Tag Archives: Cost Control Strategies

Paying medical claims with a Health Savings Account. When can it be done tax free?

April 10, 2019

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I have run into this situation several times recently: An employee attempts to pay for their qualified medical expense claim with their health savings account (HSA) tax-free dollars, but are still taxed or face penalties. Why would this happen? Well, the ability to pay with tax-free HSA dollars is not based on when an employee enrolls in the Qualified High Deductible Plan (QHDHP), but rather when he or she establishes the HSA. Yes, the HSA is established separately from the QHDHP. An employee may decide to establish their HSA immediately, after a few months, or may not establish one at all, even when they are enrolled in a QHDHP.

It’s important to establish the HSA when first enrolled in a QHDHP, even if the employee can only contribute the minimum amount. The contribution can be increased or decreased going forward. The date the HSA is established determines eligibility to “go back” to pay a claim.

Consider this example:

An employee, Don, decides to enroll his family in the QHDHP offered by his employer as of January 1. However, Don does not establish his HSA until February 1. He incurs a $10,000 claim on January 12th with follow up doctor visits on January 16th, 23rd and 30th. On the February 15th payroll, Don adds $5,000 to his HSA to help pay the claims from January. Here’s the timeline:

  • January 1 –  Don enrolls in QHDHP
  • January 12 –  Don incurs $10,000 claim with follow up doctor visits on January 16th, 23rd, and 30th
  • February 1 – Don establishes his HSA
  • February 15 – Don adds $5,000 to his HSA to help pay for January claims

Don’s QHDHP has a $3,000/$6,000 embedded deductible. Don thought he would pay for his January claims when they came due in February or March with his HSA funds, and still have money left over after he’d met the $3,000 individual deductible portion.

However, his HSA account was not established until after the claims occurred. Though these claims would still apply to his deductible, Don cannot use his pre-tax HSA funds to pay for these claims. If he did, he would be subject to taxes and potential penalties.

Employees can fund their HSA to the applicable maximum established by the IRS each plan year, but they cannot pay for claims which occurred prior to the HSA being established.

To avoid this kind of problem, it’s important that employers educate their employees on the importance of opening their HSA at the same time as enrolling in the QHDHP being offered.

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Is it Time for a Benefits Administration Technology Solution?

January 30, 2019

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The benefits you offer your employees are valuable.

Your benefits package is also a key factor when attracting – and keeping – top talent. When employees aren’t engaged in their benefit offerings, it can lead to costly turnover and job dissatisfaction. But there is some good news. When it seems like your employees are dissatisfied with their benefits, you may not need to offer richer benefits; you just need to communicate your benefits more effectively.

To reach the modern employee, employers must adapt. Technology is now a critical component in benefits communication.

But with so many technology solutions available, where do you start? MMA can help narrow down your choices by performing a needs assessment specific to your organization to provide you a short list of benefit administration systems that could fit your requirements. Some of the advantages of a benefits administration system can include:

Employee Engagement and Education – You work hard to provide the right benefit choices to your employees – so you want to ensure they have the information they need before, during, and after enrollment. By engaging the employee – you are helping them understand how their benefits fit together and recognize the value of their total benefits package.  MMA can assist in finding the right system for your company that your employees can view benefit education, enroll in their benefits, & provides a confirmation of coverage back after enrollment decisions are made. This will allow your employees to make successful, informed benefit decisions.

Streamlining the Enrollment Process – Technology is playing a growing role in benefits enrollment – and flexible enrollment solutions are more important than ever! Innovative technology solutions make enrollment swift, simple, & successful. You will be able to provide a single source system that allows your employees to enroll in all your benefits – medical, dental, vision, core ancillary benefits, & voluntary worksite products.

Attracting and Retaining Top Talent – Moving into 2019 employees desire to use their phones, computers, & tablets to obtain information about everything! Show them that your company is here to meet their needs from a benefits and communication strategy. Employees that understand their benefits and have easy and informed access to them will appreciate your willingness to provide them with a top tier benefits package and this will in turn create a positive work environment and loyal employees.

Reducing your HR staff’s Time Spent on Benefits Administration – Benefits administration can be time consuming and burdensome for your HR team. Utilizing technology to help free up time for your HR team will allow them to focus on other pressing, important HR activities and be more effective. A technology solution can drive tangible improvements to your day to day business. Some examples of this can be removing paper enrollments, implementing real time evidence of insurability decision making tools, & reduced questions from employees.

In summary – technology moves quickly and communicating your benefits can be difficult, so let a benefits administration system that is focused on streamlining your benefit education and enrollment work for you and your HR team. MMA has a consulting team focused on finding you the right technology solution to help your company, your employees, and the overall vision you are trying to achieve regarding employee engagement and understanding of the total benefits package you are providing.

