Over the next decade, we are likely to see a shift in health insurance in the U.S.: So-called defined-contribution plans will gradually take over the market, shifting the residual risk of incurring high health-care costs from employers to workers.

The market today is dominated by “defined-benefit” plans, under which companies determine a set of health-insurance benefits that are provided for employees. These will gradually be replaced by defined-contribution plans, under which companies pay a fixed amount, and employees use the money to buy or help pay for insurance they choose themselves

http://www.bloomberg.com/news/2011-12-07/defined-contributions-define-health-care-ahead-commentary-by-peter-orszag.html

Comment: More and more employers will come to this realization soon enough as they run out of options to contain the cost.  Don’t wait until the defined contribution plan becomes the last option available.  Implement the program now so you can get a leg up on your competition.  A Visor BetterFits  program can help you implement a comprehensive plan specifically designed to each of your employee’s needs.

Will Massachusetts drop universal health care before everyone else adopts it?

The current Governor of Massachusetts just breathed a sigh of relief while he announced a three year $26.7 billion agreement with the Centers of Medicare and Medicaid(CMS).  This agreement is actually an increase of $5.69 billion over the previous waiver from the days of George Bush.  Why is this Massachusetts model the focus of so much buzz when the plan is bankrupting the state?  Read the comments of two Congressmen from Massachusetts as released by Governor Deval Patrick’s official website.  Congressman Edward Markey stated, “The Medicaid waiver serves as the cornerstone of Massachusetts’s health reform, and I’m pleased that the agreement announced today will provide the resources our health care providers need to care for our residents and will allow the Commonwealth to continue leading the nation in innovative health care solutions.”   In the same press release, Congressman James McGovern is quoted, ”We need to build on that success.  The initiatives supported by this waiver will continue to provide affordable access to high quality care for all patients while containing cost.” (emphasis added)

I just have one question for these representatives of the Commonwealth?  Which health plan are you referring to?

The Commonwealth should change its moniker to The Commondebt

The Massachusetts plan has been running a deficit since its inception and were it not for the cash injections from the Federal government, the Commonwealth would be bankrupt along with many of its hospitals.  It appears that the Federal Government has to keep the poster child healthy until the mandates in the Patient Protection Act take effect on January 1, 2014.  However, it does not take a great deal of research to reveal that the Commonwealth has severe fiscal problems that cannot be artificially propped up for long.  Here is a brief sampling of some of the reports:

• A report for the Massachusetts Business Alliance for Education by Edward Moscovitch states,           ”From 2000 to 2010, health care consumed two thirds of the entire increase in state spending.”-one of the solutions suggested was for all municipal employees to move to the Group Insurance Commission(GIC) which is touted as a lower cost option
• In 2009, Heartlander Magazine reported that Massachusettes had to cut funding for Commonwealth Care by rationing care and delaying benefits to legal immigrants -In 2011, funding was reinstated to provide coverage until  the end of the year for legal immigrants as a stop gap until 2014 when funding will be provided by the federal government.    
• In 2009, The New York Times reported on a lawsuit filed by Boston Medical because they were only receiving 64 cents for every dollar spent on Commonwealth Care.
• In 2010, according to The Boston Globe, GIC had to cut the benefits mid-year in order to avoid a “rather substantial deficit” mid-year deficit according to the executive director of GIC -Notably, one of the changes the president of the firefighter union thought was so unfair was the addition of a $250 deductible and $750 for the family
• The Worchester Region Chamber of Commerce recently reported that the city was faced with a $7 million deficit and the largest expense must be addressed, wages and benefits which represent  85% of the city budget. -Chamber was recommending a change to a “high” deductible plan of $500- $1,000 which is not uncommon     (For those in the industry, this is laughable.)
• In 2011, Wicked Local Newton reported that Newton, MA public schools were considering a move to GIC from their self-funding plan so they could save $2.3 million in 2012
• The Lowell Sun just reported this month that Lowell, MA is facing a $432.7 million liability for retiree healthcare benefits -To pay for these services, Lowell would need to hike property taxes by more than 20% which liability pales in comparison to cities like Worcester  ($765.3M), Springfield($761.6M) and    Brockton($693.6M)
• Just this month, Massachusetts Budget and Policy Center has just given a budget review and stated that the projected savings from the MassHealth program will unlikely materialize.

There is so much smoke here about the future of universal healthcare that any shout of “fire” would trigger a five alarm response.   Massachusetts does not have the cost contained and if their scheme is the cornerstone for the nation then the delivery of health care will crumble as the only success they will experience is forcing the entire country to fund their folly.

As an Employee Benefits consultant for the last 24 years I can share some insights from my national experience that will help you understand how irresponsible the bureaucrats of Massachusetts have become. Every state that has tried universal health care has failed (Washington and Kentucky come to mind) which resulted in a dramatic increase of cost as insurance companies and medical providers either left the state or went bankrupt.  It usually takes five to ten years before the marketplace returned to some normalcy.  The people of Massachusetts will suffer once the Commonwealth defaults.  Unfortunately, it appears to be a sad preview of what is to come nationwide on January 1, 2014 if the Patient Protection Act is not repealed. 

