Boca Benefits Consulting Group Inc.

We have received communications from both CIGNA and Aetna that they will each be implementing the “to age 26” provisions of the Patient Protection and Affordable Care Act earlier than required by statute (9/23/2010).  The concern stated is the potential for a gap in coverage for those in the 21-26 age group who may be graduating from college and who would otherwise lose eligibility once full-time student status was eliminated.

Both companies are making their eligibility changes effective 6/1/2010.

Although we have not seen announcements from either Blue Cross/Blue Shield or United Healthcare, BBCG is surmising that the changes announced by Aetna and CIGNA have become the new de facto eligibility standard and that the other major healthcare insurers will follow.

Click here for CIGNA announcement. 

Click here for Aetna announcement.

BBCG is represented on the board of NAIFA-Pinellas (National Association of Insurance and Financial Advisors, Pinellas County, Florida). The below bullet points are insurance/benefits related items addressed in the Week #7 dispatch from the 2010 regular Florida Legislative Session.  Please see below link to access the dispatch.

• NAIFA TO TESTIFY BEFORE COMMISSIONER MCCARTY AGAINST FEDERAL MEDICAL LOSS RATIOS
• NAIFA-FLORIDA PRIORITY LEGISLATION CLEARS FINAL COMMITTEES – HEADED TO THE FLOOR
• LIFE INSURANCE BILL STRIPPED OF CONTROVERSIAL FEDERAL HEALTH REFORM PROVISIONS
• AUTISM & MENTAL HEALTH PARITY MANDATES STILL PUSHING FORWARD
• HOUSE AND SENATE MOVE CLOSER TO AGREEMENT ON PROPERTY BILLS
• CFO SINK’S PRIORITY ANNUITY LEGISLATION GAINS APPROVAL OF THE SENATE
• NUMEROUS COSTLY MANDATE BILLS FILED

Go to NAIFA archive page for full details.

The president signed H.R. 4851 into law late Thursday. The bill was approved earlier in the day by the Senate on a 59-38 vote and by the House on a 289-122 vote. The measure extends the 15-month, 65% federal premium subsidy to employees laid off from April 1 through May 31. The previous short-term extension expired March 31.

See the full story in Business Insurance: http://www.businessinsurance.com/article/20100416/NEWS/100419944 .

We are not the only systems being hacked. New U.S. Cyber Command gears up for probes. It is not all paranoia.

See this link regarding information provided at Senate Armed Services Committee confirmation hearing.

Health Care Reform Impact on Employer-Sponsored Health Plans

Excerpted from Various Insurance and Benefits Industry Sources

(impact on self-insured plans is annotated in bold text below)

