A presentation on the new federal health care law by: Don McDaniel, Sage Growth Partners, LLC Ron Wineholt, Maryland Chamber of Commerce

1. HEALTH CARE REFORM: WHAT EMPLOYERS NEED TO KNOW Don McDaniel, Sage Growth Partners, LLC Ron Wineholt, Maryland Chamber of Commerce May 2010

2. Intractable Healthcare Problems

3. PROBLEM #1HEALTH EXPENDITURES AS A PERCENTAGE OF GDP * 2009 – 2018 Projected Source: Centers for Medicare and Medicaid Services

4. 3.7% PROBLEM #2AVERAGE PERCENTAGE INCREASE IN HEALTH INSURANCE PREMIUMS COMPARED TO OTHER INDICATORS, 1988-2007

5. 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 5

6. 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

7. 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.

8. 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

9. 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.

10. 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 reform Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group

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

12. MAJOR EMPLOYER ISSUES Impact of coverage expansion to 32 million people Benefit mandates Employer mandate Individual mandate Market restructuring Health Insurance Exchanges Tax provisions

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. BELLWETHER? THE MASSACHUSETTS EXPERIENCE

24. 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

25. 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

26. WAIT TIME ACROSS THE US - 2007 Source: National Center for Policy Analysis

27. 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.

28. 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

29. 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

30. 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

31. For More Information, Visit: Sage Growth Partners www.sage-growth.com/ Maryland Chamber of Commerce www.mdchamber.org