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New Feds Guidance on Use of HRA’s and HRP’s [Exchanges Related Info]

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The below info is excerpted from a Zane Benefits information piece published Sunday, Sep 15, 2013.  The entire technical discussion can be accessed at their RSS blog feed by clicking here.  The essence of the discussion is that unlike what some major group insurance carriers have been indicating, newly stuctured HRP’s ( i.e., a limited healthcare reimbursement plan) can be used as the vehicle to shift employees from a group plan to individual purchases on exchanges. Wallgreens is the most recent large company to announce such a shift (click here for info on annoncement today 9/18/2013). IBM and Time Warner have made similar announcements.

[Begin Excerpt] ____________________________

Now, the good news

Employers can still reimburse employees for individual health insurance premiums.

For the first time, the Department of Labor, the Department of Treasury, and Health and Human Services have coordinated to issue formal confirmation that employers are 100% allowed to reimburse individual health insurance premiums tax-free under the tax code. This is a MAJOR positive.

We repeat – employers are still allowed to reimburse employees tax-free for individual health insurance premiums.

 

What is the solution for plan years beginning on or after January 1st, 2014?

For plan years beginning on or after January 1st, 2014, the solution is to adopt a limited Healthcare Reimbursement Plan (HRP), such as ZaneHealth.

The HRP is structured to only reimburse:

  1. Health insurance premiums up to a specified monthly healthcare allowance,
  2. Preventative care as required by PHS Act Section 2713 at 100% without cost-sharing.

This structure ensures the HRP complies with the PHS Act 2711 annual limit requirements and the PHS Act 2713 preventative care requirements as outlined in the Technical Release.

Additionally, care must be taken in the design and administration of the HRP to ensure the plan does not meet the definition of an eligible employer-sponsored plan in IRC Section 5000A and consequently qualify as minimum essential coverage. This ensures employees participating in the HRP are able to receive a tax subsidy via the new health insurance marketplaces assuming they meet additional eligibility criteria.

Conclusion / Next Steps

With the Departments all in agreement, everyone should be excited there is finally a clean, final process for employers to reimburse employees for individual policies that are guaranteed-issue.

Sponsors of stand-alone HRAs should begin preparing to convert their plan to an HRP for plan years beginning after 2014.

Finally, our nation can rid itself of one-size-fits-all employer group health insurance policies that hamper businesses, employees and their families.

[End Excerpt] _____________________________________

 

 

MS Security Essentials Trojan Warning Eliminated

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As of July 15, 2013 MSE has identified a Trojan they have named Seedabutor.C. There is some question about the validity of the MSE warning since no other anti-virus or malware protection vendor has done so. This blog database had a post, which has since been eliminated, which had third party HTML coding which apparently was linking back to the trojan file and was causing an MSE warning each time this blog was accessed for the first time per session. We are not sure if the link was heretofore safe and the destination location was recently corrupted but erring on the side of caution we deleted the post in entirety.

We are currently waiting for the WordPress RSS feed to eliminate the post from the feed file. In the interim, you may continue to see MSE warnings if you access the RSS link. Standard recommended settings on MSE should render any warnings you might see as safe. If you get one, ensure that you go back to MSE and take the removal action suggested.

We have also noted that old RSS data may be resident on your local machine if you have subscribed to any or our RSS links and are using one of the IE products as a browser/reader. From what we can tell, neither IE8, IE9 nor IE10 erase or overwrite old data in the RSS archive. Even when our hosted RSS feed changes (as in the case of deleting the old post in question), only new posts are added to your local archive and old posts remain that may cause the MSE warning to keep being generated. Solution: unsubscribe from the BBCB Blog RSS and then re-subscribe later. The unsubscribe action will purge the local archive files and subsequent accessing of the RSS file will download new data. If you access our RSS directly from a link you should not have that problem, as unsubscribed access does not cause an archive function to occur. Also, other browsers and readers don’t seem to have this problem. However, if you have a news aggregator that seems to generate the MSE warning, same goes… delete subscription and then re-subscribe later.

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July 18th, 2013 at 2:14 pm

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BBCG Owner Awarded Emeritus Status by American College

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The American College, Bryn Mawr, PA, the recognized leading institution for insurance, benefits and other financial services professional designations, has awarded to Robert W. Murphy its Emeritus Status. In its award letter, The American College congratulated Mr. Murphy by stating, “This distinguishes you as a person who has clearly demonstrated the commitment to continuing education that has become the standard for American College designation holders.” 

Mr. Murphy received his first designation, Chartered Life Underwriter (CLU), in 1984. Since then he has earned three additional designations, Registered Employee Benefits Consultant (REBC), Chartered Financial Consultant (ChFC) and Registered Health Underwriter (RHU).

The Emeritus Status conveys with it a lifetime satisfaction of all designation related continuing education requirements otherwise applicable to The American College designation holders.

