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Conference Packet about Defined Contribution Healthcare: http://www.zanebenefits.com/employee-health-benefits-summit-2012-follow-up-packet/
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Profit from the Power of Defined Contribution Healthcare
The Next Benefits Trend
#dchealth
Agenda 1. The Problem Today
2. How History Has Led Us to Defined Contribution
Healthcare
3. New "Defined Contribution" vs Traditional "Defined
Benefits”
4. The Future of Employer Health Insurance
5. Demystifying the Buzz Words
6. Understanding the Core Problem
7. How Brokers Can Profit From Defined Contribution Today
8. How Brokers Can Profit From Defined Contribution Post-2014
Small Business Health Insurance - Today
Less than 50% of small businesses offer group health: • Cost is too high - 61% • Firm is too small - 13% • Turnover is too great - 6% • Other - 20%
3,000,000 small businesses without group health
How History Has Led us to Defined Contribution Healthcare
#dchealth
History of U.S. Employer Health Insurance - The Beginning
Creation of “Modern” U.S. Health Care Occurred Post-WWII
• Limited employer involvement • Catastrophic health insurance • Local Blue Cross / Blue Shield • Individual / family driven
• Wage & Price Controls (1941-1947)
• Employer-sponsored healthcare exempted from income taxes
World War II
Pre-WWII Post-WWII
HUGE cost advantage to
employer system
History of U.S. Employer Health Insurance, WW2 - 2002
Tax Advantages - Group vs Individual Coverage
Group policies enjoyed enormous tax advantages over individual: 1. Employers allowed to pay for group insurance “off the books” 2. Employees allowed to pay (via salary reduction) for group
insurance "off the books"
History of U.S. Employer Health Insurance, 2002 - Today Federal Government Gives Tax Parity to Individual Policies
2002 - HRAs Health Reimbursement Arrangements for employer tax-free contributions
2009 - PRAs Premium Reimbursement Arrangements for employee tax-free contributions
Defined Contribution Health Benefits
New “Defined Contribution” vs.
Traditional “Defined Benefits”
#dchealth
"Defined Contribution" vs "Defined Benefit"
No Minimum Contributions Business determines its own contribution strategy
Requires Minimum Contribution Employers must contribute 50-75% of premium
Defined Contribution Healthcare Traditional Group Health Insurance
Requires Minimum Participation 50-75% of employees must participate in the plan
Requires Administrative Work On-going paperwork, dedicated staff and annual renewals
No Administrative Hassle 1-time setup, less than 5 minutes per month, payroll function
No Minimum Participation Business sets its own eligibility requirements
Defined Contribution Overview - Simple
1. Determines contributions
2. Sets eligibility
3. Picks start date
The Employees.... 4. Enrolls employees
6. Reimburses employees for "claims"
The Employer...
1. Purchase individual policies
2. Submit "claims" for reimbursement
5. Sends welcome kits
HUGE Opportunity
How Brokers Benefit from Defined Contribution
1. Purchase individual policies
• Relationship with employer and employees o Two Sales - 1) Employer and 2) Employee
• Employer = lead generator o Average annual turnover = 50% for small businesses
• New role - help employees choose vs sell o Like investment advisor helps employee choose best
401(k) investments
HUGE Opportunity
The Future of Employer Health Insurance
#dchealth
Future of U.S. Employer Health Insurance - 2014?
