Category Archives: Employers

Questions and answers: Are you managing retiree health needs cost-effectively?

Because retirees are often the highest users of healthcare, simple changes in plan design or delivery can go a long way in reducing costs for employers. For example, we had a client that was looking to deliver benefits to its Medicare retirees more efficiently. By moving the entire population to a Medicare Advantage plan, our client not only reduced its retiree medical costs by 10% in the first year due to a reduced premium, but it also was able to provide a richer benefit design.

In reviewing your own retiree medical benefit design strategy, here are a few questions you should ask.

Is my plan coordinating with Medicare in the most efficient way?
If you have an active medical plan that also covers Medicare-eligible retirees, carefully review the coordination of benefits method. When Medicare is primary, the plan commonly coordinates under one of these approaches: carve-out, maintenance of benefits, or coordination of benefits. Because costs to the plan and retiree vary under each of these approaches it is a good idea to examine each one; there may be a way to save money for the plan or the retiree.

Am I taking full advantage of prescription drug subsidies?
Given the high use of prescription drugs in the retiree population, this area may be your best opportunity to reduce costs. Are you taking full advantage of the prescription drug subsidies from the Centers for Medicare and Medicaid Services (CMS)? Consider delivering Medicare prescription drug coverage through an employer group waiver plan or with retiree drug subsidy coverage.

Am I leveraging the experts in administration?
Some companies have moved Medicare-eligible retirees to a Medicare Advantage Prescription Drug Plan (MAPDP), which offers additional benefits beyond Part A and Part B coverage. The federal government pays private insurance companies to offer these plans. Because MAPDPs are fully insured, the insurer would take over the entire administration of the Medicare plan and is well-versed in managing this population, resulting in possible savings and increased efficiencies in plan administration.

Does a pre-Medicare plan make sense?
If the size of your pre-Medicare retiree population is large enough, the most cost-effective solution could be to offer a pre-Medicare retiree-only plan. Retiree populations are different and a pre-Medicare retiree-only plan can be designed with those needs in mind, in a way that efficiently maximizes benefits. For example, retirees are generally on fixed incomes, so a plan designed with set deductibles, copayments, and out-of-pocket maximums is more desirable.

Am I using all the utilization management tools available?
Utilization management programs can be helpful in reducing the cost of covering pre-Medicare retirees. For example, chronic diseases are likely more prevalent in your pre-Medicare retirees than your actives. Helping retirees manage these conditions can benefit not just your covered population but also your bottom line.

Do any of the plan changes that I am making have unintended consequences for my retiree population?
Seemingly small changes can have significant financial impacts for your organization when you look closely at how it affects your retirees—even though retirees likely make up a smaller portion of your total population. For example, for plans that receive the retiree drug subsidy, changes that increase cost sharing or contributions for prescription drugs for retirees may cause the plan to lose eligibility for the subsidy. Instead of cost-shifting, it may make more sense to focus on managing plan costs. You will have the added advantage of possibly lowering retiree medical accounting liabilities—e.g., Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 715-60 liability—by potentially reducing projected plan costs, long-term trend, and delaying the impact of the 40% excise tax on high-cost health plans.

When it comes to retiree medical coverage, it is important to ask the right questions. Given the increasing cost of healthcare and retirees’ high utilization, you may be able to make changes that positively affect your retirees and lower the cost of covering them.

Pharmacy benefits: Carve-in or carve-out?

Employers and other plan sponsors have the option of carving in or carving out their pharmacy benefit programs from their medical benefits. There are a number of important factors that should be considered when deciding whether or not to carve out pharmacy benefits. This article identifies the advantages and disadvantages of both options and raises important questions to consider when contemplating a move to carve-out.

Definitions

Carved-in
When the pharmacy carve-in approach is used, the employer contracts directly with the medical health plan vendor for medical and pharmacy benefits. The vendor will either administer the program in-house or contract with a pharmacy benefits manager (PBM) vendor to process pharmacy claims and administer the pharmacy program. Because the employer contracts directly with the medical health plan vendor, there is no direct relationship with the PBM.

A pharmacy carve-in is typically used under the fully insured model. In 2015, the Pharmacy Benefit Management Institute (PBMI) reported 23% of smaller employers (less than 5,000 lives) and 7% of larger employers (greater than 5,000 lives) were fully insured. Under the fully insured model, the employer pays a premium to the insurer and the insurer assumes the risk of the total claims amount rather than the employer.

