Employers Double Down on Employee Benefits

As the job market tightens and competition for workers becomes fiercer, a majority of employers are boosting their employee benefits offerings and are paying less attention to reducing associated costs, according to a new study.

The changes reflect the shifting priorities of the workforce and the newest generation to enter the job market. The challenge for employers is controlling benefit costs, while at the same time being able to attract and retain talent as competition for workers increases.

The “2018 Benefits Strategy & Benchmarking Survey” by Gallagher Benefits found that U.S. employers were most concerned with:

  • Attracting and retaining talent. This was the number one operational priority for 60% of employers.
  • Controlling benefit costs. This was the top priority for another 37%.

The study authors said they are noticing a “clear shift in the market” because employers are having to compete so fiercely for workers and because the workforce comprises five generations, all of which have very different priorities and needs. Besides beefing up their health insurance offerings, they are also boosting other employee benefits.

New strategies

Employers are also adopting new strategies to help their employees get the health care services they need. The survey found that:

  • 45% of employers have increased employee cost-sharing of health care benefits.
  • 55% of employers provide telemedicine services that allow employees to speak remotely with medical professionals.
  • More employers are focused on helping their employees reduce their medical expenses with wellness programs and prevention services. The most popular offerings include:
    • Flu shots
    • Tobacco cessation programs
    • Health risk assessments
    • Biometric screenings
  • Financial wellness programs are gaining popularity, with 62% of employers providing access to financial advisors.
  • 89% of employers offer employees life insurance
  • 70% of employers provide access to employee assistance programs.
  • 47% of employers offer financial-literacy education to help employees better manage their money.
  • 22% of employers offer employees three medical insurance plans to choose from (another 13% offer four or more).
  • 46% of employers offer tuition reimbursement.

Ohio Auditor’s Report on PBMs Sparks Changes

An audit carried out for Ohio Medicaid found that large pharmacy benefit managers that contract with the state’s Medicaid program have been pocketing a larger and larger share of drug pricing.

In fact, PBMs charged Ohio Medicaid plans 31% more for generic prescriptions than the amount they paid pharmacists for the drugs, the audit found, shedding light on a practice that observers say is being mirrored throughout the country.

The auditor found that the two largest PBMs operating in the state billed Medicaid managed-care plans $223.7 million more for prescription drugs than they paid pharmacy providers in 2017.

The report comes as pressure grows on PBMs to be more transparent about their pricing and costs amid complaints by pharmacies that are barely breaking even or losing money due to the tough contracts they have to enter into with PBMs. Many critics say that PBMs are not passing on the savings to payers when they negotiate lower contracts with pharmacies.

“We know that Ohio is not alone,” Ernie Boy, executive director of the Ohio Pharmacy Association, said in a prepared statement. “Every state and every payer in the country is grappling with these overinflated costs.”

What’s going on

Medicaid doesn’t directly pay pharmacists. Ohio Medicaid pays five private insurance companies to manage Medicaid plans for the state. The insurance companies contract out pharmacy benefits to middlemen, which pay pharmacists to fill prescriptions.

Medicaid and most health plans contract with PBMs to essentially run the drug portion of the health insurance equation. They are supposed to negotiate volume discounts with drug-makers and rates with pharmacies to reduce the overall drug spend by the payers.

PBMs make a good deal of their money from a growing “spread” between what the PBM pays pharmacies and what it charges payers (in this case, the state Medicaid program). The PBM keeps the spread, but most PBMs are not transparent about how much the spread is, leaving both the pharmacies and the payers in the dark.

According to the report, the overall spread in 2017 in Ohio was $224.8 million – with an average spread of 8.9% per prescription. Generic drugs, which comprise 86% of Medicaid prescriptions in Ohio and for which pricing is most opaque, accounted for an overwhelming majority of the spread.

The report found that during the entire study period:

  • The average spread was $5.71 per prescription.
  • The average spread for brand-name prescriptions was $1.85.
  • The average spread for generic prescriptions was $6.14.
  • The average spread for specialty drugs was $33.49.

Generic drugs account for 86% of Medicaid prescription claims in Ohio.

The auditor stated in its report that PBMs’ administrative fees typically range from $0.95 to $1.90 per prescription.

“Although this figure may not include all of services performed by a (pharmacy benefit manager), it suggests Ohio’s current spread may be excessive and warrants the state taking further action to mitigate the impact on the Medicaid program,” the report stated.

