Transcript What's Hot - Today & Tomorrow

The National Financial Cooperatives Benefit Plan
Employee Benefits Plan Management
January 11, 2012
Brian Lindenberg
Senior Partner
Calgary
Proposed Agenda
• Where Does the Money Go?
• The Renewal Process
• Plan Management Strategies – Cost sharing of Premiums
• Marco Benefit Plan Management Issues
– Employee Engagement
– Investing in Employee Health
– Prescription Drug Plan Management
• The National Plan Advantage
• Questions & Answers
MERCER
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The current landscape
It used to be simple… benefits were
• A form of non-taxable compensation for employees
• Offered by an employer on a voluntary basis, or negotiated by employee
groups
• A relatively small payroll cost (2% to 4%)
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Current landscape
It used to be simple… until
• Cost increases hit 8% to 12% annually
• Employee attitudes changed
• Greater awareness of entitlement
• Generational challenges emerging
• Benefits costs no longer a minor
consideration (8%+) of payroll
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Current landscape
Trends… and one sure thing
• Increased cost shifting to users
– Premium cost sharing
– A push for consumerism: dispensing fees caps, drug formularies,
spending accounts
• Annual inflation for health and dental plans continue at 3 to 5 times CPI
(8% to 10%)
• Paramedical services continue to rise as percentage of total health dollars
• Insurer actions
– Health pooling charges are escalating as the risk of high claims
increases
– Adjusting life and disability rates are now including an additional
“economic trend factor” in the range of 5% to 10%
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Where Does the Money Go?
Where does the money go?
Distribution of benefit costs
Life & AD&D
10%
LTD
17%
STD
5%
Dental
23%
Health Care
45%
Source: Group Universe Report, Fraser Group
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Where does the money go?
Distribution of health care costs
Out of Country
Other
1%
Out of Province
1%
0%
Hospital
Service & Supplies
3% Ambulance
8%
0%
Paramedical
16%
Drugs
71%
Hospital
Service & Supplies
Ambulance
Out of Province
Drugs
Out of Country
Paramedical
Other
Source: Great-West Life
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Where does the money go?
Distribution of dental costs
Orthodontia
6%
Major
18%
Basic
51%
Endodontics /
Periodontics
25%
Basic
Endodontics/Periodontics
Major
Orthodontia
Source: Great-West Life
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Where does the money go?
Increasing paramedical costs
Average amount claimed per
plan member claiming paramedical
Percentage of plan members
using paramedical
16%
$600
12%
Percent
Average Covered Amount
$750
$450
$300
8%
4%
$150
0%
$0
Chiropractor
Masseur
2002
Physio
Chiropractor
Psychologist
2007
Masseur
2002
Physio
Psychologist
2007
Source: Great-West Life
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The Renewal Process
Where does the money go?
The premium
Expense portion - 10% under the National Plan and 90% for claims
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Where does the money go?
Impact of reserves
Health and dental analysis
Life and LTD analysis
Expenses
Expenses
Paid
Claims
Paid
Claims
Annual $
Annual $
Reserves
Reserves
Reserves
Reserves
Paid
Paid
Claims
Claims
Premium
Incurred Claims
Premium
Incurred Claims
The National Plan will retain surpluses for the benefit of members as all
is underwritten on a refund accounting basis.
MERCER
The renewal process
Rating methods
• Group insurance is generally written on an annual renewable term (1) basis
– Rates are generally set for a year in advance
– Billing rates are established so that the policyholder (or an administrator)
can calculate the required monthly premium as the risk changes
• In a perfect world, rates set would exactly cover the costs incurred
• Each underwriter will use a blend of art and science in predicting the costs
(1)
MERCER
Employer-initiated changes/termination of policy can still occur off-anniversary, with reasonable advance notice
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The renewal process
Rating methods
Fully Pooled
Experience Rated
• Appropriate for benefits characterized by
infrequent but potentially large claims
• Claims demonstrate a predictable pattern of
utilization over an extended period of time
• Premiums are low relative to these claims
• Claims are incurred more frequently but the
amounts are usually low to moderate
• Number of insured employees is insufficient to
rely on their experience
• Premium rates are determined in whole or in
part on the group’s own claims experience
• Premium rates are based on the claims
experience of the insurer’s entire book of
• Insurer takes into account projected claims,
business (“the pool”) and the demographic
reserves, administration costs, and credibility
composition of the group. However, increasingly of experience
insurers are using experience, especially poor
experience, to adjust rates
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The renewal process for experience – rated groups
Concept
• What is it?
