“Hope” you are ready for “Change”

Prepare your clients. Prepare yourselves. The health care reform law moves into full implementation January 1, 2014. What this means to Ohioans is much more significant than in other states. Gone from today will be medical underwriting, pre-existing conditions, and a large age banding system. In with guaranteed issue, community rating, expanded benefits (including maternity whether you want it or not), potential government subsidies (based on income), and a marketplace to purchase individual insurance that is designed to be “as easy as purchasing an airline ticket.” – Kathleen Sebelius.

Some (old and ill) will see reductions in premiums and others will now be able to purchase when they couldn’t purchase before. Nobody can be declined due to the cancer they were diagnosed with on December 31st when they enroll on January 1st. And all preventive care and contraceptives are free (not really, they are still priced into the premiums). These are the sound bites you are hearing today. All warm and fuzzy and things that we want to have as a caring and free society. Nobody wants to see pain, whether it be physical, mental, or financial, inflicted on anyone.

The reality of PPACA though is much different. The net result will be higher premiums for the majority of our population. Costs to operate insurance marketplaces will result in 3.5% additional premiums. Insurance companies face a $63 per covered person tax that will obviously be passed on to the consumer. Subsidies will fall short of expectations and many will still go without insurance. They will do so either because they still can’t afford it, aren’t educated about it, or simply know that paying the Obamacare Individual Mandate Tax is less than the cost of the premiums.

I’m writing this because I am a pissed off professional health insurance broker. Since 2008 we have been told that health care costs need to be reduced. We have been told that big greedy insurance companies and brokers are the cause of these high costs. Government has demonized my profession as unethical and unnecessary. They sold an entire country on the premise that your insurance premiums would be lowered by $2500 per family if we just got everyone to buy insurance and then limit the amount insurance companies can spend on administration and make in profits.

Now it is time to call bullshit. Professional health insurance brokers knew it then and they still know it now. The so called health care reform law was never about lowering your costs. The proof is still to come but studies done by multiple sources, including several of those Health Policy experts who helped write the law are all pointing in the same direction. Health insurance premiums continue to rise because they aren’t the cause rather the effect. Insurance is simply the means to pay for the cause. Care is what makes costs rise. Mandating benefits and giving generous subsidies won’t lower the cause or the effect. All these do is enhance the cost.

Why Loss Ratio Doesn’t Matter

Under Obamacare one of the ways costs are to be contained is by keeping the greedy ole insurance companies in check. In the law is a provision known as Minimum Loss Ratio. MLR is defined as the amount of premiums that must be spent by an insurance company on medical care versus what is retained for administrative expenses and profit. The calculation is set based on a percentage of premium which is either 80% for individual and small group plans, or 85% for large group plans.

Recently a study was published by the Commonwealth Fund regarding the costs of premiums increasing in the state of Massachusetts. The data shows that the average costs rose by 72% for single coverage and 67% for families since 2003. A second study conducted by Oliver Wyman for the State of Massachusetts in 2010 focused on the costs of insurance and how the rates have continued to rise.

After diving into both of these studies I found that there was one item that remained consistent throughout. That was the loss ratio. While premiums have skyrocketed the amount an insurance company spent on claims versus administration has been relatively flat(on a percentage basis). From 2003-2008 the loss ratio averages across all lines of business were: 85%, 85.3%, 85.1%, 85.7%, 86.8%, and 87.7%.

So what is Massachusetts doing in regards to skyrocketing premiums? One thing was to increase the target loss ratio. in 2011 Massachusetts went above the Federal law and increased MLR requirements to 88%. In 2012 that number has gone up to 90%. Meanwhile premiums for family coverage for the same time period increased on average by 16%.

Why is this important? Because one of the main ways the law was supposed to protect consumers was by keeping insurance companies honest and not allowing them to make crazy profits and pay executives oodles of money. In turn, this would reduce premiums and we all would have affordable health insurance.

The promise MLR would provide saving on premiums is just like a promise that all children will get a unicorn and ride on a rainbow until they find the pot of gold.  It simply is not gonna happen.

Obamacare Health Insurance Tax to Cost Consumers and Employers $5 Billion

As part of President Obama’s health care law Ohioans who purchase health insurance will be subject to a new tax on premiums starting in 2014. While Government is focusing this health insurance tax on the insurance industry the reality is that these taxes will be passed along to the consumer. Data on the costs and impact it will have on premiums comes from a study conducted by Oliver Wyman for the association of America’s Health Insurance Plans.

