Implementing Health Care Reform — Opportunities, Costs and Risks
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Transcript of Implementing Health Care Reform — Opportunities, Costs and Risks
© 2010 Towers Watson. All rights reserved.
Implementing Health Care ReformOpportunities, Costs and Risks
March 24, 2010
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Speakers
Randy Abbott Ann Marie BrehenySteve Raetzman Julia Weston
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Today’s discussion
Towers Watson’s point-of-view
Overview of legislation
Managing health benefits Immediate and long-term impact
Implementation
Next steps
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Towers Watson’s point-of-view The effect of health reform will continue for years: some
changes are immediate; many will evolve over the next 3 – 5 years
UnprecedentedScale and Impact
Current TacticsRemain Attractive
Focus onWorkforce Healthand Productivity
Reward and BenefitStrategies
Could Change
Opportunities InRetiree Medical
Attractive tactics include: account-based health plans, value-based strategies, well placed incentives, incentives, quality and delivery system improvements, vendor optimization, consumer engagement, workforce health improvement and wellness initiatives, etc.
Improving workforce health and productivity will increase in importance: best performers have an advantage
Implications can go beyond just health benefits to Total Reward strategy and workforce health and productivity initiatives
“Exit” strategies and alternative delivery options may emerge
New opportunities will emerge to review strategies and benefits for current and future pre-65 and post-65 retirees
Overview of legislation
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Key elements Direct impact on employers
Excise tax on high-cost group health coverage exceeding specified thresholds
Thresholds in 2018: $10,200 for single coverage, $27,500 for family coverage
Indexed CPI-U+1% in 2019, CPI beginning in 2020 Adjustments for age and gender demographics, high-risk populations,
early retirees Separate vision, dental benefits exempted; account contributions included
Excise tax
Offer employees who work at least 30 hours per week coverage or pay penalties
Automatically enroll new employees in coverage Provide vouchers to help certain low-income employees purchase
coverage through insurance Exchanges Comply with new benefit mandates and reporting requirements
Employer mandates
Provisions Key Element
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Key elements Direct impact on employers (continued)
Increases HIPAA limit on financial incentives for participation in wellness programs from 20% to 30%; permits government to increase limit to 50%, if appropriate
HIPAA wellness programs
Requires employers to disclose aggregate value of employer-provided health coverage on employee Form W-2
W-2 reporting
Imposes immediate and longer-term requirements for plans, such as
No lifetime and restricted annual dollar limits
No preexisting condition exclusions for those 18 and younger
Extended dependent coverage for those up to age 26
No annual limits on essential benefits
Plan design requirements
Provisions Key Element
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Key elementsImpact on individuals/employees
Guaranteed issue, renewal, no rescissions, premium rating restriction, other consumer protections
Standard benefit designs and insurance Exchanges
Insurance market reform
Established by states to structure market for individuals and employers Initially for individuals and small groups; then expand to large employers
Health Insurance Exchanges
Medicaid expanded Private, nonprofit Health Insurance Cooperatives and federally-
administered multistate options through Exchanges
New and expanded public programs
Federal premium subsidies for individuals earning up to 400% of the federal poverty level (FPL)
Cost-sharing subsidies to reduce out-of-pocket expenses Available only for coverage obtained through Exchanges, not through
employer-sponsored plans
Premium and cost-sharing subsidies
All individuals required to enroll in basic health coverage or pay penalty Limited exemptions
Individual mandate
Provisions Key Element
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Key elementsImpact on individuals/employees (continued)
Limits pre-tax health FSA contributions to $2,500 per year, indexed for inflation
Increases penalty to 20% for HSA funds used for non-qualified medical expenses prior to age 65
Prohibits OTC medicine reimbursement in health accounts (e.g., FSA/HRA/HSA), unless prescribed
Account plan limitations
Increased tax on wages in excess of $200,000 for individual taxpayers and $250,000 for joint-filers; employee wages
New 3.8% tax on certain unearned income for individuals with income over $200,000 for individual taxpayers and $250,000 for joint-filers
Medicare HI tax
Provisions Key Element
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Key elementsImpact on retiree plans
Eliminates business deduction for employer 28% Part D retiree drug subsidy payments. Creates an immediate accounting issue that may have significant P&L impact
Elimination of tax advantage for RDS
Creates temporary reinsurance program to reimburse employers for part of pre-65 retiree health expense (80% of cost per enrollee in excess of$15,000 and below $90,000)
Reinsurance for employer-provided retiree health coverage
The excise tax applies to retiree plansExcise tax capProvisionsKey Element
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Key elementsImpact on retiree plans
Includes one-time $250 rebate for seniors hitting donut hole in 2010
