Category Archives: Investing and fiduciary requirements

HHS approves eight state exchanges

By January 3, 2013 •

Eight more states are on track to implement health reform.

The Health and Human Services Department said Thursday that
California, Hawaii, Idaho, Nevada, New Mexico, Vermont and Utah earned
conditional approval to operate state-based exchanges, while Arkansas
will run a partnership exchange.

The announcement brings the total number of states approved to
operate their marketplaces to 20, with 18 running state-based exchanges
and two planning to partner with the federal government.

The department Thursday also issued more guidance to states
considering a partnership exchange, in which the marketplace will be
operated jointly by state and federal officials. The remaining states
that haven’t been approved for exchanges have until Feb. 15 to apply for
a state partnership exchange.

HHS Secretary Kathleen Sebelius praised the exchanges, as well as the progress made by many of the states to implement them.

“States across the country are working to implement the health care
law and build a marketplace that works for their residents,” she said.
“In 10 months, consumers in all 50 states will have access to a new
marketplace where they will be able to easily purchase affordable, high
quality health insurance plans, and today’s guidance will provide the
information states need to guide their continued work.”

Small groups could head to exchange system

By | December 14, 2012

For groups with two to 50 people, some employers might consider moving to the health care exchange system,
especially as the private exchanges come into play, says Ron Goldstein,
founder and president of CHOICE Administrators, a developer and
administrator of health care exchanges in Orange, Calif.

With private health care exchange systems, there are many
valued-added benefits, such as stand-alone dental, vision and even
chiropractic care, Goldstein says. State health care exchanges are also
an option for employers, but the value-added benefits are not ready for
the most part in the state health care exchanges. Goldstein believes
that the value-added benefits will eventually come to the state health
care exchanges because of the way the Patient Protection and Affordable Care Act (PPACA) was built, though it may take some time.

“You’ll see probably two to three years from now that the states will
be sound enough to go out and add those value adds, but the carriers
themselves might be able to offer more value adds initially than the
state exchanges,” Goldstein says.

However, micro-groups, which have somewhere between two and six
lives, are more likely to disband and send their employees to the health
care exchange system to buy individual coverage, and many of these
employees will probably qualify for subsidized care, Goldstein says. By
2017, larger groups might consider the exchange system, as well, but
with the current focus being on 2014 and 2015, Goldstein doesn’t expect
to see much movement from that size of employers.

Employees can especially benefit from the health care exchange system
because of the variety of choices available, Goldstein says. When using
an exchange, employees can choose from multiple carriers, all of which
that are offering several plan designs. This allows employees to
research a variety of plans and pick the one that best suits their
“This could be better for employees because they have a choice,”
Goldstein says. “If I go directly to a carrier, I’m buying that product,
but in an exchange, it’s typical to have three or four carriers and
three or four benefit designs per carrier, so the private exchange
offers more choices versus a direct carrier.”
See also: The math behind PPACA
Of course, many workers hear of state-run health care exchanges and
immediately worry about the quality of service, but this isn’t
necessarily an issue, Goldstein says. Depending on the health care
exchange, many are partnering with a business process outsourcer that is
responsible for customer service activities, such as maintaining a call
center. That outsourcing is designed to improve the quality of customer
“A lot of people are worried that the state exchange will turn into
the DMV, but most of the state exchanges will have some type of
outsourced customer service, so I don’t think the level of service drops
at all,” Goldstein says.
While Goldstein believes the health care exchange system has its
potential benefits, there are some unknowns as to exactly how everything
will operate. The health care exchange systems are still being created
and are likely to continue to adjust once they are in place.

“Everything is being built as we speak,” Goldstein says. “There’s
about 15 states that will establish exchanges, and the rest will default
to the feds, so you’ll have probably 15 different types of models out
there, and then you’ll have the federal model. It’s hard to say what
model works best with an employer, what model doesn’t, and there are all
going to tweak once they go live.”

Will feds stick to PPACA notice deadline?

By | December 20, 2012

One provision in the Patient Protection and Affordable Care Act
that has been littled noticed up until now will require employers to let
employees know about the state exchange system by March 1, 2013.

The PPACA exchange notice provision will require employers to give
all new hires and current employees with a written notice telling the
employees about the existence of the exchange program, according to the
text of PPACA.

