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Overview of Medicare Products & Update in Proposed Reforms

Overview of Medicare Products & Update in Proposed Reforms. Implications for Employers, Employees, Retirees & Health Plans. A QUARIUS C APITAL RGM Benefits Consulting. Actuarial Society of New York (ASNY) September 9, 2004. Today’s Presenters. Michael L. Frank, A.S.A., M.A.A.A.

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Overview of Medicare Products & Update in Proposed Reforms

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  1. Overview of Medicare Products & Update in Proposed Reforms Implications for Employers, Employees, Retirees & Health Plans AQUARIUS CAPITAL RGM Benefits Consulting Actuarial Society of New York (ASNY) September 9, 2004

  2. Today’s Presenters • Michael L. Frank, A.S.A., M.A.A.A. President and Actuary Aquarius Capital Rye, New York • Richard G. Murdock, F.S.A., M.A.A.A. President and Group Actuary RGM Benefits Consulting Wilton, Connecticut AQUARIUSCAPITALRGM Benefits Consulting

  3. Agenda • Overview of current Medicare plans • Key features of new program • Impact on retirees • Impact on employers • Planning issues and next steps AQUARIUSCAPITALRGM Benefits Consulting

  4. How Many People are 65 and older? AQUARIUSCAPITALRGM Benefits Consulting

  5. Medicare “Parts” • Part A • Include: Hospital coverage, skilled nursing • Exclude: Custodial, long term care • Individual Deductible of $876.00. • Free to most over 65 • Part B • Physician, ambulance, outpatient therapy and other professional services • Deductible + 80/20 coinsurance • Deductible: $100.00 (2004); $110.00 (2005) • Requires 25% contribution (premium $66.60 in 2004) • Part C • Medicare + Choice • Now re-named Medicare Advantage (MA) • Private plans made available in lieu of Parts A & B • Part D • New Prescription Drug plan AQUARIUSCAPITALRGM Benefits Consulting

  6. Medicare Part A Intermediaries for NY • Part A Intermediaries process claims for Hospitals, Nursing Homes, Home Health Care Agencies & Hospices • Who are these entities in NY • Empire Medical Services – Hospital Claims • Medicare/MetraHealth – Nursing Home & Hospital Claims • United Government Services – Home Health Care & Hospice Claims AQUARIUSCAPITALRGM Benefits Consulting

  7. Medicare Part B Intermediaries for NY • Part B Intermediaries process claims for physician, ambulance, outpatient therapy and other professional services • Who are these entities in NY • Upstate Medicare Division • GHI/Medicare • Empire Medical Services • HealthNow NY (Durable Medical Equipment only) AQUARIUSCAPITALRGM Benefits Consulting

  8. Medigap Plans • Secondary Payment Plans after Medicare (must have Medicare) • “Medigap” = Good housekeeping label • Labeled Plans A through J • Provided by Insurance Companies • Standard features – all carriers, generally all states • Many provisions make little sense • Reimburse enrollee for Medicare deductibles and coinsurance • Limited or no coverage for Rx AQUARIUSCAPITALRGM Benefits Consulting

  9. Medigap Plans A thru J • Basic Benefits • Covered A thru J • Medicare Part A Hospital Deductible – Covered A thru J • $876 in 2004 for each benefit period for hospital services • Skilled Nursing Home Costs – Covered D-J • Your cost ($109.50 in 2004) for days 21-100 in a skilled nursing home • Medicare Part B Deductible – Covered C, F, J • Yearly deductible for doctor services ($100 in 2004) • Medicare Part B Excess Charges • The difference between your doctor's charge and the Medicare approved amount, if your doctor does not accept assignment • Covered by Plans F (100%), G (80%), I (100%), J (%100) AQUARIUSCAPITALRGM Benefits Consulting

  10. Source: Anthem AQUARIUSCAPITALRGM Benefits Consulting

  11. Medigap Plans A thru J (continued) • Foreign Travel Emergency – Plans C thru J • 80% of the cost of emergency care outside the U.S. • Up to $50,000 in your lifetime • You pay a yearly deductible of $250 • At-Home Recovery - Plans D, G, I, J • Help for activities of daily living, such as bathing and dressing, if you are already receiving skilled home care covered by Medicare • Help for up to eight weeks after you no longer need skilled care • Will pay up to $40 per visit, seven visits per week, or a total of $1,600 per year • Preventive Care – Plans E & J • Up to $120 per year for preventive services ordered by your doctor AQUARIUSCAPITALRGM Benefits Consulting

