In a recent executive order, the Trump Administration has proposed new regulations to encourage a much wider use of short-term health plans. These plans have limited duration and are generally a cheaper alternative to individual market, ACA compliant plans. However, cheaper does not always translate to better. A recent analysis from the Kaiser Family Foundation found that these plans have gaps and offer less or limited services.
The Foundation’s analysis examined specific short-term insurance products that are available in 45 states and the District of Columbia through two insurance partners – eHealth or Agile Health Insurance.
In general, the Kaiser Foundation analysis found:
- 43 percent do not cover mental health services;
- 62 percent do not cover substance abuse treatment;
- 71 percent do not cover outpatient prescription drugs; and
- None of the plans cover maternity care.
The study found that these short-term health plans have premiums that are up to 20% lower than the lowest ACA compliant individual marketplace plans (bronze) within each of the states analyzed.
There are concerns that healthier people may move to these shorter, cheaper plans leaving those with more complicated health conditions in the ACA plans. This would have the knock-on effect of raising the premiums for those that remain in the ACA plans. While qualified low income people may be able to take advantage of tax credits to help offset the higher premiums, most middle-income families would not be entitled to any tax relief. This would most likely result in higher premiums for this group.
It is also expected that the repeal of the individual mandate that was voted in as a rider on the 2017 Holiday Tax Cut will boost enrollment in these short-term plans as the penalty will no longer apply.
There is a tremendous amount of activity in the marketplace these days where a change in one component of health care has huge impacts on other areas. Please contact us if you have any questions about this change. We will help walk you through the changes and what impact it may have on your business.
Additional Resources on Short-term Health Care Plans:
Kaiser Family Foundation
The Cadillac Tax imposes a 40% excise tax on coverage in excess of certain thresholds. When originally enacted with a 2018 effective date, the thresholds were $10,200 for self-only and $27,500 for family coverage. The tax has since been delayed twice (including this delay), and the thresholds will be updated prior to the new Jan. 1, 2022 effective date.
Many employers, unions, insurers and industry groups have opposed the tax based on concerns around administrative and financial burdens for employers and adverse outcomes for employees. Cigna is a founding member and on the executive committee of The Alliance to Fight the 40, a coalition of public and private sector stakeholders that seeks a full repeal of the Cadillac Tax. To learn more about these efforts, visit www.fightthe40.com.
Health Insurance Industry Fee (a.k.a. Health Insurer Tax)
The short-term spending bill also suspends the Health Insurance Industry Fee for 2019. This fee began in 2014 and only affects insured health plans. It was previously suspended for 2017 but went back into effect on Jan. 1, 2018.
If you have any questions or would like to find out more about how these changes impact your business, please contact us.
Observations on the New Tax Law
In our continuing effort to scan the business environment and surface important information (such as the new tax law) that we feel our clients and site visitors may need to help them make better decisions regarding their Employee Benefits Programs, we discovered this document from Guardian Life Insurance Company.
The Guardian document authored by Vice President, Government Affairs Jonathan Renfrew outlines a few key changes related to the Tax Cuts and Jobs Act of 2017. In case that title is not familiar to you, it is the official name of the recent tax cut voted in by the US Congress in December 2017 that went into effect January 1, 2018. Mr. Renfrew does a nice job of outlining a few of the major employee benefits changes that have been brought about because of the passing of this new law.
Here is a section from that document which we feel directly impacts many of our clients:
Pass-Through Tax Provisions:
About 75% of small business employers organize as pass-through entities, according to the National Federation of Independent Businesses (NFIB). The new law includes a deduction for owners of sole proprietorships, partnerships, and S-corporations generally equal to 20% of qualified business income, subject to additional exceptions. For a service business, the deduction phases out for taxpayers with income above $157,000 or $315,000 for joint returns.
Major Employee Benefit Changes:
- The new law would generally disallow any deduction for entertainment, amusement, recreation activities, or facilities, even if the expenses are directly related to or associated with the active conduct of trade or business. This includes meals, food, or beverages to the extent the expenses are related to entertainment, amusement or recreation.
- Deductions for qualified transportation fringe benefits are also generally disallowed. • There are new restrictions on the deduction of employee achievement awards.
- The deduction for qualified moving expenses and reimbursements is repealed through the end of 2025.
- The law creates a new tax credit for employers (subject to certain rules) that pay employees while on family and medical leave covered under the Family and Medical Leave Act (FMLA).
