Tag Archives: Sean Silva

COBRA extension deadline considerations for multiemployer plan sponsors

Recently, the U.S. Departments of Labor and Treasury and the Internal Revenue Service jointly issued guidance extending certain deadlines related to COBRA continuation coverage.

The extension of deadlines described are based on the “Outbreak Period,” which is defined as the period from March 1, 2020, until 60 days after the federal government declares the end of the National Emergency, or other such date announced by the agencies. The guidance issued by the agencies also includes suspension of time limits related to HIPAA special enrollment rights and filing benefit claims, appeals, and external reviews during the Outbreak Period. These time limits do not begin to run out until the end of the Outbreak Period.

In this Multiemployer Alert, Milliman’s Sean Silva and Eric Walters discuss the COBRA election period, COBRA payment deadlines, and the potential impact on plan sponsors.

Know the specifics of your health and welfare stop-loss policy

Many trusts that provide medical and prescription drug benefits on a self-insured basis do not have sufficient assets to absorb the impact of unexpected large claims. As a result, self-insured trusts often protect themselves against the impact of large claims by contracting with a stop-loss carrier. As fiduciaries to health and welfare trusts, trustees must understand the details regarding their stop-loss carrier contracts in order to ensure the trust is receiving the most competitive price while also receiving sufficient protection against large claims in order to maintain sufficient trust assets. This Multiemployer Review article by Milliman consultants Sean Silva and David Stoddard focuses on specific stop-loss policies employed by multiemployer plan sponsors.

Health and welfare trusts seek increased guidance regarding continuation value

One of the primary purposes of a health and welfare trust is to develop strategies to share risk and leverage group purchasing power for the provision of health and welfare benefits to its participants. Examples of health and welfare trusts are multiple employer trusts (METs) and Taft-Hartley multiemployer trusts.

In most instances, benefits provided under health and welfare trusts usually include medical and prescription drug coverage to participants. They also frequently include other ancillary benefits such as dental, vision, life, accidental death and dismemberment, disability, and other welfare-related options. Dependent upon the size and structure of the trust, benefits are typically provided on a fully insured basis, a self-insured basis, or a combination of both.

Due to the continued rise of healthcare costs and uncertainties about the future landscape of healthcare, plan sponsors and fiduciaries are keeping a close eye and seeking increased guidance regarding the financial status of their trusts. A variety of methods can be utilized to assess the financial status of a health and welfare trust. One of the most common methods is to estimate continuation value, or the amount of time that the trust can continue to cover the cost of benefits to its participants and pay for associated administrative, operating, and professional expenses, assuming no future income.

Continuation value can be expressed in many different ways, one of the most common being reserve months. But what level of continuation value should a health and welfare trust target? While the question is common, the answer is complex and requires assessment and understanding of a variety of factors:

• How might deviations from projected experience impact actual results? Estimated months of reserves are developed from financial projections of future experience, which are based on a set of assumptions. It is important to have a full understanding of the assumptions used and how the reserve estimates would be impacted if actual experience differs from projected experience. Sensitivity analyses can help illustrate the impact of changes to assumptions.

• Months of reserves can be expressed on a gross or net basis. Gross reserves are based on total trust assets, while net reserves are based on total trust assets net of liabilities. Trust liabilities can include amounts for premium payments, incurred but not reported (IBNR) claims, accumulated eligibility credits, and hour bank or dollar bank benefits, among others. It is important to understand the basis for which reserves are reported, as well as the impact of trust liabilities on total reserves and how that may change over time.

• How is the future number of participants expected to change? Months of reserves are impacted by participant growth or reduction. For example, a trust with declining participation will experience trust assets being spread over fewer people, thus increasing the months of reserves. Conversely, a trust with increasing participation will experience trust assets being spread over more people, thus reducing the months of reserves.

• Are benefits provided on a fully insured or a self-insured basis? Fully insured trusts tend to have more predictable expenses, and are typically more comfortable holding fewer months of reserves, all else being equal. For self-insured trusts, the level of susceptibility to large fluctuations in claims experience is dependent upon participant size. Because of this, self-insured trusts tend to target a higher level of reserve months than fully insured trusts. Some self-insured trusts may have stop-loss coverage in place to protect against unexpected spikes in claims experience, especially for catastrophic claims.

• How is the trust funded? The primary source of funding is typically through employer contributions, for which the structure can vary among a flat monthly contribution rate per participant, hourly contribution rates, percentage of participant earnings, etc. It is important to understand the structure under which employer contributions are paid, and how economic changes such as variations to employment levels might impact future employer contributions. Other sources of trust income may include participant contributions, investment income, and rebates and subsidies.

• How frequently are employer contribution rates updated? Some trusts update employer contribution rates annually, while other trusts may set employer contribution rates in advance for several years due to multiyear agreements. Trusts for which employer contribution rates are static for numerous reasons (unfavorable economic conditions or political sensitivities for collectively bargained trusts) may wish to retain higher numbers of reserve months to protect against adverse experience.

When determining the optimum number of months of reserves to hold in a health and welfare trust, it is important to speak with your consultant and other trust professionals to address the considerations described above and their respective implications.

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

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