Spousal Carve Out Still An Option

You might remember reading our May 2012 newsletter on whether or not spousal carve out would be allowed after 2014.  At the time, we were unsure how spousal carve outs would be affected and our debate was centered around two main points: The PPACA requirement that coverage must be offered to all employees and their dependents and the fact that legislative intent does not mandate how the final law is interpreted. Now that we now the PPACA definition of “dependent” specifically excludes spouses, disallowing or charging extra for spouses who have access elsewhere is a good way to make sure employers can continue to offer compensation by way of rich benefits right now.

There are several different options for employers looking to save benefit dollars by implementing some type of spousal carve out.

·    Spousal surcharge – employees are charged a fee each pay period when they choose to enroll a spouse that has access to group coverage from their own employer

·   Spousal Exclusion with a monetary limit – spouses can enroll in coverage only if their own employer sponsored coverage is more expensive

·    Spousal Exclusion – spouses can enroll in coverage if they are unemployed or they do not have access to group coverage from their own employer

As you may expect (and have probably already noticed) more and more employers are choosing to implement one of the options above.  Once an employer decides which type of spousal carve out will best fit their needs, the next question becomes “how do we ensure compliance?” Without a full documentation verification (including a Spousal Affidavit signed by the Spouses Employer AND page one and two of a redacted Tax Return), studies suggest that only 44% of employees will “tell the truth” and comply with the new policy.

Over our five year history of verifying dependent eligibility for employers, we have dozens of working spouse verifications under our belt—we may have even verified a plan for one of your clients. Here, you’ll find three client case studies outlining some best practices and significant learnings. 

Client A: Spousal Surcharge

Operational Goal:

To implement new spousal surcharge as cost saving option in the wake of health care reform.

Business Challenge

As a brand new auto-manufacturing plant, Client A had a benefit program that was appropriately rich for its industry but significantly better than the majority of other employers in the region. Client A wanted to set the stage as a caring and responsible company in the way it treats its employees without becoming the default insurer for the area.

Implementation:

Client A determined that it would offer coverage to working spouses with a spousal surcharge. Spouses with access elsewhere who enroll in Client A’s coverage must pay $46 per pay period, which served to push spouses toward their own coverage while still offering the option to be on the client’s plan if the spouse’s employer plan was more expensive.

Spouses can have coverage without a surcharge if…

·         they are not employed.

·         they are also employed by Client A

·         they don’t have access to medical benefits at their employer.

Verification:

ContinuousHealth’s DA² dependent verification. The audit identifies ineligible dependents as well as informing on spousal coverage using proprietary software.

A spousal affidavit included in each audit packet required sign off from the employee, the spouse and the spouse’s employer. That reduces the likelihood of confusion or fraud, since the spouse’s employer is answering questions about current coverage rather than the spouse. ContinuousHealth also suggested requiring the second page of the tax return to generate more accurate representation of spouse unemployment/employment status.

Results:

As a fully-insured plan, cost savings are greatest when ineligible dependents resulted in tier changes.

○        21.8% of those who were in EE+ Spouse tier changed to EE Only

○        14% of those in EE+ Children changed to EE Only

○        5.3% of those in Family moved to EE Only

       With those tier changes, Client A saw extended savings of $635,000, in addition to any increased plan dollars from the spousal surcharge. After the success of the project, the client decided to integrate the ContinuousHealth software to verify both dependent eligibility and spousal exclusion in-house. This ensured HIPAA-compliance and streamlined the enrollment process.

Client B: Spousal Exclusion with Monetary Limit

Operational Goal:

To implement a spousal exclusion in order to continue to offer an affordable and rich benefits plan.

Business Challenge:

As a well-respected leader in the grain industry, Client B is very focused on providing just business practices, including having a compliant plan, and on treating employees well.

Implementation:

Client B’s consultant walked the client through best options and they decided to offer coverage for working spouses if the employer’s coverage was more expensive than being on Client B’s plan. This would apply only to traditional major medical coverage, which also serves to encourage adoption of the new consumer plan.

Spouses can have coverage if…

·         they don’t have access to major medical at their employer.

·      they have access, but the least expensive single plan offered costs the spouse more than $190 per month.

·         they are also employed by Client B.

·         they are unemployed.

·         they are on secondary coverage and are enrolled in their own employer’s coverage with no contributions to an HSA.

Verification:

ContinuousHealth’s DA2 dependent verification. The audit identifies ineligible dependents as well as informing on spousal coverage using proprietary software. A spousal affidavit included in each audit packet requires the employee, the spouse and the spouse’s employer’s signature and proprietary technology notes all results.