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The Future of Employer Provided Health Plans: HRA Q&A

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Many observers see employer-sponsored healthcare benefits offered to employees as being on the cusp of major change. PPACA contains a provision which will proscribe all individual medical policy underwriting no later than March 2014.  This means that no individual can be declined when applying for an individual healthcare policy, clearly diminishing the need for group insurance plans going-forward. In addition, from 2002 to 2011 the healthcare costs for a family of four have risen from $9,235 to $19,393, a clearly unsustainable rate for both individuals and for the U.S. economy in the aggregate. Of the $19,393 current cost, approximately 42% is being borne directly by employees, more than at any time in U.S. history. Even when employers can afford to continue to provide healthcare benefits, the offerings are often perceived as not fitting the needs of specific employees which may be unique in nature. Employers are also passing along an unprecedented portion of the total annual increase as out-of-pocket costs to employees, on average  9.2%  during the 2010-2011 renewal season.  When wages and employment are stagnant, the cost of staple products such as gasoline are at record levels, and overall returns on investments are below 5%,  an annual household healthcare cost of $8,000 is more than many can handle. Lower cost alternatives that are specifically tailored to fit the needs of individual employees are critically needed. Many strongly feel the HRA approach described below is the answer.


Q: What is the “HRA concept?”
A: In short, it is a tax advantaged method whereby employers can provide financial support to employees for the purchase of any IRS-approved healthcare product. HRA is the acronym for “health reimbursement arrangement,” a term which has been around the benefits industry for many years but which is now receiving unprecedented attention. More often than not, HRA’s are used as alternatives to traditional qualified healthplans but that is not always the case depending on the employer’s objective. Some large corporations have also used HRA’s to allow employees to tailor a mix of health product alternatives to best fit their personal needs while maintaining their own qualified health plans as alternatives. Recently, a Fortune 200 sized corporation announced that it would use the HRA approach to fulfill its obligations to future retirees by providing them a fixed allowance and having the retiree purchase the product of his/her own choice.

Q: Why is the concept receiving so much attention all of a sudden?
A: There are many reasons. However, the primary one is that the PPACA healthcare reform legislation passed in 2010 proscribes the use of medical underwriting by individual health insurance carriers no later than 2014. To date , group insurance plans, which are not medically underwritten on a person-specific basis, have been more suitable to most employers because no employees were left out. The new underwriting rules will take that advantage away from group insurance plans because no applicant for an individual policy will be denied. From an employer’s perspective, it lessens the burden of managing all the specifics of a few qualified healthplans per each geographic location (e.g., a dual offering of a PPO and POS plan). When no person can be rejected for an individual policy, the employer emphasis shifts strictly to financing.

Q: Speaking of financing, does the employer lose any tax advantage by shifting from a qualified health plan to an HRA approach?
A: HRA reimbursements for employees are considered a business expense by the IRS and are deductible just as qualified healthplan contributions presently are. Depending how the HRA and related salary reduction plans are structured, an employer can potentially increase its tax advantage via the reduced payroll and associated payroll taxes (n.b., there may also be other payroll driven charges, such as workman’s compensation premium, that are also commensurately reduced).

Q: Is it complex and/or hard to administer?
A: The answer is a qualified yes. Various administrators of flexible spending accounts (“FSAs”) under IRC Section 125 will claim unwarranted expertise. However, HRA administration is a specialized field and uniquely different than FSA administration. The entire alphabet soup of administered healthcare related programs, FSA, HSA, MSA, cafeteria plans, etc., are often confused with HRA approaches. The selection of an experienced HRA administrator with a demonstrated track record is the key to success. Some of the available administrative programs are actually patented and offered by a limited number of organizations.

Q: Can the administration be integrated into my payroll system?
A: Direct integration is not the norm. However, the best HRA administrators have proprietary management software in place to manage the HRA plan globally and make the reimbursement process as seamless as possible. As mentioned above, certain software and methods are patented and unique to specific administrators.

Q: Is there a cost consideration for employers?
A: Yes. In fact, many employers are assessing whether they can move to an HRA approach immediately in 2011. Group insurance premiums in total, the employee’s share of that premium, and the employees costs sharing when a healthcare service is rendered all continue dramatically upward. Some smaller employers feel compelled to just eliminate their qualified health plans in entirety. Some are adjusting benefits downward and passing along more costs to employees. Neither is a sustainable solution over time. These factors have caused employers to seek out more palatable ways of dealing with the cost problem.

Q: Does the HRA concept actually make the health care purchase less expensive?
A: Probably not on a truly apples to apples basis. The cost of discounted underlying healthcare services (i.e., in any form of managed care product) will not change. However, it give the employer two decided advantages. First is that, going forward, the employer can fix an annual dollar amount that it will provide to employees for the purchase of an IRS-approved healthcare product. It can be (1) the same average amount now provided as the employer’s piece of the qualified healthplan premium, (2) a reduced amount to generate costs savings while still providing substantial, albeit not the same level, of investment in employee healthcare, or (3) a substantially reduced amount which recognizes that the alternative would be the total elimination of any healthcare benefits on the part of the employer. The second advantage is that no matter at what level the dollar amount is set, the employer is not forced to design a plan where one or two options must fit the needs and desires of the entire employee group.

