Retired Coal Miners' Health Benefit Funds: Financial Challenges  
Continue (18-APR-02, GAO-02-243).				 
                                                                 
In 1992, more than 100,000 retired coal miners and their spouses 
and dependents faced a potential decrease in their		 
employment-related health insurance coverage or loss of such	 
coverage altogether. Some former employers had stopped mining	 
coal or gone out of business and were no longer contributing to  
the United Mine Workers of America (UMWA) retiree benefit funds. 
To ensure that these individuals would continue to receive the	 
health benefits specified in previous collective bargaining	 
agreements reached with coal companies, often gained in exchange 
for lower pensions, Congress enacted the Coal Industry Retiree	 
Health Benefit Act of 1992 (Coal Act). The Coal Act replaced the 
existing UMWA benefit funds with the Combined Benefit Fund (CBF) 
and the 1992 Benefit Plan. These funds' benefits requires less	 
cost sharing by beneficiaries and provides more extensive	 
coverage than benefit packages offered by the major manufacturing
companies and companies with unionized workforces. However, the  
extent of coverage is generally comparable. The cost of health	 
care for the Funds' beneficiaries in 1999 was about 29 percent	 
higher than for demographically similar Medicare beneficiaries	 
with employer-sponsored insurance. The Funds' officials have	 
attempted to control costs largely through approaches that do not
reduce or limit the benefits for beneficiaries, do not increase  
beneficiary cost sharing requirements, or that have a minimal	 
impact on beneficiaries.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-243 					        
    ACCNO:   A03104						        
  TITLE:     Retired Coal Miners' Health Benefit Funds: Financial     
Challenges Continue						 
     DATE:   04/18/2002 
  SUBJECT:   Coalminers benefits				 
	     Employee retirement plans				 
	     Retirement benefits				 
	     Health insurance					 
	     Health care costs					 
	     Health care cost control				 
	     Beneficiaries					 
	     Abandoned Mine Reclamation Fund			 
	     Medicare Program					 
	     UMWA Combined Benefit Fund 			 
	     UMWA Health Fund					 
	     UMWA Retirement Fund				 
	     United Mine Workers of America 1992		 
	     Benefit Plan					 
                                                                 


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GAO-02-243
     
Report to the Honorable Don Nickles, U. S. Senate

United States General Accounting Office GAO

April 2002 RETIRED COAL MINERS? HEALTH BENEFIT FUNDS

Financial Challenges Continue GAO- 02- 243

Page i GAO- 02- 243 Retired Coal Miners' Health Benefits Letter 1 Results in
Brief 3 Background 5 Along Some Dimensions, the Funds? Benefits Are More
Generous than Those Offered by Major Manufacturers or Companies with
Unionized Labor Forces 12 The Funds? Beneficiaries Have Higher Health Care
Costs than

Comparable Beneficiaries 18 The Funds? Trustees Have Implemented a Number of
Cost Control Initiatives 21 Concluding Observations 22 Comments from the
UMWA Health and Retirement Funds and Our

Evaluation 23 Related GAO Products 25

Tables

Table 1: Selected Features of the Funds? Health Plans Compared with Health
Plans Offered to Salaried Workers and Retirees in Manufacturing Companies
and Plans Offered to Unionized Hourly Workers and Retirees 13 Table 2:
Comparison of the Funds? Outpatient Prescription Drug

Benefit with Benefits Offered by Selected Retiree Health Plans in
Manufacturing Companies, 2000 17 Figures

Figure 1: Health Care Expenditures for the Funds? MedicareEligible
Beneficiaries and Comparable Medicare Beneficiaries with Employer- Sponsored
Health Insurance, 1999 19 Contents

Page ii GAO- 02- 243 Retired Coal Miners' Health Benefits Abbreviations

AML Abandoned Mine Reclamation fund BCOA Bituminous Coal Operators
Association CBF Combined Benefit Fund CMS Centers for Medicare and Medicaid
Services HCFA Health Care Financing Administration PBM pharmacy benefits
manager SNF skilled nursing facility SSA Social Security Administration UMWA
United Mine Workers of America

UMWAF United Mine Workers of America Health and Retirement Funds

Page 1 GAO- 02- 243 Retired Coal Miners' Health Benefits April 18, 2002 The
Honorable Don Nickles

United States Senate Dear Senator Nickles: In 1992, certain retired coal
miners and their spouses and dependents- more than 100,000 individuals in
all- faced a potential decrease in their employment- related health
insurance coverage or loss of such coverage

altogether. Some former employers had stopped mining coal or gone out of
business, so they were no longer contributing to the United Mine Workers of
America (UMWA) retiree benefit funds. To ensure that these individuals would
continue to receive the health benefits specified in previous collective
bargaining agreements reached with coal companies, often gained in exchange
for lower pensions, the Congress enacted the Coal Industry Retiree Health
Benefit Act of 1992 (Coal Act). 1 The Coal Act replaced the existing UMWA
retiree health benefit funds with the Combined Benefit Fund (CBF) and the
1992 Benefit Plan- collectively

referred to in this report as the Funds. 2 The act specified how each fund
would be financed by the coal miners? former employers and other sources to
cover the health care costs not paid for by Medicare. In 2001, there were
about 55,000 beneficiaries in the CBF and about 6,000 in the 1992 Benefit
Plan. The health plans are administered by the United Mine Workers of
America Health and Retirement Funds (UMWAF). Since 1997, the CBF has
incurred annual operating deficits. Although the

Congress has made special appropriations to keep the CBF solvent, these 1
Pub L. No. 102- 486, Tit. XIX, Subtit. C, 106 Stat 2776, 3036 (codified at
26 U. S. C. sect.sect. 97019722 (1994)). 2 The 1950 UMWA Benefit Plan and the 1974
UMWA Benefit Plan were merged to create the

