Employer Sponsored Healthcare Coverage for Retirees Eligible for Medicare NATIONAL HEALTH POLICY FORUM December 9, 2011 George Wagoner Richmond
Employer-Sponsored Healthcare Coverage for Retirees Eligible for Medicare Overview of employer-sponsored coverage Examples of retirees out-of-pocket cost in Employer-Sponsored plans Comparison of retiree s cost among employer and Medigap Plans 1
Employer-Sponsored Plans are a Significant But Declining Source of Coverage for Retirees Eligible for Medicare Approximately one-third of Medicare beneficiaries receive supplemental coverage through employer sponsored retiree health plans* Employers continue to exit the retiree medical marketplace Employer focus is on controlling cost and managing risk Plan design: deductibles, copays, OPMs increasing Contributions: retiree portion increasing, e.g., capped or defined dollar employer contribution Eligibility: being tightened increase in age and/or years of service to be eligible, termination of coverage for some * Percent of large employers offering ongoing ** retiree medical plan 46% 40% 41% 35% 38% 31% 35% 28% 29% 23% 28% 25% 24% Source: Mercer 2011 National Survey of Employer-Sponsored Health Plans 28% 21% 29% 31% 21% 21% 21% 19% 1993 1995 1997 1999 2001 2003 2005 2007 2009 2010 2011 * 500+ employees ** new hires are eligible Offer coverage to pre-medicare-eligible retirees Offer coverage to Medicare-eligible retirees 16% * Kaiser Family Foundation, November 2011 2
Availability of Coverage Varies Significantly by Size and Industry of Employer, as Well as by Hire/Retirement Date Large employers more likely to offer coverage than smaller employers 100% Availability of Retiree Coverage Pre-Medicare Retirees Medicare Eligible Retirees Many employers have terminated coverage for those hired or retiring after a specified date 75% 62% 37% 71% 49% Coverage availability varies by industry 59% of large governmental employers vs. 10% of large retail/wholesale employers offer coverage to retirees eligible for Medicare 50% 25% 0% 91% 2% 7% 14% 24% 18% 45% 94% 2% 4% 13% 16% 16% 35% <500 500+ 20,000+ <500 500+ 20,000+ Do not offer plan Offer plan to closed group Offer "ongoing" coverage (i.e., to new hires) Source: Mercer 2011 National Survey of Employer-Sponsored Health Plans 3
Type of Coverage Varies Significantly Among Employers Type of coverage and employer involvement can be summarized in three broad categories Integrate with Medicare PPO most common underlying plan; HDHP growing MA, MA-PD Insured Medigap (Group, Individual) Financial Contribution Only Funds through HRA Coverage on individual market or Exchange Wide variation in retiree contributions and in retiree out-of-pocket cost for claims For plans which integrate with Medicare, the primary drivers of retiree out of pocket claims cost are plan design method of Medicare integration composition of claim (total cost and hospital vs. physician vs. prescription drug portions) 4
Medicare Integration Methods Typically Integration provisions apply to medical coverage, but not to stand alone prescription drug coverage Three integration methods for medical coverage follow: Carve-Out Plan Pays excess of employer payment in absence of Medicare over Also known as most generous benefit and non-duplication of benefit For leaner employer plans, carve-out often makes no payment Medicare payment Exclusion Employer plan provisions apply to balance left after Medicare payment Coordination of Benefits (COB) Plan Pays excess of total claim over Medicare payment but not more than employer plan in absence of Medicare Typically combination of Medicare + COB pays 100% of medical claim 5
