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November 30, 2022

Narrow Networks, Tiered Plans May Reduce Costs

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Inflation, an aging workforce and people catching up on care they skipped during the COVID-19 pandemic are some of the main ingredients that will drive the cost of group health benefits over the coming years.

The key for employers grappling with these higher costs is how they can reduce their impact by switching up plan offerings and choosing plans that do a good job of managing specialty drug costs, which have been spiraling over the last decade.

Health spending dropped considerably in 2020 and 2021 as people stayed away from health care environments, but now people are back seeking care that was delayed. That’s caused a sudden spike in claims for health plans across the board.

Also, more health plans have boosted their mental health offerings, which patients have been taking advantage of, leading to further outlays, according to a recent report by Marsh McLennan Agency.

While there is not much employers can do about rising premiums, a combination of measures could help businesses defray cost increases in the near term.

Compare insurance plans and providers

If you’ve been offering the same plans every year, we can work with you to compare providers to see if there are better deals for you among their competitors.

Also, plans can vary greatly among insurance plans and each insurer will have different deals to offer. Even your current slate of insurers may have plans that you are not offering.

We can help you cut through the noise and find plans that may be a better fit for your organization.

It is important to keep in mind that a lower premium does not mean it’s the best deal. Some lower-cost plans may have narrower networks, which could result in some employees losing access to their regular doctors.

That said, there’s been a trend towards so-called “high-performance,” narrow provider networks that aim to reduce costs while maintaining efficiencies and quality of care.

Other cost-saving measures

Insurance carriers have been trying out new approaches to controlling costs, while improving health outcomes for their plan enrollees. Money spent up front on quality health services can yield future savings if the patient needs less treatment.

Some insurers and self-insured employers have been able to generate savings of 5 to 15% by employing:

Tiered networks — These health plans sort providers into tiers based on their cost and, often, quality relative to other similar providers who treat comparable patients. Providers with higher quality and lower cost are typically given the most-preferred tier rankings.

Centers of excellence — Many self-insured employers and more health plans are also contracting with “centers of excellence.” While there is no specific definition of a COE, these providers deliver positive patient outcomes, lower costs, raise member engagement and have high rates of patient satisfaction.

Often, an OEC may have a specialty, like a chronic disease or a specific service such as radiology. Working in tandem with a clinical analytics vendor, payers will connect members with health systems that demonstrate high performance in these areas.

Referral management — More health plans are also starting to use referral management software to improve efficiency and trust in care coordination.

These systems synchronize patient data transmission from one physician to another, and also to the patient. A referral management system aims to facilitate good communication between the consultant, specialist, health care provider and the patient.

The system increases trustworthiness and transparency of treatment and diagnosis, and decreases inefficiency in care coordination and operational arrangements.

The above measures can be applied across the care continuum — hospitals, primary care, specialty groups, post-acute providers and ancillary care — while maintaining access and quality of care.

The takeaway

Getting the cost equation right will be a challenge in the coming years as premiums are expected to rise at a faster clip than they have been in the last five years.

Talk to us about finding health plans that are offering different structures for addressing costs while also improving care for your workers.


June 30, 2022

Inflation Could Hit Group Health Insurance Premiums

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The health care sector is not immune to the effects of spiking inflation, and the increasing cost of care is likely to spill over into health insurance — but it’s uncertain by how much.

Mid-year is the time that health insurers start setting their pricing for the upcoming year, and they are currently locked in what one trade publication calls “bloody” contract negotiations with doctors and medical networks to secure the highest prices they can for their services.

Hospitals and medical services facilities such as labs and imaging centers, like other employers, have to contend with the volatile job market and the spiking cost of supplies and machinery.

But the effects on health plans are still unclear as insurers can reduce the impact of higher costs by paring down networks, scaling back some benefits. This may be the case for smaller insurers that have less clout than their larger counterparts, but experts say that inflation will have a greater effect on rates than in recent years.

Add to the equation recent interest rate hikes by the Federal Reserve, which will increase health systems’ borrowing costs and even impede funding for new capital projects.

When they negotiate network rates with insurers, providers take into account all of their own costs when tabulating their offers.

Using spiking inflation as leverage

The trade publication Modern Healthcare noted in a recent report that escalating costs have already influenced contract negotiations between medical providers and insurers.

According to Modern Healthcare, providers that are currently in negotiations “can use inflation as leverage, given that physician groups’ and hospitals’ daily operations are tied to the rising cost of gas, food and other goods.”

It predicts also that providers will argue that more people will forgo or delay care as inflation eats into their expendable income, which in turn will increase the cost of care in the long run as those untreated issues develop into serious ailments.

Medical providers and insurers usually negotiate new contracts every three years, so those hospitals and doctors that renegotiated last year or in 2020 will have to absorb their higher costs. Inflation is already built into these contracts, which didn’t anticipate the higher levels we’ve witnessed in 2021 and 2022.

