Tag Archives: health & group benefits

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, just last month Aon 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 the plans in-house or at least have a difficult time developing the cost/benefit analysis 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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State laws limit the interchangeability of biosimilars

sarah-burnettBiosimilars have been on our radar for a while. With Europe leading the way, this fall marks 11 years of the European Medicines Agency’s biosimilars guidelines with 20 biosimilars approved corresponding to seven different reference drugs. As part of the Patient Protection and Affordable Care Act (ACA) in 2010, President Obama amended the Public Health Service Act (PHS Act) to create an abbreviated Biologic License Application (BLA) regulatory process for biosimilars, which has yet to catch on for a variety of reasons.

Key challenges in the U.S. regulatory environment remain for establishing interchangeability for biosimilars. Drug interchangeability allows for substitution for the less expensive biosimilar version of the brand-name biologic (reference drug). The U.S. Food and Drug Administration (FDA) can classify biosimilars as interchangeable. However, state legislatures can regulate the substitutability by requiring a biosimilar in question to be first approved as interchangeable by the FDA. These regulatory hurdles thus create limits at the prescriber level to prevent substitution. So far, only two products have gained full FDA approval yet are not considered interchangeable; it is estimated that many more biosimilars are currently in development.

Before biosimilars flood the market en masse, states were taking measures to assure their regulation. In the United States, 23 states and Puerto Rico have passed legislation in the past three years to regulate the substitutability of biosimilars. The National Conference of State Legislators outlines the substitution laws for each state with an enacted law here. The common threads to the legislation are summarized below:

FDA approval. All biosimilar products seeking substitutability status must be approved by the FDA. The FDA has yet to approve a biosimilar as an interchangeable drug.

Prescriber decides. Substitution of a biosimilar for another product can be prohibited by the prescriber. In such cases, “dispense as written” or “brand medically necessary” must be noted on the prescription.

“Notification” versus “communication.” Previous legislation in 2013 and 2014 required that prescribers be notified of legally permitted substitutions made at a pharmacy. In 2015, language regarding “notification” was adjusted to allow certain “communications” to be sufficient for drug substitutions. These “communications” included notation in an electronic medical record, pharmacy benefit management (PBM) files, or pharmacy records shared with prescribers. The purpose of this language change was to allow prescribers to monitor their patients without causing unnecessary access barriers.

Patient notification. Certain states require that patients be notified of a drug substitution. Stricter versions of these regulations require explicit patient consent before any substitution is made. Documentation of notification and consent are possible barriers to adoption of approved biosimilars.

Records. Any biologic product substitution must be accompanied by records in the prescriber’s medical practice and at the pharmacy.

Immunity. In certain states, laws provide protection to pharmacists who substitute a biologic product in compliance with the state’s laws.

Web lists. States must keep an up-to-date list of permissible interchangeable products that is publicly available.

Cost or pricing. Legislation exists requiring pharmacists to explain the cost or price of a biologic and its interchangeable biosimilar. Five states require that a substitution must have the lowest cost.

Understanding the extent of the state and federal laws regarding substitutability can help employer groups and pharmacy programs estimate the potential cost impact for their organizations. Milliman has done previous research on cost savings for employer groups that take up biosimilars. As more biosimilars are approved, there will be more competition for high-priced biologics and additional drug choices will be available at more affordable prices.

To learn more about Milliman’s pharmacy benefits consulting services, click here.

Effectively communicating plan design

Stoddard-DavidAs multiemployer plans focus on delivering health benefits to their members in a cost-effective and efficient way, a key component is clearly and concisely communicating the thought process behind plan design and plan design changes.

Given the limited amount of money available to spend on benefits, multiemployer plans must avoid unnecessary services and reduce waste in an effort to contain costs. As a result, increased member cost sharing, restrictions on certain services, and more tightly managed benefits are often implemented to manage the plans’ spending.

However, despite these changes mainly being made for the “greater good of the plan,” they will be interpreted in different ways (generally negatively) by the membership. For example, a plan with high emergency room use (for nonemergencies) may increase the emergency room copayment (and perhaps lower the primary care physician copayment as an offset). For a member who legitimately needs to use the emergency room, an increased copayment will feel like a punishment. But if the change is communicated effectively, along with the reason(s) for the change, members may be more likely to be amenable to the change.

Effective communication to members includes delivering the message via email, pamphlets, mailings, bulletin board postings, or meetings—any mode of communication that reaches the membership. The message should be concise—the fewer the words, the more likely members will listen—and it should be repeated often. For example, if the plan wishes to emphasize preventive care to avoid higher-cost services in the future, the headline could be “The Importance of Preventive Services,” and members should have multiple opportunities—at least once every three to six months—to receive the message until the plan is sure that the message has been heard. If the membership understands the plan’s goals in administering benefits, the plan is more likely to achieve or even surpass these goals.

