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Health Reform: Implications for employers

06 October 2009

John Sinclair, CincinnatiJohn.sinclair@mercer.com

513-632-2603

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Agenda

Current legislative state of play

Potential impact on employers

The surcharge: a tipping point for radical change or exit?

Considerations for improving quality and cost efficiency

Your questions!

Current legislative state of play

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Health reform – state of playCongress faces tough decisions

House of Representatives– House Ways and Means, Education and Labor panels passed own

versions of HR 3200– House Energy and Commerce panel approved its version after intra-party

debate on costs– House leaders working to “reunite” the three versions, ready single bill for

full debate and vote on House floor

Senate– HELP Committee approved left-leaning bill by party-line vote – Finance Committee debating more moderate proposal to address

conservative Democrats’ concerns and garner some GOP support Committee members filed over 560 amendments

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President Obama takes a leadership role

“I am not the first President to take up this cause, but I am determined to be the last” President Obama, September 9, 2009

His guidance:– Do not increase the federal deficit – Rein in rising health care costs– Improve access to coverage

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Health reform – state of playWhat’s next?

Ultimate goal is a final health reform bill by the end of the year

Plan A: Seek 60 votes in the Senate

Plan B: Democrats could fast-track reform through Senate without GOP support– “Reconciliation” trigger can be pulled if talks with GOP fail

Reform could pass Senate by 51 votes, far less than normally needed, with debate limited

But reconciliation isn’t a slam dunk - “Byrd droppings” – extraneous provisions can be challenged- Limited duration- Political considerations

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Despite slipped deadlines, goal is to pass a bill by year-end

July

Senate HELP passed its bill on the 15th, but Finance struggling to produce a bipartisan bill, delaying a full Senate vote on a final bill. HR 3200 introduced July 14 in the House; Ways

and Means, Education and Labor, and Energy and Commerce Committees approved

amended versions.

December

Ultimate goal of sending a health reform package to President Obama for his

signature by the end of the year.

November/December

Under reconciliation, House and Senate committees

consider and vote on health reform and other legislation to

carry out the budget resolution’s instructions.

Reconciled bills also could be on floor of either/both

chambers under “regular order.”

August

Senate Finance Committee failed to reach bipartisan consensus before August 7, official start of Senate

recess.

Full House and Senate will not consider respective bills until after

the recess.

Vocal debate and falling public support

September/October

President fully engaged. Finance debating proposal, House, Senate floor votes

possible; negotiators would have to reconcile various

bills for votes in each chamber.

June July August September October November December

Recess

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Employers’ top tier health care reform issues as of 9/25/09

Issue HR 3200 Senate HELP Senate Finance

President Obama

Employer mandate

Yes Yes Yes Yes

Individual coverage mandate

Yes Yes Yes Yes

Insurance market reforms

Yes Yes Yes Yes

Tax code changes

Yes N/A Yes Yes

Exchanges Yes Yes Yes Yes

Public health insurance plan option

Yes Yes No Maybe

Potential impact on employers

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Solving the $1 trillion equationHow to pay for expanded access and new programs

Control

Cost

Increase

Access

Improve

Quality

Payment reform Performance gainsTaxes, fees & surcharges

What to Achieve

How to pay for it

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Elements that constrain employer flexibility

REQUIREMENT PENALTY

Offer plan to full-time and part-time employees. Pay minimum contribution (e.g., 60% or 72.5% single, 65% family for full-time rate)

Pay penalty (e.g., $750 per FTE, 8% of payroll)

Free rider penalty for opt-outs

Meet minimum value and plan design requirements (e.g., no preventive copayments, no annual or lifetime maximums)

Plan will not qualify

Keep the total cost of medical, dental, vision, EAP, health FSA, contributions to HRA or HSA, and other supplemental health programs under cap ($8,000 single and $21,000 family in 2013)

Pay 40% surcharge

AND

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Minimum coverage standards

Actuarial Relative Value of Benefit Design of Predominant Plans

0 10 20 30 40 50 60 70 80 90 100

Relative Values

HDHP w/ acct*

HDHP w/o acct*

PPO*

HMO*

Mini-med

* 2008 Mercer Survey of Employer Sponsored Plans (500+ employees)

HR 3200 (70%)

Median Value

Senate HELP (76%)

Senate Finance

(65%)

Relative Values

Observations

Most plans for large employers exceed the coverage threshold

Mini-meds and HDHPs without accounts are possible exceptions

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Minimum coverage standards

Minimum Qualifying Coverage

Examples of Plan Designs

Provision Senate HELP HR 3200Senate

Finance*

Minimum Actuarial Value 76% 70% 65%

Deductible** $500 $750 $1,500

Coinsurance** 80% 80% 80%

Out-of-Pocket Maximum $4,000 $6,000 $7,000

Preventative Care 100% Coverage

Annual/Lifetime Maximum

Unlimited

* Coverage to avoid free rider surcharge (except for low income); no coverage mandate** Not applicable to preventative

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Impact of the surcharge

Initially, Congress appeared concerned about supplemental “executive” benefits, but now the focus is on high-cost plans– Potential 40% surcharge on high-cost plans (e.g., over $8,000 single and

$21,000 family by 2013)

High-cost plans are not just a function of generous plan design– Influencing factors: population characteristics, experience, location,

mandates, collectively bargained benefits– Proposal recognizes some factors by increasing thresholds for pre-65

retirees, workers in high-risk industries, some high-cost locations

25% of all employers will be subject to a surcharge in 2013 if trend continues at current pace

High-cost plans are not “gold plated” plans for executives – Average salary of employers offering a high-cost plan: $42,504– Average salary for employers who do not have a high-cost plan: $41,926

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Percentage of employers impacted by surcharge

25%27% 28% 29%

31%

24%

27% 28% 29%31%30% 31%

34% 35%

39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2013 2014 2015 2016 2017

All employers Small employers Large employers

Source: 2008 Mercer Survey of Employer Sponsored Health Plans

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Impact of the surcharge

The surcharge could be a powerful change agent to improve quality, cost efficiency and patient compliance – Would require significant changes to current approach– Achieves fundamental goal of reform

OR, it could be a tipping point that drives employers to drop coverage– Provide benefit allowance– Sponsor third-party “direct-to-consumer” service that packages

health, financial security and personal services

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Maintain the Status quo or consider Plan B?

Restructure overall benefit program and redistribute “excess” cost to compensation, voluntary benefits, retirement savings, work/life– Implement core medical plan that meets minimum actuarial value– Shift dental, vision and supplemental health coverages to voluntary– Put preventive dental in core medical– Restructure behavioral health to include health aspects of EAP and

change remaining EAP benefits to a work/life program

Develop lean health care programs focused on delivery excellence– Tight, quality-driven networks (e.g., domestic tourism, medical

homes)– Create narrow pharmacy benefit based on outcomes and cost

efficiency– Strengthen design incentives for consumer behavior change and

compliance

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Parting thoughts

The overall debate will continue to be intense for the next month– The employer’s role is an essential part of the debate on how to

expand access, control cost and improve quality– Employers are at risk for being seen as a direct and indirect source

of revenue to fund reform

Our goal is to help employers– Be well informed about potential elements, risks and opportunities– Take action, if desired, in communicating concerns to legislators– Make smart short-term decisions for 2010 and 2011 – Begin thinking about longer-term impact

Benefits HR strategy Organization cost

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