April2014CoverAnnuity Market Snapshot
by Leila Morris • A quick round-up of the latest on the annuity market.
Health Insurance
The Seismic Shift in Health Insurance – Finding Firm Ground with Self Funding, Private Exchanges, COBRA, and Cadillac Plans
COBRA under the ACA
by Allen Gehrki  •  Although COBRA elections may decrease in the future, all of the COBRA rules are still in place, and those rules continue to change.
Why COBRA Isn’t Going Away
by Bobbi Hamilton Kaelin  •  Health reform is not eliminating COBRA. Now is a good time to review the benefit offerings your clients have.
Will Self-Funding Still Work In California?
by David Fear, Sr. RHU  •  This article will attempt to clarify what may happen as the result of the passage of SB-161 and what alternatives are available for your clients.
Is Self-Funding a Good Option for your Clients?
by Cheryl Williams-Khoury  •  Self-funding is a viable option to manage your health plan costs and coverages.
Be Your Clients’ Hero and Plan Now For the Cadillac Tax
by Chris Bettner  •  January 2018 may seem like a long way off, but planning for changes now could make a difference in your clients’ health plan strategy.
Empowerment and Choice Are Private Exchange Drivers
by Ron Goldstein   •  The marketplace’s growing awareness of health insurance exchanges provides wonderful new opportunities for brokers to grow their business.
Acupuncture and Chiropractic Benefits in Today’s Post Reform Market
by Leila Morris • How to go above and beyond by offering clients the alternative medicine benefits they are seeking.
The Growing Importance of Disability Insurance
by Tye Elliot  •  Although many workers have assumed that they have coverage through their employer, a growing number of companies are including disability in their cutbacks as they grapple with rising health care costs.
This Won’t Hurt A Bit: Injecting Insight Into HMOs with Part II of Our Annual HMO Survey
Each year California Broker surveys health maintenance organizations (HMOs) in the state with direct questions about their plans. We hope that this valuable information will help you serve your savvy healthcare clients better.

Annuity News

Annuity Sales See the Biggest Quarterly Jump in 11 Years

Annuity sales hit $61.9 billion in the fourth quarter of 2013 representing an increase of 17% — the largest quarterly percentage increase in 11 years, according to a LIMRA report. For full year 2013, annuity sales were $230.1 billion, a 5% increase over 2012. 

Fourth quarter sales of indexed annuities reached $11.9 billion — a new quarterly record and a jump of $1.7 billion from the prior quarter.

Indexed annuity sales were up 16% in 2013 compared to 2012 and totaled $39.3 billion. Joe Montminy of LIMRA explains, “Improved interest rates make the product offerings more attractive, and they have benefited from continued product innovation. Another reason is the organic growth in the banking and Independent B-D channels. This growth was additive and not at the expense of the independent channel, which saw a 24% increase in the fourth quarter and makes up 71% of the market.”

Fixed annuity sales were $25.6 billion in the quarter, the highest they have been since the second quarter of 2009 and up 45% compared to last year. Total fixed annuities sales grew 17% in 2013, totaling $84.8 billion.

Fixed-rate deferred annuities (book value and MVA) had another outstanding quarter, increasing 54% in the fourth quarter compared to last year. The improved interest rate environment was the main reason for this substantial increase. Fixed-rate annuity sales reached $8.5 billion in the fourth quarter. For the year, fixed-rate annuities improved 19% to $29.3 billion.

Variable annuity sales marked positive growth in the fourth quarter, up 4% to $36.3 billion. Following a trend for the past few years, VA sales are no longer tracking with the equities markets. Despite extraordinary 32% growth in the equities market in 2013, VA sales were down 1% at year-end compared with 2012 and totaled $145.3 billion.

Variable annuity net new sales will reach $22 billion by 2018, a 57% increase from 2012, according to a report by firm Cerulli Associates. Donnie Ethier, associate director at Cerulli explains, “Net new variable annuity sales plummeted in 2012 to just $14 billion. However, as interest rates stabilize, we envision legacy variable annuity providers and new entrants, including nontraditional players, will join the marketplace. We have confirmed that private money continues to circulate in the annuity industry. Consumer demand for guaranteed income is too high for firms to ignore, and many believe they can address the opportunity with greater efficiency.”

Montminy says that companies continue to manage their VA business carefully. More emphasis on accumulation VAs appears to be an emerging trend. In 2013, more companies introduced these types of products into their portfolios as they shift their focus to tax-deferred products with alternative investment options and indexed-linked VAs.

The growth in the equity markets enabled VA assets to hit a record $2 trillion by the end of 2013 he said.

Election rates for VA GLB riders dropped to 79% (when available) in the fourth quarter. Focus on accumulation and tax deferment, as well as changes in GLB riders, has affected election rates of these riders.

While GLBs can provide lifetime income, demand for pure income annuity products are at record levels — deferred income annuities and SPIAs both broke sales records this quarter.

Deferred income annuities (DIAs) reached $710 million in the fourth quarter. While DIAs are still a small piece of the total annuity market, this was 82% higher than Q4 2012. In 2013, DIA sales grew to $2.2 billion, more than double 2012 results (113%).

Single premium immediate annuity sales were up 30% in the fourth quarter to reach a record $2.6 billion. SPIA sales totaled $8.3 billion, which is 8% higher than in 2012 and another record.

Montminy said, “Higher interest rates are playing an important role in the increased sales of income annuity products. We anticipate that continued improvements in interest rates and changing demographics will increase demand for these income annuity products. There are 42 million retirees in the U.S. today, which will grow to 65 million by 2025. In addition, more and more Americans are going to retire without a pension and will look to create a guaranteed income stream, which annuity products can provide.” For more information, visit www.LIMRA.com.

SEC Comes Down Hard on Variable Annuity Scheme

The Securities and Exchange Commission took enforcement actions against a pair of brokers, an investment advisory firm, and several others involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care.

The SEC Enforcement Division alleges that Michael A. Horowitz, a broker who lives in Los Angeles recruited others to help him get personal health and identifying information of terminally ill patients in Southern California and Chicago. Anticipating they would die soon, Horowitz sold variable annuities contracts with death benefit and bonus credit features to wealthy investors. He designated the patients as annuitants whose death would trigger a benefit payout. Horowitz marketed these annuities as opportunities for investors to reap short-term investment gains. When the annuitants died, the investors collected death benefit payouts.

The SEC Enforcement Division alleges that Horowitz enlisted another broker Moshe Marc Cohen of Brooklyn, N.Y., and they each deceived their own brokerage firms to get the approvals they needed to sell the annuities. They falsified various broker-dealer forms used by firms to conduct investment suitability reviews. As a result of the fraudulent practices, some insurance companies unwittingly issued variable annuities that they would not otherwise have sold. Horowitz and Cohen, meanwhile, generated more than $1 million in sales commissions.

Agreeing to settle the SEC’s charges are four non-brokers and a New York-based investment advisory firm recruited into the scheme. Also agreeing to settlements are two other brokers who are charged with causing books-and-records violations related to annuities sold through the scheme. A combined total of more than $4.5 million will be paid in the settlements. The SEC’s litigation continues against Horowitz and Cohen.

Horowitz agreed to pay disgorgement of $292,767.89, prejudgment interest of $36,512, and a penalty of $40,800. Firestone agreed to pay disgorgement of $127,853.20, prejudgment interest of $17,140, and a penalty of $40,800.

The Seismic Shift in Health Insurance…Finding Firm Ground with Self Funding, Private Exchanges, COBRA, and Cadillac Plans

COBRA Under the ACA

by Allen Gehrki

Guaranteed issue health insurance — it’s now a reality for Americans buying coverage through the health insurance marketplaces. Although this new, more affordable coverage is available to employees who are losing employer-sponsored coverage, employers must still comply with COBRA. 

COBRA Basics

The Affordable Care Act (ACA) does not change the basic rules of COBRA. Employers sponsoring group health plans that are subject to COBRA must still offer individuals who experience a qualifying event (known as “qualified beneficiaries”) the right to continue their pre-event coverage for a specified period. Plus, qualified beneficiaries who elect COBRA are responsible for making timely payments, which is typically the full cost of the coverage plus a two percent administrative fee.

Although COBRA has been law since 1986, many employers still don’t realize all of the plans and coverage types affected by COBRA regulations. Group health plans subject to COBRA include, but are not limited to the following:

• Medical, dental, and vision plans

• Prescription drug plans

• Health flexible spending accounts (FSAs)

• Health reimbursement -arrangements (HRAs)

• Executive reimbursement plans

Depending on the plan design, these plans may also be subject to COBRA:

• Employee assistance programs (EAPs)

• Cancer policies

• Employer-sponsored drug and alcohol treatment programs and health clinics

• Wellness programs

It’s important to note that even if an employer chooses to stop offering a group medical plan and sends their employees to the marketplaces, the employer must continue to offer COBRA for any dental, vision, and other group health plans offered in the benefits package.

COBRA Elections

Individuals are often shocked when they learn their out-of-pocket coverage costs under COBRA. In the past, coverage alternatives were limited. This meant that individuals with costly illnesses and ongoing chronic conditions were the most likely to elect COBRA, which escalated utilization rates and increased employer costs.

Under the ACA, these individuals now have access to guaranteed issue coverage, opening up new health insurance options. And those individuals who meet certain income requirements and other criteria will qualify for subsidies from the federal government to help pay for coverage.

