Medicare Reform Presentation to PEBB February 24, 2004.
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Transcript of Medicare Reform Presentation to PEBB February 24, 2004.
Medicare ReformPresentation to PEBB
February 24, 2004
Mercer Human Resource Consulting 2
Medicare Reform LegislationHighlights of new legislation
Most significant change to Medicare since its inception
New prescription drug benefit (Part D) effective January 1, 2006
Subsidy for employers and multiemployer plans providing prescription drugs to retirees eligible for Medicare
Changes to structure of Medicare
Health Savings Accounts – HSA’s Final details of the law will require clarification from government and
consideration of how carriers and other vendors will respond Implementation is scheduled from 2004 to 2010 or even later
Mercer Human Resource Consulting 3
Medicare Prescription Drug CoverageOverview
Medicare does not currently cover outpatient prescription drugs
New Part D provides partial prescription drugs coverage effective January 1, 2006
Voluntary program for Medicare eligibles
Standard Rx benefit (or actuarial equivalent)
Benefit offered by private plans Government payments to private plans Beneficiaries pay premium
Subsidies for low-income individuals
Mercer Human Resource Consulting 4
Part D Prescription Drug BenefitStandard Rx benefit has “doughnut hole” to meet cost goal
Initial coverage: Deductible of $250, enrollee coinsurance of 25% up to $2,250
“Doughnut hole”: No coverage until enrollee reaches out-of-pocket limit of $3,600
Amounts paid by third parties (e.g., employers, individual coverage, etc.) do not count towards out-of-pocket limit
Catastrophic coverage: Above the out-of-pocket limit, enrollee coinsurance is the greater of 5% or a fixed copay ($2 generic or $5 brand, indexed)
Amounts are indexed
100% RetireeCoinsurance(no Medicarecoverage in
doughnut hole)($2,850)
5% Retiree Coinsurance(min. $2/$5 copay)
$5,100
$2,250
$250
95% Medicare Benefit
(CatastrophicCoverage)
75% Medicare Benefit (Initial
Coverage)
$3,600 out-of-pocketreached ($250+$500+$2,850 = $3,600)
25% Retiree Coinsurance($500)
$250 Deductible
Medicare Retiree
Mercer Human Resource Consulting 5
Part D Prescription Drug BenefitGovernment pays about three-quarters of cost
Member pays roughly one-quarter of Medicare Part D premium (estimated $35 PMPM in 2006)
Amounts indexed
Subsidies for low income seniors
Premiums may be increased for “late” enrollees
Premiums may be deducted from Social Security benefits
Medicare Part D benefits are primary
Employer plan secondary if retiree enrolls in Part D
Mercer Human Resource Consulting 6
Subsidy for Retiree Health PlansPlan sponsors can maintain plan, receive subsidy
Federal government offers subsidy to employers and other sponsors of qualified retiree health plans
Qualified plan must provide benefits with “actuarial value” greater than or equal to Part D benefits
Sponsor gets 28% subsidy for covered drug costs from $250 to $5,000 (indexed) per eligible participant
Subsidy only for participants that do not enroll in either Part D or Medicare Advantage drug coverage
Subsidy is not taxed to plan sponsor
Recordkeeping and documentation requirements, but no details yet
FASB now will allow immediate recognition of change in accounting for retiree medical benefits under FAS106 (GASB likely will be similar)
Mercer Human Resource Consulting 7
Options for Plan SponsorsPrescription drug coverage for Medicare-eligible retirees
Plan designed by sponsor
Receive government subsidy if at least “actuarially equivalent” to Part D
“Wrap around” plan / integration with Medicare
Medicare is primary, plan sponsor secondary
With or without subsidy of Part D premium
Medicare Advantage plan (formerly Medicare+Choice)
With or without sponsor subsidy of Medicare Advantage premium
Drop coverage, with or without Part D premium subsidy
Mercer Human Resource Consulting 8
Accounting and Financial IssuesSteps to estimate financial impact
Determine how much cost and obligation is associated with Medicare-eligible Rx
Select options to consider
Model the effect on per capita claims costs of the options under consideration
Use actuarial projections to estimate effect on future cash costs and benefit obligations
Apply current and potential accounting rules to estimate effect on FAS 106 expense
Mercer Human Resource Consulting 9
Reflections . . .While quick action possibly needed for accounting . . . more time likely warranted for design details
Some decisions may be needed quickly Decision to receive subsidy, wrap or terminate can drive financial
reporting
For details of 2006 plan design, don’t rush to judgment Look at emerging PDP designs
New ideas, information and designs will emerge Some opportunities may be better than what is known now
New Medicare Advantage plans may create additional options
Communicate with retirees Explain the changes to Medicare and how they will impact plan
participants Help plan participants understand changes, if any, to their current
program made as a result of the changes to Medicare Move carefully because interpretations of the law (and perhaps the
law itself) may shift over time
Mercer Human Resource Consulting 10
Other Medicare Related ProvisionsMedicare Advantage plan, discount card, structural change
Medicare+Choice becomes Medicare Advantage
New law allows 10 to 50 “regional” plans, plus a national plan
Medicare Advantage plans can receive somewhat higher payments from Medicare than previously for Medicare+Choice, at least initially
Discount prescription drug card effective spring 2004 until 2006
Part B deductible will be increased to $110 in 2005, then indexed
Medicare Part B premiums will be tied to income
Competition between traditional Medicare and private plans in 2010
Mercer Human Resource Consulting 11
Options for Plan SponsorsMedicare Advantage plan
If health plans offer national plan or regional plans at reasonable cost, Medicare Advantage could be a viable alternative for some plan sponsors
Plans maintain “managed care”
Benefits could potentially fill prescription drug “doughnut hole”
But past history is problematic: Growth in enrollment, followed by tight controls on reimbursement by Medicare, then reductions in enrollment
Mercer Human Resource Consulting 12
Health Savings Accounts – HSAsWhat Are They?
