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A New Employer-Financed Approach to Health Coverage

A New Employer-Financed Approach to Health CoverageAs we know, employer-sponsored health insurance consists of employers offering health plans that are purchased (or self-funded) from insurance companies (or third-party administrators). These health plan(s) are reviewed annually and rolled out to eligible employees and family members. Some employees may have only one plan to choose from, or if employed by a larger organization, have been given a handful of plan options. Employee decisions are usually based on premium cost and cost-sharing arrangements, such as deductibles, copayments and network provider selections.

Individual Coverage Health Reimbursement Arrangements (ICHRAs)

On June 13, 2019, the U.S. Departments of Health and Human Services, Labor and the Treasury issued a final rule that will allow employers (of all sizes) to fund a new kind of health reimbursement arrangement (HRA) – known as an individual coverage HRA (ICHRA). The ICHRA is a tax-free reimbursement that will help pay the insurance premiums for employees who purchase individual-market health insurance, including insurance purchased on the public exchanges that were formed by the Affordable Care Act (ACA). More about the Iowa individual insurance markets can be found at the Iowa Insurance Division website.

Employers may continue to sponsor their own health plans. But, using the ICHRA also provides tax-deferred funds to other employees who are not eligible for the employer-sponsored health plan. The ICHRA program was scheduled to begin January 1, 2020, allowing employers to pay all or a portion of the plan’s coverage cost purchased by the employee in the individual market.

To learn more, the departments posted FAQs on the new rule.

Employer-sponsored health coverage takes a great deal of employer time and expense to analyze, negotiate, communicate, comply with regulations and monitor throughout each plan year. It can be a huge headache to employers, who are, first and foremost, concentrating on their services and products to remain financially viable. Becoming a distributor of health insurance to their employees is secondary and, frankly, can be a costly distraction from the core business. Obviously, attracting and retaining qualified employees is critical to successfully remain in business. The ICHRA attempts to allow employers to focus on their core business strengths while finding new ways to subsidize the cost of employees’ health insurance.

More About ICHRAs

Employers who are interested in pursuing ICHRAs will need to know some key requirements:

  • Employers may either offer an ICHRA or a traditional group health plan, BUT MAY NOT OFFER EMPLOYEES A CHOICE BETWEEN THE TWO.
  • Employers can create classes of employees who are eligible for ICHRAs, using employment distinctions such as salaried versus hourly, full-time versus part-time, or employees located in certain geographic locations. Certain classes can be offered ICHRAs, while providing other classes with the traditional health plan.
  • Employers cannot discriminate within classes when offering ICHRAs, but they can increase the ICHRA reimbursement amount for older employees and for those with more dependents.
  • If desired, employers can keep their traditional group health plan for existing employees, but offer only new hires an ICHRA. This may invite adverse selection issues over time, but this is at least allowable.
  • If an employee purchases an individual health insurance plan outside an ACA-related exchange, and the employer reimbursement does not cover the full premium, the employer is allowed to permit the employee to pay the balance of the premium for coverage on a pre-tax basis through its cafeteria plan.
  • Employees who purchase individual coverage through ACA-related exchanges and receive premium reimbursements through ICHRAs may not qualify to receive any federal premium subsidies typically allowed through the ACA. Additionally, the tax code states the employer may not permit employees to make salary reduction contributions to a cafeteria plan to purchase coverage.
  • There are minimum-size requirements for the class of employees offered ICHRAs. This can be found in both the final rule and posted FAQs.
  • The Department of Labor has issued ICHRA Model Attestations that employees can sign to confirm they have purchased individual health insurance coverage. Medicare Part A and B, or Medicare Part C can also be covered by the ICHRA.

There are a number of other nuances that employers must know about before seriously considering whether or not to implement ICHRAs. There are just too many to mention in this particular blog.

As mentioned earlier, the ICHRA is yet another option for employers to financially assist their employees in purchasing health insurance coverage without having to fight the hassles of implementing and maintaining their own health plan – if they wish to completely relinquish offering traditional coverage. ICHRAs, however, are not designed to fundamentally cut healthcare prices and reign in bloated waste and eliminate inefficiencies. Combating these hefty issues goes well beyond the discussion of insurance products and how they are financed.

Because ICHRAs will expand employer options and employee choices for healthcare coverage in the future, our upcoming 2020 Iowa Employer Benefits Survey© will include a module of questions that will attempt to learn more about whether Iowa organizations are aware of ICHRAs and whether they may consider pursuing the ICHRA in the next few years. Stay tuned…

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A Cluttered Desk and a New Resolution!

I like to think that I keep my office and desk clean and organized. Most of the time, it is. I have learned at a very young age, thanks largely to my mother, to always keep my bedroom ‘spic and span’ and make sure the bed is made before beginning my day.

I decided to write this particular blog because I was immediately struck by something I saw in my office after grabbing a fresh cup of coffee…and I realized it would not be flattering – especially to my mother!

When I’m not working on my own research, I spend a great deal of my office time developing benchmarks for clients, writing blogs and articles, and dabbling in other more mundane business-related activities. Writing for me has always been a challenge, primarily because it requires a combination of perseverance, creativity, and mostly – deep thought.

