Tucker E-Updates, April, 2012
News and Industry Insights, Keeping You "Well-Informed"
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About Tucker Administrators, Inc.
Tucker Administrators is a full-service TPA in Charlotte, NC. Founded in 1976, we provide a comprehensive portfolio of employee benefit products to serve the employer, broker and consultant community.
Why Tucker Administrators? Tucker Administrators is more than a claims payer. Our focus is on those factors that drive the total health risk management model, not just fixed costs. Large individual claims are the most expensive costs of a health plan. Our firm has the technology to focus on claims cost control. We use cutting-edge tools like predictive modeling, claims surveillance technology, wellness and clinically-based medical management with proven results that may slow or even reverse the rising trend of claims costs.
As an AWAC® Alliance member, we are one of a select number of TPAs in the US to use a system to screen every one of our self-funded clients' claims and prescription data using more than 80,000 clinician-produced algorithms. AWAC® has the capability to identify at-risk claimants before they become catastrophic, resulting in earlier diagnoses that are both life-saving and money-saving. Here is a list of our services:
- Total Self-Funded Health Plan Services
- Health Risk Assessment integrated with the group health plan
- Wellness Programs integrated with the group health plan
- On-Site Physician Programs
- Regulatory Compliance Support
- Group Employee Limited Self-Funded Plans
- Group Employee Fully-Insured Health Plans
- Group Employee Ancillary Plans
- FSAs-Medical, Dependent Care and Transportation
- Consolidated Billings Services
We can show you how to control plan costs while encouraging better health for your employees and their families. Call us at 704-525-9666, and visit our website at http://www.tuckeradministrators.com/
Health Reform Official Website
HIPAA (Privacy) Office of Civil Rights
IRS Retirement Plans Navigator
North Carolina Dept. of Insurance
Retiree Drug Subsidy Program, CMS
South Carolina Dept. of Insurance
Tricare; Military Health System
Has someone ever asked you what their premium payments would be by applying the tax credits available in 2014? The Kaiser Family Foundation has a calculator tool that will estimate premiums and government assistance under the health reform law. Beginning in 2014, tax credits will be available for people under age 65 who purchase coverage on their own in a health insurance Exchange and are not covered through their employer, Medicare or Medicaid. The tool allows the user to examine the impact at different income levels, ages, family sizes, and regional costs.
Premium calculations are consistent with estimates of premiums under reform prepared by the Congressional Budget Office. The calculator does not apply to people with coverage available through an employer, where the firm is generally paying for a substantial portion of the insurance premium. Caution: this is only an estimate, and is based on coverage that may not be compared to what the individual currently has. Click the image below to be taken to the calculator website
While discussions about the costs of health care often focus on the average amount spent per person, spending on
health services is actually quite skewed.
- About ten percent of people account for 63% of spending on health services;
- 21% of health spending is for only 1% of the population
- At the other end of the spectrum, the one-half of the population with the lowest health spending accounts for just over 3% of spending.
Sources of Health Spending
Health spending is fairly evenly split between the private and public sectors, with private health spending accounting
for 54% of total health spending in 2007.
• Spending by private health insurance comprises 64% of private health expenditures; 22% of private expenditures is out-of-pocket payments by individuals; the remainder (13%) is expenditures by other private sources (e.g., philanthropy).
• CMS projects that the private share of national health spending will fall to 49% by 2018, with public spending growing to 51% as the oldest baby boomers become eligible for Medicare.
Information Source: Kaiser Family Foundation: Publication (#7692-02) is available at www.kff.org.
IRS released proposed rules (REG-136008-11) on plan fees to fund patient-centered outcomes research on April 12, 2012. These fees will be used to fund the Patient-Centered Outcomes Research Institute, which was established under PPACA to assist patients, clinicians, purchasers, and policymakers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings. ACA specifically prohibits the Secretary of HHS from using the evidence or findings of the research in determining coverage, reimbursement, or incentive programs unless it is through a transparent process, which includes public comment. HHS is prohibited from denying coverage of items or services solely on the basis of comparative clinical effectiveness research.