Now available (since 1/1/2004); part of Medicare reform law HSA: A savings / spending account held in trust, like an IRA or 401(k) Flexibility of design:
Employer may sponsor; may choose to contribute or not, OR
A person can open an individual HSA account, like an IRA Triple tax-favored, if conditions are met:
Pre-tax (or deductible) contributions; by individual and/or employer
Tax-free build up of investment earnings
Tax-free distributions for medical expenses at any age 100% vested: Spend it or grow it from year to year; no “use it or lose it”
Mercer Human Resource Consulting 13
HSAsEssential Linkage to High-Deductible Health Plan
To contribute: Must be in a “high-deductible health plan” Definition of “high-deductible health plan” (HDHP)
A health plan that covers the HSA account holder
Sponsored by employer or spouse’s employer; or private coverage
High deductibles: Not LESS than $1,000 for individual Not LESS than $2,000 for family
Out-of-pocket limits: not MORE than $5,000 / $10,000
Preventive care can be first-dollar, as much as 100% covered
Deductibles needn’t apply to dental, vision, LTD, AD&D, etc.
But prescription drug coverage cannot be carved out
Need not be in an HDHP when spending the HSA account balance
Mercer Human Resource Consulting 14
HSAsSpending the HSA Balance
Can spend in same year … later year … or in retirement Tax-Free: HSA distributions are never taxed if spent on:
“Medical expenses” Broad definition: Code §213(d), like HRA reimbursement account Needn’t be covered health plan cost: e.g. elective care; otc items
Not for paying premiums, except the following are allowed: Post-65 Medicare and retiree plan premiums (but not Medigap) Premiums for COBRA, or while on unemployment compensation Long-term care insurance premiums
Taxable: For distributions for any other purpose:
Ordinary income tax applies, and
10% penalty tax applies, if prior to age 65
Mercer Human Resource Consulting 15
HSAsAnnual Contributions
Annual limit on combined employer and employee contributions: Lesser of: HDHP annual deductible, or
$2,600 (single) $5,150 (family) – indexed yearly
Plus “catch-up contributions” If 55 or older Up to an additional $500 per year $500 increases to $1,000 by 2009 (in $100 yearly steps)
Contributions must stop when Medicare coverage begins No contributions for a “dependent” on another person’s tax return Rollover into HSA: only from “Archer MSA” or another HSA
Not from flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs) or IRAs
Mercer Human Resource Consulting 16
HSAsPlan Sponsor Options
Offer an HSA-compliant HDHP Employees have option of setting up HSA on their own No cost to employer for HSA
Offer an HDHP and sponsor an HSA for eligible employees Employees can contribute through employer or set up their own HSA Administrative cost for employer unless employees pay cost
Offer an HDHP, sponsor an HSA, and make contributions to it Employer pays HSA cost plus administrative cost (unless paid by
employees) Funding HSAs by employer is not a long-term liability but has a cash
cost
Mercer’s National Survey of Employer-Sponsored Health PlansPresentation to PEBB
February 24, 2004
Mercer Human Resource Consulting 18
About the survey
Established in 1986, national probability sample used since 1993 Largest annual survey on the topic Results are projectable to all US employers with 10 or more employees Nearly 3,000 employers participated in 2003 Today’s presentation is based on employers with 500+ employees
Mercer Human Resource Consulting 19
Total health benefit cost for 2003 rises more slowly than expectedAll employers
6.9%
18.6%
16.7% 17.1%
12.1%
10.1%
8.0%
2.1% 2.5%
0.2%
6.1%7.3%
8.1%
11.2%
14.7%
10.1%
-1.1%
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Mercer Human Resource Consulting 20
$3,930 $3,820$4,037
$4,320$4,604
$5,162
$6,348
$5,758
1996 1997 1998 1999 2000 2001 2002 2003 2004
-2.8%+ 5.7%
+ 7.0%+ 6.6%
*Average increase projected for 2004
+ 12.1%
+12.5%*
Total health benefit cost for active employees up 10.2%Large employers
+10.2%
+11.5%
Mercer Human Resource Consulting 21
Benefit reductions the key to slower cost growth
In summer/fall of 2002, Mercer survey respondents predicted an average
