Introduction. About Me

Transcription

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2 Introduction About Me Worked for a brokerage firm founded in 1845 COBRA had just been written into law IRC Sec. 89 was passed 3 years later Medical plans had rates of $100 per month. Day Job: Founder & Principal of TRUEbenefits Night Job: LWHRA Yes, I play golf.

3 Agenda Current Landscape Self-Funding Pros & Cons Stop-Loss Checklist Carrier vs. a TPA Stop-Loss Consortiums Risk Mitigation Strategies

4 Current Landscape Patient Protection & Affordable Care Act (ACA) was signed into law on March 23, 2010: Increase the quality and affordability of health insurance, Lower the uninsured rate by expanding public and private insurance coverage, and reduce the costs of healthcare for individuals and the government. Constitutional challenges

5 Agenda June 28, 2012

6 Current Landscape On June 28, 2012: The U.S. Supreme Court actually upheld the constitutionality of the ACA s individual mandate. States cannot be forced to participate in the ACA's Medicaid expansion under penalty of losing Medicaid funding. Now what?

7 Current Landscape On June 28, 2012, the U.S. Supreme Court issued its decision in the case challenging the Affordable Care Act (ACA). The Court upheld the drive constitutionality time of the ACA s individual mandate.

8 Current Landscape ACA is insurance reform; not healthcare reform Expands access through Medicaid and Exchange premium subsidies Expansion paid for by additional taxes and fees on individuals and businesses Reforms insurance rating, underwriting, coverage provisions

9 Current Landscape Considerations (employers of 50+): Pay or Play? Medical plan must meet minimum value requirements Must be affordable Must be offered to full-time employees If essential health benefits are offered, no annual or lifetime limits

10 Current Landscape 17 state-based Exchanges 7 state/federal Exchanges 27 Federallyfacilitated Exchanges

11 Current Landscape Washington s Exchange About 1 million uninsured 10/23/13: 35,000 people have enrolled 56,000 have applied and need to make a payment by Dec. 23 to complete the enrollment process. 10/25/13: A system error miscalculated premium subsidies for about 8,000 people (PSBJ)

12 Current Landscape Employer Costs likely to Increase: Direct Costs Enhanced benefits Taxes Penalties Indirect Costs Administrative Costs Unknown Costs Agency Action

13 Current Landscape ACA taxes (excluding the Cadillac tax): Insured WA State Premium & High Risk Pool Taxes Patient- Centered Outcomes Research Institute Health Insurance Industry Fee Small Group = 10.8% Large Group = 7.3% Self-Insured Cadillac Tax Higher Taxes! Transitional Reinsurance Program Fee 2.3% Marketplace User Fees

14 Current Landscape What s the Cadillac Tax? Employer tax 40% of the excess above $10,200 in 2018 $ = Cadillac today Employee-only rate +10% increase per year WA State Premium & High Risk Pool Taxes Cadillac Tax Patient- Centered Outcomes Research Institute Higher Taxes! Marketplace User Fees Health Insurance Industry Fee Transitional Reinsurance Program Fee

15 Self-Funding Overview Third-party administrator (TPA) or insurer provides administrative services for the selffunded plan. Stop-loss coverage typically purchased to protect the Plan Sponsor against large claims Plan Sponsor assumes liability for the costs of participant s claims up to specified stop-loss levels

16 Self-Funding The Employee Retirement Income Security Act (ERISA) of 1974 exempts self-funded plans from: state insurance laws, reserve requirements, mandated benefits, and certain provisions of Healthcare Reform (ACA).

17 Self-Funding 59% of covered workers are in a selffunded health plan (Employee Benefit Research Institute, November 2012)

18 Self-Funding 37% of employers with employees self-insure their health plans. (Employee Benefit Research Institute, November 2012)

19 Self-Funding Why consider self-funding? When Claims are Lower than Expected Fully-Insured Carrier Wins Surplus funds are kept by the carrier Self-Insured Employer Wins Surplus funds are kept by the Plan Sponsor When Claims are Higher than Expected Carrier Wins Deficit created by high claims means a large rate increase Employer Wins Stop-loss protects the Plan from catastrophic loss

20 Self-Funding Claims were up 55% in 2 years why? You can t manage what you don t measure. Access to utilization data is critical $1, $1, $1, $ $ $ $ $- Paid Claims PEPM Medical / Rx Paid Claim PEPM 12 per. Mov. Avg. (Paid Claim PEPM)

21 Self-Funding Who benefits when your paid claims decline? Your Plan or your carrier? $1, $1, $1, $ $ $ $ $- Paid Claims PEPM Medical / Rx Paid Claim PEPM 12 per. Mov. Avg. (Paid Claim PEPM)

22 Self-Funding Advantages Cash Flow 100% credibility for claims experience Avoid State Mandates Benefit Design Flexibility Reduced Carrier Risk Charges & State/Federal Taxes Management of risk/stop-loss Better Pay off for Wellness Initiatives Prescription Drug Rebates (in some circumstances) Better Reporting

23 Self-Funding Disadvantages 100% credibility for claims experience Higher Potential Plan Costs Cash Flow Volatility & Budgeting Difficulties (in some circumstances) HIPAA Privacy Plan Administration Claims Appeals & Fiduciary Liability (can be contracted) IRC 105(h) Non-Discrimination Requirements apply

24 Self-Funding Generally the most cost effective long-term method of financing group health plans for mid to large sized companies. Typically, self-insured employers will reduce their long term health plan expenses by 8% to 11% over a fully-insured health care program.

