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Retiree Medical: Time to Evaluate Your Approach - Towers Watson
 

Retiree Medical: Time to Evaluate Your Approach - Towers Watson

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    Retiree Medical: Time to Evaluate Your Approach - Towers Watson Retiree Medical: Time to Evaluate Your Approach - Towers Watson Presentation Transcript

    • Retiree Medical: Time to Evaluate Your ApproachSeptember 27, 2011© 2011 Towers Watson. All rights reserved.
    • Today’s experts Jane Jensen is a senior health care consultant in Towers Watsons Health and Group Benefits 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. Stephen Parahus is a senior consulting actuary in Towers Watson’s Health and Group Benefits practice, based in New York. He specializes in the design, financial management, and valuation of health and welfare plans and serves as a key resource on issues of retiree health care strategy, design, and delivery. Dave Osterndorf is the chief actuary of Towers Watson’s Global Health and Group Benefits line of business located in the firm’s Milwaukee office. He also serves as the firm’s issue leader and national resource to many Towers Watson clients in the area of postretirement health care.towerswatson.com 2 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Our discussion Current landscape for retiree medical New solutions and what some employers are doing now Action steps for you Questions and answerstowerswatson.com 3 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Current Landscape for Retiree Medical How we got here and why it will changetowerswatson.com 4 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Why did employers provide retiree medical plans in thefirst place? Initially, it didn’t seem to cost much Employers could purchase or provide coverage more efficiently than the retiree Employers provided the only access to guaranteed coverage for early retirees in poor or even moderate health The presence of retiree medical benefits helped employees retire when they wanted to — and when the company wanted them totowerswatson.com 5 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • A variety of factors are motivating employers to considerchanges to their retiree medical plans Cost and volatility Reform enhancements in Part D prescription coverage Status quo is Status quo is not not sustainable sustainable for for most most employers employers Increasing tax concerns for Effective insurance options employerstowerswatson.com 6 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Plan sponsorship and financial subsidy are becomingindependent decisions Account approach Full exit — no with balance based Account approach sponsorship, None on traditional with capped subsidy subsidy, or funding formula enrollment support Hybrid approach Offer government Dual choice account Employer designed and approach Facilitated enrollmentSponsorship regulated insured (employer plans, in individual options plans individual options) Full sponsorship Traditional plan Access-only Most common: Traditional employer- sponsorship employer plan Legacy Plans sponsored plans with capped subsidy (retiree-pay-all) Today In 5 years Uncapped subsidy Capped subsidy Unsubsidized Employer Subsidizationtowerswatson.com 7 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • We used caps to control costs — but that created its ownproblems, making the strategy unsustainable for manyemployers  Dramatic increases in retiree Varies (by plan, coverage, group) contributions  Maximizing cost-effectiveness of 15% plan design is a retiree relationsCosts under Costs issue the cap 23% exceed 62% cap  Costly benefit to the employer becomes dissatisfying to the retireeReform may provide assistance for both Medicare and pre-Medicare retireesSource: 2011 Towers Watson/ISCEBS Retiree Health Surveytowerswatson.com 8 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • New Solutions A fork in the road presents new optionstowerswatson.com 9 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Choices and decisions for employers Marketplace Considerations for Opportunities Without Continuing Plan Plan Sponsorship Sponsorship ► Individual insurance ► Retiree Drug Subsidy options for Medicare- (RDS) eligible retirees ► Employer Group Waiver ► Medicare Coordinators NO YES Plan (EGWP) ► Health insurance exchanges Continue plan sponsorship? Different approaches may be appropriate for different cohorts of your retiree medical populationtowerswatson.com 10 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • There is a rapid shift taking place in the post-65environment The Employer-Sponsored The Medicare/ Plan World Individual Coverage World  Fewer than 6 million individuals  45 million Medicare participants, 39 covered under employer-sponsored million without employer coverage retiree medical  11 million in Medicare Advantage  Pool is shrinking  Market “reformed” with universal  Significant employer coverage, federal subsidies and administration private insurance market to  Suboptimal value for retirees given complement or replace Medicare reform enhancements for private  Enhanced Part D value under HCR planstowerswatson.com 11 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Marketplace opportunities without plan sponsorship —Medicare retireesThe Opportunity Large number of high-quality, affordable options available today — no need to wait to 2014 NO YESSubsidizing Premium CostsEmployers may continue to provide a subsidy using formulas the same Continue plan as or equivalent to those currently sponsorship? in placeAdministration and Enrollment Medicare Coordinatorstowerswatson.com 12 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Discontinuing plan sponsorship may result in a win forthe company and the retireeFinancials are different