Boca Benefits Consulting Group Inc.

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

Boca Benefits Consulting Group Inc. can provide a FREE customized employee benefits web portal for mid-size and smaller employers which to date may have felt was beyond their reach. Built to employer specifications in conjunction with BrokerSuite technical, HR and benefits specialists. This is a value added service provided by BBCG to clients, and soon to be clients. The below link is an HTML version of a PowerPoint presentation. It has been optimized to run on IE6 or above browsers. Click the Slide Show icon on bottom right of main pane to activate. Click the “Outline” recessed button on bottom left of main pain to close outline notes. Slides can also be advanced manually by clicking arrows in center bottom of main pane. Please email the author if a disk version of the PP presentation is required. See http://bocabenefits.com for additional contact information.

Link to slide show

— 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 mid-2008 BBCG began sending an email newsletter with various items of topical interest to benefits professionals, business owners and senior managers. As with this blog, we got somewhat distracted during the last few months with other priorities. We intend to have the next addition of The Insight out shortly. In the interim, below is a link to the archive page that contains the prior editions.

Archive link below:

http://archive.constantcontact.com/fs009/1102162493446/archive/1102248850983.html


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[Originally written in February 2009 for publication in the Clearwater (Florida) Regional Chamber of Commerce’s Voice of Business bi-montly newsletter.]

 Governmental Affairs Committee Commentary

by

Robert W. Murphy, 2009 Chair

***************************************************************

Why So Big a Net at GAC

In December of 2008 the Governmental Affairs Committee (“GAC”) was fundamentally changed. Prior to accepting the chair, I asked that the Chamber put together a steering committee which would set the broad agenda for our work. It did so immediately and we met to determine how best to meet the perceived needs of Chamber members as expressed  in the 2008 survey of things members felt were most important. The result was the formation of six functionally based GAC standing task forces. We also held in reserve two additional task forces which could be activated at a later date.  The active task forces are listed below. We have been extremely fortunate to have some really excellent community leaders step up to head each of them and to bring on board other high quality people to serve with them.

• Economic Development
• Education
• Energy Policies
• Health & Welfare
• Local Government Liaison
• National/State Liaison

Recently, I was challenged by a colleague who indicated to me that we might have really bitten off more than we can chew. He also opined that we may have stepped beyond the traditional functions of chambers of commerce. His conclusion was that certain of our task forces could not possibly address their respective mandates in a meaningful way and that we were probably just wasting resources. In other words: our GAC net was just too darn big. His was kind of a Moby Dick type warning with the image of us chasing out after a white whale.

An easy reply would have been to tell him that the Chamber is obligated to its membership to respond to the items that were identified in the 2008 survey. The GAC structure is just a means to that end. However, such a reply would have been disingenuous on its face.

The GAC Steering Committee has knowingly established an incredibly challenging 2009 agenda that does press up against the traditional limits of chamber of commerce type functions. We fully recognize that we may only be able to marginally effect some of the more aggressive objectives we have placed there for action. We may indeed fail to deliver very much on those. However, the alternative, doing nothing at all, was never considered by the Steering Committee to be a tenable position for the GAC. We concluded, admittedly with a minority dissent, that action will trump no action every time.

As an arm of the Chamber whose unique function is interaction with local, state and national policymakers, we feel strongly that our GAC mandate goes beyond the clearly short-term economic interests of our members. The Chamber has other missions as well, both economic and social.  Long-term positioning associated with the factors that are required for preserving our local economic health (e.g., energy policy) is equally important. Having a properly educated, healthy, secure and satisfied workforce (e.g., education, health & welfare, etc.) are also all critical factors which impact our economy. Additionally, providing assistance to those who are interested in bringing businesses to our city cannot be overstated (e.g., economic development). Lastly, quality of life in a community has a direct economic impact by significantly influencing the interest new industry has in locating, or staying, there. All the above considerations ultimately come full circle to economic health. One piece cannot be viewed separately from the whole.

Yes, so the GAC has cast a really big net. It has made public its goals. It has allowed the cynics free reign to expect the worse. It has done it all with some trepidation of failure but also with the expectations that we all could celebrate some real successes along the way. It has taken the position that either it would positively effect the community in some manner or its new concepts would crash and burn badly.

We want all our members to be aware that each has an open invitation to become a member of the GAC. No prior political experience is necessary. Nor is there a need for any GAC member to join a task force or be an activist on any issue. We encourage you to just come and be part of the dialogue that takes place at 7:45 AM on the first Wednesday of every month in the Chamber’s Community Room. Contact the Chamber (phone: 727-461-0011) with any questions you might have regarding participation.

Bob Murphy

2009 GAC Chair

During the first quarter of 2009, BBCG Inc. was sidetracked more than expected by me taking on the responsibilities of Chairman, Governmental Affairs Committee, Clearwater (Florida) Regional Chamber of Commerce.  We will reprint an article I wrote for publication in the Chamber’s Voice of Business bi-monthly newsletter which provides more detail. In a nutshell, with the support of a small steering committee over the course of the last three months, I have established six standing task forces which are now each headed by an extremely talented volunteer from the community. Between the six, we have attempted via broad mandates, to address all the issues our membership told us were of most concern to them in a fall 2008 survey. We have also tasked two of the task forces to address specific items that public sector officials have brought to us as quick-fused issues requiring immediate action.

