Are ACOs the Answer to Rising Health Care Costs?

As part of Health Care Reform, the government is trying to streamline the delivery of health care services to help control the rising cost of benefits. But how do you slow a runaway train? Enter Accountable Care Organization (ACO) legislation—laws that create financial incentives for health care providers to eliminate unnecessary procedures and focus on preventive health care.

To give you some insight as to why this legislation is important for Health Care Reform to actually reduce the cost of health care, remember that providers are paid for their services; the more services they provide, the more money they make. In theory, ACOs would help eliminate the financial incentive of providing unnecessary tests, procedures and care.

An ACO would allow physicians, hospitals and other health care providers to come together under an umbrella organization, making them accountable for both the health of their patients and the cost of delivering care. The concept is designed to allow for a higher level of coordination of care and more efficiency.

In theory, ACOs would allow providers to share in the savings of delivering the right care at the right time.  However, the first wave of ACO legislation was announced by the U.S. Department of Health and Human Services (HHS) in March 2011 and was met with quite a bit of negative feedback regarding the difficulty of implementing the plan due to challenges with compliance. HHS took the feedback into consideration and released a revised proposal in early November.

People generally agree that, although improved, the new rules still won’t deliver on the cost containment promised by Health Care Reform. The challenges to implementing ACOs are twofold:

1. The cost of creating the infrastructure is very high and many insurers run the risk of losing money if they aren’t able to generate enough savings with the new program

2. The program is designed to incentivize health care professionals and insurers by promising them a savings bonus, which currently may equal less than if they did not adjust their procedures.

Although sound in concept, ACOs still have a long way to go before they can consolidate the fragmented world of health care.

Medical Loss Ratio: What does it mean?

If you’re an employer, you probably saw a rise in healthcare costs this year, but the rise for 2012 is lower than it has been. One reason may be the Medical Loss Ratio (MLR) provision of Healthcare Reform that requires insurers to spend at least 80-to-85 percent of premium dollars on healthcare services and healthcare quality improvement.  If the insurance carriers do not meet this new requirement, they will be required to refund excess premiums to policyholders.

The other 15-to-20 percent insurance carriers may use for programs like education, prevention, overhead and even administrative systems that make healthcare more efficient. With the 80/20 budget requirements, insurers have redesigned their plans, cut broker commissions, and began looking for new ways to improve profitability.

With higher healthcare costs trickling down to business owners, some employers are less able to provide benefits to their employees. As a business owner, you recognize the benefits of providing health insurance for your employees, so what can you do?

Despite the uncertainty, working with a partner that has a clear vision of the legislative and economic environment can help you find a plan that is a) in line with your budget and b) ensures that your employees are still well taken care of.

We’ll continue to watch this issue and advocate for employers as legislation moves forward.

Health Care Reform Update May 2011

To align the federal tax code with the health care reform law, the IRS issued a notice in March 2010 that allows employees to exclude from their gross income any employer-sponsored accident or health insurance benefits for children younger than 27. However, some states – including California – did not make similar changes to state tax code in 2010.  

On April 7, 2011, Gov. Jerry Brown signed a bill that makes health care benefits for children under age 27 exempt from taxable income in California. The law took effect immediately, and it applies to tax returns for 2010 and future years. For more information, go to http://www.ftb.ca.gov/professionals/taxnews/Patient_Protection_and_Affordable_Care_Act.shtml

Broker Compensation | Medical Loss Ratio

As part of health care reform, insurance carriers as of January 1, 2011, must spend 80% – 85% of premium dollars on “patient care.”  So their “loss ratio” cannot exceed 80% in small group, and 85% in large group.  The lion’s share of premiums must be used to pay doctors, hospitals, pharmacies and the like.  That leaves no more than 15% – 20% to provide ID cards, customer service staff, and overhead costs.

 

Most health insurance carriers in California already meet the 85% loss ratio. Insurance carrier profit margins average 3% per year.  So, the huge insurance premiums we pay now are due more to the higher cost of providing care than inflated insurance company profits.

