Math and the Multiplier Effect of the ACA

You might have read or heard about recent enrollment figures regarding marketplace enrollments for health insurance.  Following are some facts** worth knowing: Individuals enrolled during open enrollment in marketplace coverage. (Approx. 9.6 million on the Federal exchange and 3.1 million on the state based exchanges.) x $294 The average monthly tax credit for people qualifying for assistance. x 83% The percentage of enrollees qualifying for tax credit assistance. = $3, 099,054,000 The approximate monthly tax assistance to qualified Individuals.  x 12 = $37,188,864,000 The approximate annual tax assistance to qualified Individuals.

That’s an astounding amount of money, however, as compared to our annual deficit, it might appear small to some.  Where’s the money coming from?  The many taxes enacted as part of the ACA.   The aforementioned $ amounts DO NOT include expenditures for the following: 21.6 million Text messages sent by healthcare dot gov to consumers interested in learning more. 35 avg. emails received per consumer w/ reminders about deadlines, coverage and financial help. 15,000 application counselors, navigators and in-person assisters throughout the nation. 8200 public enrollment events. 48 trips taken by administration officials to visit local events and raise awareness about open-enrollment. Some say that the current ACA model is unsustainable, while others argue that it should provide for more.  The original forecast by the Congressional Budget Office (CBO) for enrollment by 2016 was 21 million.  Here’s the math for that scenario: (That’s $61.5 Billion for those that don’t like to interpret large numbers) Seems to me that sooner or later (hopefully sooner, for the future generation’s sake) math will dictate what’s possible.

**Figures & Statistics were estimates provided by CMS

Demystifying Aaron Roger’s Double Check

You’ve likely heard the term “Double Check” by now.  If not, you’ve undoubtedly missed most major sporting events in the past few years.  A clever slogan to assist in advertising for a major insurance company leaves most people wondering what it actually means, although most interpret that the concept is connected to Aaron Rogers, quarterback for the Green Bay Packers.

Frankly, the term has nothing to do with football, unless you feel that Aaron’s audible check at the line of scrimmage counts.  While it makes sense for Aaron to double check the defensive coverage before running a play, the ad is actually encouraging you to double check your insurance coverage for the opportunity to receive discounts.

Nowadays, most insurance carriers provide for discounts or, more appropriately termed from an underwriting perspective, premium credits.  For instance, if you have a back-up generator to protect your home from the effects of a power outage, there typically is a credit that helps to reduce your premium.  There are more examples of available credits; however, the point is that you should check to see if you are appropriately underwritten, based upon the reality of your situation.  Many times, people go for years, despite improvements and alterations to their homes, without reviewing their coverage.  It helps to review your coverage limits, what’s actually covered and any details that have changed regarding your home (i.e. the installation of an alarm system, etc.) or autos and other valuables every year.

Additionally, most insurance companies also provide a discount for having more than one line of coverage placed with the same company.  Termed as bundling, if your home, auto, umbrella liability and collections policies are all placed with the same company, odds are that you are receiving a bundling discount on your premium.  Most of the time, it takes only having more than one policy with the same company to receive a bundling discount.  Discounts vary across companies and based upon the risk.

So there you have it.  That’s what the double check is all about.  Now that you understand the concept, you can take the appropriate steps to proactively manage your play regarding your insurance coverage.  While one major insurance company has mastered the art of advertising the concept, the savings and, more importantly, the discipline is available across the market, notwithstanding the company with whom you are insured.

Don't Blink!

Time flies.  That’s been a common saying throughout the ages.  And indeed, the older you get, the faster the time seems to pass.  I remember when I used to think of people my age as being old.  Not “over the hill” old, but old, nonetheless.  And although we are living longer and, in many cases, healthier lives, we still will face the inevitable reality of the kind of “old” that requires us to analyze just how we will manage our affairs as the burdens of a long life begin to take a toll on our bodies.

The truth is, once you live past a certain age, call it 55-60, odds are that your life expectancy, barring any catastrophes or abundant bad habits, will be relatively long.  Facts state that our body, like any living thing, has a life expectancy. Current estimates range from ± 90-95 years of age.  The average is currently 80, although that will likely increase as long as we continue to advance in our ability to keep the human body alive.  In the 1940s, antibiotics were widely introduced as a medical treatment for disease control.  During the 1950s, there was much advancement with medical technology.  In fact, the first hospice in the United States was not introduced until 1978.  Now there are hundreds throughout the country and world.  

