A “Carve Out” Strategy
to Help Employers Reduce DB Plan Liability

 
 
Many employers continue to have concerns about their defined benefit plan liabilities and how to fully fund their plan by the 2012 deadline enacted by the 2006 Pension Protection Act. As that deadline creeps ever closer, a practical strategy plan sponsors may want to consider a transfer — or carve out — of certain liabilities and costs associated with their plans.

That strategy is discussed in a recent Employee Benefit News article. Key highlights include:

  • A plan sponsor can transfer the liabilities and costs of a particular subset of participants – retirees, for example – to an insurance company by purchasing an annuity.
  • The insurance company, whose core business is managing risk and benefit administration, assumes responsibility for future benefit payments
  • The carve out removes unwanted pension liabilities from the plan sponsor’s balance sheet, reduces the volatility of plan earnings and funding levels, and minimizes the impact of future regulatory changes

An Ideal Solution
United of Omaha’s Pension Guard offers an excellent solution for clients who want to:

  • Terminate an existing defined benefit plan; or
  • Transfer all or a portion of their benefit payment obligations for certain subsets of participants

For more information, contact me directly:

Kerry Roach, Regional Sales Director
Cell: (970) 331-1079
Office: (888) 543-6998
Fax: (402) 351-2176
E-mail: Kerry.Roach@mutualofomaha.com

Jared Baker, Internal Wholesaler
Office: (402) 351-2792
Fax: (402) 351-2176
E-mail: Jared.Baker@mutualofomaha.com

 
 
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Retirement Marketing Solutions, Inc. (RMS) is a national wholesaling organization that specializes in retirement products. With seasoned retirement experts located across the U.S., RMS provides sales support, proposal generation, education, enrollment support and ongoing services to independent brokers and advisors. RMS works diligently to develop relationships with select providers to secure quality products and competitive pricing arrangements on behalf of those who sell the products.

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Really Managing Care and Costs

March 30, 2010

By BRIAN KLEPPER

One of my favorite health care stories is about Jerry Reeves MD, who in 2004 took the helm of a 300,000 life health plan in Las Vegas, including about 110,000 union members, and drove so much waste out of that system – without reducing benefits and while improving quality – that the union gave its members a 60 cent/hour raise. There was no magic here. It was a straightforward and rigorously managed combination of proven approaches.

Dr. Reeves’ work betrayed the lie that tremendous health care costs are inevitable. To a large degree, the nation’s major health plans abetted this perception when they effectively stopped doing medical management in 1999. (Most have recently begun managing again in earnest.) The result was an explosion in cost – 4 times general inflation and 3.5 times workers earnings between 1999 and 2009 – that has priced a growing percentage of individual and corporate purchasers out of the health coverage market, dangerously destabilizing the health care marketplace and the larger US economy. In 2008, PriceWaterhouse Coopers published a scathing analysis suggesting that $1.2 trillion (55%) of the $2.2 trillion health care spend at that time was waste.

As the chief sponsors for most Americans’ health coverage, businesses have struggled to cope with health care cost while identifying value. Large American businesses, with tens or hundreds of thousands of employees, have recruited high profile benefits professionals – think of Jill Berger at Marriott, Ned Holland at Embarq, Peter Hayes at Hannaford Brothers or (the recently retired) Cecily Hall at Microsoft, each with terrific reputations – who, with their staffs, orchestrate sophisticated campaigns focused on the health of their employees and their families, and on the cost-effectiveness of their programming. Even so, few large firms provide comprehensive, quality benefits at a cost that remains consistently below national averages, and for years now America’s CEOs have routinely reported that their top business concern, health care, is their most unpredictable, large cost.

For mid-sized business, though, – here I’m referring to firms with 200-5,000 employees – the task is significantly more difficult. Health benefits managers in these companies have far fewer resources, typically work alone without the benefit of staff, and are often overwhelmed by the complexity of their tasks. Held accountable for their organizations’ health costs, they often default to whatever the brokers and health plans suggest. 

But a few excel. For them, managing the many different issues – e.g., chronic disease, patient engagement, physician self-referrals, specialist and inpatient over-utilization, pharmacy management – is a discipline. A couple years ago, I was introduced to someone like this. 

