Corporate Benefits Consulting

Insurance Planning Services

Retirement Plan Consulting

www.ipsadvisors.com 10000 North Central Expressway, Suite 1100 • Dallas, Texas 75231-2313 • (214) 443-2400 Toll-Free: (800) 366-4779

Where Experience and Independence Matter

Re-imagining Benefits Strategies in a Post-ACA World

Brent A. Weegar, MBA

Principal – Contact bweegar@ipsadvisors.com, Phone: 214-443-2429 May 4, 2016

Our Company – IPS AdvisorsEstablished over 35 years ago, IPS Advisors is an independent fee basedbrokerage and consulting firm. Our governmental division services over 40municipalities, counties and State agencies across Texas with their healthand welfare benefits planning needs.

We provide specialized services through our core practice areas:Corporate Benefits Consulting

Long Term Strategic PlanningFully Insured and Self Insured Benefits ProgramsHealth Risk Management ProgramsCompliance AssistanceBenefits Administration

Corporate Retirement Consulting457 Plans

Life Insurance Portfolio Management

OverviewHealth Care Trends and Strategic PlanningEmerging Strategies and Best Practices

PharmacyEmployer FundingHealth Care DeliveryHealth ImprovementEngagement and Consumerism

ACA Trends and UpdatesPublic Exchanges TrendsPrivate Exchange TrendsUpdates

Questions

Health Care Cost Trends: 2001 ‐ 2016Although health care trends have reduced to historically low levels they continueto outpace inflation. Plan design and contribution strategies have contributedsignificantly to the lower inflation rates.There are signs pointing to future escalation ahead including expected double digittrend rates for pharmacy.

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Health Care Cost Trends – Per Capita CostsTotal health care costs are expected to reach $12,041 per employee peryear in 2015, up 4.1% from $11,567 from 2014.Per Capita Health Care costs vary greatly by industry.

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Strategy Recalibration

Source: Towers Watson  / NBGH ‐ The New Health Care Imperative Survey

A widespread trend in healthcare strategy recalibration is underway acrossthe country due to rising employer costs, economic factors and the PatientProtection and Affordable Care Act.

Top 10 Strategic Focus Areas from Employers

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Emerging Strategies and Best Practices

Multiple studies indicate that the emerging strategies and best practices in the  following areas will drive strategic direction over the next three years.  

PharmacyEmployer FundingHealthcare DeliveryHealth ImprovementEngagement and Consumerism

Employers who have implemented the most best practices show a significant difference in per employee costs than those who have implemented the fewest.  Both Mercer and Willis Towers Watson surveys have shown that cost varies from $700 to $2,000 per employee per year.

Pharmacy Benefit ‐ TrendsAccording to Segal, health insurance carriers are projecting an 11.5% increasesto prescription drug trend for the 2016 plan year. This trend is largelyattributable to the increased cost and use of specialty pharmacy.

Today 37.7% of drug spend is attributable to specialty medications and isexpected to grow to 50% by 2018 (Express Scripts).

There are 7,000 potential drugs in development, most aimed at high usecategories including Oncology, Neurologic Disorders and Infectious Diseases.

Specialty Drug Trends

Source: Express Scripts 2015 Drug  Trend Report

Pharmacy ‐ Trends 

Brand drugs increased on average 16.2% in 2015 while generics decreased ‐16.2%.Except for a few outliers, payers remain confident that, on the whole, generic medications continue to deliver significant cost savings.  

Source: Express Scripts 2015 Drug  Trend Report

Pharmacy Benefit StrategiesSpecialty Drug Strategies

Cost sharing differentialsMandatory specialty pharmaciesStep therapy

High Performance FormulariesLimited brand coverage

Compound DrugsPre‐certification60% expected to exclude by 2018 (Towers Watson)

Narrow NetworkExclusion of High Cost Pharmacies

Patient AdherenceHuman InterventionCost SharingTechnology Enabled Devices

AuditsClaims and Pricing ValidationOn‐going Audits

Employer Funding TrendsEmployers continue to shoulder the load, contributing on average 77.8% of totalcost or $9,365 in 2015. This subsidy is expected to reduce 77.2% in 2016.Employee costs are expected to rise 7.7% in 2016 compared to average salaryincreases of 3%.Since 1999, employer share has risen 30% while the employee share has risen 27%.

