Copyright © 2014. All Rights Reserved. 

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Health Care and Reform: Connecting the Present to 

the Future Michael Turpin

Executive Vice President at USI Insurance Services

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The Stages of Death and Dying and Health Reform

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Election 2016 – Charting a Political Course

• Hillary in 2016• Democrats maintain a majority in the Senate (but not super 

majority)• Republicans retain control of the House • 2018 will be interesting as “Cadillac Tax” begins to erode the 

deductibility of benefits for the employers offering “rich” benefit plans

• What does it mean? a. Repeal is unlikely b. Torrent of back tracking and clarifying regulation in the coming years c. Legal challenges continue

i. Challenging pieces of the law as opposed to the entire lawii. States digging in support/undermine  

d. Republicans may try to change smaller pieces of the law through the legislative process (i.e., negotiations on budgetary issues)

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Meanwhile, What’s Happening in the Health Care System?

• Healthcare systems will continue to integrate as reimbursement reforms shiftfrom fee‐for‐service to value‐based and bundled reimbursements.

• Hospitals will shift to outpatient care and seek to reduce operating costs by asmuch as 20% through technology adoption and process improvement.

• Primary care (PCP) including retail and on‐site clinics, telemedicine, nursepractitioners and physician assistants will serve as gate keepers to triage care.

• As new insured enter the system, PCP shortages will occur in rural areas resultingin higher ER use and sparking investments in urgent care. As many as 90mAmericans covered under Medicare, Medicaid and individual insurance will makenew buying decisions. Our current decade will be touted as “the decade of theconsumer.”

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Health Reform Will Fundamentally Alter Entitlements

• 169m non‐elderly Americans fall within these FPL boundaries.• Over 75% are covered by some form of employer sponsored insurance.

Persons in family/household 100% FPL 400% FPL

1 $ 11,170 $ 44,6802 $15,130 $60,5203 $19,090 $76,3604 $23,050 $92,2005 $27,010 $108,0406 $30,970 $123,8807 $34,930 $139,7208 $38,890 $155,560

For families/households with more than 8 person, add $3,960 for each additional person

2012 FPL for 48 Contiguous States and District of Columbia. Dept. of Health and Human Services http://aspe.hhs.gov/poverty/12poverty.shtml (as visited 11.7.12). See website for information on Alaska and Hawaii. 

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Connecting With the C-Suite

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The Executive Dashboard HR Must Be “Friend AND Fiduciary”

Per Capita Medical Costs

Annual Premium $14,329,777 (1)

Company Per Capita Healthcare Costs (PEPY) $11,473 (2)

Peer Group #1 (PE advisor group)Healthcare Costs (PEPY)

$14,060

Peer Group #2 (law firm)Healthcare Costs (PEPY)

$13,070

Peer Group #3 (Consulting Firm)Healthcare Costs (PEPY)

$16,065

(1) Includes claims, retention and reserves(2) Average per capita cost of ABC Company 

Healthcare Cost Impact on ABC Company 

Annual Revenues $ 720,000,000

Per Capita Revenues $ 576,461 (1)

Per Capita Profit (17%) $97,998 (2) 

Average EE Share 21%

Average EER Cost 79%

Net Employer Per Capita Cost For Healthcare $9,063

Healthcare as a % of Per Capita Profit 9.2%

1) Estimated annual revenue against April enrollment2) Estimated profit margin against revenues

• Solutions:• Per Capita Projected Savings (2)• Solutions Savings as a Percentage of Net Employer Costs:•Revenue Required to Drive Additional EBITDA:

(1) $ / .17 profit margin(2) savings estimates / # of employees

$ 1,859,331$1,488

13%$10,937,241 

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Health Plan Priorities Dashboard: “Show Me On One Page”

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Your Financial Strategy Drives Your Benefits Structure – Whether You Admit it Or Not

Benefit Philosophies will be influenced increasingly by financial performance:

• “No disruption”:  Per capita medical spend  < 20% of  per capita profit

• “We’re open to doing more”: Per capita medical < 50% of per capita profit

• “We need to reduce costs”: Per capita medical < 75% of  per capita profit

• “We want out”: Per capita medical  ≥ 100% of PEPY profit

There is a growing tension between Finance and HR as the disruption and administrative hassles of engaging employees clashes with the financial realities of a low organic growth economy.  What is the cost of not taking more aggressive action?

