Health Reform Creates New Challenges for Specialty Care
by David C. Olsen • The rise of specialty care in  the age of health reform raises critical questions for insurance payers.
Healthcare Reform
Carriers Inject Insight Into America’s Healthcare Reform

by Leila Morris • Carriers give detailed responses to give brokers a better idea of how to navigate healthcare reform with their clients.
The Patient Protection & Affordable Care Act:
Implementation, Repeal, and the Opportunities

by Jeremy R. Scott, MA • While many in the media and Congress are discussing the potential of a repeal, the law continues to be implemented and there are numerous ways for interested parties to influence how the law is finally interpreted.
Our 11th Annual PPO Survey Part II
by Leila Morris • Seven PPOs in California diligently answered direct questions about their plans. Our readers suggested many of the questions. We hope this information will help the professional agent or broker better serve sophisticated healthcare clients.
How Brokers Can  Survive Healthcare Reform: Demonstrate Value to Your Customers
by David Zanze • If brokers are going to survive healthcare reform, they will need to do more than just sell options for health benefit plans.
How to Market Your Services to Different Ethnic Groups in Your Geographic Area
by Tom Borg • By becoming aware of your potential ethnic market, you may open up an opportunity to serve your real customer base.
Working with Workers’ Compensation: 10 Costly Return- To-Work Mistakes
by Kevin Ring • A strong return-to-work focus improves an employer’s bottom line even in difficult economic times.
Life Insurance
Bright Future for Life Insurance Market
by Michael Naumann • The world through a new looking glass has given life insurance a facelift — there is no better time to tout its many advantages.
Disability Income Protection – A Primer Part I
by Lawrence Schneider • Your client should apply for disability coverage as early as possible even
if they can’t immediately afford the 2% to 4% of income for the full benefit amount, benefit period, and options.
Planning for Long-Term Care with an Annuity Contract
by Daniel Herr • The recent economic downturn was a stark reminder that unforeseen factors can threaten a retirement lifestyle and change the course of thinking among those who are saving for their future.
Voluntary Benefits
The New Rules of the Game: Take The Scary Out Of Voluntary
by Christina W. von Pingel • Voluntary plans give employees a chance to reduce their exposures based on their individual needs.

Wellness–Health Care Reform Creates New Challenges for Specialty Care

by David C. Olsen

By 2014, the number of Americans covered by health insurance will swell by an estimated 32 million Americans, a total roughly equal to the entire population of Canada. That is when the principle regulation under the federal Patient Protection and Affordable Care Act takes effect, extending medical coverage to most of the nation’s uninsured.

The mandate is designed to provide health benefits to more than 90% of Americans. The number in California is even higher – 94% of the state’s population is expected to be covered by a health plan by 2014, compared to 80% in 2009.

This change and others included under health reform will create a host of complex challenges for employers, health plans, plan administrators, and other traditional insurance payers. One major challenge is that the new law eliminates annual and lifetime dollar caps on benefits, which insurers have used for decades to help control costs.

Specialty Care

This lack of limits has special implications in one of the fastest-growing sectors of the health system – specialty care. This category includes a range of services, including physical, occupational, and speech therapies. It also encompasses so-called complementary and alternative medicine, such as chiropractic, acupuncture, and massage therapy.

More and more Americans are turning to complementary and alternative medicine. A 2009 study sponsored by the National Institutes of Health showed that almost 40% of adults –  many of them Baby Boomers – annually use some form of complementary or alternative medicine.

Chiropractors are the largest group of alternative medical providers in the United States, and in California, where there are more chiropractors per person than any other state. More than 13,700 have active licenses in California.

Six to 12% of Americans are under the care of a chiropractor at any given time, often because of low back pain. Today, most private insurers and many self-funded plans cover some chiropractic services and all states cover chiropractic under workers’ compensation.

Chiropractic care also will be a covered benefit under the healthcare reform law, along with acupuncture. More than 16,000 acupuncturists are licensed in the United States and a full third of them work in California. The World Health Organization recognizes acupuncture as an appropriate treatment for more than 40 conditions, including back pain, post-chemotherapy nausea, and fibromyalgia.

Medical researchers are finding increasing evidence of acupuncture’s effectiveness. For example, a randomized clinical trial by the Mayo Clinic in 2006 showed that fibromyalgia patients who underwent acupuncture versus a sham treatment found significant relief from their symptoms. Studies such as these have prompted the Mayo Clinic and many other large delivery systems to move toward integrating complementary and alternative therapies with conventional medical care.

But the rise of specialty care in the age of health reform raises critical questions for insurance payers. Among them: How do you control costs without dollar limits on care, especially given the history of over-utilization among many chiropractors? How do you define appropriate care when it comes to acupuncture  – a 2,000-year-old Chinese healing practice of which the efficacy is still being explored?

Many health plans, employer coalitions, and third-party administrators are answering these questions by turning to specialty managed care companies. As the name implies, these companies focus solely on managing networks of specialty health practitioners, and can provide the knowledge, expertise, and resources that traditional health insurers often lack in this arena or that choose to focus their care management resources on other priority medical claims expenses.

But not all specialty care management companies are created equal. Some are controlled by the practitioners themselves, as with many chiropractic networks. That sort of self-governance can lead to policies and practices based on self-interest, rather than the most cost effective, appropriate care for patients.

Specialty Managed Care Networks

The best specialty health care networks are run by experienced health benefits professionals who are fully accountable to their payer partners and their members. These specialty health network managers apply rigorous clinical and cost-management practices based on state-of-the-art, evidence-based research.

One model employs a proprietary tiered fee schedule. Consider a network of chiropractors. Simply put, the system would reward practitioners who provide the most cost-effective, quality care. It would also provide incentives for improvement for chiropractors who do not meet established cost and quality measures. Metrics are used to create a profile of each physician, such as the average cost per episode of care, average cost per visit, and the percentage of a provider’s patients receiving X-rays. Each chiropractor’s profile is compared to their peers practicing in the region.

Chiropractors in the top tier demonstrate strict adherence to proven best practices and receive the highest level of reimbursement per service. For treating lower back pain, clinical best practices include completing a health history of the patient before beginning treatment, which may include spinal adjustment for pain relief.

Top-tier doctors also follow a patient-centered educational approach with patients, rather than encouraging multiple visits. This approach includes advising patients to stay active, and giving them information about effective self care options, such as at-home exercises, hot-packs, and over-the-counter pain relievers.

Practitioners in the lowest tier generally have a history of over-utilization, meaning they may encourage frequent visits for treatments that are not deemed clinically necessary, such as numerous X-rays, or they have recently been added to the network. They receive the lowest level of reimbursement and may be expelled from the network if they fail to improve their practices. Such rigorous managed care is critical under health reform, especially with the across-the-board elimination of dollar limits on fees for service.

The Affordable Care Act also puts pressure on insurance carriers to hold down premiums and administrative costs. Under health care reform, 80% to 85% of all premium dollars must be spent on benefits and quality improvement. The federal government’s official site,, goes on to say, that if insurance companies do not meet these goals because their administrative costs or profits are too high, they must provide rebates to consumers.

Under such pricing constraints, all practitioners must demonstrate efficacy and cost-effectiveness to justify coverage. Today’s sophisticated specialty managed care companies have the focused knowledge, expertise, and tools to reach those goals in the realm of specialty and complementary care.

Evaluating Specialty Managed Care Organizations

When evaluating specialty managed care organizations, look for those with the following attributes:
A documented history of providing cost savings to their partners.
Management systems to control claims costs and improve quality.
Clinically sound guidelines across provider disciplines.
Proven administrative efficiencies in claims flow, customer service, data transfer, etc.
Organizational orientation toward continuous quality improvement.
Sound financial performance and stability, which is especially important in capitation/risk-sharing arrangements.
Network stability, resulting in minimal member disruption and/or complaints.
Reasonable geographic coverage with the flexibility to expand the network to meet client and members’ needs, or the ability to reduce network size to payer requirements.
Accreditation from or compliance with the network management and utilization standards of the National Committee of Quality Assurance (NCQA) and/or URAC.
David C. Olsen is president and CEO of HSM, a company providing specialty managed care services. The author may be contacted at

Carriers Inject Insight Into America’s Health Reform

by Leila Morris
Below are the responses to our first annual health reform survey, which was created by the Los Angeles Assn. of Health Underwriters (LAAHU). We sent the survey to the major health plan carriers in California, but only three agreed to participate. While we would have liked to have participation from all the carriers, these detailed responses should give brokers a better idea of how to navigate healthcare reform with their clients regardless of which plans they are selling. We hope that, as health reform provisions begin to jell, we will have greater participation in our second annual survey. If we receive responses from additional carriers this year, we will publish an addendum to the survey in the magazine and online.

Health reform expert, Michael Bertaut of Blue Cross Blue Shield of Louisiana offered insight on the general health reform issues.

Note: Carriers may have multiple answers based on group size. If there is only one answer to a question, it’s because the answer applies to all group sizes. Not all questions were answered by carriers that participated.

Will you offer two different sets of medical plans for small group contracts (grandfathered and non-grandfathered)?

Blue Shield: For small groups: Yes, small groups are eligible for grandfathered status. Groups that opt out of grandfathered status (or make decisions causing them to be ineligible for grandfathered status) will have access to the same plans and products as groups with grandfathered status. However, that may change in the future.

For large group contracts: No, large groups with standard products are not eligible for grandfathered status. Grandfathering is available for eligible custom large group accounts.

For individual policies: Yes, most individual contracts are eligible for grandfathered status, with the exception of “EssentialS Plans” and “Access + HMO.” Individuals who opt out of grandfathered status or make decisions that cause them to be ineligible for grandfathered status will have access to the entire current portfolio of IFP plans.

CIGNA: The decision to remain grandfathered or not rests with the employer.  CIGNA works with clients to determine the best approach for their business. We do offer products that would work for clients and individual customers who are grandfathered and not grandfathered. Individual plans were not grandfathered. All products were updated as of 10/1/10 to make available, where appropriate, the benefits required by PPACA.

Kaiser Permanente: For small groups: Yes, Kaiser offers grandfathered and non-grandfathered small group plans, but the plan designs are the same for grandfathered and non-grandfathered versions of a plan.
For large groups: Yes, Kaiser offers grandfathered and non-grandfathered large group plans.
For individual plans: Yes, Kaiser offers grandfathered and non-grandfathered individual plans.

Will a broker’s clients have to comply with PPACA starting with their first anniversary after September 23, 2010? (Their first anniversary would the same as their annual renewal date. It would be the first renewal that occurs after 9-23-2010 for large group contracts):

Blue Shield: Yes, the group would be required to comply with PPACA reforms upon renewal on or after September 23, 2010 or upon their ERISA renewal date, whichever is earliest.
For individual policies: Yes, for Blue Shield individual and family plans, the plan renewal date is January 1, 2011.

Kaiser Permanente:
Yes, assuming that the anniversary date is also the first day of the plan year for the group health plan (or the first day of the policy year for individual policies).

