WESTERN PENSION BENEFITS COUNCIL Spring Seminar May 1, Paul Fallisi, FSA, MAAA President Munich Re Stop Loss, Inc.

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1 WESTERN PENSION BENEFITS COUNCIL Spring Seminar May 1, 2013 Paul Fallisi, FSA, MAAA President Munich Re Stop Loss, Inc.

2 The Problem! Health Care Spending in the United States 2012 $2.87 TRILLION! 2

3 Health Care Spending in Context GDP (nominal) in 2012 USA $15.65 trillion #1 CHINA $ 8.25 trillion #2 JAPAN $ 5.98 trillion #3 GERMANY $ 3.37 trillion #4 FRANCE $ 2.58 trillion #5 UK $ 2.43 trillion #6 BRAZIL $ 2.42 trillion #7 Rank CIA World Factbook, 2012 Health Care Reform and the Future of American Medicine Ezekiel J. Emanuel, M.D.,Ph.D. Vice Provost for Global Initiatives Chair, Department of Medical Ethics and Health Policy University of Pennsylvania 3

4 Breakdown of Costs by Type Source: National Health Expenditures, 2011 Health Care Reform and the Future of American Medicine, presented by Ezekiel J. Emanuel, M.D.,Ph.D. Vice Provost for Global Initiatives Chair, Department of Medical Ethics and Health Policy, University of Pennsylvania 4

5 PPACA Just the Facts! More than 2300 pages Senate Bill Scott Brown 219 to 212 house votes Signed into law March 23, 2010 Major provisions scheduled for January 1, 2014

6 Munich Re Stop Loss Insurance Mandates Individual Mandate Penalty = $ % of Income Employer Mandate More than 50 Employees Penalty = $2000 per Employee If employer doesn t offer health insurance 6

7 PPACA Provisions Guaranteed issue No Pre-Ex Health Insurance Exchanges Federal subsidies Paid for by increased taxes 7

8 Munich Re Stop Loss New PPACA Taxes 1. Health Insurance Industry Fee - $8 Billion in $14.3 Billion in % 2. Reinsurance Assessment - $63 per Covered Life - Both Fully Insured and Self Insured 3. Increase Medicare Tax by.9% % Excise Tax on Medical Devices 5. FSA Limits Lowered to $ And the list goes on... 8

9 Actuarial Challenges Guaranteed Issue No Pre-existing Conditions Coverage until age 26 Essential benefits 3 : 1 ratio, gender, health Unlimited annual/lifetime maximums 9

10 Munich Re Stop Loss Guaranteed Issue - Pre-existing Condition Limitations not allowed - Cost will Increase - Anti-Selection due to Minimum Penalties 10

11 Munich Re Stop Loss Coverage Until Age 26 - Young Adults on Parents Plan - No Need to be a Student - Minimal Impact 11

12 Munich Re Stop Loss Essential Health Benefits Minnesota Estimates: 6-7% Ohio Estimates: 20-30% 12

13 Munich Re Stop Loss 13

14 Munich Re Stop Loss Adjusted Community Rating 1. Gender - Winner: Young Females - Loser: Young Males 40% - 36 States Currently allow Gender Rating 14

15 Munich Re Stop Loss Adjusted Community Rating 2. Age - 3:1 Ratio 43 States allow > 3:1 Ratio Before After Increase 25 Year Old $115 $ % 60 Year Old $690 $690 0% 15

16 Munich Re Stop Loss Adjusted Community Rating 3. Health Status - 1.5:1 Ratio - Winner: Old Smokers - Loser: Old Non-Smokers 16

17 Large Claim Trend: Claim Size Annual Trend $ 500K 18.3% $ 1M 21.6% $ 2M 33.7% 17

18 Catastrophic Claim Diagnoses Incidents Reported 41 Members XS $3,000,000 Charges Incidents Reported Source: Verisk Health Normative Database 2009 Complexity and Reinsurance Risk, presented by David Wilson, FSA, FCIA, MAAA, Senior Partner, Windsor Strategy Partners SOA 2012 Health Meeting

