Mandating Losses

Imagine with me, if you will, someone requiring you and your business to take on more losses.  It seems inconceivable I know but just play along for a moment.  Let's take your business for example.  Suppose you happen to carry a 95 percent collection rate on your entire receivables.  That would be great - wouldn't it?  This would mean that you only have to write off 5 percent as bad or uncollected debt.  I'm just choosing round numbers and I have no idea if that's good or bad.   Now, suppose I came into your business, with the full weight and might of the U.S. federal government and I said that a 95 percent collection rate was way too good.  You need to bring on more bad debt.  You'd think I was crazy.  Right?  You'd bemoan that this isn't how a free market system is supposed to operate - not mention, it would have the effect of eroding your profit margins.  You'd also have to pass that increase cost on to your customers.  No business owner likes to do that.  You might also have to lay off some people as a result of this added burden.  Yet, this is exactly what the federal government is mandating to health insurance companies by having them carry a minimum loss ratio of 80 percent on individual policies and 85 percent on group policies.

An insurance companies minimum loss ratio (MLR) is nothing more than the amount of all premium collected subtracted by the amount of claims for all of their policies.  The amount that's left over goes to things like overhead, salaries, administrative expenses and commission paid to brokers like me.  So, in normal profit making ventures the object is simple; grow revenues of the business and keep expenses in line to maintain a reasonable profit.  I use the term "reasonable" loosely because I'm a free market guy and I don't want companies to be punished for managing their finances well.  However, that's exactly what's taking place in this new mandate that health insurance carriers take on a minimum loss ratio.  So, if I'm currently carrying an 80 percent loss ratio on group business, I'm now going to be forced to increase my losses by 5 percent across the board.  Who do you think will feel the weight of that new mandate?  That's right, you, in the form of higher premiums.  It's no different than our example earlier with the small business who now has to write off more bad debt.

Look, let's for a moment put aside our natural inclination to want to see the "big guys" get what's coming to them.  This will end up hurting you as much as it will hurt them.  After all, how much do you really think is left over for a health insurance carrier after all premium is collected and all the claims are paid?  Not as much as you would think.  Maybe a couple of points.  Let's also not forget that these so called "evil insurance carriers" employ tens of thousands of employees in this country.  They're huge employers.  How do you think an increase in the cost of doing business will impact their jobs? 

I welcome your viewpoint, especially if you think this is a good thing.  Email me at bknauss@employeemployersolutions.com or visit my website at www.employeemployersolutions.com

Small Business Health Insurance Credit

The Internal Revenue Service has come out with guidelines for small commercial and nonprofit employers that want to take advantage of a new health insurance tax break.  PPACA and a companion act, the Health Care and Education Reconciliation Act, are part of what federal agencies have dubbed the Affordable Care Act(ACA).  This year, the new ACA small business tax break will offer small employers a tax credit equal to at least half the cost of single coverage, if the employees earn average wages of less than $50,000 per year.  The tax credit is not available to ordinary government employers, but it is available to small businesses, small tax-exempt employers, and government-affiliated tax-exempt employers that can be described as section 501(c) organizations.  Here are some of the highlights of this provision:

• Tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations.  
• Employers with 10 or fewer FTE employees that pay annual average wages of $25,000 or less can qualify for the maximum credit.  
• Employers with 10 to 25 FTE employees that pay annual wages of $50,000 or less can qualify for a smaller tax credit.

For the full review of this new IRS Section 45R and to see whether or not you qualify for this new tax credit CLICK HERE.  I highly recommend that you speak with your employee benefits broker/consultant for expert advise on what you're entitled to or if you're not currently working with a broker email me at bknauss@employeemployersolutions.com or visit me on the web at www.employeemployersolutions.com

Health Reform Timeline

The federal health care reform legislation, known as the Patient Protection and Affordable Care Act, signed by the President on March 23, 2010, and the Health Care and Education Reconciliation Act approved by Congress, signed by the President, will expand the availability of health care coverage to millions of Americans. While some of the measures will be implemented this year, many do not take effect until 2014 and some extend out to 2020. 

Below is a high-level overview of the time line.  It is important to note that many of these reforms and their effective dates are subject to the rules and regulations process both at the state and federal levels – which could alter the intended timing of implementation.

