Transcript Insured Vs. Self

Risk Funding and Cost
Management
Today, Tomorrow and Beyond
Presented by
William Stanton
Agenda
• Setting the Stage – Getting Started
• Risk - Insured vs. Self-Insured
• Additional Cost Control Opportunities
• Wellness & Lifestyle Management Programs
• Care – Disease Management Plans
• Pharmacy Management
• Purchasing Co-operatives – An Emerging
Technique
2
The Current HealthCare
Environment
• Certainty vs. Uncertainty or Proven vs.
Unproven
• Lots to get confused about
3
Starting a New Chapter
• Greater federal involvement but also a shift in
focus
– Cost must be managed or healthcare delivery as we
know it will change
– Everyone will have coverage
– Opportunity for healthier Employees & improved
productivity
– Better data = Better decisions & Better Focus
• Our approach today – How you can make more
informed decisions in this “changing
environment”
4
MY GOAL - Keeping It Simple
• There is a lot to absorb
• Keep it clear – (I will try)
• Not too much – (Avoid overload)
• Take Always – (What you can do)
• Let the system work for you
5
Who Am I
• 44 years experience – I have seen it all
• Involved in all areas
– Comprehensive Health Planning Agencies
– Insurance Company
– Employer Prospective
– Employee view and reaction
6
What I Have Seen
• Fully Insured moving to Self-funded
• Indemnity Plan
HMO
Consumerism
• Government Intervention
– Medicare – The year I started
– PPACA* – The year I got out!
– Why I care
• This may be our last chance for self governance of
healthcare benefits
– *Patient Protection and Affordable Cost Act
7
Great Truths I Have Learned
•
•
•
•
Raising teenagers is like nailing jelly to a tree
Wrinkles do not hurt
Families are like fudge – mostly sweet with a few nuts
Today's mighty oak is yesterday’s nut that held it’s
ground
• Laughing is good exercise. It’s like jogging on the inside
• Middle age is when you choose your cereal for fiber, not
the toy
• Growing old is mandatory; growing up is optional
8
1. Setting the Stage – Getting Started
• In the 50-70’s we had indemnity contracts, true insurance patient control
and selection of the providers and responsibility for 30-40% of the
charges. The government initiates care for the elderly with Medicare.
• In the 70-90’s employee rights/ employee obligations with ERISA and
price controls with Carter. Plan design reduces patient cost obligation with
UCR, semi-private, lower co-insurance and deductible as a percentage of
cost and 1st dollar Rx plan and HMO are introduced with full coverage “in
network”.
• In the 90’s provider network management is key. Follow the system and
reward the patient – HMO, EPO, PPO, POS. Provider key - low out of
pocket expense. Despite these generous plans the number of uninsured
grows rapidly, cost continues to escalate and employers are unhappy.
• Today the government is positioned to take an increasingly active role thru
mandates for the uninsured, safety net plans and pricey benefit coverage
requirement. Employers are seeking to engage the consumer through
increased education, wellness and lifestyle awareness. Better assessment
of claim utilization costs, earlier intervention, disease management and
the use of incentives are also keys to cost reduction.
