Views Limiting the employer tax exclusion for healthcare is the wrong idea

The article below was published on June 7, 2017 by Employee Benefit News, written by Craig Hasday.

The Republicans are looking everywhere for funds to fix healthcare, as well they should. This problem is not an easy one to solve, however. Under the Affordable Care Act, employers were faced with the Cadillac tax. As a result, they wasted no time planning to mitigate the effect. While the Democrats seemed to believe that this was a pot of gold available to solve some of the cost issues, the reality turned out much differently.

Consultants, like me, have spent the last few years planning for our clients to avoid ever paying the Cadillac tax. Employers fled to health savings accounts, self-insured plans and any strategy that would reduce costs below the taxable threshold. Instead of a pot of gold, there was a leprechaun at the end of the rainbow waiting to laugh at the CBO scoring, which had predicted billions in revenue.

Now, some prominent Republicans are looking to limit the employee health insurance tax exclusion or its counterpart, the employer deduction, to fund healthcare for the uninsured. I am hopeful that they take the time to look closely at the potential impact of this decision.

Peeling back the onion, altering the tax-favored status of employer-provided benefits will have the same effect as the Cadillac tax — employers are going to plan around it. More than 175 million Americans get healthcare through their employer, and this is not a progressive benefit. If the employer exclusion is eliminated there would be little incentive for employers to continue to provide benefits — and if they do, the pressure to reduce costs, and thus benefits, will be intense. The impact on lower-paid workers would be far greater than the more highly-compensated group.

Finding the pot of gold

Politicians may not be listening, but the effect of this change in tax treatment would be the opposite of what is desired. We need to go after the cost of healthcare. That’s the pot of gold.

Here are some suggestions to go after cost:

  • Further encourage the shift from pay-for-volume or pay-for-services-rendered to reimbursement of providers based upon value and the outcome of treatment.
  • Make drug pricing fairer; eliminate rebates which obscure real prices and regulate obscene pharmaceutical profits for patent-protected drugs.
  • Introduce meaningful tort reform.
  • Expand Medicaid in every state. This is the platform that should be used for subsidized care.

Each one of these changes is going to require a great deal of effort, but they are better than an ill-fitting Band-Aid which is just going to make healthcare even more expensive for the individual.


Three Approaches to Controlling Rx Costs

The article below was published on May 11, 2017 by the Mercer Signal, written by David Dross.

With all the uncertainties around healthcare legislation swirling, cost control of pharmacy spend remains top priority for employers. On one hand, employers obviously want their employees to have access to the medications they need: drugs like insulin, blood pressure treatments, and cholesterol blockers have long played a critical role in employees’ health. But now new specialty biotech drugs – some of them true medical breakthroughs – are flooding into the market, at costs much higher than previous therapies. Drug prices spiked by 9.8% between May 2015 and May 2016, and there are more sharp increases ahead. Drug costs are quickly becoming unsustainable, for both employers and, increasingly, plan members. Many high-cost brand name drugs may have rebates to reduce their net cost, but the member or patient typically does not see these rebates so their out-of-pocket cost is still high. And even the cost of some generic drugs has risen dramatically.

Fingers are being pointed everywhere—from regulations and research to the cost of lawsuits when new drugs perform poorly. While other stakeholders work on those issues, there are actions employers can take to shift the equation in their favor. Here are a few ideas:

Analyze the data on prescription drug spend in your plan

Prescription drugs are the top driver of health benefit cost increases today. In a recent report by the Pharmacy Benefit Management Institute, pharmacy benefit costs increased 10.2%, driven by 19.2% growth in specialty pharmaceuticals.

It’s important to know what’s driving cost growth in your program. When looking at your data, here are a few things to focus on:

  1. Drugs – What drugs are plan members using?
  2. Channel – From where patients receive their drugs and are they leveraging the lowest-cost channels?
  3. Supplier – Are you maximizing the prescription benefit manager relationships?
  4. Care – How do the drug therapies match up to best practices and evidence based medicine?