19 Employer Stop Loss Employee Market Aggregate Attachment Points State Regulations 19

20 State Regulation California Minnesota Rhode Island Utah $60K Specific $60K Specific $60K Specific $10K Specific State Assessments Reinsurance Tax 20

21 Colorado Attachment Point Requirements for Small Employers Minimum specific attachment point: $30,000 Aggregate attachment points shall not be lower than the greater of the following: 1) Four times the number of covered lives 2) 125% of expected claims 3) $30,000 Other policy restrictions: 1) Attachment points cannot vary by individuals within the group 21

22 Oregon Medical Insurance Pool Oregon.gov Beginning January 1, 2014 Insurance companies will no longer be able to deny individuals health care coverage due to pre-existing conditions. Therefore, Oregonians will have access to private market health insurance. OMIP was created to offer health insurance to Oregonians who were denied coverage due to pre-existing medical conditions. When insurance companies can no longer deny coverage to those with pre-existing conditions, OMIP will no longer be needed to provide coverage to those individuals. Source: 22

23 Massachusetts Healthcare Reform 23

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25 Massachusetts Access Doctor shortage Price Anti-selection Employer sponsored plans Self funded market Further reform 25

26 Munich Re Stop Loss States with the Lowest Percentage of Uninsured Residents: State % Uninsured Massachusetts 4.1 Vermont 6.7 Delaware 8.9 Connecticut 9.5 Minnesota 10.4 Wisconsin 10.4 Pennsylvania 10.6 Maryland 10.6 Hawaii 11.2 Iowa 12.1 Gallup-Healthways Well-Being Index January-June

27 Munich Re Stop Loss Doctor Shortage Getting Worse Published: Wednesday, 13 Mar :31 PM ET By: Mark Koba Senior Editor, CNBC Mass. insurance costs again listed as most expensive in the nation 27

28 Munich Re Stop Loss Massachusetts Trends in Premiums and Employee Contribution (Private Sector Employers) $20,000 Family Coverage 100% $15,000 $10,000 $6,944 $8,478 $10,213 $11,863 $12,290 $14,256 $15,780 80% 60% 40% $5,000 20% $- 99/00 01/02 03/04 05/06 06/07 08/09 10/11 0% Average Annual Premium Average Employee Share 28

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30 Munich Re Stop Loss Massachusetts Trends in Premiums and Employee Contribution (Private Sector Employers) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Percent of employers offering coverage 99/00 01/02 03/04 05/06 06/07 08/09 10/11 Fewer than 50 workers 50 or more workers Total 30

31 Munich Re Stop Loss Massachusetts Trends in Premiums and Employee Contribution (Private Sector Employers) 70% At firms that offer coverage, percent that self-insure 60% 50% 40% 30% 20% 10% 0% 99/00 01/02 03/04 05/06 06/07 08/09 10/11 Fewer than 50 workers 50 or more workers Total 31

32 Future 32

33 Future 1.Physician Payment Reform FFS is Unsustainable Blueprint for a New Physician Payment System Recommendation 1: Over time, payers should largely eliminate stand-alone feefor-service payment to medical practices because of its inherent inefficiencies and problematic financial incentives. 1 ACO is an Experiment 2. Price List 3. Minute Clinics 1 Phasing Out Fee-for-Service Payment, from the New England Journal of Medicine 33 Steven A. Schroeder, M.D., and William Frist, M.D. for the National Commission on Physician Payment Reform March 27, 2013DOI: /NEJMsb

34 Future 4.Obesity As a Driver The prevalence is understated BRFSS 26.7% adult 2009 self-reported NHANES 33.9% 2009 measured More connections every year Obesity and cancer Obesity and diabetes Obesity and CVD Obesity and autism in offspring Obesity and preterm births Complexity and Reinsurance Risk, presented by David Wilson, FSA, FCIA, MAAA, Senior Partner, Windsor Strategy Partners SOA 2012 Health Meeting Obesity and mental health issues

