Archive | May, 2010

Government pushes for employers to allow adult children to keep employer health coverage

31 May

Come on, get with the program

Kaiser Health News reports that the Secretary of HHS is pushing for employers to not wait until January 2011 (or first plan year after September 23, 2010) to allow adult children to stay on their parents employer provided coverage to age 26.

Worth reading!

This is consistent with the statement by Phyllis Borzi regarding the effective date of this provision for collectively bargained plans.

Support for repeal of PPACA grows

30 May

Despite the Administration’s efforts to promote the goodies in the health care reform law, a new Rasmussen poll shows 63% of Americans favor repeal.

What will happen to my health care?

Given the benefits for many Americans, that seems a curious result. However, past studies have always shown the people with health insurance are generally happy with the coverage. Far more Americans have good coverage than do not and the status quo of that coverage may be perceived to be in jeopardy.  In some cases, their will be required changes that are not positive.  For example, changes affecting employer based coverage encourage employers to cut benefits or to drop coverage entirely.

In addition, coming at a time of economic stress, Americans may not be buying the “reduce the deficit” story associated with the political version of reform, but are concerned about the possibility of future costs associated with a massive new entitlement regardless of the perceived benefits for some Americans.

Early retiree reinsurance program, getting the cash may not be so easy, retirees do you have your receipts?

28 May

Here is what the folks who wrote the regulations regarding the early retiree reinsurance program say about what you need to be reimbursed for the portion of a claim paid by the retiree:

Prima facie evidence that early retiree (or the early retiree’s spouse, surviving spouse or dependent) paid his or her share of the costs

(if the sponsor is requesting credit or reimbursement for the amounts paid by these plan participants).


The key word here is “paid” as opposed to incurred.  What they are talking about is getting a receipt to prove the out of pocket cost was paid by the retiree (no kidding) although they are looking for ideas on how else the evidence can be provided.

I can just see it now, millions of retirees receiving a letter form their former employer that starts out:

“We hate to bother you, but we need your receipts for the coinsurance, co-payments and deductible you paid for health care you received since the first of the year.”  “Cancelled checks, credit card statements or a note from your doctor will do…we think.”  Why, you may ask, well so your former employer can get reimbursed by the federal government for bills that you actually paid.”

Adult children covered to age 26 under health insurance may not be delayed because of a collectively bargained plan

28 May

On a recent conference call Phyllis Borzi, Assistant Secretary of Labor was asked repeatedly whether or not the effective date for health plans to cover adult children to age twenty-six was deferred to the end of an existing collectively bargaining agreement.

She replied that the age 26 rule for children applied right away (first plan year after September 23) and there was no special deferral for a collectively bargained plan.  When the question was asked again she was quite emphatic in restating her answer. Part of her logic was that this provision was not very expensive and therefore there was no need for a delay.

Some attorneys question whether that view is supported by the legislation.  However, it may be that the Administration is trying to get all of the obvious people friendly aspects of PPACA into affect as soon as possible and the response given is part of that strategy.  Employers may protest, but it is doubtful the affected employees or their unions will be too upset, except of course, the addition of these children is expected to add about 1% to the cost of coverage.

Doc fix for Medicare not what the doctor (or AMA) ordered

27 May

Doc fix seems to be handy man special, done halfway and not to the owners satisfaction. Consider this from

Retreat on ‘doc fix’ painful for Pelosi, Dems –

By: JENNIFER HABERKORN on May 27, 2010 @ 6:09 AM
HAPPENING TODAY — The doc fix is caught in a brawl over the tax extenders measure and now looks to be about half the fix it was just a few days ago, slashed from about $65 billion to $21.8 billion and running half as long, 19 months, with a 2.2 percent increase this year and 1 percent next.

PAINFUL FOR PELOSI — POLITICO’s David Rogers reported early this morning that the “retreat on the Medicare doc fix is painful” for Pelosi and other Dems “after promises made in the course of the health care debate” to the docs lobby.

HOYER CONFRONTS REID — It’s hinged in part on what could pass the Senate. No wonder, since the House has been stuck with the difficult votes all year that then lazily linger on the other side. Roll Call says this morning that Hoyer “confronted” Reid “to try to find a compromise that could win Senate support, and Reid suggested scaling back the ‘doctor fix.’”

