Boca Benefits Consulting Group Inc.

 

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

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

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

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

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

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

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

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

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

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

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

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

Q: Are there other solutions?

 A: Some of the approaches are below:

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

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

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

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

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

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Please click here for VB proposal.  

 

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

 

The Broad Issues

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

New Dynamics Change the Paradigm

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

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

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

BBCG’s Thinking

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

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

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

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

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

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

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


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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! 

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

President/CEO

BBCG Inc.

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Email Contact

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 now offers an automated health care policy quoting service for persons located in Washington D.C. via Assurant Health (Time Insurance). This service is also available to persons in Florida.

Click below to browse/price/apply. This service is FREE unless an application is actually submitted.

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Quick Jump to Presentation

Has group insurance seen its best days? I had to ask myself that today. In 2016 medical underwriting of individual policies will no longer be allowed. There will no longer be uninsurables that get treated differently under group plans than they do under individual policies. Why would an employer continue to stay on the back of a bronco that has been trying to throw it off for 20 years?

If the employer thinks it has a financial incentive to keep the group plan in place, that is likely not true. Changes in the Internal Revenue Code effective in 2009 makes purchase of individual policies with pre-tax HRA salary reduction amounts, as well as pre-tax employer HRA contribution amounts, permissible. The HRA contributions become “defined” in that the employer can fix the amount, if any, per class of employee, often at a level less that group plan levels.  How the employee uses it is entirely employee driven. The employer steps out of the equation for everything except the regulatory framework of a Section 125 HRA approach.  Employees make their own product purchase and just file the required paperwork with the administrator.

This is an exciting new concept about which only a few really knowledgable consultants are assisting employers. Let BBCG show you how this might work for your workforce.  Please click here to open a link to a preseentation from one of our strategic partners which is a nationally recognized leader in the implementation of this concept.

Please note that this concept is not carrier dependent. Employees can buy any healthplan they desire. However, for ease of transition BBCG can make available to the purchasing employees from one up to three individual plan carriers and assist with the purchase process.  For very large employers considering this transition, BBCG would actually put enrollers on site to assist. Note that with 3 carriers, three basic plans, and dozens of variable alternatives within the plans the decision points can exceed 100 for an employee. Using lowest cost as the driver can often be very dangerous for some employees.

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As you may have noticed from experience using the existing Instant Quote function from UnitedHealthOne (i.e., Golden Rule Insurance), it has lacked some degree of user friendliness. Effective Monday, August 30, 2010, there will be an upgraded Instant Quote function via a new link.  We will add the new code as soon as it is available to us.

Note:  the existing link below will continue to function via a redirect to the new Instant Quote  web pages until approximately September 1, 2010 at which time it will become a dead link.

For persons who prefer to do business with a long-established insurance carrier in the individual healthcare market, BBCG offers United Healthcare’s “UnitedHealthOne” (f/k/a Golden Rule) products. Various traditional, high deductible, point-of-service and HSA products are available. Please feel free to use this service to explore options that you feel might meet your needs.

Please click on the above Golden Rule icon to open the auto-quoting page. This is a free and non-binding service unless the user actually submits an application.


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BBCG now has available a simplified auto-quote/purchase function for two excellent individual dental products from United Healthcare’s “UnitedHealthOne” family of companies. Just click on the below icon to begin the FREE quoting function. Should you choose to purchase, an application can be submitted via the same link. BBCG is offering this auto-quote/purchase function only in Florida at present. If you are outside of Florida, please give us a call. We are especially interested in developing business in Washington D.C. where BBCG also has a licensed agent.

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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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