What's New

Welcome to our Spring/Summer 2006 edition of the EBS Foran Newsletter. As CEO of a very forward thinking Employee Benefits Firm, I am pleased to present this edition which hopefully continues to make you aware of the ever changing environment of Employee Benefits.

So what's the topic du jour? Simply stated, Consumer Directed Health Care. Although I don't want to sound like the legendary Coach George Allen and state that the "future is now", you need to understand if or why Consumer Directed Health Care should be part of your Employee Benefits package.

Is it a panacea? Nothing ever is, and it might be too early to determine. We are including some anecdotal information in this Newsletter that will help you to better understand certain practical application points, but it is obvious that Employers need to find ways to better control health care costs while maintaining quality benefits, and quite frankly, Consumer Directed Health Care appears to meet both objectives!

In this edition, please review the information we are offering to you on this subject, as well as the new Massachusetts Healthcare Reform Bill and how that will likely effect Employers. Please note other important updates on the subjects of COBRA, HIPAA, ERISA, along with some other legislative updates.

We wish to extend a welcome to some new Associates:

Jennifer Arseneaux is our new Customer Service Representative. Prior to joining our organization Jen worked for 7 years for Tufts Health Care in the Client Service and Sales areas.

Jim Hanna is a new Technical Consultant. Prior to joining EBS Foran Jim worked in Financial Services for 22 years.

We recently celebrated . . .

The marriage of Meg Foran, our COBRA Administrator, to Brad Willis. Congratulations to Mr. and Mrs. Willis!

The arrival of Benjamin Edward Prestes who was born on October 8, 2005, Congratulations to Edd and Donna Byrnes on becoming proud grandparents.

As always, our Organization is ready to meet with you to address important employee benefit issues and concerns.

Thanks for taking the time to read this Newsletter!

Your comments and feedback are always appreciated.

Ken Lombardi
CEO




COBRA Updates

We would like to inform you of some recent developments that effect how COBRA Notices
should be mailed.

We recommend that:

• COBRA Notices be sent via First Class Mail with a United States Postal Service
  
• Certificate of Mailing attached.
  
• A photocopy of the COBRA Notice and a photocopy of the envelope it was sent in with the customer's portion of the Certificate of Mailing be attached and incorporated into the permanent COBRA file for each qualified beneficiary.
  
• The photocopy of the letter and the mailing envelope be stamped with a
  
• Declaration of Mailing". A draft of this Declaration of Mailing has been attached to this newsletter.
  
• This Declaration of Mailing be signed by the Employee who processed the Paperwork and mailed the correspondence. This will establish that the letter was mailed and verify the contents were related to COBRA.
  
• You establish a written policy and procedure that outlines in detail the notification process and what the steps will be throughout this mailing procedure.

As always, these recommendations are not intended to provide you with legal advice. We do recommend that with this notice, as with all matters pertaining to Employee Benefit Law, you may wish to review our recommendation with your legal counsel.

Consumer Directed Health Care (CDHC)

In the recent past, for some Employers, Consumer-Directed Health Care meant fully replacing their health benefits with high-deductible plans and Health Savings Accounts (HSA's). Others gave Employees a choice between HSAs, Health Reimbursement Arrangements and traditional health plans. Still other Employers didn't adopt HSAs or HRAs, but maintained their traditional plans and utilized online tools to help Employees select health care providers based on price and quality.

Employers continue to "navigate" through the choices Consumer-Directed Health Care offers. It's important to see how these options impact plan design and cost containment and to evaluate how Consumer-Driven Health Plans fare in enrollment and what changes vendors plan to make to them.

Cost Containment

While empowering Employees to take responsibility for their health is a key component of Consumer-Directed Health Care, many Employers look to the CDHC movement to help better control out-of-control health costs.

Recently, Health Reimbursement Arrangements were established at several of our Clients including Private and Public Sector Employers.

What effect did this have on their plans?

For a Private Sector Employer who had just over 50 Employees covered by a local HMO plan, adding deductibles and increasing co-pays reduced costs by 20%. The Employer and the Employees now have lower insurance costs.

The Employer then added an HRA plan with a local Third Party Administrator who is providing claims administration and where the Employees will have a portion of the deductibles paid by the Employer as they are incurred. Clearly it's a "win-win" for both parties; for those members who use these benefits, the Employer is assisting in the cost shift, and the members have the benefit of knowing their monthly insurance costs have been reduced. Also the Employer is better off because they have reduced insurance costs, and only spend the savings if and when claims are incurred.

