From school districts to cities and counties, public entities have always had to balance a lack of revenue with increasing demands for service, especially when it comes to funding employee and retiree health benefits. The latter used to be funded on a pay-as-you-go basis, but the Affordable Care Act is now forcing entities to reflect future retiree benefit costs in current budgets. With people living longer and the cost of health care continuing to rise, finding ways for public entities to finance retiree obligations is more important than ever and presents a tremendous opportunity for brokers.
The high cost of prescription drugs is one of the biggest financial concerns for retirees. For brokers with clients in this space, one way to ease this distress is to introduce clients to employer group waiver plans (EGWPs, usually pronounced egg whips) as a solution to the problem of retiree drug coverage.
EGWPs make it possible for employers to contract with an employer group prescription drug plan (PDP) sponsor to provide drug benefits to retirees. The sponsor then interacts with the federal government on behalf of the employer and retains a fee, but passes all of the government subsidies to the employer.
EGWPs have been around since 2006, but have previously been eclipsed by the Retiree Drug Subsidy (RDS) program created by the federal government to stop companies from dropping retiree drug benefits and enrolling their retirees in Medicare Part D base plans. However, with the changes created by the ACA, RDS is becoming less attractive and EGWPs are emerging as the better option.
An EGWP combined with a wrap-around secondary plan (often called EGWP+wrap) allows employers to continue offering the same prescription drug benefits to retirees while reducing their current costs and future liabilities, usually by about 20%. Since these plans result in lower future benefit costs and obligations, public entities are ideal candidates for the arrangement. Additionally, since EGWPs are self-insured programs, the strategy makes particular sense for public entities that have gone the self-funded route.
EGWP+wrap plans can seem complicated at first, but third party administrators can bring a level of expertise to the EGWP+wrap process while eliminating the administrative burden for public entities. By working closely with TPAs, brokers can help public entities reduce their risk, improve cash flow and ultimately lower retiree drug plan costs.
Fleet is president of AmWINS Group Benefits, a wholesale broker of comprehensive group insurance programs and administrative services.
