Archive | August, 2010

Early Retiree Reinsurance Fund Winners Announced- The Road to Eliminating Employer Coverage for Retired Employees

31 Aug

The White House announced today that almost 2,000 employers and unions will be eligible to submit retirees’ medical bills for reimbursement by a $5 billion federal fund, indicating a significant number of claims will be made against the fund.

Individual organizations have been informed of their acceptance. Now the question becomes, how will the refund for early retried medical expenses be used by the plans. Retirees will not necessarily see a reduction in any of their costs. We covered the possibilities earlier.  In addition, when these funds are exhausted and the insurance exchanges begin operation in 2014 there is likely to be a dramatic increase in the number of employers eliminating retiree medical coverage.

And you didn’t think we knew what we were doing.

The Employee Benefits Research Institute earlier estimated that the $5 billion in the fund would likely be exhausted within two years rather by 2014 when the program expires. This high number of approved applicants is likely to accelerate the spending of available funds.

Background on the subsidy program and full results of the EBRI analysis, “The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years,” are in the July 2010 EBRI Notes.

You can see what companies and organizations in your state have been approved to receive payments when they submit claims on

External Review Procedures under the Patient Protection Affordable Care Act – increased costs for employers, no benefit for workers covered by self-insured employer plans

29 Aug

Primum non nocere 

“Given an existing problem, it may be better to do nothing than to do something that risks causing more harm than good.” Wikipedia 

It is too bad that Congress and federal regulators do not hold to that maxim.  As has happened so many times in the past, Congress has addressed a limited problem with the broadest brush possible.  In this case, the new claim appeal rules for health benefit plans create new, complex and costly procedures that apply to all health plans, including employer self-funded plans not currently grandfathered under PPACA. [i] 

New guidance issued by the Department of Labor goes beyond reviewing medical claim denials based on medical necessity and into the realm of legal interpretation of a plan’s provisions. In short, an external review conducted by an Independent Review Organization (IRO) could require a plan to change its provisions based on the IROs reading of a plan document.  Unlike current appeal procedures such external review may also serve to set precedence for other claims. The IRO used by an employer must be accredited by the URAC (Formerly the “Utilization Review Accreditation Commission.”) 

What makes this situation worse is that the Independent Review Organization must look at the claim de novo that is anew, from the start. 

Self-insured employers have long followed federal regulations for handling claim appeals.  Many have delegated this process to plan administrators and others have retained the final appeal within the employer sponsoring the plan. That system works, but no matter, these employers are now subject to new rules including the requirement to turn over final decisions to an outside organization.  Keep in mind that in the case of self-insured plans there is no insurance company, no profits, but only employer costs and the cost for employees who contribute to the plan.   Employers are already required to act solely in the interest of plan participants under ERISA, so what was broken that needed to be fixed?  In the case of large employer plans, nothing was broken but more regulation was applied, more costs added to providing health benefits and another reason for employers to abandon health benefits was generated – all in the name of health care reform.  

Employers will have to amend their plans, rethink their entire appeals process, contract with at least three IROs (of which there are very few in the United States) and possibly deal with a rash of new appeals generated by government-sponsored publicity.  There are seventy million Americans covered by self-insured employer plans, none of them will benefit from these new rules.  On the other hand, the added cost and administration may well prevent a new worker from being hired, money being spent more productively and likely will increase the health benefits payroll deduction for employees. 

This effort goes beyond reform and into scapegoating, especially when it lumps all health benefit plans into the same category.  Consider this from a HHS press release:  

WASHINGTON – Today, the Obama Administration is announcing both new regulations to empower consumers to appeal decisions made by their health plans or insurance companies and the availability of resources that will be used to help give consumers more control of their health care decisions.  These provisions of the Affordable Care Act will help support and protect consumers and help end some of the worst insurance company abuses.  

 “The Affordable Care Act puts patients in control of their healthcare,” said HHS Secretary Kathleen Sebelius.  “Today, if your health plan tells you it won’t cover a treatment your doctor recommends, or it refuses to pay the bill for your child’s last trip to the emergency room, you may not know where to turn.  The Affordable Care Act provisions announced today will provide patients with new important new rights and resources that will help ensure they get the care they need.”  

