Source: CMS
Mercer Human Resource Consulting
7
Medical Trends
Pop Quiz How many years will it take gross medical costs to double, assuming no
specific employer interventions or national health care? – 10 or more –9 –8 –7 –6 – 5 or fewer
Results for Employers with 500 or more lives
Mercer Human Resource Consulting
6
Aggregate Health Care Spending (1980 – 2010) Government portion of payments increasing; total projected to be over $2 trillion by 2009
2.5% 2.1%
0.2% 0.00%
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
-2.00%
-1.1%
Includes medical, dental and pharmacy Source: 2002 Mercer/Foster Higgins National Survey of Employer-sponsored Health Plans
CPI-All Urban Consumers
CPI-Medical Care
1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2
C P I-M e d ic a lC a re 9 .0 %8 .7 %7 .4 %5 .9 %4 .8 %4 .5 %3 .5 %2 .8 %3 .2 %3 .5 %3 .9 %4 .6 %4 .7 %
Mercer Human Resource Consulting
11
ADEA Issues Impact on retiree medical coverage
Age Discrimination in Employment Act (ADEA) prohibits discrimination against persons age 40 or older in terms and conditions of employment
C P I O v e ra ll
5 .4 %4 .2 %3 .0 %3 .0 %2 .6 %2 .8 %3 .0 %2 .3 %1 .6 %2 .2 %3 .3 %2 .8 %1 .5 %
R a tio M C /O v e ra ll 1 .7 2 .1 2 .5 2 .0 1 .8 1 .6 1 .2 1 .2 2 .0 1 .6 1 .2 1 .6 3 .1 S o u rc e :U .S .B u re a u o fL a b o rS ta tis tic s
When will Medical Costs be Double the 2002 Level?
12 10
8 6 4 2 0
Year
Mercer Human Resource Consulting
9
Legislation
Medicare Prescription Drugs
– If made into law, will have major impact on retiree benefits and strategies – Initial confusion aside, should have positive impact on retiree plans – Expect cost shifting to negatively impact active plans
Standardized Cost 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
CPI vs. CPI Medical Care 400 300 200 100
0
Year
November 3, 2004
Is it Time for Employers to Move Away From the Traditional Ways of Providing Employee Benefits?
Rich Bailey FSA, MAAA, FCA Richmond, VA
Plan must provide equal benefits for older and younger workers, or Plan must incur equal costs for older and younger workers
Third and Sixth Circuit Courts reach different conclusions EEOC reviewing ADEA regulations
Mercer Human Resource Consulting
2
Double-Digit Increase for Second Year in a Row Per employee costs in excess of $5,600 per year
$6,000 $5,000 $4,000 $3,703 $3,000
The gap between CPI-U and medical care component is increasing
Mercer Human Resource Consulting
4
Comparison of Overall Growth Cumulative medical care CPI 89% greater than overall CPI since 1967
$2,500
$2,000
In US $ Billions
$1,500
$1,000
$500
$0 1980
1990
1995 OOP
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Private Insurance
Government
Agenda
The Environment The Catch-22 Paths Away from Traditional Delivery: Two Camps Opportunities Along Path 2 The Answer Additional Topics
Mercer Human Resource Consulting
Mercer Human Resource Consulting
3
Annual CPI Trend U.S. health care costs rise, despite continuing economic recession
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Mercer Human Resource Consulting
8
Number of respondents
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Never
Medical Trends Responses from a group of 25 actuaries who had time to get their calculators
EEOC Proposed changes in ADEA regulations
– Cline vs. General Dynamics
Wells Fargo case
– Appears to allow pre-funding (and tax-deductibility) of entire retiree liability an ILP approach won’t be exactly same number as FAS liability funding in years 2+ would be limited to service cost
Medical Care CPI
Overall CPI
Data based on January 1 CPI values
Mercer Human Resource Consulting
5
Employers’ Cost Increases Out-Pace Other Indicators Largest increase since 1990 (all employers)
-2.9% $3,594
+6.2% $3,817
+7.3% $4,097
+11.2% +8.1% $4,924
$4,430
+14.7% $5,646
$2,000
$1,000
$0 1996
1997
1998
1999
2000
2001
2002
Source: 2002 Mercer/Foster Higgins National Survey of Employer-sponsored Health Plans