Boca Benefits Consulting Group Inc.

 

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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

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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

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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.

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

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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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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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With the summer ending and fall approaching many employers start to think about their January 1st group insurance renewals and what strategy they will ask their brokers to employ. Never in the last 30 years has the broker selection issue been so important. PPACA 2010 (i.e., healthcare reform) has defined brokers in two main categories: (1) those that have kept up and can properly advise; and (2) those that will continue business as usual. BBCG puts itself squarely in the former, not the latter, category.

As you may have noticed from our various types of posts, BBCG is involved in many different types of employee benefits and individual insurance concepts. However, our core competency is group insurance.

I have 30 years of experience in the group insurance business, first starting as a home office underwriter for the largest group insurer in the U.S. at the time (i.e., Prudential prior to selling off its health book of business). That start has given me a technical foundation across all group insurance products that most brokers do not possess. It also gave me an in-depth knowledge of healthcare plan alternative funding and self-insurance concepts (e.g., both ASO approaches with carriers and TPA approaches when using a non-carrier administrator and stand-alone network). Statistics show that the highest rate of broker-related Errors & Omissions events is related to self-funded plan stop-loss insurance due to its complexity and the lack of in-depth understanding by many brokers.

Since my initial career start with Prudential, I have held positions in sales management, product development and brokerage/consulting for three other national companies. Boca Benefits Consulting Group, Inc. was first located in Boca Raton, Florida  where its initial assignment was product development on behalf of an investor group in that area. It was incorporated in the state of Florida in 1996. It was relocated to Clearwater, Florida late in 1999.

BBCG agents are not appointed by every carrier in the market. However, we have access to virtually every one of them (i.e., the de facto standard in the industry is “quote/sell first and appoint after the fact”). For larger companies we will draw up specifications and go to market directly. For smaller/medium sized companies we have access to two general agencies as needed to go to market on our behalf. There is virtually no quality market not available to our clients.

If the economics of a relationship make sense for prospective clients outside Florida or Washington D.C., we will secure the appropriate non-resident licensing in your state. Note: that process has become relatively easy with the centralized on-line based licensing procedures adopted by most states.

Let us help you this fall! You can contact us by clicking here. We prefer not to get into bidding wars with other brokers in order for an orderly approach to the markets on behalf of our clients. However, we will show an alternative quote to those a current broker is showing if we do not feel the market has been fully tested. 

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

   President/CEO

   BBCG Inc.

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BBCG has been asked to comment on “grandfathering” under the 2010 healthcare reform statute and the recent interim final rules issued by HHS. Please see our prior post for the interim final rules discussion (http://bocabenefits.com/blog/?p=840).  Below are some thoughts.

If a healthplan loses its “grandfathered”  status under PPACA, then participants in these plans will gain two additional new and substantial  benefits (i.e., assuming they did not exist prior):

• Coverage of recommended prevention services with no cost sharing; and
• Patient protections such as guaranteed access to OB-GYNs and pediatricians

Clearly, adding no-cost access for preventative services has significant cost implications  (e.g., no co-pay for primary care visits, etc., changes both the cost structure and the frequency of service assumptions).  How that is passed along will be determined by the funding vehicle in place (i.e., fully insured, partially insured, self-funded, etc.). In the case of OB-GYN and PEDS, many plans already cover these as primary care (i.e., service dependent).  Cost implications may be somewhat less for that requirement. Plans must independently evaluate what the requirements will cost. Also should be judicious in accepting “quick and dirty” carrier underwriter/rep estimates which might be biased in the carrier’s favor (e.g., a high estimate to lock a client company into grandfathering, and therefore that carrier,  versus a lower estimate which would allow an employer to change carriers once grandfathering was relinquished). 

The question for employers is the trade-off between the extra costs noted above and the incremental flexibililty to modify the plan and/or carrier. Loss of grandfathering may still be the most efficacious course of action for many employers.

The Affordable Care Act requires all health plans– including grandfathered health plans – to provide certain new protections for plan years on or after September 23, 2010. The reforms that apply include:

• No lifetime limits on coverage for all plans
• No rescissions of coverage when people get sick and have previously made an unintentional mistake on their application
• Extension of parents’ coverage to young adults under 26 years old

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United Healthcare’s “UnitedHealthOne” web site is down right now. Guess you guys overwhelmed them with quote requests! The auto quote function on http://bocabenefits.com/ind_health.htm won’t work until they have their scripts up and running again.

If you are attempting to get an individual healthcare quote, please re-try later.


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CIGNA is hosting an educational teleconference on the subject of early implementation of the “To Age 26” provision of PPACA. Valuable for all employers sponsoring employee health plans (i.e., both insured and self-funded). Possibly broker and CIGNA client oriented. However, pertinent to all regardless of present carrier and/or TPA.

CIGNA teleconference registration link.

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Below are two links to resources provided by the U.S.  Department of Health and Human Services in regard to the new “To Age 26” provisions of PPACA. Important reading for graduating college seniors, parents and other adult children less than 26 years of age.

HHS Frequently Asked Questions

HHS fact sheet

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United Healthcare announced that it has agreed to the White House’s request to provide coverage for graduating college seniors under the “To Age 26” provision of PPACA (i.e.,  2010 health reform act). See below excerpt from announcement. Click here for full broker announcement.

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On April 19 we (sic) announced that we will work with customers that wish to extend the health coverage that graduating college students currently have under their parents’ plans. As a result, we are mailing letters beginning May 5 to all fully insured customers* regarding our graduate coverage initiative.  The mailing includes the Customer Notice, Letter and FAQ and Opt-Out form posted above.

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Following on CIGNA’s earlier announcement this week regarding early implementation of the PPACA “to age 26” provision, CIGNA has announced today that they will also implement early the “anti-rescission” provisions of PPACA prior to the statutory requirement of 9/23/2010. CIGNA has announced they will make the policy change effective 5/1/2010.

It would appear that CIGNA is attempting to capture the public relations high ground on these decisions relative to their healthcare insurance competitors. However, these are relatively easy changes to effect and will not substantially alter the competitive balance as other major carriers make similar decisions to implement certain PPACA provisions early.

Below Excerpt from CIGNA Press Release:

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CIGNA’s business practices are already compliant with the suggested reforms that are to be implemented on September 23, 2010. CIGNA is confirming that it will not rescind the coverage of any premium-paying customer except in cases of deliberate fraud or intentional misrepresentations of material facts. CIGNA will also institute a policy of third party review if a rescission is to be made.

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Click here for full press release.


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