With the possibility of subsidized coverage, COBRA election rates are expected to drop. However, there will still be individuals who choose to elect COBRA coverage instead of insurance through an exchange. The plan available through COBRA may offer richer benefits or a wider network of providers, allowing the individual to maintain the same level of coverage and access they enjoyed before their qualifying event. For some individuals, these factors are more important than the pricier cost of the COBRA coverage.

Individuals who elect to continue coverage under COBRA and then exhaust that coverage are eligible for a special enrollment period under the ACA. This special enrollment period allows an individual to buy insurance through the marketplace outside of the annual open enrollment period.

Lowering COBRA Costs

As mentioned earlier, on average, COBRA participants typically have much higher utilization rates and more expensive claims than do active employees. This can lead to substantial premium increases for fully insured plans and dramatically higher direct costs for self-insured plans. As COBRA election rates fall, employers’ COBRA-related costs will fall as well. But what can an employer do to help ensure that its COBRA election rate declines?

Communication is Key

Despite well-publicized issues with the healthcare.gov website and heated discussions among opposing politicians and pundits, many Americans still don’t fully understand health care reform or trust the program to meet their needs.

It’s in an employer’s best interest to ensure that qualified beneficiaries understand their COBRA rights and their coverage options under the ACA. Ideally, this educational process would begin before the qualifying event, but it should definitely start no later than when the qualifying event occurs.

As part of the ACA, the Dept. of Labor issued a new model election notice that employers can use as the foundation for creating their own election notices. This model notice includes the following content related to marketplace coverage:

“There may be other coverage options for you and your family.  When key parts of the health care law take effect, you’ll be able to buy coverage through the Health Insurance Marketplace.  In the Marketplace, you could be eligible for a new kind of tax credit that lowers your monthly premiums right away, and you can see what your premium, deductibles, and out-of-pocket costs will be before you make a decision to enroll.  Being eligible for COBRA does not limit your eligibility for coverage for a tax credit through the Marketplace. Additionally, you may qualify for a special enrollment opportunity for another group health plan for which you are eligible (such as a spouse’s plan), even if the plan generally does not accept late enrollees, if you request enrollment within 30 days.  

If you have any questions about your rights to COBRA continuation coverage, you should contact [enter name of party responsible for COBRA administration for the Plan, with telephone number and address].”

Employers are likely to find that this content is not adequate to educate their former employees about their coverage options. Employers may also find themselves scrambling to answer questions about marketplace coverage that arise from this notice.

Providing comprehensive, easy-to-understand information when employees experience a qualifying event helps them understand all of their coverage options. It can also ease the process of choosing between COBRA and other coverage. This information can be provided to employees during the exit interview process, included with the election notice that is required under COBRA, or both. Including this information along with the election notice can help ensure that the information reaches a spouse or dependents as well.

By ensuring that qualified beneficiaries understand all of their coverage options, as well as the advantages that marketplace coverage may provide to them, an employer can reduce the number of insurance-related questions received and potentially reduce its COBRA election rate.

Working with a Third Party COBRA Administrator

Employers that decide to work with a third party COBRA administrator should ensure their chosen vendor can assist with this communication effort. At a minimum, the vendor should be able to provide communication materials and live telephone support to answer questions from qualified beneficiaries.

The Role of the Broker

As a broker, your clients rely on you to help them manage their benefit programs, including COBRA. Although COBRA elections may decrease in the future, all of the COBRA rules are still in place, and those rules continue to change. For example, the recent repeal of the Defense of Marriage Act opens up COBRA eligibility to same-sex married couples for the first time ever.

Your clients will expect you to keep them abreast of these rule changes and to offer guidance regarding necessary actions and best practices. And of course, your clients may rely on you to educate their qualified beneficiaries about post-employment coverage options. Your own ongoing education is the key to meeting these continuous demands.


Allen Gehrki is senior VP, Client Experience, CONEXIS. Allen has been a benefits industry executive for more than 25 years and served as past president of the Texas Association of Health Underwriters (TAHU) and the Dallas Association of Health Underwriters (DAHU). 

Why COBRA Isn’t Going Away

COBRA for FSAs and HRAs require special design and attention – especially with healthcare reform

by Bobbi Hamilton Kaelin

Recently, I was teaching a class on healthcare reform when a student asked why COBRA still even existed. The student went on to say, “People won’t pay for COBRA since the exchange is less expensive.” I gently reminded the student that COBRA is much more than someone electing it. There are general notices, qualifying event notices, tracking of timeframes, and more. The comment that came back was basically, “I thought if someone terminated you just need to offer COBRA – and that’s it.” That’s a dangerous assumption. 

COBRA is more than electing coverage and paying for it on your own, and it applies to more than just group medical plans.

Certainly, the reform has some -affect on plans, rules and guidelines, but it’s not eliminating COBRA. Now is a good time to review the -benefit offerings your clients have. If they have an FSA or an HRA — those plans are also subject to COBRA.

A health flex spending arrangement is typically offered under a Code Section 125 Plan. This allows plan participants to elect to have monies withheld from their payroll — tax free, and then use the monies to help pay for or reimburse the participant for eligible out-of-pocket heath care expenses. The FSA can be funded by the employee via salary reductions, an employer contribution, or a combination. The total FSA election is available for full reimbursement at any time eligible claims are submitted, which is known as the “uniform coverage rule.” And any unused funds are forfeited, following the extension or run-out period.

A health-reimbursement arrangement is also an account based plan set up by an employer to pay for or reimburse eligible medical expenses, but it can only be funded by employer contributions. It’s most often coupled with a high deductible health plan (as it must be for healthcare reform purposes in most cases). The uniform coverage rule does not apply to the HRA. But depending on the funding frequency, the participant can have access to the annual amount, or perhaps monthly amounts. This is determined by plan design. Unused funds can be forfeited or rolled over, depending on the plan design. Upon understanding the COBRA obligations for an HRA, many employers choose to set the HRA up to have unused funds be forfeited at the end of the plan year or only allow for a portion to be rolled over to the next year and a total maximum carryover to be a smaller amount.

Both the HRA and the FSA are group health plans and are therefore subject to COBRA unless otherwise exempt. However these are not typical group health plans, so they may present some additional challenges for COBRA administration.

The design of both the FSA and the HRA has a significant affect on COBRA. The plans should be set up initially or modified now to make sure they qualify as “excepted benefits.” This will allow the plans to qualify for the special COBRA exception. But first, let’s review some of the basic COBRA requirements:

• DOL General Notice — provided to participants generally within 60 days of enrolling in a COBRA qualified health plan, which includes group medical plans and health FSAs. Best practice indicates mailing it to the employee home address and mailing a separate notice if the spouse is covered. (You want to make sure that both of these folks receive the notice as it contains their rights and responsibilities).

• Qualifying Event Notice — provided upon loss of coverage due to a COBRA qualifying event. The notice is typically mailed to the home address of the employee, with a separate spousal notice. The employer has either 30 days to notify their third party administrator of the qualifying event, who in turn has 14 days in which to mail the notice, or the employer must mail the notice within 44 days. The qualified beneficiary has 60 days from the date of the notice or the loss of coverage, whichever is greater, in which to elect COBRA. Upon election they have 45 days to make their initial COBRA premium, and thereafter have a 30-day grace period in which to remit premiums.

COBRA can be very straightforward in terms of the premium. Typically, it’s the actual cost of the health insurance premium, plus a 2% administrative fee can be charged. The participant pays the premium, and the coverage continues until it’s exhausted or cancelled due to non-payment or voluntary termination of COBRA.

So now, back to the effect of COBRA on account-based plans. The employer takes the hit if a participant terminates and has used more than the FSA or HRA contributions to date. In other words, the amounts available under each of the plans can be in excess of the actual contributions to date, and the terminated employee is not liable to repay those funds. So why would someone elect COBRA? It has to do with unused funds.

When termination occurs, the individual is likely to be removed from the benefit plan as of the termination date. There is usually a period in which the participant can submit expenses to the plan. However, those expenses must be incurred before the date of coverage ending/date of termination. If the account is overspent, the individual just goes about their business and has no liability. However, if the funds are under spent, and the individual doesn’t have any claims to submit that were incurred before the termination date, they can elect COBRA, which will allow them to have access to those dollars.

For example, assume that Alisa has elected $2,400 for the plan year, which begins on January 1. If she terminates employment June 30, she would have contributed $1,200 to date (in the case of an FSA funded by employee salary reductions). Alisa had originally elected the monies for upcoming dental work, which wasn’t done before her date of termination. To have access to the FSA monies, Alisa can elect COBRA and have the dental work done. Now she can submit the claims and be reimbursed up to $2,400 even though she only contributed $1,200 before her date of termination. Her -COBRA premium for the remainder of the plan year would be 1/12th of the annual election amount plus the 2% administrative fee ($2,400 divided by 12 = $200 = 2% – $204). Upon electing COBRA, she can pay for one month of premium, receive the total amount elected for the plan year, and then terminate COBRA.

When that plan year ends and the open enrollment starts, the COBRA rules indicate that the COBRA participants receive the same benefit at open enrollment, as do active employees. This can put the employer at great risk when it comes to funding reimbursements under the uniform reimbursement rule. However, under the IRS COBRA regulations, a health FSA can be designed to qualify for special limited COBRA obligation. The FSA for COBRA need only be offered through the remainder of that plan year.

