Market-standard reforms are necessary to control increasing health care costs and to help employees and their dependents become more engaged and make better health care decisions. Similarly, the design of the railroad health care plans (generally referred to collectively as the “Plan”) needs to be updated to align with those market standards.
PLAN’S COSTS EXCEED BENCHMARKS
The Plan’s costs exceed comparable health care design and financial benchmarks. In 2021, for instance, the Plan’s net employer cost – that is, the total cost of the Plan to the employer, minus monthly employee contributions in the form of premium payments – was more than 50 percent higher than the average net employer cost reported in two leading industry surveys. Additionally, key financial measures customarily used to evaluate the cost of health care benefits (i.e., actuarial value and total cost share) for the Plan are higher than the benchmarks.
This discrepancy is driven by low monthly employee contributions and cost-sharing requirements (i.e., copays, deductibles, coinsurance, and out-of-pocket maximums) that are inconsistent with market standards.
The actuarial value of health care benefits for a plan is the average percentage of health care costs paid by the plan. The remainder is the average percentage paid by members through point-of-sale cost-sharing.
In 2019, the Plan’s actuarial value was 90 percent – meaning that on average, members paid 10 percent of the total health care costs via cost-sharing and the Plan paid the remaining 90 percent. In 2022, the Plan’s actuarial value is projected to exceed 91 percent due to erosion caused by fixed-dollar cost-sharing provisions (discussed in more detail below). The benchmark survey average is about 85 percent.
Total Cost Share
Total cost share is the percentage split of total health care costs between an employer and members. This financial measure is based on monthly employee contributions and point-of-sale cost-sharing.
In 2019, the Plan’s total cost share was 77 percent – meaning that the railroads paid 77 percent of total health care costs and members paid 23 percent. In 2022, the Plan’s total cost share is projected to be approximately 80 percent. The benchmark is 66 percent.
PLAN’S COSTS INCREASE FASTER THAN MARKET STANDARD
Total health care cost has been increasing for decades. However, low monthly employee contributions and fixed cost-sharing requirements further escalate increases to the Plan’s actuarial value and the railroads’ total cost share each year.
For example, a member’s annual out-of-pocket cost for in-network services under the Plan’s Managed Medical Care Program is currently fixed at $2,000 per year (for individual coverage), but there is no cap on the railroads’ health care cost. Therefore, both the actuarial value and the railroads’ portion of total cost share rise faster than the market standard due to increasing underlying health care costs and members’ largely fixed cost exposure.
The Plan is currently projected to have an actuarial value of approximately 92.5 percent in 2025 (versus 90 percent in 2019) and total cost share of approximately 83 percent in 2025 (versus 77 percent in 2019). To protect against erosion of the actuarial value of benefits due to inflationary increases of medical costs and potential legislative changes (such as the No Surprise Act), fixed-dollar benefit design features (such as copays) must be replaced with a combination of variable measures (such as coinsurance) and annual indexing.
1-TIER EMPLOYEE CONTRIBUTION STRUCTURE LEADS TO IMBALANCE OF COST EXPOSURE TO THE PLAN AND EMPLOYEES
One of the most significant areas in which the Plan deviates from market norms involves the 1-tier monthly employee contribution structure. Since July 1, 2016, railroad employees have paid a monthly contribution of $228.89 for medical coverage (regardless of the number of dependents covered), and no contributions at all for dental, vision, and life insurance coverage.
This “1-tier” approach is uncommon in the U.S. According to a recent leading industry survey, 77 percent of respondents use a 4-tier coverage system (i.e., employee, employee + spouse, employee + child(ren), and family). The other 23 percent of respondents use a 2-tier, 3-tier, or 5-tier coverage system. A 1-tier system is not even reported in the survey.
The imbalance of cost exposure to the Plan and employees in a 1-tier coverage system is best highlighted with the following examples.
- The plan has a much higher rate of spousal enrollment than the typical employer plan (71 percent compared to 46 percent). Considering that coverage for spouses on average costs 20 percent more than employees, the incremental cost of covering more spouses than the market norm is more than $250 million annually.
- The Plan’s monthly employee contribution of $228.89 is about half of the benchmark monthly contribution for family coverage of $457. Additionally, $228.89 is only about 12 percent of the Plan’s cost for family coverage in 2021, compared to a benchmark cost share of about 28 percent for family coverage in a PPO. This results in significant cost exposure to the Plan and creates an inequity for employees with no dependents.
PLAN’S COST-SHARING REQUIREMENTS ARE VERY LOW
The Plan has very low member out-of-pocket cost requirements. The chart below compares the key in-network cost-sharing features under the Plan’s Managed Medical Care Program (MMCP) to the results for the median (Preferred Provider Organization) PPO health plan from leading industry surveys. Without changes to cost-sharing requirements, such as annual indexing, the Plan will continue to lose the value of bargaining efforts in each round.
OVERALL PLAN MEMBER ENGAGEMENT NEEDS IMPROVEMENT
The Plan’s design affects the level of engagement by railroad employees and their dependents with respect to their health care and/or wellness choices. Improvement to the level of member engagement is a catalyst for more efficient health care spending by the Plan and members and would lead to a more appropriate delivery of health care services.
In general, there are many factors that drive excessive health care spending. Under the Plan, a major factor is that the current fixed cost-share design and 1-tier employee contribution system have the effect of disincentivizing members from taking advantage of the many Plan benefits and resources that are available to them. Accordingly, the Plan design needs to be updated to better incentivize member engagement, including to encourage members to use more appropriate resources such as digital health care options, Centers of Excellence, and carve-out programs that target specific health conditions. A successful engagement strategy will not only lead to more sustainable health care costs but will also help employees and their dependents lead healthier lives and improve health outcomes.
PLAN ADMINISTRATION CAN BE IMPROVED
Current Plan administration practices can be improved to control increasing costs and ensure members are supported by key programs and services. Many of these can be implemented outside of formal bargaining.
- Vendor options: The current configuration of vendor options create a suboptimal level of provider discounts. In connection with standard administrative practice, the railroads and unions responsible for managing each Plan should periodically review the vendor network alignment to reduce unnecessary spending by the Plan and members.
- Pharmacy, clinical program benefits: Many of the available pharmacy benefit management and clinical programs have not been implemented. If these additional administrative 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. Additionally, administrative pharmacy benefit programs should be implemented on an ongoing basis to account for the dynamic nature of the prescription drug market.
- Modern health care features: The Plan has some (but not all) of the modern health plan administration features. Expansion of digital health applications (which help patients manage their conditions in real time) and Centers of Excellence programs (which helps patients the most complex cases) would improve member engagement and health outcomes.