- Employer-sponsored dependent care, flexible spending arrangements, and tuition reimbursement programs remain unchanged under the new law.
The document also discusses Retirement and Educational Savings, Estate and Gift Tax Exclusion and Non-Qualified Deferred Compensation. The later has no impact as no changes were made in the new tax law in this component.
In this document, Mr. Renfrew also makes some key observations. Amongst these is the suggestion that right now might be the right time to take another look at your business’ overall benefit portfolio. We could not agree more with Mr. Renfrew. With many of the benefits business have enjoyed for many years going away and being exchanged with new provisions such as percentage rate deductions of qualified business income, there may be some opportunity to fine tune your employee benefit programs. As noted in the document, these include some of the more traditional benefits you are currently providing or are contemplating to provide in the future in order to retain or attract employees.
As you filter through the elements of the new law and work internally with your HR team to seek potential enhancements or cost savings to your benefits package, we here at HRB Solutions will work with you to outline a new plan that makes sense under the new tax law structure. It might mean a tweak to your existing configuration or perhaps it might make sense to move to a plan that is comprehensive, able to grow with your business and allows for the introduction of just the right mix of benefits for your industry and your employee retention.
There are new days ahead as we all begin to wrap our collective heads around the new tax law and what it means specifically for your business. Please contact us to start the process of determining if a change is needed to your Employee Benefits Program while we are still early in the new tax year. If you are seeking tax advice, we recommend that you contact your Tax Advisor and Attorney, our focus is on your benefits portfolio.
Here are a few additional resources that may also be of help to you:
Summary on Wikipedia
Wanted to take a quick moment to let all our readers know that effective immediately for calendar year 2018, the family contribution limit for Health Savings Accounts (HSAs) has been lowered to $6,850 from the previously set amount of $6,900.
Please inform your employees or be aware yourself that the maximum contribution to your HSA has been reduced by $50.00. This may force some HSA owners to make some changes in their contribution amounts to ensure that they will not exceed the maximum. If the employee has already contributed the entire amount for the year, then they will need to receive a refund before the end of the 2018 calendar year.
For individuals who only cover themselves, the deduction remains the same ($3,450) as 2017.
Other types of accounts such as Flexible Spending and Transit were not affected for 2018.
This reduction is due to changes related to the Tax Cuts and Jobs Bill legislation defining how the cost of living rates should be calculated. The Bill states that the cost of living increase must use the “Chained CPI” approach. Chained CPI calculates inflation to include the fact that as some prices increase, some consumers will switch to lower priced products or switch to different products. This consumer activity reduces the overall impact of inflation. Over time, the Chained CPI will ultimately produce lower cost of living increases. The immediate impact of this calculation is to lower the amount that the IRS allows for contribution to the employee’s HSA.
HSA’s are used to help fund high-deductible health plans. Those are defined as plans where the annual deductible is not less than $1,350 for individuals or $2,700 for family coverage and the annual out-of-pocket expenses do not exceed $6,650 for individuals or $13,300 for families.
If you have any questions or wish to talk about how this impacts your business and your employees, please contact us.
Additional Resources may be found here:
In late December the IRS provided a 30-day extension for insurers, self-insuring employers, other coverage providers, and applicable large employers to provide the 2017 health coverage forms to their employees. The original date, January 21 was extended until March 2, 2018. At this time these groups must provide statements to their employees or any covered individuals regarding the health coverage that is offered to them. This will assist the employees in determining if they will be able to claim the premium tax credit on their individual income tax returns. This extension is automatic, it is not something that employers have to request.
We have made mention of this extension in the past on our website. The reason we are bringing it up again now is the due dates for filing 2017 information returns with the IRS are not extended. For 2018, the due dates to file information returns with the IRS are:
- 28 for paper filers
- April 2 for electronic filers
The dates are quickly approaching. We wanted to surface them as a reminder for your information and use.
The IRS also noted that this extension may be beyond when many taxpayers are ready to file their taxes. These forms are not required to file. Taxpayers may be able to prepare and file their returns using other information about their coverage, they do not need to wait for the forms 1095-B or 1095-C to file.
If you have any questions about this extension, please don’t hesitate to contact us.