How can employers notify their employees of plan changes 60 days ahead of time (as required by PPACA) if not all renewals are provided 90 to 120 days before the anniversary with a small group?

Blue Shield: As directed by the federal agencies, this requirement is not in effect. When the federal agencies issue guidance, Blue Shield will modify notifications to be compliant. We will provide additional information about how we will assist in this notification as soon as the guidance is issued.
With a pooled mid-size group: As a general rule, mid-sized renewals are provided approximately 90 days ahead of renewal.
For a large group: As a general rule, large group renewals are provided at least 90 days ahead of renewal.

The PPACA requires a group health plan or health insurance issuer to notify individuals 60 days before any material change in any of the terms of the plan or coverage that is not reflected in the most recently provided summary of benefits and coverage. CIGNA interprets this to be effective March 23, 2012.

The provisions require employers to provide a notice of material modification and to develop standardized benefit summaries. The Secretary is to issue standards for the SPD and coverage explanation no later than 12 months after enactment (March 23, 2011). Group health plans are required to comply with this request no later than 24 months after enactment (March 23, 2012).

Once effective, employers will have difficulty complying with the 60 day prior notice requirement if they are not apprised of any plan changes far enough in advance of the proposed effective date of those plan changes. Unless further regulatory guidance is provided before the requirement is effective to suggest otherwise, insurers and employers will have to collaborate to determine any plan changes further in advance or delay implementation date of changes to assure compliance with the 60-day requirement.

Kaiser Permanente:
Answer number three in the federal agencies
December 22 FAQs confirms that this notice requirement does not go into effect until group health plans and insurers are required to provide PPACA summaries of benefits and coverage (by March 23, 2012). We expect that the federal agencies will clarify the notice requirement in regulations or other guidance.

When will you provide the uniform explanation-of-coverage documentation?

Blue Shield: We will provide additional information about the uniform explanation-of-coverage as soon as the regulations are issued. Until final regulations and other guidance are issued on this point, we won’t know the specific requirements to meet reforms for the uniform explanation-of-coverage.

Kaiser Permanente: We will provide the PPACA summaries of benefits and coverage when this requirement becomes effective (by March 23, 2012).

Do you have a document brokers can use to explain to clients how PPACA will affect costs in group plans?

Blue Shield: The impact of PPACA is explained in each group’s
renewal packet.

CIGNA: CIGNA offers clients and customers regular updates. We have our “Informed on Reform” page on our website to assist clients and customers. We also hold regular Webinars to update brokers about PPACA. We encourage brokers to speak with their representative about these Webinars.

Kaiser Permanente: Kaiser Permanente does not have an external document referencing the impact of PPACA on customer costs. However, the average rate impact from the inclusion of Lifetime and Annual Limits, Dependent Coverage to Age 26, and Preventive Services at $0 Cost Share is about 1.35% for our plans. Competitive data indicates this is less than the rate impact from other carriers. The additional cost of compliance is lower for Kaiser Permanente than it is for most of our competitors because we were already providing preventive services at higher levels compared to most other health plans.

If the employer is keeping their grandfathered status will you add PPACA preventive benefits automatically upon renewal after 9-23-2010 (even when not required)?

Blue Shield: Yes, all small group medical plans will incorporate the new preventive care benefits upon renewal on or after September 23, 2010. All mid-size standard medical plans will incorporate the new preventive care benefits upon renewal on or after September 23, 2010. All large group standard medical plans will incorporate the new preventive care benefits upon renewal on or after September 23, 2010. The new preventive care benefits will be incorporated upon the group’s discretion for all highly customized and ASO large groups that are grandfathered.
Small group: Yes.
Pooled mid size group: Groups with grandfathered coverage may choose when or if they want to have our new preventive care package.
Large group: Groups with grandfathered coverage may choose when or if they want to have our new preventive care package.

Can an employer opt out of receiving PPACA Preventive Benefits to lower renewal pricing?

CIGNA: No, the requirement that group health plans and health insurance issuers cover preventive care services with no enrollee-cost sharing only applies to non-grandfathered plans. But if a plan is non-grandfathered, it cannot avoid the mandate. This mandate is consistent with CIGNA’s belief that prevention and wellness are critical to keeping costs down and, more importantly, maintaining the health and productivity of its clients and customers. Therefore, CIGNA encourages full coverage of preventive care services even for grandfathered plans that are not subject to the mandate.

Kaiser Permanente:
Small groups: No, this applies to both grandfathered and non-grandfathered group coverage.
Pooled mid size group: Yes, for grandfathered group coverage; No, for non-grandfathered group coverage.
Large group: Same policy as mid size groups.

Who determines the employer’s grandfathered status — the carrier or the employer?

Blue Shield: Grandfathered status is determined by Blue Shield
based on information provided by the employer.

In pooled mid size group plan: Grandfathered status is not offered to standard midsize (and large) medical groups.
In large group plans: Grandfathered status is determined by the employer with assistance by the carrier for highly customized and ASO groups.

Kaiser Permanente: We think that both the employer and the carrier must agree if a group health plan and coverage are going to be treated as grandfathered.

Can an employer retain grandfathered status if they upgrade benefits under your policies does?

Blue Shield: If a grandfathered small group employer changes their medical plan to obtain increased benefits, their grandfathered status will be lost. In pooled mid size group plans: Grandfathered status is not offered to standard midsize medical plans. In large group plans: Grandfathered highly customized and ASO groups may upgrade their medical plan benefits and maintain their grandfathered status.

Kaiser Permanente:
Yes, employers can add new benefits without causing their coverage to lose grandfathered status.

Do your grandfathered plans include preventive services with no cost sharing? If so, how will the plans be differentiated in small group plans if an employer wishes to retain grandfathered status in subsequent years?

Blue Shield: All small group medical plans include preventive services at no cost sharing, regardless of grandfathered status. In pooled mid size group plans: All standard midsize medical plans include preventive services at no cost sharing.
In large group plans: Preventive services at no cost sharing is at the grandfathered group’s discretion for highly customized and ASO large medical groups. These are not standard plans available to all midsize/large group clients.

Kaiser Permanente:
Small groups: Our current small group plan designs are the same for grandfathered and non-grandfathered versions of a plan. Starting with October 1, 2010 renewals, all include the PPACA preventive services benefit.  Grandfathered coverage will include the grandfathering disclosure statement in the EOC.
Pooled mid size group: Grandfathered plans do not include the PPACA preventive services benefit unless the group requests this benefit.
Large group: Same policy as mid-size applies

Are your rates the same for non-grand-father-ed and grandfathered plans? If the rates are not the same and a client is with your company, can the broker request quotes for upgraded plans with grandfathered rates in small group plans?

Blue Shield: All small group medical plans are provided at the same rate regardless of grandfathered status. In pooled mid size group plans: Grandfathered status is not available to standard midsize medical plans.

In large group plans: Rates for non-grandfathered and grandfathered highly-customized and ASO group medical plans are based on specific client information and are not standard.

Kaiser Permanente Small groups:
Our rates are the same for grandfathered and non-grandfathered versions of a plan.
Pooled mid size group: Our rates can be different for grandfathered and non-grandfathered versions of a plan.
Large group: Same policy as mid size applies

How are you segregating your pools? Do you intend to pool grandfathered plans with non-grandfathered plans?

Kaiser Permanente: At this stage, we are not re-segmenting our business line into GF and non-GF pools in any regions.

Small group question: Suppose that an employer offers all plans and all of the employees are enrolled in plans A and B. But, a new hire who is now eligible for coverage wants to enroll in plan C, will that end the grandfathered status for all employees? Does it change if small group plan C has higher or lower deductibles, coinsurance, or out-of-pocket costs?

Blue Shield: That plan does not qualify for grandfathered status no employees were enrolled in Plan C as of 3/23/10.

Kaiser Permanente: If a new employee enrolls in plan C, it will not affect the grandfathered status of plans A and B.

Small group question: Will the new hire on small group plan C get grandfathered status?

Blue Shield: No, since plan C did not have membership; it is not eligible for grandfathered status.

Kaiser Permanente:
Group health plans and coverage can have grandfathered status, but people cannot. Plan C would not be grandfathered because there was not at least one person enrolled in it since March 23, 2010. [Question 14 says that all employees are enrolled in A and B, so we already know that no one is enrolled in C.]

Small group question: Suppose the employer (Sole Proprietorship) offers all plans. Is it discriminatory if the owner is enrolled on the lowest deductible PPO plan and all other employees are enrolled on a higher deductible plan?

Blue Shield: No, as long as all plans are available to all employees.

Kaiser Permanente:
Possibly; however, there have been recent changes to the § 2716 [the ‘105(h)’-based nondiscrimination rule]. That states “compliance with § 2716 [the ‘105(h)’-based nondiscrimination rule] should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued.”  An additional comment period on the new nondiscrimination rule was open until March 11, 2011, after which time the anticipated regulatory guidance will be issued followed by a certain period of time before the new rules take effect. Employers are encouraged to work with their advisors to make known their concerns and submit further comments, as appropriate, by the March 11, 2011 deadline.

Small group question: Suppose the business pays 75% of the employee premium and zero for dependents. How will the insurance company track it if the owner is paying 75% or 100% of the owner’s own premium? Also, is it discriminatory if the owner is paying 100% of the owner’s own premium?

Blue Shield: Compliance with the non-discrimination mandate is the responsibility of the group. Blue Shield will not track their compliance. The owner who is paying 100% of their premium is discriminatory unless all employees’ premiums are covered at 100%.

Kaiser Permanente:
Kaiser Permanente would not be tracking this. Groups, not insurers, are responsible for applying the non-discrimination requirements to plan options.

Small group question: Is it discriminatory if the employee handbook clearly defines three classes of employees and clearly defines the percentage of premium the employer pays for each class of employee?

Blue Shield: Potentially, yes.

Kaiser Permanente: Possibly, if the plans are non-grandfathered, having different contribution amounts for different classes of employees may cause a fully insured plan to fail the non-discrimination test. Unless the regulators change the nondiscrimination rules for fully insured plans, the following conditions could cause non-grandfathered fully insured plans to fail the non-discrimination tests:
Different waiting periods for different classes of employees.
Different contribution amounts for different classes of employees.
Management carve-outs and benefit plan options without substantially the same benefits, if the highly compensated individuals elect the benefit option with the better benefit, and the non-highly compensated individuals elect the other option.
Employers are encouraged to work with their advisors for assistance with their questions and concerns about the non-discrimination rules.

Individual policy question: If a minor child (under 18) with a pre-existing condition applies for coverage, does that child receive a tier 1 rate or will the carrier be allowed to charge a higher premium? Which regulatory agency is responsible for making this decision?

Blue Shield: The minor can be  charged a higher premium than Tier 1 per guidance from HHS as well as the California DOI and DMHC. The higher premium can be no more than two times the standard premium during designated enrollment periods.

