A Presentation to EPASPA: “Preparing for Negotiations” and “Trends in Healthcare” January 13, 2010 Presented by: Stephen D. Allen Delaware Valley Consulting Group, Inc. Preparing for Negotiations 1. Have a game plan – Know what you want to come away with! 2. Review all benefit plans’ claims experience for (at least) three years prior to the expiring contract. A. Compare plan costs to national, regional and local school district averages. B. Know the specific areas that are driving your plan costs. C. Know what action needs to be taken to control plan cost drivers. D. Look for opportunities to introduce long term cost controls. Self funding and Consumer Driven (High Deductible) plan designs are excellent cost saving strategies. 3. Be aware of the limitations of the contract language in your current labor agreement. Remove any language that restricts you to a specific carrier(s) or a certain type of funding. 4. Keep the future in mind as you negotiate plan design(s). Your experience (and plan costs) may be running well now but you need to position yourself for inflationary trends that will surely return. Consider that the Senate bill contains a 40% excise tax for plans valued at over $8,500 annually for individuals and $23,000 for families. Be prepared to offer a lesser plan that will qualify without having to renegotiate a contract mid-stream. Trends in Healthcare 1. The year 2010 is being touted as a time when claims experience will return to double digit increases. Additionally carriers are looking to replace lost revenue from employer downsizing by increasing retentions substantially. 2. Since the greater Philadelphia area is typically 3% higher than the national average, we can expect to see a substantial bump in Delaware Valley. Teaching hospitals and an older population drive the +3% number. Trends in Healthcare 1. Medical Carriers are Feeling the Squeeze A. Medical carriers nationally are laying off personnel. Medical carriers regionally are reducing payroll. B. Layoffs and closings from smaller employers are having a thunderous effect on IBC and Highmark… Aetna and Health America are feeling it too. C. Carriers (especially IBC) are increasing retentions at an exponential rate…the levels are of great concern. D. Capitation levels in HMO and POS plans are soaring…often the company reps don’t understand how the capitation is calculated. E. Fully insured plans are seeing large increases with little relation to their own experience. F. Recent layoffs by carriers have left service staffs lean and service levels are suffering. This is a national problem…employers must demand more for their premium dollars. G. Employers need to be acutely aware of their claims experience in order to deal effectively with renewals…you need immediate access to accurate information…many carriers are reluctant to provide ease of access, to limit client movement. 2. Prescription Drug A. Rx cost has been spiking since early 2009. With the threat of federal influence looming, Rx manufacturers are marking up their products before they have to discount them. B. Biologics (specialty drugs) are the great unknown…the pipeline is loaded…there are few generics…and the few generics available are not deeply discounted. - Just one or two claimants can devastate a plan. - Creating a fourth copay level is mandatory… 15% to 20% copays should be the target and consideration should be given to annual maximums. 3. Transparency and Obstacles to Achieving It A. Actual pricing of Rx is far more difficult to determine than medical or any other benefit…by design. B. The same exact drug can have a number of different pricing levels that vary by the size of your group, your ability to negotiate and the compensation paid to middle men. 4. Generic Drugs A. Some generic drugs are available at Walmart, Target & Genuardi’s, etc. for $4.00 or so…will your PBM reduce its generic price structure? B. Will they at least: Track in their system…keeping a record of medications taken by the individual? 5. Dx–Rx – New pharmacy benefit design matching diagnosis and prescribed drugs. Dx-Rx targets only combinations of diagnosis and drug therapies that have been medically proven to improve patient health, thus leading to lower overall healthcare costs for employers and employees. 6. Dx-Rx drives a more effective compliance by addressing the key barriers to optimal compliance. It does so by reducing or eliminating patient cost- sharing for the designated diagnosis – drug pairing, so any financial barriers are eliminated or minimized. Next it addresses patient inertia through proactive communication to plan members whose utilization patterns may indicate reduced or minimal compliance. Lastly there is focused outreach to physicians in order to optimize the first-time prescribing of evidence-based Dx-Rx pairings. Wellness 1. Affinia Group – An auto parts manufacturer offered employees free testing for high blood pressure, cholesterol and diabetes in 2003. They enticed the employees with a $10 Walmart gift card – and these words from their benefits manager… “Friends for 250,000 Americans every year, the first sign of heart disease is death.” 