Additional information may be found here:
IRS Public Filing
Three premier US based companies (including Amazon) announced they are going to join forces to tackle heath care. They plan to engage this partnership to cut costs and improve services for their estimated one million combined employee base. The announcement stated that this initiative will be an independent company that “is free from profit-making incentives and constraints” (Jeff Bezos, Amazon). This announcement caused a drop in the stock price of many of the big players in the market (Anthem, CVS, UnitedHealth Group) by at least 4%.
There were not many details offered in the announcement, but many analysts feel that the healthcare industry is ripe for a disruption. The combined group is planning on targeting technology and data solutions to help simplify healthcare delivery and want to leverage their combined best talent to solve this problem over time. There are still quite a few skeptics feeling that these three can make a big difference. However, Amazon has disrupted many industries on their astronomical rise. The fact that there was an announcement at all recognizes that there is room for more players in an industry that has not had any new players in many years.
This move is not completely new to the three companies
- Amazon – has been expected to move into health care selling prescription drugs
- Berkshire – owns MedPro Group (liability insurer)
- JPMorgan Chase – their institute studies health care costs.
For more details on the people being asked to spearhead this venture, follow this link
Both employers and employees want improved health care. There have been many Government based attempts and some States are working better than others. It may be time for business to step in and take strides to better an industry that many agree is ready for some big changes.
As exciting as this news may be, HRB Solutions has Health Insurance Options you don’t have to wait for that are proprietary and designed to make the difference employers have been waiting for. For more information or if you want to discuss what this means for your business going forward, please contact us.
For more details on this announcement:
One of biggest pharmacy players in the marketplace, CVS Health, announced that it has agreed to buy Aetna for $69 Billion. This works out to be approximately $207/share with $145 in cash and the rest in stock. The deal is expected to close, with regulatory approval in the second half of 2018. Today there was a call for congressional hearings to see if this is merger will lead to a better landscape or do more harm. So, more news to come.
What does this CVS acquisition of Aetna mean?
In the short term, CVS could provide a very wide range of services to the 22 million Aetna medical members. This could include expansions in the walk-in clinics, efficiencies in pharmaceutical sales and provide CVS with something other than just retail sales. We may see a better use of health data from both Aetna and CVS (stores and minute clinics) to create a better experience for all consumers. This could also lead to lower costs for care at Minute Clinics and in health care premiums.
Early reports indicate that CVS is considering transforming its locations into some sort of community health hub where pharmacists and nurses can provide services to individuals recently released from hospitals to help them stay out of the hospital. There also some signs that this combination could be a place where individuals go rather than to the emergency room. This could also extend into general wellness, nutrition, vision and hearing screening services. CVS could be positioning themselves in front of health issues to support a healthier person and thereby saving health care costs across the board. Health insurance providers want to get closer to the consumer so that they are better able to manage the aspects of a person’s health better, this could be that way fro Aetna. Many people agree that in the future you will see much less retail (where items can be purchased easily online) and more emphasis on health care from within the CVS stores. The combination CVS/Aetna group will have to take steps to convert customer perceptions that include a feeling that CVS sells eye make-up and toys so why would it be the place to go for health care?
Large companies that employ many have traditionally kept their prescription drug benefits separate from medical coverage. These companies feel they can get a better, lower cost deal by shopping these benefits around separately. This merger could change that thinking as CVS and Aetna argue that this deal will lower costs and give them the ability to negotiate drug prices down and the management in the use of these drugs up. We feel that this will lead to more companies when they look to negotiate their health contracts next year, to look to see if it is better to pull these services together or will overall savings occur by keeping health and pharmacy separate.
This may be the first in other health services mergers as this industry attempts to insulate themselves from competition from Amazon that is expanding into the sale of prescription drugs and from health insurers that have brought drug price negotiations in-house rather than using a middle man as CVS now becomes that middleman for Aetna.
We continue to monitor all aspects of the health care industry and will help guide you through the changing landscape. Our goal is to provide you with the maximum amount of savings in health care costs while still providing the right set of services to your employees.
Please contact us for more details.
Contributing sources as well as additional information on this merger can be found here:
CNBC / CNBC
New York Times
The Kaiser Family Foundation in conjunction with the Health Research and Educational Trust (HRET) recently announced their 2017 Employer Health Benefits Survey. This survey covers over 150 million people. It helps to provide fresh information about employer-sponsored health benefits. The 2017 report is the nineteenth survey of this type.
