Defined contribution and individual health insurance – the next benefits trend

Defined Contribution and Individual Health Insurance - The Next Benefits Trend

Zane Benefits is the online alternative to group health insurance

The ZaneHRA Software provides a 100% paperless administration experience to employers and insurance professionals that want to offer better health benefits without a traditional group health insurance plan at lower costs. For more information about ZaneHRA, check out our Software.

Employers use ZaneHRA to open and manage their own stand-alone HRA or defined contribution health plan completely online, electronically enroll participants and print welcome kits, and monitor expenses and reimbursements in real-time.

Employees obtain their own individual health policies from a designated health insurance broker (see below), submit premium and medical expenses online, via fax, or mail, and receive same-day reimbursement via check, payroll addition, or direct deposit. Zane Benefits does not sell health insurance.

Insurance Professionals partner with Zane Benefits and use ZaneHRA to provide clients with a cost-saving health benefits option. Insurance brokers earn compensation on ZaneHRA referrals and retain 100% of the health insurance compensation from carriers. ZaneHRA is distributed by leading health insurance carriers, agencies, brokers, and accountants.

DISCLAIMERThe 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

For additional resources on Health Care Reform, visit

www.zanebenefits.com/blog

Agenda

1. The Core Problem with Group Health Insurance

2. The Solution - "PURE Defined Contribution Healthcare"

3. What is PURE Defined Contribution?

4. What is the Health Insurance Marketplace?

5. Pros and Cons for Employers and Employees

6. Opportunities for Health Insurance Professionals

The Core Problem with Group Health Insurance

Group Health Insurance Costs Too Much! To understand solution, we must answer the question:

Why do employers offer health insurance?

What's the Solution?

Why does employer offer health insurance?

...Recruiting and Retention:

1. It is tax deductible to the business

2. Employees get the benefit 100% tax-free

3. It is guaranteed-issue for sick employees(i.e. Moral Obligation)

So.... the solution must provide 1, 2 & 3 and reduce or fix the employer's cost

The Solution - PURE Defined Contribution Healthcare

The Solution is "PURE Defined Contribution"

Employer should:

1. Cancel the group health insurance plan

2. Define a budget and create a defined contribution plan

3. Select an insurance professional to help employees "navigate" the Health Insurance Marketplace (optional)

4. Reimburse employees for out-of-pocket medical/premium expenses

What is PURE Defined Contribution?

"PURE Defined Contribution" is a Stand-Alone HRA

● Stand-alone HRA is "purest" form of Defined Contribution.

● HRA stands for “health reimbursement arrangement."

● It's an “arrangement” for tax-free medical expense reimbursement.

● HRAs function like business expense accounts. HRAs are NOT health insurance

HRA Compliance Requirements

1. HIPAA: Employee medical privacy law

2. ERISA: Federal law

3. IRS: Section 105

4. PPACA: Health reform

An HRA is an employer-sponsored, self-funded health plan governed by:

Need Compliant HRA Administration Software

HRA Software Overview - Simple

1. Determines contributions

2. Sets eligibility

3. Picks start date

The Employees....

4. Enrolls employees

9. Reimburses employees for "expenses"

The Employer...

6. Purchase individual policies

7. Submit "expenses" for reimbursement

5. Sends welcome kits

Like Auto Insurance

HRA Claims Processing...

8. Adjudicates employees "expenses"

Like Business Expense

Reimbursements

Defined Contribution + Health Insurance Marketplace Link to Health Insurance Marketplace

How Defined Contribution Addresses Problem

Why does employer offer health insurance?

...Recruiting and Retention:

1. It is tax deductible to the business.

2. Employees get the benefit 100% tax-free.

3. It is guaranteed-issue for sick employees.(i.e. Moral Obligation)

Defined Contribution addresses #1 and #2+

Health Insurance Marketplace addresses #3

What is the Health Insurance Marketplace?

What is the Individual Health Insurance Marketplace?

Earlier this year, the government re-branded health insurance exchanges as Health Insurance Marketplaces.

The Individual Health Insurance Marketplace is the ACA's health insurance exchange ("AHBE") for individuals, which provides:

1. Individual Plan Standardization (standardizes individual health insurance products within specific metal tiers)

2. "Unbiased" Individual Plan Comparison (allows individuals to compare all plans in one "unbiased" place)

3. Tax Credit Administration (determines tax credit eligibility/amount and facilitates advanced payment)

"Helping individuals compare standard individual health insurance options"

Understanding How the Health Insurance Marketplace Works

Step 1: Individual goes to his or her state's Individual Health Insurance Marketplace website (e.g. www.coveredca.com).

Step 2: Individual completes 1 of 2 applications:i. Application for Insurance with Tax Credit (e.g. sample).ii. Application for Insurance without Tax Credit (e.g. sample).

Step 3: Individual health insurance marketplace displays all available plan options within metallic tiers and displayed cost will factor in tax credit.

Step 4: Individual selects plan.

Step 5: Individual health insurance marketplace bills individual for his or her portion of premium (i.e. the total premium minus tax credit) and forwards payment to the carrier.