Employers must also inform the employees that employees might be
eligible for a premium tax credit or a discount on health coverage
cost-sharing provisions even if the employer offers a health plan but
the health plan fails to meet PPACA group coverage standards.

The employers also must tell the employees that employees who buy
their own coverage through the exchange system, rather than sticking
with the group plan, will lose access to employer contributions toward
the cost of coverage.

“Sources within the [Obama] administration have begun indicating that
the effective date will probably be delayed,” according to the HR Policy Association, a group for chief human resource officers.

The U.S. Department of Health and Human Services (HHS) and the U.S.
Labor Department have not yet published exchange notice guidelines, and
HHS is still in the process of determining which states might try to
offer their own exchanges, which might work with HHS to start exchanges,
and which might depend on HHS to provide exchange services.

Sara Collins and Tracy Garber of the Commnwealth Fund are reporting
that 18 states and the District of Columbia are hoping to run a state-run exchange
in 2014. In addition to the District of Columbia, those jurisdictions
are California, Colorado, Connecticut, Hawaii, Idaho, Kentucky,
Maryland, Massachusetts, Minnesota, Mississippi, Nevada, New Mexico, New
York, Oregon, Rhode Island, Vermont, Utah, and Washington.

States that want to run their own exchanges were supposed to let HHS know by Dec. 14.

States have more time to say whether they will run partnership
exchanges. The states that appear to be planning to operate partnership
exchanges are Arkansas, Delaware, Illinois, Iowa, North Carolina, and
West Virginia, according to Collins and Garber.

Some states that want to run their own state exchanges, such as
California and Maryland, have already hired major exchange system
vendors, but others are still developing requests for proposals.

The math behind PPACA

By | October 18, 2012

In my first article, I talked about how to identify the larger action points for employers
and advisors as health care reform becomes a reality. Now, let’s get
into the specifics of how PPACA will impact plan design, plan
eligibility and plan contributions.

Plan eligibility: the easy part

The rules for group health plan eligibility in this country are
usually established by the employer, with certain limits set by their
carrier. Most health plans require that an employee work at least 15–40
hours per week to be eligible for coverage. PPACA adds
to these requirements, mandating that all plans offer coverage to
employees who routinely work a minimum of 30 hours per week. It also
establishes a maximum waiting period for coverage of no more than 90
days. Neither of these requirements is very onerous for most employers
when you consider the exemption for seasonal workers and the likely
non-participation of employees under 26 who remain on their parents’
plans and those over 65 covered by Medicare. Additional rules require
employers to assume that employees will take the medical coverage
(automatic enrollment) unless they complete paperwork waiving coverage.
PPACA also attempts to limit the employer from offering different levels
of coverage or contribution that favors highly compensated employees
(IRS Section 105h regulations pending). While certain employers may take
issue with some of these eligibility requirements, surveys have found
that most plan eligibility requirements are either already in compliance
or very close to these minimum rules.

Plan design: a big to-do about nothing

How many of us have seen the old carnival act where the showman hides
a pea under the shell and you try to keep track of where it’s at? Seems
like we can do a pretty good job until the bet gets high, then all of a
sudden we’re lost. Well, that is a little bit like the plan design
game. Over the last 20 years, the easy answer to any group medical
premium increase has been to play the plan design game, increasing
deductibles, changing provider networks, adding new plan options, etc.
The result of this 90-day renewal chaos is that we have all lost track
of the real factors that drive healthcare costs: the actual utilization and cost of services.

The simple fact is that there is no magic in plan design. Actuaries
are very smart folks, and when a health carrier provides an employer or
employee with an alternative plan design at a lower cost, it is because
that plan will eventually pay less in benefits to the participant. By
changing plans, you may think you have solved your healthcare increase
for this year, but if that higher deductible or co-pay discourages even
one employee from seeing his doctor about that “little chest pain” that
leads to a heart attack two months later, that emergency surgery cost
will far outstrip the $5 you saved on a few hundred office visits! The
millions of hours carriers, actuaries, underwriters and consultants have
spent over the last 20 years talking to clients about plan design have
done very little to control plan costs, and in fact has probably done
significant damage to our healthcare system and distracted from real
problem solving.

