Rethinking Employer Strategies in a      Post-Health Care Reform World      Implications and Opportunities Ron Fontanetta ...
Today’s discussion   Rethinking Employer Strategies in a Post-Health Care Reform World       Health care reform in context...
Health Care Reform in context   Health Care Reform is a transformational moment in our   history that is creating the cata...
Health care system post-Health Care Reform            Pre-Reform             Employer Plans                               ...
The Health Care Reform timeline  PPACA enacted March 23, 2010                      Major reform elements take effect  HCER...
Repeal or veto?Washington after 2010 Elections                               Implications for Health Care Reform          ...
Anticipating the impact of Health Care Reform   Employers are assessing the broad impact of the law on their health   bene...
Health Care Reform: Employer focus   2010: Focus on compliance with regulations and the cost of   complying with new manda...
Employer strategies: Active employees                      PLAY                                                           ...
Excise tax management       2018                40% Excise Tax Cap Ceiling ($10,200/$27,500)                       Manage ...
Opportunities in the post-Health Care Reform world                   An Operational Framework for Health and Productivity ...
Retiree health care considerationsKey Strategic Question: Future Role (Sponsorship), Subsidization  Considerations       R...
Employer options for retiree health                         None                                                          ...
Developing a plan                      Recommendation Development Process                                                 ...
Critical role of employee communications   Create employee understanding of the options, cost and value of health   care p...
Mapping implementation           Pre-Exchange               Post-Exchange                                                 ...
Questions   Ron Fontanetta:   ron.fontanetta@towerswatson.com   Rich Gisonny:   rich.gisonny@towerswatson.com   Jeanne Wya...
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Rethinking Employer Strategies in a Post-Health Care Reform World - Towers Watson

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Towers Watson experts discuss the implications of health care reform on total rewards in 2011 and beyond.

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Rethinking Employer Strategies in a Post-Health Care Reform World - Towers Watson

