San Francisco Health Service System Health Service Board HSS Rates & Benefits Committee Meeting City Plan (UHC) Employer Group Waiver Plan (EGWP) + Wrap Presentation April 12, 2012 Prepared by Aon Hewitt Health and Benefits
City Plan (UHC) - Financing of Medicare Part D Benefits Medicare Part D Benefits are delivered through private insurance companies that receive a monthly premium from the Centers for Medicare and Medicaid Services (CMS) to cover 74.5% of the cost of the basic coverage and also receive 80% reimbursement for the cost of the catastrophic coverage Employer plans are eligible to receive the Retiree Drug Subsidy (RDS) payment if they provide prescription drug benefits to retirees that are at least as good (actuarial equivalent) as the Standard Part D benefit (without regard to the PPACA changes) The RDS payment is 28% of cost between the deductible and a specified limit ($6,500 in 2012) As an incentive for employers to continue to provide prescription drug coverage to their retirees, the 2004 Medicare Modernization Act (MMA) allowed employers to deduct the cost of drugs and did not tax employers when they received the RDS payment PPACA eliminates the tax deduction in 2013 causing many tax-paying entities to look for an Employer Group Waiver Plan (EGWP) as an alternative to the RDS program The loss of the tax deduction does not, of course, effect HSS, but as the Pharmacy Benefit Managers (PBMs) prepare to administer alternatives for other employers, these alternative will become available to HSS as well 1
City Plan (UHC) - What is an EGWP? Employer contracts directly with one or more Prescription Drug Plans (PDPs) to provide at least Part D level prescription drug coverage to its Medicare-eligible participants on a group basis CMS has established a federal waiver process in order to facilitate group-based employer offerings Intended to eliminate some requirements and provide employers with flexibility Waives the need for the PDP to provide numerous individual local market filings and the need to offer the program to any Medicare eligible member PDP handles all administration, manages all federal interaction, collects federal Part D plan subsidies, and assumes all compliance responsibilities Removes administrative burden of collecting RDS reimbursements from employer Minimizes federal audit risk to the plan sponsor Retirees are automatically enrolled in the Part D program through the employer PDP Employer receives the CMS monthly capitation payments and the 80% reimbursement of catastrophic coverage instead of receiving the RDS payments 2
City Plan (UHC) - What is an EGWP + Wrap? Employer creates a basic EGWP plan that provides the minimum benefits required by law Because the City Plan (UHC) has a coverage gap it qualifies for the 50% discount on brand drugs in the coverage gap The Basic EGWP can also be designed to provide enhanced benefits equal to the current employer design with the Wrap only providing coverage in the coverage gap The PDP vendor on behalf of HSS then creates a second plan with the same Pharmacy Benefit Manager the Wrap that covers the difference between what the current plan pays and what the Basic EGWP, including the brand discounts, pays The PDP vendor coordinates the benefits provided by the two plans in the background so that to the retiree it appears as a single plan with one ID card and all claims adjudicated at point-of-sale Aon Hewitt s recommendation is to implement a fully insured EGWP + self funded Wrap. On the subsequent slides, this recommendation will simply be referred to as the EGWP + Wrap 3
City Plan (UHC) - Plan Design Comparison: RDS Plan and EGWP+ Wrap Current HSS RDS Plan Proposed EGWP + Wrap Catastrophic Coverage Member pays max 5% coinsurance Government pays 80% Plan pays remainder Member pays $5/$20/$45 Copay Plan pays remainder Coverage Gap Member pays $5/$20/$45 Copay Plan pays rest of GENERICS Pharma discounts brand Rx @ 50% Plan pays remainder Initial Coverage Period Member pays $5/$20/$45 Copay Plan pays remainder Current RDS Plan has $5 / $20 / $45 Copay Plan Design EGWP + Wrap Plan has same $5 / $20 / $45 Copay Plan Design Note: Wrap fills in coverage over and above standard Medicare Part D that allows you to match existing plan. Outcome: Member cost sharing stays same or better; plan and HSS maximize savings 4
