1、Rich Bailey FSA, MAAA, FCA Richmond, VA,Is it Time for Employers to Move Away From the Traditional Ways of Providing Employee Benefits?,1,Agenda,The Environment The Catch-22 Paths Away from Traditional Delivery: Two Camps Opportunities Along Path 2 The Answer Additional Topics,2,Agenda,The Environme
2、nt Medical Trends Legislation Marketplace Changes Population Demographics Employer Outlook The Catch-22 Paths Away from Traditional Delivery: Two Camps Opportunities Along Path 2 The Answer Additional Topics,3,Double-Digit Increase for Second Year in a Row Per 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 Quiz How many years will it take gross medical
5、costs to double, assuming no specific employer interventions or national health care? 10 or more 9 8 7 6 5 or fewer,9,Medical Trends Responses from a group of 25 actuaries who had time to get their calculators,10,Legislation,Medicare Prescription Drugs If made into law, will have major impact on ret
6、iree benefits and strategies Initial confusion aside, should have positive impact on retiree plans Expect cost shifting to negatively impact active plans EEOC Proposed changes in ADEA regulations Cline vs. General Dynamics Wells Fargo case Appears to allow pre-funding (and tax-deductibility) of enti
7、re retiree liability an ILP approach wont be exactly same number as FAS liability funding in years 2+ would be limited to service cost IRS weighing its options,11,Proposals to Increase Coverage Among Early Retirees Few government programs except for financially indigent,COBRA extensions and/or Medic
8、are buy-ins Prohibitions on post-retirement benefit reductions Expanded pre-funding for retiree medical,Still few viable products for pre-65 in individual market that overcome access and affordability issues.,12,ADEA Issues Impact on retiree medical coverage,Age Discrimination in Employment Act (ADE
9、A) prohibits discrimination against persons age 40 or older in terms and conditions of employment Age-based distinctions in employee benefit plans are permissible only if: A specific statutory exception applies, or Equal benefit/equal cost test is satisfied Plan must provide equal benefits for older
10、 and younger workers, or Plan must incur equal costs for older and younger workers Third and Sixth Circuit Courts reach different conclusions EEOC reviewing ADEA regulations,13,Marketplace Changes Consolidation of Major Health Care Carriers Employer options are greatly reduced, carriers have more cl
11、out,14,Marketplace Changes PBM consolidation continues; three major national PBMs remain,15,Population Trends Aging 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 H
12、ealth Care Cost Cost increases with 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 we
13、ight Source: National Health and 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 inflation Advances in medical technology likely to lead to higher costs, difficult decisions Legislative uncertainty Consolida
14、ting medical delivery and financing system An aging workforce Increased longevity Slowing economy Disappearing over-funded pension plans Few, if any, obvious and easy alternatives to managing health care costs,20,Employer Outlook,Environmental outlook spurring employer action Employers acutely aware
15、 of trends Heightened interest in cost saving 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,Agend
16、a,The Environment The Catch-22 Paths Away from Traditional Delivery: Two Camps Opportunities Along Path 2 The Answer Additional Topics,23,The Catch-22,Reducing employer cost typically implies increasing employee/retiree cost Eventually runs against employers sensibilities regarding fairness, paterna
17、lism (if present), and the concept of benefits generally Example (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 proposition Opportunities exist to
18、change eligibility, design , etc. for future retirees If we dont take cost out of the system, either the employer or the employees/retirees will pay the increases,24,Agenda,The Environment The Catch-22 Paths Away from Traditional Delivery: Two Camps Opportunities Along Path 2 The Answer Additional T
19、opics,25,Paths Away from Traditional Delivery: Two Camps,Employers that become more involved in Changing employee behavior Changing provider behavior Changing providers that they work with Changing the laws Employers that reduce their involvement by Increasing employee responsibility Limiting employ
20、er cost Limiting employer risk,26,Employers Becoming More Involved,Collective Purchasing High Performance Networks Direct Contracting Consumer Accountability Leap Frog Lobbying Disease Management/Preventive Care What these approaches share is an eye toward reducing cost from the employers system, an
21、d in some cases, the entire health care system.,27,Collective Purchasing Use employer and plan manager clout to negotiate favorable payment arrangements,Background Traditional network negotiations are volume driven Approaches to achieve lower costs include Aggregated purchasing to improve negotiatin
22、g strength Coalitions Formal alliances Informal alliances Directing care to most cost-effective source of quality care Reviewing effectiveness, efficiency and “fit” of current vendor relationships; changing as appropriate,28,What is a HPN?,High Performance Network: A health plan performance improvem
23、ent method that steers care to providers that meet specific efficiency and quality criteria,29,Rationale for HPNs,New management approaches are needed in this era of cost acceleration Patients and physicians are the key drivers of health care costs But they have limited or no incentive to care about
24、 costs The heart of the High Performance Network concept is to change the provider selection behavior of patients and/or physicians,30,High Performance Networks Network models,Limited Network A subset of an existing provider network comprised of high performing providers Tiered Network Employee copa
25、y/coinsurance differentials to encourage use of high performing providers Physician Partnering An arrangement with (typically) primary care physicians to enhance efficiency Consumer Driven Deployment of performance information to consumers to improve provider selection,31,Direct Contracting,Large em
26、ployers with significant market presence May be able to achieve significant savings by contracting directly with health care providers May need group of regional employers to achieve critical mass,32,Promote Consumer Accountability Help patients be better consumers of health care,Background If half
27、of cost is due to lifestyle and half of chronic patients do not follow treatment plan, what can we do? Get members attention make them aware of consequences Approaches to encourage consumer involvement include Coordinated health promotion, disease prevention and educational programs Tying employee c
