Mainstream reforms are necessary to help employees become more engaged and make better health care decisions. At the same time, reforms are needed to bring the railroad plan design and cost closer to mainstream norms.
HEALTH CARE COSTS OF FREIGHT RAILROADS ARE UNSUSTAINABLE
Health care costs in the U.S. have increased far in excess of inflation for decades as a result of the system’s gross inefficiency and ineffectiveness. In fact, the Institute of Medicine has reported that 30 percent of all health care spending in the U.S. is unnecessary, inefficient, excessive or fraudulent.
There are many factors that drive waste in health care spending, but much of this inefficiency is directly attributable to plan designs that are excessively rich. America’s freight rail carriers are not immune to this phenomenon, especially with respect to their unionized workforces that receive health care benefits through a health plan design (the “plan”) that far exceeds mainstream norms.
This plan causes many railroad employees and their dependents to remain unengaged in their health care when compared to other employee groups by virtue of inaction, poor health care and wellness choices and insufficient knowledge of the resources available to them. As a result, a significant proportion of the $2.4 billion the freight rail carriers will spend in 2019 on the plan will be unnecessary for the appropriate delivery of health care.
The forces that have created our present circumstances, and the increased costs faced by carriers and employees, compel the need to rapidly accelerate the modernization of the plan.
To modernize the plan, railroads and unions must make robust changes in design features and enable the use of more and better resources such as adding digital health care options, expanding custom Centers of Excellence and implementing carve-out programs targeting specific health conditions. Most importantly, the changes must incentivize members to make more engaged health care choices. A successful outcome will not only lead to more sustainable health care costs – for the railroads and employees – but will help our employees and their dependents lead healthier lives.
AN EXCESSIVELY RICH PLAN
The freight rail carrier health care plan’s cost far exceeds any comparable benchmark. For 2019, the plan’s net employer cost (total plan costs minus employee contributions) is projected to be more than 50 percent higher than the average net employer cost based on three leading surveys (Aon, PwC and Willis Towers Watson).
Because excessively rich plans drive a significant portion of the inefficient and wasteful spending in health care, railroads and employees must implement significant plan design changes to restrain total spending and deliver better health care outcomes. There are two key measures of the richness of a health care plan – actuarial value and total cost share. The railroad plan significantly exceeds mainstream averages in both measures.
First, actuarial value is the percentage of health care cost paid for by plan benefits. The balance to 100 percent is the average portion paid by members through benefit design features (i.e., deductibles, coinsurance, and copays). For the railroads, the current actuarial value of the health care plan is 90 percent. This means employees pay, on average, 10 percent of the total health care cost via deductibles, copays and coinsurance and the railroads pay the remaining 90 percent. The benchmark survey average for employers is 85 percent.
Second, total cost share is the percentage split of total health care cost between an employer and employees. This cost sharing measure accounts for both monthly employee contributions and benefit design features. The railroads’ 77 percent total cost share also compares unfavorably against a survey average of 64 percent. The calculation considers the low overall monthly contributions by employees combined with the richness in the plan’s benefits that are driven by copays, deductibles and coinsurance.
THE DOUBLE WHAMMY: TOTAL COST, SHARE OF COST INCREASE EACH YEAR FOR RAILROADS
Total health care cost has been increasing for decades, but the railroads face a second significant factor that further propels their share of cost to increase each year. The key cost sharing features in the railroad plan (both benefit design features and employee contributions) are currently fixed-dollar amounts.
For example, an employee’s annual out-of-pocket cost is fixed at $2,000 per year, but there is no cap on the carriers’ health care cost. As a result, both the actuarial value and the carriers’ portion of total cost share rise continuously due to the ever-increasing underlying health care cost as the employees’ cost exposure remains fixed.
Without change, the plan is projected to have an actuarial value of 92.5 percent (versus 90 percent today), and a total cost share of about 83 percent (versus 77 percent today) by 2025. To solve for this “double whammy” effect going forward, it is critical that annual indexing of fixed-dollar design features and employee contribution becomes a permanent provision of the plan.
COST SHARING BY PLAN DESIGN IS VERY LOW
The plan features provide for very low member out-of-pocket costs. The chart below compares the key cost sharing features (for in-network coverage) to the results for the median PPO health plan from the PwC 2019 Touchstone Survey. It is these primary benefit design features, along with medical and pharmacy copays, that drive the plan actuarial value as high as it is. Without annual changes to these plan design features, the carriers will continue to lose the value of bargaining efforts round after round.
MONTHLY EMPLOYEE CONTRIBUTIONS HIGHLIGHT LOW COST SHARING
Possibly the most consequential aspect in which railroad benefits deviate from norms is the monthly employee contribution structure. Since July 1, 2016, railroad employees have paid a monthly contribution of only $228.89 for medical coverage, regardless of the “tier” or number of dependents covered.
Additionally, employees pay no contributions for dental, vision and life insurance coverage. This so-called “1-tier” approach is almost unheard of in the U.S. According to the PwC 2019 Touchstone survey, the predominant approach to employee contributions is a 4-tier coverage, in use by 76 percent of respondents. The other 24 percent of respondents use 2-tier, 3-tier or 5-tier coverage. A single tier system is not even reported in the survey.