Willis Towers Watson Financial Benchmark Survey

$9,365 

$2,676 

2015 Total plan cost = $12,041 

Employer Employee

$9,761 

$2,882 

2016 Proj. Total plan cost = $12,643 

Employer Employee

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Employer Funding StrategiesDefined Contribution Approach

Flat dollar subsidy regardless of plan chosen

Spouse and Dependent SubsidyDecreasing Subsidies

Spousal Surcharge27% use Spousal Surcharges< 5% use Spousal Carve outs

Expansion of Optional BenefitsDentalVisionWorksite Benefits

New Market EntrantsGroup InsuranceGuarantee IssueMultiline Discounts

Funding Assigned to ParticipationAnnual PhysicalTobacco Use

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

DecreasingSubsidy  toSpouses

DecreasingSubsidy toDependents

Use ofSpousal

Surcharges

Eliminate AllSpousalSubsidy

56%

46%

27%

3%

81%

61% 56%

13%

Implemented in 2015

Considering for 2018

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Health Care Delivery TrendsNetwork and provider strategies have become a key focus areas due to ACA limitations on cost sharing and  +85% of plan costs are directly attributable to claims / provider network. 

Where highly discounted and broad PPO networks were once king for health care delivery, network strategy has shifted to focused health care delivery models where efficiency, quality and outcomes prevail.

Providers and Hospital systems are introducing new healthcare delivery models and are positioning both independently and in partnership with major health insurance carriers. 

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Health Care Delivery – Focus and Trends

High Performance NetworksNarrow – Low Cost / High Quality

Accountable Care Organizations

Out of Network CoverageEPO Networks Emerging% of Medicare Reimbursement

Telemedicine24/7 Access to Primary Care

Direct ContractingPrimary CareMusculoskeletalLab and Imaging

Reference Based PricingImagingIn‐patient / OutpatientMusculoskeletal / Cardiac / Bariatric

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

HighPerformanceNetworks

AccountableCare

Organizations

DirectContracting

Telemedicine

37%

7% 5%

46%

62%

22%25%

88%Implemented in 2015

Considering for 2018

Engagement and Consumerism TrendsEmployee engagement and consumerism is more important than ever as employers shift greater responsibility to members for health care purchasing and navigation of the health care continuum. The adoption of Account Based Health plans reinforces the importance of engagement as employers approach near universal use.

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

Engagement and Consumerism Strategies

Account Based Health PlansContinue to be a Core strategyGating strategies 

Pricing and Quality TransparencyOn‐line , Telephonic, and Mobile AccessMedical, Pharmacy, Dental, Vision Services

Employee AdvocacyBenefit QuestionsBill Audit and NegotiationPre‐Enrollment Support

Enhanced Care CoordinationComprehensive PrecertificationDecision SupportContinuous Data MiningHealth Coaching

Health Improvement TrendsWorkplace wellness continues to be identified as top strategic area as 84% of employers plan to increase support of these programs. Financial incentives tied to premium structures are improving participation rates in key health management programs.   Employers are slower to embrace outcomes based incentives as only 23% reported use in 2014 up from 6% in 2011 (Mercer).  

Health Improvement StrategiesIncentives

Combination of Rewards and PenaltiesHealth, Well‐being and Engagement Refresh Annually

TechnologyWearable DevicesApps – Web BasedGroup / Peer to Peer Challenges

Tobacco SurchargesOver 40% of Employers use todayAverage surcharge $600 Per Year

Work/Life BalanceStress ManagementFinancial Well‐BeingSleep Disorders

ReportingProspective vs. RetrospectiveIntegration of other cost control effortsFocus on outcomes

24%30%

39%42%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

"Wearables"to trackphysicalactivity

Healthengagementmobile apps

Sleep disorderprograms

StressmanagementPrograms

Financial well‐being

programs

% of Employer Offering

Source: Willis Towers Watson / NBGH ‐ High Performance Insights

ACA Employer Mandate Impact

For 2016, Employers with 50+ employees must follow employer mandatestandards or face financial penalties:

Eligibility Standard – Coverage must be offered to employees averaging 30 hours perweek (safeguards apply)Affordability Standard – Employee‐only cost of coverage can not exceed 9.66% ofhousehold incomeMinimum Essential Coverage – Plans must cover 60% of health care expenses

The Kaiser Family Foundations 2015 Annual Survey of Employer HealthBenefits shows that over 96% of large employers (100+) have compliedwith the employer mandate.In a separate study completed by Towers Watson, 98% of employers haveno plans to exit employer provided coverage and direct members to thepublic exchanges.