Under healthcare reform, nearly all health FSAs must be structured to be excepted benefits in plan years beginning in 2014. If it were not an excepted benefit, it would fail to meet the reform mandates, which can result in excise taxes of $100 per day per participant. So it’s important that plans be reviewed and modified to be excepted benefit. But how is this done? Generally the benefits provided under a health FSA are excepted so long as it meets three conditions:

• Condition One, Maximum Benefit Condition — The maximum benefit payable under the health FSA cannot exceed two times the participant’s salary reduction under the health FSA for the year (or, if greater, the amount of the employee’s salary reduction for the plan year plus $500). The term “maximum benefit” refers to the entire amount of the health FSA that is available to the participant. In the case of a health FSA that is funded only by employee contributions, the maximum benefit condition is satisfied.  But if the employer funds a certain portion of the health FSA, it may not meet this condition. It has to do with the total amount the employer contributes. So long as the dollar amount contributed by the employer is equal to the amount the employee elects or less, but not greater than $500, it is likely to be excepted. An employer match can be provided, but it cannot be matched at a ratio greater than one-to-one, nor can it exceed the $500 lest it lose the excepted benefit status.

• Condition Two, Availability Condition — This requires that other group health coverage (not including excepted benefits) must be made available for the year to the class of participants by reason of their employment. In other words, the employer must offer group medical benefits with the same or less expansive eligibility rules (or benefit eligibility footprint) as the health FSA eligibility rules. The individual electing the health FSA is not required to enroll in the group medical plan; it simply must be offered as above.

• Condition three, The COBRA Premium Condition — If you set up the plan up to meet the first condition, you are likely to satisfy this condition. The COBRA premium depends on the actual usage of the benefits under the FSA and funding. In this situation, the COBRA premium would be the actual cost of the benefit versus the contributions. The COBRA premium is roughly based on taking the average amount that participants actually use, and comparing it to the amounts that are available. For example, the maximum amount available is $1,000 for reimbursement if all employees have $500 of employer contributions made as a one-to-one match and, on average, also elected $500 in employee contributions.If, on average, those employees only use $750, the COBRA premium cost could be $750, but the available benefit would be $1,000. To keep it simple, if the plan is funded solely by employee salary reduction amounts, it’s likely to satisfy this condition. Lowering the employer contribution or match, say at 50% or less, will also help to satisfy this condition. It will be tougher to satisfy this condition if you have a plan that is funded by an employer credit or contributions of a sizable amount. What all of this means is to keep the employer contribution at $500 or less and follow the same design as in condition one.

If you set up your health FSAs properly, and they are considered an excepted benefit, they qualify for the special limited COBRA obligation, which is basically just allowing them to elect COBRA through the remainder of the plan year. And if you offer COBRA to all terminating employees that had an FSA, regardless if the account is over-spent or under-spent, you’ll keep the administration simplified as you’ll not need to track over-versus-under-spent accounts. And one last thought; you are likely to need to offer separate COBRA elections to each qualified beneficiary. But that subject is beyond the scope of this article! Please note that every plan is different and there are exceptions to nearly every rule. Before you act upon any information provided in this article, please speak with a benefit expert.


Bobbi Hamilton Kaelin, has been with PayPro Administrators for over 20 years and is a Principal in the organization. PayPro Administrators offers administrative services for COBRA, FSA, HRA, HSA, Pension and Payroll. She enjoys teaching and awarding continuation credits for those who attend and stay awake through one of her courses. She’s also an instructor for CoveredCA, responsible for training agents prior to their Certified Insurance Agent designation.

Will Self-Funding Still Work In California?

by David Fear, Sr. RHU

On October 1, 2013, Governor Brown signed into law Senate Bill 161 — the Stop Loss bill, which imposes new regulations on insurers selling stop loss insurance to small employers (two to 50 employees until 2016 when it will rise to 100 employees). Many believe that this legislation effectively killed self-funding for small employers when it went into effect on January 1, 2014. This article will attempt to clarify what may happen as the result of the passage of SB-161 and what alternatives are available for your clients.

Self Funding — A Quick Primer

It’s no secret that rates for traditional fully insured health plans have escalated over the past few years. The rates continue to climb with the enactment of the Affordable Care Act and its community-rating requirement for small employers. Employers of all sizes are looking for alternatives to fully insured coverage. Before SB-161, small employers (with as few as 10 employees) could opt into a program referred to as “level funding.” Under this arrangement, they continued to pay a rate that was very similar to the fully insured amount they were already paying, but placed those funds in an interest bearing account held by an insurer or administrator. From this account three expenses are paid:

1. Benefit payments
2. Stop loss premium
3. Administrative fees

These plans featured run-off liability coverage and the ability to return any unused dollars to the employer (surplus) after the run-off for that plan year was completed. Most employers reported that, in four out of five years, they received a surplus refund under this arrangement. Such programs promoted wise use of plan benefits and utilized cost containment and wellness strategies. They contracted with local provider networks that allowed patients to continue to use their family physician. They have offered a win-win-win scenario for the employer, employees, and health care providers.

How Was It Working?

Typically, the larger an employer, the more risk they are able to take. For example, an employer with 25 to 50 employees might purchase specific stop loss coverage that kicks in for any claims exceeding $20,000 per person, per year. At the same time, the employer might also purchase aggregate stop loss coverage that would pay when the group’s total claims exceeded an annual attachment point. A typical aggregate attachment point might be calculated as $2,500 per employee, per year. So an employer with 40 employees would have an aggregate attachment point of $100,000 for the plan year based on $2,500 x 40 employees.

These stop loss policies ensured a maximum budgeted cost of self-funding for employers with less than 100 employees. This arrangement worked well for more than 30 years. Only recently, stop loss insurers had begun offering affordable stop loss coverage to groups with fewer than 100 employees as their fully insured rates became unsustainable.

What did SB-161 Do?

SB-161 prohibits a stop loss insurer from selling to a small employer a specific stop loss policy with less than a $35,000 deductible per year, per person and an aggregate stop loss policy with less than a $5,000 aggregate attachment point per year, per person. Effectively, it means that a small employer must take very high risks when self funding or drop the arrangement altogether. The $5,000 aggregate stop loss exposure, alone, makes self-funding impractical for the small employer because the fully insured equivalent is only half as expensive. The numbers don’t lie.

Proponents of SB-161 admitted in public forums that they had an agenda — to force small employers to purchase traditional, fully insured coverage, preferably from the public exchange/marketplace. The alternative would be that small employers would drop their group coverage and then have employees enroll as individuals in the public exchange/marketplace. Proponents insist that they want to steer more healthy risks into the exchange rather than allow them to remain in lower-cost arrangements, such as self-funded plans.

Unfortunately that action will cost the taxpayers more money in the long term because of the loss of the employer subsidy that now exists in employer sponsored plans — including self funded plans. By pushing individuals into the exchange, there will be more demand for taxpayer funded premium subsidy provided through public exchanges to offset against the subsidy formerly provided by employers, which will be lost when they drop their employer provided plans.

And, SB-161 will affect mid-sized employers (51 to 100) beginning in 2016. Those employers will be able to participate in the public exchange beginning in 2017. No one has yet predicted the outcome of those actions.

So What Can You Do?

In the short term, small employers can purchase a high deductible, fully insured health plan (i.e. a bronze metal plan), and set up a health reimbursement/wrap arrangement. Referred to as a “Section 105 plan,” these arrangements have been around for some time and have proven to be a cost effective alternative to traditional fully insured plans with first dollar coverage. A number of carriers now allow their HDHPs to be used for health reimbursement and health savings programs. Agents should provide a cost illustration of such arrangements to their small employer clients at renewal.

Meanwhile the mid-sized employer market continues to move toward alternative funding at a record pace. For the next two years, you should expect that self-funding/level funding will still be a viable alternative for groups of 51 to 100.

Even as this article goes to press, there are organizations, including the Coalition for Business Healthcare Choices, that are lobbying to amend SB-161 and similar legislation in order to give small and mid-sized businesses more choices in how they fund for their employee health benefits. If you would like more information about these efforts, call me, David L. Fear, Sr., executive director of the Coalition for Business Healthcare Choices at (877) 361-7342.


David Fear, Sr. RHU is 35-year veteran of the employee benefits industry and past president of the California and National Associations of Health Underwriters. He is a partner in the firm Shepler & Fear General Agency of Roseville, Calif.

Is Self-Funding a Good Option for your Clients?

by Cheryl Williams-Khoury

Self-funding for your client’s health plan is an alternative to a fully insured arrangement. It is when the employer assumes some or all of the risk for providing health care benefits to his/her employees. The employer becomes the plan sponsor and assumes the liability it can afford to take in return for potential plan savings.

Self-funding is a viable option to manage your health plan cost and coverages. According to the Kaiser Family Foundation 2013 HRET Survey, over 60% of large employers in the U.S. utilize self-funding for their benefit plans. It is estimated that more than 100 million Americans are covered under self-funded group health plans.

Self-funding Offers Potential to Improve Cash Flow

On average fixed cost expenses are 35% to 40% of fully insured premiums for those who self-fund. This reduces -excessive administrative costs that may be associated with administrative services only (ASO) through an insurance carrier self-funded arrangement. The plan sponsor can set up a reserve to fund claims or pay as they go and fund claims as they are incurred and processed. Risk management is handled through effective stop-loss insurance placement, and carrier profit margins, retention and risk charges are minimized. Self-funding allows for the elimination of most premium taxes. State taxes on most self-funded plan costs are eliminated and roughly a 1.5% to 3% savings from a fully insured arrangement can be expected.