Narrows the donut hole over time to achieve 25% cost-sharing throughout by 2020
Provides 50% discount off negotiated price for brand-name drugs covered under Part D for drug costs incurred during coverage gap (i.e., donut hole)
Filling of Medicare Part D donut hole and drug discount
Medicare Advantage plans payments reduced through new benchmarking program
Part D prescription drug premiums makes Medicare Part D premium income-related
Other Part D changes
ProvisionsKey Element
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Implementation begins right away andwill take several years
Presidential election2012
Immediate coverage reforms (calendar year plans) Extended dependent coverage No lifetime and restricted annual limits No preexisting condition exclusions for individuals 18 and younger
W-2 reporting of aggregate value of employees’ health coverage HSA withdrawal penalty increased No reimbursement of OTC medicines from account-based health plans CLASS* Act long-term care benefit enrollment Begin phasing out Medicare Part D donut hole
2011
Accounting recognition of change in taxability of RDS payments Reinsurance for retiree medical coverage $250 rebate for seniors who hit Medicare Part D coverage gap Immediate coverage and consumer protection requirements for non-calendar
year plans starting 6 months after effective date (see requirements below)
2010
* CLASS – Community Living Assistance Services and Supports Act
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Implementation begins right away andwill take several years (continued)
Cross-border sales of health insurance 2016
Excise tax on high-cost group health plans 2018
Employer mandates: play-or-pay, automatic enrollment, free-choice vouchers Individual health coverage mandate Health Benefit Exchanges operational Premium and cost-sharing subsidies for low- and middle-income individuals Medicaid eligibility expanded Additional consumer protections and market reforms, such as guaranteed issue,
premium rating restrictions, prohibition on excessive waiting periods, prohibition on annual dollar limits, etc.
2014
Deduction for employer Part D retiree drug subsidy eliminated Medicare payroll tax increased for high-wage employees and new tax on
unearned income Cap on salary-reduction contributions to health FSAs
2013
Managing health benefits
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Decision-making within a strategic framework
FinancialPerformance
Consumer Engagement
Change Management
Desired Outcomes From Health Benefits
Corporate Goals (illustrative)
Attract, develop and retain talent; improve productivity Achieve operational excellence, profitability and positive free cash flow Reward and benefit programs support corporate goals
Population Health Improvement
Strategy and Governance DesignDeliveryFinancial
Management
Strategic Levers
Benefit and Corporate goals aligned
Metrics and measurement
Executive sponsorship and governance
Cost trend management
Budgeting Funding and risk
management Rating and
pricing
Administration Health
improvement and care management
Vendor optimization
Integration Performance
management Compliance Enrollment
Meaningful choice
Plan design Incentives Account-based
plans Contribution
strategies and steerage
Workforce health and wellness
Member accountability and engagement
Line manager and executive roles
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Key immediate implications for 2010 – 2011 and employer actions All active plans Cover adult children up to age 26 who are not otherwise eligible for a
plan No lifetime limits; only “restricted” annual limits; change OTC benefit No pre-existing condition exclusions for children under age 19 Monitor insured plan renewals Grandfathering assessment Funding and risk management profile Determine impact of non-discrimination requirements CLASS* enrollment W-2 disclosure
* CLASS – Community Living Assistance Services and Supports Act
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Key immediate implications for 2010 – 2011 and employer actions All pre-65 plans Collect reinsurance payments Cover adult children up to age 26 who are not otherwise eligible for a
plan No lifetime limits; only “restricted” annual limits; change OTC benefit No pre-existing condition exclusions for children under age 19 Monitor insured plan renewals Grandfathering assessment Funding and risk management profile
All post-65 plans Accounting impact from RDS taxation Impact of donut hole reduction Medicare Advantage changes
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2014 – 2018: Long-term strategic considerations for active plans Evaluate employer role – opportunity to re-define? Continue to offer Attract and retain employees using competitive plans and
cost sharing Comply with new mandates and costs Avoid excise taxes and “free-rider” fees Rebalance rewards package to reflect changes in health
benefits Exit? Pay penalty and define contribution
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2014 – 2018: Managing active employee health benefits
Tax Cap Ceiling
Change Benefits, Rewards and Taxes
MinimumPlan Floor
>= 9.5% AGIand < 400% of FPL
8% - 9.8% AGIand < 400% of FPL
Pay Taxes and Vouchers for Employees Using Exchanges
Proactive, comprehensive management:• Decisions reflect business, workforce and reward strategies• Competitive benefit cost, value and efficiency• Engaged consumers• Improve workforce health and productivity
2014
2018
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2014: Pay/exit yields significant loss of value to employees Viable individual market
But, employees lose value Employers will deduct
after-tax penalty cost Pay is taxable
What if tax penalties rise?
