Cost Containment and Health Management Strategies Topped Ways Companies Weathered the Storm of Rising Health Care Costs

Dec 20, 2010 14:37 ET

IRVINE, CA--(Marketwire - December 20, 2010) -

Top 10 Health Benefits Trends of 2010

1. Healthcare Reform. The Patient Protection and Affordable Care Act of 2010 (PPACA) shook the health care world this year, causing companies to revisit their benefits strategies to determine efficient ways of becoming compliant with the reform's immediate and long-term requirements. Chief among their considerations was whether plans could be grandfathered and how to best explain the changes to an anxious workforce in light of new communication and reporting responsibilities. On the upside, companies began to explore new benefit design opportunities by becoming engaged in financial modeling and benefit strategy development as they prepared for the many changes that will go into effect from now until 2014.
2. Cost Sharing and Rewarding Healthy Lifestyles. Employee benefit contribution structures held steady over the past decade -- even during the height of the recession, when companies froze wages and cut other expenses to prevent layoffs. This year's rise in salaries, however slight, combined with premiums that jumped 12 to 15 percent, saw companies sharing health care's financial burden with employees. Covered workers contributed on average two to three percent more for single and family coverage and bore higher out-of-pocket costs for deductibles and co-pays. To keep workers at the top of their game, companies are increasingly taking advantage of carrier-sponsored wellness programs -- from weight loss and smoking cessation programs to gym memberships, virtual health coaching, nutrition classes, wellness newsletters and more. Savvy companies are pegging employee contributions to their participation in these initiatives, with financial incentives such as lower premiums and deductibles tied to the attainment of health benchmarks.
3. Plan Design. There's nothing like limited resources to inspire creative thinking. Budget-minded employers flocked to high-deductible health plans (HDHP) with health savings accounts (HSA) for cost savings and tax advantages -- namely, the elimination of the "use it or lose it" rule. Others cut costs with HMO deductible plans. Limited medical networks and increasing prescription plan deductibles provided additional avenues for saving money. Expect continued innovation in 2011, as employers focus on new ways to get the most for the money they spend on health plans.
4. Communications Game Plan. Confusion and uncertainty among employees over how they and their families will be affected by health care reform led companies to adopt proactive and innovative communication strategies to dispel misperceptions, alleviate fears and prepare workers for the changes to come. From reassuring messages and use of the company intranet to submit basic questions to HR staff to on-site education sessions hosted by brokers, smart employers brought clarity by providing critical information and timely updates. This trend will continue next year as organizations and employees across the country contend with the reality of reform as it continues to evolve. 
5. Claims Analysis. While it is important to understand the financial performance of a plan and the financial justification of premiums, employers are using claims data to take more focused directions on plan design, wellness initiatives, and communication. The data mining of claims allows employers to weigh the financial costs and member impact of any changes to their plans and helps balance disruption and cost containment. Even a review of a group's top disease states or major diagnostic categories provides focus for wellness initiatives and opportunities to avoid claims, giving employers more control of their health care costs.
6. Chronic Disease Management. Alarming rates of chronic diseases like diabetes and heart disease are taking their toll on Americans' health and on employers' bottom lines, since companies bear much of the cost associated with treatment. A remarkably positive partnership has developed between companies and employees joining forces to improve their quality of life through health management and wellness programs. These targeted approaches to specific conditions (i.e., glucose levels, blood pressure, and cholesterol) and "knowing your numbers" through health screenings and health risk assessments, help companies stay ahead of the cost curve by offering preventive care to at-risk employees and disease management that encourages healthy lifestyle behaviors in those who receive treatment. Significant future savings in the form of avoided health care costs, reduced benefit and disability premiums, and improved morale, retention and productivity -- plus an overwhelmingly positive response from employees -- mean these programs are here to stay and will likely grow more extensive in years to come.
7. Self Funding. Self-funded health care, where the employer assumes the financial risk for benefits claims payments and manages and administers the plan, was an appealing alternative to fully insured plans this year because it reduces costs while improving cash flow. Look for growing interest among all types of employers in this model in 2011. With HCR community rated requirements, employers will be considering alternative funding arrangements to capture their favorable claim costs of their plan participants vs. subsidizing others.
8. Product Bundling. Employers capitalized on premium discounts offered by carriers that combine medical plans with comprehensive specialty benefits such as dental, vision, life and disability. With just one team to administer benefits and one premium statement, employers saved money through lower administration fees. Plus, the more employees enrolled and lines of coverage bundled, the greater the savings. 
9. Going Online. Despite initial reluctance to use the Internet for benefit administration, most employers are jumping on the information superhighway, recognizing not only the willingness of employees across all demographics to use a Web interface, but also how online tools simplify processes for HR departments. Computer-based services such as online enrollment, downloading forms and documents, and access to benefit information and education are among the tech advances coming into daily use, while mobile-enacted information and services for the smartphone platform promise even greater efficiencies in the near future.
10. Executive Benefits. Executive benefits, an important tool for attracting and retaining talented staff, were a casualty of the economic downturn and new health care reform legislation, both of which put these programs under greater scrutiny than ever before. Many companies have had to weigh the competitive edge these benefits provide against the costs and risks they entail, and some faced with no choice but to set these policies aside as they struggled to stay afloat in challenging economic times.
"Perhaps the most important lesson of 2010 is that getting employees more involved in their medical decisions, expenses and overall health is a key to sustaining a financially viable, work-based benefits program," says Allison. "As for implications for the future, as the economy improves and the job market becomes vital again, companies with robust programs will have a significant advantage in terms of their ability to meet productivity goals and attract and retain desirable employees while they make significant inroads into improving the health of American workers and their families."