Barbara Barrett was trained as a paralegal. She is now General Manager of TLC Benefit Solutions, Inc., the benefits management arm of Valdosta, GA-based Langdale Industries, Inc., a small conglomerate of 24 firms with 1,000 employees, engaged primarily in wood products for the building construction industry, but also in car dealerships, energy and other concerns. 

Valdosta is rural, which puts health benefits programs at a disadvantage. Often there is only one hospital nearby and so little cost competition. Rural Georgians also may have lifestyles that make them prone to chronic diseases, which are expensive. And so on. You get the idea. 

Here’s the interesting part. Since 2000, when Barbara assumed responsibility for the management of Langdale’s employee health benefits, per employee costs have risen from $5,400/year per employee to $6,072/year per employee in 2009. That’s an average health plan cost growth of 1.31 percent per year.

I compared Langdale’s health plan cost growth to the average commercial coverage inflation rate for an employer with 200+ employees provided in the Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) 2009 Employer Health Benefit Survey. The calculation showed that, in that nine years, Barbara’s management allowed Langdale to provide its 1,000 employees and their families with comprehensive medical, dental and drug benefits for $29 million less than the average of other firms that size. That’s a nine year savings of $29,000 per employee, or an average of $3,200 per employee per year lower than the national average. All without reducing benefits or transferring the cost burden to employees, and while quantitatively improving quality.

Image002  

So how did Barbara approach the problem? Here are a few of her steps:

Under her leadership, Langdale set up TLC Benefit Solutions, a HIPAA-compliant firm that administers and processes Langdale’s medical, dental and drug claims. This allowed Barbara to more directly track, manage and control claim overpayments, waste and abuse.

The claims also gave her immediate access to quality and cost data on doctors, hospitals and other vendors. She supplements these data with external information, like Medicare cost reports for hospitals in the region. This allows her to identify physicians and hospital services that provide low or high value. She then created incentives that steer patients to high value physicians and services and away from low value ones. When complex services necessary to treat certain conditions are not available or of inadequate quality or value locally, she shops the larger region, often sending patients as far away as Atlanta, three and a half hours away.

She analyzes the claims data to identify which patients have chronic disease and which patients are likely to have a major acute event over the next year. Chronic patients are directed into the company’s opt-out disease management/wellness/prevention program. Acute patients are connected with a physician for immediate intervention.

She provides Langdale’s employees and families with confidential health advocate services that explain and encourage use of the company’s wellness, prevention and disease management programs. And she uses incentive programs to reward patients who enter these programs and meet targets.

Barbara has mounted many more initiatives in group health, but her responsibilities also extend to life, flex plan, supplemental benefits, retirement plan, workers’ compensation, liability and risk insurance. The results for Langdale in these areas include lower than average absenteeism, disability costs and turnover costs.

The point is that Ms. Barrett and Langdale have been pro-active, endlessly innovative, and aggressive about managing the process. That attitude and rigor has paid off through tremendous savings, yes, but it has also produced a desirable corporate environment that demonstrates that Langdale values its employees and the community. The employees and their families are healthier as a result, and are more productive at work. This has borne unexpected fruit. The industries Langdale is in have been hit particularly hard by the recession, and the benefits savings Barbara’s efforts generate have helped save jobs.

Barbara Barrett and many others like her on the front line are virtually unknown in health care. Most often, their achievements go unnoticed beyond the executive offices.

But they manage the health and costs of populations in a way that all groups should and could be managed.

Brian Klepper is a health care analyst.

 
To Our Valued Sales Partners:
Health care reform will present both challenges
and opportunities for our industry, for The IHC
Group and for our valued partners. We are in
a good position to take advantage of the opportunities, and to respond favorably to
the challenges. Here’s why:
.
We have time to react.