94% of their workers got tested. 2. A properly designed Wellness program incents individuals to participate in healthy activities and behaviors by promoting: A. Screenings for blood pressure, cholesterol, diabetes, BMI. B. Smoking cessation and weight loss programs C. Fun runs, lunch time walks and other healthy lifestyle activities. 3. Health Risk Assessments A. Tip off the program managers that someone is “at risk” with a condition of concern. Each “at risk” individual is contacted by a health care coach to determine whether that individual is interested in seeking help with their condition…strictly voluntary. B. Since everyone is not immediately concerned with pursuing a healthy solution to their problem, incentives are used to encourage compliance. C. Federal law prohibits employers from discriminating based on age, gender, race, disability, national origin or religion. Beyond federal discrimination laws, HIPAA has guidelines that must be adhered to, to ensure the Wellness program is non-discriminatory and considered “Bona Fide.” Consumer Driven Health Plans and Health Savings Accounts (CDHP’s and HSA’S) 1. Developed with the goal of lowering medical plan costs and empowering the individual to make better Health care choices. 2. CDHP’s are qualified high deductible plans with individual (usually) and family (always) deductibles. The minimum individual deductible for 2010 is $1,200 and the minimum family deductible is $2,400. 3. Often coupled with CDHP is an HSA that works like a medical IRA. This account is used to pay medical expenses subject to the deductible as well as other eligible expenses. - Unused funds left in the account may accumulate from year to year. The maximum contribution for an individual for the year 2010 is $3,050. The maximum for a family is $6,150. Emerging Trends in Healthcare 1. Global trends (according to a Watson Wyatt survey) predict higher to significantly higher medical plan costs over the next five years…healthcare professionals want to get paid. 2. Healthcare and Nest Eggs What effect will increasing health premiums have on retirement nest eggs? Medicare and Medicare Advantage premiums are rising quickly. Many Medicare Advantage carriers are beginning to offer lower premium plans to those who require less expensive coverage (the healthier people) and higher premiums for those who desire a full formulary (for example) and not in the best health. - Bottom line, without serious healthcare reform, unhealthy retirees will pay increasingly more expensive premiums, negatively affecting their savings. 3. Employee engagement in healthcare cost and delivery – affecting lifestyle, adherence to medical advice, physical, mental and financial health. - The relationship of the employee with their medical plan will be all encompassing as it affects all aspects of their lives. 4. Electronic Medical Records – Coming with a heavy price tag – May be considered invasion of privacy by some. In 2004, President Bush announced a comprehensive initiative to digitize the healthcare system and issued an executive order calling for most Americans to have a personal electronic medical record within 10 years. - Key hold-up is no financial incentive for hospitals and docs to comply - HIPAA Concerns 4. Personal Health Records – Available to 90 million consumers now through insurers. PHR’s differ from EMR’s in that they are used by consumers and control who has access. PHR’s contain a core set of medical information, such as physician office visits, lab results, medications, illnesses and hospitalizations, family medical history and care alerts. EMR’s are used by providers and contain detailed clinical information about patients. Healthcare Reform 1. Informal Health Reform Discussions Begin A. Key differences to be resolved: - Government run plan, some variation or none at all. - Provisions addressing the use of federal funds for abortion procedures. - Substantial cuts to Medicare – both bills. - Provisions in the Senate bill exempting only certain non-profit insurers from the $6.8 billion annual premium taxes imposed on health insurers beginning in 2011 may be challenged…only Mutual of Omaha, Blue Cross and Blue Shield of Nebraska and Michigan would qualify. - Many lawmakers have also begun to question the constitutionality of the individual mandate provisions for all Americans to purchase the health insurance required by both bills. AG’s from 13 states are among this group: Alabama, Colorado, Florida, Idaho, Michigan, North Dakota, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia and Washington State. Senate version of Health Reform Bill – “Patient Protection