STAY TUNED — Rules met last night and the House is expected to vote today. Reid said the Senate will vote before they leave for Memorial Day.

DOCTORS ANGRY — The 19 months of repairs is little solace to physicians – or their advocacy groups — who just last week thought they were getting a 3.5-year repair with different structures for specialists and primary care docs.

Doesn’t participate, does not participate, does not…oh hell, I’m screwed!

What do this mean to me..well it may mean that me and my fellow Medicare beneficiaries will have a more difficult time finding a doctor

Surviving spouses health care costs are eligible for reinsurance

27 May

Under HHS regulations for the early retiree reinsurance program under PPACA, expenses of surviving spouses of a plans early retirees are eligible for reimbursement.

In many plans that permit surviving spouses to retain their coverage, the survivor pays 100% of the premium. That raises the question, are they entitled to 100% of any reimbursement? Employers must decide how the money will be used to lower health plan costs, but when retirees or survivors pay a portion of the premium (or all of it), the issues is more complicated.

Most large employers will seek retiree reinsurance under PPACA, but where does the money go?

27 May

According to a new survey from Hewitt Associates, 76% of large employers will seek their portion of the $5 billion reinsurance fund for early retiree health care expenses created under PPACA, but many are not sure how they will use the funds.

Hewitt estimates that the average federal reimbursement will represent between $2,000 and $3,000 per pre-65 retiree per year, or approximately 25 percent to 35 percent of total health care costs. As an example, for a company that covers 1,000 pre-65 retirees, participation in the ERRP could result in $2 million to $3 million in reinsurance proceeds per year.

Money for what? Who needs libraries?

26 May

While towns struggle with budgets, the federal government stimulates away. Funny (or not), we close our libraries for lack of funds, but there is plenty of money to redo already existing corner sidewalk ramps. I suppose there are few union workers in libraries, and perhaps stimulating our children is not all that important, they do have television after all.

No ill will intended, but I have yet to see a wheelchair go down one of those ramped crosswalks. It happens no doubt and is much appreciated I suspect, but where are our priorities, why aren’t the existing ramps sufficient for now?

The library lobby must have a small PAC.

The battle over allowable loss ratios for health insurers, getting it right is essential (but unlikely)

26 May

On May 24 the New York Times had an editorial on loss ratio calculations for health insurance companies.  These loss ratios are important because the health care reform law limits the allowable ratio for insurance companies.  For example, an insurer must spend 80 to 85% of premium dollars on other than general administration, profit, advertising, etc. So now the question becomes, what is counted and not counted as part of medical claim costs.

The NYT view is that setting up networks and programs to root out fraud should not count, and pre-certification processes are out as well. The logic is that these activities have a primary purpose of reducing costs for the insurer.  Here is a thought, reducing unnecessary utilization and negotiating good networks are both primary in managing health care costs. Despite political rhetoric, health care claims and the failure to manage them are what drives premiums…really.

Humm, let me see if I have this right?

The NYT also says programs that review whether doctor-recommended services are covered should not count as part of health care costs. Gee, just like Medicare where according to the CBO, claims are processed as presented.  How’s that affordable health care working out? 

I wonder why major self- insured plans (covering about 70 million Americans) spend money on these activities and more like them?  Certainly there is no insurance company profit motive, but there sure is a motive to manage claim costs.

The disconnect some people display in understanding that every penny spent on health care, legitimate or not is what drives premiums and makes health insurance unaffordable is bizarre.  The Administration continues to claim it will make health insurance more affordable, but what it really means is government will subsidize unaffordable premiums so they appear affordable to some people, mainly those with family incomes below $88,000.  Where does that get you in the long run (other than re-elected)?

Here is the bottom line, each procedure performed and each hospital stay multiplied by the unit price for each service provided equals the cost of health care.  If you don’t manage all of that, including close review of claims, good negotiating of fees, close scrutiny for medical necessity and for fraud, you don’t have affordable health care.  Shouldn’t we be encouraging (even incentivize) those activities?

Planning to benefit from the early retiree reinsurance program? Get going, there is no second chance.