“The appeals rules today will extend important protections and simplify the system for consumers,” said Labor Secretary Hilda Solis. “And they will ensure that consumers in new health plans have access to internal and external appeals processes that are clearly defined, impartial, and designed to ensure that, when health care is needed and covered, consumers get it.” 

Those of us who administered employer health plans for many years including hearing claim appeals already know that “when health care is needed and covered, consumers get it.”  There is no point bemoaning this shameless kind of rhetoric, it seems to be standard fare in Washington these days. 

Do large employers who do not use insurance  “abuse” their employees and their families?  I think not, the typical appeal deals with medical necessity, the fee allowance (usually because a non-participating provider charges a high fee), or the extent of coverage under a plan (which more often than not is clearly defined even if not liked by participants). 

These rules and this rhetoric also enforce the false notion that if the doctor orders it, then it must be covered by the plan and must be paid.  Not only is that not true, in some cases it is not even good health care. 

Self-insured employer must have a good talk with their plan administrator to assure that there is 100% compliance with internal appeal procedures (and initial adjudication of claims).  

For employer plans that do not maintain their grandfathering status these new rules are effective for plan years beginning after September 23, 2010.  

The National Association of Independent Review Organizations lists 19 active accredited members of its organization.  Although there may be other accredited IROs,  it will be difficult for employers to find three such organizations to deal with given the number of affected health benefit plans.  There is a very real question as to whether there are a sufficient number of IROs to handle the demand or which are qualified to perform both clinical and legal review. 

Technical Release 2010-01 on External Review Procedures for non grandfathered Plans  

Here is a short summary of the new requirements:  

Plan must permit request for external review if filed within 4 months after the date of receipt of a notice of adverse benefit determination or final internal adverse benefit determination   

Adverse benefit determination when plan fails to strictly adhere to internal claims and appeal rules and  claimant is deemed to have exhausted the internal process and can initiate external review of the denied claim   

Within 5 business days after receipt of the external review request, plan must complete a preliminary review of the request   

Within 1 business day after completion of the preliminary review, plan must notify the claimant in writing if the request is not eligible for external review or if it is incomplete   

Claimant has remainder of 4-month filing period or 48 hours from notice, whichever is greater, to cure defect   

Plan must contract with at least 3 IROs that are accredited by URAC or similar organization  

If IRO reverses plan’s denial, plan must immediately provide coverage or payment for the claim  

IRO must notify claimant of his/her request’s eligibility and acceptance for external review and that claimant may submit in writing within 10 business days additional information, which the IRO must consider during its review  

Plan must provide to IRO within 5 business days after IRO’s assignment the documents and information considered in the plan’s denial of the claim  

IRO must complete its review and provide notice of decision to plan and claimant within 45 days  

Claimant must be allowed to request an expedited external review – claim must be resolved in 72 hours 


[i] Grandfathering rules are so onerous and restrictive it is unlikely that many existing employer plans will be able to retain their grandfathered status for long

Good news, your lower health benefits will help save Social Security

27 Aug

Image by tsweden via Flickr


Here is an example of convoluted thinking if there ever was one. This is taken from an Aon Consultants bulletin.   

“Health Care Reform to Have Indirect, but Positive Effect on Social Security   

At an August 5 Treasury Department briefing about the Social Security Board of Trustees’ Annual Report, officials from the Obama administration said that to the extent that health care reform reduces the share of compensation allocated to health care costs and increases taxable wages, more payroll taxes will be paid into the Social Security trust funds.”   

Are they serious? Is this a joke? Perhaps it is just rambling by a collection of naive individuals who have never worked in the real world.   

Have faith, it will come from somewhere


First, for employer plans there is nothing in the legislation that will lower health care costs. Quite the opposite is true. Employees may be paying more in premiums and out of pocket costs, but that cost shifting is not going to increase taxable wages. Second, employers have been battling health care costs for years and only have succeeded in some cases in lowering the rate of increase temporarily. Certainly that has not resulted in “savings” showing up in higher wages.   

Cost shifting to the private sector, higher administrative costs and new benefit mandates on health plans all combine to make it less affordable to offer such plans and more difficult to offer higher wages.   

Isn’t it interesting though that administration officials can make a connection between one out of control entitlement and higher costs for workers created in another.  

