Towers watson-health-care-reform-what-ahead-presentation-feb2012-120223082549-phpapp01

Health Care Reform — What’s Ahead
A Spectrum of Opportunity
February 22, 2012

© 2012 Towers Watson. All rights reserved.

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

Discussion topics

 A convergence of challenges and opportunities
 The health care reform outlook
 Spectrum of opportunity
 Optimizing the play
 Embracing the opportunities


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


Total rewards builds from strategic objectives and takes a portfolio
approach to deliver desired results


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%
Don't know
18%

HR n=104 Finance n=201

Source: 2011 Towers Watson-Forbes Survey: Opportunity to Align Cost and Talent Objectives?
.


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


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


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


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.


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


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


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


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.

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


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


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


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


Embrace change and opportunities

New
Network
Structures

Innovative Primary
Engagement Care
Strategies Alternatives

Integrated
Value-based
Care
Reimbursement
Delivery


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?


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