Containing Health Care Costs

Transcription

1 Containing Health Care Costs 2013 VGFOA Spring Conference Presenters: Bob Fiacco and Laura Millen

2 Presentation Outline Current Environment Benefits Cost Savings Strategies Key Takeaways & Final Thoughts

3 We Have All Seen The Headlines

4 Pervasive Budgetary Issues Reported Government Bankruptcies Both cities have been hurt by high labor costs, particularly health insurance Bankruptcy attorney commenting on Stockton and Vallejo bankruptcies Source: Stockton, California, to File for Bankruptcy Protection, Bloomberg, 06/12 Red: City Black: Special District Source: Governing.com 2012

5 Local Governments are Looking to Their Benefits Plan to Save Money 1. Are You Currently Looking for Ways to Reduce Costs of Your Benefit plan? 2. What is The Top Priority of Your Employee Benefits Plan? Controlling the organizations cost Ability to recruit and 80% compete for top talent Yes Retention / employee satisfaction Controlling employees out of pocket cost Source: International Public Management Association for HR 2011

6 But What Exactly is Everyone Doing? Who is the GFOA? Over 100 years old Over 17,600 state and local government finance officials and other public finance specialists Colonial Life provided a grant to the Government Finance Officers Association (GFOA) Investigate employee benefit cost management techniques being used in local government focusing on: What strategies are being used? How many are using them? What strategies would you recommend? Why are you not using certain strategies? How much can you save? Survey of the GFOA membership base and case interviews with CFO s, Finance Directors, Budget Managers, HR Directors and managers in local government. Source: GFOA.com

7 Marketplace Attention Industry Newsletters AHIP Deloitte GFOA USCM IPMA Webinar & Tradeshows Academia Study Group

8 4 Key Leverage Points Emerge Supplier Management Purchasing Co-ops Re-Bidding ESP Enrollment Shift BECs Expense Self-funding Governance &Optimization Dependent Verification Benefit Waivers Plan Redesign Plan Restrictions Section 125 Cost Sharing Increase Deductibles Increase Co-pays Increase Premium Move Benefits to VB Savings 4 Wellness Promote Healthy Behaviors Emphasize Preventive Treatment ESP: External Service Provider BECS: Benefits Education and Communication

9 Cost Savings Technique: Dependent Eligibility Verification

10 Dependent Eligibility Verification Background Many public sector employers provide health and medical benefits to employees 2%-30% Often this coverage is extended to dependents Dependents can easily outnumber employees on a public sector benefits plan For example 1 employee may have a spouse and two dependent children for a total of 4 people on the plan (1 employee and 3 dependents) Examples of Dependent types: Spouse Domestic partner Birth Child Adopted Child Step Child Grand Child Legal Guardianship Domestic partner child Disabled adult child Adult children Healthcare coverage for dependent grandchildren Healthcare coverage for dependent foster kids Public Sector Private Sector 61% 34% 50% 25% Source: SHRM 2011 Employee Benefits Survey.

11 Ineligible Dependents Ineligible Dependents on Health Plan According to market research anywhere from 2% to 30% of dependents on any given health plan are ineligible for coverage, with the typical range being 8% to 11%. Why are dependents ineligible? Some possible reasons include: 2%-30% Potential Ineligibles Life changes causes dependent to become ineligible such as: Divorce Changes in guardianship Lack of knowledge and understanding by employees on dependent eligibility requirements Lack of HR manpower to communicate and enforce eligibility requirements Employee deception Source: AON-Hewitt 2010

12 Use of Dependent Eligibility Verification Total Respondents 58% Yes verifying dependents Based on your experience would you recommend dependent verification to other Public Sector organizations? Very likely to recommend Somewhat likely to recommend 64% 11% Neutral 20% Unlikely 5% Source: GFOA-Colonial Life 2011

13 Headlines Denver Taxpayers Paid Millions for Non Dependents For decades the city relied on the honor system Source: Dayton Daily News Source: CBS Channel 4 Denver, 05/11 Ann Arbor Schools Find and Oust 200 Ineligible Dependents from District Health Plan It is just a flat out extra cost to taxpayers Source: Education Report.org, 06/11 Source: Dayton Daily News 07/10 County Finds $1M Savings After Insurance Audit Eligibility rules can be very confusing Health Insurance Audits Aimed at Dependents of Allegheny County Schools Only three were truly egregious cases of outright fraud Source: Post-Gazette 06/12