9
Setting the Stage – Getting Started
(Moving from Insurance to Entitlement)
• Average Monthly Employee Premium in 1960 $109
• Average Out of Pocket Expense in 1960
56.3%
• Average Monthly Employee Premium in 2000 $341
• Average Out of Pocket Expense in 2000
17.5%
• Employee share of healthcare cost has not kept up with trend
• The average cost per admission in 1971 was $667 with a $100 deductible,
•
•
•
- was 15.0% of the admission cost
The average cost per admission in 2000 was $6,651 with a $100
deductible (if you had one) - was 1.5% of the admission cost
The government has not fulfilled it’s obligation by cost shifting to plan
sponsors resulting from reduced reimbursement under Medicare and
Medicaid
Pharmacy costs are now rising at the same rate as health care costs
10
Setting the Stage – Getting Started
If Food Were Health Care – Rate of Increase Since 1935
Expected Cost 2007 of Basket of Goods
1lbs Coffee, $64.17
1 Dozen Eggs, $80.20
1lbs Beef Shoulder,
$43.57
1lbs Apples, $12.23
1lbs Sugar, $13.70
$24.40
1 roll Toilet Tissue
1lbs Bacon, $122.48
1 Dozen Oranges,
$107.90
1lbs Bananas, $16.04
1lbs Butter, $102.07
Source: American Institute for Preventive Medicine, 2007
11
Setting the Stage – Getting Started
Medical trend: Expected Increases in Medical Costs
• Factors
–
–
–
–
–
–
–
Medical Cost Inflation
Legislative Mandates
Technology
Fraud, Litigation, Other Factors
Plan Design
Aging/Utilization Increases
Health Management
• Anticipated Trends for 2011 & 2012: 9-12%
12
Setting the Stage – Getting Started
Trend Impact
Assumptions:
Most Recent 12 Months of Paid Claims
Annual Trend Rate
$
12,000,000
10%
Results of TrendTrend
– Something
You Can Impact
Impact
$22,000,000
$20,988,075
$20,000,000
$17,569,200
$18,000,000
$16,000,000
$14,586,075
$14,000,000
$12,000,000
$10,000,000
Year 1
Year 2
5%
Year 3
10%
Year 4
Year 5
15%
13
Setting the Stage – Getting Started
High Performers Consistently Have Low Trends
Median Trends by Performance Category
16%
12%
8%
4%
0%
2004/5
2005/6
Poor Performers
2006/7
Average Performers
2007/8
2008/9
Best Performers
Source: 14th Annual National Business Group on Health / Watson Wyatt Survey Report 2009
14
Setting the Stage – Getting Started
An Integrated Strategy
•
Solving the problem of Medical Cost Management
• “you must turn data into information and
information into strategy”
INTEGRATED ANALYSIS
CLINICAL
FINANCIAL
BEHAVIORAL
CLINICAL
FINANCIAL
BEHAVIORAL
INTEGRATED ACTION
CLINICAL
FINANCIAL
BEHAVIORAL
15
Three Old Guys
• Three old guys are walking.
• First one says - “Windy isn’t it?”
• Second one says – “No it’s Thursday!”
• Third one says – “So am I. Let’s go get a beer.”
16
2. Risk – Insured versus Self Insured
• Finding the money
• Understanding the changes
• Assessing the risk/opportunity
• Some data
17
Insurance Vs. Self-Insured
$1,000
$900
$800
Paid Claims
Paid Claims
$700
$600
$500
$400
Incurred Claims
$300 Incurred Claims
(Known)
Exp. & Profit
$200
$100
Costs
Annual
Premiums
Exp. & Profit
$0
Insured
1
SAVINGS
Margin/
Risk/Taxes
2
Self-Funding
3
Carrier required reserves are held by the insurer
and run from 20% to 30% of paid claims
Margin/
Risk/Taxes
4
18
Understanding Carrier Changes for Risk, Retention
& Margin* by Employer Size
# Employees
Risk/Retention
Margin
Less than 250
20-30%
8-11%
250-2000
19-25%
4-10%
More than 2000
10-18%
0
* Margin- monies held for claim fluctuations
19
Savings Potential - 12% to 18%
Insured Vs. Self-Insured
$1,200
$1,000
Admin & Profit
$800
Margin
Taxes
$600
Reserves/Run out
$400
Paid Claims
Mandated Benefits
$200
$Insured
Self-insured
Savings potential from total cost – 3% from state mandates; 2% to 3% in taxes;
2% to 4% in carrier profit; 5% to 8% in reserve requirements and you get to keep
Interest earned on unused money
20
Cost Implications
Insured
•
•
•
•
Carrier “owns” reserves
Costs are fixed for the year
Self-Insured
• Employer owns reserves
• Costs determined by claims
All risk transferred to carrier
•
Renewal rates determined by
the carrier (including trend
assumptions)
•
•
•
(good & bad)
Risk limited by stop loss
coverage
Employer determines trend –
but also retains risk for
assumptions made
Employer enjoys use of
“unused” money & earns
interest
Employer makes decision
about funding reserves &
margin
21
Benefits of Self-Funding
• Savings Opportunity
– Employers only pay for actual claims and administrative costs.
• Plan Design Flexibility
– Programs can be designed with benefits that more closely meets their needs and
objectives.
• Eliminates Most State Mandated Benefits
– A self-funded plan complies with federal law under ERISA and is exempt from
state and mandated benefit requirements.