Q: How many plan options are available to employees?
A: Under an HRA, a certain dollar amount is made available to employees. The individual employee purchases the healthcare product that they feel best suits their needs from the carrier of their choice. There is no closed list of carriers. Often an employer will facilitate the use of a handful of carriers just to make the process easier for employees. However, the employer cannot limit the carrier or product choice on the part of an employee. Once the purchase is made directly by the employee, the employee submits a request for reimbursement under the HRA plan.

Q: My broker has told me that PPACA has eliminated different health plans for different classes of employees. Is it the same for HRAs?
A: Current IRS guidance indicates that different HRA allowances can be provided to different classes of employees. Because employees can then decide how and when to spend the allowance, no single healthcare plan can be considered discriminatory under PPACA. As with all IRS guidance, this may actually be somewhat of a moving target and an employer considering class-related allowances should seek the most current guidance before moving forward.

Q: Does the purchase have to be a full-blown individual major medical type plan?
A: No… other options are available. For those persons who don’t have the resources to purchase a product with traditional levels of benefits, there are reduced benefit products at lower costs which can be purchased from a broad array of carriers under an HRA (e.g., critical healthcare policy, limited benefits policy, minimed policy, etc.). A caution: employees should be warned to never assume the product in which they have an interest is reimbursable. Even products with similar sounding names may or may not be reimbursable from one carrier to the next. Generally speaking, individual major medical policies from recognized carriers are not problematic. However, once the HRA plan is put in place, employees should be directed to check with the administrator if there is any question about other products.

Q: Can the HRA approach be used for other solutions?
A: The answer is unequivocally yes. One example is the large employer which is self-insured. Those employers must keep a liability on their balance sheet for “incurred but not reported” claims (“IBNRs”). That liability represents claims in the pipeline that have not yet been presented for payment. In the event of termination of a healthplan, in accordance with generally accepted accounting principles, the employer must have a reserve established from which funds will be drawn to pay those claims. Typically, this reserve balance grows year to year in tandem with the increase in claims costs. The more employees that move to individual, fully insured, policies the less that is required to be carried in the IBNR reserve. This methodology requires a degree of analysis to project the employee migration from a qualified healthplan and the net effect on the IBNR reserve.

Q: Are there other solutions?

 A: Some of the approaches are below:

  • Use it as a competitive hiring tool by allowing assistance with tax advantaged COBRA payment
  • Use it as a competitive hiring tool by providing some form of healthcare when a substantial waiting period exists
  • Use it as a competitive hiring tool in industries which typically do not broadly provide healthcare benefits (e.g., hospitality industry)
  • Use it as an employee relations tool by allowing even employees with less than the minimum weekly hours to participate in some form of healthcare
  • Use it as an employee relations tool by providing a tax advantaged method of paying Medicare premiums for 65+ employees (or spouses)
  • Use it as an employee relations tool by providing customizable healthcare purchases for employees who receive their primary coverage via spouse and may currently feel disenfranchised
  • If a start-up company, provide affordable initial healthcare benefits short of a full-blown qualified healthplan
  • If facing another round of large qualified plan cost increases which must be passed along to employees, provide them with affordable options

Q: It seems that some of the above might actually damage my qualified healthplan if I offer an alternative. Is that true?
A: It is critical that an average spread of risk be held in both a qualified plan and any alternatives available via an HRA. If all the young healthy employees were to migrate to alternatives, it would certainly endanger the rating soundness of the qualified plan left with an older, higher morbidity, group. In certain instances, it might also cause the qualified plan to fall below required participation minimums, although participation in alternative coverage may be adequate to remove employees from the census when making that calculation.

Q: How do I know if I will have the average spread of risk you mention?
A: Many employers have offered voluntary benefits for years. If any tax advantage was to be had, it was only via limited salary reduction via FSA contributions and the related payroll tax offsets. Generally speaking, employers have not done any kind of analysis related to the strategic placement of voluntary benefits to enhance overall company benefits objectives. As the sea-change noted here gains momentum, it is critical for employers to utilize the services of carriers which not only make products available but which can do sophisticated modeling relative to the placement of voluntary products. Employers should be wary of just accepting a laundry list of products the carrier indicates are available without projecting the net impact of those purchases.

Q: You mention voluntary products? Is that the same as an HRA plan?
A: No. However, the purchase of anything, and its ultimate reimbursement, under an HRA is always voluntary. Some of the alternative products will come from an employer-endorsed voluntary products carrier whereby the employer has made it easy via payroll deduction. However, the HRA plan cannot be limited to that single carrier. Also, much of the HRA participation will be in individual major medical policies purchased from carriers other than the endorsed voluntary carrier. Again, the carrier selection cannot be limited by the employer. The integration of existing voluntary plans (i.e., via FSA) needs to be closely monitored to ensure for proper tax treatment.

