RESTRICTED  
  
WT/BFA/W/469  
 
8 November 2018  
(18-6998) Page: 1/7 
Committee on Budget, Finance and Administration    
 
 
UPDATE ON WTO MEDICAL INSURANCE PL AN AND ASHI LIABILIT IES 
 
1  ALLIANZ WORLDWIDE CA RE – NEW WTO MEDICAL  PLAN ADMINISTRATOR  
1.1.  Following a competitive procurement exercise, as of 1 January 2017, the WTO has worked with  
Allianz Worldwide Care (Allianz) to administer the WTO Medical Plan.  
2  OVERVIEW OF THE MEDI CAL PLAN COSTS  
2.1.  The WTO  Medical Plan is not a "traditional" health insurance. The risk of increasing claims is 
not transferred to a third -party. The premium is determ ined based on a formula that includes 
variables for the amount spent in the previous year, estimates for medical inflation, and profit for 
the administrator. Thus, the more spent on medical services in one year, the more paid in medical 
insurance premiums in future years. The contract, however, contains a provision which limits the 
maximum  premium increase in any given year to 15%.   
2.2.  When reimbursements are lower than the overall premiums we have paid and following the 
application of the formula, the excess  is placed in a reserve fund that is used to offset future 
increases of the insurance premium .  
2.3.  The cost of the WTO Plan premium  is split between the plan members and the WTO. All staff  
members  and retirees  are entitled to  receive a subsidy on the total pr emium amount.  Dependents 
are only subsidized if they are a child or if the staff member or retiree receives a dependency 
allowance for that person. Out of 2179 total participants, 149 participants (or approximately 7%) 
are unsubsidized and pay the full pre mium themselves. The subsidy level is recommended by the 
Medical Insurance Management Committee (MIMC)  and approved by the Director -General  with the 
understanding that overall the WTO will bear 60% of the costs of the Plan with 40% borne by the 
participant s. This rate varies individual -by-individual depending on the grade of the staff member or 
the final average remuneration of the retiree.   
2.4.  Given the  inevitable aging of the insured population and the  current budgetary situation  of the 
WTO,  it is important  for all plan participants to take steps to control costs so that our individual 
contribution  levels remain reasonable.  
2.5.  After 6 years without an increase, the premiums are expected to increase in 2019. The relative 
stability in premiums has been a surprise  given the overall demographic and the medical inflation 
experienced in the Geneva market where the major proportion of the Plan's expenses are.  
Therefore, an increase in 2019 was not unexpected.  
3  ON-GOING COST CONTAI NMENT MEASURES  
3.1.  As medical costs are oft en lower outside of Switzerland, plan Participants are encouraged to 
seek treatment in lower cost areas when feasible. However, if staff members are seeking treatment 
in higher cost areas, their expenses are capped at the "reasonable and customary" limit f or the area 
of treatment and cannot be above the rates in Geneva.  
3.2.  Prior approval requirement for hospitalisations and certain other procedures are an opportunity 
for the Plan Administrator to ensure costs are reasonable and whenever possible obtain additi onal 
discounts or direct Participants to a more affordable and qualified provider that will provide treatment WT/BFA/W/469  
 
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  within the Plan limits. The prior approval process also allows the Plan Administrator to refer 
Participants for a second opinion or assess whether  other treatment options would be available that 
would reduce hospital stays or unnecessary expenses.  
3.3.  The Plan Administrator has also negotiated special discounted rates and direct payment 
agreements with many hospitals, doctors and specialists.  
3.4.  Participa nts are regularly reminded and thanked for being conscious of, and conscientious 
about, their medical consumption and its impact on our Medical Plan and future premiums.  
4  MANAGEMENT OF OUR ME DICAL PLAN  
4.1  Medical Insurance Management Committee (MIMC)  
4.1.  The Direc tor-General has constituted a joint advisory body, t he Medical Insurance Management 
Committee (MIMC) , which is the body that oversees the medical insurance plan in close collaboration 
with the Human Resources Division. It is composed by representatives of the Director General, the 
Staff Association and the Association of  Retired GATT/WTO Staff Members.  
4.2.  The MIMC  has the following responsibilities : 
a. Keeping under review the working and the financial status of the Plan, taking account of 
the provisions of the g roup contract concluded with the Plan administrator.  
b. Recommending the total premium for each year to the Director -General.  
c. Analysing, and where necessary, renegotiating the insurance premiums and benefits 
considering the specific needs of staff members a nd retired staff members and their 
dependents.  
d. Analysing and determining the policy for subsidizing the total premiums per insured 
person.  
e. Informing the Director -General and the plan participants of any change in the terms and 
conditions of the contract with the Plan administrator, in contributions or in the practices 
of the Plan administrator.  
f. Interpreting the provisions of the group contra ct with the assistance of representatives of 
the Plan Administrator and Human Resources Division and making decisions on cases 
referred to it.  
4.2  Recent and upcoming changes in Plan Rules and Benefits  
4.3.  Since 2016 there have been several changes in the interna l rules and benefits tables. Most of 
which have already been reported to Members. For example, the Director -General agreed, that as 
of 1 January 2017 staff members are no longer allowed to add secondary dependents to the Plan.  
4.4.  Additional changes under cons ideration or in the process of being implemented include:  
a. increased focus on medical necessity ; 
b. prior approvals for certain out -patient treatments by physicians (namely psychiatry) ; 
c. limits on the number of sessions for certain treatments without prior appr oval; 
d. caps on reimbursements for certain procedures ; 
e. incentives to se ek lower cost care and services;  
f. incentives for preventative measures.  WT/BFA/W/469  
 