PPACA attempts to control the divergence in plan design by defining a minimum credible plan design
(Bronze Plan) as a plan that pays at least 60% of the estimated medical
charges (estimated as a single plan with a $2,000 deductible and a
$6,000 Out-of-Pocket). The deductible requirements include HSA/HRA
contributions, so employers that utilize one of these alternative
funding mechanisms can still meet this minimum requirement if their high
deductible health plan is larger than $2,000. In order to encourage
preventive treatment and avoid the costly delays in care, the new
minimum credible plan also requires free routine services (from a list
of eligible services). Many other key provisions have been added such as
unlimited lifetime maximums, phase out of annual plan maximums,
elimination of pre-existing condition limitations, and standard plan
formats (Summary of Benefits and Coverages) that protect consumers.
PPACA establishes exchanges in each state that will allow employees to
compare individual medical plans (guaranteed issue, community-rated
basis) to the coverage and cost of their group plan to create
competition and, hopefully, lower costs. Within the exchange, there will
be additional buy-up plans (Silver, Gold and Platinum) that pay a
higher percentage of charges for a higher premium. While employers are
not required to offer these buy-up plans within their group plans, as a
practical matter, most employers will adopt at least one of these higher
cost plans for employees that wish to buy one, in order to prevent them
from electing to move to the exchange.

While this system may seem new, it is actually a modification of a system that is in place and working today in our Medigap market.
Several years ago, the federal government attempted to protect our
senior citizens from a few predatory insurance carriers and agents by
limiting the old plan design game and defining a range of standard plan
designs that all carriers must duplicate. This enabled our older
citizens to select a plan design that fit their needs, but to primarily
focus on the quality and price of the carrier without all the bickering
about “my plan is better than yours.” In theory, this new PPACA
marketplace should have the same impact on your group health plan. Since
all plans will now fit into one of four boxes, employees and those
purchasing through the exchange should be able to easily compare
benefits and choose the plan that is best for them with a focus on the
quality of the carrier and providers.

Whether or not you like all the aspects of PPACA,
this change to the rules of the game should be an effective tool in
comparing price and shifting the focus away from ineffective plan design
debates and onto quality of care and price. The new marketplace is
built with private carriers in mind, not a single-payer system, and
maintains plan design flexibility while narrowing the plans to a
reasonable range for easier plan comparison.

Plan contributions: Now this is new

In most plans, the simple allocation of the health plan costs between
employees and employers is the most important factor in determining the
overall efficiency of the health plan. Over the past ten years, we have
seen a divergence by employers in cost-sharing formulas and in coverage
classes, with as many as three, four and even five or more tiers of
rates between single and family coverage. In addition, the percentage of
these premiums paid by the employer/employee has changed rapidly in an
effort to control the employer’s costs. Unfortunately, these changes in
contributions, along with multiple plan design options, have often led
to intense adverse selection within the health plan, fueling even more
rapid rate increases. PPACA attempts to provide limits to these cost
shares, but does it in a very limited and unusual way.

Under the new regulations, employers with over 50 employees who meet
the above eligibility and plan design guidelines must also make their
plan “affordable” to their employees. To be considered affordable, the
plan must limit the employee’s cost share for single coverage to less
than 9.5% of their family income. This definition has caused some
serious head scratching by employee benefits professionals, who are used
to looking at percentage of premiums as employee contributions, not
percentage of family income.  In addition, the use of family income
creates a new challenge of collecting family income data. Finally, there
is no guideline for family or dependent coverage. This section of PPACA
is probably the most confusing and the biggest area of concern. The
logic behind the definition is defensible since the goal of the overhaul
was to close the gap between private insurance and Medicaid, which has always used family income to determine eligibility guidelines.


The final exam: Let’s do the math

By now most employers have read so much about the eligibility, plan
design and contribution requirements that their heads are spinning. Some
employers may feel that anything this confusing must be bad, so they
have decided that repealing the law is the correct approach. Personally,
I reflect back on my algebra class and those complicated word problems
we used to be assigned. If I had told Mrs. White that I wasn’t going to
do one of her three paragraph questions because it was “too
complicated,” she would have sent me to the hall for the rest of the
day. This was the same response I got during one of the very first
teleconferences with Health and Human Services experts, who were
peppered with questions around the assumption that every employer would
simply drop their group plan. After fielding 20 or more questions on the
issue, the HHS expert finally asked, “Have you done the math?” to which
the answer was “No.”  As question after question followed, her standard
answer was “Do the math.” While it may be nice to offer an opinion, I
do think we owe it to our clients to do the math.