While the fees are in effect now, plans will have ample time to calculate and pay the fees. The fees apply to plan years ending on or after October 1, 2012 (meaning they apply to plans that began in the last quarter of 2011). But the payment of the fees and the information reporting that must accompany the fee are not due until the calendar year immediately following the last day of the plan year.
Which plans are subject to the fees?
Fully-insured and self-funded group health and accident plans are subject to the fees, as well as individual fully-insured policies. See below for more detail on which plans and policies are subject to the fees.
When are the fees effective?
The fees are effective for each plan or policy year ending on or after October 1, 2012 and before October 1, 2019.
How much is the fee?
The fee is two dollars (one dollar for plan years ending before October 1, 2013) multiplied by the average number of lives covered under the plan for the plan year. For plan years ending on or after October 1, 2014, the fee is increased based on increases in the projected per capita amount of National Health Expenditures.
When is the fee and information return due?
The fee is payable when the information return is due. An information return that reports liability for the fee must be filed by July 31 of the calendar year immediately following the last day of the plan year. For example, a return that reports liability for the fee imposed for the year ending on December 31, 2012, must be filed by July 31, 2013. For another example, a return that reports liability for the fee imposed for the plan year ending on January 31, 2013, must be filed by July 31, 2014.
The Form 720, “Quarterly Federal Excise Tax Return,” is amended to provide that plan sponsors will report and pay these fees only once a year on Form 720. A person that files a Form 270 only to report liability for these fees is not required to file Form 270 at other times during a year. A Form 270 return will generally cover plan years that end during the preceding calendar year. The instructions for Form 270 require that the filer (the plan sponsor, or issuer) have an Employer identification Number (EIN) to use in filing.
Who is liable for the fee?
For a self-funded plan, the plan sponsor is the person responsible for the payment of the fee. For multiemployer plans, the joint board of trustees is the plan sponsor. For a MEWA, the committee is the plan sponsor.
Section 4376(b)(2) provides that in the case of a plan established or maintained by a single employer, the plan sponsor is the employer. Section 4376 does not contain rules that would treat related entities as a single entity. Therefore, a plan that is sponsored by multiple related employers is considered a plan that is established by two or more employers for purposes of the fee. In the case of a plan maintained by two or more employers, the proposed regulations provide that the plan sponsor is the person identified as the plan sponsor in the plan document. The plan also has the option to designate a plan sponsor solely for purposes of paying the fee. According to the rule, if the identity of the plan sponsor is unclear, the plan sponsor is each employer that maintains the plan (with respect to employees of that employer) and each employer would be required to file its own Form 720, reflecting the fee applicable to that employer’s employees. For a fully-insured plan, the insurer is responsible for paying the fee.
Stop-loss policies are not subject to the fee.
Are governmental entities subject to the fee?
Generally, yes. Governmental entities are subject to the fees, unless the plan qualifies as an exempt governmental program. Governmental programs include a program established by Federal law for providing medical care to individuals or their spouse or dependents by reason of such individuals being (or having been) members of the Armed Forces of the United States, as well as program established by Federal law for providing medical care to members of Indian tribes (see below for more on Indian tribal plans).
How are plans and policies defined for purposes of the fee?
The proposed regulations define an applicable self-funded plan as a plan that is established or maintained by a plan sponsor for the benefit of employees, former employees, members, former members, or other eligible individuals to provide accident and health coverage. This includes retiree-only plans.
A self-funded plan does not include a plan of a Federally recognized Indian tribal government that provides coverage only to tribal members that are not employees of the Indian tribal government, unless the plan otherwise falls within one of the statutory definitions of an applicable self-funded plan.
Are HRAs subject to the fees?
