Retirees receive funding for benefits for life

A new retiree medical exit solution announced March 24th by Towers Watson uses customized group annuities and an innovative transaction structure to overcome the traditional hurdles to an exit — with positive tax implications for employers and preservation of benefits for retirees.  Longitude Solution is available to existing and prospective clients of the Towers Watson OneExchange private Medicare exchange.

Both public and private sector employers have long sought an exit solution to address the high cost of retiree medical benefits as well as the many regulatory and legal obligations associated with a retiree medical program. Rising health care costs, especially for older individuals, make offering retiree medical increasingly unaffordable, even for the largest organizations.

In addition, retiree medical creates balance sheet liabilities and income statement expense while diverting management time from more strategic benefits strategies.

Why haven’t employers exited retiree benefits before?

The fact that more employers haven’t simply stopped providing the benefit speaks to the complexity and risk of an exit.

Public sector employers and many private sector companies have long-standing contracts with unions that guarantee funding of retiree medical benefits for life. Even without a union or written contract, no employer wants to be sued by its retirees.

Beyond the possibility of a lawsuit is the concern employers have about ending a benefit that seniors on fixed incomes depend on as well as the negative press that might be associated with doing that.

Hurdles (and their solutions) to an annuity-based exit

Employers and their benefits consultants have long known that the ideal way to exit retiree medical is through a group annuity. However, to be successful, the annuity would have to do the following three things: 1) end an employer’s legal obligation once and for all, 2) avoid adverse tax consequences for both employers and retirees, and 3) create economic value for both parties.

But before a group annuity could be part of a retiree exit solution, the following four hurdles had to be overcome:

Hurdle #1: Medical inflation is a risk that cannot be hedged, and an annuity for retiree medical benefits cannot be issued unless medical inflation risk has been eliminated.

Solution: Medical inflation risk is eliminated when an employer moves from defined benefit (DB) approach to a defined contribution (DC) plan because benefits are capped to a fixed dollar amount per year.

If the transition is made with Towers Watson’s OneExchange private Medicare exchange, the added benefit is that the employer has a platform for administering the annuity and retirees don’t have to change how they purchase plans and get reimbursed for medical claims.

Hurdle #2: Retirees do not pay taxes on medical benefits funded through a tax advantage account such as an HRA, but they would have to pay taxes on existing annuity benefits as income.

Solution: By specifying that distributions can only be used for medical insurance premiums and other medical costs, an employer can mirror its existing plan design while shielding distributions from taxation.

Hurdle #3: Employers cannot deduct the full annuity payment at the time of purchase because premiums paid for long-term contracts, like annuities, must be amortized for tax deductions.

Solution: The annuity solution includes a series of transactions that are commonly used in retirement benefit plans that make the purchase price deductible right away.

Hurdle #4: Employers must address commitment made to retirees before removing the retiree medical liability from the balance sheet.

Solution: The certificates issued under the annuity are irrevocable commitments that transfer an employer’s liability to the insurance company, eliminating the employer’s obligation.

Fulfillment of obligation, peace of mind

With these hurdles overcome, both public and private sector employers can use the Towers Watson annuity-based exit solution to fully exit their legal, accounting, and regulatory responsibilities. The solution should also give retirees peace of mind because they would have tax-free funding for medical benefits from a highly rated insurance company for the rest of their lives. 

This type of retiree medical exit solution is the end of a journey that many employers began decades ago — at the time, with no clear path to exit in sight — and can now finish, in a way that meets the needs of employers and retirees alike.

For more information about the Longitude Solution, read the article in Tower’s Watson Corporate Finance Matters.

ACERA uses Towers Watson's OneExchange

Bay Bridge at night with Alameda County in the background

Each year, Kathy Foster and team analyze the funds in their organization’s trust to figure out how long the money will last. More than 20,000 people rely on those funds when they retire – for income and health coverage – one of the biggest costs in retirement.

Foster is Assistant CEO of the Alameda County Employees’ Retirement Association (ACERA) – steward of the retirement benefits fund for the nation’s seventh largest county.

In February 2012, ACERA was one of California’s first counties to use a private Medicare exchange. A year later, ACERA is sharing how it made the decision, what the move entailed and taking a 20/20 look back to measure projections.

Read Building a Bridge to the Future: ACERA’S Retiree Medical Strategy.

Learn more about Towers Watson’s OneExchange solution for retiree healthcare.

If the ACA is successful, eventually we’ll have as many as 30 million more people who will be insured. As it stands, we don’t have enough primary care physicians to meet this new demand. There are many possible solutions. We’re exploring 3 of them in a series of posts:

1. Shortening the amount of time it takes to get a medical degree and expanding residency programs to get more doctors into the workforce more quickly.