That leaves them in a bind since insurers won’t be willing to renegotiate contracts that include provisions offsetting higher-than-expected inflation.

It’s due to these pre-negotiated contracts that employers didn’t see a surge in their premiums coming into 2022. But that may change as new contracts come into effect.

While the industry was not terribly affected by inflation in 2021, recent data suggests it’s starting to hit health care providers.

Hospitals’ average labor expense per adjusted discharge in March 2022 rose 15% from the same month in 2021 and 32% from 2020, according to the Kaufman Hall “National Hospital Flash Report.”

Meanwhile, providers are paying more for supplies and equipment, as well. Non-labor expense per adjusted discharge rose nearly 26% compared with February 2020.

How will my premiums be affected?

The big question of how much of these increased costs hospitals and other providers will be able to pass along to health insurers and patients remains. For certain, inflationary pressures will be a topic of discussion during contract negotiations for 2023.

While rates for group health plans are still being set, many carriers have already filed 2023 rates for plans they sell on Affordable Care Act marketplaces. Average rate hike filings for 2023 have been hovering around 7.5% in mid-2022.


group health plan
November 17, 2020

Uncertainty Weighs on Group Plan Cost Expectations

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U.S. employers are expecting their group health insurance costs to climb 4.4% in 2021, despite the ravages of pandemic and a likely uptick in health care usage next year, according to a new survey.

The expected rate increases are on par with much of the last few years when insurance premium inflation has hovered between 3% and 4%. Despite the expected increase, employers do not plan to cut back on benefits for their employees, according to the Mercer “National Survey of Employer-Sponsored Health Plans 2020.”

The COVID-19 pandemic has injected a large dose of uncertainty into the marketplace. Overall, health care expenditures have plummeted since the pandemic started, which at first seems counterintuitive. But many hospitals postponed elective and non-emergency surgeries and procedures, while fewer individuals were seeking care either out of fear of going in for it or because they could not get appointments.

For example, the first three months after the pandemic had gotten a foothold in the U.S., according to the Willis Towers Watson “2020 Health Care Financial Benchmarks Survey,” monthly paid claims per employee dropped as follows:

  • April: 21%
  • May: 29%
  • June: 14%

“So far, the additional medical costs associated with the testing and treatment of COVID-19 have been more than offset by significant reductions in utilization across many service categories,” the insurance industry research firm recently wrote in its report.

Additionally, the Mercer report predicts that a significant portion of the deferred care will never be realized. And, for those people who have deferred care, when they eventually decide to come for the care will also depend on the course of the pandemic, hospital capacity and whether people feel safe to go in for the treatment.

“Different assumptions about cost for COVID-related care, including a possible vaccine, and whether people will continue to avoid care or catch up on delayed care, are driving wide variations in cost projections for next year,” Tracy Watts, a senior consultant with Mercer, said.

Employer reactions

Despite the expected cost increases, Mercer found that few employers plan to make any changes to their benefits this year, as they seek to keep things stable for their staff. The survey found that:

  • 57% will make no changes at all to reduce cost in their 2021 medical plans (up from 47% in the prior year’s survey).
  • 18% will take cost-saving measures that shift more health care expenses to their employees, including raising deductibles and copays.

Employers are also adding benefits, some of them prompted by the pandemic and shifts in how health care is accessed. For example:

  • 27% are adding or improving their telemedicine services (telemedicine for episodic care, artificial-intelligence-based symptoms triage, ‘text a doctor’ apps, and virtual office visits with a patient’s own primary care doctor).
  • 22% are adding or improving their voluntary benefits (critical illness insurance or a hospital indemnity plan).20% are boosting their mental health services coverage.
  • 12% are offering targeted health services, like for diabetes and other chronic conditions.
  • 9% are offering more support for complex cases.
  • 4% are offering services to limit surprise billing.

The takeaway

Mercer noted the following trends going into 2021:

Keeping the status quo – A majority of employers surveyed are avoiding making any changes to their health plans, including increasing employee cost-sharing, even if premiums increase. Instead, they are focused on providing a stable source of health insurance for their staff and supporting their workers as they deal with stress and effects of the pandemic.

Digital migration – More employers are offering digital health resources like telemedicine, telehealth apps, and virtual office visits, for their convenience, safety, efficiency, and cost-effectiveness.

Costs uncertain – Due to the effects of the COVID-19 pandemic, cost projections are uncertain at best. The avoidance of medical care could translate into a higher utilization in 2021 and hospitals may start charging more to recoup lost revenues from 2020. Or people may have forgone a lot of that care forever. It’s too early to tell.


group health plan
November 12, 2020

How to Distribute Group Health Plan Rebates to Your Staff

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Group health plan insurers are paying out $689 million in rebates to plan sponsors this year, as required by the Affordable Care Act’s “medical loss ratio” provision.

