Value Based Benefit Strategies Getting the most bang
“Value Based Benefit Strategies” Getting the most bang for the Employer’s buck!
Agenda • • Employer trends Self funding – dodging some ACA mandates Healthcare Pricing Healthcare Providers Tax subsidies for small groups Defined Benefits vs. Defined Contribution The Winners: employers, employees & brokers The IRC Sections 105 & 125
On your mark…get set…go! The ACA requires new thinking!
B 2 B Shifting to B 2 C • What are you doing to differentiate your business model in the “sea of sameness”? – To help consumers understand new health plans – To guide consumers through new options – To build brand loyalty for your agency – To communicate your message
Employer Trends • Shift more cost to employees? § Higher health insurance premiums § More out of pocket expenses • • Drop the employee benefits? Take the penalty? More Self funding Wellness programs
Employer Trends • Offer more voluntary benefits like: – Critical illness – Dental – STD / LTD – Life insurance – LTCI • Move away from “Defined Benefits” to “Defined Contribution”?
“What you’ve got is basically a loophole for the small employer to get out of the ACA requirements” Robert Laszewski, VA-based consultant & former ins. executive SELF FUNDING
Self Funding • Allows a plan to get out of several ACA mandates • For example: – No 3: 1 age slope – Allows for flexible deductibles and coinsurance – May be underwritten – Not community rated – Eliminate some state mandates – Save on health insurance premium tax
Advantages to Self Funding • Employers’ desire to: – Maintain a level of flexibility in plan design – Gain more control in the financing of their employees’ health benefits – Potentially save money over a fully insured plan
What else do you purchase where you do not know the cost? HEALTHCARE PRICING
Consumer Behavior Must Change • Are a nation of “co-pay junkies”? • We need to start shopping for health care like we do anything else • But…what does health care cost? • How & where do people research & shop for health care costs?
Healthcare Prices • Closely guarded by hospitals • Recent government study of 3, 300 hospitals show a wild disparity in billing rates • Example, hip replacement: – In Houston, $126, 157 – In Appleton, WI, $26, 787 – Medicare only pays $14, 000
Reference Based Pricing • (RBP) is a system that some employers have started to use for cost containment purposes • RBP agrees to pay a percentage above the Medicare-negotiated price to account for the lack of margin and better satisfy the providers
What is in it for them? HEALTHCARE PROVIDERS
How do the providers win? • Collaboration of services and information – Share medical records – Gain efficiency – Save money • Reduce hospital readmissions • Join an Accountable Care Organization? • Join a “narrow network”?
• For exchange programs, Aetna will use provider networks that are only 1/4 to 1/2 the size of its normal health plan networks – Mark Bertolini, President of Aetna Inc. (NYSE: AET), said in the first quarter 2013 earnings call
ACOs • Accountable care organizations are integrated networks of hospitals, doctor offices and other health care facilities that get paid by an insurer based on the quality and effectiveness of care their patients receive • Configured to produce the greatest medical cost savings through designated providers, who are chosen based on measures of quality and efficiency that lead to improved outcomes
Telemedicine • Up to 70% of medical issues could be solved over the phone (Wellness Council of America 2008) • 24/7 – call anytime and get a U. S. doc & get a prescription written if needed
Reducing Cost via Telemedicine • Could reduce the claim cost to the carrier – Emergency room - $750 – Urgent care $150 – Doctor office visit $100 – Telemedicine: new benefit, no charge to carrier
Physical by Smart-phone? • To measure blood pressure: – an arm cuff can plug into a smart-phone for a quick reading • To measure a heartbeat: – user would place his or her fingers over the camera and the squiggly lines of an EKG appear on the phone's screen • Other devices would enable a smart-phone user to look inside a person's eardrum, eyes, listen to a heartbeat, chart lung function or get a sonogram
Shop Program, or “Shop-Less”? TAX DEDUCTIONS FOR EMPLOYEE BENEFITS
Section 125 • Premium Only Plan - POP • Flexible Spending Account - FSA – For unreimbursed Section 213 d expenses up to $2, 650 as of 1 -1 -18 • down from $5, 000 due to the ACA – For dependent care • Children • Aging adults
Small Business Tax Credit • 2014 - up to 50% for groups up to 25 lives – Up to 35% for non-profits • To qualify: 1. Must have an average salary of <$50, 000 2. Employer must pay at least 50% of the premium 3. Employees must work at least 30 hours per week
Fact #1: Employers want more value from their employee benefit dollars Fact #2: Employees want benefit options to fit their personal needs DEFINED BENEFITS OR DEFINED CONTRIBUTIONS
Could this be the future? • Drop the group health plan • Penalized $2, 000 per ee? – Not in a group of <50 FTEs • We still finance the benefits, but: – We control our budget and – Each employee may customize benefits to fit their personal needs
“Defined Contribution” • Employer sets up: – HRP (Sect 105 Health Reimbursement Plan) – Section 125 Plan • Employee submits defined expenses for reimbursement via the HRP, such as: – Health insurance premiums – Out of pocket Section 213(d) expenses – Optional Lasix or “Lap Band” procedures, etc.