Self-funded plans can incorporate wellness programs that offer cost savings. The Affordable Care Act (ACA) offers incentives to employers who offer wellness programs to their employees. These programs can improve the quality of life for participants and realize potential savings for plan participants and the plan sponsor.

Advantages of Self-Funding Flexibility in Plan Design through ERISA

Choosing self-funding offers control of plan design. It is subject to federally mandated benefits under the Employee Retirement Income Security Act (ERISA), and supersedes most state mandated benefits. Self-funding allows employers to provide the same benefits to all their employees regardless of where they reside.

Administrative Partners and Processes

Consider using a third-party administrator (TPA) for responsive and efficient claims service. The TPA can provide a variety of services including: claims adjudication, utilization review (UR), Consolidated Omnibus Budget Reconciliation Act (COBRA)/ Health Insurance Portability and Accountability Act (HIPAA) administration, plan design services including health savings account (HSA)/health reimbursement account (HRA) plans, preferred provider organization plan (PPO), exclusive provider organization plan (EPO), provide plan data, PPO networks, Medicare pricing, reference based pricing, fair market value pricing and access to case management services. Other vendors that may be part of a self-funded plan include: pharmacy benefit management (PBM), auto enrollment and eligibility, patient advocacy including price transparency, patient quality assurance and provider selection with benefit incentives.

Employer Self-funding Solutions

In the wake of large-dollar claims, consider alternative pricing options and plan design within a self-funded plan using the following tools: reference-based pricing, fair market value, preferred provider organization (PPO)/exclusive provider organization (EPO), narrow network, tailored specialty drug list, private exchange, and multiple health plans to utilize Gold, Silver, and Bronze plans.

Health Care Reform and Self-Funding

Today, more than ever, employers are looking for help to navigate the ever-changing requirements mandated by the ACA. There are on-going changes that we need to be aware of that impact self-funded and/or fully insured plans.

Requirements under the ACA 

The employer mandate portion of the ACA, also known as, “pay or play,” has been deferred until 2015 or 2016 depending on the group’s size.

Pay or Play

An employer must determine how many full-time equivalent employees (FTEs) they have by applying a basic test. If a company has fewer than 50 full-time employees (defined as employees working an average of 30 or more hours per week) they may still be subject to the employer mandate.

An employer should establish clear and concise definitions of status and assign a status to every employee at time of employment (i.e. seasonal, variable, full-time, or part-time.)

2013 to 2015 Employer Requirements2013 – Patient Centered Outcomes Research Institute (PCORI) 

This is a fee that applies to fully insured and self-insured plans. It started in 2013 at $1 per member/per year and increased to $2 per member/per year. It will continue to adjust to a percentage of national health care expenditures. Payments should be submitted to the IRS along with Form 720.

2013 – Exchange Notice

Employers had to provide the exchange notice, concerning the availability of exchanges, to all employees prior to October 1, 2013. New employees thereafter must be notified by their employer within 14 days of their start date. There are separate model notices for employers that do and do not offer health benefits. They are available on the Dept. of Labor (DOL) website.

2014 – The ACA Fees/Taxes — Transitional Insurance Fee

The transitional-insurance fee applies to fully insured carriers and self-funded plan sponsors. For 2014, the fee due equals $5.25 per month (or $63 per year) for each covered life (employees and dependents) enrolled in major medical coverage. In general, that includes all medical benefit plans and policies except hospital indemnification policies, stand-alone dental or vision plans, integrated Health Reimbursement Accounts (HRAs), health savings accounts (HSAs), flexible spending accounts (FSAs), employee assistance programs (EAPs), disease management and wellness plans that don’t provide medical benefits, or stop-loss policies.

2014 – Insurer Fee/ Permanent Fee
Health Insurance Industry Tax or Premium Tax Fees Help Fund Subsidies in the Exchange.

In 2014 these fees are expected to be $8 billion. Self-funded plans are exempt.

2014 – Pre-Existing Conditions

Pre-existing condition exclusions are prohibited from being imposed upon all enrollees. Prior to 2014 this exclusion only applied to dependents under the age of 19.

2014 – Annual Dollar Limits Per The IRS

The maximum out-of-pocket dollar amount spent by the patient or -family in a year, is limited and is tied to the IRS high deductible health plan (HDHP) maximums. Small group health plans must offer essential health benefits (EHBs). Annual limits on the dollar value of essential benefits are prohibited. (Note: The above are not applicable to FSAs, HSAs and HRAs.)

2015/2016 – Safe Harbor

Beginning in 2015, employers with 100 or more full-time equivalent employees (FTEs) must provide their full time employees with health benefits that meet the criteria of The ACA. (Note: Those with 50 to 99 FTEs have been deferred to 2016.) These include: meeting the affordability test, which states that the maximum plan contributions must be at 9.5 % or less of the lowest paid FTE and meeting a minimum value standard (60% actuarial equivalent plan). Failure to do so will result in a fine paid by the employer, which is the lesser of: $2,000 x the number of FTEs (less 30 employees) or $3,000 x the number FTEs who receive an exchange subsidy. (Note: Fines are not eligible as a tax deduction.)

Where Do We Go From Here? 

Self-funding is not for every employer group, so consider this alternative carefully during the decision-making process. In light of healthcare reform, consider a self-funding arrangement for your client. Hire experts in self-funding and risk management to assist you and your client with the implementation and ongoing administration of a successful self-funded plan. Additionally, they should be able to assist with regulations imposed by the Affordable Care Act.

The information contained in this article is not intended to cover all of the requirements of self-funding or healthcare reform. The discussion or opinions expressed herein should not be construed as legal advice. The future is unknown, but together we can shape it.


Cheryl Williams-Khoury is president and CEO of Affordable Benefit Administrators, Inc. (ABA) is a third party administrator (TPA) specializing in the management and administration of Self-Funded plans. ABA, Inc. can be reached at 800-350-0148, or at cwkhoury@benefitsaba.com

Plan Now For the Cadillac Tax and Be Your Clients’ Hero 

by Chris Bettner

January 2018 may seem like a long way off, but planning for changes now could make a difference in your clients’ health plan strategy. In 2018, 40% excise tax (often called the “Cadillac tax” ) will be imposed on high-cost, richer health benefit plans that exceed a certain threshold. The threshold is $10,200 for individual coverage and $27,500 for family coverage (annualized and indexed to inflation). Adjustments are expected for high-risk professions, as well as employers that have a disproportionately older employee population. Additional guidance is expected. This is one of the last components to be implemented under the Affordable Care Act (ACA). 

What’s the purpose of the Cadillac tax? It addresses three major goals: help finance healthcare reform; reduce healthcare costs; and deal with the unequal tax benefit of excluding the value of health insurance for taxes, which encourages generous employer-based coverage.

Several things are still unclear about the Cadillac tax, but one thing is sure: rich benefit plans will be taxed. These thresholds may be increased prior to 2018, depending on medical inflation. IRS guidance is expected regarding the thresholds and adjustments to them.

If you’re thinking that 2018 seems an eternity away and why bother planning for the Cadillac tax anytime soon, consider the fact that we’re wrapping up 2014 health plan benefit designs now. By considering the effect of the Cadillac tax well before the 2018 effective date, brokers and consultants can help clients lay the groundwork for benefit plan changes and avoid the tax to their benefit programs. Seventeen percent of employers have already begun changing their employee benefit plans to circumvent the tax, according to a 2013 survey by the International Foundation of Employee Benefit Plans (IFEBP).

One sector that is expected to see a serious impact is collectively bargained groups. Negotiations must take place before making changes. Also, -multiple year contracts may be in place.

No one escapes the effective date because the tax applies to fully insured and self-funded employers. What can employers do to prepare for the inevitable? An employer can decide now to eliminate high cost plans. The employer can add CDHP plans to the mix and eliminate more of the high cost plans over the next few years. If an employer makes the switch now and contributes to the employee HSA or sets up an HRA, many employees should have a balance in their HSA account by the time the law takes effect. If rollovers are allowed, there could be a balance in the HRA as well. This will reduce the sting of the change and make the higher deductible plan more palatable.

How do you determine if a plan will be considered high cost? Take the current 2014 plan design premiums and trend by 10% over each of the next four years. That should give you a pretty good idea of where you’ll land. This is another opportunity for benefit advisors to help clients determine what to do. Advance planning is critical; not planning may be very costly.


Chris Bettner is executive vice president of Business Development for Sterling Health Services Administration. With over 15 years of experience in healthcare sales and management with health insurance carriers, Bettner joined the company in 2004. Prior to Sterling, Chris was vice president of Sales for Blue Shield of California. She held similar positions at Lifeguard, FHP, Independence Blue Cross and MetLife. She is also a national spokesperson on HSAs and consumer directed healthcare programs. For more information, visit www.sterlinghsa.com.


Private Exchanges Come of Age

by Ron Goldstein

Few stories, in recent years, have captured the nation’s attention and piqued the public’s curiosity as much as health insurance exchanges. For more than a year now, it has been nearly impossible to open a newspaper in any major city, turn on the evening news, or scan headlines without seeing some coverage of the exchange marketplace. Consumers, employers, insurers, and the health care industry have all been trying to sort out what exchanges are all about, how they work; and what benefit they bring to the market and to consumers.

