Tag Archives: health & group benefits

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.

Employee communication considerations for M&As

This blog post first appeared on RetirementTownHall.com. It is part of a blog series that highlights considerations for and the impacts of employee benefit plans on mergers and acquisitions (M&A) transactions. To learn how Milliman consultants can help your organization with the employee benefits aspects of M&As, click here.

What about me? That’s the number one question employees are thinking about when they hear the first whisper of M&A activity.

• Will I have a job?
• What will my benefits look like?
• I was on track for that promotion; what now?

In her blog post “Employee benefit plan considerations for M&As,” Cheryl Frost writes, “In addition, appropriate, well-timed communication is critical to talent management—the most critical asset in the deal. Retention of key management is sensitive and important. Communicating the strategic vision and benefits of the transaction to employees is a key component to the success of any transaction.”

An M&A is the time for more communication—not less. Communication efforts are often spent on getting the attention of employees. During times of change, you have their attention. Use it! This is a unique time to reaffirm the value of the total benefits package available to employees and their families. Promote your financial and health benefits. Remind them about the Employee Assistance Program. These are benefits that are available any time and may be particularly helpful during times of change.

Six tips for an effective M&A communication strategy
If you’re already communicating with your employees on an ongoing basis, you have the foundation on which to build an effective M&A communication strategy. Be sure you:

1. Communicate early and often. Change causes stress. And stressed employees can cause loss of productivity. So get in front of it! Even if you don’t know the answers, it’s OK to say that. Just let employees know when they can expect an update, and then follow through with it.

2. Know where you stand. If you are not sure how employees are feeling or what you need to communicate, review the data. Some indicators of employee stress or disengagement include:

• Higher call volume to human resources (HR) or vendor call centers
• Trends in your benefit claims
• Spikes in 401(k) loans
• An uptick in sick days
• More traffic to your website or specific searches

3. Control the message. Make sure employees get the news from you—not the media or the watercooler. Use every communication channel you have available and make sure the message is consistent. Consider a microsite devoted to M&A information, and update it regularly as more information becomes available or changes occur.

4. Listen. Whether this means town hall meetings, webinars, focus groups, or a simple, dedicated email address, give employees an outlet for questions. This simple act involves them in the process, builds buy-in, and allows you to adjust your communication strategy in response.

5. Use straight talk. Share the facts. Help employees understand the business perspective on what’s happening and why. Let people know what to expect and when, and avoid platitudes or promises.

6. Keep your managers informed. Managers are often the go-to source for employee questions. Make sure to arm employees with positioning statements, FAQs, and where they can go for more information.

A successful merger or acquisition is supported by a thoughtful, well-planned and executed communication strategy. Get your communication consultant involved from the beginning.

Pharmacy benefits: Carve-in or carve-out?

Employers and other plan sponsors have the option of carving in or carving out their pharmacy benefit programs from their medical benefits. There are a number of important factors that should be considered when deciding whether or not to carve out pharmacy benefits. This article identifies the advantages and disadvantages of both options and raises important questions to consider when contemplating a move to carve-out.

Definitions

Carved-in
When the pharmacy carve-in approach is used, the employer contracts directly with the medical health plan vendor for medical and pharmacy benefits. The vendor will either administer the program in-house or contract with a pharmacy benefits manager (PBM) vendor to process pharmacy claims and administer the pharmacy program. Because the employer contracts directly with the medical health plan vendor, there is no direct relationship with the PBM.

A pharmacy carve-in is typically used under the fully insured model. In 2015, the Pharmacy Benefit Management Institute (PBMI) reported 23% of smaller employers (less than 5,000 lives) and 7% of larger employers (greater than 5,000 lives) were fully insured. Under the fully insured model, the employer pays a premium to the insurer and the insurer assumes the risk of the total claims amount rather than the employer.

Carve-out
When the pharmacy carve-out approached is used, employers contract directly with a PBM vendor to administer their pharmacy benefits program.