• Prohibition of lifetime limits – Prohibits all plans from establishing lifetime limits. Only applicable to self-insured plans established after 6 months from date of enactment.
• Prohibition of annual limits – Prohibits all plans from establishing annual limits on the dollar value of benefits starting in 2014. Prohibits plans from setting limits that would “impair essential health benefits” in subsequent years. Only applicable to self-insured plans established after 6 months from date of enactment.
• Prohibition on rescissions – Prohibits all plans from rescinding coverage except in instances of fraud or misrepresentation. Only applicable to self-insured plans established after 6 months from date of enactment.
• Coverage of preventive health services – Requires all plans to cover preventive services and immunizations, recommended by various Federal agencies, also specifically includes certain child preventive services and women’s preventive care. Plans are prohibited from imposing any cost-sharing requirements. Only applicable to self-insured plans established after 6 months from date of enactment.
• Dependent coverage – Requires all plans offering dependent coverage to make coverage available to dependents that are under the age of 26 and unmarried. Plans are not required to cover dependents of dependents. Only applicable to self-insured plans established after 6 months from date of enactment.
• Prohibition of preexisting conditions – No group health plan or insurer offering group or individual coverage may impose any pre-existing condition exclusion or discriminate against those who have been sick in the past. Only applicable to self-insured plans established after 6 months from date of enactment.
• Prohibiting discrimination based on health status – No group health plan may set eligibility rules based on health status, medical condition, claims-experience, receipt of healthcare, medical history, genetic information or evidence of insurability – including acts of domestic violence or disability. Permits employers to vary insurance premiums by as much as 30 % for employee participation in certain health promotion and disease prevention programs. Only applicable to self-insured plans established after 6 months from date of enactment.
• Prohibition on waiting periods – Prohibits any waiting periods for group or individual coverage that exceed 60 days. Employers are penalized $600 per full-time employee for each employee required to wait beyond 60 days. Only applicable to self-insured plans established after 6 months from date of enactment. 
• Required Plan Information Disclosure
  • Requires plans to issue a summary of benefits and explanation of coverage to beneficiaries with the following criteria:
    • In uniform format
    • In “easily understood” language
    • Inclusion of uniform definitions of standard insurance and medical terms
    • Explanation of cost-sharing exceptions, reductions and limitations on coverage
    • Provide common benefits scenarios 
• Expanded Beneficiary Appeals Availability
  • Requires plans to implement a process for external appeals of coverage determinations and claims
  • Requires self-insured plans to comply with minimum standards to be established by the Secretary of DOL
  • Only applicable to self-insured plans established after 6 months from date of enactment.
• Health Information Technology Standards and Plan Requirements
  • Adoption of uniform standards and operating rules for the electronic transactions that occur between providers and health plans that are governed under HIPAA (such as benefit eligibility verification, prior authorization and electronic funds transfer payments)
  • Establishes a process to regularly update the standards and operating rules for electronic transactions and requires health plans to certify compliance or face financial penalties collected by the Treasury Secretary
• “Young Invincibles” Plan
  • Allows health insurers to offer a catastrophic, high-deductible plan as an exchange option
  • To be eligible for plan, individuals must be either
    • Under the age of 30
    • Exempt from the individual responsibility requirement because coverage is unaffordable to them
    • Individuals with access to employer-sponsored plans who meet criteria may join
  • Plan must
    • Cover essential health benefits
    • Cover at least 3 primary care visits
    • Require cost-sharing up to the HSA out-of-pocket limits
• Allowable Prevention and Wellness Incentives
  • Allows employers to discount up to 30% of the premium or cost-sharing requirements for participants in a workplace wellness program
  • Provides discretion to HHS to permit discounts up to 50%
• Low-Income Tax Subsidies Effects on Employer-Sponsored Health Plans
  • Employees with access to employer-sponsored coverage are eligible for credit (for use in an Exchange only), if:
    • Plan covers less than 60% of total coverage cost
    • The premium exceeds 9.8 of total income
• Employer Responsibility
  • Requires an employer with more than 50 full-time employees that offers coverage, but has employees receiving the “premium assistance” tax credit, to pay the lesser of $3,000 for each employee receiving the credit, or $750 for each full-time employee – adjusted annually and non-deductible
  • An employer with more than 50 full-time employees that maintains an enrollment waiting period would be required to pay
    • $600 for any full-time employee subjected to longer than a 60 day waiting period – adjusted annually and non-deductible
• Employee “Free Choice” Voucher
  • Allows employees with access to an employer-sponsored plan, under certain income eligibility, to receive a voucher from their employer, equal to their employer’s contribution (“free choice” voucher), to purchase coverage through an Exchange participating plan.
  • To be eligible for a voucher, an employee would have to meet both of the following criteria:
    • The cost of the employee’s coverage needs to be between 8% and 9.8 percent of the employee’s household income
    • Employee has a household income below 400% FPL
  • The contribution amount to the voucher must be equal to the amount the employer contributes to their own health plan
  • If the employee chooses coverage that costs less than the voucher, the employee keeps the remainder amount
  • Vouchers cannot be taxed as income
• Automatic Employee Enrollment
  • Requires employers with more than 200 employees to automatically enroll new full-time employees in coverage
  • Requires employers to provide adequate notice and the opportunity for an employee to opt out of any coverage the individual or employee was automatically enrolled in 
• Reporting Requirements for Employer-Plan Sponsors
  • Requires large employers (over 200 employees) to report the following
    • Whether it offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan
    • The length of any applicable waiting period
    • The lowest cost option in each of the enrollment categories under the plan
    • The employer’s share of the total allowed costs of benefits provided under the plan
    • The number and names of full-time employees receiving coverage
    • Disclose the value of the benefit provided by the employer for each employee’s health insurance coverage on the employee’s annual Form W-2 
• Requirement to Disclose Coverage Options
  • Requires that an employer provide notice to their employees informing them of the existence of an exchange
• Excise Tax on Generous Plans
  • Levies an excise tax of 40% on insurance companies and plan administrators for any health coverage plan that is above the threshold of:
    • $8,500 for single coverage
    • $23,000 for family coverage 
• Fees on Self-Insured Plans
  • In 2013, the plan sponsor of a self-insured plan is required to pay $2 multiplied by the average number of covered lives
  • From 2013-2019 the previous year’s fee is multiplied by projected per-capita amount of National Health Expenditures
  • Plans are not required to pay fees beyond 2019 
• Termination of Deductibility of Medicare Prescription Drug Subsidies
  • Elimination of the deductibility of Federal subsidies for Medicare Rx programs 
• Limitation on Health Flexible Spending Arrangements
  • Limits the amount of contributions to health FSAs to $2,500 per year indexed by CPI 
• Annual Report on Self-Insured Plans
  • Requires the Secretary of DOL to prepare an annual report, using information obtained from submitted Form 5500, on various aspects of self-insured, group health plans. Report will include:
    • Plan type
    • Number of participants
    • Benefits offered
    • Funding arrangements
    • Benefit arrangements
    • Data from the financial filings including:
      • Information on assets
      • Liabilities
      • Contributions
      • Investments
      • Expenses 
• Indirect Health Industry Fees Likely to Increase Plan Costs 
  • Fees on Pharmaceuticals
    • Imposes an annual flat fee of $2.3 billion on the pharmaceutical manufacturing sector beginning in 2010
  • Fee on Medical Devices
    • Imposes an annual flat fee of $2 billion on the medical device manufacturing sector in years 2011 – 2017
    • Imposes an annual flat fee of $3 billion on the medical device manufacturing sector in years after 2017

