 |
 |
 |
|
Latest News & Events
Click here for Other News and Events Click here For The DGB Archive
Purchasing High Performance: Can Smaller Firms Self Fund? Surprise — Many Already Are
Date: Thursday September 29, 2011By: www.myhealthguide.com MyHealthGuide Source: Brian Schilling, 9/19/2011, Commonwealth Fund Article Comments on article from industry experts: Nine years ago, when David Kohmescher stepped in as chief executive officer of the Newburgh, Indiana-based Women’s Health Care, the 20-physician obstetrics — gynecology practice was in its first year of being self-insured. His immediate predecessor had led the organization through the transition from fully insured to self insured for what Kohmescher said were the usual reasons: cost, lack of control, general frustration. “Costs were going up every year and the organization never had the freedom to build the plan it really wanted,” said Kohmescher. “I think the general sense among our owners was ‘Hey, we’re well established, we have good cash flow, and we are doctors and know health care. We’re good candidates for this.’ That has certainly turned out to be the case.” Kohmescher’s conclusion that self-insuring was a good decision comes despite the fact that in many ways, the practice might not seem like an ideal candidate, especially retrospectively. None of that has made self-insuring tenuous or, as one might expect, cost-prohibitive. “We’ve saved money every year versus buying a fully insured product on the open market, including the one year where we had to cover costs of one catastrophic case that ran into the $100,000 range,” said Kohmescher. “Every year our costs have been 10% to 20% lower than they might have been because we self-insure.” A Trend in the Market The ranks of small employers that self-fund their health benefits are certainly growing. According to the Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits, 2010 Annual Survey, Larger employers are increasingly turning to self-funding as well, but the practice has been commonplace in that end of the market for some time. Most self-insured companies purchase reinsurance to protect against unexpectedly high claims. Reinsurance comes in two different forms. A company can buy a per-employee stop — loss policy, which limits the amount the company might have to pay for any given employee at, say, $30,000 per year. Firms can also purchase an overall stop — loss policy, which caps their overall financial risk at a certain level. Self-Funding Highlights Curtis Donely, a benefits consultant based in Indianapolis who specializes in the small employer end of the market, says he’s seen an uptick in interest among smaller firms looking to self-insure. Not all of them are a good fit. “I tend to discourage firms that have fewer than 35 employees,” he says. “Below that point it gets hard to find reinsurers interested in their business.” For firms with between 35 and 100 employees, Donely proposes a straightforward means test. “I look at whether they are committed to self-insuring or if they are just looking for a quick way to lower costs. Do they have strong cash flow? What does their claims history look like? Are they willing to stay engaged enough to make self-insuring work?” Staying engaged is a big deal. According to Donely, a self-insured employer must be able to take an active role in designing the company’s benefits and managing vendors. “The biggest advantage of self-funding isn’t costs, it’s that you get control of your benefit plan. You can tweak it and make it work for you,” he says. “But the flip side is that your vendors don’t have any skin in the game. So you can’t just defer to them to manage costs or ensure that your employees get quality care. That becomes your job or your broker’s job.” Kohmescher takes that part of his job seriously. In the past six years, the practice has tweaked its benefit plan five times in various ways. It has also dumped vendors that didn’t perform and required those they work with to provide regular reports on various measures of use, cost, and performance. When a firm opts to self-fund, it is essentially deciding to act as its own insurer. It still contracts with area health plans or a third-party administrator to do things like manage physician networks, contract with providers, handle negotiations, and process claims, but the money to pay those claims comes out of a dedicated fund or the company till. Even with reinsurance, in a bad year, paying claims out of the company’s operating cash can be painful. “We plan ahead and allocate a set amount each month to pay for expected claims, but expected claims and actual claims don’t always match,” says Kohmescher. “In a bad month or a bad year, the overage comes out of your pocket. You make up the difference and then wait for the reinsurance check to arrive. You have to be prepared to float a significant amount of money to self-insure.” Smaller firms that self-insure also face the threat that after a bad year, or perhaps several bad years, their reinsurer might decide not to renew their policy. No law prevents a reinsurer from dropping a customer, and all but the largest of firms need stop — loss insurance to guard against financial ruin. Kohmescher