Health Care Reform: One Year Anniversary

Well, we've past the one year mark of the landmark passage of sweeping health care reform legislation know as the Patient Protection and Affordable Care Act and I'm not sure a whole lot has changed since.  Most of the clients that I visit with are still experiencing double digit renewal increases and they're not certain about what the future holds.  Indeed, most of the more costly aspects of PPACA have already been implemented last fall and all of the carriers have to comply with the provisions that effect their plans like no annual limits on most procedures, no lifetime maximums, no co-pay for routine preventative care and covering dependents up to age 26.  All of these measures had the impact of increasing the cost to the carriers and then, in turn, to you the consumer.  The only aspects left to implement are the requirements on the states such as health exchanges and expanding the Medicaid eligibility roles.  That's exactly where this legislation becomes a bit more dicey and uncertain.

Most states are having a difficult time meeting their current funding obligations, let alone, finding the cash to implement these massive new government bureaucracies.  Which is why some 21 states have filed lawsuits in federal court challenging the constitutionality of the legislation.  All this fosters more uncertainty about the state of our health care industry then ever before.

I don't think that repealing PPACA is likely but I do hope that many in Congress, as well as, the President will take a "drop back and punt" strategy with the remaining aspects of this legislation yet to be implemented.  There are some common sense reforms that are needed and could be addressed rather quickly but PPACA was painted with such a broad brush that it's hard to see that happening anytime soon.  Email me your thoughts at bknauss@employeemployersolutions.com or visit me on the web at www.employeemployersolutions.com

Affordable Care Act: Non-discrimination Provisions Applicable to Insured Group Health Plans

The days of being able to carve out a certain employee population group to provide richer benefits are numbered and in fact will carry some heavy fines and penalties for companies who engage in such practices.  The additon of Section 105(h) ammends the internal revenue code which provided guidance to self-insured health plans to prohibit discrimination treatment to highly compensated employees in the past to now include all fully insured plans as well.  A summary of the rules are as follows: 

Among the many health insurance and benefits law changes made by the Patient Protection and

Affordable Care Act (PPACA, P.L. 111‐148) is a new requirement for fully insured health/medical plans to comply with nondiscrimination benefit rules that previously only applied to self‐funded employer plans.Effective for plan years beginning on or after September 23, 2010, fully insured group health plans now must comply with the nondiscrimination requirements for self‐funded plans, including rules that the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate. In addition, the benefits provided under the plan may not discriminate in favor of participants who are highly compensated individuals.  This does NOT apply to “grandfathered” health plans.

Though compliance regulations are expected from the Department of Labor, IRS and other federal agencies, rules similar to those for self‐funded plans are expected to be applied to insured group health plans, including rules for eligibility, benefits, and controlled groups. Unlike discriminatory self‐insured plans, for which highly compensated employees get taxed, the PPACA does not tax highly compensated employees covered by discriminatory fully‐insured plans. It appears likely that the tax consequence of any violations would be similar to the HIPAA group health plan $100/day excise tax, not taxation of benefits.  The PPACA, Sec. 1001 as amended by Sec. 10101 (new Public Health Service Act Sec. 2716) provides that a group health plan shall satisfy the requirements of section 105(h)(2) of the Internal Revenue Code (relating to prohibition on discrimination in favor of highly compensated individuals). Rules similar to the rules contained in paragraphs (3), (4), and (8) of section 105(h) of the Code shall apply, and the term “highly compensated individual” has the meaning given such term by section 105(h)(5). Non‐Discrimination Rules and IRC Sec. 105(h) for Self‐Insured Plans Internal Revenue Code (IRC) Sec. 105 and Sec. 106 permit employers to offer certain health benefits on a tax‐free basis. However, these rules can be different for highly compensated employees (HCEs) if the health plan is self‐insured and eligibility for benefits or benefits payable to the HCE is discriminatory. For purposes of IRC Sec. 105(h), an HCE (determined in the plan year for which the reimbursement was made) is:

• One of the five highest‐paid officers;

• A shareholder owning (actually or constructively) more than 10 percent of the company’s stock;

• Among the highest paid 25 percent of all employees.

These requirements are not mutually exclusive. The five highest paid officers may also be among the highest paid 25% of all employees. However, if one of the top five officers is not in that pay range, that officer still needs to be included in the highly compensated individual category.  IRC Sec. 105(h) applies to all employment‐based health plans (medical, dental, and vision) in which the risk has not been shifted to an insurance company, including administrative services only (ASO) and cost‐plus arrangements, possibly minimum premium plans, and medical reimbursement plans provided through an IRC Sec. 125 plan (collectively referred to as “self‐insured health plans”). 1 Sec. 1001 of the PPACA as amended by Sec. 10101; new Sec. 2716 of the Public Health Service Act  If such a self‐insured health plan discriminates in favor of HCEs, the affected HCEs must include some or all of the value of the benefits received in their taxable income. This imputed income is subject to federal income taxes (but not to Social Security or Medicare taxes), and state tax liability if such liability is calculated pursuant to federal rules.

