Benefit Pitfalls & Health Care Reform Updates

Benefit Pitfalls & Health Care Reform Updates Presented by: Scott Rappoport Charles Bruder The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

Please help yourself to food and drinks Please let us know if the roomtemperature is too hot or cold Bathrooms are located past the reception desk on the right Please turn OFF your cell phones Please complete and returnsurveys at the end of the seminar

Renewal Train Wreck Cost Control Strategies limited to deductibles, copayments, etc. No Formal Benefit Communications Strategy The renewal process is not strategic, focused on quotes and plan changes. Common Pitfalls © 2008 Benefit Sources & Solutions. All rights reserved.

Critical Issues Spiraling Costs & Budgetary Limitations Limited Resources Limited Insurance Carrier Options Maintaining Employee Engagement & Morale Case Study NJ Based Not for Profit Private School-275 EE’s © 2008 Benefit Sources & Solutions. All rights reserved.

27% Renewal Increase Carrier Marketplace Declining to quote Management desire to maintain culture of providing competitive benefits program Budget constraints limited to 5% increase in employer cost Key Challenges © 2008 Benefit Sources & Solutions. All rights reserved.

The renewal process generally began only 60 days prior to the renewal Cost Control Strategies were historically limited to Cost Shifting Benefit Communications were limited to memos and an occasional meeting The renewal process was completely transactional What We Discovered © 2008 Benefit Sources & Solutions. All rights reserved.

Create a two tier plan-Hi/Low Employees must be properly induced to make a purchasing decision based on the cost of coverage and their medical needs. Set a base employer contribution for the low plan and charge participants 100% of the difference for the high plan. Our Advice © 2008 Benefit Sources & Solutions. All rights reserved.

Employer had only 7% of employees waiving coverage compared to the national average in our benchmarking survey of 17.2% This revealed that contributions were too low. However, the employer was intent on maintaining a culture of paying for a high percentage of the total medical cost. Our solution was to implement a new spousal eligibility policy Problem #2-Eligibility © 2008 Benefit Sources & Solutions. All rights reserved.

If your spouse is eligible for coverage where they work, they cannot be on your plan. Experience with our clients is that this generally results On average in a 20% disenrollment of spouses. Don’t try this at home without expert guidance. Spousal Eligibility © 2008 Benefit Sources & Solutions. All rights reserved.

Dental coverage was through a well known dental carrier Life and LTD were with one carrier STD was self insured and the employer was self administering it. Statutory TDB was with a private insurer and had been for years Problem #3-Ancillary Lines © 2008 Benefit Sources & Solutions. All rights reserved.

Dental Experience was running about 70% of paid premium Dental claims are highly predictable. Self funding dental (paying for administration and network access while funding your own claims) has very little financial risk. It will be completely transparent to your participants and could result in as much as a 30% savings Dental © 2008 Benefit Sources & Solutions. All rights reserved.

The client thought they were saving money through their self administered sick pay policy. HR was mildly concerned that from time to time key personnel received special consideration. Note to C-Corps-Ad Hoc disability payments are deemed to be non-deductible dividends to the Corp An insured STD plan proved to be about 20% less than was spent on average over the past 3 years and all of the self administration and risk of discrimination was eliminated Short Term Disability © 2008 Benefit Sources & Solutions. All rights reserved.

TDB was with a private insurer rather than the state plan. The rate was $1.00. No one had looked at this plan since current management had been there (10+ years!) We obtained the claims experience (AC 174-Aug.) and marketed the plan. The Rate was $.50. $.50 is the starting rate employees pay in the State plan. Savings to the employer was $23,000. There was no change to the employee contributions. Statutory TDB © 2008 Benefit Sources & Solutions. All rights reserved.

There are more than 20 ancillary lines carriers vying for your business. Our approach is to squeeze the maximum value out of the carrier. Life and LTD were with the same carrier. We added the STD and TDB. The carrier offered a variety of bells and whistles (EAP, Flex Admin, FMLA Admin) The employer’s administration hassles and compliance liabilities were reduced considerably Economies of Scale © 2008 Benefit Sources & Solutions. All rights reserved.

9.4% Gross Renewal Increase Majority of employees moved from hi to lo plan (cost neutral to the employer) 24% spouse disenrollment saved nearly 10%-$66k $29,000 savings due to TDB move 10% Reduction in Life, LTD & STD Free EAP, Flex Admin, FMLA Admin Results © 2008 Benefit Sources & Solutions. All rights reserved.

