Last month we were treated to a super special webinar with Dr. Wendy Lynch. Unfortunately, many of our partners and members were taking some time off and could not attend her webinar. As those of you who did will tell you…it was awesome. I’d like to share two telling slides from her presentation. The first slide shows that in a study of similar companies the ones with the lowest health care costs did not have wellness programs but rather different HR and compensation practices than their competitors. Chances are they were the most productive and profitable of companies too!
So what practices did they engage in that were most profitable? The next slide tells all…
To get the full benefit of this insight you must watch the webinar recording. You can do so by clicking here. You’ll be glad you did!
Dr. Wendy Lynch wrote the book Who Survives? How Benefits Costs Are Killing Your Company. Long story short, Dr. Lynch was a wellness consultant who ran into Dr. Hank Gardner, who had been maintaining data on employee health costs in his role as president of the Human Capital Management Services Group. Dr. Garner encouraged Wendy to reconsider her position, claiming that wellness initiatives are not what drive down health care expenses.
After getting pounded with enough data by Dr. Gardner, Wendy capitulated and now goes around the country helping employers understand the most important drivers of health care expenses.
Dr. Lynch, Dr. Gardner, and I are in agreement that people are about as healthy as they choose to be. Perhaps the greatest incentive they have to keep themselves healthy is that they only get paid when they come to work. For example, all three of us are dead against the whole notion of sick pay because it rewards illness absence and punishes those who take care of themselves and show up, which makes it doubly insane that cities like San Francisco and Portland have now mandated sick pay for their employees! As age-old wisdom has it “You get what you focus on.”
The bottom line is that Washington wants employers to take care of employees so the government doesn’t have to. According to the data shared by Wendy:
- Trying to change the health of a workforce with wellness interventions fail more often than has succeed
- Even employers who have dozens of health-improvement programs have increased health care costs and absenteeism.
- No single program always improved health and no single improvement always decreased cost.
According to Dr. Lynch the three most important factors in reducing healthcare costs are:
- Employees have an opportunity to earn more than 10% higher income by improving their work performance
- Absence policies combine sick and vacation into paid time off and employees receive less than 100% pay for an extended absence such as a short-term disability
- The company provides a large portion of employees with relevant and meaningful skills training and opportunities each year.
According to Dr. Lynch these variables can affect productivity by as much as 40% and benefit costs by as much as 25%.
We all agree that wellness is a noncontroversial mission with an altruistic message. It feels good to deliver it. And wellness is in fact important and does in fact affect productivity, absenteeism, presenteeism, etc. The challenge is believing that a company can actually control the level of employee wellness. While you might be able to encourage it, thinking that you can control it through punishing incentives is nonsense. Employees who don’t take care of their health punish themselves far greater than any employer ever could!
It’s all about incentives. When you align incentives into an effective work relationship you will lower medical costs, disabilities costs, workers compensation costs, turnover rates, and increase revenue and productivity.
One of the greatest challenges with medical plans is employees don’t feel like they’re spending their own money. People will spend your dollar much more frivolously than they would ever spend their own. There is literally no shared responsibility in the equation, especially where you have things such as $10 co-pays for an office visit. I’m particularly excited about Dr. Lynch’s work because of my own personal insurance buying approach. I have never bought healthcare insurance for my employees. I don’t believe it’s my job to take care their health. I do however encourage my employees towards good health. I do give them additional pay so that they can buy their own health insurance. And I encourage them to treat their health insurance the way I’ve treated mine – get a high deductible plan, build up an HSA or HRA, take care of your health, and when necessary, shop carefully for your medical services because you’re paying for most of it. I use healthcare insurance only for catastrophic losses that exceed $6,500 per family member per year. As a result I’ve been able to save over $40,000 in my HSA account and I pay much less for health care insurance than my neighbor.
Dr. Lynch is also a big fan of total compensation statements as am I. There’s a sample Total Compensation Statement form in the Miscellaneous section of the personnel forms of HR That Works.
Without going further, I greatly encourage you to pick up a copy of Wendy’s book Who Survives? and to also join us for her webinar on August 1st. Wendy also encourages you to consider the book Why Nobody Believes the Numbers by Al Lewis.
Many of our members are wondering what’s next with Obamacare? In fact, the DOL has done a decent job of posting info. Problem is you need a lawyer to translate much of it. Stay tuned as our team will be bringing on additional webinar guests and tools to help our growing membership manage this challenge. Your benefits brokers should also be stepping up to the plate with some strategic guidance. Understand this: The DOL doesn’t have it all together yet. They are noodling with the regs that kick in in 2014. It is very clear to me the most impacted employers will be those with many low wage earners. Stay tuned!
Now that he is geared up for another four years, the President is moving forward to implement healthcare law and ban discrimination against people with pre-existing conditions. See the press release from HHS here.
