How Will Health Care Reform Impact You?

Transcription

2 Introduction: Bob Gaydos Digital Benefit Advisors (1990 present): Principal & founding partner of BGNE. Merged with Digital Benefit Advisors (Atlanta) in January 2011 In Southwest Florida, we work together with John Mann, IBS/Digital Office locations in nine states including: FL, GA, VT, IL, NC, VA, DC, AZ and MO We represent more than 22,000 businesses nationwide (over 700,000 covered lives) Visit our website at The Choice Care Card / Choice-Strategies (2001 present): Partner & Co-founder Based in Waterbury, VT, we employ over 100 employees Recently awarded 1 st place in the service category of the VBM 5X5X5 (450% growth) National leader in Health Reimbursement Accounts (HRA) and Flexible Spending Account (FSA) Nearly 300,000 members in over 20 states +100 new employers cases sold monthly Visit: Choice Plus of New England ( ): Co-founder Plan manager of ERISA Health plans growing to over 100 employer groups with over 15,000 members Choice Plus was sold to Medical Claims Services in October 2003 Bob Gaydos Memberships: CIGNA National Producer Advisory Council (2006 present) MVP Strategic Partner (2009 present) Blue Cross of VT Advisory Group (2010 present) Vermont Public Oversight Committee ( ) appointed by Governor Dean

3 How Will Health Care Reform Impact You? We know that the world of employer-sponsored insurance is changing. This we know with certainty. However, as PPACA is being implemented, it is being challenged in the courts, with a good likelihood it will be overturned. Simultaneously, Vermont reform is moving forward, even though we know little if any about benefits, costs, and its implications.

4 How Will Health Care Reform Impact You? This only leads to more questions: Will or can VT move forward if PPACA is declared unconstitutional? Given the direction that VT is moving, will CIGNA or MVP leave the state? Will you be able to purchase group insurance off the benefit exchange? Will VT implement new taxes to pay for this new health program? Will you be able to self-fund a health plan, and avoid the state's activities or taxes? How will your non-vt resident employees be affected? And so many more questions.

5 How Will Health Care Reform Impact You? There are three ways to approach this period of change. 1) Fight it. If you do, you will die. Events will overcome you. 2) Accept it. If you do, many of you will survive, but not all. 3) Lead it. Those who lead will prosper. Michael Leavitt is a former Secretary of Health & Human Services and 3 Term Governor of the State of Utah.

7 National Health Reform Quick Overview Stage 1: Numerous health insurance mandates: Minimum medical loss ratios, federal rate approval, minimum essential benefits, minimum lifetime maximums, children covered to age 26, etc. Stage 2: 2014 Individual mandate becomes effective (being legally challenged by 26 states) Medicaid expansion (being legally challenged by 26 states) Employers >50 employees must pay penalty ($2,000/FTE) for not offering coverage or adequate coverage State-operated Benefit Exchanges must be implemented on January 1, 2014 Each state must create a benefit exchange for small employers and individuals PPACA mandates the exchange be available to employers < 50 employees However, states can choose to offer to employers with <100 employees Guarantee issue, no limits on pre-existing conditions, and limited rate variance (can vary by state) Must offer 5 base plans (Platinum, Gold, Silver, Bronze, and HDHP) Stage 3: 2017 States can choose the following: Offer the benefit exchanges to employers >100 employees Try their own version of health insurance reform

8 Vermont Health Reform Quick Overview National Health Reform (PPACA) is basically insurance reform with payment reform models. Vermont Health Reform is health care reform that addresses insurance, provider access, provider costs, etc. Stage 1: Green Mountain Care Board is created no later than October The board has numerous duties and powers as detailed in the law. The members are appointed by committee which is appointed by Governor & legislature. Stage 2: 2014 Vermont Benefit Exchange is implemented on January 1, 2014 (in accordance with PPACA) Vermont will create a benefit exchange for small employers and individuals. PPACA mandates the exchange be available to employers < 50 employees. However, VT can choose up employers with <100 and most likely will do so. Vermont can choose which carriers can participate in the exchange. Vermont can elect to disallow coverage outside of the exchange, and most likely will do so. Stage 3: 2017 or sooner with federal exemptions Green Mountain Care: A universal health care program that will provide health benefits through a single payment system Funding to be determined at a later date Benefits to be determined at a later date Will employers >100 employees be included? To be determined at a later date

