If you are like me, you are looking back at 2011 with amazement. Where did the year go and how did 365 days go by so quickly? At least I had an excuse. For the sake of accurate healthcare reporting, and a severe case of arthritis, I personally tested the quality of the area medical services by having both of my hips replaced at the same time. However, that only explains what I did with the first 90 days of 2011. What did I miss in the next 275 days and moreover, in this complex year of healthcare reform changes, what did you miss? Therefore, let’s take a look back at some of the challenges and potential missed opportunities.
Section 125 Plans
Let’s first look at the low hanging fruit. We provide benefits to more than 800 employers located in the Southeast, Midwest and the Hawaiian Islands. Virtually everyone has increased participant contributions, as well as, deductibles and out of pocket expenses, as part of an overall strategy to reduce their benefit costs. Section 125 of the IRS Code allows participants to mitigate their overall financial outlay by using pre-tax dollars as opposed to after tax dollars to pay these expenses, but not if you don’t offer them a Section 125 plan. Here is what you may be missing.
- POP Plan– This is the easiest of the Section 125 plans to offer. Shame on any employer that charges participants for their healthcare coverage, dental or life coverage, and does not allow them to contribute using pre-tax dollars. These plans are easy to create for a very nominal cost and will result in participant out of pocket expenses being reduced by almost 20%, based upon the participant’s tax bracket.
- Dependent Child Care Expenses– Daycare expenses for children under age 13 or for children or adults incapable of self-care are reimbursable, if the expenses allow you to work. Rules for this plan are found in Section 129 of the Internal Revenue Code. How many of your staff have two working parents and incur significant daycare expenses, which could be paid with pre-tax dollars, at a savings of 20-30%? Once again, not a difficult program to establish and maintain.
- Unreimbursed Medical/Dental Expenses– The third part is a Medical/Dental Reimbursement Plan. It also is called a Flexible Spending Account (FSA). Rules for this plan are found in Section 105 and 106 of the Internal Revenue Code. Each employee can elect to set aside an amount out of their paycheck dollars for medical, dental, vision and some other expenses, which are not reimbursed from any other source. Have you increased the deductibles or participant out of pocket expenses in 2011 and not added this plan? If so, you have missed providing your staff with a significant financial opportunity. If your excuse was concern over “use it or lose it”, it’s a really lame excuse. If established correctly, it’s not a problem.
- Qualified Parking, Transit Fees and Van Pool Expenses– This is a benefit that we find mostly in large metropolitan areas with significant mass transit systems. However, as Southwest Florida expands mass transit and more employees begin to take advantage of mass transit, this benefit may apply. Under IRS Section 132 and TEA-21 qualified transportation expenses generally include payments for the use of mass transportation (for example, train, subway, bus fares), and for parking. For 2011, the maximum monthly pre-tax contribution for mass transit is $230.00, and $230.00 for parking.
- Did your insurer give you a single digit renewal increase in 2011 and you considered yourself lucky and renewed? Perhaps, after some degree of agent negotiation they may have even reduced the increase or eliminated it totally, and you considered yourself lucky and renewed? What if the rates should have been reduced by 15%? Do you still consider yourself lucky? If you did not receive statistical data reflecting a minimum of paid claims (not incurred claims) versus paid premiums you will not know your loss ratio. It is your loss ratio that determines how much the carrier made or lost on your group. Under Healthcare Reform (PPACA) the law stipulated that, depending upon your size, the carrier must return to you excess profits. Excess profits are defined by PPACA as a loss ratio better than 80-85% of premiums collected. Demand to see claims experience! In Florida, under State Statute, the carrier must provide you with paid claims versus paid premiums within three weeks of your written request.
- According to a recent Mercer study of Employer Sponsored Health Plans, HMO plans were the most costly at almost $9467 per employee, per year, followed closely by PPO plans at $9385 per year and finally, by HSA eligible Consumer Directed Health Plans (CDHP) at $7787 per year, including any employer initial contributions. Let’s peel back this onion, however.
- First, I favor changing the name of a Health Savings Account (HSA) to Health Account for Savings (HAS) since every time we type HSA it comes out HAS, and then we have to correct it!
- Second, if employers only fund the HSA in the first year or two of the plan, how much of the 20% savings in this plan design is nothing more than a high deductible cost shift to the plan participant, and how much of it is really attributable to participant behavior modification? I suspect it is really a little bit of both.
- If participant’s are not required to actively become engaged in the process of medical consumerism, are the benefits of a move to a CDHP plan ultimately lost and any savings gradually eroded by participant largess? You bet they are! Unless you tie future employer contributions to the participant’s willingness to take steps to improve their own health, the plan savings will gradually erode.
- Employers are controlling costs through the use of “best practices” and according to Mercer, employers adopting 10 or more best practices had average per employee medical plan costs which were 7-10% lower than employers who had adopted six or fewer best practices. Some of the best practices included:
- Employer contribution for family coverage was at least 20%.
- At least a 4 tier employee contribution basis. However, remember that when you artificially reduce the middle two tiers, it’s like a balloon. Squeeze it in the middle and the ends get larger.
- PPO deductible of at least $500 and, more commonly, at least $1000.
- A higher copay for specialists than family physicians.
- Offering a CDHP plan alternative.
