The President's Corner *
John P Foran, RHU, LIA
Welcome to the Premier Edition of
the EBS Foran Group of Companies Electronic Newsletter,
The EBS Forum.
As the rapid evolution of the concepts and content
of Employee Benefits continues to swirl around us,
it is my hope that our
quarterly Newsletter will
be a valuable resource for information to you and
your Organization.
Certainly, EBS Foran has expanded its staff and
number of services in a response to the profound
changes transpiring in today's marketplace. We have
opened a satellite office in Central Massachusetts
and have expanded our Underwriting Staff with the
addition of Mr. Edward W. Byrnes as Vice President
and Director of Underwriting Services. Edd, a seasoned
underwriter, previously worked for EBS and had left
us to product manage the Medical Stop Loss Underwriting
for Sun Life. I am pleased that we were able to
bring Edd "back home".
We have also added Matthew J. Capone as the new
Director of Corporate Insurance and Executive Compensation.
Matt has over 25 years of experience in the field
of Corporate Insurance and most recently was involved
in the development and implementation of the Advanced
Market Group for Citizens Investment Services Corp.,
a wholly owned subsidiary of the Citizens Bank Corporation.
Matt will assist our clients in the implementation
of Buy Sell Arrangements, Key Employee Insurance,
Deferred Compensation and Executive Bonus Arrangements,
as well as product managing our voluntary/employee
payroll deducted programs.
As we continue to grow, we hope that the array of
services and products that we provide will be your
main resource to help you meet the challenges of
today's Employee Benefit world. Our professional
staff has the knowledge, experience, talent and
vision to help you navigate through the shoals of
plan design change and regulatory requirements.
We continue our pledge to ensure that our Clients
are aware of what is transpiring in the marketplace
and are given the knowledge of the full palate of
benefits, programs and services that are available
through our Organization.
Please take a moment to review our Newsletter. In
each issue we will feature a profile of one of our
Clients and we are pleased to have Assumption College,
which is celebrating its Centennial year, as our
first client profile.
I look forward to your comments on this and subsequent
issues of
our Newsletter. If you would
like any topics discussed in future editions or
if you have questions on any article that appears
in this edition please e-mail me at jpforan@ebsforan.com.
Thank
you for allowing us to be of service to you. We
look forward to working with all of our Clients,
both old and new, in these changing times. As Heraclitus
said "nothing endures but change"
* This
Newsletter and the articles that appear in it are
purely informational in content and character and
are not meant or intended to be in the nature of
advice or legal counsel. The invitation to contact
individuals of EBS Foran is not to be construed
as a solicitation for business or insurance services
in any State or jurisdiction in which the individual
is not licensed as an Insurance Agent or Broker.
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Benefit Brief-Case
Medicare Reform, Health Savings Accounts, and the
Future of Consumer Directed Health Care-A Brief
Summary
Alden J. Bianchi, Esq.*
Mintz, Levin, Cohn, Ferris. Glovsky and Popeo, P.C.,
Boston,Massachuetts
President Bush signed
the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act")
on December 8, 2003. Among other things, the Act
makes sweeping changes to the underlying structures
of Medicare, adds a Medicare prescription drug benefit,
and establishes a special subsidy to encourage employers
to provide prescription drug coverage. But from
the employer's perspective, the Act's most important
feature is the introduction of a new type of account-the
"Health Savings Account" or "HSA"-the
purpose of which is to provide individuals with
a tax-advantaged, participant-owned vehicle that
allows them to accumulate funds for health care
and other purposes.
Congress established the HSA at least in part to
facilitate "consumer driven health care"
(or CDHC). CDHC arrangements seek to lower the cost
of health care by involving individuals in their
own health care and providing monetary incentives
in the form of tax-advantaged savings. Sustained,
double digit increases in employer-based health
coverage have left employers desperate for ways
to constrain runaway medical cost increases. CDHC-i.e.,
arrangements that encourage greater employee participation
in health care purchasing decisions-is being touted
as the mechanism that can collar spiraling health
care costs by encouraging and empowering previously
passive plan participants to choose health care
wisely and in a manner that is cost efficient. The
statutory and regulatory mechanisms that existed
before the Act, however, such as medical flexible
spending accounts and health reimbursement accounts,
were not seen as conducive to the adoption and maintenance
of CDHC arrangements. This is no longer the case
because of the HSA provisions of the Act.