Author: Vickie Ward
Vickie Ward is the Technology and Voluntary Benefits Consultant providing guidance to clients regarding the right fit for benefits administration for their company. She has over 18 years’ experience in the insurance industry and has specialized in ancillary insurance coverage throughout that time. Her focus now is providing education to employers surrounding technology and how it can help communicate benefits to their employees.

Learn more and stay in touch with Vickie Ward here!

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What do the DOL’s new AHP rules actually mean?

July 25, 2018

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President Trump signed an Executive Order on October 12, 2017 directing the U.S. Department of Labor to consider ways to make it easier to form an Association Health Plan by expanding existing membership rules. After issuing proposed regulations in early 2018 and considering public comments, the DOL issued a set of final regulations intended to make it easier to form AHPs on June 18, 2018.

The final regulations do not replace the existing AHP rules. Instead, they create a three-tier AHP system referred to in this article as the:

Narrow Standard AHP: These AHPs are available under the existing rules, but they can be difficult to form.

Relaxed Standard AHP: These AHPs are created by the new regulations. They are easier to form than a Narrow Standard AHP and can allow self-employed individuals to participate, but they do not allow as much flexibility in terms of plan design and underwriting (discussed in the chart below under “Plan Design and Underwriting”).

Non-Conforming AHPs: These are AHPs that do not meet either the Narrow or Relaxed Standards. We’ll touch on these briefly at the end of this article.

What are the Pros and Cons for Narrow and Relaxed Standard AHPs?

Pros:

  • The combined membership of the member employers may enable the AHP to self-insure
  • Qualify as single employer group health plans for ERISA and other purposes, enabling many fully-insured AHPs to qualify as a large group insured plan based upon the number of covered lives· Self-insured and large group insured AHPs are able to avoid certain requirements applicable to small group and individual plans under federal and state law, including:
  • The requirement to offer all essential health benefits (EHB) mandated by a state’s EHB package (the AHP will still have establish a reasonable definition for EHBs such as selecting a benchmark plan); and
  • Community rating requirements. This may enable AHPs to offer less expensive coverage alternatives to member employers as well as greater flexibility when setting premiums (but see “Plan Design and Underwriting” in the chart below)
  • Greater buying power than individual member employers may have on their own
  • The AHP’s risk pool may be more favorable for smaller employers than the community rating in their applicable small group market(s)

Cons:

  • Not appropriate for many potential member employers and should be carefully evaluated on a case-by-case basis
  • Do not avoid state regulation, even if self-insured
  • Require a strong ongoing commitment to participate from member employers as turnover can cause AHPs to quickly fail
  • Insurance carriers may be reluctant to insure AHPs that do not meet certain criteria established by the carrier (e.g. The insurance carrier may require a closer relationship between the member employers than the AHP rules require)

AHP odds and ends

AHPs are generally subject to the reporting and disclosure requirements applicable to the underlying benefits, which may include providing summary plan descriptions, summaries of benefits and coverage, and Form 5500 filings. The DOL is still working out how certain other requirements may apply to AHPs. For example, the DOL indicated that existing HIPAA wellness rules apply to AHPs and the Mental Health Parity and Addiction Equity Act will apply if the member employers of the association have at least 50 employees in the aggregate, but the DOL is still considering how COBRA may apply and intends to issue additional guidance addressing this.

Many AHPs will not qualify as Narrow Standard or Relaxed Standard AHPs, typically because the association fails to meet the formation requirements described above. These Non-Conforming AHPs can still provide the advantages of greater purchasing power and the ability to separately experience-rate member employers like Narrow Standard AHPs, but Non-Conforming AHPs do not qualify for single employer plan treatment and are instead viewed as a separate plan maintained by each member employer. As a result, many member employers will still be subject to the small group and individual plan requirements that Narrow Standard and Relaxed Standard AHPs can avoid.

Effective dates

There are three phase-in effective dates under the final regulations:

  • Sept. 1, 2018: New or existing associations may establish a fully-insured Relaxed Standard AHP
  • Jan. 1, 2019: AHPs in existence on or before June 18, 2018 may establish a self-insured Relaxed Standard AHP.
  • April 1, 2019: All other new or existing associations may establish a self-insured Relaxed Standard AHP.

There are no effective dates specific to Narrow Standard or Non-Conforming AHPs as these existed before the final regulations and are not directly affected by them.

 

Christopher Beinecke

Christopher Beinecke is the Employee Health & Benefits National Compliance Leader for Marsh & McLennan Agency
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The DOL’s new Association Health Plan Rules and What They Actually Mean

June 29, 2018

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The President signed an Executive Order on October 12, 2017, directing the U.S. Department of Labor (DOL) to consider ways to make it easier to form an Association Health Plan (AHP) by expanding existing membership rules.  After issuing proposed regulations in early 2018 and considering public comments, the DOL issued a set of final regulations intended to make it easier to form AHPs on June 18, 2018.

