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Will Insurers Ever Say Enough’s Enough To Obamacare?

How can anyone run a business this way?

Modified from an article by Greg Scandlen, December 27, 2013 on website

Will Insurers Ever Say Enough’s Enough To Obamacare?   As an insurance guy, I liked that it was moving insurers away from their misguided notion of being the big boss in health care and back to the role of financial protection.

But the industry didn’t much like that aspect of it. Sure, they would sell the products because employers demanded it, but they were losing control as banks entered the market to manage the first few thousand dollars of expenses of a patient’s contract. The banks were still focused on financial protection and didn’t have ambitions to become health care managers.

  • So when Obama came along with an offer to require all Americans to buy their products, it was an offer they couldn’t refuse. Especially when the products he had in mind were comprehensive, cover-everything health plans. No more bank involvement. We’ll really be in the catbird seat now!

I’ve been working professionally in health policy since 1979 when I was hired by the Blue Cross Blue Shield plan in Maine. Before I left the Blues I was heading the state relations department for the national association in Washington. Then I went on to organize a trade association of health insurance companies that were interested in promoting free market solutions in health care.

What has happened to the insurance industry has me stunned.

Now, I am no apologist for the industry. I have been one of its biggest critics. Its dalliance with Managed Care was an enormous mistake that took its mission away from financial protection into health services management – something it was never qualified to do.

  • The industry not only did a poor job of it, but it alienated and embittered the only people who really matter in health care – doctors and patients.

Granted, Managed Care pleased employers for a few years. It restrained their costs in the mid-1990s. But employers don’t really know anything about health care, either.

  • What they do know is the morale of their workers, and Managed Care was the biggest morale-killer ever. Employees were furious that care was being denied by insurance company bureaucrats in Hartford, Connecticut, and they let company HR departments know it.

Employers started looking for other ways to restrain costs while preserving patient choice, and came to embrace “consumer-directed” health care (CDHC) in the early 2000s. This approach has been enormously successful and it has lowered costs and increased patient involvement in health care decision-making.

The naivety I had witnessed during the Clinton Wars was still in force. Many of us tried to warn the industry that they would regret this arrangement. Yes, they might be assured of modest profits, but the cost of sacrificing their autonomy would be far too high. They would become little more than public utilities. They would lose all control over benefit design, marketing practices, and rate setting. They would have no idea of the risks they were enrolling and would have to set premiums blindly.

It has become much, much worse than I ever imagined. Obamacare is not even fully in effect yet and already we are seeing the President playing with the carriers like a toddler plays with toy trucks –

  • Employers will be mandated to buy your policies for 2014
  • (Oops, employers are angry)
  • Employers won’t be mandated until 2015 – if then
  • Small employers will give workers a choice of health plans through the SHOP program in 2014
  • (Oops, we can’t get the web site ready in time)
  • Small employers won’t have to offer a choice of plan until – sometime later
  • You must cancel these individual policies
  • (Oops, public backlash)
  • You must reinstate these policies
  • (Oops, many insurance commissioners won’t allow it)
  • You must continue to cover providers and drugs even for cancelled policies
  • The deadline for enrollment will be December 15, 2013
  • (Oops, web site problems)
  • The deadline for enrollment will be December 23, 2013
  • (Oops, too much traffic)
  • The deadline for enrollment will be December 24, 2013
  • Never mind, there is no deadline
  • First month’s premium must be received by December 31, 2013
  • (Oops, back-end problems with the web site)
  • First month’s premium must be received by January 8, 2014
  • Make that January 10, 2014

How can anyone run a business this way? This is worse than being a federal agency. No federal agency would be expected to stop and start on a personal whim like this. These aren’t rules, they aren’t regulations, they are dictates based on nothing more than Kathleen Sebelius’ momentary feelings.

  • These are only the “glitches” that have been made public. God knows what orders and threats are being issued in closed-door meetings.

