health care reform: what's ahead - towers watson
DESCRIPTION
Health care reform is a business issue, with numerous challenges and opportunities for employers that sponsor health benefit plans. Healthcare reform presents a spectrum of opportunity for employers – a complex spectrum that is more than simply "paying" or "playing." In this presentation, learn how your company can assess and manage what’s involved in the spectrum of opportunity – effectively managing plan costs, optimizing health plan efficiency, minimizing excise tax impact - to determine the most effective path forward based on your unique workforce and business needs. Pragmatic views on complex issues facing employers is also included. Visit Towers Watson at: http://www.towerswatson.comTRANSCRIPT
© 2012 Towers Watson. All rights reserved.
February 22, 2012
Health Care Reform — What’s AheadA Spectrum of Opportunity
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Today’s speakers
Jane Jensen is a senior health care consultant in Towers Watson’s Health and Group Benefits practice and is based in Denver. She has over 25 years of experience in health and welfare employee benefits design and financing and is the lead actuary on health reform issues.
Randy Abbott is a senior consulting leader at Towers Watson, based in Boston. He has over 35 years’ experience in HR, benefits, health care and workforce health improvement. The author of over 165 articles and monographs on health care issues, Randy has emerged as a leadingstrategist on Health Reform, advising some of the nation’s largest and most complex employers on its implications.
Mike Langan is an attorney with over 30 years’ experience in health benefits and public policy. He supports Towers Watson’s consulting staff on regulatory issues affecting employer health and group benefit plans. Mike has written and spoken extensively on the Patient Protection and Affordable Care Act.
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Discussion topics
A convergence of challenges and opportunities The health care reform outlook Spectrum of opportunity Optimizing the play Embracing the opportunities
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Health care reform is one of many converging factors affecting employers
EmployerHealthPlans
Workforce Productivity Challenges
Health CareReform
Lack of Employee Engagement
DeliverySystem Shifts
New Entrantsand Technology
EscalatingCosts
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Total rewards builds from strategic objectives and takes a portfolio approach to deliver desired results
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Most employers expect to “play” by retaining a medical program for actives after 2014
“Play”options
“Pay”options
Finance: 67%
HR: 67%
Finance: 15%
HR: 13%
Source: 2011 Towers Watson-Forbes Survey: Opportunity to Align Cost and Talent Objectives?.
18%
2%
2%
11%
11%
10%
8%
38%
18%
0%
6%
9%
6%
15%
20%
26%
HR n=104 Finance n=201
Provide employer-sponsored health coverage for the long term
Don't know
Provide employer-sponsored health coverage, but structure contributions and communication to encourage low-wage…
Provide employer-sponsored health coverage until the excise tax is triggered
Provide employer-sponsored health coverage until an inflection point other than the excise tax
Adopt a defined contribution (DC) approach by providing monetized value to employees, pay penalties, and direct
employees to ExchangesExit employer-sponsored health coverage, pay penalties,
and direct employees to Exchanges
Other action
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Political and legal challenges create uncertainty for employers
Potential “game-changers” loom in the near term Supreme Court decision expected by late June 2012 November 2012 general election will affect strategy in White House and
Congress Repeal is more complex than it appears — likely requiring GOP “sweep” and
a super-majority in the Senate The combination of near-term uncertainty and long-term strategic
significance makes health reform a crucial business planning contingency
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Meanwhile, health reform implementation is moving forward
New implementation guidance is arriving frequently Uniform four-page summary of benefits and coverage Employer Pay-or-Play mandate Auto-enrollment mandate 90-day limitation on waiting periods W-2 reporting beginning with 2012 Women’s contraceptive services Comparative effectiveness tax on employer plans begins with 2012 Mandatory employee communication on Exchanges and federal subsidies is
just 12 months away
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Reform may influence your broader workforce strategies
Health care reform, and the changes scheduled to take effect in 2014 in particular, have implications far beyond the benefit program — creating business risks that will affect workforce planning, total rewards strategies and costs
Play or Pay Excise Tax
Design,delivery,health
management
Engagement,behavioral changes
Who can enroll?
Workforce Structure
Part-time vs.
full-time
Employedlow wage/
higher wage
What is the cost per enrollee?
Contribution Strategy
Affordable?Differ by age,
number of dependents?
Health Care Reform Financial Impact
Total Rewards Strategy
Trend Mitigation
How do we control the costs?
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The decision will vary based on employer profile
Compete heavily to attract/retain talent
Health care benefits are a core part of Employee Value Proposition
Healthy workforce is viewed as a key productivity driver
Employee Value Proposition requires health commitment
Diverse margins Mix of low/high-wage
earners Health benefits are a
material consideration Workforce requires a
diverse range of occasional and part-time workers
Awaiting an inflection point
Low margins Majority of employees are
low-wage earners Many employees may be
Medicaid-eligible Higher turnover Health care benefits are not
core to Employee Value Proposition
High number of part-time or seasonal workers
Examples Technology Health Care
Examples Financial Services Low-end Manufacturing
Examples Retail Hospitality
*Estimated; Source: 2011 Towers Watson Health Care Trend Survey, August 2011.
