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April 18, 2022

How to reduce Rx costs for employees and employers

  • Posted By : CFO Author/
  • 0 comments /
  • Under : Discussion Topic, Monthly Topic, Uncategorized

Pharmaceutical costs represent 35 to 40% of your total spend (and even a higher percentage for many of your employees) AND drug costs are increasing 15 to 25% per year so they represent the obvious component to understand.

If you have a fully insured plan, this will be a painful read. Odds are very high that you don’t have the information on what your employees take, where they buy it (CVS or mail order), if they are price conscious and what your total spend on drugs was for last year or last month. But, read below and perhaps you can get some information from your broker or ask HR what employees are complaining about.

If you have a partially or fully self insured plan, you have the information to do the following analysis. People fixate on free generics vs low cost generics but that is not your top priority. Look at the monthly prescriptions that people take every month because they represent a huge opportunity to reduce the cost to the employer AND the cost to the employee.

Pharmaceutical costs represent 35 to 40% of your total spend
Two Situations:

Ever watch the drug commercial and wonder the following comment“if you are unable to afford XYZ super drug perhaps abc manufacturer is able to provide this drug at a low cost or perhaps free!” works? The ad or announcer says just enough to confuse you. These are the Manufacturers Assistance Program-an outcome of the Affordable Care Act-that was supposed to reduce the cost of healthcare. Bottom line is that about 300 monthly prescription drugs have MAP programs that allow employees who have taxable income under a certain level (frequently 80 to 100k per year for a couple filing jointly) to receive these drugs at no cost or perhaps 5 or 10 dollars per month These prescriptions generally cost the employee 100 or more in copay per month AND cost the employee over 1000 per month. HUGE savings AND I bet your broker never explained this best practice to you BECAUSE they don’t want you to bypass the PBM supplier since that is how they get paid their commission and bonuses! Maybe some of your employees investigate with their doctor but most just get hammered by the copay and then every year you decide to increase their copay when you get the plan renewal increase.

Here is a real life example. Happened to one of our CFOs in NJ with an employee with Hepatitis C.  The treatment is an 84 day/ 84 pill regimen and it works but it is not cheap. 84 pills with 84 prescriptions at 1000 per day with usually a 200 dollar a day copay by the employee.   So the employee pays 16k out of pocket and the employer pays about 45k (after discount). But, our advisor ran the numbers (employee earned about 65k) and he received the pills for F R E E and the employer’s cost (fee paid to advisor) was about 15k.  Employee saved 16k, employer saved over 30k and the spend was not via the plan SO it was not included in the three year spend base. Win Win (but a lose for the broker whose commission declines!). REMEMBER the fiduciary requires that the CFO has a plan that is in the best interest of the employees.  A fully funded plan is NOT in the best interest of the employee and the CFO is at risk. If you don’t understand the role of a fiduciary AND the impact of Sarbanes Oxley regs on your personal exposure, get educated and manage your risk. Just for chuckles-ask your broker if their plan protects you by assuming the fiduciary responsibility.

The best practice is to engage an advisor who handles those prescriptions for your employees-they get their prescription at a zero copay which means they take the drugs and don’t cut pills in half to save money AND the employer has NO COST. Never hits your plan so there is no three year trailing cost stack and you pay the advisor a percentage of what you would have paid the PBM!

For those employees who do not qualify for the economic assistance of an MAP program, consider buying the same prescription from a Tier One (fully FDA approved) source from Canada where price competition is alive and well. The surprise is that all of the major pharma manufacturers have factories in Canada that have to meet FDA standards and have distribution networks that serve Canadian pharmacies. Canadian pharmacies can ship to a US customer if you have a partner that knows how to get your prescription to them.   Keep in mind, your employee could do this and probably purchase the drug below their copay costs in some cases but they have no incentive to do that until they retire! Provide this service and the employees get their drugs in their mailbox for zero copay AND the employer generally saves at least 50% and often as much as 80%.  Thank the second largest lobby industry for that control-teachers unions have more lobbyists than pharma but that is a different topic (and we don’t have a best practice on that challenge). Bottom line, two more best practices that a partially self insured healthcare plan can implement to reduce the total cost of healthcare, reduce the cost for their employees and save a lot of money in the meantime. If you don’t understand partially self insured healthcare and don’t understand risk minimization with stop loss coverage, it’s time to talk to one of our partner advisors.

Since you love examples, here are three common drugs-first is a blood thinner, second is a Type 2 diabetes treatment and third is a stress/ personality treatment.