14 Dependent Eligibility Verification Large School District Upstate NY Potential Ineligibles Savings Illustration Employees with Dependents 11,400 Discovered Ineligible Dependents 1,100 % of Dependent Population 7% Avg. Savings per Dependent $2000 Final Savings $2,200,000 Most Common: Divorced individuals who continued to carry spouse Source: Wayne Post 05/11

15 Dependent Eligibility Verification Of those not using, why have you not used this technique? Execution Hurdles 33% Not Enough Staff to implement 42% 23% No Not wellness verifying promotion dependents 16% 11% 4% Potential benefits do not outweigh costs Familiar with technique but not enough information to determine benefits Not familiar with this technique 0% 0% Union contract Potential impact on employees too great Source: GFOA-Colonial Life 2011

16 Comments from those who use Dependent Verification It Works It helped us save money Comments from those who do not use Dependent Verification With Obama-care must insure until age 26 so no use to verify Healthcare Reform Minimal Impact Does not hurt eligible enrollees and saves money Process is very time consuming Staffing Good Governance We verify dependents every year We are small government and know each others dependents Size Healthcare Reform Would recommend due to new extensions of dependent coverage Responsibility of health plan Already Covered Source: GFOA-Colonial Life 2011

17 Dependent Eligibility Verification Colonial Life pulse survey on health carrier dependent verification Key Finding 91% of health insurance carriers we interviewed said periodic review and verification of dependent eligibility is the responsibility of the employer. Respondent quote: The employer handles everything related to this, including periodic review and verification. Medical Insurance Carrier, Ohio AK HI MA CT Source: Colonial Life research 2011

18 Dependent Eligibility Verification Key Takeaways From Research Dependent verification is highly utilized and recommended Health care reform has people confused in regards to dependent coverage Confirm the exact process your health carrier or TPA is following Your benefits partners can be a good resource to assist in overcoming any knowledge and manpower gaps in regards to execution Dependent verification is good plan governance and should be performed on a regular basis Time of claim is not when an employee should learn their dependent is ineligible for coverage Source: GFOA-Colonial Life 2011

19 Cost Savings Technique: Increase employee cost-sharing by increasing deductibles

20 Increase Cost-Sharing Healthcare coverage for part time workers Public Sector Private Sector 56% 26% Healthcare for retirees 75% 15% No EE Contribution to healthcare coverage Average Deductible Single/Family Plan to raise deductibles Co-pays, OOPM 35% 7% $400/$1000 $1000/$ % 35% Key Point: Public sector has lower average deductibles than private sector, and many are looking to raise them Source: SHRM 2011 Employee Benefits Survey.

21 Increase Deductibles on Health Plan Total Respondents 57% Yes increasing deductibles Based on your experience would you recommend increasing deductibles to other Public Sector organizations? Very likely to recommend Somewhat likely to recommend 40% 33% Neutral 22% Unlikely 5% Source: GFOA-Colonial Life 2011

22 Headlines Transylvania Tries New health Plan to Control Costs Deductibles moved from $750 to $1,500 Source: Dayton Daily News Source: Blue Ridge Times News, 05/12 New Health Plan to Save Haverhill $1.1M per year: Workers Face $200 Deductible Source: Eagle Tribune, 05/11 Ultimately this was the only way to preserve city services Coweta County Employees to See Higher health Plan Co-pays, Deductibles Increases expected to save the county $200,000 year Source: Newnan Times Herald, 01/12

23 Increase Deductibles Local Government Current Deductible Proposed Changes Savings Illustration Employees 300 Current Deductible $1,500 Renewal $1,836,000 New Deductible $3,000 Renewal $1,286,000 Savings $550,000 Source: Colonial Life account 2011

