Archive | Employers Reaction to Bill

California seeks limits on small-business self-insurance trend

Critics say health insurers offering new type of self-insurance for firms with as few as 25 workers are gaming the system and may undermine a key goal of the federal Affordable Care Act.

Sensing a fresh threat to state and federal healthcare reforms, California insurance officials are seeking new limits on a controversial form of health coverage insurers are selling to small employers. At issue is a new type of self-insurance for small businesses with as few as 25 workers.

Self-insurance, in which employers pay medical providers for their workers’ care, has traditionally been used only by large employers that have the financial resources to pay for expensive medical claims. A Kaiser Family Foundation study found that 60% of U.S. workers with health coverage were in self-insured plans last year.

About 3 million Californians get health coverage through small businesses with fewer than 50 employees while 15 million are insured through larger employers, according to the California HealthCare Foundation. Small businesses are eager for new options since the average premium for employer coverage in California has increased 154% over the last decade, more than five times the 29% increase in the state’s overall inflation rate.

Critics said insurers such as Cigna Corp. are using these new plans to game the system and cherry-pick companies with healthier workers. They said this could undermine a key goal of the federal Affordable Care Act to lower premiums by pooling together more healthy and sick Americans into insurance exchanges. Premiums could continue to escalate without a diverse pool of consumers. That prospect has federal health officials weighing action against this practice as well.

*Self-insurance is attractive for many reasons, particularly the prospect of lower costs. It’s exempt from state insurance regulations such as mandated benefits, granting employers the flexibility to design their own benefit package and the opportunity to reap some of the savings from employee wellness programs. A federal law, the Employee Retirement Income Security Act, or ERISA, governs self-funded plans. Some aspects of the Affordable Care Act do apply to self-insurance, such as the elimination of caps on lifetime benefits and some preventive care at no cost.

Insurance officials say that they are responding to employer demands for more affordable coverage and that regulators shouldn’t interfere in the market. Mike Ferguson, chief operating officer at the Self-Insurance Industry Institute of America, a trade group, said there’s no evidence that insurers are targeting companies with healthier employees.

“We are concerned about regulators’ actions because self-insurance is arguably one segment of the healthcare market that is working well,” Ferguson said. “These companies are generally able to control costs better and offer more customized benefits.”

Now some insurers are chasing after much smaller customers with new plans designed to limit employer payouts for big claims using what’s called stop-loss policies. This guarantees that businesses won’t be responsible for anything over a certain amount per employee, perhaps as low as $10,000 or $20,000, with the rest paid by an insurer. Regulators and health-policy experts say this arrangement undercuts the notion of self-insurance since employers aren’t bearing much of the risk, and it allows companies to circumvent some state insurance rules.

California Insurance Commissioner Dave Jones will unveil proposed legislation next week that would bar insurers from selling stop-loss policies below a certain amount. The specific dollar figure is still under consideration, but some experts recommend a minimum of $40,000 per worker. This proposal would make these new self-insured plans less attractive for small employers because they would be on the hook for more employee medical bills.

“The goal of the legislation is to help ensure the success of the small group market as significant healthcare reforms are going into effect,” said Janice Rocco, California’s deputy insurance commissioner for health policy. “There’s a concern carriers are selling a product that’s not really appropriate for small groups.”

Officials in the Obama administration are keeping a close eye on developments in California and other states where insurers are aggressively selling these plans.

“We are working carefully to ensure that consumers in all markets have the protections guaranteed by the Affordable Care Act and will provide more clarity on the tools available to reinforce these protections soon,” a spokesman for the U.S. Department of Health and Human Services said.

Monday, the U.S. Supreme Court will begin hearing arguments over the constitutionality of the federal healthcare law and specifically its mandate that individuals purchase health insurance.

Anthem Blue Cross, California’s largest for-profit insurer and a unit of WellPoint Inc., began selling these self-insured plans to employers with as few as 35 workers March 1, down from its previous minimum of 250 employees. Assurant Inc., a New York-based insurer, is selling plans to companies in California and other states with as few as 10 workers.

Marc Neely, vice president for Cigna’s self-insured business in 14 Western states, said his sales to small businesses with as few as 25 people are growing at a double-digit rate because employers are fed up with annual rate hikes of 10% to 15% on their traditional plans. Neely said Cigna offers stop-loss coverage as low as $20,000 per employee. “We’re excited about California as a growth market for us,” Neely said.