How long will the insurance industry abide being treated like shoe shine boys? Mr. Obama will not be in office forever. His regime is already coming to an end. What will these companies do then? He will no longer be around to grant or withhold bailout (“risk corridor”) money.



No, Obamacare Is Not A Good Deal For Young People In The Long Run, Not Even Close

Rate Shock: In California, Obamacare To Increase Individual Health Insurance Premiums By 64-146%. Progressives are becoming increasingly concerned at the prospect of millions of uninsured young people deciding to push the easy button next year by simply paying a very small fine rather than obtain health coverage.

  • Consequently, they have turned to a new argument to get those under 30 to act against their self interest by signing up for the Exchanges. Now we are being told that Obamacare will be a good deal for young people in the long run since whatever short-term losses they incur in the form of higher premiums will be more than made up later when they are older and get to pay lower premiums than they would in today’s market.
  • But those making these arguments haven’t offered any analysis to back up their claims. The conceptual point evidently is supposed to be intuitively obvious.  Once the time value of money is taken into account, the average young person will be worse off under Obamacare even if they live long enough to be a near-elderly person who pays premiums that are well below actuarially fair rates.
  • A recent study by the National Center for Public Policy Research shows that: About 3.7 million of those ages 18-34 will be at least $500 better off if they forgo insurance and pay the penalty. More than 3 million will be $1,000 better off if they go the same route.
  • Consequently, many more will opt to pay the extremely modest tax rather than fork over many thousands of dollars to purchase coverage that became substantially more expensive for young people thanks to the misguided pricing rules imposed by Obamacare. The risk that the law will fail in an “adverse selection death spiral” thus has gotten much larger.

What’s so bad about modified community rating?

  • Modified community rating essentially is an excise tax on people who buy health insurance. Those who choose to go bare avoid the tax entirely, but for those who do buy coverage, the tax is highly discriminatory, imposing the highest burdens on those who are young.
  • Imagine a state that tried to impose a sales tax in this fashion, where everyone would have to show an ID card and the amount of tax charged to 18 year olds would be 18% while those age 30 would only have to pay 5% and seniors would get a rebate.
  • People rationalize modified community rating on grounds that what goes around comes around. “Don’t worry kid. Someday you too will be old enough to enjoy premiums subsidized by youngsters your age. It all works out in the wash.”

*Modified from a article


Why HRAs Will Become the Foundation of Employee Health Benefits

New business methods and technology now allow employers to enroll employees in a single HRA software platform from which employees access their:

  1.     HRA benefits
  2.     HSA link to any financial institution
  3.     A Private Exchange for purchasing individual/family health insurance

HRAs started out as supplements to employer health benefit plans for incidental items not covered by traditional health insurance plans. However, because of their enormous legal flexibility and new technology designed to take advantage of this flexibility, HRAs will become the foundation of every employer’s health benefit plan.

For employers who offer group insurance, HRAs will become the front-end delivery vehicle of primary health benefits for fully-insured and self-insured plans. For employers who cannot afford a group health plan, HRAs are becoming the basis of a defined contribution health plan that enables millions of employees to purchase individual/family health insurance policies directly from an insurance company.

Whether as the front-end of an employer-sponsored group plan or defined contribution health plan, here are just a few ways HRAs can deliver better and more cost-effective health benefits to employers and their employees today.

(1) HRAs Improve Retention

The greatest challenge for employers today is retaining qualified employees. HRAs are extremely powerful for retention because employees accumulate for their future what they don’t spend today, but lose their accumulated balance when they quit (unless they meet employer-specified HRA retiree vesting requirements).  Additionally, employers can vary HRA benefits by class of employee to create further incentives for employees to stay and grow.

(2) HRAs Boost Recruiting Success

The second greatest challenge facing employers today is recruiting quality employees, whether for salaried and hourly positions. HRAs are the ultimate employee recruiting tool because they allow employers to afford and offer much better health benefits than their competition. In addition, using HRAs enables employers with group plans to offer better coverage to new employees by doing the following:

HRAs Eliminate Waiting Periods – New employees can enroll, submit claims, and have their claims approved for reimbursement, but not actually be reimbursed until the waiting period (e.g. six months) is complete.
HRAs Provide Coverage for Hourly, Part-time, or Seasonal Employees – Employees can receive HRA allowances tied to their hours worked but forfeit their entire HRA balance unless they work a minimum number of hours or return (after a seasonal layoff) within a specified time period.