Healthcare Reform Favors Defined Contribution
• Medical Underwriting • No Federal Subsidies for
Individual Policies • Employer-Driven
• No Medical Underwriting • Federal Subsidies for
Individual Policies • Individual/Family-Driven
2014 Reform
Pre-2014 Post-2014
HUGE cost advantage to
individual system
McKinsey Study: Health Reform & Defined Contribution
"U.S. health care reform sets in motion the largest change in the post World War II era" 60% of educated employers plan to pursue alternatives to offering health insurance including "defined contribution" Parallels shift to 401ks
Demystifying the Buzzwords
#dchealth
Demystifying the "Buzz" Words
Defined Contribution Health Plans - The plan or "arrangement” through which the tax-free contributions flow: • Health Reimbursement Arrangements (HRAs) - "ZaneHRA"
• Health Reimbursement Accounts (HRAs) • Medical Expense Reimbursement Plans (MERPs) • Medical Expense Reimbursement Accounts (MERAs) • Health Reimbursement Plans (HRPs) • Section 105 plans
• Premium Reimbursement Arrangements (PRA) - "ZanePRA"
• Premium Reimbursement Accounts (PRAs) • Premium Reimbursement Plans (PRPs) • Premium only Plans (POPs) • Section 125 plans
Demystifying the "Buzz" Words
Private Health Exchanges - The broker's insurance offering to employees
• In-Person Meetings • Online Quote Engines & Comparison Tools
o Norvax o Quote It o EHealth.com o etc.
• Telesales & Call-Centers
Keep it simple with small businesses!
Understanding the Core Problem
#dchealth
Solving a Big Problem Usually = Huge Opportunity
COSTS TOO MUCH! Remember, employers offer insurance for recruiting & retention b/c:
1. It is tax deductible to the business
2. Employees get the benefit 100% tax-free
3. Individual health insurance is not guaranteed-issue in most states (MORAL OBLIGATION)
The IDEAL solution must address #1, #2, #3 & reduce or fix employer's cost.
Core Problem? Employer Health Insurance....
How Defined Contribution Healthcare Addresses the Problem
Today - 2013: Defined Contribution addresses #1 and #2; #3 is addressed via: • Medicaid/Medicare/CHIP • State Risk Pools • PCIP
2014 - beyond: Defined Contribution addresses #1, #2 and #3, & ACA provides:
• Massive federal subsidies available only in the Public Individual Exchange • Individuals must purchase health insurance, or else pay a tax • No penalty for companies with <50 FTEs • Minimal Penalty for companies with >50 FTEs
Employers offer group health today for recruiting & retention because: 1. It is tax deductible to the business 2. Employees get the benefit 100% tax-free 3. Individual health insurance is not guaranteed-issue in most states
How Brokers can Profit from Defined Contribution Today
#dchealth
How to Profit from Defined Contribution Today
Today's Opportunity: Help the 3 million (and growing) businesses without group health insurance recruit and retain key employees via two step process: • Help the business establish an IRS/HIPAA/ERISA/ACA-compliant
defined contribution health plan. • Help the insurable employees (both existing and future) select
individual policies based on personal needs/budget and their defined contribution.
• Help the uninsurable employees (both existing and future) secure coverage via Medicaid, Medicare, CHIP, State Risk Pools, PCIP, etc.
How Brokers Can Profit From Defined Contribution Post-2014
1. Recurring compensation on defined contribution administration fees
2. Recurring compensation on individual policy sales
3. Up/Cross-selling opportunity for voluntary/auto/life/etc
4. Loyal employer client that turns over 50% of employees (on average)
annually
5. Practice servicing defined contribution plans and individual employees in
preparation for 2014
What's in it for the Broker?
How to Get Started Today
Step 1: Decide How You are Going to Service Individual Health Plans Tip: Whatever you decide, call it <Your Brand> Private Health Exchange
Step 2: Pick and Contract with a Defined Contribution (DC) Software Provider Tip: Use Zane Benefits
Step 3: Integrate Your Private Health Exchange into the DC Software Tip: Make sure your brand and/or insurance services are front & center
Step 4: Create Customized Marketing Materials Tip: Your defined contribution provider should provide you with templates
Step 5: Find a Business without Group Health Insurance or Canceling Tip: If the company is not offering due to "cost", you can help
Step 6: Implement Your first DC Solution Tip: Always set up the DC plan first, and sell health insurance second
Step 7: When the Company Hires New Employees, Help Them Too Tip: The average 10 ee firm will turnover 5 ees per year
How to Profit from Defined Contribution 2014 and Beyond
2014 and Beyond Opportunity: Help businesses evaluate ALL options and, if "best" option, help the business transition to defined contribution: • Evaluate all options with associated employer/employee costs based on
company size. • If defined contribution is ideal solution, help the business establish an IRS/
HIPAA/ERISA/ACA-compliant defined contribution health plan. • Help the employees (both existing and future) select individual policies based
on personal needs/budget and their defined contribution through the State Individual Health Exchange.