and Affordable Care Act” – has a 383 page “Manager’s Amendment” attached. – CBO estimates the bill will cost $871 billion over ten years and cover 31 million of the estimated 54 million uninsured. – Bill places a 40% excise tax on “high value” employer- based plans (insured and self funded) valued at $8,500 for individuals and $23,000 for families. – Places annual fees on pharmaceutical companies, medical device manufacturers and health insurers (with prior exceptions). – Increases the Medicare FICA tax by 0.9% on income over $200,000 for singles and $250,000 for couples. – Changes HSA and FSA rules. – Increases the threshold for individual tax deductibility of medical expenses to 10%. – Sets a 10% tax on tanning beds. – Reduces spending for the Medicare Advantage program. – Reduces provider payment rates under Medicare. – Secures rebates for Medicaid and discounts for Medicare Part D from pharmaceutical companies. Senate version of Health Reform Bill - Several insurance market rules take effect within 6 months of enactment, including review of health plan premiums by state departments of insurance and HHS. – Prohibition of lifetime benefit limits and “restricted” annual limits. – Prohibition of waiting periods exceeding 90 days. – A requirement that all individual and group plans cover preventive services at 100%. – Prohibition of pre-existing conditions? – Prohibition of coverage cancellation or recission except in the case of fraud. – Prior to the implementation of new market rules in 2014, the bill also establishes high risk pool provisions for individuals who cannot obtain coverage due to health status and creates a reinsurance program for employer coverage of early retirees. – Provisions related to lifetime and annual limits, dependent coverage, waiting periods, preventive services and retiree reinsurance apply to insured and self funded plans. Insurance Market Rules - Effective 2011 – Bill sets an 80% medical loss ratio (MLR) for individual and small group plans and an 85% MLR for large group plans. Certain non-profits must meet higher MLR standards to be exempt from the annual fee on health insurers. - Effective 2014 – Reforms that require guarantee issue and renewal during an open enrollment period. - Establish risk sharing pools/mechanisms - Prohibit annual limits - Prohibit pre-existing condition exclusions and premium variation based on health status. - Limit premium variation to tobacco use, age, geography and family composition for individuals and small groups. - States can pass legislation to form “Health Care Choice Compacts” to allow the purchase of individual insurance across state lines. - Multi-State Plans and Co-ops – Establishes “multi- state” plans in 2014 to compete with private insurers and state Exchanges. - Office of Personnel Management (OPM) will enter into contracts and negotiate premiums with at least two private health carriers (at least one must be a non- profit) to create multi-state individual and small group plans to be offered in every state by 2017. - Bill also provides start-up funding to establish non- profit member-governed health plans (co-ops) not currently in existence to compete with private insurers and multi-state plans in Exchanges. - State Exchanges – Establishes state based “Exchanges” in 2014 for individuals without access to affordable group coverage (not Medicare or Medicaid eligible), CHIP eligibles and small groups. - Coverage Mandates, Penalties and Subsidies - In 2014 individuals are required to have coverage through a “grandfathered” plan, a large group plan, a government program or an individual or small group plan that meets minimum requirements (Bronze plan for those under age 30) or pay a penalty. - The penalty is the greater of a flat dollar amount ($95 in 2014 phased-in to $750 by 2016) or a percent of income (0.5% in 2014 phased-in to 2.0% by 2016). Exceptions will be made based on income level, religious beliefs, etc. - Employers are not required to offer coverage, but those with 50 or more employees not offering coverage are required to pay a $750 fee for employees obtaining a subsidized plan through an Exchange. - Employers who offer coverage must pay up to a $3,000 fee for employees obtaining subsidized coverage through an Exchange…employers are assessed a $600 fee per employee for imposing a waiting period of longer than 60 days. - Benefit Plans – Beginning in 2017, individuals and small groups have a choice of up to five plan designs: - Platinum – 90% actuarial valuation - Gold – 80% actuarial valuation - Silver – 70% actuarial valuation - Bronze – 60% actuarial valuation - “Young Invincible” – Available to adults under age 30 and for whom a Bronze Plan would exceed 8% of income. - Individuals between 133% and 200% of the federal poverty level without access to employer coverage would be enrolled in a state-negotiated “Basic plan” where available.