The Uncertainty in Health Care Policy+ How Voluntary Benefits Can Bridge
the Employee Generation Gap
+ The Ins and Outs of Health Plan Alternative Funding
+ Notice and Disclosure Requirements Checklist
+ Health Reform in 2017: A Timeline
Crystal Connection
2017
A Y E A R IN RE V IE W
Trending News in Employee Benefits
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A collection of articles to help employers navigate
health care compliance and stay abreast of
employee benefits trends.
Copyright 2018 by Crystal & Company. The information contained in this document is neither intended nor implied to be legal or regulatory advice or counsel. It is provided for general informational purposes only and represents a summary based on publicly available sources. We make no representations about and assume no responsibility for the accuracy or completeness of information contained in this document and such information is subject to change without notice.
ContentsThe Uncertainty in Health Care Policy: A Year in Review
2017 Health Reform Timeline
Bills to Watch in 2018
The Harsh Reality of Identity Theft and What To Do About It
How Voluntary Benefits Can Bridge the Employee Generation Gap
The Ins and Outs of Health Plan Alternative Funding
Wage & Hour Insurance Can Pay Claims for Unpaid OT Losses
Mark Your Calendar: Various Notice and Disclosure Requirements for 2018
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 32
And yet, despite the uncertainty, employers must start preparing for the most likely changes in policy in 2018 and beyond.
Prepare for Ambiguity When Trying to Comply with Healthcare RegulationsShortly after his inauguration, President Trump signed an executive order directing federal agencies to use discretion in enforcing mandates in the Affordable Care Act, a.k.a. the ACA or Obamacare. While this was an effort to ease the burden on employers, the effect has been to create an environment of uncertainty because government regulators have stopped issuing guidance on how to comply with the current law, leaving many ambiguities in place.
One particular area of concern is the enforcement of the ACA’s core requirement that companies offer health insurance to employees working more than 30 hours a week or, if they don’t, that they pay a tax. Still unclear is whether the Internal Revenue Service (IRS) will be enforcing the law as it is written today.
While the current administration continues efforts to chip away at the mandates of the ACA, the Internal Revenue Service (IRS) has begun issuing employer shared responsibility penalty notices in late 2017 for the 2015 calendar year.
As it appears the IRS will continue to enforce the employer mandate, employers should continue to comply and file all ACA-related paperwork unless the government explicitly says otherwise.
The Various Attempts to Repeal the ACARather than enforcing ACA regulations, Congress focused its efforts on repealing the law through a reconciliation (or budget) bill. To pass into law, this type of bill only needs a simple majority of votes from Congress. In effect, lawmakers would only need to lean on the Republican side of the aisle, garnering just 50 of their votes (and the Vice President’s vote as the tie breaker).
Central goals of the first two budget bills proposed in 2017—the American Health Care Act (AHCA) passed by the House in May and the Better Care Reconciliation Act of 2017 (BCRA) proposed by the Senate in June—were to allow state waivers of the ACA’s essential health benefits, phase out Medicaid expansion, terminate various ACA taxes and introduce new tax credits. Also, they planned to reduce the individual and employer mandates to $0. Additionally, the AHCA would have placed a surcharge on premiums for individuals who have a gap in coverage.
The Uncertainty in Health Care Policy
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by Michael S. Grant
Since the new administration took office in January 2017, there have been numerous proposals with respect to the country’s healthcare laws. This made it a challenging year for any organization that offered health insurance to its employees. Employers must plan benefits programs for the near and long term and also give their employees guidance. But even the most basic rules about who is entitled to what sort of health coverage are still up in the air.
A Year in Review
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 54
higher deductibles than typically offered under current law. If this approach is adopted, employers may want to leverage their newfound flexibility to offer lower-cost plans.
Additionally, a popular sentiment (included in the first two GOP proposals) is to raise the contribution limits for Health Savings Accounts (HSAs), which are often combined with high-deductible insurance, to give participants a way to cover their out-of-pocket expenses.
Understanding the trade-offs between keeping your current benefit design and moving to a plan that offers less coverage or higher deductibles can mean staying ahead of the curve and saving your company money. However, employers may well decide that they don’t want to adopt these lower-cost plans because they want to keep their workforce healthy and retain employees who might otherwise move to other companies with richer benefits.
Nonetheless, benefit managers should prepare to discuss whether to cut benefits if additional changes to the ACA materialize.
Part-time Workers May Press for Employer-Sponsored Health InsuranceIndeed, even though none of the proposed health reform bills came to a vote, the administration can perform administrative actions to reduce government spending on healthcare and dismantle parts of the ACA that don’t require Congressional approval.
For example, they might be able to withhold a class of payments to insurance companies called cost-sharing reductions (CSRs), a move that many experts suggest will destabilize the individual insurance market. If this were to happen, employers may see that part-time employees who have been receiving subsidies for buying health insurance on exchanges will ask for coverage through their workplace.