CBF, which continued coverage for retirees receiving benefits from either of
the two plans. The 1992 Benefit Plan was created to serve (1) individuals
who, on February 1, 1993, were eligible but not receiving benefits as of
July 20, 1992, and who had retired by September 30, 1994, and (2) subsequent
retirees eligible under the previous plans whose former employers stopped
providing health care coverage or had gone out of business. The CBF and the
1992 Benefit Plan are alike in most respects except for how they are
financed. The comments in this report generally apply to both funds. When a
distinction must be drawn between the two funds each one is identified by
name.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 243 Retired Coal Miners' Health Benefits actions have not
addressed the CBF?s long- term financial challenges. 3 Health care spending
has risen faster than contributions to the CBF, and financial difficulties
have been compounded by court decisions that have

reduced the per beneficiary premium paid by the coal miners? former
employers and relieved some companies of the responsibility for paying
premiums for certain beneficiaries. 4 Consequently, actuarial projections
indicate that annual revenue shortfalls are expected to continue. In
contrast to the CBF, the 1992 Benefit Plan has not incurred ongoing
deficits. The 1992 Benefit Plan has a different financing structure and
premiums paid by coal companies are adjusted each year to meet the expected
health care costs of covered beneficiaries. From 1997 through 2002, these
premiums rose by 47 percent to keep pace with increases in per capita health
care spending. 5 To help the Congress consider long- term solutions to the
Funds? financial

challenges, you asked us to examine (1) how the Funds? health benefits
compare to benefits offered by other retiree plans, (2) how the health care
costs of the Funds? beneficiaries compare to the costs of other retiree
groups, and (3) the efforts of the Funds? officials to control costs. 6 To
conduct our study, we compared the benefit packages the Funds offered in
1999 to the benefit packages certain major manufacturing companies 3 Had the
Congress not made a special appropriation to keep the fund solvent, there
would

have been an annual operating deficit of about $53.4 million in 2001. 4
Under the Coal Act, the CBF also assumed responsibility for the death
benefits coverage previously provided by the pension plans it replaced.
These benefits amounted to $7. 8 million in 2000. Expenditure figures are
reported for the fund?s fiscal year.

5 Under the Coal Act, the 1992 Benefit Plan is financed by a combination of
two premiums charged to signatory coal companies. The references in this
report to 1992 Benefit Plan premiums refer to the per beneficiary premium,
which the trustees set to reflect the expected per beneficiary cost of
health care for the coming year. The other premium is calculated and charged
to coal companies to ensure that there are sufficient funds to cover the
costs of individuals in the plan whose companies no longer offered health
care benefits or who could not be assigned to specific companies. 6 We
addressed questions concerning fund financing in three previous letters: U.
S. General Accounting Office, Analysis of the Administration?s Proposal to
Ensure Solvency of the

United Mine Workers of America Combined Benefit Fund, GAO/ AIMD- 00- 267R
(Washington, D. C: Aug. 15, 2000), Financial and Legal Issues Facing the
United Mine Workers of America Combined Benefit Fund, GAO/ AIMD- 00- 280R
(Washington, D. C.: Aug. 15, 2000), and Additional Information Related to
Analysis of the Administration?s Proposal to Ensure Solvency of the United
Mine Workers of America Combined Benefit Fund, GAO/ AIMD- 00- 308R
(Washington, D. C.: Aug. 31, 2000).

Page 3 GAO- 02- 243 Retired Coal Miners' Health Benefits offered and those
offered to a sample of unionized hourly workers. 7 Because 89 percent of the
Funds? beneficiaries are eligible for Medicare, we compared the health care
costs for these individuals to the health care

costs of other, demographically similar Medicare beneficiaries covered by
employer- sponsored insurance. We also interviewed the Funds? managers and
their contractors, officials from the Health Care Financing Administration
(HCFA), 8 and coal company representatives about the financing and
operations of the Funds. We performed our work from October 2000 through
March 2002 in accordance with generally accepted

government auditing standards. The Funds? health care benefits package
requires relatively less cost sharing by beneficiaries and provides more
extensive coverage of some services than benefit packages offered by the
major manufacturing companies and companies with unionized workforces that
we examined, but overall, the extent of coverage is generally comparable.
For hospital care and physician services, which comprise the majority of
health care

spending, the Funds? coverage is similar to that offered by the majority of
manufacturing companies and to other unionized hourly workers. However,
unlike many retirees in the comparison companies, the Funds? beneficiaries
do not pay premiums for their health care coverage and beneficiaries? annual
out- of- pocket expenses for covered services are capped at $150 per family.
In contrast, the typical unionized hourly worker is liable for $1,750 for
covered services. The Funds? beneficiaries receive

somewhat more comprehensive coverage for skilled nursing facility (SNF) care
than other retirees from manufacturing companies. The Funds require a
relatively low copayment of $5 for each covered prescription and cap

this required cost sharing at $50 per year, although beneficiaries may be
liable for additional amounts if they use brand name drugs instead of
generic equivalents or use brand name drugs not on a list specified by the

7 See Hewitt Associates, LLC, Salaried Employee Benefits Provided by Major
U. S. Employers in 1999- Manufacturing (Lincolnshire, Ill.: 2000) and Hourly
Employee Benefits Provided by Major U. S. Employers, 1999 (Lincolnshire,
Ill.: 2000). The manufacturing study included information from 513
companies, while the hourly employee

benefits study included information from 126 employers with union employees.
8 On July 1, 2001, the name of the Health Care Financing Administration
(HCFA) was changed to the Centers for Medicare and Medicaid Services. In
this report, we continue to refer to HCFA where our findings apply to the
organizational structure and operations associated with that name. Results
in Brief

Page 4 GAO- 02- 243 Retired Coal Miners' Health Benefits Funds. In contrast,
beneficiaries in a sample of manufacturing companies we contacted are
responsible for $1,000 or more in prescription drug

costs. The cost of health care for the Funds? beneficiaries in 1999 was
about 29 percent higher ($ 2, 163 per person) than for demographically
similar Medicare beneficiaries with employer- sponsored insurance.
Approximately 62 percent of this difference ($ 1,345) reflects higher
spending on Medicare- covered services, while the remaining 38 percent

($ 818) reflects higher spending on benefits not covered by Medicare, such
as outpatient prescription drug coverage. However, the Funds? beneficiaries
may also use more services because of their relatively poor

health. Compared to demographically similar retirees, the Funds?
beneficiaries report poorer health status and thus their greater use of
hospital care, physician services, and SNF care may, in part, reflect
greater needs. The Funds? trustees believe the beneficiaries of the CBF and
the 1992 Benefit Plan are entitled to the level of benefits established
through prior bargaining agreements and consequently, their numerous cost
containment initiatives have focused on the efficient management of health
care services and on obtaining lower prices from their health care

providers. The Funds? officials said they have attempted to control costs
largely through approaches that do not reduce or limit the benefits for
beneficiaries, do not increase beneficiary cost sharing requirements, or
that have a minimal impact on beneficiaries. For example, the Funds?
officials initiated case and disease management programs, implemented

claims review procedures designed to avoid payment of inappropriate claims,
hired a pharmacy benefits manager (PBM) to help control their outpatient
prescription drug costs, solicited competitive bids to obtain better prices
for durable medical equipment, and negotiated for their providers to accept
Medicare rates as payment in full for all the Funds? beneficiaries.

