The median cost of benefits for multiemployer health plans increased 47% over the ten-year period from 2008 to 2017, reaching $11,201 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, with the number of covered retirees increasing by 22%, while the number of active participants decreased by 10%. 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 1,535 multiemployer health plans has improved. These are among some of the key findings from The Multiemployer Health Plan Landscape: A Ten-Year Look (2008-2017), the fourth annual report in a series.
Here are ten key takeaways from the extensive report on multiemployer health plans.
Plans in the Study
- The majority of health plans (ranging from 61.5% to 70.7%, 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 71.2% to 72.7%.
- The median number of plan participants is 982, while the average number of plan participants is 3,404. In addition, the plans in the study reported having more than 200,000 contributing employers. The median number of employers is 46, and the average number of employers is 150.
Plan Demographics
- Demographics are a key factor in the long-term sustainability of a health plan. In general, a plan’s financial outlook should 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. Median health participant ratios experienced a sharp decline after 2008, and the decline continued through 2011. Since 2011, median participant ratios have steadily improved (up to 4.88 in 2017) but have not yet returned to 2008 levels (4.96).
Benefit Costs
- Median benefit costs have increased each year during the ten-year period. For 2017, the median PPPY cost is $11,201. The average cost is very similar—$11,085, a 1.8% increase from 2016. Changes in benefit costs could result from several 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 $11,208. The average plan’s contribution is larger—$11,542, which shows an approximate 3.7% increase in both numbers from last year. The median plan’s PPPY worker/retiree contribution is $402. The average plan’s contribution is larger at $884. Compared to 2016 results, the median worker/retiree contribution decreased 3.4%, whereas the average increased 2.5%.
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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 has increased over the past decade, from $33.3 billion in 2008 to $62.0 billion in 2017. At the same time, expenses have also increased over the past decade, from $33.5 billion in 2008 to $54.9 billion in 2017. Net cash flows were negative in 2008 before rebounding 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 on a PPPY basis 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 0.99 to 1.13 from 2008 to 2017.
- 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 the plan has a greater ability to withstand financial uncertainties including claim variability, changes in the total number covered, work levels and changes in the demographics of covered participants. The median level of assets measured as months of expenses is 13.9. The average level of assets measured as months of expenses is larger, at 24.9. This is an increase of a half month in the median level and one month in the average level, compared to last year’s results, an indication of the improved financial health of the funds surveyed during those periods.
Learn More About Multiemployer Health Plans
The Multiemployer Health Plan Landscape: A Ten-Year Look (2007-2016) is the fourth 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]
Justin Held, CEBS
Senior Research Analyst at the International Foundation
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