Healthcare Costs, HealthCare Reform and Family Wellness

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SHRM 2012 Trend Book – Top three Benefit Concerns:

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Health care costs Health care reform Family health

SHRM 2012 Trend Book – Top three Benefit Concerns:

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Health care costs Health care reform Family health

Hypothesis: Consumer Driven Health plans play an active role and have a track record of success in strategies that address all three concerns So let’s explore our topic in the context of Yesterday, Today and Tomorrow……….

Yesterday

The Social Transformation of American Medicine:

The rise of a sovereign profession and the making of a vast industry

Paul Starr

Winner of 1984 Pulitzer Prize for General Non Fiction

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Today

The Peculiar American Struggle over Health Care Reform

Paul Starr Winner of the 2011 American Publishers Awards and Scholarly Excellence

(PROSE) in the Government and Politics category, as given by the Association of American Publishers

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Woodrow Wilson – 28th President of the United States (1913 – 1921)

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Health Care Reform first begins in 1917

Between 1910 and 1913 Workers Compensation laws passed requiring compulsory insurance against industrial accidents

Political reformers thought Americans could be persuaded to adopt compulsory insurance against sickness which caused poverty and distress among many more families

National debate on health insurance begins on the eve the U.S. enters WWI

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In Favor of Health Reform and Compulsory Health Insurance Believed workers would benefit from compulsory health insurance as a means of income protection Believed enhanced quality of life and that employers would realize handsome returns from a healthier more productive workforce As an additional cost containment feature, reformers strongly believed that doctors should be paid on a capitated basis instead of fee for service…

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Opposed to Health Reform - Business, Unions, Insurance Industry and the Medical Profession

Opposition for these groups had more to do with issues of control and power rather than the argument that strong and healthy citizens lead to a strong and healthy country Neither employers nor unions were interested in a social welfare program that would increase workers’ loyalty to either of them Opposition from insurance industry was due to the initial proposed health insurance package that included a funeral benefit. Prudential had 38% of the market and Met 34% of the industrial life insurance market

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Opposed to Health Reform - Business, Unions, Insurance Industry and the Medical Profession

The medical profession and the AMA believed the patient physician relationship was sacred. Doctors charged what their patients could afford to pay and would do anything in their collective power to defeat a system that introduced intermediation into their compensation

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What happened instead of national health insurance?

1920s and 1930s

Health care costs began to hit the middle class both with increased physicians fees and hospital costs

1929 Health care costs estimated at 4% of national income or $3.66 billion.

Social Security and The New Deal offered an expansionary vision: increased access to medical care by augmenting nation’s medical resources and reducing financial barriers to their use – yet no threat to physicians’ income.

1940s and 1950s Kaiser, Kaiser Permanente evolved from industrial health care programs for construction, shipyard, and steel mill workers for the Kaiser industrial companies during the late 1930s and 1940s. It was opened to public enrollment in October 1945.

1960s

Academic medicine flourished and hospital growth mushroomed

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Kaiser’s Legacy

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Former Broncos owner Kaiser, approved trade for Elway, dies CBSSports.com wire reports Jan. 14, 2012 5:42 PM ET DENVER -- Former Denver Broncos owner Edgar F. Kaiser Jr., who oversaw the trade that brought Hall of Fame quarterback John Elway to Denver, has died, according to a charitable foundation Kaiser established. Cheryl Smith, PHR, Safety and Benefits Specialist Desert Del Oro

Foods – Northwest Arizona Human Resource Association (NWAHRA) – June 2012

Richard Nixon – 37th President of the United States (1969 – 1974)

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Discovery of a Crisis - Runaway costs and Barriers to access

From 1960 – 1975 the share of health care expenditures paid by third parties increased from 45 to 67 percent (The Blues, private plans, Medicaid, Medicare)

The $10.8 billion government had spent in 1965 became $27.8 billion by 1970

Health expenditures had risen from 4.4% of the federal budget in 1965 to 11.3% of the budget in 1973

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Discovery of a Crisis - Runaway costs and barriers to access

Specialization flourished and general practitioners grew scarce

Lack of facilities and providers in rural areas

Emphasis on inpatient care over ambulatory and preventive health services

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Discovery of a Crisis - Runaway costs and barriers to access

Favorable HMO legislation passed during this era

1979 7.9 million people were enrolled in HMOs

HMOs costs were significantly lower mainly because of reduced hospitalization

For every 1,000 people, Kaiser plan subscribers had only 349 days of hospitalization compared to a national average of 1,149

However Nixon’s political dream of national health insurance disappeared in the scandal that ended his presidency

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Bill Clinton – 42nd President of the United States (1993– 2001)

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Clinton Health Care Plan of 1993

Provided universal health care coverage for all Americans

Employer mandate to offer coverage to all employees through HMOs

Hillary Clinton was drafted by the Clinton Administration to head a new Task Force and sell the plan to the American people, a plan which ultimately backfired amid the barrage of fire from the pharmaceutical and health insurance industries and considerably diminished her own popularity

By September 1994, the final compromise Democratic bill was declared dead

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What did happen during Bill Clinton’s first term?