While federally mandated exchanges are new, exchanges have actually been around for years in states like Calif., Mass., and Utah. These exchanges have been attracting membership, serving customers, and providing the market with what employers and employees desire relative to cost, choice, flexibility and freedom. Much has been learned regarding what works and what doesn’t, what the public wants, and what it takes to be a successful exchange.

Empowerment and Choice Are the Drivers

Health insurance exchanges provide empowerment and choice. No longer do employers need to offer a one-size-fits-all health plan and benefit package that often does not work for many of their employees. Through an exchange, often coupled with the defined-contribution model, employees are free to choose whatever health plan, benefit structure, and price point works for them and their families. This transparency and accessibility is leading to more value-based purchasing. As a result, the most successful health insurance exchanges are those offering a wide assortment of HMO, PPO, and other products through high-quality carrier networks and whose benefit plans and network options offer real choices to the consumer. In fact, the latest Kaiser Family Foundation health tracking poll reports that, by a large margin, 55% versus 34%, those who get their insurance through an employer prefer broad network plans.

Real choice also means not being locked into one of the four metal tiers that is part of the Affordable Care Act (ACA). Don’t be surprised to see public and private health insurance exchanges look for their own creative ways to increase choice and flexibility for the purchaser and end user.

Quality of Provider Networks Matter

More than any other time in history, the public has access to metrics that measure the quality of healthcare providers — for both hospitals and physicians. Consumers are increasingly using these rating websites to choose a physician, according to recent findings presented in the Journal of the American Medical Association (JAMA). Healthgrades.com, rateMDs.com, and Yelp.com are among the rating websites consumers visit most often.

Organizations such as Leapfrog Group, HealthGrades, and others meticulously gather information and rate providers on a host of clinical and service measures. By going online consumers have access to dashboards that speak to everything from hospital readmission rates and clinical outcomes to safety measures and patient satisfaction. Some sites even offer patients’ reviews much the same way someone would review their car or a hotel stay. A JAMA survey of more than 2,100 Americans reveals that two-thirds know that doctor-rating sites exist and one-quarter have used the sites in the past year. Those rates are higher than what’s been seen in past studies and they continue to grow.

Consumers who are most likely to use these sites have grown up with the Internet and want to take control of all aspects of their lives, including healthcare. Not coincidentally, this is the same generation that has grown up with managed healthcare as part of their lives and, more than their parents, has at least a cursory of understanding of how HMOs and PPOs work. Consumers who embrace the managed care model and enroll through an exchange will base their decision, at least in part, on the quality of the providers who will be responsible for their care. As a result, the most successful health insurance exchanges will be those that assemble a carrier network that’s rich with quality providers.

Purchasers Want Value-Added Benefits

When it comes to purchasing health insurance, employers are choosing among a government option, a single carrier, or a private exchange. With cost becoming less of a differentiation, employers are increasingly looking to value-added benefits that they can offer to their employees affordably. Health insurance exchanges know this and more and more will be looking to ancillary benefits as a differentiator to drive market share.

Even more effective, exchanges that offer added products and services at no additional costs to the employer will increase their value, making them more competitive. Some of these value-added features are health related, such as discount dental, discount vision, discount hearing programs, chiropractic or a pharmacy discount prescription card. Others may be more in the area of administrative support, such as an affordability calculator, tax credit calculator, subsidy estimator or COBRA billing support. And others may simply be nice-to-have perks, such as access to employee discount programs. Viewed collectively these add up to significant (and otherwise costly) benefits that employers and employees may have access to at no additional cost. Look for exchanges to increasingly engage in this arena, especially private exchanges with the flexibility to do so.

Successful Exchanges Focus on Customer Service

Some of the most successful health insurance exchanges understand the importance of customer service and ingrain such service into their DNA. Customer service begins with making sure that the enrollment process is as simple and seamless as possible. That means being customer friendly and offering online and multilingual print versions of enrollment and consumer decision-support tools to aid in the decision-making process. And it means live customer service representatives who attend to all customer needs and can accommodate those requiring extra assistance.  This is especially true of those signing up for health insurance for the first time. PriceWaterhouse -Cooper’s Health Research Institute estimates the 30 million newly insured Americans under the ACA will be less educated, more racially diverse and more than twice as likely to speak a primary language other than English.

For business owners, exchanges bring additional advantages besides the financial benefits of cost controls and predictability. For them, customer service equates to ease of administration, minimum paperwork, one point of contact, and one bill regardless of how many carriers or benefit models are selected by their workforce. Well-conceived exchanges may also provide employers with real-time analytics including enrollment statistics, consumer satisfaction ratings and population health management.

Another level of customer service is how well the health insurance exchange responds to the needs of the broker who represents them. Customer service for the broker means providing the marketing and support to help make them successful, such as helping them establish an online presence through which they can interact with clients (new and existing) to provide easy access to the important information their customers seek. It also means having access to top-notch online quoting engines that allow for instant comparison of multiple plans, benefits and prices, making it easy to find the plan that best meets a client’s individual needs. And it means investing time in educating brokers through seminars, workshops, printed materials, continuing education courses and ongoing online support. But most of all it means having a deep understanding of how brokers think, so the exchange can anticipate their needs before they arise.

Having Public and Private Exchange Options is a Good Thing

Given that the very essence of an exchange is choice, it only makes sense that employers and individuals have a choice between the public and private sectors when selecting their health insurance exchange. Private health exchanges — operated by insurance brokers or insurance companies — give employers another way to shop for a variety of health plans as well as additional benefits not included in most major medical plans, such as dental coverage, vision exams, chiropractic services and even life insurance in one-stop without a lot of administrative work.

By using a private exchange, employers no longer need to manage plan design or relationships with insurers, including claims appeals, because that is all handled by the exchange. Private exchanges provide an ACA-compatible alternative to state and federal exchanges and allow employers to subsidize employee coverage, avoid penalties and expand choice for their employees.

The Role of the Broker is More Important than Ever

When the ACA first introduced the concept of public health insurance exchanges, some wondered if the role of the health insurance broker would diminish. After all, with consumers able to go to an online one-stop shopping mall to compare health plans, why would a broker (or any professional assistance for that matter) be needed?  It is a funny question to ask because in most other important aspects of life — from home purchase to financial investment — people naturally turn to an expert to help them through the decision-making process. So why not healthcare, which is the most important and personal decision of all?

A good broker doesn’t just sell health insurance; he or she knows health insurance. They can show clients a variety of plans, explain both the benefits and the potential shortcomings of each, review the latest healthcare trends, and then help a consumer pick a plan that best fits their needs. Once a health plan is selected, the broker can coordinate the process of enrolling and/or changing the benefit package as life evolves through marriage, birth of a child, employment changes, etc.

In short, it is the broker, more than anyone else, who can provide the information and unbiased recommendations consumers and business owners need to make intelligent, well-informed decisions. And it is the broker who provides the unbiased service element for mundane issues as well as serious policy interpretation issues. So the reality is that in this quickly changing world, the broker is needed now more than ever. The marketplace’s growing awareness of health insurance exchanges provides wonderful new opportunities for brokers to grow their business and position themselves as the go-to person with their clients. Now is the time to seize that opportunity.


Ron Goldstein is president and CEO of CHOICE Administrators, the nation’s leading developer and distributor of health insurance exchange programs. Among its programs is CaliforniaChoice, the small-group private exchange that helped pioneer the exchange concept in the 1990s and today serves more than 10,000 employers and 150,000 employees.

Acupuncture – Complimentary Medicine in California Gets a Boost

by Leila Morris

Consumers with high deductible major medical plans are driving the demand for chiropractic and acupuncture plans. “When members must pay out-of-pocket to see an orthopedist or neurologist for their back pain, a $10 or $15 copay to see a chiropractor or acupuncturist…is a very attractive alternative. It’s also a great way for employers to hold down their overall health care costs,” said George Vieth, CEO at Landmark Healthcare. “Alternative medicine is both effective and much less expensive than the typical regimen of office visits, imaging, drugs and surgery for back and muscle pain.” 

Complimentary alternative medicine (CAM) could generate dramatic cost health care savings since the most intense spenders on health services are considerably less healthy, according to a study by the National Institutes of Health (NIH). An NIH study found that 54% of CAM patients are overweight or obese; 22% are physically inactive; 17% are smokers; 18% have hypertension; 20% have high cholesterol; and 9% have pre-diabetes or diabetes.

As of 2007, 8% of patients had used chiropractic or osteopathic manipulation services, 8% had used massage, 1.4% had used acupuncture and .03% had used naturapathy. Interestingly, health care workers are more likely to use CAM services compared to the general population. And those of the front lines of health care could influence greater coverage of these benefits.  NIH also found the main predictors of receiving acupuncture are not consumers’ concerns over effectiveness and safety, but rather, awareness, cost, and insurance coverage.

The Affordable Care Act (ACA) has given alternative medicine a boost. Acupuncturists are celebrating as California has deemed their services to be on the list of Essential Health Benefits (EHBs) under the ACA. The ACA requires health plans in the individual and small group markets to offer essential health benefits inside and outside of the health insurance marketplace. But states can tinker with specific benefits that will be included.