CIGNA: The California Department of Insurance would be responsible for approving individual insurance policy rates. CIGNA complies with all state requirements regarding its individual and family plans including selling child-only policies in California.

Kaiser Permanente: Federal regulatory guidance permits insurance issuers to charge different rates based upon an enrollee’s health status. California law [effective 1-1-11 (AB 2244)] establishes open enrollment periods in which plans must offer individual coverage to children and responsible parties of children. Under AB 2244, the rate to be charged any child during an open enrollment period due to health status issues shall not be more than two times the standard risk rate for a child. (This also applies to the rate to be charged a child with health status issues upon “late enrollment” permitted in the event of designated qualifying events.) DHMC’s recently issued guidance, interpreting AB 2244, requires health plans to affirmatively offer and sell coverage on a guaranteed-issue basis to all children at all times, including outside of established OE periods. But health plans can adjust rates based on health status; they need not comply with the two times rating limitation during OE periods. No decision has been made, at this time, as to the rate multiple to be charged outside OE periods.

Individual policy question: Do all carriers that offer individual plans in a specific market have to offer coverage to children under 18 before 2014?

Blue Shield: Under California law (AB 2244), all carriers that offer coverage in the individual market have to offer child-only coverage to children under 19.

Kaiser Permanente: HHS regulations do not specify that all carriers offering individual plans must offer coverage to minor children under age 19 before 2014. Moreover, the requirements imposing the prohibition on preexisting condition limitations do not apply to grandfathered individual coverage. Nevertheless, an applicant for individual plan coverage on or after September 23, 2010 would not be eligible for grandfathered individual plan coverage.

In Calif., AB 2244 requires carriers to issue child only coverage if the carrier offers other individual plans. As of the effective date of the law, a plan that does not write new individual plan contracts for children or that ceases to write new plan contracts for children shall be prohibited from offering for sale new individual plan contracts in Calif. for five years from the date of notice to the DMHC.

General Patient Protection and Affordable Care Act (PPACA) Question: Will employers be required to contribute the same dollars for all non-grandfathered plans offered in order to comply with 105(h) rules (i.e. HMO versus PPO)?

Blue Shield: Discrimination is based on employees, not on plans. The employer can have different plan contribution levels as long as all employees on each plan receive the same contribution.

Kaiser Permanente: As we understand the current non-discrimination rules for self-insured plans, having different contribution rates for different types of plans may not, in itself, cause a failure of the non-discrimination rules. However, different contribution amounts for different classes of employees may cause a failure of the non-discrimination rules. Employers are encouraged to work with their advisors for assistance with their questions and concerns about the non-discrimination rules.

Michael R. Bertaut, MBA, CHC, PAHM Healthcare Economist
– Blue Cross Blue Shield of Louisiana: I’m not an accountant, but what I’m seeing so far on 105(h) looks like this: Non-GF plans may not discriminate in favor of highly-compensated employees in terms of Premiums or coverage. those are very wide definitions, but don’t (yet) suggest that an employer has to contribute the same amount based on plan, but on employee class. So if I have highly compensated employees in one product with non-HCE’s then I need to contribute the same amounts for both classes. But if they are in different products it does not seem (so far) that the contribution must be the same from one product to another.

General PPACA Question: Suppose an employer offers plans from two different carriers. Will the employer loose their grandfathered status if they are forced to move all employees to one carrier because the other issued a non-renewal?

Blue Shield: No, as long as the plans were already offered to the group and maintained membership of at least one.

Kaiser Permanente: If the coverage were grandfathered, it would not cause it to lose grandfathered status.

Michael R. Bertaut: The Federal Department of Health and Human Services along with the IRS and DOL have been issuing joint regulations in this area since PPACA/HCERA passed on 3/23. In the initial GF regulations issued on 6/14/2010, this would have been enough to revoke the GF status of that plan. In mid-November, the agencies REVERSED THEMSELVES and said changing carriers no longer would affect GF status. So in this case, as long as the other 5 conditions of GF are not violated, status should be maintained.

General PPACA Question: What would cause the Department of HHS to reject an employer’s limited medical plan waiver?

Kaiser Permanente: Kaiser does not offer “limited medical plan” a.k.a “Mini Med” plans. However, guidance can be found on the HHS process of filing for a waiver at

Michael R. Bertaut:
Great question. I have seen no official HHS guidance on this issue at all. The general waiver guidelines involve a test that requires the employer or carrier to demonstrate there is a legitimate need at this time (waivers are only issued one year at a time) meaning if the waiver was not granted lots of folks would lose their health insurance, or instituting full health insurance would drive the company into insolvency and cause a lot of layoffs. It still seems processing of these waivers is being done on a case-by-case basis.

General PPACA Question: Will the employer be required to potentially have different benefit values when reporting on their 2011 W-2? (For example if an employee drops or adds a dependent mid-year; a new employee starts mid-year, etc.)

Blue Shield: PPACA requires employers to report the value of the healthcare benefits received by an employee on their employee’s W-2. There is no reporting obligation for 2011 because the IRS has delayed this requirement. For further guidance, see IRS Notice at:

Michael R. Bertaut: Since employee attrition is a fact of life, it makes sense that any employee who is not employed for the full year would certainly have different numbers on his W-2. This is allowed for in the PPACA even later when employers can be fined for not offering coverage, the fines are computed monthly and rolled up to annual numbers.

General PPACA Question: Does allowing someone who is promoted into a plan jeopardize the grandfathered status of that plan? (For example, someone is promoted and now qualifies for the Exec-U-Care plan.)

Kaiser Permanente: No, if someone gets a promotion that puts them into a category of positions that qualify for the Exec-U-Care plan, it would not cause a loss of the Exec-U-Care plan’s grandfathered status.

General PPACA Question: If an employer changed their carrier under a fully insured plan for an anniversary of 4-1-10 did they lose their grandfathered status?

Blue Shield: Initially, yes. However the government agencies revised    
the grandfathering rules, late last year, to allow groups to change carriers and not lose grandfathering as long as the carrier is willing to match their previous plan.

Kaiser Permanente: Yes, a change in insurance carrier after March 23, 2010, but before November 15, 2010 would cause the plan to lose grandfathered status.

Michael R. Bertaut: It Depends on whom you ask. The Act says that if the enactment date of the plan was prior to 3/23/2010 the plan can be GF. Problem is, what is the “enactment date”? Some carriers say it is the date the contract was signed. Some say it is the effective date of the policy. Some say it is the date the contract was delivered to the producer. There is no clarification in the regulations, so each carrier is treating this differently. Like most of the PPACA/HCERA, the details have still to be hammered out. When the agencies reversed their decision on allowing groups to change carriers and stay GF, they did not make that retroactive, so that groups who had previously changed carriers were not protected.

General PPACA Question: Would the plan lose grandfathered status if the carrier (not the employer) increases deductibles, coinsurance, and out-of-pocket cost sharing in excess of the PPACA limits for a plan at renewal?

Blue Shield: Yes, the plan would lose grandfathered status.

Kaiser Permanente: Yes.

Michael R. Bertaut: Yes, a carrier can, through the normal course of business, cause its groups to lose their GF status and so far there has been no penalty or repercussion from such action (it has happened quite a bit by carriers who don’t want to keep track of GF status).

General PPACA Question: Under the required 90-day eligibility for benefits, would the first of the month after 90 days no longer be allowed since it could mean waiting up to 119 days?

Kaiser Permanente: The PPACA provision that limits “excessive” waiting periods to 90 days becomes effective January 2014. At this time we are not addressing this issue.

Michael R. Bertaut: Unknown. That level of clarification on items not in force until 2014 does not exist. The Agencies can barely keep up with issuing regs and answering questions on the stuff that went into force in 2010, let alone looking ahead.

General PPACA Question: Do the new 105(h) non-discrimination rules apply to benefits and contributions?

Blue Shield: Yes

Kaiser Permanente: Yes, unless the regulators change the non-discrimination rules for fully insured plans, the following conditions could cause non-grandfathered, fully insured plans to fail the non-discrimination tests:
Different waiting periods for different classes of employees
Different contribution amounts for different classes of employees
Different carve-outs and benefit options for management that are not available for other employees
Employers are encouraged to work with their advisors for assistance with their questions and concerns about the non-discrimination rules.

Michael R. Bertaut: Yes.  A carrier can, through the normal course of business, cause its groups to lose their GF status and so far there has been no penalty or repercussion from such action (it has happened quite a bit by carriers who don’t want to keep track of GF status).

29. General PPACA Question: Whom do you interpret as determining the employer’s grandfathered status, the carrier or the employer?

Michael R. Bertaut: The Agencies have made it pretty clear to carriers that it is holding them responsible for the determination of GF status, especially on risk business. Fines on carriers for getting it wrong have also been mentioned. The carriers are going to be held responsible for accurate determination of GF status (against their will, I might add).

30. General PPACA Question: If an employer currently offers a limited medical plan to their fulltime employees, if they change the plan to an indemnity plan are they not required to comply with the current annual and lifetime limits in addition to the medical loss ratio requirement?

Michael R. Bertaut: My understanding is that employers are not subject to medical loss ratio requirements, only carriers, and only on their Fully Insured Business. As far as the limited medical plan, the employer or their carrier would have to have obtained a waiver from HHS to offer this plan today, otherwise they are out of compliance with the new “no lifetime limit/no annual limit” rules. If they have not sought a waiver, and change to an indemnity plan, they are required to comply with the lifetime limit and annual max restrictions in the regulations.

America’s Health Reform–The Patient Protection & Affordable Care Act: Implementation, Repeal, and the Opportunities

by Jeremy R. Scott, MA
The Patient Protection and Affordable Care Act (Affordable Care Act) was signed into law March 23, 2010, consists of 2,400 pages, and is anticipated to take more than five years to fully implement. While many in the media and Congress are discussing the potential of a repeal, the law continues to be implemented and there are numerous ways for interested parties to influence how the law is finally interpreted. For example, even though the Affordable Care Act is over 2,000 pages, many provisions in the bill will be left up to the Secretary of Health and Human Services to finalize. So much so that the word “Secretary” appears in the bill 3,249 times. Having an understanding of the implementation timeline is essential to knowing how and when provisions will take effect.

Affordable Care Act Implementation Timeline: 2010 (What has already taken place)

Provides access to insurance for uninsured Americans with pre-existing conditions.
Bars discrimination against children with pre-existing conditions.
Prohibits dropping coverage when people get sick.
Eliminates lifetime limits on insurance coverage.
Extends coverage for young adults.
Provides coverage for preventative benefits.
2011-2013 (What is around the corner)

Creates minimum loss ratio for insurers.
Makes changes to tax-free health saving accounts.
Begins enrollment in the state exchanges.
Creates the Consumer Operated and Oriented Plans.
Places limits on Flexible Spending Accounts.