Results:

The audit identified 9.2% of dependents on group plan as ineligible for coverage, a first year savings of $658, 000. That represents 3.8% of Client B’s total annual budget for health care. Spousal verification identified that 11.3% of spouses are only eligible for secondary coverage and about 8% are only eligible for dental and vision, based on the response of the spouses’ employers.

Rather than burdening Human Resources with the project after the initial verification ended, Client B decided to continue using ContinuousHealth to verify dependent eligibility and spousal exclusion. Ongoing costs are minimal compared to an initial project, and the transition to ongoing was seamless.

Client C: Spousal Exclusion with Employer Premium Percentage Limit

Operational Goal:

To find a third party solution for current spousal exclusion practices.

Business Challenge:

The Architecture and Planning company had tried to do a dependent verification last year with a well-known audit company, but Client C had been displeased

Implementation:

Client C had a policy in place that offered coverage for working spouses only if the employer portion of spouse’s premium was low.

Spouses can have coverage if…

●        they are not employed.

●        they don’t have access to group coverage at their employer.

●   they have access, but the spouse’s employer’s group plan requires that the spouse contribute more than 50% of total annual premium.

Verification:

ContinuousHealth’s DA2 dependent verification. Client C was interested in feedback about ContinuousHealth’s responsiveness and educate/assist approach, something it had not found in the last firm. The process would identify ineligible dependents while streamlining the current working spouse verification. A spousal affidavit included in each audit packet requires the employee, the spouse and the spouse’s employer’s sign off.

Results:

The audit identified 7.70% of dependents on the group plan as ineligible for coverage. Despite the recent verification with the other audit company, 4.4% of the dependents were self-identified as ineligible once the plan requirements were outlined to them with the offer of amnesty. Employees opted out 8.4% of the spouses on the plan after reviewing the spousal carve out requirement, even though these were known requirements that had been in effect for over one year.

After the success of the project, Client C decided to continue using ContinuousHealth to verify both dependent eligibility and spousal exclusion on an ongoing basis.

If you’re working to implement a working spouse policy for one of your clients, let us know if we can help. We would love to talk through the options with you and help you serve your client through that transition.

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Why do 45% of those who turn to the individual market not buy?

In April, the Commonwealth Fund released the details of their survey which found 25% of working-age adults experienced a gap in coverage in 2011.  The report detailed that 45% of those who go to the individual market during a gap fail to engage a plan. On top of all that, the report concluded that the Affordable Care Act will be the answer to these issues in their entirety.  But how realistic is that conclusion, and what do these numbers really mean? 

According to the Commonwealth Fund survey report, “Gaps in Health Insurance:  Why So Many Americans Experience Breaks in Coverage and How the Affordable Care Act Will Help,” nearly half of working-age adults who experience a gap in coverage and turn to the individual market don’t end up purchasing coverage on that market. In the past, much has been made about the difficulty most individuals have in getting coverage in the individual market. People are denied access because of pre-existing health conditions. This survey points to a different cause. What is it?

The short answer?  PRICE.  People have no idea how much health care (or health insurance) really costs.  In the individual market, the true cost is no longer obscured by employer-subsidies… and when people are exposed to the real cost, sticker shock abounds.

The two main issues

So what will happen when health care reform comes into full effect in 2014? Currently, there are two main problems that cause people to refrain from purchasing in the individual market.

For some, it is access.  They are denied coverage because of a preexisting condition, or their condition is excluded from coverage when the plan is written on the individual market. That group makes up, according to this survey, about 19%. 

PPACA promises to solve the problem for the first 19%.  In 2014, no one will be denied coverage because of a preexisting condition or have a plan written for them that excludes their condition. But those measures will require everyone’s cost of health insurance to go up: someone has to pay for those benefits, after all.

For the majority of the rest, it’s affordability.  Of the remaining 81% who do not engage coverage on the individual market, 73% didn’t buy because of price.  Cost is the most often cited reason for not purchasing coverage.

So solving the problem for the 19% will drive up the costs for the other 73%, a group who is already price-sensitive. The United States Court of Appeals for the Eleventh Circuit has noted that guaranteed-issue provisions may result in a 27–30% increase for the individual market. It’s also guaranteed that at least some of the access-averted 19% would then become price-conscious and remain uninsured.  What is the greatest good for the greatest number of people? By fixing the minority issue, we may make the majority issue even worse.