Marilyn Allen, chief marketing officer for the American Acupuncture Council said, “The Affordable Care Act may increase availability of acupuncture, especially in California. This is the most exciting time to be a provider in this medicine. Insurances are going to be reimbursing for acupuncture services and integrated medicine program. “It is time for this profession to step up and take its rightful place in the ACA,” she said at a presentation at Emperor’s College in Santa Monica, Calif.,

When it comes to chiropractors, the picture is cloudier. The Covered California board determined that, for 2014, EHBs would be the only benefits that would be available on the individual plan side of the exchange. The Kaiser 30 benchmark plan, chosen by the state legislature, does not specifically include a chiropractic benefit. However, doctors of chiropractic can provide some EHB services, according to an analysis by the California Chiropractic Assn. (CCA).

Plans for small employers on the SHOP exchange will be allowed to offer richer benefit plans including a chiropractic benefit. However, many SHOP plans only offer the EHBs. Insurance companies in California are offering individual plans off of the Exchange that are identical to those being offered in the exchange. So, for 2014, chiropractic manipulative therapy codes will only be reimbursed through group plans and grandfathered plans that include a chiropractic benefit.

Covered California has stated that it will consider allowing all plans to offer additional benefits beyond the EHBs in 2015. The California legislature is allowed to consider choosing a different benchmark for EHBs in 2016. The association says that it will be advocating strongly for any new benchmark to include full chiropractic benefits.

The state’s rules on essential benefits do not apply to Medicare. Patients 65 or older would have access to chiropractic care under Medicare B plans, but not acupuncture. Beginning in January, the Centers for Medicare and Medicaid Services (CMS) increased the value of chiropractic treatment codes up to 10%. The new values will be used to calculate higher payments to chiropractors.


Providers of alternative medicine are also benefiting from the ACA’s non-discrimination clause. It states that health plans cannot discriminate against a health provider who is acting within the scope of their license or certification under applicable state law. This will ensure that insurance companies cannot unfairly exclude doctors of chiropractic or acupuncture from practicing under the capacity of their training and licensure on a federal level, said Allen.

Under the ACA, HHS provides grants to states to create designated community based interdisciplinary health teams to support primary care providers.  Doctors of chiropractic can be included in these patient-centered and holistic teams. Chiropractors are included as part of the definition of “health care professionals,” and schools of chiropractic are also included in the definition of health professional training schools.

The Dept. of Veterans Affairs is leading the way in CAM coverage. Doctors of chiropractic will be listed equally with other types of physicians and will no longer have any limitations attached to their definition of physician under the 2014 Blue Cross and Blue Shield Service Benefit Plan. Benefits for chiropractic care are no longer limited to one office visit and one set of X-rays per year. Coverage for those services will be based on the benefits provided for office visits and for coverage of radiological services performed by covered professional providers. Veterans can receive reimbursement for certain acupuncture examinations.

As veterans get expanded CAM coverage, overall health care cost savings may begin to add up. Could those cost savings lead to expanded coverage in other health plans? Stay tuned.


Leila Morris is senior editor if California Broker Magazine.

The Growing Importance of Disability Insurance

by Tye Elliot
More than any other time in history, the health care landscape is evolving rapidly and employers and employees are -struggling to navigate through the changes.
Employers are scrambling to determine how much change they can afford, often opting for higher out-of-pocket expenses, deductibles and copays. Employees worry that their benefits will shrink while costs will rise. And most don’t want the burden of managing their own health care insurance decisions.
As health care continues to shift, brokers must be nimble, adjust their approach and align their product offerings to reflect the changes happening in the health care industry. For example, brokers have an opportunity to educate businesses on what is often an area of insufficient protection for American workers: disability insurance.

Guiding Prospects through the Maze

To remain a relevant part of the insurance purchase lifecycle, brokers must embrace their role as consultants and advisors at the corporate and individual employee levels.
Brokers can help employers and employees see the value in voluntary disability insurance to help workers gain financial protection and to help businesses maintain a reputation as an employer of choice with a full benefit package.
Early adopters who take on the role of expert in health industry changes will come out on top. These are the knowledgeable advisors who can help employers and employees understand the ins and outs of health care.

Products for Profitability

Although many workers have assumed that they have coverage through their employer, a growing number of companies are including disability in their cutbacks as they grapple with rising health care costs. While disability insurance has traditionally been a staple of workplace benefit packages, changes in health care could make many companies consider scaling back the amount of coverage or eliminate it altogether.
With confusion saturating the marketplace, it is easy to overlook the potential that a product like disability insurance provides brokers. Disability income insurance can become a steady and lucrative source of income for California brokers. With employers strategizing to control costs while still offering insurance benefits that will satisfy employees, the key to successfully selling disability insurance is to focus your messages around the most important benefits for your audience.

Benefits for Employees

As employees assume more responsibility for their health care choices, whether they want to or not, they are quickly realizing the need for a secure, reliable safety net to help protect their finances. With deafening levels of noise in the marketplace about 401K fallouts, unemployment numbers, and health care costs, workers have little time to think about the ramifications of a disability, financially and emotionally. Findings from the 2014 Aflac WorkForces report show that many Americans underestimate their risk of experiencing a disabling illness or injury and overestimate the resources available to them in such an eventuality. In 2003, 2.6 million Americans applied for disability from the Social Security Administration; fewer than 1 million received government assistance.

Further, the long-term impact on workers’ nest eggs of inadequate coverage rarely enters the decision-making process for many workers. Brokers can offer a full education of what disability insurance can truly protect and should remind workers that loss of income makes it difficult to build retirement savings. Without enough income, workers may be forced to withdraw from retirement accounts to pay for current expenses.
Even beyond income protection, concerns over whether their employer-sponsored insurance will be reduced spurs questions that many people have never given much thought to in the past: How will they manage rising health care costs? How will they afford to pay more for less coverage? And what if an accident happens? What if they can no longer work? How will they foot the bill for the many costs not covered by major medical insurance? They are anxious and stressed out because they simply won’t have the extra cash to pay for emergencies.

These concerns open the door to conversations about how disability insurance pays cash benefits for out-of-pocket medical expenses and covers costs that major medical insurance won’t that could result in unexpected debt. Also, with a guaranteed-issue option, which doesn’t require a complete medical questionnaire, people will seriously consider – many for the first time – the need for disability insurance.
With consumers more concerned than ever about their ability to pay for health care, disability insurance provides peace of mind should unforeseen tragedies ever occur.

Benefits for Employers

Employers can also benefit from offering disability insurance. Providing a full benefit package can be critical to attracting and retaining the most sought-after talent.
According to the Aflac WorkForces Report, employees are 38% more likely to be satisfied with their overall benefit package if enrolled in voluntary insurance benefits, compared to workers who aren’t enrolled. They are also 37% more likely to say their current benefit package meets the needs of their family extremely/very well if enrolled in voluntary insurance benefits, as opposed to workers not enrolled in voluntary plans. On the other side of the coin, more than half (55%) of workers are somewhat likely to look for another job if their employers stop offering comprehensive benefits.

The statistics show that a full benefit package is one of the key elements that employees consider when deciding to stay with or move to another employer.

Some employers believe that offering disability insurance is too expensive for the business, a common misconception. In fact, disability insurance policies can be offered with little or no direct effect on a company’s bottom line. In addition, brokers can help customize the policies to fit a particular employer’s needs — be it a global corporation or small business.

Will employers realize the benefits and take them seriously? According to a survey of midsize and large companies by global professional services company Towers Watson, seven in 10 employers have a stronger commitment to improving employee health, while 71% have a stronger commitment to work with health care providers and suppliers to improve health care delivery and quality.

Armed with this knowledge, brokers can demonstrate the benefits of offering disability insurance.

Positive Change for Brokers

The future of the health care industry is tough to predict, but it does not have to be hard to prepare for. The bottom line is that many changes in the health care landscape and the economy have opened eyes to the value of disability insurance. Americans are recognizing the financial vulnerability that comes from being under protected and underinsured. Neglecting to secure disability insurance is a prime example of how saving a few dollars in the short term can cost thousands in the long run.

This same theory applies to today’s employers. Short-term cost savings from disability cutbacks can be eradicated quickly as a result of long-term retention and recruitment challenges.

As Americans rebuild their portfolios and rethink what investments are necessary, and companies implement new strategies for their benefit program, brokers can help each see the value in voluntary disability insurance as a way for workers to help ensure financial protection, and for businesses to maintain a reputation as an employer of choice.

By revisiting the products they will promote moving forward, brokers will find the health care insurance industry climate isn’t cooling off, but rather heating up, presenting untapped potential on the horizon.
Tye Elliott, a 20-year insurance industry veteran, is Aflac’s vice president of Core Broker Sales. He is responsible for managing and implementing strategic sales initiatives for the Core broker sales division across the United States. Visit aflac.com/brokers, call 888-861-0251 email brokerrelations@aflac.com.

This Won’t Hurt A Bit:

Injecting Insight Into HMOs with Part II of Our Annual HMO Survey

Note: The PPO survey will be featured in the October issue. Welcome to the 18th annual agents’ guide to managed care.

Each year California Broker surveys health maintenance organizations (HMOs) in the state with direct questions about their plans. We then present the answers to such questions here for you — the professional agent or broker. We hope that this valuable information will help you serve your savvy healthcare clients better.

18.  Which requested procedures are denied most frequently based on experimental investigative or not medically necessary exclusions?

Aetna: This information is not readily available.