2010

New Programs:
 * Temporary retiree reinsurance program is established
* National risk pool is created, small business tax credit is established
* $250 rebate for Medicare members who reach the ”doughnut hole”

Insurance Reforms: 
* Prohibits lifetime benefit limits – based on dollar amounts
* Allows restricted annual limits on the dollar value of certain benefits
* Coverage rescission's/cancellations are prohibited (except for fraud or intentional misrepresentation)
* Cost-sharing obligations for preventive services are prohibited
* Dependent coverage up to age 26 is mandated
* Internal and external appeal processes must be established
* Pre-existing condition exclusions for dependent children (under 19 years of age) are prohibited
* New health plan disclosure and transparency requirements are created

2011

Insurance Reforms:
* Uniform coverage documents and standard definitions are developed
* Minimum medical loss ratios are mandated

Medicare Reforms:
* Medicare Advantage cost sharing limits effective
* Medicare beneficiaries who reach the doughnut hole will receive a 50% discount on brand name drugs
* A 10% Medicare bonus will be provided to primary care physicians and general surgeons practicing in under-served areas, such as inner cities and rural communities.
* Medicare Advantage plans would begin to have their payments frozen.

Other: 
* Employers are required to report the value of health care benefits on employees' W2 tax statements.
* Annual industry fee for pharmaceutical manufacturers of brand name drugs.
* Voluntary long term care insurance program would be made available to provide cash benefit for assisting disabled individuals to stay in their homes or cover nursing home costs. Benefits would start five years after people begin paying a fee for coverage.
* Funding for community health centers would be increased to provide care for many low income and uninsured people.

2012

* Hospitals, physicians, and payers would be encouraged to band together in "accountable care organizations."
* Hospitals with high rates of preventable re-admissions would face reduced Medicare payments.

2013

* Individuals making $200,000 a year or couples making $250,000 would have a higher Medicare payroll tax of 2.35% on earned income —up from the current 1.45%. A new tax of 3.8% on unearned income, such as dividends and interest, is also added.
* Medical expense contributions to flexible spending accounts (FSAs) limited to $2,500 a year—indexed for inflation. In addition, the thresholds for claiming itemized tax deduction for medical expenses rise from 7.5% to 10% of income.
* Medical device manufacturers would have a 2.9% sales tax on medical devices; devices such as eyeglasses, contact lenses, and hearing aids would be exempt.
* Eliminates deduction for expenses allocatable to Medicare Part D subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees. 

2014

Coverage Mandates and Subsidies:
* Individual and employer coverage responsibilities are effective. 
* Individual affordability tax credits are created and small business tax credits are expanded.

Health Insurance Exchange & Insurance Reforms:
* State individual and small group health insurance exchanges operational.
* Guaranteed issue, guaranteed renew-ability, modified community rating and minimum benefit standards (“essential benefits” plan) effective. 
* Lifetime and annual dollar limits are prohibited for essential benefits.
* Pre-existing condition exclusions are prohibited.

Taxes and  Fees: 
* Addition of new taxes on health insurers

Medicaid and Medicare Reform: 
* Medicaid expanded to cover low income individuals under age 65 up to 133% of the federal poverty level—about $28,300 for a family of four.
* Minimum medical loss ratio of 85% required for Medicare Advantage plans

2018

Taxes and Fees:
 * Tax (“Cadillac tax”) imposed on employer sponsored health insurance plans that offer policies with generous levels of coverage. 

2020

Medicare Reform: 
* Doughnut hole coverage gap in Medicare prescription benefit is fully phased out. Seniors continue to pay the standard 25% of their drug costs until they reach the threshold for Medicare catastrophic coverage.

Creating a Culture of Health and Wellness

I deal mainly with small-to-medium sized employer groups and every time I broach the subject of creating a company culture that promotes the health and wellness of their employees - I usually get the same response.  It goes something like this; "Are you kidding?  It's not good enough that I provide a good paying job with a great employee benefits program, now you want me to promote healthy lifestyles for my employees?  Forget it!"  Coincidentally, my response is always the same.  "As long as you [the employer] have a fiduciary responsibility for your companies health plan, meaning, it's your name on the plan and you're the one they ultimately look to for payment - then you have an incumbent responsibility to shield your company finance's against premium increases.  Think about it for a moment.  If the majority of your employees are living unhealthy lifestyles (ie. they're over-weight, they smoke, live sedentary lives) then you'll be bearing that burden in the form of higher health insurance premiums year after year.

It's not just higher premiums that become the negative outcome.  It's also the fact that unhealthy employees tend to be more unproductive than their healthy counterpart employees.  They have a higher absenteeism rate and they have a tendency to be less productive even when they're at work.  Ignoring a robust health and wellness component to complement your employer-sponsored health plan just doesn't make good business sense.

Here are some chilling facts:  

A recent analysis of data from the National Health and Nutrition Survey (NHANES), which is conducted regularly by the National Center for Health Statistics, warns that middle-aged individuals may be at greater health risk than anyone anticipated. In comparing the results of two large-scale studies of the U.S. population in 1988 to 1994 and in 2001 to 2006, the report shows that the number of people aged 40 to 74 adhering to healthy lifestyle habits has seriously declined.

