Concepts of
Group Health Plans
William H. Henry
Michael Ochoa
Underwriting Consultant
Houston, Texas
Senior Consultant
Ascende
Houston, Texas
The opinions expressed in this presentation are those of the speaker. The International Foundation
disclaims responsibility for views expressed and statements made by the program speakers.
2-1
Learning Objectives
• Effective management/oversight of your plan
• Understand basic health plan designs and options for
structuring your plans
• Advantages and disadvantages of various plan designs
• Discussion of some emerging changes from health care
reform
• Understand plan funding and financing
• Understand fundamental health plan rating issues
2-2
Agenda
•
•
•
•
•
•
•
•
Management/oversight issues for your plan (slides 5-12)
Basic terminology (slides 13-15)
A brief look at health plan design (slides 16-31)
Advantages and disadvantages of various managed plan
types (slides 32-36)
Scheduled Break
Basic health care reform issues that affect you (slides 37-49)
Plan funding and financial—compare insured vs. self-insured
and some retiree funding issues (slides 50-55)
Rate making (insured and self-insured) (slides 56-63)
Scheduled Break
Classroom exercise (Slide 64 + handouts)
2-3
Disclaimers
• Same term can mean different things (e.g., plan;
deductible vs. copay; coinsurance, stop loss)
• There is always someone who does it differently
(e.g., definition of plan types)
• Any cost factors suggested in this class are only
approximations. Different underwriters/actuaries value
plan alternates differently
2-4
Plan Management
• These issues apply to plan sponsors, trustees, benefits
managers, financial managers, etc.
• So, what do you evaluate and monitor?
– The plans you offer
– Cost and performance on an ongoing basis
– The companies and consultants you contract with
• Trustees have special responsibility: Must act as a
fiduciary; always consider the best interests of the plan
• Management needs some technical, as well as
conceptual understanding
2-5
Some Monitors for Your Plan
(Continued)
• Non-Financial:
– Member surveys; unsolicited complaints or
compliments
– Consultant reports or articles comparing “best
practices”
– Benchmarking benefits/costs against your competition
– Directives/guidance from senior management
– Succession planning—Who will take over key positions
following retirement or resignation
2-6
Some Monitors for Your Plan
(Continued)
• Financial:
– Key financial statements (see following slide)
– Loss ratio reports—Take note when loss ratio > 85%
– Monitor high individual claims (starting $25,000,
$50,000 or maybe higher for larger plans)
– Monitor in/out network usage and ER utilization rates
– Watch Rx claims and trends
– If association plan—Keep up with closure and
retention rates
– Status of your plan’s reserves
(stabilization, IBNR, special)
2-7
Key Financial Statements
These financial statements should be maintained by a selfinsured trust health plan and are routinely audited by a CPA.
• Balance Sheet
– Assets—What the plan has, to satisfy obligations
– Liabilities—Obligation incurred, not yet paid
– Plan equity—Assets less liabilities
• Income Statement—Is for a period of time
– Income and expenses for plan
– Should compare to budget
• Cash Flow Statement
– Tracks cash into and out of the plan
– Essential to maintaining ability to operate!
2-8
Certifications/Accreditations
These are really monitors on your vendors:
• Health Plan Certification: National Committee for Quality
Assurance (NCQA)—Develops Report Cards for each plan
• Hospital and Facility Certification: The Joint Commission
(formerly the JCAHO)
• Health Plan, TPA and IRO/ERO Certification: Utilization
Review Accreditation Commission (URAC)
• State quality reports (e.g., Md., NJ, Penn.)
• Moody’s, A.M. Best, etc. rating agencies for financial
companies (these are actually more like rating agencies,
but is a similar idea)
2-9
Regular Meetings
•
Include stakeholders (those who have an interest in the plan’s
success) to address Trustee or plan issues/concerns
•
Trustees meeting agenda
– Update and issues by benefit manager
– Consider presentations by vendor reps (sales, medical director, actuary,
underwriter, etc.)
– Financial reports; Audits
– Upcoming renewals or bid situations
– Member Claim appeals
•
By contrast: Management meetings:
– Can involve any of the above, plus deal with daily issues
– Coordinate presentations to Trustees
– Meet with vendors to pre-negotiate issues
– Are involved in ongoing strategic planning
2-10
Appeals Process
• For non-grandfathered plans, the Affordable Care Act
requires that an external review process be installed
utilizing at least 3 certified Independent Review
Organizations (IROs), as the final level of appeal for
members.
• Internal appeal processes remain, but an external appeal
process is now imposed on non-grandfathered plans.
• For a self-insured plan, the external appeal process
requirement falls on the plan sponsor.
• But, most self-insured plan sponsors will have their
claims vendor handle the appeal process by working
with outside IRO’s. Expect a per-appeal fee.
