Medicare: Where We've Been and Where We are Going May 19, 2014 Presented by: Ward Brigham, FSA, Vice President & Actuary Dani Getrich Stang, Vice President, Client Development
Question In the history of the world, what PERCENTAGE of all human beings who ever lived to age 65 are alive today? 2
Today s discussion Introductions ABC s of Medicare PPACA and its Impact Current Marketplace Future of the Marketplace Q&A 3
Medicare Where we ve been
The First Retirement Plan Otto von Bismark of Germany introduced a Social Security system to appeal to the working class during the late 1800 s The age when benefits would begin was 70 years old Later lowered to age 65 in the early 1900 s However, he knew that the program would cost little, as the average German worker did not live to age 65 or 70 (and those that did would not stay around much longer) The U.S. reviewed the program and it served as a foundation for setting up our own program 5
The U.S. Federal Retirement System The first Social Security program in the U.S. began in 1935 The age of benefits remained at 65 The average life expectancy at the time was just under 60 years In 1965 the Social Security Act established both Medicare to provide health coverage to older Americans Benefits began at age 65 The average life expectancy at the time was just under 65 years 6
Key points in the history of Medicare 1965 1981 Beginning 1982 1998 Expansion & Growth 1998 2003 Moderation 2003 2011 Expansion & Growth 2012+ Opportunities Original Medicare Established Tax Equity and Fiscal Responsibility Act Balanced Budget Act Medicare Modernization Act Patient Protection and Affordable Care Act 1972 Expanded to Pre-65 with Disabilities Facilitated the expansion of private alternative Medicare plans Reduced revenue to private Medicare plans Increased payment to Medicare Advantage and created Part D (2006) Changes the payment structure for Medicare Advantage 7
Original Medicare Parts A and B + Hospital Visits Inpatient hospital care Inpatient mental health care Skilled nursing services Hospice care Test Drivers Physician services Outpatient hospital services Ambulance Outpatient mental health Laboratory services Premiums Paid through payroll tax Retiree pays deductible, some copays Retiree pays 25% of cost premium Medicare pays 80% after deductible 8
Prescription drug plans (Part D) Helps with the cost of prescription drugs Offered through private insurance companies Prescription drug coverage varies by plan Coverage gap or donut hole makes individual plans less valuable than typical employer group plans Federal Retiree Drug Subsidy payments to plan sponsors encourages maintenance of employer group plans Each plan has list of drugs covered (formulary drug list) 9
Medicare Advantage plans (Part C) A single plan offered by private insurance companies that combines coverage for Original Medicare (Parts A and B) and sometimes prescription drug coverage (Part D). All the benefits of Part A, except hospice care Hospital stays Skilled nursing Home health All the benefits of Part B Doctor s visits Outpatient care Screenings and shots Lab test Prescription drug coverage Included in many Medicare Advantage plans, but not all Additional benefits May be bundled with the plan Additional benefits may include eye care, hearing, wellness services and nurse phone line 10
Medicare supplement insurance plans Supplements original Medicare (Parts A & B) Helps cover some of what Medicare Parts A and B don t pay such as portions of coinsurance, copayments and deductibles Offered by private insurance companies Plans are named A, B, C, D, F, G, K, L, M, N and a high-deductible plan F Benefits vary by plan and by state Federal Retiree Drug Subsidy payments to plan sponsors encourages maintenance of employer group plans Generally, the more comprehensive the coverage, the higher the premium Regulated by federal and state laws 11
Aging factoids A person reaching age 65 today can expect to live another 19 years In fact, 2 out of 5 (or 40%) of those people will live to age 90 12
PPACA What s happening
PPACA = Health Care Reform PPACA stands for The Patient Protection and Affordable Care Act Widely regarded as Obamacare The most significant regulatory overhaul of US healthcare system since Medicare/Medicaid Goal is to increase quality and affordability of health insurance, while lowering the uninsured rate Insurance companies must cover all (pre-65) applicants with minimum standards and offer the same rates regardless of pre-existing conditions Source: CMS. It also had an impact on Medicare 14
PPACA s impact on Retiree and Medicare Plans Changes in Medicare Advantage funding (multi-year transition began in 2012) 50% brand name coverage gap discount program for Part D plan members while in the donut hole (2011) In the past, only some employers could save money through Medicare Part D plans Discounts apply towards TrOOP, enabling retirees to reach catastrophic coverage much sooner (with fewer dollars out of pocket) Reduction of the Part D coverage gap (eliminated completely by 2020) Elimination of tax exclusion of 28% Retiree Drug Subsidy payments (2013) Today, due to the PPACA, all employers can save significant money through Medicare Part D plans without necessarily shifting costs to retirees 15
Aging factoids For the first 1900 years of the Common Era, the average life expectancy grew each year by an average of three days Since 1900, the average live expectancy grew each year by an average of 110 days (3 2/3 months) A person born in the U.S. in 2000 can expect to live to age 77, 30 years longer than a person born in 1900 16
Current Medicare marketplace
Changes are already happening in the retiree marketplace Most employers have capped or eliminated their financial support for retiree healthcare A substantial and growing number have replaced traditional group plans with more cost-effective individual plans for their Medicare eligible retirees Individual Retiree Health Plans Current Environment: Retiree Engagement Defined Benefit Capped, Defined Contribution or Endorsed Prior Environment: Plan Sponsor Engagement Traditional Group Medical Programs 18
After PPACA.. The Road Map Now When you come to the fork in the road TAKE IT! Yogi Berra 19
Aging factoids The fastest growing population segment is people 85 years and older. The second fastest growing population is those over 100 years old AARP has over 35,000 members over the age of 100 The size of the over age 65 population has grown from just over 3 million in 1900 to 35 million today and is expected to DOUBLE over the next 30 years to over 70 million people By the year 2050, there will be 2 billion older persons in the world compared to 600 million today. For the first time in world history, older people will outnumber children! 20
21 Where do we go from here?
Next steps in Transforming America s Health Care System With approximately 11,000 Baby Boomers reaching retirement age every day, Medicare needs to evolve to meet the health care needs of today s beneficiaries: Manage chronic conditions Improve quality Better outcomes for beneficiaries Reduce avoidable costs Enhance the long term stability of the program, whose spending totaled $573 billion in 2012 How do we achieve such a lofty goal? Incorporate proven Clinical Innovations & Care Management into Medicare Modernize Medicare to Help Prevent Diabetes Foster Medicare Program Sustainability 22
Answer In the history of the world, nearly two-thirds (2/3) of all human beings who ever lived to age 65 are alive today! 23
Questions 24