2014-2018 (What is down the road)

Mandates all U.S. citizens to have health insurance.
Creates an essential benefits package.
Creates a temporary reinsurance program for health plans.
Eliminates annual limits on insurance coverage.
Imposes new fees on the health insurance sector.
Makes available state-based health insurance exchanges.
Permits states the option of creating a Basic Health Plan for the uninsured individuals.
Establishes multi-state compacts to allow insurers to sell policies across state lines.
Imposes an excise tax on insurers of employer sponsored health plans.
When an agency charged with implementing a law begins to draft regulations, it usually starts by calling for public comments. Using these comments and its internal expertise the agency will develop a draft set of rules. After the draft rules are made public, a hearing is normally held where public comments are accepted again. Throughout this process agency officials meet with stakeholders to understand how rules could affect those under its jurisdiction. Being actively engaged in this process allows organizations an important opportunity to have their voices heard.

Advocates on all sides of the healthcare reform issue should remain active in the ongoing debate on Capitol Hill, as well, where attempts to repeal, defund, and dilute the bill warrant attention. Further, a number of provisions in the law have been targeted as high priority for reform and are likely to be debated. One such provision is the requirement for businesses to submit a 1099 tax form to the IRS for any vendor to whom they pay more than $600 in a tax year. The Obama Administration has come out in support of a repeal of this requirement and the House and Senate have passed non-complementary bills to that effect. Other pieces of the law that are likely to see attention in the 112th Congress include the following:
Minimum Benefits
Medicaid Expansion
Long-term Care
Individual Mandate
Employer Mandate
Grandfathered Provisions
Comparative Effectiveness

Speculation of Repeal: Congress, States, and the Courts

Many newly elected House Republicans feel the American voters have been given them a mandate to reduce federal spending and repeal the Affordable Care Act. The House of Representatives already passed a bill to repeal the law (H.R. 2, the Repealing the Job Killing Health Care Law Act), but the Democratically controlled Senate has not yet taken it up. Senate Democratic leaders have indicated that they have no intention to move legislation that would repeal the Affordable Care Act. Even if a repeal bill passed the Senate, President Obama has said he would veto the bill – and the Senate does not have enough votes to override a veto.

Additionally, a House spending measure (H.R. 1) to fund the government for the remainder of fiscal year 2011 contains a condition that states that no funds appropriated by the bill can be used to implement the Affordable Care Act. With a Democratic President and Senate, any bill with provisions like these has no chance of becoming law, but this is a good example of the tools available to Republicans who wish to directly or indirectly attack the Affordable Care Act, in whole or in part.

Therefore, with the current party make up of Congress and the White House being controlled by a Democrat, healthcare reform is not at risk of repeal. However, Senate Democrats are painfully aware that they have 23 seats to protect in the 2012 election and a Republican presidential win would significantly increase the chances of repeal. The overturning of a major health care law is not a common event. In fact, the last major piece of health care legislation to be repealed was the Medicare catastrophic coverage, 20 years ago.

One of the primary reasons many Republicans claim repealing the Affordable Care Act is so critical is its costs. The Congressional Budget Office (CBO), however, scored the bill as a long term “cost-saver,” because funding for the bill’s provisions are offset by cuts to Medicare and tax increases. On the flip side, a recent CBO report calculated that a repeal of the healthcare bill would cost $230 billion over 10 years due, in large part, to the need to undo the already implemented provisions of the law.

More successful attempts to change the law will likely come from states that have been charged with implementing major portions of the law, including insurance exchanges, the expansion of Medicaid, high-risk insurance pools, and insurance premium rates. The law gives states a fair amount of room to interpret these provisions as a way to encourage states not to pull out or ask for waivers. One of the most concerning aspects to many state governors is the expansion of the Medicaid program. This new provision will significantly increase the cost to states at a time when many states are finding it difficult to balance their budgets, and many state officials may not want to implement the new law according to the vision of the Democrats in Washington, D.C. who wrote the law. One key factor that cannot be overlooked regarding the importance that states may play in attempting to change the law is the 2010 mid-term elections. The most recent election changed the make-up of governors and state legislatures from 60% Democratically controlled to 40% Republican controlled to an almost exact flip – giving Republicans the state-level power to implement or repeal provisions of the law.

Attempts to undermine healthcare reform through the courts also have been popular. So far there have been several attempts by states to repeal aspects of the Affordable Care Act, like the 26 state lawsuit filed by the Florida Attorney General or the one filed by Virginia’s Attorney General. In the most significant court case yet, U.S. District Judge Roger Vinson became the second judge to find the individual mandate unconstitutional. However, he went further and ruled that the individual mandate was so integrated into the other provisions of the bill that without it the remaining pieces of the law could not stand on their own. On Thursday, March 3rd, at the request of the Obama Administration, Judge Vinson clarified his ruling, allowing the 26 states that took part in the lawsuit to continue to implement the law while the Administration works on an appeal. It is widely expected that the Supreme Court will hear the health reform law before 2014 when a majority of its provisions are required to take effect.

The only thing that seems to be clear is that the debate around healthcare reform is far from over. Continuing to be engaged in the process is important if one wants to have an impact on how the final rule(s) and provisions are interpreted.
Author’s note: For a top-line overview of the major provisions in the Patient Protection and Affordable Care Act please visit,
Jeremy Scott is a government relations director in Drinker Biddle & Reath LLP’s Health Government & Regulatory Affairs group in the firm’s Washington, D.C. office. He has a broad range of health policy, government relations, and lobbying experience. He principally represents and advises the legislative and regulatory interests of nonprofit associations, patient advocacy organizations, medical device companies, and other health-related entities. For more information, visit or contact Jeremy Scott at

Welcome to Our 11th Annual PPO Survey

Welcome to Part II of our 11th annual PPO survey. For this survey, seven PPOs in California diligently answered direct questions about their plans. Our readers, who are savvy health brokers, suggested many of the questions. We hope this information will help the professional agent or broker better serve sophisticated healthcare clients.

Which Requested Procedures are Denied Most Frequently on the Basis of “Experimental/Investigative” or “Not Medically Necessary” Exclusions?

Aetna: We seek to minimize the number of claims denied based on medical necessity through our extensive patient management program, which includes features such as pre-certification, concurrent review, and close communication among our staff and attending physicians.

Blue Cross: It varies greatly. Each request is reviewed on a case-by-case basis to determine medical necessity based on the latest medical standards. Factors that might influence the decision would be the season, say during flu season, or the age of the member for a certain procedure.

Blue Shield: The most frequently requested procedures presently being denied are:
Bariatric surgery – Morbid obesity surgery
Reduction mammoplasty
Varicose Veins
MRI of the Breast
Pet Scan for Breasts
Each request is reviewed on an individual basis to determine medical necessity.

Cigna: CIGNA has a comprehensive policy for ensuring the efficacy of the latest medical treatments. We have an extensive process that includes review of outside, professional literature and input from physicians to determine the safety and efficacy of procedures and interventions. We work closely with members and physicians to help determine treatment protocols that ensure appropriate and quality care while reducing the number of denials.

Health Net: N/A.

Kaiser Permanente: Requests are received on a case-by-case basis.

UnitedHealthcare: UnitedHealthcare does not deny procedures on the basis of medical necessity and our benefit plans do not contain medical necessity exclusions. We believe that healthcare consumers and their doctors are best qualified to make decisions about healthcare. Denials on the basis of “experimental or investigative” are very rare. If an individual has a life-threatening sickness or condition (one that is likely to cause death within one year of the request for treatment), we may determine that an experimental, investigational, or unproven service meets the definition of a covered health service for the sickness or condition. This determination is based on whether we find the procedure or treatment to be promising and that we find that the service uses research protocol that meets standards equivalent to those defined by the National Institutes of Health.

Do You Capitate PPO Providers? If Not, How Are They Compensated?

Aetna: No. Physicians are paid based on a negotiated fee schedule, which compensates physicians at the lesser of their usual charge or the negotiated fee. Each of our networks has a unique fee structure. We incorporate the federal government’s RBRVS methodology for procedure-related services while allowing for local differences for office and hospital visit services.

Blue Cross: No, payment is determined by applying available member benefits to a pre-determined fee schedule.

Blue Shield: Blue Shield does not capitate PPO providers. PPO contracted providers (physicians and ancillary providers) have agreed to accept Blue Shield’s allowances as payment in full, which are valued-based and reviewed annually.

Cigna: No, we reimburse physicians on a maximum allowable fee schedule or a discounted fee-for-service arrangement.

Health Net: PPO physicians are typically reimbursed at a  discounted-contract-fee schedule.

Kaiser Permanente: No, our PPO providers are part of the Private Healthcare Systems (PHCS) Network. PHCS Network contracts with the providers to negotiate a lower rate for services rendered. Providers are paid based on claims submitted for covered services. They are reimbursed according to a Maximum Allowable Fee Schedule based on the Resource Based Relative Value Scale Fee Schedule (RBRVS). Our fee schedule is established by applying a conversion factor to RBRVS values. The conversion factor is based on competitive market conditions, medical expense expectations, and physician acceptance. The advantage of this funding arrangement is that we reimburse physicians only for services rendered based on time and intensity with adjustments for geographical differences. For some high-cost specialists, we employ prepayment (capitation). This ensures that we are able to manage expenses for high-cost services to a planned target.

UnitedHealthcare: The majority of physicians in our networks are reimbursed according to a Maximum Allowable Fee Schedule based on the Resource Based Relative Value Scale Fee Schedule (RBRVS). Our fee schedule is established by applying a conversion factor to RBRVS values. The conversion factor is based on competitive market conditions, medical expense expectations, and physician acceptance. The advantage of this funding arrangement is that we reimburse physicians only for services rendered based on time and intensity with adjustments for geographical differences. For some high-cost specialists, we employ prepayment (capitation). This ensures that we are able to manage expenses for high-cost services to a planned target.

What Happens When a Member Provider Bills a Participant Inappropriately for Services?

Aetna: Balance billing of the patient is not permitted. The provider-relations staff monitors compliance and educates providers. A provider who is found to have inappropriate balance billing may have his or her contract terminated in some cases.

Blue Cross: Customer service works with the member and provider to resolve billing issues. Dispute-resolution procedures are available to members and providers.

Blue Shield: Network providers are prohibited from balance billing patients. When a member is billed inappropriately for services, Blue Shield customer service representatives can usually resolve the issue by contacting the provider’s office to clarify the member’s benefit and the Blue Shield reimbursement schedule.

Cigna: Our contracts prohibit balance billing by physicians. The member should contact the health plan about the issue. The plan will investigate.

Health Net: Health Net will intervene on the member’s behalf by working directly with the provider’s office.

Kaiser Permanente: In the unfortunate event that a provider bills an insured inappropriately, the insured should contact the KPIC customer service line at 1-800-788-0710. If the issue requires any type of special handling, KPIC operations staff will intervene and assist in reconciling the claim.