2-11
Audits
• Working Definition: A systematic examination of
transactions and documents to confirm they present a
true and fair view of things and follow guidelines
• Your 3 primary financial statements require auditing to
confirm they are in accordance with GAAP
• Premium and eligibility—Keep your own house in order
• Claim audits—For claim payment accuracy; carriers do
own audits and don’t like client-supervised audits
• Fraud audits—A meticulous review of financial
documents to identify unauthorized or improper activity.
Can be corrective or preventive
2-12
A Few Terms—#1
•
MCO—“Managed care organization”—A continuum of organizations that
provide managed care, each operating with slightly different business models
•
Network—A group of doctors, hospitals, and medical facilities with negotiated
prices and protocols
– Open panel = Independent practitioners
– Group model = Clinic
– Staff model = Clinic with doctors on salary
•
Protocols—These are simply carrier or network rules, e.g., mandatory
referrals, pre-cert, providers required to file claims, or whatever a network
thinks are good ideas!
•
Primary Care Physician (PCP)—Medical doctor who does the referrals for plans
with gatekeepers (fam pract.; gen pract.; internists; pediatricians; OB/GYNs)
•
Mandatory referral or “gatekeeper”—Means your plan requires
that your PCP approve any referral to a specialist
2-13
A Few Terms—#2
•
Capitation—Provider reimbursement method where medical provider is
paid a fixed monthly rate for each member assigned, instead of on
services rendered. Usually adjusted for age, and geog. area. Widely
used for primary care.
•
Anti-selection—Present when you offer multiple plans. Enrollees pick
the plan they think will work best for their own financial circumstances.
Causes overall plan cost increase (2%-4%), depending on how
contributions are set up.
•
UCR—“Usual, customary and reasonable”; the provider’s charge which a
plan will allow in calculating claim payment. {also called U&P (usual
and prevailing); R&C (reasonable and customary)}
•
Balance billing—Is the difference in UCR and what the provider actually
bills
•
Small Group—A group of less than 25 or even 100 lives, depending on
whom you are talking to
•
Shared Savings charges—Cost for special OON negotiations
2-14
A Few Terms—#3
•
•
•
•
COBRA (Consolidated Omnibus Budget Reconciliation Act (1986))—
Major provision: terminated employees can buy group coverage for
limited period of time
HIPAA (Health Insurance and Accountability Act (1996))—Major
provisions: portability of coverage; electronic records standards;
privacy rules (PHI)
Formulary—A list of preferred prescription drugs as defined by a
particular PBM (pharmacy benefit management) company
Stop Loss—
– Can refer to: your plan’s max out-of-pocket each year
– Alternately, coverage for excess risk (aggregate or specific stop loss)
– Or, a feature of hospital contracts where charges revert to discounted
fee-for-service at a certain expense level
2-15
Type of Plan and Network
Getting started on plan design:
•
•
•
•
Traditional wisdom: Cost-effectiveness order of plans is: HMO, EPO,
POS, PPO, Indemnity
Exchange plans often have smaller networks
Ask about a plan’s capitation; other network financial arrangements
Can be a big difference in provider contract costs (“deals”).
– In bid situations:
• Ask consultants/carriers for “network yield” reports
(compares discounts on specific selected services)
• Ask consultants/carriers for “disruption analysis” reports
(e.g., Geo-Access reports)
– TPA network may accept less discount to get in the game
– Some carriers estimate their better provider deals give them
15% or more claim reduction over competitor networks
2-16
Top Cost Drivers in Plan Design
•
•
•
•
•
•
•
Type of plan and network
Coinsurance in plan design
Medical deductibles in plan design
Medical benefit copays
Rx benefit copays
Out of pocket maximums in plan design
Whether or not to offer multiple plans
2-17
Distinction:
Deductibles vs. Copays
• Copays are associated with managed plans, but deductibles
apply to both mgd. and indemnity
• Deductibles—Generally are annual basis
– Individual deductible—Applies to each family member for the entire
year
– Family—The family has a deductible limit (typically 2x or 3x)
regardless of the number of family members
• Copays—Flat fees which the member pays for specific
services. Important: copays bypass the plan deductible
– Office visit copay—Whenever visit doctor
– Hospital copay—Whenever are hospital inpatient
– ER copay—Whenever visit emergency room
2-18
Group Medical Plans—Overview
•
•
Indemnity plans—No network; just a plan
Managed Health Plans
– HMO (Health Maintenance Organization)—No out-of-network benefits
(except emerg.). Capitation; gatekeeper. Usually smallest network
– EPO (Exclusive Provider Organization)—Similar to HMO (no out-ofnetwork) but no capitation or gatekeeper. Avoids state HMO regs.
