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Can an employer contribute different amounts towards employee medical insurance?

Some of our employer clients have asked: “Can an employer contribute different amounts towards employee medical insurance for different employees?”  Employers often treat employees differently (for example not all employees earn the same wage).  However, they don’t want to violate any discrimination laws.   We are not attorneys and don’t give legal advice.  We do understand the insurance company underwriting process and want to shed some light on this question.

“Employer contribution” is the insurance industry way of describing the amount an employer pays towards an employee’s medical insurance.  If an employer offers a group health plan then California state law requires an employer to contribute a minimum amount towards the cost of the employees’ medical insurance.   Insurance companies differ in the minimum contribution amount.  They usually require an employer to pay 50 percent of the least expensive plan, or $100 per employee per month.  For more information on this see our summary of the Rules for California Small Business Medical Insurance. You can also give us a call at BenefitsCafe.com 800-746-0045 and we can assist you with your group benefits.

HIPAA Nondiscrimination Requirements

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) mandates that an employer not discriminate  because of pre-existing medical conditions.  The U.S. Department of Labor (DOL) provides guidance for employers regarding different contribution amounts.   The DOL describes HIPAA Nondiscrimination Requirements for group medical insurance and says that:

Distinctions among groups of similarly situated participants in a health plan must be based on bona-fide employment-based classifications consistent with the employer’s usual business practice. Distinctions cannot be based on any of the health factors noted earlier.

DOL also gives examples of “groups of similarly situated participants”.

For example, part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire or lengths of service can be treated as distinct groups of similarly situated individuals, with different eligibility provisions, different benefit restrictions, or different costs, provided the distinction is consistent with the employer’s usual business practice.

So, the objective classification can’t relate to a medical condition or to any protected class (e.g., race, religion, sexual orientation, gender, etc.)  We have seen some employers define a class as executives vs. non-executives; front office vs. warehouse employees; salary vs. hourly employees, etc.

While the DOL’s HIPAA Nondiscrimination Requirements describes what is allowed by law, California medical insurance companies often only allow an employer to designate a single employer contribution amount on the master application for group medical insurance.  The insurance companies are concerned that the employer contribute the minimum amount.  In this case some employers identify the different classes of employees and contribution amounts in their employee handbook.

Again, we are not lawyers and do not give legal advice.  If you want to offer different contributions for different classes of employees you should consult your attorney.  We can assist you as your agent/broker on your California group medical insurance plan.  Please give us a call at 800-746-0045.

 

These are benefit descriptions for some Anthem Blue Cross large group plans.  Effective 1/1/2017

These benefit descriptions apply to companies with 101 FTEs and that are based in California. Anthem offers many other plans but this is a small sample of the large employer plans.

Classic HMO 30/40/500 per admission Rx Essential Formulary $5/$15/$30/$50  This benefit description applies to both Select and Traditional HMO networks.

Value HMO 30/40/500 per day Rx Essential Formulary $5/$15/$30/$50/30%  Same benefits for both the Select and Traditional HMO Networks.

Classic PPO 1000/35/20 Rx Essential Formulary $5/$20/$30/$50/30%  Anthem large group PPO $1000 deductible plan

Classic PPO 500/30/20 Rx Essential Formulary $5/$15/$30/$50/30%  Anthem large group PPO $500 deductible plan

Classic PPO 750/30/20 Rx Essential Formulary $5/$20/$30/$50/30% Anthem large group PPO $750 deductible plan

Posted in: ACA | Large Group Medical Insurance Articles | Small Group Health Insurance

California Small Business Medical Insurance 2016 4th Qtr. Renewals

Experts estimate that 50 to 70 percent of the small businesses in California that offer employee medical insurance will renew their plans in December 2016.  Many California small business medical insurance companies have begun to release their renewal rates for December 2016 and for many employers the renewal rates look very low.

Most Competitive Medical Insurance Companies

Blue Shield of California, United Health Care (UHC) and Anthem Blue Cross seem to be the most competitive.  Each small employer’s rates are unique to the rating variables and the benefits that each employer offers.  The Blue Shield increases are in the low single digits (2 to 5%) and many of the very small Anthem Blue Cross small group clients have received rate reductions.