25 May

If I screw this up my boss is going to fry me!

Whether you are an employer or retiree hoping to see his or her health insurance premium stabilized, your chances of getting your share of the five billion dollar early retiree reinsurance pool depends on your speed and accuracy.

There is no room for error. Remember, you are competing with the states, union plans and other large employers. Make a mistake in filing and you go to the back of the line, file too late and the money is gone.  The much touted windfall for employers (intended to keep them providing early retiree coverage at least until 2014) may be a slight breeze for most.

Here is a good article from Business Insurance:

…“How long will the funds last?  That’s a great question. No one has a firm answer,” said Michael Morfe, a senior vp with Aon Consulting in Somerset, N.J. While no one can predict how long the federal funds will last, some benefit experts say they could be exhausted in as little as 18 months…

And under rules published last week by the Department of Health and Human Services, the agency that will administer the program, the program could close even before some employers get their applications in…

Under the HHS rules, employers will be required to project reimbursement amounts during a two-year period. HHS will use those projections to determine “if and when we should stop accepting funding applications,” the agency said in the rules…Ultimately, the bulk of the reimbursements may go to a small number of sponsors with very large plans, Mr. Stover said…

The design of some early retiree health care plans—and the rules attached to the federal program—may result in some employers not even trying to get reimbursed. Under the HHS rules, employers must maintain “the level of effort in contributing to support” the plans. The rules don’t specify how long this maintenance of effort must be applied. In addition, employers must apply the reimbursement to reduce their own costs, the costs of plan participants or a combination of the two. An employer could not simply pocket the reimbursement, said Fran Bruno, a consultant with Mercer L.L.C. in Washington…

Still, the economic benefits for some employers and their early retirees could be considerable. Buck Consultants, for example, estimates that between 10% and 20% of early retiree health care plan participants would pierce the $15,000 claims threshold, setting the stage for 80% reimbursement of claims above that amount.

Center for American Progress report says PPACA will lower health care costs and reduce rate of growth. I think they are wrong!

24 May

Everyone has his point of view on health care reform, and that includes the liberal focused Center for American Progress.  This organization has released a new report demonstrating the overall savings in health care costs because of the PPACA. 

Problem solved

I do not claim to be a actuary, economist or even good at math, but nearly fifty years dealing with health benefits, health insurance and the health care delivery system has provided a modicum of experience and accompanying common sense.  Idealism is a nice thing, but it frequently ignores the unintended consequences or the fact that for every action there is a reaction.  In the case of health care reform it also ignores that the chance of the PPACA staying as is for the next ten years or even being implemented as written is near zero (consider the Doc fix for example).

Here is an excerpt from the report. 

The new reform law establishes insurance exchanges that will group individuals and small firms into larger entities and thus drive down those administrative costs. The exchanges also will minimize marketing costs through more transparent posting of premiums, facilitated enrollment (assistance with the application process and screening for eligibility), and stronger oversight of industry practices.

If all individuals and small firms were to receive the same premiums as large firms or self-insured firms do, the costs of insurance administration would decline to less than 10 percent. In analyzing the experience of other countries, The Commonwealth Fund estimated that administrative costs could fall to 8 percent or lower under a robust exchange system.

What about the cost of setting up and running the exchanges, or the fact that the exchanges will offer an array of different plans?  How does posting of premiums minimize marketing? There is far more to marketing than premiums. “If small firms were to receive the same premiums as large firms or self-insured firms, the cost of administration would decline?”  Large firm premiums reflect the experience of the group, which tends to be better than the individual market; self-insured plans do not have premiums. Premiums primarily reflect the use of health care, how does setting lower premiums cause administration to decline? The bulk of administration goes to the processing, evaluation and payment of claims, that is not going away.  In addition, PPACA calls for new internal and external appeal procedures that will add considerably to administrative costs.

Consolidating the marketing for individuals and small groups may lower some marketing costs, but that does not mean it will lower premiums because other elements of reform raise premiums and set the stage for ongoing high health care inflation. In addition, we are opening the flood gates for increased demand of health care services while shifting more costs from the public to the private sector. 