– Process of projecting the future costs of a benefit plan
– Uses both actual claims experience and assumptions about the future
– The premium being charged for the policy year is intended to cover the claim
liability incurred in the year, plus expenses, taxes and profit:
Renewal Premiums = Projected Claims + Expenses
• General and claims administration expenses
• Risk/cost of capital and profit
• Past claims adjusted for any special events
• Change in required reserves
• Inflation and utilization
• Commissions
• Premium tax
Requested renewal is % change to adjusted premium
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The renewal process for experience – rated groups
Projected claims
• Projected claims form the bulk of an insurer’s premium rate
• In general, past claims experience is the best predictor of future claims experience
• Insurers typically use the policyholder’s claims experience as a base for projecting claims.
Exceptions include:
– Small groups
– Unusual claims fluctuations
– Groups with significant changes in composition or plan design
Experience
Periods
2008
2009
2010
2011
Past claims experience is used to
estimate future experience
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The renewal process for experience – rated groups
Adjustments to past claims
• Plan design changes
• Government offloading
• Change in size of group
• Extraordinary claims
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The renewal process for experience – rated groups
Inflation and utilization
• Inflation/dental fee guide changes
– Expected % increase for the same services in the future
– May use separate inflation factors for different lines of coverage
- e.g., drugs, vision, dental
• Utilization
– Measures the increase in number of services per
employee/dependent
– Measures the change in the number of claimants who utilize the
benefit during the year
– Accounts for changes in the actual services, i.e. new drugs and new
technologies
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The renewal process for experience – rated groups
Inflation and utilization
• Margin
– Insurers are inherently conservative and load margin into their trend
factors
• Typical annual inflation/utilization factors
– Health: 10% - 12%
– Dental: 6% - 8%
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The National Plan Approach to Pricing
Guiding Principles
• Cost stability
• Spread of risk – lower cost
• Market based pricing
• Best long term pricing
• Individual credit union accountability
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The National Plan Approach to Pricing
The Methodology
• Life Benefits
– Aggregate premium rate based on overall claims experience which is
allocated by credit union based on employee demographics
• LTD Benefit
– Aggregate premium rate based on overall claims experience which is
allocated by credit union based on a combination of employee
demographics and credit union claims experience
• STD, Extended Health, Vision and Dental Benefits
– Premium rates based on individual credit union claims experience
• Fully Pooled Benefits (e.g. AD&D, Optional Life, Critical Illness, Directors
Insurance)
– Premium rates are market based
• Employee Assistance Plan
– Market based adjusted for utilization relative to target
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Plan Management Strategies - Cost
Sharing of Premiums
What can we do about it?
Plan management strategies
LEVEL OF SEGMENTATION
Broad
• Affects a large population,
therefore has broader impact
• “One size fits all” approach for
entire population
• More immediate and (possibly)
large savings
• Egalitarian with potential to
alienate certain segments
DEGREE OF DISRUPTION
Low
FINANCIAL IMPACT
• Easy to implement
• Less employee
disruption
• Less change
management
Medium
• Medium level of
impact on “employee
perception”
• Medium change
management
Surgical
• Narrower, more direct impact
• Targeted approach, which
segments the population (e.g.,
level, performance rating,
geography, job family, generation
or business unit)
• Potentially smaller immediate
savings
• Requires more front-end diagnosis
BROAD
MERCER
SURGICAL
High
• Drastic measures
• High level of employee
disruption
• Significant change
management
HIGH
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LOW
23
Comparator Group – Companies in Western Canada with 500 or less employees.
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Inside Employees’ Minds
Employee Engagement
What’s inside employees’ minds: We’re not happy
One in three Canadian
workers is seriously
considering leaving
Retirement is second in
importance and employees
doubt their financial readiness
Pay is top-ranked element
of the deal, but only half
are satisfied
Most say work load is
reasonable and work/life
balance is possible
Most are happy with their
work, yet want more
autonomy to do a good job
Most are satisfied with
benefits, but they are less
important in overall deal
Respect for organization scores
highly as a key to engagement,
and sense of commitment slips
MERCER
Marks improve on career
development, but fewer see
long-term future with company
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What is What’s Working™?
• Proprietary research on employee views on work
• More than 100 survey questions covering pay, benefits, careers,
leadership, performance, engagement, etc.
