Tag Archives: David Stoddard

Financial analysis of Taft-Hartley plans

The second annual Milliman Multiemployer Health and Welfare Study shows that the average multiemployer health and welfare plan could pay for approximately one year and one month of benefits and expenses with its net assets. The study shows that total incomes exceeded total expenses by nearly 10.6%, an increase of 1.4 percentage point over the prior year.

To learn more about the study, click here.

Know the specifics of your health and welfare stop-loss policy

Many trusts that provide medical and prescription drug benefits on a self-insured basis do not have sufficient assets to absorb the impact of unexpected large claims. As a result, self-insured trusts often protect themselves against the impact of large claims by contracting with a stop-loss carrier. As fiduciaries to health and welfare trusts, trustees must understand the details regarding their stop-loss carrier contracts in order to ensure the trust is receiving the most competitive price while also receiving sufficient protection against large claims in order to maintain sufficient trust assets. This Multiemployer Review article by Milliman consultants Sean Silva and David Stoddard focuses on specific stop-loss policies employed by multiemployer plan sponsors.

How much reserve should be held in net assets?

In a recent Milliman report entitled “Status of collectively bargained benefits: Multiemployer health and welfare fund statistics,” my colleague Marcella Giorgou and I analyzed the 2016 financial disclosures of 705 multiemployer health and welfare funds. One of the more interesting statistics analyzed was net assets (shown as months of total expenses). This measures the number of months a plan would likely be able to continue providing members benefits if all income ceased.

Trustees, fund administrators, and bargainers should consider how many months of total expenses are held in assets when reviewing a fund’s financial health, as this can be thought of as a reserve or a cushion against adverse experience. If assets are too low or too high, bargainers and trustees may need to take action. Each fund is different and there are a number of contributing factors for trustees and bargainers to consider when reviewing how many months of total expenses are held in assets. They include:

When does the collective bargaining agreement expire?

Trustees and bargainers should consider holding more in net assets earlier in the contract period and spending down surplus (if necessary) later in the contract period, because a longer period of time results in more uncertainty.

How quickly can bargainers negotiate changes in benefits or contributions?

If the financial health of the plan changes, what can bargainers or trustees do to correct the situation and how quickly can it be accomplished? Some plans will add either a reopener clause or a provision that dictates what happens in the event that net assets fall below a predetermined level.

Is the plan self-insured or fully insured?

A self-insured plan will have more volatility on a month-to-month basis, while fully insured plans will face changes in premiums annually.

How many members and lives are enrolled in the plan, and what is the active/retiree ratio of the plan?

Larger plans tend to have more predictable cash flows due to reduced claims volatility. Plans with larger percentages of retirees will generally need larger percentages of employer contributions devoted to retiree benefits, because most plans generally only have employers contribute based on the active population.

In what type of industry do members of the plan work?

An industry with varying work patterns may need to hold a higher reserve to account for months where hours and/or membership (and, consequently, contributions) are lower than average.

When reviewing the financial health of your fund, it is important to consider each factor discussed above, or others unique to the fund, and discuss the implications with your Milliman consultant.

This article first appeared on LaborPress.org.

What do multiemployer health and welfare plans look like nationwide?

Fund statistics for 705 plans across the country

For members and trustees of multiemployer Taft-Hartley health and welfare plans, the financial health of the fund is of the utmost importance. But up until recently there have been few, if any, national financial analyses by which stakeholders can measure the changing landscape of these plans.

Milliman has recently completed its inaugural analysis of the financial disclosures of 705 multiemployer Taft-Hartley health and welfare plans nationwide. The analysis is organized by plan size, from those plans with fewer than 500 covered members, to those exceeding 20,000 members. It includes an in-depth look at general plan statistics across the country, plan assets, average annual gain (or loss) of these plans, and per member statistics.

There are approximately 3 million members in the analyzed plans, of which 78% are active and 22% are retired. These plans had $33.8 billion in total income, $31.0 billion in total expenses, and $32.4 billion in total assets in 2016 (the most recent year for which financial disclosures are available). Looking at assets, 162 plans held assets that were less than six months of total expenses, while 140 plans held assets that were more than 24 months of total expenses. There were 221 plans that dipped into their net assets in 2016 (i.e., had a loss for the year), while 477 plans increased net assets (i.e., had a gain for the year), and seven plans that covered total expenses exactly for the year.

For more information, read this article by David Stoddard and Marcella Giorgou.

Improving pricing and increasing efficiencies

Multiemployer health and welfare funds face a difficult challenge—how do you maximize benefits provided to your members while operating under a collective bargaining arrangement where the contributions paid to the fund are generally predetermined? In other words, how do you get the biggest “bang for your buck”?

There are a few ways to maximize the dollars spent on benefits—including optimizing pricing terms from vendors and audits, and reducing administrative costs.

Creating a benefit program that operates efficiently traditionally depends on the size of the group. Many insurance carriers, third-party administrators (TPAs), and pharmacy benefit managers (PBMs) offer more favorable pricing to groups that are larger in size. TPAs may offer lower administrative services only (ASO) fees and PBMs may offer better administrative fees, discounts, and rebate guarantees. Larger groups may also be able to negotiate trend or maximum increase guarantees in their renewals.

An alternative way to achieve better pricing terms is to join a labor coalition. Labor coalitions are set up as a group of welfare funds that contract with a particular provider or providers in exchange for more attractive pricing. The coalition operates as a collective with a board that makes recommendations, but each individual fund is still responsible for its own claims experience. The benefit is that vendors (generally, PBMs and stop-loss providers) will offer better pricing or lower administrative costs because they have exclusive contracts with the larger coalition, so each individual fund receives pricing based on a population much larger than its own.