City Plan (UHC) - EGWP + Wrap Plan Disruption to HSS Retirees The copayments in the City Plan (UHC) can remain the same The formulary will need to be changed to the EGWP formulary UHC has filed with CMS This formulary will not match the current formulary or the active/early retiree formulary UHC performed a disruption analysis on the top 200 drugs currently used by the City Plan (UHC) Medicare retiree population 4 drugs will have more favorable tiering than current (lower copayment) 8 drugs will have less favorable tiering than current (higher copayment) 2 drugs will not longer be covered under the plan (Nexium and Detrol LA) See appendix for details (slide 11) Extensive pharmacy network, 65,000+ pharmacies The EGWP network is the same as the active/early retiree pharmacy network Currently 1.1% (1,339 prescriptions) of HSS medical retirees prescriptions are filled out-of-network 5
City Plan (UHC) - EGWP + Wrap Plan Disruption Details Top 200 Drugs UHC performed a disruption analysis comparing the top 200 drugs utilized by the City Plan (UHC) members between July 1, 2011 and December 31, 2011 Three drugs will not be covered under EGWP + Wrap Nexium and Detrol LA Members will be allowed one 30 day refill and then will be notified by mail that the drug will no longer be covered In rare cases members can get an exception for a non covered drug See appendix for details (slide 11) Current Drug Tier Drug Tier with EGWP + Wrap Tier 1 Tier 2 Tier 3 Part B Not Covered Total Tier 1 128 7 0 2 0 137 Tier 2 0 31 1 0 0 32 Tier 3 0 4 25 0 2 31 Total 128 42 26 2 2 200 Legend: Movement to a higher tier Stays in same tier Movement to a lower tier 6
City Plan (UHC) - EGWP + Wrap Financial Savings Over RDS 1 TrOOP is the true out of pocket maximum. This value is defined by CMS each year. When the total gross cost for a member's prescription drugs covered under the plan exceeds this value, CMS pays 80% of excess costs. Current RDS Under the RDS structure HSS receives the RDS subsidy payments and actual drug manufacturer rebates RDS - Retiree Drug Subsidy is a payment directly from CMS that meets the equivalent plan test Drug Manufacturers rebates are paid directly to HSS RDS subsidies are included or increases in HSS GASB 45 liability UHC EGWP + Wrap RDS Savings RDS subsidy $3,500,000 Estimated rebates $2,300,000 Total savings $5,800,000 EGWP + Wrap Up front credit for Rx rebates $2,300,000 Up front credit for catastrophic claims in excess of TrOOP 1 $3,000,000 Credit for CMS direct subsidy $1,750,000 Total $7,050,000 Net benefit by implementing EGWP + Wrap $1,250,000 Under the EGWP + Wrap structure, HSS remits a premium that credits the following: CMS Direct Subsidy - the amount of monthly prepayment that CMS remits to PDPs to cover non Catastrophic coverage at Medicare part d prescribed levels Drug rebates - the same rebates that are presently paid directly to HSS (estimated) CMS reinsurance for catastrophic claims (estimated) EGWP + Wrap reduces HSS GASB 45 liability Additionally HSS will receive, on a deferred basis manufacturers 50% discount on brand drugs in the coverage gap 7
City Plan (UHC) - RDS and EGWP + Wrap Comparison Feature Current HSS RDS Plan Proposed EGWP + Wrap Drug manufacturers rebates Passed through Reflected in the fully insured premium Pharmaceutical Discount in Gap (50% discount) RDS Not applicable Subsidy receipt typically has several months lag Administrative burden is on HSS The Subsidy covers 20-25% of drug costs Passed through quarterly beginning in July Not applicable CMS Direct Subsidy Not applicable Included in the UHC billed premium CMS Reinsurance (80% reimbursable with catastrophic coverage) Plan design actuarial equivalence to Medicare Part D Not applicable Must be certified annually Included in the UHC billed premium Not applicable 8
City Plan (UHC) - RDS and EGWP + Wrap Comparison Feature Current HSS RDS Plan Proposed EGWP + Wrap Plan Year GASB 45 Does not need to be calendar year RDS is not currently reflected in HSS liability Must be calendar year to receive CMS reinsurance Since this is estimated to be higher than RDS, will reduce current HSS liability Compliance HSS responsible and at risk PDP responsibility and at risk Design Must be actuarially equivalent EGWP must have gap to qualify for 50% discount. Wrap is used to fill the gap Observations & Recommendation This approach leverages drug manufacturers discounts and government subsidies Takes advantage of the closing of the Medicare Part D coverage gap Minor member formulary disruption The administrative burden is on the PDP vendor, not on HSS This will result in a conservative estimated savings of $4,750,000. This is $1,250,000 greater than the current RDS subsidy A substantial portion of the upfront savings is due to CMS reimbursement of catastrophic claims which could only be realized by moving to a calendar year plan. The estimated value of this is approximately $3,000,000 HSS will realize these savings immediately 9
Appendix
