1
Jon Sapochak, Consulting Actuary, F.S.A., M.A.A.A.
Central Susquehanna Intermediate Unit
Professional Leadership Day
Healthcare Benefit Trends & Practices
2
“The work of science is to substitute
facts for appearances
and
demonstrations for impressions.”
-Ruskin
3
Overview
Agenda
•
Background – healthcare history
•
Where are we today?
•
Healthcare trend and influences
•
Benchmarking
•
Benefit trends and practices
•
What is the healthcare crisis?
•
Where do we go from here?
4
Background
Why employer-sponsored insurance?
•
1920s – First health plans began to appear
•
1943 – War Labor Board ruled that wage controls
under the 1942 Stabilization Act did not apply to
fringe benefits (ex: health insurance)
•
1954 – IRS clarifies that employer-sponsored health
5
Background: How Health Plans Have Changed
Traditional
Plans
•
No network
•
Fee for Service
•
No cost controls
•
Provider
Network
•
Fee for Service
•
Limited cost
controls
PPO Plans
Point of
Service
(POS)
Plans
HMO Plans
•
Provider
Network
•
Fee for
Service
•
Capitation
•
Gatekeeper
•
Required
referrals
•
Restrictive
Network
•
Fee for
Service
•
Capitation
•
Gatekeeper
•
Required
referrals
•
In-network
only
•
Managed
care
Early Plans1970s
1990s
1990s
6Background: How Health Plans Have Not Changed
Traditional
Plans
•
No network
•
Fee for Service
•
No cost controls
•
Provider
Network
•
Fee for
Service
•
Limited cost
controls
PPO Plans
Point of
Service
(POS)
Plans
HMO Plans
•
Provider
Network
•
Fee for
Service
•
Capitation
•
Gatekeeper
•
Required
referrals
•
Restrictive
Network
•
Fee for
Service
•
Capitation
•
Gatekeeper
•
Required
referrals
•
In-network
only
•
Managed
care
1970s
2014
7
Background: What’s Next?
•
Provider network
•
Fee for service
•
Limited cost
controls
•
Deductibles
•
Coinsurance
•
Office visit
copayments
•
Employee
cost-sharing
PPO Plans
Payment Reform
2014
?
Future
•
Limited/Tiered Networks
•
Accountable Care
Organizations (ACOs)
•
Patient-Centered
Medical Homes
(PCMHs)
• Concierge Medicine • Direct Primary Care(DPC)
8
Medical Cost Trends and Premium Increases
Understanding Medical Cost Trends
•
Medical Cost Trend is a projection of the increase in
healthcare costs over the next policy year.
•
Trend is primarily affected by:
•
Price inflation
•
Utilization
•
Government mandated benefits
•
New technology, treatments and therapies
•
Deductible leveraging
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Medical Cost Trend and Premium Increases
National and Local Medical Trends
Source
2010
2011
2012
2013
2014
PricewaterhouseCoopers
9.0%
9.0%
8.5%
7.5%
6.5%
Towers Watson
8.0%
8.0%
6.8%
6.0%
7.0%
The Segal Group, Inc. (PPO)
10.8%
11.0% 10.0% 8.8%
7.9%
Capital BlueCross (PPO)
11.75% 11.75% 11.0% 11.0% 11.0%
HealthAmerica (PPO)
13.0%
10.4% 11.9% 10.9% 10.9%
Highmark Blue Shield (PPO)
12.0%
10.0%
9.5% 10.0% 10.0%
United Healthcare (PPO)
12.0%
8.3%
10.1% 10.0% 10.3%
Sources: 3, 6, 7, 14
LOCAL
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Medical Cost Trend and Premium Increases
Medical Trends – Actual vs. Expected
Sources: 3
10.8%
11.0%
10.0%
7.6%
7.5%
7.3%
0%
2%
4%
6%
8%
10%
12%
2007
2008
2009
2010
2011
2012
PPO Projected
(without Rx)
PPO Actual (without
Rx)
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Medical Cost Trend and Premium Increases
Source
2010
2011
2012
2013
2014
The Segal Group, Inc. 9.1%
9.2%
7.2%
6.4%
6.3%
Capital BlueCross
10.0%
10.0%
10.0%
10.0%
10.0%
HealthAmerica
10.5%
9.5%
10.5%
10.5%
10.5%
Highmark Blue Shield
11.0%
9.0%
9.0%
11.0%
11.0%
United Healthcare
12.6%
12.0%
13.2%
12.7%
10.5%
National and Local Prescription Drug Trends
Sources: 3, 14
LOCAL
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Medical Cost Trend and Premium Increases
Prescription Drug Trends – Actual vs. Expected
Sources: 3
9.1%
9.0%
7.2%
6.4%
5.0%
5.5%
0%
2%
4%
6%
8%
10%
12%
14%
2007
2008
2009
2010
2011
2012
Rx Retail Projected
Rx Retail Actual
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Medical Cost Trends and Premium Increases
Cost Deflators
•
Care moves to more cost-efficient site of care (i.e.