Xarelto   

PBM Plan Cost: $16.30 per pill daily (some portion paid by employee)
Best Practice Cost: $5.29 per pill (68% savings + zero cost to employee)


Januvia

PBM Plan Cost: $15.55 per pill daily (some portion paid by employee)
Best Practice Cost: $4.11 per pill (73% savings + zero cost to employee)


Latuda

PBM Plan Cost: $44.70 per pill daily (some portion paid by employee)
Best Practice Cost: $4.42 per pill (90% savings / over $1,200 per month)

Again, whether partially self insured or fully insured, ask your broker what you can do to reduce costs of high cost maintenance prescriptions. Let me know what they say.

Glad to provide information-we have examples of almost every drug that is offered in the MAP and in the International Sourcing programs. For you skeptics on international sourcing, Ohio shifted to international sourcing for all of their plans joining many large employers who have been offering it for years. It is frequently offered as an elective for the employees to reduce their costs while continuing to offer the base plan-and strong conversion happens “naturally within a couple of years”-all it takes is knowing that co workers are spending less than you are!

Finally if you happen to have a legacy dinosaur plan (fully or partially self insured) that allows a working spouse (with access to coverage but prefers to remain on “your plan”), we have a brilliant, proven solution for that-and it is a painless incentive that encourages the employees to elect to have the spouse exit your plan AND they are extremely happen to do so.

If want an analysis done-no cost/ no obligation OR if you want to chat about other best practices, give me a call at (215)421-8291. Renewals are a few short months away so analyze now, get educated and get ready to provide a health care benefit instead of a healthcare plan that no one can afford to use.

November 12, 2020

Who Was Prepared For This? – Property Insurance and Civil Unrest

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  • 0 comments /
  • Under : Discussion Topic

For November are featuring an article from Best’s Review.  Reach out to keep the discussion going.

Who Was Prepared for This – Best’s ReviewDownload

Civil Unrest

Who Was Prepared for This?

 

With civil unrest on the rise globally, insurers are rethinking how they underwrite risks of riots and civil commotion and looking closely at aggregation risk. Record losses this year in the U.S. and last year in Chile illustrate the growing severity of events.

KATE SMITH – NOVEMBER 2020

RIOT RECOVERY: Cleanup begins in the streets of Minneapolis after protesters damaged and looted businesses in the wake of George Floyd’s death on May 25. Floyd died while being restrained by Minneapolis police officers, sparking nationwide protests and, in some locations, riots.
AP Photo/Julio Cortez

 

Key Points

  • Mass Discontent: More than a quarter of the world’s countries saw a dramatic rise in protests last year.
  • Record Losses: The riots following George Floyd’s death caused more than $2 billion in insured losses, a U.S. record for civil disturbance.
  • New Criteria: Underwriters are paying close attention to election cycles and whether businesses are associated with anything unpopular.

On Day One of the riots that followed George Floyd’s death, Dawn D’Onofrio’s company received a multimillion-dollar claim. Then came another one, from a completely different city in a completely different region of the country.

“That really got our attention,” D’Onofrio, the president and CEO of WKFC Underwriting Managers, said. “The claims were absolutely staggering. There was no way an underwriter would have foreseen those circumstances.”

2020 has been full of unforeseen circumstances for property insurers. There was the start of a global pandemic, more hurricanes than alphabet letters and West Coast wildfires so vast that their smoke tinted East Coast skies—not to mention derechos, tornadoes and convective storms.

On top of that, there were more riots and civil commotion than the United States has ever seen.

Between May 26 and June 8—the two-week period following Floyd’s death while in custody of Minneapolis police officers—demonstrations and protests erupted in more than 40 cities across 20 states. Some of them turned into riots. Insured losses from those events surpassed $2 billion, topping the 1992 Los Angeles riots as the costliest civil disturbance in U.S. history.

“Who was prepared for rioting and protesting as we have witnessed throughout many cities in the U.S.? It has been unexpected and extreme,” Brenda Austenfeld, president of national property for wholesale broker RT Specialty, said.

While the United States has seen riots and looting over the years, such as Baltimore in 2015, none rose to the magnitude of 2020. Violent demonstrations spilled into the summer and carried through to the fall. And with U.S. elections slated for this month, there is no end in sight.

“We see the election as a point of interest relative to riot and civil disorder risk; roughly half of the country will be angry either way,” said Tom Johansmeyer, head of PCS, a Verisk company.

The troubles are by no means confined to the United States. Violent demonstrations are on the rise globally. According to the 2020 Verisk Political Risk Outlook, 47 countries—which equates to more than a quarter of the world’s countries—saw a surge in protests in 2019.