• Conducted in late 2010 among nearly 30,000 workers in 17 countries,
including 2,000 Canadian workers (excluding public sector employees)
• Reflects workforce demographics (age, gender, job level, industry)
• Conjoint analysis to determine what employees value most
• Results compared to 2006 Canadian What’s Working™ survey
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Retirement gap: Plans important, but readiness in doubt
In Canada
3
5
are satisfied with their
savings/pension plan
MERCER
• Perfect storm of factors is creating
insecurity and increasing importance of
retirement benefits and planning
– DB plan redesign, freezes, closures
– Poor market performance and
corresponding DC plan inadequacy
– More intense focus on retirement
issues by Boomers, media
– Proposed reforms to Canada’s
pension system
• Employees and employers are not
doing enough
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Benefits value: Less importance, less competitiveness
In Canada
1
12
2
• Survey findings show less concern with
costs and choices
– Benefits rank in lowest third among
most valued elements of the deal
• Majority (57%) say their benefit package
meets their needs but is not as good as
competitors’ plans (53%, down 12 points)
say benefit choices
meet their needs
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And benefits play a limited role in employment decisions
Benefits played a significant
role in my decision to join
my organization
40%
Benefits play a significant
role in my decision to
continue to work for my
organization
30%
MERCER
48%
2010
40%
35%
July-17-15
45%
50%
30 30
Benefits value: Addressing the issue
What you need to know
before taking action
• Employee satisfaction with
benefits and role of benefits in
decisions to join or stay with your
organization (by segment and
generation)
• Role of benefits in total rewards
(core level of benefit protection
and emphasis on cash
compensation, versus using
benefits as a differentiator and
investing more than peers do)
• Employees’ willingness to pay for
additional benefits beyond those
already provided
Actions to consider
Consequences of not
taking action
• Gauge employee satisfaction with
total rewards program
• Organization continues to invest in
benefit programs that are not
valued by employees – poor return
on investment
• Evaluate/redesign plans to ensure
meaningful choice, some
employee control over spending of
employer contribution
• Repackage benefits, wellness
programs to appeal to various
segments/generations
• Enhance communication to boost
awareness, satisfaction
• Total Health Management to
encourage good health choices,
increase productivity and control
costs
• Unsustainable health cost
increases
• Increased employee
dissatisfaction with benefits leads
to disengagement, absenteeism
and “presenteeism”
• Competitive disadvantage in
attracting and retaining key
employees
• Voluntary, employee-paid benefits
program
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A Case for Investing in Employee Health
Macro Benefit Plan Issues
Increasing Focus on Mental Health
“Prescription for a Healthy Workforce”- Windsor Times (September 22,
2010)
…A healthy business is one that supports and safeguards the health of its employees. It goes
beyond offering a benefits plan and disability insurance: It makes efforts to understand
mental health issues
“Workplace Mental Health Disability Leave Recurs Sooner than Physical
Health Leave”- Canada NewsWire (June 29, 2011)
…The recurrence of an employee's medical leave of absence from work tends to happen much sooner with a
mental health leave than a physical one
•
30% of Canadians felt stressed in 2010 and were concerned about the economy, job
security and stress from work
•
Approximately 20% of Canadians will suffer from a mental health problem in their life
•
35 million work days are lost per year due to mental illness
•
Mental illness costs the Canadian economy $51 billion per year
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Chronic Conditions are Driving Up Health Care Costs
“Being Old Doesn’t Have to Mean Being Sick; Chronic Conditions are
Driving Up Health Care Costs, Not the Ageing Population”- The Globe
and Mail (January 28, 2011)
…Chronic health conditions like hypertension, diabetes and depression are driving up health care costs…the
more chronic conditions they have the more they use health care services
•
Common risk factors
include:
–
Smoking
–
Obesity
–
Physical Inactivity
–
Unbalanced
Nutrition
•
64% of 20 – 44 year
olds have two or more
health risks
•
67% of 45 – 64 year
olds have two or more
health risks
Source: Health Canada
MERCER
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Pharmaceutical Drug Represents the Greatest Spend
“Drug Plans Face Historic Squeeze; Limits Anticipate”- National Post
(April 14, 2011)
…The private benefit programs that millions of Canadians depend on are due for "radical change" that could force
many to pay thousands of dollars out of pocket for their medications
721
721
%%
incre
incre
Average Cost per Claimant
ase
ase – Private Drug Plans
Drug Spend 1985 - 2006
over
over
$25,000,000,000
all
all
$21
Billion
$20,000,000,000
$1,000
$875
$800
$15,000,000,000
$7.9
Billion
$621
$600
$10,000,000,000
41%
$3 Billion
$400
$5,000,000,000
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
$0
$200
2000
2003
2006
2010
Source: ESI Canada 2006
Source: Canadian Institute for Health Information (CIHI)
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Workplace Health
Organizational Health Continuum
Healthy
At Risk
Chronic Conditions
Serious Conditions
Physical, Mental and
Social
Physical, Mental and
Social
Physical, Mental and
Social
Physical, Mental and
Social
Well
Prevention
MERCER
Absenteeism and Presenteeism Management
Disease