The penalties for employers under PPACA are pretty clearly defined in the law itself. In addition, many of the basic questions
not covered in the law have been clarified by the regulators, leaving
us with a fairly easy math formula to calculate potential penalties. The
first question we must ask an employer is, “Do you have over 50
full-time equivalent employees.” If the answer is no, the penalties do
not apply. If the answer is yes, then we must determine if the plan
eligibility rules meet the definition. Since most employers offer their
plan(s) to all full-time employees on a consistent contribution schedule
with no greater than a 90-day wait, most employers will pass this

The next requirement is meeting the new minimum credible plan
standards. Since most of these rules are already in effect, your
carrier/administrator has probably already made the necessary plan
changes and passed on the additional cost (estimated at 2-5% by most

The final question relates to the new affordability test and this
gets a little tricky.  As mentioned above, for a plan to be affordable,
the single contribution must be less than 9.5% of family income.

If an employer offers a health plan to his employees but fails any of
the above tests, he has exposure to potential penalties. It is
important to note that the actual penalties only apply if the employee
1) signs up for a medical plan on the exchange and 2) receives a subsidy
from the government. There has been much discussion about the
individual mandate, so for the sake of our calculation, let’s assume
that every employee who does not sign up for your health plan will sign
up for a plan under the exchange. This leaves us with only the
government subsidy qualification as our key variable. Under the current
guidelines, employees who make more than 133% but less than 400% of the
federal poverty level will be eligible for a subsidy. The subsidy varies
by the employee’s family income level; the more you make, the less your
subsidy. Let’s do some math on these two requirements:

Current Federal Poverty Level for a Single Household:          $10,800

Minimum Income Required for Medicaid (133%):                 $14,364

Minimum Annual Contribution for your Plan to Avoid Penalty: $1,365

Minimum Monthly Contribution for Single MCC Plan:              $ 114

As you can see, the minimum single contribution that a plan could
charge even for those employees working 30 hours per week making minimum
wage is $114. It is very important to understand that this minimum is
truly the lowest possible contribution, since the real minimum for
affordability is family income and is based on actual hours worked and
actual wages. In reality, employee health plan contribution could be set
at a range of $135–$150 a month for most employer plans, and they would
be exempt from penalties. Based on these calculations, we have found
most employers’ contributions are already within these guidelines for
their lowest cost plan. If your plan meets the eligibility and plan
design requirements, which most plans already meet, and complies with
these minimum contributions, you are essentially offering a “safe harbor” plan and have very little or no exposure to penalties.

But wait, this is the end of the world
As you can see, the simple math of PPACA is very enlightening and
shows that most employers are facing only minor changes to their plan to
bring them into full compliance. However, this does leave an estimated
20 percent of employers that are facing real exposure to penalties
and/or increased benefit costs. These employers are clustered in certain
industries that have traditionally used significant amounts of part-time employees
and/or offered low wages and benefits. These employers are facing a
major challenge and a critical fork in the road in order to manage their

An employer who is significantly out of compliance with any of the
above requirements has a critical choice between three potentially
costly options. The first choice is enhancing their eligibility, plan
design, and/or contributions to meet the minimum requirement. Option two
is to keep the plan in place and pay a penalty equal to the lesser of
a) $3,000 per year per employee that goes to the exchange and qualifies
for a subsidy or b) $2,000 for each full-time employee. Option three:
eliminate the current plan and pay $2,000 per year per full-time
equivalent employee.

Calculating the cost of each of these options is a critical step.
While at first glance, paying the penalties may look to be less
expensive, remember the premiums you pay are tax deductible, whereas
these penalties are true tax penalties and not tax deductible as a
business expense. This makes the effective cost of the penalties between
25-40% more than the figures shown. In addition, if you currently offer
a medical plan, elimination of this plan will have additional hidden
costs, most significantly the additional compensation that the employer
will have to pay to the existing participants to offset their new cost
of exchange coverage. In the past, employees have counted on coverage as
an added benefit and it has been a tax deductible item for the employee
and the employer. If the employer now provides his employee with
additional income to offset this reduction, it will be done in the form
of normal wages with the appropriate payroll and income tax costs
meaning the offset to employees will need to be even greater than the
actual cost of premium. An employer may of course decide not to gross up
these salaries, but, in most cases, the employees participating in the
group health plan are their most valuable, long-term employees and are
key to a company’s success. Employees like these have portable skills
and could easily move to a competitor that offers a full benefit

So, what should I do?