 

There is legislation pending in Congress now to allow brokers to be paid as a “pass through” cost, similar to the way insurance carriers pay their taxes.  This way, the broker who is the insured’s advocate, shopper and educator, can be included (or not) as an add-on cost.  Otherwise, insurance carriers will be forced to cut broker commissions or perhaps eliminate the brokerage system altogether. 

Repealed | 1099 Expanded Provisions

Part of the PPACA health care reform included a new and expanded 1099 reporting rule, which required business owners to report payments for any purchase of “property” totaling $600 or more to a single payee.  This would have applied to various goods, computer and office equipment, tools, fixtures, and so on. 

Another little known new rule was a requirement for private individuals to complete a 1099 for receipt of rental income for $600 or more. These two new requirements would have created a crushing burden of paperwork for taxpayers and the IRS, alike.

Last week, President Obama signed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.  This new law repeals both of the expanded 1099 reporting requirements mentioned above and allows the 1099 rules previously on the books to remain unchanged.

Repeal of Expanded Information Reporting Requirements

http://www.irs.gov/govt/fslg/article/0,,id=238635,00.html

New Guidance | W-2 Reporting of Health Care Costs

PPACA requires employers to report the cost of employer-provided health coverage to employees on annual W-2 forms.  Though the amounts are not taxable, they will be used to provide information about the cost of health care.

On March 29, 2011, the IRS provided guidance in Notice 2011-28.  Here are the highlights:

• Will not be mandatory for 2011 Forms W-2
• Becomes mandatory with 2012 Forms W-2 for most employers
• Smaller employers have until the the 2013 Forms W-2 (“smaller” defined as employers who file fewer than 250 Forms W-2 for 2011)

Health care costs to be reported include the aggregate cost of employer-sponsored group health coverage.  For self-insured plans, that would be the “applicable premium” for purposes of COBRA continuation coverage.  This does not apply to contributions to Health Savings Accounts, Medical Savings Accounts or Flexible Spending Arrangements.  It also does not apply to long term care insurance or for a separate policy for dental or vision coverage.  If the dental and vision are “bundled” into the same policy, then it would be includable.

IRS New Release Notice 2011-31 (3/29/2011)
 IRS Issues Interim Guidance on Information Reporting of Employer-Sponsored Health Coverage
 http://www.irs.gov/newsroom/article/0,,id=237870,00.html

California Health Benefit Exchange in 2014

Health Care Reform, also known as PPACA, provides that most everyone must purchase health insurance, and insurance carriers must offer it to everyone by the year 2014.   One way to facilitate this mandate is to create state “Exchanges” to allow individuals and small businesses to pool together and purchase health insurance more affordably. 

On September 30, Governor Schwarzenegger signed two bills, AB 1602 (Perez) and SB900 (Alquist), that made California the first state to have passed legislation in accordance with the health care reform bill.  It is know as the “California Health Benefits Exchange”. 

 This Exchange is a purchasing pool for individuals and small group plans, for employers with 1 to 100 employees, to use premium tax credits and cost-sharing subsidies.  These credits and subsidies may be used by moderate income persons (defined as up to 400% of federal poverty level), and those whose employers either do not offer affordable health insurance coverage.  Private insurers will compete to offer QHPs (Qualified Health Plans) inside the Exchange, which are five HMOs and five PPOs.   They are referred to as Bronze, Silver, Gold, Platinum, and a lower cost “catastrophic plan that may be sold only to people under age 30 or who qualify for an affordability exemption from the individual mandate.

 Certain employers with more than 50 full-time equivalent employees (“FTE”) will be required to pay a penalty if they do not offer “affordable” health insurance to employees, and at least one of their employees receives a premium credit in the Exchange.  The penalties are weak, in comparison to cost of health insurance, so we’ll have to see how that works out.  Small companies do not have to worry about offering coverage if they are not doing so currently, and larger companies who already provide good benefits to their employees have no worries about penalties, either.

 There will still be insurance plans outside the Exchange for the majority of Americans, and the same plans offered inside the Exchange will be offered outside the Exchange, and at the same premium. 

