Scoring the Impact & Compromise for Passage

With a vote expected this week on the Republican proposal to end many Obamacare provisions, detractors have enjoyed great press about the “ills” of change. The most persuasive to leave well enough alone came surprisingly from the CBO (Congressional Budget Office) when they scored the bill. Headlines about 24 million Americans losing coverage over the next decade sounds a dire alarm.

For those who read the details though, assumptions by this non partisan group of futurists starts with 14 million dropping current coverage in 2018 because the legal mandate to be insured ends. Since there are 10 million now insured through the MarketPlace, the assumptions include Americans also dropping their Medicaid coverage. Since Medicaid requires no premium payment responsibility, the forecast for 2018 is puzzling.

While worrisome if the CBO projections come true, their track record forecasting health care change has missed the mark in the recent past as follows:

A. The CBO forecast that 26 million Americans would have health insurance through the MarketPlace by now, and the number is 10 million.
B. The CBO forecast Medicare Part D, which provides prescription coverage for senior citizens, to be 40% higher than the actual cost.

These misses show how very hard it is using assumptions to project value, cost, acceptance and rejection for insurance decisions and usage.

As mentioned in my last posting, the greatest challenge to assuage enough politicians to agree to support the bill referred to a AHCA, comes down to Medicaid funding. Another hurdle is that insurance will become more costly for seniors. Since available tax credits will be tied to age, this is likely not as major a cause for concern as postulated. And, returning to the pre-Obamacare five tier rating system will make health insurance lower in cost for younger Americans who incur fewer medical expenses.

Besides eliminating Obamacare taxes and bureaucratic obligations imposed on American businesses, the AHCA is trying to accomplish a radical new funding approach for Medicaid. Per capita block grants will place more cost pressure on states than the current percentage of expense sharing approach. Since the politicians are elected by the citizens in their state, it is not a surprise that some believe it is critical to get it “right” now. Reality is that adequate funding will continue to be a moving target, and will vary state to state.

With adequate compromise this week, expect the House of Representatives to approve the AHCA bill. It is then up to the Senate.

Scoring the Impact & Adequate Compromise for Passage

With a vote expected this week on the Republican proposal to end many Obamacare provisions, detractors have enjoyed great press about the “ills” of change. The most persuasive to leave well enough alone came surprisingly from the CBO (Congressional Budget Office) when they scored the bill. Headlines about 24 million Americans losing coverage over the next decade sounds a dire alarm.

For those who read the details though, assumptions by this non partisan group of futurists starts with 14 million dropping current coverage in 2018 because the legal mandate to be insured ends. Since there are 10 million now insured through the MarketPlace, the assumptions include Americans also dropping their Medicaid coverage. Since Medicaid requires no premium payment responsibility, the forecast for 2018 is puzzling.

While worrisome if the CBO projections come true, their track record forecasting health care change has missed the mark in the recent past as follows:

A. The CBO forecast that 26 million Americans would have health insurance through the MarketPlace by now, and the number is 10 million.
B. The CBO forecast Medicare Part D, which provides prescription coverage for senior citizens, to be 40% higher than the actual cost.

These misses show how very hard it is using assumptions to project value, cost, acceptance and rejection for insurance decisions and usage.

As mentioned in my last posting, the greatest challenge to assuage enough politicians to agree to support the bill referred to a AHCA, comes down to Medicaid funding. Another hurdle is that insurance will become more costly for seniors. Since available tax credits will be tied to age, this is likely not as major a cause for concern as postulated. And, returning to the pre-Obamacare five tier rating system will make health insurance lower in cost for younger Americans who incur fewer medical expenses.

Besides eliminating Obamacare taxes and bureaucratic obligations imposed on American businesses, the AHCA is trying to accomplish a radical new funding approach for Medicaid. Per capita block grants will place more cost pressure on states than the current percentage of expense sharing approach. Since the politicians are elected by the citizens in their state, it is not a surprise that some believe it is critical to get it “right” now. Reality is that adequate funding will continue to be a moving target, and will vary state to state.

With adequate compromise this week, expect the House of Representatives to approve the AHCA bill. It is then up to the Senate.

HEALTH CARE 2017 – WHERE MAY WE GO FROM HERE?

