On December 22, 2010, the Internal Revenue Service announced (in Notice 2011-1) that insured group health plans will not be required to comply with the nondiscrimination requirements under health care reform until some time after the IRS issues regulatory guidance on those requirements.
The Affordable Care Act provides that insured group health plans (other than certain "grandfathered" plans) must satisfy the requirements of Code Section 105(h)(2), which prohibits discrimination in favor of "highly compensated" participants in terms of either (i) eligibility to participate, or (ii) the benefits provided under the plan. The Act specifically provides that the terms "employer" and "highly compensated individual" (or "HCI") have the meanings given under Section 105(h). Prior to the Affordable Care Act, the nondiscrimination requirements of Section 105(h) applied solely to self-insured (i.e., self-funded) plans.
However, the consequences of violating the nondiscrimination requirements are quite different for insured plans. Code Section 105(h) currently provides that, if a self-insured plan discriminates in favor of one or more HCIs, those individuals will be taxed on some or all of the benefits that they receive under the plan (i.e., those individuals will "lose" the benefit of non-taxable health care reimbursements).
By contrast, if an insured plan violates the nondiscrimination rule, there are no tax consequences to the affected HCIs. Instead, the employer/plan sponsor is subject to an excise tax equal to $100 per day per non-highly compensated individual who is discriminated against. The employer may also be subject to a lawsuit by one or more federal agencies (or by the non-highly compensated individuals discriminated against) for the benefits that the non-highly compensated individuals did not receive.
Under the health care reform statute, these new requirements are to apply to non-grandfathered insured plans for plan years beginning on or after September 23, 2010. Thus, absent relief, these new rules would have applied to calendar-year insured plans beginning on January 1, 2011 (and they already apply to certain fiscal-year plans). However, Notice 2011-1 provides that insured plans will not be subject to the new rules -- and will not be subject to the $100 per day per affected non-HCI penalty for violation of the rules -- until plan years that begin after the IRS issues guidance on the application of these rules.
The IRS has also requested additional comments on how the Section 105(h) "eligibility" and "benefits" tests should be applied to insured plans. This additional comment period closes on March 11, 2011.
Monday, December 27, 2010
Monday, December 6, 2010
A Look at the Impact on Workers’ Compensation
A guest blog from Risk Management Specialist, Stuart Haker.
Healthcare reform has been arguably the most ferociously debated topic in recent years. Employers all over the United States are scrambling to learn what the impact of the Patient Protection and Affordable Care Act will be on their processes, compliance procedures, and bottom line. The trouble is that even the “experts” don’t know for sure what the answers are, as much is yet to be defined. One thing that has become apparent is the potential effect the Act may have on workers’ compensation.
The Act is designed to ensure that all Americans are covered by health insurance and at a capped level of premium. In order to achieve 100% coverage for Americans, approximately 1/3 of the uninsured will be moved into Medicaid programs and the remaining uninsured individuals would purchase insurance through Government health insurance exchanges. This means providers could be forced to ramp up the level of “cost shifting” to maintain operating revenues necessary to treat the increased number of insured patients. Cost shifting occurs when hospitals and doctors receive reimbursement rates from Medicare and Medicaid that are lower than the cost of providing care. To compensate for underfunded services provided, healthcare providers increase how much they charge other patients. Cost shifting is a troubling symptom of the Act as it will have a powerful effect on both private health plans and workers’ compensation carriers.
Currently, workers’ compensation makes up 2% of revenues on average for healthcare providers. However, providers are currently obtaining 16% of their margin from providing workers’ compensation treatment. The medical cost of workers’ compensation is expected to increase as providers will be forced to lean on the high margin services to make up for Governmental reimbursement losses. We are already seeing the early stages of the cost increase in Iowa as the Iowa insurance division announced that the National Council on Compensation Insurance Inc. has made a rate filing for employers to incur a 4.7% increase in workers' compensation insurance rates effective January 1, 2011.
In an environment where governmental intervention is leading to increased costs, a greater focus must be made on utilizing proven methods to minimize usage of the workers’ compensation system to maintain a healthy bottom line. In a commercial insurance program, the one area in which an employer can truly control costs is workers’ compensation. For example, a general liability policy may pay a $10,000 claim and renew with a decreased premium due to market conditions whereas a ‘work comp.’ policy factors the losses against the State rate structure to penalize employers with a poor loss experience and discount the top performers.
In risk management programs focused on reducing the cost of human capital, risk managers implement a workers’ compensation model that integrates three critical components.
