Angela Perkins, Vice President of Sales & Marketing at Xenium HR, and Tim Cooper, Senior Vice President of Employee Benefits at Brown & Brown Northwest, a full service insurance brokerage firm in Portland, discuss two employer taxes that will affect fully insured health plans, effective January 1, 2018. Read the condensed Q&A version of the discussion below, or listen to the full interview here…
Effective January 1, 2018, there is a health insurer provider fee hitting employers. Where is this coming from and what’s the financial impact?
The Affordable Care Act originally included this tax in 2014. But in 2017, the Federal Government passed a one-year moratorium on the tax for 2017. It’s now coming back in 2018.
Depending on your carrier, the impact of this tax for for-profit carriers will be 3% – 3.3%. In Oregon, for example, some of those carriers would be Regence BlueCross, United Healthcare, etc. The non-profit carriers, like Providence and Kaiser, will be assessed a fee of about 1.5% – 1.8%.
How will employers see this health insurer provider tax in their 2018 benefit renewal?
Larger employers (100+ employees) will see this as a line item on their rate calculation from their insurer, if they work with a broker. For smaller groups, you won’t see it as a line item, but it will be built into your renewal.
Effective January 1, 2018, Oregon will also see a new state premium tax. How does this affect employers in Oregon?
This new state tax impacts all Oregon employers who are fully insured. It’s a 1.5% tax pass-through to the employer in their premiums.
Do other states have this state premium tax?
Our neighboring state, Washington, and other states, have had a similar premium tax for several years. Oregon’s premium tax is being assessed primarily due to the Medicaid expansion. Washington’s premium tax is 2%, and is likely due to something else.
Is there a chance that Oregon residents will be given an opportunity to vote on this?
This 1.5% premium tax will presumably be placed on a special ballot in January 2018, so employers and employees will be given the opportunity to overturn this insurance carrier tax being passed through directly to premiums.
Are you seeing any creativity by employers to offset their drastic group medical plan renewal increase (as high as 15%) every year?
Some employers are responding to the rate increases by becoming fully insured, especially in the smaller market (25 – 100 employees), because of this additional 4.5 – 5% tax impact.
The advantages of self-insurance are transparency of claims, as well as the ability to make better decisions surrounding your group’s utilization.
We’re also seeing a lot of employers look towards consumer-driven health plans and the impact that those can have on lowering premiums and also impacting employee utilization.
“Consumer-driven” is a new term for some employers. What does that look like for a plan design?
There are typically two types of consumer-driven health plans. One is an HRA or a health reimbursement arrangement. The other, which is more popular, is a health savings account or HSA. The HSA is governed by the IRS, so the employer has to have a minimum plan design that meets qualified heath plan requirements.
What exactly is an “HSA?”
If an employee meets the requirements, they may be eligible to contribute pre-tax dollars to a health savings account. The advantage to the employee is that, unlike the traditional flexible spending accounts, the dollars that go into a health savings account are 100 percent owned by the employee and if they don’t use those dollars, they retain those dollars.
So as an example, if an employee puts $1,500 into their HSA during the year and only spends $500, that $1000 remains in the employee’s account.
Also, unlike an HRA, with an HSA both the employer and employee can contribute to that account. It operates like an IRA, since it’s portable and goes with the employee. This is different than the HRA, where the employee’s money stays with the employer if it isn’t. It’s not money that the employee can take out or take with them if they change jobs.
How do these consumer-driven health plans benefit employers?
In theory, these high deductible qualified plans are lower in premium, and employers are potentially using some of that savings to encourage employee participation in the HSA account. This matters to an employee because their costs, including copays, now go towards their deductible. The one exception is preventive care, which is covered by their insurance plan at 100%.
So there’s an incentive to schedule your annual doctor visits and do the things you need to do to stay healthy. Copays for primary care visits and prescriptions will now go towards an employee’s deductible.
This creates transparency for the employee, allowing them to see what those actual expenses are. For example, if an employee is using a brand name prescription for $250 per month, they are now potentially motivated to find a generic drug for $10 per month, if they realize that the cost difference directly impacts them. This really puts some onus back on the employee.
A lot more education is required for an employer who might offer a consumer-driven plan like this versus a traditional plan, right?
Yes, an employer should really lean on their broker or internal HR person for support in order to help their employees understand how a consumer-driven health plan works, whether an HRA or HSA. It’s important that employees understand how to make good decisions based on their spending and what is best for them; whether they’re eligible to contribute to an HSA, how much they should contribute, when and how to use those HSA dollars. There is nobody looking over their shoulder to help them.
Are smaller employers starting to venture into these consumer-driven health plans?
Traditionally, it’s been the larger employers who have offered HSA and HRA as more of a strategic option for their business. Smaller employers have traditionally opted out because they think they’re too small, or it seems like too much work to implement. Because of the rising cost of health plans, and the ongoing year-over-year increases, employers of all sizes, including smaller groups, are starting to get more creative and are at least open to considering these types of plans.
Insurance carriers are also showing more willingness to allow for multiple plans, rather than just offering only an HSA to employees. Employers are now considering multiple plan designs, offering a traditional plan alongside an HSA.
One thing to remember is that the reason this structure isn’t as popular with smaller employers is because smaller employers are generally going to be rated based on their demographics, not necessarily on their utilization. If a small employer is doing all of these things, they won’t necessarily reap the benefits that they would see if they also looked at being self-funded. If an employer is self-funded and is also doing all of these other things, they can actually have an impact on their utilization and their future costs.
What is the difference between a small employer and a large employer when it comes to self-funding?
The big difference between a small employer and a large employer when it comes to self-funding is that the utilization isn’t as predictable for a small employer. Also, the stop loss and the protection that you buy as a self-insured employer is going to be a lot more expensive. So when you look at your overall liability, what we would call your fixed costs (administrative fees and stop loss premiums, etc.), it’s going to add up to about 40% of your overall liability. Whereas, for a large employer, it’s only going to add up to about 20-25% of their overall liability.
Also, the products have really changed to try to give small employers the opportunity to self-insure. There’s traditional self-insurance with stop loss, and then there’s also what are called level-funding or shared-funding products that will reduce the liability to that employer.
Employers, regardless of size, who are considering self-insurance, should be aware of not only the positives of self-insuring, but also the potential negative downside.
What questions should employers be asking their broker partners today if they’re not getting this message proactively?
At the very least, ask your broker, “Do you have experience with self-insurance?” If they don’t have experience in self-insurance, a lot of times they will say, “I don’t recommend even considering self-insurance. It’s too risky.” If they only bring up all the potential negatives, that usually means they don’t have a lot of experience with this.
If you’re asking your broker about the HRA or HSA, ask the same question about experience. Also ask how they would help you communicate the plan to your employees, and how they would recommend engaging your employees to make sure they understand how to utilize these plans.
What is some closing advice for the small employer who is facing a really significant renewal?
Just be sure that you’re considering all of the opportunities out there, whether or not it’s a health reimbursement arrangement or a consumer-driven model, like a health savings account. Take a second look at self-insuring and see if it makes sense for your company, with the caveat of making sure you understand the full picture of self-insurance, from both a positive standpoint, and the potential negative impact, if you have a bad year.