FC 107/13

Finance Committee

Table of Contents

Introduction

Buck Report

Competitiveness and reasonableness of the provided benefits

Comparability of benefits & cost-sharing with other UN agencies

Performance of the Medical Plans Administrator

Introduction

1. The Medical Insurance Coverage for FAO (and WFP) staff and retirees is extended through two schemes, a mandatory Basic Medical Insurance Plan (BMIP) that is provided on a cost-shared basis and another complementary (optional) Major Medical Benefits Plan (MMBP) that is paid entirely by the participants.

2. BMIP coverage for retirees is the same as that extended to active staff. Reimbursement is 80% of the reasonable and customary cost of the following (documented) medical expenses: physician’s and surgeon’s fees, prescription drugs, laboratory tests and x-rays. Hospital charges are reimbursed at 100% up to limits set geographically with 80% of the excess reimbursed up to a second tranche. Dental, psychiatric and physical therapy fees are reimbursed at 80% with certain limits and ceilings as appropriate.

3. As for staff members, the monthly contributions to BMIP in respect of former staff members and recognized family members meeting the eligibility requirements are based on the principle that premiums are equally shared between the participating former staff members (or their survivor) and the Organization. However, the contribution of the former staff member shall not exceed the cap of 4% of the full periodic benefit from the UN Joint Staff Pension Fund (UNJSPF), including cost-of-living; or 4% of 32% of the final average remuneration of the former staff member as long as they participate in the plan. There are similar limits for lower-salaried staff members’ contributions. The difference, if any, is paid by the Organization, resulting in slightly more than half of the total premium being paid by the Organization (see Table 3 below).

4. MMBP provides optional top-up coverage paid for by the participant for some medical services not otherwise reimbursed under BMIP. These include out-patient services; professional ambulance service; convalescence in sanatoria or institutional care and hospital/clinic expenses when they charge an all-inclusive rate comprehensive of doctor fees, for the purposes of calculating reimbursements. Reimbursement to participants in MMBP is, however, limited to 80% of out-of-pocket reasonable and customary expenses, beyond those reimbursed by BMIP for any amount that cumulatively exceeds the threshold set in the terms of coverage. The total monthly contribution to MMBP is paid entirely by the participants (staff, former staff or their survivors).

5. At the 104th Finance Committee session, three questions were raised about the FAO Medical Insurance Plans: (a) comparability with other UN agencies of benefits and cost-sharing arrangements, (b) competitiveness and reasonableness of the provided benefits, and (c) performance of the Medical Plans Administrator. The Secretariat indicated that a report which FAO had commissioned in 2000, namely the Buck Report, contained information to help answer these questions. Following is a summary of the information in that report pertaining to the issues raised by the Finance Committee.

Buck Report

6. In anticipating the re-tendering of its medical insurance plans for 2001, FAO commissioned a comprehensive study of its plans with two parts: (1) plan design and cost-sharing between participants and the Organization and (2) claims administration. The contract was awarded to Buck Consultants Inc, a recognized actuarial firm, which is also the actuary for the United Nations Joint Staff Pension Fund. Buck Consultants had also performed valuations for FAO of its after service medical coverage and other staff benefits in the past.

7. The outcome of the review was presented in two reports entitled:

1. A Comprehensive Review of the Medical Insurance Program of the Food and Agriculture Organization of the United Nations, and
2. Review of Claims Processing Administration and Operational Aspects of the Medical Insurance Plan of the Food and Agriculture Organization of the United Nations.

8. The reports, which were presented to FAO in August 2000, were thoroughly reviewed by the internal FAO committee responsible for reviewing and advising on medical insurance coverage, the Joint Advisory Committee on Medical Coverage (JAC/MC). The reports covered a wide range of topics. Given that the MMBP is funded entirely through participant contributions, the information provided below will focus on the BMIP.