2. Empowering medical professionals to take on more of the responsibilities of primary care physicians, working under their supervision. These professionals include physicians’ assistants, nurse practitioners, pharmacists, nurses and others.

3. Using technology – telephones, email and telemedicine — even remote monitoring — to extend the reach of physicians — especially for people in remote and rural areas.

This is Part II of a 3-Part Series. Click here for Part I in the series and come back to the blog for Part III in coming weeks.

First, some startling statistics.

Doctors spend an average of just 12 percent of their day with patients. According to another study, new doctors spend just 8 minutes with patients during an appointment providing “direct care.” The rest of their time is spent filling out forms or reading charts, also known as “indirect care.”

Doctor time is at a premium as it is — split between roles as form filler, prescription writer and primary care giver — and their time is about to stretched even thinner. As people newly insured under the Affordable Care Act go to primary care physicians (PCPs) for the first time, doctors will be hard-pressed to keep up.

This is where nurses and pharmacists come in.

Many health care experts have suggested that transferring some of the responsibilities of PCPs to local pharmacists and nurse practitioners will free up physicians and result in better care for patients.

The Doctor Pharmacist Is In

“[Pharmacists] are the most overeducated and underutilized healthcare professionals in the U.S.,” said R. Pete Vanderveen, dean of the USC School of Pharmacy. “It doesn’t take eight years of education and a professional doctorate to fill a bottle with pills.”

Pharmacists can already give immunizations and provide some in-person consultations. Some legislation is already on the books, in places like California, that goes further — enshrining in law an expanded role for pharmacists.

Read the rest of this entry »

Wellness data is very “in” these days. Wearable technology such as FitBit allows individuals to track their fitness activity and apps let people track calorie consumption or weight loss.

The recent data released on Medicare doctor pay has unleashed a firestorm of controversy because of the amount of money some doctors made from treating Medicare patients — as much as $21 million in the case of one opthamologist. The Centers for Medicare and Medicaid Services released the data this week, for the first time in 35 years. The data had been held subject to the resolution of  an injunction, sought by the American Medical Association, which had been in place since 1979.

But it’s not all bad news. Think of this as another kind of wellness data. Essentially it is wellness data, a level up — data on the “wellness” not of the individual, but of the Medicare system as a whole.

The specific dollar amounts will be repeated and repeated as evidence of excess and even criminal activity on the part of some doctors. But the longer term takeaway is that data facilitates transparency. [To see exactly what reimbursements were state by state, check out this interactive map from USA Today.]

“Taxpayers have the right to understand what is being paid for and how it is being paid for,” said Jonathan Blum, principal deputy administrator for the Centers for Medicare & Medicare Services.

In addition to it being a taxpayers’ “right,” having this full data transparency allows Medicare administrators to identify areas of excess and inefficiency and consumers to compare prices. It also allows all of us to consider broader questions about health care in the United States, for example, why some surgeries are performed more or cost more in one geographic area as opposed to another.

Shining the light on this data opens up the Medicare program to be improved, streamlined and  hopefully, made sustainable for generations to come.

The New York Times called it a “quiet sea change.” The Centers for Medicare & Medicaid Services calls it “Change Request 8458.” Regardless of what it’s called, a relatively unpublicized update to the Medicare policy manual made in January 2014 will have a profound impact on millions of Americans who suffer from chronic diseases that are progressive and for which certain types of care can only maintain a patient’s condition.

In other words, the update makes it clear that improvement is not necessary to receive Medicare coverage for skilled care.

The update was a long time coming. The process began back in 2011 when Glenda Jimmo, along with five other Medicare beneficiaries and seven national organizations (including the National Multiple Sclerosis Society, the Parkinson’s Action Network, and the Alzheimers Association) took Health and Human Services director Kathleen Sebelius to court for adopting “an unlawful and clandestine standard to determine whether Medicare beneficiaries are entitled to coverage.”

This standard reduced or outright denied coverage for services that were not actively making the patient better. Plaintiffs argued that people “not expected to improve” were being treated as “less worthy” of coverage. Proof was in language in the manual that described people in this category as needing “maintenance services only” or as patients who had “plateaued.”

Jimmo and the other Medicare recipients won their case in December 2013, leading to the manual updates in January 2014. An excerpt from the change order explained the intent of the change: “to clarify that coverage of skilled nursing and skilled therapy services… does not turn on the presence or absence of a beneficiary’s potential for improvement, but rather on the beneficiary’s need for skilled care.”

This change marked a victory for Medicare recipients struggling to get coverage for care outside the bounds of purely “improvement-based” treatment. What’s most important is that people who have these conditions – Alzheimer’s, Multiple Sclerosis, and Parkinsons, just to name a few – need to know about this as it is hugely important to them and their quality of life.


