Category: Healthcare Industry News

The ongoing COVID-19 pandemic has been a notable example of why self-funded health plans make sense for so many employers.

There are numerous advantages to moving from a fully-funded health plan to a self-funded plan – customized plans, control over vendors, fewer taxes, and access to data, to name a few. But one of the most significant benefits is that in a self-funded arrangement, an employer does not pay based an estimated number of claims, but rather pays only on actual claims filed.

Since the beginning of the pandemic and the resulting shutdown, medical claims have dropped across the country. There are a number of reasons for this, including a suspension of elective procedures in many states, hesitation to pursue treatment when hospitals have active COVID patients, and in general people staying home.

Employers with self-funded health plans have experienced considerable cost savings because they are paying only actual claims, which have dropped to substantially from what would be estimated in a ‘normal’ year.

Learn more about why self-funding might be the right arrangement for your business by speaking with your contact at Consociate Health today.

On May 20, 2020, the IRS released Revenue Procedure 2020-32opens PDF file to provide the inflation-adjusted limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for 2021. The IRS is required to publish these limits by June 1 of each year.

These limits include:
• The maximum HSA contribution limit;
• The minimum deductible amount for HDHPs; and
• The maximum out-of-pocket expense limit for HDHPs.
These limits vary based on whether an individual has self-only or family coverage under an HDHP.

Eligible individuals with self-only HDHP coverage will be able to contribute $3,600 to their HSAs for 2021, up from $3,550 for 2020. Eligible individuals with family HDHP coverage will be able to contribute $7,200 to their HSAs for 2021, up from $7,100 for 2020. Individuals who are age 55 or older are permitted to make an additional $1,000 “catch-up” contribution to their HSAs.

The minimum deductible amount for HDHPs remains the same for 2021 plan years ($1,400 for self-only coverage and $2,800 for family coverage). However, the HDHP maximum out-of-pocket expense limit increases to $7,000 for self-only coverage and $14,000 for family coverage.

Highlights

• Each year, the IRS announces inflation-adjusted limits for HSAs and HDHPs.
• By law, the IRS is required to announce these limits by June 1 of each year.
• The adjusted contribution limits for HSAs take effect as of Jan. 1, 2021.
• The adjusted HDHP cost-sharing limits take effect for the plan year beginning on or after Jan. 1, 2021.

Important Dates

January 1, 2021

The new contribution limits for HSAs become effective.

2021 Plan Years

The HDHP cost-sharing limits for 2021 apply for plan years beginning on or after Jan. 1, 2021.

Action Steps

Employers that sponsor HDHPs should review their plan’s cost-sharing limits (minimum deductibles and maximum out-of-pocket expense limit) when preparing for the plan year beginning in 2021. Also, employers that allow employees to make pre-tax HSA contributions should update their plan communications for the increased contribution limits.

HSA/HDHP Limits

The following chart shows the HSA and HDHP limits for 2021 as compared to 2020. It also includes the catch-up contribution limit that applies to HSA-eligible individuals who are age 55 or older, which is not adjusted for inflation and stays the same from year to year.

For more information, contact Consociate Health today.

 

The Department of Health and Human Services (HHS) recently published a final rule increasing the civil monetary penalties for violations of laws enforced by HHS, including the HIPAA privacy and security rules. HHS is required to adjust these penalties for inflation each year to improve their effectiveness and maintain their deterrent effect. The new penalty amounts are effective for penalties assessed on or after Jan. 17, 2020.

2020 HIPAA Civil Penalties

HHS may assess civil penalties when it discovers a HIPAA violation. The penalty amount depends on the facts involved.

• For violations where the covered entity does not know about the violation (and by exercising reasonable diligence, would not have known about the violation), the penalty amount is between $119 and $59,522 for each violation.
• If the violation is due to reasonable cause, the penalty amount is between $1,191 and $59,522 for each violation.
• For corrected violations that are caused by willful neglect, the penalty amount is between $11,904 and $59,522 for each violation.
• For violations caused by willful neglect that are not corrected, the penalty amount is $59,522 per violation, with an annual cap of $1,785,651 for all violations of an identical requirement.

As prescription drug costs continue to increase, it is important for employers to understand the trends behind prescription drug costs and what they can do to better manage their health care expenses. Although prescription drug spending has historically been a small proportion of national health care spending compared to hospital and physician services, it has grown rapidly in recent years.

In 2014, prescription drug spending in the United States increased by 13.1 percent—the largest increase since 2003. This jump was due to a number of factors—a major one being a 30.9 percent increase in spending on specialty medications, which are high-cost drugs used to treat complicated conditions like hepatitis C, cancer and rheumatoid arthritis². The growth in prescription spending was also due to more people being insured and gaining prescription drug coverage as a result of the Affordable Cart Act (ACA).