acknowledges the concern, but gives high marks to the two reinsurers he’s worked with. “Even after a very bad year,” he says, “we sat down and had a reasonable, fair conversation about current versus future costs and our premiums. We still felt like they wanted our business.” The increase in self-funding among small employers is primarily a reaction to cost pressures. The Kaiser Family Foundation found that: Though cost may be driving the trend toward self-funding health benefits, experts say that the flexibility it affords an employer to design a benefit plan that suits its employees may be the most valuable benefit. Though cost may be driving the trend toward self-funding health benefits, experts say that the flexibility it affords an employer to design a benefit plan that suits its employees may be the most valuable benefit. Good Candidates for Self-Funding Will Have: Attorney George Pantos, a leading champion of the self-funding movement, says that flexibility and cost savings can be related. “You can design a plan that is exactly the same across state lines; you can tweak your benefits to help recruit or retain workers; and you’re free from various state mandates that apply to insurance companies. All these things can save money,” he says. He also notes that because self-funded plans aren’t subject to state and federal premium taxes, there’s often an “off-the-top” savings, which varies by state, of about 2%. Even though they aren’t subject to the same state and federal regulations, self-funded plans tend to offer similar benefits compared to their fully insured counterparts. How Self-Funded Plan Benefits Compare to Fully-Insured According to a recent RAND analysis, The Affordable Care Act may also be driving interest in self-insured plans. The Act includes a number of exemptions for self-funding that may make it financially attractive to small firms. These include allowing self-insured plans to opt out of a risk-adjustment system that will help set premiums, and excusing self-insured plans from meeting strict medical loss ratio requirements designed to limit insurer earnings. An issue brief by the National Health Policy Forum concluded that, “in 2014 and beyond, smaller employers with relatively healthy workersÂmay find it financially advantageous to pay for their own firm’s risk [rather] than to purchase a plan through the exchanges.” That remains to be seen, but in the interim, expect more and more firms to give self-funding a serious look. About The Commonwealth Fund The Commonwealth Fund, among the first private foundations started by a woman philanthropist–Anna M. Harkness–was established in 1918 with the broad charge to enhance the common good. The mission of The Commonwealth Fund is to promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults. The Fund carries out this mandate by supporting independent research on health care issues and making grants to improve health care practice and policy. An international program in health policy is designed to stimulate innovative policies and practices in the United States and other industrialized countries. Visit www.commonwealthfund.org. 
Consumers May Have More Control Over Health Care Costs Than Previously Thought
Date: Thursday September 29, 2011By: www.rand.org The historic RAND Health Insurance Experiment found that patients had little or no control over their health care spending once they began to receive a physician’s care, but a new study shows that this has changed for those enrolled in consumer-directed health plans.Patients with health coverage that includes a high deductible and either a health savings account or a health reimbursement arrangement reduced their costs even after they initiated care. Overall, the study found about two thirds of the reduction in total health care costs was from patients initiating care less often and the remaining third was from a reduction in costs after care is initiated. The findings were published online by the journal Forum for Health Economics and Policy. “Unlike earlier time periods, it seems that today’s consumers can have greater influence on the level and mix of medical services provided once they begin to receive medical care,” said Amelia Haviland, the study’s lead author and a senior statistician at the RAND Corporation, a nonprofit research organization. “We found that at least part of the savings in cost per episode reflects choices for less-costly treatments and products, not just a reduction in the number of services.” Researchers from RAND, Towers Watson and the University of Southern California examined the claims experience of many large employers in the United States to determine how consumer-directed health plans and other high-deductible plans can reduce health care costs. The study was funded by the California HealthCare Foundation and the Robert Wood Johnson Foundation. According to Haviland, at least three factors influenced the cost of care once the patient had initiated care: lower use of name-brand medications, less in-patient care and lower use of specialists. Researchers speculate that patients may talk to their doctors about their higher deductibles and ask them to help keep costs low. “It is not surprising that