Boca Benefits Consulting Group Inc.

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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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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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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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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BBCG did not spend a lot of time massaging the below linked file to make it aesthetically pleasing. It summarizes the implications for employer sponsored health plans (i.e., both insured and self-insured). We opted to expedite the posting. Although the House was forced to revisit the reconciliation procedures, the actual gist of the legislation is unlikely to change.

See http://bocabenefits.com/reform_as_passed.pdf for the summary.

— Speaking As a Broker 

Twelve Critical Items to Consider 

1. When replacing one stop-loss carrier with another will there be any gap in coverage or significant difference in terms? If the rates and coverage seem too good to be true, there is always a reason. The fundamentals of stop-loss underwriting are the same for every carrier and normally only differences in policy terms or claims handling can allow for large premium and/or claim limit swings. At times carriers will enter into periods of higher than market risk acceptance. This should be a major red flag for employers.  Conversely, carriers which profess to have a “premium book of business” which allows below market underwriting should also be approached with equal caution. It is rarely true, and if so, will likely not be so for long.
2. Never make a carrier change until you have addressed all the potential gaps in coverage (i.e., run-in claims, actively at work requirements, carve-outs sometimes referred to as “lasers”, on-going large claims). The protection of your prior insured carrier’s run-out when you first shifted to self-insurance may be providing you with false comfort regarding the risk of stop-loss carrier change in subsequent years.
3. Know as much as possible about what is in the pipeline on the date of stop-loss carrier change. Don’t be shocked when a large six months old delayed hospital claim comes in to your claims payor the day after you change stop-loss carriers. If your new terms are only on a 15/12 basis (i.e., covering claims three months old but nothing prior to that), it will not be covered by either the prior carrier or the new one. If it is a million dollar heart transplant claim for an out of state dependent you did not know about, a visit to you corporate counsel will likely be next. Unfortunately, neither carrier has done anything wrong. Your broker’s E&O coverage may be a source of recovery. However, even there, the majority of brokers carry E&O policies with severe limits on self-insured activities.
4. Is the stop-loss carrier going to be a “flash in the pan” participant in the excess loss marketplace? Some carriers enter briefly for a quick cash infusion but have no intention of being a long-term player. Short-term carrier strategies mean they do not have to be nearly as customer conscious (i.e., with the plan sponsor and with brokers). They may be out of the business before their poor business practices catch up with them.
5. Is the first year offer no more than a means to gaining an initial foothold with large renewal rates to follow?
6. Don’t be taken in by immature claims to mature claims comparisons. First year renewals will always be big. However, if a carrier bought the business with first year rates, its subsequent first renewal will exceed even normal immature to mature transitions.
7. If virtually every other stop-loss carrier is shying away from a particular underwriting technique, a plan sponsor should be extra diligent in vetting the carrier who offers it.
8. If it is a two-year guarantee on claims limits, or on premium, a plan sponsor needs to ask why the carrier can afford to take on that risk when most other carriers won’t? What has been built into the premium structure or the claims limits over that two year period which makes the risk acceptable to this one underwriter? The answer is likely not favorable to the employer plan sponsor.
9. What is the nature of the carrier’s investment portfolio? If there are large holdings of marginal securities generating high but risky current yields, it may have later underwriting impact on an employer’s stop-loss renewal if those investments suddenly go south.
10. How much of the risk of its book of business does the carrier hold and how much is ceded to reinsurers? If it is a fronting company only (i.e., holds minimal risk internally) employers should be cautious.
11. What is the carrier’s existing loss ratio on its entire block of existing business? If it is eroding fast, the losses will be loaded into future underwriting on all its business.
12. Is the carrier admitted into the state where the employer’s plan situs has been established? If it is a surplus lines carrier (e.g., Lloyds and others) have all the downside risk issues been considered? Has the broker explained to the employer plan sponsor the fundamental differences between the surplus lines market and the admitted carrier market? They are substantial.

Please email us at stoploss@bocabenefits.com for assistance with your self-insured plan’s stop-loss needs.


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In 2008 Virtual Managed Care Organizations May Challenge
Two Decades of Dominance by the National Managed Care Companies. The
health care claims cost differential between managed care ASO carriers and
the best TPAs needs to be considered over three distinct time frames:
(1) short-term, (2) mid-term and (3) long-term.

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