Employee Benefit Adviser Summit 2012 - Defined Contribution
Profit from the Power of Defined Contribution Healthcare The Next Benefits Trend #dchealth
Agenda1. The Problem Today2. How History Has Led Us to Defined Contribution Healthcare3. New "Defined Contribution" vs Traditional "Defined Benefits”4. The Future of Employer Health Insurance5. Demystifying the Buzz Words6. Understanding the Core Problem7. How Brokers Can Profit From Defined Contribution Today8. How Brokers Can Profit From Defined Contribution Post-2014
Small Business Health Insurance - Today Less than 50% of small businesses offer group health: • Cost is too high - 61% • Firm is too small - 13% • Turnover is too great - 6% • Other - 20% 3,000,000 small businesses without group health
How History Has Led us toDefined Contribution Healthcare #dchealth
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 healthcare exempted• Individual / family driven from income taxes HUGE cost advantage to employer system
History of U.S. Employer Health Insurance, WW2 - 2002 Tax Advantages - Group vs Individual Coverage Group policies enjoyed enormous tax advantages over individual: 1. Employers allowed to pay for group insurance “off the books” 2. Employees allowed to pay (via salary reduction) for group insurance "off the books"
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
New “Defined Contribution” vs.Traditional “Defined Benefits” #dchealth
"Defined Contribution" vs "Defined Benefit" Defined Contribution Healthcare Traditional Group Health Insurance No Minimum Contributions Requires Minimum Contribution Business determines its own Employers must contribute 50-75% of contribution strategy premium No Minimum Participation Requires Minimum Participation Business sets its own eligibility 50-75% of employees must participate in requirements the plan No Administrative Hassle Requires Administrative Work 1-time setup, less than 5 minutes On-going paperwork, dedicated staff and per month, payroll function annual renewals
Defined Contribution Overview - SimpleThe Employer...1. Determines contributions2. Sets eligibility3. Picks start date4. Enrolls employees The Employees.... HUGE Opportunity5. Sends welcome kits 1. Purchase individual policies6. Reimburses employees for "claims" 2. Submit "claims" for reimbursement
How Brokers Benefit from Defined Contribution HUGE Opportunity 1. Purchase individual policies• Relationship with employer and employees o Two Sales - 1) Employer and 2) Employee• Employer = lead generator o Average annual turnover = 50% for small businesses• New role - help employees choose vs sell o Like investment advisor helps employee choose best 401(k) investments
The Future ofEmployer Health Insurance #dchealth
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
McKinsey Study: Health Reform & Defined Contribution "U.S. health care reform sets in motion the largest change in the post World War II era" 60% of educated employers plan to pursue alternatives to offering health insurance including "defined contribution" Parallels shift to 401ks
Demystifying the "Buzz" WordsDefined Contribution Health Plans - The plan or "arrangement” throughwhich the tax-free contributions flow: • Health Reimbursement Arrangements (HRAs) - "ZaneHRA" • Health Reimbursement Accounts (HRAs) • Medical Expense Reimbursement Plans (MERPs) • Medical Expense Reimbursement Accounts (MERAs) • Health Reimbursement Plans (HRPs) • Section 105 plans • Premium Reimbursement Arrangements (PRA) - "ZanePRA" • Premium Reimbursement Accounts (PRAs) • Premium Reimbursement Plans (PRPs) • Premium only Plans (POPs) • Section 125 plans
Demystifying the "Buzz" WordsPrivate Health Exchanges - The brokers insurance offering to employees • In-Person Meetings • Online Quote Engines & Comparison Tools o Norvax o Quote It o EHealth.com o etc. • Telesales & Call-Centers Keep it simple with small businesses!
Solving a Big Problem Usually = Huge OpportunityCore Problem?Employer HealthInsurance....COSTS TOO MUCH!Remember, 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 (MORAL OBLIGATION) The IDEAL solution must address #1, #2, #3 & reduce or fix employers cost.
How Defined Contribution Healthcare Addresses the ProblemEmployers offer group health today for recruiting & retention because: 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 statesToday - 2013: Defined Contribution addresses #1 and #2; #3 is addressed via: • Medicaid/Medicare/CHIP • State Risk Pools • PCIP2014 - beyond: Defined Contribution addresses #1, #2 and #3, & ACA provides: • Massive federal subsidies available only in the Public Individual Exchange • Individuals must purchase health insurance, or else pay a tax • No penalty for companies with <50 FTEs • Minimal Penalty for companies with >50 FTEs
How Brokers can Profit fromDefined Contribution Today #dchealth
How to Profit from Defined Contribution TodayTodays Opportunity:Help the 3 million (and growing) businesses without group healthinsurance recruit and retain key employees via two step process: • Help the business establish an IRS/HIPAA/ERISA/ACA-compliant defined contribution health plan. • Help the insurable employees (both existing and future) select individual policies based on personal needs/budget and their defined contribution. • Help the uninsurable employees (both existing and future) secure coverage via Medicaid, Medicare, CHIP, State Risk Pools, PCIP, etc.
