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Strategies For Controlling Benefit Costs

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This is a presentation that I made recently to members of the Building Industry Association of Lancaster County to help them to understand options that could save them money on their group programs.

This is a presentation that I made recently to members of the Building Industry Association of Lancaster County to help them to understand options that could save them money on their group programs.

Published in: Economy & Finance, Business

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  • 1. Strategies for Controlling Benefit Costs in Hard Economic Times – Part 1 Presented by: Barbara Hostetler Hostetler Insurance Associates, Inc. March 31, 2009
  • 2. AGENDA
    • Health Plan Design
    • Tax Advantages
    • COBRA Subsidy
    • Eligibility
  • 3. HOW MUCH? What is a reasonable amount of money to pay for our healthcare?
  • 4. HOW MUCH? How much do we pay for: A Television? A Vacation? A Vehicle?
  • 5. HOW MUCH? Is our HEALTH worth less than those items?
  • 6. WHAT FOR? What is insurance for? Auto Insurance? Homeowners Insurance?
  • 7. WHAT FOR? We insure our homes and our cars for LARGE losses – why is health insurance expected to cover SMALL claims?
  • 8. WHY? Why do employers provide health insurance?
  • 9. WHY? Health insurance started as an inexpensive benefit to attract and reward employees.
  • 10. WHEN? WHY? HOW? When did that change? Why did it change? How do we go back?
  • 11. PLAN DESIGN What if we thought that our good health was of utmost importance to the point that it is worth spending our own money to have it?
  • 12. PLAN DESIGN How much would we expect to pay for good health?
  • 13. PLAN DESIGN Think about those things as your design your health plan.
  • 14. PLAN DESIGN Look at your health plan design based on how much it will pay and save on LARGE claims.
  • 15. PLAN DESIGN If there is a $1 Million claim, what will insurance pay? What will the patient pay?
  • 16. PLAN DESIGN If there is a $10,000 claim, what will insurance pay? What will the patient pay?
  • 17. PLAN DESIGN If you were in terrible pain, what copay would you pay to see a doctor who would relieve that pain?
  • 18. PLAN DESIGN So, what exactly is my point?
  • 19. PLAN DESIGN If we would pay… $1000 for a TV $2500 for a Vacation $20,000 for a Vehicle
  • 20. PLAN DESIGN Shouldn’t we be willing to pay at least that much for our good health?
  • 21. PLAN DESIGN The #1 driver in health plan cost increases is… UTILIZATION
  • 22. UTILIZATION “ Utilization” is the everyday use of your health plan, and it is the main reason that prices are rising so fast
  • 23. UTILIZATION “ Utilization” is driven by the ease of accessing health care for everyday health issues
  • 24. UTILIZATION If your copayment is only $20, why not see the doctor for care on a whim?
  • 25. UTILIZATION How quickly do we see the doctor now as compared to our parents and grandparents?
  • 26. UTILIZATION Why do you think that is? Cost / Copayment? Society / Expectations? Comfort / Ease of Access?
  • 27. UTILIZATION How do we fix utilization? The insurance industry created this beast – what are they doing to fix it?
  • 28. UTILIZATION Plan designs including: No or Higher Copayments Higher Deductibles Improved Preventive Benefits
  • 29. COPAYMENTS Higher / No Copayments will encourage everyone to think more carefully before they go to the doctor on a “whim” or take a drug “just because” it is prescribed.
  • 30. DEDUCTIBLES Why should your health plan deductible be less than what you would spend to maintain your lifestyle?
  • 31. PLAN DESIGNS
    • Progressive plan designs are:
    • Eliminating Copayments
    • Raising Deductibles
    • Maintaining or Improving Preventive Benefits
  • 32. USE TAX ADVANTAGES To encourage employers to make these changes, the government is offering amazing tax incentives
  • 33. HEALTH SAVINGS ACCOUNTS To get the tax advantages of an H S A, you must have a Qualified High Deductible Health Plan (QHDHP)
  • 34. QHDHP A QHDHP must have: No Copayments for Office Visits or Rx EXCEPT for Preventive Care and/or After the Deductible
  • 35. QHDHP A QHDHP must have: A Deductible HIGHER than $1150 / $2300 for 2009
  • 36. QHDHP A QHDHP must have: A FAMILY Deductible that is NOT aggregate
  • 37. QHDHP A QHDHP must have: An out-of-pocket MAXIMUM of $5,800 / $11,600 that includes ALL out-of-pocket expenses.
