Friday, February 27, 2015

Compliance & Reform Updates | Employee Counting Clarification; Cadillac Tax Guidance; IRS Safe Harbors; New Anthem News; FMLA Now Covers Same Sex Partners & More

This has been an incredibly busy two-week period in benefit news.  Here are some stories that you will want to review -

Anthem Update:

Notice Obligations in Connection with Recently Announced Cyber Attack
February 26, 2015-Anthem
Excerpt: “Certain federal and state laws, as well as contracts between you and Anthem, require that you be notified about the Incident, and may also require you, after receiving notice from Anthem, to make additional notices to regulators and individuals. To assist you in fulfilling these obligations, promote a consistent message to potentially impacted individuals, and in furtherance of our legal obligations, Anthem will have the notices it provides to regulators and individuals cover identified notice obligations you may also have to those regulators and individuals, including notice obligations under the breach notification regulations issued under the Health Insurance Portability and Accountability Act of 1996 and the Health Information Technology for Economic and Clinical Health Act (collectively, "HIPAA").”

Health Care Reform News:

More than half of ACA subsidy recipients must repay some portion
February 24, 2015-Bloomberg
Excerpt: “Fifty-two percent of the clients seen by H&R Block Inc. who received subsidies through the Affordable Care Act in 2014 underestimated their income and must repay a portion of the subsidies, with the average repayment $530, according to a Feb. 24 release from the Kansas City, Mo.-based company.”

IRS Issues Preliminary Guidance on Cadillac Tax
February 24, 2015-Ballard Spahr LLP
Excerpt: “Although the new notice does not provide guidance that employers may rely on, employers may draw upon it to understand the issues and general direction that the IRS is contemplating. For employers who wish to submit formal comments to the guidance, the deadline is May 15, 2015.”

Excise Tax on High Cost Employer-Sponsored Health Coverage
February 23, 2015-Internal Revenue Service
Excerpt: “This notice is intended to initiate and inform the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under § 4980I of the Internal Revenue Code (Code). Section 4980I, which was added to the Code by the Affordable Care Act,1 applies to taxable years beginning after December 31, 2017. Under this provision, if the aggregate cost of “applicable employer-sponsored coverage” (referred to in this notice as applicable coverage) provided to an employee exceeds a statutory dollar limit, which is revised annually, the excess is subject to a 40% excise tax.”

IRS Offers Temporary Safe Harbor for Some Premium Reimbursement Arrangements
February 19, 2015-Thompson Information Services
Excerpt: “Small employers and certain other plan sponsors can continue to reimburse individual premiums until July 1, without the threat of extreme penalties for offering coverage that does not comply with Affordable Care Act insurance mandates, under new guidance from the Internal Revenue Service.”

“Pay-or-Play” & Contingent Workers: Final Regulations Provide Clarity But Not Complete Relief
February 17, 2015-Proskauer's ERISA Practice Center Blog
Excerpt: "Short-Term Employees. The final regulations confirm the IRS’s position that short-term employees (other than seasonal employees) who are reasonably expected to work full-time (30 hours or more per week) at date of hire must generally be offered coverage within 90 days. There is no blanket exemption for short-term employees—if employment extends beyond the end of the third full calendar month of employment, the employer must offer coverage regardless of the projected termination date (the offer of coverage will generally be within 90 days from date of hire due to the ACA’s waiting period rules).
Employees of Temporary Staffing Firms. There are special rules for determining whether a variable hour employee is a full-time employee. Variable hour employees are employees with no set schedule or seasonal employees (generally those working 6 months or less on a seasonal basis). Under these rules, the employer (staffing company) can use a determination period of from 3 to 6 to 12 months to determine an individual’s full-time status for a following so-called “stability period” of 6 or 12 months."

Summary Chart of Disallowed Pay or Play Tactics
December 1, 2014-E is For ERISA
Excerpt: "With the January 1, 2015 employer shared responsibility deadline fast approaching, the three government agencies charged with ACA compliance (IRS, DOL and HHS) have provided recent guidance on several strategies or tactics that have been marketed to applicable large employers as legitimate ways to reduce their coverage costs and exposure to shared responsibility penalty taxes (assessable payments). Employer reimbursement of individual health insurance premiums is a common but not universal feature of these arrangements. The Internal Revenue Service ruled out pre-tax reimbursement of individual health premiums in Notice 2013-54, but more recent guidance in ACA FAQ XXII and in IRS Notice 2014-69 expands the prohibition to include after-tax individual premium reimbursements, as well as other shared responsibility cost reduction strategies."

Excerpt of Chart:

In Other News:

Beware of Brokers Offering to Cut Commissions or Work for a Fee Under Health Reform - You Will End Up Paying Twice
February 24, 2015-LifeHealthPro, by Craig Gottwals
Excerpt: "As the health and welfare brokerage industry gets squeezed by the mandates of the Patient Protection and Affordable Care Act (PPACA), I have seen more agencies resort to desperate pleas for new business by offering to "save" a client money by taking a commission cut or a flat-fee arrangement in lieu of commission on fully insured medical policies. While this direct approach undoubtedly sounds alluring to business owners and chief financial officers, it belies a fundamental misunderstanding of the new PPACA underwriting rules. With the PPACA rules on mandatory minimum medical loss ratios (MLR) rules now in place, brokers should not be saddling clients with “fee” arrangements or underfunded commission agreements on medical policies."

DOL and HHS Enforcement Activities Targeting Health Plans
January 30, 2015-Bloomberg BNA
Excerpt: "[T]he ACA and MHPAEA's (Mental Health Parity Act) enforcement scheme splits regulatory authority between state governments and the federal government -- and even federal enforcement is split among three different agencies, depending on the type of health plan at issue. This tangled enforcement scheme runs the risk of overlapping enforcement actions that could impose significant and unnecessary compliance costs on plan sponsors and insurers. This article provides a high-level overview of how ACA and MHPAEA enforcement authority is allocated between the states and the federal government, and how (and when) three federal agencies -- [HHS, DOL and IRS] -- may enforce the ACA and MHPAEA. [The article also discusses] current enforcement activities by HHS and DOL against insurers and plan sponsors ... [and] offers suggestions on how insurers and plan sponsors can best prepare for ACA and MHPAEA audits."

