employee<br />Insurance must cover 60% of claim costs and be under 9.5% of employee’s total household income<br />No penalty if no employees claim insurance tax subsidy<br />No penalty if over 50 employees due to seasonal workers for 120 or fewer days<br />Compute 50 employee threshold by:<br />Employees > 30 hours/week; and<br />Part-time employee hours worked in month/120<br />
  21. 21. HEALTH REFORM - CHRONOLOGY<br />2015<br />Creates Independent Medicare Payment Advisory Board – reductions in Medicare spending?<br />2016<br />Interstate Health Choice Compacts<br />Qualified health plans offered in participating states<br />2018<br />Cadillac Tax – 40% excise tax for annual health coverage above:<br />$10,200 single/$27,500 family<br />Higher thresholds for high-risk professions and retirees over 55<br />Thresholds indexed at CPI + 1% until 2020, then at CPI<br />
  22. 22. How To Pay for it?<br />Projected funding sources for health reform – 10 years:<br />High earner taxes – Medicare – income and investment - $210B<br />Individual penalties - $17B<br />Employer penalties - $52B<br />Trim health-related tax breaks - $29B<br />New Taxes/Assessments on Industry - $107B<br />Reimbursement/DSH/Fraud reductions ~ $300B<br />Medicare Advantage reductions - $177B<br />Cadillac Tax on High Premiums - $32B<br />Reductions in Medicare reimbursement - ????<br />Source: Congressional Budget Office<br />
  23. 23. BELLWETHER? THE MASSACHUSETTS EXPERIENCE<br />
  24. 24. MASSACHUSETTS REFORM PLATFORM<br />Individual Mandate<br />Employer Mandate<br />All employers with 10 or more employees. $295 fine per employee if insurance is not offered<br />Middle-Class Subsidies<br />Commonwealth Care for all families with income up to 300% of the federal poverty level<br />The Connector<br />Acts as an exchange for individuals and small business<br />Very familiar to National legislation <br />
  25. 25. ACCESS TO CARE<br />Health insurance does not guarantee access to care<br />An additional 400,000 people are attempting to access the same number of physicians<br />Wait time went from 33 days to ~ 50 days<br />75% of non-urgent ED visits are due to physician shortages<br />
  26. 26. WAIT TIME ACROSS THE US - 2007<br />Source: National Center for Policy Analysis<br />
  27. 27. MASSHEALTH: MASSCOST?<br />State spending on healthcare has increased by 45% ($595 million) since 2006<br />Commonwealth Care was estimated at $725 million annually: 2010 projection is at $880 million<br />Health insurance premiums are growing at a rate of 8-10% a year, nearly twice the national average.<br />
  28. 28. IMPLICATIONS FOR BUSINESS<br />Small business already at a disadvantage<br />Highly regulated markets in small group<br />Little choice in concentrated insurance markets<br />Highest growth in premiums <br />Higher cost per benefit – most cost-shifted market<br />New mandates, new taxes and expansion of entitlement programs – not good for business<br />Industry taxes on medical devices, pharmaceuticals and health insurers will likely be passed on<br />Small business credits not meaningful for most<br />
  29. 29. IMPLICATIONS FOR BUSINESS<br />Incentives point to “Pay vs. Play” for many employers<br />Small employers face no coverage mandate and will likely allow employees to take State Health Exchange subsidies <br />Little innovation in plan design, benefits and financing<br />Employers lose control of minimum plan design<br />Significant shift in decision making to feds<br />Likely erosion of employer-based health care<br />Ongoing debate and evolution of health care coverage during next decade<br />
  30. 30. IMPLICATIONS FOR BUSINESS<br />State Implementation<br />Maryland Health Care Coordinating Council<br />Interim report July 15th/ Final Report January 1st<br />Expect implementing legislation in 2011 and 2012 sessions<br />Individual market<br />Small group<br />Small employer subsidy program<br />MHIP<br />Set up Exchanges<br />Medicaid<br />
  31. 31. For More Information, Visit:<br />Sage Growth Partners<br />www.sage-growth.com/<br />Maryland Chamber of Commerce<br />www.mdchamber.org<br />

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