Conversely, we have seen rate increases of 20% and more for our small group clients with coverage through Health NetAetna plans continue to not be competitive based on rates and benefits, particularly their PPO (POS) plans.  We’ve learned that each group is unique and it pays to have a knowledgable agent/broker help you through the process.  We, BenefitsCafe, can become your agent and assist you with comparing your options and helping you save money.  Just give us a call at 800-746-0045.

These are the companies that offer medical insurance to small businesses in California

These are the companies that offer medical insurance to small businesses in California

Beware of Benefit Reductions

Some of the renewal rate reductions hide the fact that the insurance company has changed (reduced) the benefits on some of the plans.  This means that patients will pay more for medical services when they receive care than they pay for those services on their current plan.  As an example, the Anthem Gold HMO 35/20%/6600 (contract code 1K44) has changed to the Anthem Gold HMO 50/30%/6850 (contract code 1ZHR).  The new 2016 plan is about the same monthly price (or “premium” in insurance-speak) as the old 2015 plan; however, the new plan requires a higher payment for doctor office visits ($50 vs. $35), higher co-insurance (30% vs. 20%) and a higher out-of-pocket maximum ($6,850 vs. $6,600).  This means that while the monthly renewal premium increase is very little the amount people pay when they get medical care has increased.  Accordingly, you should look closely at the renewal benefits in addition to the monthly rates.

Change in the Prescription Medicine (Rx) List of Approved Drugs for Anthem Blue Cross Small Groups

You should also be aware that beginning January 1, 2016, all of the Anthem California small business medical insurance plans will use the “Select” prescription medicine formulary vs. the “National” formulary that had been in place before.  This change impacts all Anthem small groups when they renew in 2016.   In a January 25, 2016 news release to insurance brokers and agents (see: sg-select-rx-news), Anthem wrote that “we expect that less than 5% of members will be impacted by the transition to the Select Drug List.”  In that same news release, Anthem stated that “if a member’s doctor determines that an another option is not appropriate for treatment, the doctor can request an exception review.”

You can view the new Anthem Small Group Select Rx Formulary (List of Drugs) here:  sg-select-rx-tier-4-2016

You can view the former Anthem National Rx Formulary (List of Drugs) here: rx-4-tier-natl-drug-list

Watch this video to better understand prescription medicine (Rx) benefits

Watch this video to better understand prescription medicine (Rx) benefits

Your Group’s Renewal Rates Could Be High or Low

California state law requires insurance companies to offer every small business with 1 to 100 employees the same rates and benefits for a plan in their small group portfolio.  So, regardless of the health of your employees or whether you have only 2, 20 or 100 employees, you’ll get the same rate for each person enrolled.  State and federal laws require California Small Business Medical Insurance companies to set the rates based on two factors:

  1. The age of the employees and enrolled dependents (e.g., spouse, children); and,
  2. The  location of the employer. California has 19 different rating areas for small group health insurance including two separate regions for Los Angeles County.

So, while the State regulates the rates, your company may have a high renewal increase because of many factors including:

  • the demographics (age) of your employees and dependents;
  • the insurance company offering the benefits;
  • the “richness” of the benefits that you offer (e.g., Platinum vs. Gold vs. Silver, etc.), or
  • other reasons.

We can evaluate all of your options and help you determine whether you can offer similar benefits and save money.  Just give us a call a 800-746-0045

Posted in: Changes in Medical Care | Health Insurance Reform | Small Business Articles | Small Group Health Insurance

Kaiser unveils the future of medicine at new Santa Monica facility

Yesterday I had an opportunity to get an advance look at the new Kaiser Permanente (KP) medical facility in Santa Monica and at the same time get a glimpse of the future of medical care.  To say that this facility is revolutionary would be an understatement.   While the Kaiser facility occupies a floor in a conventional medical office building on 10th Street and Broadway in Santa Monica; it sets itself apart from the conventional in many ways.  First, patients get free parking.  In conventional medical facilities patients pay top dollar to park and usually are forced to park in the  most inconvenient parts of the garage because the close-in parking is occupied by the doctors.  And that is what is so revolutionary about the new Kaiser facility: it places patients first – before doctors… amazing. While every other industry recognizes that their customers come first, the medical field puts the doctor first because he or she makes all of the financial decisions (that the patient and his/her employer pay.)

Upon entering the Santa Monica Kaiser medical facility patients will notice significant changes: there is no reception desk or receptionist; no signs telling you to wait in line, take a ticket or in other ways treat you less than special.  Rather, you will immediately see green leaves growing from the wall. (see photo).

