Southern Arizona Association

of Health Underwriters

Chuck BassettVP Government Relations

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Health Care Reform

“What a long, strange trip it’s been.”

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What Drives Health Care Reform?

Skyrocketing Costs• 7.2% of GDP in 1970; 17.3% now

• 25% of GDP in 2025

• Health care inflation is 2 X CPI

• Premiums increased 131% between 1999 and 2009

• Salaries increased 27% in same period

• Average worker’s contribution for insurance increased 44% from 1999 - 2009

• M & M are 20% of federal budget. Next year, government programs will account for >1/2 of all U.S. health care spending

• Our costs are 20% higher than other industrialized nations

• Medical technology

• Defensive medicine

• Health status

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What Drives Health Care Reform?

Uninsured

• 45.7 million Americans are uninsured. Of these:

– 13.7 million are eligible for Medicaid coverage now

– 18.3 million have income over $50,000 annually

– 13.7 million are truly squeezed out by cost

• 1.3 million (20%) of Arizonans, including 3% undocumented, are uninsured. Of these:

– 65% are under 35 years of age

– 74% are employed

– Over 20% make > $50,000 per year

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Brief History of Health Care Reform

A brief history

Clinton effort

States as laboratories

Massachusetts experience

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Massachusetts Health Care Reform

2006 Massachusetts legislation featured:

• Individual mandate

• Subsidized and free coverage

• Pay or play

• Connector

The state already had:• Guaranteed issue

• Community rating

• $1.1 billion

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Obama Takes Charge

“Let’s be the generation that finally tackles our health care crisis. Let’s be the generation that says right here, right now, that we will have universal health care in America by the end of the next president’s first term.”

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Health Care Reform Context

Reform

• Budget - $634 billion reserve

• White House Summit

• Regional summits

• Active role– Prime time congressional address

– Speeches

– Grassroots

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Health Care Reform - House

Ways and Means Committee -Chairman Stark

HouseThree committees have jurisdiction

Energy and Commerce Committee -Chairman Waxman

Education and Labor - Chairman Miller

July 17 July 17

July 31

November 7

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Health Care Reform - Senate

HELP Committee - Chairman Kennedy

Finance Committee - Chairman Baucus

July 15 October 13

December 24

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Where We Thought We Were

• Blending process

• What we expected– Conference

– Ping Pong

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Where We Thought We Were

What happened?

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Where We Thought We Were

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Where We Thought We Were

What happened?

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White House Summit Redux

• February 25, 2010

• Stab at bi-partisanship vs. political theatre

• Both Arizona Senators invited

• President released outline of proposal

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Health Care Reform

Six ways the House and Senate bills will increase premiums.

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Fundamental Change: Guaranteed Issue

• Upside: No more rejections, waivers, rate-ups

• Downside: Encourages healthy people to sit out until they need insurance

• Already applies to small group market

Insurers in the individual market must issue a policy to any applicant, regardless of health condition

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Fundamental Change: Community Rating

• Upside: People with health problems will pay less

• Downside: Everyone else will pay more.

• Age rating

Everyone is charged essentially the same amount for insurance

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Effect of Rate Band Restrictions

Moving from 5:1 to 4:1 results in premium increases for > 90% of non-elderly Americans

• 3:1 age bands will increase rates for the youngest third by 35%

• 2:1 age bands will increase rates for the youngest third by 69%

House at 2:1

Senate at 3:1

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Strike a Balance

For guaranteed issue and community rating to work, they must be paired with a requirement that everyone participate in the insurance system

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Individual Mandate

All individuals must have coverage, if not through work or the government, then through the individual market

House• Penalty is 2.5% of MAGI, with cap of price of basic plan

• Penalty prorated

• Some exemptions

Senate• Penalty: $95 in Y1; $425 in Y2 & $750 in Y3

• No penalty for lapses < 3 mos.

• Some exemptions

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Individual Mandate

All individuals must have coverage, if not through work or the government, then through the individual market

House• Penalty is 2.5% of MAGI, with cap of price of basic plan

• Penalty prorated

• Some exemptions

Senate• Penalty: $95 in Y1; $425 in Y2 & $750 in Y3

• No penalty for lapses < 3 mos.

• Some exemptions

•Obama proposal reduces Senate fees and uses alternative House penalty.