The disparity between the railroad plan’s employee contribution structure and that typically found in the U.S. is best highlighted when considering the monthly employee contribution for family coverage.
The monthly railroad employee contribution of $228.89 is 55 percent less than the benchmark monthly contribution for family coverage of $508, based on the 2019 PwC Touchtone Survey. The monthly railroad employee contribution of $228.89 is only about 12 percent of the plan’s cost for family coverage in 2019, compared to a survey average cost share of 28 percent for family coverage in a PPO. The result is significant cost exposure to the plan and a value transfer from employees with no dependents who pay into the plan at the same rate as employees with families.
PLAN STRUCTURE DRIVES HIGH DEPENDENT ENROLLMENT
Because there is only a single “tier” in monthly contributions, spouses and dependents of employees either remain on or migrate to coverage under the railroad plan at levels that far exceed what is experienced by other plans.
While most employers have nearly 20 percent of their employees completely opt out of medical coverage, the railroad plan experiences only a 2.5 percent opt out rate. There is an even greater imbalance in the spousal coverage rate between the railroad plan and a typical employer.
The railroad plan has a much higher rate of spousal enrollment than the typical employer plan (70 percent versus 46 percent), which is driven by the lack of any contribution differential for adding coverage for a spouse. Considering that spouses’ benefit cost in the railroad plan averages about $750 per month (versus the average employee cost of about $550 per month), the incremental cost of the additional 24 percent of spouses in the railroad plan versus the benchmark equals almost $300 million annually.
THE PLAN IS INEFFICIENT
Aspects of the current plan arrangements are inefficient, which unnecessarily increases costs. Notwithstanding the importance of plan design changes, if a few sensible and common changes were made, the carriers’ annual cost burden would be meaningfully reduced, and members would still have a very valuable plan benefits supported by key programs and services.
- Vendor options: The current configuration of vendor options creates a suboptimal level of provider discounts. If changes to the vendor options were made in a handful of locations, discounts would improve, and cost (for both the carriers and employees) would decrease.
- Pharmacy, clinical program benefits: The railroad plans have not implemented many pharmacy benefit management and clinical programs. If these additional programs were offered, patient safety would improve and costs would decrease. For example, an advanced opioid management program could be implemented, saving lives and reducing costs.
- Modern health care features: The railroad plans have not implemented modern health care features. Digital health applications (which help patients manage their conditions) and a custom Center of Excellence program (which helps patients the most complex cases) would improve member engagement and health.
MEMBERS NOT ENGAGED, SHOW POOR HEALTH CARE DECISION-MAKING
The railroad plan offers several programs to help members better access health care and improve their health care experience. These programs include Teladoc, Best Doctors, Health Advocate, Vital Decisions, and the Cleveland Clinic (a cardiac Center of Excellence). Unfortunately, member utilization of these programs is incredibly low.
For example, telemedicine has been available under the railroad plan since 2018 for a very low $10 copay per use, yet utilization remains in the low single digits. This indicates low engagement in a program of high value to the members.
Optum, the health services innovation company that currently provides care management services to the plan, performed an analysis of our data to compare the plan’s Health Activation Index (HAI) with the average of their clients.
The HAI is a sophisticated model that indicates the relative portion of the time that members make good health care decisions. The overall average railroad plan score was a HAI of 52, compared to the Optum client average of 62. Optum has indicated that if the railroad plan were to move the HAI from 52 to 62, plan cost would decline by an estimated $100 million per year.
Importantly, a staggering 12 percent of plan members – or almost 30,000 railroad employees and dependents – scored between zero and 10 percent on their individual HAI, meaning that they are almost completely disengaged in their healthcare choices. Simply addressing this population alone and encouraging them to become more engaged – by virtue of making more and better health care choices – would provide significant improvements and lead to healthier outcomes.
LIFESTYLE-RELATED DISEASE BURDEN IS SIGNIFICANT
An analysis of railroad plan utilization data shows unfavorable results when compared with risk-adjusted benchmarks for several lifestyle-related disease states. For example, rates of cancer associated with tobacco use and obesity within the railroad population are more than 20 percent higher than the risk-adjusted benchmarks.
Changes are needed to improve plan delivery and incentivize member engagement. A comprehensive employee communication strategy and a modernized single-sign-on digital navigation platform should be implemented along with the appropriate plan design and employee contribution changes.
This digital navigation platform would provide the gateway to all health care activities and services, including the new digital health care applications that will work to improve member engagement and help members improve their health. It would also enable any member to receive customized navigation among the available health care resources that are best suited for that member.
MODERNIZATION AND MAINSTREAM REFORMS ARE ESSENTIAL
As the summary above makes clear, health care benefits for railroad employees far exceed mainstream benefits offered under plans of other employers. Moreover, the cost to the railroads of maintaining these benefits is immense, in excess of 50 percent greater than benchmarks.
These facts serve as a harbinger for serious consequences if left unaddressed and plan provisions are not modernized, especially in an environment of economic uncertainty. Most importantly, mainstream reforms are necessary to help employees become more engaged and make better health care decisions.