HSAs are at bottom a legislative response to concerns
over rising health care costs, and as the enabler
of CDHC there is a great deal riding on them. Employers
cannot continue to sustain double-digit medical
cost increases. Something, as they say, must give.
If this experiment fails, then what? Elected officials,
policymakers and concerned individuals at both ends
of the political spectrum would prefer that employers
get out of the business of offering health care
entirely. On the left are the proponents of universal
health care; on the right are those that advocate
for individual insurance coverage. If CDHC falters,
one side might well get its wish.
*
Alden J. Bianchi is a Member in the Boston office
of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., where he leads the employee benefits and executive
compensation practice.
Mr. Bianchi has written and lectured extensively
on employee benefits issues. He is the author of
three books, Employee Benefits for the Contingent
Workforce and Plan Disqualification and ERISA Litigation
(both published by Tax Management, Inc.), and Benefits
Compliance (published by World-at-Work), and dozens
of benefits-related articles. His speaking engagements
include presentations to the American Bar Association,
American Insurance Group, Deloitte & Touche,
PricewaterhouseCoopers, Salomon Smith Barney, UBS,
ING Financial Services and the Risk Insurance Management
Society, as well as a host of bar groups and professional,
educational and civic organizations.
Mr. Bianchi is a graduate of Worcester Polytechnic
Institute and the Suffolk and Georgetown Law Schools,
and he holds an LL.M. in taxation from the Boston
University Law School. He is listed in Woodward
& White’s The Best Lawyers in America,
and Marquis’ Who’s Who in American Law,
and he is a Fellow of the American College of Employee
Benefits Counsel
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Client
Corner
Assumption College Celebrates a Centennial
of Excellence and Service
By Marc Bilotta
Founded by the Augustinians
of the Assumption (Assumptionists) in 1904 the institution
that became Assumption College was a junior seminary
for French-speaking young men who wanted to study
for the Catholic priesthood. To this date, the links
to the Assumptionists remain strong not only in
the name of the institution and the college library
dedicated to Fr. Emmanuel d'Alzon who founded the
religious congregation in France in 1850 but in
its tradition of excellence and service to the greater
community.
The original students were the sons of immigrants
from French Canada who had settled in Worcester.
Located in the Greendale section of the City, by
World War I Assumption had evolved into an eight-year
institution (high school and college), and in 1918
it awarded its first bachelor's degrees. Through
the years of the Great Depression and World War
II, Assumption remained a small school dedicated
to producing a Catholic elite to serve the French-speaking
or "Franco-American" population of New
England. Like many other institutions, World War
II decimated the school, when virtually the entire
college-level student body left for military service.
Fortunately, the numbers in the high school increased
as dramatically as those in the college declined.
After the war, control of the school passed from
European to Franco-American Assumptionists. Graduates
of the college themselves, the new leaders observing
the gradual assimilation of French-speaking families
into the English-speaking mainstream began the evolution
of the school to reflect this. In the early 1950s
the school admitted Franco-American boys who knew
no French and then young men who were not ethnically
Franco-American. Adding a summer school and a graduate
studies program at the same time the school began
to out grow its Greendale campus.
Just as this new era was getting under way, a tornado
devastated the Greendale campus on June 9, 1953,
taking three lives and causing extensive damage
to buildings and grounds. The Assumptionists decided
to turn this disaster into the long-awaited opportunity
to separate the high school from the college. The
Greendale campus was restored as the home of Assumption
Preparatory School, while the college carried on
in temporary quarters until Faculty and students
took up residence on the current Salisbury Street
campus in 1956.
During its half-century on Worcester's West Side,
the college has lived through many changes and challenges.