Higher stop-loss amounts are more the norm. The average stop-loss policy for firms with fewer than 200 workers was $78,321 per employee last year, according to the Kaiser Family Foundation. Larger firms had stop-loss coverage of $208,280 per worker, on average.

Some other states have already taken action. Oregon and New York ban the sale of stop-loss insurance to employers with fewer than 50 people enrolled, making self-insurance unappealing. However, there is debate over states’ power in this area because the federal ERISA law generally bars state regulation of self-insured plans.

This issue has even split the insurance industry. For instance, Blue Shield of California supports the state’s bid for tougher rules. But that hasn’t stopped the company from following its rivals by introducing self-insured plans in December for companies with as few as 100 employees. Previously, the company wouldn’t go below 250 workers.

“It has the potential to take out the favorable risks and destabilize the fully insured market,” said David Joyner, Blue Shield’s senior vice president of large group and specialty benefits. “There is a risk of cherry-picking.”

Joyner said it’s “silly” for insurers to provide stop-loss coverage as low as $10,000 to $20,000 since that’s not how self-insurance typically works. But Blue Shield isn’t willing to completely cede the market to its rivals. “We definitely need to offer something because our competitors are,” Joyner said.

Self-insured plans have an immediate cost advantage since there’s no state tax on insurance premiums being passed along by an insurer. Starting in 2014, they will also avoid additional fees levied on health insurers to help pay for the federal healthcare law. The Self-Insurance Institute of America estimates companies can save 3% to 5% annually because of better claims management.

Small businesses switching to self-insurance do gain more insight into why their medical costs might be rising so fast because they have access to detailed claims data. (Employee information is protected under federal privacy law.) Under California law, insurers aren’t required to share those details with an employer on a traditional health plan. Cigna’s Neely said companies like the ability to see whether their employees’ use of healthcare is above average and to make changes in the benefit package to bring those costs in line.

 

Modified from a Los Angeles Times article

0

Health care reform: Four inconvenient truths

President Barack Obama promised over and over during the health care debate that “if you like your health care plan, you can keep your health care plan.”

It turns out that, for a lot of people, that isn’t true.

A Congressional Budget Office report issued this week says that 3 million to 5 million people could move from employer-based health care plans to government-based programs as the Affordable Care Act takes effect. And in the worst-case scenario, it could be as many as 20 million.

For Obama, it’s an inconvenient truth at a really inconvenient time — coming less than two weeks before the Supreme Court begins oral arguments on the law and just as the administration touts the law’s early benefits on its second anniversary.

And it’s not the only hard truth Obama and the law’s supporters are facing. No matter what they said about rising health care costs, those costs aren’t actually going to go down under health care reform. The talk about the law paying for itself is just educated guesswork. And people aren’t actually liking the law more as they learn more about it — and some polls show they are just getting more confused.

But it’s Obama’s signature promise — “If you like it, you can keep it” — that’s most likely to get thrown back in his face. Here are the four hard truths of health care reform as the law approaches its March 23 anniversary:

1) Some people won’t get to keep the coverage they like.

For Republicans, the CBO report is a giant “I told you so” moment — and they’re lining up to tell you so.

“President Obama repeatedly promised during the health care debate, ‘if you like your current plan, you will be able to keep it,’” House Energy and Commerce Committee Republicans said in a statement Friday. “Even under CBO’s ‘best estimate,’ President Obama will have broken his promise to 3 million to 5 million Americans each year, but unfortunately, that number could be much higher.”

Supporters of the law say it’s not as bad as all that. The 20 million figure is the extreme scenario, they point out — CBO says that 3 million to 5 million is more likely. And that’s out of the 161 million Americans who would have had workplace health insurance before the law was passed.

Even in that case, the number is misleading, according to Topher Spiro of the Center for American Progress, because CBO says about 3 million wouldn’t be forced out. They would leave their workplace coverage voluntarily — possibly for better coverage, with subsidies, through the law’s new health insurance exchanges.

And for the rest, Spiro said, employers will have to take the responsibility for what happens — because they’ll still have plenty of incentives to offer coverage to their workers, especially once the individual mandate requires everyone to have it. “If they decide to drop coverage, that will be their decision, and they should not blame the health care law,” Spiro said.