inpatient to outpatient, ER to Urgent Care)
•
Employers moving to “high-performance networks”
•
Drop in hospital readmissions
•
Increase in high deductible plans
Cost Inflators
•
Rise of expensive high cost biologics (specialty
drugs)
•
Health industry consolidation
Sources: 6
14
Cumulative Changes in Health Insurance Premiums,
Inflation, and Workers’ Earnings, 1999-2013
182%
50%
40%
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Health Insurance
Workers Earnings
Overall InflaNon
Sources: 115
Background: Medical Cost Trend and Premium Increases
Premium Changes Over Time ($)
Sources: 1 $2,196 $5,884 $5,791 $16,351
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Single
Family
CSIU PPO $0 Premiums:
Single: $7,848
Family: $21,960
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Healthcare Benefit Trends & Practices
How Do Employers Respond to Rising Costs?
•
Funding Arrangement and Benefit Plan Types
•
Employee Claim Cost-Sharing
•
Employee Premium Cost-Sharing
•
Consumer Driven Healthcare Models (QHDHPs w/ HSAs)
•
Defined Contribution Healthcare Models
•
Restrict Employee Healthcare Eligibility (Spousal Eligibility)
•
Audit Dependents
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Healthcare Benefit Trends & Practices
How Do Employers Respond to Rising Costs?
•
Funding Arrangement and Benefit Plan Types
•
Employee Claim Cost-Sharing
•
Employee Premium Cost-Sharing
•
Consumer Driven Healthcare Models (QHDHPs w/ HSAs)
•
Defined Contribution Healthcare Models
•
Restrict Employee Healthcare Eligibility (Spousal Eligibility)
•
Audit Dependents
•
Implement Wellness Initiatives
18
The “three-legged stool”:
(an imperfect metaphor)
•
Benefit Plan Design
•
Premium Cost-Sharing
19
Healthcare Reform: Plan Value
Benefit Plan Tiers
•
Bronze Plan – Considered minimum value coverage and
base coverage in the Marketplace (with exception of
catastrophic plan below); covers actuarial value of 60% plan
costs
– OOP Limit equal to HSA limits ($6,350/$12,700 for 2014)
•
Silver Plan – Covers actuarial value of 70% plan costs
•
Gold Plan – Covers actuarial value of 80% plan costs
•
Platinum Plan - Covers actuarial value of 90% plan costs
•
Catastrophic Plan
– Available for individuals up to age 30
– Coverage Levels set at HSA current limit (except preventive care and 3 PCP visits exempt from deductible)
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PPACA “Metal Tier” Examples
Benefit Plan Tiers
PlaEnum
Gold
Silver
Bronze
DeducEble
$750/$1,500
$1,000 /
$2,000
$2,500 /
$5,000
$6,250 /
$12,500
Coinsurance
0%
10%
20%
N/A
Coinsurance
OOP Limit
$0
$1,500 /
$3,000
$3,000 /
$6,000
N/A
OV Copays
$20
$30
$40
N/A
Rx Copays
$5/$20/$35 $10/$30/$50 $15/$35/$60
N/A
Actuarial Value
90%
80%
70%
60%
Actuarial Value equivalents shown above are based on esEmates from the Actuarial Value calculator provided by HHS. The benefit plans shown above do not include all of the plan details that were included in the calculaEon and are for illustraEve purposes only.