Q: If voluntary benefits are only a small part of the HRA concept, why should I rely on a carrier to do a strategic analysis?
A: The best voluntary carriers can do modeling which goes beyond just their own products. As should be clear, projecting the impact of alternatives to an existing qualified healthplan is more an art than a science. It comes down to best guesses and reasonable assumptions. Utilizing the resources of those best positioned to assist an employer only makes sense.

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Twelve CPA Marketing Hints from a Benefits Broker

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Increasing Perceived Incremental “Value Added” of the CPA Firm via Unique Innovation

by

Robert W. Murphy
REBC, ChFC, CLU, RHU, MBA
President/CEO, Boca Benefits Consulting Group, Inc.
Consulting Principal, 1st Murchadhian Strategic Consultancy
727-510-7138 | P.O. Box 4309, Clearwater, FL 33758 | rw_murphy@bocabenefits.com
© December 2010, Boca Benefits Consulting Group, Inc., All Rights Reserved


Do you attempt to make yourself an integral part of your client/prospect’s management team beyond bookkeeping, payroll, forms preparation and IRS filings? If so, do you clearly differentiate yourself from your CPA peers in the eyes of your clients/prospects CFOs and other top management persons with input into the decisions pertaining to which CPA firm is retained?  The display of uniquely innovative thinking and assistance with persistent management challenges is a key way to do so.

The below summary of marketing tips for CPAs is designed to provide firms with an outline of services of incremental value that your peer CPA firms may not be providing. They are written from the perspective of an employee benefits insurance broker. However, they have been structured to address much broader management issues that the small to mid-size client/prospect might find itself facing in 2010 and onward. Throughout these hints are described various ways in which an HRA (Health Reimbursement Account) can be used to address broader management challenges. The HRA concept is not to be confused with the rest of the benefits alphabet soup of acronyms. It is not an FSA. It is also not an HSA. It is fundamentally different in many ways. Your client/prospect managers responsible for benefits might tell you they know all about HRAs. It is very unlikely, especially given the fact that IRS regs have been evolving right up to 2009 when major changes were made effective. The discussion of uses of an HRA gives you the opportunity to walk benefits managers, CFOs and other senior management persons through solutions that might not have been recognized as such heretofore. Boca Benefits Consulting Group (“BBCG”) can assist you and/or your client/prospect with putting in place the required pieces of those solutions.

These hints have no specific priority order. Some will apply to your clients/prospects and some will not.

∆ Tip 1 of 12:  Show clients/prospects how they can begin, or continue, to offer health insurance assistance to employees without establishing a qualified group health plan.

  • Healthcare reform has many smaller employers reconsidering their healthcare approach
  •  Recession, premium cost increases, and additional regulatory burden are all catalysts and justifications for scaling down prior employee medical care expenses for smaller employers
  • Healthcare reform will eliminate medical underwriting on individual policies once totally implemented in 2014, making all employees insurable
  • Current “HIPAA policy” requirements already make every employee individually insurable… at a cost
  • Qualified group healthplans have less advantage (i.e., the “guaranteed issue” element whereby all applicants are accepted) than in the past
  • IRS regs implementation in 2009 allow individual policy premiums to be paid from HRA contributions made by an employer (n.b., outside or in lieu of a qualified group plan)
  • IRS allowable health care expenditures on other products give employees additional options

 Tip 2 of 12: Show clients/prospects how they can offer health coverage to their employees and save money at the same time. Oriented towards client/prospects which are either not currently providing any employee medical assistance or which are not optimizing available tax advantaged options.

  • HRA/Section 125 plan combination allows for both employer contribution to the HRA and “salary reduction” on the part of the employee
  • HRA contribution is a tax deductible normal business expense to the employer and is passed tax free to the employee (i.e., treated similar to group insurance premium contributions paid by an employer)
  • Total of employees reduced salaries are removed from payroll and all associated payroll taxes and payroll driven charges accrue to the employer as savings
  • If properly structured, employee can purchase individual policies completely with pre-tax money saving them 20-30% depending on individual marginal tax bracket

 Tip 3 of 12: Show your clients/prospects how they can offer some form of health coverage to employees at zero net cost to client/prospect.

  • The HRA/Section 125 approach can be used without any initial employer contribution into the HRA
  • Payroll tax savings on Section 125 side can ultimately be contributed to the HRA (n.b., a net savings number after administration costs, etc.)
  • Employees can choose how they want to use the HRA contribution, subject to limits written into the HRA plan by client/prospect
  • Even small HRA contributions can be advantageous to employees (e.g., can be used to pay part of spouse’s healthplan premium elsewhere; inexpensive voluntary benefits allowed by the IRS can be purchased; etc.)

Tip 4 of 12: Show your larger clients/prospects how to “unbook” benefits related reserves from their balance sheets. If your client/prospect is large enough to self-insure their healthplan, they are required every year to book an IBNR increment (“incurred but not reported reserve” for claims) to finance run-out liability in the pipeline if/when the plan were to be terminated or if it were to convert back to a fully insured approach. Typically the IBNR on the balance sheet will be somewhere between 6 and 12 weeks worth of the most recent year’s paid claims adjusted forward by an annual inflation factor. Unless the size of the plan expenditures is shrinking due to participation reductions and/or significant plan design modifications, the total IBNR will be an ever increasing number. This causes a high degree of frustration with many CFO’s and auditors (i.e., the latter in the case of CFO’s who try to short-fund the reserve with weak justifications).