It has been my intention as the President of BBCG Inc. to design and build the Chamber task force infrastructure, identify and install six high quality leaders, and then back off from the intense front-end effort and refocus on the requirements of BBCG’s employee benefits work.

With most of the pieces now in place, I will strive to be more proactive in making valuable posts to this blog.

Respectfully,

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

[The below is excerpted from a column written by Tim Meyers for The Signal in Santa Clarita Valley, CA.  Click here for original. ].

Mr. Meyers insight into the workings of a Ponzi Scheme is timely relative to the substantial emerging losses of both wealthy individual and institutional inevestors during the last two weeks.

What constitutes a Ponzi scheme?

The scheme carries the name of Charles Ponzi, an Italian immigrant who originally perpetrated the fraud. The scheme simply involves promising extremely high rates of return and then paying those from the frenzied investments of subsequent investors.

The actual method of the Ponzi varies, but two things always occur in common: First, the Ponzi artist operates NO substantive business, certainly none that could generate the returns promised. Second, and most tragically, the Ponzi artist must rely for success on the extreme naivete of the investors.

Unfortunately, right now constitutes probably one of the most fertile times for Ponzi artists, especially when they prey on the elderly with nest eggs invested conservatively in retirement plans or large amounts of home equity.

Legitimate and wise advisers place these folks in conservative, nonleveraged fixed income investments that at best might yield five to six percent a year in investment return.

Now the Ponzi promoter might promise investment returns of 10 percent per month, or 24 times the return of a safe investment. This requires the threshold of credulity and lack of knowledge.

A savvy investor knows he or she can earn these types of returns only with high risk (the potential of losing the entire value of their investment) or taking on large amounts of debt or leverage (also risky).

When questioned about the exorbitant returns, the promoter might say that wealthy people hide these opportunities from the more modest, and he is in fact providing a Robin Hood-type service by letting them in on the action.

So our Ponzi promoter raises $100,000 from five investors, promising 10 percent per month in returns for a total of $500,000. At the end of 30 days, the promoter dutifully cuts checks for $50,000 for the first month’s return and is left with $450,000 (remember, no actual investment or business exists).

This could persist for nine more months as the promoter exhausts the investor funds, and the investors would realize they only received their money back, only losing out on the return.

But a Ponzi scheme does not remain static. The first five investors excitedly talk up to their friends the investment that returns twice as much in one month as their old staid investments.

Even at the rate of just five new investors per month, and paying out the 10 percent return per month, at the end of six months the promoter possesses just under $2 million in investor cash.

Now they make the next move. They convince the existing investors they need to roll over their monthly investment returns to further increase their returns.

Now, with five new investors a month and no cash payouts, in six months the promoter possesses dominion over slightly less than $5 million. Comfortable with the stability of the cash balance and with new investors still coming in, the promoter begins to divert large amounts of the cash to his or her personal use.

This actually helps with the recruitment of new investors because people flock to those showing material success.

What causes the Ponzi scheme to collapse? Two things, and if they occur concurrently, the faster the demise.

First, the pool of new investors drys up. Second, existing investors request their principle.

Unfortunately for the criminal, for the Ponzi schemes targeting seniors, the second happens more frequently. Seniors die and then heirs with professional executors want to liquidate the investment. With no cash available to pay returns, investors become suspicious and requests for payouts spread like wildfire, collapsing the scheme.

Now all Ponzi criminals of late share one thing in common: They possessed some harebrained investment scheme that would eventually come to fruition and pay off all the investors in full.

Before their sentencing they will protest that “with a bit more time” they could make all their promises good.

So in the end, the criminal acts with the same naivete of their investors.

Injured or Ill Members of the Armed Forces

The Labor Department will release regulations November 14, 2008 which will let family members of seriously injured or ill members of the armed services take up to 26 weeks off from work each year to care for them.

The military caregiver provision gives family members up to 26 weeks off, longer than the normal maximum of 12 weeks under the Family and Medical Leave Act. The provision also allows additional family members, including siblings and cousins – not just spouses, parents or children – to take time off.

Relatives of National Guard or Reservists Called to Duty

The regulations also will allow family members of those called to active duty in the National Guard or the Reserves to take up to 12 weeks off so they can manage needed and often rushed matters regarding a service member’s departure or return.

Labor Department officials said the law creating the leave for such situations did not cover regular active-duty military members.  DOL indicates that the provision is to assist families of deploying Guard or Reservists where significant family adjustments must be made as a result.

Other Changes

• Allowing employers to require “fitness-for-duty” evaluations for workers who took leave time and are returning to jobs that could endanger themselves or others.
• Forcing workers to tell employers in advance when they want leave time. Current regulations allow employees to tell employers up to two days after not showing up for work that they are using leave time. Employees will now have to follow their employer’s regular rules for informing them about missing work “absent unusual circumstances.”

In his November 7, 2008 New York Times Economix blog post titled “The Health Care Challenge: Sailing Into a Perfect Storm” Princeton economist Ewe E. Reinhardt tells it the way it is: health care costs accelerate faster than incomes. What he does not say is that it is not a new trend. Having been an employee benefits practitioner of one sort or another for 28 years, I have been an empirical observer of the phenomenon since Read the rest of this entry »