saving money on retiree drug costs with an egwp money on retiree drug costs with an egwp midsize...
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Saving Money on Retiree Drug Costs With An EGWP Midsize Retirement and Healthcare Plan Management Conference Chicago, Illinois
Presented by: Troy M. Filipek Principal and Consulting Actuary, Milliman
June 5, 2013
Sponsored by:
Transamerica Affinity Services and MedImpact Healthcare Systems
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Agenda Overview of Employer Retiree Pharmacy Options
Recent Regulatory Guidance
Future Considerations
Questions / Comments / Input Taken Throughout
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My Background Work extensively in individual and employer Part D
markets
Help on both sides of the table – PBMs / Carriers and Employers
Provide RDS and Creditable Coverage Testing for roughly 20 – 30 organizations
Navigate new options and considerations for many of these organizations
Leader within Milliman in Part D client outreach and research
June 5, 2013
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Employer Retiree Pharmacy Options Today’s Focus
Retiree Drug Subsidy (RDS)
Employer Group Waiver Plans (EGWP)
Secondary Wrap Plans
Other Less Common Direct Contract with CMS to Sponsor Part D plan
Group enroll members into individual Part D plans
Drop coverage and subsidize individual Part D
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Employer Retiree Pharmacy Options (continued)
RDS most common by far since program inception in 2006 Requires least change to current benefit
Subsidy from government taxable beginning in 2013
Covers 20 – 25% of total pharmacy costs
EGWP slowly gaining traction over past several years Employer contracts with PDP or MA-PD for custom plan
PDP / MA-PD receives subsidies, reduces premiums
GASB treatment beneficial by allowing recognition of all future subsidies (unlike RDS)
Subsidy value generally similar to RDS for non-taxable
New Wrap Plan concept with healthcare reform changes
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Part D Benefit Defined - 2010
$310 $2,830 $6,440 ($4,550 OOP)
100 %
75%
50%
25%
0%
% o
f RX
Cos
ts
Beneficiary Deductible
(100%)
Beneficiary Coinsurance
(25%)
Plan Coinsurance
(75%)
Beneficiary
Corridor (100%)
“Coverage Gap”
Government Reinsurance
(80%)
Plan Coinsurance (100% - Beneficiary – Government)
Beneficiary Coinsurance
(5%, $2.50 / $6.30)
Individual Gross Expenses
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Healthcare Reform and Part D Part D was by no means the focus of the debate, nor
an area of much political disagreement
One of the few government programs that can be referenced as under budget
Tinkering around the edges with Part D, rather than fundamental changes
With that said, the changes were significant enough to have a large impact on those doing business in the program and for employers, big savings are possible!
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Part D Reform Highlights Pharmaceutical Companies to cover 50% of usual
negotiated brand ingredient cost by paying that amount to reduce non-low income member cost share in coverage gap starting in 2011
Generic coinsurance will decrease by 7% annually until 2019 and then is 25% in 2020+
Brand coinsurance decreases according to a schedule down to 75% and always reduced by Pharma’s 50% (net 25% cost share)
RDS tax deduction eliminated in 2013 - Immediate financial statement impact
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Coverage Gap Reforms Most controversial item in Part D program
Originally designed to keep Part D program costs more manageable, critics assert that the coverage gap leaves seniors vulnerable to high out-of-pocket costs
Pharmaceutical industry pledged $80 billion through 2020 in response to President Obama’s call for “shared responsibility” to cover 50% of brand prescription drug costs in the coverage gap
Pharma discounts accrue toward TrOOP (and reaching reinsurance)
RDS plans not eligible for Pharma discounts
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Part D Benefit Revised - 2013
Pharma Discount
- 50% of Brand Rx (approx 35-
45%)
$325 $2,970 ~$7,000 ($4,750 OOP)
100 %
75%
50%
25%
0%
% o
f RX
Cos
ts
Beneficiary Deductible
(100%)
Beneficiary Coinsurance
(25%)
Plan Coinsurance
(75%)
Beneficiary Corridor
(100% - Pharma - Plan)
“Coverage Gap”
Government Reinsurance
(80%)
Plan Coinsurance (100% - Beneficiary - Government)
Beneficiary Coinsurance (5%, $2.65 / $6.60)
Individual Gross Expenses
Plan Coins - 21% of Generic Rx & 2.5%
of Brand Rx (approx 5-10%)
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Coverage Gap Reforms
Year
Member Generic
Coinsurance
Nominal Brand
Coinsurance
Pharma Coinsurance Contribution
Net Member Brand
Coinsurance 2011 93% 100% 50% 50% 2012 86% 100% 50% 50% 2013 79% 97.5% 50% 47.5% 2014 72% 97.5% 50% 47.5% 2015 65% 95% 50% 45% 2016 58% 95% 50% 45% 2017 51% 90% 50% 40% 2018 44% 85% 50% 35% 2019 37% 80% 50% 30% 2020 25% 75% 50% 25%
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Employer Implications EGWP value increases, RDS value decreases (if taxable)
Medicare trustees predict that current 17% of Part D eligibles in RDS plans will decrease to 2% by 2016
Aon Hewitt survey had 61% of employers changing their Medicare Part D or overall retiree benefits strategy
Same survey had 40% of employers expecting to receive the RDS in 2013 (down from 66% in 2010)
EGWP + Wrap plan structure particularly attractive since unlike pure EGWP, enhanced benefits apply after Pharma discount
New regulations from CMS dictate that all benefit enhancements need to come through Wrap beginning 1/1/2014
Time to act is now – savings can be substantial for rich plans!
