Health Care Reform: What's Ahead - Towers Watson

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Health care reform is a business issue, with numerous challenges and opportunities for employers that sponsor health benefit plans. Healthcare reform presents a spectrum of opportunity for employers – …

Health care reform is a business issue, with numerous challenges and opportunities for employers that sponsor health benefit plans. Healthcare reform presents a spectrum of opportunity for employers – a complex spectrum that is more than simply "paying" or "playing."

In this presentation, learn how your company can assess and manage what’s involved in the spectrum of opportunity – effectively managing plan costs, optimizing health plan efficiency, minimizing excise tax impact - to determine the most effective path forward based on your unique workforce and business needs. Pragmatic views on complex issues facing employers is also included.

Visit Towers Watson at: http://www.towerswatson.com

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  • 1. Health Care Reform — What’s Ahead A Spectrum of Opportunity February 22, 2012© 2012 Towers Watson. All rights reserved.
  • 2. Today’s speakers 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 leading strategist on Health Reform, advising some of the nation’s largest and most complex employers on its implications. 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. 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.© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 2
  • 3. Discussion topics  A convergence of challenges and opportunities  The health care reform outlook  Spectrum of opportunity  Optimizing the play  Embracing the opportunities© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 3
  • 4. Health care reform is one of many converging factors affecting employers Health Care Reform Escalating New Entrants Costs and Technology Employer Health Plans Lack of Employee Delivery Engagement System Shifts Workforce Productivity Challenges© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 4
  • 5. Total rewards builds from strategic objectives and takes a portfolio approach to deliver desired results© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 5
  • 6. Most employers expect to “play” by retaining a medical program for actives after 2014“Play” Provide employer-sponsored health 26%options coverage for the long term 38% Provide employer-sponsored health coverage, but structure 20% contributions and communication to encourage low-wage… 8% Provide employer-sponsored health coverage until the 15% excise tax is triggered 10% Finance: 67% Provide employer-sponsored health coverage until an 6% HR: 67% inflection point other than the excise tax 11% Adopt a defined contribution (DC) approach by providing“Pay” monetized value to employees, pay penalties, and direct 9% 11% Finance: 15%options employees to Exchanges Exit employer-sponsored health coverage, pay penalties, 6% and direct employees to Exchanges 2% HR: 13% 0% Other action 2% 18% Dont know 18% HR n=104 Finance n=201 Source: 2011 Towers Watson-Forbes Survey: Opportunity to Align Cost and Talent Objectives? .© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 6
  • 7. 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© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 7
  • 8. 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© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 8
  • 9. Reform may influence your broader workforce strategies Total Rewards Strategy Health Care Reform Financial Impact Who can enroll? What is the cost per enrollee? How do we control the costs? Workforce Structure Contribution Strategy Trend Mitigation Design, Part-time Employed Differ by age, Engagement, delivery, vs. low wage/ Affordable? number of behavioral health full-time higher wage dependents? changes management Play or Pay Excise Tax 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© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 9
  • 10. The decision will vary based on employer profile Play Spectrum of Opportunity Pay  Compete heavily to  Diverse margins  Low margins attract/retain talent  Mix of low/high-wage  Majority of employees are  Health care benefits are earners low-wage earners a core part of Employee  Health benefits are a  Many employees may be Value Proposition material consideration Medicaid-eligible  Healthy workforce is viewed  Workforce requires a  Higher turnover as a key productivity driver diverse range of  Health care benefits are not  Employee Value Proposition occasional and core to Employee Value requires health commitment part-time workers Proposition  Awaiting an inflection point  High number of part-time or seasonal workers Examples Examples Examples  Technology  Financial Services  Retail  Health Care  Low-end Manufacturing  Hospitality*Estimated; Source: 2011 Towers Watson Health Care Trend Survey, August 2011.© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 10
  • 11. Will you play or pay…the spectrum of opportunity offers many options Play Play Spectrum of Opportunity Pay Play and Pay and Optimal play redirect Selective play redeploy Pay and exit Continue as a plan Restructure Limit eligibility to Discontinue plan Discontinue sponsor for all contributions to employer-sponsored sponsorship and plan employees qualify low-paid plan and direct provide some sponsorship employees for ineligibles to Exchanges financial top-up with no financial federal subsidies for employees accommodation for employees© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 11