FMLA Modified to Protect Same-Sex Spouses Regardless of State of Residence
February 25, 2015-McGuire Woods
Excerpt: “By final rule published on Feb. 25, 2015 and effective March 27, 2015, the U.S. Department of Labor (DOL) is modifying the definition of “spouse” to include legally recognized same-sex marriages and “common law” marriages regardless of where the worker lives, provided the marriage was legal in the state in which it was originally celebrated. This shift from a “state of residence” rule to a “place of celebration” rule will allow legally married couples to enjoy consistent federal family leave rights even if the state in which they currently reside does not recognize same-sex marriages.”

Planning for the Year Ahead in Benefits
February 20, 2015-Winstead
Excerpt: “The final instructions clarify that if an employer wants to use either of these reporting methods it must satisfy the requirements to use such method for all months in the calendar year. For the 98% Offer method which avoids counting the number of full-time employees and reporting this number each month, the employer must have offered affordable coverage providing minimum value to at least 98% of its full-time employees for whom it is filing a Form 1095-C and that if offered minimum essential coverage to the employees’ dependents in each month in the calendar year. The employer is not required to identify which of the employees receiving the Form 1095-C is a full-time employee, but it must provide a Form 1095-C to every one of its full-time employees.”

The Pay Period Leap Year Redux: Don't Leap If It Isn't Your Year!
February 13, 2015-Wage and Hour Insights 
Excerpt: “If your first weekly paychecks will issue on Thursday, January 1, 2015, you will have a fifty-third pay period on December 31, 2015. If your first bi-weekly paychecks will issue on Thursday, January 1, 2015, you will have a twenty-seventh pay period on December 31, 2015, depending on payday holiday processing rules. This means that for employers who pay employees weekly or bi-weekly, 2015 could be a Pay Period Leap Year, but it doesn’t mean that all of your employees will have one.”

Tuesday, February 24, 2015

Beware of Brokers Offering to Cut Commissions or Work for a Fee Under Health Reform - You Will End Up Paying Twice

LifeHealthPRO published my latest article on how brokers who agree to cut commissions or, even worse, work for fees end up costing employers more money.  It's a troubling trend I've seen more of in recent years and clearly illustrates how such benefit advisers fail to understand the most basic economic principles within PPACA.

Below the full PDF of my story from LifeHealthPro.

Monday, February 23, 2015

U.S. Healthcare Spending is on the Rise Again

"The national medical bill may be back to growing faster than gross domestic product. After five years of historically slow growth, new data show U.S. health-care spending accelerated significantly in 2014.

The analysis, from the Altarum Institute research group and based on preliminary government data, shows health spending increasing by 5 percent last year, compared to 3.6 percent in 2013. If confirmed by the final tally, health-care spending during 2014 would mark the biggest jump since before the recession.... "

Source: Bloomberg.

Employers Should Disband Employee Weight Control Programs | Diets Don't Work - Weight Loss Almost Always Comes Back

Yet another paper has been published on the waste of time, money and morale that results from the recent infatuation with wellness programs.

This is from Alfred Lewis, JD; Vikram Khanna, MHS; and Shana Montrose, MPH writing at the American Journal of Managed Care:
American corporations continue to expand wellness programs, which now reach an estimated 90% of workers in large organizations, yet no study has demonstrated that the main focus of these programs—weight control—has any positive effect. There is no published evidence that large-scale corporate attempts to control employee body weight through financial incentives and penalties have generated savings from long-term weight loss, or a reduction in inpatient admissions associated with obesity or even long-term weight loss itself. Other evidence contradicts the hypothesis that population obesity rates meaningfully retard economic growth or manufacturing productivity. Quite the contrary, overscreening and crash dieting can impact employee morale and even harm employee health. Therefore, the authors believe that corporations should disband or significantly reconfigure weight-oriented wellness programs, and that the Affordable Care Act should be amended to require such programs to conform to accepted guidelines for harm avoidance. ...
Corporate weight control programs are ineffective at reducing weight; in addition, the nexus between weight loss and savings/productivity improvement is weak. Especially given the costs and potential harms of these programs, the authors recommend phasing them out altogether and reallocating resources towards creating a healthier work environment for everyone.
Full paper linked here.

Losing weight is hard.  Keeping it off for the long term is nearly impossible.  It is beyond short-sighted to think that one's employer can have an impact on the endeavor. Furthermore, so much of the "accepted" lore in wellness programs is tied to the USDA's outdated and increasingly reversed food pyramid.  For 40 years we were told eggs were bad for us.  Now they are not.  We were told to cut out fat and eat processed carbohydrates and margarine. We now know those are the worst things for us.  Employers should remain focused on their expertise.  If you want to improve an employee's well being, bonuses, time off, and other rewards to improve work-life balance work much better than trying to foster weight loss.

If you need more convincing enjoy this Ted Talk from Sandra Aamodt - Why Dieting Doesn't Usually Work:
In the US, 80% of girls have been on a diet by the time they're 10 years old. In this honest, raw talk, neuroscientist Sandra Aamodt uses her personal story to frame an important lesson about how our brains manage our bodies, as she explores the science behind why dieting not only doesn't work, but is likely to do more harm than good. She suggests ideas for how to live a less diet-obsessed life, intuitively. 

It’s an age-old story. A person has a huge amount of weight to lose and gets rid of most of it through a combination of diet, exercise, and lifestyle modification. And they feel fantastic. They’ve got energy for days, their skin glows, they exude newfound confidence, and they experience other small miracles. Many of you have lived this. But then something happens: the weight loss stops, or, worse, it reverses. They can keep the weight at bay as long as their diet is ironclad and they don’t skip any workouts, but as soon as they slip up even a little bit, they gain weight. And when they gain, they seem to gain it faster and more easily than should be normal. It just doesn’t seem fair.
What’s going on here?