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Example of EGWP + Wrap Benefit
$100 brand name drug
Member in coverage gap
$20 copay
RDS Pure EGWP * EGWP + Wrap Total Drug Cost $100 $100 $100
Primary Plan $80 $80 $2.50 Secondary Plan NA NA $27.50
Pharma NA $10 $50 Member $20 $10 $20
* CMS regulations dictate no coverage beyond basic benefit allowed in EGWPs beginning 1/1/2014
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EGWP + Wrap Considerations Approach maximizes Pharma discounts and federal
reinsurance
Large PBMs and Medicare carriers heavily pushing these plans based on projected savings
Different set of equivalence tests to pass compared to RDS
Administrative expenses generally increase compared to RDS, but internal responsibilities tend to decrease
Minimize member disruption by combining two plans into one Rx card
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EGWP + Wrap Considerations (continued)
Plan design and administrative issues Many qualitative considerations beyond financial savings
Formulary restrictions from CMS and between plans
Part B vs. D medications
What to do with non-MC eligibles
Limits on utilization management programs
CMS restrictions may require plan design changes
Low income subsidies and high income penalties
Communication is key!
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Item Description Timing Comments
Direct Subsidy and LIPS
DS - Adjusted for risk profile of employer’s population
LIPS - Fixed dollar per individual
Monthly Should be no more than 1 month delay in payment (PBM receives at beginning of month)
Federal Reinsurance and LICS
Fed Reins: Provide catastrophic coverage for all members
LICS: Cost share subsidies for LI members
Once per plan year
Not until roughly 9 – 12 months after end of plan year
If fully insured, carrier may accept cash flow risk
CGDP and Traditional Rebates
50% discount on brand drugs dispensed in the donut hole for non-LI
Traditional rebates should not decrease with CGDP
Once per quarter
Could be 1 – 3 months following end of each calendar quarter
CGDP will not be linear payments - ramp up each quarter
If fully insured, carrier may accept cash flow risk
Summary of EGWP Revenue and Timing
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Recent Regulatory Guidance CMS-4157-FC
Many interpreted as no longer needing wrap plan to maximize discounts and reinsurance
Many employers already planning move to EGWP only plans for 2013
CMS recent guidance clarifies that no benefit beyond basic Part D benefit allowed through EGWP beginning 1/1/2014 (1 year waiver allowed)
New guidance seems to effectively mandate wrap products going forward
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Recent Regulatory Guidance (continued)
Consequences EGWP benefit to always be basic and wrap needed
Many carriers scrambling to get wrap product strategies back in place
Employers reassessing 2013 and 2014 retiree pharmacy benefit structure
Wrap plans subject to state rate filings as commercial insurance
Recent guidance exempts wrap products from many ACA related provisions (similar to Medicare Supplement products)
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Good fit for most plan sponsor situations
Organization Type Additional benefits for GASB governed organizations due to
accounting rules
Plans with high drug spend CMS reinsurance subsidy and CGDP both increase
disproportionately for high spend plan sponsors
Group size – usually the main limiting factor Ability to customize plans or use “+ Wrap” approach may be
limited for smaller plan sponsors based on current carrier offerings
Ideal Candidates for EGWP + Wrap?
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Recent CMS guidance changes the market
Pharma discount - what if this is removed from employer plans or all plans after 2020? What if it is increased per Obama 2014 budget?
Individual market competition continues to limit growth in subsidy rates
Preliminary 2014 Part D risk model reduces non-low income risk scores by roughly 10%
Sequestration
While the future may bring some challenges to the EGWP market, we still expect it to be financially advantageous relative to RDS for most plan sponsors!
The Future of EGWPs
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Conclusions Healthcare reform provisions have big impact on
attractiveness of employer retiree pharmacy options
Industry changes coupled with plan sponsors’ desire to reduce retiree liabilities creates great opportunities
Plan design, formulary, and clinical requirements create additional complexity to consider, but generally no “deal breakers”
Implementation from RDS to EGWP can be complicated and communication is critical to a successful roll out - allow plenty of time!
Expect to see continued movement to EGWP + Wrap plans in next few years, as positives generally outweigh the negatives
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Caveats / Limitations / Qualifications I am a member of the American Academy of Actuaries and meet the Qualification Standards of the Academy to render the actuarial opinion contained herein. To the best of my knowledge and belief, this presentation is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices.
This presentation is intended for the internal use of meeting participants and should not be distributed, in whole or in part, to any external party without the prior written permission of the presenter. I do not intend this information to benefit any third party, even if I permit the distribution of our work product to such third party.
This presentation is designed to assist meeting participants with understanding EGWPs and the retiree pharmacy marketplace. This information may not be appropriate, and should not be used, for other purposes.
The opinions included within this presentation are those of the presenter and in no way represent the views of the presenter’s employer.
June 5, 2013
Thank You! QUESTIONS?
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