Expert Administration Strengthens Retiree Health Plans

By Jill Elswick, Employee Benefit News Source Book – As employer options for providing retiree health care grow more complex, particularly in the wake of Medicare prescription drug reform, many in the health insurance industry are taking a closer look at how to revitalize this popular but waning employee benefit.

Insurers are scrambling to promote Medicare Part D prescription drug plans, newly available to the nation’s seniors in 2006. TMG Health, which administers Medicare and Medicaid plans on behalf of insurers and payers nationwide, witnessed a 700% boost in sales in 2005, with more than $180 million in contracts. Business is booming as insurers vie to gain early footing in the privatized Medicare market.

TMG Health has 40 payer clients nationally, including 15 Blue Cross Blue Shield plans, PacifiCare, HealthNet, and many regional health insurance plans. It handles health benefits for more than a million Americans.

“Our business is growing,” says Tighe, president and CEO of TMG Health. “Many of our clients are signing up employer groups that are enrolling their retirees in Medicare Part D plan. One signed an employer with 100,000 lives in the program.”

These employers decided against giving retirees prescription drug coverage equivalent to Medicare Part D, even though doing so would have allowed them to receive federal subsidies covering up to 28% of eligible drug costs between $250 and $5,000 for each plan member in 2006. Rather, they found it made more sense to enroll retirees in a Medicare drug benefit plan. TMG Health expects employers to guide five million retirees into a Part D plan within the next five years.

Tighe describes TMG Health as “like an insurance company without the risk [component]” in the sense that the firm provides systems, enrollment services, member premium billing, claims processing, customer service, and regulatory reporting on behalf of clients.

“We aren’t currently involved in medical management or sales,” says Tighe. “We are the administrative arm for payers who want to be in the Medicare market.”

It’s the classic business process outsourcing arrangement: TMG Health’s clients keep costs in line by avoiding capital outlays, and they’re easily able to budget for expenses because fees are calculated on a per member, per month basis.

“Employers that intend to continue providing retiree health benefits would be wise to reexamine their options in the rapidly changing marketplace,” says Tighe.

Some firms, Tighe observes, may wish to shift retirees into private fee-for-service Medicare plans. In the past, there was less reason to do so because few incentives existed to manage retiree health insurance costs. But now, with the Centers for Medicare and Medicaid Services pledging to reimburse plans based on population risk, a new opportunity exists to reap savings.

“Payment from CMS is geared more towards the risk of the individual, so that an older, sicker individual gets a higher payment rate than a younger, healthier one,” says Tighe. “If [payers] can manage that risk, the savings can accrue to them. Over the next year, a number of employer groups are going to adopt this strategy.”

“It’s a big shift in opportunity that needs to be considered,” he concludes.