(3) Allocate HRA Benefits by Class

Employers have always been allowed to allocate health benefits by using reasonable classifications with wages and retirement, giving different health benefits to employees based of job categories, geographical locations, etc.

But, before HRAs, employers lacked the technology and systems to offer health benefits packages tailored for each Class of Employee based on their recruiting and retention objectives. New HRA technology allows employers to set-up a completely different benefits plan for each Class of Employee (e.g. call center staff, managers, executives) and electronically administer such a different HRA benefits plan with electronic signatures and customized per-class plan documents and HRA SPDs (Summary Plan Descriptions).

(4) HRAs Improve Coverage for All Employees

Besides rising costs, every employee and employer has something they don’t like about their health benefits. HRAs allow employers virtually unlimited flexibility to add benefits (such as smoking cessation, weight loss programs, maternity supplements, or improved coverage for out-of-network providers).  Online tools connected to the claims processing system allow employers to monitor and control the cost of these additional benefits in real-time.

(5) Implement and capture savings from high deductible plans using HRAs

Using HRAs enables employees to move to high deductible plans.  Employers with fully-insured group plans can immediately save up to 50% on their existing group premium without reducing any benefits by switching to a higher annual deductible, and using their HRA to pay employee medical expenses under the new deductible. Employers who do this typically then give back about 1/3 to 1/2 of their savings to maintain the same level of benefits—for a net savings of 15%-30% after HRA reimbursements. Similarly, employers who use HRAs without a group plan can provide employees with funds to offset out of pocket expenses associated with lower-priced high deductible personal health policy.

These compelling benefits make HRAs a logical vehicle for employers of all sizes.

*Modified from a Zane Benefits Blog



Understanding HSA Tax Forms

This information, from HSA Resources, is a good summary of the IRS forms needed if you have a Health Savings Account (HSA)

HSA Tax Forms.

HSAs give you fantastic tax benefits. The IRS, however, checks to make sure you follow the rules.

•1099-SA – Distribution Report. HSA custodians are required to send an IRS Form1099- SA to you and the IRS each year you take a distribution from your HSA. The purpose of this form is to give the IRS a report showing if you took any money out of your HSA for the year. Most HSA distributions are “normal” or “code 1” distributions. This includes distributions for eligible medical expenses (a doctor visit) and most non-eligible medical expenses (a car muffler). This surprises a lot of people as the qualified medical and non-qualified distributions are lumped together. The IRS looks to you to clarify the distributions on the IRS Form 8889. You need to state that you used all the money for an eligible medical expense or you will generally need to pay taxes and penalties. Other codes include: excess (code 2), disability (code 3), and death distribution (code 4 or 6). If all of your HSA distributions were for eligible medical expenses you will not owe any taxes or penalties.

• Form 5498-SA- Contribution Report. HSA custodians must send an IRS Form 5498-SA to you and the IRS each year. The main purpose of this form is to inform the IRS how much you contributed to your HSA. The IRS then uses this to check to make sure you do not claim an HSA deduction above the amount of your HSA contribution. You will not get this form until after tax season (required by June 1) because the IRS wants custodians to record all 2011 contributions, including those made as late as your tax filing due date for 2011 (April 17, 2012 for most taxpayers). Accordingly, think of this form as an IRS tool to check on you – it’s not to help you complete your tax return. You need to know how much you contributed to your HSA. The amount will be on your HSA statements and possibly your W-2 if the contributions were made through an employer (look at box 12 for a Code W – that’s HSA).

