American General Life Companies
Big Changes for Small Businesses
Jay Drucker, VP of Accident & Health Products
February 2013
FOR PRODUCER USE ONLY-NOT FOR DISSEMINATION TO THE PUBLIC
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Why Offer Health Insurance?
• Employers offer health insurance as a means to attract and retain
quality employees.
• Group insurance allows employees and their families to obtain
health insurance without underwriting.
FOR PRODUCER USE ONLY-NOT FOR DISSEMINATION TO THE PUBLIC
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Health Care Reform:
Patient Protection & Affordable Care Act
• Fact: Effective January 1, 2014, Employers with < 50 employees are
NOT required to provide health insurance for their employees.
FOR PRODUCER USE ONLY-NOT FOR DISSEMINATION TO THE PUBLIC
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New Alternative to Providing Health
Insurance
• A defined contribution or money purchase approach vs. providing
traditional group health insurance
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How Does Defined Contribution/
Money Purchase Option Work?
• In lieu of contributing/providing traditional group health plan to
employees:
– small employer can increase employees’ wages equal to their current
contribution
– employee can purchase coverage through a private or public health
insurance exchange
FOR PRODUCER USE ONLY-NOT FOR DISSEMINATION TO THE PUBLIC
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What are the Benefits of This
Approach?
• Small Employer Advantages:
–
–
–
–
–
Out of the Insurance business
No administrative expense
No employee complaints about:
benefit structure of plan
claims handling
• Employee Advantages:
– Freedom to choose a plan that best fits their needs
– Reduced out-of-pocket expense if they quality for premium subsidies
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An Example of Defined Contribution
Approach
Small Employer:
Employee:
Widgets Inc.
John Smith
Less than 50 employees
Married with 2 children
Household annual income of $60,000
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Defined Contribution Impact to
COMPANY’S Bottom Line
• Total cost of group health insurance for family of 4 is $1,000/month
• Current company contribution is $300/month (employee's portion is
the remaining $700/month)
January 1, 2014: Defined Contribution/No Group Plan Provided
Increase to John's salary
Additional SSI (6.2%) + Medicare (1.45%)
Total cost to company
$280/month
$21.42/month
$301.42/month
Difference between providing traditional group health coverage ($300/month)
and providing defined contribution ($301.42/month) is only $1.42/month
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Additional Funds Available to
Employees for Health Insurance
• Total cost of group health insurance for family of 4 is $1,000/month
• Current employee contribution is $700/month (company’s portion is the
remaining $300/month)
• January 1, 2014: company provides John:
– additional $240/month ($280 - $40 income tax)
What is John’s
contribution?
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Federal Subsidy Calculation
• John’s household income is between 250-300% of
fed poverty level
• Contribution capped at 9.5% of his household
income of $60,000
• = $475 per month
• Balance of health insurance cost is paid through a
federal tax subsidy*
*Family of 4 maximum household income eligible for a subsidy ~ $92,200/year
Based on 2012-2013 Federal Poverty Guidelines
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Defined Contribution Impact to
EMPLOYEE’S Bottom Line
• Current employee contribution is $700/month (group health insurance)
• January 1, 2014, company discontinues group health, provides
extra income to employee to purchase insurance via the exchange
January 1, 2014: Defined Contribution/No Group Plan Provided
No company group health ins. contribution
+ $700/month
Extra income from employer minus taxes
+ $240/month
Cost of insurance via exchange
- $475/month
Total monthly employee savings
$465/month
Employee has an additional $465/month in their pocket!
*John’s max contribution via exchange is $475/month – rest of cost is covered by a federal subsidy
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If Company Provides Group Health,
No Defined Contribution
• Employee’s options for health insurance include:
– Continue company’s group health insurance plan (approximately $700/month)
– Opt out of company’s group plan & buy coverage through an exchange
• Employee would not have employer contribution through pay increase
• Employee responsible for full cost of insurance from exchange
Group Health
Provided
No DC/Opt out of
Group Plan
DC Offered / No
Group Plan
Employee cost: group plan
$700/month
$0.00
$0.00
Extra income (no grp plan)
$0.00
$0.00
- $240/month
Employee cost: exchange
$0.00
$475/month
$475/month
$700/month
$475/month
$235/month
Total cost to employee
Lowest cost to employee is the defined contribution option.
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Win/Win Proposition
• No additional cost to small employer
• Company no longer administers a small
group health plan
• Employees may have significant reduction in
out-of-pocket expense
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What if Employee’s Income Exceeds
Federal Subsidy Qualification?
• Widgets Inc. raises John’s pay
• John’s household income now exceeds federal subsidy level
• John can reduce out-of-pocket expense with less expensive health
plan via exchange
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Be Ready on January 1, 2014
• Whether you support it or not, Healthcare Reform becomes
effective January 1, 2014.
• Small business owners have opportunity with new approach to
benefit both the employer and employees.
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Additional Resources from American
General
• Contact your Regional Vice President:
– Bob Clancy, Western US Regional Vice President: (888) 473-3031
– Jamie Leon: Eastern US Regional Vice President: (443) 547-7959
• Health Care Reform Video Series on You Tube:
www.youtube.com/americangeneralco
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Important Information
The underwriting risks, financial and contractual obligations and support functions associated
with products issued by American General Life Insurance Company (AGL) are its responsibility.
AGL does not solicit business in the state of New York. Policies and riders not available in all
states.
Important Note: Prior to soliciting business, be certain that you are appropriately licensed and
appointed with the insurer and that the product has been approved for sale by the insurer in that
state. If uncertain, please contact your American General Life Companies representative for
assistance.
American General Life Companies, www.americangeneral.com, is the marketing name for the
insurance companies and affiliates comprising the domestic life operations of American
International Group, Inc., including American General Life Insurance Company.
©2013. All rights reserved.
AGLC106672
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