Here is another example of convoluted logic:

Private premiums might be affected by other provisions as well. For example, an excise tax on high-premium health insurance plans, set to take effect in 2018, will introduce a strong financial incentive for insurers to trim benefits and reduce costs below a tax-free threshold of $10,200 for individual coverage and $27,500 for family coverage. Indexing this cap to the overall rate of inflation in the economy plus one percentage point will encourage insurers to seek out value and efficiency continually, thus placing downward pressure on premiums over time.

The fact is that the vast majority of plans affected by this provision are large self-insured plans, plans for government workers and union plans.  Insurers do not design these benefits and there are no premiums set by insurers.  Unions and employers, including the various states, design benefits.  “Encourage insurers,” what insurers?  Did Blue Cross of Michigan get General Motors into trouble with its generous health benefits for active and retired employees?  No, it was GM management and the UAW who negotiated those “high-premium health insurance plans”  Give me a break.

Here is another thought, trimming benefits means higher out of pocket costs for plan participants, so we exchange “premiums” for out of pocket costs.  The fact is that employers are already looking for ways to trim benefits and avoid this tax (and save themselves money), and another fact is that many employers are doing calculations to evaluate the benefit of paying the penalty for not providing any coverage versus the cost of coverage.

It is pure pie in the sky to assume that this massive legislation will make things better or cheaper for the millions of Americans who already have health benefit coverage, especially employer based coverage.

Bailout of state pension funds on the horizon, rewarding more irresponsible behavior

22 May

You have had the privilege of paying for other people’s mortgages (and will continue to do so for many, many years); their cars, their home appliances, their health care and now you may have the joy of paying the pensions of state workers…not even the ones in your state.  A new study, Are State Public Pensions Sustainable? Why the Federal Government Should Worry About State Pension Liabilities, says that to bail out several states the federal government may have to issue new bonds at a cost of $75 billion.  According to the study several states are in trouble now, six by 2020 and as many as thirty one by 2030, all this resulting from poor investing, bad actuarial assumptions, and mostly from overly generous benefits for state workers.

Your state taxes are paying for these pensions (along with employee contributions in most cases), but the promises are too great and the funding too little to meet the obligations.  It appears we may be headed for another bailout of irresponsible people, this time public employee unions and the state politicians who negotiate with them.   There should be no surprises in this one though as you have already bailed out GM in large part because of a similar scenario.

Whose pension am I paying for?

The pensions are not all you have to worry about, the various states have also promised incredibly generous retiree health benefits as well and they are largely unfunded but with as much as trillion dollars in liability (nobody really knows the right number but in New Jersey alone, the number is about $50 billion). 

The Wall Street Journal reports on the study which says in part: 

Other state pension funds expected to dry up by 2020: Louisiana, New Jersey, Connecticut, Indiana, Oklahoma and Hawaii. By 2030, 31 states could be in similar trouble, Rauh said in a report released Wednesday. He says the ultimate cost of a federal rescue could top $1 trillion. “This scenario could happen sooner if taxpayers flee to other states with lower taxes and higher services, if contributions are deferred or not made, or if returns are lower than expected,” said Rauh, an associate professor of finance at Northwestern’s Kellogg School of Management.

His prescription: Allow states to issue tax-subsidized pension funding bonds — similar to the Build America Bonds program — for the next 15 years if they agree to major reforms. States would need to close defined-benefit pension plans and offer new hires a defined-contribution plan as well as guaranteed access to Social Security (which only a quarter of all public workers contribute to now). The net cost to the federal government, he estimates, would be about $75 billion

Doesn’t all this make you mad, aren’t you disturbed that state workers have benefits far more generous than you do and that you and your fellow taxpayers who are struggling with your own retirement and health care costs are paying for the irresponsible behavior of public unions and state politicians?   Given this is nothing new and people have been warned for years of the problem, I guess it doesn’t matter much.

New rules on 401(k) investment diversification, get your eggs out of one basket

21 May

Hey, I'm putting the money in, what do I know about investing?

If your employer matches your 401(K) contributions in company stock, new rules issued by the IRS on May 19 are effective for plan years beginning on or after January 1, 2011.  These rules provide that plan participants must have the option of moving the money from the employer stock fund to other funds at least once each quarter (or as often as the plan permits for changes in other funds).  At least three alternative funds must be available for diversification. 