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.

As our prior post indicated, BBCG is particpating in the AccessAmerica initiative in China sponsored by the U.S. Department of Commerce. The white paper “Accessing International Healthcare Insurance in the Global Economy” is now posted with a Chinese language synopsis at: http://www.buyusa.gov/china/zh/aa_resources.html .


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Many cost strapped employers are looking for ways to have older, more costly, employees seek early retirement without violating any age discrimination statutes. Below are some healthcare considerations to think about if you are approached.

If retiring at approximately 62 years old, there are four  healthcare options that might be available to you:

• COBRA ( http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.HTML )
• Individual policy ( http://bocabenefits.com/GR 4-2009 Plans Brochure.pdf   )
• A “bridge” provided by the employer to age 65
• New employer with a group plan

COBRA with ARRA 2009 Considerations

In the case of COBRA, the expense may or may not be prohibitive depending on how your separation from service is actually defined. If “involuntary” between now and 12/31/2009 the 65% subsidy required by the American Recovery & Reinvestment Act 2009 would apply and for the nine months following the separation date your cost would be 35% of the normal 102% of true cost COBRA rates (i.e., true cost being what the total premium is for your enrollment type, not just the percentage of the cost passed along to the employee) for that period. Unless the ARRA 2009 were to be extended, the costs would go back to 102% of true costs at that point. See the piece at http://bocabenefits.com/stimulus_cobra.pdf for more info. Specifically, take a look at the income thresholds that might reduce the subsidy for you. Note: this is a zero cost subsidy for your employer.  One hundred percent of the subsidy amount is recovered via a payroll tax offset.

