The History & Future of Small Business Health Insurance

With Paul Zane Pilzer

Paul Zane Pilzer

The current U.S. employment crisis, coupled with the Affordable Care Act, has given employers the courage to go where few employers dared to go before – WITHOUT employer-provided health insurance.

The 2012 renewal market for employer-provided health benefits may be the harbinger of what’s to come regardless of what the U.S. Supreme Court rules on the legality of ACA.

CEO & Founder of Zane Benefits, author of The New Health Insurance Solution, world-renowned economist, highly successful social entrepreneur, adjunct professor, and the author of nine best-selling books.

Agenda

How Americans Get Health Insurance Today (2012)History of U.S. Health Insurance – WWII – 1965Pre-ACA Legislation – Medicare, Medicaid, ERISA, COBRA, HIPAAAffordable Care Act (ACA) – 2010-2014Defined Contribution Health Benefits (1999-2014)How ACA/Economy/Deficit is Affecting 2012 RenewalsCLASS (Federal Long Term Care Program) DefundingNew Private Health Exchanges and Defined Contribution The United States Supreme Court - Four Potential OptionsSummary and Q & A

How Americans Get Health Insurance Today

How Americans Get Health Insurance (2012)

(overlapping numbers)

a. Group Employer - 145 million (incl. dependents)

b. Personal Policies - 40 million (up from 12 million 2002)

c. Medicare - 47 million (incl. 12 million MA)d. Medicaid - 45 million (incl. 8 million over 65

or disabled)e. Uninsured - 40 million (politically correct #,

probably closer to 10 million)

How Americans Get Health Insurance (2012)

(overlapping numbers)

a. Group Employer - 145 million (incl. dependents)

b. Personal Policies - 40 million (up from 12 million 2002)

c. Medicare - 47 million (incl. 12 million MA)

d. Medicaid - 45 million (incl. 8 million over 65 or disabled)

e. Uninsured - 40 million (politically correct #, probably closer to

10 million)

History of U.S. Health Insurance

History of U.S. Health InsuranceCreation of “Modern” U.S. Health Care Occurred Post WWII

●Limited employer involvement

●Catastrophic health insurance

●Local Blue Cross / Blue Shield

●Individual / family driven

●Government-imposed Wage & Price Controls 1941-1947

●Employer healthcare benefits exempted from income taxes & Wage & Price controls

●HUGE cost advantage to employer driven, third-party payer system - 94%-70% personal income tax rate from 1944-1981

WorldWar II

History of U.S. Health Insurance

Health Insurance Today is Mostly NOT InsuranceHealth Insurance Today is a Bundled Combination of:

(1) ACCESS (10%) - Access to a private network of physicians, hospitals, and other medical providers who provide services at greatly discounted rates, or conversely, charge you 150% to 1000% more for the same service if you are outside of their network;

(2) PREPAID SERVICES (50%) - Prepaid amounts of services from these private in-network providers—prepaid amounts that expire and do not carry forward if you are healthy and don’t use them; and

(3) INSURANCE (40%) - Financial protection (insurance) against medical expenses if you have a major illness or accident.

History of U.S. Health Insurance

Group and Personal Policies Post-WWII (1945-1970)NOTE: Individual and Family Policies are called Personal Policies

Group & Personal Policies (1945-1970) – Were mostly guaranteed-issue, which meant Carriers made the most money by getting healthy applicants vs non-healthies to apply for coverage. (more later on “Ahead to the Past”).

Personal vs Group (1945-1970) – Applicants from employers were healthier (i.e. working) than general population. That’s why Group Coverage used to cost 0.5x (half) Price of Individual Coverage (Pre-1970)—and most older people today only know employer group plans.

Group Policies (1945-1970) – Enjoyed enormous tax advantages over Personal Policies, especially among high-taxed decision-makers.

History of U.S. Health Insurance

Personal Policies (1970-2011)NOTE: Individual and Family Policies are called Personal

Policies

Medical Underwriting – 45 states dropped Guaranteed-Issue (GI) personal policies in favor of medical underwriting. 5 states remain GI today (NY, NJ, MA, RI and ME).

That’s why Personal Coverage in 45 states now cost 0.5x (half) to 0.33x (1/3) Price of Group in 45 states—they only insure the healthy.