Did you know that Highmark, the largest Blue Cross Blue Shield plan in Pennsylvania, filed a $223 million lawsuit against the Federal Government in May 2016? The suit results from the government’s refusal to pay amounts promised to insurers as part of the Affordable Care Act. Highmark received just $27 million to cover $250 million in risk corridor losses from 2014 pre-existing condition claims on newly insured individuals in the MarketPlace. Rates had to rise as insurers are forced to accept a greater cost than anticipated. As the Affordable Care Act is increasingly considered a failure, this is further exemplified by Pennsylvanians being shocked by 30% to 60% health insurance premium increases this year. And five county Philadelphia stands out as the largest population center in the country with only one MarketPlace health insurer. No competition confirms Obamacare problems are real and local.

A friend who is generous and philanthropic runs a successful legal practice in the Lehigh Valley. When he learned his 2017 family plan premium will increase by more than 50% he exclaimed, “Something needs to be done about this craziness!” He is right and yet I admit my consolation included a retort that health insurance is now too expensive unless you need it, just like a good lawyer.

Our employer system for health insurance grew in popularity during the 1940’s when businesses wanted to increase compensation during World War II at a time of wage and price controls over workers to battle inflation resulting from a scarcity of products and services. It was inexpensive then and remained so for the next 30 years into the 1970s. Since then, the Federal Government has passed law after law designed to protect an increasing number of Americans with health care needs. An example is COBRA added in the 1980s which increased premium rates by 15%.

At the same time medical businesses, pharmaceutical firms, hospitals and physicians have rolled out amazing innovations extending how long we all live. Health care has become a right in the minds of many and the most highly valued form of financial protection offered by employers and the government. Good coverage is crazy expensive and unaffordable unless an employer or the government pay a majority of the premium cost. Adding to the problem is the current MarketPlace for individual health insurance. It has failed healthy working Americans, as not enough of them are voluntarily purchasing and maintaining coverage even when premiums are government subsidized.

High cost premium payment responsibility with no perceived immediate return of value is a functional problem all insurers face. Car owners maintain rarely used auto insurance knowing the lack of coverage results in losing the legal right to drive one’s car. And since driving is necessary for most of us to get to and from work or go to the movies, we accept we must pay for auto insurance. Not only can health insurance be more expensive than auto insurance, the penalty for not maintaining health insurance under Obamacare results in a comparatively nominal reduction to a tax refund. Plus if not invincible and in need of getting patched up, hospitals and doctors are required to provide basic care.

So where do we go from here with the MarketPlace? Ongoing adverse selection should be expected as too often just the chronically ill patients will purchase coverage, knowing they will get more back in care than the cost of their premium. The idea to offer tax credits to pay part of the premium is a good one, but it will not change an individual’s motivation to pay for insurance they are unlikely to use. And yet there is a proven way to increase healthy Americans buying health insurance. Replicate what Medicare retirees signing up for Part D prescription Rx coverage face, which includes a 1% per month penalty tacked on to premiums if a sign up is delayed into the future.

Boosting federal government grants to states for Medicaid plans is a logical approach to help pay for insuring the least economically fortunate. Funding included in Obamacare already exists that can be fine-tuned. Consider that one-half of all Americans already have government insurance plans, and:

70 million Americans under age 65 with Medicaid and CHIP coverage may grow to 90 million by 2020

47 million Americans age 65 and older currently with Medicare coverage is projected to grow to 80 million by 2025

Women who live to age 65 will pass away on average at age 89

Men who live to age 65 will pass away on average at age 84

This growing cost burden may translate to rationing of care, or taxpayers will have to pony up more to pay for Americans on government plans. One way to do so is to increase the current 1.45% Medicare tax on incomes to 3%. Aspects of the Obamacare law designed to temper growth in spending include ACOs (Accountable Care Organizations) made up of hospitals, physicians and health insurers. Designed to reduce health care waste and control growing demand, the question is whether ACO’s can effectively dampen health care demand without being accused of hurtful rationing and litigation by those denied care. Time will tell.

Look forward to 2047 as the time when health care demand declines, as that is when most Baby Boomers will have aged out. Heck, it’s only 30 years from now and plenty of time to spend the sizeable nest egg we have all built up in our HSA (Health Savings Account).