City Plan (UHC) - EGWP + Wrap Plan Disruption Details Top 200 Drugs The impacted drugs with the highest utilization are shown below Lipitor will be available in a generic form February 2014 Rank Medication Common Drug Use Brand/Generic (B/G) Claims Impacted Current Tier New Tier Preferred Alternative Favorable Claim Impact 1 Namenda Alzheimer's Disease B 522 3 2 n.a 2 Niaspan Cholesterol Management B 308 3 2 n.a 3 Tricor Triglyceride Management B 264 3 2 n.a Unfavorable Claim Impact 1 Lipitor Cholesterol Management B 4368 1 2 Pravastatin, Lovastatin, Simvastatin 2 Nexium GERD/Reflux Disease B 408 3 Not Covered Omeprazole, Pantoprazole, Protonix, Dexilant 3 Detrol LA Overactive Bladder B 130 3 Not Covered Enablex, Vesicare, Gelnique, Oxytrol 11
2012 Rates and Benefits Negotiations Glossary of Terms Administrative Service Fee (ASO) Fee paid to an insurer or other third party for processing claims, managing regulatory requirements and other tasks related to group health coverage. Benefit Parity When the types and costs of services covered by different health plans are equivalent. Blended Rate A combined insurance premium that is a composite of two or more rates. An insurer may bring two classes of members into a single risk pool, in order to offer a more equitable premium. Capitated Rate Fixed per-person payment, made by insurer to the healthcare provider. Case Management Coordination of medical services, to ensure more effective and integrated care. CMS Centers for Medicare & Medicaid Services the US federal agency that administers Medicare, Medicaid, and the Children s Health Insurance Program. Disease Management A system of coordinated health care interventions and communications, designed to enhance a patient s compliance with treatment and medication orders. Employer Group Waiver Plan (EGWP) The Centers for Medicare and Medicaid Services (CMS) make this option an attractive way to achieve significant savings to a retiree employee prescription plan. ERRP The Early Retiree Reimbursement Program provides reimbursement to participating employment-based plans for a portion of the costs of health benefits for early retirees and early retirees spouses, surviving spouses, and dependents. The program was authorized in the federal Affordable Care Act. Flat Renewal When an insurer provides the same benefits with no increase in premium rates year over year. Flex Funding Alternative form of funding for medical expenses that allows employer to pay only the true cost of the program. Generally, claims cost, administration charge, and stop loss charges. Fully Insured Plan When an employer contracts with another organization to assume all financial risk for the enrollees utilization of services and incurred administrative costs. Grandfathered Status A term used in federal health reform legislation, generally interpreted as an existing health plan that does not make significant changes to benefits, copays or premiums. HMO A Health Maintenance Organization that assumes the financial risks and responsibilities of providing comprehensive health care in a particular geographic area to HMO members in return for a fixed, prepaid fee. Financial risk is sometimes shared with physicians groups and other medical service providers. Incurred But Not Reported (IBNR) Claims reserve that is required for self funded medical benefit plans to recognize expenses that will ultimately be paid but have not yet been received by the claims administrator. Indemnity Plan A type of medical plan that reimburses the patient and/or provider as expenses are incurred. IPA An Independent Practice Association or health care provider organization composed of a group of independent practicing physicians who maintain their own offices and band together for the purpose of contracting their services to HMOs. Large Claim Pooling A system designed to help stabilize premium fluctuations in smaller insured groups. Expensive claims (those over a stated amount) are charged to a larger number of plan participants, so the costs are spread in aggregate across a greater number of plan participants. Limited Network When, to contain costs, an insurance plan offers medical service only through specific contracted doctors and hospitals. Medical Group See IPA Medicare A health insurance program administered by the federal government providing coverage to people who are aged 65 and over, or who meet other special criteria. Traditional or fee-for-service Medicare has a standard benefit package that covers medically necessary care that members can receive from nearly any hospital or doctor in the country. Medicare Part A is hospital insurance. Medicare Part B is medical insurance. Medicare Part D covers prescription drugs. Medicare Advantage With this type of health plan, the enrollee assigns Medicare