We have already seen the administration extend its power: On October 6, the administration expanded the types of employers and insurers that could exempt themselves from covering contraceptives by claiming religious objections.
Employers Should be Aware of Evolving State Laws As long as states can prove their state system will provide comprehensive and affordable coverage that will cover as many people as would have been covered by the ACA, then they can be granted a waiver for certain ACA requirements (per Section 1332 of the law). With this waiver, a state would directly get the federal funding that would have otherwise gone to support the ACA.
Because of the uncertainty in the health care system, states are increasingly taking advantage of this section and taking health reform into their own hands. For example, states are implementing or proposing their own health care laws, looking for flexibility in implementing and maintaining ACA mandates despite what happens at a federal level, and
proposing single-payer systems for their respective states. As the consumer experience grows increasingly individualized by state, multi-state employers will need to navigate these changes and make sure their benefit programs are in compliance across all states where they have employees. These types of changes can also affect the population of consumers that choose individual versus group-sponsored coverage, ultimately affecting the types of plans employers offer.
Looking AheadAt the end of the year, the President signed a tax overhaul bill that will repeal the individual mandate in 2019. The delay is meant to give Congress time to implement measures that will stabilize the individual market before the repeal takes place.
As the health care reform debate continues, there are a number of “hot” issues to look out for in 2018.
Congress can attempt to pass a reconciliation health care bill in 2018, but only if they pass a new budget resolution for the 2018 fiscal year. Then, they can again try to pass a health care repeal bill that only requires a simple majority of votes from Congress.
Meanwhile, bipartisan efforts to stabilize health insurance costs are brewing. Additionally, support for Bernie Sanders’ Medicare-for-all bill (his approach to a single-payer system of coverage) had swelled among many Democrats in Congress. Whether that support continues in 2018 is yet to be seen.
Additionally, look out for single payer systems and changes to health reform laws at the state level, measures by Congress to stabilize the individual market before the individual mandate repeal takes place, attempts to repeal various ACA taxes (including the Cadillac tax) and an increasing number of high-deductible plans.
Regardless of what changes emerge in the health care landscape, employers should be flexible when considering their benefit plans and entertain alternative approaches they may have passed up in previous years.
Michael S. Grant is the Executive Managing Director of the firm’s Employee Benefit Services practice.
Contact Michael at 212.504.5926 or [email protected]
These first two bills not passing muster, on July 19, the Senate released a third bill: the Obamacare Repeal Reconciliation Act (ORRA) of 2017. This legislation also promised to set the penalties of the individual and employer mandates to $0 and end premium tax credits and cost-sharing reduction payments. But it didn’t include provisions to defray consumer costs or change ACA provisions. In a matter of days, talks of the bill eventually turned into a consideration of a “skinny repeal,” which consisted of repealing a few major provisions of the ACA. However, by July 27, the bill—given the official name of the Health Care Freedom Act—was also voted down.
Then, two weeks before the budget resolution was set to expire on September 30, a group of Republican senators released their final fast track repeal effort of 2017. This bill, informally named Graham-Cassidy, was much like its predecessor bills. It would have repealed the individual and employer mandates, removed existing guarantees for coverage of pre-existing conditions, replaced Medicaid expansion with state block grants that would disappear completely in 2027, and terminated premium credits and cost-sharing subsidies. In addition, it would have changed federal government funding amounts to states (some would gain, while others would lose funding).
With all of these bills, the Congressional Budget Office (CBO) estimated millions more Americans would go without coverage, with estimates ranging from an additional 15 to 31 million people (in addition to the 28 million under the current law).
Finally, in a last minute effort to undermine the ACA, Republicans effectively added the repeal of the individual mandate to the tax reform bill passed into law in December.
Two Considerations in Light of an Employer Mandate RepealWhile it is true that starting 2019, individuals who don’t have health plan coverage will no longer pay a penalty, consider how your benefits will change if the employer mandate were repealed.
The various Republican bills of 2017 would have repealed the requirement that employers with more than 50 employees must offer health insurance to full-time employees. They would also have allowed states to eliminate some of the essential benefits that the ACA required corporate-sponsored insurance to cover.
Additional repeal efforts could resurface in 2018, and organizations may want to begin to consider how they would react if the employer mandate were repealed and other reforms are implemented. It may be possible to reduce expenses by offering insurance to fewer employees or switching to less generous plan structures.
If the employer mandate were to go away, while some organizations may consider dropping insurance on the assumption that their employees will be able to buy individual insurance, most would likely keep their current insurance programs in place, at least in the short term. This is because employer offerings tend to be more robust than what is available in the individual market, and are an effective way of retaining and attracting top talent.
Evaluate high-deductible plan options.
