EPI-PEN Highlights Systematic Flaws In Healthcare

Everyone is Shocked!, Shocked (to borrow a phrase from Captain Renault) that a pharmaceutical corporation is looking to maximize its profits on the products for which it purchased the rights to a patent on.

It’s a company, and thats what companies are there to do, maximize profits for its shareholders. People owning Mylan stock over the last several years certainly aren’t complaining, and neither are most of you who are insured by a commercial insurance policy.

The fact that the Epi-pen’s price has increased over 400% in the last several years to the current $600, should come as no suprise given the lack of any competing product in it’s space.

In Pittsburgh, the standard Silver level plan offered by both UPMC and Highmark/BCBS, offer the Epi-pen as a tier 2 drug (Brand Formulary) and depending which carrier and which plan, you probably are looking at a co-pay for 2 Epi-pens of roughly $45–50.

If Mylan raises the price of the Epi-pen again to $800, your copay is still going to be $45–50. However, as you may surmise, your health plan is paying the difference, and considering all the different expenses your health plan has to cover in a year, one Epi-pen refill will (depending on your age/premium) likely cost your insurance company 2 months or more worth of premium. Thats a pretty big chunk.

We don’t really know what UPMC and Highmark are paying for the Epi-pen’s. We would hope that they have some sort of discount deal in place to not pay full retail. But they are the party with the most to gain or lose in this controversy. They are in a tough spot though without an alternative, as they need to make these devices available through their plans, and without an alternative, Mylan can pretty much charge what they want.

There are several issues that apply not just to the Epi-pen but other prescriptions and medical devices as well. On one hand, competing injectors have not made it through FDA approval, although I’ve read that the FDA is applying a higher standard to approving competing devices than the standard that the Epi-pen originally passed. There’s also the patent that Mylan holds that requires any alternative device to use different technology to achieve the same result. Free-market capitalists (Rand Paul, et al) point to the FDA and overregulation as the reason we dont have competition in this space. However Patent law is not really government regulation, and “caveat emptor” is not a global approach to pharmaceutical innovation that I want to be a party to! Go look at Theranos as a case study of a health sciences company run amok at the expense of the patients who relied on the blood testing products it produced. There’s a need for FDA oversight, just a question in this particular case if it’s too much? Perhaps a bigger question would be how we allow big pharma to lobby and impact government oversight?

On the other hand, there are people who believe that the pricing hikes are the result of not enough government oversight in pricing medications. They point to congress passing legistlation the prohibits the government from negotiating the price of prescription drugs (when they created Medicare Part D). Granted, Part D is offered by private insurers (not the government) and the insurers have the ability to negotiate with the pharmaceuticals, however, this ban on government negotiations is viewed as a roadblock to more systematic government price controls.

Mylan is now in damage control mode. They are increasing their efforts to make sure that their price hikes are softened on the patient end. Their press release today announce some sort of a “savings card” that would reduce out of pocket costs, and save up to 50% ($300) of the cost of the medication for someone paying full price.

Not being an attorney, I do have some questions about this approach. If a healthcare provider offered to waive the co-insurance on a procedure (for example a $2000 surgery, the patient had a 20% coinsurance under their insurance policy) and the healthcare provider offered to just waive the $400 as a courtesy to the patient, I always thought that represented a form of insurance fraud. If they were willing to accept $1600 for the procedure, that should have been billed to the insurance company, not $2000. How is what Mylan is offering different than that example? Is it ok, just because it is offering it to a targeted income group — there is some wiggle room in federal law for financial hardship, it’s just not clear if this would apply here?

I do know that their approach does several things. 1. They still collect the full amount they would have from the insurance companies. 2. They are actually making it easier for more people to buy more of their products. If the savings card eliminated a persons $45–50 copay, one would think that everyone eligible would use that benefit more than they currently do. 3. They probably see this as an opportunity to market the importance of having one on hand as a preventive measure and hope to turn this into a situation (no publicity is bad publicity) where they can benefit further.

The problem is that the cost to the insurance companies is payable in full +20% for their services. If an insurance company pays $550 for that Epi-pen, and you pay $50 copay. The insurance company will need to collect an additional $660 from consumers to pay that claim and administer the plan. Every time you see health premiums go up at renewal, you realize there is no free lunch (or free epi-pen if your lunch had nuts you were allergic to).

FLSA Overtime Strategy

Employers are no doubt looking to comply with the new FLSA overtime rules in the most cost neutral way possible, and one of the most obvious ways to restructure employee pay to comply has some benefit pitfalls that you should be aware of.

If you are thinking about changing an employee from salaried to hourly, and adjusting their pay so that with a typical amount of overtime, their pay will remain revenue neutral, here would be my concerns:

Just for example's sake, John works as a retail manager, earning $40,000 a year in a salary-exempt status.  Beginning December 1, he will not meet the salary test to remain exempt from overtime.  Based on Johns average work-week of 45 hours, XYZ Corp has decided to make John an hourly employee earning $16.25/hour, with a work schedule of 45 hours a week.  His base pay would be $33,800 with overtime of $6,337.50.

There are likely going to be some issues with this change, as John currently works over 45 hours a week as a salaried employee, he's not punching a time clock, and his own perception of workload is not tied to hours, but to the job at hand.  He may look at the change and see it as a negative as he currently has no problem working 45 hours to get the job done, but his pay isn't meted out by the hour either.  There's some psychology here which is beyond my expertise, but I know I would feel somewhat slighted by this change.

Secondly, as an organization, when the employee goes on paid vacation - how will the paid vacation work?  Will you be willing to pay scheduled overtime in vacation pay?   It's definitely a subject that needs addressed. If he takes a single day off, will he be eligible 9 hours of pay? And how will the "time and a half" work for that day off?  How will "time and a half" work for the remainder of the hours he clocks in that week?  It's not as simple on the surface as it may seem.

If you have a Short Term or Long Term Disability program, especially an insured program, this pay structure may be problematic.  For example, most disability carriers will not recognize overtime pay in determining benefits.  An adoption of a prior-year W2 earnings definition may solve for some of that, but if the employee has been given a raise, prior year W2 may include overtime, but won't account for the raise.  You could also run into an issue with the 40 hour work-week rule included in many insurance contracts.  If the definition of disability says that there needs to be a loss of earnings AND a loss of duties, John may see benefits terminate when he hits 40 hours a week, but still seeing a loss of earnings.  (although in this example, he would not have a 20% loss of earnings if he hit 40 hours a week - so at 40 hours he would likely fail both tests under some contracts, although there are some contracts with 85% earnings tests during the first 2 years of disability)  Bottom line, is that each disability contract needs to be looked at from head to toe, to address any issues that this change may impact..

You'd also want to examine your 401k or pension plan documents to make sure you've allowed overtime earnings to be eligible for deferral.

I'm not suggesting that a revenue neutral solution cannot be found, but that there is more planning that a benefit advisor like myself can help prepare you for to avoid any adverse impact to benefits or morale.


It's here...

Back a while ago I wrote about the proposed changes to the overtime rules..


Yesterday it was made official, and of course all sorts of people are discussing the implications surrounding the change.

If I was going to criticize the move, I think I'd have two issues with it.  One that the change is pretty dramatic.  Moving from approximately $24k to $48k a year to be considered exempt from overtime is a pretty big shift at one time.  Secondly, those wages mean different things in different parts of the country and in some of the highest cost of living areas may not be high enough, and in lower cost of living areas will become burdensome for employers just based on local wages.

I've seen people in the tech start-up community lament the changes, as they rely a lot on founding employees putting in long hours for little pay, in hopes of a payday when the firm goes public.  Having start-ups pay overtime certainly is a game changer for many of them, however, while many of these employees work those opportunities with their eyes open, theres also a risk that all those failed start-ups will have left a wake of employees who were taken advantage of, in the pursuit of a dream never realized.  It's also hard to have two sets of rules, one for start-ups and one for Fortune 500 companies, and I think that the public would not want Fortune 500 companies taking advantage of $30k a year workers, expecting them to log huge hours for the hope of advancement.