The Family and Medical Leave Act of 1993 (FMLA) is a United States federal law requiring covered employers to provide employees job-protected and unpaid leave for qualified medical and family reasons

The bill was a major part of President Bill Clinton's agenda in his first term. President Clinton signed the bill into law on February 5, 1993

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Barack Obama – 47th President of the United States (2009 – current)

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Today

According to Kaiser Family Foundation, the United States spends more per capita on health care than any other country

Spending as a percentage of the gross domestic product has risen from 9 percent in 1980 to 16 percent in 2008; and may top the 20 percent mark in a few years

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Since 2006 Today 2012

Total Cost 52% increase Nearly $13,000 per employee annually

Employer 40% increase $8,000 average spent per employee

Employee 82% increase of out-of-pocket and payroll contributions

$5,000 average spent per year

With employee pay typically rising at 3% per year, compare a 19% pay increase to an 82% health care cost increase over the past 5 years. Experts estimate that health care costs will continue to rise at 8-9% per year

Source: Aon Hewitt HHVI Database

Unsustainable Health Care Cost Increases Are a Universal Concern

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Worsening Health Risk – A National Problem

of Americans will be overweight or obese by 2030 based on current trends. Today 33% of adults are overweight and 34% are obese. Childhood weight is also an issue with 32% of US children currently overweight or obese

of all medical spending is accounted for by obesity, compared to 6.5% in 1998

increase in claims cost for each unit increase of BMI

the new onset of diabetes for a weight gain of 11–18 pounds over 10 years

deaths per year may be attributable to obesity

increase in the risk of coronary heart disease mortality for each 2.2 pound increase in body weight

It starts with Obesity: know the NUMBERS

86%

300,000

1%–1.5%

2.3%

10% Double

Sources: various academic and governmental publications

Health Care Reform 2010 Addressed Access to Coverage

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BUT…did not address cost or population health

Consumer Driven Health Plans To The Rescue?

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What Is a Consumer Driver Health Plan (CDHP)?

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A High Deductible Health Plan (HDHP)

A Tax Favored Account HRA or HSA

Integrated with Health

Management/Wellness Framework

Consumer Tools & Resources

A ‘Qualified’ High Deductible Health Plan (HDHP) Minimum Deductible:

2012 $1,200 Single / 2,400 Family

2013 $1,250 Single / 2,500 Family

Maximum Out of Pocket

2012 $6,050 Single / $12,100 Family

2013 $6,250 Single / $12,500 Family

Maximum HSA Contributions

2012 $3,100 Single / $6,250 Family

2013 $3,250 Single / $6,450 Family

Catch up contributions allowed for those over 55

•All expenses apply to deductible with the exception of preventive care

•Preventive care can include physician services, lab/xray and some medications

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‘Qualified’ HDHP & Health Savings Account (HSA)

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Gap $2,000 Employee Responsibility

Health Plan (Qualified HDHP)

$2,000/year Deductible

Health Plan Pays After Deductible

HSA (Employer or Employee Funded)

Preventive Care 100%

Limited purpose FSA (vision, dental, expenses

after deductible)

Assumes single, in-network coverage

Health Reimbursement Arrangement (HRA)

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HRA - $1,000

Employer Provided Coverage

Health Plan (PPO, HMO, HDHP)

$2,000/year Deductible

Health Plan Pays After Deductible

GAP - $1,000

Employee Responsibility

Preventive Care 100%

FSA (If elected)

Assumes single, in-network coverage

HRA/FSA/HSA—Features

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Strategy and HDHP/CDHP Plan Designs

What type of high-deductible, consumer-driven health plan(s) does your organization offer or plan to offer?

50%

9%

21%

13%

31%

1%

2%

2%

7%

50%

21%

35%

32%

43%

69%

42%

52%

19%

Currently Offer Will Offer in 2012 May Offer in 3–5 Years Not Interested

High-deductible health plan with employer-seeded Health

Savings Account (HSA)

HSA-eligible, high-deductible health plan with no employer

account funding

High-deductible health plan with Health Reimbursement

Arrangement (HRA)

High-deductible health plan without an attached account

Other

Source: Aon Hewitt 2012 Health Care Survey

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Greater CDHP Acceptance—HRA or HSA Option

Consumer

Choice

HRA Prevalence

¹ Source: Aon Hewitt 2012 CDHP Survey Results

HSA Prevalence 2011 – 59% 2012 – 62%

HRA Prevalence 2011 – 41% 2012 – 38%

HSAs Gaining Popularity

Nationwide 11.4 million people were enrolled in HSAs January 2011, up by 1.4 million from a year earlier according to America’s Health Insurance Plans Center for Policy and Research.

In Arizona, 174,720 employees have HSAs – about 5% of the state’s private health insurance enrollees.