In comments on a draft of this report, the Funds? officials stressed that in
comparing their plans and beneficiaries with other plans and populations, it
is important to have a full appreciation of the history behind the 1992 Coal
Act and the tradeoffs coal miners made to secure their health benefits. The
Funds? officials also noted that they have implemented a wide range of
managed care and cost containment initiatives and have realized substantial
savings for the Funds and for Medicare and the U. S. Treasury.

Page 5 GAO- 02- 243 Retired Coal Miners' Health Benefits The Coal Act
established beneficiary eligibility requirements, a standard for covered
benefits, and separate boards of trustees to oversee the CBF and the 1992
Benefit Plan. For both funds, the act requires coal companies

to pay premiums for beneficiaries and their dependents, but the annual
premium amount, the method for adjusting the premium each year, and other
financing arrangements are quite different for each fund. Since the Funds
were established in 1993, coal companies have challenged several provisions
of the law. Court decisions in favor of former employers have reduced the
premium contributions paid by the companies to the CBF.

Although the CBF?s financing was originally expected to be adequate, the CBF
has incurred an annual operating deficit in each year since 1997, prompting
Congress to make special appropriations in 1999 and 2000 to maintain its
solvency. In contrast, the 1992 Benefit Plan has had an annual operating
deficit in only one year (2000) since its inception. 9 The Coal Act limited
coverage under the Funds to retired coal miners,

their spouses and dependents who were eligible for benefits under former
UMWA retiree benefit plans. There were approximately 115,000 beneficiaries
in 1993. The number of beneficiaries has declined each year as individuals
died and dependent minors reached 22 years of age and no longer qualified
for coverage (the current population is declining by approximately 9 percent
per year). In 2001, the Funds provided health

benefits to about 61,000 beneficiaries. Approximately 70 percent of
beneficiaries are female and the median age is over 78. Most of the Funds?
beneficiaries are eligible for Medicare (89 percent) and others are from 55
to 64 years of age and nearing eligibility (7 percent). Most of the Funds?
beneficiaries (62 percent) live in rural or nonmetropolitan urban areas.
More than three quarters of the beneficiaries live in five states: West
Virginia (32 percent), Pennsylvania (19 percent), Kentucky (12 percent),
Virginia (8 percent), and Ohio (6 percent). In 2000, the median income of
the Funds? beneficiaries ($ 17,100) was similar to the median income of all
Medicare beneficiaries ($ 18, 000).

9 The 2001 financial statements were not available during the time we were
preparing this report. Background

The Funds? Beneficiaries

Page 6 GAO- 02- 243 Retired Coal Miners' Health Benefits The Coal Act
specified that ?to the maximum extent feasible,? the Funds? coverage be
?substantially the same as? the coverage provided under the UMWA retiree
health plans they replaced, provided that premium income

is sufficient to cover payment rates to providers. 10 Thus, the Funds?
benefit packages reflect the outcome of prior agreements between UMWA and
coal companies. The benefits include coverage for inpatient and outpatient
hospital care, physician services, prescription drugs, home health services,
SNF care, mental health care, and durable medical equipment such as

ventilators and wheelchairs. All of the Funds? beneficiaries receive the
same package of benefits regardless of their entitlement status (retiree,
spouse, or dependent) or their eligibility for Medicare. For Medicare-
eligible beneficiaries, the Funds pay Medicare?s required cost sharing
(coinsurance, copayments, and deductibles) in addition to the cost of
services included in the Funds? benefit packages but not covered by
Medicare, such as outpatient

prescription drugs. Except for required copayments, the Funds pay the entire
cost of covered services provided to beneficiaries who are not eligible for
Medicare.

There are separate boards of trustees for the CBF and for the 1992 Benefit
Plan. The Coal Act stipulates that the CBF board consist of one individual
designated by the Bituminous Coal Operators Association (BCOA) to represent
employers in the coal mining industry, one individual jointly designated by
the three employers with the greatest number of assigned beneficiaries, two
individuals designated by UMWA, and three persons selected by the other
board members. 11 UMWA and BCOA each appoint two members to the board of the
1992 Benefit Plan. Some individuals serve as trustees for both the CBF and
the 1992 Benefit Plan.

The Coal Act established the Funds? initial and ongoing financing
structures. Both funds receive annual revenues from coal company premiums
and Medicare payments. 12 However, the CBF also received an

10 26 U. S. C. sect.sect. 9701- 9722 (1994). 11 The Coal Act specifies that the
three employers must not be signatories to the 1988 National Bituminous Coal
Wage Agreement. 12 The Funds also receive a small amount of their revenues
from other sources, such as income from the pursuit of delinquencies owed
the merged plans, from the Department of

Labor for black lung related care, and interest income from investments.
Health Care Benefits

Operations and Financing

Page 7 GAO- 02- 243 Retired Coal Miners' Health Benefits initial transfer of
assets from the 1950 UMWA Pension Plan, 13 and has received some of the
accumulated interest from the Abandoned Mine