• Reduced State Insurance Premium Taxes
– The total premium paid by a fully insured plan is subject to state insurance
premium taxes. Under a self-funded plan, only the stop loss insurance is subject
to the premium tax.
• Maximize Benefit Dollars
– The employer retains and invest that portion of a fully insured premium that is
not held by the insurer for claim reserves.
22
What is Funding
– Funding is the means by which an employer
pays for medical (benefit) coverage.
– Fully insured contracts require the insured to
pay a fixed premium in advance and the
insurance carrier holds the full claim liability.
– Self-funding (or Self-insuring) works more like
a gas or electric bill. If claims are low, you
pay a lower amount; if claims are high, you
pay more. But, there are tools to limit your
costs.
23
Who Self-Funds medical?
Percentage of Covered Workers in Partially or
Completely Self-Funded Plans by Firm Size, 2009*
Firms with 200–999 employees
48%
Firms with 1,000–4,999
employees
80%
Firms with 5,000 or more
employees
88%
All Small Firms (3–199
employees)
15%
All Large Firms (200 or more
employees)
77%
* Estimate is statistically different from estimate for all other firms not in the indicated size.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009.
24
Why Self-Fund medical
• Cost Savings potential
• Design Flexibility
• Ability to select best in class vendors for
carve out services
– Wellness
– Disease Management
– Rx coverage
• Improved access to better data
25
How Self-Insurance Works
• Basic Steps
– Employer designs the medical plan (but plan must be
able to be administered by the health insurance
company or a Third Party Administrator)
– Employer pays for claims after receiving notice from
the claims administrator
– Stop Loss insurance is purchased to cap employer
liability for large individual claims (specific stop loss)
and total claims for the year (aggregate stop loss)
26
Items of Concern for the Newly
Self-Funded
• In the first year, your claims will be lower
– Prior insurer paid out the claims reserves
• Employer must re-establish reserves
• Greater flexibility = Greater Responsibility
– Just because you can make claim
determinations, doesn’t mean you should
– Stop Loss carrier has rights and may refuse
payment unless notified and agrees
27
Limiting Your Liability With Stop Loss Coverage
• Why buy Stop Loss Protection?
• Individuals with serious diagnoses can accumulate claims in the range of
•
•
•
$15,000 to over $1 million + in a 12 month period.
With advances in treatment, technology & pharmacology also comes advances
in costs:
– 1 in 8 babies are born prematurely. Very premature infants or those with
complications can stay in the hospital for months. Costs can easily range
from $100,000 -$1,000,000 or more.
– The cost of a transplants can reach $500,000 or more.
– New forms of cancer treatments and medications for immune disorders
and hemophilia can run in excess of $40,000 per month.
Common High Dollar Claims: heart conditions, cancer, premature infants,
hemophilia, multiple traumas, kidney or liver disease, severe burns
Healthcare Reform will require that plans no longer have limits on $$ amount
of claims in a year or over a lifetime
• Items to address if you are self-funded now:
– What are the individual maximums?
– Are drugs included in stop loss?
28
Individual Stop Loss
• Individual Stop Loss protects an employer’s financial
resources from large claims on any one individual.
Employer liability is capped at a certain dollar amount on
each individual per policy year.
• Amounts below the are the employer’s liability
• Amounts above the ISL are the carrier’s liability
• Items of Concern:
– Make sure you understand the carriers ability
to “laser” claims – this is not in your best
interest
– Lower thresholds may not be cost effective
– There is direct correlation between the cost for
the Stop Loss and level of protection
29
Aggregate Stop Loss
• Aggregate Stop Loss limits the employer’s overall claim
experience for a policy year
• The employer’s liability is usually expressed in terms of a
percentage of total expected claims. Typically this is
125% but may vary based on customer need.
• All claims up to this threshold are the customer’s liability,
all amounts over are the Stop Loss Carrier’s liability
• Typically requires an employer to purchase individual stop
loss
• Items of Concern:
– Care must be taken to assure that expected claim level is
consistent with employer expectations; otherwise the level of
protection becomes less attractive
– Understand the limits associated with the coverage; some stop
loss insurers provide protection at 125% of expected costs, but
only on a certain dollar amount above the limit
30
The Four Stages of Life
-
You
You
You
You
believe in Santa Claus
don’t believe in Santa Claus
are Santa Claus
look like Santa Claus
31
3. Additional Cost Control Opportunities
•
•
•
•
Why – Why not
Wellness & Lifestyle
Care (Disease) Management
Pharmacy (Rx) Management
• “ A strategy that addresses only part of the program will
•
provide only part of the solution!”