9 Vermont Health Reform Stage 1 Stage 1: : Green Mountain Care Board is created no later than October The board has numerous duties and powers as detailed in the law. The members are appointed by committee which is appointed by Governor & legislature. Some of their listed duties will include: Establish global budgets & cost-containment targets for each sector of the health care system. Review and approve global payments, capitated payments, fee-for-service payments for the entire health care system. Negotiate payment amounts with health care professionals, manufacturers of prescribed products, medical supply. companies, and other companies providing health services or health supplies. Review and approve the Green Mountain Care budget. Review and approve the benefit package for qualified health benefit plans. Consider the outstanding questions? Who are the members of the Green Mountain Board? Who will have a voice in the decisions made by this board? How will these decisions (concerning benefits, costs, and provider payments) affect employers small and large?

10 Vermont Health Reform Stage 2 Stage 2: 2014: Vermont Benefit Exchange (in accordance with PPACA) Vermont will create a benefit exchange for small employers and individuals. PPACA mandates employers < 50 employees. However, VT can choose up employers with <100 and most likely will do so. 95% of all employers in Vermont have less than 100 employees, and cover 50% of the VT population The balance is covered by large employers, Medicaid, Medicare, and federal employee health plans. Vermont can choose which carriers can participate in the exchange. The Governor has strongly promoted that only 2 carriers be used, no more. Furthermore, the Governor has strongly promoted that one of those be a federal employee plan option. This would create a result where CIGNA and MVP would not be a part of the VT small group market. Vermont can elect to disallow coverage outside of the exchange, and most likely will do so. If 95% of employers are told that they must purchase their employer-sponsored health insurance via the exchange (as outlined above), and there is no penalty for not offering an employer-sponsored plan, and individuals can purchase via the exchange using federal income based premium subsidies why would VT small group employers offer a health insurance program? What is the effect of a mass exodus of employer sponsored health plans on the large group market? Large employers will not purchase insurance through the Vermont Benefit Exchange. However, will the benefit exchange change the market dynamics concerning: Carrier availability, including CIGNA s or MVP s commitment to the VT market? Network availability? Provider access and costs?

11 Vermont Health Reform Stage 3 Stage 3: 2017 or sooner with federal exemptions: Green Mountain Care: A universal health care program that will provide health benefits through a single payment system Funding to be determined at a later date Benefits to be determined at a later date Will employers >100 employees be included? To be determined at a later date If Green Mountain Care (a single payer gov t plan) is implemented, how does this affect business in VT Will all VT based employers be forced to participate? Will ERISA self-funded employers be forced to participate? Will certain employers be provided exemptions? Will the plan be funded with payroll tax, income tax, sales tax, or combination thereof? Will all employers be subject to the taxes? How does this affect employers with employees not residing in Vermont?

12 VT Market Concerns Carriers: Which carriers & provider networks will remain in Vermont? What plan designs (and at what premiums) will be offered via the benefit exchange? What is the effect of the small group exchange on the large group market? If a significant number of VT employers drop coverage, what is the effect on the benefit exchange? Provider access, costs, and adverse selection: Will carriers be able to maintain provider networks in VT under these new conditions? How will provider networks negotiate on the behalf of large employers within the new law? Will the provider charges to large groups increase at a rate faster than inflation, due to increase cost-shifting? Will VT move Medicaid into the exchange, and how will this affect premiums and benefits within the exchange? Funding: Can Vermont regulate self-funded ERISA plans? Can Vermont implement a payroll tax to pay for Green Mountain Care for ERISA employers? Can Vermont attain the cost goals outlined in the law? And what is the consequence of missing targets?