For a Public Sector Employer, a simple HRA was added for the specific reimbursement of in-patient hospital expenses incurred by the members. The Employees now enjoy a lower payroll contribution because of this change, and the Employer reimburses any member who incurs one of the hospital co-pays. Again, both the Employer and the Employees "win" in this scenario, and this Employer will likely reduce their health benefit increase by approximately $200,000.

Our Organization assisted both Employers in establishing the formal process and provided them with documents, material, and more Importantly, employee educational support in implementing these plans.

Please contact our office on how a simple HRA can possibly benefit your plan costs.

Enrollment Trends

Participation in Consumer-Directed Health Plans is growing, but is still somewhat small. Enrollment rates for CDHPs increased from 1.1% of covered employees in 2004 to 3.9% in 2005, according to Fidelity Investments, which surveyed 86 Employers with more than 2,000 workers.

Marc Hallee, senior vice president of Health and Welfare consulting for Fidelity, stated, "A number of clients that I work with have seen numbers as high as 50% of their Employees enrolled in CDHPs. [For workers who already had a CDHP], we saw re-enrollment rates reach 95%, the highest observed across all types of health plans. This indicates a very high level of Employee satisfaction with CDHPs."

At least 1.6 million Americans are enrolled in a Health Reimbursement Arrangement, and 810,000 are enrolled in a high-deductible health plan that qualifies for a health savings account, according to the Kaiser Family Foundation, which studies health care trends.

Employer Actions

Roughly 45% of large firms indicated they would offer a Consumer-Directed Health Plan this year, typically as one of several health plan choices, a recent Fidelity survey finds. Among employers projected to have a CDHP this year, 62% said they would provide an HSA, while 38% declared they would offer an HRA.

Hallee predicts that at least three-fourths of Fortune 500 companies will offer a CDHP next year. "Employers are becoming increasingly committed to CDHPs as a way to address health care cost issues, a development that should help drive employee participation rates even higher," he says.

When they don't offer a CDHP, it's because "they do not think their employee population is engaged enough to understand the program," he explains.

Conclusion

Consumer Directed Health Plans have a great impact on the purchasing of health care. Based on recent studies the emerging data suggests positive outcomes through Employer sponsorship of Consumer Directed Health Plans. There is a higher degree of consumer engagement exhibited by those employees (and their families) who participate in some type of CDH program. Consumers are generally satisfied with their CDH plan choices and have a high incidence of reenrollment. The availability of more information geared toward quality provider analysis, tiered benefit design, integrated wellness incentives and other plan enhancements will also help change the face of Consumer Directed Health care over the next few years.

Contact your EBS Foran Account Manager to learn how we can help you understand and benefit from a Consumer Directed Healthcare Plan.

Sources:
Employee Benefit News o March 2006
Leah Carlson Shepherd & Tom Anderson

International Society of Benefit Specialists Benefits Quarterly - 2nd quarter 2006
C. William Sharon, CEBS & Toni Donahue

Massachusetts Enacts Landmark Health Care Reform Bill:

An Overview of H. 4850, An Act Providing Access to Affordable, Quality, Accountable Health Care

By Alden Bianchi esq./Steve Weiner esq.

On Wednesday, April 12, Massachusetts Governor Mitt Romney signed into law a sweeping health care reform bill (House Bill H. 4850, as reported out by the Conference Committee) entitled, "An Act Providing Access to Affordable, Quality, Accountable Health Care" (the "Act"). The Act's stated purpose is to "more effectively cover currently uninsured low-income populations, and . . . make quality health coverage more affordable for all residents of the Commonwealth."1 It includes a mandate under which residents of the Commonwealth are generally required to obtain health insurance, and employers who do not offer health insurance to employees are subject to an assessment.2 There are also a host of provisions aimed at assuring access to coverage through premium support programs and providing so-called "safety net" care. The Act is structured to assure the availability of $385 million in federal matching funds under the most recently approved version of the Massachusetts' Medicaid waiver. It also makes important changes to the Commonwealth's Medicaid program by expanding benefits, especially to children, and by enhancing acute hospital and physician provider reimbursement.

Set out below is a summary of the principal features of the Act.

Individual and Employer Mandates

The Individual Mandate

Perhaps the Act's most novel and controversial provisions relate to what the Conference Committee calls the "individual mandate". The individual mandate requires that, beginning July 1, 2007, all residents of the Commonwealth obtain and maintain a minimum level of health insurance coverage-referred to as "creditable coverage"-based on a premium schedule published each December 1 that will allow for variations for age and rate. (The requirement has been likened to the requirement imposed on motorists to obtain automobile insurance.) Residents will be required to confirm that they have health insurance coverage on their state income tax forms filed in 2008, and coverage will be verified through a database of insurance coverage for all individuals.