 There are some aspects of these bills that create significant concerns with adverse selection and the viability of the Exchange relative to the outside market.  The Exchange provides for no involvement of agents and brokers.   The new law supports the use of “Navigators” to assist Californians in understanding and enrolling in Exchange Plans.  Navigators need not be trained or licensed, and may end up being nothing more than a call center.  My humble opinion, as an insurance broker, is that without agents and brokers to help with the educational outreach that must occur, the Exchange will not be as effective as it could be. 

 The operation of the Exchange will be supervised by a board of five appointees, with virtually no outside governance.  This governing board will select participating insurance carriers, define the health plans, and set procedures for how the whole thing will work.  As Bill Robinson, CAHU VP of Legislation points out,

 “So neither the CA legislature, nor the elected state officials, nor state agencies nor the courts will have any jurisdiction over the actions of this new board.  They are also exempt from the “open meeting laws”, and state pay review standards, and a lot more.  This is how the State Compensation Fund operated for many years, until 3 or 4 years ago Steve Poisoner stepped in and somehow secured a court order to audit the State Fund.  The result revealed a horrendous amount of corruption, fraud and excess pay levels within the State Fund.  This could also happen to the new Exchange governing board.”

 In the hopes of avoiding this nightmare, the governing board is required to file an annual report to the Legislature and Governor on expenses, performance, operations, and progress.  This report is also posted on the Exchange website.  The budget must also be posted on the website, including staff salaries. 

 From a cost standpoint, there is a great unknown with the Exchange, and could end up being much more costly than we expect.  If the Exchange is required to be self-sustaining, and not supported by additional tax dollars, the outside market may end up being more cost competitive.  There are already two states with Exchanges in place, passed prior to PPACA, known respectively as the Massachusetts Connector and the Utah Exchange.  The original projections for the Massachusetts Connector program were to ultimately cover approximately 215,000 people at a cost of $725 million.  By June 2011 enrollment is projected to grow to 342,000 people at an annual expense of $1.35 billion.[1] 

 That means that the Exchange could end up housing only the “bad risk” and cause the rates of those plans to rise disproportionately compared to the outside market.  Those who qualify for the subsidies and tax credits may be the only ones who can afford to buy insurance through the Exchange.  The California Health Benefits Exchange requires that the same plans must be offered inside and outside the plan, however, insurance carriers may offer whatever plans they want outside the Exchange. 

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[1] ^ Alice Dembner url=http://www.boston.com/news/health/articles/2008/02/03/subsidized_care_plans_cost_to_double+(February 3, 2008). “Subsidized care plan’s cost to double: Enrollment is outstripping state’s estimate”. The Boston Globe.

Reminder – Things you need to know now for health care reform

While not all inclusive, these highlights will help you to be better informed of the key areas that impact your employee benefits program.  For all practical purposes, these changes are effective for plan years on or after October 1, 2010.  Please call or email if you need assistance or have questions.   

Your responsibilities include:

1.  W2 reporting of employer contributions for health care coverage, excluding HSA and FSA contributions.  This will be on the W2 for the 2011 plan year…it is not taxable, just reportable.  Get ready to start tracking this beginning in January.
2. Allow dependent children to remain covered on the plan until age 26, even if they are married, and not dependent upon the employee for financial support.
3. Changes to Flexible Spending Accounts – Over the Counter drugs may no longer be reimbursable, unless prescribed by a physician.  The maximum annual deferral will be reduced to $2,500.
4. Determine if your health plan discriminates in favor of highly compensated individuals, and if so, read the next section.

Important things to remember about “grandfathered plans”:

1. Plans in place on or before March 23, 2010, are considered to be “grandfathered”, and not subject to certain reform provisions, such as the inability to discriminate in favor of highly compensated individuals.  This is significant if your company offers an executive medical reimbursement plan, such as Exec-U-Care™. 
2. New health plans going forward cannot discriminate in favor of highly compensated individuals.  Companies may continue to offer executive plans other than health, such as life insurance, disability coverage, long term care insurance and non-qualified retirement plans for executives. 
3. If you want to keep your grandfathered plan the way it is, make no changes other than adding or deleting new employees who are in the same class or category as before.
4. Some of the new provisions still apply to grandfathered plans, including the requirement to cover dependents to age 26, unless they have other group coverage available.