The final regulations do not replace the existing AHP rules and instead create a three-tier AHP system referred to in this article as the:

  1. Narrow Standard AHP – These AHPs are available under the existing rules, but they can be difficult to form.
  2. Relaxed Standard AHP – These AHPs are created by the new regulations.  They are easier to form than a Narrow Standard AHP and can allow self-employed individuals to participate, but they do not allow as much flexibility in terms of plan design and underwriting (discussed in the chart below under “Plan Design and Underwriting”).
  3. Non-Conforming AHPs – These are AHPs that do not meet either the Narrow or Relaxed Standards.  We’ll touch on these briefly at the end of this article.

Some Pros/Cons for Narrow and Relaxed Standard AHPs

Pros:

  • The combined membership of the member employers may enable the AHP to self-insure (but see “MEWA Status and State Regulation” in the chart below)
  • Qualify as single employer group health plans for ERISA and other purposes, enabling many fully-insured AHPs to qualify as a large group insured plan based upon the number of covered lives
  • Self-insured and large group insured AHPs are able to avoid certain requirements applicable to small group and individual plans under federal and state law, including:
    • The requirement to offer all essential health benefits (EHB) mandated by a state’s EHB package (the AHP will still have to establish a reasonable definition for EHBs such as selecting a benchmark plan); and
    • Community rating requirements

This may enable AHPs to offer less expensive coverage alternatives to member employers as well as greater flexibility when setting premiums (but see “Plan Design and Underwriting” in the chart below)

  • Greater buying power than individual member employers may have on their own
  • The AHP’s risk pool may be more favorable for smaller employers than the community rating in their applicable small group market(s)

Cons:

  • Not appropriate for many potential member employers and should be carefully evaluated on a case-by-case basis
  • Do not avoid state regulation, even if self-insured (see “MEWA Status and State Regulation” in the chart below)
  • Require a strong ongoing commitment to participate from member employers as turnover can cause AHPs to quickly fail
  • Insurance carriers may be reluctant to insure AHPs that do not meet certain criteria established by the carrier (e.g. The insurance carrier may require a closer relationship between the member employers than the AHP rules require)

Comparing and Contrasting the Narrow and Relaxed Standard AHPs

The Relaxed Standard AHP information is based on the final regulations.  There is no set of regulations for the Narrow Standard AHP, and the information below is an attempt to summarize decades of DOL advisory opinions and court decisions.

 Narrow Standard AHP Relaxed Standard AHP
Formation  Member employers must:

  1. be within same industry, trade, line of business or profession;
    AND
  2. be located within same geographic location
Member employers must:

  1. be within same industry, trade, line of business or profession (without regard to geographic location);
    OR
  2. have their principal places of business located within the same state or metropolitan area (even if the metropolitan area crosses state lines)
Association Purpose Association must already exist for a business purpose other than solely to provide the AHP to member employers

  • The business purpose does not have to be a for-profit activity
  • Valid business purposes other than providing benefits include marketing/sales support, member education, the development and sharing of business strategies, and lobbying efforts
Association does not have to exist prior to offering the AHP to member employers

Association’s primary purpose can be to offer the AHP to member employers, but the AHP must also have at least one other substantial business purpose

  • The business purpose does not have to be a for-profit activity
  • Valid business purposes other than providing benefits include marketing/sales support, member education, the development and sharing of business strategies, and lobbying efforts
Governance A formal governance structure with a governing body and bylaws must exist enabling the member employers to exercise control

  • Ability to elect or remove directors/officers/trustees who have authority over the AHP; or
  • Member employers must be able to directly vote on actions to form, amend, or terminate the AHP
Participant Eligibility
  • Employees and former employees* of current member employers and their eligible dependents defined under the AHP

*Former employees eligible if they gained eligibility while an employee of the member employer.  This effectively limits participation to COBRA participants and individuals who qualify for retiree coverage under the AHP (if offered)

A sole proprietor or other self-employed individual (e.g. An independent contractor) is not an eligible employee and cannot participate as a member employer if operating a business with no common law employees

  • Employees and former employees* of current member employers
  • Beneficiaries of employees and former employees* defined under the AHP (e.g. Spouses, dependent children, and other tax dependents, if eligible)

*Former employees eligible if they gained eligibility while an employee of the member employer.  This effectively limits participation to COBRA participants and individuals who qualify for retiree coverage under the AHP (if offered)

A sole proprietor or other self-employed individual (e.g. An independent contractor) operating a business with no common law employees can qualify as a member employer and participate in an AHP as an eligible employee by meeting the “Working Owner” test:

