An Rx for Treasury Managers

When Healthcare Reform Arrives

Rick Noble, CTP

Staff Vice President

WellPoint, Inc.

October 29, 2013

Las Vegas, NV

Dale Sorenson, CTP

Vice President

Associated Bank

Outlook for Healthcare Reform

• It will cause involuntary disruption

• The end product may be much

different than the blueprint

• It will require perennial rethinking

Affordable Care Act *Patient Protection & Affordable Care Act

To increase number of

dues-paying insured . . . 1. Pre-existing conditions must be ignored

(“community ratings”)

2. You must have insurance, and your

employer must provide it

3. Government subsidizes lower-income

individuals (*Source: Paul Krugman, NYT, 5/27/13)

Options for large employers* (post 2014)

Cover >60% of

medical expenses

Charge <9.5% of

household income Less insurance

and/or more pay or

NO PENALTY PENALTY

$2-$3,000/FTE

Offer less or

no coverage

*Employers with more than 50 FTE (30 hours/week or more) are considered large.

Impact for employees (2014)

Government (Medicare/Medicaid)

Employer

Individual

None

Exchange S

Tax Status

Sourc

e o

f In

sura

nce

Subsidy

Tax

Free

Government

Government

Tax

Penalty

Tax

Penalty

Tax-Free

Benefit

Employer

2014: 1% of income or $95

2016: 2.5% or $695

Tax-Free

Benefit

After-Tax

Premium

After-Tax

Premium

Insurance purchased via exchange

• Government-run exchange with

1-13 private insurers per state

• Online shopping portal

• Subsidized for low-income citizens

• Narrower networks of hospitals/doctors

• Policies categorized by all-in cost

State health insurance exchanges

Default to Federal Exchange

Planning for Partnership Exchange

Declared State-based Exchange

MA

ME

CT

TX

FL

WA

OR

ID

UT

WY

AZ NM

ND

NE

KS

OK AR

MN

IA

MI

IL

KY

TN

MS AL

SC

NC

WV

PA

CA

NV

WI

IN

NY

NH

MT

SD

LA

GA

MO CO

AK

OH

VA

VT

RI

DE NJ

MD

DC

HI

Policies offered on exchanges

$3281 avg. premium

for individual policy

Platinum Gold Silver Bronze

90% 80% 70% 60%

All provide Essential Health Benefits

1. Source: New York Times, 9/25/13 “Officials Detail Premium Costs of Health Plan.”

Cost pressures on employers

$16,000 family premium for group plans

70% average portion paid by employer

6.5% annual premium growth since ‘99

Source: 2013 Employer Health Benefits Survey, Kaiser Family Foundation

Cost pressures on insurers

Premiums above 10% subject to

regulatory review PREMIUMS

Must spend 80%-85% of premiums on

claims & quality improvements

MEDICAL LOSS RATIO

Expenses & profits limited to 15%-20%

of premiums

EXPENSES & PROFITS

Cost pressures on

healthcare providers

Opportunities

Accountable Care Organizations

Vanishing charity services

Medicare cut of $716 billion

Collecting A/R

Threats

How can treasury

managers contribute?

• Seek ways to reduce

treasury costs

• Leverage banking services that

automate other functions

• Contribute to strategic decisions

Reduce treasury costs

0

5

10

15

20

25

30

35

ACH Check

Medicare Payments (millions)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Electronic Check

All Healthcare Claims* (millions)

By 2014, Medicare must pay 100% of claims electronically

*Source: McKinsey & Company 2007

Leverage banking services to

automate other functions

ACH &

Banks

For ACH health care payments, TRN

(Trace Reassociation Number) accelerates cash application (9/20/13)

ERA (Electronic

remittance advice)

Medicare

or

Insurer

Hospital

Medical

Provider

$ + TRN $ + TRN

TRN TRN

Contribute to strategic decisions

for all employers

“Employer Pay” Factors

More Bang for the Buck

Attract Quality Hires

“Employee Pay” Factors

Contain Spiraling Costs

Consumerism

What will treasury managers do?

