Managing Benefits Costs 2013

Transcription

1 Managing Benefits Costs 2013

2 Objectives Learn about the most-widely used benefits cost-management strategies and understand: Which strategies are the most highly recommended Which strategies are being underutilized and why The possible savings for implementing some of these strategies The impact of implementing these strategies via case examples The impact of healthcare reform on these strategies

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4 Workforce Impact Due to the current economic climate, which of the following workforce changes has your government implemented?

5 Government Bankruptcies Both cities have been hurt by high labor costs, particularly health insurance Bankruptcy attorney commenting on Stockton & Vallejo bankruptcies. Sources: Stockton, California, to File for Bankruptcy Protection, Bloomberg, 06/12 Governing.com 2012

6 Control Benefit Costs What is the top priority for your employee benefits plan? Controlling the organizations cost 58% 80% Yes Ability to recruit and compete for top talent Retention / employee satisfaction Controlling employees out of pocket cost 13% 9% 20% Source: International Public Management Association for HR 2011

7 Cost-Management Research Government Financial Officers Association (GFOA) conducted an independently study of employee benefits management using: Surveys Case Studies Secondary Sources Findings and publication reviewed and approved by an independent panel of GFOA members with experience in employee benefit management.

8 Key Findings Which strategies are the most highly recommended? Which strategies are being underutilized and why? What impact did implementing these strategies have at the local level? What impact does healthcare reform have on these strategies?

9 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

10 Cost-Management Strategies Cost-Sharing Boosting Tax Savings Promoting Wellness Dependent Verification

11 Cost-Management Solution: Share Costs

12 Increase Cost-Sharing Healthcare coverage for part time workers 57% YES 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% Public Sector has lower average deductibles than Private Sector. Source: SHRM 2011 Employee Benefits Survey.

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

14 Increase Co-Pays Based on your experience would you recommend increasing Co-pays to other Public Sector organizations? 53% YES Very likely to recommend Somewhat likely to recommend 42% 36% Neutral 32% Source: GFOA-Colonial Life 2011 Unlikely 0%

15 Headlines Transylvania Tries New Health Plan To Control Costs Deductibles moved from $750 - $1500 Source: Blue Ridge Times News, 05/12 New Health Plan to Save Haverhill $1.1M per year: Workers Face $200 Deductible Ultimately this was the only way to preserve city services Source: Eagle Tribune, 05/11 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

16 Increase Deductibles Local Government savings illustration Employees 300 Current Deductible Proposed Changes Current Deductible $1,500 Renewal $1,836,00 New Deductible $3,000 Renewal $1,286,000 Savings $550,000

17 Execution Hurdles Why are you not increasing deductibles? Potential impact on employees too great 28% 43% No Union Contract Potential benefit does not outweigh costs Not enough information to determine benefits 15% 9% 25% Not enough staff to implement 0%

18 Mitigate Employee Impact Easier on employees when given the option of a soft landing to offset new out-of-pocket costs. Old Deductible New Exposure HRA And/ Or Supplemental Insurance Expenses Covered by Health Plan

19 Health Care Reform Impact 1% Less 64% Same 34% More Currently we offer a zero cost plan to employees plus one dependent but we can t continue that. Will increase deductibles, co-pays and premiums to offset rising costs. City Clerk/Treasury

20 Health Care Reform Impact Will increase deductibles/co-pays due to health care reform: Public Sector Private Sector Yes 59% 52% +7 No 5% 4% +1 Unsure 36% 44% -8 +/-

21 Health Care Reform Impact 2% Less 89% Same 9% More Currently looking into moving some benefits to voluntary. May make vision or dental employee-paid voluntary. City Finance Director

22 Health Care Reform Impact Will move benefits to employee paid voluntary due to health care reform: Public Sector Private Sector Yes 35% 25% +10 No 35% 15% -2 Unsure 52% 50% +2 +/-

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

24 Research Proves It Our 2011 GFOA study shows: 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 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

25 Cost-Management Solution: Boost Tax Savings

26 Section 125 Plan Public sector has 30% higher adoption rate, BUT 30% lower participation than private sector. Public Sector Private Sector Medical FSA 86% 65% 57% Dependent Care FSA 79% 61% YES FSA Participation 28% 36% Source: SHRM 2011 Employee Benefits Survey.

27 Establish & Promote 73% Establish & Promote Section 125 Source: GFOA-Colonial Life 2011 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%

28 Promote 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. School District 900EE Participants Before Program After Program +% Contributions & Deductions Before Program After Program +% Health Care FSA % FSA s $63,681 $144, % Dependent Care FSA % Pre-Tax Insurance $476,754 $547,290 14% Pre-Tax* Insurance % Total Pre-tax $540,435 $692,185 28% *Pre-tax insurance includes Dental, Vision, and Supplemental insurance.

29 Proven Results Results: More employees participating in benefits and $58K in new tax savings. $53K *Employee savings assumes a 30% combined federal, state, and local tax bracket. Employer savings based on FICA only $41K $162K $208K Employers Employees Tax Savings Before Tax Savings After

30 Execution Hurdles Why are you not promoting your Section 125 plan? 22% No Not enough staff to implement Not enough information to determine benefits Potential benefit does not outweigh costs 12% 28% 20% Union Contract 8% Potential impact on employees too great 0%

31 Quantifiable Results Tax savings to the employees and employer is real and measurable Comments from those who are not using/promoting section 125. Lack of unused dollars is a downside to the program Plan Limitations Low Cost Low cost benefit with high value to employees Implementation of the plan takes staff time Staffing 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 not used this to full-benefit Limited Use Comments from those who are using/promoting section 125. Employees have not been interested in the past Already Covered