Specializing in commercial risk management solutions, Stuart partners with his clients to design and implement long-term risk management strategies. Stuart advises on the reduction of client expenses through enterprise risk planning and the systematic deployment of firm resources on a proactive basis. As a part of his business, Stuart focuses on controlling the costs associated with worker's compensation plans.
Stuart is a member of several local organizations whose mission is to stimulate leadership and growth in the area, including Board participation, Rotary and he is a graduate of the Leadership for Five Seasons professional program.
Healthcare reform has been arguably the most ferociously debated topic in recent years. Employers all over the United States are scrambling to learn what the impact of the Patient Protection and Affordable Care Act will be on their processes, compliance procedures, and bottom line. The trouble is that even the “experts” don’t know for sure what the answers are, as much is yet to be defined. One thing that has become apparent is the potential effect the Act may have on workers’ compensation.
The Act is designed to ensure that all Americans are covered by health insurance and at a capped level of premium. In order to achieve 100% coverage for Americans, approximately 1/3 of the uninsured will be moved into Medicaid programs and the remaining uninsured individuals would purchase insurance through Government health insurance exchanges. This means providers could be forced to ramp up the level of “cost shifting” to maintain operating revenues necessary to treat the increased number of insured patients. Cost shifting occurs when hospitals and doctors receive reimbursement rates from Medicare and Medicaid that are lower than the cost of providing care. To compensate for underfunded services provided, healthcare providers increase how much they charge other patients. Cost shifting is a troubling symptom of the Act as it will have a powerful effect on both private health plans and workers’ compensation carriers.
Currently, workers’ compensation makes up 2% of revenues on average for healthcare providers. However, providers are currently obtaining 16% of their margin from providing workers’ compensation treatment. The medical cost of workers’ compensation is expected to increase as providers will be forced to lean on the high margin services to make up for Governmental reimbursement losses. We are already seeing the early stages of the cost increase in Iowa as the Iowa insurance division announced that the National Council on Compensation Insurance Inc. has made a rate filing for employers to incur a 4.7% increase in workers' compensation insurance rates effective January 1, 2011.
In an environment where governmental intervention is leading to increased costs, a greater focus must be made on utilizing proven methods to minimize usage of the workers’ compensation system to maintain a healthy bottom line. In a commercial insurance program, the one area in which an employer can truly control costs is workers’ compensation. For example, a general liability policy may pay a $10,000 claim and renew with a decreased premium due to market conditions whereas a ‘work comp.’ policy factors the losses against the State rate structure to penalize employers with a poor loss experience and discount the top performers.
In risk management programs focused on reducing the cost of human capital, risk managers implement a workers’ compensation model that integrates three critical components.
- Human Resources: HR processes need to be put into place to maintain compliance with State and Federal rules in keeping work comp predators off of your jobsite. Ensure that current employees are guided through the work comp system most effectively. And minimize the likelihood that employees will be putting themselves into future claim scenarios.
- Prevention through Safety: Creating a “Culture of Safety” is essential to encourage the workforce to operate without injury on a daily basis. In order to change culture, everyone from the CEO to the part-time employees must buy in to working together to be safe. Culture change is not easy, but it is obtainable and the results are impossible to argue with.
- Financial Modeling: In workers’ compensation, unlike group health insurance, employers have choices. There is not an 800 pound gorilla company that dominates the marketplace. Because of this, employers can align themselves with a carrier that provides the best network discounts, and buys into the employer strategy of financing claims using most cost effective methods.
The one certainty that we know is that the Patient Protection and Affordable Care Act will have an effect on your business. Taking a proactive approach to mitigate the negative effects of the legislation will only lead to future profits.
When hockey great Wayne Gretzky was asked to explain the success he had in his career, he responded, “I skate to where the puck is going to be, not where it has been.” Being proactive with your employees’ wellness is no different. Workers’ compensation can be a frustrating puzzle with an enormous cost, but through strategic planning and measured implementation, it can be a puzzle that leads to a profitable picture.
Stuart Haker, Senior Risk Advisor
319-739-1417, shaker@truenorthcompanies.comSpecializing in commercial risk management solutions, Stuart partners with his clients to design and implement long-term risk management strategies. Stuart advises on the reduction of client expenses through enterprise risk planning and the systematic deployment of firm resources on a proactive basis. As a part of his business, Stuart focuses on controlling the costs associated with worker's compensation plans.
Stuart is a member of several local organizations whose mission is to stimulate leadership and growth in the area, including Board participation, Rotary and he is a graduate of the Leadership for Five Seasons professional program.
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