Kaiser Facility Santa Monica

Lobby at Kaiser Facility in Santa Monica

You’ll hear soft sounds of Santa Monica recorded at different locations around the city; you’ll see a tile path on the floor that evokes Santa Monica’s sandy beaches; you’ll see a “light wall” that changes and responds to people’s movement (sure to be a favorite for the children who visit their pediatrician at this location); you’ll sit in beautifully upholstered chairs or molded wooden benches – all placed to provide privacy and calmness. (see photo)

 

Relaxing and fun artwork in the waiting area

Relaxing and fun artwork in the waiting area

You can check in either via your smart phone, at the kiosk or with a tablet enabled aide.  The facility has 14 patient examination room – all with sliding doors.  Patients stay in one location and doctors move from room to room.  The exam rooms have couches, comfortable seating and large screens that enable doctors to share their notes in real time with the patient – thus removing the mystery of just what doctors think and do and enable the patient to become a collaborator in better health outcomes.

Patient room with couch

Patient exam room with a couch for family members

Doctor collaboration is built into the facility as the “back of house” area for doctors is mostly a large sitting area that faces a screen where doctors and medical staff can confer, discuss patients and consult with specialists via teleconferences enabled by a large screen and microphone system.  The screen’s size and quality are truly impressive.  Doctor’s offices are small and surround the central meeting area.  This will certainly encourage interaction and team building.

Doctors' conference room

Doctors’ conference room

Kaiser has been a leader in patient (IT) health care information systems and that is fully integrated into this new facility.  The photo below shows the storage facility for the tablet computers that the doctors will use during the day and the information is uploaded every evening as the devices recharge.

Tablet computer storage and large video conference screen

Tablet computer storage and large video conference screen

The 10,000 square foot facility occupies an entire floor in the medical building and if successful Kaiser hopes to expand.  They will offer primary care and pediatrics as the facility but also patients can do their blood tests (lab work) right there – no more trips to the basement, taking a number and waiting in line, as currently happens at the Kaiser facility on Cadillac in West LA.  Also, the Santa Monica facility  has a small pharmacy that enables patients to fill their prescriptions right on the same floor – very convenient – VERY patient centered. Dermatologists and podiatrists will also have regular office hours – two specialties that Kaiser records show are in demand for their patients in this area.

This is truly a glimpse into the future of medicine, where everything is focused on patint wellness.  Congratulations Kaiser.  You are leading the way.

Posted in: ACA | Changes in Medical Care

Need health insurance outside of the open enrollment period – consider the California Major Risk Plan (MRMIP)

If you didn’t sign up for individual health insurance in California during the open enrollment period, you’re not stuck.  A little known state program, Major Risk Medical Insurance Plan (MRMIP), may be your saving grace.  While no insurance company will offer you coverage outside of the open enrollment period unless you have a special circumstance, we just learned that the State of California’s MRMIP plan will enroll individuals into their “high risk” plan at any time of the year.

The Major Risk Medical Insurance Program is funded by the state’s tobacco tax.  This is a link to the MRMIP plan description and application. To be eligible you must:

  1. Meet the California residency requirement (i.e, not be out of state for more than 210 consecutive days); and
  2. Not be eligible to enroll in Medicare Part A or B; and
  3. Not be eligible to enroll in any other health insurance plan, including COBRA or Cal-COBRA.

You’ll also need a letter from an insurance company that has declined to offer you coverage within the previous 12 months. If you meet this criteria you should contact BenefitsCafe.com, 800-746-0045 and we can assist you with the MRMIP application.  We’ll become your agent and can assist you should you have any questions or difficulty – all at no additional cost.

No Enrollment Waiting Period and No Limit on Enrollment Duration

As of September 2015 MRMIP has no waiting period to enroll onto the MRMIP plan.  This is a big deal because before Covered California came into existence, MRMIP had a year’s long waiting list to get on the plan.   Also, years ago, MRMIP restricted coverage to a 36 month coverage period.  No longer.  Now, there is no wait to enroll and no limit on the duration of MRMIP coverage.

NOTE: You’ve got to enroll by the 10th of the month for coverage to begin the 1st of the following month and coverage only begins the first of each month.