Multiple self-funded arrangements established and maintained by the same plan sponsor and with the same plan year are subject to a single fee. If a health reimbursement arrangement (HRA) is integrated with another self-funded plan that provides major medical coverage, and the HRA and the major medical plan have the same plan sponsor, the HRA is not subject to a separate fee. Whether or not the HRA and the major medical plan are consolidated into one plan document appears to be irrelevant.
HRAs that are integrated with insured group health plans are given different treatment. Section 4375 imposes a separate fee on the issuer of a health insurance policy. An HRA that is integrated with an insured group health plan is subject to a fee, as well as the insurer of the group health plan, even though the HRA and the insured group health plan are maintained by the same plan sponsor. Since availability of lives under an HRA is recognized as being a potential issue, the proposed regulation permits the plan sponsor to assume one covered life for each employee with an HRA.
Are health FSAs subject to the fees?
Health flexible spending accounts (FSAs) that satisfy the definition of “excepted benefits” under ERISA are not subject to the fees. Most FSAs satisfy the definition of “excepted benefits.”
If the only plan maintained by the plan sponsor is an FSA that is not an “excepted benefit,” then the plan sponsor may treat each participant’s health FSA as covering a single covered life (and therefore the plan sponsor is not required to include any dependents as covered lives).
Are HSAs and Archer MSAs subject to the fees?
Health Savings Accounts and Archer MSAs are generally neither health insurance policies nor self-funded plans and thus are not subject to these new taxes.
Are EAPs and wellness arrangements subject to the fees?
EAPs, disease management programs and wellness programs that do not provide significant medical care benefits are not subject to the fees.
How is the fee calculated?
For self-funded plans, the fee imposed on a plan sponsor is based on the average number of lives (participants and dependents) covered under the plan.
The proposed regulations offer a choice of three alternative methods to determine the average number of lives.
Three Alternative Methods
- Actual Count Method – A plan sponsor may determine the average number of lives covered under the plan for the plan year by calculating the sum of the lives covered each day of the plan year and dividing that sum by the number of days in the plan year.
- Snapshot Method – A plan sponsor may determine the average number of lives covered under the plan for the plan year by adding the totals of lives covered on one date in each quarter, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made. For those plans that do not track the number of dependents, a “snapshot factor method” is available. Under the “snapshot factor method,” the number of lives covered on a date is equal to the sum of the number of participants with self-only coverage on that date, plus the product of the number of participants with coverage other than self-only coverage on the date and 2.35.
Note: The Treasury Department and IRS developed the 2.35 dependency factor in consultation with economists and plan sponsors.
See the proposed regulation for examples demonstrating how to run the calculation. §46.4376-1(c).
- Form 5500 Method – The proposed rule sets forth a method to determine the average number of lives using information from the 5500 From, with adjustments for dependents.
This overview is based on the proposed regulations. Tucker Administrators will be attending a conference in Washginton DC in April, and will hear an IRS representative explain the rules in detail. Tucker Administrators will keep you informed of any refinements to this article.
1. I want to know where the company’s premium dollars go
A self-funded plan is provided detailed data on all claims for each covered member. By contrast, insurance companies covering small group fully-insured plans are not required to provide detailed claims information on individual members (each state has their own definition of a small group), thereby limiting the ability of the plan sponsor to identify trends, utilization, and insurance cost analysis. In addition, a self-funded plan falls under the Employee Retirement Income and Security Act (ERISA, the federal law that established standards for self-funded plans) jurisdiction requiring a PTE-8424 form that discloses to the plan sponsor an itemized list of all administration expenses and stop loss carrier commissions. A self-funded employer knows where all the plan assets go.
2. I want more control over plan design
An employer can customize the self-funded plan design to accommodate utilization trends, inflation, corporate benefit philosophy, and budget, rather than being limited to an off-the-shelf plan. This is also an important factor in cost containment.
The self-funded plan is regulated by ERISA (and other federal lows), and not subject to state mandates. Therefore, the plan design can be standardized across state jurisdictions, eliminating administration and benefit communication headaches for the employer and employee. This would be important for an employer who has North Carolina and South Carolina locations, for example.
