1、Rich Bailey FSA, MAAA, FCARichmond, VA,Is it Time for Employers to Move Away From the Traditional Ways of Providing Employee Benefits?,November 3, 2004,1,Agenda,The EnvironmentThe Catch-22Paths Away from Traditional Delivery: Two CampsOpportunities Along Path 2The AnswerAdditional Topics,2,Agenda,Th
2、e EnvironmentMedical TrendsLegislationMarketplace ChangesPopulation DemographicsEmployer OutlookThe Catch-22Paths Away from Traditional Delivery: Two CampsOpportunities Along Path 2The AnswerAdditional Topics,3,Double-Digit Increase for Second Year in a RowPer employee costs in excess of $5,600 per
3、year,4,Annual CPI Trend U.S. health care costs rise, despite continuing economic recession,The gap between CPI-U and medical care component is increasing,5,Comparison of Overall Growth Cumulative medical care CPI 89% greater than overall CPI since 1967,Data based on January 1 CPI values,6,Employers
4、Cost Increases Out-Pace Other Indicators Largest increase since 1990 (all employers),7,Aggregate Health Care Spending (1980 2010) Government portion of payments increasing; total projected to be over $2 trillion by 2009,Source: CMS,8,Medical Trends,Pop QuizHow many years will it take gross medical c
5、osts to double, assuming no specific employer interventions or national health care?10 or more98765 or fewer,9,Medical TrendsResponses from a group of 25 actuaries who had time to get their calculators,10,Legislation,Medicare Prescription DrugsIf made into law, will have major impact on retiree bene
6、fits and strategiesInitial confusion aside, should have positive impact on retiree plansExpect cost shifting to negatively impact active plansEEOC Proposed changes in ADEA regulationsCline vs. General DynamicsWells Fargo caseAppears to allow pre-funding (and tax-deductibility) of entire retiree liab
7、ilityan ILP approachwont be exactly same number as FAS liabilityfunding in years 2+ would be limited to service costIRS weighing its options,11,Proposals to Increase Coverage Among Early RetireesFew government programs except for financially indigent,COBRA extensions and/or Medicare buy-insProhibiti
8、ons on post-retirement benefit reductionsExpanded pre-funding for retiree medical,Still few viable products for pre-65 in individual market that overcome access and affordability issues.,12,ADEA IssuesImpact on retiree medical coverage,Age Discrimination in Employment Act (ADEA) prohibits discrimina
9、tion against persons age 40 or older in terms and conditions of employmentAge-based distinctions in employee benefit plans are permissible only if:A specific statutory exception applies, orEqual benefit/equal cost test is satisfiedPlan must provide equal benefits for older and younger workers, orPla
10、n must incur equal costs for older and younger workersThird and Sixth Circuit Courts reach different conclusionsEEOC reviewing ADEA regulations,13,Marketplace ChangesConsolidation of Major Health Care Carriers Employer options are greatly reduced, carriers have more clout,14,Marketplace Changes PBM
11、consolidation continues; three major national PBMs remain,15,Population TrendsAging baby boomers will increase the elderly and near elderly populations,16,Negative Tidal Wave of Available Talent Pool of “prime workers” will be decreasing,17,Impact of Demographics on Health Care Cost Cost increases w
12、ith age,18,Health Deterioration A cause and a consequence,We eat too much - 64.5% of adults overweight,Population with diabetes increased over 50% in last decade,*Overweight is roughly 10 to 30 pounds over an ideal weight. Obesity is roughly 30 pounds over an ideal weightSource: National Health and
13、Nutrition Examination Survey,45.0%,47.0%,47.0%,56.0%,64.5%,19,Issues Facing Businesses The perfect storm,Low ambient inflation; high medical inflationAdvances in medical technology likely to lead to higher costs, difficult decisionsLegislative uncertaintyConsolidating medical delivery and financing
14、systemAn aging workforceIncreased longevitySlowing economyDisappearing over-funded pension plansFew, if any, obvious and easy alternatives to managing health care costs,20,Employer Outlook,Environmental outlook spurring employer actionEmployers acutely aware of trendsHeightened interest in cost savi
15、ng strategies (active and retiree)Greater emphasis on longer term cost projections and on the “bottom line”Projection results have induced “fight or flight” responses,21,Retiree Medical Coverage Employers continue to drop retiree medical coverage,22,Agenda,The EnvironmentThe Catch-22Paths Away from
16、Traditional Delivery: Two CampsOpportunities Along Path 2The AnswerAdditional Topics,23,The Catch-22,Reducing employer cost typically implies increasing employee/retiree costEventually runs against employers sensibilities regarding fairness, paternalism (if present), and the concept of benefits gene
17、rallyExample (FAS 106): “Lower my liabilities significantly but dont do anything harsh to our retireesthey wont accept it”To the extent that retirees represent the bulk of the liability, this is a very difficult propositionOpportunities exist to change eligibility, design , etc. for future retireesI