Here are a few things that you should understand about the MRMIP individual plan:

MRMIP plans satisfy the mandate that everyone have medical insurance coverage.  This means that enrollees don’t have to pay the Federal Tax Penalty for medical insurance.  This is truly unbelievable. The Affordable Care Act (ACA, Obama Care) requires that all medical insurance plans have “Minimum Essential Coverage” or “MEC.”  This prevents people from buying really low cost plans with skimpy benefits.  Surprise, surpise, the Federal government has exempted all state run high risk programs from the MEC requirement.  That’s important because a unique feature of the MRMIP plan is that it limits the annual calendar year benefit to $75,000 and $750,000 lifetime.  Such low limits by any other insurance plan would violate the MEC requirements, but not on this plan.

At our prompting, MRMIP posted this FAQ which states that “MRMIP has been granted permanent MEC designation” by the Federal government.   So, despite these low yearly and life-time benefits, the MRMIP plans will enable an enrollee to avoid the Federal income tax penalty.

NOTE: The FAQ is very important because it directly refutes page 2 of the MRMIP brochure which advises applicants that “if you have only MRMIP coverage in 2015, you may be subject to a tax penalty for the 2015 tax year.  (You may have to pay a penalty of the higher of $325 per adult or 2% of your household income).”  Again, according to the FAQ, MRMIP coverage satisfies the IRS requirement for health insurance coverage.

Pre-Existing Condition Exclusions and Waiting Period: The PPO plan has a “Pre-existing condition” exclusion.  This means “any condition for which medical advice, diagnosis care, or treatment,including use of prescription drugs, was recommended or received from a licensed health practitioner during the six months immediately preceding enrollment in the MRMIP.  For subscribers and dependents enrolled in a PPO, there is a pre-existing condition exclusion period of three months. During this period no benefits or services related to a pre-existing condition are covered. However, subscriber contributions are paid during this period.” See page 4 of the brochure.  The HMO has a 3 month “waiting period” where coverage won’t begin (and you don’t pay any premium) for 3 months after enrollment.  This applies to people with no prior coverage.  After the third month, coverage begins without limitation to pre-existing medical conditions.

An interesting note is that according to the MRMIP staff, coverage in a short term policy will not impact one’s ability to obtain a MRMIP plan.  Also, the time on a short term plan will count towards the three month pre-existing waiting period.  So, if you have a short term policy for three months and then move to a MRMIP plan, you will not have a pre-existing exclusion or waiting period.  See the section on “short term coverage” below.

What are the benefits of the MRMIP individual plans? 

MRMIP Plan Benefits (NOTE: the calendar year and lifetime limits described above apply to both plans)

Anthem Blue Cross offers a $500 deductible PPO plan with $25 Dr. Office visit copayments.  The plan pays 85% for most services in-network and 50% for out of network services.  See page 9 of the brochure.  The calendar year out-of-pocket limit is only $2,500 per member, $4,000 per family.  A major feature of the PPO plan is that it includes the FULL ANTHEM PPO provider network, not the limited PPO networks that are coupled with other Anthem individual plans.

Kaiser Permanente offers an HMO plan plan with a $500 calendar year deductible.  You must pay the deductible before you can begin to pay copayments for medical services.  The plan has $20 Dr. Office visit copayments and $200 per day in-hospital charges.  The calendar year out-of-pocket limit is only $2,500 per member, $4,000 per family.

What are the rates of the MRMIP individual plans? 

MRMIP uses only three variables to determine the rates: geographic area, age and plan type (PPO or HMO).  One interesting feature is that the rates use “age bands” so that it is the same rate for a person age under age 15, age 15-29, 30-35 and then 5 year age categories. The rates for these plans seem pretty affordable compared to the rates for unsubsidized individual coverage.  For example, a 34 year old in Los Angeles (area 5) would pay $378.31/month for the Anthem PPO and $332.67/month for the Kaiser HMO plan.

What about short term medical insurance? 

Short Term Coverage: Short term medical insurance plans had been the only option for people who didn’t enroll during the open enrollment period.  Short term policies however often exclude coverage for pre-existing prescription medicine and other conditions.  Worse yet, the short term policies normally do not meet the “minimum essential benefits” (MEC) criteria and a person with a short term medical plan must likely still pay the tax penalty associated with having no health insurance. If you’re not eligible for the MRMIP plan, you may want to enroll in a short term plan. The staff at BenefitsCafe.com can assist you with selecting and applying for a short term policy.