The Act's individual mandate provisions will be enforced by the Department of Revenue. Individuals who fail to comply with the individual mandate in 2007 (and do not otherwise qualify under an exception) are faced with the loss of their personal exemption. For 2008 and beyond, failure to comply results in the imposition of a penalty of up to 50% of the monthly "minimum insurance premium for creditable coverage" for each month without coverage. The penalty is first satisfied by forfeiture of any available tax refunds (subject to higher statutory priority claims on use of refunds), and, if that is insufficient, a direct assessment on the affected individual for the balance.

An individual need not obtain coverage in accordance with the individual mandate where his or her refusal to obtain coverage is based on:

1. religious beliefs,
   
2. a hardship (based on criteria established by regulation), or
   
3. a determination that no affordable coverage is available.

The Employer Mandate and the "Fair Share Contribution"

The Act imposes on Employers with 11 or more full time employees (FTEs) who are not "contributing employers" an obligation to make an annual "fair share employer contribution," which is capped at $295 for each FTE. (The requirement is pro-rated for employers with seasonal or part-time employees.) A "contributing employer" is an employer that offers a group health plan to which it makes a "fair and reasonable premium contribution," as defined by regulations issued by the Commonwealth's Division of Health Care Finance and Policy (DHCFP).

The amount of the fair share contribution is established based on a portion of the cost paid by the state for free care used by workers whose employers do not provide insurance. Under current law, a portion of the payments made by employers who provide health coverage goes towards free care costs, and this obligation will continue under the new law at the current level (a total of $160 million per year). The purpose of the fair share contribution is to level the playing field between employers who offer group coverage and those that do not.

There is also a separate surcharge-referred to as the "free rider surcharge" - which is imposed on employers who do not provide health insurance and whose employees access the Commonwealth's uncompensated care pool. The Act refers to these employers as "non-providing employers." A "non-providing employer" does not include an employer that:

1. contributes to or arranges for the purchase of health insurance and is a signatory to bona fide collective bargaining agreement,
   
2. participates in the current so-called Insurance Partnership which provides for
   Commonwealth contributions toward premium payments for employed
   qualifying individuals, or
   
3. employs fewer than 10 individuals (it is not clear if this means 10 FTEs).
   
   

The free rider surcharge is triggered when an employee receives free care more than three times a year, or a company has five or more instances of employees receiving free care in a year. The surcharge ranges from 10% to 100% of the state's costs of services provided to the employees, with the first $50,000 per employer exempted.

Internal Revenue Code Section 125 Cafeteria Plan Mandate

Internal Revenue Code Section 125 permits employees to make pre-tax contributions under employer-sponsored group health plans. These plans are referred to as "cafeteria" plans. While often misunderstood and underappreciated, cafeteria plans allow employees to make contributions toward the costs of employer-provided coverage with pre-tax dollars.

Under the Act, employers with more than 10 employees are required to offer cafeteria plan coverage to their employees. The employer will also need to provide access to group health coverage either under its own group health plan or through the health insurance connector (described below). Coverage may be entirely employee paid, but, unless the employer contributes at least a minimum amount established by DHCFP, the employer will be required to pay its "fair share" contribution (as discussed above.)

The Health Insurance Connector

The Act establishes an entity that it refers to as the "Commonwealth Health Insurance Connector" (or the "Connector"), the purpose of which is to connect individuals and small businesses with health insurance products. The Connector will issue a "Good Housekeeping Seal of Approval" through which it certifies that group health insurance products meet certain pre-established criteria. Individuals can also purchase coverage directly from the Connector.

Policies purchased through the Connector will include mental health coverage and other state-mandated benefits. Employer-sponsored group health plans that offer coverage through the Connector can choose to contract only with certain providers so long as their products are Connector-approved. Regulations will establish deductibles and co-pays (other than those sold in connection with health savings accounts (HSAs), which will have the deductibles established by law).

Individuals who are employed by businesses with 50 or fewer employees may also purchase health insurance through the Connector on a pre-tax basis under a cafeteria plan that the employer is required to make available. The Connector, which is under the jurisdiction of the Commonwealth's Department of Administration and Finance, will be overseen by a separate board of private and public representatives.

Insurance Market Reforms

The Act merges the non-group insurance and the small-group insurance markets, and it enables health maintenance organizations to offer coverage plans that are linked to HSAs. Children are permitted to stay on their parents' insurance plans for two years past the earlier of the loss of their dependent status, or until they turn 25, and 19-26 year-olds will be eligible for new, lower-cost, specially designed products offered through the Connector. Finally, the Act also imposes a moratorium on the creation of new health insurance
mandated benefits through 2008.

