Explaining Insurance to Sec. Sebelius

This entire pointer comes from John Goodman:  

From the Associated Press:

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can’t be compared to the comprehensive coverage available under the law. “Some of these folks have very high catastrophic plans that don’t pay for anything unless you get hit by a bus,” she said. “They’re really mortgage protection, not health insurance.”

Greg Mankiw responds:

I have the same problem with my other insurance policies. My homeowner insurance doesn’t cover the cost when my gutters need cleaning, and my car insurance doesn’t cover the cost when I need to fill the tank with gas. Instead, the policies cover only catastrophic events, like my house burning down or a major accident. Now that the Obama administration has fixed the health insurance system, I trust they will soon move on to solve these other problems. 

Can employers really comply with PPACA via stripped down, limited benefit, $75 premium plans?

An article appearing in the Wall Street Journal is causing quite a stir in the benefits world this week as authors Weaver and Wilde Matthews set forth a potential strategy for businesses to purchase stripped down, bare-bones plans (mini-meds) for as little as $50 to $100 per employee per month and avoid PPACA fines.

Is this true? Answer: Yes, it is mostly true. In a nutshell, this strategy will likely work to avoid the $2,000 fines that large employers face for providing no coverage. But it won't do anything to alleviate the $3,000 penalty for the provision of insufficient coverage.

Furthermore, small businesses will not be able to make use of this strategy as they are held to higher standard of benefit provision in the law. Small businesses are defined as groups with less than 50 or 100 full time (30 hours) employees depending on which state you are in. California still operates at the 50-employee threshold.

Lastly, in order for an employer to pay the $3,000 penalty for insufficient coverage, an employee must go to a state exchange, fill out what will amount to 61-pages of information, and receive a government subsidy. Many employees will simply not bother going through the hassle. And even if they do, a legal battle bubbling up through the court system now illustrates that because of another oddity in the law, those subsidies may not be available in the 33 states that have opted not to open exchanges and have pushed that chore back on the federal government. (See here and here for more on that.)

Therefore, as a practical matter, large employers may be able to overwhelmingly skirt fines with bare-bones plans.

Here are Christopher Weaver and Anna Wilde Mathews providing more on this in the Wall Street Journal:

Employers are increasingly recognizing they may be able to avoid certain penalties under the federal health law by offering very limited plans that can lack key benefits such as hospital coverage. 

Benefits advisers and insurance brokers—bucking a commonly held expectation that the law would broadly enrich benefits—are pitching these low-benefit plans around the country. They cover minimal requirements such as preventive services, but often little more. Some of the plans wouldn't cover surgery, X-rays or prenatal care at all. Others will be paired with limited packages to cover additional services, for instance, $100 a day for a hospital visit. 

Federal officials say this type of plan, in concept, would appear to qualify as acceptable minimum coverage under the law, and let most employers avoid an across-the-workforce $2,000-per-worker penalty for firms that offer nothing. Employers could still face other penalties they anticipate would be far less costly.

It is unclear how many employers will adopt the strategy, but a handful of companies have signed on and an industry is sprouting around the tactic. More than a dozen brokers and benefit-administrators in 10 states said they were discussing the strategy with their clients. ...

[A] close reading of the rules makes it clear that [the robust] mandates affect only plans sponsored by insurers that are sold to small businesses and individuals, federal officials confirm. That affects only about 30 million of the more than 160 million people with private insurance.... 

Administration officials confirmed in interviews that the skinny plans, in concept, would be sufficient to avoid the across-the-workforce penalty. Several expressed surprise that employers would consider the approach.... 

Limited plans may not appeal to all workers, and while employers would avoid the broader $2,000-per-worker penalty for all employees not offered coverage, they could still face a $3,000 individual fee for any employee who opts out and gets a subsidized policy on the exchanges. 

But the approach could appeal to companies with a lot of low-wage workers such as retailers and restaurant operators, who are willing to bet that those fees would add up slowly because even with subsidies, many workers won't want to pay the cost of the richer exchange coverage....

I must say I do find it comical that administration officials would be “surprised” that businesses would consider this approach. I suppose that just highlights the epic disconnect between government officials and how how a free-market capitalist will behave. It is a business' obligation to study the rules and act in a way that maximizes profits. Sadly, that still “surprises” the government. 