MRMIP may be a life saver to those who can’t otherwise obtain coverage.  Click here to get the MRMIP application and give us a call at 800-746-0045.

Posted in: ACA | Covered California | Health Benefit Exchange | Individual Medical Insurance Articles

IRS Forms 1094-C and 1095-C – employers must complete for 2015 tax year

Like the W-2 forms that employers give to employees and the IRS that report wages; beginning in 2016 employers with 50 or more employees must give employees and the IRS a completed 1095-C form .  The 1095-C reports on an employee’s medical insurance coverage.  Few people know that form W-3 is the cover transmittal form for all W-2s sent to the IRS.  Like a W-3, employers will also submit form 1094-C to the IRS as a cover transmittal page.  This IRS Brochure describes the information that “Applicable Large Employers” (ALE) must keep track of on a monthly basis.

“ALE” Employers need to keep track of all employees and be able to identify which month an employee was:

  1. eligible and enrolled in coverage;
  2. eligible and not enrolled (waived or declined coverage);
  3. not eligible (in the new hire waiting period or part-time hours).

Employers should be able to get this information from two documents:

  • monthly health insurance invoice which lists the enrolled employees; and
  • monthly payroll report of all employees.

Most payroll companies should have systems to enable employers easily track this data. Of course, the payroll companies may charge a king’s ransom to do this not-to-difficult job.  Click here for the IRS instructions to forms 1094-C and 1095-C.

If you’d like us to assist you with your employee benefits and become your agent, please call us at 800-746-0045 and ask to speak with Bruce Jugan.

February 20, 2015

Posted in: ACA | Health Insurance Reform | Large Group Medical Insurance Articles

Do Employers Need to Give Employees IRS Form 1095-C in 2014 for Health Insurance Coverage in 2014?

In January employers traditionally issue tax documents to their employees for the previous year.  Many employers who offer group health insurance to employees are confused about when and which Obama Care (ACA) forms they must submit to the IRS and to their employees.  The good news is that in July, 2013 the IRS issued Notice 2013-45 which gave large employers “transitional relief” from the “shared responsibility” penalties.   The IRS requires “Applicable Large Employers” (ALE) to file this information beginning in 2016 for the 2015 tax year.

Form 1095-C is a requirement of section 6056 of the Tax Code. This page on the IRS website describes how employers can comply with Section 6056: Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056)

Specifically, you should see question #2.  Below I bolded the IRS statement that the reporting requirements do not apply for 2014:

  • 2.  When do the information reporting requirements go into effect?

The information reporting requirements under section 6056 are first effective for coverage offered (or not offered) in 2015.  An ALE member must file information returns with the IRS and furnish statements to employees beginning in 2016, to report information about its offers of health coverage to its full-time employees for calendar year 2015.

Notice 2013-45 provides transition relief for 2014 from the section 6056 reporting requirements and the section 6055 reporting requirements for health coverage providers and, thus, the section 4980H employer shared responsibility provisions as well. Accordingly, neither the reporting requirements nor the employer shared responsibility provisions apply for 2014.  The transition relief applies to all ALE members including for-profit, non-profit, and government entity employers.  However, in preparation for the application of the employer shared responsibility provisions beginning in 2015, employers and other affected entities may comply voluntarily for 2014 with the information reporting provisions and are encouraged to maintain or expand coverage in 2014.  Returns filed voluntarily will have no impact on the tax liability of the employer.  For more information about voluntary filing in 2015, including the requirements for filing electronic returns, see IRS.gov.

 

 

Posted in: ACA | Health Insurance Reform | Large Group Medical Insurance Articles

Group Health Insurance Rates Increase for 2015

Last week the Los Angeles Times reported that large employers estimate that the cost of group health insurance will increase about 5% in 2015.  I was quoted in the last two paragraphs of the article, talking about the 2015 rate increases for California small businesses.  We’ve seen rates increase from a few percent to twenty percent depending on the characteristics of the employees.

While there are winners and losers among California employers; we have been able to change our clients to different insurance companies and different plans so that in most cases they won’t have any increase and many of our clients will pay less for group health insurance in 2015 than they did in 2014. 

Without making any changes, the winners seem to be small groups with the following characteristics:

  • they already offer rich benefits (e.g., $250 deductible PPO plans with $2-3,000 out of pocket limits),
  • have older employees,
  • have few or no dependents, and
  • have higher than average rates (i.e., small groups with a 1.10 Risk Adjustment Factor).