Prescription Drug Spending in Previous Years

The 2014 increase marked a departure from previous years’ prescription drug trends. Annual prescription spending growth declined from 18 percent in 1999³ to 5 percent in 2007 ⁴ due to variety of factors, including greater usage of generic drugs, changes in the types of drugs being used and more tiered copayment prescription plans. Spending fell 3 percent in 2008 as a result of the recession and safety and efficacy concerns⁵.

Following years of decreasing rates, U.S. drug spending increased in 2012 by 3.8 percent⁶. Since then, it has risen over 30 percent¹³.

Changes to the Prescription Drug Payer Mix

The portion of prescription drug spending paid by private insurers increased from 27 percent in 1990 to 43.5 percent in 2013, contribuing to a reduction in the amount people paid out of pocket, which dropped from 56.8 to 16.9 percent. During this same time, Medicare spending increased from 0.5 to 27.5 percent⁷.

The implementation of Medicare Part D in 2006 dramatically altered payer mix, as Medicare expenditures soared from 1.9 percent in 2005 to 17.7 percent in 2006. Medicaid’s expenses, on the other hand, fell from 17.7 percent to 8.5 percent during this time because Medicare replaced Medicaid as the primary insurer for individuals covered under both programs⁷.

Reasons Behind Prescription Drug Trends

A multitude of factors led to changes in prescription drug costs, as outlined below.

Increasing Drug Prices

In 2017, traditional prescription drug spending decreased 0.3 percent¹⁴. Specialty medications account for a smaller portion of U.S. prescriptions, yet they commanded 40 percent of the pharmaceutical market in 2016 ($180 billion)¹⁵. Specialty drug spending is projected to experience rapid growth over the next several years, due to pricing increases. These increases are often cited by insurers as reasons for raising premiums¹⁴.

Types of Drugs Used

In 2016, specialty drugs comprised just under 2 percent of total prescription volume, but accounted for nearly 40 percent of prescription spending. Approximately 49 percent of the drugs that gained Food and Drug Administration (FDA) approval in 2014 were specialty drugs, pointing to a steady rise in usage. This trend is likely to continue as more specialty drugs enter the market.

Failure to Follow Physician Orders

Reductions in drug utilization may mean that patients aren’t adhering to the drug treatments recommended by their doctors. A failure to fill prescriptions can have serious effects on patient health and lead to more costly medical problems down the road. A recent study found that 31 percent of prescriptions go unfilled and individuals over the age of 52 were more likely to fill their prescriptions than their younger counterparts. Women were more likely fill their prescriptions than men, and, unsurprisingly, drugs with higher copayments were less likely to be filled⁸.

ACA’s Impact on the Pharmaceutical Industry

The ACA implemented various provisions designed to help monitor the pharmaceutical industry, including imposing an annual fee on importers of branded prescription manufacturers and importers whose branded sales exceed $5 million. This annual flat fee started at $2.5 billion in 2011 and will increase to $4.1 billion by 2018. The ACA also created a process for gaining FDA approval of biosimilar, or interchangeable, versions of brand-name drugs. Brand-name drugs, though, are given 12 years of exclusivity before biosimilar drugs can be approved.

In addition, the ACA requires non-grandfathered health plans to include prescription drugs as one of the “essential health benefits,” and all forms of birth control must be covered without cost sharing. Over the next few years, rebates and discounts will also be available to certain Medicare Part D beneficiaries.

Cost Control Strategies

Below are several tactics that insurers, employers and consumers have implemented in an effort to curb rising prescription drug expenses.

Managing Usage

Many health plans have responded by creating drug formularies, which exclude certain drugs from coverage, and step therapy requirements, which require individuals to try more cost-effective treatments before “stepping up” to more costly drugs. In addition, some insurance plans have increased patients’ out-of-pocket responsibilities by imposing separate prescription deductibles and requiring certain medications to have a prior authorization. Prior authorizations may be required when an insurer believes a less expensive drug may work just as well as the more expensive drug the doctor prescribed.

Using Other Payment Methods

Using generic drugs is a well-known way to save money on prescriptions without sacrificing quality, but a lesser-known option may be using cash to buy prescriptions—instead of using insurance. No longer bound by gag clauses as of 2018¹⁶, pharmacists can now say whether you’ll save money by not using insurance and paying with cash instead.

