38 trillion reasons to nationalize healthcare

In 1965, Medicare was signed into law by President Johnson.  Medicare is the government-run, single-payer health plan which covers the country’s elderly population. 

People think that their Medicare payroll taxes are held in some "lockbox" and invested until it is time to retire and collect benefits.  Sadly, Medicare is run as a "pay-as-you-go" system.  The taxes taken from your paycheck today are spent on a retiree’s healthcare costs tomorrow. 

Because there are fewer and fewer workers to support an increase number of retirees Medicare is approaching insolvency.  It would reportedly take $38 trillion to fully fund Medicare.  Is that likely with the US GDP at $13.8 trillion?

So, if you are the Federal government, and your Bernie Madoff moment is less than 8 years away what do you do?

Nationalize Healthcare

Make no mistake, Medicare for All – a single-payer system – is their stated goal.  Your ability to obtain affordable, quality healthcare will be dependent on the government.

Former White House economic adviser Keith Hennessey has summarized the competing House versions here.  The Wall Street Journal reports that Obama wants to raise $634 billion in new taxes to pay for the expansion.  Here are some highlights of what we might expect:

• A government mandate that employers provide and contribute towards their employees’ health insurance or be subject to a tax penalty.  Think of your neighborhood restaurant.  To cover the extra cost for health insurance they will charge more for your meal.  Could you consider this new cost a tax increase?  How many people will be laid off because of this mandate?
• Tax employer-sponsored health insurance.  Currently the value of health insurance is not taxable to either employees or employers.  This benefit may be eliminated or reduced.
• Increase sin taxes – new taxes on sugary drinks, tobacco and alcohol products.
• Higher premiums for Medicare recipients.
• Reduced payments to medical providers.  If doctors and hospitals receive less payment will patients receive less care?  Will there be less incentive for experienced doctors to remain in practice?  Will the innovation of life saving techniques and products suffer because of a diminished profit potential?
• Reduced tax advantages for health savings accounts, flexible spending accounts and itemized medical deductions.
• A government mandate that each individual have insurance – or be subject to a tax penalty.  Note that the LA Times reports the insurance industry is receptive to this mandate.
• Add a health insurance "exchange" where people can compare and purchase a new government sponsored "public plan" alongside  products from private insurers.  This public plan is a major bone of contention between Democrats and Republicans.  It is described as the proverbial camel’s nose that could lead to a single-payer system in the US.  I wrote about Georgia’s brief consideration of an exchange here.
• Guarantee issue and guarantee renewability of insurance policies.
• No exclusion for pre-existing conditions.
• A prohibition of insurers from charging higher premiums based on health status.  This seems ideal, but understand then that healthy people will significantly subsidize the premiums of the unhealthy.

Could the medicine be worse than the disease?

An Alternative

So our politicians have gotten underwater to the tune of $38 trillion.   The government currently covers about 92 million Americans through Medicare, Medicaid and Tricare.  Should they be trusted to provide quality coverage for the other 208 million?

If you were to get yourself in deep debt, what options would you have but to reduce costs and live within your means.  Maybe our Federal government should take steps to reduce its own footprint and properly fund its obligations (Medicare, in this case). 

Conclusion

If you are so inspired, contact your senators and congressman and let them know what you think.  Opposing the "public plan" option, in my mind, is our best bet in maintaining competition and quality of care in our healthcare system.

Responsibility combined with inaction equals liability.

Basically, the law mandates that certain employees who were involuntarily terminated between September 1, 2008 (yes, 2008) and December 31, 2009 be made to pay only 35% of their state continuation premiums starting March 1, 2009. The special open enrollment provision in the law applies only to COBRA groups, not those subject to state continuation.

So, if you have less than 20 employees and have terminated or will terminate someone do you know how to properly offer them continued health coverage? If not, let me know and we will give you a hand.

Ahhh, the law of unintended consequences. Is this an avenue for tort reform? Here’s to Hope…

To date Principal Life Insurance Company has rented the Private Healthcare Systems (PHCS) network of doctors and hospitals. While this has been a beneficial relationship one can see how owning your own network rather than renting one may produce some badly needed efficiencies.

Principal Edge, as the new network is called, will be installed as the default provider network for small- to medium-sized employer clients – it’s not a Medicare Advantage network! It is designed to be provider-focused and bring unique features to the doctor community. Don Weitzel, who is now the President of Principal Edge Network Georgia, is busy recruiting medical providers to the new panel. Principal hopes to have the new network in place in the last quarter of 2009.