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  5  POPULATION OF INSURE DS 
5.1.  Active staff and their dependents represented approximately 73% of the total insured 
populat ion, whereas Retired staff and their dependents represented 27% at the end of 2017.  
5.2.  The following graph illustrates the evolution for selected years of the WTO's main insured 
categories of population . The active population remains stable, whereas the retir ees' population 
shows a progressive increase.  
Graph 1  Evolution of Insured Population (2009, 2014 and 2017)  
 
6  BROAD FINANCIAL OVER VIEW OF OUR MEDICAL PLAN  
6.1.  The overall financial performance of the Medical Plan can be measured by a ratio of total 
medical cla ims reimbursements/total net premium. The calculated ratio shows a  deficit in 2018 and 
will lead to an increase in Plan premiums for 2019. A similar situation occurred in 2012 as well, prior 
to the recent period of relative stability.  In other words, there  can be variability from year to year 
in the experience of the plan. Periods of stability can be followed by jumps in costs.  However, the 
overall trend is clearly for premiums to increase overtime.  
6.1  WTO contribution to the WTO Medical Plan premium  
6.2.  As far as the level of WTO's contribution to the Plan premium of active staff, retirees and eligible 
dependents is concerned, t he table shows its evolution between 2011 and 2017. The contribution in 
2017 decreased by almost CHF 500,000 and stands at 3.75% of the overall WTO budget. It is not 
expected that this level of stability can be maintained in the long term as the demographic profile of 
Plan participants evolves.  
 1578
4341628
5141588
602Number  of  insured  persons
2009 2014 2014 2009 2017 2017WT/BFA/W/469  
 
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  Table 1 WTO contribution to the WTO Medical Plan premium  
Year  2011  2012  2013  2014  2015  2016  2017 
WTO budget in 
CHF 196,003,900  196,003,900  197,203,900  197,203,900  197,203,900  197,203,900  197,203,900  
WTO contribution 
to the Medical 
Plan in CHF  
 6,774,718  6,912,894  7,324,250  7,500,272  7,534,820  7,882,878  7,397,624  
WTO Medical Plan 
contribution 
compared to WTO 
budget  
 3.46%  3.53%  3.71%  3.80%  3.82%  4.00%  3.75%  
 
7  REIMBURSEMENTS RELAT IVE TO PREMIUMS BY I NSURED CATEGORY IN 2 017  
7.1.  Active staff and their dependents represent 73% of the total insured population, contribute 
69% of the premiums  and receive 50% of the total amount of reimbursements under the Plan. 
Retirees and their dependents represent 27% of the total insured population, contribute 31% to the 
premiums and receive 50% of the total amount of reimbursements under the Plan. It is t he aging of 
the Plan population that will lead to ASHI costs being an increasing share of the overall costs of the 
Plan for the foreseeable future.  
Population  Percentage of total 
reimbursements  Percentage of 
premium 
contribution  Percentage of the 
insured population  
Active staff including 
dependents  50% 69% 73% 
Retired staff including 
dependents  50% 31% 27% 
Total  100%  100%  100%  
 
8  AFTER SERVICE HEALTH  INSURANCE (ASHI) LI ABILITY  
8.1.  Since 2012 the WTO has used International Public -Sector Accounting Standards (IPSAS) to 
guide its financial reporting. Under IPSAS, organizations must report full estimated liability at the 
end of a reporting period for employee benefits, including the lon g-term liabilities associated with 
defined benefit plans.  
8.2.  The WTO Medical Insurance Plan constitutes a defined benefit plan with long term liabilities 
because, like the pension plan, it promises to make a payment on behalf of eligible staff members 
at som e point in the future for a benefit that is defined today but whose cost is not.  
8.3.  This is a form of deferred compensation. In exchange for foregoing some current compensation, 
employees accept that they will receive compensation in the future in the form of a pre -defined 
benefit. The risk that the benefit promise may cost more , or less , than anticipated resides with the 
Organization. If the benefit costs less the organization realizes a gain. If the benefit costs more, the 
Organization realizes a loss.  
8.4.  In most organizations the cost of these benefit promises has been more than expected. This 
can be attributed to rising life expectancy and a general misunderstanding of the difference between 
current costs (pay -as-you-go) and full costs (pay -as-you-go plus t he accrual of the costs of future 
benefits earned in the current period). Therefore, most organizations have underestimated the 
eventual impact of these benefit promises on their financial situation. It is for this reason that IPSAS WT/BFA/W/469  
 
