Tag Archives: EGWP

How will the removal of safe harbor affect EGWPs?

Medicare Part D may be on the brink of one of the biggest changes to the program since its start in 2006. A proposed rule from the Department of Health and Human Services would revise the safe harbor protection that currently allows pharmaceutical manufacturer rebates to be paid after the point-of-sale and start requiring such rebates to be credited against the drug’s point-of-sale price.

This change could dramatically reduce the member’s cost of many brand-name drugs that receive rebates for Medicare beneficiaries. It also affects employer group waiver plans (EGWPs) and merits immediate action on the part of plan sponsors and insurers offering EGWPs.

Under the current rules, prescription drug plans (PDPs) and Medicare Advantage prescription drug plans (MAPDs) use anticipated rebate revenue to reduce their projected net plan liabilities. The proposed rule would move the revenue from a retrospective payment to an additional discount at the point-of-sale. Some PDPs and MAPDs will need to reduce copays to pass actuarial equivalency tests.

Most EGWPs are likely to see a financial impact in 2020. When plan designs have no deductible and no coinsurance, the shift from post-point-of-sale to point-of-sale rebates will affect spending phase progression and the net plan liability when coverage gap discount payments are reduced for brand-name scripts that receive rebates.

In this paper, Milliman consultant Steve Kaczmarek explains how the removal of the safe harbor protection will affect EGWPs and what EGWP sponsors and insurers can do to mitigate changes.

Effect of recently enacted laws on employer-sponsored group health plans

Employer-sponsored group health plans have been directly impacted by changes under three statutes enacted since December 22, 2017. This Benefits Alert summarizes the new laws’ healthcare provisions affecting employer-sponsored plans.

The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted on December 22, 2017, with a healthcare-specific provision that reduces the individual mandate penalty of the Patient Protection and Affordable Care Act (ACA) to $0 beginning in 2019.

• For group health plan sponsors, perhaps a more significant provision is the TCJA’s change to the methodology in which thresholds for the high-cost health plan excise tax (“Cadillac tax”) are indexed. Originally, the ACA increased the cost thresholds, triggering the tax based on the Consumer Price Index for Urban Consumers (CPI-U). However, the TCJA changed the basis for Cadillac tax (and other) purposes, from CPI-U to Chained CPI-U, which has measured, on average, approximately 0.25 percentage points lower than CPI-U (or about 90% of CPI-U). This change will cause employer health plans to cross the cost threshold earlier than under the original law and expose them to higher excise taxes unless employers make plan design changes or other action to avoid the excise tax. The estimated impact of this change is an increase of approximately 2% to 4% in a plan’s long-term cost, based on Milliman’s healthcare cost trend model.

The Continuing Appropriations Act, 2018 (CAA ’18), signed on January 22, 2018, delayed the application of the Cadillac tax to 2022 from 2020. For any employer health plan projected to begin paying the excise tax in 2020 or 2021, the delay will provide relief for one or two years. For plans not projected to have to pay the Cadillac tax prior to 2022, this delay will have no effect.

• Also in the CAA ’18, for 2019 only, fully insured plans are exempt from the ACA’s health insurer fee (HIF), an annual assessment that health insurance companies typically pass on to plan participants through premiums. This moratorium could produce a one-year savings of 2% to 3% for fully insured plans covering active employees and/or non-Medicare retirees. For Medicare Advantage plans, the percentage reduction in premiums will be much larger, because the HIF is applied to estimated premiums prior to reimbursements by the Centers for Medicare and Medicaid Services (CMS).

Finally, in the Bipartisan Budget Act of 2018, signed on February 9, 2018, two changes impact employers with an employer group waiver plan (EGWP).

• The Medicare Part D coverage gap (which under prior law would occur when a beneficiary accumulates $3,820 in total drug spending in 2019) will be eliminated in 2019 instead of 2020. The law also provides a reduction in beneficiary coinsurance to 25% (from 30%) in 2019, which is the same coinsurance the beneficiary pays prior to the coverage gap (hence the coverage gap is “closed”).
• Simultaneously in 2019, the pharmaceutical manufacturer discounts for Medicare beneficiaries reaching the coverage gap will increase to 70% from 50%.

The net effect of these two changes on EGWPs is that an employer’s health plan liability will be reduced to 5% (from 20%) of total prescription drug costs in the coverage gap, which will result in savings to the employer (see “How will the Bipartisan Budget Act of 2018 impact Part D in 2019 and beyond?”).

For further information about how these changes may impact your plans, please contact your Milliman consultant.

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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Now may be the time for eggwhip wraps

Or more accurately, now may be the time for employers to look toward using an EGWP (Employer Group Waiver Plan) with a wraparound supplemental plan to provide more cost-effective prescription drug benefits.

For health plans that offer their retired employees prescription drug benefits, new rules from the Centers for Medicare and Medicaid Services (CMS) make the option of an EGWP/wrap attractive as a way to achieve significant plan savings.

Many employers have heard about this opportunity, but exactly how advantageous is the EGWP/wrap option, and how can they change to it from current plans, such as those involving the retiree drug subsidy (RDS)?

This paper delves into these questions.

Employee group waiver plans

While the ongoing healthcare reform debate creates a great deal of uncertainty for employers, there is one certainty: Healthcare costs continue to be a concern. With this in mind, many employers are seeking more economical ways to structure their benefits.

One tactic that is gaining momentum is the use of employee group waiver plans (EGWPs). A new briefing paper by Brian Anderson and Rebekah Bayram examines EGWPs and how employers can use them in their approach to Medicare Part D.