Converting from Employer Health Insurance to Defined Contribution Health Benefits


Published on

Thanks to health care reform, most Americans can now get better, less expensive health insurance coverage on their own than they can through a traditional employer plan:

And, new public health insurance exchanges will soon give all Americans this option. Moreover, businesses can use HRAs to reimburse employees' out-of-pocket health insurance premiums tax-free. The question facing most employers in 2012 is no longer "if" they should switch to defined contribution health benefits, but "when".

Published in: Business, Economy & Finance
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Converting from Employer Health Insurance to Defined Contribution Health Benefits

  1. 1. Converting from Employer Health Insurance to Defined Contribution Health Benefits"The implementation of 2010Healthcare Reform hascreated a $3,000/employee/yrarbitrage opportunity for U.S.Employers who convert in2012 vs waiting for 2014."
  2. 2. Agenda1.  The History of Employer Health Insurance2.  The Future of Employer Health Insurance3.  Healthcare Costs – The Greatest Issue Facing Americans4.  The Cost of Health Care vs Health Insurance (employer windfall)5.  Employer Arbitrage Opportunity- Switch Now from Group to Individual6.  2014 and Beyond7.  Summary
  3. 3. History of U.S. Employer Health Insurance - The Beginning Creation of “Modern” U.S. Health Care Occurred Post-WWII Pre-WWII Post-WWII•  Limited employer involvement •  Wage & Price Controls•  Catastrophic health insurance World (1941-1947)•  Local Blue Cross / Blue Shield War II •  Employer-sponsored health care exempted•  Individual / family driven from income taxes HUGE cost advantage to employer system
  4. 4. History of U.S. Employer Health Insurance, WW2 - 2002 Tax Advantages - Group vs Individual Coverage Group policies enjoyed enormous tax advantages over individual: •  Employers allowed to pay for group insurance “off the books” •  Employees allowed to pay (via salary reduction) for group insurance "off the books"
  5. 5. History of U.S. Employer Health Insurance, 2002 - Today Federal Government Gives Tax Parity to Individual Policies 2002 - HRAs 2009 - PRAs Health Reimbursement Premium Reimbursement Arrangements for employer Arrangements for employee tax-free contributions tax-free contributions Defined Contribution Health Benefits
  6. 6. Pre-ACA Legislation 1965-1996Medicare (1965) - 48 million covered today •  Removed the elderly and very sick from private insuranceMedicaid (1965) - 52 million covered today •  Removed the very poor from private insuranceERISA (1974) - Primarily retirement/pension reformbut covered all employee benefits •  Defined Benefits vs Defined Contribution PlansCOBRA (1986) – exempts employers <19employees •  Allowed employees 18-36 month coverage between “jobs”HIPAA (1996) •  Portabilty to next employer (63 days), Mandated state coverage of uninsurables post- 2006
  7. 7. Affordable Care Act (ACA) Legislation 2010-2014Mandated Benefits for All Policies – creating “generic” national healthinsuranceMandated Purchase for all Americans (the “Mandate”)--$750 is not much of a MandateMandated Guaranteed Issue for All Individual Policies--Children became GI in 2010--Some Adults become GI 2011-2014 (Federal Risk Pool)--All become GI in 2014Major Expansion of Medicaid Eligibility(economically challenged by many States)
  8. 8. Future of U.S. Employer Health Insurance - 2014? Healthcare Reform Favors Defined Contribution Pre-2014 Post-2014•  Medical Underwriting •  No Medical Underwriting•  No Federal Subsidies for 2014 •  Federal Subsidies for Individual Policies Reform Individual Policies•  Employer-Driven •  Individual/Family-Driven HUGE cost advantage to individual system
  9. 9. Defined Contribution Health Benefits (1999-2014)1970s - Defined Benefit vs Defined Contribution (IRA, 401k)1999 - Extend Health (formerly Extend Benefits), retirees2002 - IRS endorses HRAs for Individual policy premiums2006 - HIPAA mandate for uninsurables starts2007 - Zane Benefits (front page Wall St. Journal 7/30/07)2009 - IRS endorses PRA Plans for Individual Policies2014 - Individual Policies become Guaranteed Issue
  10. 10. The Problem Today with Employer Health Insurance HEALTH INSURANCE COSTS TOO MUCH !Employers offerinsurance for recruiting& retention b/c: 1.  It is tax deductible to the business 2.  Employees get the benefit 100% tax-free 3.  Individual health insurance is not guaranteed-issue in most states (i.e. Moral Obligation) BUT, Health Insurance Costs are not the REAL Problem
  11. 11. Real Problem #1 with U.S. Health InsuranceReal Problem #1 is NOT The Cost ofHealth Insurance...Its the $3 Trillion Costof U.S. Healthcare ! •  Employer health insurance drove up the the cost of healthcare •  U.S. Healthcare now 3x other developed nations •  50% ("five zero") of Medical Procedures Do More Harm than Good
  12. 12. Real Problem #2 with U.S. Health InsuranceReal Problem #2 is Why U.S. Healthcare Cost 300% (3X) the HealthcareCost of Other Developed Nations Its Obesity We are not gathered here today to solve Obesity--We are here today to identify a $3,000+/Employee Economic Opportunity for U.S. Employers.
  13. 13. How U.S. Citizens Get Health Care TodayCost of U.S. Health Care Today •  314 million Americans •  $3 trillion ($3,000 billion) cost of health care •  $9,500* per year per American Cost of U.S. Health Care*The entire China GDP per capita is $8,500 per year. We (U.S.) spend moreper person on healthcare than the Chinese spend on EVERYTHINGCOMBINED Let’s look closer at these 314 million Americans and their health care spending by major groups