But try explaining all that over the 30-second Republican campaign ads that are sure to come. And it’s not what Obama promised as he pushed for the new law two years ago.

“If you like your plan and you like your doctor, you won’t have to do a thing,” Obama promised at a press briefing in June 2009. “You keep your plan; you keep your doctor. If your employer’s providing you good health insurance, terrific. We’re not going to mess with it.”

The estimate of 3 million to 5 million is also a net figure, so it masks some bigger changes in both directions.

For one thing, CBO says 11 million Americans won’t get employment-based health insurance they would have had before the law — so they will be forced out (technically by their employer, not by the president, but the context will be the changes brought about by the health law). Another 9 million would gain coverage — but everyone who loses it will see their lives disrupted, and it will be used as more evidence of broken Obama promises.

But all of that assumes CBO is right. For the law’s supporters, the dream scenario is that employment-based coverage will go up — which is what happened in Massachusetts under Mitt Romney’s health care reform law, which (as his Republican rivals have been known to point out) also has an individual mandate. According to the state’s figures, the percentage of employers that offer health coverage has increased from 70 percent to 77 percent since 2005.

2) Costs aren’t going to go down.

The video released by the Obama campaign Thursday has a graph that shows health insurance premiums climbing and climbing — way above general inflation. Giving families and businesses relief was a big part of Obama’s sales pitch for health care reform.

“Health care costs had been rising three times the rate of inflation, crushing family budgets and choking businesses. And he knew that he couldn’t fix the economy if he didn’t fix health care,” narrator Tom Hanks says in the video.

But no matter what happens with the law, the line on that graph isn’t going to go down. If the law works as the administration hopes, premiums may not rise as fast. But they’re not going to plummet.

That’s because the main drivers of rising costs — including technology, expensive new drugs, an aging population, a surge in chronic diseases, and Americans’ propensity to use a lot more health care than many other countries, even if it doesn’t make them any healthier — have nothing to do with the law.

It’s not clear whether a lot of people actually expected premiums to go down — but there’s already a perception that the law has increased the cost of insurance, which is feeding the negative attitudes. A Kaiser Family Foundation poll released this week found that 49 percent believe the law has “significantly increased the price of health insurance.”

That’s not true. An Aon Hewitt survey of health plans found that health insurance premiums on average rose 12.3 percent in 2011 — but only an average of 1.5 percent can be attributed to the health law. And health premiums had been rising for years before the law was passed.

But what is true is that what most people pay for their insurance — either through higher premiums or bigger co-pays and deductibles — aren’t rising more slowly. The law creates lots of experiments for delivering health care more efficiently, but those are just getting underway. If those don’t work, and costs keep rising, the law will get blamed for it.

3) It’s just a guess that the law can pay for itself.

The Obama administration insists that the health care law will actually reduce the deficit — which sounds like a fantasy to many people, since the law will clearly increase spending through insurance subsidies and an expansion of Medicaid.

But that’s what CBO says. And it’s because the budget office believes the law will pay for itself through cuts in Medicare payments and various new taxes, including fees that health insurers and medical device makers will pay.

Like everything else CBO does, though, those estimates are mostly educated guesses — and they assume Congress is actually going to let the Medicare cuts happen. For example, the law is supposed to save $157 billion over 10 years by increasing Medicare payments more slowly for inpatient hospital, home health and skilled nursing facility services. The law expects those providers to become more productive and more efficient. But watch for plenty of lobbying pressure on Congress to cancel those cuts.

4) “The more they know, the more they’ll like it” isn’t happening.

When the bill passed, Democrats were convinced that Americans would like the health care reform law more once they were able to see its benefits. When then-House Speaker Nancy Pelosi said Congress had to “pass the bill so you can find out what is in it” — an inartful phrase that Republicans have happily quoted ever since — her aides insisted that’s what she meant: People would find out about its benefits once the controversy died down.

Except the controversy has never died down, and people don’t like the law any more now than they did then.

The latest Kaiser Family Foundation poll found that 41 percent had favorable views of the law, while 40 percent had unfavorable views. That’s down from the 46 percent who favored the law in April 2010, right after Obama signed it.