However, theres no real way to paint this as a positive for employers.  There will be more employees who will need to have hours tracked, and assuming that an employer had one employee covering 60 hours worth of work, that employer will now either need to pay for those extra 20 hours, (at time and a half) or hire another employee to pick up the slack.  That can be pretty costly.  Alternatively, employers may wish to increase those on the bubble so that their earnings are in excess of the minimum to retain their exempt status. 

In either case, these changes will need to be made by December 1, 2016 and carry the usual "big stick" of fines for non-compliance.  Shoot me an email for the full compliance bulletin Jeff@koontzicg.com.

DOL Issues revised FMLA Poster & Guide

Screen Shot 2016-04-27 at 12.57.19 PM.png

The new poster can be downloaded from the DOL's wage and hour website here:  http://www.dol.gov/whd/regs/compliance/posters/fmla.htm

Additionally the DOL released an updated 70+ page guide to FMLA here:  http://www.dol.gov/whd/fmla/employerguide.htm

If you are close to 50 employees, it's worth browsing through to better understand the provisions of Family Medical Leave, and how you might want to address.  There are very close correlations with disability coverage, as well as other types of leave, where hiring a specific FMLA administrator to remove some of the administrative burden might make sense.  

This is an area that absolutely needs attention if the law applies to you.  As always, I am at your service to help you approach this compliance issue.

ACA Affordability Percentage Set To Increase for 2017

ACA's Affordability PErcentage set to increase for 2017......Barely.jpg

If you are an employer with more than 50 employees, you are well aware of the employer mandate and it's "pay or play" rules.  (If not, stop reading and give me a call!)

It's not enough just to offer coverage, but the coverage has to meet certain minimum value requirements and meet affordability requirements.  In 2016, the affordability requirement was that the employees contribution for 'self only' coverage could not exceed 9.66% of the employees household income for the tax year.  If one of your employees went on the individual marketplace, applied for coverage, and got a subsidy, you would be subject to a fine if your coverage did not meet those requirements.

For administrative simplicity, many employers took a 'safe harbor' approach to the contribution level, setting their plan contribution level low enough that their contribution was below 9.66% of the Federal Poverty level, or as a less conservative alternative, 9.66% of the lowest paid employees annual income.

The IRS just updated the affordability contribution for 2017.  It increased from 9.66% of income, to ..ready for this.. 9.69% of income!

It's not even a percent.

And yet supposedly the ACA had language that after 2014, this required contribution percentage is adjusted annually to reflect the excess of the rate of premium growth. Since 2014, the percentage has gone from 9.50 to 9.56 in 2015, 9.66 in 2016, and 9.69 in 2017.  The rate of premium growth during that time, far surpassed any increase in the affordability percentage.  The increase over 3 years barely covers 1/4 of one years premium increase for the average employer. 

In 3 years, the contribution has been allowed to increase by 2%, which places the burden squarely on the shoulders of the employer.  If an employer with a health plan costing $1,000,000 a year gets a 15% increase, that entire 150,000 increase would fall on the employers shoulder.  No longer can employee contributions keep pace with employer costs.  

In other words, every year, employers costs will increase at a higher percentage than their renewal increase, because they will also be increasing the employers share of the premium to maintain a safe-harbor contribution level.

There are still opportunities for developing a long term strategy to deal with rising health care expenses, even if you are a small to mid-sized company.  The status-quo of the way you've handled renewals in the past will likely not be sustainable though.  If you are looking for some new approaches, drop me a line.

HHS Issues Report showing 8% increase year over year in exchange pricing (but fails in addressing changing plan designs)

I think the message that the Department of Health and Human Services are trying to get out is that the estimates of double digit cost increases in marketplace plans are overblown, and that their data paints a different story, especially among those that receive a subsidy.

You can find the report here:  HHS Report

My initial response was one of disbelief, and I was curious to look at the numbers to try and reconcile the numbers with the pricing I've seen first hand.  

What initially concerned me about the report, was that the report only looks at price.  It does not look at specific plan designs, out-of-pocket, etc. When they say the average price went up by 8%, they simply mean that people who were enrolled in 2015, and reenrolled in 2016 are now paying premium that is, on average, about 8% higher than last year. 

Some people may have been enrolled in Gold level plans in 2015, and upon getting their renewal, ended up buying a Silver level plan, however, the 8% increase reported, does not take into consideration any plan design change, or increase in out-of-pocket year over year. That was the single most egregious part of the report. If we aren't going to look at apples to apples (which would be nearly impossible, as the plan designs change in some way or another each year), then how do we know what the true increase in costs are? If we are shifting more out-of-pocket costs on insureds in exchange for lower premium increases, I don't think we can claim that as a success.

They do try to report the savings among 'switchers', but merely use this to highlight how the marketplace provides 'shoppers' an opportunity to save money. Approximately 43% of people currently enrolled on the marketplace changed plans at open enrollment. I guess the question/problem I have with this data, comes from 1st hand experience in our local market. Enrolled individuals who didn't go on to healthcare.gov to change plans, in many cases (if not most), ended up with a much different plan (of the carriers choosing) than what they had in 2015. In some cases the plan may have been somewhat similar, in others, dramatically different. I don't think it would be accurate to say that the other 57% that did not change plans, had the same benefits in 2016. It just means they went with the plan that the carrier automatically enrolled them in for 2016.

Perhaps increasing out-of-pocket costs aren't that big of an impact, though. The report does cite that the second cheapest Silver plan only increased 7.4% year over year. At least we know that a certain minimum actuarial value must exist for the plan to be considered a Silver plan in the first place, but it definitely seems like carriers are figuring out more and more ways to change their plan designs to keep the costs competitive (or in some cases, keep from losing their shirts on individual exchange business). I don't think that looking at the second cheapest Silver plan year over year is an apples-to-apples comparison. Last year that plan might have been Carrier X's PPO plan, and this year it's Carrier Y's HSA plan - which could have completely different benefits and networks. 

Besides not looking at the impact of out-of-pocket costs, the HHS report also doesn't consider the belt tightening of provider networks. Another strategy the carriers have become more adept at is limiting access only to the providers with the best network discounts (or within "carrier owned" medical facilities - when they also own a hospital/doctor system - where they can make money on both ends). Tiering networks or creating narrower networks does not impact the actuarial value, as actuarial value only considers the in-network benefits, and does not measure the loss of provider access. 

I guess I am still not convinced that costs aren't escalating much more than the 8% shown in the HHS report, especially if you were to normalize the plan design to the same out-of-pocket and network access provided in 2015.  

This reminds me...

Occasionally, I'll buy something at the supermarket that I happen to already have in the pantry.  When I get home and compare the packaging, I notice that the size of the package decreased. What used to be a 11.5 oz package of Brand X Crackers is now a 9 oz package, and yet I paid about the same price for both. Nobody would honestly say the price hasn't changed, right?

The HHS is essentially telling us the cost of the "crackers" has gone up by 8%, but they aren't even looking at the package size.

Time to dust off your "Code of Ethics" policy (& discuss the PItt coaching search)

The University of Pittsburgh recently named a new head basketball coach. The news was disappointing to many, and there was a real backlash over the selection process due to the use of a search firm in the process.

Post Gazette: "Does Pitt’s use of search firm for coach represent conflict of interest?"

This Post-Gazette article explores the connections and attempts to answer the question of whether a conflict on interest occurred during the transaction with the search firm. However, I think the questions that arise in the discussion of the Pitt coaching hire, can also prove a topical news story to use as an excuse to examine your own code of ethics policy at your organization, whether you are the employer or an employee.

Does Pitt appear to have a conflict of interest, and if not, what situations would have to exist for the relationship to rise to to one that might fail a standard code of conduct.

I provide clients a standardized "Code of Ethics" policy to incorporate into their employment policy after review by legal counsel. And upon reviewing that policy and applying it to the known facts of the Pitt coaching search, I can find no immediate areas where a conflict would arise.  