A 65-year-old couple retiring this year would need $220,000 to cover medical costs in retirement

As reported by the AP and posted at CNBC: 

A 65-year-old couple retiring this year would need $220,000 on average to cover medical expenses, 8 percent less than last year's estimate of $240,000. The study assumes a life expectancy of 85 for women and 82 for men. ... 

Fidelity's projections assume that a 65-year-old couple retires this year with Medicare coverage and no additional coverage from former employers. The estimate factors in the federal program's premiums, co-payments and deductibles, as well as out-of-pocket prescription costs. The estimate doesn't factor in costs for most dental services or long-term care, such as living in a nursing home.

The company's projection has fallen 12 percent from its high of $250,000 in 2010....

A couple that knows they are likely to face $220,000 in expenses over their retirement could set up an annuity to provide about $11,000 annually over 20 years. The downside to an annuity, versus a health savings account, is that withdrawals are taxed as income. ...

This assumes an amount of $100,000 needed for a man an $120,000 needed for a woman.  

 

Also not that if the man lives to 92 and the woman to 94 that couple would actually need $355,000 and both have a 25% chance of living that long.  

More on the study from Fidelity.

'If you like your plan you can keep it.' Or at least 27% of you can

During the early days of PPACA's passage and promotion President Obama repeatedly said "If you like your plan, you can keep it."  Here is a clip of him saying so (video clip).     

Sounds great.  But the problem is that it is not true.  

It would be more accurate to say, if you like your plan you can keep it provided that:   

• You can still afford it; 
• Your employer can still afford it; and 
• Your insurance carrier doesn't make changes to add benefits mandated by PPACA.  

Those are three big ifs.  And now we have this from Jerry Geisel writing at Modern Healthcare:  

The percentage of employers with grandfathered health care plans continues to dwindle, according to a survey released Thursday.

Just 27.3% of employers responding to an International Foundation of Employee Benefit Plans survey said their primary healthcare plan has grandfathered status this year, down from 34.3% last year and 44.6% in 2011.

Under the Patient Protection and Affordable Care Act, grandfathered plans are exempt from certain requirements, such as providing full coverage of preventive services.

But to maintain grandfathered status, a health plan can’t increase coinsurance requirements or boost the percentage of the premium paid by enrollees by more than 5 percentage points, among other requirements.

Because such health plans can make only limited cost-sharing changes, “maintaining grandfathered status can be a challenge for employers,” according to the survey.

And grandfathered plans will continue to decline, according to the foundation. Some 2.5% of respondents said they expect their primary health care plan to lose grandfathered status this year, while 31.3% said they expect their primary plan to lose grandfathered status in 2014.  

The survey is based on responses from 966 benefits professionals.

A Small Business Owner's Letter to His Employees Re: Obamacare

Shared via J.D. Tuccille at Reason Magazine: 

Hey everyone,

Following up on [N]'s email, I wanted to give to give some more background as to why we are considering a switch.  In fact, I will take this as an opportunity to dive deeper into the health insurance world. Unfortunately, given the times we live in, we can no longer afford to be in the dark on this stuff.  We have some tough choices ahead of us, if not now, then likely in a year or two.  First, the short answer...

We're considering a switch from CareFirst to United because CareFirst is increasing their rates by 28%.  We may be able to switch to United without any increase in our premiums for the next year; our insurance guy will confirm this over the next couple weeks.  The last time I checked, CareFirst and United are the two largest health insurance providers in the country.  We would be moving from CareFirst's best plan (zero deductible in network and no need to see your primary physician before seeing a specialist) to United's best plan (also zero deductible in network and no need to to see your primary physician before seeing a specialist) and maintaining the same arrangement where Capterra pays 100% of premiums for individuals and 75% for families.  

I know that some of us use doctors that do not take CareFirst and my guess is that some of your doctors do not take United.  In fact, I know of some doctors who have dropped all insurance over the last 12 months so whatever program we go with will not be perfect.  That said, I am happy to look at other insurance providers if your doctor does not take United.  Please ask them what insurance plans they do accept and I will have our guy look into those plans.  If we hear a common theme, then that would certainly increase the likelihood that we would go with that insurance plan if the price is right.  If you would like more time to investigate then we can extend our deadline a month.  We have the option of switching over on June 1 or July 1.