Health Insurance Subsidies

The Act creates a subsidized insurance program called the Commonwealth Care Health Insurance Program (Commonwealth Care). To be eligible to enroll in Commonwealth Care, individuals must satisfy the following criteria:

1. They must be residents of the Commonwealth;
   
2. Their income must not exceed 300% of the Federal Poverty Level (FPL);
   
3. They must not be eligible for Medicare, Medicaid or a State Child Health Insurance Program (SCHIP);
   
4. They must not have accepted employer financial incentives to decline employer insurance; and
   
5. Their employers may not have provided insurance coverage in the previous six months for which they were eligible and for which their employers met certain contribution thresholds. (This criterion may be waived under appropriate circumstances.)

Premiums for Commonwealth Care will be set on a sliding scale based on household income, and no plansoffered through this program will have deductibles. The program will be operated through the Connector, which will retain any employer contribution to an employee's health insurance premium.

The Act includes special provisions for eligible individuals with income up to 100% of FPL. Plans covering these individuals will include inpatient and outpatient services, preventive care, prescription drugs (through the MassHealth formulary established for the Medicaid program), medically necessary inpatient and outpatient mental health/substance abuse services, and medically necessary dental services. No premium, deductible or other cost sharing will apply to these plans. Enrollees will be responsible only for co-payments for prescription drug and for non-emergency use of emergency rooms at levels equivalent to those established for MassHealth participants. Co-payments may be waived, however, in the case of substantial financial or medical hardship.

The Act also expands eligibility for employee participation in the current Commonwealth-subsidized Insurance Partnership program from the current limit of 200% of FPL to 300% FPL.

Medicaid

The Medicaid Waiver

In order to comply with changing requirements of Federal law, the Act shifts federal Medicaid reimbursement dollars from the support of individual hospitals to the funding of health insurance coverage for uninsured individuals. This provision was required under the terms of a waiver previously granted to the Commonwealth by the federal Centers for Medicare & Medicaid Services (CMS). The Act also expands Medicaid coverage under a series of community-based outreach programs to locate people who are eligible for Medicaid but not yet enrolled, and by expanding eligibility for children. Currently, children in families who earn up to 200% of the FPL are eligible for MassHealth. The Act increases eligibility to children in families earning up to 300% FPL and restores all MassHealth benefits that were cut back in 2002. There is also 2-year pilot program for smoking cessation treatment for MassHealth enrollees. In addition, the Act expands enrollment caps for certain categories of MassHealth eligibles, such as for persons with HIV.

The Act sets aside $90m in fiscal year 2007, $180m in fiscal year 2008, and $270m in fiscal year 2009 for Medicaid rate increases for acute hospitals and physicians. (The Act specifies no methodology for calculating these rates or increases.) 15% of the total amount each year is to be allotted to physician rate increases. Amounts earmarked do not include rate increases for community health centers (CHCs), although it is expected that additional funding for Medicaid rate increases for CHCs will be added by an amendment to the Act or by separate appropriation. This funding for acute hospital and physician rate increases comes from the Commonwealth Care Trust Fund (The "Fund") and is only one of the purposes for which the Fund may be used. If revenues in the Fund are less than projected, all of the funding obligations of this Fund are to be reduced proportionately.

The Act also creates the "MassHealth Payment Policy Advisory Board" (the "Board") for the purpose of:

1. reviewing and evaluating Medicaid rates and payment systems;
   
2. recommending rates and methodologies that provide fair compensation; and
   
3. promoting "high-quality, safe, effective, timely efficient, culturally competent and patient-centered care."

Before implementing payment policies recommended by the Board, DHCFP must provide 90 days advance notice to the joint committee on health care financing and the House and Senate ways and means committees.

The Act directs the Secretary of Health and Human Services to seek all needed amendments to the Commonwealth's Medicaid waiver to implement its provisions and to obtain the maximum available federal matching funds. This is intended to secure the expected $385 million in federal matching funds to be made available as part of the approved waiver. However, one of the tests for the availability of federal matching funds is that the additional expenditures under the Act do not cause the Commonwealth to be in violation of the so-called "budget neutrality" condition of the waiver, which, based on a fairly complex formula, provides, more or less, that, over the life of the Medicaid waiver, federal matching funds to Massachusetts under the waiver do not exceed what the federal government would have funded absent the waiver.