32 Cost-Management Solution: Promote Wellness

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

34 Preventive Treatment 79% Preventive Treatment Based on your experience would you recommend preventive treatment programs to other Public Sector organizations? Very likely to recommend Somewhat likely to recommend 67% 22% Neutral 11% Source: GFOA-Colonial Life 2011 Unlikely 0%

35 Execution Hurdles Why are you not promoting your Wellness Program? 23% No Not enough staff to implement Potential benefit does not outweigh costs Not enough information to determine benefit 17% 9% 43% Union Contract 0% Potential impact on employees too great 0%

36 Health Care Reform Impact 50% Same 50% More Just started using wellness programs, have made great strides and there will be opportunities to increase their use. County Business Administrator

37 Health Care Reform Impact Will expand wellness programs and incentives due to health care reform: Public Sector Private Sector Yes 60% 45% +15 No 5% 5% - Unsure 35% 50% -15 +/-

38 Health Care Reform Impact 74% Same 26% More Our internal health care committee does a good job with disease management programs. City HR Director

39 It Works Our wellness program reduces health costs Comments from those who do not use Wellness Programs Popular to implement, 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 gain for employees to jump aboard Incentives Work Environment Future Benefits It s a great culture improvement with financial benefits If only one stroke is avoided, the small cost is worth it Fairly low cost, probably do some good, but it is difficult to quantify Hard to Measure Comments from those who use Wellness Programs In the process of getting information Planning Stage

40 Research Proves It Our 2011 GFOA study shows: Biometric evaluations, claims analysis, and employee surveys are all helpful for assessing your employee population. Know the metrics you will monitor. Cash payments, vacation days, or reduced insurance premiums are great incentives for encouraging healthy behavior. Non-monetary incentives such as public recognition and interdepartmental competitions can also be used. Continuous workplace education and communication ensure momentum and keep the programs top-of-mind with employees. Stick with it, results may not immediate.

41 Cost-Management Solution: Verify Dependents

42 Who is a Dependent? Domestic partner Birth child Adopted child Step-child Grandchild Legal guardianship Domestic partner child Disabled adult child Adult children

43 Dependent Coverage Public Sector employees are more likely to insure their dependents than the Private Sector. SHRM 2010 Employee Benefits Survey. Healthcare coverage for dependent grandchildren Public Sector Private Sector 61% 34% Healthcare coverage for dependent foster kids 50% 25% 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%. Source: AON-Hewitt 2010

44 Dependent Coverage Public Sector employees are more likely to insure their dependents than the Private Sector. SHRM 2010 Employee Benefits Survey. Healthcare coverage for dependent grandchildren Public Sector Private Sector 61% 34% Healthcare coverage for dependent foster kids 50% 25% 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%. Source: AON-Hewitt 2010

45 The Challenge Recent studies show that an employees' dependents drive up to 70% of a company's health care costs, but in extreme cases, as many as 15% of dependents may actually be ineligible for coverage because of age, marital status or failure to qualify as a legal dependent. While this may simply be a misunderstanding by employees who fail to remove these dependents from their plans, others may be less innocent. Regardless, carrying all those extra people can add thousands if not millions to an employer s benefit costs.

46 Cost-Management Solution County finds $1M savings after insurance audit Montgomery County 356 ineligible dependents Source: Dayton Daily News Dependent Audit Finds $7.3M in Health Benefit Savings Source: Nassau County Comptrollers Office Denver Taxpayers Paid Millions for Non-Dependents For decades the city relied on the honor system Source: CBS Channel 4 Denver 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

47 Throwing Money Away? GFOA research shows that three to 15% of employee dependents could be ineligible for coverage. Not only does a dependent review help better manage a benefits budget it can also free up money for other benefits, help keep employee benefit costs down, and reduce legal risk.

48 Proven Solution How important is this technique as part of your overall cost-management efforts? 4% Not Important 13% Essential 24% 48% Somewhat Important 35% Very Important 24% Important Source: GFOA-Colonial Life 2011

49 Recommended Technique Based on your experience would you recommend dependent verification to other Public Sector organizations? 58% YES Very likely to recommend Somewhat likely to recommend 64% 11% Neutral 20% Source: GFOA-Colonial Life 2011 Unlikely 5%

50 Potential Savings Most common reason for ineligibility: Divorced individuals who continued to carry spouse. Savings Illustration Employees 12,000 Potential Ineligibles Discovered Ineligible Dependents 1,100 % of Dependent Population 7% Savings per Dependent $2000 Final Savings $2,200,000 Source: GFOA-Colonial Life 2011

51 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 Healthcare Reform Would recommend due to new extensions of dependent coverage Good Governance We verify dependents every year Comments from those who use Dependent Verification We are a small government and know each others dependents Responsibility of health plan Size Already Covered

52 Execution Hurdles Why are you not verifying dependents? 42% No Not enough staff to implement Potential benefit does not outweigh costs Not enough information to determine benefit 16% 11% 33% Union Contract 0% Potential impact on employees too great 0%

53 Health Care Reform Impact 4% Less 74% Same 22% More One of our largest issues with HCR is the increased costs in covering children till 26. Adulthood used to be 18, then 21, now 26! Definitely will verify adult children. County HR Director

54 Healthcare Reform Impact 4% Less 22% More 74% Same One of our largest issues with HCR is the increased costs in covering children till 26. Adulthood used to be 18, then 21, now 26! Definitely will verify adult children. - County HR Director

55 Research Proves It Our 2011 GFOA study shows: Dependent verification is highly utilized and recommended. Health care reform has people confused in regards to dependent coverage. Need to 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.

56 Cost-Management Solutions: Conclusion

57 Summary 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, they need to understand the context of any changes.

58 Resource Material

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