towers watson-health-care-reform-what-ahead-presentation-feb2012-120223082549-phpapp01

© 2012 Towers Watson. All rights reserved.

February 22, 2012

Health Care Reform — What’s AheadA Spectrum of Opportunity

Proprietary and Confidential. For Towers Watson and Towers Watson client use only.© 2012 Towers Watson. All rights reserved. 2

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.


Discussion topics

A convergence of challenges and opportunities The health care reform outlook Spectrum of opportunity Optimizing the play Embracing the opportunities


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


Total rewards builds from strategic objectives and takes a portfolio approach to deliver desired results


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


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


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


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?


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


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


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


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


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


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


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


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


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%


Embrace change and opportunities

InnovativeEngagement

Strategies

NewNetwork

Structures

IntegratedCare

Delivery

Value-basedReimbursement

PrimaryCare

Alternatives


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?

1

Key Questions for Employers

2

3

4

5

towers watson-health-care-reform-what-ahead-presentation-feb2012-120223082549-phpapp01

Documents