Brokers, Insurance Companies and State Health Benefit Rates What’s important to union negotiators

Primary Sources of Health Plan Information for Local Government (and You) Brokers Insurance Companies and Pharmacy Benefit Managers (PBMs)

Who do insurers/administrators and brokers work for? We know insurance/administrative companies & PBMs are selling a product – whether the product is full insurance, minimum premium insurance, or administrative services for self – insurance. We know to evaluate their products skeptically. What about brokers? Do they work for and have the back of local governments?

Local officials statements about brokers “They work for us. They’re our ‘broker of record.’” “We don’t pay them anything.” (Free to township, school district, etc.) “I don’t know how they are paid. But those contributions they make sure are nice.” (Local government official administered truth serum.)

Sometimes, the local government pays the broker directly for services rendered. This is the preferred method since it gives the broker a financial incentive to provide the best advise to the local government. More frequently, brokers are paid by insurance company and PBM When paid by them, the broker’s incentive is to serve the interests of the insurer and PBM. Brokers usually are the primary advisor. How are they paid?

Local Government can pass an Ordinance/resolution requiring: Direct payment to broker by local government for services performed Minimum of three bids for medical insurance/self insurance and PBM services More information: urance_for_municipalities

SHBP/SEHBP Rates and Administration Using SHBP/SEHBP as a bargaining tool

Why are brokers nearly always hostile to SHBP/SEHBP?

SHBP/SEHBP Never Pay a Commission to Brokers – NEVER

So be Wary when a broker says: “SHBP (SEHBP) is in financial trouble. Look at how the rates vary.” (No greater than market variation. SHBP/SEHBP maintain rate stabilization funds.) “Watch out, we just sent our most expensive school district to SEHBP – their rates are sure to go up.” (SHBP/SEHBP are very large plans not greatly impacted by a few local governments. Aon Consultants found that “expensive” groups had no impact after the first year. “The Governor sets the rates.” (It doesn’t happen.)

SHBP/SEHBP Administrative Cost in Comparison Total SHBP/SEHBP Administrative Costs including PBM/Medical Insurer/Division of Pensions & Benefits % Fully insured cost – 10 to 20% Health Insurance Funds – 7 to 10% Self- insurance %

SHBP/SEHBP Advantages Very low administrative costs (Medicare level) Very low Medicare retiree rates Economies of scale in purchase – best price for largest purchasers Probably a build-in 10% advantage for SHBP/SEHBP

But Even with these Advantages Sometimes SHBP/SEHBP Rates are Higher

SHBP/SEHBP Rates One rate for every local government or school district in the state. No experience rating for sicker or healthier/younger or older groups No regional variation

When is SHBP/SEHBP More Expensive? Healthier work force (usually younger) Region of the state is a little less costly You don’t bargain for retirees and SHBP/SEHBP Medicare retirees are lower but SHBP/SEHBP rates for active employees are higher The insurer, PBM, or Health Insurance Fund set the rates low to attract business; rates are not sustainable (expect future increases)

Using the Threat of SHBP/SEHBP to get members a better health deal Faced with losing a big commission, the broker will often do their best to get the carriers to magically re-compute insurance/self-insurance costs to the SHBP/SEHBP level Savings from actually moving to SHBP/SEHBP or savings from the threat of moving have often lead to management dropping health plan give backs

Rx Spending Saving Money and Using those Savings to Protect Members Health Plans

Prescription Drug Spending Generally 20 to 25% of active employee/early retiree costs 50% of Medicare retiree supplemental coverage

PBM Contracts Language nearly always written by PBMs. Even when language seems strong, it is often undefined and unenforceable. Savings normally are illusory Increased costs are used to justify increased copays and payment schemes

Aggressive PBM Contract Negotiating and Monitoring 8-10% savings on total Rx spend See Linda Cahn at