THE EMPLOYERS ROLE IN MEDICARE

1
THE EMPLOYERS ROLE IN MEDICARE

• Henry de Vos Lawrie, Jr. Kathryn J. Greenlief
• McGuire Woods Battle USAA
• Boothe LLP

2
TRADITIONAL MEDICARE

• Defined Benefit Fee-For-Service
• Out-of-Pocket
• Part A (Hospital)
• 768 (1-60)
• Part B (Medical)
• 100 Deductible
• 20 Co-Pay

3
TRADITIONAL MEDICARE (continued)

• Major Coverage Exclusions
• Prescription Drugs
• Routine Physician Exams
• Long Term Care
• Dental and Dentures
• Hearing Aids
• Routine Eye Care
• Per Capital Out-of-Pocket est. 2,454

4
TRADITIONAL EMPLOYER WRAP PLAN

• Coordinates With Parts A and B
• Co-insurance and Out-of-Pockets
• Additional Benefits (Prescription)
• Medicare Primary
• Retiree Contribution
• FAS 106 Liability
• No Coordination With Medicare HMOs

5
HOW EMPLOYER HEALTH BENEFITS HAVE CHANGED
Note Medium and Large Companies Source KPMG
6
BALANCED BUDGET ACT OF 1997

• Fewer Dollars for Providers
• More Managed Care
• Effective 1999
• Introduces Medicare Part C

7
MEDICARE CHOICE(Part C of Medicare)

• More Coordinated Care Plans (HMO, PPO, PSO or
  POS)
• Private Fee-for-Service Plan
• MSA Plan
• Parts A B Remain Alternatives

8
MEDICARE RISK HMOs

• Introduced in 1985
• Enrollment Quadrupled to 14 Since 12/93
• Current Primary Vehicle Under Medicare Choice

9
HOW MEDICARE RISK HMOs WORK

• Contract With Health Care Financing
  Administration (HCFA)
• HMO Assumes Full Risk For Medicare Parts A B
  Coverage
• HCFA Pays Capitated Rate to HMO
• Under Medicare Choice Rules, HCFA Pays Greater
  of
• Blend of Local/National Rates
• Floor Amount (367/month)
• Minimum Annual Increase (2)

10
HOW MEDICARE RISK HMOs WORK (continued)

• Normal HMO Coordinated Care Features
• Defined Geographic Area
• Gatekeeper
• Network Limitations
• Possibly POS Option

11
ADVANTAGES OF MEDICARE RISK HMOs

• Lower Cost or Higher Benefit Level at Same Cost
• More Predictable, Budgetable Expense

12
THE CURRENT HMO MARKET

• Reduced or No Out-of-Pockets
• Some Zero Premium Plans
• Offer Additional Benefits
• Pricing Too Good to Be True?

13
VARIATIONS IN SAVINGS

• Vendor Network Effectiveness
• Plan
• Location
• Enrollment
• Employer/Employee Contributions for Existing
  Medicare Coverage

14
FAS 106 RELIEF

• Estimate of Total Liability
• Driven By Current and Anticipated Expense
• Impact of Migration to Medicare Managed Care

15
CHOICES FOR THE EMPLOYER

• Whether to Embrace or Merely Tolerate Medicare
  Choice
• Strategy for Encouraging Migration
• Extent of Plan Redesign

16
INITIAL EMPLOYER ISSUES

• Coverage Availability in Employers Area
• Benefit and Price Differences Among Available
  Options
• Quality of Service Due Diligence
• Determine Likelihood of Acceptability of Managed
  Care to Current and Future Retiree Population

17
DESIGN ISSUES

• Medicare Choice as Alternative or Mandate
• Single or Multiple Coordinated Care Options
• Supply Benefit Enhancement to Encourage Migration
  to Managed Care
• Limitations on Transfers Among Alternative Choices

18
DESIGN ISSUES(continued)

• Define the Employers Subsidy
• Develop Communications and Enrollment Strategies

19
ILLUSTRATION OF DEFINED CONTRIBUTION PLAN

• Account Balance Feature
• 2,500 Annual Credits Beginning Age 40
• Ten Year Limit
• Interest Credited
• Access to Funds
• Termination After Age 55/15 Years Services
• Forfeiture Upon Early Separation

20
ILLUSTRATION OF DEFINED CONTRIBUTION
PLAN(continued)

• Use of Funds
• Premiums For Range of Plans
• Retiree Elects Annual Allocation Amount
• Individual Contributions Permitted
• Eligible Dependents
• Premiums Only No Cash

21
ILLUSTRATION OF DEFINED CONTRIBUTION
PLAN(continued)

• Advantages of Program
• Coordinates Well With Medicare Choice
• High Employee Visibility
• Rewards for Service, Not Age
• Employee Flexibility
• FAS 106 Relief