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Radiology – Selling $18,000 of shovels to pay for one point of service decision

• Employee A receives MRI at 90% of $3000 while employee B receives a $1000 MRI also at 90% at an outpatient facility.

• Employer pays $ 2700 for A and $900 for B. Company operates at 10% profit margin which means they must sell $18,000 of goods and to cover Employee A’s decision to fly ‘first class’ at point of service.

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You Want Trends Equal Or Lower Than Your Rate of Revenue Growth? Have a Plan….

1. Cost shift to employees through contributions, and/or benefit reductions –“Peanut butter spreading” does not work.

2. Reduce insurance cost through aggressive negotiations and thorough underwritingpractices – How much risk do you want to retain and how much will you transfer?It is more expensive to transfer risk than retain it. The average insured premium in2014 will be 8% higher than its self funded equivalent due to taxes, fees and riskcharges.

3. Reduce unit cost of services –review network discounts, adopt narrow networks toexclude outlier providers, engage employees for ambulatory services to becomebetter consumers through high deductible plans, utilize cost transparency toolsand engagement incentives. Outsource and unbundle discreet services such as RX,Stop‐loss and Care/Disease management.

Are you really doing all of these things?If not, why not?

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You Want Trends Equal Or Lower Than Your Rate of Revenue Growth? Have a Plan…

4. Reduce intensity of services during an episode of care through review andmanagement (focus on reducing waste and overtreatment) – Insurers have notdone a strong job at managing the intensity of services while individuals arehospitalized. Intensity will continue to rise. Who is rally providing care advocacy?How do you measure and intervene?

5. Reduce consumption of healthcare by improving employee and dependenthealth – focus on promoting primary care, finding asymptomatic illness, reducingpotential for at risk becoming chronically ill, stabilizing chronically ill through gapsin care management to prevent catastrophic claims. Adopt incentive‐basedbiometric plans. that includes health risk assessments.

What’s harder? Implementing biometric testing and population health management incentives … or firing ten people because earnings are flat? 

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So, What’s Your Plan?

• 1. Engagement ‐ You bend medical trend ‐ ( Aggressively manage insurance and unit costs and seek to reduce consumption and improve health. Make your team accountable to achieve low single digit trends WITHOUT making benefit cuts and increasing contributions

OR

• 2. Define  Your Contribution – You look for a way forward using a single carrier or group exchange ( Cap contributions, offer at least eight plan options and have the discretion to subsidize rising annual costs based on corporate performance)

OR

• 3. Disengage – Look for a way out by migrating people into public exchanges. (Do the math and gravitate to the lowest cost option which may include dropping coverage or failing the ACA affordability test to make employees eligible for subsidies)

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Insurance Profit 101 – The Mushroom Theory

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Strong HR Fiduciaries Manage Healthcare Trend Without Increasing Contributions or Cutting Benefits

• Find and Engage Asymptomatically Illa. Improve preventive visits – focus on age/gender‐specific goalsb. Make biometrics mandatoryc. Reduce ER usage by increasing PCPs

• Reward Engagementa. Implement wellness and smoking cessation engagement incentivesb. Focus on closing gaps in care for prevalent disease statesc. Discuss “at risk” population (i.e., hypertension or diabetes)

• Encourage Consumerisma. Introduction to consumer toolsb. Focus on high utilization ambulatory services such as imaging and orthopedic c. Introduce HDHP with Health Savings Account

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Achieving Trend Improvement Without Takeaways (Cont.)

• Improve Chronic Disease Compliancea. Emphasis on Rx complianceb. Focus on gaps in care and improved condition compliancec. Set performance parameters for DM vendor and measured. Focus on hypertension, diabetes and muscular issues

• Ensure Competitive Unit Costa. Re‐price your insurer’s claimsb. Review narrow network alternatives and ACO models as they emergec. Underscore consumer tools and highlight unit cost disparities in communication.