deductibles of $1,000 or more reduced health care consumption, but we found that savings occurred even when employers helped employees offset these out-of-pocket costs by making contributions to their accounts,” said Roland McDevitt, a study co-author and director of health research at Towers Watson, a human resource and employee benefits consultancy. “This was true for both health savings accounts and health reimbursement arrangements.” Health reimbursement arrangements and health savings accounts create different incentives for employees. Health reimbursement arrangements allow employers to pay for qualified medical expenses, including those that fall under the deductible. These payments or reimbursements are excluded from the taxable income of the employee. Unused portions may roll over at the end of the year, but any account balance is owned by the employer and employees generally forfeit the account balance if they leave the employer before retirement. Health savings accounts create a stronger incentive for employees to manage their health care costs, because the employee owns the account. This type of account was shown to have the largest impact on cost reductions. It can earn interest and it follows employees when they change jobs. Health savings account contributions are only allowed for those enrolled in high-deductible health plans as defined by law, but account balances may be used for qualified medical expenses at any time. The minimum health savings account deductibles for 2011 are $1,200 for single coverage and $2,400 for family coverage. The study found that both the level of the deductible and the level of the employer account contributions influence the extent of savings. Higher deductibles of $1,000 or more together with employer account contributions of less than half the deductible produced the greatest cost reductions. “It is clear that high-deductible health plans with personal medical accounts produce overall health care cost savings and not simply a cost shift,” said co-author Neeraj Sood, associate professor at the Schaeffer Center for Health Economics and Policy at USC and a RAND economist. “This is mostly due to patients initiating less care, but a full third of the reduction is due to shifts in the mix of care they are receiving.” The authors cautioned that there was some reduction in the rate of cancer screenings and childhood immunizations during the first year of enrollment in a high-deductible plan. They found this first-year effect was relatively small, but expressed concern about the early trend. They say more research is needed to determine the extent to which these cost reductions come at a price of forgoing necessary medical care. RAND Health, a division of the RAND Corporation, is the nation’s largest independent health policy research program, with a broad research portfolio that focuses on health care costs, quality and public health preparedness, among other topics.
Pros and Cons of the FSA Cap
Date: September 28, 2011 By: Amanda McGrory As health care costs continue to grow, employers and employees alike are searching for ways to reduce the financial burdens they face, and many are turning to consumer-driven health plans that include flexible spending accounts. With an FSA, employees can put away pre-tax money to use for certain out-of-pocket medical expenses, and this type of account offers employees a considerable tax advantage, says Jody Dietel, chief compliance officer at WageWorks Inc. “Employers should offer FSAs because there are growing out-of-pocket expenses for employees, and this helps employees manage those expenses on a tax-advantage basis that benefits both the participant and the employer,” Dietel says. “As employers move to higher-deductible plans or more cost sharing with employees – and that’s going to continue even under health care reform – it’s important that employees can do that on a tax-advantage basis.” For employers, offering FSAs can reduce their workers’ compensation obligations as well as matching on Social Security and Medicare taxes, Dietel says. Though it’s hard to pinpoint exactly what the average employer saves by offering an FSA, Dietel estimates there could be about a 10 percent tax savings. Despite the tax advantages FSAs offer both employees and employers, the Affordable Care Act introduced a provision that will place a $2,500 employee contribution cap, starting in 2013. The cash-strapped government needed ways to pay for its expensive health care reform bill, says Manisha Thakor, a personal finance expert, and placing contribution limits on FSAs was one way to do that. “Our country needs revenue because we’re in a bit of a financial pickle as a nation,” Thakor says. “The government needs to raise tax revenue, and since these are tax-advantage accounts that come out of your paycheck before these funds are taxed by the federal government, FSAs are being targeted as a revenue source. The biggest benefit of the cap is to our ‘beloved’ government, to be blunt.” Still, both Dietel and Thakor believe the FSA cap won’t affect the majority of participants. Most employers previously set FSA limits at $3,000-$5,000, with some being higher and some being lower, Dietel says. Although