Health Care Reform Presentation given 9/1/2010 to Ventura Rotary

1. The Future of America’s Health Care Presented by Ed McClements, CLU, ChFC Ventura Rotary Meeting, Sept. 1st 2010

2. Health Insurance Coverage , 2008 Total = 300.5 million NOTE: Includes those over age 65. Medicaid/Other Public includes Medicaid, SCHIP, other state programs, and military-related coverage. Those enrolled in both Medicare and Medicaid (1.9% of total population) are shown as Medicare beneficiaries. SOURCE: Kaiser Commission on Medicaid and the Uninsured/Urban Institute analysis of March 2009 CPS

3. BIG PICTURE – REDUCE UNINSURED Current Uninsured - 45 million Estimated Uninsured in 2019… Without Reform – 54 million With Reform, estimated Uninsured 23 million* * Source: Congressional Budget Office, 2009 GOOD NEWS FOR UNINSURED – Anyone who wants insurance will be able to get it BAD NEWS FOR EMPLOYERS AND MOST PEOPLE WITH CURRENT COVERAGE – Costs are predicted to go up and bureaucracy will increase

6. Creation of Government Supervised Insurance Exchanges

7. Creation on “Essential Benefit” Levels

8. Creation of Non-Profit Cooperatives

9. Individual Mandates to Purchase Insurance

10. Potential Employer Mandates to Provide Insurance or Pay a Fine

11. Employer Reporting and Compliance Mandates

12. Creation of New Regulatory Agencies

13. Changes to Existing Tax Law on Dependents Age, HSAs, FSAs, HRAs, etc.

14. Medicaid Expansion to 133% of Federal Poverty Level

15. Medicare Changes (notably the closure of the Rx donut hole)

16. Creation of a National Insurance Program to Address Long Term Care

17. Demonstration projects for Medical Liability Reform

18. Restrictions on Doctors ownership of Medical Facilities

20. Best Parts: Preventative Care 100% coverage (no deductibles nor copay %) in all plans starting with new plan years after 9/23/2010 Creates a Prevention and Public Health Fund ($500M in 2010 scaling up to $2B in 2015) for national investment in preventative care Grants for $240 million in 2011 and 2012 to educate and train providers in preventive medicine, health promotion, chronic disease management and evidence based medicine Localized programs targeting obesity, smoking, and mental health

21. Best Parts: Supporting Primary Care Nationwide, local Community Clinic revenues will increase dramatically (potentially about 800%) once reforms are fully implemented Doctors treating Medicaid (aka Medi-Cal in Calif.) patients will get at least as much as MediCare doctors Loan repayment programs for Primary Care Doctors and Nurses Incentives for practicing in “Health Professional Shortage Areas” Increased funding of National Health Services Corps

22. Small Employer Wellness Programs $200 million in grants to eligible Small Employers for creating comprehensive wellness programs for employees Less than 100 employees Work an average of 25+ hours per week Not already (as of 3/23/2010) providing a wellness program For Years 2011 -2015

23. Help NOW for Uninsurable Folks Pre-Existing Condition Insurance Programs (PCIPs) are opening up nationwide (21 run by HHS / 29 state organized) Stop-Gap solution until 2014 (when Guarantee Issue starts) California already operates a High Risk Pool (known as the Major Risk Medical Insurance Board…MRMIB) The NEW Federal program will be have “reasonable premiums” (apparently subsidized by Federal money) Qualifications are strict minimum of 6 months without any insurance Proof of citizenship or legal presence Calif.’s applications were supposed to become available 8/31/2010 www.pcip.ca.gov

24. Medicaid Expansion (MediCAL) In 2014 Medicaid expands to all individuals under age 65 with incomes up to 133% of the FPL This alone will potentially reduce uninsured by 1/3 (over 17 million people) Federal Government will (for newly eligibles): Provide 100% of the funding 2014-2016 95% of the funding in 2017 94% of the funding in 2018 93% of the funding in 2019 And 90% of the funding in 2020 and beyond

25. Comparative Effectiveness Research Patient-Centered Outcomes Research Institute Establishes a private, non-profit corporation to assist providers, payers, and policy makers in making informed health decisions Research conducted would be comparative clinical effectiveness research which evaluates health outcomes and clinical effectiveness, risks, and benefits of two or more medical treatments The Legislation levies a $2 tax per participant per year ($1 in the first year of 2013) on both Insured and Self Insured plans for funding 12

26. Coverage of Adult Children (< age 26) Adult Children to be eligible on parent’s plan up to age 26 Regardless of School Status Regardless of Married Status Regardless of Dependent Status on Parents Taxes Availability of other coverage is a factor in eligibility until 2014 Earliest it was supposed to go into effect was October 1, 2010 (for plans with Oct. 1st start dates) The Obama Administration as asked health insurers to comply in advance of the deadline - so that graduating high school and college students could be covered starting this summer Most major health plans have said they will comply Those losing coverage can stay on Those WHO ALREADY LOST coverage can be added at open enrollment

27. Biggest Issues Facing Employers Simply trying to keep up with strategy & compliance issues No Annual or Lifetime benefit caps Huge impact on some industries like agriculture (waivers for some?) Community Rating/Pooling (no ability to medically underwrite ) Age Blending (rates will be limited to 1:3 ratio – youngest:oldest) “Essential” Benefit Levels richer than most current plans To Grandfather or not to Grandfather? Non-Discrimination Rules may apply (possible taxation of benefits) Seasonal Workers can only be excluded if they work 120 days or less No Exchange coverage permitted for Undocumented Workers Coming in 2014 - the Play or Pay Requirement on Employers with over 50 employees

28. WHEN DOES MY PLAN YEAR START? DON’T BE SURPRISED IF YOU ARE UNSURE – here are some helpful hints… Is the Group over 100 employees? If so, they should be filing a 5500 annual benefit plan return to the IRS (check it for the defined plan year) If the group is over 100 and isn’t filing a 5500, call in an expert If the group is under 100, see if they have a Summary Plan Description ( a plan year should be defined in the SPD). All employers are supposed to have SPDs, but they commonly do not unless they are partially self insured Call the current carrier and ASK THEM what they have in their records as the defined plan year for the client If all else fails – define the plan year!