With no guaranteed Silver Bullet to slow premium escalation, funding HSAs coupled with purchasing catastrophic health insurance coverage offers an effective way to help healthy working Americans weather the storm of increasing health care costs. Why:

1. Only 11% of our population is hospitalized annually, confirming that most of us infrequently need expensive health care.
2. Employers paying the majority of costs will increasingly offer high deductible plan options, while passing to employees the cost to keep richer coverage.
3. Future health care laws will continue to include an annual personal responsibility cap per patient of around $7,000, adjusted for inflation.
4. While healthy, taking savings from lower premium costs and depositing that money into HSAs allows workers to build a reserve they can draw upon when expensive health care is needed.
5. Building a health care reserve offers peace of mind to afford paying high deductibles, copays and coinsurance.
6. Unspent money in HSAs rolls over year after year and can be invested in mutual funds earning returns that are not taxed as income.
7. Deposits to HSAs enjoy the same pre-tax treatment as 401(k) and 403(b) retirement plan deposits, and are more flexible.
8. Flexibility includes being able to draw money without penalty out of HSAs to pay medical, prescription, dental and vision care during working years.
9. Certain retiree health care premiums and out of pocket retiree health expenses may be paid from HSAs without being taxed.
10. Unspent funds in HSAs upon death roll over to a spouse.

More and more healthy workers will plan for their future and accept that lower premium, catastrophic health insurance coverage is good enough. This naturally inures to self-imposed rationing, reduced health care demand and possibly stabilizing premium rates. I started depositing into my own HSA 10 years ago. The balance had grown to $20,000 the year my spouse and I each spent multiple nights in the hospital. Thankfully we had plenty of pre-tax HSA money to pay our high deductible.

Now $50,000 is in the HSA due to improved health in the past five years, in part because it has earned $6,650 in investment returns. In total I have pulled out $16,500 to pay family qualified medical, dental and vision expenses. Long term goal is a strong HSA balance to cover future deductible needs, plus help pay retiree health care costs. Call it planned peace of mind with no option but to accept that America’s health care system, while amazing, is crazy expensive.

Form 1095-C Eligibility for Health Insurance

Catching up from a posting lapse in part due to the next Affordable Care Act – ACA requirement. A new responsibility for larger employers this year just happened that requires them to provide Form 1095-C to employees eligible for health insurance. This is challenging in that it requires tracking historic activity and changes each month per employee using hard to understand codes. Payroll businesses, human resource and benefits consulting firms are assisting employers with compliance.

Questions about whether eligible employees received their 1095-C form by the March 31,2016 deadline are being posed along with the impact of errors in the data, and employers successfully filing results with the Federal Government by the June 30, 2016 deadline. It may be mostly electronic data received, but think of it as more lines of code than it took to send men to the moon.

Additional questions worth pondering include how successful the government will be fining Applicable Large Employers (ALE 50+ employees) whose employees have purchased health insurance coverage through the Marketplace and receive a financial subsidy, instead of enrolling in their employer’s plan. If working more than 30 hours on average per week, plans offered must be good enough (up to about a $6,000 deductible then 100% coverage with an unlimited lifetime maximum including all of the ACA mandates) and employees cannot be charged too much per pay (maximum 9.56% of W-2 earnings, or no more than $159 per month if earning $20,000).

Fines to Applicable Large Employers (ALE 50+ employees) are  $3,240 per employee receiving subsidized coverage from the Marketplace. If the ALE doesn’t offer health insurance at all the fine is $2,160 per employee working 30 or more hours per week, minus the first 30 employees. These amounts are indexed to rise annually and were originally communicated as $3,000 or $2,000.

The ACA law includes billions in government savings from collecting fines from employers. This is all part of IRC Section 6055 / 6056, and after a 15 month delay and six years into health care reform, expect to read more about it as killing jobs, the same argument used for fighting increases to the minimum wage plus paying salaried employees earning less than $50,000 additional money if they work overtime.  Oh yes, that requirement may be rolled out shortly.

 

HISTORICAL PERSPECTIVE OFFERS INSIGHTS ABOUT POSSIBLE LEGISLATION TREND

As we transition into 2015 and a new Congress with Republican majorities in both houses, it is time to consider two former health care laws that were repealed. Section 89 and the Medicare Catastrophic Coverage Act became law in the 1980’s and ultimately were repealed before 1990.

What happened is interesting and intriguing as the Affordable Care Act enters its fifth year and continues to poll as unpopular. Historians will remember that Ronald Reagan was the President back then. The Senate moved from majority Republican to Democratic control as the decade progressed, while the house was under Democratic control throughout the decade.