Check out some hard-hitting questions on how private exchanges can measure up as a cost-management tool by Towers Watson’s Managing Director of Exchange Solutions, Bryce Williams.

Originally posted on Watch This:

Skyrocketing health benefit costs have made cost management strategies a concern for every company officer. CFOs feel this acutely and are looking for solutions that transcend the traditional.

I spoke with three engineers of the next frontier of benefits delivery – chief actuary Dave Osterndorf, strategist Ben Pajak and active employee exchange expert Cathy Tripp – to get their best advice on how CFOs can leverage health insurance exchanges to tame health benefit costs now and down the road – when the stakes get even higher. 

Here are their best thoughts on what’s driving the savings on exchanges, how much employers can expect to save and the impact on HR and benefits.

  1. What can exchanges really deliver?
  2. What about the Cadillac tax?
  3. What about so-called single-carrier exchanges?
  4. Is it realistic to expect the best health care price in every region?
  5. How can employers fund benefits on exchanges?
  6. What data and reporting can I expect…

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During an interview with Lisa Zamosky, WebMD’s health care reform expert, President Obama said the pool of 4.2 million people who have enrolled in health plans on the federal exchanges was “already large enough.”

Large enough for what, you ask? The answer: large enough to spread risk and cost, and ensure the stability of the program. His full statement:

“The basic principle of insurance is pretty straightforward: the more you can spread the risk with more people, the better deal you are going to get. Now the pool is already large enough. The number of people who’ve signed up is already large enough that I am confident that the program will be stable.”

President Obama’s comment seemed innocuous in the context of the interview, which addressed questions from the online community about the health care law on topics including premium prices, ongoing issues with the website, and navigators. However, as a standalone statement, it was big and bold. After a rocky start, the President was declaring the federal exchange a success, having hit the benchmark that would allow it to run sustainably.

Hitting the outer rings of target is one thing. But reaching this particular target was akin to hitting a bullseye.

Bryce Williams, Managing Director of Exchange Solutions for Towers Watson, confirmed the President’s statement, with a caveat. “We would agree with the president,” Williams said, “but it’s really on a state-to-state basis.”

In other words, the enrollment numbers for the state-run exchanges are as important, if not more important, than the numbers for the federal exchange.

Also important is the demographic breakdown of that 4.2 million, which has since increased to 6 million as of this writing, according to official statements. With just days remaining until the end of the open enrollment period [except for those who qualify for recent deadline extensions], hitting the right demographic mix is especially important.

While the Obama administration initially courted “young invincibles” as the target demographic to support the exchange, 18-34 year olds in a good state of health, the target demographic was later expanded to included healthy Americans of any age. The rationale is that healthy Americans of any age offset sicker Americans who require more, and costlier care. The President has changed his tune to health, not youth, as the important attribute here.

President Obama concluded the interview predicting that “as people start feeling more confident about the website” and “some of the politics of the thing get drained away,” the enrollment numbers will continue to grow and in coming years, premiums costs will fall.

The final numbers for this very first enrollment period for public exchanges will be rolling in over the next few weeks, along with the demographic breakdown of those who purchased plans.

Let’s start with the problem. If the ACA is successful, eventually we’ll have as many as 30 million more people who will be insured. We don’t have enough primary care physicians to meet this new demand. There are many possible solutions. We’ll explore three of them in a series of posts:

1. Shortening the amount of time it takes to get a medical degree and expanding residency programs to get more doctors into the workforce more quickly.

2. Empowering medical professionals to take on more of the responsibilities of primary care physicians, working under their supervision. These professionals include physicians’ assistants, nurse practitioners, pharmacists and nurses.

3. Using technology — telephones, email and telemedicine, and remote monitoring — to extend the reach of physicians, especially for people in remote and rural areas.

Today’s blog is Part I. Click back to the blog for Part II and Part III in the series in coming weeks.

The ACA will enable millions of uninsured Americans to get health insurance. But experts say that a shortage of primary care physicians could prevent many of the newly insured from getting access to medical care.

The Department of Health and Human Services (HHS) estimates that there will be about 15,230 too few physicians in coming years to meet the need and that the shortage will only grow.

Read the rest of this entry »

Are the sky and the number of available jobs really falling?

Not surprisingly, commentators on both sides of the aisle had a lot to say about the recently released report on the economy from the Congressional Budget Office (CBO).

While the report had some good news — for example, under current laws the federal deficit is projected to drop from $1.4 trillion in 2009 to $514 billion by the end of the 2014 fiscal year — another section of the report was less positive. It concluded that a 1.5 to 2 percent reduction in the number of hours worked in the economy will result in approximately 2 million less full time workers.

