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healthcare reform
- Healthcare is evolving. Are you keeping up with the changes?
- More and more businesses are finding healthcare as a compelling reason to enter into a partnership with a Professional Employer Organization (PEO). PEOs can provide valuable guidance on the multitude of benefit options, relieve employers of administrative burden, and help to mitigate costs. Healthcare is evolving, we all have to keep up with the changes.
The PEO industry has traditionally been able to secure better benefits at a more affordable cost than the average small business can secure on their own. In the past they have accomplished this by grouping companies together into larger “pools”. The reasoning stands that bigger purchasing power equates to better negotiated rates, but has the model been immune to the same market forces we are all facing?
Many PEO clients have discovered that the traditional PEO approach to major medical is not working in today’s economic environment. Some of the largest PEOs in the industry have reported double digit increases to their benefit programs. Increased COBRA participation and medical inflation have both been cited as influencers to this growing problem but the largest contributing factor is an insurance and risk theory called adverse selection.
Adverse Selection impacts the total “pool” when undisciplined underwriting processes are in place and when overly aggressive sales representatives are allowed to flaunt cheap medical rates to high risk groups. Over time these two issues compound and the pool of employees in these traditional PEO plans begin to have higher medical utilization rates than the population on average. When the mix of the pool leans more towards unhealthy groups higher premium rates are inevitable. This issue slowly erodes the draw of a large group health plan and leaves some companies with higher rates than they may deserve.
To combat the issue of adverse selection many PEOs have switched to a tiered system that underwrites each individual company into a smaller risk pool based on demographics and claims experience. The insurance carriers take a very similar approach today when underwriting an employer, regardless of size, for a group medical plan on the open market.
If the advantage and allure of a pooled PEO plan is eroding, what role should a PEO play when it comes to healthcare?
A PEO Should:
• Help your business secure affordable and sustainable healthcare options
• Offer creative solutions that fit your specific needs, not the needs of the PEO
• Keep you in compliance with the multitude of new regulations that have arisen since HealthCare Reform
• Offer turn- key administration of your benefit programs with specialized support teams
• Offer Fortune 500 Supplemental programs such as dental, vision, life & 401k offerings
• Have limitless options and flexibility
• Take advantage of state and federal legislation that benefits small employers
The Nextep Approach
In 2004, Nextep decided that it was in the best interest of our clients to abandon traditional PEO approach to health insurance. In the traditional model we were held to the will of one insurance carrier and in turn had to pass on unjustified renewals to most of our clients. Since that time we have focused on refining our open market strategy, utilizing market competition, delivering total flexibility, and accessing the legislative protection that our clients deserve.
Nextep’s team of specialized Benefit Managers and Business Consultants work with each client to support that client’s specific benefit needs. In addition to Nextep’s internal resources we believe in partnering with the broker community to find, secure, and maintain the best possible healthcare options for our clients. Together, we explore your company’s specific benefit needs and then compare those to the multitude of options the market has to offer.
For example one increasingly popular option is a Healthcare Reimbursement Account (HRA). HRAs have been an effective strategy to control cost while providing employees with the same or higher level of coverage.
The HRA allows employers and employees to access lower health insurance premiums by having a higher level deductible. When using a company-sponsored HRA account, the company sets a lower deductible of its choosing, then reimburses the employee for any out of pocket amount between the company and carrier deductibles. This takes advantage of the fact that few employees ever completely use their full deductible. The national statistics are as follows:
32% don’t spend anything
72% spend less than $500
81% spend less than $1,000
88% Spend less than $2,000
Because of these utilization rates most companies are over-spending on benefits. National averages show less than 25% of employees are expected to reach their full deductible in a plan year.
HRAs are just one of many creative solutions available to combat the rising cost of healthcare. Do you have the right strategy in place today?
- THE SMALL PRINT
- We know about the major provisions of Healthcare Reform under the Reconciliation Act, signed into law on March 30, but as is the case with most legislation, there are several lesser-known mandates included. Possibly overlooked fine points of the Reconciliation Act include:
Protection for Nursing Mothers. Workplaces are now obligated to allow “reasonable break time” for an employee to express breast milk for her nursing child for one year after the child’s birth, as well as a place, other than a bathroom, that is shielded from view and free from intrusion from co-workers and the public. Companies with less than 50 employees may be exempt from this provision if it would cause “significant difficulty or expense.”
Tanning Taxed. Effective July 1, 2010, indoor tanning services will be imposed with a 10% tax. The tax only applies to ultraviolet tanning, and does not include sunless tanning products or sprays.