  • 38. H S A REWARDS Three Tax Advantages: 1. Deduction for Money contributed to the H S A up to an annual maximum of $3000 / $5950 for 2009
  • 39. H S A REWARDS Three Tax Advantages: 2. Money that is earned in the H S A is earned tax-free or tax-deferred, depending on how it is used
  • 40. H S A REWARDS Three Tax Advantages: 3. Money that is used properly from the H S A is NEVER taxed.
  • 41. H S A REWARDS H S As are the ONLY funds with these three tax advantages.
  • 42. H S A REWARDS H S A funds are NOT “use it or lose it” – they carry over from year to year
  • 43. H S A REWARDS H S As offer the best tax advantages available in employee benefits
  • 44. OTHER INFO ABOUT H S A Individually owned accounts – no employer responsibility for the use of the money in an H S A
  • 45. OTHER INFO ABOUT H S A Once given, the employer cannot get their money back from an H S A
  • 46. OTHER INFO ABOUT H S A Employers and Employees may fund the account, but employers may not discriminate on contribution amounts
  • 47. OTHER INFO ABOUT H S A An H S A is NOT required with a QHDHP and the employer is not required to contribute money to the H S A
  • 48. OTHER INFO ABOUT H S A H S As are a great vehicle for building a strategy to control costs
  • 49. H S A STRATEGY - DESIGN $1500 / $2500 QHDHP 5 Employees – 2 Single / 1 Spouse / 2 Families Actual Case 2% $34,999 $0 $34,999 5 0% $34,372 $1,965 $32,407 4 0% $34,372 $4,366 $30,006 3 0% $34,372 $6,588 $27,784 2 N/A $34,372 $13,000 $21,372 1 % Change Total H S A Premium Year
  • 50. H S A STRATEGY - ACTUAL $1500 / $2500 QHDHP 5 Employees – 2 Single / 1 Spouse / 2 Families Actual Case 0% $37,809 $2,810 $34,999 5 0% $37,809 $5,402 $32,407 4 0% $37,809 $7,803 $30,006 3 10% $37,809 $10,026 $27,784 2 N/A $34,372 $13,000 $21,372 1 % Change Total H S A Premium Year
  • 51. BREAK Take a 5-Minute Break…
  • 52. COBRA SUBSIDY COBRA applies to groups with 20+ employees
  • 53. COBRA SUBSIDY Small groups have a problem: No COBRA Sick Employees Won’t Qualify for Affordable Individual Health Insurance
  • 54. COBRA SUBSIDY Sick Employees CAN get coverage from Highmark Blue Shield – VERY EXPENSIVE
  • 55. COBRA SUBSIDY The COBRA Subsidy is the best option for Employees who qualify…
  • 56. PURPOSE To assist former workers in maintaining affordable healthcare coverage during these difficult economic times
  • 57. QUALIFICATIONS
    • Involuntary Layoff or Reduction of Hours to 0
    • Layoff between 9/1/08 and 12/31/09
    • Not earning >$125,000 / $250,000
    • May be employees or dependents, but must still be due to involuntary job loss (not loss of dependent eligibility)
  • 58. COBRA SUBSIDY The COBRA Subsidy pays for 65% of the total COBRA Premium (102% of what is billed to the employer)
  • 59. COBRA SUBSIDY The Employee is billed for and pays 35% of the COBRA premium – that 35% will be considered “full payment”
  • 60. COBRA SUBSIDY Example: If the employer is billed $350 / Month for Health Coverage, the COBRA premium would be $357 / Month ($350 + 2%) The COBRA Subsidy would pay $232.05 / Month (65% of COBRA Premium) The COBRA Beneficiary would pay $124.95 / Month (35% of COBRA Premium)
  • 61. COBRA SUBSIDY The Employer fronts 65% of the COBRA premium until it is reimbursed through a payroll tax credit
  • 62. COBRA SUBSIDY Applies to all COBRA-eligible health plans, i.e. medical, dental, vision, etc. EXCEPT Health FSA
  • 63. COBRA SUBSIDY Some will qualify for a “second chance” COBRA election and current COBRA participants may qualify
  • 64. COBRA SUBSIDY The COBRA Subsidy does NOT extend the COBRA end date and is not retroactive
  • 65. COBRA SUBSIDY The COBRA Subsidy lasts for up to 9 months
  • 66. COBRA SUBSIDY COBRA Administration is the responsibility of the employer – if you have not hired a COBRA Administrator before, you might want to consider it now.