The high risk pool

Before the prohibition on medical underwriting goes into effect in 2014, PPACA created an interim solution to improve access in the individual market. The preexisting condition insurance plans (PCIPs) provision went into effect immediately (it actually started in July 2010, after the legislation passed March 2010), and they offer transitional coverage for high risk participants who have chronic health problems. Initial estimates predicted that total enrollment in the federal high-risk pool program would grow from roughly 400,000 in 2011 to about 600,000 or 700,000 in 2013.

It was clear early on that the program had lower participation than expected. Despite the offering that basically allowed anyone coverage, provided they had a preexisting condition and had been without coverage for six months or more, to date there are only around 50,000 covered by PCIPs. That’s 0.1% of the total uninsured, and only about 10% of the initial engagement estimates.

The Affordable Care Act initially mandated that the PCIPs offer premiums on par with state market rates, and they’re allowed to offer rates based on age by up to a 4:1 ratio. Even so, the most likely culprit deterring people from the high risk pool were the high cost of premiums and expensive out-of-pocket costs. The funding for the pools is low, as well, funded with numbers that would only cover about 9% of the estimated high risk individuals. Even after dropping coverage costs and increasing the marketing efforts to make sure people are aware of this option, engagement remains low.  The Commonwealth Fund report sums it up well: “While awareness of the PCIP program is widespread, enrollment is low.”

The game changer

The health care reform legislation does have one ingredient that changes everything.  The Affordable Care Act has a solution for both the issue of access and that of affordability.

The biggest advantage that employer-provided group insurance has that the individual market lacks right now is tax credits. PPACA creates tax credits for individuals in the form of subsidies.  Once this new system of tax credits comes into play in 2014, it has the potential to solve both problems, since all will have access, and the individual tax credits could make individual health care more affordable for those price-sensitive seventy-three percenters.

What else?

There are other fine points associated with the failure to buy on the individual market.

Current tax incentives for group coverage make employers want to offer more insurance coverage than is sometimes necessary, so people are often over-insured. As they come to the individual market, they’re looking for options that they’re accustomed to but unable to find.

People are also not well educated about their benefits, so as they enter the individual market, the options are overwhelming. “The individual market for most Americans is neither affordable nor easy to navigate” (Commonwealth Fund Report). In the study, 60% of those attempting to navigate the individual market found it difficult to compare benefits between plans. Individuals who buy less insurance consume less health care, but people need education about which options are important for them.

The future of the individual market

It remains to be seen how all of these factors will play out for the uninsured, once 2014 arrives. Forty-six states have engaged federal grant money for research and creation of state-based exchanges (click the link for an interesting map about it). All major carriers have begun mapping out a plan for their private exchanges. Over the past 10 years, the number of individuals on employer-sponsored plans has dropped by 5.3% while the overall non-elderly population has grown by 10.8%.

Without healthcare reform, the individual market has already been growing as a result of the shifting marketplace. PPACA will only accelerate this shift. What role will the individual market play over the next few years, and how will this influence the decisions you help your clients make about their benefits plans?

This article was first featured in the May 1st edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Two Points of the Compass and How They’ll Transform Compensation Strategy

Our review of over 350 CHROME Compass analyses reveals that your average client’s plan is currently more affordable and covers more than health care reform will require. Let’s take a look at how employer-sponsored coverage will change as the result of these two points of the Compass.

3.63%

That is the percentage of adjusted gross household income that your client’s average employee contributes to his health premiums, based on the CHROME Compass analysis of 345 employer plans.

About three and a half percent, as opposed to the mandated nine and a half percent of modified adjusted gross household income that PPACA requires to make plans “affordable.”

80.52%

That is the average actuarial value of covered benefits for of all employer-sponsored plans, based on the CHROME Compass analysis.

Eighty percent, as opposed to the required sixty percent of actuarial value imposed by health care reform mandates in order for a plan to have “acceptable” coverage.

The Interplay of PPACA



Long term consequences

The new government standard allows higher contribution from employees than we’ve found on average by analyzing the plans of many of your client’s.  It also requires less coverage on an actuarial value basis than the averages we’ve found.  In fact, data generated with CHROME Compass, our leading predictive modeling tool, shows that 95.7% of employees are already in “affordable” coverage.

We’re on the brink of a major revolution in how businesses allocate compensation toward benefits.  Over the next few years, we’ll probably see a swing towards higher premium contributions from employees and a lower actuarial value of covered benefits as a result of two of the CHROME Compass points, the affordable cost and acceptable benefits requirements. The key will be the restructuring of compensation dollars in other areas to keep packages appealing to top talent.

