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One of the most important financial and personnel-related decisions you can make for your startup is deciding on which health insurance plans to offer your employees.

Throughout the Bay Area and Silicon Valley, COVID-19 has made many startups reevaluate their choice of health plans. Not to mention that investors may be looking for ways to tighten spending with an economic crisis still looming large. Even before the COVID-19 pandemic, selecting which health insurance plan for your business has been a tough balancing act between trying to cater to your employees, recruit top talent, and adhere to your funding situation.

Your first step in trying to navigate how to successfully choose your group health insurance is to understand which tiers you want to offer. After the Affordable Care Act (ACA), health care plans were categorized into different level tiers by insurance companies. ​

You can think of the different metal tier categories like the Olympics. Small group ACA Plans are split into Bronze, Silver, Gold, and Platinum levels.

The higher the tier, the more coverage is paid for by the insurance company in terms of lower deductibles, copays, and out-of-pocket expenses. But at the same time, the higher the metal tier, the more you would pay for in monthly pre-tax premiums.

The plans reflect what percentage of coverage insurance companies pay for out-of-pocket expenses versus what an insured employee enrolled in the health plan would pay. As a general approximation, the plans cover out-of-pocket expenses at the following rates:

  • Bronze: insurance company pays 60% / insured employee pays 40%
  • Silver: insurance company pays 70% / insured employee pays 30%
  • Gold: insurance company pays 80% / insured employee pays 20%
  • Platinum: insurance company pays 90% / insured employee pays 10%

But a lot more goes into understanding the metal tiers than their percentage of coverage. Let’s break down the plan levels further to see which one would be best for your startup.

Bronze Plans

Bronze plans are the lowest tier of health plans. If you are low on cash flow then a Bronze plan will be the least cost for your startup. These plans have the lowest monthly premium out of most major plan options yet they have the highest price point for when you access your care.

You could even have a deductible as high as $6,000, which may only be waived for the first three doctor’s visits of the year.

As an employee, Bronze plans are a good option if you’re looking for coverage in case of an emergency and if you want some form of health coverage without paying a lot each month.

Startups that offer Bronze plans usually do so to offer a Health Savings Account, also known as an HSA. You can create an HSA for High Deductible Health Plans (HDHPs), which are typically only Bronze level plans. But a major caveat is that most companies no longer fund HSAs due to HDHPs providing less and less savings over the years.

Based on my clients’ experiences, Bronze plans are often cheap to buy but expensive to use. In other words, you may be able to cut down on pre-tax monthly costs when it comes to your premiums but you and your employees will be paying for it after-tax when it comes to actually using medical services.

Silver Plans

Silver plans usually have a moderate monthly premium but the enrolled employee will have less out-of-pocket expenses to pay than a Bronze plan.

A typical deductible for a Silver plan is around $1,800 to $2,200 and may be waived for office and specialist visits with only a copay to pay. Some Silver plans even waive the deductible for certain lab tests, x-rays, and outpatient surgeries.

Silver plans are ideal if you are looking to control costs but you still would like to have an increased amount of coverage for care and services.

Silver plans are a smart compromise if your startup doesn’t have limitless resources but you still would like to offer your employees more robust coverage.

Gold Plans

Gold plans typically have high monthly premiums but low costs for when the insured employee receives care.

Startups that want to retain and even recruit talent gravitate towards Gold plans. With a Gold plan offering, employees can be more at ease knowing that the costs of their appointments and procedures will cost less when they use them. For what you receive, Gold plans can be a cost-effective option even with the higher premium.

Employees who utilize large amounts of care would select a Gold option when available since they are willing to pay more in pre-tax premiums so that they could have more coverage for expensive appointments and services.

Platinum Plans

Platinum level plans are the highest tier and offer the most coverage for the insured employee’s medical costs out of all the tiers.

On the other hand, Platinum plans tend to have the highest monthly premiums. If you rarely use health care services then Platinum plans may be a poor option. Typically, Platinum plans are favored by those who have chronic health conditions or diseases, disabilities, or want to pay more on the front end than the back end for using services.