Most corporate conflict of interest policies will look at conflicts of interest that are financial. For instance, if the Pitt AD was a part owner of the search firm, or was going to benefit financially from the transaction, then you have a classic conflict. The fact that these search firms also help universities place Athletic Directors (and that may be a future benefit to Mr. Barnes) doesn't rise to the level of a conflict of interest, and that "goodwill" generated with the search firm would likely come from a transaction with any search firm used.  Its a flimsy concern, and would likely apply to any corporation utilizing an executive search firm.

I'm speculating for educational purposes, but, during the process, the AD might have had lunch with the search firm representative. Even if the search firm picks up the lunch tab, those types of reasonable entertainment expenses would likely not rise to a conflict of interest level.  The financial gain need to be more significant than routine expense items.

Your Code of Conduct policy would also have policies in place for Political Contributions, reporting, and any Anti-trust violations.  

Anti-trust violations occur when competitors get together and discuss pricing, costs, terms and conditions, market share, customer selection, etc. and act in a restricting manner. I don't see much in the way of Anti-trust issues in the Pitt AD hire, but if your employees sometimes interact with your competition, it's worth a review.

So was it all a big to-do about nothing at Pitt?

So far, in my opinion, it has been. I don't see how the fact that the vendor used to be his boss, or that they have a friendship, etc. should be viewed as a conflict of interest. Those types of relationships happen all the time. What good sales person doesn't strive to build strong personal relationships with their customers?  What customer wouldn't want to deal with a person he/she trusts due to multiple prior dealings? Neither seem inappropriate to me.

The only problems I could see in this transaction has to do more with the "search firm's" relationship with Vanderbilt University.

If you were in the legal profession, conflicts of interest are for the most part prohibited when a firm has a relationship with both parties in a legal dispute, as the attorney has a duty of loyalty to a current client that would prohibit them from taking on a new client with competing legal interests.  

Similarly, I would be concerned if the search firm also was employed by Vanderbilt in addition to being employed by Pitt, as the two schools have competing interests. If for instance, the search firm had been contacted by Vanderbilt at the end of their season to begin to put feelers out as to who might be interested in the job if they were to terminate Mr. Stallings, and then Mr. Barnes employed them to begin a coaching search following the departure of Mr. Dixon, the search firm would be in a position to make a recommendation to Pitt, that might be in Vanderbilts best interest (to avoid a costly contract buy-out) and the search firms best interest (as it would likely guarantee another $200k coaching search from Vandy in addition to the Pitt search) and it would create questions as to whether the firm is working in the best interests of Pitt when it presents coaching candidates.  

I'd be curious what any University asks from search firms in reporting any conflicts of interest they may have. i.e. reporting back whether they are under contract with another institution, or previously done work for another school, and what assurances they would have that they would work exclusively to that particular schools coaching search?  

The fact that all this activity happens behind closed doors is probably not very reassuring to any fans of any given school over the process, however, at the end of the day, the primary interest of the Athletic Director is making a good coaching hire. I see no reason to doubt that the decision was based on his opinion of who was the best candidate for the job (whether you like the end result or not). There's no other conflicting interest present that would over-ride the primary interest of the AD's job function.  As mentioned earlier, most conflict of interest policies are defined by a secondary financial interest separate from the individuals primary interest at their occupation.

It's also important to note, that the existence of a conflict of interest does not mean that any impropriety has occurred. The purpose of a conflict of interest policy is to put in place reporting & procedures to address the conflict, so that it never has the opportunity to become untoward.

I'm guessing that if the University of Pittsburgh's code of conduct looks anything like the standard prototypical designs I provide for review, no impropriety existed in this instance at Pitt during the coaching search.

Given this discussion, do your employees understand what a conflict of interest is? Do they understand your policy and position towards any conflicts, and when they need to be reported? Do you even have a code of conduct that addresses these issues? Having a well communicated and well designed code of conduct and save you and your employees a lot of headaches when faced with conflicts of interest you might face in your line of business.  Feel free to leave a comment if you see any other possible conflicts in this case or any concerns with my rationale.

Proposed Changes to FLSA Overtime Rules

If you have employees and over $500,000 in gross revenue, you are likely subject to the Fair Labor Standards Act, and it's rules on overtime pay.  Some of those rules may be changing this summer, based on the DOL's release, and it has some far-reaching implications for many businesses and their employees.

I'm sure you've heard the term 'exempt' or 'non-exempt' employee.  If you stop for a second, you might wonder, what is the employee 'exempt' from?  And the answer is exempt employees are exempt from 'overtime pay'.  Work hard to get ahead. Show up early. Go home late.  All things that 'exempt' employees can do, can be encouraged to do, as the employer pays them a fixed salary, and does not have to track hours, or pay those employees more if they work 60 hour weeks.

The DOL has concerns that over the fact that since 1970 the salary level has only been changed once, and currently the salary floor for an exempt employee is $23,660.  The administration's rationale behind raising it, is that historically, most Americans during the 20th century, qualified for overtime.  They state that in 1975, 62% of "Salaried" workers, were eligible for overtime.  (Hourly workers will always be eligible for overtime).  However since the threshold hasn't changed in any meaningful way in the past 30 years, more and more people are being asked to work more hours in jobs that pay very little.  

The change will increase the salary floor for exempt employees to $50,400, a sizable jump.  In addition, the salary will be updated annually for inflation.

Just to revisit current and proposed standards, lets look at the requirements:

Fact Sheet #17D: Exemption for Professional Employees ...

If you've never read that before, it's pretty comprehensive in how it defines a person eligible for the exemption.  It spells out that for most occupations, they have to be paid on a 'salaried' basis, they need to earn over $23,660 (with a few exceptions), and their primary duties must be work involving advanced knowledge.  In most cases, those exempt duties need to account for more than half of an exempt employees time.  The duties test is pretty stringent, and it would be wise to consult legal counsel on specific employees status. As a side note - Doctors and Lawyers are exempt regardless of salary level.

Moving forward, with the salary level reset at $50,400, the DOL sees this rule change providing greater simplicity for employers as it will take 'interpreting' the duties test out of the equation for lower paid employees.  No longer do you have to worry if the $40,000 a year employee is exempt or non-exempt - they will be 'non-exempt' and subject to overtime pay.  This has the potential to create a need to track hours worked for employees who earn less than $50k but previously worked in exempt duties.

When you start to really think about it, for many employees around that 'pay' threshold, the new salary limit will create some unique HR issues.

For example, if an employer has two employees, both perform primary duties requiring advanced knowledge and prior to the new rule were considered 'exempt'.  Employee 1 earned 55,000 and had worked there for 5 years, employee 2 earns 45,000 and been there 2 years.  Employee 1 would be exempt, but Employee 2, would not be.  Employee 1 might come to work early, stay late, etc., where employee 2, could do so too, but the employer would need to track hours and pay overtime for hours over 40 a week. An employer would likely want to curtail the use of overtime by employee 2.  However, a higher level position comes open that both employees are eligible for, Employee 1, will be seen as coming in early, working late, where employee 2, just works 9-5. It definitely makes it challenging for professionals at the same organization who do the same job, but straddle the salary line. Before this change, employees in the same positions could be treated as exempt or non-exempt uniformity because the salary level was a fairly low hurdle.  

Additionally, employers might have employees working in different locations, and due to cost of living differences between cities/work locations, employees who live/work in lower cost areas might be non-exempt, while the same level employee in high cost area might be exempt.

Finally, this also creates concerns about tracking hours of telecommuters, as non-exempt workers will need some sort of timekeeping mechanism to record actual hours of work.

The other thing changing is that the salary level will now be adjusted for inflation so that we don't end up where we are today with a salary level that hasn't been updated for years.  That means every year an employer will need to address the status of any employee on the bubble.

Personally, I struggle to reconcile both sides of the argument.  The status-quo is more employer friendly, and if employers were truly following a strict definition of exempt duties, then the current method probably shouldn't result in too much abuse of the exempt status.  However, I can also see that employers probably don't fully vet the duties test, and that for employees with lower salaries, this rule change takes the duties test out of the equation from employers.  If you earn less than $50k, you are eligible for overtime (and you have to have hours tracked. Like raising the minimum wage, this rule change is meant to help raise income levels, especially of those employees working more than 40 hours a week.  The DOL makes the statement that under the current rules, a person could be working 70 hours a week managing a retail store, and if they were earning $24,000, they would be below the poverty line for a family of 4. 