  1. Works at least 20 hours/week or 80 hours/month for business
    OR
  2. Has earned income from the business at least equal to the cost of AHP coverage
Plan Design and Underwriting There are limits to an AHP’s ability to vary participant eligibility, covered benefits, and premiums based on health factors, but an AHP may develop and charge different premiums to different member employer groups based on each member employer’s actual health claims experience (i.e. The AHP can separately experience-rate member employers)

Additional state law requirements may apply

 An AHP’s ability to vary premiums is limited to bona fide employment-based classifications that are not specifically related to health factors, including:

  1. Full-time vs. part-time;
  2. Different occupations (e.g. Corporate vs. retail, etc.);
  3. Date of hire;
  4. Geographic location (including urban vs. rural);
  5. Union vs. non-union;
  6. Length of service; and
  7. Current vs. former employees

An AHP may not develop and charge different premiums to different member employer groups based on each member employer’s actual health claims experience (i.e. Experience-rating)

Example:  An AHP could charge higher premiums to member employers primarily located in cities than to member employers primarily located in rural areas so long as the member employers’ actual claims experience is not taken into account.  

Additional state law requirements may apply

MEWA Status and State Regulation  AHPs are considered multiple employer welfare arrangements (MEWAs) for ERISA purposes meaning ERISA pre-emption of state insurance laws does not apply

This can make it very difficult to offer an AHP across state lines:

  • Both self-insured and fully-insured AHPs will generally be subject to state insurance laws where the AHP coverage is issued
  • Self-insured MEWAs may be subject to additional state regulation similar to the regulation of insurance carriers within the respective State(s); these requirements will largely be dealt with by the insurance carrier for fully-insured AHPs
  • Most AHPs will also be subject to the federal Form M-1 filing requirement with the DOL

Note:  The DOL indicated it may seek to limit state authority to regulate self-insured AHPs in the future if it appears that states are over-reaching and interfering with the formation of self-insured AHPs.

Odds and Ends

AHPs are generally subject to the reporting and disclosure requirements applicable to the underlying benefits, which may include providing summary plan descriptions, summaries of benefits and coverage, and Form 5500 filings.  The DOL is still working out how certain other requirements may apply to AHPs.  For example, the DOL indicated that existing HIPAA wellness rules apply to AHPs and the Mental Health Parity and Addiction Equity Act will apply if the member employers of the association have at least 50 employees in the aggregate, but the DOL is still considering how COBRA may apply and intends to issue additional guidance addressing this.

Non-Conforming AHPs

Many AHPs will not qualify as Narrow Standard or Relaxed Standard AHPs, typically because the association fails to meet the formation requirements described above.  These Non-Conforming AHPs can still provide the advantages of greater purchasing power and the ability to separately experience-rate member employers like Narrow Standard AHPs, but Non-Conforming AHPs do not qualify for single employer plan treatment and are instead viewed as a separate plan maintained by each member employer.  As a result, many member employers will still be subject to the small group and individual plan requirements that Narrow Standard and Relaxed Standard AHPs can avoid.

Effective Dates

There are three phase-in effective dates under the final regulations:

  1. September 1, 2018 – New or existing associations may establish a fully-insured Relaxed Standard AHP.
  2. January 1, 2019 – AHPs in existence on or before June 18, 2018 may establish a self-insured Relaxed Standard AHP.
  3. April 1, 2019 – All other new or existing associations may establish a self-insured Relaxed Standard AHP.

There are no effective dates specific to Narrow Standard or Non-Conforming AHPs as these existed before the final regulations and are not directly affected by them.

The information contained herein is for general informational purposes only and does not constitute legal or tax advice regarding any specific situation. Any statements made are based solely on our experience as consultants. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.  The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions. © 2018 Marsh & McLennan Agency LLC. All Rights Reserved.

About the Author. This alert was prepared by Chris Beinecke, J.D., LL.M.. the Employee Health & Group Benefits National Compliance Leader for Marsh & McLennan Agency LLC

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Telemedicine and Health Savings Accounts

October 12, 2017

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As health care costs continue to rise, so does the demand for cost-control strategies. One such strategy is telemedicine. Telemedicine is a service offered through many health insurance plans by which patients can consult with a doctor over the phone or through videoconference. Telemedicine doctors can often prescribe medication, thus eliminating the need for a trip to the doctor’s office. The trend has been gaining popularity in recent years and many anticipate continued improvements and evolutions of the service in the near future.

But how is telemedicine a cost-control strategy? Telemedicine can eliminate the need for visits to the emergency room, urgent care or the doctor’s office – which could save up to $6 billion annually by one estimate. Without the typical costs associated with in-person consultations such as rent, overhead, nursing staff, etc., telemedicine uses readily available technology to deliver consultations at a fraction of the cost.