Critical Issues Spiraling Costs & Budgetary Limitations Unpredictable expenses Maintaining Employee Engagement & Morale PPACA Preparedness & Support Case Study Int’l Self Funded Engineering Co-180EE’s © 2008 Benefit Sources & Solutions. All rights reserved.

ER Had been self funded for many years and on the advice of their TPA was buying 15/12 specific stop loss and 12/12 aggregate at an annual cost of $422,000 Key Challenge - every year there were claims that fell outside the contract year leaving a big unknown liability and significant risk Primary Problem © 2008 Benefit Sources & Solutions. All rights reserved.

Key Challenges Revenue off 30% for the 2nd year in a row Trying to avoid reduction in force Management desire to maintain culture of providing competitive benefits program Horizon renewal increase of 27% from $1.33M to $1.7M Case Study HVAC Contractor in NNJ -139 EE’s © 2008 Benefit Sources & Solutions. All rights reserved.

Inefficient plan design No creative cost control strategies No formal employee communications No compliance support (5500’s were 4 years past due!!!) Administratively burdensome to manage What We Discovered © 2008 Benefit Sources & Solutions. All rights reserved.

Install Consumer Driven Health Plan Plan and execute robust 12 month employee communications program File VCR with DOL to resolve 5500 delinquency Identify best in class HR/Benefit Technology Platform Our Advice © 2008 Benefit Sources & Solutions. All rights reserved.

We conducted 5 employee meetings in 3 different locations We provided call center support to employees and their Dependents for assistance with enrollment decisions 97% of all participants elected the HRA We projected the client would be responsible for $175,000 in HRA deductible funding and about $20,000 in “safety net”. We estimated actual expenses at $151,000. Actual results a year later $131,000. HRA Case Study Results © 2008 Benefit Sources & Solutions. All rights reserved.

$500,000+ Savings Premium Plus HRA Funding $435,000 Spousal Eligibility $ 75,000 $138,000 less than they spent the year before. Multiyear Cost Control Strategy-Assuming similar HRA claims in 2011 the client will spend about $20,000 more in 2011 than they spent in 2009. In most cases, employee out of pocket costs are lower with the HRA Results © 2008 Benefit Sources & Solutions. All rights reserved.

Open enrollment paperwork Monthly adds & deletes in each system Monthly billing reconciliation Keeping your census up to date Maintaining employee demographic data with each carrier & system Data entry and transmission errors to carrier Sound Familiar? Supporting the 7 Systems © 2008 Benefit Sources & Solutions. All rights reserved.

Identify Specific Technology Needs & Best in Class Solution providers Identify possible funding sources (carriers?) Implement Technology Solution Our Advice © 2008 Benefit Sources & Solutions. All rights reserved.

Single system w/ EDI link to payroll & carriers providing: Online Enrollment Benefits Management HRIS Employee Portal Consolidated Billing Time & Attendance Performance Management Resource & Property Tracking Employee Surveys Applicant Tracking Etc. Result © 2008 Benefit Sources & Solutions. All rights reserved.

Assuming your insurance carrier or other party is going to: Complete and file your 5500 Provide your employees with annual notice of COBRA rights Provide notices of HIPAA Special Election Rights Provide Women’s Health Cancer Rights Notice Complying with Medicare Parte D reporting Provide Newborn Mothers’ Health Protection Act notices Providing Annual CHIP notices Compliance Pitfalls © 2008 Benefit Sources & Solutions. All rights reserved.

Ruling ConstitutionalThomas More Law Center v. Barack Obama, et al. (MI)Liberty University v. Timothy Geithner (VA)Mead v. Holder (DC)Ruling Unconstitutional Commonwealth of Virginia v. Sebelius (VA)Florida v. Dept of Health & Human Services (FL)(22 Attorney Generals & 4 Governors) © 2008 Benefit Sources & Solutions. All rights reserved.

Supreme Court likely not to rule before 2013 Question will be whether Inactivity = Activity What does the federal government make you do? 4 very liberal and 4 very conservative justices + Stephens The big issue is severability What are the Issues © 2008 Benefit Sources & Solutions. All rights reserved.

Quick review: Everything measured against plan design of March 23, 2010. Plan Loses Grandfathered Status if it: Eliminates a benefit, which includes elimination of an element necessary to diagnose or treat a condition Increases the employee coinsurance percentage Increases a copay by more than the greater of $5 or medical inflation plus 15% Increases the deductible or out-of-pocket max by more than the greater of medical inflation plus 15% Is Grandfathering Still Relevant? © 2008 Benefit Sources & Solutions. All rights reserved.