Reclamation fund (AML) since 1996. 14 Together, these revenues pay for
health care expenses and the associated administrative costs of the health
plans, which include the cost of third- party contracts for claims
processing and utilization review, general overhead, and legal
representation in lawsuits brought by and against the Funds. 15 The Coal Act
requires certain coal and other companies to pay premiums

on behalf of beneficiaries who are covered by the 1992 Benefit Plan or the
CBF. 16 However, the 1992 Benefit Plan and the CBF differ in how the annual
premium amount is determined and the extent to which coal companies are
responsible for beneficiaries. For the 1992 Benefit Plan, the

Coal Act allows the premiums to be adjusted annually to cover changes in the
cost of providing benefits. The trustees have historically set the premiums
so that revenues will meet projected annual expenditures. Thus,

premium adjustments reflect changes in medical prices or beneficiaries? use
of medical services. For 2002, the annual premium was about $4,437, or about
38 percent higher than the CBF annual premium. The Coal Act assigns
financial responsibility for paying premiums to each

eligible retiree?s most recent coal industry employer. 17 If an employer has
13 The Coal Act transferred $210 million (13 percent of assets) from the
UMWA 1950 Pension Plan to the CBF in three transactions of $70 million each
from February 1, 1993, to October 1, 1994. These assets were then used to
finance the health care benefits under the Coal Act, instead of pensions.
Actuarial estimates produced for the BCOA place the value of forgone
pensions due to this transfer at $743 per year for retired miners and $248
per year for widows. 14 The Surface Mining Control and Reclamation Act of
1977, Pub. L. No. 95- 87, 91 Stat. 445,

established the AML primarily to fund cleanups of abandoned mine land. The
Coal Act specified that accumulated AML interest could be used to pay the
health care costs of those beneficiaries for whom the CBF did not receive
premiums from coal companies. AML

moneys are not used for the 1992 Benefit Plan. 15 The Funds? representatives
said that administrative costs were roughly 4 percent of CBF expenses from
1993 through 2000.

16 Following the Supreme Court?s decision in Eastern Enterprises v. Apfel,
524 U. S. 498 (1998), some employers have been relieved of their financial
responsibilities. 17 This employer must be a signatory to the 1988 National
Bituminous Coal Wage Agreement. Company Premiums

Page 8 GAO- 02- 243 Retired Coal Miners' Health Benefits gone out of
business, or the premium cannot otherwise be collected, the cost of affected
1992 Benefit Plan beneficiaries is shared by other coal

companies that were signatories to a prior agreement between the industry
and UMWA and that have either current or potentially eligible beneficiaries
under the 1992 Benefit Plan.

For the CBF, the Coal Act specifies a method for determining the premium to
be paid by a company for each of its retirees and eligible dependents, and
how the premium is updated. The premium is based on the cost of providing
benefits under the UMWA?s retiree health plan during the period

between July 1, 1991 through June 30, 1992. It is increased each year by the
percentage change in general medical prices as measured by the medical
component of the consumer price index. In 2002, the annual premium was about
$2,725.

The Social Security Administration (SSA) was charged with determining which
company is financially responsible for each CBF beneficiary. In some cases,
SSA was not able to assign a beneficiary to a responsible company. This
occurred, for example, when a beneficiary?s former employer had gone out of
business. In 2001, about 71 percent of CBF

beneficiaries were assigned to companies that were responsible for paying
premiums on their behalf. The CBF did not receive premium payments from coal
companies or their successors for the 29 percent of beneficiaries who were
unassigned.

The Coal Act allows for transfers of accumulated interest from the AML, a
federal fund financed by levies on coal extraction, to cover the projected
costs of the CBF?s unassigned beneficiaries. Since 1996, transfers of
interest from the AML to the CBF have helped to pay for costs associated
with assigned beneficiaries. In 1999 and 2000, Congress made special
appropriations to keep the CBF solvent. The AML moneys have not been used to
support the 1992 Benefit Plan.

The Funds are participants in a Medicare demonstration project that places
them at financial risk for the cost of Medicare- covered services delivered
to eligible beneficiaries. The extent of the Funds? financial risk varies by
type of service. The Funds assume partial risk for the cost of Medicare?s
part A benefits that include coverage for inpatient hospital services and
skilled nursing facility care. Annual spending for these Transfers of
Accumulated

Interest from the AML Medicare Payments

Page 9 GAO- 02- 243 Retired Coal Miners' Health Benefits services is
compared to an expenditure target. If spending was less than the targeted
amount, the difference is shared between the Funds and

Medicare according to a predetermined formula. The same formula specifies
how the cost of any spending in excess of the targeted amount is to be
shared. The Funds assume full financial risk for the cost of Medicarecovered

part B benefit that cover physician, hospital outpatient, and certain other
services. Medicare pays the Funds a fixed monthly payment per beneficiary,
known as a capitation payment, that is projected to cover

the cost of these services. 18 If the Funds? spending on these services for
eligible beneficiaries is less than Medicare?s capitation payments, the
Funds may retain the difference. However, the Funds are financially
responsible for any spending in excess of Medicare?s capitation payments.

In recent years, the Funds spent less on Medicare- covered services than the
combined total of the annual expenditure target and capitation payments from
Medicare. In 1999, for example, this difference amounted to approximately
$16 million, of which $4.4 million was retained by the Funds and $11.6
million was retained by Medicare. The Funds can use these retained moneys to
help pay for services and items not covered by Medicare, such as outpatient
prescription drugs.

On July 1, 2001, the Centers for Medicare and Medicaid Services (CMS)
renewed the demonstration project for an additional 3 years. At the same
time, CMS agreed to include a new component in the demonstration project
that will provide the Funds with additional revenue to help cover the cost
of outpatient prescription drugs. Under the terms of the new demonstration
component, Medicare will pay the Funds an amount equal to 27 percent of
their expenditures on outpatient prescription drugs for

Medicare- eligible beneficiaries. CMS estimates that the new demonstration
component will result in an additional $135 million in Medicare payments to
the Funds during the 3- year period.

18 The annual spending targets and capitation payment amounts are calculated
from the Funds? per capita cost of providing Medicare- covered services in a
specified base year updated by changes in the Medicare program?s per capita
spending since that year.