How that reduced cost is paid, however, depends on the health plan offering telemedicine service. For a traditional preferred provider organization plan (PPO), co-pays are typically used to offset the cost of a doctor visit. Co-pays for telemedicine consultations would also be appropriate. The rules for high deductible health plans (HDHP), however, are very different.

A HDHP allows subscribers to contribute to a tax-advantaged health savings account (HSA). To be eligible to participate in an HSA, participants in a HDHP cannot receive any employer payment – directly or indirectly – for medical expenses before the deductible is satisfied. Indirect payments would include cost-sharing in the form of co-payments for consultations. The IRS has not directly addressed the issue of HSA eligibility and telemedicine. However, its guidance suggests that an employer offering a HDHP with an HSA and a telemedicine option should require the participants to pay fair market value of the telemedicine consultation. What is the fair market value of a telemedicine consultation? Who knows? It’s likely more than a co-pay but less than the network rate of a doctor’s office visit. Additional IRS guidance on this topic would be helpful, but until it’s issued, employers with HDHPs should be wary of “free” or co-pay telemedicine services.

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Pharmacy Cost Problems?

May 4, 2017

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I’ll let you in on the worst kept secret of the employee benefits landscape: pharmacy costs are rising, and that trend is not going anywhere anytime soon.

As a Marsh & McLennan Agency, J.W. Terrill has partnered with Rx Solutions to provide our self-funded clients with a great resource to help manage those mounting costs.  Rx Solutions isn’t a PBM, but they are experts in their inner workings.

Using their specialized expertise of both pharmacy management and market contracts, Rx Solutions aims not only to make offering pharmacy benefits less costly to the employer, but also to make the benefits better for their employees.

Besides benefitting from lower contribution rates over time as a result of containing pharmacy costs, how employees profit may not be as obvious – so I’ll let you in on a better kept secret.  Under many pharmacy contracts, the member may be over-paying for their prescription while the PBM profits the difference.

How can this happen?

With any prescription medication under an insurance plan, there are three prices in play:

  1. The Usual and Customary (U&C) or cash price
  2. Insurance co-pay
  3. Drug cost drug cost from negotiated AWP discounts

Consider a scenario where the cash price, or cost if I walked into the pharmacy with no insurance coverage to purchase my drug completely out-of-pocket is $20.  Under my insurance plan, my lowest tier drug co-pay is $25, and under the pharmacy contract my employer has with their PBM the drug cost after their negotiated discounts will be $15.

Under many contracts, the employee will pay their copay of $25 – even though it’s the highest of the three.  Under a more savvy PBM, they will pay the $20 cash price.  Under a contract formulated by Rx Solutions, however, the employee will always pay the lowest of the three ($15 in this case).  The PBM is never allowed to profit at the cost of the employee.

An article on this practice was recently featured in Bloomberg.  You can access the article here:

For more information on how Rx Solutions can aid you and your employees, reach out to a representative at J.W. Terrill.

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Cost Reduction Strategies for the Self-Funded Employer

April 18, 2017

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When evaluating cost savings strategies, employers often find themselves in the cycle of making plan design changes or shifting the cost to their employees. While these tactics may offer savings, they do not deliver the long term results employers are seeking in their efforts to rein in costs. Join us on May 10th to learn about the latest trends that can maximize bottom line savings and support your organization’s employee benefit strategy.

Click here to learn more about this special event!

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Are Consumer-Direct Health Plans Working?

February 22, 2017

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Qualified high deductible health plans (Q.H.D.H.P.), also known as “Consumer-Directed” plans, have been around for a number of years.  Enrollment in these plans has increased over the past decade.  Q.H.D.H.P. plans have a high deductible component which must be met before benefits are paid typically at 100%.  The minimum deductible amount is determined by the Internal Revenue Service (I.R.S) each year.  For 2016, the minimum deductible is $1,300 for individual and $2,600 for family.

According to the Kaiser Family Foundation, eight percent of employees were enrolled in a Q.H.D.H.P. in 2009. By 2015, enrollment had increased significantly to 24 percent.  During this period, out-of-pocket annual costs on average rose approximately 230 percent.   Surveys indicate about 46 percent of employees shoulder a plan deductible of $1,000 or more.

Analysis of the healthcare utilization of employers implementing high deductible plans shows the cost of care decreasing when followed over a 3 year period versus employers who do not implement these plans.

Part of the decrease in utilization comes from a larger portion of “first dollar” medical costs being paid by the employee because of the higher deductible. Another probable factor is plan participants are giving careful consideration before obtaining medical services.  In fact, this consumer behavior was one of the purposes behind why these plans were created along with lowering insurance premiums.