  12. Medigap Plans A thru J (continued) • Prescription Drugs (Basic) - Covered by Plans H & I • 50% of prescription drug costs up to $1,250 each year after a yearly deductible of $250 • Prescription Drugs (Extended Coverage) – Covered by Plan J • 50% of prescription drug costs up to $3,000 each year after a yearly deductible of $250 • Plans Plans H, I & J to “virtually” disappear in 2006 AQUARIUSCAPITALRGM Benefits Consulting

  13. Medigap Plans A thru J (continued) • State Specific Differences – MA, MN, WI have different plan structures • Difficult to get Plans H-J (Rx coverage) in certain states at a reasonable cost • Medicare Select - A type of Medigap policy that may require you to use hospitals and, in some cases, doctors within its network to be eligible for full benefits. AQUARIUSCAPITALRGM Benefits Consulting

  14. Medicare Managed Care (M+C) Plans(Part C) • Exchange entitlement to Parts A and B for opportunity to enroll in private plan • Government pays private plan the value of the Medicare coverage (AAPCC) • Restricted networks (similar to Commercial HMOs and PPOs) • Offer increased benefits • Dental • Rx (e.g., generic coverage, discount cards) • Increased reimbursements from Government in 2004 may encourage continued or potentially new parties into market (results remain to be seen) AQUARIUSCAPITALRGM Benefits Consulting

  15. M+C Plans - Demographic Cost Factors • Differ by Age Groupings • Aged: 65-69, 70-74, 75-79, 80-84, 85+ • Disabled: <35, 35-44, 45-54, 55-59, 60-64 • ESRD: All ten age groupings • Differ by Gender • Medicare Status • Institutional • Non-Institutional: Working aged, Medicaid, Non-Medicaid • Varying Factors for Part A & B • County Specific Rates • CT = 8; NJ = 21; NY = 62 AQUARIUSCAPITALRGM Benefits Consulting

  16. 2004 Monthly AAPCCs for NY City Area (10 Sample Counties) – Combined Parts A/B AQUARIUSCAPITALRGM Benefits Consulting

  17. M+C Plans – Increase in Gov’t Reimbursements in 2004(Average Adjusted Per Capita Claim Cost) AAPCC Increases AQUARIUSCAPITALRGM Benefits Consulting

  18. Increases in AAPCCs in Last 3 Years(10 Sample Counties in NY)Combined Parts A/B AQUARIUSCAPITALRGM Benefits Consulting

  19. Challenges for Current M+C Plans • Same as Commercial Health Plans • Earnings, Operational, New Business Growth, Network Contracting • Unique to M+C • Geriatric Care Management different from Commercial • May not be core business • contracting & claims management issues • Higher turnover and more retroactivity than Commercial • Need to operate at significantly lower cost than Medicare Fee-for-Service but offer more benefits to attract members • Limited Penetration in Various Markets • CT has 5% participation in M+C Plans • CT has 2 M+C plans (not available in all counties) AQUARIUSCAPITALRGM Benefits Consulting

  20. M+C Rates in Tri-State Area AQUARIUSCAPITALRGM Benefits Consulting

  21. Medicare Discount Rx Cards • Similar to discount cards already in the market • Discounts averaging 10-35% off brand and generic scripts • 1/04: 106 Cards submitted for approval to CMS • 3/25/04: 28 card programs were approved for Medicare endorsement • Another 43 sponsors representing 84 Medicare Managed Care Plans (M+C) will offer cards to individuals enrolled in their plans. • Patients eligible for Medicare card if not receiving Medicaid or Medicaid 1115 Waiver (“Pharmacy Plus Waiver”) AQUARIUSCAPITALRGM Benefits Consulting