Personal coverage rose from 12 million (2002) to 40 million. ACA - All states GI in 2014 (children became GI in 2010).

History of U.S. Health Insurance

Group and Personal Policies (1970-2011)

Small group (<50 employees) policies became guaranteed-issue within state-regulated medical-rating bands.

Healthier employees left group market for personal coverage, further increasing premiums for those left behind with no place to go due to medical underwriting of personal coverage.

Federal tax advantages of group extended (2002-2009) to personal coverage (see next slide).

History of U.S. Health InsuranceTax Advantages - Group vs Personal Coverage (1970-2011)

Group policies traditionally enjoyed enormous tax advantages over personal policies because:

a. Employers could pay for them “off the books”.b. Employees could re-direct pre-tax salary “off the books” (POP Plans)

to pay for group coverage. U.S. Treasury (federal) gave tax parity to personal policies

2002 HRA– IRS codified Health Reimbursement Arrangements (HRAs) for employer-funded personal policies.

2009 PRA – IRS allowed Premium Reimbursement Arrangements for pre-tax salary reduction reimbursements for individual health coverage.

Pre-ACA Legislation -- Medicare, Medicaid, ERISA, COBRA, HIPAA

Pre-ACA LegislationMedicare, Medicaid, ERISA, COBRA, HIPAA

a. Medicare (1965) - 47 million covered today Removed the elderly and very sick from private insurance

b. Medicaid (1965) - 45 million covered todayRemoved the very poor from private insurance

c. ERISA (1974) Primarily retirement/pension reform but covered all employee benefits - Defined Benefits vs Defined Contribution Plans

d. COBRA (1986) - Exempts employers <19 employeesAllowed employees 18-36 month coverage between “jobs”

e. HIPAA (1996) Portability to next employer (63 days), Mandated state coverage of uninsurables post- 2006

#3-5 ASSUMES EVERY AMERICAN HAS A “NEXT JOB” PRE-65

Affordable Care Act (ACA)

Affordable Care Act (ACA) 2010-2014Mandated Benefits for All Policies – creating “generic” national health

insurance

Mandated Purchase for all Americans (the “Mandate”) –Supreme Court to hear arguments March, rule in June

Mandated Guaranteed Issue for All Personal PoliciesNOTE: Individual and Family Policies are called Personal Policies--Children became GI in 2010--Some Adults become GI 2011-2014 (Federal Risk Pool)--All become GI in 2014

Major Expansion of Medicaid Eligibility(challenged by many States)

Affordable Care Act (ACA) 2010-2014

How Health Insurance Reform Affects Employers

1. Mandated Benefits for All Policies■ No lifetime maximums on benefits■ Preventive Care with no co-pays or deductibles■ Federal Minimum (effectively maximum) benefits

2. >50 FTEs – Penalty if Not Offering “Affordable” #1 ■ ($3,000/employee receiving exchange subsidy. $2,000 max. on

all employees)

3. <50 FTEs – No PenaltyAssume “health insurance” cost $6,000/year

○ - White House wanted $10,000 Employer Penalty○ - Senate wanted $750 Employer Penalty○ - House wanted $2,000 Employer Penalty

Affordable Care Act (ACA) 2010-2014 How Health Insurance Reform Affects Employees

1. Mandated Benefits for All Polices●No lifetime maximums on benefits●Preventive Care with no co-pays or deductibles●Federal Minimum (effectively maximum) benefits

2. Individual Mandate – Failing to meet the mandate will result in a tax penalty. 3. (Massive) Individual Premium Subsidies

Employee w/ Family of 4 (see kff.org)

Income Annual Premium Expected Total Cost Gov’t Premium Subsidy

$20,000 $0 (Medicaid) $24,000 $24,000$40,000 $2,178 (5.4%) $24,000 $21,822

$80,000 $8,360 (9.5%) $24,000 $15,640

Defined Contribution Health Benefits

Defined Contribution Health Benefits(1999-2012)

(1970s - Defined Benefit vs Defined Contribution (IRA, 401k))

1999 - Extend Health (formerly Extend Benefits), retirees

2002 - IRS endorses HRAs for personal policy premiums

2006 - HIPAA mandate for uninsurables starts

2007 - Zane Benefits (front page Wall St. Journal 7/30/07)