35 Future 5. Calorie Count on Menu 6. Unlimited Claims 7. Better End of Life Care 8. Educated Consumers 35

36 Healthcare Costs over the Last Decade 9. Pent up Demand Medical cost trend has been in a steady decline for most of the last decade Slowing inpatient cost trend growth has been the primary reason, driven mostly by lower utilization in recent years Source: Milliman Medical Index, 2012 Wall Street s 2013 Outlook for Health Plans, March 18, 2013 presented by Carl McDonald, CFA, Director, Citi Research 36

37 Munich Re Stop Loss Conclusions 1. Health Care Costs Will Increase 2. More People will Have Access to Health Care 3. Commercial and Self Funded Markets Will Continue 4. PPACA is Step 1 Next Steps Will Have to Focus On Bending the Cost Curve 37

38 Munich Re Stop Loss Specialize in Non-Traditional Risk Municipalities Schools Hospitals Special MEWA s Captives BUCA s 38

39 Munich Re Stop Loss 100% Owned by Munich Re $110 Million in Annualized Premium A+ Rated Retain 100% of Risk Offer Unlimited Coverage Can Do attitude We pay claims! 39

40 2009 Münchener Rückversicherungs-Gesellschaft 2009 Munich Reinsurance Company THANK YOU VERY MUCH FOR YOUR ATTENTION Paul Fallisi President Munich Re Stop Loss, Inc.

41 Munich Re Stop Loss Recent Headlines on Exchange Implementation States Will Be Given Extra Time To Set Up Health Insurance Exchanges NY Times, January 14, 2013 We recommend that CMS provide states with the flexibility to phase in the 3:1 age factor ratio over a specific period of time to mitigate the rate shock for this key demographic (young and healthy) of the market NAIC letter to HHS, December 19, 2012 Deadline Delayed For State Decision On Health Exchanges Wall Street Journal, November 16, 2012 Computer Issues May Hamper Online Insurance Markets Kaiser Health News, November 14, 2012 IT Developer Notes Challenges In Designing State Exchanges LifeHealthPro, December 17, 2012 ObamaCare s Health Insurance Sticker Shock January 13, 2013 Thanks to mandates that take effect in 2014, premiums in individual markets will shoot up. Some may double. Wall Street s 2013 Outlook for Health Plans, March 18, 2013, presented by Carl McDonald, CFA, Director, Citi Research 41

42 Munich Re Stop Loss Why Should Provider Organizations, MCOs, and Insurers Care? Worst 5% of Members 55% of the Total Cost Source: Complexity and Reinsurance Risk, presented by David Wilson, FSA, FCIA, MAAA, Senior Partner, Windsor Strategy Partners SOA 2012 Health Meeting 42 Next 10% 30% of the Total Cost Bottom 85% or Low Risk Members 15% of the Total Cost

43 Munich Re Stop Loss Massachusetts Trends in Premiums and Employee Contribution (Private Sector Employers) 90% 80% Trends in Employer Self Insured Coverage Ages % 79% 75% 75% 75% 77% 75% 70% 60% 24% 24% 24% 26% 26% 25% 25% 50% 40% 30% 20% 54% 54% 51% 49% 49% 52% 50% 10% 0% 99/00 01/02 03/04 05/06 06/07 08/09 10/11 Policyholders Dependents 43

44 PPACA Taxes Increase Medicare tax by.9% 3.8% tax on unearned income 40% excise tax on high health insurance premiums 2.3% excise tax on medical devices FSA limits lowered to $2500 And the list goes on 44

45 Future Cost will continue to increase Insurance premiums will increase significantly Self funded markets will continue to grow 45

46 Health Care Problems Fee for service Insurance Obesity 46