For employers facing this challenge, the real question to ask is
this: If eliminating my health plan may be a good idea in 2014 when
there are penalties for doing so, why is it not a good idea today when
there are no penalties? The simple fact is that employee benefit plans
are designed to attract and retain the best human capital,
and finding a way to continue this tradition is probably still good
business. It seems clear that employers in certain industries have some
tough decisions to make and that their cost of doing business will
increase, but with the proper benefit plan structure and some changes to
their employment and scheduling practices, they can minimize these

If a company does decide to eliminate its plan, which will be the
least costly solution for a few employers, then structuring a
comprehensive “benefit program” that combines the exchange medical plan
with a traditional package of other benefits, such as life insurance,
PTO, disability and dental, may help retain managers and other key
employees. Eliminating the medical plan will not eliminate the Human
Resource function or even the overall benefit plan for an employer that
hopes to retain his key employees. It simply changes the game.

Change, for lack of a better term, is good

In paraphrasing the infamous Gordon Gecko, the point is that change,
when necessary, is good.  We clearly have a strong healthcare system in
this country, maybe the best in the world, but the system financing it
has been broken for some time. The rules of the game will clearly change
under PPACA, as they would change under any alternative reform adopted
by a new Congress and a new Administration. Only one thing is certain:
Change is coming, and it is best to be prepared.

Obamacare: 5 states to watch

When push comes to shove, will Florida do a 180 and make way for Obamacare?
By JASON MILLMAN | 1/3/13 4:32 AM EST
States entered 2012 not knowing whether President Barack Obama’s
health care law would survive. They enter 2013 facing the reality of
impending deadlines and tough choices that can’t be put off much longer.

Even states that have turned down the chance to build their own exchanges —
about 30 in all — have about six weeks to decide whether they want to
partner with the feds on key functions. Although states don’t face a
deadline to say whether they’ll expand their Medicaid programs under the
Affordable Care Act, the clock is definitely ticking.

In some states, their paths are already set. In most,
though, state officials will wrestle with questions about the future of
their insurance markets and crunch the numbers on the ACA’s Medicaid
expansion — all as the Obama administration continues to pump out
guidance and rules to move implementation of the health law full speed

Though governors may have come out strongly one way or another on
implementation, most of them will have to face their first legislative
sessions since the Supreme Court upheld the ACA. And even if states
aren’t expanding Medicaid or setting up their own exchanges, they’ll
have to confront possible changes to state laws to align with ACA
requirements — or risk having the feds step in to regulate their
insurance markets like never before.
Here are five of the more interesting states to watch on ACA implementation in 2013:


Sure, Gov. Rick Scott said some nice things after the election about
wanting to work with the Department of Health and Human Services on ways
to implement the law in his state, which was the leading plaintiff in
the Supreme Court challenge. But when push comes to shove, will Florida
do a 180 and make way for Obamacare?

Scott is scheduled to meet with HHS Secretary Kathleen Sebelius next
week, and the state Senate recently formed a committee dedicated to
studying the state’s ACA options. If Florida decides to eventually run
its own exchange — 2014 seems to be out of the picture — state officials
have identified two programs, Florida Health Choices and Florida
Healthy Kids, as existing structures that could support the new
insurance marketplace.

It’s also hard to imagine Florida expanding its Medicaid program
after fighting so hard against the expansion before the Supreme Court.
Still, Florida is waiting on the Centers for Medicare & Medicaid
Services to rule on the state’s request to significantly expand managed
care in its existing Medicaid program, so maybe there’s some room for


Gov. Butch Otter was the only one of his Republican colleagues to
greenlight a state-based exchange after the election — the two other
Republican governors moving ahead on a state-run exchange had made up
their minds long before. But the Republican-run state Legislature could
still prevent that from ever happening.

State lawmakers in 2012 rejected a $20 million HHS grant that would
have allowed Idaho to plan for an exchange. The majority leader in the
state House of Representatives is urging Otter to let the feds set up Idaho’s exchange before rushing into anything.

Otter’s still undecided on the Medicaid expansion, which could
potentially cover an additional 108,000 people. An advisory panel he set
up in the summer recommended that Idaho expand the Medicaid program, as
long as the state could enact major reforms to go with it.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA. - SIPC - Brokercheck