Tag Archives: patient protection and affordable care act

Private Exchanges: Panacea or Problem?

Employers trying to continue offering affordable health and welfare benefits amid the expanding costs and regulations enacted under the Patient Protection & Affordable Care Act (ACA) often are encouraged by some consultants and brokers to consider offering  coverage options pursuant to a “private exchange.”

While these options sound attractive, not all work for all employers.

The consumer-driven healthcare and other private exchange lingo used to describe these arrangements often means different things to different people. Some “private exchanges” are little more than high-tech online cafeteria enrollment arrangements. (See, e.g., A ‘Cynical’ Look at Private Exchanges.)

Employers need to scrutinize proposals both for compliance and other legal risks, affordability and cost and other suitability. When considering a private exchange or other arrangement, it is important to understand clearly the proposal, its design, operation, participating vendors, the charges, what is excluded or costs extra and who is responsible for delivering what.

Agencies have issued a long stream of guidance cautioning employers against paying for or reimbursing premiums for individual policies or the cost of enrolling in coverage under a public health insurance exchange. (See, e.g., DOL Technical Release 2013-03IRS Notice 2013-54;Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangement; IRS May 13, 2014 FAQs available here. )Most recently, the new FAQS About Affordable Care Act Implementation (XXII) (FAQ XXII) published by the agencies on Nov. 6, 2014, reiterates agency guidance indicating that tax basis for purchasing individual coverage in lieu of group health plan coverage.  FAQ XXII, among other things, states:

  • Health reimbursement accounts (HRAS), health flexible spending arrangements (health FSAs) and certain other employer and union healthcare arrangements where the employer promises to reimburse health care costs: are considered group health plans subject to the Public Health Service Act (PHS Act) § 2711 annual limits, PHS Act § 2713 preventive care with no cost-sharing and other group market reform provisions of PHS Act §§ 2711-2719 and incorporated by reference into the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (Code) but
  • HRA or other premium reimbursement arrangements do not violate these market reform provisions when integrated with a group health plan that complies with such provisions. However, an employer healthcare arrangement cannot be integrated with individual market policies to satisfy the market reforms. Consequently, such an arrangement may be subject to penalties, including excise taxes under section 4980D of the Internal Revenue Code (Code).

FAQ XXII reinforces this prior guidance, stating, “Such employer healthcare arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code. Under the departments’ prior published guidance, the cash arrangement fails to comply with the market reforms because the cash payment cannot be integrated with an individual market policy.”

Another potential issue arises under the various tax and non-discrimination rules of the code and other federal laws.  For instance, Code sections 105, 125 and other Code provisions against discrimination in favor of highly compensated or key employees could arise based on the availability of options or enrollment participation.  Historically, many have assumed that these concerns could be managed by treating the premiums or value of discriminatory coverage as provided after-tax for highly compensated or key employees. However, IRS and Treasury leaders over the past year have made statements in various public meetings suggesting that the IRS does not view this as a solution. Of course, FAQ XXII also highlights the potential risks of underwriting or other practices of offering individual or other coverage in a manner that discriminates against disabled, elderly or other employees.

In addition to confirming that the arrangement itself doesn’t violate specific Code or other requirements, employers and others responsible for structuring these arrangements also should critically evaluate and document their analysis that the options offered are suitable. Like other employee benefit arrangements, ERISA generally requires that individual or group products offered by employers, unions or both be prudently selected and managed. Compensation arrangements for the brokers and consultants offering these arrangements also should be reviewed for prudence, as well as to ensure that the arrangements don’t violate ERISA’s prohibited transaction rules. Eligibility and other enrollment and related administrative systems and information sharing also should be critically evaluated under ERISA, as well as to manage exposures under the privacy and security rules of the Health Insurance & Portability Act (HIPAA) and other laws.

As a part of this analysis, employers and others contemplating involvement in these arrangements also will want to review the vendor contracts and operating systems of the vendors that will participate in the program for legal compliance, prudence for inclusion, prohibited transactions and other legal compliance, as well as to ensure that the contract holds the vendor responsible for delivering on service and other expectations created in the sales pitch. In reviewing the contract, special attention should be given to fiduciary allocations, indemnification and standards of performance, business associate or other privacy and data security assurances required to comply with HIPAA and other confidentiality and data security requirements and the like. The contractual commitments from the vendor also should cover expected operational performance and reliability as well as legal compliance and risk management.