28、ost increase to trend “Defined contribution” health plans Consumer directed health care Re-introduction of coinsurance,33,Efforts to Improve Quality of Care in Hospitals Leapfrog initiative,The Leapfrog Group: Background Formed in response to Institute of Medicine study of errors in health care Goal
29、: Major gains in patient safety, customer service and health care affordability Sponsored by Business Roundtable Employers in Leapfrog Group use purchasing power to encourage health care providers to adopt patient safety standards Leapfrog standards include: Computerized systems in hospitals to impr
30、ove the accuracy of physicians prescriptions and minimize medication errors Staffing of intensive care units by physicians trained in critical care medicine Referral of patients requiring certain complex procedures to hospitals offering the best results,34,Lobbying,Some employers making presence fel
31、t on Capitol Hill Many have been active for years and are recognized as important voices Some large associations have similar goals and represent large voting populations,35,Preventive Care and Disease Management Across the Health Care Continuum Programs should be tailored to the needs,36,Employers
32、Becoming More Involved Summary,Typically the larger employers “Fighting” to change the way health care delivered to own employees Goal is to produce better outcomes And lower cost,37,Employers Becoming Less Involved (Camp 2),Employers desire to “know their cost” Dollar-based plans (often account-bas
33、ed) Reimbursement plans Access Only plans “Capped Plans”typically retiree medical What these approaches share is an eye toward 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 me
34、dical benefit Commitment can be monthly, annual, aggregate Commitment can be based on retiree-only or recognize dependents Amounts available for health care only; employer contributions are tax-free to the retiree and deductible for employer under Sections 105, 106 and 162 of IRC Can be funded or un
35、funded For Medicare-eligible, Medicare+Choice, Medigap and traditional Medicare available; HIPAA may eventually make this a viable option for pre-Medicare retirees,39,Account-Based Approaches Examples,Monthly/annual promise Retirees receive monthly (or annual) credits of a specified dollar amount (e
36、.g., $100/monthly; $5/month/year of service for 20 years of service) Fixed or increases annually; “flat” or tied to service; amount not used can be carried over or not Aggregate (“lump sum”) promise Employer promise is one-time credit (e.g., $30,000; $1,000 per year of service for 30 years of servic
37、e); accounts earn interest (e.g., at T-bill rate) or not; no employer pre-funding required Payment options “Draw-down” on funds (retiree 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,Em
38、ployer often requires submission of receipts for health care expenditures Premiums Out-of-Pocket costs Typically defined with a maximum reimbursable limit (e.g. $75/month) Most common is reimbursement (or pre-payment) of Medicare Part B premium for Medicare eligible retirees Current cost $58.70 per
39、month with moderate year-to-year trends Employer motivated to ensure Part B in effect for Medicare-eligible retirees Part D reimbursement may become popular Employer achieving Escape from plan sponsorship (for whichever segment of his population the plan applies to) Fixed costs; increases subject to
40、 employer discretion Not a tax-advantaged approach,41,Access Only Plans,Employer “sponsors” company health plans (stays “in the business”) By doing so, retains group underwriting, pricing and risk profile Employer contemplates no subsidy Full cost and annual increases absorbed by employees/retirees
41、Fully insured plans Works best Costs known in advance Premiums fixed in advance Self-insured plans Requires more management Costs not known in advance But premiums must be fixed in advance Caution regarding active/retiree subsidy May impact other accounting (FAS 106),42,Capped Plans,“Employer cost w
42、ill be capped at 2 times the 1993 cost” Implication is that employer share becomes a fixed dollar commitment at some point in the future Typical action taken in early to mid 1990s for retiree programs in response to FAS 106; liabilities approximately of uncapped plans Many caveats Usually applied on
43、ly to those retiring post-announcement Evaluate separately for pre-Medicare eligible vs. Medicare eligible, or in aggregate Evaluate per retiree or in aggregate Definitions of “premiums” and “costs” cross subsidy of actives/retirees can cloud calculations Need clear definition of how costs and contr
44、ibutions are calculated before cap is hit Enrollees will understand concept, but likely wont be prepared for eventual increases,43,Employers Becoming Less Involved Summary,Focusing on approaches that allow a fixed employer commitment Risk transferred to employees/retirees In some versions (caps), no
45、 immediate impact felt by participants Communication is critical Employers concerned about participant response,44,The Two Camps Summarized Fight or Flight,The largest employers seem willing to try to change the world Mid sized and smaller employers seem to want to “get out” of the responsibility Ne
46、ither reflects the traditional way of providing benefits,Focus on employers reducing involvement, using a generic defined dollar (defined contribution) approach,45,Agenda,The Environment The Catch-22 Paths Away from Traditional Delivery: Two Camps Opportunities Along Path 2 The Answer Additional Top
47、ics,46,Where can we apply “Defined Contribution” approaches most easily?,Active employees/early retirees Employers will still need to “sponsor” a plan Can set employee contributions to meet desired cost share and allow employees to buy back into a self-insured plan Easiest calculation if underlying
48、plan is fully insured Medicare Eligible Retirees Employers may actually be able to get all the way out Even if company sponsors no Medicare eligible retiree plan, options available in market for retirees to choose from Some with little or no underwriting (removes access problem) but eligibility/timi
49、ng important,47,DC Health Plans in the Spectrum of Employer Contributions,48,Medicare+Choice Health plan takes risk, receives “capitated” payment,Medicare “Part C” (Medicare Advantage?) Health plan offered by private insurance companies, usually on an HMO-like basis Benefits broader than Original Me
50、dicare Reduced out of pocket expenses for deductibles and copayments May offer prescription drug coverage Medicare pays a set amount of money to private insurer May be additional premium cost over Part B premium (fully insured to employer) Available only in certain areas Recent private insurer profitability poor and insurers have curtailed availability and increased costs to retiree,