Educate employees on what they can do to lower their Rx costs

Employers can help employees be smarter when talking to their physician about their medications and making purchasing decisions. If your program includes any of these cost-saving Rx benefit features, make sure your employees understand them:

  • Lower copays for generic drugs
  • Lower copays for drugs in formularies
  • Preferred pharmacies
  • Mail-order suppliers
  • Prior authorization requirements
  • Step therapy requirements (members try lower-cost drugs first before they can move up to higher-cost prescriptions)

Focus on specialty drugs now

Specialty drugs for complex conditions account for 38% of all prescription spending even though they are used to treat about 1 to 2% of all patients. (Consider this recent example of how one employer discovered just two plan members were accounting for 2.5% of their total health budget due to specialty medication prescriptions.) The most expensive biologic breakthrough treatment regimens can exceed $750,000 per year. For the entire US healthcare market, specialty medication spending has nearly doubled since 2011, reaching more than $160 billion. With 40-50 new specialty medications set to enter the market each year, there is no end in sight.

To help gain control over your spending on specialty drugs, consider working with an expert to conduct a specialty diagnostic of medical and pharmacy plans to assess the current state and identify areas for improved management. Once the diagnostic results are in, employers can make informed decisions on revisions to their plan structure. We see savings typically in the 5-10% range. However, these savings occur in the short-term, and so it is a good idea to revisit the plan structure at least semi-annually as provider capabilities change over time.

What Can Value-Based Primary Care Mean to Health Plans?

The trend from volume-based to value-based medical care is intended to change the focus from individual units of care to the overall health of a patient or a patient population. In very simple terms, value-based care is intended to bring cost and quality together.

For payers, it means moving from traditional fee-for-service reimbursement to an environment where claims data can be analyzed to help identify redundancies or gaps in care – an approach we have employed for years.

For primary care physicians (PCPs), value-based care should help them focus on improving the patient’s well-being, rather than concentrating on checklists or spreadsheets. Again, the goal is to link evaluation and compensation to clinical outcomes rather than volume.

For members, basing payment on value means changing measurement from a visit or diagnosis to how all aspects of care affect a patient or patient population. The bundled payment experiment instituted by CMS for Medicare-funded joint replacements is a familiar example.

While there will be many bumps along the road to value-based primary care, the benefits should include increased cost transparency and greater employee engagement. If everyone involved – patients, physicians and hospitals – has access to the right information at the right time, better decisions about cost, quality and risk should result.


Tell your Senators to Preserve the Employer-Based System and Permanently Repeal the Cadillac/excise Tax!

The National Association of Health Underwriters (NAHU)

Operation Shout!

DGBTakeActionOn May 4, the House of Representatives passed H.R. 1628, the American Health Care Act (AHCA), a reconciliation bill to repeal and replace portions of the ACA. It will now be considered by the Senate, where it is expected to be significantly altered, including possibly addressing two critical NAHU policy priorities: the employer exclusion of health insurance and the Cadillac/excise Tax. NAHU strongly opposes any efforts that would undermine the employer-sponsored health insurance system by eliminating or placing a cap on the employer-tax exclusion of health insurance and is strongly advocating a full repeal of the Cadillac/excise Tax, which under the AHCA would only be temporarily delayed.

More than 175 million Americans currently receive their coverage through the employer-based system, largely due to the tax exclusion where employers provide contributions for an employee’s health insurance that are excluded from that employee’s compensation for income and payroll tax purposes. Proposals that would cap the exclusion would devalue the benefit and serve as one of the largest tax increases in history for middle-class Americans, forcing many to drop employer-sponsored insurance, including dependent coverage, and be forced to seek coverage in the volatile individual market, where premiums are ever-increasing. Employers would be incentivized to only offer coverage to their employees that would fall below the value of the cap in order to avoid paying any increased taxes, potentially resulting in a race to the bottom for employers to sponsor insurance that wouldn’t meet the cap’s thresholds and further shifting costs onto employees.

In addition to opposing proposals to cap the exclusion, we are strongly advocating a complete repeal of the Cadillac/excise Tax. Currently set to take effect in 2020 under a two-year delay, this tax calls for a 40% excise tax on the amount of the aggregate monthly premium of each primary insured individual that exceeds the year’s applicable dollar limit, which will be adjusted annually to the Consumer Price Index plus one percent. Given that the pace of medical inflation is well beyond that of general inflation, the tax is destined to outgrow itself in short order and many employers will be impacted by the cost of the tax and the enormous compliance burden that the tax creates. The AHCA, as passed by the House, would only delay the tax until fiscal year 2026.

