Why do my Health Insurance Premiums go up so much?

There are many reasons for the increases we are experiencing and most have been reviewed in the press.  But there is one factor that has not been widely discussed and that is how an increase in the price of a medical service is leveraged against the health insurance plan.  Let’s look at an example:

 The plan has a $500 deductible, 80%/20% coinsurance, a $2,500 out of pocket limit.  Let’s also assume that there is a 10% increase in the price of a medical procedure from year 1 to year 2: 

	Year 1	Year 2	Percent Increase
Medical Bill Deductible Balance Coinsurance Rate Plan Coinsurance	$1,000 $500 $500 80% $400	$1,100 $500 $600 80% $480
Plan Pays Employee Pays	$400 $600	$480 $620	20% 3.3%

 While this is a modest medical bill with the employee paying more of the cost, the plan has a much greater rate of increase. The Plan pays 20% more in year 2 while the employee pays 3.3% more. What happens with a bigger medical bill with the same calculation? 

	Year 1	Year 2	Percent Increase
Medical Bill	$8,000	$8,800
Plan Pays Employee Pays	$6,000 $2,000	$6,640 $2,1,60	10.6% 8%

 The leveraging effect is still there, but not as great.  What happens when the bill is much larger and the plan’s out of pocket limit is reached? 

	Year 1	Year 2	Percent Increase
Medical Bill	$20,000	$22,000
Plan Pays Employee Pays	$17,500 $2,500	$19,500 $2,500	11.42% 0%

 In this example we are back to a significant impact on the liability of the plan for year 2. 

Because this is a mathematical reality built in to typical medical plan, there is not much the employer can do to change the leveraging against the plan.  But it does illustrate the need for a plan to periodically adjust the deductible and the amounts paid by the employee to control the increase in medical premiums.  Then the employer can use creative funding alternatives like Health Reimbursement Accounts and Health Savings Accounts to help employees with their increasing out of pocket expenses.

HSA Participants Penalized for not having rich enough Rx Coverage?

Yes it’s true!  We have just finished the government’s requirement where employers are required to report to their over 65 employees if their employer- sponsored Rx coverage is “credible”.  If it is credible, the employee can move to Medicare Part D Rx when they retire.  If it is not credible, when they move to Medicare Part D Rx they are penalized. 

This penalty has everything to do with the government’s phobia for pre-existing condition exclusions.  Insurance companies use this exclusion to limit their exposure when someone decides to not have health insurance when they are healthy and then buy it when they have medical problem.  But if the government wants to condemn insurance companies for this practice, how are they going to control their risk on a government funded program?   The solution, for the individual without credible RX coverage, is to be charged more for the rest of their life.

Here is how it works:  Starting with the month you are first eligible to join a Medicare drug plan but didn’t join, if you go 63 days or longer without a prescription drug plan that is credible, your monthly premium may go up by at least 1% of the Medicare base premium per month for every month that you did not have credible coverage.  So if you do not join a Medicare Rx plan for 24 months you would have to pay 24% more for your coverage and may have to wait until the open enrollment period in November to join.  (It seems this wait would increase your number of months without coverage and increase your penalty.)

Now let’s go back to our employee. He or she is covered by an employer-funded HSA qualified insurance program and receives an employer contribution to their HSA bank account.  The employee makes an additional tax deductible contribution to the HSA account to bring the total up to the maximum allowed.  As this employee approaches 65, they investigate their continued eligibility for the HSA program when they are also eligible for Medicare.  They learn that as long as they do not enroll in Medicare Part B or Part D Rx they are eligible to continue to be covered by their employer-paid HSA plan, receive the employer contribution to their HSA and make their tax deductible contribution to their HSA account.  Should this person be penalized later when they retire and join Medicare Part D?

While Part D Rx needs to be protected from adverse selection (buying coverage only when you need it), this employee should be allowed to buy Part D coverage without a penalty.  Most Part D plans offer 2 levels of coverage; one alternative would be to allow coverage at the basic level for a two year period then at the higher level if the retiree wants the higher level of coverage.