The Joint Committee on Taxation estimates that this new sales tax on premiums will start at $8 billion in 2014, will increase to $14.3 billion by 2018, and will increase based on premium trend thereafter. Over the ten year period the total estimates exceed $100 billion.

Ohio’s share of this is estimated at $5 billion and will increase premiums on individual, group, Medicare Advantage, and Medicaid managed care programs. According to the analysis, the range of the impact the tax will have hinges directly on certain assumptions about projected enrollment in the insurance plans that are subject to the tax. The average cost increase by specific insurance market in Ohio over ten years is significant.

Individual purchasers of insurance should expect to pay an additional $1,806 (single) or $4,263 (family) from 2014-2023. Small employers can expect premium increases of $2,550 and $6,305 while large employers (over 100) will see $2,489 and $6761 respectively.

If the Oliver Wyman study isn’t enough evidence for you then look no further than CBO and the Joint Committee on Taxation. According to JCT they are quoted as saying: “For those insurance premiums that are subject to the fee, we estimate that the premiums, including tax liability, would be between 2.0 and 2.5 percent greater than otherwise would be.” Going back to before the passage of Obamacare CBO stated in a letter that “New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices. Both of those fees would largely be passed through to consumers int he form of higher premiums for private coverage.”

So much for reducing those premiums by $2500 per family.

Would You Pay $8 to Get Professional Advice for Health Insurance?

On Wednesday afternoon the CBO scored the Broker Bill (HB 1206). The Broker Bill was written to protect agents and brokers from having their livelihood taken away due to insurance companies cutting compensation as a way to combat the Minimum Loss Ratio (MLR) requirement.

Brokers and agents are the last and most important line of defense for consumers. As a professional advisor I help consumers through purchase and ongoing service of a health insurance product. For that I am compensated through a portion of your premiums. The compensation is paid by the insurance company instead of the consumer as a way to simplify the insurance process.

The Broker Bill was originally thought to be deficit neutral. But, upon further review they have now determined that it will cost $1.1 Billion over 10 years. Here is my take on how it was scored at a cost and also a breakdown of what the actual cost will be to a consumer and the government. It is PENNIES compared to everything else.


The costs to the federal government were derived from the assumption that premiums would rise if agent and broker compensation was treated as a pass-through expense. They assume that premiums will rise by .2% for the next few years then would lower to .1%. It is important to note that: “In CBO’s judgement, informed by discussion with outside experts (who?), premiums are PROBABLY lower under the MLR policy than they would be otherwise”. They go on to say that “That estimate draws on insurance industry data and is based on two factors: actual rebates in 2012, and evidence that insurance carriers reduced costs (IN LARGE PART BY REDUCING AGENT AND BROKER COMPENSATION)”. So, CBO admits that the main reason premiums have been reduced so far is by cutting the consumer advocate.


Removing commissions from MLR will have an impact on federal revenue and spending in two ways. Both of these costs are attributed to the .2% premium increase. First, with the rise in premiums comes an increase in the cost of subsidies paid through the exchanges. So, government believes they would pay more towards people’s health insurance subsidy. Second, the CBO estimates that the increase in premiums will impact federal tax revenues. Because employer sponsored group policy premiums are tax deductible the small increase in premiums would amount to less money being taken in by the IRS.

Let’s put this in perspective. The average premium for a single person in Ohio is around $340 per month. 0.2% of $340 is $0.68. So, in a year premiums per person will be $8.16 more. If this premium is part of a group insurance plan this amount is deductible from income. So, at 10% marginal tax bracket the tax savings would be $0.82 per year. At 15% it would be $1.22 per year. The average subsidy per person is expected to be $2500 per single person. At most this subsidy would increase by the same amount of premium ($8.16) per year.

Please share this with clients, friends, and business owners. I would ask one simple question: Is the value of your professional insurance broker worth an increase in premiums of 0.2% per year? Tell them that the increase in premiums doesn’t go into the pocket of the broker but rather offsets the entitlement cost increases the CBO projects from Obamacare. Almost have of the direct spending in this bill ($447 Million over 10 years) comes from the Government having to pay additional subsidies to people who buy insurance on an exchange. The remaining amount ($637 million) would come in the form of lost revenues to the federal government as they wouldn’t get as much in taxes. This is directly attributed to the tax deductibility of premiums in group plans.

In the end remember that taking broker compensation out of Obamacare will cost the Federal Government $1.1 million dollars per year. As we approach the Fiscal Cliff there is a big item in this negotiation that will keep medical professionals incomes from dropping. This is known as “Doc Fix”. The annual cost of Doc Fix is $40 BILLION dollars per year.