It comes down to how we gain and lose weight. 
See, there are two kinds of fat gain: hypertrophic and hyperplastic. Adipose tissue hypertrophy is when your existing fat cells get bigger. Adipose tissue hyperplasia is when entirely new fat cells are created. 
The vast majority of fat cells are created and established during childhood and adolescence. During early infancy and from ages 9 to 13 appear to be especially crucial stages for adipose hyperplasia (PDF). After adolescence, you’re pretty much stuck with the number of fat cells your body has made. There are some regional differences in how adults gain body fat, with overfeeding creating new fat cells in the lower body fat but not upper body fat, but for the most part, the number of fat cells a person has is fixed during adolescence and only increases in adults with obesity. If your existing fat cells are filled to the brim and there’s nowhere else to put the incoming energy, the body will make new ones. 
In fact, adult adipose hyperplasia is a safety feature. As much as we hate the idea of adding entirely new fat cells to our body, they’re storage depots for excess energy. If you don’t have the extra fat cells for spillover, you’ll start depositing fat in the liver and around the other organs — basically, anyplace that’ll take it. This can have disastrous effects on our health. Animal studies show that inducing adipose tissue hyperplasia in energy excess alleviates the symptoms of type 2 diabetes in obese mice, while hypertrophic obesity (bigger fat cells) is associated with type 2 diabetes. In that respect, hyperplastia delays the development of fatty liver, diabetes, and other diseases of severely excessive nutrient accumulation by providing a place to put the nutrients. 
Weight loss doesn’t remove these fat cells, though. It pulls fat from existing ones, leaving the (mostly) empty cells behind. A formerly obese person who’s dieted and exercised down to 15% body fat still has the same number of fat cells he did when he was at 35% body fat. The fat is just spread more thinly, which makes avoiding weight regain more difficult. Why? 
It has to do with leptin. ...
See full column here.

For more on how our food pyramid should look, try this one:


Saturday, February 21, 2015

Obamacare Tax Monster | Bogus Enrollment Numbers | And No You Can't Fire a Drunken Trucker on Armstrong & Getty 2/20/15

My Friday visit to the Armstrong and Getty studio (I'm in the first half of this hour):

And more information on the stories we covered:
  1. No, there really aren't 11.4 million sign ups and the website is still not fully functional 5 years after this behemoth passed.  
  2. The IRS is requesting a $2 billion budget increase and 9,000 new agents as it prepares to enforce Obamacare’s 46 new tax provisions
  3. Record Dependency: Half of all kids in California are now on the government healthcare program for the poor.
  4. The New York Times published that we are now up over 30 exemptions to the Individual Mandate.
  5. You can fire a driver if he’s an alcoholic, right? You won’t like the answer
  6. Covered California Sends Out Nearly 100,000 Tax Forms Containing Errors, Others Deal With Missing Forms
  7. Gaming Obamacare: If a family of four makes $85,000 but states their income is $52,000, they would have a significant difference in subsidy. This subsidy—close to $5,000—would far exceed the payback limitation of $2,500.
  8. The Obamacare tax nightmare is going to be bad, very bad.  This is from Investor's Business Daily
... The way ObamaCare works is that when people sign up, they have to guess what their income will be for the following year. Whatever subsidy they get is based both on their projected income and the cost of the relevant Silver plan. 
The problem is that these people now must reconcile their actual income with whatever they guessed when enrolling for ObamaCare. If they earned more than they guessed, they'll have to pay back some of their "advance premium tax credit." If they earned less, the IRS will refund them the difference. 
With us so far? 
To reconcile their income, they must confront the new Form 8962, which really should be called the H&R Block Full Employment Form. 
Form 8962 is a testament to all that is wrong with ObamaCare. It takes up two pages, contains five parts and requires a total of 36 steps. Several of those steps involve separate worksheets. The instruction booklet explaining it all runs 15 pages. 
Filers first have to calculate their entire family's "modified" adjusted gross income (which requires a separate set of calculations), locate the correct poverty line number in the instruction booklet and divide the two. Then they have to translate the result into an "applicable figure," also found in the instruction booklet, and then do a couple more calculations. 
That's just to get through Part 1. 
It gets even more arcane from there. At one point, the instructions say: "If you checked the 'No' box on line 6 or you are using filing status married filing separately and Situation 2, earlier, does not apply to you, skip columns A through E, and see Column F, later." 
Simple, right? 
And in the end, millions will find that their subsidies were too big and they owe money to the government. In fact, H&R Block figures that as many as half of those who got ObamaCare subsidies last year will owe some of it back. 
Then there are those who went uninsured last year and now must pay a tax penalty. They'll need to fill out their own form. If they want an exemption, still more paperwork. ...
Obamacare really is the gift that keeps on giving.  Who can forget these classics where party girls are used to help sell insurance:

Thursday, February 19, 2015

11.4 Million ObamaCare Signups Is No Big Deal - Just Ask The President

This is from Investor's Business Daily:
... [The] 11.4 million number [the Administration touts] is just as bogus as the 8 million number Obama was extolling last year.

In both cases, the administration simply counted all those who picked plans, not those who have actually paid for insurance. When they finally produced an accurate count last year, the number was 6.7 million. If that same drop-off occurs this year, the real enrollment number will be more like 9.5 million.

That's about where the administration's lowered forecast put it, and significantly below the Congressional Budget Office's 13 million forecast.

So much for working "better than we anticipated."

Even if 11.4 million had signed up, this is hardly a sign that the law is a big success.

Before ObamaCare, roughly 16 million owned insurance on the individual market — and they all managed to buy it without any government hand-holding or taxpayer-subsidized premiums. Even if you count those who bought plans off the exchanges, the number today isn't much changed from that.

And a new Heritage Foundation study finds that, while the individual market has expanded, it's largely because ObamaCare has pushed millions off their employer plans. Heritage found that in the first nine months of last year, the individual market increased by 5.8 million, but 4.9 million had lost employer coverage.

Creating a new class of people dependent on government for things they used to be able to afford on their own is not a sign of progress.

Also, it's worth recalling that back in 2013, Obama was dismissing those 16 million who had bought insurance on their own as a trifle, after many of them learned that their plans were being canceled because of ObamaCare.