Although there are a few provisions that will kick
in fairly quickly, such as no pre-ex requirements
for children and elimination of lifetime and “unreasonable” annual maximums, the most significant changes do not begin until 2014.
The vast majority of our medical plans in the
small group and individual market already have extremely high annual and lifetime maximums.
.
The devil is in the details.
For example, the legislative language regarding minimum loss ratios, which is set to start in
2011, is far from clear. The implications of a minimum loss ratio standard—by company size, by product, by duration,by class of business, by claim definition—are still to be determined. The
role of limited medical plans in not clearly defined.
.
Agents will be part of the process.

Although compensation methods may look
different in 2014 and beyond, nothing in the
new law precludes the role of agents.
.
IHC Health Solutions has a strong
online presence.

We had more than 1 million online sessions
in 2009, and that was prior to the launch of
MNL online. By maximizing our online presence, we have set ourselves apart from other carriers.
By making it easier for our producers to serve
their customers, we improve our ability to adapt positively to regulatory change.
.
We are diversified—and becoming even
more diversified this year.

The IHC Group’s employer stop-loss segment
could likely be enhanced as self-funding of
health benefits will become more attractive to certain (particularly smaller) employer groups.
We expect continued growth in our dental and vision business lines. This year we plan to
launch Medicare Supplement plans. We have
been growing our dental and group life blocks of business. We have plans to be a key player in
the critical illness and accident medical arenas. And we are committed to continued success of
our small group and individual medical business lines, including short-term medical.
.

Some key things to remember.
For the next six to 12 months very little changes, so we need to keep doing what
we do best. In fact, we may have more opportunity for sales as consumers lock
in plans that will be grandfathered under
the new rules.
Almost none of the rules are fully established. There are two national
elections between now and 2014.
There are provisions of the new law
that favor smaller companies like us in
order to promote competition.
We will be regularly communicating with you as details emerge.

We have a bright future at IHC Health Solutions regardless of how the changes play out.
Health insurance reform has been happening incrementally for many years, and we have
been adapting to it. Change is inevitable, but success is optional. Let’s work together to
make the most of this opportunity.

Sincerely,
.
Jeff Smedsrud
CEO, IHC Health Solutions
Co-President, Fully Insured Division

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For agent use only. Not for public distribution or solicitation.
Copyright © 2010 IHC Health Solutions
 


 

 

 

 

 

 

 

 

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Video: Our priorities for health care reform.

 

Health Care Reform – Timeline

The federal health care reform legislation, known as the Patient Protection and Affordable Care Act, signed by the President on March 23, 2010, and the Health Care and Education Reconciliation Act approved by Congress, signed by the President today, will expand the availability of health care coverage to millions of Americans. While some of the measures will be implemented this year, many do not take effect until 2014 and some extend out to 2020.

Below is a high-level overview of the timeline.  It is important to note that many of these reforms and their effective dates are subject to the rules and regulations process both at the state and federal levels – which could alter the intended timing of implementation.

2010

New Programs:
* Temporary retiree reinsurance program is established
* National risk pool is created, small business tax credit is established
* $250 rebate for Medicare members who reach the ”doughnut hole”

Insurance Reforms:
* Prohibits lifetime benefit limits – based on dollar amounts
* Allows restricted annual limits on the dollar value of certain benefits
* Coverage rescissions/cancellations are prohibited (except for fraud or intentional misrepresentation)
* Cost-sharing obligations for preventive services are prohibited
* Dependent coverage up to age 26 is mandated
* Internal and external appeal processes must be established
* Pre-existing condition exclusions for dependent children (under 19 years of age) are prohibited
* New health plan disclosure and transparency requirements are created

2011

Insurance Reforms:
* Uniform coverage documents and standard definitions are developed
* Minimum medical loss ratios are mandated

Medicare Reforms:
* Medicare Advantage cost sharing limits effective
* Medicare beneficiaries who reach the doughnut hole will receive a 50% discount on brand name drugs
* A 10% Medicare bonus will be provided to primary care physicians and general surgeons practicing in underserved areas, such as inner cities and rural communities.
* Medicare Advantage plans would begin to have their payments frozen.

Other:
* Employers are required to report the value of health care benefits on employees’ W2 tax statements.
* Annual industry fee for pharmaceutical manufacturers of brand name drugs.
* Voluntary long term care insurance program would be made available to provide cash benefit for assisting disabled individuals to stay in their homes or cover nursing home costs. Benefits would start five years after people begin paying a fee for coverage.
* Funding for community health centers would be increased to provide care for many low income and uninsured people.