  • 67. COBRA SUBSIDY If the Employer pays a portion of the COBRA Premium, that portion is NOT eligible for the 65% Subsidy
  • 68. COBRA SUBSIDY Individuals denied the Subsidy by their Employer may appeal that decision to the Department of Labor
  • 69. COBRA SUBSIDY
    • The Subsidy ends:
    • When the COBRA Beneficiary becomes eligible for another benefit or Medicare – the COBRA Beneficiary is responsible to notify when they are eligible for other benefits
    • After 9 months of Subsidy is received
    • At the end of the COBRA Period
  • 70. SPECIAL ELECTION Eligible if job was involuntarily lost after 9/1/08 and COBRA was not elected or was dropped later
  • 71. SPECIAL ELECTION May elect COBRA on 3/1/09 and receive Subsidy for 9 months, but may NOT extend the original COBRA benefit period, calculated from the original eligibility date
  • 72. SPECIAL ELECTION No Pre-Existing Condition limitation for break in coverage between COBRA periods
  • 73. NOTICES By 4/18/09 New Notices must be sent to all eligible beneficiaries, retroactive to 9/1/08, explaining the Subsidy
  • 74. NOTICES Model Notices are available at: http://www.dol.gov/ebsa/ COBRAmodelnotice.html
  • 75. ELIGIBILITY One of the most overlooked ways to reduce your health premium is to perform an eligibility audit once / year, before your renewal
  • 76. ELIGIBILITY Review your employee census for: Hours Worked Dependent Age Spousal Status
  • 77. ELIGIBILITY Review your eligibility rules for hours worked and make sure that all enrolled employees meet them
  • 78. ELIGIBILITY Request a copy of the letter from the Registrar’s Office for dependent students to verify that they are attending college fulltime
  • 79. ELIGIBILITY Request a copy of a valid birth certificate or family court order for each dependent child to be sure that they are an eligible dependent of your employee
  • 80. ELIGIBILITY Consider including a “Working Spouse Rule” to your dependent eligibility guidelines
  • 81. ELIGIBILITY Make sure that all covered employees are “actively at work” or terminate them from your insurance plan, according to your company policies
  • 82. ELIGIBILITY Make sure that all covered employees are “actively at work” or terminate them from your insurance plan, according to your company policies
  • 83. ELIGIBILITY Review your eligibility rules and be sure that you meet your insurance company’s underwriting requirements to avoid non-renewal following an eligiblity audit
  • 84. ELIGIBILITY Do 75% of your “eligible” employees participate on your plan? If you have “spousal waivers” do at least 50% or your “eligible” employees participate?
  • 85. ELIGIBILITY Are you paying enough of the premium to meet your insurance company’s underwriting requirements – generally 75% of the single rate or 50% of all tiers?
  • 86. ELIGIBILITY If you have employees who waive coverage, do you have signed waivers on file for them?
  • 87. ELIGIBILITY Are you properly administering your new hire waiting period? Is your new hire waiting period adequate to discourage employees from joining your company just for COBRA benefits?
  • 88. ELIGIBILITY Does your benefit eligibility policy match your company’s strategy for benefits administration and/or your goals for hiring and retention?
  • 89. ELIGIBILITY Do you have an overall strategy and/or belief system regarding your employee benefits plan?
  • 90. QUESTIONS?
  • 91. IN TWO WEEKS… 4/14/2009 at 8:00 am We will discuss: Strategies for Controlling FUTURE Costs Fringe Benefit Planning for Prevailing Wage Contractors Individual Health Plans Mini-Med / Limited Health Insurance Plans Disability Insurance
  • 92. THANK YOU! Have a great day!
  • 93. Strategies for Controlling Benefit Costs in Hard Economic Times - Part 2 Presented by: Barbara Hostetler Hostetler Insurance Associates, Inc. April 14, 2009
  • 94. AGENDA
    • Controlling FUTURE Costs
    • Individual Health Plans
    • Mini-Medical Plans
    • Disability Insurance
    • Structuring Fringe Benefits on Government Work
  • 95. CONTROL How can you work with your employees to control future costs?
  • 96. CONTROL How do you work with your employees on benefits now?
  • 97. COMMUNICATION! Communication is the most effective tool for working to control benefit costs.
  • 98. COMMUNICATION… Communication does not require that you institute a democracy for benefit decisions.
  • 99. COMMUNICATION… Why do employers want to keep benefit costs a secret?