And people actually seem to know less about what’s in the law than they did then. Only 56 percent now know that people will get subsidies to pay for health insurance, compared to the 75 percent who knew in April 2010. Just over half of Americans knew that people with pre-existing conditions will be guaranteed coverage, compared to the 64 percent who knew it in 2010.

The part the most people knew about is the individual mandate — the least popular part of the law. And once the Supreme Court starts hearing the health care reform case on March 26, they’ll hear about that part even more.

Modified from a Political.com article

0

CBO: Health law could cause as many as 20M to lose coverage

As many as 20 million Americans could lose their employer-provided coverage because of President Obama’s healthcare reform law, the nonpartisan Congressional Budget Office said in a new report Thursday.

The figure represents the worst-case scenario, CBO says, and the law could just as well increase the number of people with employer-based coverage by 3 million in 2019.

The best estimate, subject to a “tremendous amount of uncertainty,” is that about 3 million to 5 million fewer people will obtain coverage through their employer each year from 2019 through 2022.

The new report adds more detail to this week’s update of the law’s coverage provisions, which CBO released Tuesday. Compared to a year ago, the law is now anticipated to cover 2 million fewer people but cost $50 billion less over 10 years, after factoring penalties paid by individuals and businesses that don’t get or provide healthcare coverage.

Republicans immediately pounced after the new numbers came out because they appear to violate Obama’s pledge that people who like their health plans will be able to keep them. Last year, CBO’s best estimate was that only 1 million people would lose employer-sponsored coverage.

“President Obama’s string of empty promises is quickly becoming a disappointing trail of broken promises,” House Budget Committee Chairman Paul Ryan (R-Wis.) said in a statement. “He promised Americans that his overhaul of the health care sector would not jeopardize the health coverage of those who liked what they had. As nonpartisan analysts made clear today, millions of Americans will soon learn the hard way that Washington’s overreach into their health care decisions will result in sharp disruptions to their coverage and their care.”

Under CBO’s best estimate, 11 million mostly low-wage workers would lose their employer coverage. About 3 million would choose to drop their coverage to go into the new subsidized health exchanges or on Medicaid, while another 9 million would gain employer-sponsored coverage, for a net total of 5 million people losing employer coverage in 2019.

CBO defended its methodology Thursday after Republicans highlighted business surveys that found a bigger number of employers threatening to drop coverage because of the law.

“Some observers have expressed surprise that CBO and [the Joint Committee on Taxation] have not expected a much larger reduction in the number of people receiving employment-based health insurance in light of the expanded availability of subsidized health insurance coverage that will result from the” health law, the report says.

“CBO and JCT’s estimates take account of that expansion, but they also recognize that the legislation leaves in place some financial incentives and also creates new financial incentives for firms to offer and for many people to obtain health insurance coverage through their employers,” the report adds.

Employer surveys, CBO said, “have uncertain value and offer conflicting findings.”

“One piece of evidence that may be relevant is the experience in Massachusetts, where employment-based health insurance coverage appears to have increased since that state’s reforms, which are similar but not identical to those in the [federal health law], were implemented,” the agency said.

Modified from The Hill.com article.

0

Employer-offered health insurance drops to record low

By Kathryn Mayer

The number of Americans getting health insurance from their employer continues to drop, with a record low 44.6 percent getting employer-sponsored coverage in 2011, compared to 45.8 percent in 2010, according to Gallup numbers.

This continues the downward trend Gallup and Healthways have documented for the last few years. In 2008, roughly half of Americans received health insurance from their employer.

Meanwhile, Gallup says, the percentage of Americans who are uninsured has also increased, rising to 17.1 percent this year, the highest seen since 2008.

Increased unemployment is one factor in this trend, but cost and availability are others. Either some workers can no longer afford the rising cost of health insurance the employer offers, Gallup research notes, or simply put, the employer is not offering health insurance any longer.

Additionally, the proportion of the U.S. work force that is composed of part-time workers—a group less likely to receive employer-based health insurance than full-time workers—has increased.

Employer-based health insurance declined among most major population subgroups last year, with the exception of young adults and seniors. It also is down significantly compared with 2008 across all groups.

High-income Americans are by far the most likely to say they get their health insurance from an employer, with 70.4 percent doing so in 2011. Low-income Americans are among the least likely to have employer-based health coverage, at 23.7 percent.