– POS (Point of Service)—Started out as HMO with opt-out. Has
mandatory referrals/uses gatekeeper, capitations. Mid-sized network
– PPO (Preferred Provider Organization)—Initially developed to have a
managed plan, but with no gatekeeper; has the largest network
•
•
•
Consumer Driven Health Plans (CDHP)—High deductibles; has a
savings plan element
Discount Plans—This is just access to a “network” discount and
gives lower prices, pre-negotiated by the “plan”
Concierge/Boutique Plans—Expedited primary care for a monthly
rate; still need hospitalization and other health coverage
2-19
Other Plans—Overview
•
•
•
•
Rx Plans—Covers out-of-hospital drugs
Dental—Often separate enrollment; sometimes totally voluntary
(weakest approach)
Vision—Can be benefit plan or access to discounts
Disability—Coverage to replace % of lost income
– Types: Salary replacement (not insured); short term (goes to 3 or 6
months); long term (usually to age 65)
– Tax rule: IRS taxes either the premiums or the benefits (so, is big issue
who pays premiums!). Probably don’t want to include in 125 plan
•
•
Long Term Care—Benefits to cover expenses when lose ability to
take care of yourself. Includes the custodial care which Medicare
won’t pay for
Accident/Critical Illness—Limited coverage, pays flat amounts for
accidents and other disease conditions; can be used to offset high
deductibles and out-of-pocket on medical plan
2-20
Indemnity Plans
• Plan indemnifies or pays for medical costs incurred in
accordance with the plan document
• No network: Go to any licensed provider or facility
• Plan design:
–
–
–
–
Coinsurance
Annual deductible
Out of pocket max
Perhaps some first dollar coverage
• Little in the way of cost control except the plan design
itself and UCR limits
• Today: Mostly for out-of-network/out-of-area plans
2-21
HMO Plan Structure
• HMOs offer network-only benefits and emphasize
capitations and preventive care
• HMO’s generally have the smallest networks
• HMO’s have mandatory referrals (gatekeeper)
• For years, HMOs paid 100% benefit after copays
• More recently, HMOs have expanded their networks and
are making their benefits look like the in-network portion
of POS plans (i.e., adding deductibles, coinsurance, and
out-of-pocket maximums)
• HMOs have more state regulations to follow than
non-HMO plans. This gave rise to the EPO
2-22
EPO Plan Structure
•
•
•
•
•
Similar to HMOs in plan design
But, no mandatory referrals
And no capitation
Not subject to state HMO regulations
EPOs are often used when you want to have HMO
benefit structure in a self-insured plan
2-23
POS Plan Structure
• Basic Benefit Design:
– Have higher in-network benefits than out-network (e.g., 90/70;
80/60; 80/50; etc.) . . . ideally minimum 20% spread
– Annual deductible similar to indemnity plan
– Annual out-of-pocket max similar to indemnity plan
– Copays: POS plans also have copays:
• Doctor’s office visit copay—relatively low amount (e.g., $10-$50) to
encourage staying healthy
• Other copays (e.g., ER, X-ray/lab, hospital)
• Remember: copays by-pass the annual deductible
• Other Considerations:
– Uses gatekeeper (mandatory referrals for specialist)
– Uses capitation
– Mid-sized network
2-24
PPO Plan Structure
• Basic Benefit Design:
– Similar to POS plans except . . .
– Sometimes remove copays, so the deductible applies to
everything (“front-end” deductible)
• Other Considerations:
– No gatekeeper
– No capitation
– PPO plans usually have less network protocols and a larger
network than a corresponding POS plan and provider contract
terms can be less demanding
2-25
Consumer Driven Health Plans—
HSA’s
•
Associated Health Plan
– Must have a qualified High Deductible Health Plan (HDHP)
– Deductibles and OOPs are IRS indexed (single/family):
• In 2016 deductible at least $1,300/$2,600
• In 2016 out-of-pocket max no more than $6,550/$13,100
– HDHPs cannot have copays or any first-dollar coverage!
•
Savings account (tax advantaged)
–
–
–
–
–
–
Employer and employee funding = ok
Account belongs to employee (so have carry-forward)
Used to pay for vision, dental, medical and Rx expenses
May use to cover non-medical expenses (may be 20% penalty)
Some employees not eligible (Medicare, spouse PPO coverage, etc.)
Contributions are limited by IRS (single/family)
• In 2016 no more than ($3,350/$6,750)
• In 2016—$1,000 age 55 make-up
2-26
Consumer Driven Health Plans—
HRA’s
Health Reimbursement Accounts (HRAs)
(a.k.a. Health Reimbursement Arrangements)
•
Associated Health Plan
– Can be any health plan
– But generally, an employer adopts a higher deductible plan
•
Savings account (tax advantaged)
–
–
–
–
–
•
ONLY Employer funding
Contributions may be carried-forward (employer option)
Used to pay for vision, dental, medical and Rx expenses
May NOT be used to cover non-medical expenses
No limit in contributions to the account
Good link: https://www.tasconline.com/resources/
health-reimbursement-plan/
2-27
“Discount” Medical Plans
• Simply buys you access to a network of medical
providers
• The provider network is supposedly screened for quality
and has discounted rates
• These plans do not count as “minimum coverage” for
individual mandate under ACA
2-28
“Concierge” Medical Plans
• This is personally pre-paid primary care, in exchange for
improved access and services
• Covers lots of primary services not covered by insurance
• Doctors are mostly internists and family practitioners
• Cost is generally $1,000-$5,000 per year
• Not a substitute for traditional health coverage; patient still
needs insurance plan to cover hosp., surg., etc.