Here are some additional helpful publications. Of course,this represents the governments agenda. Check with your broker to learn even more and what you should be doing now to prepare for Obamacare!
- Information for Small Businesses (PDF)
- Top 5 Fact Sheet: Small Business Owners (PDF) (Spanish)
- Small Businesses and the Affordable Care Act (HTML) (PDF)
- Better Benefits, Better Health for Small Businesses (HTML) (PDF)
- The Affordable Care Act – What it Means for Employers (PDF) (Spanish)
- The Affordable Care Act – What it Means for Small Business (PDF) (Spanish)
This morning the U.S. Supreme Court upheld President Obama’s Health Care Affordability Act. The court essentially ruled its penalty provisions were akin to a tax. So what does this mean for insurance brokers and their clients? Here are a few of my quick thoughts:
- If you have been avoiding learning the law hoping it would somehow be overturned, it’s time get reading. The best place to start is http://www.dol.gov/ebsa/healthreform/. It is important to know the law not just as a broker or boss, but to also protect your family. Knowledge is power, so read it.
- Revisit the thinking behind benefits in the first place. Why do we even have them? To attract employees, to retain employees, and to motive them by showing that we care. And to do those things better than our competitors. Remember that while pay is an economic contract, benefits have been traditionally been viewed as a social contract. Bang for the buck; a dollar spent on a social contract offering is worth more than one spent on an economic one. Currently employees view their benefits as more important than their base pay. Even if it eventually flips back the other way it’s a 50/50 deal. If we choose to offer benefits, the more an employee pays for them, the less it becomes a social contract. We must also constantly market the benefit to get the value in hiring, retention, and motivation. As in the words of Barbers Book of 1000 Proverbs, “The greatest benefit is the one last remembered.”
- The main point is this: Don’t underestimate the value of benefits and make sure to squeeze every ounce of value out of providing them!
- Of course, the ultimate solution is better health. For starters, obesity is killing us. Employers would be wise to invest in wellness programs and healthy food offerings. Provide free healthy food, easy to access filtered water, etc., no matter the size or make-up of your company. The payback in productivity, etc. will more than offset the cost. Think of it this way: Would you rather have your employee go for fast food 5 days a week or the free salad in the lunchroom? Who do you think performs better all afternoon?
- We will conduct a Webinar on this decision and what it means for you in the next few days.
Below is a brief summary of the decision. You can read it in its entirety by going to http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf.
National Federation of Independent Businesses v. Sebelius (US 11–393 6/28/12) Patient Protection and Affordable Care Act
In 2010, Congress enacted the Patient Protection and Affordable Care Act in order to increase the number of Americans covered by health insurance and decrease the cost of health care. One key provision is the individual mandate, which requires most Americans to maintain “minimum essential” health insurance coverage. 26 U. S. C. §5000A.For individuals who are not exempt, and who do not receive health insurance through an employer or government program, the means of satisfying the requirement is to purchase insurance from a private company. Beginning in 2014, those who do not comply with the mandate must make a “[s]hared responsibility payment” to the Federal Government. §5000A(b)(1). The Act provides that this “penalty “will be paid to the Internal Revenue Service with an individual’s taxes, and “shall be assessed and collected in the same manner” as tax penalties. §§5000A(c), (g)(1).Another key provision of the Act is the Medicaid expansion. The current Medicaid program offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care. 42 U. S. C. §1396d(a). The Affordable Care Act expands the scope of the Medicaid program and increases the number of individuals the States must cover. For example, the Act requires state programs to provide Medicaid coverage by 2014 to adults with incomes up to 133 percent of the federal poverty level, whereas many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all. §1396a(a)(10)(A)(i)(VIII). The Act increases federal funding tocover the States’ costs in expanding Medicaid coverage. §1396d(y)(1). But if a State does not comply with the Act’s new coverage requirements, it may lose not only the federal funding for those requirements, but all of its federal Medicaid funds. §1396c.
Twenty-six States, several individuals, and the National Federation of Independent Business brought suit in Federal District Court, challenging the constitutionality of the individual mandate and the Medicaid expansion. The Court of Appeals for the Eleventh Circuit upheld the Medicaid expansion as a valid exercise of Congress’s spending power, but concluded that Congress lacked authority to enact the individual mandate. Finding the mandate severable from the Act’s other provisions, the Eleventh Circuit left the rest of the Act intact.