Small Business Tax credits and grants

1. Tax credit are available retroactive for premiums paid beginning in 2010 for companies who pay at least half of employee health care premiums. 
2. These are for companies with fewer than 25 employees earning average annual wages of less than $50,000, and for companies with 10 or few employees earning $25,000 or less on average. 
3. Kaiser and NFIB have both posted calculators to estimate annual credits.  Here is a link to a Kaiser Excel spreadsheet for the calculation:  https://secure.logmein.com/f?aFNjy5-iziOysR3osHlk6MVIbaofwyQPytvs5s3w.Dw
4. Small group employer-based wellness program grants will be available beginning in 2011.
5. Unrelated to healthcare reform, there are also hiring tax credits.  New employees must have been unemployed for the past 60 days to qualify for either the Social Security exemption or the $1,000 Federal Tax credit.  Here is a link to the guide:  http://www.qqestpayroll.com/documents/pdf/hire_act_guide.pdf

Insurance changes for plans that renew on or after October 1, 2010:

1. No lifetime benefit limits based on dollar amounts – allowed restricted yearly limits on the dollar value of certain benefits.
2. No cost-sharing obligations for certain preventive services. 
3. No pre-existing condition exclusions for dependent children under 19 years of age.
4. No coverage rescissions/cancellations, except for fraud or intentional misrepresentation.
5. Must have dependent coverage up to age 26.
6. New health plan disclosure and transparency requirements.
7. New internal and external appeal processes.

Pre-existing condition coverage for individual market consumers:

1. Check out the website www.healthcare.gov for information about a high-risk pool for people who have been uninsured for at least six months, and cannot obtain current individual coverage. 
2. There is another website that has been around a long time which helps people who are uninsured by showing them all of their options, both public and private.  There is an online questionnaire and brochures for free downloads at www.coverageforall.org.

 For a more detailed timeline prepared by the national Association of Health Underwriters, click here:  http://www.nahu.org/legislative/resources/Reform%20Timeline%20revised%20july%20_2_.pdf?ibcToken=319abcd0-9e34-4cbe-8429-3dcff02e20b5

Health Care Reform – Small Business Tax Credits

One of the first impacts of the new health care reform law is actually a tax credit, rather than a tax increase. Small businesses with 25 or fewer FTE (full time equivalent) employees who offer health insurance to their employees may be eligible for some tax relief. A tax credit for up to 35% of the cost of providing coverage will provide an incentive for small businesses, the drivers of our economy, to help reduce the uninsured in America. After all, group health insurance already has protections for guaranteed coverage, pre-existing conditions, and the inability to cancel your coverage if you become sick. The same cannot be said for individual and family plans.

The tax credit calculation is explained in detail on the IRS website via this link:

http://www.irs.gov/newsroom/article/0,,id=220839,00.html

One thing to be established before these credits actually start hitting our balance sheets is what is an average premium for small group in a given market? A list of average premiums by state is to be published by the IRS later this April.

If you would like to see how simple and affordable it is to offer group health insurance to your employees, please feel free to give us a call.

Kelly D. Moore, CEBS
Moore Benefits, Inc.
(877) 872-2080

Which is best…COBRA or Individual Coverage?

With so many people out of work, people are faced with the question of continuing coverage under COBRA or purchasing their own insurance policy. Here is the BIG question:

1. Are you insurable? If you are healthy, your best bet is to shop for your own plan. If not, individual insurance carriers may decline to offer your coverage, or increase your premium.

In group plans, the insurance carrier must accept all applicants, as long as they qualify as an employee or dependent, and enroll in a timely manner. This is not so on individual plans. The plans are individually underwritten with detailed health questions and a review of your medical records.