Implementing Health Care Reform — Opportunities, Costs and Risks
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This Towers Watson presentation explores the significant strategic and tactical implications of this new law for employers' reward strategies and employee health plans in the years to come....

This Towers Watson presentation explores the significant strategic and tactical implications of this new law for employers' reward strategies and employee health plans in the years to come.

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Implementing Health Care Reform — Opportunities, Costs and Risks Presentation Transcript

  • 1. Implementing Health Care Reform Opportunities, Costs and Risks March 24, 2010 © 2010 Towers Watson. All rights reserved.
  • 2. Speakers  Randy Abbott  Ann Marie Breheny  Steve Raetzman  Julia Weston towerswatson.com 1 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 3. Today’s discussion  Towers Watson’s point-of-view  Overview of legislation  Managing health benefits  Immediate and long-term impact  Implementation  Next steps towerswatson.com 2 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 4. Towers Watson’s point-of-view Unprecedented  The effect of health reform will continue for years: some Scale and Impact changes are immediate; many will evolve over the next 3 – 5 years Focus on  Improving workforce health and productivity will increase Workforce Health and Productivity in importance: best performers have an advantage  Attractive tactics include: account-based health plans, value-based strategies, well placed incentives, incentives, Current Tactics quality and delivery system improvements, vendor Remain Attractive optimization, consumer engagement, workforce health improvement and wellness initiatives, etc. Opportunities In  New opportunities will emerge to review strategies and Retiree Medical benefits for current and future pre-65 and post-65 retirees  Implications can go beyond just health benefits to Total Reward and Benefit Reward strategy and workforce health and productivity Strategies initiatives Could Change  “Exit” strategies and alternative delivery options may towerswatson.com emerge 3 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 5. Overview of legislation towerswatson.com 4 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 6. Key elements Direct impact on employers Key Element Provisions Employer  Offer employees who work at least 30 hours per week coverage or pay mandates 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 Excise tax  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 towerswatson.com 5 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 7. Key elements Direct impact on employers (continued) Key Element Provisions Plan design  Imposes immediate and longer-term requirements for plans, such as requirements  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 W-2 reporting  Requires employers to disclose aggregate value of employer-provided health coverage on employee Form W-2 HIPAA  Increases HIPAA limit on financial incentives for participation in wellness wellness programs from 20% to 30%; permits government to increase limit to 50%, programs if appropriate towerswatson.com 6 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 8. Key elements Impact on individuals/employees Key Element Provisions Individual  All individuals required to enroll in basic health coverage or pay penalty mandate  Limited exemptions Health  Established by states to structure market for individuals and employers Insurance  Initially for individuals and small groups; then expand to large employers Exchanges Insurance  Guaranteed issue, renewal, no rescissions, premium rating restriction, market other consumer protections reform  Standard benefit designs and insurance Exchanges Premium and  Federal premium subsidies for individuals earning up to 400% of the cost-sharing federal poverty level (FPL) subsidies  Cost-sharing subsidies to reduce out-of-pocket expenses  Available only for coverage obtained through Exchanges, not through employer-sponsored plans New and  Medicaid expanded expanded  Private, nonprofit Health Insurance Cooperatives and federally- public administered multistate options through Exchanges programs towerswatson.com 7 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 9. Key elements Impact on individuals/employees (continued) Key Element Provisions Medicare HI  Increased tax on wages in excess of $200,000 for individual taxpayers tax 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 Account plan  Limits pre-tax health FSA contributions to $2,500 per year, indexed for limitations 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 towerswatson.com 8 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 10. Key elements Impact on retiree plans Key Element Provisions Excise tax cap  The excise tax applies to retiree plans Reinsurance  Creates temporary reinsurance program to reimburse employers for part for employer- of pre-65 retiree health expense (80% of cost per enrollee in excess of provided $15,000 and below $90,000) retiree health coverage Elimination of  Eliminates business deduction for employer 28% Part D retiree drug tax advantage subsidy payments. Creates an immediate accounting issue that may for RDS have significant P&L impact towerswatson.com 9 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 11. Key elements Impact on retiree plans Key Element Provisions Filling of  Includes one-time $250 rebate for seniors hitting donut hole in 2010 Medicare Part D donut  Narrows the donut hole over time to achieve 25% cost-sharing hole and drug throughout by 2020 discount  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) Other Part D  Medicare Advantage plans  payments reduced through new changes benchmarking program  Part D prescription drug premiums  makes Medicare Part D premium income-related towerswatson.com 10 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 12. Implementation begins right away and will take several years 2010  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) 2011  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 2012  Presidential election * CLASS – Community Living Assistance Services and Supports Act towerswatson.com 11 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 13. Implementation begins right away and will take several years (continued) 2013  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 2014  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. 