  • 12. Do the math: Decisions along the spectrum will have significant workforce and cost management implications Optimal play Play and redirect Selective play Pay and redeploy Pay and exit $3,650 $3,650 $2,034 $463 $1,536 $3,103 $2,636 $2,730 $3,218 $12,092 $9,792 $10,172 $7,832 $7,931 $2,887  Employer pays  Employee pays  Estimated Federal Subsidy© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 12
  • 13. What are the implications of exchanges and emerging market dynamics for the Pay or Play decision? Group Plan Sponsorship Individual Plan Enrollment Individual Plan Enrollment Current Evolving market for members under age 65 Medicare State via Private Exchange or “Public” Exchange Market Plan Sponsor  Employer  Pooled group plan;  Expanded access to  Individual market and Role makes all employer may be able to Medicaid and “Public “Private Exchanges” well decisions shift some administrative Exchanges” scheduled to established; individual functions to group be available in 2014 plans may offer higher “Private Exchange” regardless of health status; value vs. group plans employer reporting to (especially as the donut Exchange hole narrows) Employee  Limited choice;  Broad choice; select a  Broad choice; directed to  Broad choice; use Experience select an Private Exchange plan Medicaid or select a Public Medicare coordinator to employer- Exchange plan access individual health sponsored plan plans Employer  Full plan cost  Premium payment based  Penalties for active FT  Financial subsidies (DC Cost less employee on employee elections, employees; Financial contributions) may be contributions less employee subsidies (DC provided contributions contributions) may be provided Employee  Average rates  Generally average rates;  Rates vary based on plan  Rates vary based on plan Cost vary by plan based on plan and family and family tier selected and family tier selected and and family tier tier selected plus age, location, tobacco may also vary by age; selected use; federal subsidy may Medicare premiums also be available apply© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 13
  • 14. 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 ILLUSTRATIVE Single Family of 4$10,000 Exchange $30,000 Exchange $9,000 $25,000 $8,000 $7,000 $20,000 $6,000 $5,000 $15,000 $4,000 $10,000 $3,000 $2,000 $5,000 $1,000 $0 $0 Employer Plan Low Income; Moderate Income; High Income; Employer Plan Low Income; Moderate Income; High Income; Exchange Plan Exchange Plan Exchange Plan Exchange Plan Exchange Plan Exchange Plan  EE Premium  EE Out-of-Pocket  Employer Plan Spend  Federal Subsidy Note: Chart scales differ for Single vs. Family Coverage. © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 14
  • 15. Excise tax implications ILLUSTRATIVE $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 2018 2019 2020 2021 2022 2023 2024 2025 Non Deductible Excise Tax $638 $1,348 $2,440 $3,819 $5,446 $7,490 $9,795 $12,365 Absent modification, plan costs will exceed thresholds© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 15
  • 16. Organizational health strategy Organizational Health Care Strategy Health Benefits Workforce Health and Productivity Design, financing, risk management and Optimization of workforce productivity administration within total rewards and/or via external exchange and engagement through good health Operational Framework Health Engagement Accountability Linking Provider Technology Healthy Improvement Strategies Environment Measurement and Improvement  Data management  Reporting and benchmarking  Integrated health and productivity assessment© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 16
  • 17. Optimize the play — and opportunities Program Design  Account-based  Narrow  Behavior-based Consumer Engagement  Incentives Financial Subsidy  Behavioral economics  Part-time  Social media  Dependents  Game mechanics  Surcharges Optimizing Employer Provider Health Integration/ Plans Payment Reform Care Delivery  Bundled payments  Integrated care  Primary care alternatives  Shared savings  ACOs/PCMH Workforce Health and Productivity  Wellness  Condition management  Onsite health© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 17
  • 18. Optimizing the play: Why does it matter?  Performance varies widely Annual Cost Per Employee Efficiency among employers Percentile Percentile  Significant opportunity for 25th 50th 75th 25th 50th 75th cost avoidance today and $8,487 $9,752 $11,166 9.7% 1.4% -8.0% future years Database Actual Adjustment Factors Custom ABC Benchmark Company  Explore dependent $15,132 subsidies 29% $13,693  Employers likely to focus $10,637 11% 9% 3% 3% more on employee coverage after reform Age/ Family Geography Plan Composite Gender Size Value  Lower dependent size impacts potential excise tax for dependent coverage Key Dependent participation drives an additional 11% annual health care cost Message© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 18
  • 19. Embrace change and opportunities New Network Structures Innovative Primary Engagement Care Strategies Alternatives Integrated Value-based Care Reimbursement Delivery© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 19
  • 20. Beyond the technical analysis, consider the higher-order questions What are the implications of change — for our operations, 1 our workforce, our brands, our competitive environment? What are the implications for attraction, retention and 2 engagement? And for retirement and retirees? Key Questions Beyond benefits, what is our commitment to workforce 3 health? Is there a necessary connection between health for Employers and benefits? What new tactics and/or partners should we consider in 4 optimizing our program today? If we can free up dollars spent on active and 5 retiree health benefits, what opportunities do we have to reallocate investments?© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 20
  • 21. © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 21