Comparing $40,000,000,000 to $1,100,000 proves one thing about Obamacare: It was NEVER about costs of care and always about controlling your access. The best thing about the Broker Bill is that it protects you, the consumer; not the insurance industry, not the medical industry, and not the Federal Government.

Don’t Spend It All In One Place…

You can’t make this stuff up.

I had a member of a client email me last week that they received a letter from their insurance carrier, Aetna, stating that they would be getting a rebate check from their employer due to a provision in the health care reform law.  This group has 60 employees enrolled in their insurance plan, they span over 20 states and have a monthly premium of $71,000.  The majority of employees reside in Ohio and New Jersey where no rebates were issued but this employee is in Arizona.  So I reached out to Aetna and asked if there were other rebates being issued.  They confirmed that two other checks had been issued.  One for Pennsylvania and one for Virginia.

Here is where the fun begins.  Here is the step by step process we did to help the client.

1 – I contacted the group and asked if they had received checks from Aetna and they confirmed receipt.

2 – I asked for the amounts to calculate what the group gets to retain and what they must rebate back to their employees who live in these three states.  Fortunately it was a pretty easy calculation as there are only three employees eligible for the rebates with one in each state.

3 – I had to take each employee and determine their contract type and  contribution percentage of premiums they pay versus what the employer pays.

4 – How does their payroll work regarding how many pay periods they have per year, and how many pay periods have they already paid out year-to-date.

5 – The next step is to take the rebate check amount and divide it up based on contributions.

The first employee in Arizona had a rebate check in the amount of $357.05.  The employer pays 95% of the premium so they get to retain $339.20 and they must rebate the employee $17.85.  The employee in Pennsylvania received a rebate check of $200.04 which gets broken down to $190.04 employer and $10 for the employee.  Virginia received $165.80 for $157.51 (employer) and $8.29 (employee).  In total the group will get $686.75 that is considered income for 2012 and have to rebate their employees the remaining amount.

6 – The employer has a choice in how to pay back the rebate to employees.  The best approach, since it is taxable income to the employee, is to reduce the contribution amount of the eligible employee proportionately to their payroll deduction for their current health insurance premiums.  It must be done in accordance to the company plan year corresponding to their Section 125 Cafeteria Plan.

In this particular case we are dealing with very easy calculations.  The number of employees impacted, the simple contribution levels, and plan year coinciding with calendar year make it simple.

Taking the Arizona employee we were able to come up with the following calculation of his premium rebate:  Total rebate is $17.85.  Through the end of August they will have already had 18 pay runs of the 26 total.  With 8 remaining pay runs it works out to the employee having a reduction in insurance premium contributions of $2.23 per pay.

If you’re brain hasn’t yet exploded let me conclude with this:  The annual premiums paid by the group are $840,000.  The total rebate checks received were $722.89.  This works out to a “savings” of .00084%!!!

I’m so glad we passed PPACA.  It is saving my clients already.

Why MLR is nothing but an acronym

With August rapidly approaching attention has turned from the upholding of PPACA to those premium rebates big bad insurance companies have to provide consumers due to their profit mongering.

Media outlets will headline the projected $1.1 Billion dollars that are going to be given back to roughly 12.8 million consumers at an average of $151. Smiling politicians will beat their chests in victory and tell us all that if it wasn’t for the health care law these insurance companies would be making excessive profits and paying corporate executives millions of dollars.

Fact is, this is nothing more than a gimmick. The basic idea behind MLR was to limit insurance companies administrative costs and profits. On the surface it appears that setting limits like MLR would do exactly what we were told they would do. Where they went wrong is in the calculation and the simple fact that the law uses a percentage and not a dollar amount.

Health insurance costs are driven by the costs of care. In the case of MLR the percentage of insurance premiums that must be spent on medical care is 80% (85% for employers with over 100 employees). This is a very high amount in proportion to the amount that gets spent on administration and profits (20%). What has happened year after year is that medical inflation, the costs of health care, have risen on average around 7%. This is directly impacting the 80% side and has no financial bearing on the 20%.

So, if an insurance company has an increase in medical costs it results in a financial impact on the 80%. This insurance company will increase your rates and can AUTOMATICALLY have a financial impact on the 20% side without evidence that it needs the additional money to operate.