“If this trend continues, it is likely that the percentage of Americans who get their health insurance from their employer will continue to decline,” Gallup reports. “Whether more Americans then become uninsured or are able to gain access to coverage may be largely reliant on the fate of the health care law.”

The Gallup survey was conducted Jan. 1 to Dec. 31, 2011, with a random sample of 353,492 adults. The margin of error is plus or minus 1 percentage point.

0

Obamacare architect: Expect steep increase in health care premiums

Medical insurance premiums in the United States are on the rise, the chief architect of President Barack Obama’s health care overhaul has told The Daily Caller.

Massachusetts Institute of Technology economist Jonathan Gruber, who also devised former Massachusetts Gov. Mitt Romney’s statewide health care reforms, is backtracking on an analysis he provided the White House in support of the 2010 Affordable Care Act, informing officials in three states that the price of insurance premiums will dramatically increase under the reforms.

In an email to The Daily Caller, Gruber framed this new reality in terms of the same human self-interest that some conservatives had warned in 2010 would ultimately rule the marketplace.

“The market was so discriminatory,” Gruber told TheDC, “that only the healthy bought non-group insurance and the sick just stayed [uninsured].”

“It is true that even after tax credits some individuals are ‘losers,’” he conceded, “in that they pay more than before [Obama’s] reform.”

Gruber, whom the Obama administration hired to provide an independent analysis of reforms, was widely criticized for failing to disclose the conflict of interest created by $392,600 in no-bid contracts the Department of Health and Human Services awarded him while he was advising the president’s policy advisers.

Gruber also received $566,310 during 2008 and 2009 from the National Institutes of Health to conduct a study on the Medicare Part D plan. (RELATED: Full coverage of the health reform law)

In 2011, officials in Wisconsin, Minnesota and Colorado ordered reports from Gruber which offer a drastically different portrait in 2012 from the one Obama painted just 17 months ago.

“As a consequence of the Affordable Care Act,” the president said in September 2010, ”premiums are going to be lower than they would be otherwise; health care costs overall are going to be lower than they would be otherwise.”

Gruber’s new reports are in direct contrast Obama’s words — and with claims Gruber himself made in 2009. Then, the economics professor said that based on figures provided by the independent Congressional Budget Office, “[health care] reform will significantly reduce, not increase, non-group premiums.”

During his presentation to Wisconsin officials in August 2011, Gruber revealed that while about 57 percent of those who get their insurance through the individual market will benefit in one way or another from the law’s subsides, an even larger majority of the individual market will end up paying drastically more overall.

“After the application of tax subsidies, 59 percent of the individual market will experience an average premium increase of 31 percent,” Gruber reported.

The reason for this is that an estimated 40 percent of Wisconsin residents who are covered by individual market insurance don’t meet the Affordable Care Act’s minimum coverage requirements. Under the Affordable Care Act, they will be required to purchase more expensive plans.

Asked for his own explanation for the expected health-insurance rate hikes, Gruber told TheDC that his reports “reflect the high cost of folding state high risk pools into the [federal government’s] exchange — without using the money the state was already spending to subsidize those high risk pools.”

Gruber’s Wisconsin presentation, previously available on the website of Wisconsin’s Office of Free Market Health Care, disappeared from the state government’s Web servers shortly after Wisconsin Gov. Scott Walker issued a Jan. 18 executive order scrapping the agency’s mission.

Minnesotans have already seen a 15 percent average rate increase because their state government is spending approximately $100 million to subsidize those high-risk pools. Gruber said they, too, will see a premium increase — even after subsidies are factored in.

In his presentation there in November, he estimated 32 percent of Minnesotans will face premiums hike similar to those of their neighbors in the Badger State.

In his Colorado analysis, which he delivered last month, Gruber wrote that while some may benefit from new tax credits folded into Obama’s health care overhaul, “13 percent of people will still face a premium increase even after the application of tax subsidies, and seven percent will see an increase of more than ten percent.”

Sally Pipes, president of the Pacific Research Institute in San Francisco, told TheDC that the health care law’s mandates will ultimately result in far greater costs across the board.

“If [instead] we change the tax code and allow a competitive market to build, and put doctors and patients in power, then that would really solve a lot of the problem,” Pipes said.

Pipes said she believes applying the Affordable Care Act, as written, will result in care “being rationed and more expensive.