18、f we dont take cost out of the system, either the employer or the employees/retirees will pay the increases,24,Agenda,The EnvironmentThe Catch-22Paths Away from Traditional Delivery: Two CampsOpportunities Along Path 2The AnswerAdditional Topics,25,Paths Away from Traditional Delivery: Two Camps,Emp
19、loyers that become more involved inChanging employee behaviorChanging provider behaviorChanging providers that they work withChanging the lawsEmployers that reduce their involvement byIncreasing employee responsibilityLimiting employer costLimiting employer risk,26,Employers Becoming More Involved,C
20、ollective PurchasingHigh Performance NetworksDirect ContractingConsumer AccountabilityLeap FrogLobbyingDisease Management/Preventive CareWhat these approaches share is an eye toward reducing cost from the employers system, and in some cases, the entire health care system.,27,Collective PurchasingUse
21、 employer and plan manager clout to negotiate favorable payment arrangements,BackgroundTraditional network negotiations are volume drivenApproaches to achieve lower costs includeAggregated purchasing to improve negotiating strengthCoalitionsFormal alliancesInformal alliancesDirecting care to most co
22、st-effective source of quality careReviewing effectiveness, efficiency and “fit” of current vendor relationships; changing as appropriate,28,What is a HPN?,High Performance Network: A health plan performance improvement method that steers care to providers that meet specific efficiency and quality c
23、riteria,29,Rationale for HPNs,New management approaches are needed in this era of cost accelerationPatients and physicians are the key drivers of health care costsBut they have limited or no incentive to care about costsThe heart of the High Performance Network concept is to change the provider sele
24、ction behavior of patients and/or physicians,30,High Performance Networks Network models,Limited NetworkA subset of an existing provider network comprised of high performing providersTiered NetworkEmployee copay/coinsurance differentials to encourage use of high performing providersPhysician Partner
25、ingAn arrangement with (typically) primary care physicians to enhance efficiencyConsumer DrivenDeployment of performance information to consumers to improve provider selection,31,Direct Contracting,Large employers with significant market presenceMay be able to achieve significant savings by contract
26、ing directly with health care providersMay need group of regional employers to achieve critical mass,32,Promote Consumer AccountabilityHelp patients be better consumers of health care,BackgroundIf half of cost is due to lifestyle and half of chronic patients do not follow treatment plan, what can we
27、 do?Get members attention make them aware of consequencesApproaches to encourage consumer involvement includeCoordinated health promotion, disease prevention and educational programsTying employee cost increase to trend“Defined contribution” health plansConsumer directed health careRe-introduction o
28、f coinsurance,33,Efforts to Improve Quality of Care in Hospitals Leapfrog initiative,The Leapfrog Group: BackgroundFormed in response to Institute of Medicine study of errors in health careGoal: Major gains in patient safety, customer service and health care affordabilitySponsored by Business Roundt
29、ableEmployers in Leapfrog Group use purchasing power to encourage health care providers to adopt patient safety standardsLeapfrog standards include:Computerized systems in hospitals to improve the accuracy of physicians prescriptions and minimize medication errorsStaffing of intensive care units by
30、physicians trained in critical care medicineReferral of patients requiring certain complex procedures to hospitals offering the best results,34,Lobbying,Some employers making presence felt on Capitol HillMany have been active for years and are recognized as important voicesSome large associations ha
31、ve similar goals and represent large voting populations,35,Preventive Care and Disease Management Across theHealth Care Continuum Programs should be tailored to the needs,36,Employers Becoming More Involved Summary,Typically the larger employers“Fighting” to change the way health care delivered to o
32、wn employeesGoal is to produce better outcomesAnd lower cost,37,Employers Becoming Less Involved (Camp 2),Employers desire to “know their cost”Dollar-based plans (often account-based)Reimbursement plansAccess Only plans“Capped Plans”typically retiree medicalWhat these approaches share is an eye towa
33、rd reducing employer cost at the expense of employees/retirees,38,Account-Based Approaches,Defines employers commitment as a defined dollar contribution instead of a defined medical benefitCommitment can be monthly, annual, aggregateCommitment can be based on retiree-only or recognize dependentsAmou