Blue Shield of California: The following are the most frequently ­denied procedures due to the absence of medical necessity or because they are considered experimental/investigational:

• Bariatric surgery – morbid obesity surgery
• Reduction mammoplasty
• Varicose veins
• MRI of the breast
• PET Scan of the breasts

Cigna: This data is not available.

Health Net of CA: The most frequently denied requested procedures are those that are not FDA approved/accepted in the medical community as standard, safe and effective.

Kaiser Permanente: If a plan physician determines that a procedure or service is medically appropriate for a member and its omission would adversely affect the member’s health, then it is considered medically necessary. As a result, we do not consider a medically necessary service or procedure to be an exclusion. Additionally, we do not deny experimental or investigative procedures if they are considered medically necessary and appropriate for the member’s care. All procedures and treatments are reviewed on a case-by-case basis with the determination for care made by the doctor often in consultation with the chiefs of service for their own area of practice and other related areas of practice.

PacifiCare: This information is not available. We do not track the  number of most frequently denied investigational/experimental or not medically necessary procedures. We do track appeals and grievances. If a member appealed a denial, and it was due to one of the above reasons, we may be able to provide that procedure; however, it would not apply to our book of business.

19. What is the standard hospitalization for normal and a Caesarean birth?

Aetna: The physician determines it.

Blue Shield of California: The standards are two days for a normal birth and four days for a Caesarean.

Cigna: Typical hospitalization is at least 48 hours for normal vaginal delivery and at least 96 hours for a Caesarean section. But, this can be modified based on the physician’s recommendations

Health Net of CA: Standard hospitalization for normal birth is two days and four days for Caesarean birth

Kaiser Permanente: According to our 2012 HEDIS scores, in Northern California the average length of hospital maternity stay for all types of births is 2.41 days and 2.48 days in Southern California. We no longer separately track hospitalization stays for C-section deliveries.

PacifiCare: The average length of stay is two days for a normal birth and four days for a Caesarean.


20. How many hospital days are utilized in a year for every thousand HMO members? 

Blue Shield of California: Our most recently reported utilization rate for inpatient days per 1,000 was 157.79.

Cigna:  Data not available

Health Net of CA: 2012: 200.9 days per 1,000 HMO members.

Kaiser Permanente: According to our 2012 HEDIS scores, in Northern California, the ratio is 3.32 hospital days per 1,000 members and 3.37 hospital days for Southern California

PacifiCare: Our total in-patient utilization in 2010 was 160.92 per 1,000 members.


21. What are your loss ratios, administration/medical?

Blue Shield: Our medical loss ratio (MLR) percentages filed for 2012 are as follows:

• MLR by Lines DMHC-regulated CDI-regulated of Business Plans Plans

• Individual and Family 81.3% 78%

• Small Group 76.6% 84.2%

• Large Group 89.4% 84.8%

Cigna:  This information is publicly available through reports we submit to federal and state regulators.

Health Net of CA: In 2012, the medical care ratio was  87.7% and the administrative loss ratio was 10.3%.

Kaiser Permanente: Based on our 2011 DMHC Annual Report, our administrative loss ratio plan-wide was 4.33 percent and our medical loss ratio was 94.63 percent. It should be noted that we no longer use the phrase “Medical Loss Ratio,” using instead “Medical Benefit Ratio” (MBR) whenever possible. Along with many others in health care, we feel that MBR is a more accurate and descriptive means of describing this important ratio.

PacifiCare: As of December 31, 2011, our commercial medical loss ratio for PacifiCare of California is 85.4 percent. The administrative ratio is 7 percent.

22. Is your plan NCQA accredited?

Aetna: Yes, Aetna Health of CA Inc is accredited and has got Quality Plus distinction in Care Management, Physician and Hospital Quality.

Blue Shield of California: Yes.

Cigna: Yes, our HMO plan has received NCQA’s accreditation level of “Commendable.” In addition, Cigna  has earned NCQA’s Physician and Hospital Quality (PHQ) Certification.  These standards assess how well a plan provides individuals with information about physicians and hospitals in its network to help them make informed health care decisions. Cigna has also earned an NCQA quality rating for its health and wellness programs, and all four of our behavioral health care centers nationwide have earned “Full” accreditation from NCQA. Cigna also recently received NCQA Patient and Practitioner Oriented Disease Management (DM) Accreditation for asthma, chronic obstructive pulmonary disease, congestive heart failure, coronary artery disease, depression, and diabetes.

Health Net of CA: Yes. Commercial HMO, PPO and POS lines of business have received the “Commendable” accreditation status from the National Committee for Quality Assurance (NCQA), and Health Net’s Medicare HMO received the “Excellent” accreditation status.

Kaiser Permanente: Yes, we are. As of the third quarter of 2013, all of our service areas across the country have NCQA ratings of “Excellent,” their highest possible rating, for our HMO and Medicare lines.

PacifiCare: Yes. PacifiCare of California maintains an excellent accreditation rating.

23. What is your ratio of PCPs vs. specialists?

Blue Shield of California: 1/2.09

Cigna: Data not available

Health Net of CA: 2013: 1 to 3.0 specialists.

Kaiser Permanente: The statewide ratio in California of primary care physicians to specialists is approximately 1 PCP to 1.8 Specialists. Primary Care includes general practice, family medicine, general Internal medicine, and general pediatrics. Specialty care includes OB/Gyn.

PacifiCare: As of June 30, 2011, our ratio of PCPs to specialists is 1 to 3.1.

24. What is your ratio of members to PCPs?

Aetna: 21:3

Blue Shield of California: 79.46/1

Cigna: 14/1

Health Net of CA: 2013: 51.0 members to 1 PCP.

Kaiser Permanente: We don’t ordinarily release information on our member-to-doctor ratio. Physician and care provider totals are based on current and projected membership numbers. Providing members with access to physicians is essential to delivering high-quality care and to ensure it, we have developed access standards to help meet our members’ needs. Monitored continuously, these standards are used to help determine the number of physicians and care providers needed as well as the location and size of our medical facilities. As dictated by membership growth and increased volume of patient visits, additional primary care physicians and specialists are added to our professional roster as needed.

PacifiCare: As of June 30, 2011, our ratio of members to PCPs is 131 to 1.

25. Does your contract include binding arbitration?

Aetna: Yes.

Blue Shield of California: No, Blue Shield members are not subject to binding arbitration and there is no arbitration provision in the Evidence of Coverage (EOC) provided to members.  However, the majority of our contracts with providers include binding arbitration to resolve disputes.

Cigna: Yes.

Health Net of CA: Yes.

Kaiser Permanente: Yes, we use binding arbitration to resolve disputes. We find arbitration to be more attuned to the discussion of sensitive matters such as medical and more appropriate for the resolution of disputes with persons who, in many cases, continue to be health plan members. Other than small claims court cases, claims subject to a Medicare appeal procedure, or ERISA-regulated benefit claims, arbitration is used to resolve disputes such as those for premises or professional liability matters, including claims alleging medical malpractice.

PacifiCare: Yes, our contract includes binding arbitration.

26. How often can members change their PCP at will?

Aetna: There is no limit.

Blue Shield of California: Access+ HMO members can change their personal physician without cause once a month.  This change is effective the first day of the month following notice of change.

Cigna: We encourage our customers to stay with one primary care physician to ensure more effective care management. We also recommend that people not change their doctor while in the middle of care to the extent possible. Customers may request a PCP change once per quarter and/or if their residence or work location changes. Additionally, if a customer has a concern about care quality, he or she can change PCPs after notifying us of the concern.

Health Net of CA: Members may change PCPs within a physician group or from one physician group to another once per month.

Kaiser Permanente: Members can change their PCP at any time and as often as they like. Members can change their PCP online at kp.org, by calling the physician selection service or appointment/advice line at their local medical facility, or through the Member Services Department at their local medical facility. Studies have shown that a positive, ongoing relationship with their PCP helps to improve health outcomes and member satisfaction, so we encourage members to choose a PCP who’s right for them and provide the support and systems to make it easy for them to do so.

PacifiCare: Members may request a change of individual provider or provider group at any time, for any reason. Requests received between the first and the 15th of a month take effect on the first day of the next month. Requests received between the 16th and the end of the month take effect on the first day of the second month. Members must select participating providers accepting new patients within 30 miles of their home or work and can identify which providers are accepting new patients by calling our Customer Service department, looking in our provider directory or visiting our Web site.

27. Do you offer a performance guaranty, such as employees will be on the computer by a certain date or have ID cards by a certain date, for example?

Aetna: Yes, we can offer standard performance guarantees to our clients; guarantees may also be customized on a case-by-case basis.

Blue Shield of California: Yes, we offer performance guarantees for groups with a qualifying minimum subscribership.

Cigna: Yes, in most instances, we can work with a company to develop appropriate performance guarantees.

Health Net of CA: Yes, Health Net of California negotiates performance guarantees with clients based on our corporate performance standards, which are derived from marketplace expectations balanced with internal administrative capabilities. An employer group must have and maintain after the plan’s effective date a minimum of 1,000 subscribers in a Health Net of California plan to qualify for performance guarantee consideration. Once the client has been deemed eligible for performance guarantee consideration, Health Net is willing to discuss and negotiate the specifics of a performance guarantee package including appropriate target levels for standards of concern. Health Net of California provides customers with specific performance guarantees in the area of claims administration, including processing turnaround time (measured within 30 calendar days) and transactional accuracy (i.e. financial, payment, coding and overall). In addition to claims administration, Health Net of California offers corporate performance standards that span all aspects of our business in the areas of: implementation (i.e., identification card production, timeliness and accuracy), member services, provider network, medical management, member satisfaction, customer reporting, and HEDIS reporting. All products can potentially be covered, with the exception of our Medicare HMO due to strict guidelines already in place by the Centers for Medicare & Medicaid Services (CMS). All performance standards are evaluated on an annual basis for compliance. An annual performance standard report, including the calculation of any applicable penalties, is produced approximately 90 days after the close of the plan year.