With these significant changes only two plan renewals away, it is vital that your clients begin to reshape their business strategy in light of this massive legislation.  Let us partner with you as you navigate these changes with them.

For more information on how CHROME Compass identified these averages, reach out to your ContinuousHealth CHROME Compass Consultant.

This article was first featured in the February 28th edition of our newsletter. If you'd like to receive the weekly newsletter Directions, email directions@continuoushealth.com.  (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

What the McKinsey Report on Health Care Really Reveals

Originally published at Executive Street, a Vistage International blog.

Unless you were living under a rock this summer, you probably know that McKinsey & Company published a report titled “How US health care reform will affect employee benefits.” Amongst other findings, the study claims that 30% of employers polled plan to cut their group health care plans.

This caused a stir throughout the political arena, as Republicans cited the report as evidence of the negative consequences of Health Care Reform, and Democrats blasted McKinsey for not releasing their methodology. The real issue lies deeper, and is related to a topic about which I wrote previously on the Vistage blog, Executive Street. 

The Real Revelation

A June 24^th, 2011 editorial in the Wall Street Journal got me thinking about the root issue with the McKinsey report and most other media buzz about Health Care Reform. The editorial claims, “The furor says less about McKinsey than about the politically damaging reality of the new law.”  I’d go a different route.  I think the furor over the report reveals that across the board, decision makers don’t know anything (or at least enough) about Health Care Reform.

Upon release of the methodology, expert critics of the findings say that the survey was push polling, feeding questions to executives so as to cause them to give the right answer. Conversely, a Forbes blogger and many others feel that the survey was rigorous, prepared by a creditable research company. 

A Distraction, Not a Solution

Talking about “Shutting up McKinsey” (as the Wall Street Journal editorial stated) is, like so many things in the discussion about health care reform, a distraction. Whether or not the McKinsey results will be an accurate prediction of executive behavior, or if the survey did or did not meet the standards for academic rigor, might be newsworthy, but they miss the most important point. It is inconsequential until executives truly understand the implications of health care reform.

Our company works with senior executives every day to help them optimize their investments in employee benefits.  In doing so, we see that, across industries, regions and sizes of business, business leaders don’t have the most basic working knowledge about the new structures and incentives embedded in health care reform—and many don’t want to, as we mentioned in our last Vistage post when we referenced a survey that the WSJ’s CFO blog covered in May. That Journal article stated, “Of the 151 CFOs and executives of mid-sized companies… only 1 in 5 said they have actually given a great deal of thought to the health-care overhaul.” The backlash on the McKinsey report shows that statistic is probably accurate nationwide.

It is critical that executives do understand the implications of Health Care Reform in 2014 and beyond.  To quote the last paragraph of the now infamous McKinsey report:

Whether your company is poised to shift from employer-sponsored insurance or will continue to offer the same benefit package it does now, health care reform will change the economics of your workforce and benefits, as well as how your employees value coverage. Understanding these changes at a granular level will enable your company to gain or defend a competitive advantage in the increasingly dynamic market for talent [emphasis is mine].

Leading beyond 2014

It is irrelevant if McKinsey did or did not lead executives to a particular answer.  The fact remains that if you can be led, you don’t know enough.  If you want to know how your business (and your employees) will be impacted by health care reform, get some help. As Doug Elmendorf of the Congressional Budget Office testified before Congress on March 30, 2011, “Moreover, many of the effects of the legislation may not be felt for several years because it will take time for workers and employers to recognize and to adapt to the new incentives.” Leading employers will not be the last to know. If they are, they will no longer be leading employers.

Thanks for reading,

Eric

For more information about Health Care Reform or Dependent Eligibility Verification Audits, follow ContinuousHealth and Vistage member Eric Helman, CEO of ContinuousHealth, at @CHealthUpdate or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta Georgia that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 250 Dependent Eligibility Verification projects. ContinuousHealth distributes its products through an exclusive network of certified Brokers and Consultants. 

Early Results are In: HCR may increase the Number of Ineligible Dependents

Originally published at Executive Street, a Vistage International blog.
While Health Care Reform is currently a much-discussed item in the media, the Wall Street Journal recently reported that the majority of CFOs are not considering the repercussions for their companies. The following study proves the fiscal responsibility for corporate leadership to research the effects of the Patient Protection and Affordable Care Act (PPACA) on their health care plans.

Ineligible Dependents:  Previously 5-12% of Dependents on Group Health Care Plans

Many experts believe that the number of ineligible dependents on a company’s health care plan will decrease as the mandates of the PPACA take effect. Nationwide, prior to PPACA, between 5-12% of group plan participants were typically found to be ineligible. The early results are in for a study showing that wider eligibility criteria may, in fact, directly correlate to higher percentages of ineligible dependents. 

