The Guild’s health and pension plans are fundamental elements of economic security for film, television, and digital writers. Writers in the 1960s struck to establish these benefits. Protecting them is a key goal of the Guild. In this negotiation, we don’t seek a better health plan, only a solvent one. For both the health fund and the pension plan, additional contributions are important goals. And in the context of industry profitability, these contributions are affordable.
The Health Fund
Our health fund is in need of additional contributions because health care costs continue to increase much faster than inflation. It has operated at a deficit in three of the last four years. The one positive year, 2016, resulted from the happy confluence of higher than usual contributions due to “peak TV” employment levels, lower health costs due to fewer million-dollar illnesses, and higher than usual investment returns from its conservatively-invested reserves. But last year’s $5.1 million surplus did little to offset the $31.5 million deficit of the prior three years.
|Health Fund Financial Results and Estimates|
|Year||Contributions & Premiums & Investment Income||Benefits & Costs||Net Surplus or Deficit||Reserves at End of Year||Reserves Stated in Months of Expenses|
|2011||$102.2 million||$94.3 million||+7.9 million||$198.7 million||23.0|
|2012||$112.0 million||$103.5 million||+8.5 million||$205.7 million||21.3|
|2013||$109.7 million||$116.7 million||-$7.0 million||$199.1 million||18.8|
|2014||$122.1 million||$127.1 million||-$5.0 million||$192.9 million||16.0|
|2015||$123.3 million||$142.8 million||-$19.5 million||$174.0 million||14.4|
|2016||$150.2 million||$145.1 million||+$5.1 million||$179.9 million||13.2|
|2017 (est.)||$150.0 million||$163.2 million||-$13.2 million||$164.4 million||11.0|
|2018 (est.)||$153.7 million||$179.4 million||-$25.6 million||$136.4 million||8.3|
|2019 (est.)||$157.2 million||$197.8 million||-$40.5 million||$93.3 million||5.2|
|2020 (est.)||$160.4 million||$216.6 million||-$65.8 million||$34.6 million||1.8|
Looking forward, contributions based on writer earnings are expected to grow 3% per year. Health costs are expected to grow 10% per year overall. So, starting with a base of 2015 and 2016 together, and incorporating those expected trends, the fund is projected to run deficits for the next four years, and beyond. The recent deficits have been, and will be, funded by reserves. These reserves, and earlier surplus years, had been funded by prior increases in employer contributions. Now, an era of record profitability, is the time to reverse the current trend to deficits with additional employer contributions.
Employer contributions to the health fund are currently 9.5% of compensation, subject to certain caps. This is one percentage point lower than contributions made to the DGA health fund. And for most television writers, who only receive contributions on a base of Article 14 minimum, the effective contribution rate is 6%. For television writers on overall deals it’s even lower. Increasing the contribution rate along with addressing areas where the companies currently have a discount on contributions are critical to the financial health of the plan and have been a focus of negotiations.
|Expected Growth of Health Fund Revenues and Expenses|
|Category||Expected Annual Growth Rate|
|Contributions on Earnings||3%|
|Medical & Hospital Costs||8%|
|Mental Health Costs||10%|
Rising health care costs explain these recent deficits. Several cost components are rising faster than others.
First among these is the category of medical and hospital costs. This group of expenses accounts for about half the plan’s costs and is expected to grow 8% per year. Included in this category are the most typical covered expenses – doctor visits and hospitalizations.
The second category of note is mental health. These costs have increased dramatically for our plan over the last few years. The Mental Health Parity Act of 2008 required that most health plans uncap mental health visits in the same way medical doctor visits are uncapped. While this is a useful benefit for our members and their families, it’s a large cost increase.
A third category worthy of note is pharmaceuticals. This category accounts for 20% of the plans’ costs and is growing the most of any category – 12% per year.
Specialty drugs are a runaway cost throughout the health insurance industry and our plan is not an exception. Martin Shkreli and the makers of the Epi Pen grabbed headlines by increasing costs on tried and true medications for which they controlled the market. Other exceptionally expensive drugs are more significant to the bottom line of plans such as ours. Revolutionary hepatitis C cures can cost up to $84,000 per treatment. A multiple sclerosis drug costs up to $51,000 per month. A cystic fibrosis drug costs $44,000 per month. These are typical of new drugs that are effective, but exceptionally expensive.