The provision requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on health care claims and quality improvement, leaving the remaining 20% for administration, marketing and profit.

The MLR threshold is higher for large group insured plans, which must spend at least 85% of premium dollars on health care and quality improvement.

Employers who sponsor health small and large group health plans around the country in the last few months have received notices of rebates from their insurers. For those who have received one for the first time, there’s always a question of what they should do with the surprise funds. 

MLR rebates are based on a three-year average, meaning that 2020 rebates are calculated using insurers’ financial data in 2017, 2018 and 2019.

You received a rebate…now what?

Health insurers may pay MLR rebates either in the form of a premium credit (for employers that are still using the insurer) or as a lump-sum payment. More than 90% of group plan rebates come as a lump-sum payment.

Once an employer receives this money, it is their responsibility to distribute the rebate to plan beneficiaries appropriately within 90 days, or risk triggering ERISA trust issues. 

How the employer distributes the check will depend on how much their employees contribute to the plan, if at all. Here are the basic rules for employers handling their MLR rebate checks:

  • If you paid 100% of the premiums, the rebate is not a plan asset and you can retain the entire rebate amount and use it as you wish.
  • If the premiums were paid partly by you and partly by the participants, the percentage of the rebate equal to the percentage of the cost paid by participants must be distributed to the employees.

If you have to distribute funds to the plan participants, the Department of Labor provides a few options (if the plan document or policy does not already prescribe how they should be distributed):

  • The funds can be used to reduce your portion of the annual premium for the subsequent policy year for all staff who were covered by all of your group health plans.
  • The funds can be used to reduce your portion of the annual premium for the subsequent policy year for only those workers covered by the group health policy on which the rebate was based.
  • You can provide a cash refund to subscribers who were covered by the group health policy on which the rebate is based.

How it works (example)

  • Total premiums paid to an insurance company for a plan with 100 covered employees during 2019 = $2,000,000.
  • Total participant contributions during 2019 = $500,000 (25% of total plan premiums for the year).
  • The employer receives a $30,000 rebate from the carrier in 2020.
  • A total of $7,500 is considered plan assets and must be distributed to the employees (25% of the $30,000).

Tax treatment of cash refunds

If your employees paid for their share of the health premium with pre-tax earnings, the refund would also have to be taxed. But if they paid for their premiums post-tax, they would not be required to pay taxes on the refund (unless they deducted the premiums on their income tax returns). 

You must distribute rebates to your staff within 90 days of receiving them.


group health plan
September 23, 2020

Group Plan Affordability Levels Set for 2021

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The IRS has announced the new affordability requirement test percentage that group health plans must comply with to conform to the Affordable Care Act.

Starting in 2021, the cost of self-only group plans offered to workers by employers that are required to comply with the ACA, must not exceed 9.83% of each employee’s household income.

Under the ACA, “applicable large employers (ALEs)” — that is, those with 50 or more full-time workers — are required to provide health insurance that covers 10 essential benefits and that must be considered “affordable,” meaning that the employee’s share of premiums may not exceed a certain level (currently set at 9.78%). The affordability threshold must apply to the least expensive plan that an employer offers its workers.

The threshold was increased because premiums for health coverage increased at a greater rate than national income growth during 2020.

With this in mind, if you are an ALE you should consult with us to ensure that you offer at least one plan with premium contribution levels that will satisfy the new threshold.

Failing to offer a plan that meets the affordability requirement to 95% of your full-time employees can trigger penalties of $4,060 (for 2021) per full-time employee, minus the first 30. The penalty is triggered for each employee that declines non-compliant coverage and receives subsidized coverage on a public health insurance exchange.

Since most employers don’t know their employees’ household incomes, they can use three ways to satisfy the requirement by ensuring that the premium outlay for the cheapest plan won’t exceed 9.83% of:

  • The employee’s W-2 wages, as reported in Box 1 (at the start of 2021).
  • The employee’s rate of pay, which is the hourly wage rate multiplied by 130 hours per month (at the start of 2021).
  • The individual federal poverty level, which is published by the Department of Health and Human Services in January of every year. If using this method, an employee’s premium contribution cannot be more than $104.52 per month.

Out-of-pocket maximums

The IRS also sets out-of-pocket maximum cost-sharing levels for every year. This limit covers plan deductibles, copayments and percentage-of-cost co-sharing payments. It does not cover premiums.

The new out-of-pocket limits for 2021 are as follows:

  • Self-only plans — $8,550, up from $8,150 in 2020.
  • Family plans — $17,100, up from $16,300 in 2020.
  • Health savings account-qualified self-only plans — $7,000, up from $6,900 in 2020.
  • HSA-qualified family plans — $14,000, up from $13,800 in 2020.

group health plan
August 18, 2020

A Primer on Changes to 2021 Group Health Plans

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While most business owners and executives have been fretting about the COVID-19 pandemic and the effects on the economy and the survival of their business, now is a good time to conduct a review of group health plans in light of changes and new rules for 2021.