Nutritional Labeling Guidelines. Vending machines and restaurant chains with more than 20 locations must display nutritional information for each standard item on the menu, menu board for drive-through restaurants, or near the selection buttons in the case of vending machines.
On March 23, 2010, the Patient Protection and Affordable Health Care Act (HR 3590), also known as the “Affordable Healthcare Act,” was signed into law. This comes after a year of debate, and may still be overturned or amended in the very near future by the Health Care and Education Reconciliation Act of 2010 (HR 4872), also known as the “Reconciliation Act.”
Here is a look at changes set to occur in 2010 under the Affordable Healthcare Act and how they will affect both Employers and Employees. Please keep in mind that these mandates may be modified in the near future.
- EMPLOYER HIGHLIGHTS
- Effective later this year: Tax credits for small businesses that provide health insurance to employees. Businesses with 25 or fewer employees who earn average annual wages of $50,000 or less may receive a tax credit of up to 35% of the employer’s contribution towards health insurance costs if the employer pays at least 50% of the total premium cost. Tax credits will phase to higher amounts through 2013 and will vary based on employer size and wages.
- EMPLOYEE HIGHLIGHTS
- Effective within 90 days: High-risk pool for pre-existing conditions. Adults with pre-existing conditions who have been uninsured for at least six months may gain health insurance through a federally-subsidized high-risk pool.
Effective in 6 months: Dependent coverage through age 26. If an adult child is not eligible to enroll in his or her own employer-sponsored plan, he or she can remain on parents’ insurance until age 26.
Effective in 6 months: No exclusion for children with pre-existing conditions. Insurers may not deny coverage to children under age 19 based on pre-existing medical conditions.
Effective in 6 months: No lifetime caps or rescinding coverage. Insurance companies would be barred from setting lifetime limits or restrictive annual limits on coverage, and from rescinding coverage except in cases of fraud.
Effective later this year: Rebate for Medicare prescription drugs. Medicare patients in the “donut hole” gap in prescription drug coverage will receive a one-time rebate of $250, with changes in the plan to bridge the gap in the coming years.
There are additional mandates set to occur in the next few years which may be amended or cancelled by additional pending legislation. Nextep will remain alert for the most up to date legislation to ensure compliance and to keep our clients informed of the latest developments.
- THE RECONCILIATION ACT & HEALTHCARE REFORM
On March 30, President Obama signed into law the Healthcare and Education Reconciliation Act of 2010 (H.R. 4872), also referred to as the “Reconciliation Act.” This comes just days after the March 23, 2010 enactment of the Patient Protection and Affordable Health Care Act (“PPACA”) (H.R. 3590).
Provisions have been made for employers in a PEO relationship. All business tax credits, employer mandates, and non-discrimination testing apply at the client level. In other words, your relationship with Nextep will not be a factor; the mandates will apply at the client level and thus allow each client to be eligible for tax credit benefits.
The Reconciliation Act cements the government’s plans for Healthcare Reform and sets into motion sweeping changes to occur over the next several years. Below is a timeline of plan highlights.
Tax Credit for Small Businesses. Businesses with 25 or fewer employees who earn average annual wages of $50,000 or less may receive a tax credit of up to 35% of the employer’s contribution towards health insurance costs if the employer pays at least 50% of the total premium cost. Tax credits will phase to higher amounts through 2013 and will vary based on employer size and wages.
No Exclusion for Children. Insurers may not deny coverage to children under age 19 based on pre-existing medical conditions.
Extended Dependent Coverage. If an adult child is not eligible to enroll in his or her own employer-sponsored plan, he or she can maintain dependent coverage on parental insurance until age 26, regardless of tax-dependent status.
Preventive Care Covered. All new plans must provide first-dollar coverage for preventive services, such as immunizations and screenings for infants, children, adolescents and women. Group health plans that were in place on or before March 23, 2010 are considered to be grandfathered in and are not subject to this requirement.
Emergency Services. Under certain circumstances, out of network emergency room care must be covered as an in-network service. Grandfathered plans are not subject to this requirement.
No Lifetime Caps or Rescissions. Insurance companies will be barred from setting lifetime limits or restrictive annual limits on coverage, and from rescinding coverage except in cases of fraud.
Medicare Part D Rebate. Medicare patients in the “donut hole” gap in prescription drug coverage will receive a one-time rebate of $250, with changes in the plan to bridge the gap in the coming years.