However, there may be tax incentives to a Platinum plan. As an employee, I would want to pay more pretax for higher premiums taken out of my payroll than pay more for services after tax when I try to use them.

Some of the top tech companies offer Platinum benefits. For startups, you may need proper funding in order to provide lucrative Platinum plans. Even with the right funding, startups face difficulty in sustaining Platinum plans because of the high cost and burn rate.

Just remember selecting a Platinum option depends entirely on who you’re recruiting from, if you’re targeting talent who may be accustomed to Platinum level coverage, as well as if you’re sufficiently funded.

Offering More Than One Tier

The wisest solution for a startup would be to offer your employees different options of plan tiers. With the right contribution model of how much your startup pays and how much your employee pays for premiums, you can offer a variety of solutions for your employees that would fit their individual health needs.

Employees can truly reap the benefits of having a diversity of options. Say you’re an employee and become pregnant or are expecting to become pregnant. If your startup offers a variety of plan options, you can sign-up for a Platinum plan to take advantage of the lower out-of-pocket costs for the tests, appointments, and delivery. Even with higher monthly premiums you can save a lot more with having high level coverage for services.

You can then downgrade to a lower tier with less of a monthly premium after you have your baby since having a baby is a qualifying event that allows you to change your health plan. Since all carriers are different, please make sure to check with your carrier and get it in writing before you do this.

A variety of plans will also cater to the diversity of your employees. Someone who is young, healthy, and doesn’t want to pay a lot in premiums may opt for a Bronze or Silver plan. Meanwhile if you are an employee and are going to have a major surgery this year, you may want to think about upgrading to a higher plan so you pay less out-of-pocket.

In the end offering different solutions will be the best way to go.

How Am I Supposed to Decide Between All These Plan Tiers?

All in all, the numbers make the decision for you. If cashflow is not an issue for your startup, then offering high-level plans may make sense for offering a comprehensive benefits package.

Don’t be afraid to start with lower-tiered benefits and work your way up. Employees will always appreciate if you upgrade their tiers as your startup grows, although downgrading plans may hurt morale when funding slows or during economic crises. Remember to exercise caution when selecting a plan tier.

We understand that even if you know the differences between all the various health insurance tiers, it may be difficult to decide which level, let alone which exact plans, will offer you and your employees the best coverage, care, and value.

At AEIS, we are your trusted partner that will help you make the best decision for your startup when it comes to employee benefits. We believe a robust, well organized, and well communicated employee benefits package is essential for incentivizing and retaining top talent.

Setup a complimentary consultation today with myself, Ron Bland, at ron@aeisadvisors.com and 650-348-6234 x12 for a review of your current plans and how we can work together.

By Ron Bland

Disclaimer: Any compliance related information in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. Should you require further compliance assistance or legal advice, please consult a licensed attorney.

June 2020

Since the Affordable Care Act (ACA) began to truly take affect (and in some cases well before) small to mid-size employers here throughout the San Francisco Bay Area and California at large have had challenges trying to control one of their biggest expenses outside of payroll: their health plan costs. Seemingly every year costs increase at a rate that many would argue is not sustainable in the long term.

Thankfully for employers, Kaiser Permanente has made a major change to their rules around small group health plans (<100 employees). This change represents a huge opportunity for employers to either lower their fixed cost, improve their plan, or both. The following is information about the change and how it can affect employers moving forward.

 

The Change – Small Group Deductible Funding

Kaiser had a rule against employers funding medical expenses on behalf of employees through an HRA unless the employees were specifically enrolled in an “HRA”-designated plan. But Kaiser has recently rescinded this policy for small groups (<100 employees) meaning that small group employers can now fund an HRA with any Kaiser small group health plan. For the purposes of this article think of an HRA as a strategy to potentially lower costs for employer sponsored health plans. If you want to know more about the specifics of what an HRA is, check out our blog about them here.

 

Why Does This Matter?

For many small group employers here in the Bay Area, the only way of lowering health insurance cost has simply been choosing a lower cost health plan or carrier. The lower cost usually comes with employees taking on more risk and cost, higher deductibles, narrower provider networks, etc.

