Nina Krammer (00:19):
It's my absolute pleasure. Barry. By way of introduction, could you tell our listeners your full name as well as what you do here at WTW?
Barry Carleton (00:30):
Absolutely. Uh, Barry Carlton, I've been with WTW since 1988 in the health and benefits practice for about 35 years, consulting with employers on all aspects of active and retiree welfare. Early on, for some strange reason, I found an affinity for Medicare and other aspects of retiree medical. Started pursuing work in that area and found that there was quite a bit to do to keep me busy and occupied. Um, a couple of years ago, I actually retired from Health and Benefit Consulting, retired for a short period of time, enrolled in Medicare, and then returned to work at WTW in our individual marketplace, focusing exclusively on retiree medical at this point in my career.
Nina Krammer (01:18):
Well, we're incredibly lucky that a, we have someone who's passionate about retiree medical as well as someone who's gone through the experience themselves. So mm-hmm, <affirmative>, it brings that extra layer of expertise. Uh, thank you again for being here today. So what brings me to inviting you on Eye on 65 is the recent legislative changes introduced by the Inflation Reduction Act of 2022. And if you could just acclimate our listeners to what those changes were initially, and then we can get into some more of the specifics and details of what that means for plan sponsors.
Barry Carleton (01:58):
Sure, certainly. And, and for that, I'll focus on the changes affecting Medicare pharmacy in particular, and probably the most significant set of changes to the program since its inception in 2006. One, sort of the public headlines, the government is now negotiating with pharmaceutical companies on the price of certain high cost Part D drugs. That effort will expand over time to additional drugs and part D and part D.
Barry Carleton (02:30):
Um, but the short story is that the pharma industry is asked is being asked to contribute more to the financial welfare of seniors through their prescription drug programs. Within the plan itself. The major changes coming in 2025 include a new much lower out-of-pocket maximum, replacing the very confusing array of provisions in Part D prior to 2025, with a new and much simpler design that has a base for standard coverage deductible co-insurance level that is typically gonna be provided through, uh, equivalent copays and co-insurance with caps and a $2,000 out of pocket maximum. So no one will pay more than $2,000 out of pocket next year. Within that. And these benefit changes that enhance benefits for seniors in in Part D, there are fundamental changes in the underlying financial picture on how insurers are compensated for providing Part D coverage. Of course, some of the funding sources has to be enough for them to be able to earn reasonable profit when considering the premiums they collect from retirees, the out-of-pocket costs paid by retirees at the pharmacy.
Barry Carleton (03:48):
And then the funding that comes from the federal government and the pharmaceutical industry, again to help balance the books on Part D. So the visible changes very favorable to retirees. Improved benefits will lower out of pocket maximum. Some existing preexisting changes include a cap on the price of insulin and expanded coverage for vaccines. Um, but the big change in 2025, the new out-of-pocket limit, the much simpler plan design and also really a very important program for many seniors called the Medicare Prescription Payment Plan M three P, which is an option for all members in Part D to elect to spread their out-of-pocket costs out over the course of a year, uh, free to sign up. Easy to do if seniors sign up for that provision for 2025 at any point, then they'll pay nothing at the pharmacy and their remaining balance will be billed to them according to a federal formula over the balance of the year. So another provision that doesn't change the retiree liability, but helps retirees manage and budget better through the year. So another pretty important provision in smoothing out costs as well as lowering costs for retirees for, so a big package of change, benefiting the 50 plus million people in part D. Uh, a lot of complexity for the insurers, for employers who are sponsoring Group Part D plans and for, for all the administration related aspects to make all this work properly.
Nina Krammer (05:24):
So Barry, it sounds like to anyone who is even remotely familiar with the changes that the IRA has had specifically to Part D in healthcare, that it really has a lot of benefit for retirees. What kind of implications that might not be immediately apparent should plan sponsors be thinking about?