- Including employer contributions for an HSA program.
- Mail-order Rx of at least 2.5 times the retail.
- Spousal surcharge, especially if the spouse is working and has coverage available through her/his employer.
- Smoker surcharge.
- Optional wellness services offered through the plan.
- Include plan incentives for health management program participation.
- Offering an Employee Assistance Program (EAP).
- Offering voluntary benefits integrated with the core plans.
- High performance PPO networks.
- Data warehousing for claims data.
- Value based design
- Onsite medical clinics.
- Aggressive Rx strategies, such as, mandatory generics.
- Specialty drug cost mitigation strategies such as step therapy.
- Telemediated care.
- Retail clinics.
- PPO Centers of Excellence.
- Other very interesting 2011 facts.
- The number of plans offering retiree coverage is at the lowest level ever, 19%.
- Domestic Partner Coverage (same sex) is on the increase with 46% of all surveyed plans including coverage for domestic partners.
- There has been a significant increase in the number of plans charging spouses with other available coverage a surcharge or simply not allowing them to be covered.
- The move to self funding has exploded. Between 8% and 28% of all employers, depending upon size, have said that they will move to self funding within the next three years, with the most rapid growth in the 15-100 employee market. In 2011, did your agent forget to show you this option?
- Did you know that, under PPACA, you have a yearly choice as to whether you want to remain grandfathered? Almost 30% of all plans are not grandfathered now and of those grandfathered, roughly half predict that they will forego grandfathered status before 2014.
Ok, you screwed up in 2011 and missed some opportunities which may have cost your company or employees some money. You are forgiven, unless your boss reads this article, but what can we do to avoid making the same types of mistakes in 2012? Here are a few things to consider for 2012:
- Implement your Flexible Spending Account for 2012. The cost is nominal and the pre-tax savings is significant.
- It is not uncommon for employersto provide special terms to departing executives regarding their group health coverage that they do not generally offer to rank and file employees. Common examples include a period of remaining on active coverage status even after employment responsibilities have largely ceased (for instance during any period in which the executive receives severance compensation), or employer payment of COBRA premiums for some period of time after termination. Generally, the terms of the special coverage arrangement are set forth in a separation or severance agreement, and may vary from case to case. Employers traditionally have exercised a significant degree of discretion in this area without a clear sense of the compliance issues that might arise.Under a self funded plan, these practices may cause the plan to fail the Section 105 (h) Discrimination test for highly compensated employees, and under PPACA, Section 105 (h) discrimination rules also apply to fully insured plans. This practice should be avoided.
- In 2012, there are some Healthcare Reform (PPACA) considerations and decisions that you must make:
- DHHS will develop uniform summary of benefits no later than March 23, 2011 that a group health plan sponsor or insurance issuer will need to distribute to plan participants and potential enrollees no later than March 23, 2012. This disclosure is required in addition to the ERISA summary plan description. (Note- This requirement has been deferred)
- The new law will institute a series of changes to standardize billing and requires health plans to begin adopting and implementing rules for the secure, confidential, electronic exchange of health information. Using electronic health records will reduce paperwork and administrative burdens, cut costs, reduce medical errors and most importantly, improve the quality of care.
- The Department of HHS announced that Health Insurance plans must cover birth control as preventive care for women without cost sharing. This requirement is part of the PPACA legislation passed March 23, 2010. The guidelines that were announced would provide coverage for women’s preventive care under the health care law. These coverage guidelines are in effect as of August 1, 2011, although compliance is not required until the renewal date of the plan following August 1, 2012. These guidelines apply to all non-grandfathered plans.
- Promoting wellness and prevention within your group can no longer be an option if healthcare coverage is to remain affordable. Plans must begin to get serious about creating a more direct connection between a patient’s health and what they may pay for health coverage. Obviously, any wellness program has to be equitable and non-discriminatory, but even PPACA states that you may relate up to 30% of a patient’s cost to their participation in a wellness program and by 2014, the amount will be as much as 50%. So why wait? Try any one or more of the following:
- Ask employees to take a voluntary Health Risk Appraisal and refer the results to your Disease Management firm. Reward participants with a financial bonus, or penalize them through added contributions if they fail to participate.
- Ask participants to participate in a voluntary biometric exam, based upon four National Institute of Health markers for blood pressure, cholesterol, body mass index and smoker status. Tie benefit levels and or deductibles to the number of NIH markers attained. For participants unwilling to participate, increase their deductible by $1500-$2000 per year. Compliance will be very high.
- Simply charge more for smokers. There is a direct correlation between the incidence of illness and an individual’s smoking status, including spousal second hand smoke.
- “I may be fat, but you may be ugly, and I can always diet”, has never been more true today, especially amongst children. Obesity is the cause of many of our adult illnesses and high cholesterol amongst children has increased to such a high level that physicians are recommending cholesterol exams for children between 9-11. Therefore, when we engage participants in wellness, let’s find a way to engage their families through incentives. Somehow, the wellness message must find its way home to the dependents.
There is no reason to believe that 2012 will be less challenging than 2011. Complicated new regulations and difficult economic times can stress the fabric of an organization, but if we are a little bit more diligent regarding the basic blocking and tackling and we avoid unforced errors, we might even survive another year! Let’s not look back a year from now and regret how we missed so very many opportunities