3. I want more financial control
The self-funded employer is not pre-paying for coverage like a fully insured plan. The employer holds the reserves, thereby taking advantage of interest income that would otherwise by generated by insurance companies. The employer is protected from catastrophic claims through placement of the appropriate stop-loss insurance coverage. Your TPA and/or consultant has the expertise to help choose the correct contract. Direct employer savings are realized in a self-funded plan because carrier profit margin and risk charges are eliminated. In addition, in most states, there is no premium tax for self-funded claim funds.
4. I want more control over cost containment
Cost control has evolved into several different components as the result of escalating health care costs, data mining technology, and workforce demographics. Besides the traditional cost containment services such as utilization review, case/disease management, and pharmacy benefit management, other programs that have emerged are discussed below. Since an employer has access to a myriad of claims data reports, cost containment strategies can be measured for effectiveness.
- Wellness Programs developed when employers began to see the value in services and/or activities that promote health. Healthy employees are happier, more productive, and incur less in claims dollars. Research shows that lifestyle choices account for the 87.5% of individual health care costs (Indiana University-Purdue University, Fort Wayne (IPFW) Study, 2006 ), and that on average, medical costs fall by about $3.27 for every dollar spent on wellness programs and absenteeism costs fall about $2.73 for every dollar spent. It can be as simple as a walking program, or a variety of services and activities. It can consist of programs that are voluntary or mandatory, reward participants for participation or penalize for noncompliance. There are many wellness and prevention services available to fit any budget. Your TPA/consultant can assist in ensuring compliance with federal laws regarding wellness programs.
- Health risk assessment (HRA) is an analysis of information collected (questionnaire and/or biological measurements) from the member that identifies health risk factors, provides recommendations to promote health, and/or prevent disease. These results can then assist the employer to choose the appropriate health risk management program(s) for each covered member. Members identified with medical conditions will be placed into disease management programs designed to reduce disease progression or facilitate appropriate clinical maintenance.
- Claims surveillance programs are highly advanced statistical applications that analyze identify and categorize health risk factors on covered members, uncover current trends and look for fraudulent claims. Some surveillance systems (like Tucker Administrators has) can predict future health care utilization based on the analysis of all medical and drug claims within the group health plan. Healthy members identified with little or no risk to the plan may be sent disease prevention information, recommended screenings, and wellness information. Members identified as medium or high risk to the plan may receive a more aggressive program to manage and improve the health of the member.
5. I have a business to run; I don’t have the knowledge or time to handle a self-funded plan.
Self-funded does not mean self-administered. Other than very large companies, employers don’t have the staff to run a self-funded plan. The plan must be administered by an entity that has the technology to adjudicate claims quickly and accurately, plus an in-depth knowledge of ERISA, HIPAA, COBRA and many other federal laws. The employer needs an expert in stop-loss coverage to place the proper stop loss contract. Therefore, most plans hire a TPA to carry the load for the employer. The TPA selected should also have expertise in healthcare reform issues, current (and the correct areas) of regulatory compliance and stop loss coverage, a portfolio of cost containment solutions, and superior customer service.
The relationship between TPA and employer is more intimate and frequent than with an insurance carrier, provider or other entity. TPAs give clients very personalized service to custom-design the most cost-effective program for the particular employer and workforce. This means that the workers and employer get the biggest bang for the buck. You can have a candid discussion with a TPA about what you really hope to achieve with the benefit plan. They can be flexible and innovative.
Self-funded plans are an alternative to fully-insured plans. They are more financially transparent, give the employer more control over plan design and cost containment strategies. Self-funding is not for everyone. Factors such as the size of the group, the risk level the employer is willing to take on, and the company financial stability are all considerations. Your consultant and TPA can do a complete evaluation to see if the self-funding is the correct choice.
If you would like to discuss this topic further, please call us at 704-525-9666.