Page 10 GAO- 02- 243 Retired Coal Miners' Health Benefits Court decisions in
several lawsuits brought by coal companies have reduced the premium revenues
available to the CBF and contributed to the

financing challenge it faces. 19 The cost of legal representation has also
increased the CBF?s annual administrative costs. Since 1992, companies have
filed over 50 lawsuits challenging specific aspects of the Coal Act?s
implementation. One lawsuit challenged SSA?s calculation of the initial
premium rate. As a result of the court decision in that case, premiums
charged to companies were reduced by approximately 10 percent. 20 In other
lawsuits, companies have challenged some of SSA?s beneficiary

assignment decisions. The effect of one Supreme Court decision was to reduce
companies? financial responsibilities thereby increasing the number of
unassigned beneficiaries. 21 Another case changed the status of several
thousand beneficiaries from assigned to unassigned. 22 The CBF will

receive no further premiums from coal companies for all living beneficiaries
who are now unassigned as a result of these cases, and transfers from the
AML will have to increase to cover the health care costs of these additional
unassigned beneficiaries. Furthermore, the CBF will need to refund the
premiums it previously collected on behalf of any

affected beneficiaries. The rise in health care expenditures during the
1990s, which prompted many private employers to reduce the health insurance
benefits they provided to their employees or to require larger contributions
from

beneficiaries, also affected the expenditures of the Funds. From 1994
through 2000 the per capita cost of the CBF?s beneficiaries rose by 53
percent, an average annual increase of 7. 3 percent, and the per capita
costs of the 1992 Benefit Plan beneficiaries, who tend to be younger than
CBF beneficiaries, increased by 28 percent, an average annual increase of
4.2 percent. Part of the rise in cost was due to higher medical prices. 19
For information on legal challenges, see U. S. General Accounting Office,
Financial and

Legal Issues Facing the United Mine Workers of America Combined Benefit
Fund, GAO/ AIMD- 00- 280R (Washington, D. C.: Aug. 15, 2000). 20 National
Coal Association vs. Chater, 81 F. 3d 1077 (11th Cir. 1996). 21 Eastern
Enterprises v. Apfel, 524 U. S. 498 (1998) 22 Dixie Fuel Co. v. Comm?r of
Soc. Sec., 171 F. 3d 1052 (6th Cir. 1999, petition for rehearing denied,
1999 U. S. App. Lexis 16997 (6th Cir. July 7, 1999). Impact of Legal
Challenges Discrepancy between Cost and Revenue Growth

Page 11 GAO- 02- 243 Retired Coal Miners' Health Benefits However, overall
increases in the use of medical services and increases in the use of
outpatient prescription drugs and other expensive services also

pushed up per beneficiary costs. Although Medicare per capita costs rose by
26 percent during this period, in part due to rising utilization, the trend
may have been magnified in the CBF because it serves a closed, and therefore
aging, population. Per capita costs would be expected to grow faster among
CBF beneficiaries relative to Medicare beneficiaries because older
individuals tend to use more medical services than younger individuals and
because the cost of outpatient prescription drugs, which are not covered by
Medicare, have risen faster than other components of health care spending
during this period.

Unlike premiums in the 1992 Benefit Plan, CBF premiums have not kept pace
with increases in the cost of services not covered by Medicare. The CBF
premium update adjustment specified in the Coal Act only reflects changes in
medical prices, which rose at an average annual rate of 3.6 percent from
1994 to 2000 while per capita spending increased at twice that rate. To
date, Medicare payments have been sufficient to cover the cost of providing
Medicare- covered services in both the CBF and the 1992 Benefit Plan because
annual updates to Medicare?s payments reflect underlying changes in both
prices and use of services. Similarly, AML funding for the non- Medicare
costs of the CBF?s unassigned beneficiaries is based on projected costs and
takes into account expected changes in both utilization and prices.

Page 12 GAO- 02- 243 Retired Coal Miners' Health Benefits In four areas-
premium contributions, annual deductible, the cap on beneficiary out- of-
pocket expenses, and coverage for SNF care- the

Funds? benefits are more generous than those benefits typically offered to
retirees and workers by major manufacturing companies or to unionized hourly
workforces in other companies. 23 In addition, most aspects of the Funds?
outpatient prescription drug coverage are more generous than the coverage
provided by other benefit plans. However, many features of the Funds? health
plans are similar to those offered in the comparison plans. In particular,
the Funds? coverage for hospital and physician services, which account for
the majority of health care spending, is comparable to the coverage provided
by the other plans. (Table 1 compares selected benefits of the Funds? plans
with those in plans offered to workers in manufacturing companies and to
unionized hourly workers.) Eligibility

requirements for retiree health plan coverage by the Funds are similar to
those of other manufacturing employers. The Funds? beneficiaries can qualify
for retiree health benefits at age 62 with 5 years of service, or at age 55
with 10 years of service. 24 Most retiree plans require a similar

combination of minimum age and years of service to qualify for retiree
health benefits. 25 23 We compared the Funds? benefits with those offered to
retired and active workers in 513 large manufacturing companies and 126
companies with unionized hourly workers that participated in a survey on
benefits conducted by Hewitt Associates, LLC. Details on active

workers? health benefit packages are reported here because similar
information was not available for some dimensions of retirees? benefit
packages. According to a representative of Hewitt Associates, the health
benefit packages offered to retirees are typically comparable to, or
somewhat less generous than, the benefit packages offered to active

workers. Data on unionized companies include both manufacturing and
nonmanufacturing companies. 24 Disabled workers can become eligible for
pensions and health benefits under other conditions. 25 Age, years of
service, or some combination of the two was required for eligibility for
almost all of the employers with unionized hourly workers who responded to
the survey conducted by Hewitt Associates, LLC. Along Some

Dimensions, the Funds? Benefits Are More Generous than Those Offered by
Major Manufacturers

or Companies with Unionized Labor Forces

Page 13 GAO- 02- 243 Retired Coal Miners' Health Benefits Table 1: Selected
Features of the Funds? Health Plans Compared with Health Plans Offered to
Salaried Workers and Retirees in Manufacturing Companies and Plans Offered
to Unionized Hourly Workers and Retirees Plan Feature

Feature included in the CBF and the 1992

Benefit Plan Percentage of plans offered to salaried

workers and retirees in manufacturing companies with feature (n= 513)