This article first appeared on LaborPress.org.

How is the ACA’S health insurance coverage impacting employer plans?

Coates-SarahIn the shifting landscape of the Patient Protection and Affordable Care Act (ACA), where do employers currently stand, where are we headed—and what is it going to cost? In March, the Congressional Budget Office (CBO) published its Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026, highlighting health insurance enrollment projections, subsidy amounts, and the impact of the ACA on health insurance. The report encompasses all types of coverage for those under 65; the following summary focuses mainly on the impacts associated with employer-based coverage.

The CBO and Joint Committee on Taxation (JCT) currently estimate that, in 2016, total federal subsidies, taxes, and penalties associated with health insurance coverage for those under 65 will result in a net subsidy from the federal government of $660 billion—3.6% of gross domestic product (GDP). This is expected to rise at an average annual rate of 5.4%, reaching $1.1 trillion (4.1% of GDP) in 2026.

The two major culprits in terms of costs are the federal subsidies associated with employment-based coverage, and federal spending for Medicaid and Children’s Health Insurance Program (CHIP) benefits. Respectively, they take up 41% and 43% of the total net subsidy for people under age 65.

Who is covered and how?
According to the report, healthcare coverage is more prevalent now than prior to the ACA.

• In 2016, of the total estimated population (272 million lives), approximately 155 million people are covered by employer-sponsored insurance.
• In 2026, of the total estimated population (280 million lives), the CBO estimates that approximately 152 million people will be covered through employer-sponsored plans.

Currently, the number of uninsured is approximately 27 million. This is expected to increase slightly to 28 million in 2026. According to the CBO report, if the ACA had not been enacted, the total number of uninsured would have been 49 million this year and would have reached 52 million by 2026.

Chart 3

Chart 4

What are the ACA’s subsidies costing taxpayers?
The CBO and JCT have estimated the costs of federal subsidies associated with health insurance coverage for people under age 65. Shown below, these include the tax exclusion for employment-based coverage (of this, $1 billion per year is attributed to small-employer tax credits), and subsidies offered through healthcare marketplaces and related spending.

Chart 5

Health insurance taxes and penalties are projected to reduce total subsidies by $15 billion in 2016 and to grow
to $59 billion in 2026:

Chart 6

This article first appeared in the September 2016 issue of Health and Group Benefits News and Developments.

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Benchmarking provider cost using Medicare allowed

There are many reliable research statistics from the private sector and the federal agencies that support the evidence that medical costs are rising and the current pace is unsustainable. Medical cost trend has two primary components, the number of services provided to patients (utilization) and the cost of each of those services (unit cost). While utilization management can be important for achieving cost savings, some employers are now giving further attention to the significant price variation in unit cost. Chart 1 below provides an example of the price variation using the average reimbursement as a percentage of Medicare in Buffalo, New York; Indianapolis, Indiana; Ventura, California; and nationwide. As shown, going from Buffalo to Indianapolis reflects an 80% increase in cost, based on unit price alone.

Benchmarking provider cost using Medicare allowed_Figure 1

We regularly encounter employers who don’t fully understand the impact of provider reimbursement variation on their medical plans’ financial performances. This comes as no surprise, given the limited transparency and complexity of current provider reimbursements.

Limited transparency of provider reimbursement (allowed charges)
For employers, the industry standard technique of benchmarking commercial allowable charges has historically been traditional discount analyses, which compare discounts to billed charges. However, these approaches do not provide the required rigor and precision to understand medical service reimbursement analysis—both across markets and within a given market. This is because billed charges are not standardized across providers or different services. As a result, the exact same discount could mean very different things, depending on the provider and service—in some cases, price differences of over 300%. In addition, providers often optimize their billed charges to enhance reimbursement on contracts based on billed charges.

Complexity
Employers generally have had a difficult time measuring unit cost, which is solely due to the complexity of various medical procedures. There is a large amount of price variation within each inpatient diagnosis-related group (DRG) and outpatient type of service. Chart 2 below provides a powerful illustration of how reimbursement can vary significantly across even a single inpatient DRG or outpatient service category. The chart compares the commercial reimbursement for inpatient joint replacement and an outpatient MRI in three different metropolitan areas with what the government would pay under Medicare allowable. The variation in inpatient joint replacements, a large bundle of complicated services, is much lower than outpatient MRIs, which reflects a specific service that generally has little variation in intensity compared with a joint replacement.

Benchmarking provider cost using Medicare allowed_Figure 2

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