These companies are able to change to a new plan and save money.

On the other hand, the losers seem to be:

  • groups that pared back benefits in 2013 (i.e., high deductible);
  • have younger employees;
  • included coverage for dependent spouses and children; and
  • may have had a low rate (0.90 RAF) under a pre-ACA plan.

Many of these groups took advantage of the “R.A.F. Special” that insurance companies offered in 2013.  Consequently they had low rates going into 2014.  Now, the RAF system is gone – it has been replaced by a single rate for each insured person.  Pre-ACA rates were based on an age range (e.g., 30-39 years old) for the employee and a composite rate for dependents. Now, ACA rates are based on the specific age of each employee, spouse, and child.  This results in much higher family rates than in 2013.

One bit of relief for employers facing large rate increases is the “grandmother” option. It allows small companies to keep their 2013 plan for another year.   The grandmother rates increase slightly for many groups to double digits for others.  As I said in the LA Times article, this allows business owners to “kick the can down the road and see what next year holds.”

Posted in: ACA | Health Insurance Reform | Large Group Medical Insurance Articles | Small Business Articles

For the Third Time DOL & IRS say an Employer Can NOT reimburse employees for individual health insurance plans

Today the U.S. Department of Labor released yet another notice/guidance/ “FAQ” instructing employers that “an employer health care arrangement cannot be integrated with individual market policies to satisfy the market reforms.”  Obstinate vendors continue to push their high cost TPA services and claim that an employer can cancel a group health plan and replace it with a Section 105 HRA reimbursement arrangement.  They cannot.  Hopefully these vendors will read this FAQ and finally get the message.

Today’s FAQ by the DOL is the third time DOL, IRS and HHS have written to inform everyone that a reimbursement arrangement using individual health insurance plans is illegal and employers who use these arrangements can face large penalties.

As the IRS said in its updated guidance today: “DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On Jan. 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On Nov. 6, 2014, DOL issued additional FAQs that address the application of the Affordable Care Act to HRAs and other payment arrangements.”

The message should be clear to employers: you cannot cancel your group plan and reimburse employees who purchase individual health insurance plans.

Posted in: (SHOP) Covered California Small Business Articles | ACA | Health Insurance Reform | Individual health insurance vs group health insurance | Individual Medical Insurance Articles | Large Group Medical Insurance Articles | Small Business Articles

Vivity: the new hope for health care

Last night, I attended the most unbelievable health insurance industry event in my 20 plus year career. Held at the Grammy Museum in Downtown Los Angeles, Anthem Blue Cross hosted a small group of benefits consultants, agents and brokers to learn about Vivity. Vivity, I discovered may just turn the health insurance industry upside down.

The first clue that this was a different event was when I sat at a table to eat some of the wonderful food. I met a woman who works at UCLA Medical Center. Next to her was a man who works for Cedars-Sinai Medical Center…. Rarely, seldom, never does one meet people from a hospital at a health insurance industry event. This was definitely different.

Next, I had the good fortune of running into Mark Morgan, the dynamic president of Anthem Blue Cross of California. I told him how odd it was to see hospital people at an insurance industry event. He told me about the collaboration that Anthem Blue Cross is doing not only with hospitals but also with other insurance companies. He told me about CalINDEX, where Anthem Blue Cross and Blue Shield will share patient medical records to help doctors and hospitals provide better care for patients. The CalINDEX website says that it will “Provide patients with a seamless transition between health plans or across various healthcare professionals and hospitals.” I interpret that to mean that a doctor could access a patient’s medical records from a central data base – aiding the doctor’s diagnosis and avoiding unnecessary tests. That is amazing. Long overdue. The right thing for sure.

The evening event soon went from unbelievable to surreal. Everyone moved from the outdoor terrace to a meeting room with a stage in the Grammy Museum building.  There, Pam Kehaly, President of the West Region of Anthem Blue Cross, introduced and shared the stage with three hospital CEOs: Andy Leeka, Good Samaritan Hospital, Los Angeles; Jim West, PIH Health (Whittier Presbyterian Hospital); and Craig Leach, Torrance Memorial Hospital.  See the photo below.