I recently asked Worklaw® Network attorney Mike Ott to help one of our Members with regard to employers providing incentives to employees for “opting out” of health coverage. Under current law, in general it is OK to offer an incentive to employees that elect not to be covered by a health plan. However, a significant disincentive occurs with constructive receipt under IRS income tax rules. Basically, if you give cash in lieu of benefits, the IRS sees this as an option to all employees, not just the ones that elected coverage. So, suppose an employer gives a rebate of $50/month for an employee that opts out of coverage. The employee that opts out of coverage is paid 600/year. The $600 is treated as compensation and the employee has to pay income tax on the additional compensation and the employer and employee has to pay FICA tax on the additional compensation. That result is anticipated. However, the employees that elected health coverage are also required to pay tax on the benefit they could have received as cash. As such, the employer is responsible for imputing $600 of income to those employees, including deduction for taxes and the payment of the employer portion of FICA taxes on the imputed income. Failure to impute the income could result in the employer being liable for the entire tax obligation for all of the participating employees.
There is an alternative to the adverse tax consequences for current employees by using a 125/cafeteria plan and/or a flexible spending account model. In this case, the employer could provide excess flexible spending account dollars to all eligible employees (the employer can define who is eligible as long as it passes nondiscrimination testing). The employer would raise the employer provided cost of the medical premium by the amount of the anticipated incentive. For example, suppose the incentive is anticipated to be $50/month and the employer subsidizes coverage by $150/month for each employee. The employer could lower its subsidy to $100/month and provide an FSA account benefit of $600 to those electing coverage. The $600 can be used by the employee to pay toward health coverage, up to $50/month. The employees that elect coverage are effectively left in the same position. The employees that choose not elect coverage can use the $600 to pay for benefits on a tax free basis. Another option would simply be to lower the employer subsidy and raise all of the employees’ wages by the $50/month. Those that elect coverage would effectively get the $50 on a tax free basis by using it to pay for the employees share and those that don’t elect coverage get an additional $50/month in cash. In this case, the employer should treat the compensation differently and provide descriptive communication materials so that it gets recognized by the employees.
The IRS has now agreed that mandatory (i.e. opt-out) 125 plans are permissible. This makes the “perception” of providing an opt-out cash benefit much easier to communicate. Basically, under this scenario all employees can be mandated to participate in the health program and if they opt-out, they get a designated amount of cash. This can be accomplished by combining an opt-out health benefit plan with a mandatory participation in a flexible spending account plan. It’s always been permissible as an opt-in program, but the use of the mandatory FSA effectively forces the employee to recognize the benefit provided from the employer since the employee has to choose to receive the cash.
The imputed income issue generally is not a problem with the Medicare opt-outs, since in those cases, the employer generally is requiring that the participants provided the incentive or supplemental benefit also be covered by Medicare. Because all of the employees covered by Medicare get the benefit, there are no adverse tax consequences. Also, many employers provide the supplement as a reimbursement for health benefit only (e.g., payable for co-pays, deductibles or out-of-pocket costs for covered prescription drugs) and are not eligible to receive the benefit in the form of cash.
As far as Obama Care, it’s uncertain where we will end up at this time. We are awaiting a decision by the Supreme Court as to the constitutionality of the new law. At this time there is no consensus as to how the Supreme Court will rule. The last figures reviewed indicated that 55% of the practitioners surveyed though it would be repealed significantly (i.e. possibly eliminating mandatory coverage, which will effectively cause the entire statute to fail), and 45% felt that it would be substantially upheld. Personally, I’m in the minority and feel that it will be found constitutional. I have reviewed applicable case law, and although the Fed did a very poor job in presenting its case, I still believe it will be substantially upheld. However, again, we are really in a waiting mode now.
On February 6, 2012, the Department of Health and Human Services extended the effective date of yet another mandate of the Patient Protection and Affordable Care Act. Effective September 23, 2012 (rather than March 23, 2012, as previously announced), employers will be required to provide employees and new hires with certain disclosures about the healthcare benefit plans offered by the employer. Employers will be required to provide a “Summary of Benefits and Coverage” (“SBC”) to employees summarizing and explaining the benefits and coverage provided by the company’s group healthcare plan (a sort of mini summary plan description). Employers also will have to supply a glossary of commonly used health plan terms. These notices will have to be provided to employees who enroll in the employer’s healthcare on or after September 23, 2012 and annually during each open enrollment period thereafter. The format and content of the SBC also must conform to several specific requirements. For example, the SBC cannot be more than four pages long and the print not less than 12-point font. It must be written in a “culturally and linguistically appropriate manner” and use language that is easily understandable by the average plan participant. The content of the SBC must include a summary description of the coverage that is available under the plan, using uniform definitions of standard terms. It must include explanations of the cost sharing features (e.g., deductibles, coinsurance, and co-payments) and provide examples of “common benefits scenarios” (e.g., pregnancy, serious and catastrophic medical conditions, etc.). The Department of Labor has online resources for plan sponsors to comply with the new SBC requirements that can be found at Model SBC and a Glossary of Health Coverage and Medical Terms.
Article courtesy of Worklaw Network firm Shawe Rosenthal.