There are two other groups who might be getting excited reading this - Medical Residents/Doctors, and Attorney's. Unfortunately, I've got some bad news.  Doctors and Lawyers are exempt by definition, regardless of your income level. If you are a new attorney, making less than $50k, burning the midnight oil, unfortunately, no, you aren't getting paid overtime.


TRUMP's 7 Point reform plan.. Style or substance?

On Wednesday March 2, Donald Trump posted details on his Healthcare Reform plan.  This link will take you there:

DonaldTrump Healthcare Reform

What I have found is that his 7 point plan lacks a cohesive strategy to improve the current system of healthcare delivery in the country. The 7 points seem to be a mash-up of populist healthcare reform sound bites.  If each of the 7 items were fully implemented, I'm not sure what kind of system you would have as the proposal lacks a consistent philosophy towards healthcare reform.

1. Repeal the Affordable Care Act

He specifically calls out the Individual Mandate, but does not mention any of the other aspects of the law.  A few of the other key points in his 7 point plan, indicate a preference to allow individuals to purchase coverage, HSA's, etc., but with a repeal of the ACA, I wonder how he proposes to offer individual coverage?  Is his vision to return to the days of medical underwriting, pre-existing conditions? And if he would counter with a plan that would maintain the individual protections from pre-ex and medical underwriting, then how does his plan deal with adverse selection? I think that 'repealing Obamacare' is a powerful populist soundbite, but much more would need to be learned about what comes next.  If healthcare reform was a computer operating system, his first point would be: "We are going to do a full 'un-install'". Ok. Then what OS will you re-install?  The remaining points really don't help clarify that.

2. Modify existing law that prohibits the sale of health insurance across state lines.

I think this issue seems to be one of the least understood, but most talked about healthcare reform issue. It seems so simple. 

Inevitably, someone will mention that they have a neighbor, the same age, that lives 30 miles away, across a state line and is covered by a BC/BS plan in their state, and that they pay 30% less for coverage than I pay for a BC/BS plan in my state.  Why can't I enroll in that plan? 

States still regulate the issue and sale of insurance. The insurance departments make sure that insurance carriers follow the laws of that state (that were established through the democratic process with our legislators) 

The problem with selling across state lines, is that the insurance companies will all be able to set up shop in the state with the lowest standards, least regulation, and most favorable court system. As individuals, we lose the recourse/protection with the state insurance department, and consumers become much more vulnerable to abuse from health insurance carriers.

Currently, any carrier can get approved to sell it's products in your state. They have to meet each states requirements for benefit minimums, contract language, solvency, and develop adequate networks. Many are able to do just that.  The ones that don't, may not have viable networks, or other reasons not to offer coverage. Getting access to physicians and hospitals would be a large hurdle for a regional carrier who doesn't currently have an insured base in a new territory.

It's just not the case that XYZ Insurance Company, who is incorporated in Ohio, and sells health plans in Ohio, can't also sell those plans in Pennsylvania. They just have to file those plans with Pennsylvania, approved for sale, and be regulated by the state.  

If we did eliminate the barriers to interstate sales of health insurance, I think there would need to be a federal regulatory system in place to oversee those transactions and plans.  Otherwise, it just becomes the wild west with health insurance regulation with very little protections in place. 

3. Allow individuals to fully deduct health insurance premiums on their tax returns.

Today, businesses, including self-employed, can deduct the full cost of health insurance against their corporate returns.  Individuals can deduct the amount of premiums or health care expenditures to the the extent that they exceed 10% of their income.

This change would allow individuals to deduct the full amount of their health insurance premiums. There is no mention if that deduction is extended to out-of-pocket medical expenses. 

It's worth noting that 70% of IRS returns in the country are NOT itemized. This deduction would likely need to be on top of the standard deduction, and available on an EZ to be effective for the majority of the population.  Many people do not currently end up owing Federal tax, but are above the Medicaid threshold. How would this plan help them afford health insurance?

4. Allow Individuals to use Health Savings Accounts

Other than the reference to the "death penalty" (his words not mine), I'm not sure he's proposing anything noteworthy other than the status quo.  With respect to his comments about treatment of an HSA at death, one can assign a beneficiary to the HSA, and that beneficiary could be your estate. If there is no surviving spouse and the Estate is the beneficiary, the value of the HSA is included in the individual's final tax return and the remaining HSA funds pass to the estate (having been taxed). I guess his change would be for the balance of the HSA to pass to the estate without being subject to income tax?  Again, like #3, I'm not sure how many people would benefit from this change, nor do I see it having an impact on participation in HSA's. 

5. Require price transparency from providers.

Gas stations have signage showing how much you will pay for a gallon of gas. It would be nice to know what you might pay before you pull up to your doctors office, besides your co-pay. With medical billing, things are far from simple.

The US just overhauled the way we code medical procedures.  We transitioned from ICD-9 to ICD-10. When you pull up to the gas station, you probably have 4 prices to look at, economy, plus, premium and diesel.

With the change to ICD-10, we went from 3800 procedure codes, to almost 72,000 procedure codes. We also transitioned from 14,000 to almost 70,000 diagnostic codes.  Both diagnostic and procedure codes have an impact on the cost of medical services rendered.  

To 'shop' for medical services, you'd need to know which of the 72,000 procedure codes you are comparing and for which of the 70,000 different related diagnoses.

You could benchmark a couple of common procedures and use that as way to compare one doctors cost to another, but doctors could game the system and have lower relative costs for the benchmark codes, and everything else be higher. 

As long as the US bills for healthcare the way we do, it's hard to see how a consumer could 'shop-around'. We'd need some new tools and big data to produce something usable.  

And even then, people don't seem to want to shop around for health care, they want the "best" possible doctor - and quality of care is another challenging measurable to enter the equation.

6. Block Grants to States for Medicaid

It's a way to provide states with finite blocks of money to use for Medicaid as they wish, replacing a more open ended approach that is currently managed closely by CMS at the federal level. From a Federal standpoint, its going to be much more fiscally conservative as the block grants grow with inflation, and are usually projected to be less over time, than maintaining the current open-ended system.  Some opponents have suggested that with block grants, over time as many as 14 million people might lose coverage they otherwise would have had under the current medicaid system. This has been a reform on the Republican agenda for some time.  It's more fiscally conservative, and it puts the money at the state's disposal and discretion as opposed to the current federal controls on how it's used.

7. Remove barriers to entry into free markets for drug providers.

We've all heard about how much cheaper "ABC Drug" is in Canada or France than what it is sold for in the US. It plays right into these populist proposals to suggest that we open our markets so that Americans can benefit from this prescription pricing arbitrage. I can't imagine that using foreign pricing controls on drugs, and essentially having drug companies competing against themselves will work in the long term. I also don't see enough detail to understand what other international/import reforms he is suggesting. 

Most candidates have not come forward with very detailed plans for health care reform, so the lack of details isn't surprising.  Mr. Trump's points rally around common populist perceptions, but fall short in detail and don't really represent a full understanding of the current health care system and its struggles. Reading beyond his 7 point proposals, he also mentions some $14 Billion in healthcare expenditures that are the result of illegal immigrants. He alludes to an 8th point: That building his wall will somehow help control healthcare costs. I just don't see it.



Disabled Employees And The Employer Mandate

If you are over 50 employees, you need to know how the employer mandate works.  If you make a mistake and indavertently have an employee who qualifies for a subsidy, you can be fined $3,000. What if that mandate extended to people who don't even come into work for you anymore?  How might your current plan be set up to allow those non-working individuals to continue to receive company sponsored medical coverage for an indefinite amount of time? Some recent publications shed some light on how some disabled employees may continue to qualify as eligible employees under the ACA's definition. 

Periodically, the IRS issues bulletins to "help" clarify some of the Affordable Care Act's more nebulous language. Recently, they issued 2015-87 ( IRS-2015-87 Q&A #14 ). The relevant section of this bulletin found in question 14 of the Q&A.