Barry Carleton (05:50):
Employers who sponsor group Part D plans, so let's go back a little bit to the creation of Part D In 2006, it came out of the Medicare Modernization Act passed in late 2003 when the program was created. The legislators understood that many employers provided prescription drugs to their Medicare seniors and they elected to include provisions to encourage employers to retain group sponsored plans for their post 65 pharmacy. And they did that through a couple of different avenues. And one was what was called the Retiree Drug Subsidy program, which is still in existence. But a much more popular approach was for employers to sponsor their own custom group Part D plans. So if we speak of the employer as the sponsor of the group Part D plan, there are some specific implications for those employers here. So as the sponsors of the plans, and these are often self-insured, those employers are paying the claims.
Barry Carleton (06:52):
They're responsible for covering the cost of the drug, less whatever copays applied to their members. The challenges here are that with the remixing of the financial components, employers who've been relying on the funding for EGWP that they receive as EGWP sponsors from CMS in the pharmaceutical industry, same as insured RT plans, that formula is being upset in a way that's hard to predict. And so employers don't know for sure how they're going to fare financially in terms of the reimbursements they receive behind the scenes from these sources. It's kept actuaries and consultants and others busy in trying to predict the future. But it's especially challenging because A, we have an inflationary environment already and that affects the cost of healthcare and prescription drugs. B, we have these benefit enhancements that apply to all seniors on Medicare Part D. When you enhance benefits and reduce the cost that people pay, they start to utilize drugs differently.
Barry Carleton (08:00):
C, we have the government's role for the first time in negotiating pharmacy prices, which will have some uncertain effects. And then D employers are left wondering what all of this will mean for them financially over time. What will it mean for their accounting obligation they hold on their books for their retiree medical liability and what might it mean for their, uh, prospects of managing the program effectively. In terms of the financial impact of these changes, will they need to change terms for retirees as far as design or cost sharing in response to some of these potential pressures?
Nina Krammer (08:37):
So for plan sponsors of Group Part D, they've probably heard about this by now and either they have been preparing for it or they're maybe sitting in a little bit of this limbo. As you mentioned, there are these unpredictable factors. What would be some of the recommendations that you would give to those particular employers who haven't maybe taken action yet?
Barry Carleton (09:03):
I think most are aware of these changes. They're hearing employers who sponsor EGWPs are pretty much all working with the PBMs who administer these EGWPs plans on their behalf. And I think they're, these employers are hearing from those PBMs. They're certainly hearing from consultants and advisors and others in the marketplace. Given the uncertainty, some employers may be stepping back and saying, alright, let's let this unfold a bit and get more of a sense of how all this might affect us in terms of the cost of our plans and the value of the reimbursements we obtain from these other sources. And my response to that would be that may be okay if you're not under significant financial pressure, but if you are under pressure, if you're an employer who, like many has taken steps to curtail your eligibility and commitment toward retiree medical, a cost surprise may not be welcome and may trigger a need to take a closer look at your plan terms to determine if your current course is sustainable or not. Some employers are deeply committed to continuing to sponsor these group plans and are well positioned financially to absorb cost shocks may step back and wait, but most employers probably aren't in the boat where they can just sit back and wait to see what's going to happen. So many employers have taken some action, uh, and others will consider action over time, especially as the real world impact of these changes starts to become known as we move into 2025
Nina Krammer (10:39):
For EGWP sponsors who are on a traditional one, one plan year and they decide, mm-hmm <affirmative> to take this, let's wait and see approach. Mm-Hmm <affirmative>, is there anything that they could do, even if they are on a one one plan year, that where they see action might be needed to be taken sooner rather than later? What would you recommend to that type of employer?