Vivity Kick Off event, Los Angeles October 6, 2014

Vivity Kick Off event, Los Angeles October 6, 2014

In a series of questions and answers they described Vivity, which is a contractual relationship between Anthem Blue Cross and seven of the very best hospitals in Los Angeles:

  • Cedars-Sinai,
  • Good Samaritan Hospital,
  • Huntington Memorial Hospital,
  • MemorialCare Health System,
  • PIH Health,
  • Torrance Memorial Medical Center and
  • UCLA Health.

Anthem and the hospitals will share in the risk for an HMO patient population.  The hospital execs described how they worked together to reach an agreement where they will share best practices; share risk; and collectively work to improve outcomes for patients.  This is a game-changer for health insurance.  Right before my eyes I saw the top executives from the top hospitals with the top executive from the top insurance company pledge to offer high quality medical care at lower cost.  They described how they have aligned incentives for everyone to provide top patient care.  If they can do that cost-effectively, they will share in the savings.  If not, they will collectively share in the loss.

As you can imagine, the brokers in the audience had to pinch themselves to make sure that they were not dreaming.  We, the brokers, represent the employers and their employees who pay the monthly insurance premium.  Our clients pay for all of the doctors, hospitals, MRIs, etc.    Everyone wants high quality health care at a low cost.  Of course the proof will be in the pudding, as they say.  We’ll have to see how Anthem prices the Vivity HMO product and if the hospitals and their medical groups can achieve their goal.  We desperately want Vivity to succeed.

When enrollment begins January 1, 2015, Vivity will only be available to large employers with 51+ employees.  Anthem anticipates opening this to small group and individual members in the future.  As more than one panelist said last night, this is a long term project.  The hospitals, medical groups and the insurance company see this as a necessary step in the evolution / transformation of our health care delivery system.  I just never thought that I would see it in my lifetime.  I am delighted.  Good Luck Vivity!

by Bruce Jugan, October 7, 2014

 

Posted in: ACA | Changes in Medical Care | Large Group Medical Insurance Articles | Small Business Articles

Group Health Insurance vs Individual Coverage: Compare After-Tax Cost, Provider Networks & Plan Benefits

Offering group health insurance to employees often seems like a headache that businesses would rather do without. Changes from the Affordable Care Act (ACA, Obama Care) have caused some employers to wonder if there is an easier way to provide benefits for their employees. Perhaps a company could give employees a salary bonus or “taxable discretionary wellness stipend” so that employees can buy their own individual medical coverage.  After all, the ACA requires everyone to buy health insurance and it forbids insurance companies from declining coverage. Maybe individual coverage is a viable option.  While we don’t give tax advice – you should contact your accountant or CPA – we have done some research on this topic and this article describes what we’ve found.

Other than sponsoring a group health plan, a salary bonus not tied to any medical insurance seems to be the only legal way for an employer to help employees buy health insurance.  The IRS explicitly prohibits employers from reimbursing employees for individual coverage.    Click on this article to see the pitfalls of reimbursing employees for individual medical insurance coverage.

 If you’re considering a salary bonus for employees to purchase their own individual medical insurance you should consider the following:

 1. Newly hired employees may not be able to purchase individual health insurance policies.  By law, health insurance companies can only sell individual coverage during the “open enrollment period” (November 15, 2014 – February 15, 2015).  The only exception is if a person has a special qualifying event.  So, if your company hires someone who doesn’t already have health insurance; he/she will not be able to purchase an individual policy until the next open enrollment period.  Coverage would begin January 1st of the following year at the earliest.   This could be a major drawback for candidates seeking employment who need health insurance coverage for themselves and their families.

 2. Individual plans have significantly fewer in-network doctors and hospitals.  Except for Kaiser, all of the California health insurance companies use “limited” or “narrow” provider networks for their individual plans.  Conversely, group plans offer full, medium and small networks. The LA Times reported that for 2015 “the state’s largest health insurers are staying with their often-criticized narrow networks of doctors, and in some cases they are cutting the number of physicians even more.” Finding doctors in an individual plan’s network is such a big problem that the L.A. Times created its own searchable provider data base.  With fewer in-network providers, employees will have difficulty obtaining discount services from their current doctors.