Last week, David Pixley, an attorney for the Graydon Head law firm, wrote an analysis of how the IRS would count hours of service during the time an employee receives a employer sponsored disability benefit. 


The main point of this article was to clarify that an employee who received an employer paid LTD or STD benefit from an insurance carrier, was still subject to the "Employer Mandate"

"An employee is entitled to an hour of service for any hour in which they are paid or entitled to be paid. Payment includes STD and LTD pay, unless it is a STD or LTD arrangement paid for by the employee on an after tax basis."

Those of us who sell LTD/STD programs, know that a disability could happen to anyone at any age. Most LTD plans being sold today, have benefit durations that typically end at Social Security Normal Retirement Age. The worst case scenario here is that an employer of a person who becomes disabled at age 27, could be subject to the employer mandate to provide health insurance for that person for the next 40 years (or as long as they qualify for LTD benefits).

I found another article, published by the same author, on his law firms blog.

Graydon Law Firm Blog

A key distinction I noticed between the two articles, was that in this article, he states:

"Two of the determining factors are whether the recipient of disability payments retains his or her status as an employee and who paid for the disability arrangement."

I wonder if the employers burden to provide affordable coverage ends, if the employer considered the employee to be terminated due to disability.

I have worked with many employers over the years in structuring their Life/LTD/STD benefits, and one of the things I often encourage is that they define in their employee handbook, when an employee will be terminated due to disability. This is not a policy to be taken lightly, and you should consult with an attorney to set up such a policy, as you don't want to infringe on FMLA, the ADA, or any other state or federal policy or laws. 

We don't have any clear guidance yet (and would suggest you consult with your corporate attorney), but my feeling is that if there is a clear policy outlining when employment is terminated due to a disability, that the employer mandate under the ACA will resolve itself there.  

If such a company policy on termination, does not end the employers obligation to provide health insurance under the mandate, I expect a lot of angry employers and disability insurance carriers to rise up in opposition.  I don't think any employer would keep an LTD plan in place, if it meant they'd be liable for providing affordable health insurance for the entire duration of a persons LTD claim.  

From a public policy standpoint, disability income protection is typically viewed favorably (in fact some states mandate Short Term Disability), so it's hard to see that they would intentionally undermine employer sponsored LTD plans.

The other thing to consider, is the "other" determining factor Mr. Pixley mentions: "who paid for the disability arrangement".  If an employee is participating in an LTD/STD plan where the benefit is tax free, (i.e. the employee paid taxes on the premium), the mandate doesn't appear to apply. That ties in nicely with the "IRS 2004-55" approach (or bonus up arrangements) I've been encouraging employers to explore for years, where employees can elect to have the premiums taxed, in order to have a tax-free benefit.  Now there might be an even better reason to look at those approaches, as it may provide some relief from the employer mandate when employees are receiving disability benefits.



Small Business Medical Self-funding

If you haven't noticed, self-funding is popping up a lot now in the small business marketplace. A few years ago, self funding a group under 50 employees would have seemed very imprudent to say the least.  Groups in this size segment don't have the resources to withstand swings in health costs, nor the cash-flow or reserves to deal with the month to month volatility in reimbursements.  Stop loss coverage varied from carrier to carrier, and many groups that had self-funded in the past were burnt by poorly designed, communicated, or implemented stop-loss strategies.  Moving back to fully-insured, many vowed never to make those mistakes again.

Yet here we are in 2016, with a renewed emphasis on self-funding health insurance in the post-ACA world.  While many large groups, are looking to self-fund in order to lower overall expenses, avoid premium taxes and the health insurer fee, in the smaller group space, products are being introduced in order to get out from under the pricing and benefit burden of the ACA compliant small group products.

The product we see the most in this space is the "fully funded" self insured plan.  Basically the way a fully funded plan works is a group finds an administrator (or carrier) to administer the plan, provide a network, RX plan, etc., and then they buy stop-loss insurance, usually written on a 12/24 basis to catch all the run-out.  You might see the aggregate stop loss level purchased at 110% of expected claims. 

The stop-loss carrier provides protection that claims for the group will not exceed 110% of expected, and when you purchase this coverage, they put a number on that 110% usually expressed as a dollar figure per insured employee.  If claims are expected to be $300 per month per employee, then if claims go over the stop loss level 110% or $330, they are on the hook for any other claims.

This strategy can be done with some TPA's and stop-loss carriers, or some carriers like UnitedHealthcare have turnkey versions of this approach, where they provide the administration and the stop-loss coverage.  

Rather than wait for claims to come in though, in a fully funded plan, the administrator/carrier collects the monthly premium for the Administration fees, the Stop-loss insurance, etc. They also collect enough money to "fully fund" claims for a month at the maximum employer liability under the stop loss contract.  

In the example above, if I had 30 employees, I would pay Administration + Stop Loss Insurance + $9900 ($330 per employee x 30). The $9900 is the most the employer would have to pay before the stop loss carrier steps in.  The monthly payments are set and predictable, and since the employer is "fully funding" the variable part of the equation (claims), there is not risk or volatility in the monthly payments.  However, this is still a self-funded plan, and at the end of the year, if claims came in less than expected, (or less than 110% of expected) the group would receive a refund.  The above group paid $9900 a month, or $118,800 annually to fully fund their claim liability, if the administrator/carrier paid out less than $118,800 the employer would receive the difference, although not all contracts are dollar-for-dollar. You will also find policies where terminal protection is included so that if the policy terminates the employer doesn't have to fund run-out claims.

The downsides to this are that self-funded plans are required to report under Section 6055 and send the 1095B to employees and the IRS.  Less than 50 employers would otherwise have no reporting duties under Section 6055-6056, so this puts an additional burden on the employer - although there are reporting solutions out there to help.

The upside is that they can continue to offer plans of benefits that are priced on a composite basis and avoid a lot of the taxes and surcharges that come with a fully insured plan.  While they can have a good year and reap the rewards, I think that its a tall order to think that a small group has the spread of risk necessary to see a lot of benefit from taking on the risk in the long term.  The benefits of this strategy are probably going to need to be realized with an assumption that the employer will not be receiving a refund.  In other words, employers should consider this strategy, only if they are comfortable with the fully-funded total cost.  

About 10 years or so ago, Consumer Directed Plans became very popular, and many employers changed to a high deductible plan, and then provided HRA's or HSA's to help fund the deductible, (many times funding it in full).  Employers made the change because it was less expensive in many cases to fund the change in deductible with the savings, than pay for a low deducible plan.  

The new breed of fully-funded self insured plans has strong parallels to that period of HRA growth.  Back then we had to educate employees on why the change was not harmful to them and how they might benefit under the HRA/HSA arrangement.  The difference now, is that it is the small business owner who need convinced that these plans might be appropriate.

Self Funding Dental Coverage

I'll put it right out there: If your business covers over 100 employees and you don't self-fund your dental plan, you're probably flushing money down the drain.

The only viable reasons not to self-fund your plan would be because you are operating a voluntary dental plan, and you really have no profit motive to self-fund nor want to deal with excess contributions and accounting for them.

However, if you sponsor a group plan of over 100 employees, and you contribute towards the cost of that coverage, there are a lot of compelling reasons to switch.

One of the objections I hear is that "our current carrier hasn't given us an increase in 3 years".  That tells me that you have been overpaying for dental coverage for at least that long.

Insurance carriers probably want to make about 3% off your dental plan in profits. They will price your dental based on that assumption, and at renewal they will also build in the cost of inflation to your pricing. Dental inflation (or trend) is probably around 3-5% - that inflation is the result of two forces: 1. Increased price for services, and 2. Increased utilization of services (frequency). At renewal, carriers will look at a year of claims, ending about 3 months before your renewal date and base their rate action on that. Since that 3 month gap exists between the experience and the beginning of your plan year, the inflation has to be adjusted for about 15 months.  6-7% instead of 5%.