•1040 Line 25. This is where you take your HSA contribution deduction. It’s an “above-the-line” deduction meaning that you get the deduction whether or not you itemize. The deduction is not based on income thresholds. Pre-tax employer contributions and pre-tax payroll deferral are not put on this line because your employer already excluded them the contributions from income on the Form W-2 – see Form 8889 below for details. Look also in box 12 of your W-2 Form, Code W refers to amounts that an employer put in your HSA pre-tax (both employer and employee payroll deferral amounts).

• Form 8889-Schedule to 1040. You must file a Form 8889, an attachment to the 1040 form, for each year you make an HSA contribution or receive a distribution from your HSA. If you use tax preparation software, the software will do the form for you.

Contributions – Part I Lines 1-13. The top part of the form determines the deduction amount for line 25 on the 1040. The form separates employer contributions that were already pre-tax from those you can deduct. Generally contributions made through your employer are not taxable income on the W-2 and therefore you cannot deduct the HSA contribution on the 1040. Contributions that you made on your own generally are deductible on the 1040. The form also checks to make sure you are eligible for an HSA and that you did not exceed the federal limits. The form reviews factors like family versus single health coverage, your age for catch-up contributions and whether your spouse also has an HSA.

Distributions – Part II – Lines 14-17. The lower part of the form validates that you used your HSA distributions for qualified medical expenses. Remember the 1099-SA just lumps both eligible and non-eligible together. Line 15 is the key. You must write the dollar amount of your eligible medical expense distributions from the HSA on this line. For many of you this will match your 1099-SA total distribution because you only used your HSA to pay for qualified medical expenses. If not, you may have to pay taxes plus add a 20% penalty for the non-eligible distributions.


High-Deductible Plans Not More Risky for Medically Vulnerable

Tuesday, April 19, 2011

Medically vulnerable individuals enrolled in high-deductible health plans are not at a greater risk for cutting back on necessary health services than non-vulnerable enrollees in high-deductible plans, according to a new study by RAND Corporation, Modern Healthcare reports (Vesely, Modern Healthcare, 4/18).

The California HealthCare Foundation provided support for the study. CHCF publishes California Healthline (RAND release, 4/18).

For the study, researchers analyzed data on more than 360,000 U.S. families enrolled in high-deductible health plans through 59 large employers between 2003 and 2007.

In particular, researchers examined how high-deductible plans affected families living in low-income areas and families that had a member with a serious chronic condition.

Key Findings

Some health advocates have expressed concern that high-deductible plans could spur low-income families and people with chronic illnesses to forgo necessary medical care.

However, Amelia Haviland — lead author of the study and a statistician at RAND — said researchers “did not find greater cutbacks for medically vulnerable families.”

The study found that some high-deductible plan enrollees with chronic illnesses were more likely to obtain certain preventive services than low-income and non-vulnerable enrollees (Tocknell, HealthLeaders Media, 4/19).

Researchers noted that policyholders of all income levels tended to use recommended preventive services less frequently after switching to a high-deductible plan (Hobson, “Health Blog,” Wall Street Journal, 4/18).

In addition, the study found that the size of the deductible affected spending on health services among non-vulnerable families. According to Haviland, medically vulnerable families reduced spending on prescription drugs only when deductibles were at least $1,000 per person.


Haviland said the study “suggests that non-vulnerable families, low-income families and high-risk families are equally affected under high-deductible plans.”

Researchers noted that the findings could become more pertinent over the next few years because the state health insurance exchanges mandated under the federal health reform law could start offering high-deductible health plans in 2014 (HealthLeaders Media, 4/19).


Warning: Dependent Care Mandate Can Cause Tax Headaches

Christian Schappel

The healthcare reform law’s dependent coverage rule doesn’t extend to health savings accounts (HSAs) – and it’s bound to cause some problems.

The new law changes the definition of a dependent child, resulting in a requirement that group health plans that offer dependent coverage to children allow young adults up to age 26 to remain on their parent’s insurance plan.

The problem: While the new definition of a dependent applies to most employer health coverage, it does not extend to HSAs. HSAs must still operate using the old definitions of a qualifying child or qualifying relative.