“Managing change and behavior modification takes time and
commitment!”
• Key – 80% of your claims will come from only 20% of
your workforce
32
Importance and Interdependence
Cost Management – Three Important Solutions – Their Interdependence
Care
Management
Wellness
Wellness
Pharmacy
Management
Program
•Wellness: effective long term
•Care management: mitigates large claims next year
•Pharmacy Management Program, immediate results
33
The Real Problem:
The Full Cost of Employee Poor Health
Medical &
Pharmacy Costs
Personal care costs
25%
$3,376 PEPY
Medical Care
Pharmacy
Productivity costs
Health-related
Productivity
Costs
Absenteeism
$10,128 PEPY
75%
Total:
$13, 504 PEPY
Overtime
STD Turnover
LTD Temporary staffing
Administrative costs
Replacement training
Presenteeism
Off-site travel for care
Customer dissatisfaction
Variable product quality
Sources: Matria based on Edington DW, Burton WN. Health and Productivity. In McCunney RJ, Editor. A Practical Approach to Occupational and Environmental Medicine. 3rd edition.
Philadelphia, PA. Lippincott, Williams and Wilkens; 2003: 40-152. Loeppke, et.al., JOEM, 2003; 45:349-359 and Brady, et.al., JOEM, 1997; 39:224-231
34
Top 10 Medical Conditions by Annual Total (Med/Rx +
Productivity) Cost per 1,000 FTEs
$600,000
$500,000
$400,000
For Four Employers (N=15,380)
Presenteeism
Absenteeism
Drug
Inpatient
Outpatient
$300,000
$200,000
$100,000
$0
Source: Matria based on Loeppke R, et.al., “Health and Productivity as a Business Strategy”,
Journal of Occupational and Environmental Medicine. Vol 49, No. 7, July, 2007. Pages 712-721.
35
Why Don’t You Have These Programs?
Top Three Responses:
• No budget
• ROI
• Employer “commitment”
It’s all about
money
How do we overcome these barriers?
36
Where Do the Dollars Go?
% of Population % of Care $
1% uses 24% of care
5% uses 33% of care
14% uses 25% of care
80% us 18% of
care
Catastrophic
Care
Chronic
Care
Acute Care
(Surgery;
Hospitalization)
Routine Care
Limited to no costs
Case Management
Care /Disease Management
Utilization Management
Wellness
37
Wellness – Lifestyle Programs
• Focus on Prevention
– Keep the Healthy well;
– Walking/Exercise programs
– Nutrition Services
• Improve Health
– Smoking Cessation
– Weight Loss
• Inform
– Health Risk Appraisals – Biometric Screening
38
Comprehensive Wellness Program
Wellness plans feature web portals as a point of contact to deliver services
39
Utilization Management
• Focus is on delivery of proper care
– Length of Stay
– Setting of Care
– Necessity of care
• Surgery or other non-invasive approach
• Services are routinely part of claim payers normal service
delivery
40
Care/Disease Management
• Focus is on IMPROVING health
• Primary programs focus on:
– Asthma, Back Pain, Cancer, Chronic Obstructive
Pulmonary Disease (CHPD), Congestive Heart Failure
(CHF), Coronary Artery Disease (CAD), Diabetes,
Hypertension
41
Early Identification:
The First Step In Behavior Change
Diabetes: 100 Members
2 Diagnosed
5 Undiagnosed
15 Pre-diabetic
Its not just about the sick – its about keeping healthy and reversing trends
42
Care/Disease Management
• After detection – programs seek to influence behavior
through:
– Coaching – direct outreach calls to individuals
– Self-Help through online resources
– Care Management – tracking medication usage, office visit follow-ups
and testing
• More progressive approaches incent care delivery by
paying a higher % of costs for medications
43
Catastrophic Care
• Like utilization management – services are part
of claim payers normal service delivery model
• Is the care appropriate?
• Is the setting proper?