Medicare Benefit Example - 2012 Medicare Part A Inpatient Hospital Medicare Part B Physician Services, Outpatient Hospital Medicare Part D Standard Prescription Drugs No Coverage Days 150+: No Coverage Days 90 to 91 150: to 150: $438/day $578/day Coinsurance Days 61 Days to 6090: to 90: $219/day $289/day Coinsurance 20% Coinsurance $4,700 5% Coinsurance Donut Hole * $2,930 $1,156 $0 Part A $876 Deductible Covered by Medicare $140 $0 Part B Deductible Not Covered $320 $0 25% Coinsurance Part D Deductible * Donut Hole: 50% paid by Pharma for Brand; 14% paid by Medicare for Generic Medicare Example Claims Medicare Pays Retiree Pays Retiree % Medical $6,296 $4,600 $1,696 27% Prescription $1,320 $750 $570 43% Total $7,616 $5,350 $2,266 30% Provision Part A Part B Parts A + B Part D Total a) Claim $4,156 $2,140 $6,296 $1,320 $7,616 b) Deductible $1,156 $140 $1,296 $320 $1,616 c) Balance (a-b) $3,000 $2,000 $5,000 $1,000 $6,000 d) Plan coinsurance 100% 80% - 75% 90% e) Plan payment (c*d) $3,000 $1,600 $4,600 $750 $5,350 f) Retiree payment (a-e) $1,156 $540 $1,696 $570 $2,266 6
Employer Benefit Example Coverage in Absence for Medicare Medical Plan: $350 deductible, 80% coinsurance, $3,000 OOP coinsurance maximum Prescription Drug Plan: $100 deductible, 80% coinsurance, no coinsurance maximum Medical (hospital/physician) Out of Pocket Max Prescription Drug Coinsurance Coinsurance Medical Deductible Covered by Plan Rx Deductible Retiree Responsibility Employer Standalone Example Claims Plan Pays Retiree Pays Retiree % Medical $6,296 $4,757 $1,539 24% Prescription $1,320 $976 $344 26% Total $7,616 $5,727 $1,883 25% Medical Prescription Drugs Total a) Claim $6,296 $1,320 $7,616 b) Deductible $350 $100 $450 c) Balance (a-b) $5,946 $1,220 $7,166 d) Plan coinsurance 80% 80% 80% e) Plan payment (c*d) $4,757 $976 $5,733 f) Retiree payment (a-e) $1,539 $344 $1,883 7
Payment Recognizing Integration with Medicare Retiree out-of-pocket cost for claims varies from $344 (COB) to $1,883 (carve-out) for a $7,616 claim Retiree Retiree Total Claim Employer (w/o Medicare) Medicare COB Medicare Carve out Medicare Exclusion Medicare Employer Integration with Medicare Claims Medicare Pays Employer Plan Pays Total Plan Payments Retiree Payments Retiree % COB $6,296 $4,600 $1,696 $6,296 $0 0% Medical Exclusion $6,296 $4,600 $1,077 $5,677 $619 10% Carve-out $6,296 $4,600 $157 $4,757 $1,539 24% Rx $1,320 $976 $0 $976 $344 26% COB $7,616 $5,576 $1,696 $7,272 $344 5% Total Exclusion $7,616 $5,576 $1,077 $6,653 $963 13% Carve-out $7,616 $5,576 $157 $5,733 $1,883 25% COB Medical Claim $6,296 less Medicare $4,600 Balance $1,696 COB pays $1,696 COB Payment $1,696 + Medicare A + B $4,600 = Total Medical $6,296 + Rx Payment $976 = Total Plans $7,272 Retiree $344 Exclusion Medical Claim $6,296 less Medicare $4,600 Balance $1,696 less plan deductible $350 remainder $1,346 x coinsurance 80% Exclusion plan pays $1,077 Exclusion Payment $1,077 + Medicare A + B $4,600 = Total Medical $5,677 + Rx Payment $976 = Total Plans $6,653 Retiree $963 Carve-Out Employer Plan would pay $4,757 less Medicare $4,600 Balance $157 Carve-out pays $157 Carve-out Payment $157 + Medicare A + B $4,600 = Total Medical $4,757 + Rx Payment $976 = Total Plans $5,733 Retiree $1,883 Notes: MERCER COB pays balance up to $4,757 that employer plan would have paid stand-alone December 12, 2011 Exclusion plan adjudicates remaining claim after Medicare as if it were new claim 8 Carve-out plus Medicare will not exceed what employer plan would have paid if stand-alone ($4,757)