the new $2,500 federal FSA limit is lower than what most employers would allow, the average FSA participant contributes only $1,400 per year, and employers are still allowed to add supplementary funds to FSA accounts beyond the $2,500. Dietel also hopes the new limit could eliminate the use-it-or-lose-it rule that prohibits employees from rolling over any leftover contributions to the next year. When there was no statutory limit, the IRS was worried people would take advantage of the tax incentives, which is why the use-it-or-lose-it rule was adopted, but this is no longer an issue. “With the $2,500 limit, it removes the concern that the IRS had about the tax shelter, so we’re hopeful that we can convince the government that it’s no longer an issue and time to get rid of the use-it-or-lose-it rule,” Dietel says. In a strange way, Thakor believes this has benefited some consumers because the controversy surrounding the FSA limit has given publicity to what these accounts can do, and it may encourage more employees to take advantage of the tax incentives. “The No. 1 benefit of the cap, to me, is it’s actually stirred up some news interest, and it’s making people aware of FSAs,” Thakor says. “Right now, only roughly one in five people who are eligible to participate in a FSA actually do, so while everyone is very worried about the cap, I’m looking at it and seeing a benefit because it’s making people more aware of FSAs. Maybe we can now get those four out of five folks who are leaving this fabulous tax savings on the table to take advantage of it.” But even though the FSA cap doesn’t affect the majority of participants and it could encourage greater participation, Thakor would still like to see it removed. For participants who have serious chronic illnesses, there could be a significant financial impact, and, ultimately, health care reform was not designed to hurt those who are truly in need. “There’s debate about whether the FSA limit will stay,” Thakor says. “Personally, I would like to see it lifted because the people who are hurt by it are not the people anyone intended to hurt.”
RAND Report: 'No Major Differences in Benefit Generosity Between Self-insured and Fully Insured Plans' Finding From Employer Self-Insurance Decisions and the Implications of PPACA
MyHealthGuide Source:RAND Health, 5/2011, www.rand.org and RAND Introductory Page
RAND Summary Report (8 pages) RAND Full Report (124 pages) While The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (ACA) will be applied to all non-grandfathered fully insured policies purchased by businesses with 100 or fewer workers, self-insured plans are exempt from these regulations. As a result, some firms may have a stronger incentive to offer self-insured plans after the ACA takes full effect. In this report we ... Key Findings Overall, we find little evidence that self-insured plans differ systematically from fully insured plans in terms of benefit generosity, price, or claims denial rates. However, while relatively good data on plan benefits are available from the Kaiser Family Foundation/Health Research and Educational Trust (Kaiser/HRET) Annual Survey of Employer Benefits, data on claims denial and premiums are potentially less reliable. Stakeholders we spoke to expressed very little concern that claims denial is significantly different in self-insured and fully insured plans. While self-funding is perceived to be less expensive for firms than purchasing a fully insured product, employers that self-insure face higher financial risk. This risk can be mitigated by purchasing stop-loss insurance policies, which are regulated differently from fully insured health insurance products. There are no nationally representative data on the availability, prevalence, pricing, or contracting terms of stop-loss insurance, but stakeholders indicated that it is relatively common for self-insured small businesses to obtain stop-loss coverage. Sixteen states have regulations that prohibit insurers from selling stop-loss policies with attachment points below specified limits, which range from $5,000 to $25,000. Stakeholders, including industry experts, consumer advocates, and regulators, remarked that self-insurance may leave consumers less financially protected in the event that their employers declare bankruptcy or face financial trouble. Financially strained firms might become unable to pay health care claims (in the case of self- insurance) or premiums (in the case of full insurance), leading to a loss of insurance in either case. However, failure to pay premiums would lead to a prospective termination of benefits to which consumers could be alerted in advance. Failure to pay claims, in contrast, could leave consumers financially responsible for claims that have already been incurred. Firms can help protect enrollees against this risk by establishing and paying claims through a trust, but there is no requirement to establish trusts, and few firms choose to do so. Although data are limited, we found no evidence that claims denial rates are higher for self-insured firms. However, consumer recourse options in the event of a denied claim are generally more limited for self-insured than for fully insured enrollees. Both