in the individual market due to higher government subsidiesand community rating Retiree out-of- Retiree out-of- pocket, premiums, pocket, premiums, and contributions and contributions Employer Employer Traditional Medicare, Part D subsidies and Traditional community rating Medicare savingstowerswatson.com 13 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Medicare Coordinators make it easy for retirees totransition Employer/Plan Sponsor Limited Funding Census interaction (if applicable) Plans Medicare Coordinator Medigap Retirees  Evaluate preferred options  Contracts with/provides preferred plans  Elect coverage with premiums offset by employer subsidy (if  Supports retiree communications and enrollment Part D Rx applicable)  Work with Medicare  Manages employer subsidy via Coordinator or plans to premium reimbursement account resolve issues (RRA) Medicare Advantagetowerswatson.com 14 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Towers Watson provides transition services to make iteasy for employers with already defined offerings No additional cost to you or your retirees Personalized retiree enrollment and plan selection services Private exchange choice and expertiseSingle-Carrier Model via UnitedHealthcare — Group-like transition experience with post 65 group and individual products in addition to pre 65 offeringsMulti-Carrier Model via Extend Health — Provides “turn-key exit” for post 65 retirees, no group or pre 65 products Exchange Single Or Multi-carrier Subsidy Product Menu Employer Group $ Personalized Retiree Individual Retiree Health Communications Enroll Support Experience Care Program Retiree Health Care Solutions Step 1 Step 2 Step 3 Employer Analysis Implementation Ongoing Oversight Support Opportunity analysis, Communication strategy, Ongoing oversight enrollment Services program design and retiree education and of age-ins and subsidy implementation strategy enrollment support administrationtowerswatson.com 15 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Findings from an organization exiting plan sponsorship The company’s share of plan Background cost is already small … Large and complex retiree population Retiree Cost cap for many retirees and costs far exceed the cap 26% Challenges Medicare 65% 9% Employer Current plan costly to the company, but of limited and eroding value to retirees Employees do not value the current plan — limited choice, limited plan payments except for prescriptions … and will get even smaller in the next five years Loss of actuarial equivalence for RDS is imminent Retiree Company objective 30% Provide more meaningful, higher-value options to post- 65 retirees Medicare 65% 5% Employertowerswatson.com 16 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Challenge: The cap While the current cap is modest, resulting in high participant contributions, the company’s actual net cost is less than the cap In converting to an RRA to offset premiums for individual coverage, several adjustments were required After adjustments, RRA could be 30% – 50% lower than the current cap RDS RDS tax gain Plan election …net of …net Current …net of RDS cost of RRA Cost neutral Cap RDS tax gain subsidytowerswatson.com 17 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Solution: Individual insurance with a MedicareCoordinator UHC Connector Model with TW Retiree Health Collaborative  Manageable choice with UHC  Appeal of AARP brand Plan Elected % of Total Most retirees elected coverage Medicare Supplement 82% under a Medicare Supplement Plan and a Part D plan Medicare Part D 80% Medicare Advantage 11% Did Not Elect Coverage 6% Tips for a successful conversion  Thorough, thoughtful process  Clear and simple communications to retirees  Retirees with special needs  Roles and accountability from all parties  Rollout timingtowerswatson.com 18 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Some employers will want or need to continuesponsorship for Medicare retireesThe OpportunityFROM: the Retiree Drug Subsidy(RDS) program: Is losing tax-favored status NO YES Doesn’t access part D improvements or pharma industry discounts Continue post-TO: “EGWPs” — Employer Group 65 planWaiver Program plans are: sponsorship? Employer-sponsored “private label” Part D plans Receive higher, and growing, levels of federal funding and pharma discountstowerswatson.com 19 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • EGWPs are a viable alternative for employers todayEmployers that plan to offer Part D EGWP Considering action in 24% the next two years Took action in 2011 12% or before 36% of respondents have either already moved to an EGWP or will consider it in the next two yearsSource: 2011 Towers Watson/ISCEBS Retiree Health Survey.towerswatson.com 20 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Show me the money: RDS vs. EGWP vs. Part D Pre-Reform Post-Reform $1,525 Donut $225 $1,275 Hole Fill $225 Donut Hole Fill $1,100 Rein- $400 Rein- surance* $250 surance* $400 Rein- surance* Health Pharma $200 $750 Pharma Discount $300 Care Discount Tax $600 Reform $250 Benefit $500 Direct Direct $700 Direct Direct $600 $700 Pay from Pay from Pay from CMS Pay from CMS $500 RDS CMS** RDS CMS** RDS EGWP Standard RDS EGWP Standard (Rich Design) Part D (Rich Design) Part DRequires design that results in participant exceeding TrOOP threshold, adjusted for risk factor of employer retiree population. towerswatson.com 21 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Can EGWPs provide the same benefits as an employer’sexisting RDS plan? Yes No  Employer can design plan  CMS rules on part D plans apply features in a self-insured EGWP — excluding some employer dispensing rules and limitations  Available structures mean that formularies can be matched or  CMS can review EGWP expanded communications  Non-Part D drugs can be  “IRRMA” surcharges