  • There is an optimum trade-off between providing an incentive to certain classes of employees to leave a qualified group healtplan and the remaining risk pool
  • Care needs to be used not to gut the qualified group healthplan of young, healthy participants, skewing the costs upward for remaining participants and putting the qualified group healthplan into what is called “the death spiral” in the industry
  • Proper care and structure can redirect participants out of the qualified group healthplan and into individual policies in an advantageous manner via the HRA approach
  • For every participant eliminated from the qualified group healthplan there is an associated reduction in the required IBNR level on the balance sheet without losing the business expense deduction of the prior group insurance premium contribution
  • Warning: projections of net participation should be made. If the net qualified group healthplan  average age and/or health is skewed negatively (i.e., higher projected per capita annual claims), a portion of the IBNR savings will be lost

 Tip 5 of 12: Show clients/prospect how to use new-hire employee tax savings as a competitive hiring and retention tool.

  • IRS regs implemented in 2009 allow for payment of premiums for healthcare coverage provided to an employee or spouse from an HRA even if the coverage is not provided by the employer of a new hire per se
  • Many new hire employees remain on the COBRA coverage of prior employer (n.b., there are various reasons such as the 2010 65% subsidy, continuity of care with a provider, plan design elements not in the new plan, a prolonged waiting period with new employer plan, etc.)
  • Even if there is 30, 60, 90, or 180 day wait to become eligible under new healthplan of client/prospect, HRA/Section 125 plan eligibility and employer contribution can be made immediate, or at least minimized
  • COBRA premiums being paid to former employer’s COBRA can be paid tax-free (20-30% cost reduction to new hire depending on individual marginal tax bracket)
  • If 90 day wait, the savings to new hire can approach several thousand dollars
  • Shows valuable candidate incremental value of joining your client/prospect company versus another
  • Note: this same methodology can be used to assist new hire employee with paying Medicare premium tax-free if spouse is aged 65+

  Tip 6 of 12: Show clients/prospects how to save money while offering health benefits to ALL employees (including those with less than minimum hours for group plan eligibility, part timers, those in extended waiting periods, etc.).

  • Increase employee satisfaction in workforce segment that may feel disenfranchised without major employer investment.
  • HRA concept can be used for ALL W-2 employees.
  • Non-group plan employees can purchase any IRS allowable health product pre-tax from employer HRA contribution.
  • Highly applicable to Florida hospitality industry.
  • Increase employee satisfaction & reduce turnover expense
  • Some form of health purchase can be made available to every W-2 employee via tax-deductible HRA contribution and Section 125 salary reduction approach.
  • Client saves payroll taxes on salary reduction component and take business deduction on HRA contribution.

 Tip 7 of 12: Show clients/prospect how to allow employees with Medicare aged spouses to use pre-tax money to pay Part B premiums while saving 20-30%.

  • Retain valuable experienced employees via Medicare assistance
  • Do any of your Florida clients/prospects have employees with Medicare age spouses… more than likely
  • Spouse’s Medicare premiums, and other out-of-pocket expenses, can be paid with pre-tax dollars via an HRA approach
  • No HRA contribution or too little… the Section 125 component can be used for salary reduction for the balance.
  • Employer receives payroll tax savings on the reduced salary amounts

 Tip 8 of 12: Show clients/prospects how to use an HRA approach as a solution which allows class differentiation in compliance with all new PPACA Section 105(h) non-discrimination regulations.

  • Your clients/prospects are likely receiving mixed signals on the Section 105(h) non-discrimination requirements of PPACA following the 9/23/2010 implementation date
  • “How do we provided different medical benefits for different types of employees now?” will be the question
  • Many broker/consultants are telling them it just can’t be done anymore
  • By carefully classing HRA contributions, employers can effectively provide different benefit levels to different classes of employees

 Tip 9 of 12: Show clients/prospects how to allow employee to use pre-tax money while reducing client/prospect payroll via salary reduction methodology

  • How many employees on your client/prospect’s payroll already carry individual health policies or are presently using after-tax money to pay out-of-pocket expenses on a spouse’s plan?
  • Employee saves marginal tax bracket amount and employer saves FICA when salary reduction is employed
  • Win-Win for employers and employees when using pre-tax money
  • Even if your client/prospect has no interest in contributing new funds into an HRA for employees presently not participating in a health plan, show prospect/client how the Section 125 payroll deduction portion can still be used to save FICA and other payroll driven charges (e.g., workman’s compensation insurance premiums running off total payroll)

Tip 10 of 12: Show clients/prospects how to reduce negative employee morale among those employees who feel disenfranchised when not using employer sponsored healthplan.