The goal behind Section 89 which became law in 1986 and was repealed in 1989 was to establish rules for employee benefit plan expenses that capped their tax deductibility. The rules were complex, but the goal was no different than today’s Cadillac tax in ACA which is set to kick in as of 2018. Limiting tax deductibility is an ongoing desire in Congress due to new tax revenue opportunities.

The Medicare Catastrophic Coverage Act became law in 1988 and was repealed in 1989 after significant negative polling from senior citizens as the law increased Medicare premiums for the trade off of prescription coverage and introducing maximum out of pocket exposure for hospitalization and physician services. But the seniors were expected to pay the entire premium cost increase and many already enjoyed generous coverage from their former employers. To top it off, there were high deductibles to satisfy before the hospitalization and prescription benefits kicked in so most seniors did not plan on dropping supplemental coverage.

High deductibles are a reality along with increasing premiums under ACA. While repeal of the law is unlikely until a future president is sworn in, there are interesting parallels to compare the past and a possible future repeal of this landmark legislation.

3 Signs You May Need A Second Opinion About Benefits

It’s often a good idea to get a second opinion before making a big decision. Because of the dramatic changes influenced by the Affordable Care Act (ACA) and other factors, the employee benefits strategy you have utilized until now may be unavailable, inadequate, or dramatically more expensive in 2015.  Here are three signs you might benefit from a second opinion:

You’ve just been hit with dramatic cost increases.

While some cost increases might be expected, if your employee benefits package for 2015 has given you “sticker shock,” it can’t hurt to shop around for a new strategy that will yield equal or better quality at a lower price. There are a number of innovative strategies that are worth a look.

You’re being forced to change companies and/or plans.

With the rules and regulations under the Affordable Care Act, many programs are no longer being offered. Others are offered but in a highly modified or watered-down format.  Before accepting a replacement plan, it may be valuable to look at other options.

It’s difficult to get answers to your questions.  

Does your current benefits provider answer all of your questions in a prompt manner? Do they have the knowledge about the current benefits environment to provide cutting edge advice? Are they sharp in their bookkeeping, in other words do you receive periodic statements, together with an organized summary document about your program, in case you ever get audited? Are they communicating with you about changes well before they happen and in a clear, concise manner?

If your answer to any or all of these questions is “yes,” you will most likely benefit from getting a second opinion about your program.

Closing in on Retirement – Health Insurance Help

At the point you close in on age 65, you may plan to work another 5+ years. Should you sign up for Medicare as soon as you can, even though you’re working full-time? What if you are the breadwinner and your spouse is older than you? Should he or she sign up for Medicare when they turn 65?

Options at this time of life will depend on whether you work for a large or small employer. And the government’s definition of small is fundamentally inconsistent when it comes to health insurance.

Medicare is secondary to “creditable” employer coverage when there are 20 or more employees. And it has been this way for years. What this means is that actively working employees aged 65+ end up better off financially deferring enrollment in Medicare until retirement. And this includes delaying Medicare Part B premiums.

Another twist involves when to sign up for Social Security. Social Security Normal Retirement Age (SSNRA) pushes back to age 66 when you can collect these benefits for people in their mid 60s now, and to age 67 for everyone born in 1960 or later. The good news is if you delay signing up for Social Security until you retire, then the amount the government pays will increase around 8% for each year of delayed participation beyond SSNRA. And the latest studies say if you make it to age 65 now, expect to live until almost 89 if female and over 86 if male.

Delaying Social Security payments means you can continue to fund your Health Savings Account (HSA). When Social Security starts you have automatically signed up for Medicare Part A and then can no longer make tax deductible HSA contributions.

If you save for your post retirement medical expenses using an HSA, that non-taxed money can be used for out of pocket medical, dental and vision expenses, Part B premiums and Medicare Advantage premiums (not supplemental or wrap around premiums which must be paid from regular savings).

Do yourself a favor and avoid COBRA when you retire as you will be penalized with higher premiums if you end up late for enrolling in Medicare. And finally, once aged 65+ you can spend your HSA money on normal retirement needs and just pay income tax, as there is no longer an early withdrawal 20% penalty. Clear as mud? Then please ask qualified professional your questions when it is your time.

