Retiree Health Care Benefits Continue to Decline

Employer-based retirement health care insurance benefits continue to decline, according to recent industry reports.

Many retirees have been able to rely on private or state employer-based retirement health benefits for supplemental health care coverage while on Medicare in the past, but this is becoming less common.

Employer-based health-related benefits can provide important coverage for the gaps that exist in Medicare programs. Additional coverage benefits can alleviate the cost-sharing requirements and deductibles associated with Medicare. Caps on the amount that can be spent out-of-pocket, often associated with supplemental coverage, are also often helpful for retirees.

Overall, supplemental retiree health and medical benefits sponsored by a private or municipal employer have helped many retirees cope with high medical costs often incurred in retirement.

The Kaiser Family Foundation recently reported, however, that the number of large private employers-considered employers with 200 or more employees-offering retiree healthcare benefits has dropped from 66 percent in 1988 to 23 percent in 2015.

Companies that do continue to offer retiree health benefits have been making changes aimed at reducing the cost of benefits, including:

Instituting caps on the amount of the provider’s financial liability
Shifting from defined benefit to defined contribution plans
Offering retiree health care benefits through Medicare Advantage plan contracts
Creating benefit programs through private health insurance exchanges
State employers have also not been immune to the trend, but the type and level of coverage being offered by most states is significantly different than retirement health care coverage being offered by large companies.

Unlike many private employers, state governments continue to offer some level of retiree health care benefits to help attract and retain talented workers, according to a report titled “State Retiree Health Plan Spending,” published by The Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation in May, 2016.

With the exception of Idaho, all states currently offer newly-hired state employees some level of retirement health care benefits as part of their benefits package, according to the report. Of the states offering retiree medical benefits, 38 have made the commitment to contribute to health care premiums for the coverage being offered. State employers are, however, also making changes to the retirement health care insurance benefits they provide to state workers.

Significant among these changes for the states is at least one driving force-the Governmental Accounting Standards Board (GASB) now requires states to report liabilities for retirement benefits other than pensions in their financial statements. The changes were required from all states by the end of 2008. As a result, the increased financial transparency forced states to review the cost of their other post-employment benefits (OPEB) and address how they plan to pay for them.

Because retirement health care benefits account for the majority of the states’ OPEB obligations, many states have made policy changes to address the upcoming obligations. Factors such as date of hire, date of retirement or vesting eligibility, including minimum age and minimum service year requirements, are now being used by states to vary or limit retirement health care benefits.

Overall, from 2010 to 2013, the states saw their OPEB liabilities decrease by 10 percent from $627 billion after inflation adjustments. While this may sound contradictory, the declines are attributed to a slowdown in the growth of health care costs coupled with benefit modifications aimed at cost reductions.

To look at one state as an example, California’s recent budget revealed that health care benefits for retirees are costing the state more than $2 billion a year for an 80 percent increase over the prior 10 years. Although the situation recently changed, California was previously one of 18 states that had nothing set aside to cover its future retiree health care benefit costs of $80.3 billion.

It should be noted that retiree health care plans are typically funded by plan sponsors on a “pay as you go” basis, meaning that monies to pay current and future health care obligations are taken from current assets and not set aside in advance. This differs significantly from pension plans governed by ERISA, which are subject to funding guidelines.

In response to California’s unfunded OPEB liability, employees and the state are now paying into a fund for future retiree health care benefit costs. The state is also matching $88 million in employee contributions and paying an additional $240 million to prefund future retirement health care benefit costs. The changes are impacting retirees as well as state and private employers.

Overall, employer-based retirement health care benefits, once important for supplementing Medicare for retired seniors, continue to decline.

The Potential Impact of Eroding Employer-Based Health Care Retirement Benefits

Many baby boomers who are currently covered by retiree medical plans and plan to rely on future employer-paid medical benefits, are likely to be disappointed to learn that these benefit plans can be changed or terminated. ERISA-governed benefit plans typically contain a “reservation of rights” provision allowing the plan sponsor to change or terminate all or parts of the plan. Many private and state employers are reducing or terminating retiree health benefits due to the increasing cost of insurance premiums, rising health care costs, and increases in longevity.

