Opening a dialog: communicating with retirees about Medicare+Choice.

In October 1998, the Health Care Financing Administration sent information to 38 million Medicare beneficiaries in five pilot states, consisting of a comprehensive handbook entitled Medicare and You. The purpose of the handbook is to clarify new options under Medicare+Choice to participants. Such clarification is bound to initiate contact by Medicare beneficiaries to former employers/unions. This article addresses employers' need to develop a communication strategy for beneficiaries and suggests a methodology and possible questions that may arise.     

Alternatives to traditional Medicare: Medicare Part C poised to prosper

Recent events indicate that Medicare Part C (Medicare Advantage) plans are poised to prosper. Yet many employers express hesitation to offer Medicare Advantage, formerly known as Medicare+Choice, plans to their retirees because they are concerned about the potential withdrawal of those plans if there is a reversal of federal funding rules. This article addresses those concerns. It provides a historical overview of Medicare Part C and describes the impact of the most recent agency guidance. The author cites plan trends, raises employer implications and concludes that Medicare Advantage plans will continue to expand, possibly facilitated by employers as they implement leading-edge retiree medical designs.     

Medicare+Choice--cost and funding issues for Medicare risk plans.

The Balanced Budget Act of 1997 contained the most important changes in Medicare since its inception in 1965. The most notable changes include Medicare+Choice, which includes existing Medicare risk programs. The author offers a brief summary of the history of Medicare and the changes that will impact employer/union service providers. Areas of discussion include typical Medicare risk benefit packages, a financial analysis of Medicare risk contractors and changes to risk contracting under the new law.     

Medicare in the 21st century.

The authors provide an overview of the Medicare program in terms of how the current program operates, the current issues it faces that may shape possible options for reform, and the implications of these features and issues for employment-based health plans. Current issues include adoption of a premium support model, changes in the eligibility age for Medicare benefits, Medigap insurance, benefits covered and customer service.     

Medicare retiree drug subsidy compliance considerations

Employers and plan sponsors have struggled with many issues associated with Medicare's retiree drug subsidy program. Recent reviews of employer methods for collecting the subsidy from the Centers for Medicare and Medicaid Services (CMS) identified significant gaps that would affect the subsidy payment and create issues in case of an audit. In fact, the Department of Health and Human Services Office of Inspector General (OIG) has placed audits of employer retiree drug subsidy processes in its work plans for 2006 and 2007. This article discusses areas that employers must address now to avoid significant long-term financial and compliance problems in the future.     

The impact of health care reform on older workers, retirees and employers

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 impacts everyone who uses or pays for the health care system. Among the new law's effects will be changes in older workers' health care choices as they transition from full-time employees to part-time work or other jobs and, ultimately, to retirement, and the retiree health benefit choices facing their employers. This article reviews the major issues surrounding these changes, including those affecting retiree health benefits, benefits for Medicare-eligible retirees and health care options for older Americans not yet eligible for Medicare. The authors conclude that although employers will be reacting in 2010 and 2011 with regard to some issues surrounding FASB ASC 715-60 and the early retiree reinsurance program, employers should consider waiting to make major changes until regulations are issued and the health plans for active employees have been fully vetted.     

Risk Allocation in Retirement Plans: A Better Solution

The corporate world is reconsidering the cost‐effectiveness of defined benefit pension plans while contemplating a change to defined contribution plans. This article begins by examining the three primary risks faced by sponsors of most DB pension plans—investment risk, interest rate risk, and longevity risk—and shows how shifting these risks to employees through a DC plan would affect both the corporation and the individual. Although DC plans clearly help companies manage risks, they provide at best an incomplete solution for individual participants. This article describes an innovation in pension design—the Retirement Shares Plan (RSP)—that combines many of the best features of DB and DC plans. An RSP provides:

• ? predictable and stable cost to the plan sponsor, with little chance of unfunded liabilities;
• ? lifetime income, guaranteeing that retirees will never outlive their benefits;
• ? a benefit accrual pattern comparable to that of traditional pension plans that preserves value for older, long‐service employees; and
• ? potential inflation protection for retirees.

The RSP accomplishes this by allocating risk to sponsors and individuals differently than either a traditional DB plan or a DC plan. Unlike most DB plans, the RSP shifts investment and interest rate risks from plan sponsors to participants. Unlike DC plans, the RSP keeps longevity risk with the sponsor.     