benefits to a health plan while he or she is enrolled. The federal government then pays the insurer a capitated rate, or set amount, every month for each participant. Plan enrollees receive service only from within the network contracted by the Medicare Advantage plan. Medicare Modernization Act(MMA) A federal law of the United States, enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history. Its most touted change was the introduction benefit for prescription drugs, through tax breaks and subsidies. Migration Movement of enrollees between different health plans. Non-Medicare Rates Health insurance premiums for a group of enrollees who are not eligible to participate in Medicare. Network Model HMO An HMO that contracts with multiple physician groups and/or hospitals to provide services to enrollees. (See HMO.) Open Network A health plan that allows enrollees to obtain service from any doctor or hospital. Per Capita Average per person. Performance Guarantees Standard for quality of service provided by the insurer, as established by the contract with the employer. Financial penalties may be levied if the insurer fails to meet specific, required measures. Pharmacy Benefit Manager (PBM) A third party administrator (TPA) of prescription drug programs. They are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. Pooling Charge A charge assessed to self funded medical benefit plans for claims in excess of a specified threshold amount. Premium Agreed-upon fees paid for health benefits coverage during a defined benefit period. Premiums can be paid by employers, unions, or employees. Premium costs are often shared among these entities. PMPM Per member per month. Preferred Provider Organization (PPO) A Preferred Provider Organization plan is where coverage is given to participants through a network of selected hospitals and physicians. Enrollees may go outside the network, but then incur higher deductibles, higher coinsurance rates, or non-discounted provider charges. Rate Guarantee When an insurer contractually agrees to lock in premium costs for a certain period of time. Retiree Drug Subsidy (RDS) The Medicare Modernization Act of 2003 (MMA) created an outpatient prescription drug benefit (known as Medicare Part D). The law included a subsidy for employers who provide retiree drug benefits at least equal in value to the Part D benefits. The subsidy was intended as an incentive for employers to continue to provide benefits. The subsidy reimbursed employers 28 percent of the cost of actual spending on prescription drugs for Medicare eligible retirees. Renewal Continuing insurance coverage with an existing insurance plan by contractual agreement. Re-rating While negotiating premium rates, an insurer calculates the probability of how much utilization is likely to occur by a particular group. If a significant factor changes, such as the number of expected enrollees, the insurer may recalculate the rates. Risk In general, risk is the probability that a return on investment will be lower than expected. With regard to health insurance, risk is based on the amount of money assigned to meet the care needs of a pool of covered individuals, and which party agrees to assume responsibility for any financial shortfall. Request for Proposal (RFP) A Request for Proposal clearly defines criteria for comparison that allows providers of a product or service to bid on the right to supply that product or service. SB 946 Requires carriers to offer coverage for behavioral health treatment for members with autism spectrum disorders (ASD). Self Insured Plan (Self Funded) This refers to the funding mechanism for a health plan in which the employer assumes the costs of health care and administrative services for individuals in the plan. Senior Advantage See Medicare Advantage. SSSG Similarly Situated Subscriber Group enrollee groups that have very similar characteristics, such as equivalent demographics and utilization. Staff Model HMO A type of HMO where patients receive service in the HMO s own facilities from health care professionals who are employees of the HMO. (See also HMO.) Stop Loss A form of reinsurance for self-insured employers that limits the amount the employers will have to pay for each person s health care (individual limit) or for the total expenses of the employer (group limit). Trend Future projections based on factors, such as enrollment, utilization, service and administrative fees, which impact health plan risk and premium costs. Utilization The extent to which an insured group uses a particular health care service in a specified period. The data is typically expressed as the number of services used per year per 100 or per 1000 persons.