Advantages of the Individual Health Insurance Marketplace

The Individual Health Insurance Marketplace will have the following 4 key advantages:

1. Choice

2. Portability

3. One Stop Shop / Convenience

4. Tax Credits

#1 Choice

Individuals will be able to choose the health insurance plan that best fits their families' needs based on standard metallic levels:

Within each metallic level, individuals will be able to choose different combinations of:

● co-pays● deductibles● co-insurance● networks

#2 Portability

Individual health insurance is not tied to employment, meaning they will be able to take their health insurance with them when they switch jobs.

This is a major advantage over traditional employer-sponsored health insurance.

Portable Memory Analogy

#3 One Stop Shop / Convenience

One Website and One Application gets individual access to:

● All available plan options

● Premium tax credits

Best of all, it will be "unbiased" (unlike sites like ehealthinsurance.com).

#4 Tax Credits

SPECIAL INCENTIVE:

Massive tax credits* will be available for households earning up to 400% of the FPL (majority of Americans).

Individuals can only access the premium tax credits through the INDIVIDUAL health insurance marketplace.

(*Requires Employer to Drop Coverage)

Household Income & Size are Key Variables for Individuals

Tax credit calculator coming soon at http://navigator.zanebenefits.com

Household Size 100% of FPL 400% of FPL Premium Cap Range

1 $11,490 $45,960 $0 - $363.85 / mo

2 $15,510 $62,040 $0 - $491.15 / mo

3 $19,530 $78,120 $0 - $618.45 / mo

4 $23,550 $94,200 $0 - $745.75 / mo

5 $27,570 $110,280 $0 - $873.05 / mo

6 $31,590 $126,360 $0 - $1,000.35 / mo

7 $35,610 $142,440 $0 - $1,127.65 / mo

8 $39,630 $158,520 $0 - $1,254.95 / mo

2013 FPL Guidelines

Average Group Single Premium in 2011 was:

$435.17

Average Employee +1 Premium in 2011 was:

$860.75

Average Group Family of 4 Premium in 2011 was:

$1251.83

Individual Health Insurance Costs in 2014

Actual individual health insurance premiums are TBD.

BUT, you can estimate your costs using a tax credit calculator.

For example, see Cover California Cost Estimator

Accessing the Individual Health Insurance Marketplace

You can only access coverage during designated Enrollment Periods

● Initial Enrollment Period, October 1st, 2013 - March 31st, 2014

● Annual Enrollment Periods, October 15th - December 7th● Special Enrollment Periods, similar to cafeteria plan rules

Why Enrollment Periods?

Annual enrollment periods ensure that individuals and families don’t wait until they get sick to enroll in coverage.

Pros and Cons for Employers and Employees

Pros and Cons for Employers

PROS:

1. Recruiting and Retention - tax-free health benefits remains intact via HRA

2. Flexibility - full control over HRA design/cost of benefits

3. Savings - individual health plans (with tax credits) < group health insurance

4. Time - employer is out of health insurance business

CONS:

1. Change - it's hard

2. Employee perception - it might be negative

Pros and Cons for Employees

PROS:

1. Choice - any plan, any carrier, any deductible, any coverage options

2. Portability - secure coverage regardless of employment status

3. Tax Credit Eligibility - eligible for tax credit

4. Savings - individual health plans (with tax credits) < group health insurance

CONS:

1. Change - it's hard

2. New Responsibility - increased initial time investment

Opportunities for Health Insurance Professionals

The Benefits Shift - B2B to B2C

Healthcare is shifting from a business-to-business (B2B) to a business-to-consumer (B2C) marketplace.

PURE Defined Contribution expedites this shift.

Are you prepared to help employees choose an individual health plan?

If not, you may miss the opportunity...

How Brokers Benefit from Defined Contribution

1. Purchase individual policies

● Relationship with employer and employees○ Two Sales - 1) Employer and 2) Employee

● Employer = lead generator ○ Average annual turnover = 50% for small businesses

● New role - help employees choose vs sell○ Like investment advisor helps employee choose best

401(k) investments

HUGE Opportunity

What's in it for the Broker?

1. Recurring compensation on defined contribution administration fees (need partner)

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 "Employee Services"

How Do I Seize The Opportunity?

In order to seize the opportunity, broker needs to:

1) Create Efficient Individual Sales Process ● Expertise of Individual Marketplace● Quote Engine

2) Find Defined Contribution Partner:● Sales / On-boarding / On-going Support● Branding / Welcome Packet Customization● Insurance / Quote Engine Integration

Summary / Next Steps

Summary/Next Steps

Summary

● The core problem is that group health insurance costs too much.

● The ideal solution must provide tax preference, guaranteed issue and cost savings.

● PURE Defined Contribution provides tax preference. Individual Health Insurance Marketplace provides guaranteed issue and savings.

● Healthcare is shifting from a business-to-business (B2B) to a business-to-consumer (B2C) marketplace.

Next Steps

1. Create Efficient Individual Sales Process.

2. Find Defined Contribution Partner.