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Benefit Plan Design
Employee Claim Cost-Sharing
•
Deductibles
•
Coinsurance
•
Office visit copayments
•
Urgent care and emergency room copayments
•
Prescription drug copayments
22 33% 19% 43% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2006 2007 2008 2009 2010 2011 2012 2013 Kaiser Survey CSAct Survey
Sources: 1, 8
Percentage of PPO Plans with $0 Deductible
23 10% 34% 6% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2006 2007 2008 2009 2010 2011 2012 2013 Kaiser Survey CSAct Survey
Sources: 1, 8
Percentage of Plans with Deductible of $1,000 or
Greater – Single Coverage
Employee Claims Cost-Sharing: Deductibles
24 43% 19% 6% 34% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2006 2007 2008 2009 2010 2011 2012 2013 $0 DeducNble $1,000 + DeducNble Sources: 8
Local Plans with $0 Deductible and $1,000 + Deductible
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Focus Area: High Deductible Health Plans
7% 14% 41% 9% 20% 45% 15% 20% 43% 16% 23% 42% 20% 32% 45% 22% 36% 51% 23% 39% 55% 0% 10% 20% 30% 40% 50% 60%
Small (<500) Medium (500-‐4,999) Large(>5,000) 2007 2008 2009 2010 2011 2012 2013
Employers Offering Qualified HDHP/HSA
Sources: 15
High Deduc+ble Health Plans with HSAs
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Focus Area: High Deductible Health Plans
High Deductible Health Plans
•
Generally PPO plans with a large deductible level (at least
$1,000 per individual or higher)
•
IRS Qualified Plans subject to minimum deductibles
($1,300 for a single in 2015)
•
Often paired with an account structure to cover part of the
deductible
•
Health Savings Account (HSA)
•
Health Reimbursement Arrangement (HRA)
•
Also referred to as “Consumer-Driven Health Plans”;
theory being that the more the participants have financial
responsibility for healthcare expenses, the more efficiently
they will utilize healthcare services.
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Focus Area: High Deductible Health Plans
High Deductible Health Plan Goals
•
Save money
•
Make employees better consumers
•
Avoid the 2018 Excise (Cadillac) Tax
•
Encourage employees to save for future care
expenses (Health Savings Account)
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Excise Tax in 2018 (Cadillac Tax)
What is the tax?
All plans having annual premiums or cost values of $10,200 ($850/month) per employee
or $27,500 ($2,292/month) per family on an annual basis will face an excise tax of 40%
beginning in 2018.
Are many plans in danger of this tax?