Getting to the bottom of your health care costs

Did you know: 10-year study indicates spending for prescription drug use in America is on the rise?

U.S. spending for prescription drugs more than doubled to $234.1 billion over the 10 years covered by a study released by the Centers for Disease Control in September 2010 as part of its National Center for Health Statistics data brief. Among those ages 60 or older, 37% used five or more prescriptions per month.

Contact us on how to lower your Rx costs and click on the link above for more Rx info.  info@amsinsure.com

Employer responsibility and automatic enrollment available

The health care reform law requires employers with 50 or more full-time employees to offer minimum essential coverage starting in 2014. Employers who don't meet this requirement will be subject to penalties. In addition, employers with more than 200 full-time employees must start automatically enrolling full-time employees in 2014.  

Contact us for additional information; info@amsinsure.com

Employer-Sponsored Insurance Costs Rise in California, Across U.S.

Thursday, November 18, 2010

In 2010, the cost of employer-sponsored health coverage increased by 6.9% nationwide, to $9,562 per employee, the largest increase since 2004, according to the results of a national survey released by benefits consulting firm Mercer on Wednesday, McClatchy/Sacramento Bee reports.
For the report, Mercer surveyed 2,836 public and private employers with 10 or more employees.

Report Details.  The survey found that the average PPO deductible increased to $1,200 this year.

In addition, the survey found that employers expect total costs to increase by about 10% in 2011. Employers largely attributed the expected increase to:

• Changes from the federal health reform law;
• Increased health services usage; and
• Rising health care prices.

However, most employers are expected to make changes that will limit their exposure to the increased costs, such as raising deductibles and passing costs on to employees.
Steve Graybill, a senior health consultant for Mercer, said the reform law is increasing costs, but "employers are pulling out all stops" to keep their spending on health coverage down (McClatchy/Sacramento Bee, 11/18).

California Findings

In California, employers have seen an 8.4% rise in health benefit costs this year and could face an 11.4% increase next year, according to the survey.
The survey found that California employers are spending an average of $9,960 per worker on health care in 2010.