Pre-health reform definitions

Under the pre-reform definition, a qualifying child is someone who has not attained age 19 (or age 24 if a full-time student).

And a qualifying relative under the old definition is a child of the employee, other relative or member of the employee’s household, for whom the employee provides over half of the individual’s financial support.

Older children don’t qualify

These definitions now cause a problem when an employee tries to enroll a 25-year-old child in a group health plan that uses an HSA.

Because of the expansion of dependent care under the new reform law, the child is allowed into the plan. But the employee can’t submit the child’s uninsured expenses for reimbursement under the HSA because the child is too old to qualify under the rules of an HSA.

In addition, the child won’t be a qualifying relative if he/she doesn’t depend on the employee for the majority of his/her financial support.

So if the employee takes an HSA distribution to reimburse the child’s expenses, it’ll be taxed and could be subject to the 20% HSA penalty on early withdraws.


HSAs may benefit from mandates for companies

But higher withdrawal penalties could make the accounts less attractive

By Darla Mercado March 28, 2010

Employers and individuals may take a closer look at using health savings accounts in conjunction with high-deductible health plans because the health care reform legislation includes mandates that employers with more than 50 workers purchase health care insurance, HSA proponents say.

“Those who will be subject to mandates in the future are looking for ways to control their costs before they get locked into something down the road,” said Roy Ramthum, president of HSA Consulting Services. “Employers are already moving to HSAs.” HSA deposits will top $14 billion this year, up from about $1 billion in 2006, according to estimates from Devenir LLC, a firm that manages HSA investments.

Aside from encouraging the use of HSAs with high-deductible plans, proponents of the accounts predict that health care reform will make HSAs available to individuals who wouldn’t ordinarily buy them. A 2008 study by the Government Accountability Office concluded that HSA participants were mostly high earners. The account holders had an average annual adjusted gross income of $139,000. But health care reform might add to the number of lower-income users.

“The pool of people who are entering the market for health insurance may or may not be your typical HSA customer,” said Eric Remjeske, president of Devenir. “Some will either join out of self-selection or through their employers.”


Still, the reform legislation isn’t all good news for HSAs.

For instance, the new law increases penalties for account withdrawals for non-medical purposes to 20%, from 10%, and it would keep people from using their HSAs to cover over-the-counter drugs unless they have been prescribed.

Those two factors would harm the HSA industry, said Ryan Ellis, tax policy director for Americans for Tax Reform.

“If you’re under age 65 and you buy the proverbial flat-screen TV, then you have to pay taxes plus 20%,” Mr. Ellis said. “I’m not endorsing people using the money for non-medical purposes, but why is the penalty there?”

Prior to the law, the penalties for inappropriate withdrawals from an HSA were comparable to those for early withdrawals from an individual retirement account.

The increase in the penalty may encourage account holders to place their money in different vehicles instead.

“The HSA is less accessible when you put the money in, and for that reason it would be the last thing you would fund,” Mr. Ellis said.

Not so, said Kevin McKechnie, executive director of the American Bankers Association’s HSA Council. “It’s probably an appropriate policy move to make the withdrawal a little harsher so that funds are used for intended purposes,” he said.

Members of the group’s board — which represents 80% of the HSAs administered in the United States — have a very optimistic view of what the new health care reform law would mean for their business. They expect enrollments in HSAs to rise by more than 100% within a year.

“We’re optimistic because we’re the lifeboat for this whole program,” Mr. McKechnie said. “If you’re going to order Americans to buy health insurance, then you have to give them something affordable.”

Mr. McKechnie disagrees with the restrictions on paying for over-the-counter drugs but said that it probably wouldn’t hurt the HSA industry, noting it would be an aggravation for account holders.

“The point of the reform was to give people more access to coverage and make it cheaper and to give people access to the medication they need to be healthy,” he said.

“The prohibition isn’t in the spirit of what this law is supposed to be about. This isn’t the insurance company’s money; it’s your money,” Mr. McKechnie said.