Obama tried to downplay this mess by saying "we're talking about 5% of the population." Jay Carney, Obama's press secretary at the time, even instructed reporters that "when you do this story, just please remember that the universe you're talking about here is 5%. That's the whole individual insurance market — 5% of the population."

So by Obama's own standard, the latest ObamaCare sgn-up numbers are insignificant....
And with respect to Obamacare "working a little better than we expected" as the President said this week Bob Laszewski had this to add:
... The administration spent $2.2 billion on developing and fixing
But 17 months after its original launch––and five years after the law passed––the backroom still has not been completely built. 
There are now about 7 million people receiving health insurance premium subsidies in the federally run exchanges. But can't pay the insurance companies. Insurers are still getting paid based upon a workaround that involves them manually filling out worksheets––for 7 million people. There is no formal date for when this will be fixed. also can't reconcile the cost sharing subsidies the lowest income people get form Obamacare––like lower deductibles and co-pays. 
This lack of an automated enrollment process not only causes lots of headaches but also makes the enrollment numbers the administration is reporting awfully soft. One carrier told me they only ended up with half of the net January enrollments originally reported to them. 
So, has Obamacare met your expectations?  

Tuesday, February 17, 2015

IRS Releases Final Forms 1094 &1095 for Reporting Employer Health Coverage Information and New Publication Offering Further Guidance

B Form Instructions

C Form Instructions

Form 1094-B

Form 1095-B

Form 1094-C

Form 1095-C

Pub. 5196

This is from EBIA
The IRS has released much-anticipated final Forms 1094 and 1095, which will be used to enforce Code § 4980H employer penalties, as well as individual mandate and tax credit eligibility rules. Issued under Code §§ 6055 and 6056, the forms were originally released as drafts in July 2014 (see our article), with draft instructions following in August (see our article). 
The “B forms” consist of the Form 1094-B transmittal and the Form 1095-B information return (which also serves as the required statement to individuals). Although some employers and other entities will be required filers, health insurers will be the primary users of the B forms, which report individuals enrolled in minimum essential coverage (MEC). The final B forms and instructions make few changes to the drafts. 
The “C forms” consist of the Form 1094-C transmittal (which also reports important information relative to employer penalties) and the Form 1095-C information return (which also serves as the required statement to employees). Filed by applicable large employers (ALEs), the final C forms themselves are largely unchanged from the drafts (except for some modifications to the recipient instructions in the 1095-C). But the final C form instructions contain noteworthy clarifications and changes. ...
   Read full summary here.

New IRS Guidance on Wide Range of Issues Related to PPACA Employer Mandate

Below is an excerpt from Proskauer's summary of the latest IRS release on Pay-or-Play guidance.  Pay close attention to the fine line drawn between short term employees and seasonal employees.  The 6-month limitation so many employers found encouraging only applies to truly seasonal employees.  Employees that are merely short term, but not necessarily seasonal must be offered benefits within 90 days if they are working more than 30 hours per week.

This is from  Peter Marathas and Damian A. Myers writing in Proskauer's ERISA Practice Center:
As previously reported, on February 10, 2014, the IRS issued final regulations on the Affordable Care Act’s (ACA) employer shared responsibility requirements—the so-called “pay-or-play” mandate. In the regulations, the IRS provides new and additional guidance on a wide range of issues relating to the implementation of the pay-or-play rules. Among them, the IRS has restated its position and introduced some new rules relating to the engagement by employers of “contingent workers,” including temporary employees, individuals hired through temporary staffing firms and independent contractors (“1099 employees”). Not surprisingly, in its proposed regulations released about a year ago, the IRS had flagged contingent workers as presenting challenging issues for compliance with the pay-or-play requirements. 
Key provisions of the final regulations’ rules for contingent workers are summarized below. 
  • Definition of Employee. In the final regulations the IRS reaffirms its position that it will use a common law definition of employee to determine employer-employee status. Generally, an individual is the common law employee of an entity if that entity has the right to control the individual’s performance of services. ...
  • Common Law Employees of the Client Employer. For purposes of the pay-or-play mandate, when the client is the common law employer, an offer of coverage made by the temporary staffing firm “on behalf of” the client employer will be considered to be an offer of coverage by the client employer. In order for an offer of coverage to be “on behalf of” the client employer, the client employer must pay a higher fee to the temporary staffing firm for those employees who enroll in the temporary staffing firm’s plan. In other words, if the contract provides for a flat fee per employee placement irrespective of whether the employee enrolls in the staffing company’s coverage, the employer will not be considered to have made an offer of coverage. This could lead to exposure under the pay-or-play mandate’s $2,000 per full-time employee “no coverage offered” penalty if more than 5% of its full-time employees (30% in 2015) are employed through the staffing agency.  
  • Contingent Worker Misclassification Issues. Employers are not required to offer coverage to independent contractors; however, because the final regulations use a common law definition of employee, an IRS examination finding that common law employees have been misclassified as independent contractors could result in significant penalty exposure to the employer. Employers that engage a significant number of “1099 employees” run a tremendous risk of incurring the pay-or-play mandate’s $2,000 per full-time employee “no coverage offered” penalty, even when they offer coverage to all of the employees they categorize as full-time. If the number of 1099 employees who are reclassified as common law employees exceeds 5% of the employer’s full-time workforce (30% in 2015), the “no coverage offered” penalty may be tripped. ...  
Given the lack of available relief [available in this area of PPACA], employers should carefully review their contractual arrangements with service providers to ensure that they have been properly classified as independent contractors as opposed to common law employees under the more traditional common law tests. 
  • Short-Term Employees. The final regulations confirm the IRS’s position that short-term employees (other than seasonal employees) who are reasonably expected to work full-time (30 hours or more per week) at date of hire must generally be offered coverage within 90 days. There is no blanket exemption for short-term employees—if employment extends beyond the end of the third full calendar month of employment, the employer must offer coverage regardless of the projected termination date (the offer of coverage will generally be within 90 days from date of hire due to the ACA’s waiting period rules).  
  • Employees of Temporary Staffing Firms. There are special rules for determining whether a variable hour employee is a full-time employee. Variable hour employees are employees with no set schedule or seasonal employees (generally those working 6 months or less on a seasonal basis). Under these rules, the employer (staffing company) can use a determination period of from 3 to 6 to 12 months to determine an individual’s full-time status for a following so-called “stability period” of 6 or 12 months. Because of the nature of the business—where employees may work for several client employers during a certain period of time—commenters observed that it would be difficult to determine when a staffing company employee was a variable hour employee. ... [T]he final regulations provide criteria that a staffing company may consider to determine whether a new employee is “variable hour.” This assessment is done at the time of hire based on the staffing company’s reasonable expectations. Considerations may include whether other similar employees of the staffing company: 
    • retain the right to reject assignments; 
    • have periods during which no assignments are available; 
    • are offered assignments of differing lengths; and 
    • are typically offered assignments that do not extend more than thirteen weeks. 
No one factor is dispositive. ... 