• Understand That No Change Means No Changea. The hassle of moving carriers versus the hassle of higher costsb. The fear of self funding and the administrative complexities of new solutionsc. Rethinking your advisor – have you intellectually outgrown them?

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The Five Pillars of Zero Trend

Unit Cost

•Understand network economics

•Consider differences in carrier networks

•Ask about % of contracts that use capitation and bundling vs. fee‐for‐service reimbursement

•Young average age populations should be less obsessed with a 500bp difference in network economics subsidize  

Accountability

•Employees:‐ Reduce consumption   by improving ambulatory consumerism‐ Introduce HDHPs and HSAs‐ Enforce  the notion of a social contract

•Dependents:‐ Reduce consumptionthrough Biometrics/ age/gender‐based tests

•Providers:‐ Pick fights when necessary‐ Open access  PPO’s and co‐pays must die

•Vendors:‐ Performance guarantees focused on results

Population Health

•Biometric Testing at PCP, not on‐site

•Find asymptomatic ill

•Force chronic disease compliance to close gaps in care with at chronically ill and unstable

•Manage “At Risk” by forcing engagement

•Charge smoking surcharges and use maximum incentives for activity and compliance based wellness designs 

Care Management

•How does carrier intervene with chronically ill?

•Are base line biometrics improving?

•Consider third‐party vendors to drive improved engagement and close gaps in care

Transparency

•Use third‐party consumer tools

•Use HDHP Plus HSA as default plan

•Consider RBRVS schedule for elective procedures

•Convert to PEPM fees for all vendors

Are you motivated and properly resourced to commit  to achieving zero trend? Engaged employers average as much as 10% lower annual trend

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Preventive Care Utilization: Find The Asymptomatic Illness

• Significant increases in percentage of adult well visits. Mammograms for Ages 40 and up

Preventive Services Total Monitored Members Compliance Rates Healthy People

2020 Target*Cervical Cancer Screening 533 76% 93%Breast Cancer Screening - Mammography 474 66% 81%*from Healthy People 2020 HHS Strategies www.healthypeople.gov/2020

Wellness Visits Current Trend UHC BOB

Well Baby Visits 92.7% +9.8 88.7%Well Child Visits 66.0% -0.4 50.6%

Age 1-4 82.8% +3.0 72.7%Age 5-11 68.3% +0.2 48.4%Age 12-17 60.6% -1.0 42.4%

Well Adult Visits 56.6% +18.9 31.1%Age 18-39 45.3% +10.8 27.5%Age 40-64 63.1% +23.0 34.7%Age 65+ 55.0% +26.2 27.3%

Total Wellness Visits 59.0% +15.0 36.6%Females 60.8% +7.7 45.8%Males 57.3% +21.5 27.3%

Current Period: 1/1/12 – 12/31/12 (Paid through 2/28/13) Prior Period: 1/1/11 – 12/31/11 (Paid through 2/29/12)Norm:  UHC Book of Business

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Population Health: “People don’t eat their carrots, so bring an orange stick”

2014 GOAL: reduce consumption through maximum consequences for non‐compliance.  Enforce a bi‐lateral social contract.

Wellness Proposed Program

Health assessment ( everyone lies)

Annual physical and biometrics (ONLY through a PCP)

Non‐tobacco certification OR completion of Quit Power

BMI target or completion of Healthy Weight ( Lose or lose )

Completion of program requirements = 30% premium differential (Drive non compliant members to exchanges?)

2015 Program Options: 

• Additional biometric targets (blood pressure, glucose)

• Monetary deposits into employee HSA

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Unit Cost: All Networks Are Not Created Equal

• Many insurers maintain more than one PPO network. Some give their inferioreconomics to self funded clients using third‐party administrators or to smallerself‐insured customers. How do you know you have the best economics?

• Narrow network plans should save more money. Criteria for high‐performancenetworks vary based upon complex algorithms of optimization over an entire“service episode of care” and “unit cost.” Are higher unit cost providers inyour High Performance Network?