Individual Health Policies

Individually purchased policies are problematic for several reasons. Costs for just one person at 62 will run about $400-$500 per month (possibly less if an HSA plan). Essentially twice that for a couple. They are also not “guaranteed issue” meaning that your health status will be considered before an application is accepted and a policy issued. You can be declined, be up-rated or have policy benefit terms modified.

Early Retirement Bridge With Current Employer

A “bridge to 65” agreement with an employer is usually the best course for everyone. That is, the employer continues the employee on the health plan as if they remained an active employee until they reach Medicare eligible age. It is likely that the employee would be kept in prolonged “leave of absence” status to remain qualified for participation in the plan if no retirement health is offered otherwise. A highly paid, tenured employee can be replaced by a less experienced and less expensive new hire. Over the course of three years that could be worth in excess of $100,000 for the employer (i.e., likely substantially more). Most employers would jump at the chance to trade off three years of health care premium  for the separating employee and spouse (i.e., a guess at the cost: $36,000 pre-tax ) against the direct and indirect payroll savings. However, there is a potential downside to the employer. If the health plan is self-funded, every claim dollar incurred by the employee or spouse below some threshold per year (i.e., varies by employer size from $50,000 to $250,000;  threshold possibly higher for jumbo sized employers) will be a direct pre-tax cost to the employer. A million dollar organ transplant can eat up the entire payroll savings very quickly. It is therefore somewhat of a roll of the dice for the employer. Note: this also applies to “experience rated” insured plans to some degree where deficits from prior years are recoverable via going-forward underwriting.

It is very important that if negotiating a bridge type agreement that spouse coverage be an absolute deal breaker. You must have it if you have a spouse of roughly equivalent age who does not have a source of health care at his/her employment or who has retired earlier. You may be able to strike an agreement whereby a Medicare eligible spouse specifies that Medicare is to be “primary” and the employer’s plan will be “secondary” in claims payment order when age 65 is attained. That lessens the possible claims impact somewhat. You can also make the argument that more than likely the employer is going to own the employee and dependent claims under most of the above scenarios (i.e., stays employed, goes on COBRA, or falls under a bridge agreement).

Many large employers have canned early retirement packages on the shelf with the above kind of provisions. Human Resources professionals should be aware of them on the local/regional level. However, if that does not appear to be the case, an inquiry at the home office level might be required. HR people should also be willing to discuss these matters “off the record” to ensure no negative behavior by supervisors.

The Minimal Employment Scenario

Lastly, the new employer alternative. Many older early-retired people find work at the minimum hours and minimum skill levels required for them to qualify for health care coverage at a new employer. It occurs frequently at the ski resorts in Colorado where formerly high powered execs are now running ski lifts, acting as mountain guides or teaching lessons. If it fits your life style, it is a consideration. If it were to cramp the post-retirement life-style you envision, it obviously would not.

 Suggested Course of Action

Set up a confidential meeting with the appropriate HR person and discretely explore your options.

Many employers are struggling to determine the precise COBRA requirements under the 2009 ARRA. Employer size, state situs of the benefit plan, specific state actions, and other things, effect the answers. In addition, where certain responsibilities have been placed on carriers, their unique administrative decisions may also drive procedures.

Below is a link to a Frequently Asked Questions (i.e., FAQ) piece on this subject provided by United Healthcare. Although some of it is specific to their own client base, much of it provides generic information that benefits professionals might find valuable as they weave their way through the huge number of variables.

This subject may also be something that in-house and contracted financial professionals need to address. Who pays the 65% COBRA subsidy and how it is ultimately recovered are key items.

Non-benefit HR types may also want to spend some time with the definitions of eligibles. Although this appears at this point to be a short-term program, the costs of which are recoverable as a credit against future payroll tax liability, certain CEO’s may want to minimize participation due to the hit on quarterly cashflow or if the company is clearly in such dire straights that a payroll tax recovery may not be viable.

Link to FAQ Resource

— 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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