Quoted abstract from the Health Benefits Survey
“This annual survey of employers provides a detailed look at trends in employer-sponsored health coverage including premiums, employee contributions, cost-sharing provisions, and employer practices. The 2017 survey included more than 2,100 interviews with non-federal public and private firms. Annual premiums for employer-sponsored family health coverage reached $18,764 this year, up 3% from last year, with workers on average paying $5,714 towards the cost of their coverage, according to the Kaiser Family Foundation/Health Research & Education Trust 2017 Employer Health Benefits Survey. The 2017 survey includes information on the use of incentives for employer wellness programs, plan cost sharing, and firm offer rates. Survey results are released in a variety of ways, including a full report with downloadable tables on a variety of topics, summary of findings, and an article published in the journal Health Affairs”
The survey is very comprehensive and contains many pages of tables and charts that describe the current condition of the employer marketplace today.
Please contact us if you have any questions or check out the survey.
Here are a few 2017 Health Benefits Survey highlights
• The average premium for single coverage through an employer-sponsored plan is $6,690 up 4% over last year.
• The average premium for family coverage through an employer-sponsored plan is $18,764 up 3% over last year.
• Worker’s wages increased 2.2% and inflation increased 2.2%
• On average covered workers contribute 18% for single and 31% for family towards premium payments. With workers in small firms contributing a larger percentage than those workers in larger firms.
• Dwindling its share over the last 8 years by 8%, the PPO continues to be the most common plan type followed by High-deductible plan, HMO, POS and less than 1% in a conventional/indemnity plan.
• 15% of the workers in small firms and 79% of the workers in large firms are enrolled in plans that self-fund in some capacity. This is very similar to the numbers from last year.
• Most workers have some type of deductible such as a general annual deductible, cost-sharing, copayments or coinsurance for office visits and hospital stays.
• 53% of firms offer health benefits to some of their workers and 89% of the people surveyed work in firms that offers health benefits.
• A clear majority (over 94%) of all firms offer coverage to spouses of those eligible. Over 92% of all firms offer health benefits coverage to non-spouse dependents.
• Many firms that offer health benefits also offer supplemental benefits as well. These include dental, vision, critical illness insurance, hospital indemnity insurance and long-term care insurance. With firms more likely to contribute towards dental and vision than the others.
• A small number of firms (minimally 8%) collect health information from workers through wearable devices such as a Fitbit.
• 4% of firms with at least 50 workers offer health benefits through a private exchange. Many more are considering it going forward.
Conclusion highlights from the 2017 Health Benefits Survey:
• Employer-sponsored health benefits market displays no big changes over 2016
• Premium increases are modest and not much change in cost sharing or enrollments.
• Employers continue to invest in promotion of wellness and build incentives around programs that collect information about their employees.
• No signs that long term declines in the offer and coverage rates are reversing with the percentage of workers covered at work remains at 62%
• There continues to be a significant variation around premiums and contribution amounts. Large number of workers in small firms pay a substantial share of the cost of family coverage. This calls into question whether this is a viable source of coverage for the dependents.
• Even with the uncertainty of the ACA (Obamacare), employers seem to have adapted to the provisions without significant disruption. Even if repeal and replace efforts succeed the impacts on the group market will be relatively small. There may be some small changes made, but the costs and coverages will most likely not change in any meaningful way.
• One to watch – The Cadillac tax could affect the market over the next couple of years. Because this law has been pushed out to 2020 and with Congressional support for pushing it out further, the pressure on employers has been alleviated to some extent. This could change dramatically if the tax is not further delayed.
For more information on the survey methodology, please visit the Methodology section at http://ehbs.kff.org/.
For more information on how this information will impact your business contact us here at HRB Solutions Inc
The Internal Revenue Service (IRS) recently released Revenue Procedure 2017-36 which provides indexing adjustments for certain provisions under the Patient Protection and Affordable Care Act (ACA/Obamacare). Of interest to employers is the index adjustment of the contribution percentage used for purposes of determining affordability under the employer shared responsibility (pay or play) mandate. Employers looking to avoid pay or play penalties will need this information to assist in the decision-making process relative to plan designs and employer funding.