• Not directly tax-deductible but may be able to pay through
FSA or HSA
• Other names: boutique care, direct primary care, retainerbased medicine
2-29
Prescription Drug Plans
•
•
•
•
Rx was the fastest growing expense in health care in recent years
(aging population, direct to consumer advertising, new Rx
therapies); although cost is slowing down, trend still higher than
medical
Rx contracting is considered a specialty and pharmacy benefit
management (PBM) companies, such as Express Scripts and
CVS/Caremark now dominate
Retail cards + Mail order = Standard approach
As a Plan sponsor, you should be familiar with these issues:
–
–
–
–
–
–
–
Formulary modification
Increased co-payments (or change to a percentage, or adding tiers)
Step therapy (starting with most cost-effective Rx, and progresses)
Specialty drugs – watch pre-auth rules and carrier limitations
If self-insured, PBM company rebates you receive!
Keep close eye on “Rx compounding” costs in your plan
Watch for repurposing Rx (to extend brand life)
2-30
Special Medicare Plans
•
Medicare Advantage Plans (here before ACA; still around)
–
•
•
Basically an HMO structure which replaces traditional Medicare
Medicare ACO’s (Accountable Care Organizations) created by the ACA
–
In such an ACO, independent providers (phys, hosp, labs, etc.) band together and share
systems, data, referral protocols, etc.
–
Member is strongly encouraged to stay “in network”, but NOT REQUIRED
–
ACO may be rewarded with shared savings payments from Medicare (maybe penalized)
–
Must meet financial outcome targets and 33 ACO Quality Measurements
–
3 models: Shared Savings Program, Advance Payment Model and Pioneer ACO Model
(no longer new applicants)
Clarification/Comparison: The term “ACO” is also used to describe nonMedicare provider arrangements
–
These ACO’s could be part of a larger network, or could be the network itself
–
Their reimbursement is not simply based on capitation or fee for service. Includes that
element, but is adjusted by financial/quality metrics
–
May be under fully insured or self-insured plan
–
Such ACOs can best be used when an employer population is primarily
located in one area (city, county, ISD, etc)
2-31
Advantages and Disadvantages
of Types of Plans
• Advantages and disadvantages, of course, depend on
your perspective (sponsor, participant, or provider)
• We will mostly focus here on the perspective of the plan
sponsor
2-32
Relative Advantages
•
HMO
– Most tightly managed
– Most network assistance for employees
•
EPO
– More flexibility than HMO in funding and plan design
– EPO can be self-insured more easily than HMO
•
POS
– Capitation, mandatory referrals, and network protocols give more cost
control potential than PPO
•
PPO
– Employees usually favor over POS; simple plan design
– No mandatory referrals avoids some employee complaints
•
Indemnity
– Simple to design and administer; best for out-of-area plans
2-33
Relative Disadvantages
•
HMO
– Employee complaints of no out-of-network benefits
– Difficulty in getting good experience data from carriers
– Anti-selection if offer HMO alongside PPO or POS plan
•
EPO
– About the same as HMO
•
POS
– Employees could resent mandatory referrals
•
PPO
– Less savings potential than POS/HMO (which have tighter network controls)
•
Indemnity
– Most costly option
– Employees may have to pay provider up front
– Employee balance billing and other claim hassles
2-34
Exhibit 5.1
Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988‐2015
Conventional
HMO
PPO
POS
HDHP/SO
1988
1993
46%
1996
27%
1999
10%
28%
2000
8%
29%
2001
7%
24%
2002 4%
27%
2003
5%
24%
2004
5%
25%
2005 3%
21%
2006 3%
20%
2007 3%
21%
2008 2%
20%
2009 1%
20%
2010 1%
19%
2011 1%
17%
2012 < 1%
16%
2013 < 1%
14%
2014 < 1% 13%
2015 1%
14%
73%
16%
21%
31%
11%
26%
7%
28%
14%
39%
24%
42%
21%
46%
23%
52%
18%
54%
17%
55%
15%
61%
15%
60%
13%
57%
13%
58%
5%
12%
60%
8%
10%
58%
8%
8%
55%
13%
10%
56%
9%
17%
19%
57%
9%
20%
58%
8%
20%
52%
10%
24%
NOTE: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer‐Sponsored Health Benefits for additional information.
SOURCE: Kaiser/HRET Survey of Employer‐Sponsored Health Benefits, 1999‐2015; KPMG Survey of Employer‐Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.