Private Exchanges May Be the Free Market Solution to Cost Control and Healthcare Consumerism

While the Patient Protection and Affordable Care Act (PPACA) is sometimes shortened to the “Affordable Care Act” or ACA, the act has few features that will make insurance more affordable.  Government studies and industry experts have indicated that strict coverage mandates, limited premium classifications, community rating, added benefits, single risk pools, and price compression will raise premiums more rapidly than if the ACA had never been passed.

The development of exchanges, both government and private exchanges, are part of an evolution that will change the way insurance is sold and bought.  It is a new way of connecting products with customers.   Government exchanges are likely to be used mainly by those qualifying for a federal subsidy.  The standards and restrictions on government exchanges are likely to attract poor risks and high cost claimants.  The government exchanges will use government paid “navigators” rather than independent licensed agents.  The government exchanges and navigators are not expected to offer supplemental products, life insurance or other products and services.

Private exchanges may be the free market solution to real cost control and lowering the number of uninsureds.  With 40-50 million uninsureds, the traditional agent distribution system for insurance is not working.   About 60% of the uninsured are under age 35.  Studies conducted in Georgia by the Center for Health Transformation Uninsured Working Group showed that 35% of the uninsured could afford insurance but did not know it.  Another 40% needed lower cost options that were not available to them either because insurers emphasized high premium products, or because existing state laws or legislative mandates increased premiums and favored insurers over consumers.

Many uninsureds work for a small businesses that do not offer insurance. They may be self-employed, part-time, or doing contract work.  In most cases, the need is for individual insurance, not group plans.  Selling single policies can be time consuming with little financial rewards for an agent.  Many potential individual sales are halted at the kitchen table when in the process of completing an application issues arise that could cause a declination.   Information derived by an insurer during the underwriting process is typically fed into an industry association called the Medical Information Bureau.  That information is shared across companies and a declined health application could have ramifications for future applications of life insurance, disability coverage and other forms of insurance. 

Private exchanges are developing that will offer individual and group products that emphasize wellness and treatment compliance for those under medical care.  PPACA requires insurers to “community rate” their products.  That is, individuals or small groups will not get direct credit for healthy activities.  New entities are forming that will likely attract healthy individuals and the less healthy members interested in getting better.  Developing private health cooperatives, captive mutual companies, and new insurers may be unencumbered by an existing unhealthy membership or a current business model that limits attracting customers willing to be engaged in healthy behaviors. 

Healthcare consumerism is more likely to emerge through private exchanges than government exchanges.  Private exchanges will provide a transition from employer-based insurance to individual-centered or consumer-centered insurance.  In theory, both large and small employers will be able to purchase health insurance through the private exchanges, and their employees can choose an individual health plan from those offered by participating insurers.

Time will tell.  We are in the beginning stages of a major market revolution.  We already know that government exchanges as originally promised for small groups have been delayed one year until 2015.  As private exchanges come on line, I believe each will be a little different and offer varying levels of products and services.  For awhile it will be a “wild west” show.  Ultimately, the success and failure of each exchange’s product and distribution model will lead to consolidation and better products, services, convenience, help, and information for the consumer.  In the end, more product competition and price transparency will lead to more citizens being insured and lower insurance costs will prevail.  This is the way free markets create successful products and services that consumers want to buy.

Myths About Obamacare and Workers’ Comp

The Obama administration has said that the Patient Protection and Affordable Care Act, enacted into law in 2010 and scheduled to take effect on Jan. 1, will reduce workers’ comp claims because so many additional people will be covered under personal insurance policies. But there is reason to think otherwise.

The first issue is that so many companies are reducing the insurance they offer employees or are cutting employees’ hours so much that they fall below the law’s threshold, so employees don’t have to be covered at all. Employees who aren’t covered under corporate policies or who are underinsured are more likely to make workers’ comp claims.