The rules are likely to have minimal impact on most plans as employers already permit this type of diversification, typically on a daily basis, especially for large plans.  Companies made changes to their plans following the Enron debacle several years ago.

Unfortunately, employees more often than not do not follow sound advice when it comes to diversification of their investments in 401(k) plans and are generally inclined not to move from a company stock fund or to have their account well diversified.

The truth is that most people spend more time buying a new pair of shoes than they do thinking about or planning for retirement.

Reporting the value of health benefit coverage on workers W-2, prepare your systems for 2011

21 May

The Patient Protection and Affordable Care Act (PPACA) provides that employers must include the cost of health benefits on each employees W-2 for calendar year 2011.

In fact, here is exactly what the PPACA says (in its own convoluted way):


(a)    IN GENERAL.—Section 6051(a) of the Internal Revenue Code of 1986 (relating to receipts for employees) is amended by striking ‘‘and’’ at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting ‘‘, and’’, and by adding after paragraph (13) the following new paragraph:‘‘(14) the aggregate cost (determined under rules similar to the rules of section 4980B(f)(4)) of applicable employer-sponsored coverage (as defined in section 4980I(d)(1)), except that

this paragraph shall not apply to— 

‘‘(A) coverage to which paragraphs (11) and (12) apply, or 

‘‘(B) the amount of any salary reduction contributions to a flexible spending arrangement (within the meaning of section 125).’’ 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2010. 

Sure, I have all the forms you need

So what does all this mean, simply put it boils down to taking the COBRA premium (less the 2% administration charge) for the coverage an employee has during the year and putting that amount on the workers W-2 for 2011. That is, if the monthly COBRA premium is $700 per month and the worker is covered for the entire year, $8400 is reported on the W-2 for 2011.  It is unclear and unstated why this is necessary, perhaps as a way to check that individuals have health insurance through an employer, perhaps for future use (dare we say taxation of the benefit – pure speculation at this point). 

Employers that offer several health care plans and perhaps three or four tier premiums are going to face some interesting challenges in gathering and placing this information on the W-2 as there will be many variables.  This implies some interface between the benefits record keeper and the payroll department or payroll vendor.  Remember, new hires, terminations, qualified status changes mid-year may all affect the final amount on the W-2.   Get cracking, there is work to be done (you mean you are too busy already?).

For further clarification, here is what Aon Consulting says about this issue: 

What health benefit amounts will be reported on Forms W-2?  

Employers must include on annual Forms W-2 the aggregate cost of group health plan benefits (excluding FSA, HSA, or Archer MSA contributions, or the cost of long term care, and certain other excepted benefits) provided to employees for taxable years beginning on or after January 1, 2011 (i.e., Forms W-2 issued in 2012 for 2011 wages, and issued thereafter for subsequent years). 

Employers can calculate the reportable value based on a methodology similar to that used under COBRA (minus the 2% COBRA administrative fee, if charged). If the plan provides for the same COBRA continuation coverage premium for both individual coverage and family coverage, the plan would be required to calculate separate individual and family premiums for this purpose.

Provisions of PPACA that you do not hear much about – break time and accommodation for nursing mothers

20 May

The size of the PPACA bills makes it very difficult, if not impossible, to fully understand all the implications.  Every now and then one can stumble upon changes that are in the legislation that have little to do with health care or even health insurance reform but are the law of the land nevertheless.   Here is one example, break time and a private location for nursing mothers.  Employers with less than 50 employees are exempt, but it is not clear who will make the determination of undue hardship, difficulty or expense.


 Section 7 of the Fair Labor Standards Act of 1938 (29 U.S.C. 207) is amended by adding at the end the following: 

‘‘(r)(1) An employer shall provide—

‘‘(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk;


‘‘(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

‘‘(2) An employer shall not be required to compensate an employee receiving reasonable break time under paragraph (1) for any work time spent for such purpose.

‘‘(3) An employer that employs less than 50 employees shall not be subject to the requirements of this subsection, if such requirements would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer’s business.

‘‘(4) Nothing in this subsection shall preempt a State law that provides greater protections to employees than the protections provided for under this subsection.’’.

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