apply to covered in a wrap arrangement high income retirees — which can be reimbursed but not  Group enrollment, rather than suppressed individual enrollment, is acceptable  EGWP implementations are like implementing new PBMs — including new ID cardstowerswatson.com 22 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Implementing EGWP — One employer’s story Segment of Retiree Population Solution Group with clear company Move retirees to individual market reservation of rights with fixed dollar stipend to purchase coverage Union retirees — active union Negotiate similar stipend approach as population non-union retirees with adjusted amounts Union retirees — acquired group Due to unclear ability to modify benefits, provide post 65 Rx benefits under EGWP + Wrap design Segmentation of the retiree population is very common — employers need to understand potential interrelationshipstowerswatson.com 23 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Implementing EGWP — How they made it happenThe steps were straightforward:1. Contracted with incumbent PBM as government contractor for EGWP + wrap design2. Determined formulary disruption and remedy, treatment of non-part D drugs, impact of eliminating mandatory generic requirement3. Estimated financial impact of moving to EGWP from RDS and projected liability impact4. Created communications to inform retirees5. Implemented new program 1/1/11…but that didn’t mean it was easy — the company: Found implementing an EGWP should be treated like a new plan implementation Discovered that CMS rules aren’t always clear Determined that the financial impact is a complex calculation Accelerated plans for other groups because of the potential failure of RDS equivalence testing due to the EGWP shift for the union grouptowerswatson.com 24 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Marketplace opportunities for pre-Medicare retireesThe opportunityTax savings opportunities today withmarketplace of affordable exchange-based options in 2014 NO YES Federal tax reduction today Federal subsidies (for some) in 2014Subsidizing premium costs Continue plan sponsorship?Employers shift from subsidizing plans toprovide money to buy coverageAdministration and enrollmentFuture options currently underdevelopmenttowerswatson.com 25 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Pre-65 coverage strategy is also fundamentally changing Nearly 42% of employers will consider terminating plan sponsorship and encourage pre-Medicare retirees to elect more favorable coverage in the insurance exchanges when they become operable in 2014.Source: 2011 Towers Watson/ISCEBS Retiree Health Surveytowerswatson.com 26 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Pre-65 retirees — new insurance market opportunity mayarise Retiree with $60,000 family income (including investment earnings) This presents tremendous Exchange underwriting $5,000 restrictions may require opportunities for rewards lower premiums for redeployment for employers $5,000 individuals age 55 – 64 $6,500 $3,400 $10,000 $18,500  Employee cost sharing  Employee premium contributions $10,000  Federal subsidy  Employer premium contributions Employer Plan Insurance Exchangetowerswatson.com 27 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • While waiting for exchanges, the best Pre-65 approach:Use an HSA/HDHP Solution Total medical cost est. $12,000/person HDHP Alternative Retiree Option Current Plan HSA Retiree  Maximum annual contribution out-of-pocket Retiree $3,050 (plus catch-up after 55) $1,500 out-of-pocket  Transfers from 401(k) to HSA After tax $3,500 (after age 59½) shift out-of-pocket expense funded via HSA expenses from tax deferred to $5,000 tax-free Retiree premiums $3,500 After tax Retiree premiums expense $1,500 $1,500 Total plan cost $8,500 Savings to Retiree Total plan  Assume retiree HSA contribution cost Employer funding $6,500 Employer funding $3,500: $7,000 – At 25% tax rate, retiree saves $7,000 $875  Premiums paid are gone; HSA savings roll over for future use Non-taxabletowerswatson.com 28 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Final question: Do you know if your program is creatingthe desired outcomes? Retirement Income Adequacy $2,500 Adequate resources at age 60 Have you gone from this? $2,000Net Income (todays $) $1,500 $1,000 Needs To this? Retirement Income Adequacy $500 $2,500 $- Adequate 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 resources Retirement Age $2,000 at age 65 Net Income (todays $) $1,500 $1,000 Needs …and does it fit your desired workforce strategy? $500 $- 55 56 57 58 59 60 61 62 63 64 65 66 Retirement Age towerswatson.com 29 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • What can you do now? Employer action stepstowerswatson.com 30 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Recognize what’s changed — and what hasn’t It didn’t cost much Employers could purchase coverage more efficiently than the retiree Employers were the only access to guaranteed coverage for early retirees in poor health The presence of retiree medical benefits helped employees retire when they wanted to — and when the company wanted them totowerswatson.com 31 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Take action with the four E’sMedicare Retirees: Exit or EGWP 1 Use a Medicare coordinator to facilitate post-65 retiree exit 2 Adopt a Part D Employer Group Waiver PlanPre-Medicare Retirees: Education and Exchanges 3 Monitor insurance exchange developments 4 Promote retiree savings and health care cost awarenesstowerswatson.com 32 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
    • Contact UsJane JensenJane.jensen@towerswatson.comStephen ParahusStephen.parahus@towerswatson.comDave OsterndorfDave.osterndorf@towerswatson.comtowerswatson.com 33 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.