Medigap Benefit Examples - 2012 Medicare + Medigap Medical Payment Summary: $6,296 total medical claim ($4,156 hospital, $2,140 physician) Medicare and Medigap F Medicare and Medigap K Medicare Part A Inpatient Hospital Medicare Part B Physician Services, Outpatient Hospital Medicare Part A Inpatient Hospital Medicare Part B Physician Services, Outpatient Hospital No Coverage Days 150+: No Coverage Part B Excess No Coverage Days 150+: No Coverage Part B Excess Days 90 to 90 150: to 150: $578/day $438/day Coinsurance Days 90 to 90 150: to 150: $578/day $438/day Coinsurance Days 60 to 60 90: to 90: $289/day $219/day Coinsurance Days 60 to 60 90: to 90: $289/day $219/day Coinsurance 20% Coinsurance 20% Coinsurance $1,156 $0 Part A Deductible $876 Deductible $140 $0 Part B Deductible $1,156 $0 Part A Deductible $140 $0 Part B Deductible Covered by Medicare Covered by Plan F Covered by Medicare Covered by Plan K Claims Medicare Pays Medigap Pays Total Plan Payments Retiree Pays Retiree % Medigap F* $6,296 $4,600 $1,696 $6,296 $0 0.0% Medical Medigap K $6,296 $4,600 $778 $5,378 $918 14.6% Rx** $1,320 $750 $0 $750 $570 43.2% Medigap F * $7,616 $5,350 $1,696 $7,046 $570 7.5% Total Medigap K $7,616 $5,350 $778 $6,128 $1,488 19.5% * No Part B excess assumed in calculation ** In both examples the retiree is presumed to have a separate Part D plan for prescription drugs, and would pay $570 toward total drug costs of $1,320. Plan F Payment Plan F % Plan K Payment Plan K % Part A Deductible $1,156 100% $578 50% Part B Deductible $140 100% $200 50% Part B Coinsurance $400 100% $0 0% Total $1,696 $778 9
Impact of Design on Plan Payment Total Claims: $7,616 ($4,156 Part A, $2,140 Part B, $1,320 Rx) $350 Deductible 80% Coinsurance $3,000 Coinsurance OPM Retiree Out of Pocket Claims Cost $1,500 Deductible 60% Coinsurance $4,000 Coinsurance OPM Retiree Out of Pocket Claims Cost $2,500 $2,000 24.7% 29.8% $2,500 $2,000 25.2% 26.8% 29.8% 19.5% $1,500 $1,696 12.6% $1,539 $1,000 $918 7.5% $619 $500 4.5% $570 $570 $570 $344 $344 $344 $- COB Exclusion Carve-out Medigap F* Medigap K* Medicare *Assumes Medicare includes part D Rx Med % of total claims $1,500 $1,000 $1,578 $1,696 19.5% $918 $1,696 7.5% $500 4.5% $344 $344 $344 $570 $570 $570 $- COB Exclusion Carve-out Medigap Medigap Medicare F* K* Rx Med % of total claims *Assumes Medicare includes part D 10
Impact of Level of Claims on Payment Plan Design: $350 Deductible, 80% Coinsurance, $3,000 Coinsurance OPM $1,500 Total ($1,000 Part B $500 Rx) $80,000 Total ($50,000 Part A $10,000 Rx) Retiree Out of Pocket Claims Cost Retiree Out of Pocket Claims Cost $800 45.1% $8,000 9.6% $600 $400 $200 12.0% 32.8% 32.8% $312 $312 $180 $180 $180 24.3% $- COB Exclusion Carve-out Medigap F* Rx Med *Assumes Medicare includes part D 39.4% $226 $312 $365 $365 $365 Medigap K* % of total claims Medicare $6,000 $4,000 $2,000 $- 2.6% 4.3% $1,334 $3,350 $2,704 $5,268 $2,080 $2,080 $2,080 $2,441 $2,441 $2,441 COB Exclusion Carve-out Medigap F* *Assumes Medicare includes part D Rx 6.8% 3.1% 6.4% Medigap K* Med % of total claims Medicare 11
Significant Range of Retiree Payments Among Progress which Supplement Medicare Retiree responsibility ranges from 2.6% of cost to 39.4% in four illustrative examples Medicare ranged from 9.6% to 45.1% Lowest average retiree percentage for COB, followed by Medigap F, Exclusion, Medigap K, Carveout and Medicare 50% 40% Range of Retiree OOP Claims Cost as % of Total Claims (Low, Average and High) 45.1% 39.4% 30% 20% 24.3% 32.8% 18.7% 32.8% 21.2% 22.8% 28.6% 12.0% 10.6% 10% 9.6% 5.9% 6.8% 6.4% 4.3% 2.6% 3.1% 0% COB Medigap F Exclusion Medigap K Carve-out Medicare 12 Note: COB, Exclusion and Carve-out have employer drug coverage; Medigap F, Medigap K and Medicare have Part D drug coverage.
Summary of Health Care to Supplement Medicare Employer sponsored plans are a significant, but declining, source of coverage for retirees eligible for Medicare Retiree eligibility is being tightened and benefits continue to decrease Coverage varies significantly among plans driven by three factors Health care plan benefit design Integration method Level and composition of claims 13