By the end of the 1950s, lay Professors outnumbered
Assumptionists on the faculty, a process that has
accelerated over the decades. In 1968 the Assumptionists
turned the school over to a new board of trustees
made up of both religious and lay people. In 1969
the first class of women was admitted to the college.
In 1972 the college welcomed its first lay president,
Dr. Pasquale DiPasquale.
Since his appointment in 1998, Dr. Thomas R. Plough,
the fifteenth President of Assumption College, has
launched an aggressive $60 million physical plant
expansion, including the 63,000 sq. ft. Testa Science
Center, an Information Technology Center, art studios
and classrooms, four suite-style residence halls,
as well as renovating the campus center space, and
building two parking decks. At the same time, he
has championed an increase in the number of full-time
faculty members and additional academic opportunities
for experiential learning. Undergraduate enrollment
has grown strategically by 16% over the past four
years and has reached its optimum size of 2,150.
Graduate and Continuing Education programs as well
as the very successful Worcester Institute for Senior
Education (W.I.S.E) continue to support the Assumption
College's commitment to lifelong learning.
In the past four years, seven Assumption students
have been awarded Post-baccalaureate Fulbright grants
to study in Spain, Ireland, South Korea, Taiwan,
Finland, Ecuador and Belgium.
"Assumption
College has a long-standing association with EBS
Foran. Their knowledge, experience and insight have
helped us to keep abreast of the latest trends in
employee benefits and to make informed decisions
that provide our employees with a comprehensive
benefit package. We are indebted to EBS Foran and
their dedicated staff."
Francis P. Gurley, Executive Vice President/Treasurer,
Assumption College
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In the Marketplace
Flexible Savings Accounts Come of Age
By Kenneth Lombardi
A
recent study by the Center for Studying Health System
Change1 revealed
that many Employers are choosing cost shifting as
a method to help control rising Health Care Costs.
Cost shifting comes in many fashions but whether
you ask Employees to pay more for health care through
higher contributions or by paying more in co-pays
or deductibles the end result is that they will
be taking home less disposable income. This often
leads to Employee dissatisfaction and a decrease
in Employee retention. The introduction of an FSA
is a remarkably simple solution to this problem
that many Employers overlook.
The FSA has been in effect for over 20 years, but
in the benefit rich environment of the Northeast,
it didn't fit since most plans covered all expenses
at 100%. Ironically, our desire to have robust benefit
plans is one of the main reasons why health care
costs, including insurance premiums, are now escalating
at such a high rate. Now however, the benefit of
being able to use pre tax dollars to help offset
some of the increased expenses caused by cost shifting
appeals to both Employers and Employees.
Here is how an FSA works:
Assuming a 15% increase in premium an Employee with
an annual income of $40,000 who had an annual premium
of $2400 and annual out of pocket medical expenses
of $1000 would see disposable income drop by $242.
The same employee able to pay out of pocket medical
expenses with pre tax money from an FSA would actually
see a raise in disposable income of $88.
Added to this savings can be many other advantages
included, but not limited to the ability to use
a debit card linked to the FSA account to pay for
out of pocket medical expenses. FSAs are still tied
to the " use it or lose it" requirement
of the IRS. However, the allowance of the use of
these funds for over the counter drugs and other
medically necessary expenses greatly reduces the
probability that the Employee will not spend in
full the moneys deposited to the account. The ability
to access their account balance either through the
Internet or by phone also helps to assuage employee
concerns about this requirement. There are also
some savings in FICA contributions for the employer
that can help offset the small monthly administrative
fee charged.
EBS Foran has a unique
relationship with TASC (Total Administrative Services
Corporation) for FSA administration that can help
you build an integrated solution to increasing costs.
For further details contact Patrick
J. Foran.
In future articles we will discuss other cost shifting
strategies and cutting edge plan innovations that
will help you hold the line on increasing Health
Care costs.
1 Issue Brief
"Employers Shift Rising Health Care Cost to
Workers: No Long-Term Solution in Sight.
### ###
The Center for Studying Health System Change is
a nonpartisan policy research organization committed
to providing objective and timely research on the
nation's changing health system to help inform policy
makers and contribute to better health care policy.