  14. 14. How 314 Million Americans Get Health Insurance200 Million - Private Sector 114 Million - Public Sector~160 million are on Employer ~50 million are on Medicare (aged)Group plans ~50 million are on Medicaid (poor)~40 million are on Individual plans ~14 million are on VA, uninsured, etc. Total Cost of Total U.S. Healthcare$3 trillion / 314 million Americans = $9,500/American/year* *$792/American/month for the "average" American but no American is "average"
  15. 15. Working Americans Are 3x Healthier than Non-Working64% of the Working Americans Consume 36% of Total Healthcare - 3:1 ratio (or 36% combined Medicare/Medicaid population consume 64% of healthcare)200 Million working Americans on Private Health Insurance ~160 Million on Group Employer Plans ~40 Million on Individual Plans* *Majority not yet reimbursed by employersCost of Healthcare for 200 Million Working Americans 160 million x $6,000/person/yr ($500/month) = $960 billion 40 million x $3,000/person/yr ($250/month) = $120 billion 200 million total = $5400/person/yr ($450/month) = $1080 billion [vs $16,842/person/yr ($1400/month) = $1.92 trillion for non-working]Working Americans (incl. dependents) are 3X as healthy and cost 1/3 as much as the non-employed (i.e. Medicare and Medicaid) populationWe (employer benefits industry) have created our own self-selected group for healthinsurance that excludes higher-cost Americans
  16. 16. 2012-2014 Arbitrage Opportunity for 200 Million Working1. Switch insurable employees to individual health plans2. Switch uninsurable employees to government guaranteed coverage3. Use Defined Contribution software to maintain tax advantages40 Million Americans w/ Individual Plans Should be 200 MillionCost of Health Insurance for 200 Million Working Americans ~160 million x $6,000/person ($500/month) = $960 billion ~40 million x $3,000/person ($250/month) = $120 billion ~200 million total = $5400/person ($450/month) = $1080 billion40 million mostly in 45 states allowing medical underwriting1. Assume health insurance a civil right2. Group windfall -- self-selected healthier people (40% discount--$6000vs $100003. Individual bigger windfall - insurance company selected healthierpeople (70% discount--$3,000 vs $10000)
  17. 17. 2012-2014 Arbitrage Opportunity for 160 Million GroupReview: Move the 160 million employees (+ dependents) from GroupEmployer Plans costing $500/month/person to Individual Planscosting $250/month/personOnly has to last 1 year (through 2013) before all U.S. plans becomeGuaranteed Issue (e.g. Short-term coverage can work)Guaranteed Issue is already here for millions of Americans TODAY due to2010 Healthcare Reform 2010-2013 Implementation, e.g. 1.  CHIP - Children under 18 2.  PCIP - Adults w/o Health Insurance for 6 months 3.  State Risk Pools - Greatly improved 4.  Other State-by-State Programs, specifically children
  18. 18. NOW to 2014If youre in a group plan, youre in a pool paying $6,000 / personSwitch employees to individual plans, to be in pool paying $3,000 / personWhy now?Because existing pieces of ACA make individual transition easier foremployees and address employer Recruiting and Retention issues: •  Employee Costs (Retention... most group plans no longer pay for dependents, employees saves full 50% or more) •  G-Issue Child-Only (Retention...) •  HIPAA Plans (Retention... ) •  PCIP (Recruiting...Better than Group Health Plan Waiting period, cheaper and portable, goldman sachs coverage) •  2014 is right around the corner.Arbitrage Opportunity → get in now to capture 50% savings
  19. 19. 2014 and BeyondIN 2014, one of three things must happen with Health Care Reform(ACA) 1.  Occams Razor - ACA gets implemented (most likely) - Market will shift rapidly to Individual health insurance, huge opp to maintain tax deduction for Recruiting and Retention, huge benefit to majority of employees via tax subsidies. 2.  Nothing Happens - Why? Bill Repealed by Republican Win. Arbitrage opportunity in individual market continues indefinitely... (50% savings) 3.  Limbo Happens - Implementation Delayed due to Lack of Funding for Subsidies (i.e. Affordable Care Act October 2011)
  20. 20. Summary of 2014 Affordable Care Act for Employers/EmployeesMandated Benefits for All Policies •  No lifetime maximums on benefits •  Preventive Care with no co-pays or deductibles •  Federal Minimum (effectively maximum) benefits Employee w/ Family of 4 (see
  21. 21. Summary of 2014 Affordable Care Act for Employers/EmployeesEmployers < 50 FTEs – No PenaltyAssume “health insurance” back in 2010 cost$6,000/year/person •  White House wanted $10,000 Employer Penalty •  Senate wanted $750 Employer Penalty •  House wanted $2,000 Employer PenaltyEmployers > 50 FTEs – Penalty if Not Offering“Qualified, Affordable” #1 •  ($3,000/employee receiving exchange subsidy. $2,000 max. on all employees)
  22. 22. Summary•  The Core Problem is that Employer Health Insurance Costs Too Much•  Real problem is that Health Care costs too much•  Employer Health Insurance Exists Today Because of 60 years of Cost- Advantages for Employer Market (i.e. tax deductibility)•  In 2002 and 2009, Defined Contribution (HRA & PRA) plans leveled the tax "playing field" for individual plans•  In 2014, ACA creates Major Cost-Advantages for Individual Health Insurance (i.e. tax subsidies)•  Death of Employer Group Health Insurance - 2014 and Beyond
  23. 23. Next Steps The Future of Health Benefits is Now. What are You Waiting for? Free Demo of Zane Benefits Defined Contribution Software: Subscribe to ‘Clarifying Health’: Thank You!DISCLAIMERThe information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisionswithout conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors.Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. stateexcept where noted. See a licensed agent for detailed information on your state.