2-35
4%
Exhibit 4.1
Among Firms Offering Health Benefits, Percentage of Firms That Offer One, Two, or Three or More Plan Types, by Firm Size, 2015 100%
3%
3%
12%
7%
9%
15%
22%
13%
80%
37%
39%
Three or More Plan
Types
46%
60%
50%
40%
84%
83%
56%
20%
One Plan Type
52%
39%
Two Plan Types
28%
0%
All Small Firms 200‐999 Workers*
(3‐199 Workers)*
1,000‐4,999
Workers*
5,000 or More
Workers*
All Large Firms
(200 or More
Workers)*
ALL FIRMS
*Distribution is statistically different from distribution for all other firms not in the indicated size category (p<.05).
NOTE: The survey collects information on a firm’s plan with the largest enrollment in each of the plan types. While we know the number of plan types a firm has, we do not know the total number of plans a firm offers. In addition, firms may offer different types of plans to different workers. For example, some workers might be offered one type of plan at one location, while workers at another location are offered a different type of plan. Although firms may offer more than one of each plan type, the survey asks how many are offered among the following types: conventional, HMO, PPO, POS, and HDHP/SO.
SOURCE: Kaiser/HRET Survey of Employer‐Sponsored Health Benefits, 2015.
2-36
Healthcare Reform—A Few Features
•
Pub Law 111-148 (HR 3590 & HR 4872) effective March, 2010
– Common terminology: “Patient Protection and Affordable Care Act”, “ACA”,
”PPACA”, or “Healthcare Reform”
•
Some major provisions implemented to date:
– No plan dollar maximums (lifetime or annual) but certain internal limits ok (E.g.
limit physician visits; $ hearing aids/yr.)
– Must offer to children age 26 of eligible EEs (no requirement to cover spouse)
– No pre-existing exclusions allowed for any plans
– Preventive care cov. at 100% incl. contraceptives & other Women’s Health Items
– W-2 reporting of value of group plan benefits (<250 lives and employers
contributing to M.E.T.s delayed)
– FSA salary reduction contributions capped at $2,500 (but $500 carry-forward)
– If non-grandfathered, new claims appeals process—Note: for self-insured plans,
plan sponsor responsible for external appeals process
– Max waiting period no more than 90 days
– All OOP costs, including copays will accumulate to max OOP.
– Employer mandate penalties and IRS reporting requirements
2-37
Healthcare Reform—Grandfathering
Grandfathered plans are still permitted for the
foreseeable future and . . .
•
Are exempt from . . .
–
–
–
–
•
•
Preventive coverage enhancement
Requirement of PCP designation rules and direct access to OB/GYN
Mandated claims appeal process
Out-of-pocket max limit = $6,850/$13,700 (2016 level); $7,150/$14,300
(2017 level)
Downside is loss of flexibility in contributions (e.g., employee portion
can’t increase >5% of total cost from 2010 percentage) and plan
modifications (e.g., deductibles and copays can’t increase more than
5% plus trend from 2010 amount). BUT: could have more than one
change as the trend in cumulative!!
Estimated cost to lose grandfathered status: Between 1.5% and 3%
(excluding cost of adjusting plan to the future OOP limitations)
2-38
Healthcare Reform—
Some Tax Issues
•
Taxes from ACA which group plan sponsors must address:
– PCORI (Patient Centered Outcomes Research Institute) fee
• Paid by insured and self-insured plans on all members—IRS collects
• $2.17/member in 2015 (indexed); paid through 2019
– TRP (Transitional Reinsurance Program) fee—subsidize Exchanges
• Paid by insured and self-insured plans on all members (except Med retirees)
• $27/member (plan year 2016); last plan year = 2016—HHS collects
•
Additional Taxes (or subsidies) for Insurance Companies:
– Health Insurer Tax—can add 2.5-3% to insurance rates (excise tax,
not a deductible expense) for fully insured plans
– Risk Corridors Program—Exchanges only (3% profit/loss limit)—HHS
– Risk Adjustment—permanent (tax or subsidy; triggered by risk enrollment
profile)—HHS determines the adjustments.
2-39
Healthcare Reform—
Some Tax Issues (continued)
•
Individual mandate tax
U.S. citizens must be covered by minimum-level plan (Bronze)
Tax is the greater of 1) flat dollar amount, or 2) % of income amount
In 2014: flat dollar = $95 single/up to $285 family; % income = 1%
In 2016: flat dollar = $695 single/up to $2,085 family; % income =
2.5%
– Some exceptions—details of exceptions could change
–
–
–
–
2-40
Healthcare Reform—
The Exchanges
•
•
States can set up Exchange; otherwise HHS will set up for the state
Four basic types:
– Individual Exchange—government
• Rating restrictions: 3:1 for age; 1.5:1 for smoking; area adjust ok
– SHOP Exchange (Small Business Health Options Program)—government
• On line enrollment currently delayed
• Up to 50 employees (in 2016 up to 100 life groups)
• Rating restrictions: 3:1 for age; 1.5:1 for smoking; area adjust ok
– Medicare exchange—private
– Other “exchanges”—private
• Insurance company creates a market for larger groups with Exchange-type plan
options/services
• Consulting company creates a market for larger groups with Exchange-type plan
options/services
• Association can market Exchange-type plan options/services
2-41
Healthcare Reform—Subsidies
These subsidies available for Individuals
• Subsidies apply ONLY to government Exchanges but . . .