Phoenix Business Journal, May 4, 2012

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THE TOP 5 – Employer Objectives for offering CDHP

1. Promote Self-Service Environment and Accountability (Consumerism)

2. Contain Rising Health Care Costs

3. Provide a Low-Cost Plan Without Increasing Employee Contributions

4. Offer ‘Cutting Edge’ Benefits

5. Expand Choice of Offerings

*Aon Hewitt 2012 CDHP Survey – Middle Market

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Case Study: Arizona Central Credit Union

Why Did Arizona Central Credit Union Chose a CDHP?

Rising costs of employee benefit costs

Culture shift away from mindset that benefits are free

The need to offer an affordable premium option for employees with dependents

Ability to save using a Health Savings Account (HSA)

Case Study: Arizona Central Credit Union

Transition Process

Transitioned from offering traditional PPO and HMO plans to HDHP with HSA and a Choice Plan (EPO) Started charging premiums for the EPO and offered deductible subsidy for the HDHP Honesty and Transparency Were Key!

Started from the Top with Visible Senior Leadership Support

Educated and Trained our Employees

Case Study: Arizona Central Credit Union

Transition Process

Selected HSA Funding Strategy

Years1 and 2 - Subsidized In-Network Deductible at 50% Contributed - $750 individual Contributed - $1500 Family

Years 3 and 4 - Discontinued HSA subsidy and started charging premiums for

HDHP plan

Case Study: Arizona Central Credit Union

HDHP with HSA Enrollment Results

Year % of Enrollment in HDHP with HSA

2009--Year 1 39%

2010--Year 2 41%

2011--Year 3 40%

2012--Year 4 33%

Case Study: Arizona Central Credit Union

Experience

-9.1

9.6

11.9

8.1

-9.1

4.6

8.9

-2

-15

-10

-5

0

5

10

15

Plan

Res

ults

Plan Years

ACCU Initial Renewal ACCU Final Renewal PPO Trend CDHP Trend

2009 2010 2011 2012

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Case Study: Arizona Central Credit Union

Wellness Initiatives

Biggest Loser Competition

Partnered with Local Gym

Took Advantage of all the FREE resources

Case Study: Arizona Central Credit Union

Impact of Health Care Reform on Benefit Plan Strategy

90%

Report From the Field – What Do the Carrier’s Say?

“Over five years, cumulative cost savings are sustainable and can grow to $9700 per employee enrolled in a CDHP compared to employees who remained in a traditional plan.” Higher levels of care - preventive care, such as annual office visits and mammograms,

more frequent More savvy consumers of health care – choose generic medications and had 14% lower

pharmacy costs by comparison Source: Cigna Sixth Annual Choice Fund Experience Study released March 2012

“CDH Plans Offer Material Savings “ Savings can result from better decision making HSA plans are associated with higher savings than HRA plans A well designed plan includes a ‘preventive’ drug list Source: UnitedHealthcare Consumer-Driven Health Plan Performance Report 2011

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Report From the Field – What Do the Carrier’s Say?

“HRA/HSA members spend 7% less on overall health care costs” More frequent use of routine, preventive and chronic care Higher usage of online tools Plan sponsors impact engagement by thoughtful execution of strategy

Source: 8th Annual Aetna Health Fund Sturdy released 2012

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Lessons Learned

Communication is Key! Early and Often Multimedia Approach

HR & other Senior Leaders Must ‘Walk the Talk’

Focus on the Most Confusing/Impactful Topics How do the accounts work? Changes to prescription drug benefit (copay vs deductible)

Help Me Understand How do I decide what is best for me?

What Do I Need to Do? How Does This Work? Tell Me One More Time!

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Tomorrow

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Potential Areas of Health Care Reform impact on CDH plans

Medical Loss Ratio (MLR) - Fully insured plans MLR calculation does not include funds contributed to HSAs

Value of employer sponsored health coverage W-2 forms issued in early 2013 HSA, FSA, HRA, and stand alone vision and dental plans excluded

Minimum Essential Benefits Expected costs for benefits must have actuarial value of 60% Currently under consideration: only a portion of employer’s contribution to HSA or

HRA will be included in actuarial valuation

Stephen Miller, CEBS, 3/21/12 online editor/manager SHRM

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Potential Areas of Health Care Reform impact on CDH plans

Cadillac Tax - 2018 40% tax calculated based on amount in excess of threshold – aggregated employer

sponsored benefits including value of health insurance premiums; vision, dental and other supplemental insurance premiums; including the employer’s contributions to HSAs, HRAs and FSAs

Affordability Employee contribution for single coverage cannot exceed 9.5% of family income –

unknown if employers’ contributions to HSA or HRA can be included in calculation for affordability

Exchanges CDH plans will be available in Vermont exchange Other states unknown

Stephen Miller, CEBS, 3/21/12 online editor/manager SHRM

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Questions?

karen.alter@aon.com

mary.harwood@azcentralcu.org

janet.vreeland@aon.com

Thank you! 47

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