The confusion over government requirements does not stop there.  A different situation is when an active employee age 65 elects to drop employer-paid coverage and enroll in Medicare.  Can the employer pay the premium for this active employees’ Medicare Advantage Plan?   If this employee has a younger spouse can the spouse remain on the employer’s group plan?   Maybe, it depends on the number of employees with the employer.  If there are 20 or less employees then the employer is allowed to pay the premium and keep the dependents on the group plan.  If not, too bad the employer can not help.

While Congress is looking for ways to reform Health Care Reform, can they do something simple to correct an unnecessary penalty on employees who chose to work past age 65 and want to retain a private health plan?

Alan J. Hess

Employee Benefit Service Center

http://www.ebsc.net

If Obamacare is repealed, What then?

Health Care Reform: Change COBRA Regulations!

 In this political season there is a lot of talk about repealing and replacing Obamacare or maybe amending it.  Whatever the results of the election are, we hope that health care regulators or Congress would consider some changes to COBRA that would simplify the requirements and make the program more effective for employees who are in-between jobs.

http://www.ebsc.net/articles_alan_10-11-10.htm.  

Alan J. Hess

Employee Benefit Service Center

Public Health Insurance Plans in New Mexico – What’s Next?

There are two primary obstacles to health insurance coverage:  some cannot afford the premium, others may have a preexisting condition and cannot obtain coverage, and some may have both issues.  In New Mexico we currently have four public health plans that are designed to address these issues: the New Mexico High Risk Pool, the new Federal High Risk Pool, State Coverage Insurance and the New Mexico Health Insurance Alliance. 

 One common characteristic of all of these plans is that they are subsidized by public funds.  What do they do and how effective are they?

 The two original plans in New Mexico are the New Mexico Health Insurance Alliance and the New Mexico High Risk Pool (originally called the New Mexico Medical Insurance Pool).  These plans are important and cover thousands of New Mexicans who have had problems accessing coverage.  However this help was subsidized by approximately $49 million in 2009.  These funds were raised by assessments on medical insurance companies doing business in New Mexico.  In other words, the individuals who buy coverage pay a higher premium to support these plans.  Both plans take individuals with medical problems and the NM High Risk Pool offers lower premiums for low income individuals.  To be covered by the Alliance you must not have more than a 63 day gap in coverage.  The Alliance also offers group insurance plans.  For a 40 year old, under a plan with a $500 deductible, the premiums are $323 for the NMHRP and for the Alliance the rates are $309 for a male and $368 for a female.

 State Coverage Insurance was the next program in New Mexico. It is offered to both groups and individuals. This is only available to low income individuals but it is the best deal.  Under a group plan sponsored by an employer, the employer pays $100 per month for eligible employees and the employees pay $35 per month.  The actual cost is much higher but subsidized by tax dollars.  The real problem with this program is that some times it is open and other times it is closed for insufficient tax dollars.  When you need coverage it may not be available. 

 The last public option available is the new Federal High Risk Pool. It is only a temporary plan designed to terminate in 2014 when the new State Insurance Pools become available.  You must have a 6 month gap in coverage to qualify and discounts are available based on income.  The current premium, for a 40 year old under a plan with a $500 deductible, is $317 per month, which is subsidized by federal tax dollars. This is comparable to the rates under the two original New Mexico plans.

 So where do we go from here?  These premiums are generally higher than the premiums available to a healthy individual, yet the new State Pools arriving in 2014 are supposed to bring the costs down due to increased competition.  Or will these costs come down by forcing healthier individuals into these public plans and decreasing competition in the marketplace?

Alan J. Hess

Non-Discrimination Rules for Fully Insured Plans

For many years self –funded plans had to meet certain non-discrimination rules under Section 105 of the Internal Revenue Code.  If the plan did not meet these requirements, the amounts paid to highly compensated individuals became taxable income.

 Under Health Care Reform, if a fully insured plan loses it grandfathered status; it must comply with these same non-discrimination rules.  For most fully insured plans this is not an issue, because eligibility and benefits are the same for all employees.  However some companies with a diverse workforce have had different eligibility or benefits for different classes of employees.  With a large population of field or hourly workers who would not pay their required payroll deduction, the plan would not meet the required participation requirements.  So coverage is not offered to this group or offered with a longer waiting period.  This is a significant issue if this group losses it grandfathered status.  What are the requirements and is there any room to maneuver?