– Recent Federal Appeals Court decision inconclusive on legality of
subsidies for Federal Exchanges v. State Exchanges
• Subsidy (Tax credit) if . . .
– Income must be between 100%-400% of FPL
– No employer plan with Minimum Essential Coverage (MEC) is
available OR
– The plan is not valuable—meaning it covers less than 60% of health
expenses OR
– Employer plan is unaffordable—meaning, a low income employee’s
contribution for self-only coverage is above 9.5% of household
income
2-42
Healthcare Reform—Subsidies
(continued)
• Terms of subsidy:
– Can enroll in any plan, but calculated based on Silver plan
– Subsidy pays excess of Exchange premium over specified
income % (sliding scale: 2% up to 9.5%)
• Additional Plan Subsidy if income between
100%-250% of FPL
– Must enroll in Silver Plan
– Subsidy reduces your out-of-pocket costs (to as low as 6% of
actuarial value)
2-43
Healthcare Reform—
Employer Penalties
•
Basic Principles:
– Only for large employers (employers with 50-100 FTEs in 2015;
>50 FTEs in 2016)
– Only look at low income employees (family income under 400% of FPL)
– Can only be penalized if 1 or more “full time employees” obtain subsidized
exchange coverage)—see prior slide
•
So, what can cause an Employer Penalty?
Offer no plan at all
Offer a plan which is below MEC (minimum essential coverage)
Plan not available to at least 95% of employees
Plan is “unaffordable” for employees (Employee-only coverage is over 9.5% of
family income)
– Offer plan which doesn’t cover at least 60% of costs (minimum value)
–
–
–
–
2-44
Healthcare Reform—
Employer Penalties
(continued)
•
“Strong” Penalty (if you’re in the blue zone on prior slide):
– Strong Penalty is $2,000 for every full time employee in excess of
30 employees
•
“Weak” Penalty (if you’re in the green zone on prior slide):
– Weak Penalty is $3,000 for any full time employee who goes to
Exchange and gets a subsidy
2-45
Healthcare Reform—Other Issues
(#1)
Some Things to be Thinking About . . .
• Make sure your plan is offered to 95% of full time employees
and covers children of eligible employees up to age 26, or $2,000
penalty applies
• Make sure the employee-only coverage is “affordable”
• Some employers may offer a “skinny” plan that provides minimum
benefits required under MEC, to avoid the strong penalty ($2k all EEs).
• If not grandfathered, remember OOP max limits ($6,850/$13,700 for
2016 plan year, $7,150/$14,300 for 2017 plan year)
• If still grandfathered, pay close attention to any plan changes
• Anticipate reporting to IRS details of your health plan coverage
(coverage 2015: due to IRS in March 2016). Requirements in IRS
Sections: 6055/6056. Forms are: 1094 and 1095. Note: this is not the
W-2 reporting
2-46
Healthcare Reform—Other Issues
(#2)
More Things to be Thinking About . . .
•
The Affordable Care Act (ACA) employer mandate provision was delayed until
2015.
– The additional year allowed the Administration to consider ways to simplify reporting
requirements under section 6055 and 6056
•
•
Section §6055—All insurers and plan sponsors providing minimum essential
coverage (MEC), regardless of whether the employer mandate penalty applies to
them, must report to the IRS which employees have MEC on an annual basis
Section §6056—Large employers subject to the pay or play penalty must report
which full-time employees were offered coverage, by month
Reports due:
– Electronic filers—March 31 (first report 3/31/16)
– Non-electronic filers—February 28 (first report 2/28/16)
– Those plan sponsors that will file at least 250 of these must report electronically
•
Forms used:
– Small employers not subject to pay or play (less than 50 FT equivalents)—
Forms 1094-B and 1095-B
– Large employers—Forms 1094-C and 1095-C
2-47
Healthcare Reform—Other Issues
(#3)
Even More Things to be Thinking About . . .
•
•
•
•
•
•
In addition to the IRS reporting, plan sponsors must also distribute
the same information to each employee
Forms must be provided to all employees that worked full-time even
for one month during the calendar year
Typical cost for a 2,000 employee company for hiring an outside
vendor for this: $25,000 - $50,000
The information may be provided in a separate disclosure of copies
of the Forms may be provided to employees
These statements may be provided in the same mailing as the W-2
Electronic disclosure is only allowed if the employee affirmatively
consents prior to the disclosure in a way that demonstrates the
individual is able to access the statement in electronic format
2-48
Healthcare Reform—Other Issues
(#4)
And Finally, Even More Things to be Thinking About . . .