• Some major hospital systems make it contractually difficult for insurers toexclude them as two star providers in their high performance networks.

Every insurer obfuscates their actual discount percentages and efficiencycriteria making it difficult for employers to understand where quality is trulyoccurring.

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Unit Cost: The Games People Play

• Pushing “In‐network” benefits is not always good: Hospital facilitycharges are often in‐network while outpatient surgical centers areoften non‐network.

Example: A colonoscopy performed in a non‐network setting willcost employers less than in‐network at a hospital. In this case, theplan pays the hospital a $3,000 facilities fee at 90%, versus paying70% of $1,500 for the outpatient facility. Many outpatient groupswill waive balance billing.

• Carriers may misrepresent their average discounts by increasingallowed charges to create a greater spread on billed versusallowed charges. Some insurers will remove capitated claim costsand claims exceeding the stop‐loss from their discount calculations.Others refer to average discounts instead of specific by facilitytrends.

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Unit Cost Isn’t Everything When Demographics Are Good

• The lowest average discount is not always best: Younger populations have lower inpatient consumption. While an inferior PPO plan will lag in hospital, RX and behavioral unit costs,  a young population won’t use these benefits at normative levels 

Discount at Hospital

Spend as a %of Claims Actual Cost (1)

Cost of other insurance + admin (2)

National Carrier A 50% 20% $4M $6.8M

TPA & RentalNetwork Carrier B

40% 20% $4.8M $4.8M

(1) $40M spend on billed charges, $8M spend on in patient facilities charges, 4000 lives(2) Carrier A admin is 17%, Carrier B admin is 12%

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Self Insure: Cost-Shifting will be More Prevalent Under Insured Plans

• Self insurance could significantly grow in popularity as employers seek:1. Greater transparency of claims2. Question bundled insurer practices

a. Capitation payments to subsidiaries such as pharmacy and behavioral healthb. Capitation payments to providersc. Efficacy of disease management and medical managementd. Discounts

3. Avoidance of fees passed on by insurers4. Avoidance of state premium taxes5. Avoidance of state mandates6. Ability to contract directly with ACO’s?

We believe the simple act of self insurance may reduce fully insured costs by as much as 10% by 2014. Employers need to get over their fear of financing their own risks.

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Stop Loss: Games People Play

Buying stop loss insurance can be tricky! There are claim exposures and hidden costs that should be evaluated to make sure the company has the best coverage at the best price. Here are just a few games we see in the market.

• Specific lasers on large ongoing claims• Non renewal for bad claim experience• Increased margin requirements with national carriers (CUBA)• Immature Aggregate/Specific (12/12) written in consecutive years• Pharmacy excluded from specific stop loss coverage• Layering – Who really holds the risk on your large claims? 

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RX Economics: A Prescription for Profit

• Opaque Pricing Rules Most RX Plans: The amount the PBM pays the pharmacy for a drug islower then what is charged as a claim to the employer. The discount off avg. wholesale price(AWP) from the PBM determines the spread made by the pharmacy manager.

• Focus should be on lowest net cost per script, not rebates. Getting a rebate check is theequivalent of habitually overpaying the IRS each year and then expressing delight with yourrefund. Many RX purchasing coops include non disclosed fees and rebate based reimbursement.Employer fixation with rebates has led to mark‐up/discount sleight of hand.

• Talk About Heartburn: $ 260 per script Proton Pump Inhibitor cost of “Nexium” versus over the$15 over the counter “Omeprazole.”

• Your insurer will use RX rebates to “buy‐down” administrative fees to give the appearance ofcompetitive pricing – essentially using your money to appear more aggressive. Insuredemployers typically cannot unbundle RX.

• Employers should utilize a PBM with pass‐through pricing that includes no spread.

Copyright © 2014. 

What is More Disruptive: Engaging Employees or Firing Them?

• Who Is Really Disrupted When You Make Change: 20% of employees drive 80% ofclaims. 70% spend less than $500. If you need to find savings, what’s moredisruptive – firing workers or focusing on reducing claims consumption bychanging behavior?

