Transcript Slide 1

FORUM ON PRE-65 INSURANCE:
AN INITIAL VALUE PROPOSITION
Emeriti, Aetna, and
PricewaterhouseCoopers
April 27, 2007
A benefit program of, by, and for colleges, universities, and higher education-related tax-exempt organizations.
INTRODUCTIONS AND WELCOME
PRESENTATION TEAM
Kenneth Cool, President, Emeriti
Linda Cool, Founding Director, Emeriti
Michael Thompson, Principal, PricewaterhouseCoopers
Michael Fusaro, Vice President, Aetna
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AGENDA
MORNING SESSION – 11:00 am (ET)
 Strategic Value of Pre-65 Insurance
 Results of Pre-65 Insurance Survey
 National Content of the Pre-65 Group
Ken Cool
Linda Cool
Mike Thompson
and Individual Markets
 Embedded Costs of Pre-65 Coverage
 Pre-65 Insurance Concepts for Emeriti
 Short Question Period
Mike Thompson
Michael Fusaro
Audience
LUNCHEON BREAK – 12:30 pm (ET)
AFTERNOON FEEDBACK SESSION – 1:30 pm (ET)
 Dialogue with Participants
 Closing Remarks
Emeriti Team
Ken Cool
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STRATEGIC LINKAGE OF HEALTH CARE TO RETIREMENT
MOUNTING EVIDENCE
 AAUP Survey of Faculty Retirement – 2000
 Mellon College Retirement Project – 2000
 Emeriti Pre-65 Insurance Survey – 2007
 AAUP Survey of Faculty Retirement – 2007
STRATEGIC ISSUES
 Coordination with Retirement Incentive Programs
 Coverage Gaps and COBRA Limitations until Medicare
 Employer Insurance Expense and Unfunded Liabilities
 “Early” Retiree Affordability, Access, and Choice
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CONTINUUM OF COMPREHENSIVE SUPPORT
Age 55
Medicare Eligibility
End of Life
Savings and Payment Flexibilities
Portable Guaranteed Issue Coverage
Tax-Free Reimbursement of Qualifying Medical Expenses
Integrated Retirement Planning and Education for Participants
Outsourced Administrative Services for Employers
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EMERITI FUNDING FLEXIBILITIES
EMPLOYER OPTIONS
•
Pre-funded DC Contributions
(into Employer VEBA Trust)
• Special DC Lump Sums
PARTICIPANT OPTIONS
•
•
(into Grantor Trust)
• Continuing DB Subsidies
(on Pay-as-you-go Basis)
•
Systematic Payroll Contributions
(into Employee VEBA Trust)
Periodic Lump Sums
(into Employee VEBA Trust)
Monthly Electronic Transfers
(Pay-as-you-go Payments)
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EMERITI INSURANCE CHOICES

Suite of coordinated pre-65 and post-65 insurance options

Comprehensive benefits at varying levels of coverage and cost

Guaranteed issue group coverage
(in coordination with plan eligibility criteria)

National access

Annual enrollment choice among plans

Family health security at retirement
(retired participant, spouse/partner, and pre-majority children)

Access to other health care benefits
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THE PRE-65 RETIREE
INSURANCE SURVEY
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THE PRE-65 RETIREE INSURANCE PROJECT
Purpose of the Survey
Explore institutional practices and opinions concerning
health insurance for pre-Medicare eligible retirees
Institutions Contacted
 42 current institutional members of Emeriti
 58 institutions expressing interest in Emeriti
 15 institutions with no Emeriti contact
Surveys Returned
N= 44
(38%)
 26 Emeriti Members
 16 Institutions with Emeriti contact
 2 Institutions with no Emeriti contact
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INSTITUTIONAL CHARACTERISTICS
Size of Active Institutional Workforce
Small (under 500)
Medium (500-1,500)
Large (over 1,500)
9 (21%)
24 (55%)
11 (25%)
Type of Institution
Private
Public
40 (91%)
4 (9%)
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HOW IMPORTANT IS OFFERING HEALTH INSURANCE
TO THE PRE-MEDICARE RETIREMENT DECISION?
Very Important
36
(84%)
Important (along with pension)
6
(14%)
Of Little Importance
1
( 2%)
One survey respondent noted that the institution provides a generous
pension contribution so that early retirees should have sufficient resources
to buy pre-65 individual coverage.
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THE PRE-65 RETIREE
HEALTH CONTEXT TODAY
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DOES YOUR INSTITUTION OFFER A
PRE-65 RETIREE MEDICAL PROGRAM?
Yes, for all employees
14
(32%)
Yes, faculty only
4
( 9%)
Yes, certain defined groups
8
(18%)
Individual ad hoc arrangements
5
(11%)
11
(25%)
No program, access only
Nothing done for early retirees
2
(5%)
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DOES YOUR INSTITUTION CONTRIBUTE
TO THE RETIREE PREMIUM COST?
Yes,
for retiree only
Yes,
for retiree and
dependent(s)
No,
access only
Average Cost of
Total Premium
Per Month
Average
Employer
Contribution
Per Month
7 (19%)
$439
$324
18 (50%)
$831
$469
11 (31%)
N/A
N/A
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PREMIUMS CHARGED FOR
PRE-65 RETIREE INSURANCE
Same premium as actives
Higher premium than actives
29
(76%)
9
(24%)
NOTE: A statistically significant relationship was found between when an
institution assigned the same premium to pre-65 retired participants as the
blended active employee rate and when the employer chose to pay all or
part of the pre-65 retiree’s premium.
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ARE EARLY RETIREES KEPT IN ACTIVE
UNTIL MEDICARE ELIGIBILITY?
Yes,
retiree only
Yes,
retiree and eligible
dependent(s)
No,
retirees must find
individual insurance
1
(2%)
36
(82%)
7
(16%)
PLAN
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PROPOSED PROGRAM CHANGES
FOR PRE-65 MEDICAL INSURANCE
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WHAT IS YOUR INSTITUTION’S CURRENT THINKING ABOUT
THE FUTURE OF YOUR PRE-65 RETIREE HEALTH PROGRAMS?
Continue existing
program
19 (54%)
Set up a new, very
different program
15 (43%)
Eliminate the program
Total
1 ( 3%)
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MANAGING EMPLOYER COSTS
Employer contributions to
premiums have been capped
13
(52%)
Employer contributions are not
capped today
12
(48%)
Total Responses
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MANAGING COSTS THROUGH
PROGRAM DESIGN CHANGES
Various grandfathered
groups were created
15
(39%)
No grandfathered groups
in place today
24
(62%)
Total Responses
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MOST FREQUENTLY MENTIONED PROGRAM
CHANGES UNDER CONSIDERATION