increase of 13.5 % for 2003
The 10.2% actual increase reflects subsequent benefit reductions, and
may reflect a mid-year slowdown in medical trend (MCPI)
No cause to celebrate: health benefit cost is still rising 4 times the rate of
general inflation
Mercer Human Resource Consulting 22
Factors that affect average cost per employeeLarge Employers by Region
$5,783
$6,602 $6,616 $6,717$6,348
South Midwest West Northeast Total
Mercer Human Resource Consulting 23
WA State and Gov’t – type of plan offered Percent of employers offering plan
20%
93%
20%
57%
40%
71%
40%
71%
27%
78%
18%
46%
TraditionalIndemnity
PPO POS HMO
Washington State State Gov't All Gov't
Mercer Human Resource Consulting 24
WA State and Gov’t – employee enrollment Percent of covered employees enrolled
2%
43%
17%
38%
16%
39%
14%
31%
12%
39%
13%
36%
TraditionalIndemnity
PPO POS HMO
Washington State State Gov't All Gov't
Mercer Human Resource Consulting 25
$4,301
$5,049$4,751
$5,336$5,583$5,056
$5,880$5,328
$5,563
$6,368
Total TraditionalIndemnity
PPO POS HMO
2002 2003+14.1%
+4.3% +12.1%
+16.5%
+17.6%
Washington State – average cost per active employee
Mercer Human Resource Consulting 26
14.4%
16.1%16.9%
17.8%18.3%16.9%
13.8%
1998 1999 2000 2001 2002 2003 WA 2003
Prescription drug benefit cost increases continue to outpace overall cost increase Cost increase in primary medical plan
Mercer Human Resource Consulting 27
$6,956$7,948
$3,003$2,702
Pre-Medicare-eligibleretirees
Medicare-eligible retirees
2002 2003
Average health benefit cost per retireeBased on 2003 respondents providing both 2002 and 2003 cost
+14.3%
+11.2%
Mercer Human Resource Consulting 28
Significant plan design componentsWashington State vs. National
PPOs WA Nat’l
Require in-network deductible (% of employers) 85% 70%
Median deductible $238 $250
% of employers who increased deductible 25%
Median office visit cost-sharing $15 $15
Out-of-pocket in-network maximum (median amount) $1,500 $1,500
HMOs
Physician office copayment (average) $14 $14
Require copay of $20 or more (% of employers) 20%
Require hospital deductible
Emergency room copay (median)
71%
$75
43%
$50
Mercer Human Resource Consulting 29
How employers are addressing cost in 2004 – and beyond
49% (50% WA) of large employers expect to increase employee premium percentage in 2004
45% (60% WA) expect to increase employee cost-sharing in 2004 16% expect to change carriers in 2004, 12% expect to drop carrier 38% (39% WA) are engaging in consumerist strategies 58% offer one or more disease management programs, up substantially
over 2002 Health management activities up substantially over 2002 11% of large employers using “networks within networks”, another 17%
considering
Mercer Human Resource Consulting 30
The future
Focus will be on managing consumer behavior and demand
Consumerist strategies
Higher-cost populations Forces that converged to drive up cost will not abate any time soon
Demographics
Lack of competition
Technology
Mercer Human Resource Consulting 31
Health Care Authority Budget Comparison
FY 05 State Agency CY 05 Average
Funding Rate Employee Contribution
Initial budget (Spring 2003) $592.30 $110.58
Governor Supplemental $581.52 $97.54
(February Update)
Senate Chair Supplemental $578.84 $105.89
House Chair Supplemental $600.85 $65.00
Mercer Human Resource Consulting 32
Open Enrollment Plan Changes
Members Enrolled Change
Health PlanDecember
2003January
2004 Number Percent
Community Health Plan 2,125 8,156 6,031 284%
Group Health 89,280 91,921 2,641 3%
Options 11,904 13,391 1,487 12%
Kaiser 7,015 7,265 250 4%
No Plan 396 376 -20 -5%
PacifiCare 30,245 26,147 -4,098 -14%
Premera Foundation 41,543 0 -41,543 -100%
RegenceCare 18,924 20,916 1,992 11%
Uniform Medical 98,599 131,235 32,636 33%
Neighborhood 0 1,662 1,662 N/A
Medicare Supp. E 2,647 2,703 56 2%
Medicare Supp. J 6,081 6,041 -40 -1%
Total Members 308,759 309,813 1,054 0.3%
Mercer Human Resource Consulting 33
Key dates for 2005 procurement
April 8: Purchasing document released May 13: Proposals due June 22: Board votes and contracts
awarded
Mercer Human Resource Consulting 34
Informational bids
$15 and $20 office visit copayment $100 emergency room and
ambulance copayment