Wednesday, February 11, 2015

This May Be the Biggest Problem with American Healthcare. And the President Agrees

Third-Party-Payment Destroys Market Efficiency

  • In 1960 about half of our healthcare expenses were paid by the government or an insurer.  
  • Today people pay less than 12% of their own costs.  
  • Whether it is the government squandering taxpayer dollars or your child blowing the the $10 you just handed him for video games, other people don't spend your money anywhere near as efficiently as you do. 

This is an excellent column from Investor's Business Daily on one of the single most fundamental problems in U.S. healthcare.  My text is in black, IBD's is in gray:
President Obama almost sounded like a free-market health care reformer during a recent interview. Too bad he can't even imagine letting the private sector fix things.

In an interview published this week on, Ezra Klein asks Obama why health care costs so much more in the U.S. than in other countries. It was a perfect set-up for Obama to blame greedy insurance companies, drug companies and doctors. 
Instead, Obama gave a surprising — for liberals at least — answer: Health costs are being driven up largely because most health bills are paid by third parties. 
Actually, our problem is worse than that in America.  We really have, overwhelmingly, a fourth party payment system.  Medical groups and insurers haggle over reimbursements. Insurers repackage that menu of prices, slap a premium on it and sell it to businesses. Then businesses massage it and reprice a fraction of it back to employees in the form of employee contributions.

Employees see the $500 (or whatever amount) coming out of their paycheck every month for their family contribution and they make the economically rational choice to use that plan without too much thought and no real incentive to determine what the best price of a procedure is at competing hospitals.  That even sounds funny for me to type, doesn't it?  "Competing" hospitals.  Once that $500 a month is coming out whether you visit the doctor or not, the $25 copay for an office visit means almost nothing.  Back to IBD's article quoting the President:
"Mostly we've got a system where everybody gets their health insurance through their employers," he said. "For those of us who have an insurer, we don't track (costs). And the market then becomes really opaque and really hard to penetrate." 
Obama even says, "Moving in the direction where consumers and others can have more power in the marketplace ... makes a lot of sense." 
This is the most accurate and insightful observation on America's broken healthcare system I've heard from the President since 2009 when he noted that Medicaid was broken and we can't simply solve our problems by dumping more folks into that dysfunctional system. Unfortunately, no fixes were installed and the President's health insurance reform did exactly that.
This is almost exactly what free-market health care reformers have been saying for decades. 
As the ... [above] chart shows, private insurers and the government paid for about half the nation's health care costs in 1960. By 1980, they covered more than 75% of health costs. Today, they pick up more than 88%. 
This rise in third-party payment for health care — driven by government programs and decades-old tax policies — largely shields consumers from the cost of care, which fuels inflation, distorts the market, increases paperwork costs and makes pricing agonizingly opaque. 
But while Obama managed to hit on the right diagnosis, he utterly failed to understand its implications. In his next breath, in fact, Obama says that he's expanded this third-party system so people can "have peace of mind." 
ObamaCare limits deductibles, limits annual out-of-pocket spending, mandates first-dollar coverage for a host of health care and so on. As a result, the Centers for Medicare and Medicaid Services (CMS) expects that by 2023 private insurers or the government will pay for more than 90% of the nation's health costs.... 
I encourage you to read the entire IBD story, here.

If you want to read more about why healthcare inflation has slowed slightly in recent years see here.  It began in 2006.  It is because the economy has been so bad, people are self-rationing care unless that care is absolutely necessary.  The prevalence of higher deductibles and copays in Obamacare have accentuated that impact.

Lastly, shopping for price does matter immensely in healthcare.  Whatever system we devise must incentivize people to comparison shop.  HSA-compatible PPO plans are one great way to accomplish this.  With those plans individuals can pair up high-deductible insurance with pre-tax savings accounts that roll over from year to year and travel with them to cover healthcare expenses.  See the below listing on the prices for a knee-replacement surgery from around the U.S.  Without an incentive for an end user to compare prices, these market distortions will never be resolved -
  • $16,000 in Alabama; 
  • $19,600 in Fresno, California; 
  • $41,000 in San Diego, California; 
  • $61,000 in New York and 
  • $31,000 average U.S. cost. 
   Source: Forbes slideshow

Tuesday, February 10, 2015

Wellness Gut Buster: Health Experts Recommend Standing Up At Desk, Leaving Office, Never Coming Back - the Onion

I've read this a few times over the past week and it makes me laugh audibly every time. Enjoy, from the Onion:

ROCHESTER, MN—In an effort to help working individuals improve their fitness and well-being, experts at the Mayo Clinic issued a new set of health guidelines Thursday recommending that Americans stand up at their desk, leave their office, and never return. “Many Americans spend a minimum of eight hours per day sitting in an office, but we observed significant physical and mental health benefits in subjects after just one instance of standing up, walking out the door, and never coming back to their place of work again,” said researcher Claudine Sparks, who explained that those who implemented the practice in their lives reported an improvement in mood and reduced stress that lasted for the remainder of the day, and which appeared to persist even into subsequent weeks. ... 
Entire post here.

Will Obamacare Be Repealed with 51 Votes in the Senate in 2017?