Carve-out
When the pharmacy carve-out approached is used, employers contract directly with a PBM vendor to administer their pharmacy benefits program.

A pharmacy carve-out is typically used under the self-insured model. In 2015, PBMI reported 77% of smaller employers and 93% of larger employers were self-insured. Under the self-insured model, the employer assumes the risk and benefits from managing costs. Pharmacy stop-loss insurance may be purchased to mitigate the risk of total claims amounts going over a certain threshold. A pharmacy carve-out can also be used with the fully insured model, although this is less common.

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Heeding the call for transparency

The overall share of the U.S. economy devoted to healthcare spending reached almost 18% in 2015. As a result, methods for cost reduction are getting increased attention. The new administration under President Trump identified provider price transparency as one of its key healthcare reform goals. Until now, disclosure of provider rates has been very limited, which is due to the confidential nature of this information and concerns with provider collusion. However, rising trends, coupled with the demand for increased consumerism by employer plan sponsors, have started to move the transparency needle a bit. The following provides an overview of price transparency, including the primary drivers in the self-insured market and a short list of employer considerations.

What does price transparency means?
In terms of the self-insured market, price transparency means making information more readily available to consumers. This will allow them to make better-informed decisions based on current health status. Several carriers and independent companies have created tools to assist employees with “demystifying” medical rates in a consumer-centric manner. These tools allow employees to price-shop for a given service by provider, as well as factor in current benefits to estimate their out-of-pocket costs.

What factors are driving the need for transparency in the self-insured market?
The proliferation of high-deductible health plans (HDHPs), reference-based pricing, and narrow or custom networks all place a greater burden of cost sharing and decision-making on the employee and employer.

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Four trends in the 2017 benefits delivery marketplace

If you’ve been following the headlines over the past few years, you’ve seen some big changes in the benefits administration world. For example, Aon recently announced that it is selling its long-standing benefits and human resources (HR) administration business to Blackstone. In January, Xerox completed the spin-off of Conduent, which provides benefits consulting and administration services. Back in 2015, TransAmerica acquired Mercer’s U.S. defined contribution recordkeeping business.

Gartner Inc. research reveals that 80% of companies now outsource at least one HR activity. The trend toward benefits administration outsourcing continues to accelerate, with roughly three in four companies now outsourcing at least some benefits administration activities—up 12% from two-thirds in 2014. So how have these changes to the benefits delivery marketplace affected benefits strategies and buying decisions?

Here are four trends we’ve seen based on recent work with our clients.

1. Best-in-class purchasing
There’s a move toward best-in-class selection of outsourcing providers. In other words, employers are selecting providers by benefit “tower”—health and welfare, defined contribution, defined benefit—rather than consolidating delivery to one total benefits outsourcing (TBO) provider. Our observations are backed by a recent study, which revealed that 64% of employers surveyed use more than one benefits administration provider. Additionally, 35% of large employers, with 1,000 lives or more, indicated an increase in the number of providers they use to five.

There are a number of explanations to support this trend:
• Flux in the marketplace
• Inconsistent service quality across benefits towers
• Fewer providers who can deliver TBO

What this means to plan sponsors: Clients who bought a TBO/single-provider approach and like the integration have far fewer options to consider should they decide to go to market. They will need to expand their thinking to include the best-in-class approach and look for integration among providers—which can be accomplished with good leadership and vendor management from the client.

2. Provider disruption
The benefits administration marketplace has been, and continues to be, dynamic. In the 20+ years I have been in the market, there has scarcely been a year when some major provider change has not occurred. Providers have consolidated through acquisition and merger. Some have exited one or more towers of delivery. Others have spun off their administration units to stockholders as independent companies. The disruptive nature of the provider base has not led to market contraction. However, as affected client companies continue to outsource their administration it has led to movement by clients and opened the door for new providers.

What this means to plan sponsors: In this environment, a plan sponsor must be cognizant of its role as fiduciary to the plan. This means doing due diligence, soliciting proposals from alternative providers, and reviewing service levels with the current provider—especially as providers work their way through the changes.