Many aspects of the Republican bills encouraged health insurance policies that have more limited benefits and
Organizations should consider how to plan for additional repeal efforts that could resurface in 2018
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 76
2017 HEALTH REFORM TIMELINEJAN 12Congress passes a budget resolution.
JAN 20President Trump issues his first executive order on health care reform.
FEB 10Tom Price is confirmed as secretary of HHS.
MAR 6 House Republicans propose legislation called the American Health Care Act (AHCA).
MAR 22 The Competitive Health Insurance Reform Act of 2017 to repeal the McCarran-Ferguson Act exemption with respect to the business of health insurance is approved in the House and passes to the Senate for consideration.
MAY 4 The House passes the AHCA bill. However, the Senate never puts it to a vote, as they craft their own version of the bill.
JUN 22 The Senate releases the Better Care Reconciliation Act of 2017 (BCRA) bill for discussion.
JUL 17 The Senate concedes defeat of the BCRA bill without putting it to a vote.
JUL 19 The Senate releases the Obamacare Repeal Reconciliation Act (ORRA), which morphs into the “skinny repeal bill.”
JUL 27The “skinny repeal bill” (aka, Health Freedom Act) is voted down.
AUG 1A judge rules in favor of allowing 17 states to weigh in on the lawsuit House v. Price, regarding CSR payments.
AUG 31A bipartisan group of 8 governors release a plan for stabalizing the ACA.
SEPT 13The GOP release its final attempt at a reconciliation bill, but it doesn’t go to a vote for lack of support. Bernie Sanders releases his Medicare-for-all bill.
SEPT 26The CHRONIC Care Act for Medicare passes the Senate and moves to the House for a vote.
SEPT 29Tom Price resigns as HHS secretary.
OCT 4 Congress authorizes funding of CHIP for another 5 years.
OCT 6HHS limits contraceptive coverage regulations imposed by the ACA.
OCT 12President Trump issues an executive order that expands the use of AHPs, STLDI plans and HRAs.
DEC 22 President Trump signs a tax bill that repeals the individual mandate.
Want more details? Go to www.crystalco.com/ACAUpdateLog. Connect with us on Facebook, LinkedIn, or Twitter to receive timely updates.
BILLS TO WATCH in 2018Various bills related to health care and insurance currently up for review in Congress.
KIDS ACT OF 2017 (S. 1827) AND HEALTHY KIDS ACT (H.R. 3921)Extends to funding through 2022 for the Children’s Health Insurance Program (CHIP), among other provisions, allow states to adopt more restrictive eligibility standards.
CHRONIC CARE ACT OF 2017 (S. 870)Implements Medicare payment policies designed to improve the management of chronic disease, streamline care coordination and improve quality outcomes.
PROTECTING SENIORS ACCESS TO MEDICARE ACT (H.R. 849)Terminates the Independent Payment Advisory Board established by the ACA, which makes recommendations regarding reductions in Medicare spending.
NO TAXPAYER FUNDING FOR ABORTION AND ABORTION INSURANCE FULL DISCLOSURE ACT OF 2017 (H.R. 7)Permanently prohibits the use of federal money (including subsidies for health care plans) for abortions. Prohibitions do not apply to abortions in the case of rape or incest, or where a physical condition endangers a woman’s life unless an abortion is performed.
COMPETITIVE HEALTH INSURANCE REFORM ACT OF 2017 (H.R. 372)Repeals the McCarran-Ferguson Act exemption to the business of health insurance, so that antitrust laws can be enforced against health and dental insurance companies that engage in unfair methods of competition.
SMALL BUSINESS HEALTH FAIRNESS ACT OF 2017 (H.R. 1101)Amends ERISA to allow small businesses to join together in association health plans across state lines.
EMPLOYEE FAIRNESS AND RELIEF ACT OF 2017 (H.R. 661)Allows health insurers in the small group market during 2013 (grandfathered plans) to offer coverage outside the health insurance market exchanges.
SELF-INSURANCE PROTECTION ACT (H.R. 1304)Ensures federal government cannot regulate stop-loss insurance. The bill doesn’t restrict regulation at the state level.
FOR MORE INFORMATION Go to congress.gov
A summary of events related to health care reform that transpired last year.
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 98
Some 56% of Americans say they are stressed by their financial situation, and more than half of those say that this distracts them from work.
Baby Boomers, Generation Xers, and Millennials see the world differently, but they share one thing in common: financial stress. Smart employers offer a range of voluntary benefits to meet the distinct needs of each generation.
In May of 2017, the names and ID numbers of 54,203 Molina Healthcare members were stolen by someone within the organization. To make amends, Molina gave members all new account numbers, plus a free year of identity theft services. Then, in October, one of the largest data breaches in history occurred, this time to Equifax, which may have exposed the confidential information of 143 million Americans. In response, Equifax also offered anyone free identity theft protection for one year.