•
Monitor how the Exchanges will affect your plan
– Affect on your plan’s enrollment
– Whether you will accept penalties to lower your cost (e.g., “selective pay”;
“pay and exit” strategies, etc.)
•
•
•
•
Monitor developments in “Anti-Retaliation Rules” for employers
2020—“Cadillac Plan” tax. 40% tax on plan sponsor if plan cost is over
$10,200 single/$27,500 family (as indexed from 2018)
HHS is considering making the “pre-tax” amount of FSA and HSA
provided to employees count towards the Cadillac Tax calculation
Consider impact on COBRA risk
– Consider making terminated employees aware that they may be able to
reduce cost and shop for a plan that includes federal subsidies on the
exchanges
– Offer employer subsidy to buy plan on exchanges if not eligible for federal
subsidy
2-49
Concepts of Plan Funding
• All
–
–
–
benefit plans run on cash and must cover these essentials:
Claims paid
Reserves (IBNR reserves; contingency reserves)
Margin (for imprecise guesses, fluctuation, and
contingencies)
– Expenses (carrier’s and your own)
• If Insured: carrier handles more of the administration,
takes the risk (for about a year), and takes the profit or loss
• If Self Insured: Client does more accounting, has more
administration, takes most of risk, and takes the profit or loss
• In both cases, the buyer is responsible for coming up with the
cash!
2-50
Fully Insured
• Advantages
– Carrier does more of the administration
– Fixed monthly rates
– Less legal risk for plan sponsor
– State guarantee fund if insurance company goes insolvent
• Disadvantages
– Less control over rates (“junior partner” at best)
– Margin and profit goes to the insurance carrier
– Less flexibility in plan design
– Additional state and federal taxes: 2.5%-3% ACA taxes.
Plus State taxes 1-2%
2-51
Self-Insured
• Advantages
–
–
–
–
Can adjust level of risk with varying types of stop loss
Save state premium taxes
Get to keep margin/profit in good years
More flexibility determining internal funding rates
• Disadvantages
– Can incur unexpected negative cash flows
– Participants not as secure
• No State Insurance Guarantee Fund to stand behind plan
• Temptation to not properly establish and maintain IBNR (especially
bad situation if ever decide to go back to insured!)
– The surplus funds can get swept into general revenue and the
long term rating advantages are lost
– More flexibility determining internal funding rates
2-52
Retiree Plan Funding
•
Higher cost potential for retiree plans
– Greater utilization (more health needs)
– Medicare cost shifting potential for over-65 retirees
•
•
•
May consider healthcare exchange option (Pre and Post-65)
RDS (Retiree Drug Subsidy) for Rx plans
Interest in proper funding of retiree benefits:
– Bond ratings
– Benefit security
– Citizen interest
•
GASB #43 and #45 compliance
– Related to funding and reporting of retiree plans
– GASB DOES NOT REQUIRE pre-funding
•
Retiree Medical Trust (RMT) pre-funding option
– IRS section 115 and 501(c)(9) are legal basis
– Resource: http://www.ncpers.org/Files/HealthCare/RMTreports_2Ed.pdf
2-53
Exhibit 6.5 Average Annual Firm and Worker Premium Contributions and Total Premiums for Covered Workers for Single and Family Coverage, by Plan Type, 2015
Worker Contribution
HMO ‐ Single
$1,179
HMO ‐ Family
$5,032
PPO ‐ Family
$5,430*
POS ‐ Family
$5,231
$6,575*
HDHP/SO ‐ Family
$4,699*
$6,259
$11,503
$15,970*
$12,053
$5,179
$16,913
$5,567*
$3,917*
$1,071
$18,469*
$13,253
$5,410
HDHP/SO ‐ Single $868*
$17,248
$11,801
$5,216
POS ‐ Single $1,027
All Plan Types ‐ Family
$6,212
$5,447
PPO ‐ Single $1,145
All Plan Types ‐ Single
Employer Contribution
$6,251
$4,955
$12,591
*Estimate is statistically different from All Plans estimate by coverage type (p<.05).
SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2015.
2-54
$17,545
Exhibit 6.1
Average Percentage of Premium Paid by Covered Workers for Single and Family Coverage, 1999‐2015
50%
Single Coverage
45%
Family Coverage
40%
35%
30%*
30%
27%
28%
26%
26%
27%
28%
26%
27%
28%
27%
27%
29%
29%
29%
18%
18%
18%
18%
2012
2013
2014
2015
28%
28%
18%
2011
25%
19%*
20%
15%
14%
14%
14%
1999
2000
2001
16%
16%
16%
16%
16%
16%
16%
2002
2003
2004
2005
2006
2007
2008
17%
10%
5%
0%
*Estimate is statistically different from estimate for the previous year shown (p<.05).
SOURCE: Kaiser/HRET Survey of Employer‐Sponsored Health Benefits, 1999‐2015.