3. Changes to bundled consulting and administration
Interestingly, providers are initiating very different strategies regarding the bundling of consulting and administration. Of the four largest administration providers in the large company market segment, two (Mercer and Willis Towers Watson) have tightened the link and two (Aon and Conduent) are breaking the link between consulting and administration. The exception is when a client chooses a private exchange model. In this case, the provider wants to keep consulting and administration tightly within its service offering.

Clients are split regarding the efficacy of bundling. Based on our work in this area and our observations of client choices, about as many believe that integration is important to effective plan management as believe in keeping them separate.

What this means to plan sponsors: Plan sponsors need to be aware of what products and services their consultants provide, such as benefits administration, private health exchanges, prescription collaboratives, etc. There may be corporate initiatives requiring consultants to present these products to you. That’s why it’s important to get independent insights into your decision-making process to ensure which strategy will work best for your organization.

4. Health and welfare outsourcing growth
The majority of retirement plans, both defined contribution and defined benefit plans, are outsourced today. Though health and welfare (H&W) benefits administration has lagged behind, over the past several years it has grown by 7% to 10% annually. Approximately 52% are outsourcing H&W administration, while 45% are administering in-house or using limited outsourcing services (flexible spending accounts, COBRA, Patient Protection and Affordable Care Act [ACA] reporting).

Rationale for administering in-house:

• Contact: Health plan administration involves many calls. Some plan sponsors believe that employees want to talk to company employees versus a call center.
• Cost: Some plan sponsors believe it is more costly to outsource than to manage their plans in-house or at least that they will have a difficult time developing the cost/benefit analyses to move to outsourcing.
• Complexity: The plan design is very unique and/or complicated so the plan sponsor believes it needs to be administered in-house.

Reasons employers move to outsourcing:
• ACA compliance requirements
• Expanded benefit options for employees
• Lack of internal technology capability and expense of upgrades
• Overburdened staff or loss/reduction of staff
• Leverage of outsourced providers for administrative cost savings

What this means for plan sponsors: With the changing benefits marketplace, employers need to offer competitive benefits—with options for changing demographics. They also need to improve web-based employee access and still contain cost. The market is growing and changing quickly but your Milliman consultant can help you understand the current market, guide you through expected future changes and find a partner to serve you well over the coming years.

The importance of evaluating RDS and EGWP trends to optimize plan value

Financial dynamics and an evolving regulatory environment in the group retiree pharmacy benefits market continue to influence the relative values of Employer Group Waiver Plans (EGWPs) and Retiree Drug Subsidy (RDS) plans. Plan sponsors should periodically monitor and evaluate emerging trends in these programs to optimize plan value in this still-changing market.

Last summer, for example, the Centers for Medicare and Medicaid Services (CMS) announced a large decrease in the monthly direct subsidy revenue to EGWPs. Additionally, the Medicare Payment Advisory Commission (MedPAC) recently proposed changes to the Medicare program with major implications for EGWP costs.

Figure 1 summarizes key recent and proposed market and regulatory dynamics that are already impacting the relative values of EGWPs and RDS plans—and which could potentially influence further shifts in these values.

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Increases in self-insured employers and stop-loss coverage

Under a self-insured group health plan an employer shoulders the financial risk for providing healthcare benefits to its employees. Stop-loss insurance can help an employer mitigate the risk associated with high-cost or catastrophic health claims.

While large employers have customarily self-insured, small and midsized employers have increasingly weighed the benefits of self-insurance since the passing of the Patient Protection and Affordable Care Act (ACA), spurring growth in the stop-loss market. In this article, Milliman’s Mehb Khoja discusses the ACA’s impact on self-insurance and on stop-loss coverage.

Here is an excerpt from the article:

The stop-loss market is believed to be a roughly $15 billion industry, up from $8 billion to $10 billion pre-ACA. Its growth is related to the increased prevalence of self-funding along with the changes from ACA which increased premiums, plan enrollment, or both for stop-loss insurance carriers….

… ACA has considerably increased the need for and expanded employer interest in stop-loss coverage due to several factors:

• Removal of annual and lifetime maximums (prior to ACA, a cap on annual expenses on an employer-sponsored plan was common and allowed stop-loss insurance carriers to limit their exposure).
• Removal of pre-existing condition exclusions (prior to ACA, employers could temporarily exclude high risk members).
• The individual mandate and extending dependent coverage to age 26 have all increased membership in employer-sponsored plans.
• Expanded taxes on fully insured health plans.