Reduce/Eliminate Employer Premium Subsidy


Remove Retirees from Active Employee Insurance Pool
Cap Future Employer Subsidies at Current Level
Find Alternative Employer Funding without FAS/GAS
Liabilities
Re-introduce a “Viable” Pre-65 Retiree Health Program
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CONCLUDING COMMENTS FROM RESPONDENTS
 Lobby for universal health care before Medicare
eligibility
 Recognize that continued health care is a major
concern of those considering early retirement
 Develop a voluntary product
(“…that allows individuals to fund and then purchase retiree health coverage
and that does not require the employer to assume…significant legal, financial,
and administrative obligations…is the ideal solution. Unfortunately we all know
that this is not practical at this time...”)
 Thank Emeriti for this preliminary exploration
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THE PRE-65 RETIREE
MEDICAL DESIGN
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Factors Influencing Retiree Medical Design
• Employers are increasingly unwilling or unable to incur an expense and
liability that cannot be sufficiently controlled
• Increasingly, access to healthcare coverage during retirement affects an
employee’s decision to leave the workforce or re-enter the workforce
• Employers want to avoid “retiree burden,” financial and administrative
• Current movement toward healthcare consumerism
• “Double-edged sword” – Current active employees are foregoing voluntary
403(b) or 401(k) contributions to pay for increased healthcare coverage
costs today, further eroding future ability to pay for retiree coverage
• Emerging active health plan designs (e.g. HSAs, HRAs) with spillover
feature for retirement
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RETIREE HEALTH ACCESS*
RHA Consensus Objectives
“Pre-65 is the Key”
Fully insured, guaranteed issue catastrophic
coverage

Pre- and post-65 retiree access


No employer contribution required
Integration with Medicare reforms
Long-term, sustainable solution for current and
future retirees
Comprehensive administrative support
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

* Sponsored by Health Care Policy Roundtable (HR Policy Association & Pacific Business Group on Health)
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RETIREE HEALTH ACCESS*
Employer Options: Pre-65 and Post-65 Coverage
Retiree Health Access
RHA Direct
(Individual)
• Non-ERISA
• Individual Policies
• Subject to Medical
Underwriting
RHA Group
• Group, ERISA Plan
• Guaranteed Issue
RHA Hybrid
• Group, ERISA Plan
for Pre-65
• Individual and Group
for Post-65
• Guaranteed Issue
• Guaranteed issue and re-entry underwriting to enable phased retirement
• Total health advocacy and support geared toward retirees
• Suite of retiree health options available nationally
• Consortial “risk sharing” among plan sponsors and plan options
* Sponsored by Health Care Policy Roundtable (HR Policy Association & Pacific Business Group on Health)
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Emerging Goals for Retiree Health Benefits
• Controlled expense and liability for sponsored health plan
• Shared responsibility for health and health security
• Joint ability to plan for and “fund” the benefit during active years
• Flexible coverage/access for retirees’ personal situations
• Measurable value of benefit during working lifetime
• Reduced barrier to employees’ retirement decision
• Added security against devastating financial risks and long life
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Next Generation Retiree Health Strategy
Health &
Security
Planning
Tools
Fund account
while working
Employee
Subject to eligibility
and vesting
requirements
Pay premiums/ medical
expenses from other
retirement income
Retiree
$
$
Pre-65 and Post-65
Retiree Health Account (RHA)
Active Health Account
• Spillover excess into Retiree RHA
• Incentives for Consumerism/Wellness
Retiree Health Account
• Discretionary, matching, or fixed dollar contributions
• Investment direction, interest only, or no interest
• Incentives for Consumerism/Wellness
$
Retiree Health
Plan(s)
Gradual
Draw Down
Out of Pocket
Expenses
$
Annuity
Payouts
Part B and D
Premiums
Long term care
$
$
Employer
Employer
Pre-funded Contributions
Pay-as-you-go Subsidies
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EMBEDDED COSTS OF
PRE-65 HEALTH COVERAGE
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The Hidden Costs of Pre-65 Health Coverage
• Pre-65 Retiree Healthcare Costs are not always what they seem
– Pre-65 retiree healthcare can cost 1.5-2 times those of a typical active health
premium …
…. But may be included in a “composite active rate”
– Pre-65 retirees may elect COBRA at the “active rate” ….
…. But the institution is indirectly picking up the excess cost
– Pre-65 retiree utilization may be buried in composite retiree rate ….
…. But net costs for pre-65 retirees may be 2-3 times those of post-65s eligible for
Medicare reimbursement
• FAS 106/GASB 45 require recognition of the true cost of Pre-65
• Implicit Pre-65 subsidies can be extracted and redirected toward true Pre-65
costs
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