2-55
2009
2010
Why Do You Care About
Rating Formulas?
• Why not just pay a consultant to get the best deal . . .
then you vote?
• This technical knowledge is important to trustees,
benefit managers, and finance directors
• Knowing a little bit may be important because:
– Helps you ask the right questions
– Familiarity with rating lingo assists your understanding
– Helps you focus on the right ingredients in rating
2-56
Concepts of Plan Rating
• It’s mostly about guessing the claims!
• Underwriters generally assume that history repeats itself
• The bigger the group, the more often history repeats
itself
– Different coverages have different credibility factors
– Medical coverage—generally treated as credible at 500 lives
• Miscellaneous experience predictors:
– Age, gender, geographic area (demographics)
– Group turnover; group administrative practices
– “Something in the water”
2-57
Rate Making—Insured #1
A. Last year’s claims
– Usually begins with paid claims (last 12 or 24 months)
– Subtract “shock” claims “forgiven” (amount of individual claims over
carrier’s pooling level, e.g., $50,000, $100,000, etc.)
– Add pooling charge (in exchange for claims forgiven)
– Add the (usually positive) change in IBNR (incurred-but-not-reported)
to arrive at current benefit charges
B. Trending for next year
– Trend is for expected inflation and utilization
– The number of months trend is: from the mid-point of the experience
period to the mid-point of the projection period
– The resulting trend factor is multiplied by Benefit Charges to arrive at
projected claims before credibility adjustment
2-58
Rate Making—Insured #2
C. Credibility adjustment
– For smaller groups, the actual trended benefit charges are not
considered fully credible
– The “Credibility Factor” indicates the “believability” of the group’s
experience used in the calculation
– The “Company Average”, or “Manual Claims” are the company’s claim
projection based on case demographics
– Example: A credibility of 80% means blending 80% of actual and 20%
of “Company Average” or “Manual” Claims
D. Projecting Next Year’s Claims (Benefit Charges)
– Formula = Actual experience, adjusted for credibility, when credibility is
applicable
– With 100% credibility, simply trend last year’s benefit charges
2-59
Rate Making—Insured #3
E. Margin (explicit)
– For fluctuation, imprecise guesses and other uncertainties
– Also for profit
F. Admin Expenses
– Carrier expenses (taxes, commissions and other expenses/overhead)
– Can have Plan Sponsor expenses in rates (royalties or overrides)
– Expense calculation usually % of PROJECTED premiums
G. Insured Rate Increase Calculation:
– (Proj. Claims + Margin + Admin) divided by Adjusted Premiums
(Adjusted Prem = paid premium, adjusted to current rates)
– Any “retro” agreement is due at end of year if poor experience
2-60
Rate Making—Self Insured #1
A. Projecting Claims (subj. to AGG SL):
– Similar to insured, except: a) the IBNR is your problem and
b) Specific Stop Loss coverage replaces pooling for “shock claims”
– So why project claims, if self-insured?
• To determine Aggregate Stop Loss Attachment point
• Group needs to know how much to budget for claims
B. Self Insured Rates Expressed As:
– Agg. attachment point = usually projected claims + 25% margin
– Aggregate and specific stop loss payable rates
• For both agg. and specific, important to know:
– Incurral basis: 12/12; 15/12; 24/12; 12/15; etc.
– Whether any “lasered” claims are excluded from coverage
– Administrative rate(s)—see next slide
2-61
Rate Making—Self Insured #2
Special note on administrative rates:
• May include many ingredients
–
–
–
–
–
–
–
–
–
General plan services (claims processing, account services, etc.)
Network access fees
% of savings fees for certain network services
Special charges for printing
Special charges for experience reports
COBRA admin
Charges for handling External Appeals
Sometimes broker fees are built into admin fee
Read contract! Look for any other fees
2-62
So . . . What Does a Plan Cost?
• Insured Plans
–
–
–
–
Premiums paid (including any retro payments)
Minus any dividends credited
Plus any outside consulting fees paid
Could also add: In-house costs
• Self-insured Plans
–
–
–
–
–
–
–
Claims paid
Minus stop loss claim reimbursements (specific or agg.)
Plus what you book as change in your plan’s IBNR
Plus Admin fees paid
Plus Stop loss premiums paid
Plus consulting/broker fees you pay directly
Could also add: In-house costs
2-63
Classroom Discussion Exercise
• Several Handouts Set up Discussion
• Focus of Exercise
– Bring current issues into classroom discussion format
– Encourage class members to share experiences related to
topic
– Brevity: try not to get bogged down in any one exercise
2-64
Summary
•
•
•
•
•
•
•
•
Plan management issues
Terminology for benefit plans
Types of group benefit plans and design
Mentioned 6 cost drivers of medical/Rx plans
Advantages and disadvantages of various plans
Summary of key issues to be alert to in ACA
Financial issues
Rate making and exercise
2-65