Will the GASB rule changes hurt retirees?
The post-employment benefits of retired workers are in the spotlight, as a result of a law requiring government employers to measure and report the liabilities associated with post-employment.
Government Accounting Standards Board (GASB) rule changes GASB 43 and GASB 45require state and local government plans to report not only incurred costs for retiree benefits, but the actuarial value of future liabilities. Under this accounting change, the liability associated with these changes can be five to 20 times greater than the actual cash outlays associated with the benefit.
States may decrease their liability by 20%-40% by transferring risks to an Employer Group Waiver Plan (EGWP) provider, and from better matching of GASB costs with future employer expenses. The implications can be far reaching for a municipality or state's finances, since this can lower debt ratios, says Ilene Marcus, senior director of pricing for Medco Health Solutions' Retiree Solutions group.
Higher bond ratings possible
The improved financial flexibility offered by EGWP could lead to higher bond ratings, accompanied by lower borrowing costs and bond insurance premiums, effectively benefiting taxpayers, she says.
While prescription plan sponsors gain benefits from using the EGWP in terms of cost and flexibility, retirees also benefit from this option. This, in turn, can result in retiree goodwill and better employee retention, according to Ms. Marcus.
"Retirees will also appreciate that an EGWP can be designed to offer a retiree benefit that is more robust than the standard Medicare plan," says Ms. Marcus. Many plan sponsors enhance their benefit to go beyond CMS standards for a Medicare Part D plan. While CMS sets a baseline for deductibles, the "doughnut hole," the point of catastrophic coverage, and the minimum formulary, employers can fill in coverage gaps where they may feel the standard plan is not a rich-enough benefit, she explains.
CMS also requires that Part D plan sponsors such as EGWPs offer certain clinical programs to help members effectively utilize the prescription benefit. For example, the Medication Therapy Management (MTM) program educates members with chronic diseases about their treatment programs to ensure they are using their prescribed drugs properly so they will realize the optimum benefit from the treatment.
"Patients needing MTM programs usually have multiple chronic diseases, such as diabetes and cardiovascular disease, and are likely to have high medication costs," says Ms. Marcus. "These programs can help prevent adverse events, such as drug interactions, and are focused on reducing the risk of costly hospitalizations."
Contact Ms. Marcus at (201) 269-6402. Fax: (201) 269-1109.