13 An interesting anecdote At the America s Health Insurance Plan (AHIP) conference Dan Anglin, Government Affairs Representative Colorado State Chamber of Commerce Business told us that they would only support the exchanges if they were in charge. The result: Health Reform board is advisory only, and cannot set rates or make rules. Board members must have business experience in purchasing group insurance. All carriers must be allowed to participate in the exchange, if they choose. Carriers can offer the 5 PPACA plans plus other plan designs. The stated goal is to avoid a single payer government health plan.

15 50 States / 50 Exchanges No legislative action (14) Legislation was defeated (12) Legislation was introduced (5) Vetoed by Governor (1) Passed both chambers, in committee (2) Awaits Governor s signature (5) Legislation being implemented (11)

16 Another interesting anecdote The America s Health Insurance Plan (AHIP) is a national association representing nearly 1,300 member companies providing health insurance coverage to more than 200 million Americans. The organization is operating a series of conferences concerning the benefit exchanges. At the June 15 th conference, where hundreds were in attendance, including many state insurance commissioners, the question was asked: Please raise your hand if you are confident that your state will meet the timelines in PPACA. Not one person raised their hand. 12

17 Will this course change? Legal Challenges: Individual mandate is being challenged by 26 states, expected to be decided by US Supreme Court in 2012 Tying Medicaid to PPACA is being challenged by numerous states Exemptions: VT cannot implement a single payer plan prior to 2012 without various exemptions Some of these exemptions are granted via presidential administration, others via vote in Congress Will the US Congress provide Vermont with the necessary exemptions? Elections: Gubernatorial: VT Gubernatorial elections are every two years Many of the powers listed in VT health reform are determined by the Governor s office Presidential Nearly all the powers in PPACA are as determined by the Secretary of HHS This appointed position will change will with presidential elections US Congress Senate: Democrats have slight control, neither party can overcome a filibuster, and Republicans have opportunity to take control in 2012 House: Currently, the Republicans have a large majority and have a stated mission to stop PPACA

18 The Big Question pay or play? Each employer will ask this question, regardless of size, industry, or location: What is a better path? A.Provide an employer-sponsored health plan to your employees, or B.Terminate the employer-sponsored health plan, and let employees purchase via the exchanges with premium subsidies. Their decision will be influenced by size, location, costs, coverage, and competition: What are your current net plan costs compared to paying a penalty (or payroll tax if implemented)? What are your employer penalties for not offering health insurance, if any? <50 employees: there is no penalty. Hence, the employer saves the entire cost. >50 employees: there is a $2,000 PEPY penalty. This is substantially less than the average employer cost of over $8,000 PEPY. Given the demographics of your group, will the employees qualify for premium subsidies? What are your current insurance costs and benefits compared to the offerings within the exchanges? What underwriting rules are being applied in the applicable state run exchange? 1:1, 3:1, or 5:1? What is the expected outcome? Some employers will terminate their employee plan. Some employers will move away from defined benefit to defined contribution. Some employers will retain their defined benefit employer-sponsored health plan.

20 McKinsey survey: This report shook Washington. The CBO had forecasted that only 10% of employers would drop health plan contributions. McKinsey s survey of 1,300 employers. There findings: significantly greater change than the original CBO estimates. Here s a summary of their key findings: 30% of employers will definitely or probably stop offering ESI (employer-sponsored insurance) 45-50% of employers will definitely or probably seek ESI alternatives 50-60% of employers with high awareness of reform will pursue ESI alternatives 30% of employers would still benefit economically by dropping coverage even after fully compensating employees with other benefits or increased salaries

21 McKinsey survey ESI might also be less valuable than most employers assume. Among employers not likely to drop ESI, the top three reasons given were concerns about: talent attraction employee satisfaction productivity. Among employees, McKinsey consumer research found: 85-90% say they would remain with an employer that dropped ESI. Employees value cash compensation several times more than health coverage. Further, many younger employees also value career-development opportunities and work life balance more than health benefits.

