The median cost of benefits for multiemployer health plans increased by 54% over the ten-year period from 2007 to 2016, reaching $10,853 per participant per year (PPPY), according to a new International Foundation report. The consistent increases in costs over the ten-year period required increases in employer and worker/retiree contributions.
Plan demographics also shifted during this time period, with the number of covered retirees increasing by 22%, while the number of active participants increased by only 1%. This increase in the number of retirees can make it increasingly difficult for plan trustees to manage the financial shortfall.
Despite these trends, the financial condition of many of the 1,560 multiemployer health plans has improved. These are among some of the key findings from The Multiemployer Health Plan Landscape: A Ten-Year Look (2007-2016), the third annual report in a series.
Here are 10 key takeaways from the extensive report on multiemployer health plans.
Plans in the Study
- The majority of health plans (between 61.5% and 70.1%, depending on the plan year) offer dental, vision and life benefits in addition to health benefits.
- Health plans may cover active participants, retired participants or both. The percentage of multiemployer health plans covering retirees increased slightly over the ten-year period, from 71.1% to 72.8%.
- The plans in the study have more than five million covered participants. The median number of participants per plan is 980, while the average number of participants per plan is 3,340. In addition, the plans in the study reported having more than 200,000 contributing employers. The median number of employers per plan is 45, and the average number of employers per plan is 149.
Plan Demographics
- Demographics are a key factor in the long-term sustainability of a health plan. In general, it is better for a plan’s financial outlook to have a higher proportion of younger, working participants than older, retired participants. Although the overall total participant counts have remained largely unchanged, the mix of actives and retirees has shifted. Between 2011 and 2012, the number of retired participants increased by 34.0% (from 805,799 to 1,079,958). The retired participant count has remained at a similar level since that time; however, it declined by 5.9% between 2014 and 2016.
- The report also analyzed plan demographics as a ratio of active to retired participants. In 2008, the median ratio peaked at 4.96, meaning there were almost 50 active participants to every ten retired participants. In 2009, the median ratio began to decline and hit its lowest point, 3.84, in 2011. By the end of 2016, the median ratio had increased back to 4.65.
Benefit Costs
- Median benefit costs have increased each year during the ten-year period. The median benefit cost was $7,040 PPPY in 2007, and it increased to $10,853 in 2016, with variations each year. Changes in benefit costs could result from a number of factors, including fluctuations in the providers’ underlying billed costs, variations in health care use or patterns by the plan participants, new health care services or products offered to the market, or changes in the demographics of the participants covered by the plans.
Income
- The financial intake, or income, of multiemployer health plans can be broken into four primary components: employer contributions, worker/retiree contributions, investment income and other income. Employer contributions, which represent the largest source of income, are made on behalf of a participant if all eligibility criteria are met. The median plan’s PPPY employer contribution is $10,802, while the average plan’s employer contribution is $11,129. The median plan’s PPPY worker/retiree contribution is $416, while the average is larger, at $862.
Plan Cash Flows
- To the extent that income exceeds expenses in a given plan year, the plan’s financial status is expected to improve. Conversely, to the extent that income falls short of plan expenses, the plan’s financial status will likely deteriorate. Aggregate income increased over the ten-year period, from $38.5 billion in 2007 to $58.2 billion in 2016. At the same time, expenses also increased from $33.5 billion in 2007 to $52.5 billion in 2016. Net cash flows were positive for 2007 before dropping to –0.9% in 2008. Cash flows rebounded beginning in 2009 and have been positive every year since.
- Another way to evaluate the effects of positive or negative cash flows is to express the income and expenses as a ratio. The ratio of income to expenses has been above 1.00, meaning that income has exceeded expenses and cash flow has been positive, for every year in the past decade except 2008. More recently, the ratio fluctuated from 1.06 to 1.11 from 2009 to 2016.
- A final measure of plan health is plan assets in terms of the number of months of expenses assets can cover. A higher number of months indicates that plan has a greater ability to withstand financial uncertainties including claim variability, changes in the total number covered, changes in demographics of covered participants, and work levels. The median level of assets measured as months of expenses is 13.4, while the average level of assets measured as months of expenses is 23.7.
Learn More About Multiemployer Health Plans
The Multiemployer Health Plan Landscape: A Ten-Year Look (2007-2016) is the third annual multiemployer health plan benchmarking report and is produced in partnership with Horizon Actuarial Services, LLC, and the International Foundation of Employee Benefit Plans.
The comprehensive report covers the plan demographics, benefit costs, income and plan cash flows of multiemployer health plans—providing coverage from more than five million participants.
Related Reading:
- The Multiemployer Retirement Plan Landscape: 10 DC Plan Takeaways
- The Multiemployer Retirement Plan Landscape: 10 DB Plan Takeaways
Justin Held, CEBS
Senior Research Analyst at the International Foundation
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