3. Few insurance companies offer individual plans and they offer few plan designs.  Unlike group plans where Aetna, Anthem, Blue Shield, Health Net, Kaiser and United Health Care offer PPOs, HMOs, and HSA plans with in and out-of-network benefits throughout the state; only a few insurance companies offer individual coverage and those that do have limited plan choices. For example, Anthem Blue Cross only offers an HMO and an “EPO” (i.e., Exclusive Provider Organization that has NO out-of-network benefit) and to individuals and families in Los Angeles, Orange and San Diego Counties. Similarly, Health Net and Blue Shield offer EPOs or no plans in many parts of California; see Covered California Health Insurance Companies and Plan Rates for 2015.

4. A salary bonus reduces the health insurance tax subsidy to which an employee may be entitled.  The government offers subsidies for health insurance to individuals who earn up to $46,680 per year in 2015. The subsidy increases with larger family size. A salary bonus or taxable stipend increases a person’s wages so it reduces any government subsidy.

5. Individual health insurance premium is not tax deductible for employees.  The IRS does not allow employees to deduct the premium for individual health insurance from their personal income taxes. (Footnote 1 below) Accordingly, employees must pay for individual health insurance policies with after-tax dollars.  In contrast, the IRS allows full tax deductibility of employee paid group health insurance premium through Section 125 of the Tax Code.  Federal and California state income taxes are very high and the lack of tax deductibility is a huge draw back for individual coverage. See #7 below.

6. Employers spend more in payroll taxes and worker’s compensation insurance when they pay a wage vs. offering a tax-deductible group health plan.  If you have employees then you know that Federal law requires employers to pay FICA payroll taxes for Medicare (1.45%) and Social Security (6.2%) (total 7.65%) on wages paid to W-2 Employees. Additionally, every dollar paid to an employee as a wage is included in the calculation for worker’s compensation premium (likely 3% for service businesses and much higher for more hazardous occupations.)  This results in a tax penalty to the employer of over 10% when paying a salary bonus. In contrast, employer and employee paid group health insurance is fully tax deductible as a business expense and not subject to FICA taxes or worker’s comp premium.

7. Employees must pay income taxes and payroll taxes on wages vs. receiving non-taxable group health insurance benefits.  This is a huge tax penalty. As an example, in 2015 the marginal Federal income tax rate for a single employee with $100,000 of taxable income is 28%.  The marginal California income tax rate is 9.3%.  Accordingly, when this employee receives a salary bonus or a taxable wellness stipend to pay for health insurance he/she must deduct 7.65% for FICA taxes, 28% for Federal income taxes, and 9.3% for California state income taxes, totaling 44.95%.  This results in a tax penalty to the employee of approximately 45%.

8. Likely, one half of the money paid towards a salary bonus for an employee‘s health insurance would go to taxes or additional worker’s compensation premium.   Assume that a company paid employees a $500/month taxable bonus – for which the employer cannot require the employee purchase medical insurance. This would cost the company $550/month ($500 x 10%) or $6,600/year. Depending on the tax bracket, the employees would likely net $275/month ($500 x (1 – 0.45, or 55%) or $3,300/year.  It makes no financial sense for a company to pay $6,600/year and have an employee net $3,300/year to pay for health insurance. Tax and worker’s comp savings are THE major reasons that companies sponsor group health insurance plans rather than offering a fully taxable salary bonus.

In the example above, the company would be much better off if it sponsored a group health plan and paid $3,300/year ($275/month) towards the health insurance premium. The company would save $3,300/year ($275/month) and the employees would have access to significantly better group health insurance plans.

An employer sponsored group health insurance plan avoids unnecessary taxes and additional worker’s comp premium. Newly hired employees can join the plan immediately or after a few months and many insurance companies offer a large selection of plans that include the full provider networks. A salary bonus intended for health insurance is extremely tax inefficient and forces employees to purchase inferior health insurance plans in the individual market.

The staff at BenefitsCafe.com can assist you with a group or individual policies. Give us a call at 800-746-0045  Click here to learn more about employer-sponsored medical insurance coverage. Click here to get a quote for group health insurance.

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Footnote 1: According to the IRS’ guidelines for the deductibility of medical expenses, you can deduct health insurance premium if your total medical expenses for diagnosis, cure, mitigation, treatment and health insurance premium total more than 10% of your adjusted gross income, then “you may deduct only the amount by which your total medical expenses exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older.” 

Posted in: ACA | Covered California | Health Insurance Reform | Individual health insurance vs group health insurance | Individual Medical Insurance Articles | Large Group Medical Insurance Articles | Small Business Articles