October Newsletter


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October Newsletter

  1. 1. Commentary,"What happens if healthcare reform is repealed?" This question continues to dominate thenews, this week being no exception, with the elimination of the CLASS Act (Community LivingAssistance Service and Support Act). Although this portion of PPACA seemed underfundedand doomed from the beginning, the action indicates doubt as to the outcome of healthcarereform. The question is valid but repeal seems a bit out of reach. However, employers needto know for business planning sessions. The reality is, until the Supreme Court decision on theindividual mandate (which could impact pre-existing condition and guaranteed issue reform)and then the next election, we still wont really know. And even then, so much of the law hasalready been engaged that the best analogy I heard to describe the situation was "it would belike putting toothpaste back in the tube."Some components that have taken root and already appeal to many include: The eliminationof pre-existing conditions for children under age 19 and coverage for dependents to age 26(this has added over one million to the insured roles). Young adults were one of the largeruninsured populations. Expanded preventive care coverage also makes sense. Minimum lossratios restrict insurance company profit and the State review of insurance carrier increasesabove 10% on small group both have favorable impacts on pricing. In 2014, Health BenefitExchanges are scheduled to open, initially for individuals and small businesses, and proposeto offer more competition to current monopolistic markets. This also appears to make sensebut we have yet to know exactly what carriers and plan options will be offered, and their cost,although we assume (hope) it will be cheaper than today. It is proposed that after the law isfully engaged, 30 million people (1.5 million in Illinois) will have insurance that dont have ittoday - which is also a good thing. We have yet to understand the impacts and how it will allbe paid for.As you may know, I served on a stakeholder working group for the Independent Agents inIllinois and a task force in Washington D.C., both positions is meant to provide information onmarket impacts back to those sitting at the table.Last month I testified in Springfield regarding the Health Benefit Exchange being developed inIllinois. A similar discussion took place as to whether the entire healthcare reform law could berepealed based on the Supreme Court decision regarding the individual mandate. States areconcerned as federal funds are currently provided to develop and operate the exchange for thefirst year. If the federal law is repealed and state legislation had been passed to develop an ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  2. 2. exchange, without proper language, the state would be required to continue without federalfunding. The idea could still make sense but the current price tag for start up costs in Illinois isprojected to be $92 million between now and 2014. Operating costs from there are projectedat $39 million in 2014 and $73 million in 2015 for moderate enrollment and $46.7 million in2014 and $88.6 million in 2015 for high enrollment. In 2016, by design of PPACA, the HealthBenefit Exchange is to be fully self-sustaining. There have been several consulting groups onthis project including Health Management Associates, Wakely Consulting Group and Deloitte.Although much good has come out of healthcare reform, there have also been manyunintended negative consequences. I guess that comes with change of thismagnitude. However, the unanswered questions need to be addressed quickly for allemployers, governmental and private, to get back to business.I hope you find this months newsletter helpful in staying abreast of legislative updates, markettends, new technologies and strategies that will enhance your organizations financialwellbeing. Our mission is to offer solutions that will control healthcare costs, increase theperceived value of our benefit programs and improve the health, safety and productivity of youremployees.Mike ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  3. 3. Market Trends, Surveys and StrategiesBehind the numbers, Medical cost trends for2012 PriceWaterhouseCoopers (PwC)Numerous market surveys have been published in the past few months raising the awarenessand anxiety associated with rising healthcare costs and insurance premiums. They projectmedical trend from as low as 5.4% to a high of 11.7%. I particularly likethe PriceWaterHouseCoopers Health Research Institute (PwC) survey for their incredible trackrecord and supporting data written in simple common sense terms.The study projects medical cost trend to be 8.5% in 2012, up from 8% in 2011. Plan designchange is projected to bring pricing down to 7%. The recession that caused a slowing effecton utilization the past few years will now lift 2012 beyond what it normally would havebeen. To clarify, medical cost trend is the projected increase in the costs of medical servicesassumed in setting premiums for health insurance plans. When discussed, it is often confusedwith premium increases. Another study, written on historical data by Kaiser Health Researchand Educational Trust typically reports premium increases (next article). PwC projects threefactors that will inflate cost in 2012 which include: 1. Provider consolidation. Many hospitals and doctor groups are merging to create efficiencies. Although positive results were experienced so far, payers (insurers) worry the consolidation can lead to higher payment rates. 