But these are just two of the few events that made it to the news.
Over 540 data breaches occurred in 2017, affecting almost 2 billion records. This is according to The Privacy Rights Clearinghouse, an organization that advocates for consumer education related to privacy. Breaches range from credit card fraud and hacking to unintended disclosure and physical loss of devices.
On average, it takes a victim an estimated 200 hours and $13,500 to resolve an identity breach, according to a survey conducted by the Ponemon Institute as reported by Consumer Reports.
Financial consequences identified by victims of the theft (as noted by Ponemon) include:
• Out-of-pocket payments to restore health insurance coverage
• Diminished credit score
• Lost time and productivity trying to fix inaccuracies in a credit report
• Incurred legal fees
• Increased health insurance premiums
Additionally, few victims say they have completely resolved the consequences of the theft.
Identity Protection Services With these numbers, it’s easy to see how an identity breach could negatively impact your employees’ productivity. Offering your employees access to high quality identity theft protection makes great business sense and can go a long way to help both you and your employees sleep well at night.
Services can include but are not limited to:
• Credit-monitoring
• Complete identity theft restoration services
• Access to legal and regulatory experts
• Assistance in the remediation of the incident
• Advanced warnings about ongoing threats and vulnerabilities
Increasingly, consumers appreciate the value of identity theft services protection, and employers are responding by integrating this type of coverage in their total compensation packages.
Susan Glenn is the Director of Communications for Employee Benefit Services.
Contact Susan at 646.810.3451 or [email protected]
Not since the 1967 Summer of Love has the generation gap been as striking as it is today. But today’s conflicts are less about campus protests and stern lectures concerning the appropriate length of hair for a young man. Rather, the new generation gap is most visible in the workplace as employees of an ever-widening range of ages demand employers to accommodate their unique needs.
The Baby Boomers—that generation that chanted “Never trust anyone over 30”—is now well over 50, steadily pushing back retirement in fear that meager savings and soaring healthcare costs will consign their final years to survival on ramen noodles.
Their children—those Generation Xers inspired to self-actualization by the Reagan Revolution—are now subordinating their needs to take care of their offspring—and often their parents, too. They’re paying higher medical bills and confronting the cruel reality that the college education they took for granted may be unaffordable for their kids.
Millennials—who largely entered the workforce in the Obama era—use the social media universe to digitally integrate their personal life, work, health, and wellness in ways foreign to their older coworkers. Or at least they try to when they can get their minds off the crippling burden of their student loan debt.
The Challenge for EmployersSmall wonder that many executives are bewildered as they look at the unprecedented diversity of their coworkers pondering how they can provide a workplace and benefits package that meets such a divergent array of needs. Yet when you listen closely to workers of every age, some common themes come through as loudly as if the entire company held a sit-in on the executive floor demanding, “Financial security now!”
While most companies don’t face picket lines, employee stress is manifested in other even more disruptive ways: employee absenteeism, depression, illness, and loss of productivity. Some 56% of Americans say they are stressed by their financial situation, and more than half of those say that this distracts them from work, according to a 2017 Workplace Benefits Report by Bank of America Merrill Lynch.
Most employers use a menu of optional insurance products—often called voluntary benefits— that can be paid for through convenient payroll deductions. Some of these products are new, while others are improved versions of existing choices. But all of them help employers attract and retain talent and provide employees with crucial tools to deal with all-too-common issues. Here are some of the most common needs and approaches to help meet them.
THE HARSH REALITY OF IDENTITY THEFT AND WHAT TO DO ABOUT IT
HOW VOLUNTARY BENEFITS CAN BRIDGE THE EMPLOYEE GENERATION GAP
by Susan Glenn by Ciro Giué
On average, it takes a victim an estimated 200 hours and $13,500 to resolve an identity breach.
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 1110
From the moment they start their first job after college, members of the millennial generation have significantly more financial stress than their parents and grandparents simply because of their much higher student debt. In 2012, 40% of all 25-year olds had outstanding student loans, up from only 25% in 2003, according to the Federal Reserve Bank of New York. The average amount owed nearly doubled to $20,326. Companies with a lot of younger college graduates are starting to offer student
loan counseling, a service that helps employees sort through the more than 70 payment and refinancing programs available to them. As an extra, these programs make it easy for employers to offer bonuses or rewards in the form of one-time payments to an employee’s student loan account. While a 401(k) plan is traditionally a desirable benefit to employees, many recently out of college can’t even consider putting money into an investment plan until they get their student debt in order.
Younger employees involved in extreme sports, bicycle commuting, or other physical activities may find additional security in one of the innovative personal accident insurance policies on the market. Unlike older accidental death and dismemberment plans, the new generation of policies covers a wider range of expenses including ER visits, ambulance transportation, X-rays, doctor visits, and physical therapy.