UnitedHealthcare: Our physician and other healthcare professional contracts preclude physicians and other healthcare professionals from balance billing enrollees. The contracts also address how physicians and other healthcare professionals must submit claims. We take appropriate action if network physicians or other healthcare professionals attempt to balance bill enrollees or to bill enrollees for covered services in breach of their contract requirements. We protect our customers from claims liability by fulfilling all state mandates concerning participation in guaranty associations, maintaining state contingency reserve requirements or obtaining reinsurance agreements. Our standard hospital contracts also contain provisions to protect individuals receiving health services from balance billing when an insurer becomes insolvent. If a network physician or other healthcare professional becomes insolvent or otherwise unable to continue to render healthcare services to individuals, we help reassign individuals enrolled in our plans to other physicians.

Do You Have a Registered Nurse on Call 24 Hours a Day for Questions at the Plan Level and the PPO Level?

Aetna: Yes. Nurses provide information on a broad spectrum of health issues virtually 24 hours a day, seven days a week. They also provide ongoing follow-up information as needed and perform customized research when appropriate. Standard service is included in the full-risk, prospectively rated PPO plan. The informed Health Line may be purchased as an additional service for self-funded or retrospectively rated PPO plans with over 1,000 or more total enrolled employees. The minimum group size can be a mix of active employees and retirees (e.g., 800 active and 200 retirees).

Blue Cross: Yes, most PPO members have access to professional,  reliable healthcare information toll-free, 24 hours a day, seven days a week. Registered nurses answer questions and help with decisions. Members also have access to educational audiotapes on more than 200 health topics.

Blue Shield: Yes, Blue Shield’s NurseHelp 24/7 is a service for all of our fully insured groups and is available as a buy-up for self-insured groups. It provides a nurse-line, which is staffed 24 hours a day, seven days a week with registered nurses and master’s-level counselors. Any member of a fully insured Blue Shield health plan can take advantage of this service at no extra charge.

Cigna: Yes.

Health Net: Yes, health coaches, provided through Decision Powers, are specially trained health professionals, such as nurses, respiratory therapists, pharmacists and dietitians with an average of 15 years of experience in their field. They are available 24 hours a day, 7 days a week to answer questions and address any members’ concerns and aid in symptom management. A Health Coach gives support and guidance when a member is facing important health decisions and will provide members with the most recent evidence-based information. All Health Net’s members receive Decision Power as part of their benefit offering. The Health Coaches are easily accessible through a toll-free telephone number or at

Members may talk to the same Health Coach every time they call. Conversations are not time-limited or scripted, so our Health Coaches have the flexibility to help with the member’s primary concern while exploring and addressing the range of issues that may be related to, and complicated by, it. Health Coaches suggest and schedule follow-up calls to make ongoing contact easy for the member. Additionally, Health Coaches provide techniques to help patients feel comfortable with their doctor, express their values and preferences, and provide pointers on setting achievable goals and evaluating treatment options. Another key aspect is the ongoing guidance and support Health Coaches provide to people living with a chronic illness such as diabetes, asthma, heart disease and depression, as well as education about preference-sensitive conditions (conditions where there are multiple treatment approaches) such as chronic back pain, breast cancer, and arthritis of the hip and knee.

Kaiser Permanente: The insureds have access to Kaiser Permanente Healthy Solutions, which will give them access to a personal health coach, online health and wellness programs and information, and the Kaiser Permanente Healthwise® Handbook online.

UnitedHealthcare: Optum, the UnitedHealth Group care management company, provides toll-free, 24-hour, 365-day access to the “NurseLine.” Experienced registered nurses discuss treatment options and help individuals get the appropriate level of care. NurseLine gives individuals information that helps them make educated decisions about their personal health and use of medical resources. Some services must be purchased as a buy-up based on the funding arrangement of the plan.

What is the Plan or PPO Doing to Have Online Systems for Eligibility, Administrative Changes, Referrals, Etc.?

Aetna: EZLink streamlines several benefits and HR functions. It links to our enrollment and billing systems and provides real-time eligibility; online enrollment, account maintenance, online billing, and electronic-funds transfer for payment.

Blue Cross: Our Website offers online services to providers and members for eligibility, claim status, and benefit inquiries. Other features include a provider finder and a wide variety of Web and organizational resources.

Blue Shield: Our website has a password-protected section with personalized member health plan account information. Members can view detailed benefit information and find customer service phone numbers and addresses. In addition, members can check claims status, reconcile claims and bills, download forms, view plan summaries, and print temporary ID cards. Via e-mail, they can reach customer service, submit changes to account information, request new member ID cards, and request a new personal physician. Blue Shield can offer online enrollment to all our employer groups through our partnership with leading online vendors. This partnership gives benefit administrators direct access to the eligibility system as set up by the vendor, allowing for a number of functions, such as employee eligibility tracking, plan enrollment, open enrollment and life event enrollment transactions. Additionally, the use of an outside vendor allows for incorporation of benefit design from more than one carrier, providing employer groups with a single online enrollment service.

Cigna: The CIGNA for Health Care Professionals website ( offers secure and easy access to real-time transactions such as pre-certification, claim status, eligibility, and benefits. Information on CIGNA policies and procedures is also available. In addition, CIGNA has enhanced the portal, which enables members to personalize their site for their individual use. Information includes the ability to review hospital and provider quality data, gather specific disease information, track claims and explore drug alternatives that might be a cost savings.

Health Net: Health Net’s website,, is a secure website, which requires a personalized identification number (PIN). Members, employers, providers, and brokers can perform a wide range of online administrative functions. Members in an active or COBRA program can view or modify their enrollment information. Providers can verify eligibility, find specialists for referrals, and submit and check claims status. Health Net eServices for members, brokers, and employers offers 24-hour online account access to process enrollment and maintain member’s eligibility; users can also view, print and pay billing. Enhancements for both sites are ongoing.

Kaiser Permanente: Kaiser Permanente offers online billing and administration functions to its employer groups through a system called Online Account Services—

UnitedHealthcare: Members, physician, and employers have access to their data and the capability to communicate directly with us online. Our consumer Internet solution – allows people to do the following:
Choose a plan.
Locate network professionals.
Access claims history and explanations of benefits (EOBs).
Complete a health assessment and develop an action plan.
Order ID cards and print temporary ones.
Communicate with a nurse.
Compare hospitals.

Healthcare professionals can do the following:
Verify patient eligibility, applicable co-payment amounts, and YTD and out-of-pocket accumulators.
Search the notification database and complete multiple notifications in one session * Submit claims.
Receive payment statements and reimbursement.
Perform online reconciliation and electronic funds transfer.
Submit credentialing data online.

Complete online CE programs.

The following features are available through Employer eServices:
Receive Web-based eligibility management.
Get simplified invoices, real-time calculations, and downloadable data.
Do customer reporting
Get claim status information.

What is the Relationship of your HMO Provider Network (if you have one) to Your PPO Provider Network? Do HMO Providers Have to Participate in the PPO Network? How big is your PPO Network compared to your HMO Network?

Aetna: Standard provider contract provisions generally apply to all of our plans and products that the provider participates in. However, it is not mandatory for a provider to participate in all products.

Blue Cross: All of our California networks are proprietary, whether they are PPO/HMO/EPO etc. A provider may participate in one or more of our plan products, but it is not mandatory for a provider to participate in all products. Our physician network has more than 57,000 members.

Blue Shield: Blue Shield’s HMO and PPO networks are separate. The HMO network is capitated based on medical group and IPA contracts throughout the state with some directly contracted networks in specific geographies. With the PPO, there are value-based allowances and contracts with individual physicians and medical groups. HMO providers do not have to participate in our PPO network, though many of them do.

Blue Shield’s PPO network has over 65,000 physicians (defined by access points) and 350 hospitals, while our HMO network has over 32,000 physicians (defined by access points) and 300 hospitals.

Cigna: Cigna does not require PPO network physicians to participate in the HMO (or vice versa). The HMO network is contracted with CIGNA HealthCare of California Inc. The PPO network is contracted with Connecticut General Life Insurance Company, a CIGNA company. While there is considerable overlap, we have many physicians just in one network (e.g. PPO only). In California, our HMO network is 80% of the size of our PPO Network

Health Net: Health Net of California has taken a multi-product approach in contracting with providers, with approximately 65% of Health Net’s PPO network practitioners also participating in the HMO network. While HMO providers are not required to participate in Health Net’s PPO network, approximately 88% of them do so. Health Net of California’s HMO network includes more than 49,000 Primary Care Physicians and specialists in the California 30-county HMO service area and more than 65,500 Primary Care Physicians and specialists in the PPO network.

Kaiser Permanente: Our PPO and HMO networks are not  affiliated. For our PPO, KPIC contracts with PHCS Network to provide access to providers and facilities nationwide. They currently have more than 450,000 providers and 4,200 acute care facilities nationally and more than 65,000 providers in California. Our HMO offers more than 8,000 providers and 160 facilities in California [Services under the Healthy Solutions program are value-added services provided by Kaiser Permanente Healthy Solutions, an affiliate of Kaiser Foundation Health Plan, Inc. (KFHP). These services are not in lieu of any services covered under the PPO Group Policy. Likewise utilization of these services does not constitute receipt of benefits under the PPO Group Policy. The Kaiser Permanente PPO Plan is underwritten by Kaiser Permanente Insurance Company (KPIC), a subsidiary of KFHP.]

UnitedHealthcare: UnitedHealthcare’s network includes 570,000 physicians and healthcare professionals and 4,800 hospitals nationwide. In general, UnitedHealthcare’s contracts apply to all of our commercial products ensuring that employees have a consistent experience throughout the country. Providers are not required to participate in all our products, but the majority of them do. The UnitedHealthcare Select or Choice HMO networks apply locally and are subject to state laws.

Self-Funding–How Brokers Can Survive Healthcare Reform:
Demonstrate Value to Your Customers

by David Zanze
With the arrival of healthcare reform, brokers have a growing concern about maintaining business in the coming years. The implementation of medical loss ratios will regulate and contain administrative costs for insurance carriers to be no more than 20% of premiums. Insurance companies are already electing to reduce broker commissions; this change alone threatens the livelihood of agents who depend on their commission loads to survive.

Additionally, with small groups and individual policies moving toward public healthcare exchanges in 2014, the broker community may face a limited customer pool as individual consumers turn to a government-run web portal to select options for a health plan. This process is likely to circumvent brokers, resulting in lost business. If brokers are going to survive healthcare reform, they will need to do more than just sell options for health benefit plans. Brokers will need to demonstrate their value to ensure the health plan they sell continues to meet the needs of the client and the law of the land.

The constant flux of information that’s required to interpret and understand the new healthcare law makes even the most knowledgeable brokers hesitant to provide direction to clients. David Nikssarian, a broker based in Salinas, says that there is difficulty and complexity with the constantly evolving regulations related to healthcare reform. “We’re trying to help employers comply, but the rules are still developing. Additionally, the unknown of what might happen in 2014 is a huge source of frustration not only with the broker community, but also with our clients and their employees,” says Nikssarian. Although it will require more effort on the broker’s part, staying informed will increase the broker’s chance of survival in the marketplace.
Here are three significant ways that brokers can demonstrate value to their customer:

1. Develop Your Relationships

Reach out to all of your vendor and business partners to create amicable and mutually beneficial relationships. These relationships will provide you with information on developing products and services, open doors to other vendors and opportunities, and furnish better deals and savings that you can pass on to your client.

