Boca Benefits Consulting Group Inc.

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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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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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! 

President/CEO

BBCG Inc.

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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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HHS issued rules on what actions would trigger a loss of “grandfathering” status under PPACA Monday, June 14, 2010. Those rules become effective today Thursday, June 17, 2010 concurrent with their publication in the Federal Register. Below is a summary of interpretation of the final interim rules as BBCG understands them. Many employers remain on the fence regarding the trade-off between plan changes flexibility and the accelerated PPACA requirements if “grandfathering” is reqlinquished. HHS esimates indicate that many employers will voluntarily give up “grandfathered” status in return for more control of their plans (versus the additional PPACA compliance requirements).

Changes that will result in loss of grandfathered status:

• Significant cut or reduction in benefits (e.g., elimination of benefits to cover care for a particular condition)
• Increase in co-insurance rates
• Significant increase in cost-sharing co-payment charges (defined as no more than the greater of $5 (indexed annually for medical inflation) or a percentage equal to medical inflation component of CPI plus 15%; estimated to be approximately 19% total currently)
• Significant increase in deductibles (exceeding medical inflation component of CPI plus 15%)
• Significant reduction in employer contributions (exceeding 5% of prior employer contribution)
• Tightening of an existing or adding a new annual dollar limit (unless replacing a lifetime
dollar limit with an annual dollar limit at least as high as the lifetime limit)
• Merger, acquisition or similar business restructuring – if principle purpose is to
cover new individuals under the grandfathered plan
• Switching carriers under an insured plan (unless the insured plan is covered by a collective bargaining agreement. Does not apply to changes in administrators (i.e., TPA’s) for “ASO” (i.e., self-insured Administrative Services Only type plans).
• Moving employees to a grandfathered plan with lesser benefits

Please email us if we can assist with your current brokerage requirements. Note that employers cannot change carrriers under insured plans (including partially self-insured, minimum premium, etc.) without triggering a loss of “grandfathered” status but that the additional PPACA compliance requirements may still be justified if pricing, service, and/or plan provisions under an existing carrier relationship are felt to be inadequate for your needs.

 
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HHS Releases Final Interim Guidance on “Grandfathering”

Today, the Departments of Health & Human Services, Labor, and Treasury issued long-awaited interim final regulations that specify how “grandfathered” status will be defined and maintained. Regulators spelled out which actions or changes will (and will not) cause a plan to lose its “grandfathered” status.

These interim final regulations will still require analysis by carriers, consultants and employers relative to their implications and effect on employer-sponsored healthplan change decisions. We expect substantial industry opinions in the next day or so. HR and benefits professionals should keep a close eye on these developments.

Please contact us via email if you have questions about the interim final regulations. BBCG will be receiving guidance from carriers, and their attorneys, which may be valuable to you.


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Two items about which employers need to be aware as they make healthplan policy decisions:

1. It appears unlikely that the COBRA subsidy will be re-implemented retroactively. There is serious opposition on the part of budget-conscious Democrats in Congress to extend the subsidy, making its passage problematic. At least for the time being, those going into a COBRA status need to be charged the full amount. In the unlikely event that the subsidy is retroactively implemented, COBRA participants can be reimbursed.

2. It is critical that employers keep up to date on rules that are about to be promulgated relative to what changes are allowable relative to retaining the “grandfathered” status of their existing employer-sponsored plans. Plan changes that add cost or reduce benefits to employees may cause a plan to loose its “grandfathered” status thus making it required to immediately abide by all PPACA provisions (i.e., as opposed to the 2014 statutory date). Information on these rules will likely be public shortly.


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If you are an employer or senior management person trying to keep up with the provisions of PPACA, you are likely very frustrated as are many others. It is a moving target with interpretations and interim rules emerging almost daily. I noted in today’s St. Pete Times comments made following a seminar hosted by the Tampa Chamber on the details of PPACA. Even the normally informed “experts” are a little behind the curve and major employers are struggling with decisions due to incomplete guidance.

CIGNA has been holding a series of web meetings hosted by both their own employees and outside experts. The last one had two attorneys who specialize in PPACA as presenters and who were excellent in terms of their level of knowledge and current information. Following the presentation, a web conference operator moderates individual telephone questions directly to the presenters for specific questions and answers.

You do not need to be a CIGNA client to take advantage of this resource. Even if you just “lurk” without asking any questions, you will be brought up to speed on many details that might not otherwise be available to you. BBCG encourages you to register via the below link and join the web meeting at 2 P.M. June 17, 2010.

Click here for the CIGNA registration web page and link to additional health reform information available from CIGNA.


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Below is link to excellent National Association of Insurance Commissioners “Frequently Asked Questions” resource relative to the specfics of PPACA (i.e., 2010 health care reform statute). It is segmented by Consumers, Employers and Seniors.

Click here for link.

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