Competitiveness and reasonableness of the provided benefits

9. The report compared the benefits included in the main FAO scheme, Basic Medical Insurance Plan (BMIP), with similar benefits in five other United Nations agencies with headquarters in Europe: International Labour Organisation (ILO), United Nations Educational, Scientific and Cultural Organization (UNESCO), United Nations Industrial Development Organization (UNIDO), United Nations Office in Geneva (UNOG) and World Health Organization (WHO).

10. Buck Consultants developed relative values for the benefit schedules of the five Europe-based UN agency schemes in comparison with the FAO programme. These comparisons were based on previously discussed plan design features. Separate comparisons were shown excluding and including dental benefits. The BMIP scheme was arbitrarily assigned the base value of 1.00. A value of 1.10 for another plan signified that the benefits offered are 10% more generous than under BMIP. A value of 0.90 signified that a competing plan was 10% less generous than BMIP.

11. On the basis of this approach, the following two tables show the relative rankings of the compared plans:

Table 1
Relative Plan Values
With BMIP Valued as Base Plan
Excluding Dental

Table 2
Relative Plan Values
With BMIP Valued as Base Plan
Including Dental

12. As indicated in Tables 1 and 2, BMIP benefits are in the lower range of benefits provided by Europe-based UN agencies. BMIP ranks second from the bottom regardless of whether dental benefits are excluded or included.

Comparability of benefits & cost-sharing with other UN agencies

13. Buck Consultants then reviewed the cost-sharing arrangements of the five Europe-based UN agencies with FAO. Again it concluded that the cost-sharing by itself and the cost-sharing when combined with the value of the benefits being provided to participants were in the mid-range of the comparator scale.

14. The following Table 3 ranks the overall net value of the employer share of benefits for active staff based on the plan design relative values shown in Table 2 and actual enrolments, taking into account the BMIP contribution limits. The net value of the Organization’s share for BMIP ranks in the middle of the other agencies. Excluding WHO with a net value of .720 and ILO/ITU with a net value of .495, the net values vary by less than .020 for a spread of only 3.6%.

Table 3
Net Value of Employer Share
With BMIP (including Dental) Valued as Base Plan Design

15. Regarding treatment of the after service medical care liability within the UN system, the UN's actuarial valuation at end-2001 showed a liability of US$1.4 billion, and the 2003 valuation will likely be higher. The UN is preparing a draft report for the General Assembly on the matter, including possible measures to fund the liability over time. The report will include an annex with a description of other UN organizations' treatment, accounting and funding of after service medical care liabilities. The High Level Committee on Management (HLCM) is addressing the issue through its network of Finance/Budget (FB) directors in the UN system. The FB Network's Task Force on Accounting Standards will consider the possibility of a common actuarial study for all organizations for 2004-05, since this would bring efficiency and consistency within the system.

Performance of the Medical Plans Administrator

16. Buck Consultants conducted a thorough on-site inspection of Vanbreda International (formerly J. Van Breda & Co. International) claims facilities in Antwerp, Belgium. Before doing this they required Vanbreda to complete a written questionnaire about their procedures, the response was 23 pages. Their questionnaire and inspection encompassed the following subjects:

1. Organizational Structure and Staffing
2. Interaction between FAO and Vanbreda
3. Claims processing workflow
4. Quality Assurance
5. Security and fraud control
6. Cost Containment efforts
7. Fee negotiation and reasonable charges ceilings
8. Other administrative issues related to plan provisions.

17. While Buck Consultants had comments for follow-up on each of these topics, they found no major problems. They summarized their findings as follows:

"In general, we found that Vanbreda is providing high quality and effective administrative services for the FAO plan. A competitive analysis of administrative costs has not been performed in several years; however, replacing Vanbreda has the potential to result in significant disruption for the Organization and its staff. Vanbreda has demonstrated its ability to assume the complex responsibilities inherent in administering the FAO programs with diligence and has also shown flexibility in the claims handling process."