2. Keep Up With the Latest Information

Make sure that you get the most current information available in the marketplace by joining the right mailing lists, in addition to key trade, government and carrier publications. Consult with multiple resources, such as TPAs and independent legal consultants; join associations, such as the Self-Insurance Institute of America (SIIA), the National Association of Heath Underwriters (NAHU), or the Society of Professional Business Administrators (SPBA) to stay current on changing legislation. Attend conferences and join social networking communities, such as the healthcare reform community on Linked In or Facebook to stay current on what’s happening in the marketplace.

3. Approach The Client In A Consultative Mode

With all of your newly developed relationships and the constant stream of information with which you are being provided, interpret and repackage this information for your client. Be strategic and creative. Everything you learn and communicate must be client-driven. In order to attract and retain quality employers, brokers will need to ensure that they are acting as the most important business associate a self-funded client can have.

Lawmakers may disagree about the value brokers provide. But, apart from selling health insurance, brokers have an important role to play in the self-funded community, especially now. Despite the many changes that have arrived with healthcare reform, the insurance industry is and will continue to be a dense environment and self-funded employers will continue to rely on brokers for expertise in selecting the appropriate benefit plans, providing cost containment strategies and keeping informed about current and important legislative changes in the industry.

Fifty-nine percent of employers get their health insurance through a broker, according to a 2010 study published by J.D. Power and Associates. Brokers play an important role with employers because most are unaware and unsure of the various insurance products and services available to them. Often, employers don’t understand what their plan covers, how their pharmacy formulary works, or even what the co-insurance and deductibles are relative to the plan. When the financial burden of maintaining a health plan rests on the employer, making the wrong choice with a benefit plan or being noncompliant with the law puts the employer at financial risk. It also jeopardizes the health of employees and their dependents. Without the broker community, the average self-funded employer would need to be self-reliant on all of these issues.

To add value for customers, brokers must stay informed and provide strategic options with their plan. They must also advise clients on compliance with all regulations including non-discrimination testing, definitions of essential healthcare benefits, regulatory changes disseminated through the Department of Health and Human Services or federal and state governments. To protect the financial interests of the client, brokers should also stay current on trends and services with cost containment programs, such as wellness, disease management, plan design, and pharmacy benefits.

In these changing times, brokers need to demonstrate their expertise and provide valuable counsel to customers in order to continue to exist in the marketplace. A broker who develops relationships, harnesses their negotiating skills, and stays informed will be ahead of the curve. With these tools, knowledge, and skills, the employer community will remain advocates for brokers and justify their place as an essential member of the insurance marketplace.
David Zanze has nearly 30 years experience serving as a leader and innovator in the healthcare industry. He joined Pinnacle Claims Management, Inc. as President in 1996. Pinnacle Claims Management, Inc. (Pinnacle) is an all-inclusive health benefits third party administrator (TPA) that offers competitive, cost efficient claims management in tandem with the latest technology. Pinnacle has extensive experience in managing claims, providing COBRA and flexible benefits administration, and providing a breadth of services to meet the diverse needs of self-insured employers. Pinnacle administers benefits for a diverse range of small to large sized employer groups from all business sectors of the marketplace. For more information regarding our TPA services, call 866-930-7264 or visit

Ethnic Marketing – How to Market Your Services to Different Ethnic Groups in Your Geographic Area

by Tom Borg

A dental office offers a perfect example of how a service business can succeed at ethnic marketing. Partners in the office of Karson Carpenter, DDS identified the fact that there was a strong concentration of Japanese people located within a 10-mile radius of their office; they knew they had a unique opportunity. They capitalized on that opportunity by catering to that particular ethnic group.

Business cards and signs at the reception desk are printed in Japanese. Even the restrooms have both Japanese and American signage on them. Dr. Carpenter says that it is no accident that his clinic has established a positive reputation with the Japanese-Americans. Their Japanese clientele is now 5% of their total patient base and growing.

America is known for its highly mixed culture base. The ethnic pipeline within the different ethnic groups can be a very powerful marketing tool. If your firm does an outstanding job of servicing its customers, word will get around. If your firm goes a step further in meeting the needs of certain ethnic groups, word will get around even quicker.

How do you find out what a certain ethnic group prefers in the way of your product or service? Simple. Ask the ethnic customers you now have. Ask them what they like the most about doing business with you. If there were one thing your organization could do to serve them better, what would it be? What would it mean to them if you could give them that kind of special service?

Just because a person from another country has decided to move to the United States doesn’t mean that they have forgotten their homeland. Think, for a moment, about your own childhood. Were there some unique characteristics about your old neighborhood that you really enjoyed? Maybe it was that quaint neighborhood grocery store. If some of those characteristics were present in a grocery store today, you would probably enjoy shopping there. You probably wouldn’t mind driving the extra miles to get there. You’d just feel more comfortable doing business at that type of store.

Remember, we human beings are creatures of habit. We prefer the familiar and the predictable. By becoming aware of your potential ethnic market, you may open up an opportunity to serve your real customer base.

Ask yourself the following:

1. What ethnic groups are predominant in your business area?
2. How can you find out? (Your local chamber of commerce is one good place to start.)
3. What are some questions you can ask the members of those ethnic groups that will help you identify their unique needs and wants?
4. Set up a get acquainted meeting with a few people from that ethnic group. Ask them how your business could better serve their ethnic group.
5. Get together with some other local business owners and brainstorm how you could service this particular ethnic group.
6.  What other kinds of things can you do to let a particular ethnic group in your area know that you have its different preferences in mind?
Tom Borg is a consultant, trainer and coach with 28 years experience helping companies and organizations. He is president of Tom Borg Consulting LLC. He works with the managers and employees of businesses and non-profits in the area of professional development and customer service training. He is the author of the book/CD “Making Service Count.” He earned his bachelors degree in administration and his masters degree in Educational Leadership at Eastern Michigan University. You can contact him at: 734-812-0526, email: or visit his website at

Working with Workers’ Compensation: 10 Costly Return-to-Work Mistakes

by Kevin Ring

A strong return-to-work focus improves an employer’s bottom line even in difficult economic times. Coupled with the impact of the recession, the sweeping changes in the newly enacted ADA Amendments Act (ADAAA) and the Family and Medical Leave Act (FMLA) have severely altered the economic and legal landscape for employers. Because employers often find it difficult to recognize the benefits of return-to-work, here are 10 common mistakes they make:

Mistake #1 – Fail to Recognize the Increase in the Number of Employees who are covered by the ADAAA

For employers that are covered by the ADAAA (those with 15 or more employees), more employees will satisfy the definition of disability and be entitled to reasonable accommodations including employees who have suffered on-the-job injuries. Employers that are covered by the ADAAA must make disability determinations without consideration of mitigating measures, such as medication, hearing aids, and assistive technology.

The ADAAA’s stated goal is to shift the focus from whether an employee is disabled to whether an employer is complying with their obligations under the law.

When faced with litigation, employers will often no longer be able to argue over whether the worker is covered by the ADA. Employers will need to have an interactive process with disabled workers to discuss the reasonable accommodations that will allow workers to perform their essential job duties. Employers will need to make sure managers know their obligations to provide reasonable accommodations and do not reject requests without appropriate analysis.

As a federal law, the ADA supersedes state Workers’ Compensation laws. Therefore, its directives provide the floor-level protection for disabled individuals. State Workers’ Compensation laws can provide more protection, but not less. When structured properly, return-to-work programs can decrease the ADA exposure.

Mistake #2 – Insist that Employees Are Released to Full Duty Before Returning to Work

There is considerable evidence about the value of return-to-work programs that allow employees to transition back into their full duty jobs with responsibilities and tasks modified for short periods. Insisting on a return to full duty increases Workers’ Comp costs and heightens the possibility that the injured employee falls prey to a disability syndrome – the failure to return to work when it is medically possible.

For employers that are covered by the ADAAA, the criterion is the essential functions of the job. Not all job functions are essential. Courts consider job descriptions and performance evaluations in determining which functions are essential to a job. Employers should review and update these documents to ensure that the essential functions for each position are described accurately.

Mistake #3 – Cut the Return-To-Work Budget

Employers that are looking to cut expenses may target return-to-work programs. But cutting or delaying such programs can result in higher costs now and in the future. The longer an employee is out on injury leave, the higher the cost. It adversely affects claim reserves and ultimately the Experience Modification Factor as well as increasing the likelihood of litigation.
Furthermore, with today’s sharply reduced workforces, employees are often working beyond full capacity and cannot absorb the excess work of an absent co-worker. It sends a troubling message to valued employees, both injured and healthy, damaging an already vulnerable morale.

Mistake #4 – Believe that Return-to-Work Cannot Address Musculoskeletal Injuries Such As Back Pain

Low back pain is the most prevalent and most costly work-related condition, yet only a small fraction of workers with acute back pain progress to chronic disability. Employers that offer accommodations to facilitate working in the first few weeks after injury may play an important role in preventing chronic disability. Workers who are not offered an accommodation, such as light duty or reduced hours in the first three weeks, are almost twice as likely to develop a chronic disability.

Mistake #5 – Be Deterred from Setting up Transitional Assignments Because the Employee May Get Hurt Again

The fear of re-injury among employers and employees often hampers return-to-work efforts. An even greater risk is having the employee stay at home and develop a disability attitude that extends the absence and drives up costs. Explain why it is important to return to work and the steps that are being taken to ensure the employees’ safety. Be sure that job assignments meet the medical restrictions set by the treating physician and stay in touch with the employees as to their comfort level with the assignment.

Mistake #6 – Don’t Distinguish Light Duty From Transitional Work From Reasonable Accommodations

Return-to-work assignments are best described as transitional tasks. Limited in duration, such tasks help the injured worker return to full productivity by being progressively adjusted in line with medically documented changes in the employee’s ability.

Under the ADAAA, an employer can reserve light-duty jobs for those with work-related disabilities. These jobs should be distinct from transitional tasks. The ADAAA also stipulates that reasonable accommodations include, but are not limited to the following:

Making existing facilities that employees used readily accessible.
Restructuring jobs.
Offering part-time or modified work schedules.
Reassigning a worker to a vacant position.
Acquiring or modifying equipment or devices.
Making appropriate adjustments or modifications to examinations, training materials, or policies.
Providing qualified readers or interpreters, and other similar accommodations for individuals with disabilities.

Mistake #7 – Rely On the Physician to Guide the Return-to-Work Process

Physicians may be medical experts, but they do not have essential information about workplace policies, job demands, and the availability of transitional work. Moreover, a physician who is not specifically trained in the treatment of occupational injuries may not adhere to evidence-based guidelines. The employer must take the lead role with the physician and the injured worker.

