Tag Archives: health & group benefits

Cost control measures for growing employer medical and pharmacy exposure

Rising prescription drug costs are old news. What is new, however, is just how high they have gone. Take the recent case of a member whose annual pharmacy spend is expected to exceed $7 million per year. That is the annual spend for one member. It turns out the medication is for a life-threatening, chronic, hereditary condition, and the medication will be needed for the remainder of the member’s life. This means no end in sight for the employer-sponsored insurance plan.

In the first year, the stop-loss coverage will cover the majority of this cost; however, there is the potential for a 40% to 60% increase in stop-loss premiums the following year, and even so, this member will be lasered out of any coverage in following years. In other words, the employer-sponsored health plan will be liable for this full amount going forward, plus any additional costs for this individual for medical or other pharmacy expenses (e.g., emergency room visits, hospitalizations, etc.).

Can employer-sponsored plans afford to absorb that kind of additional, annual spend in their healthcare budgets? In this particular case, the drug keeps the member alive, so not covering the medication is not an option, morally or ethically. But if this cost potentially bankrupts the plan, there will be no coverage for this member anyway.

So what can employers do to protect against this claim and others?

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Employers cope with rising healthcare costs

In May 2017, Milliman released its 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 organization (PPO) plan. The MMI increased $1,118 (4.3%) to $26,944, including a 3.6% increase in average medical expenditures and an 8.0% increase in prescription drug expenditures. This increase of more than $1,100 (a continuation of similar annual increases in the index since 2001) shows that federal healthcare reform efforts, which have mainly targeted the individual insurance market and Medicaid, have had little effect on reducing employers’ costs. Although this year’s MMI saw the lowest annual percentage increase in healthcare costs for a family of four with employer coverage since at least 2001, healthcare cost increases continue to outpace consumer price index (CPI) inflation trends, as shown in the chart below.

Employers have responded by:

Gradually transferring more of the cost to employees through contributions and plan design
Over the past five years, the MMI has increased 30%, while the employers’ share of healthcare costs has increased 25.7%. As a result employees are paying about 43% of the MMI, up from 41% in 2012.

Putting more pressure on vendors
For example, employers sponsoring self-insured prescription drug plans should be regularly reviewing pharmacy benefits manager (PBM) arrangements through requests for proposals (RFPs) and market checks.

Managing utilization of benefits and cost shifting by providers through strategies such as narrow networks and proactive medical management

Staying ahead of the prescription drug pipeline
Over the past few years, prescription drug trends have been greatly influenced by the entry of extremely expensive, curative hepatitis C treatments. While it looks like these treatments are no longer driving prescription drug trends, it is important to monitor the status of the prescription drug pipeline to understand what employers can expect to spend on prescription drugs in the coming years. Employers can stay ahead of the curve through strategies like utilization management, including prior authorization, step therapy, and pursuing specialty pharmacy rebates.

This article first appeared in the January 2018 issue of Health and Group Benefits News and Developments.

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Health savings accounts (HSAs): A more substantial retirement savings tool

Health savings accounts (HSAs) have been in the news recently and for good reason. First introduced in 2003, the HSA is a tax-advantaged medical savings account available to taxpayers in the United States who enroll in a qualified high-deductible health plan (HDHP). Since their introduction, these savings accounts have proven to be valuable for participants as they offer a number of tax advantages for qualified health benefit expenses. Recent changes proposed within the Senate and House bills during the effort in 2017 to repeal and replace the Patient Protection and Affordable Care Act (ACA) are supporting even further expansion of HSAs, creating even more of an advantage. With these changes, HSAs stand to compete with other standard retirement savings mechanisms, such as tax-deferred 401(k) savings plan contributions, potentially even pushing them into the forefront.

The tax code places certain annual limits on contributions to HSAs, as well as on the HDHP’s deductible and out-of-pocket maximum. For individual coverage for 2018, the maximum contribution to an HSA is $3,450, the minimum deductible is $1,350, and the maximum out-of-pocket limit is $6,650. These limits are doubled for family coverage. The standard advantages for HSA participants have not changed since they were first introduced in 2003:

• Contributions to HSAs are tax-exempt.
• Those same contributions can be invested and any investment income and appreciation are also tax-exempt.
• Withdrawals are tax-exempt as long as participants use them to pay for qualified medical expenses, such as doctor’s visits, prescription drugs, and dental care.
• HSA funds roll over and accumulate year to year if they are not spent. They are owned by the individual.
• HSA plan contributions are not subject to the Federal Insurance Contributions Act (FICA) tax whereas 401(k) plan contributions are.

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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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