  • 100. COMMUNICATION… Instead of keeping costs a secret, you need to SHARE them!
  • 101. COMMUNICATION… Consider shifting your focus from “Salary & Benefits” to “Total Compensation”
  • 102. TOTAL COMPENSATION Total Compensation = Cash Health & Welfare Benefits Other Benefits
  • 103. TOTAL COMPENSATION Explaining “Total Compensation” allows the employee to see the true cost of his compensation package.
  • 104. TOTAL COMPENSATION Explaining “Total Compensation” will help employees to appreciate their benefits.
  • 105. TOTAL COMPENSATION Explaining “Total Compensation” will allow you to show how increasing one benefit may reduce another.
  • 106. TOTAL COMPENSATION Excel Template for Small Groups
  • 107. TOTAL COMPENSATION Software / Services Available for Large Groups
  • 108. RESOURCES http://www.freetotalcompstatements.com/ws/Home.php http://www.charltonconsulting.com http://www.compackage.com/
  • 109. COMMUNICATION… Think about who would best-present your benefits information…
  • 110. COMMUNICATION… Consider holding your annual benefits meeting AFTER hours and inviting spouses…
  • 111. WELLNESS Tap into your plan’s built-in wellness benefits
  • 112. WELLNESS Encourage healthy practices by example – eat well and exercise
  • 113. WELLNESS Encourage healthy practices by rewarding good behaviors
  • 114. WELLNESS Consider basing your employee contributions on unhealthy practices, i.e. charging more for smoking or obesity.
  • 115. WELLNESS Know what wellness benefits your health plan provides and explain them to your employees
  • 116. WELLNESS Wellness will NOT impact your rates immediately, but they will lead to lower premiums in the long-run.
  • 117. INDIVIDUAL HEALTH PLANS When rates go so far out of control that you cannot continue your group health plan…
  • 118. INDIVIDUAL HEALTH PLANS the last option will be to cancel your group plan and allow your employees to purchase health plans on their own.
  • 119. INDIVIDUAL HEALTH PLANS There are many things that you need to know before moving toward individual insurance…
  • 120. INDIVIDUAL HEALTH PLANS Individual health insurance is AVAILABLE to everyone, but not necessarily AFFORDABLE for everyone.
  • 121. INDIVIDUAL HEALTH PLANS Individuals / Families in excellent health have many options that are less expensive than group health plans.
  • 122. INDIVIDUAL HEALTH PLANS
    • Fewer “mandated” benefits
    • Pre-existing condition limitations that are not cancelled-out by HIPAA
  • 123. INDIVIDUAL HEALTH PLANS
    • Specific condition exclusions
    • Limited Rx benefits
    • Limited or no Mental / Nervous benefits
  • 124. INDIVIDUAL HEALTH PLANS If your individual health plan rate is more than $581 / month today, you may want to consider moving to individual health plans that are partially employer-paid.
  • 125. INDIVIDUAL HEALTH PLANS Highmark Blue Shield offers a health plan of “last resort” in the state of Pennsylvania – available to all Pennsylvanians who do not have access to other health insurance.
  • 126. INDIVIDUAL HEALTH PLANS Under many circumstances, full coverage for pre-existing conditions is available – regardless of the condition
  • 127. INDIVIDUAL HEALTH PLANS $750 Deductible Comprehensive Plan 80/20 Coinsurance $3,750 Annual Maximum Out-of-Pocket
  • 128. INDIVIDUAL HEALTH PLANS No Office Visit Copayments Separate Rx Deductible and 50% Rx Copay
  • 129. INDIVIDUAL HEALTH PLANS No agent representation or commissions Direct relationship with Highmark
  • 130. INDIVIDUAL HEALTH PLANS Pennsylvania requires that group health plans offer a conversion option when coverage is lost.
  • 131. INDIVIDUAL HEALTH PLANS In some cases, the conversion option is less expensive than the Highmark guaranteed program.
  • 132. INDIVIDUAL HEALTH PLANS Employees should pay the premium for an individual health plan, and any employer contribution should be run through payroll and be taxed.
  • 133. INDIVIDUAL HEALTH PLANS Employees over age 65 should seriously consider moving to the Medicare system for their benefits.
  • 134. INDIVIDUAL HEALTH PLANS Employers may not discriminate based on age, and therefore cannot force employees to move out of the group health plan into a Medicare plan.
  • 135. INDIVIDUAL HEALTH PLANS Replacing your group health plan with cash toward individual benefits may hurt your ability to hire and retain employees.