As part of its findings, the auditor noted that pharmacies in Ohio have been shuttering at a brisk pace since Medicaid PBMs have been cutting how much they reimburse them for medications.

Between 2013 and 2017, some 371 pharmacies closed in Ohio, coinciding with significant reimbursement reductions in their PBM contracts. The majority of those closures have taken place since 2016.

As a result of the audit, Ohio’s Medicaid department directed its managed-care organizations to quit their contracts with PBMs, citing the opaque pricing practices.

The state’s five managed-care plans were required to enter into new contracts with companies that were able to manage pharmacy services using a more transparent pricing model by the start of 2019.

Proposed Rules Include New Ways to Satisfy Employer Mandates

The IRS has proposed new regulations that could let employers avoid Affordable Care Act employer mandate-related penalties by allowing them to reimburse employees for insurance they purchase on health insurance exchanges or the open market.

The regulations are not yet finalized, but the IRS has issued a notice explaining how applicable large employers, instead of purchasing health coverage for their workers, would be able to fund health reimbursement accounts (HRAs) to employees who purchase their own plans.

Under current ACA regulations, employers can be penalized up to $36,500 a year per employee for reimbursing employees for health insurance they purchase on their own.

Employer mandate refresher

Applicable large employers (ALEs) – employers with 50 or more full-time employees or full-time equivalents – must offer health coverage to at least 95% of full-time employees that includes:

  • Minimum essential coverage: The plan must cover 10 essential benefits.
  • Minimum value: The plan must pay at least 60% of the costs of benefits.
  • Affordable coverage: A plan is considered affordable if the employee’s required contribution does not exceed 9.56% (this amount is adjusted annually based on the federal poverty line; 9.86% will be the 2019 affordability percentage).

ALEs that fail to offer coverage are subject to paying a fine (called the responsibility payment) to the IRS.

How the new rule would work

The IRS is developing guidance on how HRAs could be used to satisfy the employer mandate.

In its recent notice, the agency addressed how the regulation will play out, as follows:

Requirement that ALEs offer coverage to 95% of their employees, and dependents if they have them – Under the proposed regs and the notice, an employer could satisfy the 95% test by making all of its full-time employees and dependents eligible for the individual coverage HRA plan.

Affordability – The employer would have to contribute an amount into each individual account so that the remaining out-of-pocket premium cost for each employee does not exceed 9.86% (for 2019, as adjusted) of the employee’s household income.
This could be a logistical nightmare for employers, and the IRS noted that employers would be able to use current affordability-test safe harbors already in place in regulations.

Minimum value requirement – The notice explains that an individual coverage HRA that is affordable will be treated as providing minimum value for employer mandate purposes.

What you should do

At this point, employers should not act on these regulations. The IRS is aiming for the regs to take effect on Jan. 1, 2020.

The final regulations have yet to be written, so they could change before they are promulgated. We will keep you informed of developments.

HDHP Enrollees More Likely to Consider Costs and Quality

A new study has found that people enrolled in high-deductible health plans (HDHPs) actually are more likely to consider costs and quality when considering non-emergency care.

The 14th annual “Consumer Engagement in Health Care” study by the Employee Benefits Research Institute and market research firm Greenwald & Associates surveyed 2,100 adults, most of whom receive health coverage via their employers.

The survey found that people enrolled in health plans with a deductible of at least $1,350 for self only, and $2,700 for families, were more likely to take costs into account when making health care decisions.

Evidence of cost-conscious behavior:

  • 55% of HDHP enrollees said they checked whether their health plan would cover their care or medication prior to purchase, compared to 41% in traditional health plans.
  • 41% of HDHP enrollees said they checked the quality rating of a doctor or hospital before receiving care, compared to 33% of those in traditional plans.
  • 41% of HDHP enrollees asked for a generic drug instead of a brand name drug, compared to 32% of traditional plan enrollees.
  • 40% of HDHP enrollees talked to their doctor about prescription options and costs, compared to 29% of traditional plan participants.
  • 25% of HDHP enrollees used online cost-tracking tools provided by their health plans to manage their health expenses, compared to 14% of people in traditional plans.
  • HDHP enrollees also were more likely to take preventive measures to preserve health, including enrolling in wellness programs.

