Boca Benefits Consulting Group Inc.

The below info is excerpted from a Zane Benefits information piece published Sunday, Sep 15, 2013.  The entire technical discussion can be accessed at their RSS blog feed by clicking here.  The essence of the discussion is that unlike what some major group insurance carriers have been indicating, newly stuctured HRP’s ( i.e., a limited healthcare reimbursement plan) can be used as the vehicle to shift employees from a group plan to individual purchases on exchanges. Wallgreens is the most recent large company to announce such a shift (click here for info on annoncement today 9/18/2013). IBM and Time Warner have made similar announcements.

[Begin Excerpt] ____________________________

Now, the good news

Employers can still reimburse employees for individual health insurance premiums.

For the first time, the Department of Labor, the Department of Treasury, and Health and Human Services have coordinated to issue formal confirmation that employers are 100% allowed to reimburse individual health insurance premiums tax-free under the tax code. This is a MAJOR positive.

We repeat – employers are still allowed to reimburse employees tax-free for individual health insurance premiums.

 

What is the solution for plan years beginning on or after January 1st, 2014?

For plan years beginning on or after January 1st, 2014, the solution is to adopt a limited Healthcare Reimbursement Plan (HRP), such as ZaneHealth.

The HRP is structured to only reimburse:

1. Health insurance premiums up to a specified monthly healthcare allowance,
2. Preventative care as required by PHS Act Section 2713 at 100% without cost-sharing.

This structure ensures the HRP complies with the PHS Act 2711 annual limit requirements and the PHS Act 2713 preventative care requirements as outlined in the Technical Release.

Additionally, care must be taken in the design and administration of the HRP to ensure the plan does not meet the definition of an eligible employer-sponsored plan in IRC Section 5000A and consequently qualify as minimum essential coverage. This ensures employees participating in the HRP are able to receive a tax subsidy via the new health insurance marketplaces assuming they meet additional eligibility criteria.

Conclusion / Next Steps

With the Departments all in agreement, everyone should be excited there is finally a clean, final process for employers to reimburse employees for individual policies that are guaranteed-issue.

Sponsors of stand-alone HRAs should begin preparing to convert their plan to an HRP for plan years beginning after 2014.

Finally, our nation can rid itself of one-size-fits-all employer group health insurance policies that hamper businesses, employees and their families.

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click here for questions or proposals

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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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 #8 dispatch from the 2010 regular Florida Legislative Session.  Please see below link to access the dispatch.

• LEGISLATURE SENDS NAIFA-FLORIDA PRIORITY BILL TO THE GOVERNOR (HB 159)
• LEGISLATURE APPROVES LIFE INSURANCE BILL WITH NAIFA-FLORIDA SUITABILITY CE EXEMPTION PROPOSAL (HB885)
• NOVEMBER BALLOT WILL CONTAIN CONSTITUTIONAL AMENDMENT TO EXEMPT FLORIDA  FROM FEDERAL HEALTH REFORM MANDATE (HB 37)
• 2010 SESSION WILL ADJOURN WITHOUT SIGNIFICANT HEALTHCARE REFORMS
• PROPERTY BILL CLEARS SENATE FLOOR; CONSUMER CHOICE STALLED (SB 2044/HB 447)
• NUMEROUS COSTLY MANDATE BILLS FILED

Go to NAIFA archive page for full details.

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

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

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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.”