Mike Fleischman, a principal with the consulting firm Gates Moore & Company, brought over twenty years of experience in provider / insurer contract negotiations to the table. Mike was able to represent the concerns of the provider community in that insurers must be more responsive in timeliness of payment and simplification of reimbursement schedules.

Principal Edge seems to accommodate these issues in its promise to pay providers within 15 calendar days (not work days). Failing to do so may result in a penalty being paid to the provider. Innovative thinking for an insurance company!

If there is a take-away for the doctor community it is to seriously consider signing up for this network. Like I said before, it is not another doomed Medicare Advantage plan asking for your time. Principal Life is a solid company that can bring thousands of paying patients to your door. And, you know the payor is Principal, not a nameless TPA tucked behind a rented network.

As an insurance agency we are looking forward to a more competitively priced medical plan to show our clients. Hopefully we can put a quote in front of you someday soon!

The answer has been 18 to 36 months depending on the qualifying event. Now, however, under President Obama’s plan the answer could be when the participant becomes eligible for Medicare (age 65 to 67)!

As part of the stimulus bill, Congress (H.R. 598 and S. 29) is considering proposals that would force taxpayers to subsidize COBRA premiums for those who are out-of-work. A couple of the highlights:

Employees who are at least age 55 or had 10 or more years of service would be allowed to stay on the group plan under COBRA beyond the typical 18 month deadline. This coverage could continue until any other termination reason occurs namely Medicare entitlement or failure to pay COBRA premiums.

The new law will require taxpayers to provide premium assistance (65 percent of the COBRA premium) for up to 12 months for those who elected COBRA from September 1, 2008, through December 31, 2009. It would apply to employment terminations for reasons other than gross misconduct. Employers will go through an awkward system of paying the premium to the insurer and then getting a credit on payroll taxes.

Sadly, many employees don’t appreciate how much their employer pays for health insurance on their behalf until they get that first COBRA premium bill. Yes, insurance is expensive, but then so is that unexpected $50,000 surgery!

Eventually the Federal stimulus bill funds will dry up and politicians will be forced to take away the benefit or, more likely, make employers or the states subsidize COBRA premiums.

I predict that these changes proposed by Obama will drive up the cost of private health insurance and force more people onto taxpayer subsidized plans (COBRA, Medicaid, SCHIP) – all of which is a stated goal of those promoting nationalized health care.

Well, we did ask for change…

1. Ditch the PEO. If there was ever an inefficient, expensive way to deliver employee benefits this is it. Buying workers comp, payroll administration and group insurance from standalone vendors should afford immediate dollar savings.
2. Reduce non-network medical benefits. It is not unusual for 90 or 95% of medical claims to be incurred with in-network doctors and hospitals. So why have overly generous non-network benefits that few people use? An employer may have non-network medical benefits paid at 80%; consider reducing to 70%. If at 70% consider a change to 60%.
3. Institute an opt-out program. If your plan pays a significant amount of dependent premiums and a decent number of those dependents have access to other coverage (through their employer’s plan), then providing an incentive to get off your plan will lower your premium costs.
4. Install an HSA or HRA plan. This solution is not for everyone. Much will depend on the overall health of your group, you and your employees’ willingness to take on claims liability, and the financial ability of you and your employees to fund the HSA or HRA.
5. Eliminate unused plans. We’ve taken over a number of groups that were paying for benefits that their employees just didn’t use – a vision plan for instance. Go to your employees and have a heart-to-heart. Discuss what forms of compensation are important – salary, commissions, bonuses, each employee benefit, etc. You may be surprised with their candor and understanding.
6. Tighten up your definition of an eligible employee. If presently an employee must work 30 hours a week to be eligible for benefits, consider raising the requirement to 40. If presently an employee must wait 30 days before benefits start, consider increasing that wait to 60 or 90 days.

The suggestions above, in relative terms, have little impact on an employee’s perception of his or her benefits package. Let’s assume, however, that items 1 – 6 did not produce the necessary level of savings. Even though your goal of attracting and retaining employees will suffer, you may be forced to consider these more drastic measures:

7. Reduce benefits. Now we are getting serious. You are shifting costs from the employer to the employee. Increase deductibles, copayments, and patient out-of-pocket costs. Switch from the more expensive PPO and POS plans to the more restrictive, cost effective HMO products.
8. Adjust employee premium contributions. This one will hit to the heart of the matter. Very simple – make your employees pay more out of their pocket for their insurance.
9. Eliminate benefit plans. I always say that you should insure catastrophic risks. Keep your medical and long-term disability plans. Keep your dental plan if possible. Dental insurance is not covering a catastrophic risk, but it is a great employee benefit. In tight times short-term disability and vision plans are luxuries and should be on the chopping block.
10. Eliminate a class of eligible employees. In certain industries (mainly blue collar ones) you may see the elimination of a whole class of employee from eligibility. For example, exclude all hourly employees from the eligible class. Obviously this is a last ditch tactic.