Not that long ago people did not live as long as they are living today.  They worked, retired and had a few years until they expired.  While it’s a good thing that we are not experiencing that same cycle today, our current reality does come with some complications.  Those complications are related around care.

Indeed, one can live a fulfilled life without having all human faculties available. That said our activities of daily living (ADL) are susceptible to breakdown as we age.  Activities of daily living include; bathing, continence, dressing, eating, toileting, transferring and cognition. And, while assistance might be available from time to time, it’s not cheap to provide constant care.  In fact, most people who require care without a plan to pay for it end up exhausting most of their assets in order to fund required services (1).  Those without alternative resources typically rely on family members and friends, who have to skip work and sacrifice resources to deliver care. That simply drives the loss factor into the next generation’s ability to create wealth.  It’s estimated that 7 out of 10 people 65 years old or older will require an average of at least 1 to 3 years of long-term care (2).  

So, what’s the solution?  It starts with a plan.  If you are independently wealthy and can afford to let $7,000-$10,000 a month go towards care (3), then you might be OK.  Conversely, that $7,000-$10,000 could have gone to your heirs, your favorite charity, or remained in your estate if you didn’t have to use it for care. Notwithstanding your wealth, you could also invest in a long-term care policy. Similar to a life insurance policy, once you have satisfied the requirements for benefits (Needing assistance with at least two ADL or having lost cognitive ability) the long-term care insurance (LTCI) begins to reimburse you for qualified expenses.  You maintain your wealth, you keep your investments and you have a stream of money to assist you with the expenses relating to your care (4).

The problem with LTCI is that many people do not have it.  Similar to life insurance, the older you get, the more expensive the premiums.  In fact, only about 4.8 million people have LTCI coverage today.  The average age to purchase LTCI is 57, although many invest at a younger age (5).  The largest percentage of applicants (55%) falls between the ages of 55 and 64.  The problem is that not only are premiums higher as you age, but health conditions that might interfere with your ability to gain coverage are more likely at an older age.  The following statistics illustrate this point:

Age Range Decline % Due to Health Conditions

60-69 years old 27% of applicants
70-79 years old 45% of applicants
Less Than 50 years old 14% of applicants

Therefore, if you plan to have coverage, it’s best to plan relatively early, as premiums are lower and the likelihood of gaining approval for coverage is greater (6).

The moral of the story is that you are not getting any younger.  The older you get, the faster the time goes.  It’s never too late to plan for your needs as you age. And, LTCI does not only serve for old age related ADL deficiencies.  It also delivers benefits when a younger person suffers a disabling condition requiring care.  Benefits are typically cumulative and some policies have riders allowing for spouses to share benefits.  That’s especially helpful when one spouse is cared for by a healthy partner for a period of time prior to the other spouse requiring care at a later time.  Shared Care riders are becoming much more common in today’s LTCI policies.  Many life insurance products also have accelerated benefit riders to assist with LTCI needs as well.

Now is the time for you to plan for the future.  Having a LTCI policy will set you up for the inevitable expense of caring for you later in life.  That way, you can enjoy your relatives and friends, as opposed to enslaving them for your care.  Although they love you and would likely commit to assisting you, the sacrifices they make to assist will most definitely have a significant impact on their time, finances and quality of life.  Having a long-term care policy will provide the resources you need to allow them to enjoy you during your time of need.  And remember, Don’t Blink!  It goes by in a flash.

***
1. Medicaid requires one to exhaust personal assets significantly, prior to providing benefits.
2. 2015 Medicare and You National Medicare handbook, Centers for Medicare & Medicaid Services, Sept. 2014.
3. Estimate.  Amounts differ based on geography, level of care necessary and source of care.

4. LTCI policies require that a licensed physician authorizes that LTCI requirements have been met.  Care must typically be administered by a licensed professional and benefits begin to be paid after a contracted elimination period as defined in the policy. Policy terms differ and careful analysis is recommended prior to executing an agreement for coverage.

5. LIMRA  

6. Similar to Life Insurance, LTCI premiums are rated on factors including age and health conditions after medical underwriting

What Is A Credit Score?