Based on Kaiser’s current premium averages for Single and Family coverage, an annual
increase of 8% between now and 2018 will push the average plan near these limits:
NATIONAL: 2018 Estimated Projected Annual Premiums (8% Increase per year)
Approximate Annual Single Premium: $8,600
Approximate Annual Family Premium: $24,000
NORTHEAST: 2018 Estimated Projected Annual Premiums (8% Increase per year)
Approximate Annual Single Premium: $9,000
Approximate Annual Family Premium: $25,500
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58%
25%
16%
Employer ContribuNons
Employee ContribuNons
Employee Out-‐of-‐Pocket Cost
$3,600
$5,544 $12,886
Total Cost of Health Coverage per Employee
National - Average Family of Four Central Susquehanna Intermediate Unit
Total Annual Cost - $22,030 Total Annual Cost - $22,749
Sources: 5
Employee Cost-Sharing
81%
9%
9%
Employer ContribuNons
Employee ContribuNons
Employee Out-‐of-‐Pocket Cost
$2,129 $2,143
$18,477
30
Employee Premium-Sharing
Average Employee Premium Cost-Sharing Percentage
18% 16% 19% 13% 21% 21% 14% 22% 29% 36% 26% 30% 32% 27% 21% 27% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Kaiser-‐ All Kaiser -‐ 3-‐199
EE's Kaiser -‐ 200+ EE's Labor -‐ State/Bureau of Local Gov't
Bureau of Labor -‐ Private
HHS/AHRQ CSAct Survey
& Clients Lancaster Chamber Business Group on Health Single Coverage Family Coverage
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Employee Premium-Sharing
[VALUE]
18%
[VALUE]
29%
0% 5% 10% 15% 20% 25% 30% 35% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Individual Family Sources: 1Employee Premium Contributions for Individual and
Family Coverages
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The Healthcare Crisis
The “Iron Triangle” of Healthcare
Quality
Cost
33
The Healthcare Crisis
The Healthcare Crisis
•
Costs are increasing at a rate greater than revenues
•
Employers are unable to afford to maintain the level
of coverage previously offered to employees
•
There is a limit to how much cost can be shifted to
employees
•
The current system cannot be sustained without
sacrificing something else
•
No one is going to volunteer to take less
34
The Healthcare Crisis
Who is responsible for the
healthcare crisis?
•
A: Health Insurers
•
B: Providers/Hospitals
•
C: Government
•
D: Employers (Plan Sponsors)
•
E: Employees (Consumers)
35
The Healthcare Crisis
Who is responsible for solving the
healthcare crisis?
•
A: Health Insurers
•
B: Providers/Hospitals
•
C: Government
•
D: Employers (Plan Sponsors)
•
E: Employees (Consumers)
•
F: All of the above
36
The Healthcare Crisis
Consumers need to become part of
the solution
•
The choices we make directly impact the cost of
healthcare, both in the short- and long-term
•
Current trend is to move toward models that focus on
changing consumer behavior
•
Wellness plans
•
Consumer driven health plans
37
In Closing
“The Tragedy of the Commons”
•
Economic theory by Garrett Hardin
•
Sustainability versus over-consumption
•
Acting in self-interest hurts the common good
•
What does it say about healthcare?
•
Solution?
•
External Regulation – failed once in healthcare
•
Cooperation – everyone agreeing to use resources responsibly
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Sources
1. Kaiser/HRET Employer Health Benefits, 2013 Annual Survey – 2067 Participants 2. SHRM, 2013 Employee Benefits
3. 2014 Segal Health Plan Cost Trend Survey
4. Business of Labor Statistics Publication – October 17, 2013 – National Compensation Survey, March 2013
5. 2013 Milliman Medical Index
6. PricewaterhouseCoopers’ Behind the Numbers – Medical Cost Trends for 2014, June 2013 7. Towers Watson – 2014 Employee Survey on Purchasing Value in Health Care
8. CSAct Medical & Prescription Drug Survey, 2013 9. CSAct Clients’ Information, 2013/2014
10. Conrad Siegel Actuaries Worksite Wellness Survey, 2013 11. Lancaster County Business Group on Health 2013 12. Ebri.org Issue Brief – February 2014. Vol 35, No 2. 13. Ebri.org Issue Brief – January 2013. No 382. 14. Local Carriers’ Underwriting Departments – April 2014 15. Mercer, November 20, 2013
16. Aon Hewitt Publication – October 17, 2013
17. 2014 Federal Employees Health Benefit Program (FEHBP)
18. US Department of Health and Human Services – AHRQ (Agency for Healthcare Research and Quality)
19. 2013 Devenir HSA Research Report 20. JP Morgan HSA Snapshot – February 2013 21. Ebri.org Issue Brief – January 2014 No 395 22. Drug Trend Report – Express Script Lab – April 2014
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