fully insured and self- insured plans are regulated by the Employee Retirement and Income Security Act of 1974 (ERISA), which establishes a right to an internal review of denied claims. Many states have extended consumer protections for enrollees of fully insured plans beyond ERISA; for example, 44 states and the District of Columbia have added a right to an external review of claims denials. The ACA expands federal requirements for internal review for enrollees in both fully insured and self-insured plans and establishes a right to external review for self-insured enrollees. However, details of how the regulations will be applied have not been fully determined, and state protections will still differ for fully insured and self-insured enrollees. For example, the ACA does not preempt state internal and external review laws that offer stronger protections than the ACA provisions. Stakeholders argued that the different recourse options available to fully insured and self-insured enrollees are likely to be confusing and frustrating for consumers. Additionally, although the Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides privacy protection for personal medical information, some stakeholders remarked that internal reviews conducted by self-insured firms could raise privacy concerns, especially since such reviews may include other employees at the firm, including human resources representatives and managers. Stakeholders expressed significant concern about adverse selection in the health insurance exchanges due to regulatory exemptions for self-insured plans. However, the COMPARE microsimulation model predicts a sizable increase in self-insurance only if comprehensive stoploss policies become widely available after the ACA takes full effect, and the expected cost of self-insuring with stop-loss is comparable to the cost of being fully insured in a market without rating regulations. For all other scenarios, the change in self-insurance predicted by the model is small and reflects that even with stop-loss coverage, self-insurance remains risky for small firms. In scenarios where comprehensive stop-loss coverage is assumed to be available, increases in self-insurance are associated with slightly higher premiums on the exchanges. For example, for firms with 100 or fewer workers, the option to self-insure with comprehensive stop-loss coverage would result in a 3.3% increase in platinum-plan premiums. However, limiting small employers' ability to self-insure is also associated with a decline in the total number of individuals enrolled in health insurance coverage. These results are consistent with evidence regarding the impacts of state small-group regulatory reforms that were implemented in the 1990s. In general, it appears that regulatory reforms increase prices for lower-risk enrollees while decreasing prices for higher-risk enrollees. Because low-risk enrollees tend to have more elastic demand for health insurance than high-risk enrollees, the net effect is a small decline in coverage and a small decline in exchange premiums. Our model predicts that allowing self-insurance mitigates this effect, so that total enrollment is higher in scenarios where self-insurance is allowed. Conclusions Our results do not point to major differences in benefit generosity between self-insured and fully insured plans or to a major threat of adverse selection in the small-group market after the ACA is fully implemented. Stakeholder interviews indicated that two significant concerns about self-insurance in the current market were the lack of financial protection for consumers in the event of employer bankruptcy or other financial problems at the firm and limited consumer recourse options in self-insured plans in the event of denied claims. The ACA partially addresses the second concern by creating a right to external review for self- insured enrollees, although regulatory differences governing recourse options between self-insured and fully insured plans may still be confusing for consumers. Stakeholders also expressed real concerns about the potential for adverse selection if a disproportionate share of small firms with lower-risk (healthier) employees opted to self-insure after the law takes full effect. The results from our model suggest that adverse selection due to self-insurance is not likely to have a major influence on premium prices in the exchange. However, the model is an imperfect tool, and it cannot capture all the factors that influence firms' decisions. For example, the model cannot incorporate issues such as employers' idiosyncratic knowledge about employees' health status. The model is also constrained by data limitations, including lack of information on stop-loss policies and the absence of data linking employees, employers, and health expenditures. Finally, our analysis pointed to two important data gaps that limit our ability to fully understand the market for self-insurance and the potential risk to consumers.
Health care costs more than double since 2002: Milliman survey
Health care costs for the average American family have doubled in less than nine years to $19,393 annually, according to the 2011 Milliman Medical Index released Wednesday.