Eligibility Test—For a plan to be considered nondiscriminatory with respect to eligibility to participate, it must pass one of the three coverage tests:

• Seventy percent of all employees benefit under the plan;

• The plan benefits 80 percent of eligible employees and 70 percent of all employees are eligible;

• The plan benefits a nondiscriminatory classification of employees.

The IRS regulations indicate that the plan must provide the same benefits for both highly compensated and non‐highly compensated employees. If a plan provides different benefits to different groups of employees (e.g., differences in waiting periods), each benefit structure is treated as a separate plan for purposes of the eligibility test described above.

A self‐insured health plan discriminates as to benefits unless all benefits provided for participants who are HCEs are also provided to all other participants. All benefits for dependents of HCEs must also be available on the same basis for the dependents of all other employees. The self‐insured health plan will also be considered discriminatory as to benefits if it covers HCEs and the type or amount of benefits subject to reimbursement is offered in proportion to compensation. The nondiscrimination test is applied to the benefits subject to reimbursement under the medical program and not to the actual payments or claims made. Further, a self‐insured plan is not considered discriminatory just because HCEs utilize benefits to a greater extent than other participants.

If there are optional benefits available (e.g., vision and dental), these benefits will also be considered nondiscriminatory if all eligible employees can elect any of the benefits and either there is no required premium by the employee or the premium charged is the same for all employees.

Certain employees may be excluded from the eligibility tests, including:

• Those who have less than three years of service at the beginning of the plan year;

• Those who are younger than age 25 at the beginning of the plan year;

• Part‐time or seasonal employees;

• Those who are covered under a collective bargaining agreement;

• Nonresident aliens who receive no income from a U.S. source.

In addition to the eligibility rules, all benefits provided to highly compensated employees must be

provided to all other participants.

Since the discrimination rules for self‐funded plans were issued in 1980, employers have adopted fully insured plans to provide executives and key employees with tax‐free reimbursements for out‐of‐pocket medical, dental, and vision expenses. The new PPACA prohibitions against discrimination in fully insured plans will compel employers to consider other methods in compensating higher earning employees.

Year-End Health Plan Renewals: Are You Ready?

It's hard to be in the company of any small business owner today and not have the discussion of health insurance crop up.  Much of that discussion seems to be centered around a high level view of the Patient Protection and Affordability Care Act, enacted into law earlier this year.  Many of those major provisions went into effect on September 23rd and missed the radar screen of many small business owners in the Lehigh Valley.  Many of those provisions are part of the consumer protections that the President proudly touts as its major accomplishments.  At the pinnacle of the problem, in my view, is that so many employers are just putting their head in the sand and taking the posture that we'll wait until 2014 when the full breadth of this legislation takes effect.  That will be too late!

Many insurance carriers estimate that the direct cost of this initial compliance with PPACA with be around 3 to 4 percent increase in premiums - that's aside from any natural increase that will occur from medical claims throughout the year. After many discussions with average business owners about what there level of knowledge is regarding this huge legislation, the response is surprisingly very little. Employers don't have the luxury of just waiting until 2014 to see how this will impact them.  They need to act now in light of all the penalties and new taxes that will result for non-compliance.  My strong recommendation is to make sure that you're with a health broker that you're confident in there ability to help you wade through the maze of complexity.  The role of a trusted health insurance advisor will be more important than ever.  Here are some practical tips to help you better prepare for your health insurance renewal:

1. Give yourself plenty of time before your actual effective date.  Don't let your broker dictate that pace.  Your insurance carrier may take a little longer this year to get out renewal rates because they've been busy complying with PPACA but it's still wise to start discussion about potential tweaks to your plan or identifying other carriers that might suite your needs better.
2. Your plans deductible is the only real way to make significant impact on your monthly premiums so start discussions about what would be palatable for your employees.
3. With the prospect of raising deductibles, discuss with your broker what suite of supplemental/voluntary benefits would best fill the gaps left by larger deductibles.
4. Start looking for a broker and an insurance carrier that has a robust health and wellness component to their plans.  The unhealthy lifestyles of your employees will continue to be the largest contributing factor to escalating health premiums so you need to take a proactive approach to stem that tide.
5. Discuss implementing a defined contribution plan versus a defined benefit plan.  So, for example, the single rate on your plan is $250 per month.  If you establish a policy going forward that you will hold that contribution steady at $250, your cost becomes a fixed instead of a variable.  Now, having said that, you do have to be careful of one possible pitfall.  Most group health plans require the employer to pay a minimum of 60% and up towards the single rate.  So, you have to monitor going forward that you don't violate that provision.
6. Depending on the size of your group, consider researching self-insured plans for both medical and dental.  Many of the new health reform compliance provisions don't apply to self-insured plans.

