Overview of medicare products update in proposed reforms
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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

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


Today s presenters

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

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Agenda

Agenda

  • Overview of current Medicare plans

  • Key features of new program

  • Impact on retirees

  • Impact on employers

  • Planning issues and next steps

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How many people are 65 and older

How Many People are 65 and older?

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Medicare parts

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

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Medicare part a intermediaries for ny

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

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Medicare part b intermediaries for ny

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)

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Medigap plans

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

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Medigap plans a thru j

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)

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Overview of medicare products update in proposed reforms

Source: Anthem

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Medigap plans a thru j continued

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

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Medigap plans a thru j continued1

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

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Medigap plans a thru j continued2

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.

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Medicare managed care m c plans part c

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)

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M c plans demographic cost factors

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

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2004 monthly aapccs for ny city area 10 sample counties combined parts a b

2004 Monthly AAPCCs for NY City Area (10 Sample Counties) – Combined Parts A/B

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M c plans increase in gov t reimbursements in 2004 average adjusted per capita claim cost

M+C Plans – Increase in Gov’t Reimbursements in 2004(Average Adjusted Per Capita Claim Cost)

AAPCC Increases

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Increases in aapccs in last 3 years 10 sample counties in ny combined parts a b

Increases in AAPCCs in Last 3 Years(10 Sample Counties in NY)Combined Parts A/B

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Challenges for current m c plans

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)

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M c rates in tri state area

M+C Rates in Tri-State Area

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Medicare discount rx cards

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”)

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Medicare discount rx cards cont

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

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Medicare discount rx cards cont1

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

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Prescription drug program medicare part d

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

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Prescription drug program medicare part d continued

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)

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Overview of medicare products update in proposed reforms

Okay…so how do we assess the cost of all these benefits?

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Part d illustrative cost sharing

Part D -- Illustrative Cost Sharing

Retiree also pays $420 Annual Premium

Overall reimbursement

Is about 50% of cost

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Impact on individual beneficiaries 2006

Impact on Individual Beneficiaries -- 2006

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Impact on individual beneficiaries projected 2013 w 12 indexing

Impact on Individual Beneficiaries --Projected 2013 w/ 12% Indexing

Deductible: $553

75% Limit:$4,974

Cat. Limit: $11,274

Premium: $928 per year

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Who spends what illustrative example

Who Spends What?(Illustrative Example)

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Current issues for employers with retiree health benefits fas 106 liabilities

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

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Impact of medicare reform on these employers

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

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    How the subsidy will operate

    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

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    Subsidies actuarial equivalence

    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

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    Planning issues for employers with retiree plans

    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.

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    Retiree response

    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

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    Medicare part b changes

    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

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    Impact on medigap policies

    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

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    New medigap designs plans k l

    New Medigap Designs – Plans K & L

    Source: AARP

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    Other medicare reforms

    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?)

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    Current challenges facing health plans from previous regulatory reform hipaa

    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)

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    Overview of medicare products update in proposed reforms

    How do I learn more about Medicare benefits?

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    Resources for information websites to know

    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

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    Overview of medicare products update in proposed reforms

    Open Discussion

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    Thank you

    Thank You!

    Contact us:

    Michael L. Frank

    [email protected]

    (914) 921-3516

    Richard G. Murdock

    [email protected]

    (203) 762-0929

    AQUARIUSCAPITALRGM Benefits Consulting


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