For decades, many public sector health plan sponsors that self-insure their medical and prescription drug coverage have purchased stop-loss insurance to avoid the financial impact caused by unanticipated high claims costs. Stop-loss insurance transfers the risk of large claims from the plan sponsor to an insurance carrier that reimburses the sponsor for claims that exceed certain thresholds. This helps plans maintain financial stability.
Two developments underscore the importance of taking a fresh look at stop-loss coverage. First, the Affordable Care Act has eliminated annual and lifetime dollar limits on essential health benefits. Second, the prevalence of high-cost claims has risen dramatically and the dollar level of those claims has increased.
Purchasing stop-loss insurance is a complicated process. Premium rates are obviously important in comparing policies, but plan sponsors must also understand what their stop-loss insurance policies cover before they can make informed decisions regarding the best-value coverage that will help meet their objectives.
This Public Sector Letter reviews the basics of stop-loss insurance and how plan sponsors can use it to better manage the added risk and increased cost to plans that have made plan design changes to comply with the Affordable Care Act. It also looks at recent innovations and best practices for purchasing stop-loss insurance.
An average of 10,000 baby boomers are set to retire in the United States every day between now and 2030, raising questions about retirement readiness. While a large percentage of public sector employees participate in a defined benefit (DB) plan and most are also covered by Social Security, both of which provide a stream of retirement income, individual retirement savings - including from a state or local government employer's defined contribution (DC) retirement plan and an individual retirement account (IRA) - also play a significant role. Longer life expectancies and rising health care costs mean that public sector retirees must carefully plan to ensure having an adequate income that will last for their lifetime.
One sign that the federal government is taking steps to address the problem is the issuance by the Department of the Treasury and the Internal Revenue Service (IRS) of final rules eliminating a regulatory barrier for a certain type of annuity, called a qualifying longevity annuity contract or QLAC. Under this form of annuity, payments are scheduled to begin sometime after the participant's retirement and continue for life, thereafter.
Although these regulations remove a small impediment to lessening longevity risk within employer-sponsored DC plans and IRAs and may help plans offer solutions to participants concerned about "outliving their money," they are only part of the solution. As discussed in this Public Sector Letter, these new rules are just one step and should be considered in the context of all the issues sponsors face in helping their employees attain retirement income adequacy.
The funding of public sector pension plans has become a high-profile topic, fueled by the volatility of investment returns, budgeting pressures and increased scrutiny for not meeting funding obligations. Moreover, the Governmental Accounting Standards Board's clarification that financial reporting standards do not constitute funding policy guidance has created a regulatory vacuum and led many public pension plans to review and, often for the first time, record their funding policies in a comprehensive statement of funding policy used for setting an "actuarially determined contribution." In response, several organizations within the industry have issued guidance for establishing and maintaining actuarially responsible funding policies:
This Public Sector Letter discusses the similarities among these policy papers and points out notable differences.
Many plans will find they already have many of the recommendations in place. Sponsors of plans that are not following all the recommendations may benefit from considering the guidance summarized in this Public Sector Letter, including consideration of any justifiable policy differences.
In June 2013, the American Medical Association (AMA) voted in favor of recognizing obesity as a disease that requires medical treatment. After noting how obesity treatments typically are covered today, this Public Sector Letter discusses the implications for plan sponsors of the AMA’s designation of obesity as a disease.
In response to the AMA’s designation of obesity as a disease, coverage for obesity treatment is likely to change. There are three potential treatments for obesity: clinical or non-clinical counseling with group or personal support services, prescription drug therapy, and surgical intervention.
To some extent, the designation of obesity as a disease will increase plans’ immediate costs. There are several strategies for dealing with the short-term cost increase associated with obesity’s designation as a disease.
Over the long term, covering obesity treatments is likely to save plans money by avoiding serious and costly chronic diseases and conditions for which obesity is a major risk factor, including, but not limited to, type 2 diabetes, hypertension, sleep apnea, gallstones, infertility, varicose veins, gout, osteoarthritis and deep vein thrombosis (DVT). The financial impact of obesity related diseases and treatments on medical plan budgets can be significant. Consequently, the potential long-term savings are substantial.
Changes can be volatile for federal agencies and state and local governments. Budgetary adjustments, reorganization, altered benefits and the implementation of Affordable Care Act (ACA) mandates are creating new challenges for public sector employers and employees. This Public Sector Letter explores how effective communication mitigates many of these potential issues.
Public sector employers seeking to ease employees into any change should consider taking control, which consists of the following:
These strategies are fundamental to managing public sector change and creating an optimal transition period for employers and employees.
This Public Sector Letter includes a case study of how a state government is communicated significant benefit plan changes that it is making for 2014.