Benefits October 9, 2019

Survey Reveals Emerging Health Benefit Cost-Saving Measures

Employers are encouraging the use of biosimilars instead of specialty pharmacy products, creating an environment that makes it clear and easy for employees to opt for high-value services, and engaging effective programs to help manage anxiety and stress.

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Curbing the cost of health care and increasing its affordability remain the top priorities for almost all employers over the next three years (93%), according to the 24th annual Best Practices in Health Care Employer Survey by Willis Towers Watson.

Yet nearly two in three (63%) employers see health care affordability as the most difficult challenge to tackle over that same period. Employers expect health care cost increases of 4.9% in 2020 compared with 4.0% in 2019.

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“With employers and employees seeing no end in sight, many companies are getting creative and tapping into overlooked strategies to shrink the total bill,” says Julie Stone, managing director of Willis Towers Watson’s specialty practices within its health and benefits business.

The survey revealed emerging cost-saving measures for employers.

One of the main drivers of growing affordability concerns among both employers and employees is pharmaceutical spending—notably, the increased cost and continued inflation of specialty pharmaceuticals. More employers have been adopting comprehensive solutions, including roughly half of employers evaluating and managing specialty pharmacy spend not only through the Rx benefit, but also exploring opportunities through the medical benefit.

But, Willis Towers Watson also sees two emerging strategies poised to gather momentum among employers. More employers are attempting to offset specialty pharmaceutical costs by influencing the site of care—as the location where care is given can dramatically affect prices. The number of employers that say they plan to implement coverage changes to influence site of care for specialty pharmaceuticals dispensed through the medical benefit over the next few years is more than doubling (from 21% today to 55% by 2021).

In addition, a growing set of employers are intrigued by the possibility of biosimilars offering a lower-cost option for patients in need of expensive specialty products. Thirty percent of employers have ensured they have appropriate formulary strategies to leverage biosimilars when available, with another 39% planning to take a more active approach in the next two years.

Value-based care

With employees financially strained by the cost of health care, employers see an opportunity to steer their staff toward the highest quality affordable health care.

Willis Towers Watson sees a subset of employers diving deeper into new strategies that could help improve access to care beyond the approaches of high-performance networks (growing from 16% to 52% adoption by 2021) and the use of centers of excellence within the health plans (growing from 45% to 74% by 2021), which are reaching a critical mass of employers.

In addition, by applying design features or incentives, employers are nudging their employees toward higher value, appropriate care that is sourced efficiently and away from overused, potentially wasteful services. The proportion of employers slashing out-of-pocket costs to steer employees toward proven services that produce positive health outcomes at a lower price tag will nearly triple over next few years (from 17% today to 46% by 2021). More employers are increasing the out-of-pocket costs for commonly overused and sometimes unnecessary services—adoption of this strategy stands to more than quadruple over the next few years (from 7% today to 35% by 2021).

Employers are also actively reviewing out-of-network coverage and costs. The number of companies reducing out-of-network reimbursements, eliminating non-emergency out-of-network coverage or negotiating full disclosure of all related administrative costs could more than double by 2021.

“With greater access to accurate and transparent data, employers can create value-based designs that make a smaller dent in employees’ wallets and a big impact on their health,” says Stone. “This value-based approach holds the promise of the best health results at the best price.”

Managing employee stress

As employers look to enhance their population’s wellbeing, mental and behavioral health ranked the highest as the top clinical area of focus over the next three years, selected by two in three employers. The majority of employers are working to build full-blown strategies for a holistic solution to emotional health by redesigning their employee assistance programs to better address emotional and financial wellbeing (expected to jump from 33% to 74% in three years) and building an organization-wide behavioral health action plan (leaping from 25% to 68% in three years).

The number of employers that are measuring the stress level of their employees is on track to triple by 2021, from 16% to 53%. Building on the 27% of employers that already offer apps to support sleep and relaxation, more than half (53%) will implement these programs by 2021, in order to enhance their employee emotional wellbeing. “By addressing stress and anxiety before it becomes an expensive clinical need in their population, employers are making a small financial investment to keep costs low down the road,” Willis Towers Watson says.

The survey was completed by 610 U.S. employers with at least 100 employees between June and July 2019. Respondents collectively employ 11.3 million employees and operate in all major industry sectors.
Compliance October 9, 2019

Morgan Stanley Prevails in ERISA Lawsuit

In dismissing the case a federal judge said, “ERISA does not require clairvoyance on the part of plan fiduciaries” and that the plaintiffs “come nowhere close to alleging such a case.”

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A federal district court judge has granted Morgan Stanley’s motion to dismiss an Employee Retirement Income Security Act (ERISA) lawsuit accusing it of various fiduciary breaches.