Kaiser Permanente: Yes, our performance guarantees are made on a group-by-group basis. Our target is for new members to be in our data base with 24 hours of our receiving their information and to have new or replacement ID cards delivered within 7 to 10 work days 90 percent of the time.

PacifiCare: We may agree to performance guarantees upon approval and if the client meets our standard requirements for enterprise-wide performance standards. However, we typically do not agree to performance guarantees for fully insured groups.

28. When a member moves out of state, is any transition coverage available?

Aetna: We have HMO plans in many states; a member might be eligible for coverage in another Aetna HMO service area. Customers may also offer out-of-area plans which provide PPO coverage if members are outside an HMO service area.

Blue Shield of California: Yes, if a subscriber moves out of state to an area served by another Blue Cross and/or Blue Shield plan, the subscriber’s coverage can be transferred to the plan serving his new address.  The new plan must offer the subscriber at least its group conversion policy.

Cigna: Yes, if we offer similar coverage to the account in that state.

Health Net of CA: Yes, through PPO, POS, and indemnity lines of business.

Kaiser Permanente: Yes, transition coverage is available to members moving out of state and staying in-network as well as to those moving out of network. Members receive coordinated care from providers who are linked together via Kaiser Permanente HealthConnect(r), our electronic medical record system. As a fully integrated health care delivery program, we’re well positioned to provide our members with seamless transitions through outpatient, inpatient, and specialty care services from region to region. This integrated system provides physicians maximum access to members’ medical information, allowing them to provide high quality health care through transitions. Members leaving our plan altogether are also provided with reasonable assistance to enable a smooth transition with no additional expenses to the former member for transition services. If a member is confined in a facility on the date coverage is terminated, benefit coverage will continue only under the conditions as per the group agreement.

PacifiCare: If a member moves out of the state permanently, they are no longer in our service area and would be terminated from the plan. Members must live within our service area to be eligible for continued enrollment in our health plan. Members traveling outside their PacifiCare service area for a limited time are covered for emergency services. This also applies to out-of-area student dependents who must also maintain a permanent residence within the service area in order to enroll in the health the plan.

29. Describe the utilization process.

Aetna: Information is gathered from the physician and patient. The nurse consultant or physician reviewer and the attending physician discuss whether a test or treatment is appropriate. The physician reviewer can recommend alternative treatments and further testing. Protocol is reviewed annually. The consulting specialists, who are most familiar with procedure, review and approve any changes.

Blue Shield of California: Blue Shield delegates utilization management to our contracted IPAs/medical groups.  We audit these processes annually to ensure compliance with our medical policy guidelines.

Cigna: Cigna physicians and nurses perform utilization management for inpatients in coordination with medical groups. To help ensure appropriate care and facilitate discharge planning, Cigna reviews medical records for hospitalized customers and consults with physicians via nurses located on-site at hospitals or by phone. Utilization review for most outpatient services is delegated to IPAs/medical groups. Cigna reviews inpatient procedures and hospitalizations, outpatient surgical procedures performed in a facility, transplants, and investigational therapies using Milliman Care Guidelines and Cigna Coverage Positions. Cigna utilization nurses (RNs) also conduct case management. Most outpatient referrals for specialists and procedures do not require prior authorization as long as the primary care physician requests them. However, Cigna performs utilization review of select outpatient services when there is demonstrated value.

Health Net of CA: Health Net provides a multi-dimensional utilization/case management (UM/CM) program to direct and monitor health care services. It involves pre-service, concurrent, and post-service evaluation of the utilization of services provided to members. The UM/CM program is structured to ensure that qualified health professionals make medical decisions using written criteria based on sound clinical evidence without undue influence of Health Net management or concerns for the plan’s fiscal performance. In addition, Health Net delegates some of its Utilization Management (UM) program to our Participating Physician Groups (PPGs). The approval process for delegated Utilization Management programs and policies includes the on-site, comprehensive annual review; development of Corrective Action Plans (CAP) as required by audit results; follow-up assessments to ensure CAP implementation; and presentation of findings to the designated committee for discussion. Health Net has a staff of Registered Nurses responsible for managing this review process for each of their assigned PPGs.  PPGs with delegated responsibilities for UM are required to develop and implement a written UM Program that documents all facets of delegated authority and outlines the structure, accountability, scope, criteria, and processes of all UM services, including basic Case Management and care coordination.  The Program must be revised, reviewed and approved by the PPGs’ UM Committee and/or board of directors at least annually.

Kaiser Permanente: Our physicians plan member care and work collaboratively with their peers to ensure that there are appropriate treatment plans and use of resources. Utilization-Management staff are available to support doctors in the management of member’s health care needs throughout our continuum of care and provide a variety of services such as discharge planning, utilization review, and care management. The majority of utilization management, including reviews, is conducted internally as part of our integrated system of health care delivery. Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, and the Permanente Medical Groups work in partnership to provide and coordinate medical management and review for our Health Plan members.

PacifiCare: We use industry-leading medical management programs to ensure that each enrollee receives the appropriate care necessary and that we control unnecessary health care costs for our clients. Our medical management programs focus on reducing variation, improving the quality of care provided and ensuring cost effectiveness. We base medical decisions on scientific evidence and all of our medical management services include physician guidance and input. We developed online, science-based and objective utilization management criteria as well as technology-based clinical decision support systems related to case, utilization and disease management.

30. Describe the Case Management Process.

Aetna: The following are some ways in which cases are identified: through the PCP or pharmacy, during certification reviews, during PMG/utilization management case reviews, and through other internal reporting and sources including member services, claims, and specialty programs. The case manager coordinates services for members who have multiple and complex needs. The case manager works with the PCP and the member to develop a care plan identifying services, frequency, duration, and goals. A team approach includes the PCP, specialist, member, family, caregiver, healthcare provider community, and internal programs to coordinate care, with a focus on member education and maximizing quality outcomes.

Blue Shield of California: Case management focuses on early identification and management of members with potentially long-term and catastrophic healthcare needs.  Using claims, authorization, and pharmacy data, we identify potential candidates for case management.  The case manager helps identify appropriate cost-effective treatment options, and follows members who are receiving alternative levels of care, such as inpatient rehabilitation, skilled nursing facility care, long-term home health services, and hospice services.  Members who are using an acute facility three or more times in a six-month period can also be identified for case management.  Utilization management, claims, and other medical operations team members can request case management for specific situations.  Family members and providers can also request case management.

Cigna: Customers are identified via real-time and claims-based predictive modeling tools, along with referrals from physicians and medical groups, Cigna clinical staff, and employers. Case managers collaborate with physicians, medical group case managers, customers, and employers to facilitate ongoing treatment plans and support the primary care physician. Case managers monitor short-term and long-term goals for inpatient and outpatient care. They document and evaluate the effectiveness of the services provided. In addition to traditional complex and catastrophic case management, Cigna has a number of specialty case management units. They are staffed with RNs who are dedicated to areas such as high-risk maternity, neonatal intensive care, oncology, obesity, and transplant. Cigna has an extensive suite of chronic condition management programs, including those for obesity complications and depression. Cigna also offers telephonic and online access to wellness information, care management services, and health coaching programs.

Health Net of CA: Health Net and its delegates provide case management/disease management programs to deliver individualized assistance to members in all lines of business who are experiencing complex, acute, or catastrophic illnesses or have exceptional needs. Health Net provides outreach to members with chronic conditions such as asthma, diabetes, COPD, heart failure, and coronary heart disease, uses population-based risk stratification and predictive modeling; and partners with physician groups to improve performance. Health Net offers Disease Management, Ambulatory Case Management, Complex Case Management, NICU and High-Risk OB Case Management.

Kaiser Permanente: Members in need of case management are identified through clinical and utilization data, pharmacy records, hospital and outpatient visits, and laboratory results. Members can also self-refer to case management or be referred by a doctor or family member. Our case managers are master’s-level clinicians or registered nurses who work directly with a member and their health care team to plan care and provide intensive coordination of services, including inpatient hospitalizations, transitional care, home care, skilled nursing, medications, referrals to community resources, and outpatient care. Using an interdisciplinary approach, case managers help to ensure continuity of care including utilization management, transfer coordination, discharge planning, and obtaining all authorizations or approvals as needed for outside services for members and their families. They’re also responsible for identifying quality-of-care problems and monitoring utilization issues.

PacifiCare: We designed our case management program to identify, intervene, coordinate and monitor care plans that provide high quality and cost-effective care for covered persons with catastrophic and complex health care needs. Our case managers facilitate communication and coordination of care between all parties on the health care team. This program involves the patient and family in the decision making process to minimize fragmentation in the delivery of health care. The case manager assesses the needs of the patient and educates them and the health care delivery team about case management, community resources, insurance benefits, cost factors and issues in all related topics so that informed decisions can be made. The case manager is the link between the patient, the providers, the payer and community.

Look for Part III of the HMO Survey in ouir May Issue.