2009 - IRS endorses PRAs for personal policy premiums

2014 - Personal Policies become Guaranteed Issue

How ACA, the Economy and Deficitis Affecting 2012 Renewals

How ACA is Affecting 2012 Renewals

2012 Strategies for Employers with Group Plans

○ Increase employee participation cost (Wal-Mart)○ Eliminate whole Classes of Eligibles (e.g. part-timers)○ Increase Deductibles or Reduce Coverage selectively by Employee

Class via GroupHRA (by $ or covered items like pregnancy)○ Move lower value-add Employee Classes to Defined Contribution○ Move all Employees to Defined Contribution (personal policies)

Shift to Defined Contribution is being driven by Guaranteed Issue of Personal Policies

How the Economy is Affecting 2012 Renewals

A Job without Health Benefits is Better than No Job

● Unemployment Perception vs Reality (but same effect)

● Employees are Accepting Reduced Benefits

● Shift to Defined Contribution is Superior to Elimination of Benefits● Economic Pressure - Employers with No Benefits are Adopting Pre-Tax

Funding of Personal Policies (HRAs and PRA Plans)

How the Federal Deficit is Affecting ACA Implementation

● Is Death of CLASS Harbinger of ACA 2014?

● Deadlines being missed, Waivers being Granted

● What’s more important? Unemployment or ACA Implementation?

● Unemployment trumps Deficit trumps ACA Implementation

● $21,822 per $40,000-family ACA subsidy = $872 Billion/Year for just 40 million families.

Impact of CLASS Defunding

Impact of CLASS Defunding

Long Term Care Insurance – Aged Care○ Greatest Un-Met Need in U.S. Health Care○ Roughly $200 billion funded today by Medicaid○ Private Carriers Went Broke 1960-1990○ Dream of late Senator Ted Kennedy○ Key Component of ACA 2010

Community Living Assistance Services and Supports Act (CLASS Act).○ Supposed to be self-funding with just federal guarantee○ 2012 Deadline for HHS to Issue Regulations○ October 10, 2011 Sec Sebelius Indefinitely Suspends Program for

2012 and beyond

*Paul Zane Pilzer

New Private Health Exchanges & Defined Contribution

New Private Health Exchanges and Defined Contribution Solutions

What is a Private Health Care Exchange?

● A Private Health Exchange is a euphemism for ehealthinurance.com or any other “branded” multiple quote venue for Personal Policies.

● New Technology lets every state, organization, company, or even individual agent offer their own “branded” Private Health Exchange.

● All being driven by Defined Contribution Health Plan.

● Defined Contribution is the Buzzword of 21st Century Employer-subsidized health benefits.

The Supreme Court Ruling: Four Potential Outcomes

The United States Supreme Court26 States and Others are Contesting ACA Insurance Mandate/ Rulings

(e.g. ACA, AZ Immigration Law) expected June 21-25.

FOUR BASIC ALTERNATIVES FOR SUPREME COURT

1) Uphold Entire ACA – 1 of 5 Republican Justices (Roberts, Kennedy) would have to side with President. Then it’s Romney vs Obama in election.

2) Invalidate Part of ACA – most likely Insurance Mandate. Both sides agree that they must then invalidate Guaranteed Issue since only unhealthy would purchase insurance. Medicaid expansion also challenged by states.

The United States Supreme CourtFOUR BASIC ALTERNATIVES FOR SUPREME COURT (cont)

3) Reject Entire ACA – Theory is that Congress wouldn’t have passed the bill without all its major provisions (e.g. Guaranteed Issue + Mandate).

4) Postpone Ruling Until 2015 – Logic here is that the bill must have taken effect (post-2014) to have a valid claim before the U.S. Supreme Court. If so, then bill might stand until 2015 or might postpone implementation.

Summary

Summary1. Current Law is Affordable Care Act & its 2012-2014 Implementation

2. Regardless of U.S. Supreme Court decision in 2012, key components (like no lifetime limits, Children GI and Adult 2014 GI) may stay

3. Federal Deficit will Drive Most Government Decision-Making 2012-2014

4. Executive Orders of President Obama driving most Fiscal Programs (e.g. Immigration) with Congressional Gridlock

5. Employer Shift to Partial & Full Defined Contribution (2012+)

6. Insurance Distribution Shift to Private “branded” Health Care Exchanges (2012+)