• Your large claims will arise out of:1. Asymptomatic illness going undetected.2. Chronically ill employees not receiving treatment to stabilize their conditions.3. At‐risk employees continuing lifestyle decisions that deposit them into

chronically ill bucket.

In a period of low organic growth and double digit profit expectations,  expenses will be realized through lower per capita healthcare spend or lower FTE counts

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Health Care Reform

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Strategic HR/Finance Planning Questions/Considerations

1. Does HCR represent a challenge or an opportunity for our organization?2. Will HCR require us to make significant changes?

• How we offer benefits?• To whom we offer benefits?• What benefits we offer?• How much the benefits cost?• How we administer benefits, payroll, employee communication … ? • How will our employees and families be affected?

3. How do the revisions required by HCR fit within our own benefits philosophy/strategy? How does the rate of growth of healthcare track with our rev and EBITDA assumptions? 

4. What do we expect other players in our industry will do with the respect to HCR?• What impact will there be to our competitive position?• Do we manage to effect superior results?  

5. Should we consider changes to our benefits strategy and overall compensation model? 6. Are we prepared internally to support the changes needed? 7. Do we understand how public exchanges will develop in our state and for all our locations? 

Will plan designs vary dramatically from current commercial plans?  

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Who Will Receive The Subsidies?

• Government pays some of the premium for exchange‐based coverage:a. Sliding scale depending on 

income b. Based on silver coverage 

• Available to individuals between 100% ‐400% of FPL who:a. Are not eligible for minimum 

essential coverage or b. Are eligible for minimum 

essential coverage through an employer, but that coverage is unaffordable or does not provide a minimum value

Household Income  FPL

Initial Premium Percentage

Final Premium Percentage 

Up to 133%  2% 2%

133% up to 150% 3% 4%

150% up to 200% 4% 6.3%

200% up to 250% 6.3% 8.05%

250% up to 300% 8.05% 9.5%

300% up to 400% 9.5% 9.5%

Premium Tax Credit Methodology and Eligibility Criteria

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Risk Mitigation vs. Opportunism – Avoiding Penalties or Arbitraging Reform?

• Restructure work schedules as permitted.

• W‐2 safe harbor – offer self‐only coverage does not exceed 9.5%W‐2 wages.

• Reduce main medical offering to penalty avoidance level.

a. Base and buy‐up structure. Auto enroll into base plan.b. Dependent participation drives an additional 11% of annual healthcare

costs. Cover single employees and offer coverage to dependent children.

• Implement coverage that may be unaffordable for some or all FTEs – triggers alower $3,000 penalty – only for those who go to exchanges. Use aggressivewellness incentives to drive non compliant employees to public exchanges.

• Explore use of defined contribution designs to cap your liability.

Copyright © 2014. 

A Word Regarding Public Exchanges

• Public exchanges will offer community rated metallic plans that will be tightly regulatedand priced. Expect public fights between insurers and regulators. Plans are backstoppedthe first few years. False positives in early years followed by reality.

• Insurer plan designs will differ from traditional employer‐sponsored plans – using gatekeeper, narrow networks and other mechanisms to reduce rates. Major carriers areparticipating on a limited basis within exchanges.

• There is risk associated with adverse selection. Who will be first to join exchanges? Itappears that a larger percentage of first buyers are older Americans. Will the penalty forfailure to buy insurance drive healthier individuals into exchanges? As of 1/1/2014,2.2M have joined exchanges across the US ‐‐ well below the Administration’s target.

• Individuals will need significant education and guidance to make buying decisions in thepublic exchanges when migrating from private plans. Most employers are waiting until2015 or 2016 to judge the viability of the exchange benefits, pricing and consumerexperience.

Copyright © 2014. 

Defined Contribution Plans and Exchanges: Back to The Future With Better Technology

Its our belief that the majority of employers will adopt some form of defined contribution basis of financing theirbenefits by 2020. A certain percentage of larger employers ( over 5000 employees) will consider joining privateexchanges in lieu of managing their own single carrier multiple option plan.