And now the long answer, but please keep reading.  :-)

Health benefits are our third highest cost, after payroll and search ads, but now more than our rent.  A 28% increase is significant.  We essentially have four options:

1) Keep the exact same CareFirst plan, and have Capterra swallow the cost.  Individuals currently pay 0% of their premiums (which are around $500/month) but families pay 25% (of their $1500 monthly premiums).  So the families would also pay more for their 25% share.  The higher cost for Capterra would reduce our ability to hire, give raises, etc.

2) Keep the exact same CareFirst plan, and start charging both individuals and families 25% of the premiums.  (Most companies, yes even Google, that provide health insurance benefits to their employees have them pay 25-50% of their monthly premiums.)

3) Keep CareFirst but subscribe to a cheaper plan that includes an in-network deductible.  This basically means if you ever visit your doctor, you will be paying the first 1k or whatever the deductible is in expenses that year.

4) Switch to a different top tier plan from a a different insurance provider such as United that for whatever reason has not increased their premiums yet and not change anything (yet) about how we pay for everyone's insurance. 

5) Stop paying heath care benefits, pay people cash instead and encourage everyone to do health savings accounts (they are not taxed!) and buy catastrophic plans with part of the cash.  More on this later.

#4 seems like the least painful solution for everyone here.  Again, please let me know what other insurance plans your doctors take if they do not take United and I can have our insurance guy research it.  Also, if you have any input regarding the other options I mentioned I'd love hear it.

You may be wondering how the health insurance industry got to be so convoluted.  Let me explain why and it requires going back in history a bit:

Back in the 1940s, our federal government enacted wage controls that restricted what some businesses could pay their employees.  (There were smart people who spoke out against this terrible idea but unfortunately not enough.)  This resulted in businesses looking for other ways to compensate their employees and the IRS decided that it would not treat benefits such as health insurance as taxable wages.  Until then people generally paid medical fees out of pocket in the same way they paid for virtually anything else out of pocket.  The fees up until were relatively small for two reasons:  1) medicine was not very advanced so when something catastophric happened there was not often much that could be done to help the patient and therefore no huge expenses were incurred and 2) since people were paying their doctors directly it was a very efficient and fair market. 

So 70 years later, even though the wage controls thankfully disappeared, the IRS treatment of health insurance did not.  Health insurance benefits continue to not be taxed as income.  At first glance by the uninformed citizen (such as me until a few years ago), this appears to be a good thing.  But in reality it is actually a terrible thing.  Here is why.  

First, let's look at the first obvious and intended consequence:  while our total compensation remains the same whether we are getting salary plus health benefits or all of it in the form of salary, our freedom to decide how much of our salary to spend on health benefits is lost.  And many of us would and should spend less than we do on health benefits.  For example, there is no way most 23 year old single people should be spending $500/month on health insurance.  That's a bad deal for most 23 years olds and if given the choice most should take atleast half of that in cash and save it/invest it.  23 year olds are already getting stuck with higher premiums on auto insurance since they are higher risk drivers; by the same principle, they should be paying much lower premiums since they are generally less at risk health-wise.

But that's just the start.  Other unintended consequences that have gradually worsened over the last 70 years:

1) Irrespective of much we decide to spend, we lack freedom in choosing the specific plan that is right for us when we receive it as a benefit from our employer.

2) If we decide to buy health insurance directly (10% of Americans do), we are discriminated against since we do not receive the same treatment from the IRS.  We have to use post tax dollars to purchase it.  This is completely unjust and should be the first thing on an political leader's agenda when it comes to solving the healthcare problem.  Either everyone should pay taxes on them or noone should.

3) When we develop a treatable medical condition, we are out of luck if we leave our employer since our insurance was tied to that employer and we now have a pre-existing condition.

4) The worst of all...because most of us receive our heathcare as a benefit, we are completely separated from any real knowledge of our actual expenses.  This is the major reason why our healthcare expenses are now through the roof.