In addition to administrative expenses that are paid to insurance carriers and TPAs, funds should review operating expenses. Administrative expenses are necessary so that a fund can provide benefits to its members, but dollars that are devoted to administration are dollars that are not being used to provide benefits to members. Therefore, it is in the fund’s and the members’ best interests to keep administrative expenses as low as possible, by reducing duplicative operations or by consolidating certain efforts.

You can also ensure that the dollars spent on claims are consistent with the intent of the plan with a claims audit and / or a dependent eligibility audit. A claims audit is generally performed by an outside vendor, who reviews a sample or a certain subset of self-insured claims that the fund’s TPA pays on behalf of the fund. Claims audits typically need to be written into the TPA contract. Dependent eligibility audits are also generally conducted by an outside firm that sends mailings to all members with dependents. Members must provide proof of eligibility (e.g., birth certificates, marriage certificates) for each of their dependents so that their dependents continue to be eligible for the plan. A dependent eligibility audit can remove spouses who are divorced or children who aged off of the plan, ensuring that the dollars spent on members and dependents are only for those who actually should be on the plan.

Finally, it is good practice to do market checks or requests for proposals (RFPs) on a regular basis. A market check is a pricing comparison and analysis to compare competitive pricing for substantially similar-sized customers and for substantially similar PBM services. The market check is measured on the basis of a total, aggregate comparison of the pricing terms offered by a single vendor to a single plan, and not on the basis of individual pricing components or best price points available from multiple vendors. Aggregate PBM pricing comparison includes the sum of the cost of medications, including dispensing fees and claims administrative fees, less rebates received by the plan. This type of analysis creates leverage in negotiations with current PBMs, as well as informing trustees when it may be time to renegotiate and / or consider a more competitive PBM contract. On the other hand, an RFP process asks for quotes from other providers (in addition to your current provider) and allows you to determine whether another carrier or service provider can provide a better or more cost-effective product. For prescription drugs, it is a good idea to do a market check on a regular basis, although PBM contracts often establish market check parameters that limit the ability of plans to perform this important benchmarking. It is also a good idea to perform an RFP once the contract is set to expire, allowing yourself enough time (at least three – six months) to implement a new carrier as smoothly as possible if you decide to switch after analyzing the RFP results. For other vendors, it is a good idea to do an RFP on a regular basis.

This article first appeared on LaborPress.org.

Controlling rising medical costs

The 2017 Milliman Medical Index noted that medical expenditures (inpatient, outpatient, and professional) made up about 80% of the total cost of healthcare for a family of four, and that nationally the cost increases from 2016 to 2017 were about 4%. However, many employer plans have experienced much higher cost increases, especially in certain areas of the country. In 2016, for the first time, independent physicians made up less than half of the practicing physicians in the United States, according to an American Medical Association (AMA) study. Physicians who work with hospitals charge a facility price at their offices, which could result in increases in costs and significant discrepancies in prices for the same services. Additionally, hospitals have continued to merge with each other, and while these mergers offer the potential for lower costs by increasing efficiencies, a 2016 study by Northwestern University, Harvard University, and Columbia University found that prices at merging hospitals actually increased 7% to 10% if the hospitals that merged were within the same state. Given these factors, along with general price inflation and increased utilization, plan sponsors should consider ways to mitigate costs using any or all of the strategies below.

Price transparency and quality

Providing price transparency, coupled with information on quality of care, is a way to promote consumerism within a health plan so that both the plan sponsor and the members who are receiving benefits can save costs. There are various vendors that offer plan sponsors and members the ability to “shop” for surgical procedures and doctors based on price and quality metrics. Cost and quality advantages can result from steering members to specialized “Centers of Excellence” for given procedures. Members can be incentivized to choose the lower-cost facilities or physicians (without sacrificing quality) through a reduction or elimination of member cost sharing, or even with rebates (that is, the plan will “pay” the member to choose a lower-cost alternative).

Narrow networks and carve-outs

Another way to steer members toward cost-effective facilities is through the use of a narrow network. Most health plans offer a narrow network option (for both insured and self-insured plans), which limits member access to smaller pools of doctors and hospitals within their larger networks. The narrow (or preferred) network promises better discounts on claims than regular in-network claims, and the plan sponsor can encourage members to use these facilities by reducing member cost sharing within the narrow network. The plan is designed to have an additional tier of cost sharing, with the preferred network having the lowest member cost sharing. Furthermore, plan sponsors with direct contracts can consider carving out a particular facility from in-network if the facility is not a cost-effective, high-quality option (and there are other options available to the members).

Alternative payment strategies

In addition to steering members through plan design and incentives, certain plan sponsors can look to alternative payment strategies to further control costs while ensuring that quality of service does not suffer. For example, a bundled payment can be used in place of fee-for-service for certain procedures with predictable episodes of care (e.g., total joint replacement). The plan sponsor pays the same amount regardless of days spent in the hospital or on rehab visits, which can help to reduce unnecessary services. A plan sponsor can also enter into a shared savings arrangement with a group of providers, such as an accountable care organization (ACO). An ACO is a group of doctors and hospitals whose focus is on providing coordinated care to certain members within a plan. Ideally, the main goal of both the ACO and the plan is to keep costs low without sacrificing quality. If successful, both share in the savings achieved. Plans with a large enough membership can enter into these alternative payment strategies on their own; for smaller plans, they may be able to contract through their insurance carrier or third-party administrator.

This article first appeared on LaborPress.org.