Fixing Social Security, a long road to travel–raising taxes is not the only answer

25 Aug

The National Commission on Fiscal Responsibility and Reform is looking at ways to fix Social Security; those suggestions are likely to include changes in the benefits and higher taxes as reported in an article in the Wall Street Journal but as usual…

Liberal Democrats are already organizing to head off any proposal that cuts Social Security benefits, including any plan to raise the retirement age. They argue the program’s finances can be fixed with tax increases alone and that benefit cuts would harm low-income seniors who have little savings.

“People would rather pay more or have revenue raised than cut the benefits,” said Rep. Jan Schakowsky (D., Ill.), a commission member. She said she was fairly confident a proposal that included benefit cuts would not garner the needed 14 votes.

Others in Congress want to adjust the cost of living calculation for Social Security, not to make it more reflective of the actual expenses that rise for seniors, but to change it so that the increase is higher than under the current formula.  This is suggested on the basis that the cost of health care and prescription drugs rise more than general CPI.  Excuse me; didn’t we just change Medicare to deal with those issues?

Is the answer to everything to spend more and do so by either raising taxes or increasing deficits?  To stay solvent and profitable private business does all kinds of things it would rather not do, like layoffs, cutting wages, stopping pay raises, suspending 401(k) matches or cutting other benefits.  To the liberal mind, it appears that taking away anything, affordable or not, is unthinkable.

Then there is the issue of raising taxes.  High on the side of possibilities to “fix” Social Security is eliminating the cap on wages subject to the FICA tax, currently $106,800.  Some Democrats are describing the cap as a windfall for the wealthy, not paying their fair share and all that. Instead of the self-sustaining program envision by FDR, we have and will further turn Social Security into a welfare program.  What happens when you keep raising taxes, it seems to me that those taxed have less to spend on goods and services, on home mortgages, on college for their children, on charity, on saving for their retirement and more.  Is that a good thing?

Social Security was never intended to be as expansive as it is or as costly.  In fact, it was intended to be self-funded based on worker contributions.

Fixing Social Security starts with fixing the benefit structure first then looking at the need for additional revenue. For example:

  • The earliest age at which a person can collect Social Security (except for certain cases of disability) should be raised to 65 rather than 62 (even considering the actuarial adjustment made before age 65).
  • The normal retirement age needs to be raised gradually to age 70.
  • The cost of living adjustment needs to be adjusted to reflect the real cost of living that affects seniors.  In addition, the COLA should not apply until a person has been collecting Social Security benefits for five years.
  • The use of Social Security by divorced individuals should be re-evaluated.  Currently several ex-spouses can collect the full benefit earned by one worker.
  • Disability benefits should be evaluated; currently individuals who never contribute to the program can collect full benefits under certain situations.
  • If changes to the program alone cannot fix Social Security, additional taxes should be raised on a uniform basis from all Americans.  That is, lower the percentage from 6.20 [1] to some other amount and apply it to all earnings.
  • Finally, prohibit Congress from making future changes (improvements) unless they are fully funded at the time of enactment.  Simply put that means paying for them with cuts in other areas of SS or immediately enacting tax increases to fully pay for the changes and explain such action to the American people.


[1] The initial tax rate in 1937 was 1.00%

Does PPACA contain a 3.8% tax on the proceeds of the sale of your home? Not exactly; beware of global e-mail.

23 Aug
US taxes as a percent of income in 2008.

Image via Wikipedia

More inaccurate and misleading information about the Patient Protection Affordable Care Act.

Ye gads, there is enough that is real to worry about within PPACA, we don’t need e-mail idiots spreading false and misleading information. First rumor was that the value of health benefits is taxable next year because the amount will appear on the W-2 and now it is that you will incur a 3.8% tax when you sell your home.

Here is the text of one such misleading e-mail:

Under the new health care bill – did you know that all real estate transactions are now subject to a 3.8% Sales Tax? The bulk of these new taxes don’t kick in until 2013 (presumably after Obamas re-election).

You can thank Nancy, Harry and Barack and your local Democrat Congressman for this one. If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes.

Is this Hope & Change great or what? We can vote the bums out in November and demand that they eliminate the bill or at the very least defund it. Then in 2012 repeal it.

Oh, you weren’t aware this was in the Obamacare bill? Guess what, you aren’t alone. There are more than a few congressman that aren’t aware of it either. AND, there are a few other surprises lurking.

