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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
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CCH® BENEFITS — 08/31/10

Most Large Employers Will Change Health Plan Designs In Spite Of, Or Because Of, Health Reform

from Spencer’s Benefits Reports: More than half (53%) of large employers plan to proceed with health plan design changes for 2011, in spite of the threat of losing grandfathered plan status under health reform, according to a survey from the National Business Group on Health (NBGH). Another 19% of large employers have decided to scale back plan design changes for 2011, 19% have decided to make no changes, and 9% are waiting for federal regulations before they make any decisions. The NBGH survey was conducted prior to the June 17 release of interim final regulations detailing the changes that will cause health plans to lose grandfathered status under the Patient Protection and Affordable Care Act. Grandfathered plans are any group health plans that were in effect on March 23, 2010, the date the Affordable Care Act was enacted. Grandfathered plans are exempt from some, but not all, of the provisions of health reform.

To comply with the Affordable Care Act, most large employers (70%) will need to remove lifetime limits on overall benefits; 40% will need to remove annual limits on specific benefits such as behavioral health and dental; 26% will need to remove annual limits on overall benefits; and 13% will need to remove preexisting condition exclusions for dependent children younger than 19 years. In 2011, nearly two-thirds (63%, compared with 57% in 2010) of respondents plan to raise employees’ share of the premium; 46% will raise out-of-pocket costs; and 44% will raise in-network deductibles.

Plan Costs

Employers anticipate medical benefits cost increases to average 7% for 2010, and 8.9% for 2011. About one-fifth (21%) of respondents consider a consumer-driven health plan (CDHP) as the most effective cost-control strategy, followed closely by wellness initiatives (20%). Wellness initiatives were listed among the top three cost-management strategies.

Three-fifths (61%) of large employers say they will offer a CDHP in 2011—64% a high deductible health plan (HDHP) with a health savings account (HSA); 21% an HDHP with a health reimbursement account (HRA); and 19% an HDHP with an HRA and a Sec. 125 medical flexible spending account (FSA). Of those who currently offer a CDHP, 20% either already offer or plan to offer the CDHP as the only plan, instead of one of the options. Employers most commonly fund the accounts with a flat preset amount (80% do so to an HRA and 68% do so to an HSA). Nearly all (95%) CDHPs cover preventive services in full with no copayment or deductible, compared with 85% of the non-CDHP plans.

In 2011, plan sponsors also plan to raise copayments and/or coinsurance for prescriptions dispensed at retail pharmacies (25% of respondents) and at mail-order pharmacy (21%). The most effective pharmacy benefit management tools employers cited are preauthorization (73% for the entire program overall and 57% for expensive specialty drugs); step-therapy (63% for the program overall and 51% for specialty drugs); and three-tier copayment plan design (63% for the program overall). For specialty drugs, utilization management was an important tool for 59% of employers.

Retiree Medical

At the time of the survey, most employers (60%) that offered retiree medical benefits were still evaluating their strategies with respect to those benefits, partially due to the fact that retiree medical benefit sponsors no longer would be able to deduct from their income taxes the amount of the Medicare retiree drug subsidy (RDS). Two-thirds of retiree medical plan sponsors received the RDS in 2010. Also having an effect on employers’ considerations are the coverage expansion of the Medicare Part D drug benefit and payment reductions to Medicare Advantage plans. More than three-fifths (62%) of these plan sponsors planned to apply for the early retiree medical reinsurance reimbursement.

Most employers offered retiree medical benefits to already retired individuals who are younger than age 65 (89%) and to Medicare-age retirees (68%). Retiree medical offerings are less prevalent for current active individuals (46% for all employees, and 33% for some employees), and much less for new hires (18% for early retirees and 11% for Medicare-age retirees). The most popular cost-control strategies for these benefits were capped company contribution (46% of sponsors), higher retiree contribution (37%), and elimination of coverage for future retirees (33%).

For more information on the study, Large Employers’ 2011 Health Plan Design Changes, visit

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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