Rebates and Discounts

Some businesses have elected to partner with organizations known as pharmacy benefit managers in order to negotiate with pharmaceutical manufacturers to receive rebates and discounts on prescription drugs based on factors like volume and market share. Similarly, some employers have joined together to create prescription drug purchasing pools in order to increase their purchasing power when negotiating lower prices for prescription drugs.

Employee Awareness

Employers are not the only ones seeking to reduce costs when it comes to pharmaceuticals. As employees’ out-of-pocket responsibilities continue to grow, rather than paying for a brand name, more people are asking for cheaper or generic versions of drugs. Consumers are also using the internet and phone apps to make price comparisons between local pharmacies and to locate available coupons. Some consumers are also looking to mail-order pharmacies to handle 90-day supplies of their medications, which often offer lower drug prices.

Prescription Drug Trend Projections

The Centers for Medicare & Medicaid Services (CMS) projects that from 2012 to 2022, annual expenditures on prescription drugs will grow by 75 percent to $455 billion. Outpatient prescription drugs will account for about 9 percent of total health care spending. By 2022, the ACA is expected to add an additional $15.3 billion in annual drug expenditures¹¹.

Furthermore, the CMS projects that from 2015 to 2024, prescription drug spending will grow, on average, 6.3 percent annually, which is slightly higher than its projections for health spending (which will increase at an average rate of 5.8 percent per year) ¹². The CMS notes that during this time, new specialty drugs will enter the market and there will be fewer generic drugs launched. These projections are subject to change.

For help with developing strategies to control your employees’ prescription drug costs, contact Consociate Health today.

Sources:

1 IMS Health, “IMS Health Study: Spending Growth Returns for U.S. Medicines,” April 25, 2014, (Press Room, Press Releases).

2 The Express Scripts Lab, “The 2014 Drug Trend Report,” March 2015, http://lab.express-scripts.com/drug-trend-report/

3 Aaron Catlin et al., “National Health Spending In 2005: The Slowdown Continues,” Health Affairs 26, no. 1 (January/February 2007)142-153.

4 Micah Hartman et al., “National Health Spending In 2007: Slower Drug Spending Contributes To Lowest Rate Of Overall Growth Since 1998,” Health Affairs 28, no. 1 (January/February 2009) 246-261.

5 Kaiser Family Foundation calculations using data from IMS Health, www.imshealth.com (Press Room, US Top-Line Industry Data 2008), and Census Bureau, www.census.gov. The per capita number may differ from the number reported at KFF’s website www.statehealthfacts.org because of differing data sources which use different retail pharmacy definitions (e.g., IMS Health includes mail order, Verispan does not).

6 Health Care Cost Institute, “2012 Health Care Cost and Utilization Report,” September 24, 2013, http://www.healthcostinstitute.org/news-and-events/press-release-2012-health-care-cost-and-utilization-report

7 Centers for Medicare and Medicaid Services, “Table 16 Retail Prescription Drug Expenditures; Levels, Percent Change, and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2013.” www.cms.hhs.gov/NationalHealthExpendData/ (Historical).

8  Nichols Bakalar, “Many Drug Prescriptions Go Unfilled,” The New York Times. April 7, 2014, http://well.blogs.nytimes.com/2014/04/07/many-drug-prescriptions-go-unfilled/?_r=1

9 Kaiser Family Foundation, “Medical and Prescription Drug Deductibles for Plans Offered in Federally Facilitated and Partnership Marketplaces for 2015,” November 18, 2014, http://kff.org/health-reform/fact-sheet/medical-and-prescription-drug-deductibles-for-plans-offered-in-federally-facilitated-and-partnership-marketplaces-for-2015/.

10 American Pharmacist Association, “Medication Therapy Management Digest,” March 2013, www.pharmacist.com/sites/default/files/files/MTMDigest_2013.pdf

11 Adams J. Fein, Ph.D., “The Outlook for Pharmaceutical Spending Through 2022,” September 20, 2013, http://www.drugchannels.net/2013/09/the-outlook-for-pharmaceutical-spending.html

12 Centers for Medicare and Medicaid Services, “National Health Expenditure Projections, 2012-2024,” www.cms.gov/…/NationalHealthExpendData/Downloads/proj2014.pdf

13 Pew Charitable Trusts, “A Look at Drug Spending in the U.S.,” https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2018/02/a-look-at-drug-spending-in-the-us

14 Peterson-Kaiser Health System Tracker, “What are the recent and forecasted trends in prescription drug spending?” https://www.healthsystemtracker.org/chart-collection/recent-forecasted-trends-prescription-drug-spending/?_sf_s=recent+trends#item-start

15 Drug Topics, “Specialty Pharmacy Will Gain a Bigger Chunk of U.S. Pharmaceuticals,” http://www.drugtopics.com/pharmacy-news/specialty-pharmacy-will-gain-bigger-chunk-us-pharmaceuticals

16 NBC News, “Trump signs bills lifting pharmacist ‘gag clauses’ on drug prices,” https://www.nbcnews.com/politics/white-house/trump-signs-bills-lifting-pharmacist-gag-orders-drug-prices-n918721

A common, creative and cost-effective approach to funding employer health benefits.