If you haven't got an increase in 3 years, and you have over 100 employees, then you've been overcharged for 3 years. If the carriers target loss ratio was 80%, and you haven't had an increase in 3 years, that tells me that you've probably paid out over 10% more in premium than you needed to over that period of time. The difference between your premium and claims, was big enough to absorb the 3 years of dental trend, meaning you overpaid by a lot. When you aren't getting increases, it's not because the carriers are willing to take on losses, it's because you are profitable. If you keep getting 5-7% increases, as annoying as that is, it's a signal that the insurance carrier isn't making as much money off you as they could be.

If you get a huge increase from your dental increase carrier (15%+), that might be the best time to go for a self-funded approach. The prior year, you clearly beat the carrier.  You had a high loss ratio, and now the carrier wants to get back to profitability. Some of the smarter carriers won't try and get it back in one shot, but carriers aren't in business to lose money. Even that carrier that bids on your business and comes back with attractive rates when claims call for more, is just looking for an opportunity to get in the door, and gradually renew (increase) you to profitability.  Most carriers figure that it'll take about 3 years for a group to be profitable.

So why Self-funding?

By self-funding your dental plan, you will, in one strike, change the dynamics of the carrier/broker/employer/employee relationship for your dental benefits - to the better.  

When you are fully insured, increases are bad news, your broker shops the market (even though service is good, you just don't like to pay more than you have to), and you can get into a viscous cycle of changing carriers every two to three years, frustrating employees who just got used to the current carrier and may have to find a new dentist.

When you go self-insured, the insurance carrier, broker, employer and employee all work in a more aligned manner. The insurance carrier just cares about their small administrative fee, but will provide you with a lot more data about your plan, and how it's running, what services are being used, what providers are utilized and how to make changes that impact your bottom line. They become a partner in helping solve the problem of escalating dental usage. Your broker can now spend time evaluating the service, network and claim paying accuracy of the insurance carriers, instead of acting like a used car salesman, running back to the carrier to see if they can get you a better deal. And we (brokers) will do the work to find out what can be done to help with any cost increase due to utilization on a much more consultative manner, analyzing networks and claim trends.

Taxes are a contributor to fully insured dental costs. There have been state premium taxes in place for as long as I can remember. More recently, PPACA instituted the Health Insurer Fee that taxes health plans at about 3%. Unfortunately, dental carriers got lumped in with the Health Insurers, so your fully insured dental plan has to pay that 3%.  Self-funded dental plans do not pay either the Health Insurer Fee or state premium taxes. 

You can basically take about 5% off the cost of dental by self-funding, just from premium taxes.

Expense ratios are generally a lot lower if you are only paying a carriers administrative fee, since you are taking on risk, and holding the reserves (for run-out claims - claims that are presented after the plan ends).

There will be significant savings in year 1. When you transition from fully insured to self insured, you will realize savings equating to about 1 month of premium during the first 12 months of being self-funded due to virtually no claims being paid in the first month, and then a reduced amount in month 2. You, the employer, are now holding the reserves for run-out claims, so that claim lag is what funds your internally held reserve. This results in more "cash flow" savings, than "real" savings, since you'll still be liable at some point for those run out claims, but not anytime soon.

What's the real insurance risk of going self-funded? First of all, every dental plan has a built in Individual Stop Loss provision - the annual maximum. You are limited to what? $1000 per year, $1500 per year per person?  No individual can really hurt the experience all by themselves (like on medical). The only way claims experience can hurt you is in the aggregate - and many dental insurers will provide aggregate protection for you, usually around $1/ee/month. (+/- depending on the stop loss limit: 105% of expected might be a $1.30, 120% of expected might be $0.80)  Factor those stop loss costs into the first year of the plan, and you'll likely still save money in year 1. By year 2 you'll probably say, "Why was I paying for stop loss?" and drop that coverage - but it's a good way to CYA in year one, just in case someone gets the math wrong.  

Is it possible to lose money self-funded? Maybe in a short time span. However, if you are fully insured and have a bad outlier of a year, you're going to pay for it the next year in a higher renewal rate. Over the long haul, the only way to beat self-funding would be to constantly churn the business from one carrier to another, getting them to provide rate guarantees, and then changing carriers once the rate guarantee period is over. After some time of doing this, your broker will start to feel some pain with carrier relationships, your employees will be cranky about always changing carriers, and you might find the market dry up on this strategy as the carriers catch on.

There are some carriers in the market that will not share claims data on groups under 300 lives, even though from an actuarial stand point, a mature group (a group that's got more than a year of experience) at 100 lives is pretty credible. They get to set your pricing based on experience but won't share your experience? The do this to protect their profitable groups from going self-insured, or with another carrier. If you are getting retain after retain, and your carrier won't share your experience, get out. It's a sure sign you can do better self-funded.



Health Insurers: Too Big to Fail

If you look at where we are today, and identify the problems that threaten the current health insurance system, post ACA, (assuming you are not advocating for a single payer system), I would suggest that the largest problem facing the current system over the next several years is very similar to the problems that faced our banking system in 2008.

Simply stated, the health insurance carriers that dominate the landscape in the US have become too big to fail.  You might be thinking, there isn't much chance of the largest health carriers becoming insolvent and failing to pay the claims that are presented.  I would likely agree with that point, however, to make my point, I am redefining what 'FAIL' means in the health insurance world.

The Affordable Care Act was set up to continue to rely on the private payer system for providing health insurance to both groups and individuals.  Competition, along with the 80/20 rule, was expected to control costs.  Risk pools were established to cover the impact of adverse selection on individual coverage at the extreme end of the spectrum, and the Cadillac Tax was established, not so much to punish super rich plans being provided to executives, but to put a cap on plan costs to force the hand of insurers and employers alike to find new solutions to get costs down.

Simply stated, none of that worked to control costs.

There has been a slowing of health care expenditures, but its really unclear to me how much of that was due to higher out of pocket exposure limiting cost due to usage, and bringing more people under the umbrella, increasing revenues in the short term.

I would define "failure" in the Health Insurance System as carriers deciding to withdraw from participation in markets that aren't profitable for them, leaving those markets without viable alternatives, or with a single carrier monopoly in that market.  Whether a carrier decides to withdraw from the individual marketplace, or from geographic specific markets, the impact, in lieu of alternative competition will be devastating.

I think insurers should be looked at with more scrutiny than the banks were prior to 2008.  We see co-op's failing left and right, reducing competition. Carriers are threatening to leave individual marketplaces due to poor performance. Those same carriers are taking adverse actions against brokers as well, reducing or eliminating commissions for individual products sold during open enrollment or now, different (lower/no) commissions if individuals are enrolled during special enrollment periods. 

Why on earth would anyone think it's ok, from a public policy standpoint, to allow more of the national carriers to merge? What happens when a carrier pulls out of an exchange leaving none left? It's a dangerous situation for the "eggs" of health insurance access to be consolidated into one "basket".  It's similar to some of the airline route monopolies, where there may be multiple national carriers, but on a particular route (or market), there might just be one, and they can charge whatever they want. It's not just a national policy problem, but a regional one as well, as any carrier who becomes the dominant provider of health insurance in a specific market with no other viable alternatives, has, in my mind, become too big to fail. 

UPMC Hospital In Jefferson Hills Creates Controversy

Another battle is brewing in the seemingly non-ending fight between the regions two major healthcare providers. As UPMC unveiled their plan to build a new UPMC hospital practically a stones through from an existing Allegheny Health Network (Highmark) hospital, I think to truly understand the situation our market is in, it's good to use a little analogy.

If health plans provided a videotape to each customer instead of an ID card that you had to present when you used the coverage, Highmark is providing Betamax tapes, where UPMC is providing VHS. (Nothing intentional about giving Highmark the losing standard - and anyhow they are both extinct).  If you show up with your UPMC plan at AHN Jefferson Hospital, it's not going to play there.  

Oh, sure, some PPO plans offer out of network benefits where people have to pay 50% (of full un-discounted retail pricing) after higher deductibles, and higher out-of-pocket maximums.  For many UPMC subscribers who are in EPO/HMO arrangements, going out of network is not even an option.  So if you need to play a VHS tape in Jefferson Hills, you need a hospital with a VHS player. 

Thats about how simple it is for people who are enrolled in either plan.