Half of Gen X workers say they find it difficult to pay their household bills on time, and one-third have withdrawn money from retirement savings, most commonly because of unexpected bills, according to a 2017 survey by PriceWaterhouseCoopers (PWC). Families with dependent children have been the most affected by the shift of many companies to consumer-driven health plans (CDHPs), which offer lower premiums in return for higher deductibles and copays. And while such high-deductible plans are generally meant to be used alongside a health savings account to cover routine
expenses, many participants find it difficult to set money aside in these accounts.
Another option particularly appealing to Gen X workers with families is insurance that offers supplemental payments to help cover certain out-of-pocket healthcare expenses. Traditionally, hospital indemnity policies simply paid a set amount for each admission and each day spent in the hospital. Responding to the rise of CDHPs, some carriers offer improved policies with benefits for some other significant out-of-pocket
costs employees now face, including outpatient surgical procedures and diagnostic tests.
Families also have a different reason to consider personal accident policies: kids who play team sports. In fact, some policies have added additional benefits for accidents related to organized sports events. If they have kids that are very active in sports, families can find that their accident plan is probably the coverage they use the most after health insurance.
Not surprisingly, the biggest concern for Boomers is about affording retirement. Indeed, PWC’s survey found that 43% of Boomers are afraid they will run out of money before they die. Perhaps most frightening is the prospect of paying for a nursing home or other assisted living arrangement. A 2012 survey by the Insured Retirement Institute found that only 16% of Boomers were confident they would be able to afford the long-term care they needed.
Compounding this stress, fewer carriers are offering long-term care insurance, and those that do often charge high
premiums and have strict underwriting standards. A suitable alternative is life insurance that includes a long-term care rider. This type of life insurance plan accumulates a cash value and a portion of the face amount is available to cover long-term care costs. These plans can be affordable, and they combine long-term care savings with a death benefit and additional cash accumulation.
As older employees worry about coping with serious health problems, they may be attracted to the security and financial flexibility of critical illness plans. These plans offer lump sum payments that can
be used for any expense when the covered employee is diagnosed with certain conditions, such as a heart attack, stroke, renal failure or even cancer. Employees can find it particularly reassuring to know they will have funds available to seek experimental and alternative treatments that would not be authorized by traditional health insurance plans.
Ciro Giué is the Executive Director of the National Voluntary Benefits division in Employee Benefit Services.
Contact Ciro at 646.810.3554 or [email protected]
Generation XersFinancial Issue: Surprise Medical Bills
MillennialsFinancial Issue: Student Loan Debt
BoomersFinancial Issue: Long-Term Care
The portfolio of benefit options you offer to your employees can support their individual paths to financial well-being.
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 1312
The Ins & Outs of Health Plan Alternative FundingMost employers today, and a growing number of mid-sized employers, are lowering health insurance costs by 6% to 12% through alternative funding.
The most common approaches—self-funding, minimum premium and level-funding—reduce plan expenses including administration expenses, risk charges, premium tax, and insurer profit.
There are several reasons for the growing interest in alternative funding among employers:
HEALTH PREMIUM INFLATION
The cost of health insurance in America has increased at more than twice the general inflation rate since the 1960s, increasing labor costs and depressing worker wages. In its 2015 Employer Health Benefits Survey, The Kaiser Family Foundation reported that annual premiums for employer-provided health insurance averaged $6,251 for single coverage and $17,545 for family coverage, a 60% increase since 2005. Premiums would have doubled had employers not changed their plans to shift more cost to members.
LIMITS ON COST-SHIFTING
To combat premium inflation, employers have raised deductibles, copayments and out-of-pocket limits, and have increased employee payroll deductions. While effective, many organizations have reached the limit of what employees can be expected to pay. This is especially true of employers with low-wage workers and those requiring generous benefits to attract and retain top talent. Alternative funding lowers cost without increasing the financial burden on plan members. Most employers would have to raise annual deductibles by $1,000 or more to achieve similar savings.
NEW HEALTH INSURANCE PREMIUM TAXES
Today, the savings attributable to alternative funding are greater than ever. In 2010, the Patient Protection and Affordable Care Act (PPACA) introduced the Health Insurance Providers Fee, a federal tax levied on fully insured plans. It increases premiums by 2% to 3% and is in addition to state premium taxes of 2%-3%. Alternative funding insulates plans from these taxes.*
EMERGING COST CONTAINMENT OPPORTUNITIES
New techniques are evolving to improve member health, manage chronic diseases, and promote more efficient plan usage. With alternative funding, employers have greater access to leading-edge cost containment solutions and can more directly realize return on investment. Self-funded employers also have more flexibility to customize plan design and to provide the same plan to all employees, because their plans are not subject to state insurance mandates.