  1. 1. Rethinking Employer Strategies in a Post-Health Care Reform World Implications and Opportunities Ron Fontanetta Rich Gisonny Jeanne Wyand December 1, 2010© 2010 Towers Watson. All rights reserved.
  2. 2. Today’s discussion Rethinking Employer Strategies in a Post-Health Care Reform World Health care reform in context What employers are saying Potential pathways and priorities Executing the strategytowerswatson.com 2 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  3. 3. Health Care Reform in context Health Care Reform is a transformational moment in our history that is creating the catalyst for change in Health Care is becoming a employer-provided health care total business issue that will Cost reduction is not likely without a significant change in ultimately affect: strategy and tactics Benefits and compensation The economic climate is driving and enabling change Retiree health commitments The strategic opportunities are profound. The C-suite has not been this focused on health care for nearly The employee value two decades proposition Corporate financial planning Workforce strategies Administration and payrolltowerswatson.com 3 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  4. 4. Health care system post-Health Care Reform Pre-Reform Employer Plans Uninsured Medicaid/ Medicare Distribution SCHIP 160 million 50 million 41 million by Coverage 40 million Insurance Market Reforms Guarantee Issue, No Health Status Underwriting Employer offers Exchange/Gateways** minimum plan to FTE and PTE* Medicaid/ Medicare CIGNA United BC/BS Kaiser Aetna or SCHIP Co-ops Employer pays government Medicaid/ Post-Reform Employer Plans Exchanges/Public Plan SCHIP Medicare Uninsured 159 – 163 million 18 – 28 million 41 million 15 million Distribution 50 – 52 million by Coverage (2016 or full implementation) Private Payer Public Payer Rates Rates Delivery System Reforms Comparative Effectiveness Wellness/Prevention Incentives Health IT/Medicare Payment Reforms Hospitals Physicians Rx Manufacturers Other Providers *TBD if employees may decline employer plan in favor of Exchange-based coverage and premium subsidies.**Low-income premium subsidies expected; e.g., perhaps up to 400% of federal poverty level. Source: U.S. Census Bureau; Lewin Group estimates using the Health Benefits Stimulation Model; Congressional Budget Office. towerswatson.com 4 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  5. 5. The Health Care Reform timeline PPACA enacted March 23, 2010 Major reform elements take effect HCERA enacted March 30, 2010 Individual mandate and premium assistance subsidies State-based insurance exchanges Insurance underwriting and rating reforms First wave of changes impacting most Employer pay-or-play mandate employer plans Free-choice voucher 2010 2011 2012 2013 2014 2015 2016 2017 2018 Certain Set of relatively modest Limited regulatory Excise tax immediate changes affecting taxes, action takes effect reforms employer plans, reporting take effect requirements, etc. States may open exchanges to large employers Throughout: evolving interpretations, proposed regulations, final regulations, technical corrections, preparation for major changes, unpredictabilitytowerswatson.com 5 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  6. 6. Repeal or veto?Washington after 2010 Elections Implications for Health Care Reform Repeal and/or replace unrealistic: President Obama’s veto power Majority: Republicans Expected gridlock on Capitol Hill New leadership Significant changes difficult New priorities Politics and rhetoric to dominate New political base 2012 election campaigns begin now Little incentive for compromise Majority: Democrats Expected activities Smaller majority More oversight: pressure on and Difficulty controlling agenda confrontation with the regulators Focus on funding and appropriations Gridlock likelytowerswatson.com 6 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  7. 7. Anticipating the impact of Health Care Reform Employers are assessing the broad impact of the law on their health benefit strategies and total rewards programs Ninety percent of employers believe health care reform will increase their organization’s health care benefit costs — Even greater need to encourage healthier lifestyles and find improvements in quality of care Employers expect account-based health plans will be increasingly offered to active employee population Employers very likely will accelerate their exit strategy for retiree medicaltowerswatson.com 7 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  8. 8. Health Care Reform: Employer focus 2010: Focus on compliance with regulations and the cost of complying with new mandates 55 85 of surveyed employers of surveyed employers % expect to lose grandfathered status % expect to lose grandfathered status in 2011 by 2013 2011: Focus on long-term strategy and substantial plan redesign43 79 77 62 %of surveyed employersplan to focus on long-term % of surveyed employers expect to have an account-based of surveyed employers expect to exit retiree health plan % of surveyed employers will link financial incentives to %strategy in 2011 health plan by 2012 sponsorship behavioral outcomes by 2012Source: Towers Watson Health Care Changes Ahead, August 2010towerswatson.com 8 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  9. 9. Employer strategies: Active employees PLAY PAY Meet minimum requirements Pay $2,000 per full-time employee Manage plan cost (nondeductible) Mitigate rate and cost trend Change health care “deal” with Avoid hitting excise tax cap Employer employees Balance cost-sharing strategy Strategy Employees faced with buying through with Free Choice Voucher Exchanges requirements and subsidy Revisit total compensation penalties Provide “make up” to employees? Implement required Gross up to address tax administrative rules implications for employees Face competitive impact on recruiting/retention PLAY AND PAY Penalty: If self-only contribution exceeds 9.5% of household income and FT employees eligible for subsidy apply for Exchange, employer pays $3,000 nondeductible penalty Free Choice Voucher: If self-only contribution is between 8% and 9.8% (9.5%) of household income and FT/PT employee applies for Exchange, employer pays deductible voucher equal to the value of the employer subsidy of the plan with the highest current subsidy percentagetowerswatson.com 9 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  10. 10. Excise tax management 2018 40% Excise Tax Cap Ceiling ($10,200/$27,500) Manage cost trend Improve workforce health Reduce risk factors Optimize vendor performance Manage high-cost claim risk Minimize non-core benefits 2014 Minimum plan of 60% actuarial equivalence Pay Tax or Penalties/Vouchers for Employees Using Exchanges The excise tax will affect more than 60% of large employers’ active health plans by 2018 However, there is significant cost variation across employers todaytowerswatson.com 10 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  11. 11. Opportunities in the post-Health Care Reform world An Operational Framework for Health and Productivity Benefits Accountability Health Provider and Environment Technology Improvement Strategies Engagementtowerswatson.com 11 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  12. 12. Retiree health care considerationsKey Strategic Question: Future Role (Sponsorship), Subsidization Considerations Retiree-only plans exempt from many (but not all) requirements under PPACA and other federal laws Potential win for both company (cash or FAS 106 reduction) and retiree (more choices, better prices) Transition, communication plan Pre-65 Post-65 Opportunities presented by Exchanges Robust individual market Elimination of underwriting of health risks Commitment to legacy groups (including Competitive market for individual coverage bargained employees) Excise tax exposure Communication to older retirees Resources dedicated to communication, Excise tax exposure administration Enhancement of Part D benefit Limited value of today’s offering (e.g., capped High percentage of employer cost related to plan subsidy with limited choice) administration (inefficient)towerswatson.com 12 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  13. 13. Employer options for retiree health None Full exit; Account Premium facilitated approach with reimbursement enrollment in uncapped account with endorsed subsidy defined subsidy private market plans Employer Hybrid Sponsorship approach Traditional plan Traditional plan Access-only sponsorship sponsorship plan with uncapped with capped (retiree-pay-all) subsidy subsidy Full sponsorship Uncapped subsidy Capped subsidy Unsubsidized Employer Subsidizationtowerswatson.com 13 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  14. 14. Developing a plan Recommendation Development Process Recommendation Current State Identify Pathways Implementation Development Identify impacted How would the Refine and test Provide summary of populations and key “Pay” pathway alternatives for implementation issues work? detailed review requirements Establish guiding Are there alternate Develop high-level Develop principles pathways to impact on company communication consider and employees strategy Baseline cost and if you “Play” ? employee impact Engage C-suite Map out high-level implementation plan Develop recommendationtowerswatson.com 14 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  15. 15. Critical role of employee communications Create employee understanding of the options, cost and value of health care provided through the company Address language barriers and limited understanding of insurance Educate leaders about: The value of a company-provided health care program, How it creates a differentiator in the employment deal, The strategic options being considered, and An evaluation of the current state vs. required changes after 2014 Build ongoing communication process to address workforces with high turnover or high proportion of low-wage workerstowerswatson.com 15 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  16. 16. Mapping implementation Pre-Exchange Post-Exchange Excise Tax 2010 – 2013 2014 – 2017 2018 Compliance and Redefining the Delayed Exit or Opportunity Assessment Employer Role Differentiated Play Comply with mandates and Play or Pay Excise tax exacerbates plan reporting Pay — and revisit total costs Quantify impacts rewards plus workforce Revisit the play or pay Examine opportunities health resources choice Mitigate cost trend Play, but with a Delayed exit Optimize value differentiated view Differentiated — Low-wage workers design/subsidy Consider accelerated exit for retirees — Dependent Complementary health Positioning for 2014 and subsidization resource 2018 Execute retiree strategytowerswatson.com 16 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
  17. 17. Questions Ron Fontanetta: ron.fontanetta@towerswatson.com Rich Gisonny: rich.gisonny@towerswatson.com Jeanne Wyand: jeanne.wyand@towerswatson.comtowerswatson.com 17 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

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