Private health exchanges (PHEs) have attracted attention from some large employers sponsoring healthcare benefits. In the latest issue of Benefits Perspective, Milliman’s Troy Filipek, Gregory Herrle, and Paul Houchens discuss three key issues large plan sponsors should evaluate regarding PHEs: risk selection, quality, and cost perspective.
Here is an excerpt considering each issue:
…When considering private exchange options, plan sponsors should evaluate how the private exchanges are balancing greater employee choice with limits on the potential for adverse selection. For example, are employees permitted to change from a lower-cost to higher-cost benefit option in a single year, or is plan selection movement restricted in some manner? Unmanaged risk selection may result in unsustainable employee healthcare cost increases, which may unravel an employer’s defined contribution strategy or result in benefits that are perceived by employees as below average relative to industry norms.
With the introduction of guaranteed issue coverage to the individual market through the Patient Protection and Affordable Care Act (ACA), some employers believe they have a diminished incentive to offer healthcare coverage to employees. However, in addition to avoiding penalties for not offering coverage, employers have strategic reasons to offer healthcare benefits to employees. Specifically, healthy employees generally translate into minimized absenteeism, as well as greater productivity. Health coverage has also been a critical benefit in terms of attracting and retaining the best employees. Therefore, quality healthcare is an important part of the value proposition offered by employers….
Cost considerations relative to self-funded plans
Plan sponsors should also remember some of the advantages available to self-funded plans (whether inside or outside of private exchanges), including, for example:
• Eliminating or substantially limiting insurer profit margins;
• Lowering administrative costs, in general;
• Avoiding state premium taxes and certain ACA provisions, such as the health insurer tax;
• Providing benefit flexibility by avoiding state benefit mandates and allowing for other options better suited to a specific workforce when designing benefit plans; and
• Allowing more control over benefit management.
Large employers interested in offering their employees health plans through PHEs should also consider the questions asked by Dan Bostedt in this paper.
The Retiree Drug Subsidy Program (RDS) was created to enable employers to assist Medicare-eligible retirees in acquiring more cost-effective drug coverage. Under the Patient Protection and Affordable Care Act (PPACA), employers will now be taxed on government subsidies associated with the program.
Troy Filipek provides perspective on the subsidy taxation in this BenefitsPro article. Here is an excerpt:
“The big change for 2013 with the RDS program is that in the past, from 2006 forward, the allowance that these employers receive from the government for the subsidies used to be non-taxable income,” Filipek says. “That has changed since the enactment of the [PPACA].”
Now, Filipek explains, the money that employers receive from the government for these subsidies is subject to taxation.
“It’s a pretty big change,” he says. “A lot of employers have already felt the impact of it because once the law passed, based on the accounting standards, you had to recognize the future impact of that in your financial statements.”
Substantial adjustments have been taken in the form of reflections of these soon-to-be taxed subsidies. “Starting in 2013, it will be a practical effect that these moneys are going to be taxed,” Filipek says.
He notes that a lot of brokers, advisors and even employers are currently in the process of reevaluating their options for offering retirees prescription drug coverage. As far as what steps are necessary to take in order to be prepared for the coming year’s changes, Filipek feels it’s important for employers and their advisors to simply understand that there are a variety of choices available.
Options include continuing coverage and working with the newly taxed subsidies or dropping coverage and allowing retirees to enroll in individual part D plans. Additionally, Filipek says, employers can maintain group coverage and work with a pharmaceutical benefit manager or health plan in the Part D program to develop a custom benefits package through a Part D Employer Group Waiver Plan plus secondary wrap plan design, which are plan options gaining traction in the marketplace.
Regardless of what decision is made, it’s imperative that both brokers and HR professionals “make sure it’s seamless for the retiree and easy for them to understand,” Filipek says.
“It’s important to communicate with the retirees because these are not people who are coming into the workplace every day where it’s easier to communicate with them. You have to find ways for outreach to them and their spouses.”
With 2013 nearing it would be wise for employers to communicate changes in employee health benefits concerning Patient Protection and Affordable Care Act (PPACA) provisions set to take affect. Milliman’s Troy Filipek is quoted in this BenefitsPro article discussing “open lines of communication” between employers and employees.
Here is an excerpt from the article:
According to Troy Filipek, a principal and consulting actuary for Milliman, the best way to prepare for compliance next year is to employ contingency planning as well as develop open lines of communication with employees.
Filipek says employers need to be proactive for 2013 while thinking ahead for 2014.
“There are a lot of changes that are occurring, and there are things employers can benefit from just by considering these options. Talk to your advisors and obviously if you do decide to make a change, talk to your employees or your retirees because with anything you make changes to, it’s important that your people are well advised on it, why you’re doing it and how it’s going to impact them.”
Previously we’ve outlined valuable communications practices to help employers navigate healthcare reform. For additional information on effective employer-to-employee communication regarding health benefits, read here.
This Bloomberg Law Reports article describes the benefits and drawbacks associated with captive insurance companies, and analyzes the efficacy of providing medical benefits of U.S. employees as an employee benefit, either for full coverage or stop-loss coverage.
Healthcare reform legislation has resulted in significant changes to prescription drug plan options under Medicare Part D. A new article by Troy Filipek and Greg Gysberg considers why plan sponsors should reexamine their existing approaches to prescription drug coverage and take advantage of the new opportunities available since passage of the new healthcare laws.