Though the ACA has made changes to health insurance, insurance at its very core is a form of risk management. By allowing more liberal use of HRA’s for small group plans, Kaiser has empowered employers to manage risk to control cost rather than forcing companies to make the difficult decision between passing increased cost and risk on to employees or having the company absorb the entire increase.

This can allow a company to either lower cost or to increase benefits, or both if managed properly with the right broker.

 

How Does This Work?

In brief, an HRA allows an employer to take a very low cost health plan to serve as a sort of “base” or “foundation” and use company dollars to fund some or all of the employees’ accumulated medical claims. While the “base” plan that the employer purchases might be a Bronze level with a very high deductible, the employer can fund the plan so that as far as the employees are concerned, the plan’s benefits mirrors closer to a higher metal tier with lower deductible costs. We often informally refer to this as “turning Bronze into Gold or Platinum”.

As previously mentioned, this HRA setup allows employers to manage risk because the amount of savings realized by the plan sponsor (aka the employer) directly correlates to the amount of medical expenses the employees accumulate. If employees accumulate few and lower cost expenses, then the employer saves more. Lots of bigger expenses result in that savings shrinking.

With this new flexibility to manage risk, small group employers would be wise to leverage strategies that aim to reduce the frequency and severity of medical claims/expenses. Promoting Kaiser’s FREE telehealth programs, educating employees on topics such as preventive care and when to use urgent care instead of the ER, and utilizing second opinion services, etc. can all have a major impact on the ultimate savings for the company.

The employer has flexibility to determine how the HRA will be funded. For a company that wants to offer better benefits but doesn’t want to pay the fixed premium of a Platinum plan, they might fund the plan so that it looks and feels like a Platinum plan to the employees, but has the monthly fixed cost of a Bronze plan.

A company that wants to keep the level of benefits the same but lower the fixed cost can fund the HRA to look like their current plan but have the fixed premium of a Bronze plan.

 

Moving Ahead

In conclusion, this Kaiser small group policy change represents a major paradigm shift. Employers offering Kaiser will now be able to more actively manage healthcare risk for their employees. This can allow them to achieve lower fixed cost, offer a more competitive healthcare benefit to attract employees and further protect them from financial hardship over healthcare expenses. At the end of the day, aren’t those the reasons employers invest so much into benefits?

Give us a call at AEIS at 650-348-6234 to learn whether this major Kaiser Policy change can yield positive outcomes for you and your company.

 

Disclaimer: Any compliance-related information in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. Should you require further compliance assistance or legal advice, please consult a licensed attorney.

Question: Our company offers group medical and dental plans for all employees. We also have an executive-only medical plan that covers out-of-pocket expenses that the regular group plan does not pay. Does COBRA apply to the executive-only plan? Do we have to include it in our summary plan description (SPD)?

Answer: The coverage continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) pertain to group health plans sponsored by employers with 20 or more workers (except certain church plans). This is referred to as federal COBRA, which is enforced and regulated by the Internal Revenue Service (IRS) and the Department of Labor (DOL).

Any employer-sponsored plan or program providing health benefits (medical, dental, vision, etc.) is a group health plan under COBRA. Briefly, if the employee’s access to the program or benefits is based on the person’s current or past relationship with an employer, it is a group plan. An executive-only medical plan is a group health plan – and subject to COBRA – since eligibility for the plan is connected to employment. (Reference: 26 CFR § 54.4980B-2 )

Next, the Employee Retirement Income Security Act (ERISA) imposes numerous reporting and disclosure requirements on employee benefits plans, including rules for plan documents and summary plan descriptions (SPDs). Plans sponsored by governmental employers and certain church plans are exempt from ERISA, but plans sponsored by private-sector employers must comply with ERISA’s plan document and SPD rules. There is an exception, however, for an executive plan that meets the following conditions:

  • The plan primarily provides welfare (e.g., health) benefits for a select group of management or highly-compensated employees; and
  • No part of the plan is funded through employee contributions or a trust.