A pharmacy carve-out is typically used under the self-insured model. In 2015, PBMI reported 77% of smaller employers and 93% of larger employers were self-insured. Under the self-insured model, the employer assumes the risk and benefits from managing costs. Pharmacy stop-loss insurance may be purchased to mitigate the risk of total claims amounts going over a certain threshold. A pharmacy carve-out can also be used with the fully insured model, although this is less common.

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Heeding the call for transparency

The overall share of the U.S. economy devoted to healthcare spending reached almost 18% in 2015. As a result, methods for cost reduction are getting increased attention. The new administration under President Trump identified provider price transparency as one of its key healthcare reform goals. Until now, disclosure of provider rates has been very limited, which is due to the confidential nature of this information and concerns with provider collusion. However, rising trends, coupled with the demand for increased consumerism by employer plan sponsors, have started to move the transparency needle a bit. The following provides an overview of price transparency, including the primary drivers in the self-insured market and a short list of employer considerations.

What does price transparency means?
In terms of the self-insured market, price transparency means making information more readily available to consumers. This will allow them to make better-informed decisions based on current health status. Several carriers and independent companies have created tools to assist employees with “demystifying” medical rates in a consumer-centric manner. These tools allow employees to price-shop for a given service by provider, as well as factor in current benefits to estimate their out-of-pocket costs.

What factors are driving the need for transparency in the self-insured market?
The proliferation of high-deductible health plans (HDHPs), reference-based pricing, and narrow or custom networks all place a greater burden of cost sharing and decision-making on the employee and employer.

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Milliman Medical Index: Typical American family faces $26,944 in annual healthcare costs

Milliman today released the 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 plan (PPO). In 2017, costs for this family will increase by 4.3%—which marks the lowest rate of increase in the history of this study—though the total dollar increase of $1,118 is consistent with the last decade of healthcare cost increases.

“The good news is that we are seeing a record-low 4.3% cost increase in this year’s MMI,” said Chris Girod, coauthor of the Milliman Medical Index. “The bad news: Continuing a 12-year pattern, healthcare costs for a typical family of four this year increased by more than $1,100.”

In recent years, the Milliman Medical Index has reported notable increases in pharmaceutical costs. Last year, drug costs increased by 9.1%. That rate of increase fell to 8% in 2017, which is still more than twice the rate of increase for all other components of healthcare spending.

“We’re seeing a smaller rate of increase for prescription drugs this year,” said Scott Weltz, coauthor of the MMI. “But the longer view reveals a different story. Since we began tracking this data in 2001, prescription drug costs for the typical American family have increased from $1,111 to $4,612.”

This year’s MMI includes analysis of dynamics driving healthcare costs, including the sometimes elusive nature of rebates in drug pricing. While rebates often do not result in cost savings for consumers at the pharmacy, they still impact the larger cost puzzle.

The MMI is unique among health cost studies because it measures the total cost of healthcare services used by the family of four, including out-of-pocket expenses paid at time of service. The MMI also separates costs into portions paid by employer versus employee. This year, the employer pays $15,259 of a family’s total healthcare costs and the employee—through payroll deductions and cost sharing at the time of service—pays $11,685.

“Back in 2001, the first year we measured the MMI, employees paid 39% of healthcare costs,” said Sue Hart, coauthor of the MMI. “This year, the family’s share of healthcare costs reached 43% of the total—an $11,685 total. We’ve seen a long, slow shift toward employees as these plans look to control healthcare costs.”

This year’s MMI includes discussion of the major components of the cost of care—payments to providers and the frequency and type of services used—and how they might vary outside the employer-sponsored system. Different discounts and payment mechanisms in the public markets can impact the costs for private insurers and therefore for the MMI family of four.

To view the complete MMI, click here.

Health and welfare plan considerations for M&As

This blog post first appeared on RetirementTownHall.com. It is part of a blog series that highlights considerations for and the impacts of employee benefit plans on mergers and acquisitions (M&A) transactions. To learn how Milliman consultants can help your organization with the employee benefits aspects of M&As, click here.

When considering health and welfare benefit plans as part of a merger or acquisition, remember that the due diligence you complete can impact the purchase price, uncover hidden risks, and be a critical component in the new company’s benefits strategy. Here are three steps you can take up-front to help ensure a smooth transaction and integration.