Provide financial and cash flow insights

Uncover new services and vendors

Contain treasury costs

New considerations due to

Healthcare Reform (HCR)

Employers

Providers

Health Insurers

Banks

WLP has nearly 36 million

medical members

Note: Data as of 6/30/13.

Medicare

4%

BlueCard

14%

Medicaid

13%

Individual

5%

National

Accounts

19%

Local

Group

41%

FEP

4%

BC or BCBS plans in 14 states &

Medicaid presence in 19 states Diverse customer base

35.7

million

`

BC or BCBS licensed plans (7) Medicaid presence (12)

BC or BCBS licensed plans + Medicaid presence (7)

Positioning for a

changing landscape

* Sources: Booz & Company analysis; Kaiser Employer Health

Benefits Survey 2009; U.S. Census Bureau; Congressional

Budget Office; and WellPoint estimates, 2010.

43 49

39 58

15

26 32

26

126

127

41

20

Uninsured

Large Group Risk & ASO

Small Group

Individual

Medicaid

Medicare

2010 Population 2015 Population

A shift towards government-sponsored business is anticipated

US

population

in millions

Employers

Cost to employer rising

Health benefit costs, dollars per hour worked, private industry

March 1999-March 2012

$1.03 $1.09

$1.16 $1.29

$1.41 $1.53

$1.64 $1.72

$1.83 $1.92

$2.00 $2.08 $2.12

$2.34

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

March 1999

March 2000

March 2001

March 2002

March 2003

March 2004

March 2005

March 2006

March 2007

March 2008

March 2009

March 2010

March 2011

March 2012

Source: U.S. Bureau of Labor Statistics

ASO example

1

2

3

4

5

Providers

The provider challenges

Revenue Reduction

Drive down costs

Uninsured patients

Quality & Reporting

Secure Payments

HIPAA Standard

Transactions

Manual

Claims Cost

Electronic

Claims Cost

Savings per

Transaction

Claims $6.63 $2.90 $ 3.73

Eligibility Verification $3.70 $0.74 $ 2.96

Referrals $8.30 $2.07 $ 6.23

Preauthorization $10.78 $2.07 $ 8.71

Payment Posting $2.96 $1.48 $ 1.48

Claim Status $3.70 $0.37 $ 3.33

Total Potential Cost Per Visit $36.07 $9.63 $26.44

Potential savings for

Healthcare providers

Source: Electronic Transaction Savings Opportunities for Physician Practices, Milliman USA, June 11, 2006.

How much does a $200 claim

cost the provider to deposit?

$0.10

$0.30

$6.00

0 1 2 3 4 5 6 7

ACH

Check

Credit Card

$

Health Insurers

MLR calculation

Marketing Disbursements Mail room Cash

forecasting Customer

service General ledger Reconciliation Escheatment

Medical Loss Ratio (MLR)

Claims data Premium data

EFT project

Reconcilement

Systems

Codes

Enrollment

Consumers pay differently than businesses

1Source: 2011 Consumer Trends Survey, Fiserv, August 2011 2Source: 2012 Online Banking and Bill-Payment Forecast, Javelin Strategy & Research, August 2012

Check, 23%

Biller Direct, 25%

Bank Bill Pay, 25%

Auto-Debit Checking,

8%

Auto-Charge Credit/Debit Card,

7%

Phone, 3%

Other,

2% In Person,

7%

Banks

Bank products for HCR

Outsourcing of payments (MLR) Online bill pay

Health Savings Accounts (HSA)

Can you relate?

Summary

HCR is hard to understand

IT is strapped

Scale is important

Dale R. Sorenson

Vice President

Associated Bank

Dale.Sorenson@AssociatedBank.com

312-552-2447

Rick Noble

Staff Vice President

WellPoint, Inc.

Rick.Noble@WellPoint.com

317-488-6538