Public Exchange TrendsSince the ACA Public Exchanges were enacted in 2014, the country’s largestinsurers are reporting significant losses.

Blue Cross Blue Shield of Texas lost almost $400 million on the exchange in the ACA’s first year or$360 per member. The company remained in the exchange but dropped access to its PPO plans andwill only offer HMO plans in 2016.Humana Inc. included in its 2015 results, $176 million in losses expected to incur on public exchangeplans in the 2016 plan year.United Health Group Inc. reported approximately $475 million of losses on public exchange plansand booked $245 million of projected losses for 2016. UHC announced it will be pulling out of PublicExchanges and will only remain in a handful of States in 2017.Aetna reported a negative margin of 3% to 4% on ACA business in 2015.

The average price increase under the Affordable Care Act for 2016 was 12.56%nationally, which includes plan design changes (Robert Wood Johnson Foundation)Public Exchange enrollment has stalled. The CBO has slashed their 2016 estimatesfrom 21 million to 13 million for 2016 and projects public exchanges to peak at 16million (original projection – 24 million).Nearly 8 out of 10 (79%) employers lack confidence in the public exchanges as aviable alternative to employer sponsored programs over the next two years(Towers Watson).

Private Exchange TrendsAlthough a deceleration in growth exists, it is estimated that current private exchangeenrollment was up 35% over the prior year to 8 million members and is expected toexceed public exchange enrollment by 2020.Growth has been fueled by mid‐size employers in defined between 100 and 2,500employees.Employers are considering private exchanges as an option for employer basedcoverage. 17% of employers believe they will provide a viable alternative foremployer sponsored coverage for active employees in 2016 (Towers Watson).

Private Exchange Growth

Source: Accenture 2016 – Insight Driven Health

Cadillac Tax – What do you own?

Cadillac Tax of 2018 2020Permanent Tax to the Employer, under Code section 4980l, is applicable for plan years beginning on and after January 1, 2020.adjusted each year.

2018 thresholds were initially set at $10,200 for employee‐only coverage; $27,500 for family coverage.Higher thresholds of $11,850/$30,950 (individual/family) for pre‐65 retirees and individuals in high risk professions (e.g., firefighters, police, construction, mining, agriculture).

Official regulations have not yet been issuedIn early 2015, the IRS informally indicated that final regulations should be released by late 2016.  The delay in the mandate will push guidance out further.

Cadillac Tax of 2018 2020

Prior studies have shown that approximately 50% of employers expect to hit the Cadillac Tax by 2018.  Even more would be expected with the 2020 effective date delay.

Both leading Republican and Democratic presidential candidates have publically sponsored repeal of the Cadillac Tax.

The Cadillac Tax was expected to provide approximately $91 billion of funding to the ACA over the next decade.   Candidates have indicated they would pursue funding elsewhere.  

Additional Updates• Health Industry Fee, Transitional Reinsurance Fee and Patient 

Centered Outcomes Research Fee continue in 2016.  • The transitional reinsurance fee is discontinued in 2017 and fully 

insured groups will receive a reprieve for the Health Industry fee in 2017.

• Reporting Requirement ‐ Section 6055 (Minimum Essential Coverage) and 6056 (Offer of Coverage) are required to be filed in 2016 for 2015 plan year. • Reporting to members was due March 31st

• Reporting to IRS is due May 31st or June 30th if filing electronically • CMS released guidance last year confirming that no individual within a 

family will be responsible for more than $6,850 of out of pocket costs.  This applies to renewals on or after January 1, 2016.  

Thank You!

Questions?