I’m a visual person so here’s the best way to look at it:

My premiums last year were $5000. Of that amount my insurance company has to spend $4000 on medical claims and the remaining $1000 is for administration and profit. This year the medical trend is 7% so my insurance company raises my rates by that amount. My new premiums are $5350. Of the $350 increase 80% must go towards medical care. So, now my premiums are broken down where my insurance company must spend $5280 on medical care but now has an increase in administrative costs and profits to $1070.

Compound this out over five years and you will see why insurance companies haven’t balked at it. The health care law gave them a gift. Unfortunately we are the ones who are paying for it.

How Much Is That Rebate?

The Kaiser Family Foundation released their key findings on premium rebates that must be issued to employers and individuals who are with insurance companies that didn’t meet the Minimum Loss Ratio requirement. By law if an insurance carrier doesn’t spend enough money on claims and medical care versus the premiums they collect then they must rebate those individuals and companies who are in their pool of clients. For individual and companies with less than 100 employees the ratio of claims to administration is 80%/20%. Companies with over 100 employees have a ratio of 85%/15%.

In their report they use the total number of $1.3 BILLION to show what type of rebates are being given. Upon closer review we find that while the overall total is staggering, what they are missing is that when broken down to each member that number becomes significantly lower. Using figures provided by Kaiser we break down the numbers for Ohio.

In the individual market there are five insurance companies with market share of 35% who will pay rebates. So, if you are one of the lucky ones you will receive an average rebate of $56.02. In the small group market there are also five companies with a market share of only 7% who will pay rebates. These rebates will be paid back to the employer who will then have to divide the savings up among their employees based on the contributions paid by each. So, if your employer pays 80% of the premium they will keep 80% of the rebate. All said, the average rebate for the small group will be $40.22. 20% of that number works out to $8.04. The large group market in Ohio will not have to pay any rebates.

It is also important to note that these rebates are TAXABLE income. Most will come in the form of premium reductions instead of cash. So, an individual who received a rebate will see their premiums reduced by $56.02, or a mere $4.67 per month. Look on the bright side, at least you can afford that extra value meal one more day a month.

The Individual Mandate and How It Will Prompt Employers To Drop Health Insurance Plans

Recently there has been much in the news about employers shedding their health insurance administration burden when PPACA is fully implemented in 2014. One side of the political aisle says this won’t happen and the other side says it will. Neither side has any idea of what these new regulations will accomplish.

Before we discuss the employer mandate and how it will dramatically change we must first explain why the shift will be so easy. In 2014, PPACA will offer four things for individuals that will make employer plans obsolete. Guaranteed issue, no preexisting conditions, and community rating all will take effect. Simply put, you will be guaranteed the ability to purchase health insurance at any time and not be subject to coverage exclusions due to health issues. Your rates will be based on the pool of people and will only differ based on age (3 to 1 ratio), tobacco user (1.5 times regular rates), and geographical region. The fourth thing for individuals is that they will be eligible for subsidies if they purchase insurance on a Government exchange. Subsidies will be available for anyone earning up to 400% of the Federal Poverty Level. People who earn roughly $44,000 for single and $92,400 for a family of four will all qualify for some form of a subsidy on their insurance premiums. There is a fifth item that some believe will force people to purchase insurance. PPACA created a new tax that will be levied on individuals who choose not to purchase insurance. However, the fine for not purchasing in 2014 will be $95 for a single person ($695 for a family of four) or 2.5% in additional income tax, whichever is greater. As you can imagine, the high premium costs will send more people onto the roles of the uninsured as paying the tax will be drastically lower than purchasing a plan.

Essentially someone will be allowed to purchase insurance when they are in a situation when they need it and drop it when they don’t. Imagine purchasing hurricane damage insurance two minutes before your home is destroyed then being able to drop it once your settlement check has cleared and your new home is complete. In the world of property insurance many companies simply aren’t writing insurance on homes within a certain distance of the coast in Florida. Under PPACA the Government is forcing insurers to continue to write these policies even though the outcome of adverse selection is clearly there. Simply put, there is no way that this system the Government has designed will survive because…

Employers WILL drop insurance plans.

In private industry profits are the ultimate goal. The bigger the profit the better the company can grow. The bigger the profit the greater the dividend shareholders receive. The bigger the profit the more stability for the employees.