Senator Ted Cruz believes so.  This is from Ali Meyer at CNS News:
... asked Cruz, “Given that the Senate enacted Obamacare in a reconciliation measure that required only 51 votes, would you support repealing Obamacare with only 51 votes?” 
“Absolutely,” Cruz responded. “If it can be passed with reconciliation, it can be repealed with reconciliation. And we need to use every procedural means possible to fight to stop the train wreck that is Obamacare.” 
“I believe in 2017 a Republican president will sign legislation repealing every word of Obamacare,” Cruz said. “Obamacare has caused millions of Americans to lose their jobs to be forced into part time work, to lose their health care, to lose their doctors, to see their health insurance premiums skyrocket. This last election was a referendum on Obamacare and the American people overwhelmingly said this isn’t working, let’s start over. That’s what Congress needs to do.” ...

Claim: Anthem Was Right Not to Encrypt. No U.S. Business Will Be Able to Defend Against Foreign State Attacks

I am not a tech expert, but the sentiments expressed below are exactly what I've been thinking since the news of the Anthem hack.  To wit, what U.S. company can be expected to guard against sophisticated attacks from foreign countries?  It seems highly unrealistic and myopic to me.  The bottom line is that in our digital world, regular data leaks and hacks are just going to be as common as getting spam in your inbox.  It is what it is and we have to learn how to deal with it. But an expectation that it will never happen is just not reasonable. 

This is a very compelling excerpt from Fred Trotter writing at the Health Care Blog
... Anthem was right, and the Internet is wrong. Or at least, Anthem should be “presumed innocent” on the issue. More importantly, by creating buzz around this issue, reporters are missing the real story: that multinational hacking forces are targeting large healthcare institutions. ...
Encryption is a mechanism that ensures that data is useless without a key, much in the same way that your car is made useless without a car key. Given this analogy, what has apparently happened to Anthem is the security equivalent to a car-jacking. 
When someone uses a gun to threaten a person into handing over both the car and the car keys needed to make that care useless, no one says “well that car manufacturer needs to invest in more secure keys”.
In general, systems that rely on keys to protect assets are useless once the bad guy gets ahold of the keys. Apparently, whoever hacked Anthem was able to crack the system open enough to gain “programmer access”. Without knowing precisely what that means, it is fair to assume that even in a given system implementing “encryption-at-rest”, the programmers have the keys. Typically it is the programmer that hands out the keys.
Most of the time, hackers seek to “go around” encryption. Suggesting that we use more encryption or suggesting that we should use it differently is only useful when “going around it” is not simple. In this case, that is what happened. ...
Anthem has a responsibility, under HIPAA, to ensure that records remain accessible. That is much easier to do with unencrypted data. The fact that this data was not encrypted means very little. There is little that would have stopped a hacker with the level of access that these hackers achieved. Encryption probably would not have helped.
By focusing on the encryption at rest issue, the mainstream press is missing the main story here. If indeed Anthem was targeted by sophisticated international hackers, then there is little that could have been done to stop them. In fact, assuming international actors where involved, this is not as much as failure for Anthem as a failure of the NSA, who is the government agency tasked with both protecting US resources and attacking other nations resources.
As much as the NSA has been criticized for surveilling americans, it is their failure to protect against foreign hackers that should be frequent news. Currently, the NSA continues to employ a strategy where they do not give US companies all of the information that they could use to protect themselves, but instead reserve some information to ensure that they can break into foreign computer systems. This is a point that Snowden, and other critics like Bruce Schneier continue hammer: the NSA makes it easy to spy, for themselves and for others too.
It is fine to be outraged at Anthem and I am sure they could have done more, but I can assure you that no insurance company or hospital in the United States is prepared to defend against nation-state level attacks on our infrastructure. In fact, Anthem is to be applauded for detecting and cutting off the attack that it did find. ...

Monday, February 9, 2015

IRS Requesting $2 Billion Budget Increase and 9,000 New Agents as it Prepares to Enforce Obamacare’s 46 New Tax Provisions

  • The IRS seeks to bolster its agency by 9,280 employees as it set out to enforce PPACA's mind-boggling 46 new taxes.  
  • The requested $2 billion increase for 2016 represents a 16% increase from what the agency operated on in 2014 and totals $13.9 billion. 
  • The increase in IRS personnel would bring the agency from 82,203 to 91,486 total employees. 
Source: Melissa Quinn, writing at the Daily Signal on February 5, 2015.

Thankfully, none of those 46 new taxes will hit families making less than $250,000:

Either that perhaps those 46 new items should be labeled otherwise: 

Catch 22: To Make PPACA Fiscally Sustainable, the Cadillac Tax Must Become Politically Unsustainable

This is from Chris Jacobs at the Wall Street Journal:
... under current projections the [Cadillac] tax will grow so quickly that it will exceed the annual rising costs of the law’s new entitlements, causing net spending on Obamacare actually to decline. 
The Cadillac tax has always caused the administration political heartburn. In 2008, then-Sen. Barack Obama broadcast the most-aired political ad in a decade, attacking Sen. John McCain for wanting to tax health benefits. The Cadillac tax technically targets insurers, not individuals, but videos of remarks by MIT economist Jonathan Gruber, who advised the administration when the health-care law was being developed, show Mr. Gruber saying that Democrats engaged in semantics about the tax and even “mislabeling” to provide political cover for the president to change his position.  
When Obamacare was passed, Mr. Gruber wrote articles—promoted at the time by the administration—saying that the Cadillac tax wasn’t a tax. He argued that, in response to the law’s pressures, firms would reduce their health benefits but increase taxable wages—and that paying taxes on these higher wages amounted to a net plus for individuals rather than a tax increase. But in the face of pressure from labor unions, which remain opposed to the tax, Democrats ultimately decided to delay its implementation until 2018, after President Obama leaves office. 
In its analysis last week, CBO made clear that the Cadillac tax, coupled with provisions slowing the growth of insurance exchange subsidies (provisions that some liberal groups want to overturn) is central to making the law fiscally sustainable. The question is whether the effects of the Cadillac tax would be any more politically sustainable in 2018 and beyond than they were in 2009—and what supporters of the law will do if they aren’t. 
The below chart is from Forbes.  In reviewing a sampling of approximately 100 large employers in California, I suspect we'll see 50% to 70% of plans trigger the tax in 2018. But no matter how many it ensnares in 2018, it will have the vast majority by 2026.