  • 136. INDIVIDUAL HEALTH PLANS Employees may not know where to turn – help them by recommending a broker who can provide multiple options.
  • 137. BREAK Take a 5-Minute Break…
  • 138. MINI-MED PLANS Limited health plans that provide up-front benefits and max-out at a low benefit level.
  • 139. MINI-MED PLANS Available on a group basis – either partially employer-paid or entirely voluntary through payroll deduction
  • 140. MINI-MED PLANS Provides benefits for: Several Office Visits / Year Preventive Visits / Tests Daily Hospital / ICU Care Accidents
  • 141. MINI-MED PLANS Additional benefits may sometimes be purchased: Vision Dental Short-term Disability
  • 142. MINI-MED PLANS Backwards Insurance – covering the front end instead of the catastrophic claims.
  • 143. MINI-MED PLANS Not “Insurance” – will not prevent the patient from getting Medicaid benefits.
  • 144. MINI-MED PLANS Often guaranteed-issue / no medical underwriting required.
  • 145. MINI-MED PLANS Often used for part-time employees as a retention tool.
  • 146. MINI-MED PLANS Better than “nothing” but not a good replacement for group or individual health insurance.
  • 147. DISABILITY INSURANCE When money is tight you may be tempted to eliminate disability benefits
  • 148. DISABILITY INSURANCE If you are going to eliminate disability benefits – eliminate the short-term disability benefit and/or exchange it for a long-term disability benefit.
  • 149. DISABILITY INSURANCE Consider a change to a Paid Time Off (PTO) benefit with accumulating unused days in lieu of a short-term disability benefit.
  • 150. DISABILITY INSURANCE Short-term disability is a much-used and much-abused benefit, making it very expensive for the very limited protection it provides.
  • 151. DISABILITY INSURANCE Short-term disability provides benefits for lost wages due to a disability, often starting immediately and lasting up to 6-months.
  • 152. DISABILITY INSURANCE Short-term disability is much-used to allow for a short-term recovery following an illness or injury.
  • 153. DISABILITY INSURANCE Short-term disability insurance does help to reduce your workers comp claims by allowing for benefits without “faking” a work-related injury.
  • 154. DISABILITY INSURANCE Short-term disability insurance will NOT help your employee much in the event of a total disability.
  • 155. DISABILITY INSURANCE Long-term disability insurance will make the difference in allowing your employee to live a comfortable life while totally disabled – pay the mortgage, buy groceries, pay the bills, etc.
  • 156. DISABILITY INSURANCE Long-term disability insurance is hardly ever used, but when needed, it will be a true benefit to your employee and their family.
  • 157. DISABILITY INSURANCE Long-term disability costs much less premium because it is used so infrequently.
  • 158. DISABILITY INSURANCE Consider adding long-term disability benefits in lieu of low-deductible health insurance.
  • 159. BREAK Take a 5-Minute Break…
  • 160. PREVAILING WAGE Contractors who do State or Federal work need to plan their Fringe Benefits carefully to bid competitively.
  • 161. PREVAILING WAGE Base Wage = $30 / Hour Fringe = $10 / Hour Total = $40 / Hour
  • 162. PREVAILING WAGE Paying the Fringe portion in cash means that you must pay payroll taxes on those “wages” – that adds substantially to your labor cost.
  • 163. PREVAILING WAGE Paying the Fringe portion in benefits allows you to avoid those taxes – that is how the Fringe was meant to be used.
  • 164. PREVAILING WAGE You may take credit against the Fringes for “bona fide” benefits only – such benefits must be communicated in writing with premiums paid to a third party.
  • 165. PREVAILING WAGE Examples of “bona fide” benefits are: Medical Insurance Dental / Vision Insurance Disability Insurance Life Insurance Retirement Benefits
  • 166. PREVAILING WAGE Retirement benefits may be used for the balance of the fringes that are not used for other benefits.
  • 167. PREVAILING WAGE Retirement plans must be specifically written to be able to accept the fringe money legally.
  • 168. PREVAILING WAGE Fringe Benefit retirement plans may be administered along-side of your existing retirement plan.
  • 169. PREVAILING WAGE Fringe Benefit retirement plans may not have a vesting schedule – the fringes must be used for the immediate benefit of the employee who earns them.
  • 170. PREVAILING WAGE For additional information, go to www.fibi.com .
  • 171. QUESTIONS?
  • 172. THANK YOU! Have a great day!