  • When employees see peers utilizing the employer paid portion of medical when they can’t or don’t for some reason, there is a negative impact on performance.
  • Show client/prospects how this can be mitigated
  • Do client/prospects have any dental or vision only participants in benefit plan feeling disenfranchised because they don’t/can’t use employer medical plan contribution dollars
  • Negative morale might not be stated but is often right under the surface effecting performance
  • Show client/prospects how employees can use salary reduced dollars for premium elsewhere (e.g., spouse plan, alternative voluntary benefits, etc.) while saving payroll taxes on salary reduction amounts
  • Employee allowed to use medical contribution of client/prospect to buy any other IRS allowed health product

Bonus Tip: CPAs can guide clients/prospects in solving management Issues via HRAs. Provide technical guidance to your clients/prospects on just how broadly HRAs can be used to address management issues. Note: reimbursable premiums and other expenses are much more expansive than individual policy or group premiums. IRS Pubs 969 and 502, as well as IRC Section 213(d), provide more info. Also, the Section 125 Proposed Treasury Regulations published in the Federal Register on August 6, 2007 (finalized) provide information on the purchase of individual health policies via an HRA/Section 125 approach beginning in 2009. This link is very individual medical policy oriented. Note: CPAs can assist client/prospect CFOs and HR VPs with solutions to broader challenges. IRS regs expanded to support these approaches. Further research: see recent 3M Corporation announcement of future use of HRA approach to satisfy retiree healthcare obligations (i.e., contribution into HRA and retiree individual purchase of policy and carrier of choice)

Tip 11 of 12:  Show clients/prospects how to reduce the pain of a required qualified group healthplan premium increase on their workforce.

  • If client/prospect already has voluntary, 100% employee paid, payroll deduction benefits offered (i.e., AFLAC, Allstate, Colonial, Unum, etc.) offset the pain of a pending medical premium hike by making those benefits 20-30% less expensive for your employee via purchase with pre-tax money
  • If no program in place, show how to use strategic placement of voluntary benefits to enhance overall company benefits strategy
  • Show incremental value by indicating carrier differentiations
  • Note: does not apply to all voluntary benefits
  • Approach generally applicable to health related voluntary products allowed per IRS regs
  • May facilitate a soft landing for those employees who can no longer afford to participate in qualified group healthplan

Tip 12 of 12:  Show your start-up client/prospects how to save money while making employees happier.

  • Many new employers are unaware of the return that can be had with minimum investment
  • Does not require high cost or administrative burden to initiate a minimum contribution HRA and allow employees some form of health related benefit purchase
  • Payroll tax offsets to employer can often make it a zero cost item
  • Can allow start-up employers to attract and retain talent that might be difficult to do otherwise
  • Particularly valuable in the hospitality industry where good middle management is attracted to large corporations with full benefit packages and rank and file employees have access to mini-med type plans
  • Assists in the reduction of turnover expense with which many start-ups struggle

To contact BBCG for any product proposals or additional information please click here.

For additional technical information and/or HRA administration proposals, please click here.


Due to our bonus tip providing various IRS reference citations , our twelve tips are actually a baker’s dozen.

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Allstate Workplace Division Chosen For Its Depth and Expertise As Primary Voluntary Benefits Carrier

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Please click here for VB proposal.  

 

Why Did BBCG Select AWD As Its Recommended Carrier As Opposed To Alterntives?

 

The Broad Issues

  • As an employer are you getting the highest return on the investment you make offering voluntary, payroll deduction, benefits (i.e, “VB”) to your employees?
  • Do you have a comprehensive VB strategy in place both for the present and for the post-healthcare reform environment?
  • Do you have a mechanism in-place that allows your employees to purchase health-related voluntary products with pre-tax money while saving your company related payroll taxes?

New Dynamics Change the Paradigm

How many people don’t know who “the duck” is at AFLAC? One would think that name recognition alone would dictate  that employee benefits brokers lean towards that carrier in order to maximize the perceived satisfaction of clients’ employees pertaining to the benefits for which they pay 100% themselves. Employees who see, and hear, that advertising icon are likely to believe the carrier to be the industry leader, especially true absent any other significant carrier mass media advertising. In fact it is the undisputed leader. However, it earned that position before VB became such a critical part of an employer’s strategy and when many brokers really didn’t mind a little client erosion around the edges by non-competitive, captive, AFLAC agents.

In the last few years, this segment of the industry has evolved into an entirely new species:

  • The carrier players have changed.
  • The distribution chain has been altered.
  • Corporate strategies are newly attuned to how this piece fits.
  • Some group carriers have stuck their toe in the water only to find that they really don’t know how the game is played (n.b., mostly from a marketing expense perspective and less so from a product development perspective). Many of those carriers pulled back but the top group carriers are beginning to recognize that VB is a must in the post-healthcare reform environment.
  • Projections of 2x and 3x multiples of individual healthcare policies being sold in 2014 and beyond makes product differentiation (i.e., preventing individual healthcare policies from being perceived as no more than a price-driven homogeneous commodity) a critical strategic consideration for the traditional group carriers.
  • It is more than likely that the major group carriers known for their “buy” versus “build” decisions are in various forms of acquisition due diligence as this piece is being written. The histories of Wellpoint, Aetna, CIGNA and UnitedHealthcare are replete with those kind of transactions.
  • As the VB business shifts more to brokers, a higher level of carrier evaluation will take place. It will not be sufficient for carriers to just dabble around the edges of this segment of the industry any longer. They will need to be at the state-of-the-art both in terms of product and in terms of distribution support.
  • Being unusually candid here, carriers will be forced to eliminate unnecessary interim levels of compensation in the distribution chain (i.e., not pay percentages to non-productive carrier management not actually in the broker chain). Failure on this item will shift broker incentives to the group of  VB carriers which maximize their personal compensation. The lack of competition to date has allowed an odd, and significant, skewing of compensation arrangements. However, it is not a sustainable model as the strategic focus shifts and brokers become more VB knowledgeable.

BBCG’s Thinking

A fundamental question for BBCG as a broker has been “How many VB carriers do we want to represent?” There are dozens in the industry. The top 4 or 5 are well known names. Each has strengths and each has weaknesses. Some employers show an inclination to use their primary group carrier to minimize administrative requirements. Others consider the carrier choice in the same light they have for many years (i.e., the AFLAC model with little return on investment). However, BBCG strongly believes that, concurrent with the sea-change we perceive, VB expertise, both in terms of strategic placement of benefit types and in administration, will be the key determinants of the most forward thinking employers.

Clearly, price will be an issue as well. However, BBCG also believes that competition in the industry segment will draw pricing closer to a mean in apples-to-apples product comparisons.

As a broker, the carrier representation decision becomes one of “value added” for our clients. We recognize that we might lose business by not representing all the carrier players in the way group insurance has traditionally been sold. However, as we seek to deliver the “value added” solution, it is our intent to only use carriers which show the most depth in strategic product placement (i.e., the best mix of products to maximize a desired return on employee benefits investment) and in overall support. Strategic product placement requires not only the greatest number and most innovative mix of products. It also requires a sales staff highly trained to design a complementary offering of VB products as opposed to a wholesale portfolio offering with little profound thinking about the end result.

With the above objectives in mind, BBCG has spent significant time in analyzing the top stand-alone VB carriers in our markets. We will continue to avail ourselves of the group carrier offerings where appropriate. However, for the more discerning employers we have concluded that Allstate Workplace Division (“AWD”) allows us to deliver the greatest “value added” to our clients and we will use that carrier virtually exclusively for that purpose. Some of our thinking:

  • The product offerings have the most depth.
  • The sales staff has the greatest expertise in terms of strategic placement.
  • The administrative support is state-of-the-art.
  • Market results (i.e., year over year premium growth) point to their leadership position.
  • Conversely, the erosion of market position of alternative carriers points to their weaknesses.
  • As a specialty VB carrier AWD also shows staying power, investment, and continued future innovation as opposed to the “toe in the water” approach mentioned above.

The above being said, we recognize the unique strengths of some of the other VB carriers, especially in the area of Life and Disability products. BBCG intends to use such carriers where the scope of the assignment is relatively narrow to those objectives. However, for the broad strategic assignments we see AWD as the carrier which delivers the most value for employers.

We welcome all questions and inquiries.  Please click here to request a VB proposal or strategic placement meeting with BBCG and an AWD representative.

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Death Spiral Planning: HRA Plans as a Defensive Strategy 2010-2014

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There is a real question lingering in the benefits business. What happens to group insurance in 2014? Will the proscribing of medical underwriting cause a wholesale migration of young healthy people into individual policies and leave the group books of business in what for years has been called by health underwriters “the death spiral” as these books of business have increasingly higher morbidity rates?

Many employers feel confident that it will be a matter of economics. If they subsidize the group plan only, then the relative cost to the employee will be higher if they attempt to go on their own to buy individual coverage.

However, many employers do not subsidize family coverage in a meaningful way, if at all. Young healthy families might begin to feel that individual health plans have more stability in the post-PPACA environment and are no more expensive. This may be especially true in employer groups that have sizeable aging populations and have relatively high group rates as a result (i.e., where the young healthy employees actually subsidize the higher utilizing older employees).  If an age/sex adjusted individual rate for a young healthy family is 25% less than the group plan, any employer subsidy may become a negligible consideration. 

It should be noted that many of the major group carriers are betting on the latter. There is a clear strategic shift underway on the part of those carriers to be positioned in the individual healthcare marketplace. Whereas, in the past major group carriers were willing to allow this niche to be exploited by a handful of specialty carriers, they are now gearing up like never before and urging group brokers to refocus their perspective on individual sales.

Pondering here how one might offset the effects of the “death spiral” once started, BBCG has no good solution. Once the young healthy claim base is outside the group experience, it cannot be brought back in. Group rates will get progressively higher and the “death spiral” will accelerate. At some point, if taken to its most logical ultimate conclusion, only the older, sicker employees will remain in the group plan. Simultaneously, the traditional recruitment and retention tool, the group plan, has gone to virtually zero value.