• Can additional discounts be negotiated?
44
Pharmacy Benefit Management
• Traditional
– Discounts
Sources of Savings
Improved Discounts
10%
Reduced Dispensing
Fees
10%
– Fees
– Rebates
– Drug mix
parameters
– Cost
guarantees
Increased Rebate
Sharing
16%
Generic Fill
Guarantees
64%
45
Pharmacy Benefit Management
• Step Therapy – program requires individuals to use “front line” medications first
before allowing other more costly drugs
–
Programs may waive copays during a 3 to 4 month trial period
–
Programs allow individual to move to other treatment; goal is to get them to try less expensive alternatives
first but may allow for physician override
–
Savings potential is significant
• Medical Adherence Programs – are the participants taking their medications? Program
uses outreach to ensure proper compliance
• Drug Quantity Management – aligns dispensed quantity with FDA approved
guidelines reducing waste
• Data analytics – incorporate all data (medical, lab, pharmacy) to reduce gaps in care
46
High Performers Key Focus Areas
• Implement appropriate financial incentives & initiatives
– Plan design & funding
• Maximize health and productivity
• Provide & utilize effective information
• Manage through use of evidence
• Focus on quality of care & outcomes
47
Wellness and Your Priests!!
• Editorial Comment:
– This presentation covers a lot of information
about costs, funding techniques, cost
containment strategies, etc.
– One tangible take-away
– ANNUAL PHYSICAL EXAMS FOR PRIESTS
• Early detection equals prevention
48
What are Co-operatives?
“The significant problems we face today cannot be solved at the same level of
thinking we were at when we created them!”
49
4. Purchasing Co-operatives
• Purchasing co-ops are arrangements
among similar employer groups with the
goal of using increased purchasing power
to reduce costs, improve services and
better manage risks
• Typical savings range from 7-12%
50
Purchasing Co-ops Do Save Money
WHY???
• Ability to spread risk:
– Reduced volatility = Reduced Risk
• Larger Employer Pools produce more/better data for analysis and
forecasting
• Larger numbers = Lower per unit cost
• Market Clout – Greater leverage and Control not always available
to middle market plan sponsors
• Size brings better resources and better services
• Ability to operate programs on net cost basis (lower retention,
minimum risk and reserve reliance)
• Can be constructed on a limited basis by geography or on a
broader regional or national basis
51
Potential Co-ops for Consideration
• Typically, all participating plan sponsors share in the saving
generated from reduced expenses and large group underwriting
• The co-operative model can be used to purchase a broad array of
benefits programs
• Each participating plan sponsor selects the benefit programs to
be offered to it’s employees from an “agreed to” menu
• Each plan sponsor who elects to participate can maintain their
own specific eligibility and contribution strategies
52
Programs Typically Available for a
Purchasing Co-operative
• Stop Loss Coverage
•
both individual and aggregate coverage
• Pharmacy Managed Program
•
driving lower admin fee, better discounts and higher
•
•
•
•
•
•
guaranteed rebates
Wellness/Lifestyle Program
access to better/more programs, lower admin fees and
better reporting
Care/Disease Management
improved service and better reporting, combined with
lower unit costs and selection of better programs
“Full Benefit” Program
reduced costs, greater spread of risk, less claim
fluctuation (volatility) better service, performance
guarantees and increased plan design flexibility
53
High Performance Plan Strategies
Used to Reduce Costs Long Term
Focus
Use
Strategy
Believe it
has Been
Successful
Too
Soon to
Tell
Data Warehousing / Mgmt of Plans
19%
60%
35%
Collective Purchasing
15%
81%
16%
Evidence-Based (Value-based) Plan Designs
19%
64%
34%
Performance Transpency
10%
33%
53%
High-Performance Networks
12%
61%
35%
Source: Mercer National Survey of Employer-Sponsored Health
Plans 2008
54
Success:
•
•
•
•
•
•
•
•
At age
At age
At age
At age
At age
At age
At age
At age
pants.
4 success is…..Not piddling in your pants.
12 success is…..Having friends.
17 success is…..Having a driver’s license.
35 success is…..having money.
50 success is…..Having money.
70 success is….. Having a driver’s license.
75 success is….. Having friends.
80 success is…..Not piddling in your
Thank You!
55