Percentage of plans offered to unionized

hourly workers and retirees with feature

(n= 126) Retirees age 65 and older Retiree premium contribution No
contribution required

Page 14 GAO- 02- 243 Retired Coal Miners' Health Benefits Plan Feature
Feature included in the

CBF and the 1992 Benefit Plan Percentage of plans

offered to salaried workers and retirees in

manufacturing companies with feature (n= 513)

Percentage of plans offered to unionized

hourly workers and retirees with feature

(n= 126)

Hospital room and board coverage a 100 percent of reasonable and customary
charges, no limit on days

Page 15 GAO- 02- 243 Retired Coal Miners' Health Benefits Retiree premium
contribution. The Funds? beneficiaries do not pay a premium beyond that
required for Medicare part B, the optional part of Medicare. According to a
study by Hewitt Associates, 61 percent of

unionized companies require retired unionized hourly workers to pay a health
insurance premium. 26 A related study found that more than 92 percent of
major manufacturing companies require retirees from salaried

jobs to pay a health insurance premium. 27 Deductible. The Funds?
beneficiaries are not responsible for an annual deductible. Beginning with
the first covered service used, the Funds pay all but the copayment. In
contrast, the average annual deductible for workers in large manufacturing
companies is more than $260 for individuals and more than $615 for families.

Cap on beneficiary out- of- pocket expenses. The Funds? beneficiaries are
responsible for copayments on each service used, up to an annual amount of
$100 per family, excluding prescription drugs. Additional out- ofpocket

expenses for covered prescription drugs are capped at $50 per family per
year. The total cap of $150 is substantially less than the median cap of
over $1,750 in plans offered to other unionized hourly workers.

SNF coverage. The Funds? beneficiaries are eligible for SNF care with no
cost- sharing requirement and no limit on the number of covered days. 28 In
contrast, most employer- sponsored retiree plans do not offer SNF care.

Those that do typically restrict the number of days covered, require cost
sharing, or both.

26 Hewitt Associates, LLC, Hourly Employee Benefits Provided by Major U. S.
Employers, 1999.

27 Hewitt Associates, LLC, Salaried Employee Benefits Provided by Major U.
S. Employers in 1999- Manufacturing. 28 The care must be deemed medically
appropriate and be consistent with Medicare?s SNF coverage criteria.
Medicare covers most necessary SNF services, including room and board,
nursing care, and ancillary SNF services such as drugs, laboratory tests,
and physical therapy for up to 100 days of each benefit period.
Beneficiaries must meet certain

qualifying conditions such as having prior hospitalization and paying a
copayment beginning with the 21st day ($ 99 per day in 2001). There is no
limit to the number of benefit periods a beneficiary may have.

Page 16 GAO- 02- 243 Retired Coal Miners' Health Benefits Outpatient
prescription drug benefit. The Funds? beneficiaries pay a $5 copayment per
prescription and their annual out- of- pocket costs for

covered prescription drugs are capped at $50. In contrast, many plans
offered by manufacturing companies do not have deductibles but require
beneficiaries to pay higher cost sharing requirements with no cap on outof-
pocket costs. 29 (See table 2.) Some plans require beneficiaries to pay 20
percent of the cost of each prescription while others use multitiered
copayment schedules that may, for example, require $5 for generic drugs, $10
to $15 for brand name drugs included in the health plan?s formulary,

and $20 or more for nonformulary brand name drugs. 30 Furthermore, 14 of the
17 companies we contacted that cover prescription drugs do not cap retirees?
out- of- pocket costs for outpatient prescription drugs.

29 We surveyed a randomly selected subset of 25 automotive, energy, oil,
mining, and metals/ steel companies that responded to the 1999 Hewitt survey
of the manufacturing industry. 30 In general, a formulary is a list of drugs
that, in most circumstances, a health insurer prefers that physicians
prescribe. The formulary includes drugs that the insurer has deemed to be
effective and suppliers may have favorably priced for the insurer.

Page 17 GAO- 02- 243 Retired Coal Miners' Health Benefits Table 2:
Comparison of the Funds? Outpatient Prescription Drug Benefit with Benefits
Offered by Selected Retiree Health Plans in Manufacturing Companies,

2000 Plan Feature

Feature included in the CBF and the 1992

Benefit Plan Number of comparison plans with feature a (n= 25)

Prescription drug benefit No benefit 8 Benefit offered

Page 18 GAO- 02- 243 Retired Coal Miners' Health Benefits Funds?
beneficiaries who use brand name drugs instead of generic equivalents, or
who use off- formulary brand names instead of ones

included on the formulary, must pay the full difference in price between the
preferred and nonpreferred drug. This amount does not count toward the
beneficiary?s $50 annual cap on prescription drug expenditures. Only 5 of
the 17 companies we contacted that cover prescription drugs have similar
mandatory generic drug use policies.

The average annual health care cost of the Funds? beneficiaries is
approximately 29 percent higher than the average cost of demographically
similar Medicare retirees with employer- provided insurance. 31 The Funds?
beneficiaries also tend to use more health care services than Medicare
beneficiaries of the same age and sex. The Funds? beneficiaries appear to be
in relatively poorer health, which may explain the differences in cost and
service use.

In 1999, the Funds spent an average of $9,732 on each beneficiary who was
eligible for Medicare. This was $2,163, or 29 percent, higher than the
estimated average health care cost of Medicare beneficiaries who live in

the same counties where the Funds? beneficiaries live, have similar
demographic characteristics, and have employer- provided supplemental
insurance. (See figure 1.) Approximately $1, 345 (62 percent) of the $2,163

estimated cost differential is associated with increased use of
Medicarecovered services while the remaining $818 (38 percent) is associated
with additional benefits, such as prescription drug coverage, that are
covered by the Funds.