The employer question arises “If this is going to happen anyway, should I fight it or find a way to use it?”  Embracing an HRA approach as a defensive strategy may be the best option.

Assume:

  1. Your competitors for talent will use their best effort at recruitment and retention as group approaches show vulnerability. That will mean offering some form of tax-advantaged purchase of individual health plans to young valuable employees. If you don’t do it, costs of purchasing an individual policy will be 20-30% higher by an employee  at your firm versus theirs.
  2. You likely will not be able to fight the “death spiral” once started.
  3. You can structure your HRA plan with employer contributions that are similar in nature to what you now pay out in group contributions.
  4. None of your employees will be disenfranchised as of 2014 when medical underwriting of individual policies will be eliminated. [Note: this may require some additional research in terms of how to provide incrementally higher contributions  to employees forced into “high risk” pools at substantially higher rates.]
  5. Going out on a limb here, we at BBCG are projecting COBRA to be repealed in 2014 or shortly thereafter.

You can see our other posts here regarding the mechanics of HRA’s.  We feel strongly that employers cannot fulfill all the compliance requirements of an arms-length relationship relative to the employee purchase (n.b., employer cannot be involved in any way with the product purchase) unless a specialty administrator is utilized. Please click here to access more technical information on the concept.

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New UnitedHealthOne Link Replaces Golden Rule Individual Health Policy Instant Quote

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Below is the new link for United Healthcare’s “UnitedHealthOne” individual health insurance product (i.e., Golden Rule Insurance). We will be re-coding all our various prior Instant Quote links with the below.

This link is now active. Click on the below icon to access the FREE to browse & quote.  Application also available via same online link. If you have had prior experience with the Golden Rule Instant Quote, we are sure you will agree that this is a substantial upgrade.


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COBRA Regs Not Uniform – More Business Friendly DOL Detected

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In doing some research for a LinkedIn member relative to COBRA eligibility it seems an inconsistency has been detected between (1) long-standing COBRA regulations pertaining to early termination rules and (2) the regulations requiring early termination of the the present 65% federal subsidy. 

Although this inconsistency may be nothing more than an oversight on the part of DOL, it would appear to be more fundamental relative to its overall intent going forward. The newer intent seems to be much more business friendly (i.e., no expense associated with a non-productive former employee). It may not be so much altruistic as the real politic of what has been required to get health reform issues through a divided Congress.

In the specific case, the 65% federal subsidy will be terminated if a former employee is so much as eligible for a new employer plan. No enrollment in the new plan is required for the previous employer to require the full 102% premium to be paid (i.e., as opposed to 35%) to remain in COBRA.  It is purely a matter of eligibility. Unquestionablly, the net result will be less people on COBRA and more people enrolled in their new employer plans. Employers with a sizeable number of COBRA participants should see substantial savings if they monitor this provision closely (i.e., some form of periodic written statement from the COBRA participant that they have never been eligibile for another group plan from the inception of their COBRA participation, either personally or via spouse).

Note that this is not an allowable early termination event as previously defined by DOL where actual enrollment has been required before a former employer can terminate a former employee’s COBRA participation. In this case COBRA termination would be a voluntary former/new employee act based on the relative economics. 

The subsidy regulation above appears to be in line with the “To Age 26” provisions of PPACA 2010 as we understand them. In that case, the parent’s employer can also terminate an adult dependent’s eligibility for its healthplan based solely on eligibility for a new employer’s plan. Again, no enrollment is required for this action. The pure eligibility is the key.

Both the subsidy and the adult dependent regulations seem to reflect the true purpose of all these healthcare delivery mechanisms. The underlying intent has been to ensure that there is a mandatory safety net for those who would lose employer based coverage and have absolutely no other alternative. If there is an alternative, than there is no reason for that safety net (n.b., and the associated non-productive costs) to exist.  None of these devices have been put in place to allow for “plan shopping” on the part of an employee who might otherwise have mutliple eligibilities.

DOL needs to address the COBRA inconsistency and re-write the regulations going forward to allow for early termination of COBRA based solely on eligibility. Rarely, if ever, will there be a negative economic impact on an employee who will revert from 102% of premium to somewhere in the area of 75% of premium (i.e., assuming here a 25% employer contribution). This may require large employers to leverage local politicians if the various applicable federal statutes require amendment.

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PPACA 2010 “Health Reform” 9/23 Major Compliance Date Near

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Clearly, it has been exceptionally difficult to keep up and make the proper choices relative to the requirements of PPACA 2010.  The steady stream of clarifying  IFR’s (i.e., Interim Final Regulations) has almost become a torrent.

Is you broker keeping you up to date? If not as much as you might like, please click here to contact BBCG for assistance.

LinkedIn page with info:  http://www.linkedin.com/in/rwmurph

Resume from BBCG site: http://bocabenefits.com/resume.htm

“Core Competency” post: http://bocabenefits.com/blog/?p=992

Let BBCG help your organization this fall! 


Bob Murphy, REBC, ChFC, CLU, RHU, MBA

President/CEO

BBCG Inc.


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