Participants in Morgan Stanley’s 401(k) plan filed the lawsuit in 2016 on behalf of approximately 60,000 current and former plan participants, alleging the plan included investment options with excessive fees and used Morgan Stanley proprietary funds rather than other funds that would have been better and cheaper for participants.

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In his opinion, U.S. Circuit Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York first agreed with the Morgan Stanley defendants that the plaintiffs lack standing to bring claims related to seven of the 13 challenged funds because they did not invest in those seven funds. Citing a previous case in the 2nd U.S. Circuit Court of Appeals, Sullivan wrote, “Generally a plaintiff may sue on behalf of a putative class—including those members of the putative class who did not suffer the exact same injury as the plaintiff—where he ‘plausibly alleges (1) that he personally has suffered some actual injury as a result of the putatively illegal conduct of the defendant, and (2) that such conduct implicates the same set of concerns as the conduct alleged to have caused injury to other members of the putative class by the same defendants.” He dismissed the plaintiffs’ claims regarding the seven non-selected funds.

“Viewed at a high level, plaintiffs’ challenges to the Selected Funds and Non-Selected Funds raise similar questions—for example, whether the fees paid to Morgan Stanley were inappropriately high, whether the funds were improperly retained, and whether defendants’ desire to develop a business relationship with BlackRock motivated defendants to keep the BlackRock Trusts in the plan,” the decision explains. “But the evidence that plaintiffs will have to put forward to establish liability will vary from fund to fund, and plaintiffs’ ability to establish liability as to decisions made in connection with one fund will do little to advance their case for liability as to other funds.”

Turning to the remaining claims, Sullivan noted that the plaintiffs alleged that the defendants breached their fiduciary duties by offering proprietary funds at higher advisory and administrative fees than it did to separate account clients with similar assets and investment strategies. According to the opinion, the plaintiffs did not allege Morgan Stanley breached its fiduciary duty of loyalty by including its proprietary funds in the plan or by charging higher fees to participants in the plan than to outside investors in the same funds.

Sullivan concluded that the duty of loyalty claim alleges either the defendants did not offer plan participants the opportunity to invest in separate accounts that replicated the strategies of the Morgan Stanley funds, but with reduced fees, or the defendants should unilaterally discount the fees of the funds in the plan to equal those charged to separate account clients. He basically decided that nothing in ERISA requires a plan to offer separate accounts in lieu of reasonably priced mutual funds, and nothing in ERISA requires Morgan Stanley to offer plan participants discounted fees or reduce market-based fees to equal those charged to separate account clients just because the funds are offered in an ERISA plan.

The plaintiffs also asserted that the defendants breached their duties of loyalty and prudence by continuing to offer the Mid Cap Fund and Global Real Estate Fund in the plan’s investment menu. Sullivan pointed out that the duty of prudence standard in ERISA focuses on a fiduciary’s conduct in arriving at an investment decision, not on its results. The plaintiffs cannot rely on hindsight. He also noted that just after a 2016 prospectus was made public, showing deficient performance of the Mid Cap Fund, the defendants removed that fund from the plan’s investment menu.

Sullivan said, even assuming the plaintiffs’ allegations were not based on hindsight, their showing that the Mid Cap Fund had a return that was one percentage point less than its benchmark is not sufficient to support the claim that the defendants were imprudent in retaining the fund prior to its removal from the plan.

As for the Global Real Estate Fund, Sullivan also found the plaintiffs’ claims were hindsight-based, and that the plaintiffs provided insufficient facts to support their comparison of the fund’s performance to a “supposedly comparable investment.” He also found that the plaintiffs did not provide sufficient evidence to support the notion that Morgan Stanley continued to offer the funds in the plan in order to collect what they said were “excessively high” fees.

Sullivan’s conclusions were similar regarding the plan’s offering of a BlackRock fund—that performance claims were hindsight-based and there was not sufficient evidence to support their assertion that Morgan Stanley’s motivation for continuing to offer the fund was to have a business relationship with BlackRock.

The plaintiffs also alleged the Morgan Stanley defendants engaged in prohibited transactions by investing plan assets in the proprietary funds and by permitting those funds to deduct annual fees from the plan assets invested in the funds. Sullivan found Morgan Stanley’s actions satisfied Prohibited Transaction Exemption (PTE) 77-3.

In dismissing the case, Sullivan wrote, “Contrary to plaintiffs’ claims, ERISA does not require clairvoyance on the part of plan fiduciaries, nor does it countenance opportunistic Monday-morning quarter-backing on the part of lawyers and plan participants who, with the benefit of hindsight, have zeroed in on the underperformance of certain investment options. More is required, and plaintiffs come nowhere close to alleging such a case in their complaint.”

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