South Carolina Republican Rep. Trey Gowdy, who chairs the House Subcommittee on Health Care, told TheDC that consumers are beginning to understand that the president’s 2010 promises are out of sync with reality.

“What a shock,” Gowdy said, feigning surprise. “Obamacare doesn’t lower costs, doesn’t increase coverage, and has turned into a wildly unpopular, labyrinthine government overreach.”

“’If you like your health insurance, you can keep it’ has morphed into ‘I, President Barack Obama, will decide what you need and make others pay for it.’”

White House deputy press secretary Jamie Smith was unable to immediately respond to a request for comment.

0

Researcher: Discourage Small Groups from Reinsuring

A health law specialist says states can keep small employers with younger, healthier employees from abandoning the insured plan market in 2014 by limiting the small employers’ ability to self-insure.

Mark Hall, a public health law professor at Wake Forest University, makes that argument in a commentary in the new issue of Health Affairs, an academic journal that publishes articles about the finance and delivery of health care.

The latest issue includes many articles on how the Patient Protection and Affordable Care Act of 2010 (PPACA) might affect small groups.

PPACA is supposed to start requiring health insurers to sell small group coverage on a guaranteed issue, community-rated basis starting in 2014.

If the law takes effect on schedule and works as drafters expect, some small employers will be able to use federal tax subsidies to buy coverage through a new system of health insurance distribution exchanges, and, in some cases, small employers’ employees may be able to use tax subsidies to buy individual coverage through the exchanges.

Today, many small employers hold down coverage costs by buying plans with high deductibles or limited benefits. PPACA will put limits on small employers’ ability to use benefit design to hold down costs, because PPACA will require insured plans to cover at least 60% of the actuarial value of a standardized “essential health benefits” package, Hall says.

PPACA does not provide any new subsidies for individuals paid over 400% of the federal poverty level, or about $89,000 per year, or for small employers with many highly paid employees.

PPACA requires insurers to spend 80% of small group revenue on health care and quality improvement efforts, but the law sets no limits on small group rates.

The PPACA small-group community rating rule may help small employers with sick employees get cheaper coverage, and it might reduce insurers’ administrative costs, but it gives small employers with younger, healthier employees an incentive to try to avoid subsidizing the insurance of employers with older, sicker employees, Hall says.

“Community rating, along with other [PPACA] market reforms, will founder or fail, however, if younger or healthier groups can easily avoid reforms by self-insuring,” Hall says.

“Self-insurance threatens not only the integrity of market regulations but also consumer protection,” Hall says. “For example, stop-loss coverage is not subject to any requirement of guaranteed renewability. Nor can self-insured employers use normal appeals channels for coverage denials.”

Many employers that self insure, and most small employers that self insure, use stop-loss arrangements — insurance for health plans — to limit their exposure to catastrophic losses.

Hall says states could keep small employers from leaving the insured small group market by banning stop-loss for small employers, limiting the comprehensiveness of stop-loss coverage, or applying the same rules to stop-loss coverage that they apply to the primary coverage. North Carolina already regulates small group stop-loss programs the same way it regulates ordinary small group health insurance, Hall says.

“This regulatory approach preserves small employers’ ability to select either purchased or self-funded insurance,” Hall says. “Its main effect is to ensure that the choice is not driven principally by the group’s risk profile or the employer’s desire to avoid health benefit regulation.”

0

How Defined Contribution Health Benefits Help Employers Recruit and Retain Employees

It costs a typical employer the equivalent of 6-9 months in salary each time they have to replace a salaried employee—that’s $20,000 to $30,000 for a $40,000 manager in recruiting and training expenses, along with the potential lost revenue from customers.

Employers can save approximately half of these expenses, $10,000 or more per replaced employee, with a health benefits plan that helps them recruit new employees and retain existing employees.

Defined contribution health benefits provide many advantages over traditional employer-sponsored benefits. Rather than paying the costs to provide a specific group health plan (a “defined benefit”), employers can fix their costs on a monthly basis by establishing a defined contribution health plan that gives employers and employees full control over healthcare costs – the employer’s costs are predictable and controllable, while employees are given full control over their health care dollars and choose a portable plan that meets their exact personal needs.

How do defined contribution health benefits work?