24 Increase Deductibles Of those not using, why have you not used this technique? Execution Hurdles 28% Potential impact on employees too great 43% 23% No Not wellness increasing promotion deductibles 25% 15% 2% Union contract Potential benefits do not outweigh costs Familiar with technique but not enough information to determine benefits 0% 0% Not familiar with this technique Not Enough Staff to implement Source: GFOA-Colonial Life 2011

25 Increase Cost-Sharing Mitigate Employee Impact Increasing deductibles is easier on employees when given the option of a soft landing to offset new out-of-pocket costs. Old Deductible HRA Supplemental Insurance New Exposure And/ Or Expenses Covered by Health Plan

26 Comments from those who have increased deductibles Saves Money Reduced monthly premiums and saved us quite a but of money Comments from those who have not increased deductibles Increasing deductibles may serve as a hardship on lower paid employees Employee Impact Mind Shift Deductibles help shift cost and change behavior Health insurance is through our state plan Plan Control Tough But Necessary This was necessary but certainly not popular Union controls the plan Contract Unavoidable This helped us avoid double digit increases We did this 3 years ago, too soon to do again Selective Usage Source: GFOA-Colonial Life 2011

27 Increase Cost-Sharing Key Takeaways From Research Many government organizations have increased deductibles to directly lower the cost of their health plan Respondents indicated facing more out-of-pocket expense makes employees more prudent and cost conscious about utilizing their health care benefits Increasing deductibles does not always have to mean moving to a High Deductible Health Plan (HDHP). Even a modest increase in deductible and co-pays can have an impact both on premiums and employee behavior Employers can offset the financial impact of a deductable increase by shifting some of the projected savings to seeding a HRA or funding a supplemental indemnity policy for employees Minimally provide a FSA or voluntary insurance benefit the employees can independently choose to utilize Source: GFOA-Colonial Life 2011

28 Cost Savings Technique: Establish and/or Promote Section 125 Plans

29 Establish & Promote Section 125 Plan Flexible Spending Accounts Public Sector Private Sector Medical 86% 65% Dependent Care 79% 61% 30% higher adoption rate than commercial businesses FSA Participation 28% 36% Source: SHRM 2010 Employee Benefits Survey BUT 30% lower participation than commercial businesses

30 Establish & Promote Section 125 Plan Total Respondents 77% Establish & Promote Section 125 Based on your experience would you recommend establishing & promoting section 125 plans to other Public Sector organizations? Very likely to recommend Somewhat likely to recommend 73% 13% Neutral 11% Unlikely 3% Source: GFOA-Colonial Life 2011

31 Promote Participation FSA Participation A good education and communication program has proven to be successful in helping public sector employees take full advantage of the pre-tax benefits being offered to them. Results: More employees participating in benefits and $58K in new tax savings School District 900EE $53K Participants Health Care FSA Before Program After Program +% % $41K Dependent Care FSA Pre-Tax* Insurance % % $162K $208K Employers Employees Contributions & Deductions Before Program After Program +% FSA s $63,681 $144, % Pre-Tax Insurance $476,754 $547,290 14% Total Pre-tax $540,435 $692,185 28% *Pre-tax insurance includes Dental, Vision, and Supplemental insurance. *Employee savings assumes a 30% combined federal, state, and local tax bracket. Employer savings based on FICA only. Source: Colonial Life account 2011

32 Establish & Promote Section 125 Plan Of those not using, why have you not used this technique? Execution Hurdles 28% Not Enough Staff to implement 23% 23% No Not wellness promoting promotion Section % 12% 8% Familiar with technique but not enough information to determine benefits Potential benefits do not outweigh costs Not familiar with this technique 8% 0% Union contract Potential impact on employees too great Source: GFOA-Colonial Life 2011

33 Comments from those who are using/promoting section 125 Quantifiable Results Tax savings to the employees and employer is real and measurable Comments from those who are not using/promoting section 125 Implementation of the plan takes staff time Staffing Low Cost Low cost benefit with high value to employees Lack of unused dollars is a downside to the program Plan Limitations Automatic This is a no brainer Union Support Employees appreciate the tax savings on their side so it is a positive that can used in negotiations We have not used to full benefit Limited use Employees have not been interested in the past Lack of Interest Source: GFOA-Colonial Life 2011