Manage your health plan as you would manage your business. An introduction to self-insuring.

“Become part of the health care solution!”

If there were a proven method to managing your health plan costs that an increasing majority of employers in the U.S. were utilizing today, would you be interested? Well there is a proven method, and it is called self-insuring.

Plan sponsors and employers have been able to self-insure their medical plan for more than 30 years, made possible by the passage of the Employee Retirement Income Security Act (ERISA) of 1974 by the U.S. Congress.

The interest in self-insuring has never been higher. Sixty-one percent of all employer health plans in the U.S. are self-insured according to the 2013 Employer Health Benefits Survey of the Kaiser Family Foundation. That’s up from 44% in 1999, an increase of 36% in 14 years. With so many employers turning to self-insurance, this is a strategy that should at least be considered for companies interested in taking control of their group health care costs.

Control:

What is in your plan? Are you engaged in the design of your plan, or passive…?

To run a successful business, employers must have full control over all aspects of their operation. Being in control of your business might include basic strategies such as access to analytical data to improve results and foresee opportunities, management expertise to impact productivity, and investing assets for long term financial stability.

A business leader would never consider relinquishing jurisdiction over these areas of their operation. And yet, with commercial fully-insured health plans, employers surrender all control of one of the highest single expenditures to the carrier. In addition, most fully-insured programs offer canned programs (i.e. plan designs, managed care services, and analytical expertise), limiting a plan’s ability to access “best in class” services from multiple vendors.

With a self-insured health plan, an employer assumes control over:

• the tactical lessons to be learned from their own historical data
• the specialized care needs of their current employee population
• the future actions necessary to achieve their unique financial objectives

Investment:

Are you managing your assets, or simply paying premiums?

Sponsoring a health plan for your employees is important to the success of your business. It nurtures your company culture, attracts the highest level of talent, and reinforces loyalty from your best employees. As well, it is likely one of the most expensive components of your entire operation. Your employees are a major investment, and making and keeping them healthy is a smart way to manage that investment.

With a self-insured arrangement, employers reap the benefits of their investment through direct financial returns. A self-insured plan not only enjoys a higher level of data to illustrate its return on investment, it participates directly and immediately when plan results beat expectations.

Credible and affordable financial products such as medical stop loss insurance for self- insured employer plans provide protection for the assets set aside for these investments and cap the risk to the plan.

Further, the ability to create a benefit plan that caters to the specific health needs of an employer’s unique population will directly increase employee productivity. Plans don’t waste time, funds and resources on programs and benefits that aren’t a match for their employees.

Opportunity:

Who is the self-insurance expert in your market?

Every business in every industry strives to separate itself from its competitors, and from commoditization. No two businesses are alike so no two employer health plans should be alike.

Brokers and advisors for employer health plans help battle the commodity mentality. They continue to demonstrate innovation in the void of data that is unavailable from commercial carriers. As total costs of health care continue to rise, forward-thinking businesses cannot afford to wait for a one-size-fits-all solution to the cost issue.

The opportunity exists within a self-insured environment for employers to take charge of their health plan destiny. The opportunity exists for self-insured employers to implement creative plan strategies with guidance from their broker and advisors that require long-term

commitments. The opportunity exists for self-insured employer groups to set a clear vision of their specific health plan goals and the actions needed to accomplish those goals.

Summary

This publication summarizes the critical areas impacting employer sponsored plans, and expand on the many benefits that a self-insured plan realizes. You will be presented with results that speak to the success of self-insuring, both statistically and through first-hand accounts from real employer groups of all sizes that have met or exceeded their plan objectives. Self- insuring is not for every employer group, so this document also exists to provide those considering this alternative with a definitive guide during that decision process.

Self-Insurance Overview

Health care costs rank among the top concerns of U.S. Employers. How to design and finance the plans are questions that inordinately occupy benefits professionals and corporate executives. Below are a number of factors to consider when looking at self-insuring as a possible alternate approach to a more traditional fully-insured arrangement.