Governments at all levels are and have been providing benefits that do not reflect the market realities of comparable jobs in the private market.  To make matters worse, a large segment of the employees working at governments sought those jobs precisely because they have more serious health concerns and want someone else to pay for the treatments.  For an indication of the mindset that develops when a good or service is perceived as free, please refer to the point above in which the president of the firefighters union thought it was unfair that members of GIC had to suffer the expense of a $250 deductible.  In the heart of the Midwest(The lowest cost area in the country!), insurance companies have not offered a $250 deductible in the last five to seven years!  In fact, most employers are offering deductibles in the range of $1,000-$2,500 and those are creeping up at a fast pace as employers try to reign in cost.

As a further testament to the loss of reasoning in Massachusetts, look no further than the decision made by Newton Public Schools to move from a self-funded plan to GIC which will generate a savings of $2.3 million a year.  Self-funded plans are special in that the entity (Newton PS) actually pays the claims and they can control the claim expenses paid out by modifying benefits.  They do not pay “premiums” to an insurance company in the same manner most people understand.  As such there is no profit margin in the plan for an insurance company.  The costs of the plan are for the most part the actual claims incurred by those insured.  Newton PS can never save any money in a traditional sense because the claims represent the true cost of the plan.  If they do switch to GIC, it simply means that someone else will be footing the bill for the $2.3 million in savings.  Although this might prove difficult as GIC is already in a deficit position.

The only thing one can ascertain from the consolidations going on in Massachusetts is that the state GIC will become the single payer (at a huge loss), ultimately becoming too big to fail and bailed out by the federal government.  The main concern for people living in Massachusetts is whether or not the hospitals and doctors can survive.  I don’t care how efficient the system becomes, a business cannot sustain losing 34 cents on every dollar spent as Boston Medical detailed in 2009.

Fortunately there is an answer and after witnessing the mess he helped to create, Tim Murphy who was the Secretary of health and Human Services for Massachusetts under Mitt Romney, has decided that Massachusetts should scrap the system and move to a defined contribution model as reported in an article published on Politico.com in March 2010.  He goes on to comment that “the state must avoid market-distorting action, like Governor Patrick’s recent price control recommendations. Instead the state should reduce burdensome insurance regulations, promote the direct purchase of health insurance by consumers…”.  So now he wants the free market to fix the mess he has created!

Don’t think this change will come easily.  Back in 2007 when I implemented my first defined contribution plan, I received a call from a lawyer at a large carrier because they had received a call from the Office of Insurance Commissioner who did not like the fact that the group plan was being cancelled.  (The employer was paying $841 per employee/per month for a $5,000 deductible on 120 employees.)  Evidently, the Insurance commissioner thought the business should continue to pay the excessive premiums until they went out of business.  After five weeks of negotiations, the employees were able to buy individual insurance (the carrier finally issued them) with their defined contribution but the Insurance Commissioner was successful in quickly changing the statutes to ensure the process is as painful as possible for future employers.

If you want to know the future of health care financing, look no further than Massachusetts to determine what will happen in every state.  As the situation worsens, the government will do what it always does, consolidate and control, go bankrupt and then drop the coverage. Massachusetts will be the first state to drop universal health care because they are already bankrupt.  There will be no stopping this train.  The insurance companies have already invested millions in the changes mandated by PPA.  Your best strategy is a tried and true one used by libertarians everywhere- leave!  Get off the train before the wreck.  Terminate your group medical plan today and give your employees access to the funds via a Cafeteria Plan.  Not only will you drain the energy from the health insurance debate but you will be finally taking control of your business expenses.   

Expect to See Health Insurance Rates Rise

What you need to know right now
Healthcare reform promises to put regulations and limits on insurance companies, and while it may seem like a great idea now, employers can expect the increases to start in earnest this year. The Minimum Loss Ratio (MLR) provisions just went into effect on January 1, 2011. These rules state that an insurance company can only retain 15 percent of premiums for group insurance and 20 percent of premiums for individuals for administration and profit. Any overage must be returned to the insured. The easiest way insurers can make a profit is for the entire industry to raise rates and lower benefits.

What you need to know about 2014
A levy, based on market share, will be imposed on health insurers, with exclusions for insurers that meet certain criteria. After 2014, as health insurers face increased taxes, they could choose to increase their pricing models to absorb the levy. This may be passed on to employers through higher premiums, and employers could pass along all or a portion of any increased premium to their employees.

What you need to know about 2018
Starting in 2018, insurance companies who provide insurance costing more than $10,200 for individuals or $27,500 per family must pay a non-deductible 40 percent tax on the excess cost of the premium. Some opponents of this provision have suggested that this tax should more accurately be called a “Chevrolet” tax because many plan premiums may likely exceed those limits by 2016. As a benchmark, consider that in 2009, the average median medical coverage cost for a family topped $15,000. And since 2002, many plan sponsors have experienced an increase of nearly 80 percent in health insurance premiums. Simply put, this “Cadillac” tax could be a major burden on small businesses.

So, Can This Be Avoided?