Since the early 1990s there have been many cases where unexpected changes to post-employment pension and medical benefits have resulted in lawsuits. Typically, the key issue is the reservation of rights language and/or collective bargaining agreement language for employees who were covered by a union contract which referenced retiree medical benefits.

Beneficiaries who have questions about their retiree medical benefits should speak with their plan sponsor to learn about the specific benefits available to them and have a contingency plan for bridging their medical coverage to Medicare, if they are considering early retirement or want to better understand future benefits.

May, 2016

Mark Johnson, Ph.D., J.D., is a highly expe

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Community Needs Health Assessment

In 2012 the Internal Revenue Service mandated that all non-profit hospitals undertake a community health needs assessment (CHNA) that year and every three years thereafter. Further, these hospitals need to file a report every year thereafter detailing the progress that the community is making towards meeting the indicated needs. This type of assessment is a prime example of primary prevention strategy in population health management. Primary prevention strategies focus on preventing the occurrence of diseases or strengthen the resistance to diseases by focusing on environmental factors generally.

I believe that it is very fortunate that non-profit hospitals are carrying out this activity in their communities. By assessing the needs of the community and by working with community groups to improve the health of the community great strides can be made in improving public health, a key determinant of one’s overall health. As stated on the Institute for Healthcare Improvement’s Blue Shirt Blog (CHNAs and Beyond: Hospitals and Community Health Improvement), “There is growing recognition that the social determinants of health – where we live, work, and play, the food we eat, the opportunities we have to work and exercise and live in safety – drive health outcomes. Of course, there is a large role for health care to play in delivering health care services, but it is indisputable that the foundation of a healthy life lies within the community. To manage true population health – that is, the health of a community – hospitals and health systems must partner with a broad spectrum of stakeholders who share ownership for improving health in our communities.” I believe that these types of community involvement will become increasingly important as reimbursement is driven by value.

Historically, healthcare providers have managed the health of individuals and local health departments have managed the community environment to promote healthy lives. Now, with the IRS requirement, the work of the two are beginning to overlap. Added to the recent connection of the two are local coalitions and community organizations, such as religious organizations.

The community in which I live provides an excellent example of the new interconnections of various organizations to collectively improve the health of the community. In 2014 nine non-profits, including three hospitals, in Kent County, Michigan conducted a CHNA of the county to assess the strengths and weaknesses of health in the county and to assess the community’s perceptions of the pressing health needs. The assessment concluded that the key areas of focus for improving the health of the community are:

· Mental health issues

· Poor nutrition and obesity

· Substance abuse

· Violence and safety

At this time the Kent County Health Department has begun developing a strategic plan for the community to address these issues. A wide variety of community groups have begun meeting monthly to form this strategic plan. There are four work groups, one for each of the key areas of focus. I am involved in the Substance Abuse workgroup as a representative of one of my clients, Kent Intermediate School District. Other members include a substance abuse prevention coalition, a Federally qualified health center, a substance abuse treatment center and the local YMCA, among others. The local hospitals are involved in other workgroups. One of the treatment group representatives is a co-chair of our group. The health department wants to be sure that the strategic plan is community driven.

At the first meeting the health department leadership stated that the strategic plan must be community driven. This is so in order that the various agencies in the community will buy into the strategic plan and will work cooperatively to provide the most effective prevention and treatment services without overlap. The dollars spent on services will be more effective if the various agencies work to enhance each others’ work, to the extent possible.

At this time the Substance Abuse work group is examining relevant data from the 2014 CHNA survey and from other local resources. The epidemiologist at the health department is reviewing relevant data with the group so that any decisions about the goals of the strategic plan will be data driven. Using data to make decisions is one of the keystones of the group’s operating principles. All objectives in the strategic plan will be specific, measurable, achievable, realistic and time-bound (SMART).

Once the strategic plan is finished, the groups will continue with implementation of the plan, evaluating the outcomes of the implementation and adjusting the plan as needed in light of evaluation. As one can see, the workgroups of the CHNA are following the classic Plan-Do-Check-Act process. This process has been shown time and again in many settings-healthcare, business, manufacturing, et al-to produce excellent outcomes when properly followed.

As noted above I recommend that healthcare providers become involved with community groups to apply population level health management strategies to improve the overall health of the community. One good area of involvement is the Community Health Needs Assessment project being implemented through the local health department and non-profit hospitals.

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