You likely have heard of the term credit score however, can you explain what it is and how it’s derived?  Most people typically can’t explain how a credit score is derived or why it’s used, including those working in professions that rely on credit scores to deliver products. 

A credit score is a statistical method of assessing the likelihood that a borrower will pay back a loan.  The process originated in the 1950s by a company called Fair Isaac.  The scoring method became widely available in the 1980s and was used exclusively by the bank card and auto industries.  In the 1990s, credit scores were determined to be a reliable predictive source for mortgage performance as well. 

There have been several names attached to credit scores based on the company responsible for computing the score.  The Empirica Score is affiliated with Trans Union, the Beacon Score is affiliated with Equifax and the Experian/Fair Isaac Model is affiliated with Experian.  Scores range from 375-900 and are of virtually the same design at each repository.[1]

For instance, a credit score of approximately 700 indicates an approximate ratio of 123 good loans to 1 bad loan, while a score below 600 indicates a ratio of approximately only 8 good loans to 1 bad loan.  Therefore the predictive power of the credit score has been deemed to be very important for industries relying on the credit worthiness of their customers, including banks, mortgage companies, insurance companies and companies providing consumer credit.  In fact the insurance score, used to assist underwriters in assessing the risk associated with a specific client, relies very heavily on one’s credit score.

There are five key predictive variables that are analyzed to develop a credit score.

·       Previous Credit Performance (This is the most predictive variable in the computation)

·       Current Level of Debt

·       Time that Credit has been in Use

·       Pursuit of New Credit

·       Types of Credit Available

No one variable determines the score without consideration to all of the other variables.  Therefore, each category matters in predicting behavior.  The more recent the derogatory report relating to one’s credit, the more risk is assigned.  If one has maxed out on a credit limit, a higher risk is assigned.  If one has pursued multiple sources of credit evidenced by an abundance of inquiries to credit agencies, more risk is assigned.[2] The types of credit also play a role.  If you have established credit, that is actually a good thing, however, too much credit can be bad.  It’s not a good situation for your credit score to have no credit history however, while it might be positive to have 2 or 3 credit cards, it might not be a good thing to have 7.

So a credit score can play a vital role in your ability to gain access to many financial and insurance related products.  While it may be quite obvious to most that a credit score is relevant for a loan, it is not widely known that the credit score is also used to predict risk in the insurance industry.  For instance, if one has a poor credit score, it will certainly play a role in how an auto or homeowner’s policy is priced and ultimately if it is issued.  That’s because the insurance score, which also analyzes past losses and frequency of losses, puts a heavy weight on the credit score as well.

Credit scores are easy to obtain, computer generated and fair.  There is no consideration given to race, nationality, religion or any other protected class.  As a result of the most recent financial meltdown and the resulting foreclosures and personal bankruptcies, it’s likely that the credit scoring model will continue to receive scrutiny as time moves forward.

So now you know more than most professionals know about credit scores.  While they are sometimes controversial, they continue to play a vital role in the decision making of many business transactions.

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[1] The Credit Score methodology has been challenged during recent years and some of the calculations and scoring originally set could have been altered.

[2] If inquiries are related to the purchase of a new car or a new home, multiple inquiries are less of a factor.  Additionally, more recently, regulators have required credit agencies to allow consumers to be able to review their credit report more frequently without a malicious effect on the credit score.

Narrow Your Focus

You’ve undoubtedly heard of the term “Narrow Network” if you have been listening to any of the rhetoric surrounding the Affordable Care Act (ACA) and the Marketplace (Exchange) plans.  We have discussed this concept numerous times over the past several years.  Well, brace yourself, because the reality of narrow networks is about to hit everybody, even those willing to pay for a large network.

A network is a collection of hospitals and health care providers that have agreed to specific terms when caring for patients who are members of an insurance company’s specific health plan.  When receiving care from a network provider, the member will receive discounted rates and more favorable terms for co-pays and out of pocket expenses.  When using a doctor or health care facility that is “Out of network,” the costs to the member are typically significantly higher.  Pretty simple concept and understood by most health care consumers.

Recently, health insurance companies have created health plans with narrow networks to provide more economical premiums for their members.  The narrow network assists the insurance company in controlling costs and the health care provider gains greater market share, thus allowing it to provide the services at a better value to the member.  So what’s the catch?

