“Medicare in the New Millennium”

1. “Medicare in the New Millennium” Ft Worth Association of Health Underwriters www.fwahu.com August 8, 2013

2. Agenda • Future of Med Sups • Future of Medicare Advantage • Retiree plans: huge market coming to you • Actively at work and eligible for Medicare • Employer Group Waiver Plans • “Egg Whips” or “EGWP’s” • COBRA issues • ACO’s – Accountable Care Organizations (Agenda continued next slide)

3. Agenda • Star ratings • Lack of sufficient providers • Future eligibility age • IRMAA • Income Related Monthly Adjustment Amounts • SGR – Sustainable Growth Rate • Role of the agent

4. Future Growth in Medicare

5. Medicare Supplement Growth • 9.6M Med Sups in force • Baby Boomer impact • Medicare Advantage market is slowing* • This is not proving to be the case! • Funding reductions in Medicare Advantage • Employers: • Removing Medicare aged retirees from their health plan *Source: CSG Actuarial Research Paper, 2012

6. Future of Medicare Advantage • “I thought these plans were going away?” • 99.7% of all beneficiaries have access to a MA Plan • Medicaid coordination will increase • More mergers & acquisitions • Emergence of Accountable Care Organizations • Pay for performance • Star ratings

7. Medicare Advantage Spotlight • Enrollment grew by 10% in 2012 14.6M enrollees nationwide • 27% of overall Medicare enrollment 18% of these are via group retiree plans • Enrollment has doubled since 2005 • 65% are enrolled in HMO plans (9.5M) • 87% are located in urban counties

8. Medicare Advantage Spotlight • About 65% of all MA enrollees are in 6 firms • 1 in 3 are enrolled in either UHC or Humana • 56% are enrolled in a $0 premium plan • Group plan members account for: • 68% of Aetna’s share; 42% for Kaiser’s share • Growth opportunity remains strong • Baby boomers • Retirees losing health coverage

9. Medicare Advantage “SNPs” • Special Needs Plans = 1.8M enrollees • SNP Dual Eligible (Medicare and Medicaid) • Account for about 10% of all Dual Eligible • Huge growth opportunity • SNP Chronic • 80/20 Rule: 80% of claims come from 20% of beneficiaries • CHF, cardiovascular disease, diabetes • SNP Institutional Plans

10. Part C Revenue Cuts • According to UHC: • -12% MA revenue cuts to fund ACA • Phasing in 2012-2017 • -3.3% non-tax deductible fee on insurers to fund the ACA in 2014+ • -2.5% cut in rev for plans with 3-3.5 stars in 2015+ • -2.0% cut in rev for sequestration in 2013 • Total 19.8% in decreased funding

11. Impact of MA Payment reductions ACA reduces Medicare’s payment rates by $716,000,000,000 $ 260B hospital services $ 66B home health services $ 39B skilled nursing services $ 17B hospice services $ 156B MA program $ 25B Disproportionate Share Hospital $ 114B Independent Pymt Advisory Board $ 39B Other

12. Social Security & Medicare Taxes • Funded by FICA taxes at 15.3% of “wages” • Paid 50/50 by employees and employers • ACA increased FICA taxes by 0.9% (1-1-13) • On high-income taxpayers & on unearned income • Single filers $200,000+ • Joint filers $250,000+ • Value of non-cash fringe benefits included in wages • Wages include deferred comp

13. Retiree Plans • 1 in 4 Medicare beneficiaries are currently enrolled in a retiree plan • FASB issues tie up cash flow • Elimination of Retiree Drug Subsidy Deduction • Agent competition • Competing with large organizations and other direct to consumer marketing organizations like: • ExtendHealth.com • gobloomhealth.com • eHealthInsurance.com

14. Actively at Work Employees • More people age 65+ cannot retire • Some do not want to retire • 2-19 life groups • remove the 65 year old workers off the group health plan • Gain group health premium savings by using Medicare related products • Convert the savings to other insurance and financial products

15. “Egg Whips” • Employer Group Waiver Plan • Series 800 (EGWP) • Series 900 (Prescription Drug Plan or Part D) • EGWP is creditable Part D coverage • Annual Enrollment Period (AEP) • October 15-Dec 7 • EGWP Trust Open Enrollment Period • Year round sales, no “lock-in”

16. What makes an EGWP different? • Different rules apply to an EGWP: • Enroll first of any month throughout the year • Options for changes during the year • No “Scope of Appointment” necessary • No certification is required

17. COBRA • When a person leaves a group health plan, many things could go wrong • When should they enroll in Part B? • Beware of the 8 month rule! • Open Enrollment Period mistakes • Don’t let March 31st slip by! • Part B penalty for late enrollment • Don’t overlook the dependents!