Whats in it for the Broker? 1. Recurring compensation on defined contribution administration fees 2. Recurring compensation on individual policy sales 3. Up/Cross-selling opportunity for voluntary/auto/life/etcHow Brokers Can Profit turns over 50% of employees (on average) 4. Loyal employer client that From Defined Contribution Post-2014 annually 5. Practice servicing defined contribution plans and individual employees in preparation for 2014
How to Get Started TodayStep 1: Decide How You are Going to Service Individual Health Plans Tip: Whatever you decide, call it <Your Brand> Private Health ExchangeStep 2: Pick and Contract with a Defined Contribution (DC) Software Provider Tip: Use Zane BenefitsStep 3: Integrate Your Private Health Exchange into the DC Software Tip: Make sure your brand and/or insurance services are front & centerStep 4: Create Customized Marketing Materials Tip: Your defined contribution provider should provide you with templatesStep 5: Find a Business without Group Health Insurance or Canceling Tip: If the company is not offering due to "cost", you can helpStep 6: Implement Your first DC Solution Tip: Always set up the DC plan first, and sell health insurance secondStep 7: When the Company Hires New Employees, Help Them Too Tip: The average 10 ee firm will turnover 5 ees per year
How to Profit from Defined Contribution 2014 and Beyond2014 and Beyond Opportunity: Help businesses evaluate ALL options and, if"best" option, help the business transition to defined contribution: • Evaluate all options with associated employer/employee costs based on company size. • If defined contribution is ideal solution, help the business establish an IRS/ HIPAA/ERISA/ACA-compliant defined contribution health plan. • Help the employees (both existing and future) select individual policies based on personal needs/budget and their defined contribution through the State Individual Health Exchange.Whats in it for the Broker? 1. Recurring compensation on defined contribution administration fees 2. One-time and/or recurring compensation on individual policy sales???? 3. Up/Cross-selling opportunity for voluntary/auto/life/etc 4. Loyal employer client that turns over 50% of employees (on average) annually 5. Ability to charge employers one-time and/or recurring consulting fees (flat fee per employer or pepm) for "Navigator Services"
How to Prepare for 2014Step 1: Get Started Today (Follow Steps on Slide 22) Tip: Your future competition is not waiting, why should you?Step 2: Become an Expert on Healthcare Reform as it Pertains to Employers Tip: Expertise & experience will allow you to charge "navigator fees”Step 3: Develop an Employer Health Benefits "Balance Sheet" Tip: This should allow you to enter all variables to evaluate all optionsStep 4: Contract with State Health Insurance Exchanges Tip: You should contract with the state exchanges regardless of comp.Step 5: Contract with Individual Carriers for Voluntary Plans Tip: Voluntary plans will allow you to fill GAPs in coverage on Bronze PlanStep 6: Assist Existing Clients First Tip: Work with existing clients initially to give you time to perfect processesStep 7: Re-evaluate the "Balance Sheet" Annually Tip: Charge a fee for this
"Balance Sheet" Input Variables for EmployersThe Key Employer Variables Include: • Employer Tax Penalty for Not Offering "Qualified" Group Health o Not applicable for employers with less than 50 FTEs o $2,000 penalty per full-time employee (minus 30 employee credit)**** • Employer Tax Credit for Offering "Qualified" Group Health o Not applicable for employers with more than 24 FTEs o Not applicable for employers with average annual wages over $49,999.99 • Employer Tax Penalty for Offering "Qualified" That is Not "Affordable" o Not applicable for employers with less than 50 FTEs o $3000 per employee receiving subsidy • "Qualified" Group Health Insurance Costs o Likely higher than todays group health insurance costs
"Balance Sheet" Input Variables for EmployeesThe Key Employee Variables Include: • Out-of-pocket Employee Costs (minus subsidies) on Individual Market o Subsidies are based on Employees Income and Household size • Out-of-pocket Employee Costs on Group Market o Based on Employer contribution percentage/amount • Employee Tax Penalty for NOT Purchasing "Qualified" Health Insurance o Based on Employees Income and Household size
"Balance Sheet" Output VariablesThe Key Outputs Should Project: 1. Employer and Employee Costs for Offering "Qualified" and "Affordable" Group Health Insurance 2. Employer and Employee Costs for Offering "Qualified", but not "Affordable" Health Insurance 3. Employer and Employee Costs for Not Offering Health Insurance at All 4. Employer and Employee Costs at Different Defined Contribution Levels#4 should factor in key features of defined contribution (e.g. expectedutilization rates and employee class design options)
Summary• The Core Problem is that Employer Health Insurance Costs Too Much• Employer Health Insurance Exists Today Because of 60 years of Cost- Advantages for Employer Market (i.e. tax deductibility)• In 2002, Defined Contribution (HRA) plans leveled the tax "playing field" for individual plans• In 2014, ACA creates Major Cost-Advantages for Individual Health Insurance (i.e. tax subsidies)
The Future of Health Benefits is Now. What are You Waiting for? 1. Paul Zane Pilzer Webinar on September 11 - bit.ly/convert-webinar 2. Free Defined Contribution Kit for Affiliates - bit.ly/dc-kit Subscribe to ‘Clarifying Health’: www.zanebenefits.com/blog 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. www.ZaneBenefits.com #dchealth