Reform guidelines now require that adult children up to the age of 26 be eligible for coverage on their parents’ group health care plans, regardless of marital or employment status.* Many employers assume that this will significantly increase their enrollment body, and recent news reports confirm.  The enrollment of this age group is even higher than expected, as many as 600,000 new dependents in the first year alone.

Relatedly, many employers believe that investigating ineligibles is no longer necessary. Full-time student verification of that age group was standard practice with most group health care providers, and with this demographic now under mandated coverage, why check at all?

The Effects of Health Care Reform

Statistics gathered from recently conducted dependent eligibility verification audits show the need still exists and is, in fact, greater than ever. Projects completed since the implementation of Health Care Reform guidelines show nearly double the number of ineligible dependents. The average number of ineligible dependents identified on group coverage has risen from 8% to over 15%. 

The same ineligible dependents who existed prior to 9/23/10, excepting non-students, are still attempting to gain coverage from group plans. Dependents typically found who are not eligible for most plans include:

Ø  former spouses,

Ø  non-spouses,

Ø  former stepchildren,

Ø  grandchildren,

Ø  grandchildren over the age of 18 who are not enrolled in school,

Ø  non-child blood relatives and

Ø  non-eligible dependents declared on tax returns. 

Additionally, Health Care Reform has created new potentially ineligible dependent types, namely spouses and adult children who have coverage on other plans.

Prior to Reform, approximately 24% of ineligible dependents fell into the age range of 19-26. Of that 24%, half are unable to prove relationship. Thus, only 12% of typical ineligible dependents were previously non-students and are likely to qualify for coverage as a result of the change in age requirements. To put that into perspective, if a hypothetical employer covers 1,250 dependents and falls in the middle ground of 8% ineligible, 100 dependents would exit the plan. Health Care Reform guidelines for adult children now make 12 of those eligible. The other 88 remain ineligible and underscore the importance of continuing to verify dependent eligibility in a post-Health Care Reform nation. 

While the wider eligibility guidelines of PPACA do result in more dependents on a plan, the instance of and the exposure risk associated with ineligible dependents has not decreased. Rather, early results show that Health Care Reform directly correlates with higher percentages of ineligible dependents and, thus, an increased fiscal responsibility for CEOs and CFOs to recognize and eliminate fraud.

Case Study Results from Recent Dependent Eligibility Verification Audits:

	Client A	Client B	Client C	Client D
Industry	Transportation / Manufacturing	National Retail Chain	Automotive Manufacturing	Hospital Management System - 15 hospitals
# Dependents	350	11,000+	3,500	17,000+
Grandfathered or Non-Grandfathered	Non-grandfathered	Grandfathered:  Adult Children eligible for own employers’ plan were ineligible	Non-grandfathered	TBD; 2 Hospitals under “RomneyCare”
First Plan Renewal	9/1/2011, but implemented on 9/1/2010; Age 26 compliant for 4 months at verification start	2/1/2011; started verifying for HCR in mid-January	2/2011; started verifying for HCR in mid-February	7/1/2011
Results	14.5% of dependents were ineligible, far higher than leadership expected	·  20% increase in Open Enrollment numbers ·  Original project in 2009-2010 found 16.56% of 11,175 dependents were ineligible ·  First 4 months of PPACA showed that 30.57% of the 1,796 newly enrolled were ineligible	·  Original DEVA found 10.55% of enrolled were ineligible ·  Post-HCR DEVA found 27.91% of new enrollees were ineligible	·  Initial project:  10.1% ineligibles ·  2 Hospitals excluded from initial verification because they were under RomneyCare. These did a DEVA after seeing other 13 hospitals’ results ·  Results were comparable: RomneyCare project:  6.34% ineligibles in one and 9.64% in the other
Financial Exposure Reduction	Over $184,960	·  Original project:  $4,995,000 ·  First 4 months of PPACA: $1,482,300	·  Original project:  $1,114,345 ·  First 4 months of PPACA: $1,500,442	Total savings:  $4,165,246

A White Paper detailing final results will be available after all members of the study have been subject to PPACA regulations for six months or more. For more information about Health Care Reform or Dependent Eligibility Verification Audits, reach out to Vistage member Eric Helman, CEO of ContinuousHealth, at ehelman@continuoushealth.com, or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta Georgia that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 250 Dependent Eligibility Verification projects. ContinuousHealth distributes its products through an exclusive network of certified Brokers and Consultants.