 The basic requirement is that the plan must not discriminate in favor of highly compensated individuals with regard to benefits or eligibility.  However for eligibility the plan must benefit:

•  70% of all employees or,
• 80% or more of all eligible employees if 70% or more of all employees are eligible under the plan: or
• Employees qualify under a classification found by the Secretary not to be discriminatory in favor of highly compensated employees

 For the purpose of the above calculations you can exclude:

•  Employees who have not completed 3 years of service
• Employees who have not attained age 25
• Part time or seasonal employees and employees covered under a collective bargaining agreement.

 These rules may provide some employers with the ability to have some delayed eligibility.  We would recommend seeking the advice of legal counsel on the proper use of these rules.  However for plan years starting on or after January 1, 2014, the waiting period cannot be more than 90 days.

The Individual Mandate – Is it Constitutional?

There is a lot of information in the news about challenges to the mandate that individuals purchase health insurance starting in 2014.  The results of these legal challenges are very important because it is tied to another Health Care Reform requirement – no pre-existing condition exclusions.

 There are different aspects to these challenges, but I believe that the basis of the problem could be described as the “Can’t Do vs. Must Do.”  Laws and regulations as applied to corporations are filled with examples of what a corporation must do, in addition to the typical things a corporation can’t do. The Constitution clearly gives Congress the power to regulate commerce, even though insurance was not around then.

 However, most laws and regulations applied to individuals are in the “can’t do” category.  Break a law: you are subject to criminal or civil penalties.  There are not many “must do” requirements for individuals, the two we can think of are paying taxes and jury duty.  So the one objection to the individual mandate seems to be that doing nothing with regard to health insurance should be allowed.  This issue is probably headed to the Supreme Court.  If the Court agrees with the mandate it may set a precedent that Congress has a much broader power to add more “must do” requirements to individuals.  So a big part of the issue revolves around personal freedom, the other issue relates to the operation of a health insurance program.

 Without the mandate, insurance companies cannot support the idea of no pre-existing condition exclusions.  Buying health insurance on your way to the hospital simply cannot be adequately funded.

 We do not know how these challenges will end, but the results will be very important.  A new way to challenge the mandate has emerged with the voters in Missouri rejecting the mandate.  It will be interesting to learn if a state can vote its way out of a federal law.  That may be another decision for the Supreme Court.

Alan J . Hess

Employee Benefit Service Center

alan@ebsc.net

Can you keep your Grandfathered Status and is it worth it?

 The first Health Care Reform changes to an employer’s health insurance plan start with plan renewals on October 1, 2010.  Employers have very few choices to make under Health Care Reform.  One of them is whether or not they should maintain their status as a Grandfathered Plan.

 The plan renewals for October 1 are out, and there is some interesting information available.  If you renew your current plan you would normally keep your Grandfathered status.  The plan should have removed any annual or lifetime limits on essential benefits and extended coverage for dependent adults to age 26.

 If you change from one insurance company to another, you automatically lose your Grandfathered status.  If you stay with the same company but adjust your deductible or copays, you will most likely lose your Grandfathered status.  What are the consequences of that loss?  Your new non-Grandfathered plan must satisfy the following requirements:

•  Provide certain preventive care benefits with no copays or deductibles
•  Have no pre-existing condition limitations for dependents under 19
•  Provide certain mandated patient protections
•  Have both an internal and external claims appeal process

 What is the cost for all of these changes?  The initial results from three Blue Cross renewals are in a range of .35% to .5%.  This is remarkably low, leading to the conclusion that most plans will save more by increasing deductibles or copays and losing their Grandfathered status.

 We cannot help but wonder whether or not the ever increasing claims from the free preventive care and the no pre-ex on children will eventually lead to a much higher cost for the loss of the Grandfathered status.

Alan J. Hess

Employee Benefit Service Center

alan@ebsc.net