Mistake #8 – Don’t Take Time to Understand the Laws Governing Mandatory Comprehensive Medical Exams Before Returning to Work

This is one of the most confusing aspects of return-to-work since the ADAAA, the FMLA, and state Workers’ Compensation laws have different and sometimes conflicting requirements. It is critical to understand the laws and how they apply to your circumstance.

Mistake #9 – Don’t Establish Consequences For Failure to Comply With Return-to-Work Requirements

What’s important here is to understand the difference between disciplining and cutting off benefits. An employee who is covered by the FMLA and cannot perform one or more of the essential functions of their job may refuse transitional assignments and take FMLA leave. However, the FMLA only creates an entitlement to unpaid leave. So, in most cases, the Workers’ Compensation indemnity payments may discontinue with the refusal to return to work. The employee retains the right to be reinstated to the position they held when FMLA leave was taken.

Mistake #10  – Believe That Workers’ Compensation Settlements Resolve ADA Liabilities

Under the ADAA, more injured employees will qualify as “Qualified Individual” with a disability. As such, they can assert their right under the ADA to a reasonable accommodation, regardless of any Workers’ Compensation settlement. During settlement negotiations, close coordination is necessary among the company’s legal, risk management, and HR departments to ensure that each office can accomplish its mandate without compromising the employee’s rights.

Return-to-Work is a proven business strategy in both prosperous and difficult times. When properly implemented, return-to-work programs can reduce costs and improve the bottom line.
Kevin Ring is the director of Community Growth for the Institute of WorkComp Professionals, which trains insurance agents to help employers reduce Workers’ Compensation expenses. He joined the Institute in 2003 after having managed IT systems for a mid-sized manufacturing company. A licensed property and casualty insurance agent, he is the co-developer of a new Workers’ Comp software suite that will help insurance professionals in working with employers. He can be contacted at 828-274-0959 or

Life Insurance–Bright Future for Life Insurance Market

By Michael Naumann
A little perspective can go a long way in changing opinions. That’s exactly what has happened in the minds of many Americans, whose retirement savings and investments were obliterated seemingly overnight. Now that the dust has settled, many consumers acknowledge that economic health can be about as stable as the California fault lines.

These realizations have led to a greater appreciation and effort among Americans to assure their financial health and well-being. In fact, household debt fell 1.7% in 2009, the first annual drop since records began in 1945 according to the Federal Reserve. Personal income rose 0.3 percent in January and 0.1% in February. The economic turmoil of 2009 has clearly influenced consumers to spend less and save more.

Consumers are also becoming students of finance, learning to identify products and insurance that will protect their well-being. Millions of Americans are recognizing that life insurance is among a short list of products that not only help protect wealth and income, but also provide potentially tax-free income for beneficiaries.

For brokers, 2011 and beyond appears to be rich with opportunity to sell life insurance. However, the challenge will be to educate clients and prospects as to the growing diversity of life insurance products, and to convey the many benefits that are available from owning life insurance, even while policyholders are still alive.

Helping drive the growing demand is the fact that employers don’t have much confidence in their workers’ ability to save for retirement. According to a survey by Hewitt Associates in 2010, 54% of employers are less confident about their workers’ ability to retire with sufficient assets than they were in 2009. And many companies are looking for ways to help their workforce become more prepared and protected — and therefore less distracted by financial stress.

Now is an excellent time to start a conversation with employers about life insurance solutions that are not only financially attractive to companies, but can also provide much-needed financial protection for their workforce. Brokers acting as consultants can make tangible recommendations, explaining the difference between types of life insurance policies and which solutions are best for different segments of employees.

A Voluntary Solution

In such a diverse market, clients are looking for simple, straightforward solutions that lead to financial security and provide their workers with peace of mind. According to LIMRA, almost 75% of middle-market America feels they need life insurance as a financial security product. With employers shifting benefits costs to employees more and more, it’s no surprise Americans feel pressure to take it upon themselves to attain financial security, and life insurance plays an important role in that.

Though voluntary life insurance can be used as a stand-alone policy, its purpose is to supplement existing life policies to attain financial security and keep it. Fifty-six percent of married parents believe their current life insurance coverage is inadequate, which means enormous opportunity for brokers to provide supplemental protection via voluntary life insurance products. Voluntary life insurance options are simple, flexible and pay cash to beneficiaries.

Providers offer whole and term life policies, two of the most widely understood and straightforward policies on the market. Particularly as Americans are doing what they can to safeguard against future financial risk, voluntary life insurance addresses a number of concerns — some stemming from the economic crisis and others that have long existed, including:

Coverage in retirement: More and more Americans have been forced to delay retirement or rejoin the workforce as a result of the financial crisis. Voluntary life insurance offers whole and 10-year term life policy options that extend to age 70, covering retirement aged Americans longer than before and allowing them to breathe a little easier when it comes to financial stability.

Unemployment: Another serious concern is maintaining life insurance coverage in the face of layoffs. Individual voluntary life insurance policies are portable. So whether policyholders are laid off or decide to leave their company, they don’t need to rush into another job simply to regain life insurance coverage.

Access to cash: In any economy, access to cash is important. Many voluntary life insurance policies begin to accumulate cash value as early as three years into the policy. This money can be borrowed against for a variety of different reasons — from starting a business to helping fund a child’s education.

Changing needs: Riders are also available to help meet policyholders’ changing needs. Many Americans reassess their life insurance needs during major life events such as getting married and having children. Juvenile life insurance is a good example, allowing for future insurability maintained at a reasonable rate. Given the epidemic of adult and childhood obesity in the United States and instances of Type II diabetes, making sure children are insurable as adults is as important as ever. It offers more consumer choice with lifetime coverage and financial protection for the next generation.

Life insurance is even more essential now, given that many people have far fewer financial resources to fall back on in the event of an unexpected tragedy.

As Americans move forward with a greater understanding that economic safety can be short-lived, they are seeking practical and effective ways to ensure financial security and protection over what remains of their retirement nest egg and to provide for their families’ future. The world through a new looking glass has given life insurance a facelift — there is no better time to tout its many advantages.
Michael Naumann is market vice president of Broker and Market Development at Aflac. Before joining Aflac he was national sales director, group division, for Guarantee Trust Life Insurance Company in Glenview, IL. He holds a Bachelor of Science degree from Marquette University in Milwaukee, Wis. Naumann is a member of NAHU and Council of Insurance Advisors and Brokers. Visit or call 1-888-861-0251.

Disability Income Protection – A Primer Part I

by Lawrence Schneider
Your client should apply for disability coverage as early as possible even if they can’t immediately afford the 2% to 4% of income for the full benefit amount, benefit period, and options. They should apply even if there is not an obvious need at the moment.

The only result of procrastination is that your client’s health and circumstances can change, which can affect eligibility. Why do breadwinners wait until it is too late? Some prospects and even agents don’t see the need or the urgency for disability coverage. Some are not aware that that this form of protection even exists while others have a false belief that they will never get disabled or that their employer or someone else will pay their expenses if they do get disabled.

Since most disabilities last less than two to five years, what’s wrong with recommending that period as a possible initial benefit period? The cost would be substantially lower even though the penalty for a shortened benefit period would have increased. There are other solutions for lowering the cost without reducing the benefit period, such as reducing the benefit amount or making the elimination period longer. Remember that a half of loaf of bread is better than none. Besides, most carriers allow the policyholder to purchase more coverage, in the future, to replace that reduced amount or cover an increase in income, strictly based on financial underwriting (no evidence of medical insurability). This future increase option has some other benefits to the policyholder as well. Another reason to apply for coverage early has to do with premiums and potential benefits.

Coverage should only be discontinued when the policyholder becomes self-insured or retires before the coverage terminates, which is usually at age 65. However, if the policyholder is still working, they have to keep the coverage at least to 75 or longer with some carriers. The policyholder doesn’t have to drop the policy even if money becomes an issue. Coverage can be reconfigured to create a lower benefit amount or a shorter benefit period, which will lower the premium –  possibly enough to keep the policy in force.

Incidentally, you do not have to be a paraplegic in order to collect. Definitions for total disability vary, but the best ones will say, “unable to perform the substantial and material duties of your occupation” even though you are working elsewhere regardless of how much you earn.

What happens if your client has been turned down for income protection coverage? There are brokers who specialize in hard-to-place situations that can be caused by approximately 10 or so major categories, such as health, occupation, new business, working from within the home, working abroad, overweight etc, just to name a few.

What To Look For in a Policy

Your job would be easy if every company offering a disability insurance policy had the same wording, terms, and conditions. There can be as many as 30 or more wording considerations –  all of which make up a contract and affect policy benefits. The wording affects how much, how long, and under what terms, conditions and circumstances a claim will be paid.
However, most companies offer several similarities. Below, I have attempted to list the major differences in the same order as they may appear in most contracts:

Renewability-non cancelable – Under what conditions will your policy be renewed and with what rate guarantees?
Definition of sickness – Does it specify when an illness first appeared versus when the disease first entered the body/system.
Elimination period –  Do the days of disability have to be continuous?
Definition of total disability – Will you be able to work in another occupation and still be paid?
Definition of benefit period – How long will you be paid?
Residual/ proportionate disability benefit – Will you be paid while working in your occupation, but suffer a loss of income and while under a doctor’s care?
Recovery/ extended/ transition benefit –  What if you are no longer under the doctor’s care, but you still suffer a loss of income while your practice or business is being rebuilt whereby the loss is no more than 20%.
Future increase option benefit –  Will you be able to obtain more coverage. When would you be uninsurable?
Cost of living adjustment (COLA) Benefit –  This helps replace what inflation has eroded from the benefit’s buying power.

In May, we will feature Part II of this article, which will help you sift through the wording maze of different policies offered in the marketplace.
Larry Schneider is a disability specialist with over 35 years of experience. Over the years, he has had over 40 articles published, lectured to many of the nation’s leading Associations, CPA’s etc. and has appeared on television talking about contractual differences between policies offered by the insurance industry. In addition, he is an expert witness/consultant for claims which have been inappropriately denied and a national resource for hard to place applicants as well as a brokerage for standard cases. He has developed a turn-key system for selling disability insurance in use by many of the careers. For more information, visit, e-mail, or call 800-551-6211.

Planning for Long-Term Care with an Annuity Contract

by Daniel Herr
The recent economic downturn was a stark reminder that unforeseen factors can threaten a retirement lifestyle and change the course of thinking among those who are saving for their future. One of the most overlooked risks is the potential for needing long-term care services.

In fact, approximately 70% of Americans age 65 or older will need some type of long-term care services and 40% of those who are receiving this care are under age 65, according to a report by Lincoln Financial. The rapidly rising cost of healthcare can easily drain retirement savings. The odds are that most Americans will need long-term care sooner than they think.

Despite these statistics, many people do not expect to need long-term care services and, therefore, cannot have enough savings or long-term care insurance (LTCI) to cover these expenses. These unanticipated costs can have a profound effect on retirement savings. In some cases, these costs can result in a rapid depletion of assets, which will certainly threaten one’s lifestyle.