  22. Medicare Discount Rx Cards (cont.) • Patients eligible for Medicare card if not receiving Medicaid or Medicaid 1115 Waiver (“Pharmacy Plus Waiver”) • Enrollment fees up to $30 annually • $600 subsidy available for low-income patients decreasing based on time of enrollment AQUARIUSCAPITALRGM Benefits Consulting

  23. Medicare Discount Rx Cards (cont.) • Transitional Assistance (TA) - Patients under 135% of Poverty • TA patients • received $600 • no enrollment fee • 5% to 10% coinsurance • Some state programs may offer add’l assistance • Non-TA patients: Pay discounted amount AQUARIUSCAPITALRGM Benefits Consulting

  24. Prescription Drug Program – Medicare Part D • Voluntary Drug Benefit in 2006+ • Stand-alone benefit, for a premium (compete with M+C plans) • Provided through private plans • Enrollment begins 11/2005 • “Standard” plan or actuarially equivalent plan • Catastrophic coverage, with minimal benefits for those with lower costs • Subsidies to employers who provide coverage AQUARIUSCAPITALRGM Benefits Consulting

  25. Prescription Drug Program – Medicare Part D (continued) • Prescription Drug Plan Design • $250 deductible • Medicare covers 75% of cost up to $2,250 • Medicare covers 0% from $2,250 to $5,100 • Medicare covers 95% of costs above $5,100 • Low income subsidies • Waive premiums/deductibles & increase benefits for low income patients • Medicare will be primary payer (over Medicaid) AQUARIUSCAPITALRGM Benefits Consulting

  26. Okay…so how do we assess the cost of all these benefits? AQUARIUSCAPITALRGM Benefits Consulting

  27. Part D -- Illustrative Cost Sharing Retiree also pays $420 Annual Premium Overall reimbursement Is about 50% of cost AQUARIUSCAPITALRGM Benefits Consulting

  28. Impact on Individual Beneficiaries -- 2006 AQUARIUSCAPITALRGM Benefits Consulting

  29. Impact on Individual Beneficiaries --Projected 2013 w/ 12% Indexing Deductible: $553 75% Limit: $4,974 Cat. Limit: $11,274 Premium: $928 per year AQUARIUSCAPITALRGM Benefits Consulting

  30. Who Spends What?(Illustrative Example) AQUARIUSCAPITALRGM Benefits Consulting

  31. Current Issues for Employers with Retiree Health Benefits(FAS 106 Liabilities) • Liabilities potentially higher than initial implementation of FAS 106 • Healthcare Inflation Trends not decreasing at this state from initial valuations • Lower interest rates than initial valuation • Employers • Potential reduction in current and future retiree benefits • Potential sale or buyouts of retiree population AQUARIUSCAPITALRGM Benefits Consulting

  32. Impact of Medicare Reform on These Employers • Employers maintaining Rx plans get tax-free subsidies of 28% of gross drug costs between $250 and $5,000 (indexed) • Worth perhaps $500 (cash) per year if programs are kept in place • Reflect present values in FAS 106 valuations • Larger savings if plans are dropped • Requirements for subsidy • Plan must be at least actuarially equivalent to the Medicare Rx plan • Provide actuarial certification • Maintain records, disclose as required • Plan redesign may be needed • Meet minimum requirements for subsidy • Reduce or eliminate coverage AQUARIUSCAPITALRGM Benefits Consulting

  33. How the Subsidy Will Operate • A cash credit to the Employer – tax-free • Based on the amount of claims underlying the benefits provided • 28% of the amounts between $250 and $5,000 per year per person. • Estimate subsidy and actuarial equivalence: • Model Rx costs by person, projecting costs to 2006 • Use both current employer design, and Medicare design AQUARIUSCAPITALRGM Benefits Consulting

  34. Subsidies – “Actuarial Equivalence” • The “one-prong” test: • Evaluate plan based on gross value of coverage, without regard to EmployER/EmployEE financing • Same test as needed for competing programs • Likely to result in windfalls, but CMS is open to suggestions • The “two-prong” test: • Gross value test, as above; and • Net value test to reflect the portion financed by the Employer • Average subsidy ($611 in 2006) • Net value of Medicare Part D (after contributions) • Average value of Part D for beneficiary with generous wraparound coverage AQUARIUSCAPITALRGM Benefits Consulting

