from HealthReform.com

In the post-aPPACAlytic world, the 50 employee firm will be hard to find, increasingly so each year so that by 2020, or perhaps sooner, it will be extinct.

The truth is, there will be no reason to officially have 50 employees, or a little more than that.  Even employers with 60, perhaps 70 or even 100 will be hard to find and increasingly rare.  Let’s call this group of employers the small large-employers.

The quantity of 49 person firms, however, will explode, and here’ why:

PPACA dictates that those employers with at least 50 employees must comply with its regulations including the employer mandate and its penalties.  Those with fewer than 50 employees need not worry.

So let’s break down the two types of small large-employers:  Those that offer group health insurance to their employees today, and those that don’t.

For those that don’t offer insurance, the incentives are quite large and obvious to “get below 50” in order to avoid penalties and the administrative burden.  How they do that is the subject of another post, Pay Play or Avoid.

For those that offer insurance today, the incentive is not so obvious, but let’s peel the onion back.  The knee jerk reaction is that “they already provide health insurance today, so post PPACA will not change anything”.  But keep in mind , the 50 person firm has to compete with the 49 person firm down the street offering the same products and services.

The 50 person firm is forced to offer group health insurance and comply with PPACA.  Alternatively, the 49 person firm can offer a defined contribution plan  while allowing its employees to choose their own  customized insurance plan on the exchanges.  Using vehicles like FSA’s, HRA’s and HSA’s, both the employer and its employees get tax savings, the employer is free from the administrative burden of providing health insurance and also avoids the new burden to be imposed by PPACA.  Meanwhile, the employee gets the coverage he or she wants, not what is being force-fed by its employer.

Now, don’t expect a wholesale shift in 2014 from this second group, but I do believe they will eventually find a way to not be a small large-employer anymore – in fact, their very survival probably depends upon it.

And as time goes by, expect to see a lot of consolidation, divesting, and outright downsizing within the small large-employer group.  These companies will either get bigger or get smaller, but they won’t stay the same.

from HealthReform.com

When President Barack Obama signed into law the Patient Protection and Affordable Care Act, the intention was to deliver universal health care to all Americans. But, like all major societal and governmental overhauls, there are some who are worried about the burden of health care reform compliance.

Based on Internal Revenue Service figures, the House Committee on Ways and Means revealed this month what may be an unintended consequence to the act. There will be nearly 80 million hours worth of compliance paperwork to complete, most of which would fall to small businesses. Other reports from the Education and Workforce Committee as well as the Commerce Committee put out even higher estimations. They indicate the total cost of compliance could be 127.6 million hours. This is so much time that some essentially call compliance alone a new tax.

To put that number in perspective, the House Ways and Means Committee says in the time it takes to comply with the new rules:

• The Empire State Building could be built 18 times
• Space vehicles could travel from Earth to Mars 13,048 times
• Halley’s Comet, seen from earth every 76 years, could be spotted 119 times.

In other words, some businesses and governmental agencies are likely to give up more productive activities in order to comply with the regulations. In fact, panel head Rep. David Camp, has said it’s no wonder that 70 percent of small businesses cited in a recent survey noted compliance as a major obstacle to creating jobs.

In reaching compliance, companies must supply health insurance to their employees or face tax penalties. Many companies say that forced purchases of insurance will strip away profits, reduce the ability to offer competitive wages, and decrease their workforce size or inhibit research and development or other essential methods of growth. Furthermore, since reaching the health care reform compliance is mandated, they might not be able to offer competitive insurance coverage. This, in turn, could also deter prospective employees. There is always the option of not complying and paying the tiered tax penalty, but this could be a dangerous game to play when dealing with taxes owed to the federal government.

Some companies are more confident about the impact of meeting health coverage compliance requirements. The compliance mandates that employers who foot the bill for at least 50 percent of their employees are allowed to write off as much as 35 percent of their contributions. By 2014, that write off will surge to 50 percent, meaning that some companies can now attract competitive employees and save some money to reinvest back into the company.

Essentially, the pros and cons of the health care reform compliance issue seem to rest with the ideological belief of each company head, though there is no doubt that compliance is a challenge facing all business owners in the near future. According to ADP, 7 out of 10 business decision makers agree that the cost of providing health insurance to employees is a “barrier” to reaching business goals.

from HealthReform.com

In America, it’s estimated that anywhere between 50 to 129 million people, or roughly 19 to 50 percent of non-elderly Americans suffer some sort of pre-existing health condition, according to a recent analysis by the Department of Health and Human Services. Of those people, up to one in five, or roughly 25 million do not have health insurance.

Under President Barack Obama’s Affordable Health Care Act (ACA), starting in 2014, these Americans cannot be denied health care coverage. Insurance companies are bound by law to offer health coverage for everybody. It’s a pre-existing condition exclusion that even businesses are bound to follow. The new law requires businesses to start offering health care coverage to employees or face a tax penalty.