The reason for the reduction in the number of hours worked? A provision of the Affordable Care Act requiring employers to offer health insurance to any worker logging more than 30 hours a week. [Update: This provision, also known as the “employer mandate,” has been delayed for a year.]

In response to the fallout from the report, Council of Economic Advisors chairman Jason Furman, pointed back to the data, saying “It puts to rest… some of the more overwrought arguments about how the sky would fall.”

There are several contentious topics within this argument. Here they are and here’s who is taking what position on them.

Topic 1: Are people “losing their jobs” or “choosing to work less”?

Position 1: Said House Majority Leader Eric Cantor, “Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.”

Position 2: According to the CBO report, the decline in work will be “almost entirely because workers will choose to supply less labor” [emphasis added]. Without the need to stay at a full-time position to retain health benefits, overworked families can work less and still get health benefits, or individuals can go part-time in order to go back to school, leave a job in order to start a business, or look for other, more fulfilling work, without losing coverage.

Topic 2: With a full time job no longer necessary to receive health insurance, will unemployed Americans “not be motivated to hunt for jobs” or “will they voluntarily reduce their hours to pursue education, alternative careers, or elder care”?

Position 1: A writer from the Daily Beast suggested that eliminating the need for full time employment to receive health care coverage will have the unintended consequence of enabling the perennially unemployed and the 30+ year old parents’ basement dwellers to not pursue full time work.

Position 2: White House Spokesman Jay Carney explained that “because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families.”

Topic 3: Is the employer mandate causing employers to reduce hours for workers so they don’t have to provide coverage for their employees?

Position 1: Some have speculated that another reason for a decline in jobs would be that employers — now required to provide insurance to their full-time employees — would reduce employee hours to make them part-time, thereby freeing themselves from the requirement to cover them. Recent reports indicate that some employers (at least in the public sector) are using this tactic, though it is difficult to say if the practice is widespread.

Position 2: According to a statement made by White House Press Secretary Jay Carney, “CBO’s findings are not driven by an assumption that ACA will lead employers to eliminate jobs or reduce hours, in fact, the report itself says that there is ‘no compelling evidence that part-time employment has increased as a result of the ACA.’”


There are several takeaways here. One is that one benefit to workers putting in less hours or leaving jobs they don’t like is an increase in satisfaction, which may lead to less sick days and reduce feelings of “job lock.” Another is that the vacuum left by these workers can also be filled by the unemployed or others potentially better suited for the positions vacated.

According to a piece in Politico, we can also expect more money (from subsidies) to create more demand for services among low and middle income families, as not all money will be going towards health insurance costs. This freeing up of income, they argue, ultimately stimulates economy, leading to more jobs.

Simply put, consensus is that the ACA may shrink the total number of full time jobs temporarily, but in the long term it has the potential to be responsible for greater job satisfaction among workers.

Looking back at this year’s Super Bowl, a survey revealed that about 78 percent of people polled said they were more excited about the ads than the actual matchup between the Denver Broncos and the Seattle Seahawks.

For good reason. Advertisers spend millions of dollars for a few seconds of the coveted airtime, so they try extra hard to make the ads distinctive. They often involve puppies or comically bad dance moves or both. What’s not to love?

But another type of ad has been hitting the airwaves lately: ads promoting enrollment in health insurance exchanges specifically targeted at the young uninsured.

“I don’t need those! Hah!” actress Aisha Tyler crows as she declines a set of football shoulder pads. The ad, created by humor site Funny or Die, then cuts ahead to Tyler being viciously tackled by a burly linebacker. (The actress was mercifully replaced by a stand-in mannequin for this particular shot.)

Best known for her role on the animated TV show Archer, Tyler plays out a series of scenarios — a neglected mouthguard, a snipped seatbelt and a discarded athletic cup — with all ending with Tyler crumbling to the ground as the result of some gruesome injury. The takeaway? “You never need health insurance… until you need it.”

This was just one in a series of new Funny or Die videos promoting enrollment in plans under the Affordable Care Act, following several others last year that featured Jennifer Hudson and Olivia Wilde.

Midway through last year, the creators of the Funny or Die website were approached (though notably not paid) by the Obama administration to create a series of videos aimed at encouraging young adult enrollment.

Enrollment for the coveted “young invincibles,” a demographic of uninsured individuals aged 18-34, stands at approximately 27 percent of the total enrollment as of the most recent numbers. This compares to administration targets of 40 percent for this demographic.

Connecting with young people through funny, bite-sized videos was a savvy move and hopefully it will boost enrollment closer to targets.

Check out this video in the series featuring the tagline “Everybody falls.” Pardon the pun, but this one hammers the point home about the benefits of health insurance.


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