The beginning of a solution is relatively simple:

1) Allow individuals to deduct their health insurance from their taxes (just like they essentially can if they receive them as a benefit)

2) Have employers get out of healthcare as a benefit and instead kick that money into the salaries of their employees

3) Allow people to buy health insurance from any provider across the country (also not currently allowed)

4) Allow insurance companies to offer plans that are primarily catastrophic in nature (also not currently allowed due to over-regulation)

Oh yes, and elect principled political leaders who have the guts to to offer real solutions like this instead of the misery that is happening now.  It was bad prior to the most recent healthcare legislation; it is now way worse.  For example, one big reason that our rates are skyrocketing is that it is becoming illegal for CareFirst and all other health insurance companies to deny someone with a preexisting condition.  What insurance provider in their right mind would cover someone new who say, just contracted flesh eating bacteria, for example?  It's the equivalent of a home insurance provider accepting a new customer whose house was already burning down.  People can now pay a small fine/tax, and not get insurance until they get a major health problem and then the insurance provider has to accept them at the same rate that everyone else is paying.  This is just plain stupid; it violates the entire point of insurance and will result in people gaming the system.  It tries to solve a problem by dealing with the symptom.  Anyone who has a preexisting condition (exclude the poor - 15% of population - who are covered by Medicaid) should be on their own insurance plan that they have been purchasing since they rolled off their parents plan.  (It's slightly more complicated than that but I'm trying to be brief.)

Anyway, why am I saying all this?  Everyone needs to be educated on this stuff because it is impacting all of us.  And more to the point, assuming United works for this coming year, my guess is that rates will go up next year, and we'll go through this again.  And I think we should seriously consider #5 next year or atleast do #2.

In the meantime, we need to decide whether to do #4 and switch to United or #2 which means sticking with CareFirst and having all employees start paying 25% of premiums.  Guessing most of you would pick #4, but please let me know.

I'm simply trying to be fully transparent and help everyone be more informed!  Anyway...please let me know if you have any questions.  Happy to host a roundtable or discuss individually if you have questions.  Sorry if this seemed convoluted.  :-)

- Mike

Michael Ortner
Capterra, Inc.

Who is Self-Funding Healthcare and Why?

This is Sally Pipes writing at Forbes:   

Self-insurance used to be solely the province of large companies. About 80 percent of companies that employ 1,000 or more workers self-insure, according to the RAND Corporation — but only 8 percent of those with fewer than 50 workers do so.

Thanks to Obamacare, that’s changing. A RAND analysis found that a fifth of firms with 50-200 workers had self-insured by 2010, the year Obamacare became law — up from 14 percent of such companies in 2006.

A survey by Munich Health North America found that 82 percent of health insurance executives report seeing growing interest in self-funded coverage among employers. A California-based benefits consulting firm that helps companies self-insure told Kaiser Health News that its business has doubled in the past six months. And Cigna says that it saw self-coverage for small businesses grow by a fifth last year. 

PPACA Nightmare: Where $501 of additional income can result in an 872% marginal tax increase

This is seared with us by Linda Gorman at John Goodman's Health Policy Blog: 

On average, however, the family will be much worse off if the employer offers affordable coverage. To be affordable, the employee’s premium for his own coverage cannot exceed 9.5 percent of his W-2 wages, or $3,135. But the employer can charge any amount for other family members. Assuming the employee must pay the national average family premium ($4,316), the employee will have about $4,000 less take-home pay!

The table below follows Chief Justice Roberts in classifying required insurance premiums as a tax. The base case is a family of four earning $32,499, enrolled in Medicaid. Marginal taxes are calculated as the sum of additional taxes ($54 as federal income tax rises from $699 to $753) plus additional premiums divided by the additional income earned ($501).

Effect of Earning More: $32,499 → $33,000

	Premium Payments (Insurance “Taxes”)	Additional Federal Income Tax	Change in all “Taxes” Divided by Change in Income	Percent Change in Marginal Tax
Get subsidized family coverage in an exchange	$1,143	$54	$1,197/$501	238%
Buy family coverage from employer, average subsidy	$4,316	$54	$4,370/$501	872%
Go bare, pay 2016 penalty (2.5 percent of income)	$825	$54	$879/$501	175%
Go bare, ignore penalty	0	$54	$54/$501	11%

If the family manages to increase its earnings by $17,501 to $50,000, roughly the U.S. median income, it will still be better off if its employer does not offer coverage, as it would be able to purchase a subsidized family exchange policy for about $1,000 less than if its employer offered coverage at average subsidy rates.