Defined Benefits – today’s world • 18 life group • Dual option plan – $900 monthly employee premium 1. PPO $2, 500, 70/50, $4 k/$8 k coinsurance, office copay and drug copay…or 2. HDHP $5, 000/100%, plus a $1, 650 annual contribution to an HSA from the employer • Annual EE premium = $194, 400 per year
Example of how this could work • Employer budgets $500 PEPM • Employee purchases a QHP – With at least 60% actuarial equivalency – Including all of the EHBs • Employee submits the premium expense for reimbursement via the HRP • Employee purchases additional supplemental benefits via the Sect 125
$500 Employer Contribution • Example: – Employee purchases a Bronze plan • $300 per month of unreimbursed premium • 2018 $7, 350 max out of pocket • Employee has $200 left over
$200 left to customize their plan • • Supplemental health plans Long Term Care Insurance Dental and/or Vision Life insurance Accident policy LTD or STD …whatever fits their needs
What are the most common ways to hit your max out of pocket? • Accidents – Slips, falls & fractures • Cancer • Heart Disease – Heart attack – COPD • Stroke or TIA
“It can’t happen to me…right? ” • Cancer – 1 in 2 men will be diagnosed at some point – 1 in 3 women • Heart attack – 1, 300, 000 each year in the USA • Accidental injury – 38, 000 receive medical attn each year
What could a 40 yr old get for $100 per month of supplemental coverage in today’s market? § $30, 000 lump sum for each: § when diagnosed with cancer – plus upgraded radiation and chemo § 17 different critical illnesses § Plus, organ transplant, coma, paralysis, and/or blindness § Heart attack or stroke § Plus - recurrence benefits for the above benefits! § Accident – covers 14 different types of accidents § Hospital indemnity
Who wins in this new strategy? 1. The Employer 2. The Employee 3. The Broker
The Employer Wins! Premiums Health Insurance Critical Illness Long Term Care Insurance 2018 $194, 400 Not offered 2018 Defined Contribution $300 x 12 months x 18 employees = $64, 800 Dental Not offered Accident Not offered Tax deductible voluntary employee benefits ($200 x 12 months x 18 employees = $43, 200) $194, 400 – ($64, 800 + $43, 200) = $86, 400 annual savings!
More Employer Savings • FICA tax savings of 7. 65% on all qualified premium placed through the Section 125 • Example: – The Employer has $43, 200 in payroll deduction via the Section 125 – $43, 200 x 7. 65% = $3, 305 in FICA savings to the Employer
The Employee Wins! Health Insurance $2, 500 ded, 70/30 with a $4, 000 in network coinsurance ($8, 000 OON) Max OOP of $6, 850 for an individual CI, Cancer, Heart & Stroke, Accident Long Term Care Insurance Dental Accident Plan None $30, 000 for $200, 000 of Preventive, multiple indemnity, Basic and catastrophic 5% Major risks compound coverage, inflation $1, 000 CYM Up to 14 covered accidents
The Broker Wins! Supplemental health product illustrated is “Active Care” from Washington National Commission Health Insurance 4% of annual group health premium = $7, 776 5% of annual IMM premium = $2, 239 Critical Illness, Cancer, Heart & Stroke, Accident $0 50% of $21, 600 = $10, 800 Long Term Care Insurance $0 50% of $10, 800 = $5, 400 Dental $0 20% of $10, 800= $2, 160 Total Commission $7, 776 $20, 599 Commission Increase! $7, 776 vs. $20, 599
Know the code! THE IRC SECTION 105 PLAYGROUND
Integrated vs. Standalone Integrated HRA • Must be “integrated” with a group health plan • Used to reimburse deductibles, co-insurance or co-payments Standalone HRA • Generally prohibits payment of individual premiums through standalone HRA • Exceptions for spousal coverage, retiree-only and Medicare enrollees
Standalone HRAs Spousal HRA Medicare HRA • Employee must be covered on spouse’s group health plan. • Former employees eligible based on employer’s definition of retiree • Employer had 1 -19 employees for 50% or more business days of preceding calendar year • Employer can reimburse co -pays, deductibles, coinsurance of being covered on spouse’s plan, but not premiums. • Employer can reimburse all or a portion of the individual health insurance premiums or Medicare related costs • Employer can reimburse all or a portion of the cost of Medicare related coverage (Part B, PDP, Med Sup premiums) • Benefit is tax-free to retiree • Benefit is tax-free to employee 46