While the need and price for long-term care continues to climb, new provisions of existing laws have opened the door for industry innovation and the creation of combination annuity products (also known as “hybrid” or “linked benefit” products). They allow people to save for unanticipated long-term expenses without putting their savings at risk. Now more than ever, it is critical for financial advisors to educate their clients on this new protection option.

The Pension Protection Act

The Pension Protection Act of 2006 (PPA), which took effect in January, has created an opportunity for financial advisors to help clients fund potential long-term care needs with annuities. These provisions are shaping product development in the industry because annuities can now be combined with riders that offer long-term care (LTC) coverage. Previously, that combination was only permitted for life insurance contracts.

The PPA provisions also clarified rules that govern tax-free exchanges of contracts offering qualified long-term care insurance coverage. Under modified rules, a non-qualified annuity owner can exchange their existing contract for an annuity that offers a qualified long-term care rider. The owner can also exchange their contract for a stand-alone qualified long-term care insurance contract. These exchanges can generally be partial or full exchanges of the existing annuity.
Advisors should become familiar with the new combination annuity options that are now available to their clients as well as with the modified rules that govern these tax-free exchanges of annuities.

LTC Annuities – A New Protection Option

A combination LTC annuity product features an annuity combined with a qualified long-term care insurance rider. It provides financial protection for retirement assets by offering benefits for a potential long-term care event. The combination LTC annuity product can utilize a variable or a fixed annuity contract.

Under this combination design, the insured’s non-qualified assets can be repositioned for benefit growth. Amounts, including investment gains, can be paid out as tax-free LTC benefits [0 IRS code Section 104(a)(3)]. The insured also retains the account value and death benefit within the annuity to the extent that these amounts are not used for LTC benefits. Withdrawals taken for purposes other than for qualified long-term expenses can reduce the total LTC guaranteed benefit.

The industry has focused on two product designs so far. The tail design and the coinsurance design differ in how amounts are paid from the annuity contract and the insurance company. A third approach, the GLWB design, has been discussed at a high level within the industry, but no company has yet offered a product based on this approach.

Tail Design

The tail design is the favored design of the few annuity combination products that are available for sale. One hundred percent of benefits are paid first from the annuity account value until it is exhausted. The insurance company pays 100% of the remaining benefits under the contact. The key component of this approach is that benefits paid from the insurance company come after the LTC benefit payments exhaust the annuity account value. This design works as a high deductible plan and helps lever down the LTC premiums.

Coinsurance Design

The coinsurance design differs from the tail design in that each and every benefit payment under the contract is paid in part out of the annuity account value and in part by the insurance company (for example 80% from account value, 20% from insurance company). This design, which is not widely available, allows the insured to preserve the account value and death benefit for a longer period. The LTC premiums in the coinsurance design are likely to be higher than premiums in the tail design.

GLWB Design

The GLWB approach has been discussed at a high level within the industry. Under this approach, the withdrawal guarantee would be available as normal. But if a LTC need arises, the available withdrawal guarantee would be replaced by a higher LTC benefit for a defined benefit period. The GLWB design is compatible with the tail design and the coinsurance design. It could be used to combine product design with a standard annuity withdrawal benefit.

LTC Annuities – Innovations Ahead
Growth Benefits
Cash Payments

Most traditional LTC benefits are paid as reimbursements. Clients have to collect and submit receipts for services monthly to receive LTC benefits, which can be time consuming and difficult. An LTC annuity combination product offers a beneficial solution by providing cash payments of LTC benefits. Once a qualified LTC event is established and a plan of care is in place, the monthly LTC benefit is paid to the insured in the same manner as an annuity benefit. It does require ongoing confirmation of services and annual renewal of the plan of care. Cash benefits eliminate the need to manage receipts and file for benefits every month.


The typical underwriting process can be daunting for traditional qualified long-term care insurance. Even a simplified underwriting process may require telephone calls and medical records. In a self-underwriting process, the prospective client gets a list, upfront, of medical history questions and prescription medications. The client will know immediately that their application will be approved for qualified long-term care insurance if they can respond appropriately to the medical questions and confirm that they are not taking any of the listed prescription medications. The home office will perform a prescription drug screen to verify every application.

Phased Benefits

Another innovative way to reduce the cost of the LTC premiums is to phase in LTC benefit increases. A lower monthly benefit for a longer coverage period is available in the early years. The greatest monthly benefit for the minimum coverage period is available when a claim for benefits does not occur until after a specific period. For example, if the first claim for LTC benefits occurs after the fourth policy anniversary, a monthly benefit would be paid for $3,333 for 108 months (nine years) with a total available LTC benefit of $360,000. However, if the insured made the first claim for LTC benefits after the fifth policy anniversary, a monthly benefit of $5,000 would be available for 72 months (six years) with the same total available LTC benefit. This approach is marketable to younger clientele who are still preparing for retirement, especially when coupled with the growth benefits described above.

A Look to the Future

The provisions of the PPA have made combination LTC annuity products a viable option for those who are preparing for retirement and for potential LTC needs. As combination LTC annuity products evolve and innovation continues, planners should be prepared to provide clients with a clear understanding of their benefits as well as information about the financial strength of the companies offering these contracts.

Having no plan for covering LTC expenses is still a plan, just not a well thought out plan. Clients who plan for unanticipated LTC expenses can benefit from these additional annuity combination protection options and the favorable tax treatment they provide. While no one can predict the future, those who understand the possibility of LTC needs in retirement stand to gain by being prepared.
Daniel Herr is the assistant vice president of Product Research & Development for Retirement Solutions at Lincoln Financial Group. Herr began his career with Lincoln in 1986, and has served in a variety of product development and pricing roles throughout the enterprise. After leading the development and pricing of individual disability income products and HMO/PPO health plans, Herr has spent the past 15+ years at the forefront of developing and promoting innovative fixed and variable annuity income solutions.
He received his Bachelor of Science degree in Business Administration from the University of Nebraska — Lincoln.

Voluntary Benefits–The New Rules of the Game:
Take the Scary Out Of Voluntary Insurance

by Christina W. von Pingel
With the new Republican majority in the U.S. House of Representatives and candidates gearing up for the 2012 election season, healthcare reform is sure to stay at the top of the national agenda.

Will the Patient Protection and Affordable Care Act (PPACA) be repealed or reworked? Will the U.S. Supreme Court throw out the individual mandate that provides the foundation for so much of the affordable care part of the act? These are issues we’ll be following closely as we navigate our options and provide advice to employers.

But with all the questions, one certainty is already upon us: Brokers are going to have to find new areas of revenue, given the limits on commissions caused by PPACA’s minimum medical loss ratio. Depending on the size of the group, it dictates that medical plans must spend 80% to 85% of premiums on actual medical costs. The new rules went into effect January 1.

While there is some hope that they may be revised, agents are now facing the prospect of drastically reduced compensations for the important services they provide.

As a result, over the past year I’ve noticed much greater interest in ancillary plans like dental, disability, and voluntary products coming from brokers and general agents who previously only handled major medical plans. These ancillary plans do not fall under PPACA’s medical loss-ratio rules, so they can help brokers make up their commission losses.

In particular, the voluntary plans will continue to gain interest and traction because they also address some key needs of employers and employees in the shifting benefits landscape. These needs have become more evident over the past few years as premiums for medical plans have skyrocketed and employers have been forced to shift more costs to their employees or scale back their benefits by offering high-deductible plans. Voluntary plans, which provide lump-sum benefits for events such as hospitalization or the diagnosis of a covered illness, give employees a chance to reduce their exposures based on their individual needs. And since they are employee-paid, the plans can be added to an enrollment at little or no cost to the employers.

Despite the attractiveness of voluntary plans, some brokers (and the employers they represent) are still hesitant about entering the fray. They may be concerned about overwhelming their HR staff with new paperwork or they may not feel comfortable providing advice on plans they are unfamiliar with.

These are understandable concerns. Here are a few tips to take the scary out of voluntary:

Enrollment resources: The good news is that many carriers are now offering resources that can help make enrollments more seamless. Products are being offered in packages that allow employees to sign up for several plans with one application. Brokers can easily be trained how to sign up employees themselves rather than having to hire a third-party firm.

Group or Individual? Both platforms have benefits and drawbacks, depending on the circumstances of the client and producer. For group offerings, the plan is sited in the state where the company is corporately headquartered while individual plans are sited in every state where employees are located. So for a company with locations in 20 states, you might have 20 separate applications and filings if you offer individual plans, but just one application for a group plan.
Group plans generally offer lower rates and easier underwriting, but benefits in group plans are usually more limited than in individual plans since you can add riders to individual plans. And group plans can only be continued if the employer keeps the plan in force while employees can retain coverage under individual plans if they leave an employer for any reason, even if the employer later drops the coverage.

Finally, there is a key difference in how group and individual plans treat commissions. In group plans, the broker of record is not vested, so the broker will lose the contract and its commissions if the employer starts working with a new broker. In individual plans, the broker of record keeps the contract and its commissions.

Identifying a good product mix: Voluntary plans can help make a benefits offering more robust and they lend themselves to packaging with products like the high-deductible plans that are becoming increasingly popular these days. Voluntary plans covering critical illnesses, cancer, hospitalization, or accidents pay lump-sum benefits for covered illnesses or scenarios, and allow employees to cushion the blows of higher deductibles, co-payments and out-of-pocket expenses.

Communication strategy: When looking at voluntary offerings, make sure you will have the means to communicate their benefits to employers and employees through e-mail blasts, flyers, payroll stuffers, and other vehicles. Education is the key because voluntary products are still relatively unknown. Employers may not know that they can offer such plans alongside their major medical plans for a seamless enrollment. Talk to carriers about the resources they have, and the strategies they might employ, to communicate effectively with employers and employees.

You’re not limited in whom you can talk to. The class of employers who might buy voluntary products can be blue-collar or white-collar. Many carriers that offer voluntary offerings will talk to groups of two or more participants.

The trends that make voluntary benefits more attractive will continue. Eighty-four percent of CFOs and senior comptrollers surveyed by Grant Thornton LLP in October cited employee benefits as their greatest pricing pressure. Thirty percent of the surveyed CFOs and comptrollers said they planned to reduce their healthcare benefits. As employees seek ways to limit their exposure, voluntary insurance may be a worthwhile option.
Christina W. von Pingel is a general manager with American General Benefit Solutions and works out of the company’s San Francisco office. Her territory includes California, Washington, Oregon and Alaska. She can be reached at
American General Life Companies,, is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc. American General Life Companies insurers offer a full line of life insurance, annuities, accident & health products and worksite benefits to serve the financial and estate planning needs of its customers throughout the United States.
Benefit Solutions,, is the marketing brand under which group and individual benefit insurance products (including life, accidental death & dismemberment, disability income, dental, vision, accident, cancer, critical illness, and hospital indemnity insurance products) are offered by the insurance companies that comprise American General Life Companies.