Stay tuned.

Yes, the health care reform legislation does contain a new tax on unearned investment income.  However, that tax applies to individuals who earn $250,000 or more ($200,000 for single individuals). Not a good thing mind you.

As you can see from the above e-mail, misinformation surrounds how the tax will apply to the sale of a home. For the tax to have any impact the$250,000 income threshold must be exceeded (that leaves out 95% of Americans). Then the tax would apply only to the taxable net profit from the sale of a home.  For example, let’s say you bought a home for $150,000 twenty years ago and over the years you made improvements equal to $150,000 (new kitchen, new roof, etc.).  Now your cost basis is $300,000.  There is currently a $500,000 exclusion (married couple) for the taxability of profit on the sale of a home (if you lived in the house for a minimum period).  So, in this example, you could sell the home for up to $800,000 and have no taxable profit and thus the 3.8% tax would not apply.

Beware what you read in global e-mails.

Here is what the law says”


‘‘Sec. 1411. Imposition of tax. 


‘‘(a) IN GENERAL.—Except as provided in subsection (e)—

‘‘(1) APPLICATION TO INDIVIDUALS.—In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of—

‘‘(A) net investment income for such taxable year, or ‘‘(B) the excess (if any) of—

‘‘(i) the modified adjusted gross income for such taxable year, over ‘‘(ii) the threshold amount. 

‘‘(2) APPLICATION TO ESTATES AND TRUSTS.—In the case of an estate or trust, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable

year a tax of 3.8 percent of the lesser of—

‘‘(A) the undistributed net investment income for such taxable year, or

‘‘(B) the excess (if any) of—‘‘(i) the adjusted gross income (as defined in section 67(e)) for such taxable year, over ‘‘(ii) the dollar amount at which the highest tax bracket in section 1(e) begins for such taxable year. 

‘‘(b) THRESHOLD AMOUNT.—For purposes of this chapter, the term ‘threshold amount’ means—

‘‘(1) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000,

‘‘(2) in the case of a married taxpayer (as defined in section 7703) filing a separate return, 1⁄2 of the dollar amount determined under paragraph (1), and

‘‘(3) in any other case, $200,000. 

‘‘(c) NET INVESTMENT INCOME.—For purposes of this chapter— 

‘‘(1) IN GENERAL.—The term ‘net investment income’ means the excess (if any) of—

‘‘(A) the sum of—

‘‘(i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),

‘‘(ii) other gross income derived from a trade or business described in paragraph (2), and

‘‘(iii) net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over

‘‘(B) the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.

Here is a summary of the new tax prepared by the U.S. Chamber of Commerce:

 Investment Tax 

Perhaps less understood and not well known, the new tax on unearned income—known as the investment tax—is a massive revenue raiser that was added through the Reconciliation Act during the last week of consideration of the health reform package. Combined with the increase in the Medicare payroll tax, the provisions make up nearly half—$210.2 billion of $437.8 billion—of the increased taxes imposed by the bill. The 3.8% tax would be levied on individuals, estates, and trusts based on certain net investment income over a dollar threshold amount. The tax is applied to investment income net of any deductions allowed for the investment. For individuals, the tax is applied to the lesser of net investment income or modified AGI over a threshold amount ($200,000 individuals, $250,000 married filing joint return, or $125,000 married filing separate returns). Modified AGI is AGI plus any foreign income typically excluded under section 911 of the Internal Revenue Code. For an estate or trust, the tax is 3.8% of the lesser of undistributed net investment income or the excess of AGI over the dollar amount at which the highest income tax bracket applies. Net investment income includes gross income from interest, dividends, royalties, rents, and net capital gains. Investment income does not include interest on tax-exempt bonds, veterans’ benefits, excluded gain from the sale of a principle residence, distributions from retirement plans, or amounts subject to self-employment taxes.  

The tax applies to taxable years beginning after December 31, 2012. 

The solution to electing good politicians

22 Aug

Is it possible to elect honest politicians who both tell you the truth and act in the best interest of all Americans? Personally I am not optimistic.

However, I have an alternative. If we elect only folks like this guy, we can at least tell when they are not truthful. Hey, it can’t be any worse than the system we have. Plus there is the added benefit this guy may be smarter than many members of Congress.

Relgious freedom, only when convenient?