Friday, February 6, 2015

2015 PPACA Reminder: Eligibility Rules Need To Be In Writing with Employer Mandate Now in Play

... ERISA requires employers to provide a Summary Plan Description (SPD) to plan participants and newly eligible employees. Among other things, SPDs are required to describe plan eligibility provisions and enrollment requirements. Accordingly, if you are modifying your eligibility rules for purposes of the Employer Mandate, you should first update any existing documents (SPDs, employee handbooks, open enrollment handouts, etc.) that contain eligibility language which now explicitly conflicts with the changes. 
Even if old SPDs or other documents do not have conflicting language, you still should clearly lay out any new eligibility provisions in writing.  In addition to complying with ERISA, clearly laying out these new eligibility provisions should help you reduce potential conflicts with employees and risks of litigation, both from employees and the IRS, over who was offered coverage, and who was not.
For example, employers with fully-insured health plans may have relied in the past solely on documentation received from their insurance carriers or third-party plan administrators and may not have created a separate SPD with clearly defined eligibility provisions. But such plan documents often do not contain specific eligibility language beyond, perhaps, a minimum hours-per-month threshold. 
Leaving existing plan documents and other materials (e.g., employee handbooks) to define health insurance eligibility with something vague like “full-time employees are those employees who regularly work 30 or more hours per week,” is only inviting trouble. You will no doubt have employees (with attorneys) who could make plausible arguments that they “regularly” work 30 or more hours a week and can point to your existing written documents as evidence they should have been offered health insurance. Without clearly setting out new eligibility rules, it will be a more difficult battle to defend your eligibility determinations. 
On the other hand, if such employees attempt to claim that they were unfairly denied health insurance benefits, you will be on much stronger footing to defend your classifications if you can point to written documentation outlining details such as a) date ranges used for measurement periods, administrative periods, and stability periods; b) waiting periods for new employees and newly-eligible employees; and c) how to treat employees in special circumstances, such as those who are promoted from a part-time position to a full-time position, those on a leave of absence, or those who are rehired after an earlier termination. ...

Thursday, February 5, 2015

Anthem Hit by Massive Cybersecurity Breach

Blue Shield of California Plans with Out-of-State Members Using Blue Card Might Also Be Impacted

This is from Reuters
Health insurer Anthem Inc (ANTM.N), which has nearly 40 million U.S. customers, said late on Wednesday that hackers had breached one of its IT systems and stolen personal information relating to current and former consumers and employees. 
The No. 2 health insurer in the United States said the breach did not appear to involve medical information or financial details such as credit card or bank account numbers. 
The information accessed during the "very sophisticated attack" did include names, birthdays, social security numbers, street addresses, email addresses and employment information, including income data, the company said. 
Anthem said that it immediately made every effort to close the security vulnerability and reported the attack to the FBI. Cybersecurity firm FireEye Inc FEYE. said it had been hired to help Anthem investigate the attack. 
The company did not say how many customers and staff were affected, but the Wall Street Journal earlier reported it was suspected that records of tens of millions of people had been taken, which would likely make it the largest data breach involving a U.S. health insurer. 
Anthem had 37.5 million medical members as of the end of December. 
"This attack is another reminder of the persistent threats we face, and the need for Congress to take aggressive action to remove legal barriers for sharing cyber threat information," U.S. Rep. Michael McCaul, a Republican from Texas and chairman of the Committee on Homeland Security, said in a statement late Wednesday. ...
Anthem said it would send a letter and email to everyone whose information was stored in the hacked database. It also set up an informational website,, and will offer to provide a credit-monitoring service. 
And this is from Anthem:
To our valued customers:

Safeguarding your employee's personal, financial and medical information is one of our top priorities, and because of that, we have state-of-the-art information security systems to protect your data. However, despite our efforts, Anthem was the target of a very sophisticated external cyber attack. These attackers gained unauthorized access to Anthem's IT system and have obtained personal information from our current and former members such as their names, birthdays, member ID/Social Security numbers, street addresses, email addresses and employment information, including income data. Based on what we know now, there is no evidence that banking, credit card, medical information (such as claims, test results, or diagnostic codes) were targeted or compromised.

Once the attack was discovered, Anthem immediately made every effort to close the security vulnerability, contacted the FBI and began fully cooperating with their investigation. Anthem has also retained Mandiant, one of the world's leading cybersecurity firms, to evaluate our systems and identify solutions based on the evolving landscape.

Anthem's own associates' personal information - including our own - was accessed during this security breach. We join you in your concern and frustration, and we assure you that we are working around the clock to do everything we can to further secure your employees' data.

Anthem will individually notify current and former members whose information has been accessed. We will provide credit monitoring and identity protection services free of charge so that those who have been affected can have peace of mind. We have created a dedicated website ( ) where members can access information such as frequently asked questions and answers. We have also established a dedicated toll-free number that both current and former members can call if they have questions related to this incident. That number is: 1-877-263-7995. As we learn more, we will continually update this website and share that information with you. And, we developed an FAQ to help you answer questions you may receive from your employees.

We want to personally apologize to you and your employees for what has happened, as we know you expect us to protect your information. We will do everything in our power to make our systems and security processes better and more secure, and hope that we can earn back your trust.  

This is from Blue Shield:
As you may have heard, Anthem Inc. was recently the target of a cyber-attack. The news broke last night, Wednesday, February 4, 2015. Blue Shield of California is aware of Anthem's cyber-attack and we are working to gather more information and understand the scope of this issue. In California, Anthem Blue Cross is separate and independent from Blue Shield of California, though some members could be affected due to various collaborative agreements between Blue Plans throughout the country. 
Blue Shield of California continually assesses and monitors the security of its IT systems and employs advanced and up-to-date security measures. For additional information and assistance about the Anthem situation, visit or call their dedicated toll-free phone line at 1-877-263-7995. Read our FAQ for more information. 