Coverage for Pre-Existing Conditions. Temporary provision in which adults with pre-existing conditions who have been uninsured for at least six months may gain coverage that does not impose restrictions.
Premium Cost Containment. Health insurers must report on annual dollars spent towards medical care to ensure that less goes towards administration and profit. If the medical loss ratio is more than 80%, or 85% for large group market, policyholders must receive a rebate of the overage.
Medicare Part D Discounts. Prescription drugs in the Medicare “donut hole” are discounted 50%. Additional discounts phase in to completely close the hole by 2020.
W-2 Reporting. Form W-2 will show the employer contribution to the employee’s health plan.
FSA Drug Limitations. Over the counter drugs will no longer be a tax-exempt qualified expense under a flexible spending account (FSA) or health savings account (HSA) unless accompanied by a doctor prescription.
HSA Tax Penalties. Money taken out of an HSA for a non medically-qualifying expense will incur a 20% penalty tax (increased from the current penalty of 10%). This does not apply to people over age 65.
Hospital Reform. 2012 is largely dedicated to hospital; reform, including development and use of integrated health systems, tracking of hospital readmission rates for certain high-volume or cost events or conditions, and financial incentives to prevent readmissions.
FSA Reduction. Annual FSA contributions and expenses are limited to $2,500 and adjusted for inflation in subsequent years.
Plan Standardization. Health plans must implement uniform standards and rules for the electronic exchange of information in order to promote paperlessness and reduce administrative cost.
Medicare Tax Increase. Medicare tax will be increased by 0.9% on wages for individual taxpayers with an adjusted gross income of $200,000 ($250,000 filing jointly). This tax is just assessed to employees and does not increase the employer portion of Medicare tax.
Health Insurance Exchange. Each state will create health insurance exchanges to individuals and small employers. Members can comparison shop four levels of standardized health packages (bronze, silver, gold, and platinum) with increasing amounts of coverage and cost, including a catastrophic/preventive only plan for individuals up to age 30. Individuals may qualify for tax credits to assist with the cost of coverage if they earn more than Medicaid eligibility and less than 400% of the federal poverty level.
Company Group Coverage. Companies that don’t offer qualified health insurance, have more than 50 employees, and have at least one employee who receives a federal subsidy will pay a $2,000 tax penalty for every employee. The company will be exempt from paying the penalty on the first 30 employees. If the company does provide health insurance, but it is either unaffordable (more than 9.5% of household income) or has an actuarial value of under 60% (the plan must pay at least 60% of covered expenses), that employee may also be eligible for a federal subsidy. In this case, the company will be assessed a $3,000 penalty, but only for those employees who receive the subsidy.
Individual Coverage. Individuals who do not obtain acceptable health care coverage must pay a penalty of $95 in 2014, increasing in steps up to $695 or 2.5% of income in 2016. Families will pay half of the amount for children, up to a cap of $2,250 per family. If affordable coverage is not available to an individual, there will be no penalty.
Free Choice Vouchers. If an employee’s company plan is between 8 and 9.8% of his or her income and s/he earns less than 400% of the federal poverty level, then that employee may take the employer health insurance contribution in the form of a “free choice voucher” and apply this money to an exchange plan.
Automatic Enrollment. Companies with more than 200 employees must automatically enroll employees into the group’s health plan. Employees may then opt out of the plan. While there is no official deadline for this provision, it is widely believed to be effective 2014.
Waiting Periods Restricted. Employers may not impose more than a 90 day waiting period to obtain coverage through the company’s health plan.
Insurance Regulations. Health plans may not impose annual limits on a patient’s amount of coverage. Insurance companies also may not refuse to sell or renew policies based on a member’s health status, cannot exclude treatments for pre-existing conditions, and are limited in their ability to charge higher rates based on member demographics such as gender and health status. Geography, tobacco use, family size, and age may continue to be factors in premium cost.
“Cadillac Plans” Penalized. High-priced health plans costing more than $10,200 annually for individuals and $27,500 for family coverage will incur an excise tax.
- ADDITIONAL CHANGES POSSIBLE
- While this is the “final” version of Healthcare Reform, changes and clarifications are likely to occur in the coming months and years.
As of March 31, 15 state General Attorneys (including Texas and Florida) have pending suits to block reform. These suits will be resolved by the courts, but until then, all states are subject to the federal Healthcare Reform laws.
There is a good chance that some of these mandates may be modified or dissolved in the future. Nextep will remain alert for the most up to date legislation to ensure compliance and to keep our clients informed.
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