None of this is fun to think about, but know that reducing costs as early as possible will enhance a company’s chance of survival. Some of these suggestions can be implemented with little effect on employees and their moral. Others will have a direct and real impact on the employees’ disposable income.

Effective employee communications is key. How any change is presented to the employee population is important. While I’m biased on this issue, an ethical, competent and experienced insurance broker is your best resource at a time like this. Call us if you need help: 770-300-0001.

In a nutshell, a PEO, sometimes called a “staff leasing company,” will put your employees on its payroll and provide them with employee benefits and workers compensation coverage. It also provides you with payroll administration and a human resources help desk service. In turn you pay your insurance premiums and an administration fee (typically a percentage of payroll).

A PEO’s sales pitch is pretty enticing to an uneducated small employer: (i) Get access to large company benefits, HR expertise, and reduce your liability as a plan sponsor. (ii) Avoid the hassles of administering a benefit plan. (iii) By combining your few employees with the PEO’s larger group you have access to lower insurance premiums and less volatile renewal increases. But, the devil is in the details.

Several weeks ago we had the opportunity to compare one of our client’s benefit package against the quote of a PEO – and we kicked butt! The PEO came in promising this eleven employee group $17,000 in annual savings. But we noticed an inconsistency in its proposal. In its spreadsheet the PEO quoted $18,800 in annual administrative fees, but when you did the math using the rate outlined in the quote those costs came to $57,200. And, the medical insurance we provide is far superior to that quoted by the PEO. So, in the end, when you made an apples-to-apples comparison the PEO had $102,200 in total annual costs (or $140,600 if you used the higher $57,200 fee) against our program for $86,400.

One component of the PEO sales pitch is that it will reduce your liability as a plan sponsor. To a degree this may be true, but probably not to the extent you may expect. You still have a number of responsibilities. For example, if Fred quits work and you fail to notify the PEO for several months then the PEO may rightly balk at providing COBRA benefits, thus leaving you with an uninsured liability to pay the person’s medical bills for the next eighteen months. In a similar manner, if you do not pass out the benefits booklet you may be on the hook for certain unpaid claims. Many responsibilities you have as an employer are still present under a PEO. The PEO’s contract will spell out your responsibilities – and will typically include a hold harmless agreement as well.

So after all of this what is my recommendation? Let the free market work! Get quotes from Administaff, ADP TotalSource, Oasis, Adams Keegan (I find it funny that this one seems to avoid at all costs the PEO / staff leasing label. Come on, be proud of who you are!) or some other PEO and from an ethical insurance broker that knows how to compare a staff leasing product to a traditional benefits package. Pretty quickly you will see the value of keeping your benefits in-house.

Several years ago we moved a 65 employee neonatology practice from one of the aforementioned PEOs and in doing so saved the employer over $190,000 in annual costs. We moved payroll to a national payroll administration company, workers compensation to a stand-alone policy, and kept the employer’s medical with Aetna (the same carrier and benefit design they had through through the PEO).

If you do not have the time or expertise to administer your payroll through QuickBooks or a similar program then consider using ADP, Paychex, or your accountant/bookkeeper for that task. Find a competent insurance broker to handle your employee benefits and your property and casualty coverages.

An Atlanta start-up may be tempted to turn to a PEO in order to minimize time spent on payroll, employee benefits and HR issues. But doing so will be expensive compared to the in-house alternative. Convenience has its price!

The highlight of this year’s benefit offering was the addition of a Health Reimbursement Arrangement (HRA) to Lucas’ existing medical plan choices (High Deductible Health Plan / Health Savings Account (HDHP/HSA or HSA), HMO and Point-of-Service plans).

Strategic planning

Six months ago we began the planning process that culminated in the employee meetings last week. Kelly Stewart, Lucas’ new Director of Human Resources, had arrived with some fresh ideas and had been given a directive to explore instituting a “wellness program.” Kelly handed me an advertisement boasting 26% premium savings for installing a wellness plan.

Common sense dictates that if you quit smoking or lose 50 pounds today (both great things) the result will not be a near term reduction in claims costs (and therefore a reduction in premium costs). So, in my opinion, installing a “wellness plan” has been a smokescreen used by other employers to reduce company-paid benefits. And, reducing benefits was certainly not Lucas Group’s goal. We did, however, want a program that would reward healthy lifestyles. Enter consumer-driven health care.