The “Consumer-directed” focus of Q.H.D.H.P. plans is based upon the assumption patients will research the most cost-effective ways to handle their treatment.  If a patient decides to move forward with care then the hope is they will conscientiously shop for the best possible price on their healthcare services.  Some patients may ultimately decide to defer or forego certain medical care.

Shopping for the best price on healthcare sounds great in theory, but can be more difficult to achieve in practice. However, tools and resources are available to assist.  It is important for plan participants to have the knowledge on how to access.

Finding a good deal on prescription drugs tends to be simple. There are many websites and apps available to help.   As an example, GoodRx allow consumers to enter the name and dosage of a medication and receive a list of pharmacies offering discounted pricing in their immediate area. In addition, many large retailers such as Walmart, Kmart, Sam’s Club and Costco advertise flat and discounted co-pays for basic medications.

Conversely, shopping for medical services is much more complex as compared to the transaction of buying a 30 day supply of pills. However, websites do exist for finding the geographically adjusted fair market price for a particular medical procedure.  These websites include Healthcare Bluebook, Clear Health Costs and New Choice Health.   You may be comforted in knowing the reasonable price for your heart transplant is $125,916, but you probably have no clue on what to do next.   And you would not be alone in this lack of knowledge.

As consumers, we are accustomed to shopping online for the lowest price on items such as electronics, hotels or airline tickets. But when it comes to healthcare, most people do not give a second thought to how much it costs.  The idea of price shopping health service is gaining traction though.  Many patients do not realize they ultimately have control over where medical services are performed.  Most usually rely only upon their physician’s advice.

You have probably seen commercials from a local imaging center which includes dramatizations of patients learning how much an imaging exam is going to cost at their local hospital. They later sigh in relief as they learn the imaging center pricing is much less expensive and gives same day results.  They happily announce they are going to tell their doctor they want their imaging exam to be done at this center.

This imaging center has an online tool for patients to obtain a price quote beforehand for a particular exam with discounts given for upfront cash payments. Most healthcare providers do not yet offer services in this manner, but this practice is catching on with the popularity of consumer-directed plans.

There is an open question on whether consumer-directed plans are actually working to reduce health expenditures or are they simply causing patients to forgo medical care today that will become high dollar expenses later.

If the latter ends up being true, our health care delivery system is potentially looking at a tremendous spike in costs given the sheer number of patients covered under these plans. In any event, the lower medical trend being seen in these plans today must be acknowledged.  Something is obviously going right with this plan design.

Surveys indicate many patients enrolled in consumer-directed plans have limited knowledge on how the plan even works. Under the mandates of the Affordable Care Act (A.C.A.), preventative care is offered with $0 co-pays or very little out-of-pocket cost.  In fact, the preventative care benefit is a base benefit of consumer-directed plans even if the A.C.A. mandates goes away.  However, many enrollees have no idea this benefit is included and may skip preventative care.  As a result, health conditions that could be caught and treated early may not be found until late in the game. Routine colonoscopy at age 50 is a perfect example.  A colon polyp found today may prevent major surgery and perhaps even death from colon cancer down the road.

Employees may not fully understand how the health savings account (H.S.A.) component works alongside the high-deductible plan. This would seem a simple concept, but it should not be taken for granted that all participants have sufficient knowledge.  Employees may not understand the funds held in their H.S.A. represent real dollars.

These funds can be used to pay for medical expenses but are also allowed to accumulate (with potential for return on investment) if they are not used.   The contribution maximum for 2017 is $3,400 for single coverage and $6,750 for family.  Employees need to know the account stays with them as they change jobs, medical plans or eventually retire.  The money in the H.S.A. can be withdrawn without penalty at age 65 similar to an I.R.A..

Employees (and employers) realize a savings on their monthly contributions to the group medical plan because the premiums are lower on an HDHP plan. Savings are also realized from the full tax-deductibility of their employee contributions into their H.S.A..  Many employers also make a contribution into an employee’s account.  Employees and employers alike can save an additional 7.5% in F.I.C.A. taxes.

So what can be done today to encourage the continued forward momentum and cost savings of consumer directed plans into the future?

  • Provide education to plan participants to assure they fully understand the benefits of the plan especially preventative care. Be sure your employees understand the health savings account component and the significant savings potential it offers.
  • Make members aware of online tools which are helpful in finding the most cost effective care.
  • Offer lower cost alternatives to incent members to receive needed healthcare.   Telemedicine services and retail clinic care both offer members value by providing lower cost care. According to Mercer’s Survey of Employer Sponsored Health Plans, savings to the member can be significant.   A usual telemedicine visit charge is about $40 and retail clinics are about $60. Both of these yield savings as compared to $125 for a physician office visit.