34 Establish & Promote Section 125 Key Takeaways From Research Section 125 plans are highly utilized and recommend by public sector organizations Minimally look to leverage POP Plans Many public sector organizations acknowledge they could be doing more to promote and emphasize their plans Staffing required to administer and promote the plan are impediments to taking full advantage of section 125 plans Look to your benefit and enrollment partners for additional manpower to help you administer and promote the plan To manage costs of a full flex program: Have employees cover the cost in full Split cost with employees Shop around- sometimes better pricing is available for public sector organizations Source: GFOA-Colonial Life 2011

35 Cost Savings Technique: Wellness

36 Wellness Total Respondents 77% Wellness Programs Based on your experience would you recommend wellness programs to other Public Sector organizations? Very likely to recommend Somewhat likely to recommend Neutral 65% 25% 10% Unlikely 0% Source: GFOA-Colonial Life 2011

37 Wellness Employee wellness committee Information and training on healthy lifestyle Running clubs & collective weight loss programs Financial incentive via lower deductible for employees that were Tobacco Free, Controlled Weight, Cholesterol and Blood Pressure

38 Wellness Of those not using, why have you not used this technique? Execution Hurdles 43% Not Enough Staff to implement 23% 23% No Not wellness promoting promotion wellness 17% 9% 4% Potential benefits do not outweigh costs Familiar with technique but not enough information to determine benefits Not familiar with this technique 0% 0% Union contract Potential impact on employees too great Source: GFOA-Colonial Life 2011

39 Comments from those who are using wellness programs It Works Our wellness program reduces health costs Comments from those who are not using wellness programs Popular to implement but difficult to keep the momentum and interest Employee Engagement Low Cost These can usually be handled at little or no cost There has to be a monetary penalty or gain for employees to jump aboard Incentives Work Environment It is a great culture improvement with financial benefits Fairly low cost and probably do some good, but it is difficult to quantify Measurement Future Benefits If only one stroke is avoided the small cost will be worth it In the process of getting information Planning Stage Source: GFOA-Colonial Life 2011

40 Wellness Key Takeaways From Research Promoting healthy behavior at the workplace is a widely used cost management technique Assess your employee population to understand where the focus of your activities and promotions should be. Sources such as biometric evaluations, claims analysis, and employee surveys are all helpful. Establish benchmarks and track and monitor them regularly. Know the metrics you will monitor before you commence with any program. Incentives are a popular way to encourage healthy behavior. Common incentives include cash payments, vacation days, or reduced insurance premiums. Non-monetary incentives such as rewards, public recognition, and interdepartmental competitions can also be used. Continuous workplace education and communication are required to ensure momentum and keep the programs top-of-mind with employees. Stick with it, results may not immediate. Source: GFOA-Colonial Life 2011

41 Savings

42 4 Key Leverage Points Emerge Supplier Management Purchasing Co-ops Re-Bidding ESP Enrollment Shift BECs Expense Self-funding Governance &Optimization Dependent Verification Benefit Waivers Plan Redesign Plan Restrictions Section 125 Cost Sharing Increase Deductibles Increase Co-pays Increase Premium Move Benefits to VB Savings 4 Wellness Promote Healthy Behaviors Emphasize Preventive Treatment ESP: External Service Provider BECS: Benefits Education and Communication

43 Savings Savings Reported by Respondents Savings Amount Respondents 1% to 5% 21% 6% to 10% 15% 11% to 15% 30% 15%+ 10% Don t Know 24% Source: GFOA-Colonial Life 2011

44 Final Thoughts Analyze and understand your current costs and trends Take a multi-pronged approach to benefit cost management Nickels and dimes are important! Pursue even small savings Look at both short and long term strategies Involve employees and bargaining units in program development and implementation Communicate early and often with employees. Employees need to understand context of any changes Source: GFOA-Colonial Life 2011

45 Selecting a Benefits Partner Cost Sharing Portfolio of VB products Coverage of new out of pocket expense Delivering Cost Management Solutions to Public Sector Employers Across the Country Supplier Management Core enrollment services Comprehensive benefits education and communication program Governance Dependent verification services Benefit opt-out program Flex plans Wellness Participation building Wellness kick-start offers Employee self-funded screening incentive