A Presentation to the Montgomery County Schools “Preparing for

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					 A Presentation to EPASPA:
“Preparing for Negotiations”
   “Trends in Healthcare”

        January 13, 2010

                             Presented by:
                            Stephen D. Allen
                            Delaware Valley
                           Consulting Group,
       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
     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
  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

   Next it addresses patient inertia through proactive
   communication to plan members whose utilization
   patterns may indicate reduced or minimal

   Lastly there is focused outreach to physicians in
   order to optimize the first-time prescribing of
   evidence-based Dx-Rx pairings.
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
         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
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
               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
– 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
– 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
- 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
   - 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.

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