Over the coming weeks, as the Senate debates the AHCA and the other healthcare-reform proposals, we urge all agents, brokers and your clients to tell your senators not to do anything that would undermine the employer-sponsored health insurance system and to fully repeal the Cadillac/excise tax. You can help us spread the message by taking action below:

  1. Contact your senators. Send an Operation Shout today asking your senators to oppose any changes the employer tax exclusion and to support a full repeal of the Cadillac/excise Tax. You can also call your senators at the numbers below.
  2. Tell your employer clients to take action. Your employer clients would be most directly impacted by the elimination or cap of the employer tax exclusion and are seeking a full repeal of the Cadillac/excise Tax. Tell them to take action here.
  3. Share your story. As a licensed insurance specialist who works closely with employers to help them offer and utilize employer-sponsored health insurance, stories about how the employer tax exclusion directly impacts your clients will demonstrate the value of the exclusion and the need to preserve it, as well as the need to fully repeal the Cadillac/excise Tax. We will share your stories with appropriate legislators and staff. You can share your story here.

Take Action today and tell your senators to preserve the employer-based system and permanently repeal the Cadillac/excise Tax!

Don’t want to send an email? No problem, you can also reach your senators by phone:
Sen. Richard Blumenthal (D) can be reached at (202) 224-2823.
Sen. Christopher Murphy (D) can be reached at (202) 224-4041.

This call to action is designed as an email message to your legislators. You are welcome to use the prepared text as talking points to call your legislators, or to expand on the prepared message to share your personal story on how this issue will impact you and your clients.

What the new GOP healthcare bill means for employers

The article below was published on May 5, 2017 by the Employee Benefit Adviser, written by Phil Albinus and Nick Otto.

The House of Representatives passed the American Health Care Act Thursday, which will be sent to the U.S. Senate for debate and amendments and then a vote. Here’s what employers need to know about the revamped healthcare plan.

It gets rid of the employer mandate

The American Health Care Act (AHCA) eliminates the controversial requirement under the ACA that employers provide health insurance to employees. However, this is unlikely to have a significant impact on most organizations, which will continue to offer health benefits to attract and retain top talent. “I don’t envision a mass exodus of employers offering their employees healthcare coverage,” says Chatrane Birbal, senior adviser, government relations, for the Society for Human Resource Management.

It pushes back implementation of the Cadillac tax

Like the original GOP health plan put forth in March, the AHCA bill that passed the House pushes back implementation date of the 40% excise tax on employer-sponsored health plans that exceed $10,200 for individuals and $27,500 for families. This so-called Cadillac Tax was set to take effect in 2020 and will now begin on Jan. 1, 2026. The delay of the Cadillac tax is a relief for most employers, but fees and other forms of levies may replace it in future revisions of the bill, or after the law is passed, to help fund the Republican plan.

It gives states greater control over what’s included in health plans

The AHCA gives the states more power over what type of health insurance is offered in their domains. AHCA critics are concerned that states would allow carriers to offer stripped-down policies. However, the move could allow national employers looking to cut costs to opt out of the “essential health benefits,” or EHBs, that are required under Obamacare — such as maternity care, mental health and drug addiction treatment — and offer employees low-cost, low-benefit plans.

It gives states a say in pre-existing-conditions coverage

Pre-existing-conditions coverage, one of the cornerstones of the ACA, will now be under the guidance of the states. The AHCA still requires insurers to cover sick people, but it allows states to get waivers that would allow the plans they oversee to charge higher premiums to those with pre-existing conditions who let their coverage lapse.

It opens up HSAs

The AHCA repeals the taxes on health savings accounts and the limits on contributions to flex-spending accounts. Under the House’s GOP plan, individuals can put $6,550, up from $3,400, and families can put $13,100, up from $6,550, into a tax-free HSA. Like HSAs, the AHCA would remove the cap on contributions to health FSAs starting on December 31, 2017. Under the ACA, the maximum contribution limit was $2,600. The moves should encourage more employees to take advantage of these employee benefits.