Here are just a few examples from National Review Online:

SeaWorld used to let part-time employees work as many as 32 hours per week, but the company is dropping the limit to 28 hours to keep them under the 30-hour threshold at which it would be required to provide health insurance under Obamacare. More than 80 percent of the company’s thousands of employees are part-time or seasonal.

Carnegie Museum in Pennsylvania scaled back the hours of 48 of its 600 part-time employees to less than 30 hours a week to sidestep the mandate to provide health-care coverage

Virginia Gov. Bob McDonnell decided to limit the state’s part-time employees to 29 hours per week.

Brevard County, Florida told a local television station that the county’s 300-plus part-time employees will be “capped at something less than 30” hours to save the county about $10,000 per employee in health insurance.

Fatburger  announced that franchises had begun making efforts to keep employees under the 30-hour threshold, including some franchises’ engaging in “job sharing.”

As more companies shift to shorter work weeks, you can expect claims under workers’ comp to keep climbing.

Proponents of Obamare still say it will decrease workers’ compensation costs in several ways, including through the elimination of lifetime caps on medical insurance coverage. The argument is that these caps on employees’ private policies pushed them to file workers’ compensation claims. Really? Many of the leading cost drivers for work-related injuries are Musculoskeletal Disorders (MSD), better known as soft tissue injuries.  According to the Bureau of Labor Statistics (BLS), soft tissue injuries (sprains and strains) accounted for 40% of all work-related injuries that resulted in lost days of work. I do not believe that these types of injuries would affect the lifetime maximum for health insurance, which is typically $1 million.

Proponents also note that a healthcare insurer can no longer refuse to provide coverage because of preexisting conditions, conditions they claim were often not covered by private healthcare and thus encouraged employees to seek coverage under workers’ compensation. While this is a good point, the National Review’s examples show that many people are losing healthcare coverage or will see it reduced, meaning that there will be a greater likelihood of workers’ compensation claims. Yes, there are penalties for not securing healthcare coverage, but they are modest, especially in the early years of Obamacare, and there is no real mechanism for enforcement. The IRS has the responsibility for collecting penalties but has no true powers to do so.

How are people supposed to afford care if their hours have been cut?  You guessed it: workers’ compensation.

Health Insurance Exchange Scam Alert: Beware of Fake Websites

The Identity Theft Resource Center (ITRC) has growing concerns regarding the potential for new scams concerning the implementation of the Health Insurance Exchange (HIE) websites as part of the Patient Protection and Affordable Care Act (also known as Obamacare). These exchanges are currently online with enrollment due to start on October 1st.

According to the Act, each state must implement insurance exchanges. These exchanges are to serve as online marketplaces (websites) for consumers to compare rates and make choices about which health insurance coverage is best for them. Each state has the ability to determine the best way to manage these exchanges in order to meet the needs of their uninsured residents.

The open enrollment period for these exchanges begins on October 1, 2013. There have already been some predictions that there will be “bugs and glitches,” to quote President Obama, during this process. IT professionals are already voicing concerns regarding the ability to handle the amount of traffic anticipated on the first day of the rollout. However, no one is talking about ensuring that consumers actually know and understand where to go in the first place.

There is huge potential for misinformation and misunderstanding with this new insurance exchange program. Consumers will now be mandated (or face a penalty come tax time) to purchase health insurance if they don’t have existing coverage. The official website, www.healthcare.gov will be used by the majority of the states. But 17 states have opted to manage their own unique exchange with a different URL. This has the potential to cause much confusion for consumers. While it may appear that this information would easily be located via an internet search, our experience was that the official website was not easy to locate. In fact, when we searched for “health insurance exchange official websites” (rather than “website”) the websites for the 17 states that have their own unique URLs appeared, but www.healthcare.gov did not appear on the first page.

From our experience with scams and fake websites, we believe it would be extremely easy for scammers to create multiple websites that will trick consumers into thinking that it is either the federal health exchange website or one of the alternative state websites. Without known and reliable sources, there exists a great opportunity for gaming of the Internet search engines to attract consumers to websites intent on harming them by eliciting the fraudulent collection of personal identifying information (PII). There is a need to present factual information about which websites represent the accredited websites for the new insurance exchanges.