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Dangerous Equation

Tight rating bands

+ weak mandate

+ guaranteed issue

Incentive not to

buy insurance

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Individual Subsidy

• House

– 133% FPL pays no >1.5%

– 400% FPL pays no > 12%

• Senate

– 100% FPL pays no > 2%

– 400% FPL pays no > 9.8%

Sliding scale subsidies based on household income

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Government Plan

• Background

• Medicare-like competitor

• Reimbursement

• “Level playing field”

• Co-Op

• FEHBP and Medicare buy in

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Cost Shift Illustrated

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Exchange

Objective: Help individuals and small businesses compare and purchase insurance products and receive subsidies online

Cost

Should be state-based and minimally regulatory

Only source for subsidies

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Benefit Requirements

Actuarial value: the percent of expected medical expenses paid by the insurer for a standard population.

House bill - 70% minimum A / V

Senate Bill - 60% minimum A / V

Two-thirds of BCBSAZ products do not meet a 65% standards

The House A / V, along with benefit mandates, would increase premiums 14% in the individual market.

- Oliver Wyman Report, 12/3/09

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Tax Provisions in Senate Bill

New taxes• Pharmaceutical manufacturers• Device manufacturers• Insurers• Cadillac tax

Increased taxes• Nonqualified withdrawals from HSA/MSAs• Threshold for writing off medical expenses• Hospital insurance (Medicare Part A) tax rate• Flex accounts limited to $2,500• Repeals employer deduction for Part D contributions

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Cost Impact of Insurer Fee

Senate bill calls for $70 billion annual fee on health insurers over 10 years• Assessment based on market share

• Effective 2011

• Impact– Nearly doubles our effective federal tax rate– Would increase BCBSAZ federal taxes by

average of $23.6 million per year

• Obama proposal: $67 B over 10 years. Delayed until 2014.

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Tax on High-Cost Coverage

Excise tax on high-cost insurance (aka “Cadillac” tax)– 40% tax on premium exceeding $8,500 (single) and $23,000 (family)

The deal:– Union and gov’t employee

plans exempt

– $8,900 / $24,000

– Dental and vision excluded

The new deal:– No more union exemption

– $10,500 / $27,500

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Taxes on Drugs & Devices

Pharmaceutical Manufacturer Tax of $2.3 Billion per year

+

Medical Device Manufacturer Tax of $2 billion per year

Adds $12.6 M to our premiums

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Taxes on Drugs & Devices

$3.3

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Regulatory Challenges

• Grandfathering – lack of clarity

• Lifetime/Annual Limits

• Medical Loss Ratios

• Dependent Coverage to Age 26

• Federal Rate Review

• Effective dates

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Regulatory Challenges

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Overall Cost Impact of Senate Bill

BCBSAZ internal numbers:

•84% of BCBSAZ small groups (2-100) would face an increase– Younger / healthier groups +144%– Average age / health +46%– Older / less healthy -34%

•80% of Arizonans in the individual market would face premium increases of more than 50%

– 20 male +89%– 45 couple +69%– 60 couple +23%

Oliver Wyman numbers: In states like Arizona, reform will increase premiums for individuals 61-75%. Small group rates will increase up to 20%.

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Overall Cost Impact of Senate Bill

BCBSAZ internal numbers:

•84% of BCBSAZ small groups (2-100) would face an increase– Younger / healthier groups +144%– Average age / health +46%– Older / less healthy -34%

•80% of Arizonans in the individual market would face premium increases of more than 50%

– 20 male +89%– 45 couple +69%– 60 couple +23%

Oliver Wyman numbers: In states like Arizona, reform will increase premiums for individuals 61-75%. Small group rates will increase up to 20%.

What about subsidies?

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Concluding Points

• Congress is moving in the wrong direction

• Arizona delegation

• Gabrielle Giffords– 202.225.2542

– www.giffords.house.gov

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State Legislature

Budget Woes

$4 Billion deficit for FY 2010 and 2011

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State Legislature - Budget

Budget cuts

Fund transfers

Salary reductions

Redirecting lottery money

Rollover

Borrow from First Things First and Growing Smart

Nix juvenile corrections and parks departments

Discontinue KidsCare and all-day K

Sales tax referral

Special elections May 18

Adds 1% to 5.6% state sales tax

Generates $1B

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State Legislature - Vacancies

Waring

Crump

Gorman

Paton

Resigned to run for Rep. Shadegg’s seat

Resigned to run against Rep. Gifford’s

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Legislation

Medical liability (SB 1167, SCR 1006)

Rulemaking (SB 1348 & HB 2260

Dental (SB 1417)

Dialysis / Med Supp (HB 2132)

Oral Chemotherapy (SB 1216)

State employee plan (HB 2654 & SB 1378)

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Thank you!