21 Aug

I read recently that President Obama is supporting the right to build a Mosque near ground zero in NYC. That will no doubt draw the wrath of some “Americans.”

While the idea of a Mosque in that location may be shocking and disturbing to some, the President is right. This country is founded in part on religious freedom and either we believe that or we don’t.

I for one constantly try to reconcile what is going on in the world with the Muslim religion. Frankly, I don’t hear sufficient talk from the Muslim community condemning violence and terrorism. But most of all, the religion appears to be easily corrupted by individuals seeking political or other objectives using fundamental elements of the faith. I also cannot abide in any way the treatment of women or the 8th century laws and punishments followed by some Muslim countries.

None of that matters. What matters is sticking to our own beliefs and fundamental rights, in this case freedom of religion. There are those who say the right to build at that location is there, but they should be more sensitive to the victims families. That argument is weak because it assumes that the 9/11 attack was an attack by a religion on society rather than by radical terrorists and extremists.

Let’s not forget the horrific things done to people throughout history in the name of many different religions. If we held a religion accountable for all the deeds done in it’s name we would all be atheists.

The Garden State of GM

19 Aug
The New Jersey State House in Trenton is the s...

Image via Wikipedia

The SEC sues the State of New Jersey for misleading bond investors by not revealing the true state of its pension funds or the fact that the State did not follow through on plans to fund the pension obligations. Interestingly no one person was charged in the civil case, as usual no one is responsible just the State, a legal entity with no accountability.  Forget the fact that many past State administrations of both parties have played games with the pension funds, the retiree medical liability and the benefits for state workers in total.  No one person, no one politician is responsible for anything.  

How do I know this? Since 1993, I served on three commissions for three different governors of New Jersey with the purpose of looking at the employee benefit programs for State workers.  The last was in 2005. Each of those groups concluded in essence that the benefits were overly generous, inefficiently designed, way too expensive and that there were massive liabilities growing for not only pensions, but also retiree medical benefits.  In all those years, nothing of substance was done to correct the problems (actually the benefits were further enhanced) which not only contribute to the State’s budget problems, but to the high tax rates paid by New Jersey citizens, most of whom have benefit programs valued at a fraction of that for State workers, if they have benefit programs at all.  

The current governor has attempted to correct things, but the steps are quite insignificant.  For example, for the first time many State and local government workers will pay a portion of the cost of their health benefits, 1.5% of pay to be exact. For a worker earning $50,000 a year that is $ 62.50 a month.  For comparison, if you took a job with one of the State’s largest private employers, you would pay $76.00 for single coverage and $330 per month for family coverage, which is equal to about 25% of the total cost.  These amounts are typical in the private sector. New Jersey has a long way to go in accomplishing much of anything to manage its employee benefit costs.  

The fundamental problem with the pension funding is not the State’s failure to meet its funding obligation; it is that the pension benefits are so generous that they are unaffordable. In fact, State workers contribute a significant amount to their own pensions, that amount would in many cases be sufficient to totally fund an average pension in the private sector and in all cases would fund more than 50% of the typical private sector defined benefit pension. 

So how did New Jersey get into this situation?  The same way General Motors did, through overly powerful unions and irresponsible management (politicians in the case of the State).  Unions in New Jersey especially the teachers union put pressure on politicians to provide more and more benefits, often citing (inaccurately) their underpaid members. Politicians seeking to keep their influential position cave to the demands without regard to the long-term costs or consequences.  But hey, nobody is responsible.  Quoted in the Wall Street Journal, a spokesman for the New Jersey Education Association said the SEC charges “pull the curtain away and expose the state’s malfeasance over the past 16 years.”  I would say there is sufficient malfeasance to include the unions.  I recall during public hearings when the benefit programs were being reviewed the unions bused in workers to protest even a close look at the design and cost of the benefits.  My favorite testimony was that of a mother of seven who worked for the State from January through May each year. After May she went on unemployment for the rest of the year, but because of a change in the benefits approved by the legislature, she kept her free health benefits for the entire year.  That is not an employee benefit program that is welfare. However, as we know, nobody is responsible. In the meantime, New Jersey taxpayers (and, by the way, taxpayers in other states as well) suffer the consequences of the GM mentality among public unions and politicians. 