According to Mercer, California's health benefit costs might exceed nationwide averages because of the state's relatively high expenses and the prevalence of HMOs.  California employers said they aim to restrict their health cost increases to about 7.8% next year by modifying their benefits and selecting new insurers (Helfand, Los Angeles Times, 11/18).

We can help you to make the necessary changes to your companies plans.

Group Health Plans

• Small Business (2-50 Employees)

Interim Final Rule Grandfathered Health Care Plans

The new amendment to the interim final rule “allows all group health plans to switch insurance companies and shop for the same coverage at a lower cost while maintaining their grandfathered status, so long as the structure of the coverage doesn't violate one of the other rules for maintaining grandfathered plan status,” it said.

A change of issuers in the individual market will still result in the loss of grandfathered status, the fact sheet said.

Under the amended rules, employers that offer the same level of coverage through a new issuer can remain grandfathered as long as the change does not result in significant cost increases, a reduction in benefits or other changes in the original rule.

The amendment “will result in a small increase in the number of plans retaining their grandfathered status relative to the estimates made in the grandfathering regulation,” the fact sheet said. The agencies did not produce a range of estimates for the number of affected groups “given considerable uncertainty about the response to this amendment,” it said.
In the interim final rule issued in June, the administration estimated that, under the most likely scenario, 51 percent of all employer plans will lose their grandfathered status, affecting 87 million people. For that reason, the regulation has drawn heavy criticism from congressional Republicans and some business groups.

The primary difference in regulations that an employer would face from having grandfathered status is the application of new appeals procedures.

Other Rules Will Apply

A lot of the other rules will already apply to grandfathered plans. Grandfathered plans must abide by bans on lifetime limits and rescissions, rules restricting annual limits, as well as the requirement that adult children up to age 26 be allowed to be covered on parents' plan.
In the fact sheet, the agencies said the change was made in response to many comments on the provision in the original rule. A group health plan may need to make administrative changes that do not affect benefits or costs, which could happen if an insurer stops offering coverage in a market, it said. Companies can also change ownership.

There was also concern that the original provision could have the inadvertent effect of interfering with health care cost containment. Forcing employers to stay with the same insurer could give the insurance company “undue and unfair leverage in negotiating the price of coverage renewals,” it said. “Allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have.”

The proposed and interim final rules will be published in the November 17 Federal Register.

New non discrimination rules for Health Plans

With the new requirement, an employer sponsoring a fully-insured health benefit plan, or the plan itself, must not discriminate in favor of highly compensated employees by offering them additional coverage or benefits at more affordable rates compared to the other employees covered by the plan. Effective for plan years beginning on or after September 23, 2010, the non-discrimination provision associated with Section 105(h) of the IRC now applies to both self-funded and fully-insured health plans. However, "grandfathered," fully-insured plans will not be subject to the expanded non-discrimination rule.
Background
The applicable provision in the health care reform law reads:

Sec.  2716. PROHIBITION OF DISCRIMINATION BASED ON SALARY.

(a) IN GENERAL – The plan sponsor of a group health plan (other than a
self-insured plan) may not establish rules relating to the health insurance
coverage eligibility (including continued eligibility) of any full-time employee under
the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of
discriminating in favor of higher wage employees.¹

The Internal Revenue Service (IRS) permits employers to offer certain health plan benefits on a tax-exempt basis as long as certain regulations are followed. If the plan discriminates in favor of highly compensated individuals, the tax exempt provision can be disallowed if certain tests are not met and a penalty may be assessed against the employer who is sponsoring or underwriting the plan. 
The new health care reform law promotes a more level playing field in how employer-sponsored health insurance is offered to employees. As a result, the expanded non-discrimination requirement creates a significant chilling effect on fully-insured, executive medical plans where senior executives would have access to higher level benefits or reduced cost-sharing arrangements.
Scope
Generally, the regulations issued pursuant to Section 105(h) apply to employer-sponsored health benefit plans that cover premiums and expenses for qualified medical and other specialty plans.²  The recent amendments expand the non-discrimination provisions to health benefit plans irrespective of whether they are fully-insured, self-funded, or medical reimbursement plans.  Some types of plans are excluded from the new requirements, including “grandfathered” plans, government-sponsored health plans and limited benefit plans.
Eligibility & Benefit Tests
PPACA provides that non-grandfathered, fully-insured plans must satisfy the
Section 105 requirements, which prohibit discrimination in favor of highly compensated individuals. To satisfy the non-discrimination rules, health plans must pass several tests.   
To pass the “eligibility” test, a plan must benefit one of the following:

• At least 70 percent of all employees;
• At least 80 percent of all employees who are eligible for benefits under the plan (if at least 70 percent of all employees are eligible to participate in the plan); or
• A nondiscriminatory classification of employees.

In running the eligibility test pursuant to IRC subsection 501(h)3, an employer may exclude employees that:    

• Have three years or less of service at the company;
• Are younger than age 25;
• Are part-time or seasonal (less than 35 hours per week);
• Are part of a collectively-bargained arrangement; or
• Are non-resident aliens who do not receive U.S. earned income.

In addition, the “benefits” provided under the health plan must not discriminate in favor of highly compensated individuals. The health plan should incorporate several design features in order to be non-discriminatory. For example, plans should: 

1.    Establish parity in employee contributions for each benefit level;

2.    Preclude offering lower co-pays for highly compensated employees; and

3.    Not impose different waiting periods.

The employer sponsoring the health plan also must not discriminate in favor of highly-compensated individuals in actual operation. For example, discrimination in operation could arise if a plan administrator approves certain claims for medical expenses under the utilization management process for highly compensated employees while denying them for lower compensated employees.
For purposes of IRC subsection 105(h)(5), the term “highly compensated individual” means an individual who is: 

1.    One of the five highest paid officers;

2.    A shareholder who owns more than 10 percent in value of the stock of the employer; or

3.    Is among the highest paid 25 percent of all employees. 

Additional Guidance
The IRS recently requested comments on how to apply this extension of the non-discrimination rules to fully-insured plans.³ Therefore; it is likely that additional insights detailing the new non-discrimination requirements for fully-insured plans will be forthcoming. Experts note the new rules most likely will be similar to the self-funded plan, non-discrimination requirements.⁴  
Penalties
In its request, the IRS also clarified that the penalty for failure of fully-insured plans to meet the non-discrimination rules will be the imposition of an excise tax on the plan’s sponsoring employer in the amount of $100 per day for each individual against whom the plan discriminates. In other words, the fee will apply on a daily basis for each employee that is not highly compensated and who does not receive the discriminatory benefit. Therefore the employer will be subject to a $100 per day, per participant excise tax or civil money penalty, which is capped at the lesser of $500,000 or 10 percent of the employer's health care expenses for the previous year. The IRS notice also comments that “the plan is subject to a civil action to compel it to provide nondiscriminatory benefits” to the individual discriminated against.  No penalties will be assessed against a plan if reasonable due diligence would not have discovered the noncompliance and/or the failure was due to a reasonable cause and was corrected within 30 days. 
Next Steps
Plans sponsors should begin to review the design elements of their existing coverage offerings to assess whether: 

1.    The plan is covered by the new IRS requirements; and

2.    If any changes need to be made in order not to run afoul of the new non-discrimination requirements for fully-insured health offerings. 

Interested parties should monitor future IRS bulletins that provide additional guidance on the matter, and plans sponsors should secure input from tax or benefit experts before making any changes. 

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In order for you to conveniently share this information with you, please view the fill able document, Non-Discrimination Provision Expansion.
Please visit http://www.amsiinsure/  to view past Legislative information on our blog. Or, you may visit irs.gov If you have any questions, please contact your accounting service for more information on how you might be affected by these changes. Thank you for taking the time to read through this important notification.

Sincerely,John A. Beyer, CLU