American consumers, especially those accustomed to employer-sponsored health insurance, have typically not been astute consumers for health care services.  They have enjoyed large provider networks with an abundance of choice pertaining to where they receive care (Excluding those who are in an HMO program).  For the time being, it appears that the employer (Group) plans will continue to have a choice when implementing a plan that supports a large network.  However, for individual plans, be prepared to enter the narrow network domain.

Recently, a major regional carrier announced that beginning in 2016 they would no longer offer their Broad Network PPO plan.  This plan type typically included dozens of hospital networks, including teaching hospitals in the Chicago market and hundreds of doctor groups.  They will replace those Broad Network Plan options with a narrower network, which will likely exclude many of the most sought after teaching hospitals and popular doctor groups in the Chicago region.

The reason is simple.  Over the past couple of years, with the requirements of the affordable care act upon them (Us), many health insurance companies aggressively sought business in the individual markets and added thousands of members as customers.  Unfortunately, those members cost much more money than our government and the health insurance companies anticipated.  For example, one company had a negative swing in profits of over $900,000,000 in 2014 and the trend in 2015 is no better.  In fact, we’re not the only state with this problem.  The same situation is occurring in Texas, whereby a similar strategy will be enforced in 2016. 

So how does this affect you?  Be prepared for the trend to continue.  If you have had the luxury of receiving care at the facility of your choice, the market is changing.  You will likely have to invest time and energy to insure that the health plan that you choose includes the hospital(s) and provider(s) that you desire.  If you are familiar with the HMO model of care, whereby your primary care physician acts as your quarterback and a specific hospital network is where you receive in-network care, you will likely see opportunities for savings on premiums and likely see an abundance of people shift back to that model.  Modern day HMOs are somewhat related by design to Accountable Care Organizations (ACO) which are rewarded for the quality of their care.  Since they are compensated differently, they might be motivated to get you well and to keep you well.

 You will undoubtedly see the trend continue and sooner or later even penetrate the employer (Group) sponsored plans.  In fact, there are many companies already practicing the narrow network model across the many markets that they serve, including in the large and small group markets.

So now is the time to prepare to choose.  Choice networks have always been misnamed, as they typically allow for less choice.  So as the New Year and the open enrollment period approaches, prepare to narrow your choices, unless you want to pay dearly for your health care needs.

Choppy Waters Remain for the Health Insurance Marketplace

Now that the nation has settled into the reality that the Affordable Care Act (ACA) is not going away, at least anytime soon, the challenge of providing affordable health insurance options through Healthcare.gov and some of the state marketplaces remains apparent.  Of course, if you qualify for a premium subsidy or cost sharing subsidy, the costs are much more tolerable, however, you must be able to substantiate your income, or lack thereof, through your federal tax return.  As of the end of the summer, it was projected that as many as 1.5 million persons who had received a premium subsidy in 2014 had not filed tax returns.

The challenge is complex, as the cost of sending young adults to medical school, the cost of medical equipment, drugs, research and development and administration associated with all of the required protections and technology are not cheap.  They will undoubtedly continue to rise.  Here are some hard and fast stats on what’s happening in some of the states regarding projected premiums for 2016:

·       Florida has approved an average 9.5% increase in its individual marketplace plans.  While some have actually decreased, Aetna requested a 20.9% increase and was approved by state regulators for a 13.9% increase.  The ACA marketplace plan offerings range from a 9.7% decrease by Florida Health Care Plan to a 16.4% increase by United Healthcare of Florida.  (Florida Office of Insurance Regulation via The Wall Street Journal and the Orlando (FL) Sentinel)

·       Iowa’s largest insurer, Coventry Health Care, was approved for a 19.8% increase.  Wellmark Blue Cross and Blue Shield was also granted an increase. It is projected that the rate increase will affect 35,000-47,000 policyholders.  (Iowa Insurance Division via The Des Moines Register and The Quad-City Times)

·       The average increase in Idaho is approx. 23% across the Blue Cross of Idaho Health Service plan offerings.  The increases were deemed reasonable after review by the Idaho Director of insurance.   (Idaho Officials via the AP)

·       Increases up to 25.4% have been approved in the state of Kansas. (AP)

·       Blue Cross and Blue Shield of N. Mexico has pulled out of the N. Mexico ACA Marketplace after not being able to reach an agreement on rate increases with state regulators.  BCBS of N. Mexico lost $19.2 million on 35,000 individuals covered during the last year. (Albequerque (NM) Journal)