An employer gives each employee a fixed dollar amount (a “defined contribution”) that the employee chooses how to spend. Typically, employees are allowed to use the defined contribution to reimburse themselves for personal health insurance costs or other medical expenses such as doctor visits and prescription drugs.

Under the traditional approach to health benefits, the company selects and funds the same insurance plan for all employees in a one-size-fits-all approach.

Alternatively, in a defined contribution approach, the employer designates a fixed amount of money, the “defined contribution”, and employees purchase personal health insurance directly from any insurance company they choose, selecting products that specifically meet their family’s needs and budget.

What is a personal health policy?

A personal health policy, sometimes called an “individual” or “family” health insurance policy, covers you and your designated family members. You purchase a personal health policy through a licensed health insurance agent who is appointed to represent the insurance companies in your state.

Personal health policies now cost 1/3 to 1/2 the price of similar-benefit employer-sponsored coverage in 45 states. This is primarily because insurance carriers in 45 states are allowed to: (1) price based on age bands and (2) reject or charge more to applicants for personal policies with pre-existing conditions.

If you or a member of your family are rejected or charged more for a personal health policy because of a pre-existing medical condition, you typically become eligible for state-guaranteed (“HIPAA-guaranteed”) or federally-guaranteed (“PCIP”) personal health insurance.

How do businesses determine the amount of money allocated to employees?

Providing different levels of benefits to classes of employees is at the core of benefits compensation and is routinely done by major corporations.   With salary and other types of compensation, employers routinely compensate groups of employees differently. Field sales people are compensated differently than sales managers. Some employees get company cars, while others earn quarterly bonuses. Because health benefits are such an important part of compensation, why not provide benefits that vary by class of employee?

With defined contribution health benefits, businesses can create employee classes that offer benefits tailored to the company’s objectives, transforming a health benefit plan into a tool to find and keep great people.

For example, consider an electrical contracting company who struggled to hire and keep journeymen electricians in a very tight labor market. Instead of offering the same health plan to all employees, the company created separate classes for apprentices and journeymen and gave journeyman $350 more per month in their HRA. This large increase helps the company reduce attrition among journeyman. Plus, it creates a visible incentive for apprentices to complete the education required to become journeymen.

As there are no minimum or maximum contribution requirements, a business can design their defined contribution health plan to fulfill its exact recruiting and retention needs.

Conclusion

Recruiting and retaining key employees is essential to every business, and a company’s health benefit program is a key part of the compensation they offer to their employees. Due to the rising costs of traditional employer-sponsored health insurance, defined contribution health benefits are gaining popularity in the U.S. Rather than paying the costs to provide a specific group health plan (a “defined benefit”); employers might want to consider fixing their costs on a monthly basis by establishing a defined contribution health plan.

0

Group Health Shrinks as Individual Health Grows

The government is documenting what commercial health carriers and brokers have been saying for months: 2010 was a terrible year for group health plan enrollment.

Brokers, consultants and others said group plan case sizes fell that year as employers slashed head counts.

Analysts at the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) say in the latest National Health Expenditure Accounts report that group health enrollment fell by 2.6%, to 166 million.

The drop meant that 4.5 million lost employer-sponsored coverage than gained it.

The number of people with individual health coverage increased 3.6%, to 22 million, but that market is much smaller than the group market. The increase in individual health program enrollment translated into a net gain of only 800,000 covered lives.

Enrollment in Medicare increased 2.5%, to 47 million, and enrollment in Medicaid increased 5.8%, to 54 million.

Together, those programs and the Children’s Health Insurance Program (CHIP) now cover about 104 million people, or about one-third of the U.S. population.

The number of people who were uninsured increased 1.6%, to 47 million. The rate of increase in the number of uninsured people was down from 8.9% in 2009.

0

IRS Puts W-2 Health Advice in a Nutshell

By

January 6, 2012

An Internal Revenue Service (IRS) has tried to boil the new tax Form W-2 health benefits cost reporting requirements down into terms that mortals without advanced accounting credentials can understand.

Wanda Valentine, a senior tax analyst at the IRS, writes about the new W-2 reporting requirements in an employer newsletter.

The Patient Protection and Affordable Care Act of 2010 (PPACA) requires the IRS to establish health benefits cost reporting requirements. Later, the IRS is supposed to set up a program to impose an excise tax on health benefits packages with costs that exceed a designated threshold.