Bill headed to Senate would provide ‘safety blanket’ for benefit plans

The article below was published on May 1, 2017 by the Employee Benefit Adviser, written by Brian Kalish.

Nearly half of all employees are covered by a self-insured group health plan. Many companies that offer these plans have separate stop-loss insurance policies to protect them against the risk of catastrophically high claims. Some states and the Obama administration have attempted to regulate stop-loss insurance; a move the Self-Insurance Institute of America says would render it unaffordable.

To provide more certainty in the marketplace, the SIIA — a Simpsonville, S.C.-based member-based association — worked to introduce the Self-Insurance Protection Act.

The bill on April 5 passed the House of Representatives in a 400 to 16 vote and is now expected to be introduced in the Senate in the next few weeks. EBA spoke with SIIA’s CEO, Mike Ferguson, to understand more about the legislation. What follows is an edited version of the conversation.

EBA: What is the background on this bill?

Mike Ferguson: Shortly after the passage of the Affordable Care Act, there were policymakers within the Obama administration that became concerned that the growth of the self-funded market was coming at the expense of the public exchanges. The analysis was that the self-funding market is growing and the employers in the self-funding market are scooping up the good risks — their employees — and leaving the bad risks to go into the exchanges, which would create structural problems for the exchanges.

They further believed that the self-funded market was growing artificially, characterizing their analysis, facilitated by stop-loss insurance with relatively low attachment points. They believed that many of these self-funding plans were trying to look for an escape hatch out of the ACA requirements.

Really, these were fully-insured arrangements and they should be treated and defined as such for purposes of the ACA. There was discussion within the administration and a formal request for information was issued by HHS and DOL, which asked very pointed questions about self-funded insurance and stop-loss insurance. It was clear from the line of questioning that regulators were looking to try to show that employers were moving in this direction as a way to game the system and get out of the ACA mandates.

Subsequent to that, we learned there was discussion within the Obama administration on, ‘What do we do about this and how [do we] get our arms around these self-funded plans,’ because theACA did not provide any particular recourse.

EBA: How did the talk on Capitol Hill progress?

Ferguson: The discussion that we become aware of was, ‘What if we just take an aggressive definition of what insurance is and bring those employers back in as regulated entities as fully-insured employers or health insurance issuers?’

That was the internal discussions that were going on within agencies. A couple of years ago, in recognition of this, we said how do we address this because once you have a regulatory process commence, it is very difficult to push back on that. What we did, we worked with friends on the Hill to get legislation introduced, which would head off a regulatory interpretation of the definition of health insurance and health insurance coverage to specifically exclude self-insured plans with stop-loss insurance. This was in anticipation of potential regulatory action.

The previous version of that bill, like most pieces of legislation, ultimately did not move. This year, it has. And to put it in context, given the changes in the presidential administration, that threat is not at our doorstep anymore. But, our view is administrations can change in as early as four years. We don’t know who will be in the White House in three years and 10 months, so let’s go ahead and make sure that we get this done so that a future administration that might be unfriendly to self-insurance, does not have that avenue to disrupt the marketplace.

EBA: What does the legislation mean for employee benefit brokers?

Ferguson: It provides more certainty in the marketplace that stop-loss insurance will be available to self-funded plans. It does not change the current landscape of the self-funded marketplace. It is a safety blanket.

For employers that go to self-insurance, it is designed to be a long-term risk management strategy. Self-insurance is not designed for when an employer received a high quote on their health renewal premium and says, ‘OK, I’m going to pop over and be self-insured this year, but then switch to fully-insured two years down the road.’ That is not what employers should be looking at.

They should be looking at if they want to take a proactive long-term strategic risk to managing their healthcare risks, self-insurance can provide that option. But, it is most effective when it is an option that is deployed over multiple years. This legislation is a safety blanket for those advisers working with employers, because it takes one variable out of the regulatory environment going forward. It makes it almost impossible for anything at the federal level to disrupt their ability to self-insure to the extent that they have to access stop-loss insurance.

EBA: What is the bill’s future?

Ferguson: As a general matter, it is always tough to get anything through the Senate. That being said, since we had such a large vote margin out of the House, the Senate does, in many cases, look at that as a consideration on how it wants to move things.

