KTP Advisors has recently been asked by several Massachusetts municipalities to identify savings in Medicare retiree plans without cutting benefits and shifting costs onto retirees.
Because those who have asked for our assistance are using Medex 3 from Blue Cross Blue Shield on a self-funded basis, we have matched those benefits. The result of this process is substantial current savings for the municipality and its retirees as well as a significant reduction in the OPEB liability and the associated Annual Required Contribution (ARC) payment.
Below are answers to the most frequently asked questions from Massachusetts municipal finance and benefits leaders regarding our approach.
If you have questions, send them to us in the space below and we’ll respond as quickly as possible, or contact Mark Whitcher at firstname.lastname@example.org, or 917.743.3800.
Generally Massachusetts municipalities that use Medex 3 from Blue Cross Blue Shield pay about $420-$485 per member per month (pmpm) and get approximately $45 pmpm in retiree drug subsidy (RDS) payments.
We can match the same benefits as Medex 3 on a fully insured basis for $331 per Medicare retiree for plans starting on 1/1/13. This translates in to a savings of 12-25%.
A. The plans we have structured to match the benefits of Medex 3 achieve savings in three main ways:
1. They optimize the use of Federal subsidies available to plan sponsors by structuring pharmacy benefits using the Employer Group Waiver Plan (EGWP) instead of the Retiree Drug Subsidy (RDS). EGWPs push more of the cost onto the Federal government and pharmaceutical manufacturers by:
a. Providing for catastrophic coverage which amounts to free stop loss coverage from the Federal government.
b. Providing a higher per person subsidy from the Federal government (approximately $650 per person for EGWP versus $510-$550 per person for RDS).
c. Capturing the 50% brand reimbursement from pharmaceutical manufacturers in the “coverage gap.”
i. They are provided by very efficient Medicare insurance providers that have a significant operating cost advantage relative to Blue Cross Blue Shield
ii. The providers that offer these plans spend less on advertising, public relations and executive compensation per dollar of revenue than BCBSMA
a. This approach can lower your OPEB liability by 15% or more and also reduce your Annual Required Contribution (ARC) payments for OPEB by a similar percentage.
b. The interplay between costs, liabilities, ARC payments and trust assets can turn what is (in most cases) currently a vicious cycle into a virtuous cycle.
We will be happy to have your team speak to existing clients that have adopted this approach.
No. Switching to a fully-insured solution will dramatically reduce the need for your staff to get involved in the administration of these benefits.
a. While KTP has pre-negotiated plans that can match the benefits of Medex 3 with prescription drug benefits for $331 pmpm, we may be able to improve on this slightly.
b. To determine if we can get even lower rates, all we need is a broker of record letter on municipal letterhead and a census of Medicare retirees including current plan, date of birth, gender and zip code. It can also help to have 2-3 years of medical and prescription drug claims as well – though this is not imperative.
a. Yes, we currently have a long-standing MA municipal client that is extremely satisfied that they adopted this approach in 2007. Both the town and the retirees are very happy with the plan and the benefits.
b. As of August 2012, we are in active discussions with 8 municipalities and 3 school districts that are in varying stages of implementation for 1/1/13. We are getting more calls about this approach every week.
a. Because retirees generally fear change, there may be some initial apprehension but this is easily overcome with education.
b. Since these retirees are already on Medicare, they should not experience any change in doctors or hospitals.
c. Though Medicare formularies (prescription drug lists) do not include some drugs covered under BCBSMA’s broader formulary – notably ED drugs, we have structured these plans to offer “enhanced formularies” to cover these drugs. Retirees should experience little or no change from their Medex 3 plan
d. Most importantly members stand to save alongside the municipality. Retirees participate in savings at the same rate as their cost share percentage. For groups where retirees pay 25% or 50% of the premium, they have a very strong incentive to drive out costs. For groups where retirees pay a very small percent of the premium they are less concerned about plan costs. For example, a retiree of a MA municipality dropping their plan cost from $485 to $331 per month and paying 25% of the premium would save $462 per year or $38.50 per month. If instead the retiree paid 50% of the premium he or she would save $924 per year or $77 per month.