Matthew Schramm, chair of the Presbyterian Mission Agency Board (PMAB), invited Robert Maggs, president of the Board of Pensions of the Presbyterian Church (USA), to address the PMAB at its meeting in Louisville, Ky., on April 11. Schramm asked those present to consider the BOP presentation in light of three spheres:
- PMA is the largest employer in the BOP’s healthcare plan so what do the proposed changes to the plan mean for PMA?
- All present are members of congregations and mid councils, so what does this mean for those bodies? and
- As an individual, what does this mean to you as a church member and presbyter?
By a show of hands it was learned that the overwhelming majority of people in the room were members of the plan so the presentation impacted them personally as well.
Maggs began his remarks by reminding the PMAB that “our job at the Board of Pensions is to provide sustenance of one kind or another to our members and their families.” And that is no small task for a self-insured plan covering more than 35,000 souls at a claims cost of more than $150 million a year.
Maggs then turned the presentation over to BOP Senior Vice President Pat Haines, who walked the PMAB through a “the State of Healthcare in a Changing Church,” outlining for them
- the context for change
- considered alternatives and resulting options
- the impact of Healthcare Reform
- the importance of personal responsibility in maintaining good health.
Haines said that “the context for change includes the larger world in which we live and the church we serve.”
She said, “Cost is the challenge. There is no one or no one group to blame. Rising healthcare costs and the impact it has on all of us is the challenge.” She noted that healthcare spending in the United States is projected to be $2.8 trillion in 2013 or a full 18 percent of Gross National Product. That outpaces inflation and growth in national incomes. The drivers of rising costs, Haines said, “are technology, prescription drugs, the rise in chronic disease and administrative costs.”
As a private self-insured church medical plan, the Board of Pensions is one of the “payers” along with Medicare, Medicaid, other private plans and individuals.
“As a private plan,” Haines said, “our peers are large employers so we look at what they’re doing to battle costs.”
Most of them are “cost shifting through premium cost sharing and point of service cost sharing. Most pass on 20-30 percent of premium expense to their employees.” She said they also manage costs through carrots (incentives) and sticks (penalties). On the provider end they are leveraging information available about providers and moving toward exclusively high-performance networks thus limiting the choices of their members in terms of choosing providers.
Haines then noted that “we’re not a large secular employer. We’re a church. Our solutions must be different. So, we have looked at other church plans, and all of them are struggling with the same issues.”
Haines outlined the structure of the plan and dues for the Lutheran Church Missouri Synod, the Evangelical Lutheran Church of America and ECO: A Covenant Order of Evangelical Presbyterians to demonstrate the diversity of approaches that denominations take in providing coverage and structuring dues.
The financial realities of the PCUSA BOP medical plan, the demographics of plan members and the utilization of services has also been researched and considered as the BOP considers dues restructuring.
Who is covered?
A total of 35,000 people are covered by the plan, but only 12,100 members participated in the traditional medical plan as a result of their employment with a church or employing organization. The other 22,900 are covered partners, dependents, seminary students, etc.
Of the 12,100 plan members, 65 percent are teaching elders (TE) and 35 percent are lay employees.
“Couldn’t all those big rich churches pay more?”
To address that question, Haines offered the following statistics:
- 15 percent (1,178) of TE’s participate at the 2013 minimum of $40,000
- 59 percent of lay members participate at the 2013 minimum of $40,000
- 1.5 percent (189) of all members participate at 2013 maximum ($124,000)
- only 1.7 percent of our lay members and 2.7 percent of TE’s have salaries over $113,000
That means that there are simply not enough people at the high end to shoulder the expense of benefits for the huge numbers of participants at the low end of the pay scale.
Haines said that “The average cost per active member in the traditional plan is $12,000/year. For an individual member it’s $7,200 and for members with one or more dependents, $13,000.” Those costs are spread through a dues structure that creates what Haines called a “well that covers costs of our sickest members.”
Right now, those at the minimum dues level are paying $8,400 or 70 percent of the average $12,000/year cost. Those at the maximum dues level are paying 217 percent or $26,000/year for the same coverage.
“Who” is driving the costs?
After examining a host of other demographic realities of plan members Haines concluded that “there is no one cohort who we might blame for our cost problem nor can we pass the cost along to any one cohort in the Plan.”
She said, “The Board bills over 6,600 churches and employing organizations with traditional members every month. Seventy-five percent of those payers have an individual member in the Plan, 23 percent have 2-10 members and only 1 percent have more than 10 members.” That means that the vast majority of churches or employing organizations are only providing BOP coverage for one person on their staff, presumably a solo pastor. Again, Haines noted, there are not enough large employing organizations or enough high-salaried individuals to close the ever-growing gap between Plan revenues and medical expenses.
Haines then sought to help PMAB members understand the costs of providing healthcare benefits to the members of the Plan, their partners and covered dependents.
She said that age is a factor, but not the whole story. Likewise, claims by teaching elders vs. lay employees is a factor, but not the whole story. And dependent status is a factor, but again, not the whole story.
There is one cost driver that is significant: high cost claimants.
Haines said that “1 percent of our claimants are responsible for 30 percent of our expenses.” She said that high cost claimants differ year to year and they are unpredictable. “High cost claims are indiscriminate with regard to age, gender and income. Last year, our highest claimant with over $1 million in paid expenses was a 21 year old dependent child. We now have a multi-million dollar pre-mature baby who has not left the NICU since being born.” And then she asked rhetorically, “But isn’t that why we have this level of coverage to care for the most vulnerable?”