In summary, consumer directed health plans are a familiar component in today’s employee benefits arena. To assure their continued success, it is important for plan sponsors, payers and providers to remain diligent in staving off any unplanned negative effects so that true long term cost savings can continue to be realized.

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Narrow Health Plan Networks

January 24, 2017

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A cost containment strategy for health plans making resurgence in recent years has been offering narrow provider networks which limit the doctors or hospitals accessible under the in-network benefits of the plan. Services obtained from doctors or hospitals outside of this limited network are considered to be out-of-network and subject to higher deductibles and co-insurance (with the exception of emergency services which must be covered the same as in-network).

The drivers behind offering narrows networks is the lower costs realized by excluding higher cost providers.  Savings amounts vary but are estimated to be in the range of 5 to 20%.  Narrow networks have been around for a number of years (most recently seen in the 1990’s) but have again become more commonplace today due to the escalating cost of healthcare.

The use of narrow networks is very prevalent in the plans offered through the State Exchanges under the Affordable Care Act.   Modern Healthcare reports that about 70% of plans offered through State Exchanges in 2014 included limited networks with premiums that were up to 17% less expensive that more inclusive broad networks.

Narrow networks have also been used in Accountable Care Organizations (ACOS).  ACO   providers receive financial rewards by offering care that meets certain quality and cost-saving targets. The smaller size of the network in an ACO arrangement makes it easier to manage a patient’s care. Narrow networks are also being included today in the group health plans offered by large employers.

One of the biggest challenges is assuring the health care consumer is fully aware of the limited nature of the in-network coverage offered by their choice of a narrow network plan.  The narrow network can be an excellent fit for a fully engaged educated consumer who has selected this particular plan with the objective of saving on health insurance costs while maintaining quality care.  Conversely, it can be a nightmare for an ill-informed consumer who can potentially incur significant expenses at much lower out-of-network reimbursement levels.

The Kaiser Family Foundation conducted a poll in February 2014 which found 51% of survey respondents would rather have a plan that costs more but allowed them to see a broader array of doctors and hospitals.  While 37% would rather have a plan that was less expensive with a more limited range of health care providers.  The survey also found that individuals who are either responsible for purchasing their own coverage or uninsured were more likely to select a less expensive narrow network health plan over a more costly broad network by a margin of 54% to 35%.

In summary, the acceptance of narrow network plans continues to be mixed.  These limited networks offer the opportunity for savings to insurers, employers and health plan members but also come with additional complexity for less savvy consumers of health care.

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Qualified Small Employer Health Reimbursement Arrangements

January 18, 2017

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The name is cumbersome but Qualified Small Employer Health Reimbursement Arrangements (“QSEHRA”) represent a real policy change that could benefit small employers.

On December 13, 2016 President Obama signed the 21st Century Cures Act, which contained a number of provisions about cancer research, combating opioid abuse and “other provisions.” The other provision was the creation of QSEHRAs. The law is significant because before its passage, the IRS and DOL both warned employers against paying the cost of individual plans for their employees. These so-called premium reimbursement plans were subject to fines of $100 per day and did not meet Affordable Care Act market reforms. QSEHRAs provide a legitimate way for small employers to establish premium reimbursement plans.

Who can create a QSEHRA?

QSEHRAs are only available for small employers – those not subject to the employer mandate (under 50 full time equivalent employees). They are also only available to small employers who do not offer a group health plan to any employees. That may seem counter-intuitive, but remember: the point of a QSEHRA is to offer an alternative to a group health plan, not a supplement to it. Accordingly, the QSEHRA is not a health plan itself; it’s a means for providing plans to employees. Therefore, there are no COBRA obligations associated with a QSEHRA.

How does it operate?

The employer must completely fund the QSEHRA – no employee contributions are allowed. And the employer reimbursements are capped at $4,950 per year for an individual and $10,000 per year for a family. If the arrangement reimburses medical expenses for an employee’s family members, the higher limit applies. These amounts are indexed to inflation and must be applied on a pro-rated basis for employees who participate in the plan for less than 12 months (such as new hires).

The arrangement can be used to reimburse any medical expense as defined in IRS code 213(d), including the cost of individual health plan premiums. Those reimbursements are tax-free to employee as long as the employee is enrolled in minimum essential health coverage.

A QSEHRA must be offered on the same terms to all eligible employees. The arrangement will not be considered to be offered on different terms just because the reimbursement amounts vary, however. The actual benefit an employee receives can vary based on the cost of individual coverage and number of family members who enroll. The employer can also exclude employees from participating who have not completed 90 days of service and those covered by a collective bargaining agreement. The employer can also exclude employees who are under 25 years of age.