What's in it for the Broker?
1. Recurring compensation on defined contribution administration fees 2. One-time and/or recurring compensation on individual policy sales???? 3. Up/Cross-selling opportunity for voluntary/auto/life/etc 4. Loyal employer client that turns over 50% of employees (on average) annually 5. Ability to charge employers one-time and/or recurring consulting fees
(flat fee per employer or pepm) for "Navigator Services"
How to Prepare for 2014
Step 1: Get Started Today (Follow Steps on Slide 22) Tip: Your future competition is not waiting, why should you?
Step 2: Become an Expert on Healthcare Reform as it Pertains to Employers Tip: Expertise & experience will allow you to charge "navigator fees”
Step 3: Develop an Employer Health Benefits "Balance Sheet" Tip: This should allow you to enter all variables to evaluate all options
Step 4: Contract with State Health Insurance Exchanges Tip: You should contract with the state exchanges regardless of comp.
Step 5: Contract with Individual Carriers for Voluntary Plans Tip: Voluntary plans will allow you to fill GAPs in coverage on Bronze Plan
Step 6: Assist Existing Clients First Tip: Work with existing clients initially to give you time to perfect processes
Step 7: Re-evaluate the "Balance Sheet" Annually Tip: Charge a fee for this
"Balance Sheet" Input Variables for Employers
The Key Employer Variables Include: • Employer Tax Penalty for Not Offering "Qualified" Group Health
o Not applicable for employers with less than 50 FTEs o $2,000 penalty per full-time employee (minus 30 employee credit)****
• Employer Tax Credit for Offering "Qualified" Group Health
o Not applicable for employers with more than 24 FTEs o Not applicable for employers with average annual wages over
$49,999.99
• Employer Tax Penalty for Offering "Qualified" That is Not "Affordable" o Not applicable for employers with less than 50 FTEs o $3000 per employee receiving subsidy
• "Qualified" Group Health Insurance Costs
o Likely higher than today's group health insurance costs
"Balance Sheet" Input Variables for Employees
The Key Employee Variables Include: • Out-of-pocket Employee Costs (minus subsidies) on Individual
Market o Subsidies are based on Employee's Income and Household size
• Out-of-pocket Employee Costs on Group Market o Based on Employer contribution percentage/amount
• Employee Tax Penalty for NOT Purchasing "Qualified" Health Insurance o Based on Employee's Income and Household size
"Balance Sheet" Output Variables The Key Outputs Should Project:
1. Employer and Employee Costs for Offering "Qualified" and "Affordable" Group Health Insurance
2. Employer and Employee Costs for Offering "Qualified", but not "Affordable" Health Insurance
3. Employer and Employee Costs for Not Offering Health Insurance at All
4. Employer and Employee Costs at Different Defined Contribution Levels
#4 should factor in key features of defined contribution (e.g. expected utilization rates and employee class design options)
Summary / Next Steps
#dchealth
Summary • The Core Problem is that Employer Health Insurance Costs Too Much
• Employer Health Insurance Exists Today Because of 60 years of Cost-
Advantages for Employer Market (i.e. tax deductibility)
• In 2002, Defined Contribution (HRA) plans leveled the tax "playing field"
for individual plans
• In 2014, ACA creates Major Cost-Advantages for Individual Health
Insurance (i.e. tax subsidies)
1. Paul Zane Pilzer Webinar on September 11 - bit.ly/convert-webinar 2. Free Defined Contribution Kit for Affiliates - bit.ly/dc-kit
Subscribe to ‘Clarifying Health’: www.zanebenefits.com/blog
Thank You!
The Future of Health Benefits is Now. What are You Waiting for?
DISCLAIMER The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state. www.ZaneBenefits.com
#dchealth