Unfortunately, group health plans pose to be as big of a burden as hiked insurance rates. Premiums will increase for employees who participate in a group health plan, and for employers, calculating the new rates will be a hassle. With group healthcare plan costs jumping an average of 6.9 percent in 2010, the biggest increase since 2004, doesn’t it make sense to just avoid group health plans altogether? Luckily, Visor has developed a solution that makes your company’s health insurance your most manageable cost, not your least.

Get to Know Our Betterfits Solution
Many people don’t know about a little-publicized change in the regulations of health insurance premiums that took effect in 2007. Under Section 125 (Cafeteria Plan) of the Internal Revenue Code, individual health insurance premiums are eligible for reimbursement, making it possible for employees to use tax-free or pre-tax income to pay medical insurance premiums. This provides employers with a way of reducing payroll taxes and helps employees with the cost of health insurance and various medical expenses. This Premium Only Plan—as it’s also known—is what paved the way for Visor Betterfits.

Group Health Plans Are a Thing of the Past
If you’re still on the fence about whether or not you want to stay with your company’s group health plan, keep this in mind: if your company has a group health plan, that same plan will cost 100 percent more in three to five years regardless of the cost reduction strategies you implement, and that was before the passage of the PPACA.

With a Visor Betterfits plan, every employer can protect the bottom line and virtually eliminate all regulatory responsibility. The employee has complete autonomy to design the coverage that best fits the individual needs of the employee.

So, is your company ready to avoid rising insurance rates and make the Betterfits switch?

Good News for the Little Guys…

As of right now, the Patient Protection and Affordable Care Act (PPACA) proves to be beneficial for those who are self-employed or run a small business. If your small business has 25 employees or fewer, you’re financially in luck. Here is a closer look at how you will profit:

• You may qualify for a small business tax credit of up to 35 percent, increasing to 50 percent by 2014.

• Starting in 2014, individuals who are self-employed may qualify for premium assistance. Those earning up to 400 percent of the poverty level ($43,320 for an individual or $88,200 for a family of four) will qualify for a federal subsidy to help them with the cost of purchasing health care.

• Small businesses with fewer than 50 employees are exempt from mandatory employer-provided coverage.

…Challenges for Bigger Businesses

But what if your business has more than 25 employees? Unfortunately, you will face some challenges over the next few years. Here are the details you need to know:

Happening Right Now

• Tax Credits: If you have over 25 employees, you do NOT get a small business tax credit. If your small business grows to more than 25 employees during the year, tax credits phase out as your firm size and average wage increases.

• Small Business Health Insurance Tax: An annual fee on health insurance providers will be passed on to consumers this year.

Coming in 2014, a Big Year For Businesses

• Health Insurance Exchanges: Small Business Health Options Programs, or SHOP exchanges, will take effect. These are open to individuals and small businesses with up to 100 employees, enabling them to pool together to have greater buying power, and allowing them to choose among a multitude of plans that would provide better coverage at lower costs. Small businesses with over 100 employees cannot participate as of now.

• Insurance Requirements for Employers (Expect to Pay Up): Employers with 50 or more employees will have to provide health insurance or pay a stiff penalty of $2,000 per employee or higher (the first 30 employees are excluded). If you have more than 50 full-time employees, and you offer insurance and one or more employees are receiving premium subsidies, the penalty is lesser of $3,000 per subsidized employee or $2,000 per full-time employee.

Coming in 2018

• The “Cadillac” Tax Plan: Insurers who provide insurance costing more than $10,200 for individuals or $27,500 per family must pay a non-deductible 40 percent tax on the excess cost of the premium. This could be a big burden on small businesses, as many premiums are already at that rate for even basic coverage. Unfortunately, insurers won’t pay this tax and it will be passed on to the consumer in the form of benefit reductions.

While many of these changes won’t take effect for a few years, there are steps you can take now to help you protect your company’s finances and secure the bottom line. At Visor, our main focus is to help small businesses find a better, affordable and easier health plan for their employees. Our vision is to get rid of group health plans and educate both employers and employees on the benefits of individual insurance plans. Plan ahead and get to know how Visor Betterfits can help you.

January 1, 2011 is just around the corner, which means that many aspects of the Patient Protection and Affordable Care Act (PPACA) will take effect. Section 9003 of this legislation amended previous legislated definitions of which over-the-counter (OTC) healthcare expenses are eligible for tax-advantaged benefits plans like Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA) and Health Savings Accounts (HSA).

Effective January 1, 2011, FSA, HRA and HSA cannot be used to pay for OTC drugs or medicines without a prescription, or a Letter of Medical Necessity, from a physician, except for insulin. Additionally, the cost of OTC medicines may be reimbursed to employees only when the medicine has been prescribed.

While this change should not be troublesome once the physician community has implemented processes to handle such requests, it could take several months until they are ready.

To help employers plan ahead, I am recommending that employees make advanced purchases of needed OTC medications before December 31, 2010 to avoid frustration and ensure that benefits plan participants are not adversely affected by these changes.

At Visor, we want to keep our clients up-to-date with the latest changes imposed by healthcare reform. If you have any questions or need additional information, please contact my office or visit our Q & A section on Flex Plan changes below.