Disability Management
Health Promotion
Health Risk
Management
Management
Disability
Management
Exercise
programs and
nutrition
Health Risk
Assessment
Targeted
Illnesses
Case
Management
Life Habits
Assessment
Behavior
Modification
Education
Specialized Care
Work/Life
Balance
Stress
Management
Care Guide
Rehabilitation
Information
Sessions
Physical Activity
Promotion
Accommodation
Reassignment
and
accommodation
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Prescription Drug Plan Management
The Calm before the Storm
The market is relatively calm…
• Rate of cost escalation has slowed
• More generic drugs are available – at lower
prices
• Average cost per prescription is still
relatively low
• Increased focus on health and wellness
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Is it the calm before the storm…
• The changing landscape could result in
both direct and indirect cost shifts to
employee benefit programs
• Biologic drugs are exploding onto the
market – improved health outcomes at a
significant cost
• Insurers are struggling with how to manage
high cost drugs
• Rates of chronic disease are staggering
MERCER
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The Calm
Slower Drug Trend
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The Calm
More Generic Drugs Available
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The Calm
Average Cost Per Prescription Relatively Low At $61.86*
*ESI Canada)
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The Storm
The Storm
The Changing Landscape
• Provincial Governments are changing the way they manage
prescription drug programs and reforms are being introduced across
Canada
– Ontario, Alberta and BC introduced generic drug price reforms that
reduce prices for all payers - each province taking a different
approach
– Generic drug price reforms are in place or proposed in other
provinces but may not apply to private payers
– Ontario is the only province that will eliminate rebates for all payers
– Expanded use of private listing agreements
– Consideration of alternative compensation models for pharmacy
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The Storm
The Changing Landscape
Why are governments focusing on generic drug reform?
• Generic drugs are large and growing share of total prescriptions
(54.3% in 2009 according to IMS Health)
• $7 billion of brand name drugs patents have or will expire in the next
few years, allowing generics to enter the market
• Generic drug prices in Canada are among highest
– Retail pharmacy invoice prices for generic drugs are higher than in
10 of 11 comparator countries*
– Estimates that Canadian drug spending could be reduced by 32.5%
or $1.47 billion in 2005 (at international median prices)
• Consumer pricing on generic drugs is influenced by rebates offered by
manufacturers to pharmacy
*Patented Medicines Price Review Board
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The Storm
The Changing Landscape
The consequences have been mixed…
• Lower prices for some generic drugs*
• Higher prices for other generic drugs
• Concern that pharmacy may attempt to recover lost revenue through
higher dispensing fees and higher mark ups
• Additional cost of transition allowance in Alberta
• Pharmacy more interested in preferred provider arrangements
• The concept of an expanded role for pharmacy in the delivery of health
services will need to be “sold” to the private payer market
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The Storm
Generic Drug Pricing is Only Part of the Solution
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The Storm
Biologic Drugs
What is a biologic drug?
• A biologic drug is a preparation synthesized from living organisms.
They are also known as biotech, injectable or specialty drugs
• Biologic drugs can offer vast improvements for some people and may
facilitate return to work
• Hundreds of biologic drugs are estimated to be in the pipeline
• Biologic drugs are expensive, often tens of thousands annually
• Most biologic drugs are funded by private group insurance plans
(unless they are administered in a hospital)
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The Storm
Biologic Drugs
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The Outlook
•
A number of blockbuster brand name drugs will come off patent in the
coming months
•
Generic drug reforms should help to reduce costs
•
Biologics and brand-name drugs still represent the largest share of
spending and these costs are poised to increase
•
Pharmacy will be motivated to recover lost revenue
•
There have been recent significant increases in pooling charges from
the insurers and this is expected to continue
•
The aging population and relative health of Canadians will likely
translate into higher utilization
The outlook is not positive
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The National Plan Advantage
Benefit to Credit Unions to Participate in National Plan
• Members of the National Plan benefit from strength in numbers and
significant buying power/leverage
• GWL committed to a 5 year expense level guarantee resulting in cost
saving of 5%-10% for Life and LTD benefits and 6% to 12% for Health and
Dental benefits
• Loss ratios for National Plan are 90% vs what a carrier would offer a credit
union on their own e.g. could range from 70% to 80% depending on size
• Maximums under plans are higher and risk of the additional benefit can be
managed as part of a much larger plan
• Can take on more risk and therefore lower cost of insurance the larger the
size of the plan/group of employees
• Plan surpluses are retained within the plan to be invested in rate stability
• Professional advice
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Questions and Answers
Thank you
Mercer (Canada) Limited