The most common example is an executive-only medical insurance plan for which the employer pays 100 percent of premiums. In that case, an SPD is not required and Form 5500 reporting does not apply. A plan document is required but it does not have to be made available to employees. The plan document does have to be provided to the Department of Labor (DOL) if requested. (Reference: 29 CFR § 2520.104-24)

By Kathleen A. Berger

Originally posted on thinkhr.com

We have entered Open Enrollment season and that means you and everyone in your office are probably reading through enrollment guides and trying to decipher it all. As you begin your research into which plan to choose or even how much to contribute to your Health Savings Account (HSA), consider evaluating how you used your health plan last year. Looking backward can actually help you plan forward and make the most of your health care dollars for the coming year.

Forbes magazine gives the advice, “Think of Open Enrollment as your time to revisit your benefits to make sure you are taking full advantage of them.” First, look at how often you used health care services this year. Did you go to the doctor a lot? Did you begin a new prescription drug regimen? What procedures did you have done and what are their likelihood of needing to be done again this year? As you evaluate how you used your dollars last year, you can predict how your dollars may be spent next year and choose a plan that accommodates your spending.

Second, don’t assume your insurance coverage will be the same year after year. Your company may change providers or even what services they will cover with the same provider. You may also have better coverage on services and procedures that were previously not eligible for you. If you have choices on which plan to enroll in, make sure you are comparing each plan’s costs for premiums, deductibles, copays, and coinsurance for next year. Don’t make the mistake of choosing a plan based on how it was written in years prior.

Third, make sure you are taking full advantage of your company’s services. For instance, their preventative health benefits. Do they offer discounted gym memberships? What about weight-loss counseling services or surgery? How frequently can you visit the dentist for cleanings or the optometrist? Make sure you know what is covered and that you are using the services provided for you. Check to see if your company gives discounts on health insurance premiums for completing health surveys or wellness programs—even for wearing fitness trackers! Don’t leave money on the table by not being educated on what is offered.

Finally, look at your company’s policy choices for life insurance. Taking out a personal life insurance policy can be very costly but ones offered through your office are much more reasonable. Why? You reap the cost benefit of being a part of a group life policy. Again, look at how your family is expected to change this year—are you getting married or having a baby, or even going through a divorce? Consider changing your life insurance coverage to account for these life changes. Forbes says that “people entering or exiting your life is typically a good indicator that you may want to revisit your existing benefits.”

As you make choices for yourself and/or your family this Open Enrollment season, be sure to look at ALL the options available to you. Do your research. Take the time to understand your options—your HR department may even have a tool available to help you estimate the best health care plan for you and your dependents. And remember, looking backward on your past habits and expenses can be an important tool to help you plan forward for next year.

Recently, the President signed a bill repealing the Affordable Care Act’s Individual Mandate (the tax penalty imposed on individuals who are not enrolled in health insurance). While some are praising this action, there are others who are concerned with its aftermath. So how does this affect you and why should you pay attention to this change?

First, as an individual, if you do not carry health insurance, you are currently paying a penalty of $695/adult not covered and $347.50/uninsured child with penalties going even as high as $2085/household. These penalties have been the deciding factor for most uninsured Americans—go broke buying insurance but they have insurance or go broke paying a fine and still be uninsured. With the repeal signed in December 2017, these penalties are zeroed out starting January 1, 2019.  While it seems that the repeal of the tax penalty should be good news all around, it does have some ramifications. Without reform in the healthcare arena for balanced pricing, when individuals make a mass exodus in 2019, we can expect higher premiums to account for the loss of insured customers.

As a business, you are still under the Employer Mandate of the ACA. There have been no changes to the coverage guidelines and reporting requirements of this Act. However, with healthy people opt-ing out of health insurance coverage, the employer premiums can expect to be raised to cover the increased expenses of the sick. Some do predict the possibility of the repeal of some parts of the Employer Mandate —specifically PCORI fees and employment reporting. The Individual and Employer Mandates were created to compliment each other and so changes to one tend to mean changes to the other.