31 A third fund, the 1993 Benefit Plan, was established through collective
bargaining between UMWA and BCOA. In March 2000, it covered approximately
2,000 beneficiaries. Because some UMWA data were reported collectively for
the CBF, the 1992 Benefit Plan, and the 1993 Benefit Plan, the estimated
cost per beneficiary is based on a joint analysis of all three funds. The
Funds? Beneficiaries Have

Higher Health Care Costs than Comparable Beneficiaries

Page 19 GAO- 02- 243 Retired Coal Miners' Health Benefits Figure 1: Health
Care Expenditures for the Funds? Medicare- Eligible Beneficiaries and
Comparable Medicare Beneficiaries with Employer- Sponsored Health

Insurance, 1999

Note: Estimates reflect costs of Medicare beneficiaries who live in counties
where beneficiaries of the Funds live and are adjusted to reflect
differences between Medicare beneficiaries and the beneficiaries of the
Funds in characteristics such as age, sex, Medicaid eligibility, current
labor force participation, and whether or not they are living in
institutions. Source: GAO analysis of CMS?s and the Funds? data. The
beneficiaries of the Funds who are eligible for Medicare generally use more
health care services than do similar Medicare beneficiaries

nationwide. In 1999, the beneficiaries of the Funds had 22 percent more
physician office visits, 51 percent more days in SNFs, 91 percent more days
in the hospital, and 55 percent more days in hospice care than the

0 2,000

4,000 6,000

8,000 10,000

Per capita health care expenditures Funds' beneficiaries

Comparable Medicare beneficiaries

Benefits covered by employer insurance Benefits covered by Medicare

Page 20 GAO- 02- 243 Retired Coal Miners' Health Benefits national average
for Medicare beneficiaries of the same age and sex. 32 However, the Funds?
beneficiaries? use of home health care was substantially below the average
home health utilization rate among

demographically similar Medicare beneficiaries. 33 The health status of the
Funds? beneficiaries may explain some of the observed differences in health
care costs and utilization. In 1999, the average beneficiary in the Funds
reported his or her health status as fair or good. That same year, the
average Medicare beneficiary with similar demographic characteristics
reported his or her health status as good or very good. 34 Several studies
have found that individuals who report poorer

health tend to use substantially more services than individuals who report
better health. 35 Thus, it is likely that some of the higher costs and
utilization associated with the Funds? beneficiaries is a result of their
relatively poorer health. The Funds? low cost- sharing requirements provide
few financial barriers to care, which may also contribute to the cost

differential. However, we cannot determine how much of the cost and
utilization difference is attributable to health status differences, local
practice patterns, or differences in benefit packages and cost sharing
arrangements.

32 The Funds beneficiaries? utilization rates may resemble local practice
patterns more closely than they reflect national averages. For example,
about 32 percent of the Funds? beneficiaries live in West Virginia- a state
where the number of inpatient days per thousand for Medicare beneficiaries
is 15 percent higher than the national average. 33 The comparison group of
Medicare beneficiaries was similar to the Funds? Medicareeligible
beneficiaries in terms of age, sex, Medicaid eligibility, labor force
participation, and whether or not they were living in institutions.

34 We obtained self- reported health status information on Medicare
beneficiaries from the Medicare Current Beneficiary Survey. In a February
2001 survey of the Funds? beneficiaries, 57 percent of the respondents aged
65 and older reported their health status as ?fair? or ?poor.? Comparable
information from the 2001 Medicare Current Beneficiary

Survey was not available during the time we were preparing this report. 35
For example, see Arlene S. Bierman, Thomas A. Bubolz, Elliott S. Fisher, and
John H. Wasson, ?How Well Does a Single Question about Health Predict the
Financial Health of Medicare Managed Care Plans?? Effective Clinical
Practice, Volume 2, Number 2 (Philadelphia: American College of Physicians,
March/ April 1999).

Page 21 GAO- 02- 243 Retired Coal Miners' Health Benefits The Funds?
trustees have stated that they are firmly committed to preserving the
?benefits that were promised and guaranteed? to the retired miners and
therefore their cost control efforts largely focus on making the Funds a
more efficient manager and prudent purchaser of health care

services. 36 While many private employers have responded to rising health
care costs by requiring their beneficiaries to contribute more to the cost
of health insurance, either through higher premiums or increased

copayments and deductibles, the trustees have chosen to make relatively few
changes that would affect the Funds? beneficiaries? out- of- pocket
expenses. 37 According to the Funds? representatives, the trustees have
tried to deliver services more efficiently and negotiate lower prices from
providers and suppliers. The Funds? efficiency initiatives include a disease
and case management program and the management of medical service use
through prepayment claims and utilization review. Beneficiaries with health

conditions such as diabetes or congestive heart failure receive care
coordinated by the Funds? disease management program. To help prevent
unnecessary spending, the third- party administrator that processes the
Funds? claims reviews billing patterns to identify potential billing abuses
or inappropriate payments and has also instituted other program integrity

safeguards. The Funds? efforts at being a prudent purchaser of care include
a competitive bidding program for durable medical equipment suppliers, a
range of initiatives designed to help control spending for prescription
drugs, and arrangements with hospitals and physicians providers to accept
Medicare rates as payments in full for all beneficiaries, including those
who are not eligible for Medicare. The Funds have solicited competitive bids
for durable medical equipment in an effort to obtain better pricing and have
reduced the number of suppliers nationwide from several hundred to six. The
Funds? PBM, which administers the prescription drug

benefit, has established a formulary, mandated the use of generic drugs 36
According to the Funds? representatives, the trustees view the Coal Act?s
requirement that, ?to the maximum extent feasible,? the coverage under both
the CBF and the 1992 Benefit Plan be ?substantially the same? as coverage
under the UMWA plans they replaced as a restriction on their ability to
increase beneficiary cost sharing or to reduce covered services. 37 See U.
S. General Accounting Office, Retiree Health Benefits: Employee- Sponsored
Benefits May Be Vulnerable to Further Erosion, GAO- 01- 374 (Washington, D.
C.: May 1,

2001). The Funds? Trustees

Have Implemented a Number of Cost Control Initiatives

Page 22 GAO- 02- 243 Retired Coal Miners' Health Benefits when available,
implemented a preferred product program, negotiated discounts, and initiated
mail order pharmacy services. The Funds claim that these cost control
efforts collectively have achieved millions of dollars in savings per year.