HSC, based in Washington, D.C., is funded principally
by The Robert Wood Johnson Foundation and is affiliated
with Mathematica Policy Research, Inc.
###
###
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What's Under Underwriting?
What Comprises an Insurance Rate?
By Edward Byrnes
We look at premium rates every time we receive our
pay check and then again each time the premium bill
is paid to the insurance company, but what factors
make up the rate, and which of these factors can
be used to impact total costs?
1. Claims
are the first component of the rate. The insurance
company must first project what the paid claims
will be during the next policy year. Depending upon
the size of the employer the insurance company uses
actuarial tables based upon demographics (age, sex,
location) in conjunction with your selected plan
design, or your historical claims history, or a
combination of both to project what claims will
be. Claims are paid and charged against your experience
as they are paid. Claims on average take approximately
2 months to work through the system. Some are paid
in only a few days but others (mainly large hospital
claims) can take months to reach the insurance company
for payment. This can pose a problem for insurance
companies. If a policyholder terminated on December
31, 2003, claims would still be coming in for much
of the following calendar year without any premium
payment to support that cost. To protect against
this risk insurance companies post what is called
an "incurred but not reported" claim reserve.
The combination of these two pieces represent
incurred claims.
2. Administration
is the second component of the rate. Administration
costs are the cost of doing business with the insurance
company. In order to pay the claims of a policyholder
the carrier must employ a great number of people
and machinery to not only simply pay, record, and
track a claim, but to assist in the management of
the health care of each employee and dependent and
the management of the health care plan they market
to the public. Additionally, there are the many
interfaces with State and Federal government agencies.
3. Risk is the
third and final component of the rate. While no
one can predict the future perfectly 12 months ahead
of time, the amount of risk must be developed. There
are many factors can impact claims such as changes
in federal laws, and simply how many individuals
in a group have claims in excess over what can reasonably
be expected. The risk charge is what the insurance
carrier charges as an attempt to cover excess risks
on their entire block of insured business.
Certainly the employee can impact rates by accepting
a larger share of the claims burden by utilizing
higher co-pays, deductibles, or coinsurance amounts.
This will certainly lower rates, but it does not
necessarily lower claims costs.
Utilizing more restrictive benefit plan designs
such as HMO's and PPO's may lower claims costs in
certain areas of the Country, but in Massachusetts
virtually everyone is covered through a managed
care contract.
The fact is that the only way to reduce
claims costs and therefore risk charges is to alter
the manner in which individuals utilize healthcare
dollars. We certainly do not want to lower
the utilization of preventative care services as
this could adversely impact future medical costs.
But possibly altering the way we use other services
or the way we pay for other services could provide
the answer. Consumer Driven Health Care Plans in
conjunction with approved tax advantaged programs
may prove to hold some answers.
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Cobra Factoids
By Meagan Foran
On May 26, 2004 the Department
of Labor issued the long awaited final regulations
for the 1985 Consolidated Omnibus Budget Reconciliation
Act (COBRA). These new regulations which address
the proper timing, wording and administration guidelines
for the Notification to persons entitled to COBRA
benefits become effective on November 26,2004.
Employer's
should pay particular attention to the change
that requires that all employees receive an initial
COBRA notice when an employee is first enrolled
in an applicable benefit plan. This new notice
should become part of the documents issued to
employees as they become eligible to participate
in Health, Dental or FSA plans.
Notices must also be provided within 90 days of
an employer becoming aware that a qualifying event
has occurred. COBRA Administrators must supply
the notice within 14 days of being notified by
the employer that a qualifying event has occurred.
Qualifying events include but are not limited
to termination from employment, retirement,
death of a covered individual, reduction in hours,
leave of absence, divorce, loss of coverage, and
a child who attains an age at which coverage ceases.
The
COBRA notice must include; the name, address,
and phone number of the potential COBRA participant,
general information regarding COBRA rights, rules,
and procedures, and must include the responsibilities
of the participant in relation to premium payments,
notification of termination of the plan, or any
qualifying event that could trigger a second notice
being required.
