Category Archives: Employers

Five ways the Amazon/Berkshire Hathaway/JPMorgan Chase deal could change healthcare in the U.S.


This week, Amazon, Berkshire Hathaway, and JPMorgan Chase announced plans to join forces in order to provide their U.S. employees with healthcare solutions that are “simplified, high-quality and transparent.” Large employers are growing increasingly frustrated with the challenge of providing their employees with affordable, high quality healthcare, and the announcement has many speculating that the partnership could disrupt the U.S. market.

Amazon, Berkshire Hathaway, and Chase bring a fascinating blend of perspectives to this area. And while we don’t know exactly how they will transform healthcare, we do have ideas of what could be possible (imagine a world where insurance claims might be a thing of the past). In this article, Milliman experts explore the ways in which healthcare could change as a result of this venture.

Cost control measures for growing employer medical and pharmacy exposure

Rising prescription drug costs are old news. What is new, however, is just how high they have gone. Take the recent case of a member whose annual pharmacy spend is expected to exceed $7 million per year. That is the annual spend for one member. It turns out the medication is for a life-threatening, chronic, hereditary condition, and the medication will be needed for the remainder of the member’s life. This means no end in sight for the employer-sponsored insurance plan.

In the first year, the stop-loss coverage will cover the majority of this cost; however, there is the potential for a 40% to 60% increase in stop-loss premiums the following year, and even so, this member will be lasered out of any coverage in following years. In other words, the employer-sponsored health plan will be liable for this full amount going forward, plus any additional costs for this individual for medical or other pharmacy expenses (e.g., emergency room visits, hospitalizations, etc.).

Can employer-sponsored plans afford to absorb that kind of additional, annual spend in their healthcare budgets? In this particular case, the drug keeps the member alive, so not covering the medication is not an option, morally or ethically. But if this cost potentially bankrupts the plan, there will be no coverage for this member anyway.

So what can employers do to protect against this claim and others?

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Employers cope with rising healthcare costs

In May 2017, Milliman released its 2017 Milliman Medical Index (MMI), which measures the cost of healthcare for a typical American family of four receiving coverage from an employer-sponsored preferred provider organization (PPO) plan. The MMI increased $1,118 (4.3%) to $26,944, including a 3.6% increase in average medical expenditures and an 8.0% increase in prescription drug expenditures. This increase of more than $1,100 (a continuation of similar annual increases in the index since 2001) shows that federal healthcare reform efforts, which have mainly targeted the individual insurance market and Medicaid, have had little effect on reducing employers’ costs. Although this year’s MMI saw the lowest annual percentage increase in healthcare costs for a family of four with employer coverage since at least 2001, healthcare cost increases continue to outpace consumer price index (CPI) inflation trends, as shown in the chart below.

Employers have responded by:

Gradually transferring more of the cost to employees through contributions and plan design
Over the past five years, the MMI has increased 30%, while the employers’ share of healthcare costs has increased 25.7%. As a result employees are paying about 43% of the MMI, up from 41% in 2012.

Putting more pressure on vendors
For example, employers sponsoring self-insured prescription drug plans should be regularly reviewing pharmacy benefits manager (PBM) arrangements through requests for proposals (RFPs) and market checks.

Managing utilization of benefits and cost shifting by providers through strategies such as narrow networks and proactive medical management

Staying ahead of the prescription drug pipeline
Over the past few years, prescription drug trends have been greatly influenced by the entry of extremely expensive, curative hepatitis C treatments. While it looks like these treatments are no longer driving prescription drug trends, it is important to monitor the status of the prescription drug pipeline to understand what employers can expect to spend on prescription drugs in the coming years. Employers can stay ahead of the curve through strategies like utilization management, including prior authorization, step therapy, and pursuing specialty pharmacy rebates.

This article first appeared in the January 2018 issue of Health and Group Benefits News and Developments.

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Allocating health plan costs in the coming year

As 2018 gets underway, it is important for employers and health plans to consider what healthcare costs could lie ahead in the new year. Keeping the following issues in mind while working toward potential solutions will be helpful in managing costs.

Opioid abuse
According to the U.S. Department of Health and Human Services, the number of opioids prescribed since 1999 has nearly quadrupled and the increase in prescriptions has resulted in an increase in opioid abuse. As a result, health plans are beginning to take steps to curb that abuse. Plans can look to cover or encourage the use of painkillers that are less likely to be abused, such as lower-dose opioids or those that are not easily crushed or otherwise changed. As an example, a number of insurers have indicated that they will no longer cover OxyContin beginning in 2018. In addition, plans may want to consider contracting with substance abuse counselors if their populations have addiction problems or the potential for them. Milliman has analyzed a large commercially insured database and looked at variables such as demographics, mental health, physical health, etc., which can be used for predictive purposes in order to determine how susceptible a population may be to opioid abuse.

Hospital consolidation
In 2016, for the first time ever, less than half of physicians practicing in the United States were independent, according an American Medical Association study. Physicians who work with hospitals are able to charge a facility price at a physician’s office, which has resulted in an increase in hospital costs and significant discrepancies in price for the same services. Therefore, price transparency, coupled with quality information, becomes imperative for the consumer (the employer that provides health benefits and the employees who receive those benefits). There are various vendors who can offer to the consumer the ability to “shop” for surgical procedures and/or physicians based on both price and quality metrics. Additionally, plans can offer narrow network designs, which can incentivize high quality and low price (by “carving out” expensive hospitals that don’t offer higher-quality services).

Uncertainty of the ACA
The Patient Protection and Affordable Care Act (ACA) remains the law of the land, but there continues to be uncertainty around the legislation. The uncertainty is mostly in the individual market, but large losses to insurers and increasing premiums for consumers would have an impact on the group market as well, as healthcare for individuals and groups are intertwined. With signing of the recent tax bill into law, the individual mandate will be repealed in 2018, which will likely result in healthier individuals leaving the market—4 million in 2018 and 13 million by 2027, according to the Congressional Budget Office (CBO)—and premiums increasing for those remaining by an average of more than 10%, according to the CBO. Congress is also continuing to consider ways to repeal the employer mandate, which would have a more direct impact on the group market.

Alternative payment strategies
Plans will also continue the trend of considering alternative payment strategies. The ACA introduced the idea of accountable care organizations (ACOs), which incentivize quality care through shared savings based on trend guarantees. ACOs are usually facilities or professional organizations, but there are also prescription drug shared savings programs that offer trend guarantees, and we expect them to gain some popularity in the coming year. Prescription drug shared savings programs are a unique way to achieve plan savings, in that they align the incentives of the pharmacy benefit manager (PBM) and the plan, as both are focused on controlling costs. In a typical prescription drug contract arrangement, the PBM can offer pricing discount and rebate guarantees without necessarily needing to be concerned with the average wholesale price of the drugs.

The above issues are just a few of what could potentially be on the horizon for 2018 and beyond. We will continue to monitor these issues and others as we begin the new year.

Implementing new pharmacy benefit manager

Sponsors of prescription drug plans that decide to change pharmacy benefit managers (PBMs) may need help with pre- and post-implementation tasks. An experienced consultant can work with a sponsor to navigate complex contractual terms, develop an implementation plan, and conduct annual audits to ensure that the sponsor continues to receive the pricing terms and rebates negotiated with the PBM.

This paper by Milliman’s Angela Reed and Brian Anderson explores the PBM implementation process. The authors highlight key items that sponsors must consider for a successful PBM implementation and how an implementation manager can assist.

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.