Before beginning a QSEHRA, the employer must provide at least 90 days’ notice to employees. The notice must include a description of the amount of the benefit and inform employees that they must disclose the amount of the benefit to the health insurance exchange when applying for a premium tax credit or cost-sharing offset. It must also tell employees that they may be subjected to a tax penalty under the individual mandate if they do not have minimum essential coverage. The notice must be sent to all mid-year hires on the date they become eligible to participate in the arrangement.

If you are interested in establishing a QSEHRA, please contact Shannon Bappert at sbappert@jwterrill.com.

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High Dollar Specialty Meds …. The New Normal?

November 11, 2016

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The escalating cost of specialty medications has been a topic of discussion for many years.  In 2009, specialty meds were reported to be about 23% of total pharmacy spend.  And in just 5 years this grew to 33%.

Specialty meds were initially used to treat a small population of individuals with serious or complex health conditions.  They have expanded in recent years to treat a larger number of conditions and are being used for extended periods of time.  Drug manufacturers have kept the pipeline full as they work to create additional high dollar specialty meds for an expanding array of health conditions.

Pharmacy costs are responsible for an average of 20% of total group health plan expenses.  Insurers, employers and plan sponsors watch with concern as the cost of specialty meds continues to rise.

What’s driving these spiraling costs?  Here’s are some examples of specialty meds which are contributing to these costs:

Sovaldi made headlines several years ago as the $1,000 a pill breakthrough hepatitis C medication.  It was heralded as a cure for over 89% of patients with hep C.  And it was able to achieve this result in as few as 12 weeks with a price tag per treatment regimen of almost $100,000.  Not long after that several more high dollar hep C medications came onto the market with similar price tags.

New biologic medications continue to be created treating an array of complex health conditions. Biologics are created through a tightly controlled process proprietary to a particular manufacturer.  The proprietary nature of biologics often allows a manufacturer to set a high price since they are the sole source.  And it is difficult for another manufacturer to create a comparable medication, called a biosimilar, so these drugs on average are the only treatment available for as long as 12 years.

Biologics such as Enbrel and Humira improve the lives of those afflicted with serious conditions such as rheumatoid arthritis, psoriatic arthritis, Crohn’s disease and ulcerative colitis.  These medications carry an annual price tag of $40,000 or more.   Even common conditions such as high cholesterol have new biologic drug treatments available costing $14,000 a year or more.

Innovative cancer treatments using targeted therapies of monoclonal antibodies have been introduced.  These therapies are able to successfully treat without the dreaded side effects of traditional chemotherapy agents.  Ibrance is one such therapy holding great promise in the treatment of breast cancer at a cost per treatment of over $124,000.  Keytruda made front page news in former President Jimmy Carter’s successful battle against advanced melanoma.   Remarkable results with a remarkable price of over $150,000 per year.

Few will argue how miraculous and life-changing these innovative treatments have become.  The challenge continues to be providing these medications without straining the healthcare delivery system to the breaking point.  There are cost-saving strategies that can be taken to help reduce the financial impact of these meds.

Some specialty medications have already been on the market for a long time and multiple meds have become available from different manufacturers.  Multiple medication selections allow a preferred choice to be made by insurers, plan sponsors and consumers.  Some specialty meds now even have lower cost generic equivalents available.

Implementation of additional higher dollar Rx co-pays tiers for specialty meds by health plans can help guide members to select lower cost meds as the first choice in their line of treatment.  These co-pays also allow part of the cost of these medications to be carried by the member.  Specialty co-pay tiers can be designed, for example, using a stepped tier 4 and 5 with increasing dollar co-pays depending on which medication is selected.  These co-pays can also be structured in the form of a percentage of co-insurance up to a maximum dollar amount per script.

It is also important for plan sponsors and employers to consistently review the discounts and rebates offered through their pharmacy benefit manager to assure they are taking advantage of price competition between manufacturers of various meds.

In summary, specialty meds are here to stay.  Being diligent in effectively managing the potential high cost is key to mitigating the financial impact.

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2017 HSA Contribution Limits

June 17, 2016

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The IRS has issued inflation-adjusted Health Savings Account figures for 2017. Revenue procedure 2016-28 provides as follows:

Annual contribution limitation for 2017

For calendar year 2017, the limit on deductions, for an individual with self-only coverage under a high deductible health plan, is $3,400. For calendar year 2017, the limitation on deductions, for an individual with family coverage under a high deductible health plan, is $6,750.

High deductible health plan for 2017

For calendar year 2017, a HSA qualified high deductible health plan (HDHP) is defined, as a health plan with an annual deductible that is not less than $1,300 for self-only coverage, or $2,600 for family coverage, and the annual out-of-pocket (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage, or $13,100 for family coverage.

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