So, why should you pay attention to this change? Because the balance the ACA Individual Mandate was designed to help make in the health insurance marketplace is now unbalanced.

Taking one item from the scale results in instability. Both employers and employees will be affected by this tax repeal in one way or another.

 

On August 1, 2018, the Internal Revenue Service, the Department of Health and Human Services (HHS), and the Department of Labor (collectively, the Departments) released a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule.

According to the Departments, the final rule will provide consumers with more affordable options for health coverage because they may buy short-term, limited-duration insurance policies that are less than 12 months in length and may be renewed for up to 36 months.

The final rule will apply to insurance policies sold on or after October 2, 2018.

 

By Karen Hsu
Originally Published By United Benefits Advisors

 

No one foresees needing disability benefits. But, should a problem arise, the educated and informed employee can plan for the future by purchasing disability insurance to help cover expenses when needed.
Watch this short video to learn more!

Do you offer coverage to your employees through a self-insured group health plan? Do you sponsor a Health Reimbursement Arrangement (HRA)? If so, do you know whether your plan or HRA is subject to the annual Patient-Centered Research Outcomes Institute (PCORI) fee?

This article answers frequently-asked questions about the PCORI fee, which plans are affected, and what you need to do as the employer sponsor. PCORI fees for 2017 health plans and HRAs are due July 31, 2018.

What is the PCORI fee?

The Affordable Care Act (ACA) created the Patient-Centered Outcomes Research Institute to study clinical effectiveness and health outcomes. To finance the nonprofit institute’s work, a small annual fee is charged on health plans.

Most employers do not have to take any action, because most employer-sponsored health plans are provided through group insurance contracts. For insured plans, the carrier is responsible for the PCORI fee and the employer has no duties.

If, however, you are an employer that self-insures a health plan or an HRA, it is your responsibility to determine whether PCORI applies and, if so, to calculate, report, and pay the fee.

The annual PCORI fee is equal to the average number of lives covered during the health plan year, multiplied by the applicable dollar amount:

  • If the plan year end date was between January 1 and September 30, 2017: $2.26.
  • If the plan year end date was between October 1 and December 31, 2017: $2.39.

Payment is due by July 31 following the end of the calendar year in which the plan year ended. Therefore, for plan years ending in 2017, payment is due no later than July 31, 2018.

Does the PCORI fee apply to all health plans?

The fee applies to all health plans and HRAs, excluding the following:

  • Plans that primarily provide “excepted benefits” (e.g., stand-alone dental and vision plans, most health flexible spending accounts with little or no employer contributions, and certain supplemental or gap-type plans).
  • Plans that do not provide significant benefits for medical care or treatment (e.g., employee assistance, disease management, and wellness programs).
  • Stop-loss insurance policies.
  • Health savings accounts (HSAs).

The IRS provides a helpful chart indicating the types of health plans that are, or are not, subject to the PCORI fee.

If I have multiple self-insured plans, does the fee apply to each one?

Yes. For instance, if you self-insure one medical plan for active employees and another medical plan for retirees, you will need to calculate, report, and pay the fee for each plan. There is an exception, though, for “multiple self-insured arrangements” that are sponsored by the same employer, cover the same participants, and have the same plan year. For example, if you self-insure a medical plan with a self-insured prescription drug plan, you would pay the PCORI fee only once with respect to the combined plan.

Does the fee apply to HRAs?

Yes. The PCORI fee applies to HRAs, which are self-insured health plans, although the fee is waived in some cases. If you self-insure another plan, such as a major medical or high deductible plan, and the HRA is merely a component of that plan, you do not have to pay the PCORI fee separately for the HRA. In other words, when the HRA is integrated with another self-insured plan, you only pay the fee once for the combined plan.

On the other hand, if the HRA stands alone, or if the HRA is integrated with an insured plan, you are responsible for paying the fee for the HRA.

What about QSEHRAs? Does the fee apply?