Barry Carleton (11:03):
Well, that's a hard question to answer, Nina, because the real world impact won't become known within a few months. Again, I'm speaking about the <inaudible> sponsors. Were largely self-insured. They're paying the claims, they're receiving the reimbursements, they're paying a PBM to administer the plan. The new flow of money won't become really clear for probably a couple of years after 2025 starts. And so many employers won't have luxury of waiting to see how this looks and may need to consider action based on reasonable educated projections while projections get a little better. Once we have some of 2025 under our belt, probably will they be as clear or precise as employers might like? Hard to say. Uh, we're in a period of extended uncertainty here around the financial impact of these changes. And it will take the minimum of several years before it really starts to settle down and become clear to the Part D community insurers, employers and members, what all these changes mean long term.
Nina Krammer (12:15):
Obviously there are cost pressures, especially for employers who might not have that financial padding that that would be really nice, that cushion to have Right. Uh, in this time to wait it out. Mm-Hmm. <affirmative> a few years. Besides the cost pressure, are there any other types of risks that employers should be thinking about?
Barry Carleton (12:34):
We think in general, employers should be thinking about risk at all times throughout all aspects of business, including certainly self-insured, retiree healthcare presents a significant number of financial risks in the financial wherewithal to withstand those risks may be more limited what some employers have done to address the unknowns and the risks in the retiree medical world, especially if they're moving away from their commitment longer term as they look to an individual market approach, an approach by which they cease sponsoring group plans, turn the risk over to the insurance carriers themselves and help their retirees elect individual market plans. And that's one of the other really key trends here, that over time as legislation has improved Part D, it's also improved Medicare Advantage plans and created a marketplace for insurance for people of all ages. With the ACA. What that means is that many employers who started sponsoring group plans in order to fill the gaps that existed in the individual market are now in a position where the individual markets for all ages have gotten very strong.
Barry Carleton (13:48):
Enrollment has grown, underwriting pools are stable. We all know that stats about the number of people becoming Medicare eligible every day. As the boomers retire, we know that the enrollment of the ACA is up to its highest level and it's showing more stability. Central question for some employers is if you've been sponsoring group plans to help fill some of the gaps that existed in the individual marketplace, and many of those gaps have been filled now by legislative action, not lease the inflation reduction act filling in the remaining gaps in Part D, what's the rationale to continue group plan sponsorship? Some employers will say, that's our business. We're committed to it. We have agreements, we have no desire to exit group plan sponsorship. But others will say, if the need for group plan sponsorship is not there the way it used to be, then we ought to consider alternatives. And that's one way of very effective risk management, shifting that risk onto the insurance carrier world and frankly, uh, the government and the taxpayers to deal with the cost and uncertainty relating to continuing benefit enhancements.
Nina Krammer (14:57):
You brought up a point earlier too, about promises being made to retirees. Mm-Hmm. <affirmative>. So using the suggestion here that moving to an individual marketplace model could be a great solution in this particular instance, sometimes I hear in talking with plan sponsors and even with retirees, is when they hear about a big change or big overhaul in what they're used to, especially from the retiree perspective. Mm-Hmm. <affirmative> that they say, wait a second, hold on. This is what I've been promised. And now all of a sudden you're taking your promises away, your benefits away. And there can be a lot of fear around that. How would you address that?
Barry Carleton (15:38):
I would never minimize the concern that retirees might have about change and the fear employers may have about, uh, imposing change on retirees. It's a difficult area and retirees like certainty, and we prefer in many cases for things to stay the same as they are. But having said that, many employers have made the change that I'm talking about, including many very well known large employers in the country have made the change by saying, we no longer need to be involved in delivering benefits when the individual market will take care of that, we may give you some money to help with that purchase. These plans are insured, they're highly regulated by the federal government and by the states. Consumers have protections available to ensure that these plans meet their needs. And many employers have found that once that change made, the adverse reactions weren't what they thought they might be.