2. Cost shifting from Medicare and Medicaid increases. This has taken place for many years. As we look at cuts to providers in these markets, and increased enrollment to Medicaid due to healthcare reform, look for the private sector to pick up the tab. 3. Post recession stress effect on workers. We already see it in prescription claims.PwC projects three factors that will deflate cost in 2012 include: 1. Cost sharing continues to increase. High-deductible plans were the fastest growing plan designs in 2011. 2. Many high-use brand-name drugs come off patent. In 2012, the cumulative sales of drugs going off patent will be the largest in history. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  4. 4. 3. Tiering on out-of-network providers will increase. Employers are increasing the out-of- network deductibles or co-shares to steer usage in network to capture higher discounts.PwC projects the Affordable Care Act will have minimal direct impact in 2012. Cost shiftingfrom provider rate cuts, increased dependent population of those under age 26 and expandedcoverage definitions will slowly start affecting rates. However, increased accountability andperformance requirements of insurers, drug makers and providers will provide an offset fornow. For a copy of the PwC survey, click here. For a list of prescriptions due to come offpatent in the next 3 years, click here.Kaiser SurveyThe 2011 Kaiser Family Foundation and the Health Research & Educational Trust Survey of2,088 employers nationwide found that premiums for family coverage increased an average of9% to $15,073 and 8% for single coverage to $5,429 per year. This is compared with anaverage increase of just 3% for family in 2010. Since 2001, average premiums for familycoverage increased 113%.The survey also found covered workers contribute on average 18% of the premium for singlecoverage and 28% of the premium for family coverage. This is similar to the percentages theycontributed in 2010.Overall, PPOs are by far the most common plan type with CDHP/SOs (Consumer DrivenHealth Plans with Savings Options) gaining ground and HMOs losing ground. Also worthnoting, 31% of all covered workers are in a plan with a deductible of at least $1,000 for singlecoverage; this is up significantly compared to 22% in 2009. At small firms, one in four coveredworkers now face annual deductibles of $2,000 or more.The survey takes a deeper dive charting some data of employer group, location andindustry. To review the full 225 page report, click here. For an executive summary, click here. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  5. 5. Public Sector NewsHealth and OPEB Funding Strategies2011 National Survey of Local Governmentsby Cobalt Community ResearchAccording to a national study of over 1,690 local governments across the country, about 42% of the nationscities, counties and townships expect their revenue to fall again in 2012. Health costs will play a major part inbalancing the budget."In a very real way, local governments must choose if they will pay for police, potholes, or pills." said WilliamSaintAmour, Executive Director of Cobalt Community Research, a nonprofit research coalition that conducted thenational study.This 2011 report provides detailed insight into how local governments provide health care benefits to their activeand retired employees and what they are doing to help control rising health care costs.The report also discusses the OPEB (other postemployment benefits) liability established by GASB45. Theawareness of this liability and the requirement to disclose has created heightened concerns with the affordabilityof public-sector health care.The most frequently cited strategies for controlling health care costs were: Increasing deductible and copays Increasing the employees share of premium costs Implementing wellness programs Expanding use of generic drugs Implementing HSAs and HRAs Negotiating lower costs with current carriers Educating employees/retirees to make better health care decisions Rebidding health care coverage For governments that provide retiree health care, using a Medicare wraparound plan is an emerging approachFor a copy of the report, click here. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  6. 