But a family that goes “bare,” ignoring the penalty/tax, would enjoy an income increase of $16,588 net of federal taxes. It would be able to buy a lot of routine medical care for the $3,385 that Kaiser says it would have to pay for a subsidized exchange policy, and it would still be able to sign up for coverage when it wants other people to bear its medical costs.

Wellness Plans Hampered By PPACA: May Be Banned in California

The legality and efficacy of wellness programs as an employer tool for cost control (or cost shifting depending on your viewpoint) has taken a hit under PPACA but may be knocked out cold by California.   

On April 30, 2013, the Internal Revenue Service released a notice of proposed rulemaking intended to answer some of the questions that remained open in the wake of May 2012 final regulations implementing the premium tax credit program.

The proposal addresses the question left open by the HHS regulations as to how reduced cost sharing under wellness programs should be treated in calculating whether a plan passes minimum value rules. Recognizing that “certain individuals inevitably will face barriers to participation [in wellness programs] and fail to qualify for rewards,” the proposal does not consider reduced cost-sharing in wellness programs as counting toward plan minimum value with one exception:  Minimum value may be calculated assuming that every individual satisfies the terms of a nondiscriminatory program aimed at the prevention or reduction of tobacco use. 

This is not what wellness proponents wanted to see.  This means that the cash incentives employers provide to employees for participation in wellness programs will not count toward the mandate to provide a plan costing no more than 9.5% of an employee's W-2 wages.   

This, however, will be a non-story in California if law makers get their way and continue moving Senate Bill 189 (Monning) through the legislature.  This bill would prohibit wellness program incentives linked to premiums or cost sharing.  I.e., it would legally remove all teeth from a wellness plan. 

CA Lawmakers Seek to Make It Illegal to Reduce Worker Hours Below 30 a Week to Avoid ObamaCare Fines

by Craig Gottwals, Attorney at Law

A version of this article is also posted at Cal Watchdog

Law would also penalize employers whose wages are too low to keep employees off of Medi-Cal.  

In the state that seemingly takes pride in demonstrating its economic ignorance and disdain for all things private, our legislature is working to double down on ObamaCare.  As the first state to establish an ObamaCare Exchange, California has now set a new bar in government driven healthcare ideology with what some have referred to as CaliCare.

The California legislature is presently advancing A.B. 880 that would make it unlawful for employers to reduce workers’ hours below 30-hours a week for the purpose of avoiding ObamaCare’s employer mandate penalties.  Similarly, the proposed law would fine employers if the wages they pay are not high enough to keep workers off Medi-Cal rolls.

AB 880's monetary penalty is written purposely vague but sure to be painful to business.  The proposed penalty on employers is based on 110% of the average cost of health care coverage, including both the employer’s and employee’s share of the premium.  According to the Kaiser Family Foundation, the national average cost for individual health care coverage in 2012 was $5,615 and family coverage was $15,745. It is unclear whether AB 880 sets the penalty level at the individual or family level of health care coverage but even if it were set at the lower individual level it would be 110% of $5,615 or a cool $6,176.50 per employee in 2013.  That is over three times the federal penalty for not providing healthcare to an employee under PPACA.  

And whereas most tax thresholds and the Alternative Minimum Tax conspicuously are not adjusted for inflation; rest assured, the state will make sure business penalties are.  "The amount of the employer responsibility penalty shall be adjusted annually to reflect changes in the average cost of coverage provided by large employers to their employees." (A.B. 880, Article 7, section 14199.1, pg. 22 of the below linked PDF.)  Healthcare costs have increased 170% over the past decade.  That will make for one steroid-induced penalty for state rulers to plunder in upcoming years.  Perhaps we can take the Bullet Train to new state-funded clinics?  

The stated goal is to prod large businesses to offer health insurance by fining them more than the average cost of providing coverage.  Money raised by AB 880 is meant to increase Medi-Cal provider rates, and to subsidize state costs for it.  