The Act requires that the Secretary must conduct all negotiations with CMS, and with the federal Office of Management and Budget, regarding the waiver in consultation with a member of the House appointed by the Speaker and a member of the Senate appointed by the Senate President. Any terms or conditions negotiated with CMS, and all correspondence related to the waiver, must be submitted to the House and Senate appointees at least seven business days prior to submission to CMS. The Secretary must also report quarterly to the joint committee on health care financing and the House and Senate ways and means committees on the status of waiver amendment.

The Safety Net

The Act eliminates the current "uncompensated care pool" and replaces it with the "Health Safety Net Fund" (or the "Fund"). The Fund will be administered by a newly-created Health Safety Net Office. Funding for uncompensated care will remain at the same level in FY 2007 as it is in FY 2006. However, beginning in FY 2008, the only identified sources of dollars for the Fund will be the current payor and hospital assessments of $160 million each. There is no assurance, after FY 2007, of continued state support for uncompensated care, given the expectation that the new mechanisms for accessing affordable insurance coverage will reduce dependency on uncompensated care.

Rates of payment to hospitals and CHCs from the Fund will be derived from Medicare's payment methodologies.

Funding

The Act is designed to leverage federal dollars to match state resources and to use revenue generated by employer contributions and, eventually, the individual mandate, to fund premium support for health insurance coverage.

1. Conference Committee Report (April 3, 2006), at page 1 (emphasis in the original)
   
2. Concurrent with his signing of the Act, the Governor used his line-item veto authority to
   veto the imposition of $295 per worker fee on most employers who fail to offer coverage to
   workers as well as a dental benefit for Medicaid recipients. The Legislature did override the
   veto of the business fee, which is projected to raise $48 million a year.
   

Legislative Updates

Medicare Part D Continues to Evolve
By Vincent DiBenedetto

Medicare Part D has now been in effect for less than six months and recently the Center for Medicare and Medicaid Services (CMS) announced a change in the benefit parameters for Plan Years ending in 2007. Without sufficient time to have creditable data from which to formulate a rate, the CMS used the National Health Expenditures prescription drug per capita cost published in 2005 as the measurement tool for cost adjustments. The CMS will not be able to calculate a percentage increase based on historical data until 2008 for plan years ending in 2009. Thus, the true cost of this program will not be seen for two more years.

The percentage increase for 2007 is 6.86%. This change will affect both the individual retirees and the amount of subsidy that will be available to plan sponsors who have chosen to participate in the Retiree Prescription Drug Subsidy.

Individual retirees that do not qualify for any subsidy will see the following changes in their Medicare prescription drug Coverage. The 2007 deductible amount will be $265 up from $250. The amount of drug expenditure covered before the Medicare Cost Awareness Gap ("Dough Nut Hole") will come into effect changes from $2,250 to $2,400. The prescription drug coverage will pay no cost from $2,400 to $5,451.25, thus the retiree will need to spend $3,850 out of pocket before catastrophic coverage takes effect compared to $3,600 for 2006. The original monthly premium for Part D drug coverage was estimated to be $32.00, which is a direct deduction from the participant's monthly social security check. Recently the Bush administration has been announcing that the monthly premium cost is about $25.00 . The premium actually varies by the cost of the Plan that a retiree enrolls in and any additional subsidy given because of income.

Plan sponsors will see the maximum amount of expenditures that they will receive a 28% subsidy on increase from $4,750 to $5,085. At the time this article was written there was no estimate from the CMS of what the average subsidy per participant will be for 2007. Since no actual payments have been made by CMS to any Plan Sponsor, there is no ability to compare actual subsidy returns to the original estimate of approximately $600 per eligible retiree.

We will keep you advised as this program continues to evolve.

HIPAA Privacy Rule
By Vincent DiBenedetto

To ensure you comply with the HIPAA Privacy regulations:

• Distribute the "Notice of Privacy Practices for Protected Health Information"
  to Employees at least once every three (3) years

• Employers who sponsor a Health Plan must provide a reminder
  that a copy of the "Notice of Privacy Practices for Protected
  Health Information" (the Notice) is available to the left.
  
  
• The Privacy Rule also requires that the Notice be given to
  each plan participant upon initial enrollment in the Health Plan.
  
  
• As the initial three (3) year anniversary of HIPAA is now
  upon us, now is the time to provide the Notice to Employees.

Since this three-year period is a maximum timeline, we suggest that this reminder, along with a copy of the Notice, be distributed yearly on or about the time of your annual open enrollment. This type of distribution will help assure your compliance with both requirements of the Privacy Rule.

For illustrative purposes, a copy of the model Notice along with a short cover letter is linked to this Newsletter. As always, we recommend that you have your Legal Counsel review these documents before you distribute them. If you have any questions about this matter, please do not hesitate to contact EBS Foran.

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