* * * * * * * * * * * * *  * 

P.S. If anyone was serious about providing government workers with affordable, competitive benefits, it is very easy to make such a determination.  A long-established process used in the private sector determines the actuarial value of each benefit program, groups of programs and the entire benefits package and then compares that with other organizations.  Therefore, if a state wanted to provide a benefit package equal in value to 100% of the benefits offered by the state’s twenty largest private employers, it could easily do.  Go ahead I dare you! 

Oh, I forgot, no one is responsible. 

When insurance “fraud” may be lack of common sense

18 Aug
Metropolitan Life Insurance (6)

Image via Wikipedia

If you have a life insurance policy and you die, what happens to the proceeds of the insurance policy?   They go to your designated beneficiary right?  Sure they do (by the way your beneficiary designations are up to date I hope).  

If you have been reading the papers recently, you would think there is a new insurance scam just uncovered or that insurance companies are not paying the benefits.  In fact, this all started with a story that the families of deceased military personnel were not getting benefits from the insurers and that fraud was involved. 

The truth is that for many years insurers have offered the option for beneficiaries to receive a lump sum payment, in many cases installment payments or check writing privileges against the insurance proceeds.  In the latter case the insurance company keeps the proceeds in its general account, invests them and pays the beneficiary interest on the account balance.  Sure, the insurance company makes money, but the interest paid to the beneficiary is better than they can get in a bank.  Many people simply can’t handle a large cash payment, especially when grieving.  

In the press you hear words like fraud, misleading people and the like.  The Attorney General of NY is investigating (what’s new). It may make good sound bites and second page news, but the flap is largely bogus.  The government is concerned about this style of payout and at the same time is considering legislation that would require 401(k) plans to offer annuity payout options, generally for the same reason insurance companies offer alternative payment options..many people can’t handle receiving a large sum of money intended to last a number of years.  The insurance companies writing annuities make money too. 

The bottom line, if you want all the money right away, take it.  If you don’t, consider some other option.  Ask questions and exercise a little common sense. 

Bush tax cuts may expire, but reporting the value of health benefits on the 2011 W-2 does not make that value taxable

17 Aug

Let me make my point one more time

Sometimes I wonder whether the most misinformed and misleading individuals are members of Congress or its critics (yikes, that includes me).

I previously reported on a false e-mail regarding the taxability of health benefits because the value of such benefits is to be reported on the W-2 beginning in 2011. This rumor simply will not die. Now, a new e-mail is circulating about the increases in taxes beginning in 2011 because of expiration of the Bush Administration tax cuts.

Here is the WRONG information contained in the latest e-mail making its way around the WEB.

Now your insurance is INCOME on your W2′s…… 
One of the surprises we’ll find come next year, is what follows – - a little “surprise” that 99% of us had no idea was included in the “new and improved” healthcare legislation

Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company.

You will now be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your Tax debt.  That’s what you’ll pay next year.  For many, it also puts you into a new higher bracket so it’s even worse.

Once again, the value of your health benefits will be reported on the W-2 for 2011, but not as taxable income and will not be taxed.

Employers may want to address this issue now and make sure employees understand what will appear on their 2011 W-2.  Believing this misinformation may cause some individuals to change their benefits, change their payroll tax withholding or otherwise make inappropriate (dumb) decisions.

Doesn’t it make you wonder. Is micromanagement by the federal government necessary

16 Aug

The new Chevy Volt costs about $40,000. In that price are all the costs of production, advertising, all of GMs administrative costs. In other words, all the costs of doing business.

But that is not so for health insurance companies when trying to comply with new Medical Loss Ratio rules. There are those in the Obama administration who want to disallow many administrative costs and some salaries when determining the percentage of premium not used toward health insurance claim payments.

One has to wonder why there is a need for micromanagement by the federal government. During the health care debate we were told the secret to lowering costs was to increase competition among insurance companies.

Sooooooo, if an insurance company is inefficient, overspends on salaries or even marketing, its premiums will be non competitive especially considering that the benefits offered have now been standardized.

Where are we headed with all this control?

A lesson from Hungary

14 Aug

At the moment I am in eastern Europe. Talking with people in Hungary is enlightening. Some say people are, after more than twenty years, still trying to cope with a post communist/socialist society.