While there is a comprehensive list of insurance exchange websites on www.healthcare.gov, we are concerned that consumers may not find their way there in the first place. Already our searches indicate that there are organizations using keywords such as “Obamacare” and “Health insurance exchange” in the paid advertising section that are not the official insurance exchange websites. While these websites may not be scams, our concern is that it will only be a matter of time before imposter websites intent on real consumer harm surface.

This concern has a historical basis. The Fair Credit Reporting Act (FCRA) requires each of the Credit Reporting Agencies (CRAs: Experian, Transunion, and Equifax) to provide consumers with one free credit report annually. Confusion still exists between www.annualcreditreport.com, which is the court-mandated website hosted by the credit reporting agencies that actually provides annual free credit reports to consumers, and other websites that offer free credit reports or free credit scores such as www.freecreditreport.com, hosted by one of the credit reporting agencies. Soon after the creation of the original mandated website, dozens of look-alike websites were created. Consumer protection organizations, including the Federal Trade Commission, continue to educate consumers about this to this day (Consumer Information: Free Credit Reports) even though the mandated free website was launched in December 2004.

With the operational launch of these new insurance exchanges just a few short months away, consumers will be scrambling to comply before the January 1st, 2014 deadline. We already stated that we expect consumers to use search engines to locate the particular website they are supposed to use, and that the searches are inconsistent. With that knowledge, will regulators put provisions in place to identify, deter, monitor and address imposter websites? Or do they presume that the existing regulatory or enforcement provisions will deter those who create malicious fake websites intended to capture the personally identifiable information of consumers? Information provided to a fake insurance exchange website could be used to commit identity theft and other frauds.

There will be two types of imposter websites that will require redress. Not all imposter websites are created equal. There are differing levels of harm depending upon the type of imposter website consumers discover. There are legitimate businesses cutting corners and engaging in misleading tactics to secure new business and there are outright scam websites, whose intention is to secure personally identifiable information for malicious use.

Phishing and smishing could eventually come into play.

In 2012 “Imposter Scams” ranked 6th (out of 30) in the list of most complained about fraud events according to the FTC Consumer Sentinel Report. The 82,896 complaints represented 4% of the total complaints received by the FTC.

This category is defined by the FTC as “complaints about scammers claiming to be family, friends, a romantic interest, companies, or government agencies to induce people to send money or divulge personal information.” Complaints included the following: Scammers posing as friends or relatives stranded in foreign countries without money, scammers claiming to be working for or affiliated with government agencies, and scammers claiming to be affiliated with a private entity (a charity or company).

By far, the largest subtype of scam was regarding government agency imposters, with over 43,000 of the total in that category. Previous years’ statistics indicate that year over year, government imposters were the most complained about subtype: 47,454 in 2011 and 49,321 in 2010.

This demonstrates that the scammers continue to find impersonating the government to be a lucrative enterprise. Since this is a new program, even those consumers who normally know not to click on strange links in emails or respond to unknown senders of text messages, may feel compelled to respond and potentially share their personally identifiable information via these means. Why should we believe that the health care exchanges will be immune to this kind of impersonation?

If past behavior is an indicator, we can be sure that there will be financial harm to at least some of these victims.

The Internet Crimes Complaint Center (IC3) 2011 report states that it received approximately 39 complaints per day regarding FBI impersonation email scams. IC3 presented a total loss for this type of impersonation scam (via phishing emails) as over $3 million dollars. This number is just for the complaints that the IC3 received and does not take into account all the unreported losses.

A fundamental part of the Identity Theft Resource Center’s mission is to serve as a relevant national resource on topics such as this. In an effort to provide consumers with the important information they need about potential insurance exchange scams, the Identity Theft Resource Center has developed a scam alert and posted additional information on its website to help educate consumers.

The Identity Theft Resource Center is hopeful that there will be strong and coordinated efforts to educate consumers as to the authentic websites for these exchanges. As they differ from state to state, universal messaging will be difficult to coordinate. Of course, there will be glitches, and as with any new process, we will only discover what these are when the actual user experience is reviewed. However, these efforts need to take place now.