Tax Considerations: No “double dipping” • Section 105 – Health Savings Accounts – Health Reimbursement Arrangements – Medical Expense Reimbursement Plans (MERPs) • Advanced Premium Tax Credits, or “Subsidies” – Are offset dollar for dollar with QSEHRA contributions
The 21 st Century Cures Act: HRAs • “The Act” also allows small employers (2 -50 FTEs) to offer Health Reimbursement Arrangements (HRAs) to their workforce to help cover the cost of: – Unreimbursed medical expenses and – Certain insurance premiums • Previously, the Affordable Care Act (ACA) prohibited businesses from offering HRAs for reimbursing individual major medical insurance premiums
Benefits of a QSEHRA • For Employers: – Simplifies the Employee benefits administration – Helps Employers control their benefits budget – Creates good will towards the Employees with flexible benefit options designed to meet their household needs
Benefits of a QSEHRA • For Employees: – Empowers Employees and their dependents with customized benefits: • Potential for a better doctor network match • Potential for a better formulary match • May add supplemental plans like dental or Critical Illness – Offers a tax favored method to: • purchase certain insurance products • get reimbursed for Section 213(d) expenses
Eligible QSEHRA Expenses • Insurance related products – Qualified Health Plans (QHPs) • On-Exchange • Off-Exchange – Other • Dental, Vision and Hearing plans • Supplemental health plans • Documented, unreimbursed Section 213(d) expenses (examples on next slide)
Health Reimbursement Arrangements • • 100% Employer financed accounts Not required to be pre-funded Tax advantages for Employees may not contribute to HRAs IRS approved Section 105 plan HRAs are not health insurance Usually coupled with an HDHP
HRAs • May reimburse medical expenses, like: – Co-pays, deductibles, and coinsurance – Dental and vision care – Prescriptions • May reimburse individual/family health premiums • May offer HRA benefits to 1099 contractors – Must report all HRA reimbursement as income
What is the “Defined Contribution” blueprint? • The Employer: – cancels the group health plan – determines their budget – designs a stand alone HRA – chooses HRA software or HRA Administrator – Implementation
How does the employer maintain compliance? • Hire a qualified HRA administrator…or • Use HRA software to keep in compliance with these three key areas: 1. Tax savings & compliance 2. Federal compliance 3. ACA/Health Care Reform
Tax Savings and Compliance • The IRS requires that a formal HRA be established in order for HRA reimbursements to be tax-free for the employer & employees • The HRA must have HRA plan documents
Federal Compliance • HIPPA – Employer never sees the medical information or the type of claims • ERISA – Employers are not allowed to “endorse” a specific IMM under ERISA • “carrier-agnostic” defined contribution health insurance program for small businesses – HRA software keeps employer complaint • Employers never know what policies are purchased
ACA & Health Care Reform • Introduces new requirements for HRAs – Summary of Benefits and Coverage – SBC – New reporting forms (720/5500) – New plan design requirements HRA software makes sure employers have the appropriate documents, data, and plan settings in place to be ACA compliant!
Section 105 • There are many different types of arrangements that fall within the umbrella of Section 105 • Some common terms you might hear are: – Health Reimbursement Arrangement – Health Reimbursement Account – Healthcare Reimbursement Plan – Medical Expense Reimbursement Plan – Medical Reimbursement Plan – Section 105 Plan
Wrap up • • What’s next? AHPs? QSEHRAs? We do know brokers are the best solution!
Q & A Thank you for attending! Turn in your evaluation forms, please!
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