There are costs associated with requiring insurance companies to cover those with higher risk. Many believe health insurance companies, certainly looking to recoup that money, will increase premium rates for all.

The ACA will also, beginning in 2014, require insurers to guarantee plans to any and all applicants, irrespective of his or her health at the time of application. Restrictions will also place limits on how much the insurer can vary premiums for the applicant based on their health status.

Taxpayers, both individuals and corporations, will feel the effects of this new legislation as early as 2013. The following taxes and potential penalties will be implemented as a result of ACA:

• A 3.8% surtax on investment income when your adjusted income is more than $200,000 or $250,000 for joint-filers. Investment income is income generated through capital gains, rent, interest, dividends, house sales, and more.
• A 0.9% surtax on Medicare taxes for those making $200,000 or more. Currently, the general population pays a 1.45% Medicare tax, while employers pay another 1.45%. Next year, an individual’s Medicare tax will be 2.35%.
• A penalty tax, starting at $95 per adult ($285 for a family) in 2014, will increase to $695 per adult ($2,085 for a family) or 2.5% of family income – whichever is greater – for those who don’t buy health insurance.

Inspired by a true evaluation of options with one of my clients, this is the tale (set in the “not too distant” future) of a well-meaning employer and how he unwittingly hurt one of his best employees and his company – all while trying to do the best thing for his employee.  The new rules of PPACA bring surprising new motivations.  The names have been changed to protect the innocent!

Once upon a time, there was a hard working guy named John Jones.  John has worked for Good Guys, Inc. for 17 years now.  In that time, he has barely had a sick day and absolutely never comes in late.  He always makes the extra effort to do his job as well as it can be done – mindful of the impact to both Good Guys’ customers and other employees.  He has become an integral part of the business and an invaluable employee to the business owners.  In that time, he has also gotten married and had a couple of kids – and he is finally doing well enough to have his wife stay home with his young children.

Wanting to do what is best for John and other employees like him, Good Guys went through the effort of designing a benefit package and even contributing significantly to the cost of the insurance (as a 30 person company without a mandate to provide coverage, they felt this was truly a employee-centered decision).  As a matter of fact, Good Guys pays 95% of John’s employee-only premium (about $380 per month or $4,560 per year) – making his cost to participate as an employee only $20 per month.  This is obviously a very good deal for him.  It is also well within the PPACA employer mandates regarding affordability. 

Unfortunately, in order for John to cover his wife and children, it costs him an additional $700/month or $8,400 for the year.  John does well – making $50,000 per year.  But, this additional cost to cover his wife and children is very difficult to swallow – even at his income level.

Here is where it gets interesting. . .

John gets wind of these Health Insurance Exchanges and decides to check them out.  There, he discovers this (reference – Kaiser’s Health Reform Subsidy Calculator) and begins to click some boxes.

Once he enters his information, it is confirmed that:

“In general, full-time employees with employer coverage available that meets specified requirements are not eligible for premium subsidies, unless the employee would have to pay more than 9.5% of income for the employer-provided coverage.”

Well, that wasn’t exactly what he was hoping for.  Out of curiosity, he decided to change his answer to the question, “Is employer coverage available” to “No” and this is what he saw:

So, his employer’s very generous contribution of $4,560 per year for his health insurance meant he would need to pay more than $5,000 per year more for his family’s health insurance coverage.  His employer’s voluntary contribution to his health insurance excludes him from accessing more than$9,200 in Federal tax credits for the cost of his family’s coverage.

Now, the best thing that employer could do for that employee would be to drop his current group health plan or drop this employee to part-time to make him ineligible.

Now, I am pretty sure this is not what was intended by Health Reform.  But, this will be a reality for employees and small employers in 2014 – when these Federal subsidies are fully enacted.  It does make you wonder how something like this could come to be – or if it will be addressed somehow.

Stay tuned!

I have worked closely with employer groups for over 20 years now.  In that time, I cannot tell you how many times I have been asked by my employer clients:

• How is our plan doing?
• What kind of renewal can we expect?
• Are our employees using the plan we provide?

For employers with fewer than 100 employees, these have always been questions I could not answer.  But, in Louisiana, now that has all changed.  Last year, the Louisiana Legislature passed and Governor Jindal signed into law a Healthcare Transparency Law that requires insurers to provide month by month premium v. claims information as well as large claim information for all groups – down to 2 covered employees.  This means, for the first time in the history of small group health insurance, employers will have mandatory access to this valuable information.

How can this help employers?

This kind of claim information, when properly evaluated, can guide employers to the most effective plan designs available for their specific employee population.  As an example, lower utilization and focused high utilization plans would generally benefit from HSA eligible plans and an education campaign to support them.  Plans with broad and high utilization may benefit from copay driven plans with FSAs.

