Tag Archives: health & group benefits

Plan sponsors must consider several strategies to manage pharmacy costs

In recent years, pharmacy costs have been a hot topic. Plan sponsors must remain vigilant and stay current on industry strategies used to manage pharmacy costs. In this article, Milliman consultant Ajanthan Balasinkam outlines a number of important considerations for plan sponsors, including plan design, contracts, the opioid crisis, and the specialty pipeline.

Considerations for adding applied behavioral analysis coverage

Milliman assisted an employer-sponsored plan in a large Midwest mandate state to help it understand the risks and costs of adding applied behavioral analysis (ABA) coverage.

ABA for autism spectrum disorders is one of the fastest growing state benefit mandates. Today, 46 states mandate some form of autism coverage with varying degrees of benefit coverage and limits. The general goal of ABA is to improve socially significant behaviors to a meaningful degree.

While self-funded employer-sponsored plans are not required to comply with state mandates under federal law (ERISA), they are not immune from the trend toward greater ABA coverage in the states. With this come many challenges for plan sponsors.

In this case study by Adam Miller, learn how Milliman helped a plan determine the risks and costs of adding ABA average.

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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Allocating health plan costs in the coming year

As 2018 gets underway, it is important for employers and health plans to consider what healthcare costs could lie ahead in the new year. Keeping the following issues in mind while working toward potential solutions will be helpful in managing costs.

Opioid abuse
According to the U.S. Department of Health and Human Services, the number of opioids prescribed since 1999 has nearly quadrupled and the increase in prescriptions has resulted in an increase in opioid abuse. As a result, health plans are beginning to take steps to curb that abuse. Plans can look to cover or encourage the use of painkillers that are less likely to be abused, such as lower-dose opioids or those that are not easily crushed or otherwise changed. As an example, a number of insurers have indicated that they will no longer cover OxyContin beginning in 2018. In addition, plans may want to consider contracting with substance abuse counselors if their populations have addiction problems or the potential for them. Milliman has analyzed a large commercially insured database and looked at variables such as demographics, mental health, physical health, etc., which can be used for predictive purposes in order to determine how susceptible a population may be to opioid abuse.

Hospital consolidation
In 2016, for the first time ever, less than half of physicians practicing in the United States were independent, according an American Medical Association study. Physicians who work with hospitals are able to charge a facility price at a physician’s office, which has resulted in an increase in hospital costs and significant discrepancies in price for the same services. Therefore, price transparency, coupled with quality information, becomes imperative for the consumer (the employer that provides health benefits and the employees who receive those benefits). There are various vendors who can offer to the consumer the ability to “shop” for surgical procedures and/or physicians based on both price and quality metrics. Additionally, plans can offer narrow network designs, which can incentivize high quality and low price (by “carving out” expensive hospitals that don’t offer higher-quality services).

Uncertainty of the ACA
The Patient Protection and Affordable Care Act (ACA) remains the law of the land, but there continues to be uncertainty around the legislation. The uncertainty is mostly in the individual market, but large losses to insurers and increasing premiums for consumers would have an impact on the group market as well, as healthcare for individuals and groups are intertwined. With signing of the recent tax bill into law, the individual mandate will be repealed in 2018, which will likely result in healthier individuals leaving the market—4 million in 2018 and 13 million by 2027, according to the Congressional Budget Office (CBO)—and premiums increasing for those remaining by an average of more than 10%, according to the CBO. Congress is also continuing to consider ways to repeal the employer mandate, which would have a more direct impact on the group market.

Alternative payment strategies
Plans will also continue the trend of considering alternative payment strategies. The ACA introduced the idea of accountable care organizations (ACOs), which incentivize quality care through shared savings based on trend guarantees. ACOs are usually facilities or professional organizations, but there are also prescription drug shared savings programs that offer trend guarantees, and we expect them to gain some popularity in the coming year. Prescription drug shared savings programs are a unique way to achieve plan savings, in that they align the incentives of the pharmacy benefit manager (PBM) and the plan, as both are focused on controlling costs. In a typical prescription drug contract arrangement, the PBM can offer pricing discount and rebate guarantees without necessarily needing to be concerned with the average wholesale price of the drugs.

The above issues are just a few of what could potentially be on the horizon for 2018 and beyond. We will continue to monitor these issues and others as we begin the new year.