·       The Nevada Health Plan COOP, one of the state based non-profit entities that was authorized to use federal funds to start up a health plan under the ACA, has decided to close.  Co-op CEO Pam Egan “said in a statement that a second year of high claims costs and limited growth projections for enrollment made it ‘clear’ that the insurer would have a hard time providing ‘quality care at reasonable rates’ in 2016.” Nevada Health CO-OP reported a $19.3 million operating loss last year and a $3.5 million loss in the first quarter of 2015, according to documents filed with the Centers for Medicare and Medicaid Services. (Las Vegas Review-Journal)

Not mentioned often enough is that the trend for more affordable health insurance options is through the utilization of narrow networks.  In a nut-shell, a narrow network is simply a limited choice of providers for your medical needs.  As an example, 5 out of 6 Georgia ACA Marketplace plans in the “Silver” category provide networks with a limited choice of doctors when compared to the larger networks available through plans offered outside of the Marketplace. (Atlanta Journal-Constitution)  While Georgia’s limited network situation seems to lead the nation, most states have similar circumstances in the most affordable premium categories.

The Affordable Care Act certainly has expanded the availability of health care options to many.  Like any other entitlement, it comes with a cost and sacrifices.  Taxes and fees associated with the ACA are abundant and add to the cost of providing insurance.  Additionally, the infamous “Cadillac Tax,” planned to take effect in 2018, will impose an excise tax on companies that provide a plan deemed  “To rich” based on annual premiums.  This tax is receiving much attention in the coffers of the House and Senate as it is projected to affect 1 in 4 employers.  The tax is 40% on amounts over the threshold.

Therefore, be prepared to continue to navigate through the rough waters of reality as you analyze your health insurance options.  There is plenty more to discuss, however, that is enough for now.  There will certainly be some squalls in the seas of change as we continue through the many challenges that lie within the act.

Reporting Requirements Revisited

Despite delays in the implementation of the Affordable Care Act’s (ACA) reporting requirements, 2016 is the year where the rubber hits the highway.  IRS Code section 6055 (Minimum essential coverage) and 6056 (Large employer reporting) are both required for the 2015 plan year.  What that means is that if you are a large employer (More than 50 Full-Time Employees-including Full-Time Equivalents (FTE)), section 6056 requires that you submit form 1094-C (Transmittal form) and 1095-C (Individual coverage summary), providing information necessary for the IRS to confirm coverage offered by the company is in compliance with the ACA requirements and properly identifies employees who are covered by the plan.  Section 6055 covers Self-Insured employers and Health Insurers.  For fully insured groups, the Health Insurer has the responsibility to report on behalf of the plan and to provide notice to each covered employee on form 1094-C (1095-C for Applicable Large Employers).  For large employers, the employer remains responsible for reporting the transmittal form, notwithstanding the fact that the health plan is “Fully Insured.”

Confused yet?  Well, the regulations are not easy to understand and implement, therefore, the purpose of this communication is to make you aware and to encourage you to ask questions regarding compliance.  This communication only scratches the surface of what you need to know.  Keep in mind, measuring your full-time employees is required on a monthly basis. Now is the time to be curious.

Why?  Penalties for non-compliance are stiff!  Employers that do not submit an annual return or provide individual statements to all full-time employees may be subject to a penalty up to $250 per return (Employee), with a maximum annual penalty of $3 million.

There are companies providing assistance for this reporting requirement and even they are just starting to figure out how to appropriately assist, based on final regulations that have only been available for a relatively short period of time. 

Like all other aspects when it comes to the government collecting data, it’s not simple and penalties for non-compliance are stiff, therefore, start your preparation process now.

About Hipskind Seyfarth Risk Solutions

Hipskind Seyfarth Risk Solutions offers a wide-range of insurance products for individuals and businesses of all sizes. HS Risk Solutions, located in Chicago, provides expertise in the area of health and ancillary benefits and property and casualty insurance for businesses and individuals. For more information, visit HS Risk Solutions website at www.hsrisksolutions.com or on Facebook atwww.facebook.com/HSRiskSolutions.

DISCLAIMER: Hipskind Seyfarth Risk Solutions is not providing tax advice in the above post and therefore should not be deemed as such.