With the underwriting changes that are coming in 2014 as part of Health Reform, small employers (under 50 employees) will have new options and new rules to consider.  Arming yourself with this newly available information will put you in the best possible position possible to evaluate your benefit alternatives.

As the law states,

A plan sponsor is entitled to receive protected health information under this Section only after an appropriately authorized representative of the plan sponsor makes to the health and accident insurer a certification substantially similar to the following certification:

‘I hereby certify and have demonstrated that the plan documents comply with the requirements of 45 C.F.R. Section 164.504(f)(2) and that the plan sponsor will safeguard and limit the use and disclosure of protected health information that the plan sponsor may receive from the group health plan to perform the plan administration functions.’

I encourage you all to take advantage of this new opportunity to better understand your plan, how it is performing and what you can do to impact that.  I am happy to help you in that cause.

A little blurb came out a week or so ago (HHS sets new fees for insurers in federal exchange) that, to my surprise, didn’t seem to get that much attention. In the article, we find:

Running a federal exchange — especially such a large one — will come with major administrative costs, and HHS will charge insurers a fee to cover those costs. The fee will be pegged to the number of customers each insurer has in the federal exchange.

In 2014, insurers will have to pay HHS 3.5 percent of the premiums for each plan they sell through the federal exchange, according to Friday’s regulations.

Well, I guess 3.5% doesn’t sound like very much money. But, I did a little math that may surprise you.

This means that, using current premiums, the HHS will charge an average of $196.53 per individual policy sold on the Federal Exchange. By the end of 2014, the CBO expects that 8,000,000 people will obtain coverage on the Federal Exchange.

If this is true, this fee would generate an astounding $1.572 billion in revenues in 2014.

This is supposed to be fees to cover the cost of running this exchange. But, this kind of revenue is difficult to get your head around. Let me attempt to put it into some perspective. With $1.572 billion, you could buy eHealthInsurance.com (largest provider of health insurance online – 3+ million insured – $519M market cap). That would still leave about $1 Billion for some more employees, buildings and office supplies.

This amounts to an extremely large additional tax on largely lower income Americans (those most drawn to the exchanges) – soon to be required to obtain insurance coverage or pay penalties. Insurance companies have a mandated administrative and profit margins through the MLR rules – so, his fee must be passed along to end consumers.

I am amazed that no one seems to be talking about this.

Most have been prepared for the Health Reform SBC mandates related to their fully insured health plan.  However, Health Reform also states that SBCs are required for all group health plans, including HRAs.  This provision starts with the first open enrollment period beginning on or after September 23, 2012 – basically October 1st and beyond.

Because the SBC guidelines were written for fully-insured health plans, they are confusing when applied to HRAs.  The HHS has suggested that when applying the SBC to HRAs, a good faith effort should be made to comply while following the instructions to the extent possible.

I would anticipate that there will be multiple SBCs distributed – particularly when last minute plan changes and/or carrier changes are made.  This will be something employers should continually communicate with employees about what is happening and why.

As a reminder, employers will need to distribute the SBC to their employees:

• Prior to open enrollment or renewal (at least 30 days)
• When first eligible for initial enrollment
• If there is a mid-year qualifying event
• If there is a plan change
• Upon request (within 7 business days from the request.)

We are providing clients with SBC assistance – bridging the gap between administrators and carriers – interpreting the regulatory instructions. As we cannot provide legal advice, we advise our clients to have this document reviewed by legal counsel. As always, we are available to assist you with any questions you may have.

A quick notice to employers offering or considering offering HRAs:

Health Reform requires that plan sponsors (employers) and health insurers pay a fee to be attributed to the Patient-Centered Outcomes Research Trust Fund.

The fund will establish a nonprofit corporation to conduct clinical effectiveness research to evaluate risks and benefits of medical treatments, services, procedures and drugs.

Who must pay the fee?

Many HRAs will be required to pay the fee. If an HRA is integrated with a self-insured health plan, it will not be subject to the fee. If an HRA is integrated with a fully-insured health plan, the insurance company and the plan sponsor of the self-insured HRA are both responsible to pay the fee.

How is the fee calculated?

The initial fee is $1.00 per average covered life. The fee increases to $2.00 in 2013. After that, it will be indexed to national health expenditures for each year until 2019 when the fee stops. The fee is based on the average number of covered lives in the plan. For HRA plans that are not integrated with a self-insured health plan, regulations state that each participant can be treated as a single life, regardless of the number of dependents.

When is this effective?

Applies to policies and plan years that end on or after October 1, 2012. The first payment of these fees is not due until July of 2013.

What are we doing to help?

Benefit Administration Group will be updating clients on this requirement as more information becomes available. We have already identified a few areas requiring more immediate clarification.   We are also working to prepare an analysis tool to help employers calculate the fee.