Consumer-driven health care

With a consumer-driven health care plan there is that a fund of money available to an employee to spend on medical expenses; the idea being that the employee will be a better, more informed consumer given it is his or her own money on the line. HRAs and HDHP / HSAs both fit in this category. Here is a brief summary of the differences:

Contribution schedule adjustments

So why would an employee sign up for a plan with higher patient costs (deductibles and coinsurance)? Simple! Because the premium rate for that plan was lower than the alternatives. For this policy year, Lucas Group pays 100% of employee premiums and 60% of dependent premiums for the HRA plan and a slightly lower percentage for the HSA product. That is strong!

Here is a quick comparison of the group’s HMO plan vs its HRA plan for an employee with relatively low claims:

As you can see, a person with a low claims history has a wonderful opportunity to save money under the HRA plan. And, employees who may have higher claims cost still have access to an excellent suite of traditional health plans.

Open enrollment process

In years past, employees would have to fill out hard copy forms and submit them to HR for processing. The burden of this fell directly on the capable shoulders of Lisa Stewart, the HR consultant at Lucas Group. This year we decided to take advantage of an on-line enrollment tool offered by the medical insurer. While there was considerable more work involved on the front end the result has been fantastic. Here are the steps we went through:

• Obtained a data dump from the insurer and created an individualized benefits statement for each employee showing their current election. This was e-mailed to each employee a couple days before the open enrollment meetings along with a summary of our open enrollment presentation.
• Held a series of conference calls with the entire employee population to explain the differences between each medical plan choice, the employee premium cost, etc. A great question and answer session followed each presentation.
• Provided the employees with instructions on how to log into the insurers computer system and make their benefit elections.
• Once the deadline for employees to enroll is reached then the insurer will upload the enrollment data file into its system thus avoiding the work Lucas’ HR department had done in past years.
• Our office will get another data dump from the insurer and prepare an individualized benefits statement for each employee as a confirmation of their elections for this new policy year. These will be e-mailed to each employee in the coming weeks.

Open enrollment results

Last year only 11% of Lucas’ employee population was covered by a consumer driven health care plan. Given the commitment to such plans – both in terms of employee education and employer premium contribution – we were pleased to see that 23% of the population enrolled in consumer driven health care plan for 2008 – 2009.

We added eighteen new employees to medical insurance – that is eighteen more associates who value the Lucas Group’s efforts to retain their services.

Finally, we had about a 100% increase in enrollment in the voluntary life insurance program. This is directly attributable to the ease of the on-line enrollment process.

Conclusion

Consumer-driven health care plans are not for every employer – and are certainly not appropriate for every plan participant. They are, however, one more tool that can be used to build a responsive benefits package that will attract and retain employees. Re-evaluating the employer contribution schedule is an integral part of installing these products. And, finally, effectively communicating to employees their plan choices goes a long way in having employees better appreciate the value of the benefits offered by the employer.

Have some fun and give your broker the following quiz. Judge the timeliness and accuracy of his or her response.

1. An employer just hired an employee whose wife is pregnant. For the twelve months prior to being hired, the employee and spouse were uninsured. Will the pregnancy be considered a pre-existing condition under the group’s medical plan?
2. An employer with more than 20 full-time employees has a medical policy subject to the laws of Georgia. A 61 year old employee terminates employment because of a health condition. For how long must the employer allow him to stay on the group plan?
3. A fully insured welfare benefit plan had over 100 participants at the beginning of the plan year. What are the plan sponsor’s ERISA reporting and disclosure requirements? Is compliance the obligation of the broker or employer?
4. In the preceding calendar year, an employer had sixteen full-time employees and eight part-time employees. Only twelve of the full-time employees are covered by medical insurance. None of the part-timers are covered. For the current calendar year is this group subject to COBRA?
5. An employer with a fully insured medical policy written in Georgia hires an employee with a history of cancer. This individual was uninsured for 70 days prior to joining the employer. When is the earliest this employee can incur a cancer related claim and have it covered? Does the answer change if the plan is not subject to Georgia law?
6. If Joe terminates employment April 16th and coverage ends April 30th, by what date must he have elected COBRA? If he elects COBRA on May 22nd, by what date must all back premiums be paid?
7. An employee returns to his previous employer after having been deployed in the U.S. military. Can the employer make the employee satisfy the health plan’s 90 day waiting period?
8. A Georgia corporation which is subject to COBRA has several employees in Texas. What is the maximum duration of continuation coverage for Georgia employees? Texas employees?

I hope this helps you evaluate the quality of your benefits broker. Shoot me an e-mail (amcrae@angusmcrae.com) or give me a ring (770-300-0001) if you would like the answers…