Questions about capacity and amount of beds needed to service a community really are not all that relevant to any population that that doesn't have access to the current facility.  Highmark has a strategic advantage in enrolling residents of that community in their health plan, and with a UPMC Facility, UPMC would expect to increase enrollment in Jefferson Hills. It at least creates competition, potentially adds new jobs, and a injects a boost to that area's economy.   

Employee Benefits on a Budget

If you are a small business with limited resources, you probably have grave concerns about the costs associated with offering a comprehensive employee benefits package.  

That's probably because you probably think that "Employee Benefits" = "Medical Insurance", and "Medical Insurance" = $$$$$$$$.

With the Affordable Care Act making individual coverage more accessible (even if not completely affordable), you might be surprised what your employees need or want, and what kind of costs are involved in offering a competitive benefit package in the post ACA world.

Lets start off with the elephant in the room.  If you are under 50 employees, and you don't offer medical coverage, ask yourself if you are losing out on qualified candidates for opportunities with your organization as a result of not offering medical?  Have you lost employees to competitors because of the offer of health care coverage?  

If you have, and its becoming an issue attracting and retaining quality employees, you have a choice to either offer coverage, or if you choose not to offer medical, perhaps you can build a benefits package that addresses the needs people have in the post ACA world.  By creating such a package, you will demonstrate a commitment to your employees and just maybe, its not the lack of a medical plan that is causing employees to leave, but the perception that you don't value your employees other than the paycheck you provide.

If you've got employees with families earning less than 49,000 a year, offering a bronze level plan, just to offer a plan, might be doing more harm than good, as employees will be enrolling in a plan they can afford to pay for, but cannot afford to use, and because of your offering, they are ineligible for subsidies on the individual marketplace.  Additionally, many companies will disallow spousal coverage if the spouses company also provides coverage.

That's why I think employers, especially small employers, would be better off creating a more impactful benefit package that focuses on the needs employees can't address on their own.

For example, individuals can't go out and purchase a PPO dental plan, with no service waiting periods on their own.  Any individual dental plan I've found either has waiting periods, (ie. 12 months delay for major services), or other mechanisms to offer lower benefits in year 1 that grow as employees pay into it. Alternatively there are DHMO plans available to individuals that offer very limited number of dentists and have co-pays for services that are often much more costly than coverage under a typical group plan.  

As an employer with at least 5 employees, I know I can find you a full service plan with no waiting periods for your employees.  If you pay a portion of the employee cost, you'll be off to the start of a great employee benefits package.  In my experience in Western Pennsylvania, dental coverage is less than a 10th of the cost of a Silver Level medical plan, and with some kind of shared cost (employees pay a portion), you could likely cover 15 employees for dental coverage, for what you could have spent for just 1 employee's medical contribution.

It's easy to see how this way of thinking could be expanded to other needs, such as medical out-of-pocket costs, which are a growing concern amongst people enrolling in ACA plans.  To address these issues, there are suites of voluntary products available at a fraction of the cost of the richer medical plans, that can help employees meet the out of pocket costs associated with accidents, cancer, critical illness situations, and again, these products are not typically offered to individual consumers on the street.  And these worksite benefits can be offered at virtually no cost to the employer.

There are many other strategies for creating compelling and competitive benefit packages for small businesses, with life, disability, vision and wellness programs.  Contact me if you are interested in learning more ways to create a package that addresses the key concern of small businesses: Attracting and Retaining Quality Employees.



Happy New Year

Couple of quick bullets to share: Cadillac Tax was delayed by Congress until 2020.  This is a good first step but that part of the ACA needs to be repealed.  I still am not even convinced in the slightest, that somehow bumping up against Cadillac tax thresholds will create miracle cost controls - which is the argument that some have for keeping the tax.  The other argument is that it's just another funding mechanism to help pay for this thing (ACA).  I've written previously why I think it's a bad deal, and nothing has changed that opinion: Cadillac tax - why it should go!

ACA Reporting has been delayed.  Thats pretty good news because I know all you 50-99 employee companies have been hitting the snooze bar on this one!  Here are the new dates you need to know:

  • March 31, 2016 - New deadline for furnishing 1095-B & 1095-C to individuals
  • May 31, 2015 - New deadline for filing forms 1094-B, 1095-B, 1094-C & 1095-C with the IRS
  • June 30, 2016 - New deadline for electronically filing forms 1094-B, 1095-B, 1094-C & 1095-C with the IRS

Clients of Koontz Insurance Consulting Group have access to ACA reporting technology to help, identify if you are an ALE, generate 1094's 1095's, estimate the Cadillac Tax (if its ever implemented) as well as a dedicated client portal with a library of relevant data to keep you compliant in the New Year.  At current time, there are no plans to charge for the ACA Reporting tools.  Costs for standalone solutions run in the thousands of dollars for typical 50+ groups (as do the add-ons offered by payroll vendors)

Additionally, please sign up for news updates to the right of this post.  I will keep you appraised of any other newsworthy items on a regular basis.



The inefficiencies of letting employees fend for themselves

Version 2 Whether we are talking about the Affordable Care Act's impact on Health Insurance or just the simple cost of a Dental or Vision plan, we often hear about how expensive they are.

We heard about how employers might just drop benefits altogether due to the anticipated cost increases. Looking at our system of employee benefits today, what is the true cost of an employee benefit? I think we often don't look at the big picture and see how cost-effective the employer sponsored employee benefit system is, under the current tax and provider billing environment.

Let's just take a quick look at how the current system works, by first looking at a person who is not covered by a plan of any sort from an employer who does not offer any benefits.

Using periodic dental exams as an example - the kind you might have every six months, with an employee who doesn't have Dental coverage and an employer who doesn't offer it - you can see how inefficient the use of money can be:

Most semi-annual dental visits are actually two procedures - a periodic exam and a prophylaxis (cleaning).  The cost without insurance in zip code 15203 is estimated to be as follows:  Prophylaxis - $66-$89 and Periodic Exam - $37-50.. Using an average of those ranges $77+$43 = $120 for those two services combined, done twice a year is $240.  (Guardian Life offers a cost estimator tool on their website which I used for this example)

If a person has to pay $240, what do they need to earn to pay that bill?

15% federal, 7.65% FICA, and 3% state = roughly a 25% tax rate.  In order to "take home" $240 a person would need to earn about $320.

If I am an employer, and I pay my employee $320, I will have to earn revenue of $342 to pay that employee $320 due to FICA matching expenses.

So without a qualified benefit program in place, $342 of an employers revenue is required to cover the dental costs of that employee for two preventive visits a year without insurance.

It's a very inefficient use of money, since the government gives employers all sorts of ways to pay those $240 worth of dental expenses without paying taxes on that revenue.  By not sponsoring any plan, that's $102, about a third of the total, going to pay government taxes.

Putting in a Section 125 plan will allow the premium for a dental plan to be paid tax-free, and a Section 125 Medical Reimbursement Account would allow an employee to pre-tax the entire $240.  Pre-taxing premium or pre-taxing money towards provider reimbursements also saves the employer the 7.65% FICA matching taxes.

Another inefficiency of this example, is that without a 'network' arrangement in place, the employee is paying full retail, when the same services would cost a typical PPO Provider Network about $160 a year (vs $240).

That's another $80 worth of efficiency by involving a dental insurer.  In fact the value that can be brought by a dental insurance plan, is that usually the network discounts are equal to the expense ratio's of their products.  What that means, is that the premium they bill you for doing the work, paying the claims, and making some profit, can all be had for the same amount of money you would have otherwise spent on services paying full retail.  The PPO savings on a single molar crown might actually provide more in savings than a single individual pays in premium for almost 2 years!

Health Insurance has an even more profound effect, as only the super wealthy can afford to pay their own medical expenses out-of-pocket in the event of something catastrophic.  Further, it would be impossible to make this same example with health insurance, because the cost of services is shrouded in such mystery.  I've seen enough of my own medical bills and "explanation of benefit (EOB)" statements and after reviewing the "submitted charges" vs the "allowed charges", I know that network discounts are significant on health insurance as well.