6. Cadillac CoverageThe High Cost of Public Employee Health BenefitsPublished by Manhattan InstituteAn interesting study was published in July by the Manhattan Institute exploring reasons why government-employee benefits cost more than private sector benefits. Recommendations and examples are provided on howto bring the two closer together.Several reasons identified for the cost difference included: Public employees contribute less to their premiums - an average of about 15 percent of the overall premium compared with about 25 percent in the private sector Public employee plans offer more generous benefits, including lower deductibles and lower co-pays Governments require shorter enrollment waiting periods for new employees than in the private sector Public employees have higher opt-in rates for employer-provided coverage; 26 percent of private-sector workers choose not to participate in available employer health plans while just 16 percent of government workers choose not to.There is not an easy answer, the study points out realigning government employee contributions to match thoseof the private sector could save money; however, the simple approach does not bend the cost curve overtime. Benefits will still continue to grow. Instead governments need to work to reduce their spending on healthbenefits.The report provides a case study on how the State of Indiana has achieved significant savings since changing toconsumer-directed health plans (CDHP) in 2006. CDHPs are designed so that, except for catastrophic expenses,and preventive coverage, employees bear the responsibility of paying their own health-care costs up to amaximum, and they therefore consume care more judiciously.Characteristics of successful consumer-directed health plans include: A generous Health Savings Account (HSA) funded by the employer and employee, which is used to pay day-to-day medical expenses and which can be rolled over into future years and even drawn on for other expenses after retirement. A high-deductible, low premium catastrophic insurance policy to cover large expenses.A Mercer consulting study examined Indianas reform and found consumerism reduced claims by 10.7 percentsaving the state $17 - $23 million each year and employees $7 - $8 million due to lower utilization. Whendesigned properly, CDHP saves employers and employees alike.For a more complete review of the study, click here. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  7. 7. Legislative Updates and ImpactsInstitute of Medicine issues Essential Health BenefitsRecommendation...On October 7, 2011, the Institute of Medicine (IOM) publicly issued its anticipated "essentialhealth benefits" (EHB) policy principles in a 297 page report to the Department of Health andHuman Services (HHS). As part of the PPACA law, EHBs were to cover a package ofdiagnostic, preventive and therapeutic services and products that were medicallyeffective, affordable to purchasers and have been defined as essential by the Department ofHealth and Humana Services with guidance from the Institute of Medicine.The report outlined a "process" for determining the EHB package, allowing flexibility for stateneeds and updating this once a year starting in 2016. Click here for a summary.Existing plans have adopted interim steps to address essential health benefits and limits onthem. As a reminder, beginning January 1, 2014, lifetime and annual dollar limits on the dollaramount of essential health benefits are prohibited for all employer plans, includinggrandfathered and all new individual policies. This prohibition does not apply to grandfatheredindividual plans. Self-funded plans must also remove annual limits or lifetime maximums onessential health benefits if they are covered.What remains unclear is when HHS will release the corresponding rule detailing exactly howthe IOMs recommendations will have to be utilized by employers and individual and smallgroup health plans. Two prevailing rumors are: either it will be released soon or delayed untilafter the 2012 election.IRS Guidance Helps Employers Estimate Play or Pay PenaltyThe IRS recently released clarifying guidance that should make it easier for employers tocontrol health care costs and determine strategies to address the "Play or Pay" mandatesstarting in 2014.A helpful summary written by Seyfarth Shaw, LLP is available by clicking here.It states the new proposed regulations provide a favorable, less complicated safe harborinterpretation of the affordability test. Under the anticipated safe harbor, an employer will not ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  8. 8. be subject to the play or pay penalty if it offers its full-time employees (and their dependents)the opportunity to enroll in MEC (minimum essential coverage) and the employee portion of theself-only premium for the employers lowest-cost coverage does not exceed 9.5% of theemployees W-2 wages, as opposed to the employees household income. Employers whofollow this safe harbor will not be assessed a penalty, even if an employee receives a subsidythrough the exchange.What Employers Pay a Penalty? Flow ChartOne provision of the health care reform legislation requires that certain employers offer healthcare coverage to their employees or pay a penalty. The linked flow chart summarizes whichemployers will be required to pay a penalty when the provision goes into effect in 2014.Michigan Governor signs health care claims tax into law...A follow up to last months Business Insurance article- "Michigan Lawmakers Approve 1% Taxon Health Care Claims." Michigan Governor Rick Snyder DID sign into law S.B. 348 that willimpose a new 1% tax on paid health care claims. The tax, intended to help fund the statesMedicaid programs, would be paid quarterly starting April 30, 2012.The tax would apply to fully-insured and self-funded plans however exempt MedicareAdvantage plans, Medicare prescription drug plans and plans covering federal employees. Inaddition, the tax would not be assessed on services provided in Michigan to non-Michiganresidents.The tax is expected to generate $400 million annually. Any amount over that would becredited to the plans assessments the following year. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  9. 9. Insurance Carriers and Healthcare Providers In The NewsHEALTHCARE 2020Medco 2011 Drug Trend ReportThe Medco 2011 Drug Trend Report highlights 2010 data reflecting trends across their base ofclients. As one of the largest pharmacy benefit managers (and soon to be the largest if theproposed Express Scripts merger goes through), Medcos report provides future insight to helpunderstand the impacts on overall healthcare costs in the future.Even though our general market celebrates some short term reduction in pharmacy trend, weneed to understand what is around the corner. Medcos Chairman David B. Snow, Jr. states itwell. "Consider the power of just one trend: New and existing specialty medications willaccount for two-thirds of drug trend over the next 3 years. So while overall trend should bealmost flat for non-specialty drugs - aided by a historic wave of first-time generics - payers willface dramatic challenges in managing specialty costs."Other Medco insights included: Overall drug trend in 2010 remained low at 3.7% 2010 spending on specialty drugs accounted for 16.3% of plan costs but was responsible for a remarkable 70.1% of drug trend At 16.7% diabetes was the therapeutic category that contributed most to trend The cost of cancer care is projected to rise from $124.5 billion to as much as $207 billion by 2020 (according to the report there are 907 cancer drugs alone in development) Overall generic dispensing rate rose to 71% from 67.5% in 2009The report is an excellent guide to provide insight into trend projections, key developments andkey recommendations to look ahead to 2020 and adapt benefit strategies accordingly. For acopy of the report, click here. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  10. 10. Human Resource CenterOne Million Young AmericansYoung adults have become the fastest growing segment of the population to get healthcarecoverage due to the early provision in the Affordable Care Act allowing parents to cover theiradult children as dependents on family policies.Three new surveys show that adults under 26 made significant gains in insurance coveragesince last year adding close to one million to the insured role. A Gallup survey found that theshare of adults 18 to 25 years old without health coverage dropped from 28 percent last fall to24.2 percent by this summer, also citing they did not see a drop-off in any other age group.The American Health Insurance Plans (AHIP) was quoted as being concerned about theadditional costs being incurred by plans as a result, especially if adverse selection occurs,meaning that only people who need health care services choose to enroll in their parents plan.To see more stats from the Department of Health and Human Services click here.Wellness InitiativesBreast Cancer Awareness. See excerpt from Horton Health Initiatives Newsletter (clickhere)Workforce Wellness Fact FileThompson Reuters recently published a summary of several Health Index outcomes. The U.S.workforce is nowhere near a perfect 100 index score, but has been in the mid-80s for a fewyears. There are signs of improvement with some risk factors such as cholesterol levels andtobacco use, but the numbers are not good for risk factors that have the greatest impact oncosts, BMI and glucose.Comparing two Indexes between 2005 and 2009, the results showed the U.S. WorkforceWellness Index worsened, declining from 86.4 to 84.4, while the MarketScan sample increasedfrom 84.1 to 86.2. Health risks considered are BMI, blood pressure, cholesterol, glucose,tobacco use and alcohol use. ph: (708) 845-3126 • mike.wojcik@thehortongroup.com
  11. 11. The U.S. Workforce Wellness Index compares the workforce as a whole, while MarketScan isa proprietary database of employers who measure and submit health risk assessmentinformation and have programs in place to promote workforce wellness. Demographics areadjusted to match for a fair comparison.Research indicated that in 2009, approximately 14% of incremental direct healthcare cost inthe employed, privately insured workforce was attributable to the six behavioral risk factorslisted. According to the Thomson Reuters Healthcare Spending Index for Private Insurance,this represented $670 in incremental healthcare costs annually per worker.The good news from the study shows that worksite wellness efforts are paying off and givesseveral behavioral risk factors to target. To see more of the study, click here.Horton Webinars & Seminars (Reminders)Health Reform - Employer Impact Analysis - October 27, 2011Attached is the latest Webinar & Workshop schedule through January 2012. To register for awebinar or workshop, please click the link below.http://www.thehortongroup.com/Insurance_Workshops/ ph: (708) 845-3126 • mike.wojcik@thehortongroup.com