Decreases the employer’s contribution rate towards the cost of any tier of coverage by more than five percentage points. Is amended to include new annual limits or decrease existing annual limits. Changed carriers before November 15, 2010 NOT-because the carrier said so?!?!?! What Will Jeopardize Grandfathering Cont’d? © 2008 Benefit Sources & Solutions. All rights reserved.

Grandfathered plans are exempt from the following reform provisions: Required coverage for emergency services at in-network levels Required first-dollar coverage for certain preventive services (immunizations and screenings), subject to no deductible; A prohibition on restricting the designation of primary care providers or requiring referrals for OB/GYN services; Advantages of Remaining Grandfathered © 2008 Benefit Sources & Solutions. All rights reserved.

Required coverage of routine expenses for participation in clinical trials; Enhanced claim appeal procedures, including implementation of an external appeals process; and Due to these exemptions, many plan sponsors will want to retain their plan's grandfathered status for as long as that proves to be feasible. A prohibition on discriminating in favor of highly compensated individuals (i.e., applying the same nondiscrimination rules to both insured and self-funded plans). Grandfathered plans are also exempt from: © 2008 Benefit Sources & Solutions. All rights reserved.

Applies to non-grandfathered plans Delayed until further regulatory guidance is available! Has always applied to self-funded plans A prohibition on discriminating in favor of highly compensated individuals (top 25% top 5 highest paid and 10% shareholders) For insured plans the penalty is $100/day per person to whom the failure relates ($500,000 maximum penalty) Non-Discrimination Requirements © 2008 Benefit Sources & Solutions. All rights reserved.

Management-only health coverage Better benefits (reduced premium or increased benefits for management) Post termination continuation coverage (including COBRA) for management or other HCE’s only Coverage provided to HCE as result of resolution of employment litigation Examples of Discrimination © 2008 Benefit Sources & Solutions. All rights reserved.

Offer broad coverage, equal benefits and equal cost Have HCE’s pay same contributions and gross-up wages for tax impact Keep insured plans grandfathered for as long as reasonably possible Avoiding Discrimination © 2008 Benefit Sources & Solutions. All rights reserved.

Free choice voucher aspect of the mandate had the ability to destabilize the market It gave the right to young healthy employees who’s income fell within a certain range to buy coverage through the exchanges with the employer’s money and pocket the difference between the employer’s contribution and the cost through the exchange Repealed in April as part of the budget compromise! Free Choice Vouchers Repealed © 2008 Benefit Sources & Solutions. All rights reserved.

Delayed until benefits payable during taxable years: Beginning on or after January 1, 2012 for employers that issue 250 or more W-2’s On or after January 1, 2013 for employers that issue fewer than 250 W-2’s W-2 Reporting © 2008 Benefit Sources & Solutions. All rights reserved.

New ERISA Claims Procedures Effective plan years after September,23 2010 Significant Changes to claims and appeals procedures Does not apply to grandfathered plans New & cumbersome external review requirements Be sure your plan is amended! Other Issues © 2008 Benefit Sources & Solutions. All rights reserved.

Is your Flex Plan Amended?!?! Effective 1/1/11 it is illegal for your flex plan to cover OTC’s w/o a RX. Your plan document must be amended by 6/30/2011!! Significant Changes to claims and appeals procedures Does not apply to grandfathered plans New & cumbersome external review requirements Be sure your plan is amended! Other Issues © 2008 Benefit Sources & Solutions. All rights reserved.

Significant administrative implications: Written notice Special one time open enrollment Effective latest of 1/1/11 for 1/1/ plans Includes FSA’s & HRA’s Plan document amendments Allows for change in elections including FSA to pay for dep premiums Does not apply to dental or vision Discrepancy with NJ age 31-awaiting guidance Dep Age 26-Administration © 2008 Benefit Sources & Solutions. All rights reserved.

Requires that all: Group Health Plans (including self-insured plans) Group Health Insurers Individual Health Insurers Provide a summary of benefits and coverage explanation to: All applicant a the time of application All enrollees prior to the time of enrollment or re-enrollment All policyholders at the time of issuance or delivery Must include specific information, be no more than 4 pages and be culturally and linguistically appropriate. $1000 per enrollee fine for non-compliance 2011 Admin Issues-SPD’s © 2008 Benefit Sources & Solutions. All rights reserved.

Benefit Pitfalls & Health Care Reform Updates