All that Glitters is… Gold

The introduction of Affordable Care Act (ACA) labels can be a positive communications opportunity for employers. Defining how much upfront coverage is built into health care plans has never been simple. Small businesses are embracing “metallic” names when choosing ACA approved plan options. Expect more and more large employers to add labeling as follows:

• Platinum
• Gold
• Silver
• Bronze
• Gold HSA
• Silver HSA
• Bronze HSA

Want more money deducted from your pay so you spend less out of pocket at the doctor’s office or when being tested? Then pick the Platinum or Gold plan and enjoy simplified management of your financial out of pocket expenses.

Ready to accept risk that you will not need much health care? Then choose a Silver or Bronze plan. If you go in this direction, consider a qualified plan that allows for a Health Savings Account (HSA) and build up a tax deductible reserve that rolls over from year to year and can be invested, earning tax free interest.

My family is currently enrolled in a Bronze HSA because the premiums are low and the same preventive plus diagnostic medical and prescription services are covered as in a Platinum plan. It’s just that every expense other than preventive is subject to a deductible.

Having started my Health Savings account back in 2008, its current balance is $40,000. This reserve buffer allows easy rest even if a family member hospitalization occurs and we must come up with almost $13,000 before the insurance plan pays in full. Our Bronze plan glitters like Gold due to long term planning that includes funding and investing our tax deductible HSA.

The Rise of Account Based Health Plans

Momentum turning into a tidal wave is upon us with employers increasingly offering Account Based Health Plan options. This relatively new term in the wild world of benefits is a pragmatic “catch all” for:

1. Health Savings Accounts – HSAs
2. Health Reimbursement Arrangements – HRAs
3. Flexible Spending Accounts – FSAs

Tax Advantages. Paying for out of pocket health care costs on a pre-tax basis has been legal for more than 30 years with FSAs, saving 30% or more versus after tax payments. HRAs have been around for 12 years and HSAs became a vibrant option when the 2003 law was updated in 2007.

Statistics. Studies indicate more than 80% of employers with 1,000 or more employees will offer one or more ABHP options to their employees in 2015. Projections are the take up rate for employees electing these options will exceed 50% for the first time as transparency of premium costs and increased cost shifting results to greater overall cost awareness and risk acceptance.

Why Now. Consequences of The Affordable Care Act include standardization of medical plan designs. Silver plans with $2,000 single and $4,000 family deductibles are a new “mid-point” from which richer and more basic plan designs are compared. Want Platinum? Be prepared for dramatically higher payroll contributions. Accept Bronze with lower contributions and $6,000+ to $13,000+ worst case exposure, then deposit payroll contribution savings into an ABHP.

How to select. If interested in a longer term, potentially retirement type health care savings approach, HSAs are the best option as unspent funds roll over to future years, are portable and can be invested, earning tax free interest. And yet, short term pre-tax funds instantly available to reduce out of pocket exposure may make more sense. HRAs coupled with FSAs are cash flow advantaged options where 100% of annual promised amounts are available at time of need.

 

 

Health Benefits Orientation Period for Adding New Employees Clarified

The IRS, Employee Benefits Security Administration, and Department of Health and Human Services have released a joint ruling aiming to clarify what’s been a big topic surrounding administering “waiting periods” for offering new employees coverage under the Affordable Care Act. The law states that any waiting period may not exceed 90 days from the first eligibility date, with all calendar days (business days, holidays and weekends) included in the count.

A potential loophole has been closed with the ruling. Employer orientation periods for new employees, commonplace when training and certification is required for types of employees in some businesses, can no longer exceed 30 days. This means that once the first 30 days are up, eligibility for health coverage must occur within the next 90 days. The ruling is applicable for plan years beginning on or after January 1, 2015.

The 30-day period is not necessarily as it appears though, as 30 days is measured by adding one calendar month and subtracting one calendar day. If an employee’s first day on the job is August 10 for example, the final day of their orientation would have to occur on September 9 at the latest. Their eligibility period then begins the following day on September 10 in this case, and can last no more than calendar 90 days.

The ruling is designed to curtail extensive employer orientation periods, while respecting that there are legitimate delays for health coverage eligibility beyond 90 days from date of hire. Caution is merited for employers to ensure that orientation periods are supportable for legitimate business purposes. Compliance penalties may result should enrollment practices be audited and a legitimate business need cannot be validated.