I trust that this information has been helpful.  For these tips and more, register to attend my free seminar by clicking http://tenbenefitstrategies.eventbrite.com  If you only see your broker once a year around renewal time and there's no strategic planning discussions about the future and direction of your companies employee benefits then maybe it's time to look into someone else.  I'd be glad to speak with you by contacting me at bknauss@employeemployersolutions.com visit my website at www.employeemployersolutions.com or call my office at 484-892-3314.  Thanks

Promoting Health & Wellness in Health Care Reform

I must admit, there's not a whole lot in the over 2,000 page piece of health reform legislation that I do like - except for one area.  It happens to be in the area of promoting health and wellness.  There is a provision in this bill that allows for grants to be doled out to small businesses who set-up and encourage health and wellness programs at the worksite.  The thing I like most about grants versus loans is they don't have to be paid back.

I firmly believe that, if we do nothing else while implementing this huge new entitlement program, we must get a handle on healthy lifestyle choices for our employees.  Just by way of example, obesity health care related costs in this country have reached a staggering 146 billion dollars a year.  If we make health insurance available and affordable for all Americans and don't do anything to address controllable health issues - we're just throwing good money after bad.  This bill allows for grants to start flowing in 2011 and continuing for 5 years.  The specifics haven't been revealed yet but there's another dimension to this provision that is well worth mentioning.  For employers who implement health and wellness programs and for the employees who participate in them - there is a percentage reduction in the amount of premium paid in the form of reward or incentive.

Never before, that I can remember, is there a process that says if you do this you receive a discount on your premiums.  We don't yet know what the benchmarks or criteria will be but I am very encouraged about the possibilities of creating healthier lifestyle choices for American workers.  We will all benefit from that - not just the participants in the program.  Here are some of the highlights of this initiative:

• Provide grants for up to five years to small employers that establish wellness programs. (Funds appropriated for five years beginning in fiscal year 2011)

• Provide technical assistance and other resources to evaluate employer-based wellness programs. Conduct a national worksite health policies and programs survey to assess employer-based health policies and programs. (Conduct study within two years following enactment)

• Permit employers to offer employees rewards—in the form of premium discounts, waivers of cost sharing requirements, or benefits that would otherwise not be provided—of up to 30% of the cost of coverage for participating in a wellness program and meeting certain health-related standards. Employers must offer an alternative standard for individuals for whom it is unreasonably difficult or inadvisable to meet the standard. The reward limit may be increased to 50% of the cost of coverage if deemed appropriate. (Effective January 1, 2014) Establish 10-state pilot programs by July 2014 to permit participating states to apply similar rewards for participating in wellness programs in the individual market and expand demonstrations in 2017 if effective. Require a report on the effectiveness and impact of wellness programs. (Report due three years following enactment)

If you would like to take advantage of implementing a health and wellness initiative at your company then email me at bknauss@employeemployersolutions.com or visit my website at www.employeemployersolutions.com

10 Creative Employee Benefit Strategies: Part 1

I grew up in the Lehigh Valley, lived and worked here my whole life.  I can remember a time when Blue Cross Blue Shield was the only option for health insurance and it was great coverage.  The best part about the plan, back then, was the employer typically picked up the entire premium cost and the employee deductible was very small or none at all.  Well, fast forward, the coverage is still great, the deductibles are still fairly low but the cost is just unsustainable. So much so that companies are faced with the possibility of dropping coverage all together.  Well, it's not just the Blue's that has this challenge.  It's really any insurance provider that offers very low-deductible plans.  Companies just cannot afford these extremely benefit rich plans anymore.  Employees love these plans because they have minimum, if any, out-of-pocket exposure.

If you're one of these Lehigh Valley businesses desperately trying to hold on to this type of plan structure - you simply have to consider increasing the deductible on the plan.  There's no other component that will get you where you need to be.  You can entertain increasing co-pays and co-insurance to the existing plan but none of those options will make a significant financial impact.

Now that you've made the tough decision to raise the deductible - now what?  There are some very practical things that you can do in conjunction with raising your deductibles that will lessen the impact on employee morale, as well as, cultivate more employee engagement with your companies employer-sponsored health plans.  Over the next several months, of this 10 part series, we will look at some creative ways to accomplish these goals.  Look for part 2, The Value of a High Deductible Health Plan, next month.

In the meantime, email me questions or concerns at bknauss@employeemployersolutions.com, visit my website at www.employeemployersolutions.com or just call our office at 484-892-3314.