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Private Exchanges: Consultants becoming brokers, brokers becoming consultants and clients confused

• Aon/Hewitt: Fully insured, group underwritten exchange attempting to extractbest in class pricing from multiple insurers over twenty discreet markets.Hypothesis is true competition can only happen when risk is transferred.

• Towers: Purchased Extend Benefits for Retirement and larger employers plans.Purchased Liazon Benefits to offer private labeled solutions to the middle marketemployers and their advisors.

• Mercer: Multi‐carrier exchange for employers of all sizes.

• National Advisory Firms: All launching or announcing some version of a definedcontribution enrollment capability or a multi‐carrier exchange.

Expect insurers to launch their own “stores” in 2015.  Employers will have to try to navigate a crowded dance floor of self interested advisors and vendors – all wanting to promote their B2B2C 

purchasing facility.  Everyone will be using the term “exchange”….

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Considerations For Defined Contribution Plans1. Cafeteria plans failed in the 1980’s and 1990’s due to administrative

complexities and adverse selection that eroded choice over time.

2. Technology through on‐line enrollment and decision support has reducedadministrative complexities. Employees like choice – just not too muchchoice.

3. Adverse selection risk is still real as low utilizing, young employees opt forlower cost options, savings are redirected to take home pay, 401(k) oralternative benefits. Fewer medical premiums to offset same claims canresult in spiraling cost of plan choices.

4. Employers may lose interest in affordability and advocacy. The rising costof healthcare could be viewed as an economic fact of life similar toinflationary cost increases in energy. and food. Who will intervene onbehalf of unhappy employees?

Copyright © 2014. 

Defined Contribution and Private Exchanges – A Trend or Hype Cycle?

An exchange is the nail, your strategy is the hammer – not the other way around.

Source: Gartner Group Hype cycle indicators model adapted to exchange cycle

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Resources Required to Run the Race: It’s Not Your Daddy’s Benefits Plan Anymore

• Communications – SBC requirements, exchange notification, reform education, plan changes ‐what is your theme?

• Employee advocacy, engagement and education – Enrollment, plan changes, issue resolution andsupport – Who will intervene on their behalf?

• Actuarial / underwriting – Contribution setting for plan options, scenario modeling, plan optionforecasting, budge assumptions and funding analysis – Do you know what your trend goals are andhow costs impact profits? Do you understand self insurance?

• HR Administration – Do you want to outsource, co‐source or contract elements of HRadministration to third parties – Are you stuck being tactical when you need to be strategic?

• Pharmacy – Carrier and large PBM models are broken. Insurers using rebates to offset their ownadministration costs – What is your true Rx trend?

• Compliance – HR and employment laws will continue to become more complex. ERISA will changeand be challenged – Who is your legal resource?

• Healthcare reform modeling and scenario planning – Discovery of risk exposures, review offinancial exposures, modeling based on employment and design changes – Will reform happen toyou or for you?

• Clinical – What are the controllable utilization trends in your health plans? Is your carrier fulfillingtheir administrative duties to impact consumption trends? What current and forecasted cost arisingfrom?

• Population health – Premium differentials, incentive plans – Can I change behavior?

Copyright © 2014. 

Human Resources and Finance: Hang Together or Hang Separately!

• Force your C‐Suite execs to engage. Communicate to your entire senior management teamon what you are doing and why – they are often your biggest utilizers, complainers andpoint of contact for employees.

• Don’t waste a crisis – use the ACA and reform as air cover to drive fundamental changesnecessary to “preserve” your ability to offer employer sponsored benefits.

• Create a roadmap and set goals. set goals:a. Question the value of your vendors and hold them to measurable standards. In a

period of low healthcare consumption, a 6% increase is nothing special. Your goalshould be zero trend!

b. Your rate of medical cost growth cannot increase faster than your revenues or you willhave margin dilution that is often offset by headcount reductions.

c. If your growth is flat and margins are under pressure, remember that it is moredisruptive to fire employees than it is to make changes to your plans that will forceemployee engagement and overdue accountability for anyone responsible formanaging your plans.