Yes. A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is new type of tax-advantaged arrangement that allows small employers to reimburse certain health costs for their workers. Although a QSEHRA is not the same as an HRA, and the rules applying to each type are very different, a QSEHRA is a self-insured health plan for purposes of the PCORI fee. In late 2017, the IRS released guidance confirming that small employers that offer QSEHRAs must calculate, report and pay the PCORI fee.

Can I use ERISA plan assets or employee contributions to pay the fee?

No. The PCORI fee is an employer expense and not a plan expense, so you cannot use ERISA plan assets or employee contributions to pay the fee. An exception is allowed for certain multi-employer plans (e.g., union trusts) subject to collective bargaining. Since the fee is paid by the employer as a business expense, it is tax deductible.

How do I calculate the fee?

Multiply $2.26 or $2.39 (depending on the date the plan year ended in 2017) times the average number of lives covered during the plan year. “Covered lives” are all participants, including employees, dependents, retirees, and COBRA enrollees. You may use any one of the following counting methods to determine the average number of lives:

  • Average Count Method: Count the number of lives covered on each day of the plan year, then divide by the number of days in the plan year.
  • Snapshot Method: Count the number of lives covered on the same day each quarter, then divide by the number of quarters (e.g., four). Or count the lives covered on the first of each month, then divide by the number of months (e.g., 12). This method also allows the option — called the “snapshot factor method” — of counting each primary enrollee (e.g., employee) with single coverage as “1” and counting each primary enrollee with family coverage as “2.35.”
  • Form 5500 Method: Add together the “beginning of plan year” and “end of plan year” participant counts reported on the Form 5500 for the plan year. There is no need to count dependents using this method since the IRS assumes the sum of the beginning and ending of year counts is close enough to the total number of covered lives. If the plan is employee-only without dependent coverage, divide the sum by 2. (If Form 5500 for the plan year ending in 2017 is not filed by July 31, 2018, you cannot use this counting method.)

For an HRA, count only the number of primary participants (employees) and disregard any dependents.

How do I report and pay the fee?

Use Form 720, Quarterly Excise Tax Return, to report and pay the annual PCORI fee. Report all information for self-insured plan(s) with plan year ending dates in 2017 on the same Form 720. Do not submit more than one Form 720 for the same period with the same Employer Identification Number (EIN), unless you are filing an amended return.

The IRS provides Instructions for Form 720. Here is a quick summary of the items for PCORI:

  • Fill in the employer information at the top of the form.
  • In Part II, complete line 133(c) and/or line 133(d), as applicable, depending on the plan year ending date(s). If you are reporting multiple plans on the same line, combine the information.
  • In Part II, complete line 2 (total).
  • In Part III, complete lines 3 and 10.
  • Sign and date Form 720 where indicated.
  • If paying by check or money order, also complete the payment voucher (Form 720-V) provided on the last page of Form 720. Be sure to fill in the circle for “2nd Quarter.” Refer to the Instructions for mailing information.

Caution! Before taking any action, confirm with your tax department or controller whether your organization files Form 720 for any purposes other than the PCORI fee. For instance, some employers use Form 720 to make quarterly payments for environmental taxes, fuel taxes, or other excise taxes. In that case, do not prepare Form 720 (or the payment voucher), but instead give the PCORI fee information to your organization’s tax preparer to include with its second quarterly filing.

Summary

If you self-insure one or more health plans or sponsor an HRA, you may be responsible for calculating, reporting, and paying annual PCORI fees. The fee is based on the average number of lives covered during the health plan year. The IRS offers a choice of three different counting methods to calculate the plan’s average covered lives. Once you have determined the count, the process for reporting and paying the fee using Form 720 is fairly simple. For plan years ending in 2017, the deadline to file Form 720 and make your payment is July 31, 2018.

Originally posted on thinkhr.com

Dear Ron, Thank you so much for generously supporting [us] and our AIDS walk team this year. It was a lovely foggy Sunday morning in Golden Gate Park, with thousands of folks walking to fight AIDS. It has been a pleasure working with you over the years. You have saved us LOTS of money! I want you to know how much we appreciate all that you do!

- San Francisco, Non-profit organization

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