Background on Indexing Adjustments
In order to avoid pay or play penalties, applicable large employer (ALE) members must offer full-time employees minimum essential coverage (MEC) that is both affordable and provides minimum value (i.e., actuarial value of at least 60%). Under applicable rules, health care coverage is affordable if the employee’s required contribution for the lowest cost self-only option offered by the employer is 9.5% (as adjusted annually) or less of the employee’s household income. The statute defines “household income” as the modified adjusted gross income of the taxpayer and the members of the taxpayer’s family, and modified adjusted gross income is defined as adjusted gross income plus certain types of income that would otherwise be excluded from the taxpayer’s income (i.e., foreign earned income and housing costs, tax exempt interest, and the excludable portion of the taxpayer’s social security income).
The IRS did not address the household income standard in its employer shared responsibility regulations.
The IRS did not address the household income standard in its employer shared responsibility regulations. Instead, the IRS established a choice of three safe harbors that employers could use to demonstrate compliance with the affordability standard, all of which limit the determination of affordability to employee self-only coverage. Those safe harbor affordability standards include the Form W-2 Safe Harbor (based on the employee’s W-2, Box 1 reported wages for that year), the Rate of Pay Safe Harbor (based on an employee’s hourly rate times 130 hours per calendar month), and the Federal Poverty Line Safe Harbor (based on the annual federal poverty line for a single individual divided by 12).
The provision in the ACA/Obamacare statute that established 9.5% of an employee’s household income as the general affordability standard also provided for indexing (adjustments) of that standard beginning in 2015. The annual adjustments, prior to 2018, are as follows:
- 2015 – 9.56%
- 2016 – 9.66%
- 2017 – 9.69%
- 2018 – 9.56% (decreased)
Affordability percentage for 2018
For purposes of the employer shared responsibility mandate, the required contribution percentage has decreased for 2018 to 9.56% (from 9.69% in 2017). This means that if an employee’s share of the premium (in 2018) for the lowest cost self-only option offered by the employer is more than 9.56% of his or her household income (or the applicable standard if using one of the affordability safe harbors), the coverage is not considered affordable for that employee and the ALE member may be liable for a penalty if that employee obtains a premium tax credit for health coverage purchased through the public exchange.
So, unless the employer shared responsibility mandate (or at least the related penalties) is repealed, employers may need to reduce employee contributions (or the relative share of plan cost reflected in employee contributions) in 2018 to maintain “affordable” coverage under the ACA/Obamacare.
Contact us for more details
On October 12th, President Trump signed a health care executive order that requests his administration to develop policies to increase health care industry competition and consumer choice while improving quality and lowering prices. However, it could also shatter The Affordable Care Act (Obamacare) by providing a means for younger, healthier individuals to opt out from the exchanges.
The President is asking the Department of Labor to find ways to make it easier for small businesses and perhaps individuals to form nationwide associations to buy health insurance.
Trump’s Health Care Executive Order potentially could:
- allow employers in the same industry to offer group coverage across state lines.
- provide a much a wider range of policies.
- lower costs to consumers (employers and employees).
- offer consumers the ability to purchase short-term policies that do not need to comply with pre-existing condition protection.
- broaden health reimbursement arrangements (aka HRA’s) allowing employers. to give workers money to buy their own coverage.
- free the association health plans from several Obamacare regulations so that they can operate more like large corporations. These could include:
- requirement to provide comprehensive policies that cover prescription drugs, mental health and substance abuse
- deny coverage to the group
- set rates based on the medical history of those in the group
- exclude employees or develop premiums based on health conditions
- expand the use of short-term insurance plans
- exclude those with pre-existing conditions
- base rates on consumers’ health background
- offer plans with lower premiums with less benefits.
- offer less comprehensive coverage
- create plans that reduce and/or eliminate state oversight.
- pull younger and healthier customers away from Obamacare.
- increase premiums for sicker people left in the exchanges.
May take 6 months or more to implement Trump’s health care Executive Order
The order could leverage the buying power of millions of Americans to form big health care pools. However, there are many who feel it is not going to solve the problem as it only effects a tiny number of people and will not do anything for workers that are currently part of the exchanges and are not members of a franchise or trade association.
It is not known how the agencies within the Trump administration will change the current regulations at this time. Health care plans sponsored by trade organizations already exist. We will continue to watch as this new executive order begins to take shape and let you know what you need to know to keep competitive and stay ahead of the regulations. Please contact us with any questions or concerns you may have.
Our Proprietary Programs have been helping Employers achieve what Trump is proposing. HRB Solutions Inc. has been helping employers participate in large pools with economies of scale discounts for over 5 years!
Here are a few other resources that will help you understand more about this news of the day.
Wall Street Journal