1. INITIAL DUE DILIGENCE REVIEW
A sound due diligence analysis will allow the buyer to make informative, data-driven decisions. A good analysis identifies items, such as a realistic evaluation of the cost of the health and welfare plan(s) being acquired, the baseline risk profile between the buyer and seller, an understanding of plan administration processes, including reporting and compliance risks, and any hidden risks, such as large claims or pending litigation. Specifically, this analysis should:

  • Assess the seller’s existing compliance documentation and administration
    • Plan documentation, participant notifications, and required notices
    • Collective bargaining agreements
    • Documentation of Internal Revenue Service (IRS) nondiscrimination rules compliance
    • ERISA compliance in accordance with fiduciary, plan administration, and reporting/disclosure rules
  • Identify potential liabilities, such as:
    • Benefit commitments to employees, retirees, bargaining groups, executives, and terminated business units (this may require a review of employment practices as well as formal programs)
    • Vendor relationships—contractual commitments, lawsuits regarding plan administration, and performance-related payments
    • Financial liabilities—post-retirement benefit plans, incurred but not reported (IBNR) claims calculations for health plans, claims liabilities (large claims), and tax/regulatory penalties
    • Other benefits—vacation/sick leave, severance plans
  • Include retiree health commitments and other coverage as promised by seller
    • Duration/extent of commitments and the extent of “vested” benefits as well as the buyer’s ability to amend or terminate the commitments
    • Analysis of whether retiree benefit commitments are fully insured or self-funded
    • Funded status of retiree commitments and coverages
  • Compare benefit plan designs between buyer and seller to assess potential impact of plan design differences and different levels and types of benefits offered by both organizations

2. PLANNING FOR POST-MERGER CONSOLIDATION
After a sound due diligence analysis, it’s important to determine how the benefits for the post-acquisition organization should be structured. An experienced consultant can help guide you through the evaluation process, developing solutions that fit the requirements of the new company. Here are some things to consider as you optimize your new company benefits strategy:

  • How do the workforce requirements and employee demographics vary?
  • How large is the gap between the two organizations’ benefit programs (considering plan design, cost variations, vendor differences, etc.)?
  • How different are the two company cultures and how do the benefit plans reflect those cultures?
  • To what degree should benefit design and administration vary across subsidiaries or business lines?
  • Should benefit plan administration be outsourced, co-sourced, or handled internally?

3. MANAGING THE MERGED ORGANIZATION
Once the deal closes, it’s time to look into future and execute an optimized benefits strategy for the new company. Depending on the business decisions considered above, the buyer may steer toward a particular future benefits strategy for the combined company. Below are two possible benefits strategies and considerations for each.

  • Maintain separate plans: In a decentralized organization with multiple business units, this may be the preferred approach. It will be important to evaluate the impact of the controlled group rules when setting up the compliance strategy in this situation. A thorough review of all plan documents, contracts, and practices will be key to determine if plan amendments of other changes will be necessary. Division of responsibilities between the buyer and seller with respect to contributions, reporting, and administrative duties relating to the current plan year and the preceding plan year will need to be determined. The buyer will need to consider whether it wants to take the responsibility for the prior operation of a plan. This would include any penalties from prior violations, including minimum funding rules, reporting and disclosure rules, compliance with ERISA, etc.
  • Integrate plans—terminate seller’s plan and integrate seller’s employees into buyer’s plan: This strategy provides for the most cohesiveness and integration among all employees involved. It allows for greater leverage with vendor negotiations. Consideration should be given to “right to change” or “termination of benefits” provisions within the seller’s existing medical benefits program (e.g., retiree medical benefits). Consolidation of vendors could be a major task. Lastly, consideration must be given for midyear plan changes and whether they will prompt items such as termination penalties and runoff termination liabilities. Overall, there are many health and welfare factors to be considered in an M&A transaction. To the extent these health and welfare factors create a liability to the buyer, it should decrease the purchase price. Similarly, if these factors represent a hidden asset of the seller, an increased purchase price may be appropriate.