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  requires that the full estimated cost of benefit promises be disclosed even if those costs do not 
constitute a cash payment in the current period.  
8.5.  Under IPSAS , the WTO must recognize the full liability for employee benefits at the end of each 
financial year in its financial sta tements. The WTO’s obligation is to provide agreed benefits to current 
and former employees and any risk that benefits will cost more than the revenue derived from 
contributions would fall on the Organization.  
8.6.  The provision of After Service Health Insuran ce (ASHI) to retirees and their dependents is such 
a liability and is recognized in our financial statements. The WTO recognized this liability for the first 
time as part of the opening IPSAS adjustments at January 2012. Under IPSAS, the calculation of the  
ASHI liability is based on the Projected Unit Credit actuarial methodology, which requires recognition 
each year of the change in the total of a defined benefit obligation. The variation in the liability will 
impact the financial statements each year.  
8.7.  The reported amount of the  "ASHI liability " has been relatively stable for the past few years : 
• 31 December 2015   CHF 245.5 million  
• 31 December 2016   CHF 226.3 million  
• 31 December 2017   CHF 228.9 million  
 
8.8.  The reporting of the After-Service Health Insurance (ASHI) liability as recognized in the 
financial statements  shows the accrual of benefit obligations as of the date of the reporting . A more 
practical view of the liabilities for the purposes of on -going management of the Plan  estimates how 
the liabilities are projected to evolve and when the actual costs will impact the organization's budget.  
This financing valuation requires a different kind of analysis than the IPSAS calculations and uses 
different assumptions to project co sts into the future. The last time this kind of analysis was 
undertaken was in 2014. As part of the new actuarial service contract signed by the WTO the 
actuaries have begun to also provide this additional perspective on the projected costs of the Plan 
starting this year.  
8.9.  It is important to recognize that these projected liabilities and costs  are preliminary and still 
under review with the actuaries.  They could change modestly as we review the specific assumptions 
and they will certainly change over time a s circumstances evolve.  However, they give a reasonable 
indication of the outlook and they will be periodically updated and reported to Members as part of 
future ASHI updates.  
8.10.   Based on 2017 population data the long -term outlook for the ASHI liability is f or it to grow 
steadily into the foreseeable future if the WTO stays on a pay -as-you-go approach.  This will primarily 
be driven by an increasing number of retirees over the next 30 years.  The number of retirees is 
expected to stabilize in about 30 years a round 2047.  The current liability of below CHF 300 million 
is expected to exceed CHF 850 million by 2047 based on conservative assumptions about the 
discount rate. If interest rates return to more historically normal ranges, the liability estimates would 
decrease.   WT/BFA/W/469  
 
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  Figure 1 Development of total ASHI Liabilities between 2017 and 2050  
 
8.11.   The currently estimated ASHI Liability for 2047 is lower than what was estimated in 2014, the 
last time a long -term projection of liabilities was undertaken. At that time the liability in 2047 was 
estimated to be more than CHF 1 billion.  The decline can be explained by lower than expected 
premium increases over the past several years and a younger than previously predicted age for new 
entrants to the Plan in recent years. However, there are several relevant variables and even modest 
changes in these  variables  over 30 years can have an important impact on the estimates.   
8.12.   From the point of view of budgetary implications, it is the annual cashflow estimates that are 
more impo rtant than the absolute value of the estimated liability when the funding approach is pay -
as-you-go. It is the annual cashflow required to retire the liability that matures each year that has 
direct budget implications.  
8.13.   Currently, the cashflow required to  fund the ASHI liability is somewhat below CHF 3 million 
per year.  Like the liability, this will be expected to grow steadily for the foreseeable future.  The 
current estimate for annual cashflow in 2047 would be close to CHF 11 million. This is an import ant 
increase of more than 3 times the current amount. At the same time, it is not an amount that seems 
shocking or unmanageable over a 30 -year time horizon given what is known about trends in 
healthcare inflation and the changing demographic of the Plan.  
Figure 2 Development of Total ASHI B enefit Costs between 2018 and 2050  
 01002003004005006007008009001,000
2017 2022 2027 2032 2037 2042 2047Liabilities (in CHF million)
Census data as of 1 January 2018 used for IPSAS valuations New entrants
02,0004,0006,0008,00010,00012,000
2018 2023 2028 2033 2038 2043 2048Benefits (CHF '000)
Census data as of 1 January 2018 used for IPSAS valuations New entrantsWT/BFA/W/469  
 
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  8.14.   We are continuing to work with the actuaries to undertake sensitivity analyses and experiment 
with other changes in assumptions to better understand how changes in key variables are li kely to 
impact the projections in the future. This further analysis will be shared with Members in due course.  
 
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