“If the early 2000s were marked by the global war on terror, the 2010s by post-crisis economic recovery and the rise of populism, the 2020s appear set to become the decade of rage, unrest and shifting geopolitical sands,” Verisk wrote in its report.

France, Hong Kong and Chile are among the most notable examples of recent costly protests. The French “yellow vest” protests caused roughly $90 million in insured losses, while protests in Hong Kong cost $77 million and unrest in Chile cost $2 billion, according to Allianz Global Corporate Specialty.

“The magnitude of the events is increasing,” said Bjoern Reusswig, head of global political violence and hostile environment solutions for AGCS.

In the United States, PCS declared the post-George Floyd riots the first multistate civil disorder catastrophe. By contrast, the L.A. riots, which occurred in the wake of Rodney King’s arrest and beating by Los Angeles police officers, were contained to one city. That event cost the insurance industry $775 million ($1.4 billion in today’s dollars), according to the Insurance Information Institute.

Loretta Worters, spokesperson for the III, said this year’s riot-related losses pale compared to hurricane losses. But when viewed in the context of an already challenged property market, they are significant.

“It’s the confluence of events,” Worters said. “It’s not just riots. It’s not just a pandemic. It’s not just a hurricane. It’s not just a wildfire. It’s that all of these issues are coming into play at the same time for property insurers.“

The riots are one additional pressure point.

“It’s been death by a thousand cuts for most property insurance carriers in 2020,” Rick Miller, U.S. property leader at Aon, said. “That’s the environment property insurers are doing business in.”

Dawn D’Onofrio WKFC Underwriting Managers

The amount of work an underwriter puts into an account is, by far, more than double than it was a year ago. …They have to underwrite the city, the municipality, the town, and know whether the police are responding to calls or the fire departments are not going out to fires.

Dawn D’Onofrio
WKFC Underwriting Managers

 

 

 

U.S. Market Changes

In the United States, losses from strike, riot and civil commotion are typically covered under property insurance policies. Though these are well-known—and named—risks, they have not been a high priority for property underwriters.

“A couple years ago, riot was likely not at the top of an underwriter’s checklist when they were reviewing a particular account,” Miller said. “Now it is.”

The widespread unrest has caused U.S. property underwriters to pivot. They are asking more questions, reviewing different information and doing more legwork to determine clients’ exposures.

“The amount of work an underwriter puts into an account is, by far, more than double than it was a year ago,” D’Onofrio said. “They’re looking at crime scores, looking at migration of the homeless, vacancy rates. They have to underwrite the city, the municipality, the town, and know whether the police are responding to calls or the fire departments are not going out to fires.”

Some fire departments, she said, have chosen to let buildings burn rather than risk firefighters’ lives by sending them into riots. “The day-to-day underwriting has increased exponentially since a year ago because we have to consider all this new information.”

Property underwriters are also examining whether mobs might target particular insureds.

“If there’s a storefront or an office building with an attractive business or name on it, that is a definite attraction to a mob,” Miller said.

In the commercial property segment, underwriters have taken a targeted approach, identifying accounts and risks deemed to be most susceptible to riot, such as a large pharmacy chain or a large retailer with products that could be attractive to looters.

“It’s not just about whether you’re in an urban area,” said Patrick Mulhall, executive vice president of commercial property for U.S. insurance at Sompo International. “There are industries that are more vulnerable to these perils than others. Commercial real estate comes with some of that. There’s retail and subsectors of retail—pharmacies, specialty clothing companies, high-value merchandise stores.”

With the 2020 riots, most of the impact has been on retail and real estate risks with urban risk concentrations, Miller said.

That was particularly true in the riots associated with Floyd’s death. In that event, “one-third of the industry insured loss so far has come from three national retailers,” Johansmeyer, of PCS, said.

The effect, however, has been felt by “all size business,” RT Specialty’s Austenfeld said. “It’s just a matter of how significantly.”

Even at the mom-and-pop shop level, premiums are rising.

“Across the board we’re seeing rate increases,” said D’Onofrio, whose program insures 8,000 policies of Main Street America-type businesses. “In certain areas where the crime scores are higher and there’s a known riot exposure—for instance in high-profile metropolitan cities—we can name our pricing and terms, if we are comfortable insuring the risk.

“A year ago, we would have freely written metropolitan business all day long. Now we go in very cautiously and we tell businesses, ‘We can do it, but it’s going to cost significantly more and you need to have skin in the game.’ They have to have a very high deductible and take ownership of protecting their property.”