22 A Spectrum of Strategies Pay - Eliminate employer sponsored coverage Pay $2,000 PEPY penalty per FT employee Eliminate employer sponsored coverage - Pay $2,000 PEPY penalty per FT employee - Adjust compensation or offer defined contribution Pay & Play - Eliminate employer sponsored coverage - Pay $2,000 PEPY penalty per FT EE for entire workforce For Select Population: - Play and continue to provide employer sponsored coverage or alternative benefit Play - Play and continue to provide employer sponsored coverage - Provide minimum benefits and contribution levels Play and continue to provide employer sponsored coverage - Maintain benefits and contributions at competitive levels - Optimize contribution strategy Everything on this page is concerning employer contributions. Source: Towers Watson Health Care Changes Ahead 2010

23 PPACA and Exchanges Will Reshape Benefits Strategy What is currently the primary focus of your organization s response to the Patient Protection and Affordable Care Act (PPACA)? What do you think it will be next year? Compliance with regulatory guidance 22% 57% Managing cost of new mandates (e.g., age 26 dependents) 16% 23% Rethinking long-term strategy - for active employees 14% 43% Rethinking long-term strategy - for retirees 4% 18% Other 2% 1% 0% 10% 20% 30% 40% 50% 60% Current focus Expected focus next year Source: Towers Watson Health Care Changes Ahead 2010

24 Employer Strategies Will Span Three Critical Phases Pre-Exchange Post-Exchange Excise Tax Compliance and Opportunity Assessment Redefining the Employer Role Delayed Exit or Differentiated Play Comply with mandates and reporting Quantify impact Examine Opportunities Mitigate cost trend Consider accelerated exit for retirees Plan for 2014 and 2018 Pay or Play Pay and revisit total rewards plus workforce health resources Play, but with a differentiated view Execute retiree strategy Excise tax exacerbates plan costs Revisit the pay or play choice Delayed exit Differentiated design/subsidy Competitive landscape Complementary health resources Source: Towers Watson Health Care Changes Ahead 2010

26 Premium Subsidies Single Person Premium Subsidy Categories Income as $ Federal Poverty Level in 2010 Dollars Maximum Single Plan Annual Premium as % of Income Maximum Single Plan Annual Premium In 2010 Dollars (no employer contribution) (based on Avg. Silver Plan) Up to 133% FPL $14,405 2% of income* $ % FPL $16, % of income* $ % FPL $21, % of income* $1, % FPL $27, % of income* $2, % FPL $32, % of income* $3, % FPL $43, % of income $4,115 >400% FDL >$43,430 No limit No limit

27 Premium Subsidies Family of 4 Premium Subsidy Categories Income as $ Federal Poverty Level in 2010 Dollars Maximum Family Annual Premium as % of Income Maximum Family Annual Premium In 2010 Dollars (no employer contribution) (based on Avg. Silver Plan) Up to 133% FPL $29,767 2% of income* $ % FPL $33, % of income* $1, % FPL $44, % of income* $2, % FPL $55, % of income* $4, % FPL $66, % of income* $6, % FPL $88, % of income $8,379 >400% FDL >$88,200 No limit No limit

29 Contribution strategies The Obvious your health plan has a cost problem Consider the trend of health insurance premiums Avg. annual family health group insurance premium: $3,732 or 12.4% of annual wage Avg. annual family health group insurance premium: $13,770 or 33.5% of annual wage. As a % of annual wage, insurance premiums have increased by 270% since It s on pace to reach 50% of annual wage by However, consider the leveraging effect of fixed deductibles and co-pays: Since 1990, the member s maximum out-of-pocket as a % of income has actually dropped by 40%.

30 Contribution strategies Non-contributory The employers 100% of the insurance or plan costs. Contributory a)defined benefit: the employer defines the benefit and share the cost. b)defined contribution: the employer defines the contribution only. Voluntary The employee pays 100% of the cost of the insurance or plan. Is the PPACA premium subsidy merely a contribution. Are you in competition with the government subsidy?

31 Defined Benefit vs. Defined Contribution Defined benefit: the employer defines the benefit and shares the cost. Strength: one size fits all. Weakness: employer shares the increase. Defined contribution: the employer defines the contribution only. Strength: employees can choose most appropriate benefit. Strength: employer chooses contribution, hence choose increase. Weakness: historically, there was no "insurance store. PPACA mandates the creation of "insurance exchanges". Is this the store? Could employees shop here for benefits? Would they be using employer funds?

