PPACA requires health insurers to maintain specific loss ratios. If an insurer spends more than 20% on non claims related expenses, they need to provide rebates to the insureds. (15% for large employers). Sounds great!
This portion of PPACA went into effect for premiums paid starting 1-1-2011. The deadline for calculating and returning your overpaid 2011 premiums is August 1, 2012. Many of you have already seen communications letting you know where your insurer stands on this issue.
Employers need to start thinking about how they are going to handle this refund check. For some employers this may not be a daunting task. For others, not so easy. You need to remember that premiums are plan assets and need to work for the member of the plans. The law does NOT allow the employer to pocket those premium refunds unless the employer paid 100% of the premiums with no employee contribution. Let’s consider some of the rules for the use of these rebates when any level of employee contribution is involved.
The employer has three options when dealing with the rebate. Simply stated, they can offer:
- A Cash rebate
- A Reduction in future employee contributions
- An Increase in future benefits
The DOL is discouraging Options 2 and 3 unless the cash rebate is just too expensive to process.
You aren’t going to cut everyone a check and be done with this. Premiums that were originally deducted from the employees paycheck on a pre-tax basis will be given back to them as a taxable event. If you use it to reduce future premium deductions, you will save that accounting step. Either way, it’s fairly easy for you to deal with.
The fun part for employers is going to be deciding how to divvy up the money. The money must be returned to the employee proportionally the way the premium was collected. Also, the money has to go back only to the employees that were participating in the plan that is providing the rebate. Let’s say you have two insurers in play and both of them give you a rebate. Of course the rebates won’t be the same. Your process needs to go like this, per carrier:
- Who will get a rebate? You will need to go back and see who was on the plan IN 2011. Don’t fall into the trap of looking at your current invoices. You have certainly experienced open enrollment and some employees have changed coverage.
- How were they covered? Were they in the same bracket all year? Did they add dependents? Did they experience an age change? You can’t look at one invoice to determine their annual contributions. You can’t even look at the payroll unless it specifies the insurer for each employee each month (if more than one insurer is in play).
- Terminated employee money does not have to be returned to the terminated employee. But, it does have to be evenly distributed the remaining employees still participating in that plan.
- How will you distribute this rebate to them? Cash or reduction in future payroll deductions.
The insane thing about this process is that rebates are expected to be very small. Even in States with really inept actuaries, average rebates are expected to average $44 per employee for small groups and $14 for large groups. That is a ridiculous amount of work for the benefit. But employers must rebate the money.
Individual policyholders have to pay a bit of attention as well? If the individual paid for their health insurance with post tax dollars, there is nothing to discuss. Cash the check. But if the you wrote off your health insurance premiums, you will now need to pay tax on the returned premium. Again, a ridiculous exercise for a small amount of money.
As the June 25th SCOTUS expected opinion date looms closer, employer must continue to plan as if everything is staying in place. PPACA’s impact on employers and the added responsibility to follow numerous new regulatory hurdles is not something you want to be scurrying around for this fall. Be prepared, pay attention and be prepared to act.
In our next blog we are going to review what we already know about the W-2 regulations that will be in effect for all W-2’s issued after 1-1-13. (for 2012 tax year)
Paula L. Wilson, RHU, REBC
Elections have consequences!
Leave a comment | tags: 2012, agent, benefit advisor, california, Employee Benefits, employer, employers, Health Care Reform, Insurance Agent, insurance agent Temecula, MLR rebates, obamacare, PPACA, premium, rebates, reform, supreme court decision, Temecula, updates | posted in Health Care, Health Care Reform, PPACA, Uncategorized
While PPACA is simmering in the Supreme Court, the U. S. Treasury Department has been busy defining who will be the recipient of the Health Insurance Premium Tax Credits (HIPTC). These new regulations were published last week and can be seen in their entirety here.
Who gets the subsidy?
As PPACA outlines, individual and families with incomes from 100% to 400% of the Federal Poverty Level (FPL) are eligible for the credit. (In 2011 dollars, eligible incomes would fall between $22,350 and $89,400) A recent estimate from the Congressional Budget Office (CBO) puts the average credit in the area of $5,000. With the latest cost estimate for family coverage topping the $20,000 level this year, many will find this a welcome relief. (How are you doing so far?)