Given that, we are cautiously optimistic. Cleary, we have full expectations that President Trump would sign the legislation to the extent that it is voted out of the Senate. The Senate is tricky to get anything done, even small rifle shot bills, like ours.

We have a lot of friends in the Senate. We expect the companion bill will have several prominent co-sponsors when it is announced and given that there was minimal Democratic opposition in the House, we hope that will translate to a similar dynamic in the Senate.

How employers can step up benefits communications efforts

The below article is from Employee Benefit News, written by Andrew Brickman, on April 11, 2017.

I remember an old advertising line from a discount retailer that said, “An educated consumer is our best customer.” The discounter was promoting the idea that customers who understand the true cost and value of products are loyal and feel good about their purchase. The retailer used education to tear down the wall of misunderstanding and confusion that leads to buyer’s remorse.

Is there a wall between you and your workforce when it comes to your health and welfare benefits? Do they know the true cost and value of their benefits? Do they understand how their medical plan works? Do they comprehend terms like copay, co-insurance and deductible? Do they grasp the value of guaranteed issue for life insurance? Are they aware of the necessity of protections provided by disability insurance? Do they know how your 401(k) match works and why, at any age, it’s important to save for retirement? Do spouses make informed benefit and healthcare decisions?

No matter how good a job employers think they do when educating employees about their health and financial benefits, it usually isn’t enough. First, you’ve got to get their attention and keep it long enough for them to assimilate information, and the information is boring and often complicated. Misunderstanding, confusion and apathy all play a factor in why employees don’t understand or don’t seem to care about your efforts to provide them with access to healthcare and financial protection. Removing barriers can feel like an uphill climb in the middle of a blizzard, yet, it’s necessary.

HR and benefits departments spend an inordinate amount of time and resources designing health and welfare programs for employees. Benefit consultants have a front row seat to this effort. The energy and resources that are put into a renewal and a long-term benefits strategy can sap the attention from an equally important program component: creating and communicating a vibrant dialogue that educates employees about their plans.

How does a well-intentioned HR professional overcome employee misunderstanding, apathy and confusion over benefits? As President Ronald Reagan once said, “Tear down this wall!”

OK, that’s a little dramatic. But let’s examine how to overcome miscommunication and missed communications. Data plays a role. Reviewing claims, understanding workplace demographics, and analyzing utilization patterns are key in understanding if the messages you’re sending are resonating. Surveys and focus groups are good tools to uncover communication hits and misses.

A comprehensive employee education and communication campaign is a must. The campaign should be targeted and incorporate a variety of touchpoints. Think beyond the printed benefit guidebook to things like online access to summaries, on-demand webinars and social media. And don’t think that one message delivered prior to or during open enrollment is enough. Communications must continue — albeit in small snippets — over the course of the plan year.

Benefit communications require feedback from employees and a diligent review of key indicators. One way to judge the effectiveness is whether or not you see a long line of employees in the HR office. Or if your broker provides employee advocacy, you might learn that service representatives are receiving a high volume of calls on one or two topics. Or perhaps you see a spike in ER claims. Need to make an adjustment? A mid-course correction is not an admission of failure, but a necessary way to ensure that communications are hitting the target.

Technology is a great way to distribute and reinforce key messaging. Tailoring a benefits administration platform to communicate with employees as they are making their elections will help eliminate surprises down the road. It also gives you a channel to communicate with spouses, who can heavily influence the plans that employees end up choosing.

An older tool that is still relevant is the total compensation statement. These customized statements educate employees on the entire value of their benefits and salary. Benefits can comprise 30% to 40% of total compensation, therefore employers should willingly promote what they are paying for. If traditional total compensation statements aren’t a viable option due to cost or other factors, there are employee benefits administration platforms that have the ability to illustrate employer contributions.

In my line of work, I know how common it is for employees to be confused about benefits. They don’t enroll in the right plans. They use them improperly. They don’t understand the complete picture of what is offered and the value. Confusion builds a wall, but communications can tear it down.

Thinking back to the retailer who used education to woo and soothe his customers, consider that your benefits plan and knowledgeable employees can be your best recruitment and retention tool. An educated, engaged employee is your best employee.