32 Employer Contributions as a % of Wage Renewal Effects: 5%, 10%, and 15% Average Wage 41,035 Plan Status Family Annual Premium 13,770 ER Contribution % 70% ER Contribution $ 9,639 ER Contribution as % of wage - current 23.5% Effects of Premium Increase 5% 10% 15% ER Contribution Increase ,446 Equivalent Pay Raise 1.2% 2.3% 3.5% ER Contribution as % of wage - renewal 24.7% 25.8% 27.0%

33 Employer Contributions as a % of Wage 5 Year Trends Annual Wage 41,035 Wage Trend 3% Plan Status Family ER Contribution at 5% Px trend: Year 1 Year 2 Year 3 Year 4 Year 5 as a % of Annual Wage 23.5% 23.9% 24.4% 24.9% 25.4% as a % Increase to Wage n/a 1.2% 1.2% 1.2% 1.2% ER Contribution at 10% Px trend: as a % of Annual Wage 23.5% 25.1% 26.8% 28.6% 30.6% as a % Increase to Wage n/a 2.3% 2.5% 2.7% 2.9% ER Contribution at 15% Px trend: as a % of Annual Wage 23.5% 26.2% 29.3% 32.7% 36.5% as a % Increase to Wage n/a 3.5% 3.9% 4.4% 4.9%

34 5 Year Contribution Projection Employee Employee Annual Wage 41,035 Household Wage 70,000 Wage Trend 3% Plan Status Family EE Contribution $ 4,560 EE Contribution % of Household Income 6.5% Annual Wage 41,035 42,266 43,534 44,840 46,185 Household Wage 70,000 72,100 74,263 76,491 78,786 Plan Status Family Family Family Family Family EE Contribution 5% trend 4,560 4,788 5,027 5,279 5,543 as a % of Household Income 6.5% 6.6% 6.8% 6.9% 7.0% EE Contribution 10% trend 4,560 5,016 5,518 6,069 6,676 as a % of Household Income 6.5% 7.0% 7.4% 7.9% 8.5% EE Contribution 15% trend 4,560 5,244 6,031 6,935 7,975 as a % of Household Income 6.5% 7.3% 8.1% 9.1% 10.1% Maximum Cost as % of Income n/a n/a 8% 8% 8% At Benefit Exchange for Silver Plan

35 Consider this ABC Company Premiums HRA Funds Other Benefits Single Plan Participants , , Two Person Plan Participants , , Family Plan Participants 6 1, , , Annual Costs , , , ER Contribution / HRA Utilization 70% 60% 100% Subtotal 139, , , Total 208, PEPY 8, PEPY Defined Benefit ER Health Plan Contribution % 70% ER Health Plan Contribution $ 5, ER HRA Plan Costs (60% utilization) 1, Ancillary Benefits Contribution % (life, disability, dental, etc.) 100% Ancillary Benefits Contribution$ (life, disability, dental, etc.) 1, Payroll Increase (offset exchange premiums) n/a TOTAL PEPY 8, TOTAL NET EMPLOYER COSTS 208, Trend 8% Defined Contribution Fixed 5, , % 1, n/a 8, , % New Model None - 1, % 1, , , %

36 Consider this PEPY Defined Benefit New Model New Model New Model ER Health Plan Contribution % 70% None None None ER Health Plan Contribution $ 5, ER HRA Plan Costs (60% utilization) 1, , , , Ancillary Benefits Contribution$ (life, disability, dental, etc.) 1, , , , Payroll Increase (offset exchange premiums) n/a - 5, , TOTAL PEPY 8, , , , TOTAL NET EMPLOYER COSTS 208, , , , Trend 8% 0% 0% 0%

38 The 6 Possibilities Option 1 ER Health Plan Direct buy or Exchange PCA Defined benefits Either if < 100 ees HSA/HRA Life/disability X Dental/Visions X Wellness plans X Voluntary plans X FSA plans Premium Subsidies X No AVG PEPY $10,000+ ER Penalty $2,000 PEPY if over 80 FTE