The Funds? officials have tried to maintain the established level of
benefits and cost sharing for their beneficiaries even while health care
costs have risen. For example, neither the copayments nor the cap on out-
of- pocket expenditures for the Funds? beneficiaries have been adjusted for
inflation

or otherwise modified since they were established. 38 The Funds?
beneficiaries face no cost sharing after they reach their annual $100 cap on
out- of- pocket expenses for covered services ($ 150 including outpatient
prescription drugs). In contrast, other employers have reduced coverage for
prescription drugs or other benefits, shifted retirees into managed care
plans, or stopped offering retiree health benefits altogether in response to
recent health care cost increases.

From 1994 through 2000, the per capita health care costs of the CBF?s
beneficiaries increased by 53 percent while those of the 1992 Benefit Plan?s
beneficiaries increased by 28 percent. The Funds? officials have taken steps
to help control the cost growth. The Funds? officials contend, however, that
statutory requirements pertaining to coverage impede their ability to
require beneficiaries to pay more for their health care. To cover rising
health care costs, the 1992 Benefit Plan has increased the premiums charged
to coal companies. This option is not available to the CBF because the Coal
Act ties annual premium updates to a formula that accounts for inflation,
but not to changes in the use of health care services. Consequently,
Congress has had to provide the CBF with additional money in recent years to
close the gap between its costs and revenues. These annual shortfalls are
expected to continue into the future as the CBF?s beneficiaries grow older
and require more medical services.

38 In comparison, the Medicare inpatient deductible increased approximately
19 percent from 1992 through 2000. Concluding Observations

Page 23 GAO- 02- 243 Retired Coal Miners' Health Benefits In written
comments on a draft of this report, the Funds 39 emphasized the importance
of the history of the Coal Act in understanding the Funds? operations,
provided additional detail on the health status of their

beneficiary population, and stressed the breadth and success of their cost
control efforts. The Funds also pointed out technical issues that we have
incorporated, where appropriate. The Funds? officials stressed that
comparisons of their plans and beneficiaries with other plans and
populations are misleading without a full appreciation of the history behind
the 1992 Coal Act and the characteristics of their beneficiary population.
Specifically, they emphasized that coal miners traded lower pensions for
better health care benefits in their labor contracts. The Funds? comments
cited the 1990 Coal Commission Report conclusion that ?retired miners are
entitled to the

health care benefits that were promised and guaranteed them and that such
commitments must be honored.? They noted that the Funds? beneficiaries have
already contributed significantly to their health care benefits through the
shifting of assets from their pension plans. The Funds stated that any
comparisons of benefits with other groups are inappropriate because the
plans? benefits are a culmination of their history.

The Funds also said that cost comparisons are misleading because their
population is sicker than comparably aged men and women. Finally, the Funds
emphasized their record of success in implementing a wide range of managed
care and cost containment programs and claimed that these

initiatives have realized substantial savings for the Funds and for Medicare
and the U. S. Treasury.

We acknowledge that the retired coal miners traded lower pensions for the
promise of future health care benefits, and that this may be an important
consideration when interpreting our benefit comparisons with packages
offered by other manufacturing companies and companies with significant
numbers of unionized workers. Our analysis finds that the Funds? plans are
generally comparable, but more generous in some dimensions and less so in
others. Our cost comparison adjusts for all the demographic information used
by Medicare to calculate the average cost per 39 The Funds forwarded the
draft to, and received comments, from BCOA, UMWA, and the

three coal companies with the largest number of assigned beneficiaries. Our
response addresses the comments from all of these organizations. Comments
from the

UMWA Health and Retirement Funds and Our Evaluation

Page 24 GAO- 02- 243 Retired Coal Miners' Health Benefits beneficiary, and
acknowledges the differences in self- reported health status. Finally, as we
have noted in the report, the Funds? officials have

adopted numerous cost- cutting initiatives and have a history of achieving
savings against their Medicare targets.

As we agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this letter. We will then send copies of this report to the

UMWA Health and Retirement Funds and other interested parties. We will also
make copies available to others upon request. If you or your staff have any
questions about this report, please call me at (202) 512- 7119 or James C.
Cosgrove, assistant director, at (202) 512- 7029. Other major contributors
to this report include Jim S. Hahn and Richard M. Lipinski. Sincerely yours,
Laura A. Dummit Director, Health Care- Medicare Payment Issues

Related GAO Products Page 25 GAO- 02- 243 Retired Coal Miners' Health
Benefits Medigap: Current Policies Contain Coverage Gaps, Undermine Cost
Control Incentives, GAO- 02- 533T. Washington D. C.: Mar. 14, 2002. Retiree
Health Insurance: Gaps in Coverage and Availability,

GAO- 02- 178T. Washington, D. C.: Nov. 1, 2001.

Retiree Health Benefits: Employee- Sponsored Benefits May Be Vulnerable to
Further Erosion, GAO- 01- 374. Washington, D. C.: May 1, 2001.

Additional Information Related to Analysis of the Administration?s Proposal
to Ensure Solvency of the United Mine Workers of America Combined Benefit
Fund, GAO/ AIMD- 00- 308R. Washington, D. C.: Aug. 31,

2000.

Financial and Legal Issues Facing the United Mine Workers of America
Combined Benefit Fund, GAO/ AIMD- 00- 280R. Washington, D. C.: Aug. 15,
2000.

Analysis of the Administration?s Proposal to Ensure Solvency of the United
Mine Workers of America Combined Benefit Fund,

GAO/ AIMD- 00- 267R. Washington, D. C.: Aug. 15, 2000.

Prescription Drugs: Increasing Medicare Beneficiary Access and Related
Implications, GAO/ T- HEHS/ AIMD- 00- 100. Washington, D. C.: Feb. 16, 2000.
Private Health Insurance: Declining Employer Coverage May Affect Access for
55- to 64- Year- Olds, GAO/ HEHS- 98- 133. Washington, D. C.: June 1, 1998.

Retiree Health Insurance: Erosion in Retiree Health Benefits Offered by
Large Employers, GAO/ T- HEHS- 98- 110. Washington, D. C.: Mar. 10, 1998.

Retiree Health Insurance: Erosion in Employer- Based Health Benefits for
Early Retirees, GAO/ HEHS- 97- 150. Washington, D. C.: July 11, 1997.
Related GAO Products (201111)

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