  35. Planning Issues for Employers with Retiree Plans • Should an Employer keep a plan or not? • A question of potential savings vs. retiree reaction • Subsidy estimated as $400 to $500 per person (cash savings) • Total elimination could be $1,600 to $2,200 per person (cash) • FAS106 expense and obligation are also reduced • Alternative strategies: • Eliminate Rx coverage, but pay the Part D premium (projected to be $420 in 2006, but increasing by drug trend). • Encourages members to enroll in Part D, but benefit levels will not be the same as under the Employer Plan. AQUARIUSCAPITALRGM Benefits Consulting

  36. Retiree Response • Retirees with employer coverage and/or low drug bills may not want to buy in • Potentially difficult choice • Premiums are substantial for low risk individuals: breakeven point is at $810 of drug expense – in 2006. Higher in future years. • Those opting out will be taking a risk, as they may not be able to enroll at will • Contributions likely to be a driver • If Employer plan costs less than Medicare, retirees likely to stay with Employer • High cost Employer plan may push retirees to Medicare • Expect retiree confusion, frustration, and irritation AQUARIUSCAPITALRGM Benefits Consulting

  37. Medicare Part B Changes • Income-based premiums. • 2004: Currently, 25% of Part B cost for all beneficiaries is $66.60 per month. Increasing to $78.20 in 2005. • New plan: A sliding scale based on incomes, starting at $80,000, increasing to 80% of cost at $200,000+ • Phasing in starting in 2007; fully effective in 2011. • Deductibles • Increased from $100 to $110 in 2005 • Indexed thereafter • Physician Payments • Increase by 1.5%, rather than cut payments in 2004, 2005 AQUARIUSCAPITALRGM Benefits Consulting

  38. Impact on Medigap Policies • Recognition that current plans encourage utilization • NAIC to be asked to develop new plan standards to recognize changed conditions and need for cost controls • New ground rules effective 1/1/2006 • Prohibits sale or renewal of Medigap with Rx coverage • But, those who decline Part D may renew such plans • Current Plans H, I & J to be modified to exclude drugs and offered to new enrollees • Two new plans • 50% and 25% coinsurance, and OOP limits • No coverage of Part B deductibles AQUARIUSCAPITALRGM Benefits Consulting

  39. New Medigap Designs – Plans K & L Source: AARP AQUARIUSCAPITALRGM Benefits Consulting

  40. Other Medicare Reforms • Medicare to provide: • cover preventative screenings beginning in 2005 • pay for Medication Therapy Management services, which can be administered by a pharmacist • cover Chronic Care Improvement programs for patients with high healthcare costs or multiple chronic disease states • Standards for Electronic Prescribing to be set (compliance required by 2008?) AQUARIUSCAPITALRGM Benefits Consulting

  41. Current Challenges Facing Health Plans from Previous Regulatory Reform (HIPAA) • Privacy of Medical Information • Business Considerations of Health Plans • Shifting of Resources from Reporting (Data) Initiatives • Develop Consistent Reporting/Claims Codification • “Home Grown” codes to be changed to standard industry codes • Larger business issues for specialty companies in Medicare (e.g., home health care providers) AQUARIUSCAPITALRGM Benefits Consulting

  42. How do I learn more about Medicare benefits? AQUARIUSCAPITALRGM Benefits Consulting

  43. Resources for Information – Websites to Know • Medicare - www.medicare.gov • Centers for Medicare & Medicaid Services (CMS) – www.cms.gov • American Association of Retired Persons (AARP) - www.aarp.org • State Specific • New York: Health Insurance Information, Counseling & Assistance Program- www.hiicap.state.ny.us/medicare/ • Many other resources AQUARIUSCAPITALRGM Benefits Consulting

  44. Open Discussion AQUARIUSCAPITALRGM Benefits Consulting

  45. Thank You! Contact us: Michael L. Frank michael.frank@aquariuscapital.net (914) 921-3516 Richard G. Murdock Rmurdocksr@optonline.net (203) 762-0929 AQUARIUSCAPITALRGM Benefits Consulting

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