The law would apply to private employers with 500 or more employees in California and for employees working as few as 8 hours per week.  I can just see it now: help wanted signs advertising part time work available at 7.9 hours per week.  

The proposed law also provides, conveniently, "'large employer' shall not include a state, city, county, city and county, district or any other governmental employer. ... An employer responsibility penalty shall not be incurred by a state, county, city, city and county, district, or any other governmental entity." (A.B. 880, Article 7, section 14199.1, pg. 21 of the below linked PDF.)

The California Chamber of Commerce has already identified the bill as a “job killer,” stating that it will “significantly hamper an employer’s ability to manage its workforce.”

Bill text:  http://www.leginfo.ca.gov/pub/13-14/bill/asm/ab_0851-0900/ab_880_bill_20130424_amended_asm_v96.pdf 

UPDATE on 7/1/13: Los Angeles Times: Bill To Fine Big Firms With Workers On Medi-Cal Comes Up Short

A California proposal to fine large companies that have workers on Medi-Cal came up short in an initial vote in the Assembly amid strong business opposition. The proposed fines could reach about $5,000 per full-time employee who receives Medi-Cal, the state Medicaid program for the poor. The bill, AB 880, garnered 46 votes in the 80-member chamber Thursday, short of the 54 votes, or two-thirds majority, needed. The measure could come up for reconsideration as early as next week.  

Health Perks Geared To Top Workers Could Trigger Penalties Under Health Law

This is Julie Appleby in a Kaiser Health story produced with the USA Today:  

Many executives have long enjoyed perks like free health care and better health benefits for themselves and their families. But under a little noticed anti-discrimination provision in the federal health law, such advantages could soon trigger fines of up to $500,000.

Employers “should be more concerned about this than anything else” in the law, because many are in violation and the penalties can be stiff, says Jay Starkman, chief executive of Engage PEO in St. Petersburg, Fla., which offers human resources services and advises clients on the health law.

The provision says that employers who offer more generous benefits to highly paid workers could face fines of $100 a day for every worker who doesn’t get the perks....

It applies to employers who buy benefit packages for their firms from insurers. Those who self-fund their coverage, who tend to be larger firms, already face similar restrictions under Internal Revenue Service rules which pre-date the law.

To make sure his own small company complies with the law, Starkman began paying $600 in premiums toward his family’s coverage last month, putting him on an even playing field with his 60 employees.

He says the rule makes sense, noting that executives are likely to get little sympathy from the public.

“The right way to handle it is to have the same benefits for everyone,” he says, noting that firms can increase wages to managers or executives to cover their additional costs. ...

The anti-discrimination provision is technically in effect now, but the IRS says it will not impose penalties until it completes regulations and issues guidance about how the provision will be enforced. ...

The IRS rule offers guidelines explaining who is a highly paid employee, and says a plan discriminates if it favors such workers in terms of eligibility or benefits. ...

In seeking comments, the IRS asked employers and others how to define “benefits.” Do they include, for example, not just the coverage provided, but how much employees pay toward those costs? Some firms, for example, charge executives less than other employees – or nothing at all – toward coverage. Would that count as being discriminatory? ... 

Congressman re IRS Complaints: You were only targeted because you exercised your rights.

This is the agency primarily responsible for enforcing PPACA.

The audio speaks for itself.

Do we care?

It Begins: Feds Already Punting ObamaCare Cash Shortfalls to States

This is Allison Bell at Life Health Pro:   

The Center for Consumer Information and Insurance Oversight (CCIIO) may be giving more attention to concerns about auditing and fraud in new Pre-existing Condition Insurance Plan (PCIP) contracting materials.

Congress created the $5 billion PCIP program to give people with serious health problems a way to buy coverage. The sick people who use the program can get major medical coverage for a price comparable to the price that healthy people in their states pay. In 2012, claims averaged about $30,000 per enrollee. ...

The Associated Press reported last week that CCIIO managers have suggested that the PCIP program as a whole will run out of cash before the date when it is supposed to shut down -- Dec. 31 -- and that states will have to make up the difference between what CCIIO can pay for the program and the actual cost of the covered claims.