Aon’s Miller said some markets have looked to exclude SRCC (Strikes, Riots and Civil Commotion), but that’s not rampant. “The biggest change,” he said, “is on the retention or deductible front for businesses deemed to be at higher risk.”

Austenfeld said the excess and surplus (E&S) segment has seen an increased flow of business as standard lines tighten terms and insureds look for greater flexibility in building coverage.

“Many times an underwriter, especially in the E&S world, will increase the deductible specific to this segment—rioting, civil commotion or malicious damage,” Austenfeld said. “We can be more creative in the E&S world with freedom of rate and form in the nonadmitted arena. If there is a single peril causing more frequent losses, we create a solution for our retail client trading partners by a specific deductible area versus changing the entire coverage for an insured.”

Brenda Austenfeld RT Specialty

Many times an underwriter, especially in the E&S world, will increase the deductible specific to this segment—rioting, civil commotion or malicious damage. We can be more creative in the [excess and surplus] world with freedom of rate and form in the nonadmitted arena.

Brenda Austenfeld
RT Specialty

 

 

 

International Affairs

Outside the United States, strike, riot and civil commotion coverage typically falls upon the specialist market, with coverage often coming through political violence policies, Reusswig said. Until recently SRCC was a secondary concern, behind terrorism, for those underwriters. That’s changed over the past two years, though.

“Fortunately those big-scale terrorist attacks are going down in number and in severity,” Reusswig said. “So now we have to change our approach because we see, on the one hand, sizable terrorist attacks going down, but SRCC events are definitely going up.”

That shift began in late 2018 with the French “yellow vest” protests, which originated in response to higher fuel taxes. In 2019, a proposed extradition bill spurred demonstrations in Hong Kong, which quickly escalated to violence. And in Chile, a 4% hike in public transportation fares kicked off months of riots that caused billions in damages.

As in the United States, international insurers have responded to the uptick by increasing rates and changing terms, particularly for certain sectors and geographies.

“The one thing that stands out about Chile and the U.S. is the disproportionate impact the retail sector felt,” Johansmeyer, of PCS, said.

A chain of supermarkets in Chile, for example, would now pay much more in premiums than a few years ago, Reusswig said. And certain retail businesses will have a harder time finding appropriate limits.

“If you are a retail chain or a high-end retailer, which makes you attractive to looting, then there will be capacity and pricing issues,” Reusswig said. “If you’re a Chinese bank in Hong Kong with retail offices on the ground floor, you will have issues. If you are a Chinese investment bank with offices on the 52nd floor of a high-rise building, you probably won’t feel the impact on the pricing or the capacity side.”

Underwriters also are examining new factors to their evaluation of a risk.

“We now pay a lot more attention to elections,” Reusswig said. “Elections are one of the main contributors to public unrest. We look at whether a general election or federal, state or municipality-level election is coming up in specific countries that have a track record of protests following elections. That’s now absolutely part of the underwriting process.”

They also look at whether clients are associated with anything unpopular. “There was a Chinese cell phone retailer that was completely looted in Hong Kong,” Reusswig said. “And there was a non-Chinese cell phone retailer directly next to it that didn’t have a scratch on their windows. The fact that the company was associated with China was enough for it to be raided.”

 

Aggregation Risks

Across the globe, the rise of civil unrest is causing aggregation concerns.

While underwriters long have looked at aggregations regarding natural catastrophes, riots are now in the consideration mix.

“If you are a large national retailer with multiple locations in a particular city, underwriters will review that risk accordingly,” Miller said. “You are now looking at the possibility of multiple facilities being impacted by the same event, making it more of a catastrophe versus risk event.

“A risk event would be a fire, which generally would impact a single location. Riots might not be quite as widespread as a hurricane, but they can involve multiple locations of a schedule of locations. Going forward underwriters will view the risk of riot differently. Losses and the causes thereof, change how underwriters review accounts and impact what an underwriter is willing to offer and charge for assuming that risk.”

In addition to controlling aggregation on this peril, experts also are looking for ways to better predict events. Some say the Gini coefficient, which measures the disparity of income in the country, is helpful. Others say the perceived corruption index is a good benchmark, as displeasure with government is a main contributor to civil commotion.

“You could easily find another half dozen indicators,” Reusswig said. “But combining them, and being confident that the countries coming out of this process are those that you actually should watch going forward, that’s still an ongoing process. No one has found the golden goose yet to solve this issue.”


Kate Smith is managing editor of Best’s Review. She can be reached at kate.smith@ambest.com.


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  • Views From the Stream – Let’s Go Fly A Kite
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