Impact on benefit and reward strategies and ability to recruit? $467
EETaxes
$5000Current Employer Pre-Tax Contribution
$3333 Employer Cost($2000 non-deductible fee)
$1200Net EE
Pay
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2014 – 2018: Long-term strategic considerations for retiree plansPre-65 plans Evaluate employer role – will
availability of viable market and subsidies affect employer role?
Continue to offer Comply with new mandates
and costs Avoid excise taxes Proactively manage costs and
delivery Exit? Transition to exchange
enrollment, subsidies and capping employer cost
Post-65 plans Evaluate employer role – as
Medicare benefit improves, what role for employers?
Continue to offer Change benefits and designs
to account for change in RDS taxation, PDP plans, Medicare Advantage plans and filling the Part D donut hole
Change delivery model if PDP plans become more appealing and if Advantage plans exit
Exit? Drop or change plans and
contributions
Implementation
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Implementation approachIMPLEMENTDECIDEIDENTIFY
Develop and execute implementation plan
Analyze options and make decisions
Know the law and the key questions, issues
and data Formulate multi-year plan for
implementation, change management and communication
Secure resources, suppliers, commitments and budgets
Implement tactics in 2010 to meet 2011 requirements
Incorporate health reform into 2011 – 2018 annual benefit planning process
Conduct financial, qualitative and other analyses
Conduct employee and retiree impact analysis
Evaluate options Design Financial management Delivery Change management Strategy
Make decisions
Understand law, effective dates and compliance requirements
Understand tactical and strategic issues
Collect data Find opportunities, costs and
risks in all plans Identify issues for different
segments of employees Identify issues for different
segments of pre-65 and post-65 retirees
Create an implementation plan and governance process
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Implementation issues log
■■■Timing and messagesCommunication plan
■
■
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Payroll
■Meet targetCost sharing
■
■
■
■
■
■
■
■
■
■
Benefits
■
■
■
Tax
■
■
■
■
■
■
Enroll-ment
■
■
■
■
■
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Health Plans
Calculation methodW-2 disclosure
High income onlyHI tax increase
A problem?Waiting period change
Few affectedOTC change
No restructuringContributions
Etc., Etc., Etc.
Likely to happen?CLASS enrollment
Vendor searchStop-loss
Retained?Grandfathering status
Must comply
Risk issue
Verification process
Analysis and Comments
Insured plan renewals
Drop lifetime limits
Eligibility change to 26
Issues/tasks
S A M
P L
E
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Understanding the employee perspective
Two-thirds believe health care reform would result in higher benefit costs
More than half believe it would reduce their available benefits and lower their quality of care
Forty percent say they would be uncomfortable purchasing their own insurance in reformed markets as an alternative to getting coverage through their employer
Source: Towers Watson 2010 Global Workforce Study – U.S..
My benefits
will cost less
My benefits
What impact do you think health reform will have on your costs?
will cost the same24%
My benefits
9%
will cost more67%
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Communication and change activities
Near-term Develop an initial communication plan Consider an open dialog with employees and retirees
— Explain the impact of health reform on your organization’s benefits— Share approach to health care strategy evaluation — Reinforce your benefits philosophy and employee value
proposition— Set expectations about next steps and timing of decisions
Engage leaders and key influencers Communicate immediate program changes and reiterate key
messages
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Communication and change activities
Long-term Gather input on what employees need and value Build a long-term communication and change roadmap
—Address the needs of key stakeholders: Executives, HR, managers, employees, retirees, labor unions, vendors/administrators, investors, etc.
Keep up the Culture of Health momentum
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Implementing Health Care Reform:Managing opportunities, risks and costs
Key Questions for Plan Sponsors What is the impact of the new law? How will the organization be
affected? What new strategic opportunities
should be considered? How will costs and risks be
managed? What decisions need to be
made? How will implementation be
managed? How will employees be affected? How will retirees be affected?
Towers Watson support Legislative, regulatory and
compliance information Inventory of requirements and
effective dates Analytical methods, modeling tools
and decision-making guides Understanding of practices and
planning of other employers Strategy-setting for active and
retiree benefits, tied to Total Rewards and business objectives
Communication and change management strategies and plans
Comprehensive implementation plans, oversight and support