2012

* Hospitals, physicians, and payers would be encouraged to band together in “accountable care organizations.”
* Hospitals with high rates of preventable readmissions would face reduced Medicare payments.

2013

* Individuals making $200,000 a year or couples making $250,000 would have a higher Medicare payroll tax of 2.35% on earned income —up from the current 1.45%. A new tax of 3.8% on unearned income, such as dividends and interest, is also added.
* Medical expense contributions to flexible spending accounts (FSAs) limited to $2,500 a year—indexed for inflation. In addition, the thresholds for claiming itemized tax deduction for medical expenses rise from 7.5% to 10% of income.
* Medical device manufacturers would have a 2.9% sales tax on medical devices; devices such as eyeglasses, contact lenses, and hearing aids would be exempt.
* Eliminates deduction for expenses allocable to Medicare Part D subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees.

2014

Coverage Mandates & Subsidies:
* Individual and employer coverage responsibilities are effective. 
* Individual affordability tax credits are created and small business tax credits are expanded.

Health Insurance Exchange & Insurance Reforms:
* State individual and small group health insurance exchanges operational.
* Guaranteed issue, guaranteed renewability, modified community rating and minimum benefit standards (“essential benefits” plan) effective. 
* Lifetime and annual dollar limits are prohibited for essential benefits.
* Pre-existing condition exclusions are prohibited.

Taxes & Fees:
* Addition of new taxes on health insurers

Medicaid and Medicare Reform:
* Medicaid expanded to cover low income individuals under age 65 up to 133% of the federal poverty level—about $28,300 for a family of four.
* Minimum medical loss ratio of 85% required for Medicare Advantage plans

2018

Taxes & Fees:
* Tax (“Cadillac tax”) imposed on employer sponsored health insurance plans that offer policies with generous levels of coverage.

2020

Medicare Reform:
* Doughnut hole coverage gap in Medicare prescription benefit is fully phased out. Seniors continue to pay the standard 25% of their drug costs until they reach the threshold for Medicare catastrophic coverage.
See Aetna’s work to transform Health Care in America. 

Aetna is the brand name used for products and services provided by one or more of the Aetna group of subsidiary companies. Those companies include Aetna Health Inc. and Aetna Health Insurance Company, 151 Farmington Avenue, Hartford, CT 06156


© 2010 Aetna Inc.

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   MARCH 2010      
      ISSUE 1   
    HEALTH CARE REFORM BECOMES LAW

On Tuesday, March 23, President Obama signed the Patient Protection and Affordable Care Act into law, bringing wide-spread reform to the U.S. health system and some significant changes to the health insurance industry.

With the passing of this law comes many questions and uncertainties regarding the reform components and the implementation timeline. As a valued broker, Guardian is committed to ensuring that you and your clients are kept up-to-date with reform developments and aware of any potential impact that reform may bring.

The health reform law is certainly a complex and large piece of legislation to fully digest and understand. Furthermore, not all of the details of the reform provisions have been clearly defined yet by the federal government. Additional legislative activity, as well as extensive rulemaking will most likely occur over the next 12 months and beyond, providing some additional guidance to both carriers and brokers. Click here to learn more >

WANT TO KNOW MORE ABOUT REFORM?

America’s Health Insurance Plans (AHIP) has developed two great reform resources that we encourage you to review: The Reform Law Summary and Reform Implementation Timeline. Please visit the AHIP website for the most up-to-date information on reform at www.ahip.org or the National Association of Health Underwriters (NAHU) .

   
 
Three Reform Provisions That Your Clients Are Interested In Now
1 Dependent Coverage Extended To Age 26 On Medical Plans
2 No Lifetime Limits On Medical Plans
3 No Pre-existing Conditions On Medical Plans
 
  Read Guardian’s Disclosures, Privacy Policies, SEC Rule 11Ac1-6 Quarterly Report.
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For Broker Use Only. Not for the General Public.
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