Eligibility will be determined by the difference between the “benchmark plan” and the amount your contribution is expected to be. Now stay with me on this. The “benchmark plan” will be the second lowest (or Silver) plan offered through the Exchange. Your contribution will be calculated between 2% to 9.5% of your annual income depending on where you stand on the FPL scale.
But what will it really cost?
It is hard for industry and non industry citizens to envision what this means because PPACA changes everything so radically that the rates you see today and the rates post-PPACA are a mystery. When you consider the complete lack of underwriting, an unenforceable mandate* and rating restrictions that limit the ratio in premium between an 18 year old and a 64 year old to 1 to 4……your guess is an good as mine. As soon as the rates are out they will be subject to change at the next legal opportunity. The effect of the shift in the demographic of the insured public and the dumping of employer sponsored coverage (directly or indirectly from the 9.5% AGI limit) is yet to be seen.
PPACA subjects employers to “shared responsibility” penalities if they don’t offer affordable coverage and this set of regulations suggests there are more penalties to come if the employer contribution toward the cheapest plan offered exceeds 9.5% of the the employee’s AGI. For employers who might pay into Health Savings Accounts (HSA) for their employees, you may be surprised to note that these regulations do state that the IRS will not include the employer HSA contributions into that calculation when determining if the employees coverage is affordable. This is because HSA contributions cannot be used to pay for group medical insurance premiums and therefore, cannot reduce the “cost” of the insurance for the employee.
As I read this 87 page document my head is reeling with questions of implementation. It’s almost like these people have never run a business or spent much time working with employers on the intracacies of providing benefits. Employers who run any kind of benefits program spend money on many health related items in addition to “Health Insurance Premiums”. Even employer expenses on Wellness Programs may not necessarily be counted as an employer contribution to the health plan.
If you are asking yourself how in the heck the average Joe is supposed to follow all of this, think about how they get through it now and consider this.
Employee Benefits experts and consultants are going to need an entirely new set of expertise in their portfolio to assist employers in determining where to put their benefit dollars. The lifespan of the Health Insurance Agent is not only under direct attack from PPACA, but the day of the agent who provides “rates only” as a mode of service is over. Benefit Professionals like our agency will survive as long as we are welcome in the market and not regulated out of existence.
For the individual purchaser, things may get more impersonal. Government employed Exchange “agents” are going to spend more time calculating your subsidy than worry too much about advising you what is best for you and your family.
Well, it’s not all bad….you might get $5,000!
Paula L. Wilson, RHU, REBC
*subject to SCOTUS decision due in June, 2012.
1 Comment | tags: $5, 000 Health Insurance Subsidy, 2012, benefit advisor, cost, cost estimate, Employee Benefits, employer, employers, health care, Health Care Reform, health insurance, HIPTC, Insurance Agent, insurance agent Temecula, mandate, obamacare, PPACA, premium, premium subsidy | posted in Health Care, Health Care Reform, PPACA
Employers with health insurance costs weighing heavily on their backs should enjoy a small sigh of relief as Buck Consultants released their recent survey results of 129 insurers and administrators. The results? For the first time since 2001 they estimate the cost increase for health plans to be less than 10%……..only 9.9% for 2012.
The survey goes on to explain the reduction in the rate of increase is primarily due to a correction in margins insurers had previously built in for health reform as well as a reduction in elective procedures by the insured public. During a time of such prolonged economic slowdown, people are just putting off what they consider to be elective.
Last year the trend was 11.2%.
Even at 10%, the result is a huge new nut to crack on top of already enormous numbers. It isn’t quite what employers were looking for in upcoming benefit budgeting. They still long for that time when rates remained relatively flat.
It is my opinion that employers and benefit professionals should continue to push everyone to take advantage of the preventive services now available on all non-grandfathered plans. Getting the right preventive care and continuing the expansion of Wellness Programs is vital in order to avoid the explosion of costs to follow if new disease is left undiagnosed or untreated due to cost concerns. Employers and their Benefit Advisors cannot to overlook the proactive role they must continue promote.
If you are interested in learning more about Health Care Reform, Wellness Programs or preparing for the upcoming mandates, please contact Paula Wilson at 951-694-1009.
Leave a comment | tags: benefit advisor, buck consultants, cost, employers, health care, Insurance Agent, PPACA, reform | posted in Health Care, Health Care Reform, PPACA