What is the main problem, simply put they realize if they want more money they must work for it, if they want a better lifestyle, they must work for it because the state will no longer provide. One women told me as a result there is a growing tendency to find someone else to blame for their problems and as usual minorities are the easy scapegoats.

Let’s pray history does not repeat itself or that this lack of understanding that ones own initiative and effort is necessary to have a better life is not in the future of America.

Americans using less health care, just wait

13 Aug

According to an article in the Wall Street Journal, Americans are using less health care. This can be attributed to the recession, to more people enrolled in high deductible health plans or (unlikely) a change in attitude about what is and is not necessary health care. One thing seems clear, the more people pay for health care the more they think about what they spend. The trick is to find the right balance so needed care is not avoided.

Hey, it's free and besides I could use a jolt (or is that Volt?)

Will this trend continue? Very unlikely in my view. First, we are in a recession so people may be cautious today, but most important people may be confused about health care reform. When “reform” kicks in, stand back as demand soars. For more than a year Americans have been promised lower costs and higher quality, they have heard insurance companies beaten up and many anticipate far more additional benefits (and lower costs) than will be delivered. In addition, the mindset has been ingrained that no one can afford to pay for health care while at the same time PPACA adds new benefits, no cost sharing for an array of services, removes caps on coverage and generally further removes Americans from the cost of health care.

This all sets the stage for more demand and less personal responsibility for the cost of care in the years ahead.

Employers; (please) communicate, communicate

12 Aug

As each week goes by we come closer to implementing different requirements under the Patient Protection Affordable Care Act (PPACA). Most people are still confused about what this all means. Employees may have inflated expectations, they probably do not expect large premium increases and they may not be focusing on the choices and decisions they have to make.

Employers are burdened with a tremendous amount of new administration and with some important decisions (not to mention annual enrollment and related health benefit changes).

All of this presents opportunities and challenges. One thing is very clear, both from a strategic perspective and from a legal one employers will want to ramp up communications. Creative employers can turn legal obligations into positive employee relations, improved labor relations and perhaps cost savings. Now is not the time to rely on corporate speak and legal jargon.

Take each relevant element of PPACA and EXPLAIN it to employees. Tell them it’s objective, how it affects them and their employer, what impact there may be on health care costs and when appropriate, what action they should take to maximize the benefit value.

Employers must comply with the law, but they should do so by placing themselves in the best possible light; employees will appreciate the extra effort.

Keep communication simple, light and personal (there nothing more personal in the workplace than employee benefits especially health benefits). Use channels that meet today’s needs like e-mail and the Internet. Make sure communication reaches the home. Use this opportunity to explain health care costs and the individuals role in managing those costs. Promote your wellness and cost containment efforts along with required information. Explain why controlling costs is vital for the employer and thus important to workers as well. If you are self insured make sure your employees know what that really means (especially related to PPACA matters), including the role of your administrator in paying claims and resolving claim appeals.

There was a great deal of misinformation during the health reform debate, take this opportunity to communicate the facts as reform affects your company. Show your employees you care. A modest investment in communications pays big dividends.

How a little wind can inflate your electric bills.

11 Aug

Is it caveat emptor?

You hear a lot about green power and wind and solar energy, but you don’t hear too much about what it costs. I recall a few years ago passing booths at the Barnstable County Fair in Massachusetts where proponents of Cape Wind had no problem shouting all the benefits including lowering the cost of energy for residents of Cape Cod. Many people actually thought the electricity generated from the Nantucket wind farm would be directed to Cape Cod. Whoopee, what could be better than cheap energy? Well, nothing much, but where do you find it? It’s sure not blowin in the wind.

At least they could paint them green

Consider this from

The developers of the proposed Cape Wind project in Nantucket Sound have tentatively agreed to reduce its price to consumers by 10 percent, which would save ratepayers $456 million over its expected 15-year life.

The cost of the 130-turbine project has been the source of intense controversy ever since National Grid signed an agreement in May to purchase 50 percent of Cape Wind’s power at prices far higher than electricity from fossil fuels and even other renewable power. The agreement is expected to make it easier for the contract to pass state Department of Public Utilities scrutiny – critical for Cape Wind to get financing. The agency is reviewing the project to see if it makes sense for ratepayers.

How does any source of power that is more costly than current sources make sense for ratepayers?  No matter, you don’t have a choice.

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