That said, the study did find some negative behavior among HDHP enrollees as well, including that 30% of HDHP enrollees said they had delayed health care in the past year because of costs, compared to 18% of traditional plan participants.

What you can do

In order to help HDHP enrollees get the most out of their plans, it’s recommended that their employers also offer health savings accounts.

This can help them pay for services that are not covered until they meet their deductible. Employers can help by matching (fully or in part) employees’ HSA contributions. This encourages them to participate.

Employers should also push preventative care. The Affordable Care Act requires all plans to cover a set of preventative care services outside of the plan deductible. Unfortunately, many people don’t know that these services must be covered by insurance with no out-of-pocket expenses for the enrollees.

Some employee benefits experts are recommending that employers tie the amount of premiums employees are required to contribute to how well they comply with preventative guidelines.

Non-enrollment in HSAs

These are the reasons employees cite for not enrolling in their company’s HSA:

  • Do not see any advantages: 57%
  • Do not have enough money to contribute to the account: 24%
  • Their employer doesn’t contribute to the account: 10%
  • Did not take the time to enroll: 8%
  • Do not understand what the HSA is for: 6%

The key to getting your staff to take advantage of the tax-savings feature of HSAs is education. You should make sure all of your eligible staff understand how they work.

And if you are not currently contributing some funds to their HSAs, now might be the time to consider doing that.

Founder Story

Founded by CEO Gary Becker, a health insurance and risk management consultant for more than 30 years, ScriptSourcing works with employers to rein in the costs of Rx spending through a coordinated, seamless approach involving several key programs. We have developed a system that helps employers and employers significantly mitigate Rx costs and risks without compromising benefits.

Despite Ruling That ACA Is Invalid, the Law Stands for Employers

A ruling by a U.S. District Court judge in December 2018 that the Affordable Care Act is unconstitutional is not expected to stand but, if it does, the moves that have been made in the health insurance space to reduce costs, deliver better care outcomes and make the system more efficient would be expected to stay.

For those employers that were offering health coverage to their employees before the ACA and have continued since, the marketplace dynamics would likely not change much if the ruling were not overturned on appeal.

Additionally, since there has been some success in the employer-sponsored health care space in keeping cost inflation relatively tame, there would likely be no incentive for health insurers and providers to abandon those efforts.

The more likely outcome is that a higher court (and eventually likely the U.S. Supreme Court) overturns U.S. District Judge Reed O’Connor’s ruling that because Congress eliminated the individual mandate portion of the ACA, the rest of the law is also invalid and cannot stand. That means all aspects of the law, including health care exchanges, the employer mandate, and the requirement that policies cover 10 essential benefits, and much more. The individual mandate was repealed at the end of 2017.

Several states such as Massachusetts, New York and California have since intervened to defend the law. They argue that, if Congress wanted to repeal it, it would have done so. The Congressional record makes it clear Congress was voting only to eliminate the individual mandate penalty in 2019; it indicates that they did not intend to strike down the entire ACA.

The original lawsuit against the ACA was brought by 20 attorneys general from Republican states, and now 17 attorneys general led by California’s Xavier Becerra have filed a notice of appeal with the 5th U.S. Circuit Court of Appeals in New Orleans.

Interestingly, the Trump administration filed a brief early in 2018 encouraging the court to uphold the ACA but strike down the provisions relating to guaranteed issue and community rating.

There have been more than 70 attempts to invalidate the ACA in courts across the country, and two of those cases made it to the Supreme Court. The last time the ACA was upheld was in 2012 and all five justices who voted at that time to uphold the law are still on the bench today.

Additionally, the ACA is an extremely expansive piece of legislation, which has been on the books since 2010. Legal pundits say it’s unlikely the Supreme Court would want to strike down a law that affects millions of people in the country. In fact, because of this the court may decide not even to take up the case if the 5th Circuit has overturned O’Connor’s ruling.

Employer effects

While this case is under appeal the law will stand, meaning that all parts of it, except the individual mandate, will remain. That means all employers who are considered “applicable large employers” under the ACA, will be required to continue offering health insurance to their workers.

If you are one of them, you need to continue complying with the law of the land as it stands. And remember, while Congress eliminated the penalties associated with not complying with the individual mandate, the penalties for not complying with the employer mandate are still very much in place. Fines can be severe for non-compliance.

This ruling is not expected to affect those penalties, reporting requirements, or any other applicable ACA requirement at this time.

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