Barry Carleton (16:32):
Retirees for the most part are able to find coverage that works for them. In many cases, coverage that is more favorable than what they had through their employer. And with them retirees may say, yeah, that wasn't so bad, especially if they have a competent third party, helping them make plan elections and making the process of evaluating and enrolling in plans easier. But for some employers, especially those who may have groups with unclear reservation of rights, those employers should tread carefully before making changes. But most employers have known that it's imperative to retain rights to change their plan, but these changes can be made and they can be made in a way that does not need to be adverse to a retiree's interest. Most retirees will end up just fine after this type of transition to the individual market. Not everyone will call you with, you know, send you favorable cards and, and flowers and letters <laugh>, and not everyone will do that.
Nina Krammer (17:33):
Well, earlier you also alluded to funding for this, I assume you mean in the form of, uh, an HRA
Barry Carleton (17:40):
Yes. A health reimbursement arrangement. So the government created this arrangement a couple of decades ago. It's really very, very flexible. Gives employers a great deal of latitude to do many things. HRA are often embedded in active healthcare plans as a vehicle to provide some upfront funding controlled by the consumer. But in the retiree world, we can disconnect them from the plan. That's the beauty of this. An employer can say, alright, I'm going to give my retirees $2,000 a year in an HRA that they can use to offset premiums and out-of-pocket costs. In the individual market plan of their choice, employer is still sponsoring a plan. The HRA is still on ERISA plan. The employer's risk is limited to its $2,000 contribution. In this example, there's no more insurance risk administration is drastically reduced because you're only funding an HRA and you are not contracting with insurance carriers and managing insurance plans. So the HRA is a tax favored very flexible vehicle that employers can use to ship their funding, disconnect their funding from the plan election that retirees make. Retirees can now use the funding toward the plan of their choice, and thereby increasing the flexibility for retirees to make good decisions without the employer telling them, here's the plan that you get and you need to take this plan to get my funding.
Nina Krammer (19:11):
You know, you bring up a good point around choice. A lot of retirees end up moving, for example, away from maybe where they were actively employed, maybe their snowbirds and spend time half of the year in one place or another. So, uh, having that choice, different networks might be something that's really important and valuable to them. Mm-Hmm, <affirmative>, so just to summarize what I think I hear you say is that there's a $2,000 funding option in the, in an A tax favorable HRA that
Barry Carleton (19:42):
Or whatever amount the employer chooses to provide.
Nina Krammer (19:4):
Okay. So it is a flexible amount. It could be any amount that, that the employer so chooses they mitigate their risk. They also lower or eliminate their administration burden very substantially and provide the retirees choice. And they're still fulfilling obligations or promises that they had made. Even if it takes on a different form,
Barry Carleton (20:08):
Changing the way that they provide the benefits and shifting from the plan we've designed with the funding, we've allocated, take it or leave it to a funding option that people can use to pick the plan that works best for them based on where they live and the type of provisions that matter the most to them.
Nina Krammer (20:28):
So we're about out of time. If I could ask you, if you were to hop onto an elevator with a plan sponsor and you had 30 seconds in the elevator with them, what would you tell them about anything about what we just discussed?
Barry Carleton (20:44):
It's a great time to take a look. If you haven't reviewed your plans for some time, the changes in the environment create great opportunities for employers to consider alternatives to the status quo that can take advantage of the developments legislated by the government and help employers reduce cost and risk.
Nina Krammer (21:04):
Well, Barry, thank you so much. I hope that for our listeners that you, uh, were able to break down what to me is a very complex and nuanced subject. And of course, if they have any questions, they're always welcome to reach out to us through our website and follow up with any questions specifically for you that can be directed to you as well. Is that correct?
Barry Carleton (21:28):
Certainly.
Nina Krammer (21:29):
All right. Well, great. Thank you again for being here, and thank you to our listeners for being here as well.
Barry Carleton (21:34):
Thank you.
Nina Krammer (21:36):
You've been listening to Eye on 65, a podcast by WTW. For more information on Via Benefits and the solutions we provide, visit optimize retiree benefits.com. That's optimize retiree benefits.com.