So whether it be for favorable tax treatment of premiums, reimbursement dollars, or for cost containment measures like PPO discounts found in formal Medical/Dental/Vision plans, employer sponsored benefit plans offer a much more efficient use of earned dollars, than allowing employees to fend for themselves.

SHOP Exchange - When is it worth the trouble?

Screen Shot 2015-11-04 at 3.11.55 PM One of the elements of the Affordable Care Act was the creation of a Small Business marketplace for small businesses to purchase coverage on a government exchange - potentially expanding the options available to small businesses. One of the benefits of purchasing coverage on the Small Business Health Options Exchange or SHOP Exchange for short (even the acronym is clumsy), is the availability for a tax credit to cover up to 50% of an employers contribution towards its employees health insurance premiums, provided you meet several criteria.

If you want to find out if you are eligible for a tax credit and an estimate of what it would be, Healthcare.gov provides an estimator tool that provides results like the picture above:

SHOP Estimator Tool

If you qualify for a credit, why wouldn't you be on the SHOP exchange?

  • You are in a Grandfathered Non-ACA compliant plan - this is most likely a good reason to stay put.  Non-ACA compliant plans are generally more cost-effective and the pricing mechanisms in ACA plans are most certainly disruptive to your current cost structures.
  • Navigating Healthcare.gov for employers on the SHOP exchange is a challenge at many levels.
  • Brokers aren't comfortable with the process, and the level of information to generate a proposal on the Shop Exchange is much greater than a standard Small Group quote.

In order to complete the process of a "Proposal" on the shop exchange, name, social security numbers, dates of birth, mailing address, email or phone number, are all required for the census.  This information will help expedite the enrollment, but the actual proposal is difficult.  Employers will need to enroll and provide EIN numbers and other company information to determine their eligibility on the SHOP Exchange.

  • Employers are limited in the ways they can offer employees coverage through the SHOP Exchange.  The Shop Exchange offers a very structured system and offers little in the way of customization.

Employers can offer coverage in two different ways: 1. Choose ONE specific carrier and plan, or 2. Choose a metal level.

If an employer chooses a metal level, employees will be offered every single option on the exchange at that metal level.  In the case of Western Pennsylvania, if an employer chose "Silver", employees may be presented 24 different options, including HSA's, HMO's, EPO's, PPO's with various nuanced differences in pharmacy co-pays etc.  I wonder how many employees will be able to make the best decision with the wide range of choices and information provided.

Employers are also limited in the way they can structure contributions for employees. In order to qualify for a tax credit, employers would need to contribute at least 50% towards the employee cost of coverage.  The SHOP Exchange only lets employers designate a percentage of the cost for employee and a percentage for dependents.  If an employer wanted to be more generous and just charge employees $20 a pay for health coverage across the board, there would be no way to do this.  Additionally, the costs will differ by employee age.  If an employer pays 50% of employee coverage, the cost to the younger employee will be much less than the cost of coverage for older employees.  In this regard, all employees will have different contribution levels based on age.

If an employer offers coverage on the "Metal Level" basis described above, and an employee gets a choice of 24 different plans, there are two ways employers can set contributions.  Employers can select a set percentage across the board. If the percentage is set at 50%, the employee could choose any plan at the Silver level, from least costly to most costly, and the employer would pay 50% of whichever plan they chose.  Many employers would find this risky, from a cost standpoint. The most costly Silver plan in Western PA is almost 80% more than the least costly Silver plan. Employers would have to accept the risk that employees may choose a more expensive plan and the cost to the employer could be more than anticipated.

The other option given, is for the employer to select a 'Reference Plan" and pay a percentage of that plan's costs.  If an employee selects a plan that is more expensive than the reference plan, they pay the difference.  Unfortunately, if they select a plan that is less costly than the reference plan, the employee realizes all of the savings.  The dollar value of the employer contribution does not change from the amount derived from the reference plan chosen.  If the reference plan cost $400, and the employer pays 50% ($200) and the employee choses a plan that costs $300, the employer contribution stays at $200, and the employee pays $100.

That is the framework of how coverage is offered under the SHOP Exchange and there's no flexibility, so it may take an employer with a willingness to change the mechanics of their contribution system.

  • Proposals produced on the SHOP Exchange only produce aggregate pricing.

It is not possible to access the actual 'per employee' costs associated with the proposal on the SHOP Exchange. I know this seems crazy, but a proposal on the SHOP Exchange will show the total cost for all employees/dependents included in the census (regardless of whether they may waive or not) and it will show the employer and employee cost based on the cost sharing method chosen above.  Until the employees actually enroll, an employer is blind to employee level cost details. There are some ways to sleuth-out the employee costs, but that may be labor intensive.

  • Both the employer and employees enroll online, and this can create headaches for businesses and employees that are not tech savvy or have employees that do not have access to a computer during work hours, etc.

There may be options for calling in and requesting assistance, but the system is designed to have employers and employees complete the process online.  The process is not very similar to common enrollment systems that exist in the market, so even for people used to an electronic eligibility process, it may be challenging to navigate at first.

But still, as costly as health insurance is, the SHOP Exchange may still be worth considering if you should qualify for a credit, and are willing to adapt to the delivery system that the SHOP Exchange has prescribed.

Koontz Insurance Consulting is here to help guide you through the decision process to figure what the right platform is for your health insurance benefits, and can assist in the completion of SHOP Exchange Proposal and Enrollment processes.

Contact us at: info@koontzicg.com

Open Enrollment / Renewal Time in the Southside

L1080760 As you may see from my About.me bio (down a little on the right column), while my agency in the Southside is new, I've been in the employee benefits business for over 25 years. I provide service to clients over a broad service area in Western PA, however, I am a resident and do business regularly in the Southside.

So, if you also like to "shop local" and would like someone local to help you with your health insurance options for 2016, let's talk.

If you are a small to medium sized business, I represent all the major health insurance carriers, and am currently licensed and approved to write business with UPMC, Highmark, UnitedHealthcare, Aetna, etc.  In the small group marketplace, with ACA-compliant plans, there is not any 'negotiating' and what you will find is a pretty level playing field from broker to broker in terms of pricing and plan options.  It boils down to "who" you want to work with, what services they can provide to keep you informed and compliant in the employee benefits landscape, and who gives you the most personalized attention.

Additionally, many brokers have ignored the SHOP exchange completely, as it is often not the best option for most employers (and it's a challenge to navigate a client through).  However, I can help with SHOP exchange requests, and if you meet certain requirements you may be eligible for a tax credit to help offset your contributions.  It's a little more effort, but if you qualify for a year-end tax credit of up to half the contribution you made for your employees health insurance, you'll feel like that guy in the question mark suit who just found you "free money"!

SHOP Exchange Jeff2

This summer a spotlight has been pointed at the practice of small businesses paying for their employee's individual plans, which is not allowed under the Affordable Care Act.  I've been helping small businesses transition out of this practice and find affordable solutions for their employees health insurance needs.

Additionally, if you are renewing your health insurance, you may want to look at Dental/Vision and other ancillary benefits to help your business attract and retain the best employees possible.

If you are an individual, I'm not really here to 'Sell' you anything.  I just get paid a small amount by the carriers to assist in helping you enroll for coverage (which you are required to have).  Consider these points:

  • There is an individual mandate - if you go without coverage, you may be subject to a penalty when you file your tax return, and the penalty gets worse each year.  You need to have health coverage (you probably know this) unless you are covered by an exemption.
  • The pricing is the same if you spend hours on the healthcare.gov site or their phone system, or I get you quotes, educate you on the options, and enroll you - the same plans at the same price, regardless of whether you use a broker or not.
  • I can help enroll you on the exchange or off the exchange - if you apply on the exchange, you may be eligible for a subsidy from the government for your coverage if you meet certain income requirements.
  • The costs and coverages for 2016 are different than 2015.  You will want to look at the plan you are currently in, and make an affirmative decision for 2016 - you will not want to just auto-renew in your current plan without making sure the costs and benefits are still providing you the best value.
  • If you enrolled on Healthcare.gov last year, and want to use a broker this year, no problem.  Again, the pricing, plans, carriers are no different whether you used a broker or not, so why not get help.

Contact me at:  Jeff@koontzicg.com