Medicare incentive payments for meaningful use of electronic health records: accounting and reporting developments

The Healthcare Financial Management Association through its Principles and Practices (P&P) Board publishes issue analyses to provide short-term practical assistance on emerging issues in healthcare financial management. In a new issue analysis excerpted in this article, HFMA's P&P Board provides some clarity to the healthcare industry on certain accounting and reporting issues resulting from incentive payments under the Medicare program for the meaningful use of electronic health record (EHR) technology. Consultation on these matters with independent auditors is highly recommended.     

Defined Contribution Pension Plans: Sticky or Discerning Money?

Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. However, participants’ inertia could be offset by DC plan sponsors, who adjust the plan's investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds from DC assets are more volatile and exhibit more performance sensitivity than non‐DC flows, primarily due to adjustments to the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning than non‐DC money.     

The consumer-driven approach: can it pick up where managed care left off?

Managed care has failed and health care costs are once again out of control. Given the current political, social and economic environment, there are now two options: a single-payer health care system, or an aggressive and global employer health benefits redesign that strongly encourages consumer-driven behavior. This article discusses the failure of managed care and ways that employers can promote consumer-driven behavior now using available tools and plan provisions.     

A sign of the times.

Pressure placed on employers to enhance the bottom line comes from a multitude of changes in the marketplace and has resulted in employers seeking to limit their liabilities and expenses for retiree medical care. To address retiree medical issues, employers have adapted a number of strategies that are presented in this article. These include eliminating or modifying benefits, using a defined contribution approach, capping subsidies and enrolling retirees in Medicare HMOs.     

Direct provider contracting: one employer's experience.

Employers and unions typically offer an array of health care options to their plan participants including many managed care options. However, until recently, few have considered contracting directly with an integrated delivery system (IDS), therefore circumventing health plans altogether. This article offers a case study of one employer's experience with direct IDS contracting, including employee contribution strategy, benefits design and evaluation of the delivery system.     

The agency problem,investment decision,and optimal financial structure

This article constructs a real options model in which a firm has a privileged right to exercise an irreversible investment project with a stochastic payoff. Supposing that the investment costs are fully sunk, a firm that exercises the investment option after debt is in place will then choose a better state to exercise this option as it issues more bonds. This debt-overhang phenomenon, however, benefits the firm since waiting is itself valuable. Accordingly, the firm will both exercise the investment option later and issue more bonds as compared with a firm that issues bonds upon exercising the investment option.     

What the Pension Benefit Guaranty Corporation can learn from the Federal Savings and Loan Insurance Corporation

This article attempts to draw attention to some important lessons that the Pension Benefit Guaranty Corporation (PBGC) can learn from the experience of the Federal Savings and Loan Insurance Corporation (FSLIC). FSLIC was the government agency that insured deposits at savings and loan associations until it was replaced in 1989, leaving a massive deficit to be financed by taxpayers. Like FSLIC, the PBGC is a government agency that guarantees a form of private corporate debt. As guarantor of the pension benefits promised by private plan sponsors, the PBGC bears the risk of a shortfall between the value of insured benefits and the assets securing those benefits. There has been a significant change in the attitude and behavior of senior public officials and legislators as a result of the S&L debacle. Directors of the PBGC and the Secretaries of Labor to whom they report have pointed out the weaknesses of some of the pension funds that the PBGC insures and have pursued an active legislative agenda designed to reduce the PBGC's vulnerability to those weaknesses. Those efforts have resulted in a series of laws and amendments to laws that have significantly improved the U.S. pension guarantee system. But the magnitude of the PBGC's exposure to shortfall risk depends on three factors: (1) the financial strength of plan sponsors, (2) the degree of underfunding of insured benefits, and (3) the mismatch between the market-risk exposure of insured benefits (a form of long-term corporate debt) and the market-risk exposure of the assets securing that debt. Only the first two of these have been addressed by past legislative reforms. The third factor appears not to be well understood. It is apparently a widespread belief among policymakers that a well-diversified pension portfolio of equity securities provides an effective long-run hedge against liabilities of defined-benefit pension plans, so that there is no mismatch problem. This belief is mistaken. Equities are not a hedge against fixed-income liabilities even in the long run. Thus, even if the PBGC achieves the goal of full funding at one point in time, the mismatch between the market-risk exposure of the pension benefits that it insures and the pension assets backing them creates the potential for large shortfall losses in the future as the economy and capital market rates change in unpredictable ways. Therein lies an uncomfortable parallel with the S&L debacle.