39 The 6 Possibilities Option 1 Option 6 ER Health Plan Direct buy or Exchange PCA Defined benefits Either if < 100 ees HSA/HRA None Exchange as individuals - Life/disability X - Dental/Visions X - Wellness plans X - Voluntary plans X - FSA plans Premium Subsidies X No - Yes Income indexed AVG PEPY $10,000+ None ER Penalty $2,000 PEPY if over 80 FTE

40 The 6 Possibilities Option 1 Option 2 Option 6 ER Health Plan Defined benefits Defined contribution None Direct buy or Exchange Either if < 100 ees Either if < 100 ees Exchange as individuals PCA HSA/HRA HSA/HRA - Life/disability X X - Dental/Visions X X - Wellness plans X X - Voluntary plans X X - FSA plans X X - Premium Subsidies No No Yes Income indexed AVG PEPY $10,000+ employer decides None ER Penalty $2,000 PEPY if over 80 FTE

41 The 6 Possibilities Option 1 Option 2 Option 5 Option 6 ER Health Plan Defined benefits Defined contribution None None Direct buy or Exchange Either if < 100 ees Either if < 100 ees Exchange as individuals Exchange as individuals PCA HSA/HRA HSA/HRA none - Life/disability X X - - Dental/Visions X X - - Wellness plans X X - - Voluntary plans X X X - FSA plans X X X - Premium Subsidies No No Yes Income indexed Yes Income indexed AVG PEPY $10,000+ employer decides None None ER Penalty $2,000 PEPY if over 80 FTE

42 The 6 Possibilities Option 1 Option 2 Option 3 Option 5 Option 6 ER Health Plan Defined benefits Defined contribution None None None Direct buy or Exchange Either if < 100 ees Either if < 100 ees Exchange as individuals Exchange as individuals Exchange as individuals PCA HSA/HRA HSA/HRA HRA none - Life/disability X X X - - Dental/Visions X X X - - Wellness plans X X X - - Voluntary plans X X X X - FSA plans X X X X - Premium Subsidies No No Yes Income indexed Yes Income indexed Yes Income indexed AVG PEPY $10,000+ employer decides employer decides None None ER Penalty $2,000 PEPY if over 80 FTE

43 The 6 Possibilities Option 1 Option 2 Option 3 Option 4 Option 5 Option 6 ER Health Plan Defined benefits Defined contribution None None None None Direct buy or Exchange Either if < 100 ees Either if < 100 ees Exchange as individuals Exchange as individuals Exchange as individuals Exchange as individuals PCA HSA/HRA HSA/HRA HRA none none - Life/disability X X X X - - Dental/Visions X X X X - - Wellness plans X X X X - - Voluntary plans X X X X X - FSA plans X X X X X - Premium Subsidies No No Yes Income indexed Yes Income indexed Yes Income indexed Yes Income indexed AVG PEPY $10,000+ employer decides employer decides > $2,000 None None ER Penalty $2,000 PEPY if over 80 FTE

45 The Big Question pay or play? Each employer will ask this question, regardless of size, industry, or location: What is a better path? A. Provide an employer-sponsored health plan to your employees, or B. Terminate the employer-sponsored health plan, and let employees purchase via the exchanges with premium subsidies. Their decision will be influenced by size, location, costs, coverage, and competition: What are your current net plan costs compared to paying a penalty (or payroll tax if implemented)? What are your employer penalties for not offering health insurance, if any? What are your current insurance costs and benefits compared to the offerings within the exchanges? What underwriting rules are being applied in the applicable state run exchange? 1:1, 3:1, or 5:1? What is the expected outcome? Some employers will terminate their employee plan. Some employers will move away from defined benefit to defined contribution. Some employers will retain their defined benefit employer-sponsored health plan.

46 Other important questions Will Vermont implement a benefit exchange? Will the Vermont Benefit Exchange include employers up to 100 employees? Will Vermont allow off exchange sale of health insurance? Will Vermont implement Green Mountain Care (single payer)? If yes, how will it be funded? Payroll tax, or multiple taxes? How will multi-state employers be affected? How will ERISA self-funded plans be affected? What is the effect of 50 different benefit exchanges? Will PPACA stifle innovation? Will employers wait or act?