Play Spectrum of Opportunity Pay
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Play
Will you play or pay…the spectrum of opportunity offers many options
Optimal playPlay and redirect Selective play
Pay and redeploy Pay and exit
Continue as a plan sponsor for all employees
Restructure contributions to qualify low-paid employees for federal subsidies
Limit eligibility to employer-sponsored plan and direct ineligibles to Exchanges
Discontinue plan sponsorship and provide some financial top-up for employees
Discontinue plan sponsorship with no financial accommodation for employees
Play Spectrum of Opportunity Pay
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Do the math: Decisions along the spectrum will have significant workforce and cost management implications
Employer pays Employee pays Estimated Federal Subsidy
$7,832
$2,730
$463
$7,931
$3,218
$1,536
$9,792
$3,103
$2,034
$10,172
$2,636
$3,650
$2,887
$12,092
$3,650
Optimal play Play and redirect Selective play Pay and redeploy Pay and exit
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What are the implications of exchanges and emerging market dynamics for the Pay or Play decision?
CurrentState
Evolving market for members under age 65 via Private Exchange or “Public” Exchange
MedicareMarket
Plan Sponsor Role
Employer makes all decisions
Pooled group plan; employer may be able to shift some administrative functions to group “Private Exchange”
Expanded access to Medicaid and “Public Exchanges” scheduled to be available in 2014 regardless of health status; employer reporting to Exchange
Individual market and “Private Exchanges” well established; individual plans may offer higher value vs. group plans (especially as the donut hole narrows)
Employee Experience
Limited choice; select an employer-sponsored plan
Broad choice; select a Private Exchange plan
Broad choice; directed to Medicaid or select a Public Exchange plan
Broad choice; use Medicare coordinator to access individual health plans
Employer Cost
Full plan cost less employee contributions
Premium payment based on employee elections, less employee contributions
Penalties for active FT employees; Financial subsidies (DC contributions) may be provided
Financial subsidies (DC contributions) may be provided
Employee Cost
Average rates vary by plan and family tier selected
Generally average rates; based on plan and family tier selected
Rates vary based on plan and family tier selected plus age, location, tobacco use; federal subsidy may be available
Rates vary based on plan and family tier selected and may also vary by age; Medicare premiums also apply
13
Individual Plan EnrollmentGroup Plan Sponsorship Individual Plan Enrollment
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Consider options that are in between Pay or Play: Exchanges
In certain situations, the opportunity of participating in new federally subsidized programs in 2014 may result in lower cost than the current situation
Given this reality, some employers may wish to consider options that allow access to subsidized coverage for a portion of their population
Note: Chart scales differ for Single vs. Family Coverage.
Single Family of 4
ILLUSTRATIVE
EE Premium Federal Subsidy Employer Plan Spend EE Out-of-Pocket
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
$10,000
Employer Plan Low Income;Exchange Plan
Moderate Income;Exchange Plan
High Income;Exchange Plan
Exchange
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Employer Plan Low Income;Exchange Plan
Moderate Income;Exchange Plan
High Income;Exchange Plan
Exchange
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Excise tax implications
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Non Deductible Excise Tax $638 $1,348 $2,440 $3,819 $5,446 $7,490 $9,795 $12,365
2018 2019 2020 2021 2022 2023 2024 2025
Absent modification, plan costs will exceed thresholds
ILLUSTRATIVE
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Organizational health strategy
Organizational Health Care StrategyHealth Benefits
Design, financing, risk management and administration within total rewards and/or via external exchange
Workforce Health and ProductivityOptimization of workforce productivity and engagement through good health
Data management Reporting and benchmarking Integrated health and productivity assessment
Measurement and Improvement
Operational Framework
EngagementHealth Improvement
TechnologyLinking Provider Strategies
Healthy Environment
Accountability
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Optimize the play — and opportunities
Workforce Healthand Productivity
Program Design
Care Delivery Bundled payments Shared savings ACOs/PCMH
Incentives Behavioral economics Social media Game mechanics
Financial Subsidy
Account-based Narrow Behavior-based
Consumer Engagement
Provider Integration/
Payment Reform
Wellness Condition management Onsite health
Integrated care Primary care alternatives
Part-time Dependents Surcharges Optimizing
EmployerHealthPlans
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Optimizing the play: Why does it matter?
Performance varies widely among employers Significant opportunity for
cost avoidance today and future years
Explore dependent subsidies Employers likely to focus
more on employee coverage after reform
Lower dependent size impacts potential excise tax for dependent coverage
3%11%
3%9%
29%
$10,637
$13,693$15,132
Adjustment Factors
Age/ Gender
FamilySize
Geography PlanValue
Composite
ABC Company
CustomBenchmark
Database Actual
3%11%
3%9%
29%
$10,637
$13,693$15,132
Adjustment Factors
Age/ Gender
FamilySize
Geography PlanValue
Composite
ABC Company
CustomBenchmark
Database Actual
Dependent participation drives an additional 11% annual health care costKey Message
Annual Cost Per Employee EfficiencyPercentile Percentile
25th 50th 75th 25th 50th 75th$8,487 $9,752 $11,166 9.7% 1.4% -8.0%
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Embrace change and opportunities
InnovativeEngagement
Strategies
NewNetwork
Structures
IntegratedCare
Delivery
Value-basedReimbursement
PrimaryCare
Alternatives
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Beyond the technical analysis, consider the higher-order questions
What are the implications of change — for our operations, our workforce, our brands, our competitive environment?
What are the implications for attraction, retention and engagement? And for retirement and retirees?
Beyond benefits, what is our commitment to workforcehealth? Is there a necessary connection between healthand benefits?
What new tactics and/or partners should we consider inoptimizing our program today?
If we can free up dollars spent on active andretiree health benefits, what opportunities do we haveto reallocate investments?
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Key Questions for Employers
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