2016  Cross-border sales of health insurance 2018  Excise tax on high-cost group health plans towerswatson.com 12 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 14. Managing health benefits towerswatson.com 13 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 15. Decision-making within a strategic framework 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 Desired Outcomes From Health Benefits Financial Consumer Population Health Performance Engagement Improvement Strategic Levers Strategy and Change Financial Delivery Design Governance Management Management  Benefit and  Workforce  Cost trend  Administration  Meaningful Corporate goals health and management  Health choice aligned wellness  Budgeting improvement  Plan design  Metrics and  Member  Funding and risk and care  Incentives measurement accountability management management  Account-based Executive and engagement Vendor   Rating and  plans sponsorship and  Line manager pricing optimization  Contribution governance and executive Integration  strategies and roles  Performance steerage management  Compliance towerswatson.com 14  Enrollment © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 16. 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 towerswatson.com 15 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 17. 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 towerswatson.com 16 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 18. 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 towerswatson.com 17 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 19. 2014 – 2018: Managing active employee health benefits Change Benefits, Rewards and Taxes 2018 Tax Cap Ceiling Proactive, comprehensive management: • Decisions reflect business, workforce and reward strategies • Competitive benefit cost, value and efficiency • Engaged consumers • Improve workforce health and productivity Minimum 8% - 9.8% AGI >= 9.5% AGI 2014 Plan Floor and < 400% of FPL and < 400% of FPL Pay Taxes and Vouchers for Employees Using Exchanges towerswatson.com 18 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 20. 2014: Pay/exit yields significant loss of value to employees  Viable individual market  But, employees lose value $5000  Employers will deduct Current Employer Pre-Tax Contribution after-tax penalty cost  Pay is taxable  What if tax penalties rise?  Impact on benefit and reward strategies and $467 $1200 ability to recruit? $3333 Employer Cost EE Net EE ($2000 non-deductible fee) Taxes Pay towerswatson.com 19 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 21. 2014 – 2018: Long-term strategic considerations for retiree plans Pre-65 plans Post-65 plans  Evaluate employer role – will  Evaluate employer role – as availability of viable market and Medicare benefit improves, what subsidies affect employer role? role for employers?  Continue to offer  Continue to offer  Comply with new mandates  Change benefits and designs and costs to account for change in RDS  Avoid excise taxes taxation, PDP plans, Medicare  Proactively manage costs and Advantage plans and filling the delivery Part D donut hole  Change delivery model if PDP  Exit?  Transition to exchange plans become more appealing enrollment, subsidies and and if Advantage plans exit capping employer cost  Exit?  Drop or change plans and towerswatson.com contributions 20 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 22. Implementation towerswatson.com 21 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 23. Implementation approach IDENTIFY DECIDE IMPLEMENT  Know the law and the  Analyze options and  Develop and execute key questions, issues make decisions implementation plan and data  Understand law, effective  Conduct financial, qualitative  Formulate multi-year plan for dates and compliance and other analyses implementation, change requirements  Conduct employee and retiree management and  Understand tactical and impact analysis communication strategic issues  Evaluate options  Secure resources, suppliers, Collect data commitments and budgets   Design Find opportunities, costs and  Implement tactics in 2010 to   Financial management risks in all plans meet 2011 requirements  Delivery  Identify issues for different  Incorporate health reform into  Change management 2011 – 2018 annual benefit segments of employees  Strategy planning process  Identify issues for different segments of pre-65 and post-  Make decisions 65 retirees Create an implementation plan and governance process towerswatson.com 22 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 24. Implementation issues log Analysis and Enroll- Health Issues/tasks Benefits Tax Payroll Comments ment Plans Eligibility change to 26 Verification process ■ ■ ■ Waiting period change A problem? ■ ■ ■ Drop lifetime limits Risk issue ■ ■ ■ OTC change Few affected ■ ■ E ■ ■ Insured plan renewals Must comply ■ L ■ P Cost sharing Meet target ■ M Contributions No restructuring ■ ■ ■ ■ Grandfathering status Retained? ■ Stop-loss Vendor search A ■ ■ CLASS enrollment W-2 disclosure S Likely to happen? Calculation method ■ ■ ■ ■ ■ HI tax increase High income only ■ ■ Communication plan Timing and messages ■ ■ ■ Etc., Etc., Etc. towerswatson.com 23 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 25. Understanding the employee perspective  Two-thirds believe health care reform would result in higher What impact do you think health benefit costs reform will have on your costs?  More than half believe it would My benefits reduce their available benefits will cost less and lower their quality of care 9%  Forty percent say they would be My benefits My benefits will cost more uncomfortable purchasing their will cost the same 67% 24% own insurance in reformed markets as an alternative to getting coverage through their employer Source: Towers Watson 2010 Global Workforce Study – U.S.. towerswatson.com 24 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 26. 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 towerswatson.com 25 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 27. 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 towerswatson.com 26 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  • 28. Implementing Health Care Reform: Managing opportunities, risks and costs Key Questions for Plan Sponsors Towers Watson support  What is the impact of the new law?  Legislative, regulatory and  How will the organization be compliance information affected?  Inventory of requirements and  What new strategic opportunities effective dates should be considered?  Analytical methods, modeling tools  How will costs and risks be and decision-making guides managed?  Understanding of practices and  What decisions need to be planning of other employers made?  Strategy-setting for active and  How will implementation be retiree benefits, tied to Total managed? Rewards and business objectives  How will employees be affected?  Communication and change  How will retirees be affected? management strategies and plans  Comprehensive implementation plans, oversight and support towerswatson.com 27 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.