Long term issues also remain to be addressed: The excise tax in the Affordable Care Act is mischaracterized as a “Cadillac Tax,” as if plans that provide an adequate benefit are a luxury. It would require plans like ours to pay a 40% tax on the value of the health insurance members receive over a certain value. What it would force plans to do is increase deductibles and co-pays to the point where they do not incur this tax. The supposed motivation of the tax is to force patients to think as consumers, which is both misguided and ill-founded. It is misguided because price comparison shopping is neither practical nor desirable for a sick and worried patient. It is ill-founded because the price information is not available to a patient seeking care. Cost management can be done by plans, but it won’t be achieved by forcing them to cut benefits to avoid a bankrupting tax.
Cost containment is a constant effort at the health fund. One strategy for cost control that saves both patients and the fund money is the Entertainment Medical Group (EMG) from UCLA Health, and its affiliate, The Industry Health Network (TIHN). This group, operated by the Motion Picture & Television Fund prior to 2014, is a specialty network for entertainment industry patients and their families only. You may have gone to one of these clinics—the Bob Hope clinic on La Brea, the Toluca Lake Medical Center, the Westside clinic on Sawtelle, the Santa Clarita clinic, or the one in Woodland Hills onsite with the Motion Picture Home. Patients work with a primary care physician at one of these clinics. For specialty services, referrals are made to its network, which includes local specialists throughout Los Angeles and includes all the doctors at UCLA Health. It’s a bargain for access to a top-ten healthcare provider in the nation. Referrals are also available to non-UCLA specialists, including many at Cedar Sinai hospital.
Another strategy, recently adopted by the health plan, is to impose reasonable and customary caps on in-patient addiction treatment services, where such caps are not routinely applied. For doctors outside the Anthem network, fees are capped at “reasonable and customary” levels for the region. Some services don’t have such caps established, including in-patient addiction programs like the ones in Malibu, which can charge hundreds, even thousands, of dollars per day for medical and facility charges. This program uses standards of comparison not automatically applied by the typical Anthem process to reduce exorbitant costs that ought not be covered by a group health plan. This has saved a large amount for the plan.
The fund adopted mail order prescription services for recurring prescriptions a number of years ago to save money. Our pharmaceutical service manager, Express Scripts, recently added Walgreens availability at the same cost to you and the health plan. The fund also recently adopted a list of preferred brands when medically-equivalent drugs are available to our prescription benefit manger. If the alternate medication does not perform as well, a medically-necessary exception can be made based on clinical information. This has been saving the fund significant sums since it was adopted.
These strategies have been employed with an eye to minimize the impact on those receiving medical care under the plan. However, the fund continues to face deficits. Employer contributions must be increased and the Guild will continue to look for ways to reduce costs to the fund that minimize the impact on members.
The Pension Plan
Unlike our health fund, our pension plan does not face rising benefit costs. The issue is investment returns: both the recovery from the 2008 market downturn and the outlook for returns over the next several decades. Over the last decade, the fund has partially recovered the 2009 losses, but not yet recovered to where it would have been, had the 2008 downturn not occurred.
|Pension Fund Returns by Year|
As they say in the fine print, past returns are not a predictor of future returns. By one measure, the rise of the stock market since 2009 is the second longest bull market in history. If it follows the pattern of the longest one, which lasted for close to ten years and ended in 2000, we have another year to go. But, the 20% decline in stock prices that determines a bear market is overdue. The average bear market lasts 3 or 4 years. If the correction is not as deep, it can end more quickly.
In the short run, downturns can get the federal government involved in determining our plan’s pension benefits. The Pension Protection Act (PPA) sets standards for reporting pension plan funding. While this transparency is good, there are also mandatory actions necessary if funding falls below certain standards. The WGA pension fund is currently 91.8% funded, a strong funding level. And, our plan has been more than 100% funded in five of the last nine years. But, if a market downturn took our plan to 80% funded, mandatory actions to reduce benefits could be triggered. Additional funding reduces the likelihood of that outcome.
The PPA measurement horizon is twenty years. That’s short term for a pension fund, which plans in terms of decades, not years. Every day, our plan makes a 75-year promise to our twenty-something writers that a pension payment will be there when they turn 100. Long-term economic growth is the limiting factor on what it takes to fulfill that promise. The postwar period in which our pension plan grew is tough to repeat. Productivity and population growth during that period created jobs, with wages demanded by labor unions, which drove consumption, which drove business investment and profits, which drove stock prices. These factors are not as reliable as drivers of stock price growth in the US over the next three decades as they were over the last three. Our investment portfolio has diversified as a result. But, additional funding of our plan will help ensure that we can meet the promises we have made to provide a pension you cannot outlive.