Tag Archives: employer

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 choice facing employers

The Milwaukee Journal Sentinel looks at the choice facing employers: Do we continue providing coverage to employees? Or do we drop coverage, pay the penalty, and let employees buy insurance through one of the exchanges due to come online in 2014?

While the back-of-the-napkin cost/benefit analysis may point to a clear financial incentive for dropping coverage, the Sentinel article finds something else brewing. Here is an excerpt:

Nothing requires employers to provide health benefits now – there’s not even a penalty. Companies provide benefits to compete for the workers they need to make money.

“That hasn’t changed,” said Scott Weltz, an actuary with Milliman, an actuarial and consulting firm…Some employers, particularly those with low-wage workers, will want to look at the alternatives…But once they do, they often conclude that they want to continue offering benefits for now.

The full article (which is a thorough analysis of the question) is available here.

How do health management programs contribute to healthcare costs?

A new article in Employee Benefit News looks at the notion of employer “pay-or-play” provisions and examines what kinds of employer-sponsored benefits provide a return on investment. There continues to be some question whether certain programs sponsored by employers do in fact return value. Here is an excerpt from the article:

Health management programs are not without their critics. Research by the Centers for Medicare & Medicaid Services shows some health management programs don’t live up to their promises of reducing health care expenses.

“As an actuary, I run the formulas of disease management companies on large databases and understand why they can show an ROI increase in their formulas and what the flaws are within those formulas,” said Bruce Pyenson, a principal and consulting actuary with Milliman, a New York-based actuarial and consulting firm.

Pyenson pointed out that Americans are living longer, disability rates are lower and events associated with some chronic conditions are at an all-time low. “Americans are healthier than ever, despite the obesity epidemic,” Pyenson contended….Pyenson explained that the idea “you spend more money now in order to save more money later is an idea that does not work.”

Health care reform puts the spotlight on “some bad behaviors that employers have gotten into with benefit plans designs. Now is the time to sweep out some of that trash that accumulated over the years in benefits plans,” asserted Pyenson.

For example, employers can save money by dropping disease management and employee assistance programs, and value-based insurance designs. “It’s been proven that the stuff doesn’t work,” Pyenson said. Employers instead should aim for tighter formularies on prescription drugs benefits and challenge the commissions of brokers and consultants.

According to Pyenson, employers also can earn substantial dollar savings by moving to a limited network, tightening medical management, limiting out-of-network benefits or offering no out-of-network benefits.

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.

Employers await reform details

An article from Sunday’s Atlanta Journal-Constitution outlines the perspective of several large companies as the country contemplates healthcare reform. Here is an excerpt:

Norman Black, a spokesman for UPS, headquartered in Sandy Springs, said that “as a general rule” the shipping giant supports health care reform. The company has 345,000 U.S. employees and spent $3 billion on health care premiums last year. It provides health care to all employees, even part-timers, many of whom are covered under union contracts.

Total premiums and out-of-pocket costs paid by employers and workers for a typical family of four will hit $16,771 this year, according to Milliman Inc., a consulting and actuarial firm. About 60 percent is borne by employers, the firm said.

Ralph J. Neas, CEO of National Coalition on Health Care, said that over the last decade health care costs shot up 120 percent while wages increased only 34 percent.

“The rapidly escalating rate of increase in health care costs is undermining American businesses, big and small, and has to be brought under control,” Neas said.

Neas said his organization, which bills itself as the nation’s largest and “most broadly representative alliance” working to improve America’s health care, hasn’t endorsed any specific reform plan. But he said reform is critical.

“We can’t face these kinds of increasing costs forever,” UPS’ Black said. “Eventually it impacts our competitiveness in the global marketplace.”

However, UPS has not taken a position on proposals floating around Congress. And Black said the company is adamant about what should not be in the bill: No new mandates or taxes that would increase costs for employers.

“That’s a non-starter for us,” he said. ” We don’t think any additional costs should be placed on an employer who is already providing comprehensive care.”

Atlanta-based Coca-Cola and Home Depot declined to comment on any specific reform proposals.

“Clearly, we are watching health care reform closely, but can’t speculate on anything since there are no firm details in place,” said Home Depot spokesman Ron DeFeo. “Our focus will continue to be on offering our associates access to quality care through an array of choices that can be selected based on individual needs.”

Inside the employee/employer cost share

Health costs are up 7.4% this year–$1,168 for a family of four–and both employers and employees are taking on the burden of the increase. Here is how these costs break down for 2009:

2009 MMI - Relative Proportions of Medical Costs

Not surprisingly this is a big story. The focus so far has understandably been on employees, who are paying $650 more this year ($500 in payroll deductions and $150 in out-of-pocket costs) for a total of almost $7,000. But employers still pay 59% in the typical employer-provided PPO covered by the Milliman Medical Index. The current environment is hard on everyone, and exacerbates the healthcare cost challenges facing the country.