For
further information regarding the Final COBRA
regulations please visit the Department of Labors
website at http://www.dol.gov.
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Dental Bites
By Seamus O'Hara
As health cost have continued
to experience double -digit increases, Employers
have been bombarded with a plethora of benefit plan
innovations that are designed to reduce cost while
maintaining employee retention. However, often overlooked
in the reconfiguration of health benefits is Voluntary
Dental Coverage. These plans offer a benefit that
is both cost effective to the Employer and desirable
to the Employee. Recent
national surveys have indicated that one of the
benefits most requested by Employees is a Voluntary
Dental Plan. At the same time studies have shown
that annually 20 million workdays are lost because
of oral health issues. Employee and Dependent
access to preventative dental health services
could significantly reduce these lost days.
In
response to this need, Dental Carriers have designed
extremely flexible and low cost plans that can
be an attractive addition to any Employer's benefit
package. Offering a Voluntary Dental Plan can
help offset the impact of cost containment measures
such as increased co-pays and the introduction
of front end deductibles necessitated by the spiraling
cost of Medical Benefits. These plans represent
a "win, win" solution as the can be
installed at no additional cost to the Employer
and paid for with pre-tax dollars by the Employee.
Delta Dental of Massachusetts has introduced one
of the most innovative of these plans. The Delta
Dental Preferred Option plan offers 100% coverage
for preventative, diagnostic and minor restorative
procedures with no deductible when a network dentist
is used. Coupled with eligibility for up to $1000.00
in annual (calendar year) dental benefits and
immediate access to dental care with no waiting
period for coverage this plan is very attractive
to employees. In addition a streamlined no balance
billing system and no claims forms when receiving
in network care makes it hassle free.
As
part of EBS Foran's continuing effort to assist
our clients in controlling the cost of Health
Benefits, we urge all of you to consider the implementation
of Voluntary Dental plans.
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What's New at the EBS Foran Group
Seamus O'Hara has been promoted to Director of Voluntary
Dental Plans. In his new position Seamus will work
with clients on the implementation of Voluntary
Dental Plans Meagan
Foran has been promoted to the position of Senior
COBRA Administrator. Meagan will oversee the COBRA
administration for our COBRA clients.
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MUNICIPAL MUSINGS
Consumer Driven Health Care Cost
Shifting in an Equitable Way
By Kevin Paicos, MPA
With health care costs escalating
at annual double-digit rates, cities and towns across
the Commonwealth are constantly searching for new
ways to preserve or enhance employee benefits, while
simultaneously reducing costs. One
innovative tool available to communities is the
new generation of consumer-driven health care
(CDHC) plans.
These plans feature comprehensive benefits, a
high deductible, and are coupled with the new
Health Spending Accounts (HSA's).
High
deductible plans bring health insurance back to
the status quo of 30 years ago. However, the establishment
by the Medicare Prescription Drug Improvement
Act of 2003 of the HSA introduces a new method
for the financing the high deductible plans.
Unlike
the more familiar Flexible Spending Accounts which
feature a 'use-it or lose-it" provision,
(see the related article in this newsletter),
HSA's allow deposited funds to be rolled-over
between fiscal years and are portable by the Employee.
The
HSA may be used to "cover" the employee
deductible, ($1,000 minimum for an individual
plan and $2,000 for a family plan) and are typically
limited to cover only those expenses allowable
under the Health Plan they accompany. The Employee,
the Employer, or both may make contributions to
the HSA account. Since payments for the employee
deductible and Co-pays are made from the HSA,
the less an employee spends on unnecessary health
care, the more the employee can retain for future
years. Moreover, employee contributions to the
HSA are pre-tax, and HSA balances earn interest
on a tax-deferred basis. As long as the account
is used for qualified medical expenses, the HSA
proceeds will always be tax-free.
Savings
to the community accrue as well as to the employee,
since the CDHC plan premiums are typically lower
than even HMO plans.
Future
editions of this newsletter will feature in-depth
discussion of this new generation of these plans.
In the meantime, please feel free to call if you
would like to discuss CDHC plans in detail.
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