18. ACO’s • What is an accountable care organization? • Coordination of care between all providers • Objective: lower costs by improving quality • Accountability through a network of relationships • Disease management & care coordination • Transition from FFS to value based payments • Currently over 200+ ACO Medicare Demonstration Projects in place

19. ACO’s Goal is to improve all aspects of care: • More patient safety • More patient centered • Timely & more efficient care • Monitor nutrition • Increased activity • Reduce wasteful spending • More preventive care

20. Market Value Based Purchasing • ACA designed this concept to pay hospitals differently based on their performance of federal quality measures • Has not proven effective in demonstration programs* • Results so far suggest this concept has produced less high quality care • Providers focusing on more care that is financially rewarding than on the patient’s needs *Heritage Foundation, July 27, 2012

21. CMS Star Ratings • ★ = poor performance • ★ ★ = below average performance • ★ ★ ★ = average performance • ★ ★ ★★ = above average performance • ★ ★ ★★★ = excellent performance

22. CMS Star Ratings Derived from four sources of data • CMS Administration data on plan quality and member satisfaction (See next slide for the nine measuring points) • CAHPS - Consumer Assessment of Healthcare Providers and Systems • HEDIS - Healthcare Effectiveness Data & Info Set • HOS - Health Outcome Surveys

23. Star Ratings Nine individual quality measures • Staying healthy: screenings, tests, & vaccines • Managing chronic (long term) conditions • Drug plan customer service • Ratings of health plans responsiveness and care • Health plan member complaints and appeals • Drug pricing and patient safety • Health plan telephone customer service • Drug plan member complaints, members who choose to leave, & Medicare audit findings • Member experience with drug plan

24. Star ratings • MA plans • 91% have 3+ stars and will receive a bonus • Only 12 five star plans of 446 plans in 2011 • Plan memberships range from 5,349 to 797,669 • 5 star plans may sell year round • Higher ratings = higher reimbursement levels • changes the terms of the market competition • Performance bonus by under star ratings • Projected $3.1 Billion in 2012

25. Star rating bonus Total bonus payments, 2012 = $3.1 Billion • UHC 18% • BCBS 13% • Kaiser 12% • Humana 12% • Wellpoint 5% • HealthSpring 3% • Aetna 3% • Health Net 2% • Coventry 2% • Others 30% CMS's performance data files are available at http://www.cms.gov/PrescriptionDrugCovGenIn/06_PerformanceData.asp

26. Lack of Sufficient Providers • Aging population • Will be twice as many people age 65 by 2030 • Increased demand for health care • Greater number of insured • PCP’s are paid less than Specialists • Lifetime earnings for Specialists $3.5 million more • Funding cuts to teaching hospitals • limits number of residency programs • Electronic Medical Records • Up to $50,000 per office to become compliant

27. Lack of Providers • CMS said 9,539 providers opted out in 2012 • Up from 3,700 in 2009 • 685,000 docs are enrolled as participating Medicare providers • Fewer family docs accepting Medicaid patients • But: docs get a raise in 2014 • Medicaid rates move up to Medicare rates

28. Lack of Sufficient Providers

29. Lack of Sufficient Providers

30. Raise Medicare Eligibility Age? • 1965 Medicare was introduced • Talk of raising Medicare eligible age to 67 • Aging population • Will be twice as many people age 65 by 2030 • Life expectancy increase since 1965 • Female: 1965 = 73.8 2010 = 80.8 (+5.1 yrs) • Male: 1965 = 66.8 2010 = 75.7 (+8.9 yrs) US Census Bureau 2012 Statistical Abstract

31. Raise the Cost Sharing • Part A - Hospital Insurance Inpatient Deductible 1966-68 = $40.00 2013 = $1,184.00 • Part B - Medical Insurance Annual Deductible • 1966 - 1972 = $50.00 • 2013 = $147.00 • Part D – Drug Coverage • 2013 = $325 • 2014 = $310

32. Income Related Monthly Adjustment Amounts • “IRMAA” • 2013 Standard Part B premium $104.90 <$85,000 Gross Income in 2011 + $42.00 ($170,000-$214,000) + $104.90 ($214,000 - $320,000) + $167.80 ($320,000-$428,000) + $230.80 ($428,000+)

33. Income Related Monthly Adjustment Amounts • “IRMAA” • 2013 Part D plan premium plus: $11.60 ($170,000-$214,000) $29.90 ($214,000 - $320,000) $48.30 ($320,000-$428,000) $66.60 ($428,000+)

34. Sustainable Growth Rate • Used to determine payment for physician services in Medicare • Per CMS, Physician cuts scheduled by up to 24.4% on January 1, 2014 • Bipartisan Medicare Physician Payment Innovation Act • introduced to repeal the SGR from the reimbursement formula

35. Hospital Readmissions • Starting in fiscal year 2013, lower reimbursement under the ACA begin for readmissions • Medicare Payment Advisory Commission: • 2/3rds of all readmits are avoidable • Average $7,200 per readmit; $15B per year problem • CMS to withhold a % of payment • 1% in 2013 • 2% in 2014 • 3% in 2015 and thereafter

36. Role of the Agent • As more changes take place, life becomes more complicated, increasing the need for advice • Agents, brokers, & private companies to sell coverage on the exchange to individuals and employers through privately-run websites • MA plans are a good example of what the agent’s role may be in health insurance exchanges • Be prepared: adapt, survive and thrive

37. Questions?Thanks for attending!