29. Special Cases – Plan Year Defined Association Plans and Union Plans typically have their own plan year. Western Growers Assurance Trust 7/1/2011 United Agricultural Benefit Trust 1/1/2010

31. Only applies to plans in existence as of 3/23/2010

32. Regulations (for keeping grandfather status) are onerous

33. Cannot increase coinsurance %

34. Cannot make significant increases in deductibles , copayments or out of pocket maximums

35. Cannot increase employee premium share by more than 5%

38. No waiting periods longer than 90 days

41. Starting in 2014 there’s a penalty for not having health insurance

42. The penalty is non-deductible excise tax that is the HIGHER of…

43. Capped at no more than the average cost of the Bronze Level benefit program21

47. Mandates are meaningless to Undocumented Workers

48. Penalties are not huge – worst case scenario is that you have to pay an amount equal the premium on health insurance plan you were supposed to have

49. Drive is to change cultural mindset – being a responsible citizen means buying health insurance

50. Can Government successfully do that?

51. We are told the IRS has plans or hiring 16,000 more agents24

52. Employer Decision - Play or Pay Effective in 2014 Do you have 50 or more full-time equivalent employees? No further action required No Yes Employer Analysis Do you offer a health plan with essential benefits coverage and meets at least a 60% actuarial value? You will pay a penalty fee of $2,000 annually for every FTE if at least one FTE receives income-based premium assistance to purchase coverage through the exchange. Penalties do not apply to the first 30 FTE’s. Yes No Do all of your employees have a total household income that exceeds 400% of Federal Poverty Level Employees not eligible for subsidy. No Employer penalty Individual Analysis No Yes Is required employee contribution for health plan between 8%-9.5%* of total household income? Is required employee contribution for health plan >9.5% of total household income? No penalty is required Yes No Yes Must offer a free choice voucher for employee to use to purchase coverage in the exchange. Cost will be equal to greatest contribution offered by employer. You will pay the lesser of $3,000 times the number of FTE’s receiving income –based assistance; or $2,000 times the total number of full-time employees; first 30 FTE’s not counted. *Although the law currently states 9.8%, Mercer expects this to be adjusted to 9.5%

54. 2010 – 2013 can get a 35% tax credit

55. 2014 – on can get a 50% tax credit

56. 10 or less employee AND average wages of < $25,000 qualifies for full credit

57. 25 employees OR > $50,000 in wages ELIMNATES tax credit

58. Owner’s (and Family members’) wages can be excluded from averages above$25,000 10 emp. $50,000 25 emp.

60. Private Insurance

61. High Risk Pool

62. CHIP (Healthy Families in Calif.)

63. Medicaid (Medi-CAL in Calif.)

66. the Employee’s share of Medicare Part A (hospital insurance) tax rate on wages goes up by 0.9% (from 1.45% to 2.35%) on earnings

67. The Medicare tax will also now apply to investment income (at 3.8%) such as rents, dividends, interest earnings, etc.

70. On the Drug Companies… Starting at $2.8 billion in 2012 and rising to $4.1 billion in 2018

71. On the Health Insurers… Starting at $8 billion in 2014 and rising to $14.3 billion in 201830 Revenue Generation 2009 Profits $12 billion in 2009

73. Limits deductible compensation of Insurance Executives to $500,000

74. Creates Minimum Loss Ratios of 85% for large group plans and 80% for small group plans (effectively capping non-claims costs at 15% and 20% respectively)

75. Includes new Medicare fraud and abuse provisions

76. Going forward, limits doctor ownership of hospitals

77. Governmental oversight and limitation of loss/premium ratios and reporting;

78. Establishes a Health Insurance Reform Implementation Fund within the Department of Health and Human Services and allocate $1 billion to implement health reform policies

79. Allocates $250 million to help State Insurance Departments police health plan rate increases

80. Creates a 10% tax on indoor tanning salons31

81. Greatest Opportunity – Self Funding & Preventative Care Self Funded Employers avoid COMMUNITY RATING Maximum exposure limited via Stop-Loss Insurance Get more access to claims data (within HIPAA) You control Plan Design (to a degree) You can create its own PPO or EPO Network Possible that Co-operative Medical Services could be created to service our employees Concentrate on Prevention Consider HRA rather than a Health Insurance Plan (at least until 2014, when Employer Play or Pay kicks in) Low cost health care High quality health care

82. Your TOP PRIORITIES

83. For More Detailed Analysis… www.healthcare.gov www.kff.org www.chcf.org www.hhs.gov www.cms.gov www.dol.gov www.irs.gov/newsroom/article/0,,id=220839,00.html emcclements@barkleyins.com

84. THANK YOU! 721 South A Street Oxnard, CA 93030 (805) 483 – 1995 Dept. of Ins. # 0B75139 www.barkleyins.com