What’s the Downside? Health insurance operates according to the law of large numbers. Large groups experience more stable cost due to greater spread of risk, mitigating self-funding’s two major downsides: cost variability and increased risk. It was commonly held that for smaller groups, the savings
A Changing Landscape
Increases the Savings
Opportunity
SO WHY NOW?
*The Health Insurance Provider Fee has been suspended for the 2019 calendar year.
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 1514
attributable to alternative funding did not outweigh these trade-offs. That is less true today.
Mid-sized and some smaller employers are revisiting alternative funding. Not only is the savings opportunity greater than ever, but also the market offers a growing roster of products that preserve most of alternative funding’s upside, while providing more protection from the downside.
Choices in Alternative FundingInsurance funding approaches operate along a continuum. The further along the continuum an employer travels, the greater the savings opportunity.
Moving from left to right, the first three boxes represent common rating methods for fully insured plans. Under community-rated, plan-specific claims experience does not influence rating. Rates are determined based on the insurer’s book of business experience adjusted for the insured group’s plan design, geography, and demographic mix. By contrast, non-participating and participating policies are rated primarily on plan-specific claims. Participating policies go a step further. They will refund premium surplus and carry forward premium deficits. Deficits can be recovered from future premium surplus.
Within the realm of alternative funding, pure self-funding offers the greatest savings opportunity, but has the most cost variability and risk. Two hybrid funding approaches, level-funding and minimum premium, offer many of self-funding’s advantages, but lessen these trade-offs. They can be an ideal interim or final step into alternative funding for small and mid-sized employers.
Expected Claims is the largest cost component and generally consistent across all rating and funding methods because alternative funding lowers fixed cost, but does not directly affect claims. Controlling claim cost requires a host of strategies including consumerism, population
health management, care management, and quality of care initiatives. Employers in level-funded and self-funded arrangements have better access to leading-edge, cost containment techniques and greater flexibility to customize their plans. One example of this would be value-based plan designs through which cost sharing is significantly reduced or eliminated for high-value services. These options can generate up to 5% in claim savings.
Summing it UpSmall and mid-sized employers switching to alternative funding must be realistic. Fixed cost savings are guaranteed and lasting, but so is the trade-off of additional claims risk. Therefore, total plan cost (i.e., claims plus expenses) could be higher in some years, but for the vast majority of employers it will be lower over multiple years.
Before making any changes to your funding arrangement, consider these questions:
• Would long-term cost savings of 6% to 12% be appealing, even if cost may be higher in some years?
• Can my organization afford to fund claims to the maximum level if we are alternatively funded?
• Is claims experience a factor in our renewal today?
• Do we want more flexibility to customize plan design and care management techniques?
• Does my organization invest in wellness and health promotion?
• Do we have a national workforce and prefer that all employees have the same plans?
• Do we have a stable or growing workforce?
Alternative funding is a long-term strategy. It should be adopted only by those employers with the cash flow and determination to weather the ebbs and flows in monthly and annual cost.
THE BIGGER PICTURE
When exploring ways to lower health plan cost, employers must not overlook the bigger picture. Below is a breakdown of health plan cost by its major components.
STACKING UP THE ALTERNATIVES
Community/ Non-Par Participating Contract Minimum Premium Level Funded Self Funded
$120
$100
$80
$60
$40
$20
$0
Expected ClaimsPotential Claims Savings
Pooling/Stop Loss Premium Tax
Administrative ExpenseClaim Margin
THE CONTINUUM OF FUNDING OP TIONSCost variability and risk increase in exchange for lower expenses
Lower expenses, taxes and long-term cost
Monthly PremiumMinimum Premium or Fee
Plus Claim Funding
Mo
re c
ost
var
iab
ility
an
d r
isk
COMMUNITY RATED
NON-PARTICIPATING
PARTICIPATING
LEVEL FUNDED
MINIMUM PREMIUM
SELF FUNDING
Potential for return of surplus
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 1716
In addition to authorizing government action, the FLSA also permits civil suits by aggrieved employees. They can collect double the amount of actual damages proven as well as legal fees. Most commonly, these suits claim that the companies improperly classify some employees as exempt from overtime pay. (Generally, employees are exempt
from mandatory overtime when they perform executive, professional or administrative tasks.) Last year, Uber agreed to a $100 million settlement related to 385,000 drivers. And in 2015, FedEx paid $240 million for violations affecting 12,000 employees. The chart below gives an overview of these and other notable Wage & Hour cases:
Over the past five years, American companies have paid a staggering $1.2 billion in back wages in response to actions brought by the Wage & Hour Division of the Federal Department of Labor (DOL). The government charged that these companies did not pay employees for time worked or for overtime earned as required by the Fair Labor Standards Act (FLSA). The pipeline of potential cases is overflowing, with 20,000 wage and hour complaints made to the DOL last year alone.