Sitting down and quickly typing something for immediate release is not my usual approach. Perhaps the best way to explain my writing process is to think of marinating your favorite meat in the refrigerator using a good concoction of ingredients. It takes time and a quality seasoning mix to alter the taste of that meat. Doing so will usually result in a pleasing meal for the palate.

Writing is a process of ‘marinating’ a myriad of ideas with adequate time to allow the end product to become ‘consumable.’ However, for this particular blog, the marination process was completely bypassed – so my apologies!

During the past year, a number of people have contacted me to request that I write about certain subject matters, specifically relating to healthcare and employee benefits issues. A few examples include Medicare-For-All, surprise medical bills, reviewing an on-line analytical pharmacy, physician conflict-of-interest, medical errors, and proposed mergers of health systems. As you can imagine, each topic requires a great deal of ‘research’ time, ensuring there is enough backroom ‘due diligence’ to provide a balanced discussion.

As I write this specific piece, I was struck by how messy and chaotic my desk appeared when I walked back with a newly-brewed cup of coffee. I’ve come to the realization that whatever I decide to write, must be somewhat similar to how sausage must be made in the back room.  Making sausage, we are led to believe, is somewhat sickening to watch and may not render complete confidence about the process.

The holidays provide a good time to work on resolutions for the upcoming year.  Having a cleaner desk to set my cup of coffee will serve as a great start. Perhaps ‘making sausage in my office’ will not be as painful as what the picture suggests!

I wish you a very Happy Holiday season and a peaceful and prosperous (and tidy) 2020!

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Three Key Iowa Employer Health Cost Projections for Next 10 Years

Given the evolution of rapidly-developing technologies in any given industry, with a blink of an eye we are enjoying new product launches that substantially impact our daily livelihood and newly-acquired habits. For example, just one decade ago (2009-2010), the Apple iPad was being launched, self-driving autos were a wishful idea still in conception, and the Chrome OS and Chromebook computers were not yet a ‘thing.’ Cast forward to now and we have countless new products that we never dreamed of having available 10 years ago.

Much of this ‘advancement,’ one might argue, has centered our lives around personal conveniences at a relatively affordable cost.

Unfortunately, when it comes to healthcare trends in the next 10 years, I do see the continuance of our national inaction of ‘fixing’ the healthcare system. Escalating costs will continue its upward projection for the foreseeable future.

With this in mind, it might be interesting to forecast three primary cost-sharing responsibilities that Iowa employers and their employees will face when paying for healthcare coverage 10 years from now:

  1. Monthly health premiums
  2. Monthly employee contributions of these premiums
  3. Health plan deductibles.

Using a simple linear regression1 trend line tool, I will share what these costs may project to be in 2029 – a decade from now. Linear regression analysis will serve as my ‘crystal ball’ of what health costs may be in Iowa without any meaningful reform changes during the next decade – including economic downturns and other factors that may impact health insurance coverages.

It is also worth mentioning that median household income will also be different for Iowans by 2029. In 2017, the median household income in Iowa was $58,570. Annualized at 1.5 percent for the next 10 years, the median household income is projected to be $70,027 by 2029.

PROJECTED MONTHLY HEALTH INSURANCE PREMIUMS IN 10 YEARS

In our 2019 Iowa Employer Benefits Study©, we learned the average single and family health premiums were $585 and $1,611, respectively. Based on prior results dating back to 1999, the linear regression graphic (found below) shows that the monthly premium for single and family coverages could jump to approximately $800 and $2,000 by 2029.

This finding may appear to be somewhat tame, but this increase would be much greater if employers refrain from altering their health plans to keep them ‘affordable.’ As we know, this does not happen, as employers have always ‘watered down’ their health plans to maintain some sense of affordability. This is typically done by shifting additional costs to employees through higher payroll deductions and plan design alterations that require more financial exposure by employees. Both are discussed below.

PROJECTED MONTHLY EMPLOYEE CONTRIBUTIONS IN 10 YEARS

By 2029, Iowa employees with single health coverage are projected to contribute about $140 per month ($1,680 annual) for employer coverage, while an employee with family coverage is projected to contribute $600 monthly (or $7,200 annual). This projection is found in the graphic below.

PROJECTED SINGLE AND FAMILY HEALTH PLAN DEDUCTIBLES IN 10 YEARS

Health plan deductibles serve as the common approach for employers to shift rising health costs to employees and their family members. As premium costs continue to rise during this next decade, employers will most likely continue this trend. Based on the graphic found below, the average single and family deductibles will shift to about $3,000 and $6,000, respectively. The average 2019 deductibles in Iowa are $2,192 for single and $3,975 for family.

Not illustrated here, but the current out-of-pocket maximums (OPMs) that Iowa employees are paying through their employer plans are at $3,700 single and $6,800 family. The linear regression line for single and family OPMs illustrates an increase to $5,000 and $10,000 respectively.

I must admit, I’m a bit surprised that all three graphics did not display greater increases during the next decade. But again, health reform, aging of boomers and economic conditions play a crucial role on how this might impact key cost components of employer-sponsored health coverage in Iowa.

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1In simplified statistical terms, a linear regression is a basic and commonly-used type of predictive analysis, that examines a set of predictor variables to determine a relationship over a period of time.