Here are some of the main changes that you should consider ahead of the new year:

Out-of-pocket limits – The out-of-pocket limit amounts for 2021 are:

  • $8,550 for self-only coverage.
  • $17,100 for family coverage.

For HSA-compatible high-deductible health plans, the out-of-pocket limits for HDHPs with attached health savings accounts for 2021 are:

  • $$7,000 for self-only coverage
  • $14,000 for family coverage.

New preventative care recommendations

ACA-compliant health plans are required to cover preventative care services with no out-of-pocket costs, and new ones that become effective in 2020 and 2021 include:

  • Perinatal depression prevention.
  • HIV prevention pill for healthy people at risk.
  • Updated recommendation for prevention of BRCA 1 and 2-related cancer.
  • Updated recommendation for breast cancer: medication use to reduce risk.
  • Updated recommendation for hepatitis screening.
  • Updated recommendation for screening for unhealthy drug use in adults.

Flexible spending accounts

This year, the IRS issued a notice that increased the maximum allowable amount of unused funds at year end in FSAs that can be carried over to the next year.

The notice increases the maximum $500 carryover amount for 2020 or later years to an amount equal to 20% of the maximum health FSA salary reduction contribution for that plan year. That means the health FSA maximum carryover from a plan year starting in calendar year 2020 to a new plan year starting in calendar year 2021 is $550.

Additionally, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows employers to remove restrictions that funds in FSAs, health reimbursement accounts and HSAs cannot be used for over-the-counter medications.  This is not a requirement that employers relax this rule for their FSA plans, but it allows them to choose to do so.

Summary of benefits and coverage

There are new Summary of Benefits and Coverage (SBC) materials and supporting documents that must be used for all plans that incept on or after Jan. 1, 2021.

Please remember that any changes to benefits in your group plan must be reflected in the SBC plan document and summary plan description.

The takeaway

2021 is fast approaching and with all the chaos of 2020, it would be wise to get a head start on understanding changes in store for the plans you offer. This would benefit both you and your employees.


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May 19, 2020

Some Insurers Step Up Group Health Plan Assistance

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Some health insurers are helping business workers in group plans maintain employee benefits during the COVID-19 pandemic, a new survey has found. 

Social distancing and stay-at-home orders have put the hurt on hundreds of thousands of businesses across the country, which has forced them to reduce employees’ hours, furlough them or lay them off.

Besides all those employees seeing their pay drastically curtailed or disappear altogether, it also affects their employee benefits, with health coverage topping the list.

With so many people concerned they may lose coverage and business owners equally worried about their employees, some insurers are stepping up by extending coverage for affected group plan participants. 

The survey by insurance research organization LIMRA found that 42% of group health plans are automatically continuing coverage for all employees for a specified period of time, and another 22% are extending eligibility on a case-by-case basis to employees whose status has changed.

About 35% of insurance companies have adjusted reinstatement rules to make it easier for those affected by COVID-19 to regain coverage, and a similar number are extending the timeframe in which employees may elect to pay or continue coverage if separated from their employer.

Nearly all carriers in the survey said they are offering premium grace periods of 60 days on average to workers unable to pay their premiums due to COVID-19, while others plan to reassess or extend those timelines if needed.

These moves are important, considering that about 70% of all workers in the U.S. receive health coverage from their jobs, according to LIMRA.

The typical scenario

When an employee is laid off or furloughed, their hours are essentially reduced to zero, which can result in a loss of eligibility to participate in their employer’s group health plan.

Group health insurers will have written documents that outline the rules for particular plans. These rules include a definition of eligible employees, including how long an employee can be absent from work before the employee will lose eligibility for insurance coverage.

Health plan documents do not usually differentiate between an employee who is terminated and one who is laid off and one who is furloughed.

To be eligible under the typical plan’s rules, an employee must work a minimum number of hours per week (usually at least 30). If an employee is under protected leave – such as Family Medical Leave Act protection – benefits continue during leave.

In other words, an employee who is not meeting the hours requirement or is not actively at work (work from home is considered actively at work) based on being terminated, furloughed  or laid off – even temporarily – will generally have their benefits terminated. They should then receive an offer of COBRA or state continuation, unless state law does not require it due to an employer’s size.

However, if an employee continues to remain eligible for the business’s group health plan during an unpaid absence, the employer will need to determine how to handle their insurance premium payments.

The takeaway

If you are concerned about benefits continuation for laid-off, furloughed or terminated employees, you can call us to see if your health plan has made any special arrangements during the COVID-19 outbreak.

We can check to see if there is any way to continue coverage for any affected employees, and for how long and at what cost to you.


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