In 2002, health care costs for the average American family of four enrolled in a preferred provider organization plan averaged $9,235, according to the study, published by the Seattle-based global consulting and actuarial firm Milliman Inc. Though this year's 7.3% increase over 2010 is the lowest annual rate of increase in more than a decade, the increase in total dollars of $1,319 is the highest in the history of the study, the consultant reported. As has been the case in four of the past five years, employees are paying a larger share of the cost increase than their employers. Of the total $1,319 cost increase in 2011, employers bore $641 while employees shouldered the rest, averaging $403 in increased payroll contributions and $275 in additional cost sharing. This year, employees' share of total costs is at an all-time high, having increased from 36.8% in 2005, the first year of the MMI, to 39.7% in 2011. Stantial geographic differences The study also found that substantial geographic differences in costs remain, with six of the 14 geographic areas studied exceeding $20,000 in total costs for a typical family of four. The highest-cost city was Miami, where health care spending averaged $23,362, followed by New York, where health care costs averaged $22,785, and Chicago, where costs averaged $21,996. The three lowest-cost cities were Phoenix, where costs averaged $17,336; Atlanta, where costs averaged $18,292; and Seattle, where costs averaged $18,536. Practice patterns vary “These cost differences result from variation in local practice patterns and from differing costs for health care goods and services,” said Chris Girod, a Milliman principal and consulting actuary, in a statement. The greatest increase was found in outpatient facility costs, which grew by 10% in 2011. Milliman said 90% of the cost increase is attributable to increases in unit costs, while the rest is the result of increased utilization. Hospital inpatient care experienced the next highest rate of growth, averaging 8.6%. To view the complete Milliman Medical Index, go to www.milliman.com.
Top Employers Need to Offer Health Cover: Panel
By: Jerry GeiselFrom Business Insurance March 21, 2011 www.businessinsurance.com WASHINGTON—Despite the costs and administrative burden, several large employers see advantages to continuing to provide health care coverage and avoiding the health care reform law’s “play-or-pay” penalties that go into effect in 2014. Health care coverage “distinguishes us as an employer. We like the idea of providing a plan and offering wellness to enable employees to improve the quality of their lives,” Pamela French, director of global benefits and integration in human resources at Boeing Co. in Chicago, said at a recent National Business Group on Health conference in Washington. If coverage is not offered, how does a company continue to be “an employer of choice?” asked Lillian Kandybowicz, vp-human resources at shipping giant Maersk Inc. in Madison, N.J. “Providing employees with health care plans is extremely important to us,” said Judy Verhave, executive vp and global head of compensation and benefits at New York-based Bank of New York Mellon Corp. Whether to continue offering coverage is an issue many employers have begun to analyze due to provisions in the health care reform law that take effect in 2014. One provision imposes an annual $2,000 per employee assessment on all but small employers that do not offer a health plan. In addition, the law provides health insurance premium subsidies for the uninsured with incomes up to 400% of the federal poverty level. The subsidies would be used to purchase policies from insurers offering coverage in state exchanges. With annual health insurance costs often topping more than $10,000 per employee, employers could come out financially ahead if they folded their plans and paid the penalty. Due to the federal premium subsidies, lower-paid employees would be shielded, in some cases completely, from the financial effects of plan terminations. But panelists during the March 9-11 NBGH conference noted that the financial issues are not cut and dried. “It is a complex question,” Ms. Kandybowicz said. For example, employers pursuing such a strategy would have to analyze the amount of additional compensation they would provide to employees not eligible for federal premiums. “How do you restructure remuneration?” she asked. In addition, there is no assurance that lawmakers would not later increase the $2,000 per employee penalty for not offering coverage—which Ms. Kandybowicz described as very small compared with employers’ current health care plan costs—if large numbers of employers decide to terminate their health care plans. While the benefit managers said their companies intend to keep providing coverage, they noted that health care reform will require design changes, particularly to the highest-cost plans. Boeing’s Ms. French said the aerospace giant will make whatever changes are necessary to avoid a 40% excise tax that will be imposed on the most costly plans starting in 2018. Under that provision, the tax will be imposed on premiums that exceed $10,200 for single coverage and $27,500 for family coverage. “Avoiding (the tax) is an imperative,” Ms. Verhave said. Even without the impetus of the health care reform law, employers are taking action to try to hold down health care cost increases to more manageable levels. For example, Boeing is working to develop programs in which payments made to medical providers would be linked to performance, Ms. French said.
|
||
 |
Contact us at 888-322-2524 or email us at cs@diversifiedgb.com |  |