The bottom line … financial forecasts
Haines shared the current accuarial projections for the BOP medical plan:
| 2012 | 2013 | |
| Total revenue | $171,507,000 | $176,153,000 |
| Total expenses | $173,891,000 | $182,517,000 |
| Net income (shortfall) | ($2,384,000) | ($6,364,000) |
| Fund balance (reserve) | $66,313,000(38.1 percent) | $60,110,000(32. percent) |
Succinctly stated, “We are not taking in sufficient revenues to cover expenses,” Haines observed.
She informed the PMAB that “shortfall comes out of reserves accumulated in years when our revenues exceeded our expenses. By policy, those reserves are targeted to be between 20-30 percent. You can see that at the end of 2013, with the help of the dues increase implemented in January of this year, we will remain above the targeted reserve.”
The problem is, Haines noted, “looking to 2014 and 2015 we find ourselves at a completely unacceptable place.”
Those projections are driving the BOP to find a way to close the gap between revenues (dues) and expenses (claims).
Considering alternatives and options …
Haines said that the BOP has considered many “cost shifting options,” including:
- double office co-pays (from 25 to $50 per visit)
- increase plan co-pay by 50 percent
- increase deductibles by 60 percent
- increase co-pay max by 40 percent
- add emergency room co-pay (per visit)
- double prescription plan co-pays
“If we did all those things,” Haines noted, “the results produce increased revenues totaling $13.7 million. That’s about a third of what we need in 2014. And all of those measures shift the cost burden to the most vulnerable.”
That leads us to a conversation about “revenue raising options,” Haines said.
Three assumptions are made about every option:
- minimum salary will be increased to $42,000 in 2014 and $44,000 in 2015;
- target fund balance (reserve) will remain at 20-30 percent (2 1/2 – 4 months of estimated claims); and
- “call to health” initiative will be initiated in 2014 including both incentives and consequences related to the choices members make about their own health.
The three options currently under consideration by the BOP are:
Option A: maintain current dues model
- 23 percent effective salary in 2014
- 24.3 percent effective salary in 2015
Option B:
- maintain dues at 21 percent for member only; introduce dependent coverage tiers at flat amounts
- 2014: dues annual – Member 21 percent + children ($524) + Partner ($664) +family ($1165)
- 2015: 22 percent + flat $$ amts TBD
Option C:
- set dues at percent of effective salary and a lesser percent for member only coverage
- 2014: dues w/dependents = 23 percent dues w/o dependents = 21 percent
- 2015: dues with dependents = 25 percent dues w/o dependents = 22 percent
The BOP Healthcare committee is currently listening to plan members, employing organizations and mid-councils as they seek to discern the right formula for a new dues structure for the medical plan.
Haines concluded by reminding PMAB of the BOP’s commitment to “three strategic objectives:”
- provide quality coverage that offers real financial protection when its needed
- support community nature, balancing the needs of ALL members, and
- ensure the plan’s financial solvency by maintaining adequate reserves.
Q&A
PMA staff member, Chris Iosso, asked, “This is a background question that relates to the relationship between the medical side and the pension side of management. Experience apportionment was just granted on the pension side. So, can you help or bend or have the success in the one category strengthen the other. I assume there are not but can you address that?”
Maggs answered, “Our pension monies are in a separate trust and the pension plan assets can only be used for the pension of members of that plan. The pension plan collects about $80 million in dues and pays out four times that amount. It is a mature plan — more retirees than active members making the plan asset dependent to pay the bills.”
PMAB member Nancy Ramsay asked, “How did you decide not to pick up the ELCA regional cost range, and secondly, can you talk to us about the implications for the proposal relative to congregations that are right at the edge of being able to continue employing a pastor in either a full-time or part-time position?”
Haines answered, “Geographical pricing is very difficult. The prices that ELCA has done are tied into cost of living and Medicare cost areas. We concluded that there is a lot of complication in that and would impact us administratively. There may be a church with more resources in a low cost area that ends up being rewarded for being in a low cost area when those resources are needed to offset higher cost areas where smaller churches predominate.”
“To your second question about vulnerable churches – I hate that the focus is on dues because I think the issue is total compensation. These are just a piece of the pastor’s compensation. The issue is affordability of the total compensation package. We are lifting the minimum dues basis even when we know that some churches will necessarily lower the actual salary paid to pay the increase in dues.”
Corresponding member and chair of the Advocacy Committee on Social Witness Policy, Raafat Zaki, asked, “Have you considered progressive pro-rated increase? Have you considered how these flat rates will affect taxable salary?”
Haines answered the second question first, saying, “We will support churches in establishing a way for the contribution made by members to be taxable at a lower rate than regular salary.” Then she addressed the first question, saying, “Reflect back with me to the salary spectrum. We don’t have that many folks earning at the top end of the salary spectrum to raise $40 million by the end of 2015.”
The final question addressed the possibility of the BOP entering into “a joint medical plan with the RCA or others.”
Haines said, “First of all, we joint purchase in concert with multiple denominations. Joint purchasing presents 450,000 lives which drives down our cost side. On the claim side, we don’t want to take on older, sicker, higher risk members into our comparatively healthy pool.”
Maggs added that “only the Presbyterians and Episcopalians require participation, and only the Presbyterians and the Methodists have healthy reserves. Many of the other plans are going to go out of business.” The sobering truth of Maggs’ final observation is that the Board of Pensions proposed dues restructure is necessary to keep the Presbyterian medical plan from following suit.
The Healthcare committee will have a special meeting in Dallas on May 23 and will make a recommendation to the full BOP at its June meeting. The new dues structure will go into effect Jan. 1, 2014.