• The percentage of surveyed adults with a body mass index greater than 30 has increased from 28 percent to 36 percent *

• Physical activity 12 times a month or more has decreased from 53 percent to 43 percent *

• Eating five or more fruits and vegetables a day has decreased from 42 percent to 26 percent *

• Moderate alcohol use has increased from 40 percent to 51 percent *

• Smoking rates have not changed (26.9 percent to 26.1 percent) *  

*The Vitality Group " CREATING A NEXT-GENERATION HEALTH AND WELLNESS PROGRAM: Why employers should take the lead, and how to do it

While it's true that Americans are living longer today (life expectancy for males is 75 years and for females it's 80 years), it's also true that more Americans suffer from chronic and debilitating diseases such as diabetes, hyper-tension, acid reflux, heart disease, mostly stemming from too many Americans being obese.  In fact, it's estimated that obesity alone accounts for 147 billion dollars a year in health care related costs.  Now, I'm not an economist by any means but I can figure out that if we created a culture of health and wellness in this country that seeks to stem the negative affects of obesity, we wouldn't need the government to get involved with health care at all.

Business owners, maybe it's time to make some radical changes in your workplace like, don't just ban smoking in the building but eliminate the 35 smoke breaks that take place throughout the day.  After all, if I came to you with a request to go into the break room to eat something every 30 minutes you would probably
suggest that maybe this jobs not for me - and you would have every right to suggest that!  Studies have shown that it's well worth the investment with ROI's sometimes being $3.27 reduction in medical costs for every dollar spent on health and wellness, as well as, reducing absenteeism costs by $2.73 for every dollar spent. Just some healthy food for thought.

If you would like to learn more about how to cultivate a culture of health and wellness at your company; email me bknauss@employeemployersolutions.com or visit my website at www.employeemployersolutions.com  Don't forget to subscribe to my blog and follow me on twitter at: http://mployebenefits.com

What Does Health Care Reform Mean To You?

Well, the ink is dry on our nations most sweeping piece of Health Care legislation to come out of Washington since Social Security and now it's time for the experts to figure out what it all means.  There's only one problem, the folks in Congress who voted for it aren't quite sure what's in the over 2,500 page mammoth bill but there are some significant changes as a result of passage that we can outline here.  With that in mind, we won't know the true extent to which this law with alter the way we do business for months to come.  The things that no one is in disagreement about in this Bill is that it's riddled with new mandates, taxes, penalties, compliance requirements,  price fixes, Medicare cuts, Medicaid expansion and administrative burdens that will forever change the face of business.

There are various time-lines and important benchmarks set forth in this legislation that can lend to a great deal of confusion.  So, with that said, let's look at some FAQ's:

• Will employers and individuals see premiums increase as a result of health care reform?

 In compliance with the guidelines and requirements of the new health care law required by September 23, 2010, insurance carriers will modify policyholder benefits accordingly. With these adjustments to policy benefits, it is probable that an increase in premium costs will occur. Beginning in 2014, premium prices cannot be based on a customer’s gender or health status. Until then, current premium pricing will apply.

• Are there annual or lifetime maximums on coverage under the new law?

Effective September 23, 2010, there are no lifetime maximum limits on coverage. In addition, there will be no annual limits on group plans. For individual plans, annual limits may be allowed based on what Health and Human Services deems reasonable. This information is not yet available.

• When are employees able to have their dependents covered until they are 26?

Effective September 23, 2010, the law states that customers will be able to have dependent coverage for their married AND unmarried children up to the age of 26. The requirement is applicable even if the child is not a tax dependent. The law does not specifically include spouses of married children. There is no requirement to cover children of covered dependent children (i.e., grandchildren).

• Under the new law, do pre‐existing conditions no longer matter?

Effective September 23, 2010, insurance companies cannot limit coverage for children on individual or group policies with pre‐existing medical conditions. For adults with individual policies, this provision goes into effect in 2014.

• Under health care reform, what happens to rescission?

Effective September 23, 2010, rescissions will occur only in cases of customer fraud or intentional misrepresentation.

• Is it true that anyone who applies for coverage will be issued coverage?

Under the Guarantee Issue provision, effective in 2014, anyone who applies for coverage must be issued coverage.

• How will this new law affect MSAs/HSAs?

At this point, the only change we are aware of is the tax penalty increase from 10 percent to 20 percent for “non‐qualified” expense withdrawals.

If you would like to find out more about how Health Care Reform effects you and your business email me at bknauss@employeemployersolutions.com or visit my website at www.employeemployersolutions.com Thanks