Steps that employers should be taking with respect to their group health plans and their employees' information - from Marcia Wagner at the Wagner Law Group:
... With respect to fully insured plans, Anthem has the obligation to notify participants and is completely liable for the breach. Anthem may communicate general information to plan sponsors (e.g., steps being taken to address the breach). Some employers may want to send additional communications to employees to ease their fears.
For self-insured plans, Anthem, as a business associate, must notify the plan sponsor regarding the scope of the breach (i.e., identify those participants who have been affected). Because Anthem will communicate directly with the participants, the plan sponsor does not need to notify them of the breach. Some employers, however, may want to send an additional communication to affected employees to ease their fears. In accordance with servicing agreements and the business associate agreements, Anthem should be liable for the breach.  
In the coming days and weeks, Anthem should communicate directly with plan sponsors to tell them how it plans to proceed, when employee communications will be sent, what information will be in the communications, steps that will be taken to mitigate harm and steps that will be taken to prevent future breaches.  
Even though Anthem has indicated that it will provide free credit monitoring and identity protection, affected employees should be reminded to be vigilant and to monitor their credit reports, credit cards, etc....

Now there is an email phishing scam attempting to cash in on the Anthem hysteria.  Please note the below pictured email is not legitimate.  Anthem is not calling members regarding the cyber attack and are not asking for credit card information or social security numbers over the phone.  This outreach is from scam artists who are trying to trick consumers into sharing personal data.  There is no indication that the scam email campaigns are being conducted by those that committed the cyber attack, or that the information accessed in the attack is being used by the scammers.  Anthem will contact current and former members via mail delivered by the U.S. Postal Service about the cyber attack with specific information on how to enroll in credit monitoring.  Affected members will receive free credit monitoring and ID protection services.

I received this update from Anthem on February 9th:
We recommend that members regularly review statements from their accounts and periodically obtain credit report from one or more of the national credit reporting companies. Members may obtain a free copy of your credit report online at, by calling toll-free 1-877-322-8228, or by mailing an Annual Credit Report Request Form (available at to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. 
As a precautionary step, members may wish to place a fraud alert on their credit file. A fraud alert tells creditors to contact you before they open any new accounts or change existing accounts. Members can call any one of the three major credit bureaus listed below. As soon as one credit bureau confirms a fraud alert, the others are notified to place fraud alerts. All three credit reports will be sent to the member, free of charge, for review. 
Equifax                  Experian               TransUnionCorp
800-525-6285         888-397-3742          800-680-7289 
Anthem will offer identity repair services, which will be retroactive to the date of the potential exposure, and credit monitoring, which is effective if and when the consumer enrolls, through a trusted vendor. We are in the final stages of preparation with the vendor, and anticipate members will be able to access the vendor hotline next week. At that time, members will be able to call the hotline and receive identity repair services, and if they chose, can also enroll in credit monitoring. Members will not need to wait until they receive their mailed notification. 
We will provide more detailed communications once the hotline is available. 
We are in the final stages of preparation with the vendor, and anticipate members will be able to access the vendor hotline next week. We will provide more detailed communications once the hotline is available. 
We will begin to mail letters to impacted members in the coming weeks. 

Tuesday, February 3, 2015

COBRA Violations Result in $1 Million Class Action Judgement Against Employer/Administrator

Too often I witness potential clients and students gloss over COBRA compliance in the selection of a brokerage. That is a huge mistake as COBRA violations can mount quickly. And more often that not, employers are shocked at the errors made by brokers and/or administrators.   

In this case, the employer, Brunel: 
  • failed to provide its employees with notice of their right to elect COBRA coverage when they first began participating in the plan; 
  • failed to provide notice of their right to continue coverage when their employment was terminated, which the plaintiffs argue was an event qualifying them for continued COBRA coverage; and 
  • under ARRA failed to offer a premium reduction to eligible individuals and failed to notify employees of their eligibility for premium reduction.  
COBRA requires an employer to notify an eligible employee twice: 
  • first, when the employee begins participating in a group health plan; and 
  • second, when the employee notifies the employer that a qualifying event has occurred. 
ARRA provided eligible individuals with a right to reduced premium payments for healthcare coverage they receive through COBRA.  ARRA also required an employer to notify an eligible employee of this right when he or she is notified of the right to elect continued coverage under COBRA after a qualifying event. 

  • $375,000 payout to nearly 70 class members (about $5,000 each); 
  • a $12,000 service award to the class representatives; and 
  • nearly $625,000 for attorney’s fees and other costs.
The caseSlipchenko v. Brunel Energy, Inc., 2015 WL 338358 (S.D. Tex., Jan. 23, 2015). 

Stories Causing Atlas to Shrug, February 3, 2015: Half of California Children on Government Healthcare for the Poor

When a government redefines "poor" to include only having one television or car, living with less then 100 channels of cable programming, or being so all-encompassing that in now enables half of all children in California to enroll in government healthcare for the impoverished, you know beyond a shadow of doubt, that government is dangerously close to extinguishing the light of Liberty. 

  And this is a spot on synopsis on that story from Megan McArdle at Bloomberg
... At every turn, when it has come time to actually make people bear the price [of Obamacare], the government has blinked. The employer mandate was delayed, cuts to Medicare Advantage were delayed, deadlines to purchase insurance were pushed back, and now the need to repay excess subsidies has been eased. Remember, these payments were increased just a few years back in order to pay for the repeal of a different, unworkable part of the bill: the provision that would have required people to issue 1099s to anyone who sold them more than $600 worth of stuff. 
But the political logic is inescapable: A bunch of people are about to find out that they got too much in subsidies, and now they owe the IRS hundreds, possibly even thousands, of dollars. Many of those people won't have the money, and they are about to get very upset. So the Barack Obama administration did what it has done before: nursed the program forward with administrative rulings that minimize the political blowback. Presumably the idea is that by the time it actually lets the cost side take effect, so many people will be getting subsidies that it will be effectively impossible to repeal. ...