34、nts available for health care only; employer contributions are tax-free to the retiree and deductible for employer under Sections 105, 106 and 162 of IRCCan be funded or unfundedFor Medicare-eligible, Medicare+Choice, Medigap and traditional Medicare available; HIPAA may eventually make this a viabl
35、e option for pre-Medicare retirees,39,Account-Based ApproachesExamples,Monthly/annual promiseRetirees receive monthly (or annual) credits of a specified dollar amount (e.g., $100/monthly; $5/month/year of service for 20 years of service)Fixed or increases annually; “flat” or tied to service; amount
36、not used can be carried over or notAggregate (“lump sum”) promiseEmployer promise is one-time credit (e.g., $30,000; $1,000 per year of service for 30 years of service); accounts earn interest (e.g., at T-bill rate) or not; no employer pre-funding requiredPayment options“Draw-down” on funds (retiree
37、 uses funds to pay portion of retiree medical cost; ends when fund exhausted), or “lump sum” is converted to an annuity (multiple options),40,Reimbursement Plans,Employer often requires submission of receipts for health care expendituresPremiumsOut-of-Pocket costsTypically defined with a maximum rei
38、mbursable limit (e.g. $75/month)Most common is reimbursement (or pre-payment) of Medicare Part B premium for Medicare eligible retireesCurrent cost $58.70 per month with moderate year-to-year trendsEmployer motivated to ensure Part B in effect for Medicare-eligible retireesPart D reimbursement may b
39、ecome popularEmployer achievingEscape from plan sponsorship (for whichever segment of his population the plan applies to)Fixed costs; increases subject to employer discretionNot a tax-advantaged approach,41,Access Only Plans,Employer “sponsors” company health plans (stays “in the business”)By doing
40、so, retains group underwriting, pricing and risk profileEmployer contemplates no subsidyFull cost and annual increases absorbed by employees/retireesFully insured plansWorks bestCosts known in advancePremiums fixed in advanceSelf-insured plansRequires more managementCosts not known in advanceBut pre
41、miums must be fixed in advanceCaution regarding active/retiree subsidyMay impact other accounting (FAS 106),42,Capped Plans,“Employer cost will be capped at 2 times the 1993 cost”Implication is that employer share becomes a fixed dollar commitment at some point in the futureTypical action taken in e
42、arly to mid 1990s for retiree programs in response to FAS 106; liabilities approximately of uncapped plansMany caveatsUsually applied only to those retiring post-announcementEvaluate separately for pre-Medicare eligible vs. Medicare eligible, or in aggregateEvaluate per retiree or in aggregateDefini
43、tions of “premiums” and “costs”cross subsidy of actives/retirees can cloud calculationsNeed clear definition of how costs and contributions are calculated before cap is hitEnrollees will understand concept, but likely wont be prepared for eventual increases,43,Employers Becoming Less InvolvedSummary
44、,Focusing on approaches that allow a fixed employer commitmentRisk transferred to employees/retireesIn some versions (caps), no immediate impact felt by participantsCommunication is criticalEmployers concerned about participant response,44,The Two Camps SummarizedFight or Flight,The largest employer
45、s seem willing to try to change the worldMid sized and smaller employers seem to want to “get out” of the responsibilityNeither reflects the traditional way of providing benefits,Focus on employers reducing involvement, using a generic defineddollar (defined contribution) approach,45,Agenda,The Envi
46、ronmentThe Catch-22Paths Away from Traditional Delivery: Two CampsOpportunities Along Path 2The AnswerAdditional Topics,46,Where can we apply “Defined Contribution” approaches most easily?,Active employees/early retireesEmployers will still need to “sponsor” a planCan set employee contributions to m
47、eet desired cost share and allow employees to buy back into a self-insured planEasiest calculation if underlying plan is fully insuredMedicare Eligible RetireesEmployers may actually be able to get all the way outEven if company sponsors no Medicare eligible retiree plan, options available in market
48、 for retirees to choose fromSome with little or no underwriting (removes access problem) but eligibility/timing important,47,DC Health Plans in the Spectrum of Employer Contributions,48,Medicare+ChoiceHealth plan takes risk, receives “capitated” payment,Medicare “Part C” (Medicare Advantage?)Health
49、plan offered by private insurance companies, usually on an HMO-like basisBenefits broader than Original MedicareReduced out of pocket expenses for deductibles and copaymentsMay offer prescription drug coverageMedicare pays a set amount of money to private insurerMay be additional premium cost over Part B premium (fully insured to employer)Available only in certain areasRecent private insurer profitability poor and insurers have curtailed availability and increased costs to retiree,