25 Self-Funding Fixed Costs Administration (carrier or TPA) Stop-loss insurance (individual & aggregate) Paid Claims Expected claims Claims margin (attachment minus expected claims) Reserves Incurred but not reported (IBNR) Held by the Plan Sponsor

26 Self-Funding Year #1 Illustration Fully-Insured vs. Self-Funded $3,000,000 $2,500,000 $275,000 $290,000 $380,000 $2,000,000 $290,000 $1,500,000 $1,000,000 $1,600,000 $1,728,000 Expected Total $2,255,000 $1,440,000 $500,000 $740,000 $760,000 $608,000 $0 Fully-insured: Current Fully-insured: Renewal Self-Funded Year #1 $2,615,000 $2,778,000 Fixed Costs Expected Claims Claim Reserves Claim Margin

27 Annual Cost Estimates $3,500,000 Year #2 Illustration Fully-Insured vs. Self-Funded $3,000,000 $298,700 $424,800 $2,500,000 $298,700 Expected Claims: +10% $2,000,000 Fixed Costs: +10% Reserves: +3% $1,500,000 $1,000,000 $1,900,800 Expected Total $2,715,340 $1,699,200 Expected Claims: +18% Fixed Costs: +18% Reserves: +3% $500,000 $836,000 $717,440 $0 Fully-insured: Year 2 Self-Funded: Year 2 $3,035,500 $3,140,140 Fixed Costs Expected Claims Claim Reserves Claim Margin

28 Self-Funding Individual Specific Stop Loss (ISL) premiums are increasing faster than medical trend why? ISL Leveraging (ISL doesn t keep pace with inflation) ISL Erosion (inflation causes claims to exceed ISL that did not in previous years)

29 Deductible Leveraging $100,000 claim, $75,000 ISL Assumed medical trend = 12% Year 1 Year 2 Year 3 Medical Claim $100,000 Plan Pays $75,000 Reinsurer Pays $25,000 $112,000 (+12%) $75,000 (+0%) $37,000 (+48%) $125,440 (+25%) $75,000 (+0%) $50,440 (+102%)

30 Deductible Erosion $75,000 ISL Assumed medical trend = 12% Year 1 Year 2 Year 3 Medical Claim $70,000 Plan Pays $70,000 $78,400 (+12%) $75,000 (+7%) $87,808 (+25%) $75,000 (+0%) Reinsurer Pays $0 $3,400 $12,808

31 Self-Funding Stop-Loss Checklist Marketing the stop-loss: broker vs. TPA Financially sound carrier vs. MGU How much of the risk is the carrier taking? Review laser provisions Ensure exclusions & limitations match the Plan Document What s the lock-in period? Disclosure: initially and at renewal?

32 Self-Funding Stop-Loss Checklist Consider aggregating specific stop-loss Does your ISL coverage match your ASL coverage? Run-in / run-out coverage any limitations? Do you need terminal liability coverage? Organ Transplants Centers of excellence Insured carve-out program ISL & ASL audits

33 Carrier vs. TPA? Carrier TPA Resources Robust Can be limited Flexibility Less More Stop-Loss Integrated Carve-out Pharmacy Management Integrated Carve-out PPO Network Integrated Carve-out Disease Management Integrated Carve-out Wellness Programs Integrated Carve-out Fiduciary Liability Yes No

34 Carrier vs. TPA? Carriers own TPAs Aetna: Meritain United Healthcare: UMR Regence BlueShield: Healthcare Management Administrators Some TPAs Rent Carrier Networks HealthComp: Cigna s PPO network EBMS: Aetna s PPO network

35 Stop-Loss Consortiums What are They? Allows multiple employers to band together for bargaining clout Individual plan sponsors usually maintain their unique risk levels Multi-year premium guarantees

36 Stop-Loss Consortiums The Need: Individual Specific Stop Loss (ISL) premiums are increasing faster than medical trend why? ISL Leveraging (ISL doesn t keep pace with inflation) ISL Erosion (inflation causes claims to exceed ISL that did not in previous years)

37 Stop-Loss Consortiums Influencing Factors in Medical Trend: Price inflation Utilization increases Aging population Impact of mandated benefits Prescription utilization Technology advancements Impact of uninsured Increasing malpractice expenses Cost shift from the public to private sector

38 Stop-Loss Consortiums But Don t I Have a No Laser Contract? No Laser contracts are available, but at a price Usually a 5% - 10% premium load Carriers can still increase ISL rates by as much as 60%!

39 Stop-Loss Consortiums Projected Savings: Assumptions: Annual premium is $200,000 Stop-loss premium increase each year is 15% Annual Premium in Thousands $350 $300 $250 $200 $150 $125,675 in savings over 3 years Current Year 1 Year 2 Year 3 Without Stabilization With Stabilization

40 Risk Mitigation Spousal Coverage Are spouses impacting your Plan s costs? Low dependent payroll deduction = high dependent enrollment Encourage/require enrollment in their own employer s Plan Makes your Plan the secondary payor

41 Risk Mitigation Dependent Eligibility Audit Identifies ineligible dependents that are enrolled in your benefit plans. Costs decrease as soon as you remove ineligible dependents On average, 5% - 10% of dependents will be ineligible 1,000 $500/mo $300,000 - $600,000 savings / yr.

42 Risk Mitigation Pharmacy Carve-out Unbundle pharmacy claim administration from medical plan administration Why? Control over vendor selection Should increase drug rebates Reduces spread pricing Minimizes carrier/tpa revenue opportunities Beware of hidden revenue brokers are building in

43 Questions Brent Schlosstein Principal TRUEbenefits