COMPANY CASE FILED SIZE OF CLASS SETTLEMENT
2016
2015
2013
2012
2012
2012
2012
2009
385,000 Drivers
12,000 Drivers
185,000
7,000+
108,000
14,000
1,583
223
$100 Million
$240 Million
$73 Million
$99 Million
$56 Million
~$90 Million
$30 Million
$35 Million
UBER
FEDEX
BANK OF AMERICA
NOVARTIS
BRINKER RESTAURANT CORP.
ABM SECURITY SERVICES
PUBLIX SUPERMARKETS
ECOLAB
Wage & Hour Insurance Can Pay Claims for Unpaid OT Losses
by Timothy Crowley
CRYSTAL CONNECTION: 2017, A YEAR IN REVIEW 1918
Facing the specter of such large liabilities, some forward-thinking companies have worked with insurance companies and brokers to develop specialized insurance coverage to manage the risk of claims under the FLSA. Still a relatively new insurance product, Wage & Hour insurance protects companies from claims under federal, state, and local labor laws.
Wage & Hour insurance was initially offered as a stand-alone product, mainly to companies with more than 4,000 employees. More recently, it is also being combined with Employment Practices Liability insurance (EPL), which covers claims for employment-related violations such as wrongful termination, discrimination, harassment, retaliation, and many others.
Since they were introduced in the mid-1990s, EPL has evolved into comprehensive coverage through which most material employment-related exposures can be transferred to an insured company. These policies cover both defense expenses and indemnity (i.e. settlements or judgments) in response to claims brought by employees, directors, officers, and third parties such as customers, job applicants, and other business vendors. Coverage tends to be precluded from certain areas of intentional or severe misconduct and from obligations that would otherwise be completed or acted upon if EPL were not in place. Indeed, large
companies commonly customize these policies to respond to their particular employee base and workplace needs.
The overwhelming majority of domestic EPL policies explicitly exclude wage & hour claims. Insurers worry about creating a moral hazard and their limited ability to underwrite the risk of their exposure. Yet, as FLSA cases increased, some underwriters of EPL have been willing to provide a sub-limit of liability to help companies defend against Wage & Hour claims. This approach, however, proved more problematic than might have been expected.
In these cases, a Wage & Hour sublimit on an employment practices policy can prevent the insured company from being the beneficiary of the full coverage it would otherwise be entitled to.
The new policies that combine EPL with Wage & Hour insurance solve this problem, with both types of coverage sharing the overall policy limits. Under this approach, cost savings are generally available in comparison to purchasing each product separately. This solution provides insurance for both indemnity and defense costs for alleged violations of FLSA and other federal, state, and local employer compensation laws. Coverage is underwritten in the U.S., Bermuda, and London marketplaces and generally is provided solely for claims in the U.S. and its territories.
Over the past three years, large companies in the retail, healthcare, logistics, staffing, technology, construction, and hospitality sectors have started transferring their U.S. Wage & Hour risk through these combined policies. Even more recently, Wage & Hour insurance products are now being considered by financial and professional services firms, as they, too, encounter challenges in the qualification of exempt versus nonexempt employees.
Similar to other lines of insurance, the scope of coverage will vary slightly by each insurance carrier, but common areas of coverage include:
• Misclassification of employees (exempt vs. non-exempt, full-time vs. part-time)
• Misclassification of employees as independent contractors
• Failure to compensate employees for off-the-clock work
• Failure to pay minimum, overtime, break, or meal times wages
• Irregular time record keeping
Mid-sized companies can also get Wage & Hour protection now that the insurance market has refined its policy terms and underwriting standards. Crystal & Company encourages our clients with significant numbers of non-exempt employees to explore a dedicated Wage & Hour insurance proposal. This discussion will allow for a comprehensive cost-benefit analysis to gauge the total cost of risk versus the company’s overall risk-management philosophy.
Timothy Crowley is a Managing Director for the Management and Professional Risk group based in New York.
Contact Tim at 212.504.5977 or [email protected]
Combining EPL with Wage & Hour insurance generally results in cost savings not experienced when purchasing each product separately.
20
Mark Your CalendarBelow are a number of notice and disclosure requirements that apply to group health plans and employers (unless exempted) under ACA, ADA, ERISA, HIPAA and Medicare Part D laws.
NOTICE OF REQUIREMENT TIMING OF COMMUNICATION
To participants on a periodic basis with participant materials describing plan benefits. STATEMENT OF GRANDFATHERED STATUS
NOTICE OF PATIENT PROTECTIONS AND SELECTIONS OF PROVIDERS
EXCHANGE NOTICE
UNIFORM SUMMARY OF BENEFITS AND COVERAGE
CODE §6056 REPORTING (§6055 FOR SELF-INSURED HEALTH PLANS)
IRS FORM W-2
NOTICE FOR WELLNESS PROGRAMS THAT COLLECT HEALTH INFORMATION
SUMMARY PLAN DESCRIPTIONS
SUMMARY OF MATERIAL MODIFICATION
PLAN DOCUMENTS
FORM 5500
FORM M-1
SUMMARY ANNUAL REPORT (SAR)
To all new hires within 14 days of start date.
