How can you offer a product that will give your customers access to health care at an affordable price?
One strategy is to team up with those who are already finding innovative solutions, without waiting for reform from Congress. Look for a partner who understands the changing dynamics of employee benefits, the advantages of carving out retirees, and the leverage a company gains through national risk pools.
A public sector example
State and local governments are under immense pressure from falling tax revenues and rising costs. One of the most problematic of those costs is the obligation to pay for retiree health benefits. Under national accounting rules for public agencies, government bodies have been hiring actuaries and estimating their unfunded liability over the next 30 years Ð this is typically in the millions for small cities, counties and school districts and in the billions for larger local jurisdictions and state governments.
Most government agencies have been using a pay-as-you-go strategy, lumping their retirees in with employees for coverage, often by major medical insurers. The cost is high, particularly if the local agency has no plan in place to coordinate their private coverage with Medicare once retirees turn 65.
Enter a third-party administrator with advice to carve out the retirees into a separate policy that will provide comparable coverage but at a drastically reduced price. The savings come from three elements:
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Instead of pooling high-cost retirees with the current work force (and thus driving up the cost), they can be insured separately in a national plan.
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The TPA’s plan wraps around Medicare benefits, which means 80 percent of the cost of covering the retirees is paid for by the federal government instead of by the local government agency.
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The TPA offers streamlined administration, and expertise in customer service can reduce local government costs for HR services to retirees.
Today, employees are retiring earlier and living longer. Chronic illnesses are managed but managed at great cost. The solution is to separate retirees from workers so their needs and risks can be addressed more efficiently.
How it translates to other customers
For private businesses that are already leveraging their retirees’ Medicare eligibility or contracting out to a TPA that specializes in retiree coverage, there are still a variety of ways to cut costs:
Using a PDP By contracting with a Prescription Drug Plan in response to Medicare Part D requirements, a company can avoid the costly strings attached to the federal subsidy, shift risk to the PDP and the federal government, and outsource customer service and retiree education about difficult-to-understand choices.
Turning to Terminal Funding - This efficient, lump-sum-payment method provides retirees a guaranteed benefit by funding a fixed-annuity contract. For companies that have capped their obligation to retirees, terminal funding allows them to take care of the future with a one-time payment.
Creating HRA Notional Accounts - Health reimbursement arrangements allow companies to deposit an annual contribution for each retiree into a tax-free personal account. The funds can then be used as the retiree sees fit. This approach returns control of health care choices to the retiree and streamlines administrative processes and costs.
Samuel Fleet is president and CEO of AmWINS Group Benefits, a leading developer, distributor and administrator of group insurance programs.