Employer sponsored health insurance premiums are one of the highest costs a business incurs. Most employers pay a fairly high amount of the premiums for their employees. The last several years companies have seen premiums increase on average of 10%+ per year. With the costs continuing to rise and no end in sight, many employers are looking for ways to exit the insurance business. Aside from premiums, employers also face added costs of administration. Some of these costs include: HIPAA and COBRA compliance, new hire and termination processing, employee communications, and in some cases, claims administration. Add to these costs the upcoming MLR rebates and many other PPACA reform regulations and most employers are looking at increased overhead simply to maintain regulatory compliance.

With the individual mandate and corresponding subsidies, many employers will see this as an opportunity to relieve themselves of the costly burden of providing health insurance. They see this as a way to shed one of their highest line item expenses and can sell their employees on it through wage increases and the promise from our Government that insurance will be available to them with a potential subsidy.

Through real case examples we can show that employers will come out ahead by discontinuing benefits and instead increasing wages to their employees. The pros of offering insurance to employees aren’t close to the actual cons of dropping it. The two main pros are the advantage of tax deductible premiums and the other is that offering a solid plan with contributions in many cases gives employers a leg up in the hiring process. The big con is that if you have more than 50 full time equivalent employees you will have a fine to pay the Government if you don’t have a “qualified” plan offered to employees. If you are under the 50 employee threshold then there is absolutely no reason to continue to offer benefits. Cut your costs and give employees more in wages. They can have flexibility to purchase a plan through the Government exchanges and be eligible for subsidies without the employer having to deal with the ongoing administration and cost increases.

Here is a real example of a small group who can save significantly by eliminating their current insurance plan. Savings and Loan limited has 34 employees and offers two comprehensive benefit plans to their employees. They pay 80% of the premium costs for employees and 70% of the dependent costs. There are 17 single contracts, 8 two party contracts, and 9 family contracts. Based on average premiums of $4500 for single, $8200 two party, and $12,000 for a family (extremely conservative figures) this employer will spend $157,970 annually. Subtract tax savings out (34% corporate rate) and the actual cost to the employer is $104,260. If the employer were extremely generous in a “fair” way and gave all of the savings back to the employees each one would receive an equal amount of $3066.

In the 50+ employee segment the fines will be $2000 per employee but you get to subtract the first 30 employees from the equation. The real example here is Dr. Death’s Specialty Care. They employ 120 people and contribute 80% of the single cost but only 50% of the two party or family cost. They have 57 single, 33 two party, and 30 family contracts. Based on average premiums stated above here is how there scenario will work out. The premiums work out to $633,900. Tax savings are $215,526 for savings of $418,374. Then we subtract the fines payable to the Government for not offering a plan. We take total employees minus 30 and multiply by $2000. This works out to a fine of $180,000. Actual net savings will be: $238,374!!! Passing all of this along to employees would generate an annual wage increase per person of $1986.

The savings can be immense. These figures don’t include the reduction in administrative costs and the unknown future insurance premium increases.

One last thought: If you really think an employer is going to pass the entire amount along I have a bridge to sell you.

Access vs. Affordability

When insurance companies and providers can’t come to terms on a contract agreement it typically revolves around payments. The one who gets hurt most is you, the consumer. As an insurance advisor it is my responsibility to provide your company with the best benefits and network at the greatest cost value. A good example of this for our region is St. Luke’s Hospital in Maumee. They are currently undergoing a major merger into ProMedica where the Federal Trade Commision has ruled that the proposed partnership is in violation of anti-competition laws.

Most of us like to have choice when it comes to our health care needs. Being able to go to the doctor and hospital we want and not have restrictions on care. One of the biggest components of your insurance carrier relationship is the discounts they negotiate with physicians and hospitals on your behalf. Typically these discounts are anywhere from 30% to 60% lower than “retail” charges.

In this lawsuit the FTC contends that “if the partnership forged last year is allowed, hospital rates could rise more than 56 percent at St. Luke’s and nearly 11 percent at other ProMedica hospitals.” Obviously ProMedica is disputing this and the lawsuit continues on.

For consumers this merger has allowed for Paramount Health Care members to have access to another facility giving a choice to many who couldn’t use St. Lukes before. However, this means going to St. Lukes is going to cost your insurance company more money.

So, here is the dilemna. At what point does access to as many facilities and providers become too costly?

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November 1, 2011 Domestic Partner Coverage Available Through Medical Mutual

Medical Mutual of Ohio has announced that effective November 1, 2011 both same -sex and opposite-sex domestic partnerships will be eligible of enrollment into their group insurance products.  Eligible partners can apply only during the group’s annual election period and must complete the proper form along with the application.  Billing will be done as two single contracts and NOT as an employee and spouse contract type.