To plan participants within 210 days after the end of the plan year in which the change is adopted, unless included in a timely updated SPD. If benefits are reduced, must provide notice within 60 days from adoption.
To employees: (1) during enrollment period, (2) by the first day of coverage if there was a change, (3) to special enrollees, (4) upon renewal and (5) upon request.
To employee before employee provides any health information and with enough time to decide whether to participate in the program.
Plan administrators generally must file Form 5500 with the Department of Labor by the last day of the seventh month following the end of the plan year. For calendar year plans, the deadline is normally July 31 of the following year.
To participants whenever Summary Plan Descriptions (SPDs) or similar description of benefits is provided.
Employee statements must be furnished to full-time employees by March 2 (for 2018). Section 6056 returns must be filed with the IRS no later than February 28 (March 31 if filed electronically).
To employees no later than 30 days after a written request. Additionally, copies must be made available at specific locations.
Distribute SAR (which is a condensed Form 5500) to employees within 9 months after end of plan year, or 2 months after due date for filing Form 5500 if Form 5558 was filed for an extension.
Aggregate cost of applicable employer-sponsored coverage must be included in employee Forms W-2 by January 31 of the following year.
To plan participants within 90 days of becoming covered by the plan. Updated SPD must be furnished every 5 years if changes to SPD information or plan is amended, otherwise the SPD must be provided every 10 years.
File annual report with the Department of Labor by March 1. For multiple employer welfare arrangements (MEWAs).
About Employee Benefit Services We specialize in helping employers meet their business objectives through high quality, cost effective, and compliant benefit programs. Our Employee Benefits service model is exemplified by:
A NATIONAL FOOTPRINT WITH LOCAL SERVICE
We provide the resources and expertise of a national consultant, combined with the hands-on, day-to-day support of a local broker.
IN-HOUSE UNDERWRITING AND ACTUARIAL EXPERTS
Clients make the most informed decisions when they are based on competitive intelligence and a deep understanding of how their programs have performed over time.
DEDICATED ACCOUNT MANAGEMENT TEAM
Clients receive attentive and smart advocacy services from a team of professionals specifically assigned to their account.
Crystal & Company is the home for talented
insurance professionals: creative, committed to
their clients and driven to deliver extraordinary
results. The company drives the strategy and
execution behind insurance and employee
benefits programs for businesses that want to
be smart about risk. Crystal & Company is the
insurance brokerage of choice for leading
financial institutions, corporations and nonprofit
organizations.
Headquartered in New York City, the firm has
11 regional offices throughout the United States.
Crystal & Company is an equity owner of
Brokerslink, a global broking company with
members in more than 95 countries around
the world
Visit us at www.crystalco.com.
H E A D Q U A R T E R S
Crystal & Company
32 Old Slip
New York, NY 10005
800.221.5830
crystalco.com
O U R O F F I C E S
New York
Dallas
Houston
Los Angeles
Miami
Newport Beach
Palm Beach
Philadelphia
Portland
San Antonio
San Francisco
About Employee Benefit Services We specialize in helping employers meet their business objectives through high quality, cost effective, and compliant benefit programs. Our Employee Benefits service model is exemplified by:
A NATIONAL FOOTPRINT WITH LOCAL SERVICE
We provide the resources and expertise of a national consultant, combined with the hands-on, day-to-day support of a local broker.
IN-HOUSE UNDERWRITING AND ACTUARIAL EXPERTS
Clients make the most informed decisions when they are based on competitive intelligence and a deep understanding of how their programs have performed over time.
DEDICATED ACCOUNT MANAGEMENT TEAM
Clients receive attentive and smart advocacy services from a team of professionals specifically assigned to their account.
Crystal & Company is the home for talented
insurance professionals: creative, committed to
their clients and driven to deliver extraordinary
results. The company drives the strategy and
execution behind insurance and employee
benefits programs for businesses that want to
be smart about risk. Crystal & Company is the
insurance brokerage of choice for leading
financial institutions, corporations and nonprofit
organizations.
Headquartered in New York City, the firm has
11 regional offices throughout the United States.
Crystal & Company is an equity owner of
Brokerslink, a global broking company with
members in more than 95 countries around
the world
Visit us at www.crystalco.com.
32 Old SlipNew York, NY 10005
H E A D Q U A R T E R S
Crystal & Company
32 Old Slip
New York, NY 10005
800.221.5830
crystalco.com
O U R O F F I C E S
New York
Dallas
Houston
Los Angeles
Miami
Newport Beach
Palm Beach
Philadelphia
Portland
San Antonio
San Francisco
