NCMA World Congress 2004

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(No Transcript)
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Strategies in a Runaway Health Market
Breakout Session 806 Louis A. Kent, Chief
Actuary, FCE Benefits Administrators Date
4.27.2004 Time 100 PM
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Background

• The Service Contract Act or Davis Bacon and
  Related Acts
• Set up a Fringe Requirement
• Allows an Employer to pay his Fringe Requirement
  in Cash
• Requires an Employer who pays his Fringe in Cash
  to pay Payroll taxes as part of GA

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The Desirability of Benefits

• It costs 2.36 per hour to provide a Fringe
  Benefit Plan.
• It can cost as much as 2.83 to pay out that
  Fringe in Cash
• This can translate to 5 of the direct labor
  budget (using 10.00/hr)

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What Kinds of Benefits?

• Statutory Benefits are not included
• Permissible Benefits include
• Health (Medical, Dental, Vision)
• Life (ADD, Travel Accident)
• Disability (Long Term, Short Term)
• Retirement (401k)
• Severance
• Sick Pay

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Why Health Insurance?

• Quality of Life Benefit (Employees want it)
• Difficult to get on a Non Group Basis
• Easy target for Organizers
• Lowers your Workers Compensation Costs

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Whats Happening in Health Insurance?

• Managed Care has worn off
• An HMO may cost more than a PPO today
• Rate Increases are in the double digits
• Co-pays, Cost Share, Restrictive formularies are
  all on the rise
• The Providers have organized to raise costs, and
  the Insurance Companies are raising their rates
  to make a profit.

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San Francisco Chronicle

• Large employers in Northern California saw their
  average health care costs rise 12.3 percent in
  2003, and they expect those costs to jump an
  additional 15.4 percent next year, according to a
  survey being released today by a human resource
  consulting firm.

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Fringe Increases vs. Health Inflation
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Premiums vs. Fringe Budget
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Shortfall In Fringe Budget
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How does the cost vary by Location?
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Are the Increases Region Specific?
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What does this have to do with Gas Prices?
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History of Trendby Funding Arrangement
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Change In Health Premium by Type and Funding
Arrangement
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Is Self Funding the answer?

• Un-funded plans and the Service Contract Act.
• Does it make sense in your locations?
• Are there other reasons for doing it?

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Un-funded plans and the Service Contract Act.

• Since the Fringe is on a Per Employee Per Hour
  basis, only Actual Expenditures may count.
• An Independent Trustee using a Non-Reversionary
  Exclusive Benefit Trust.
• Some reasonable Relationship between
  Contributions and Benefits.

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Does it make sense in your locations?

• Are there Carriers buying market share?
• Do you have enough Employees to make it work, at
  least as a Stop Loss Insured Plan?
• Do you want a uniform benefit package across
  State/Jurisdictional lines?

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Are there other reasons for doing it?

• Uniform Plans
• Good Experience helps Stabilize Premiums
• Avoid expensive State Mandates
• Part Timer Plans
• Creative Plan Designs

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Creative Plan Designs

• Primary Care Plans
• Catastrophic Plans
• HRA/HDHP Concepts

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Conclusions

• There are no easy answers
• You have to design with the Fringe Budget in
  Mind a Three Year Contract needs a Three Year
  Design.
• If it were easy, everyone would be doing it and
  making money.