• Control of Plan Design/ERISA — Federally mandated benefits apply, State mandated benefits do not apply as a result of legislation enacted in 1974 (ERISA). This allows employers to offer uniform, targeted benefits to all employees, regardless of the state in which the employer is located.
• Improved Cash Flow — Plans can maximize cash flow. Groups can manage the cash flow in a self- insured plan and the related interest income because claims are funded as they are paid. Fully-insured premiums constitute a form of pre-payment.
• Elimination of Most Premium Taxes — State taxes on most self-funded plan costs are eliminated amounting to a 1.5%-3% immediate savings from a fully-insured arrangement.
• Carrier Profit Margins and Risk Charges are Eliminated — This amounts to a plan savings of 3%-5%

Making the Decision to Self-Insure

Self-insuring is an arrangement in which an employer funds medical expenses and contracts with a third party administrator (TPA) to provide administrative services and process claims

for the group’s medical and dental benefit plan. Many factors affect an employer’s decision to self-insure, particularly the ability to assume the risk involved. An employer can save 10-25% of costs by moving to a self-insured benefit plan.

Health benefits are an integral and significant part of a compensation package.

In a competitive environment, self-insuring can give an employer greater flexibility in the types and amounts of benefits it offers, aiding employer efforts to attract employees with certain skills and talents. Self-insured plans have many advantages over plans that are fully insured:

Risk Management – Charges, Commissions and Retention

One advantage is the flexibility in controlling risk. Business objectives of self-insuring revolve around the best use of money devoted to benefits; controlling claims, managing, and benefiting from investments. A self-insured health plan can allocate more of each dollar toward the payment of medical claims, eliminating insurance commissions, risk charges, insurer profit and other costs involved in obtaining coverage from an insurer. Costs also decrease thanks to the sponsor’s ability to exert greater control over administrative expenses and costs.

Improved Cash Flow

Self-insuring allows claims to be funded as they are paid. Fully insured premiums constitute a form of pre-payment. With self-insuring, a plan can delay payment of recurring health plan costs until the services have been rendered. Insurers set health insurance premiums at levels that anticipate projected increases in healthcare costs – usually well in excess of the actual rise in costs.

Innovative Plan Document Design and Control

Since the employer is the plan fiduciary, decisions surrounding plan design belong to the employer and not an insurance company. Flexibility in plan design derives from a self-

insured plan’s freedom from state mandated benefit laws. The employer can design its plan without the restrictions, delays and costs involved in obtaining the approval of an insurer or regulatory agency. Employers thus make the overall compensation package more attractive, and plan design options can be tailored to the working population and company preferences. Language can be modified to fit individual plan needs, and accurately reflect the true intentions of the plan.

ERISA Preemption of State Regulation

ERISA provides uniform regulatory stability to employers that operate in several states, so those companies do not have to adopt a patchwork of design variations to comply with various states’ requirements.

Relief from State Premium Taxes

Most states impose taxes on premiums received by insurers. Insurers shift the burden of state premium taxes onto employers. A self-insured plan enjoys savings, as they are not subject to state premium taxes.

Plan Sponsor’s Experience

The plan sponsor has the ability to limit its liability to the claims experience of its own employees or members. In a self-insured plan, an employer is responsible only for the risks presented by members covered under the plan, and is not responsible for the risks presented by members of any other company. Limiting exposure to its own members is an advantage to that of other organizations where all insureds are pooled.

Risk Control

For an employer that is averse to risk, partial insurance is an important factor in self-insuring. Stop-loss coverage can limit the employer’s risk while allowing it to retain control over claims and benefits.

Value-Based Benefits and Wellness Programs

As medical costs have skyrocketed, sponsors have been taking steps to reduce medical costs by emphasizing prevention and maintenance care for chronic diagnoses. Employees have the flexibility to design and integrate into overall strategies, health risk assessments, prevention and wellness programs tailored to the employer’s specific employee demographics and needs.

Improved Claims Data History

Analysis of claims using software and investigative techniques can help find areas where plan spending may be curtailed. By self-insuring, plans will identify the categories constituting the majority of health care spending, and are better equipped to make future decisions.

Savings Opportunities

A self-insured plan’s ability to utilize cost containment features will increase savings opportunities. The ability to have effective cost containment options will help ease rising health care costs as money recovered goes back into the plan’s general fund and is once again available to pay future medical claims. Additionally, employers can monitor the conduct of its own employees to reduce costs attributable to unnecessary or fraudulent health care claims.

Contact Consociate Health today to learn more.

Late last month, President Trump signed into law a spending bill that repeals the ACA’s Cadillac tax, medical device excise tax and health insurance providers fee. It is important for employers to understand how these changes will affect their business.
Contact Consociate Health to learn more