Tag Archives: retiree medical

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.

High-deductible/health savings account plans continue to increase

According to a survey by Americas Health insurance Plans (AHIP) the number of individuals insured by high-deductible health plans (HDHPs) in conjunction with health savings accounts (HSAs) grew 18.4% this year to 13.5 million from 11.4 million in 2011. AHIP data shows that this type of consumer-driven health plan (CDHP) has increased gradually since it was introduced in 2004. Read more about AHIP’s survey at Workforce.com. You can also read the entire survey here.

One question arises from the aforementioned survey: Do CDHPs help reduce costs? Jack Burke and Rob Pipich’s detailed analysis on high-deductible plans found that when adjustments are made for typical risk and benefit factors, CDHPs deliver cost savings that are modestly better than non-CDHPs. Here is an excerpt:

“Most employers we examined showed savings in the CDHP plan before adjusting for risk and plan design characteristics; however, the bulk of the apparent savings was explained by these adjustments. After adjustments, the reduction in combined employer and employee costs averaged 4.8% before accounting for the utilization-dampening impact of the high deductible. Accounting for the high deductible made the reduction 1.5%. Some employers showed significantly greater reductions.”

This 1.5% reduction is what’s known as “induced utilization” and is a key element of CDHPs. For more, read Milliman’s complete Consumer-Driven Impact Study.

COLAs increase health benefit amounts

With the release of the September 2011 Consumer Price Index (CPI) by the Bureau of Labor Statistics, the Social Security Administration (SSA) and the IRS have announced cost-of-living adjusted figures for Social Security and retirement plan benefits, respectively, for 2012. The 2012 adjusted figures for high-deductible health plans (HDHPs) and health savings accounts (HSAs) were released by the IRS earlier this year.

While the focus of the latest Client Action Bulletin is more squarely on retirement benefits and Social Security, there’s also information about health benefit amounts. Read more here.

GASB 45: Lessons learned for small employers

Joanne Fontana pens an article in Accounting Today looking at lessons learned after more than three years of providing GASB 45 valuations to small employers. Here is an excerpt capturing the difficulty of these smaller valuations:

We’ve learned that, while smaller government employers may have fewer OPEB [other post-employment benefit] plan members, their OPEB plans are by no means simple. In fact, we’ve seen significant variation in how employers using the AMM [Alternative Measurement Method, which is well-suited for small employers] handle contribution methods and levels toward retiree health premiums, eligibility requirements for OPEB, and the structures of the OPEB plans themselves. Some states provide funding toward retiree premiums in addition to those provided by the employer, which must be accounted for in the valuation. Others use age-banded rating for their OPEB premiums. Still others are required to use community-rated premiums.

All of these variations have implications on how to correctly calculate the OPEB liability, whether using the AMM or a traditional valuation. None are directly addressed in the GASB standard, but are nonetheless expected to be properly considered by the individual completing the valuation. So, again, it is imperative, even when using the AMM, to have someone who understands these complexities and can expand the basic AMM approach to appropriately calculate the liability.

Municipal benefit trusts

Municipally-sponsored benefit trusts may become more popular as public employers look to grapple with the liability brought to light by GASB 45. Money Management Letter (subscription required) has the story:

OPEB trusts work much like pension funds and have a lower annual required contribution than a year to year “pay as you go” system. Setting assets aside and investing them can greatly reduce post-employment liabilities in the long term, according to Alan Desmarais, senior health consultant with Milliman. Some 20% of plans throughout the country have set money aside specifically for OPEB liabilities, with 40% more saying they were “likely to adopt” such a strategy, according to a report by the nonprofit watchdog the Center for State and Local Government Excellence.

The retirement board in Wethersfield in Connecticut will soon submit a draft of a trust document to the city council, said Jeff Bridges, the town manager. He added that the proposed trust will likely resemble a pension fund in terms of contributions and investments. “We are exploring various management options,” he said. “It’s more than likely that we’ll [hire investment managers]­we want

This is happening across the country

News out of Palo Alto, CA today is indicative of a challenge facing municipalities all over the country:

The projected cost of medical benefits for retired Palo Alto city employees has ballooned even as the city’s trust fund for paying those benefits has lost millions, a new report shows.

The actuarial study by Milliman, Inc. estimates the total cost of health benefits for current and future retirees at $130 million, up from $102 million in 2007. It’s a 28 percent increase in just two years.

The big jump comes partly from a surge in retirements in the city: 115 employees have stepped down in the two-year period, more than twice as many as the city had projected. Rising medical costs and interest account for the rest of the increase.

Last year, Palo Alto got off to a good start in offsetting some of those future costs, putting $33.8 million in a CalPERS trust fund expected to grow at a healthy rate. Instead, however, the fund has been hit hard by the recession, losing 36 percent of its value as of March 31, when it stood at $21.7 million.

Public employers are now required to calculate the liability associated with their retiree medical benefits, the result of a rule passed in 2004 called GASB 45.