Employers are supposed to report an employee’s health benefits cost in Box 12 on the W-2 using Code DD to identify the amount.

Benefits cost reporting is voluntary for the W-2 forms now going out, but reporting is supposed to become mandatory for issuers of 2012 W-2s.

Even in 2012, “the amount reported does not affect tax liability,” Valentine says.

The IRS tried clarify the new reporting rules earlier this week in IRS Notice 2012-9, a long, complicated batch of guidance.

“The amount reported on the Form W-2 should include both the portion paid by the employer and the portion paid by the employee,” Valentine says.

Valentine notes that, under current law, employers will always have to include some types of expenses and will never have to include others.

The IRS is developing guidance for handling a third batch of benefits expense categories. It will provide transitional relief allowing employers to keep those expenses out of the W-2 health benefits cost totals until guidance is available, Valentine says.

Categories that can always stay out of the health benefits cost total include the cost of:

  • Long-term care coverage.
  • Coverage for “HIPAA excepted benefits,” such as accident insurance and disability insurance.
  • Liability insurance.
  • Worker’s Compensation
  • Archer MSA amounts
  • Health Savings Accounts (HSAs)
  • Salary reductions for flexible spending accounts (FSAs)

Valentine says transitional relief treatment is available for:

  • Employers filing fewer than 250 Forms W-2 for the previous calendar year.
  • Multi-employer plans.
  • Health Reimbursement Arrangements.
  • Dental and vision plans that are not integrated into another group health plan.
  • Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements.
  • Wellness benefits, employee assistance plans and on-site medical clinics, to the extent that the employer does not charge any amount to qualified beneficiaries for applicable COBRA continuation coverage or similar coverage.
  • Forms W-2 furnished to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year.
0

Survey shows California healthcare costs rising, benefits shrinking

By Marc Lifsher, Los Angeles Times

January 4, 2012.

Fewer California companies offered their workers health insurance last year, and the ones that did charged employees more for their coverage.

That’s among the findings of an annual California Employer Health Benefits Survey released Wednesday by the California HealthCare Foundation, a research and grant-making nonprofit organization.

According to the survey, premiums for employer health insurance plans have risen 153.5% since 2002, a rate that’s more than five times the increase in California’s inflation rate.

In the last two years alone, the proportion of state employers offering coverage to workers fell to 63% from 73%, the survey said.

“This is a departure from previous years and could be an early sign of future changes,” the foundation report noted in commentary on data collected between July and October 2011 in interviews with 770 private firm benefit managers.

The steady rise in costs during a prolonged economic downturn contributed to decisions by about a quarter of employers to either reduce benefits or increase cost sharing for employees in 2011. A slightly smaller percentage, 22%, opted to make workers pay more of the share of the higher premiums.

Health insurance is expected to take even more money out of workers’ pockets this year. The survey indicated that 36% of California firms said they were either “very” or somewhat” likely to raise the amount that their staff paid in premiums in 2012.

Rising costs and shrinking coverage are accelerating, said Anthony Wright, executive director of Health Access California, a group that advocates for expanded health insurance coverage.

“They are frankly multi-decade trends,” he said. “What is notable is that this is more significant than usual.”

What’s been a “gradual erosion of employer-based coverage in good years” has evolved into “a steep one in bad years,” Wright said. “To be down to 63% [of California companies offering coverage] is huge. It used to be up over 80%.”

Patrick Johnston, president of the California Assn. of Health Plans, blamed the rising premiums on expensive technology, the spread of chronic disease and an aging population, among other factors. Johnston’s organization represents 40 California health plans that cover 21 million people.

What’s more, he noted that years of cutting reimbursements to doctors and hospitals by the government-run Medi-Cal program have created a “cost shift” that has to be “made up in negotiations for higher rates for commercial payers such as employers.”

Insurer profits, Johnston argued, are not a leading cost driver since publicly traded California insurers keep only 13 cents out of every premium dollar to pay for expenses and to secure earnings that average 3% to 5% of revenue.

Both Wright and Johnston predicted that full implementation of President Obama’s healthcare reform plan in 2014 could go a long way toward broadening coverage and to an eventual control of raging medical cost inflation.

“I hope that some of the reforms start to change the picture,” Wright said. “It’s clear that if we repeal [the law] or retreat back to the status quo, we will have some trends that simply are unsustainable.”

0