Plan Features for “Grandfathered” Health Plans Under PPACA

Tuesday, July 13, 2010

The Patient Protection and Affordable Care Act (Act) exempted or “grandfathered” those employer sponsored health care plans in effect on or before March 23, 2010 from some but not all provisions of the Act. Both these exemptions as well as mandated provisions were documented in the Federal Register on June 17, 2010.  Additional information is provided by DOL.  This grandfathering created certain advantages to employers with such plan by allowing them to maintain their current plan design features and avoid having to add possibly expensive features mandated under the Act. At the same time, the Act added certain notification requirement for grandfathered plans, notification requirements in addition to those already on the books.

The mandated and exempted plan feature
provisions include for grandfathered plans:

.................................................................................................................... Applies to ---

............................................................................................................... Grandfathered
Section ---------------------------------------------------- Title ----------------------------------------------------- Plans

§ 2701 ....... Fair Health Insurance Premiums ............................................................  No

§ 2702 ....... Guaranteed Availability of Coverage .....................................................  No

§ 2703 ....... Guaranteed Renewability of Coverage ..................................................  No

§ 2704 ....... Prohibition of Preexisting Condition Exclusions or ................................ Yes

                   Other Discrimination Based on Health Status

§ 2705 ....... Prohibiting Discrimination Against Individual ......................................... No

                   Participants/Beneficiaries Based on Health Status

§ 2706 ....... [Providers] Non-Discrimination in Health Care ........................................ No

§ 2707 ....... Comprehensive Health Insurance Coverage ........................................... No

§ 2708 ....... Prohibition on Excessive Waiting Periods .............................................. Yes

§ 2709 ....... Coverage For Individuals Participating in ............................................... No

                   Approved Clinical Trials

§ 2711(a) ... No Lifetime or Annual Limits ................................................................ Yes

§ 2711(b) ... [Restricted] Annual Limits Prior to 2014 ................................................ Yes

§ 2712 ....... Prohibition on Rescissions .................................................................... Yes

§ 2713 ....... Coverage of Preventive Health Services ................................................. No

§ 2714 ....... Extension of Dependent Coverage ........................................................ Yes

§ 2715 ...... Uniform Explanation of Coverage Documents/ ....................................... Yes

                  Standardized Definitions

§ 2715A .... Provision of Additional Information ......................................................... No

§ 2716 ...... Prohibition on Discrimination in Favor of ................................................. No

                  Highly Compensated Individuals

§ 2717 ...... Ensuring The Quality of Care .................................................................. No

§ 2718 ...... Bringing Down The Cost of Health Care Coverage ..................................Yes

§ 2719 ...... Appeals [Claims] Process ......................................................................... No

§ 2719A ... Choice of Health Care Professional .......................................................... No

Employee Benefits Security Administration (EBSA) Releases Rules on “Grandfathered” Health Plans Under PPACA

Monday, July 12, 2010

On June 17, 2010, the Employee Benefits Security Administration (EBSA) released its “interim final” rules on the “grandfather” provisions of the Patient Protection and Affordable Care Act (Act). Under the PPACA, certain hearth care plans, which were in effect on or before March 23, 2010, are exempted from some but not all provisions of the Act. Current grandfathered plans may lose their status, as a grandfathered plan should, if at some time in the future; they make certain changes to their plan design and features.

Under the Act, should a plan lose its grandfathered status, the plan would become subject to the full weight of the ACT. This could prove to be problematic for any organization that has several plans. The loss of grandfathered status in one plan DOES NOT mean the loss of grandfathered status in all other plans. Each plan stands alone with respect the being grandfathered or not. However, it could result in an additional administrative issues having to manage a mixed bag of plans. One employer with which I am familiar has several dozen plans, some with collectively bargained agreements, and others without such agreements. The grandfathering status of each plan has to be view separately from the status of others.

One surprising turn of events is that collectively bargained plans were not totally exempted from the provisions of the Act as might have been expected. Historically, most Federal benefits legislation has provided for a broad exclusion of collectively bargained agreements. Collectively bargained plans that are “fully” insured will be considered grandfathered if the plan was in effect on or before March 23, 2010. Fully insured plans will continue to be considered grandfathered as long as they continue to meet the grandfathering rules. However, those collectively bargained health care plans, which are “self-funded”, are subject to the Act’s provisions in the same way that any other self-funded plan is.

Grandfathered plans could lose their grandfathered status if they:

- Demand employees switch plans to avoid compliance.

- Eliminate benefit provisions.

- Engage in divestitures or acquisitions to circumvent compliance.

- Fail to inform their employees of their grandfathered status.

- Fail to maintain documentation to support grandfathered status.

- Impose new or decreased annual limits.

- Significantly decrease employer contributions.

- Significantly increase deductibles, co-payments,

  Co-insurance payments.

Grandfathered status, much like self-funded status provided an exemption from mandated benefits, relived plans from meeting some of the provisions of the Act. Loss of that status could prove to be unpleasant at least.

What is Wrong with Employee Engagement?

Friday, July 09, 2010

In this on-again off-again roller coaster economic recovery, why should organizations be concerned with employee engagement? Employees who have been out of a job and on the street for 3 to 9 months or even a year should be plenty engaged, shouldn’t they? After all, many of their cohorts are still looking for a job, for some; they are on their second round of layoffs since the economy went south. For some job seekers things have gotten so bad they have given up looking and are not even being counted in the jobless numbers.

Employers need to remember, these are the production workers assembling products, they are the sales and marketing representatives pounding the pavement selling those products, and they are the administrative staffs in Finance, HR, and IT holding the corporate or regional offices together with a third of their former staff. These are employees who had their pay frozen, their 401(k) contribution match suspended, their hours cut back, the cost of their health care increased by double digits, and assigned double duty to absorb the work of laid off cohorts. They have come in everyday not knowing whether they will get a handshake or a pink slip.

All too often businesses do not consider that a few small acts of appreciation will go a long ways towards engaging employees in the daily operations. The other day I was in a national sub shop waiting in line for my sub to be prepared. All of a sudden, the manager threw my half made veggie sub in the trash can, where upon he explained that “something” had fallen on to the sandwich. He then directed the sub maker to “do it again”. Had that sub maker been “engaged” she would not have allowed my sub to be contaminated with whatever it was that fell on it. True, a 6 inch is not much of a loss, but then multiply it by 5 days a week, 52 weeks a year and organizations that operate on razor thin profit margins cannot not afford one trashed sub.

Every morning I stop at the small coffee shop in my building and order one large coffee. As soon as the manager sees me, he has my large coffee ready to go. No, it is not some national coffee chain headquartered in Seattle. It is a small mom and pop where the owner and his wife work to make a modest lining. How engaged is the owner-manager, very engaged, he knows that his livelihood is directly related to the 500 or so employees who work in that building. If his product quality is poor, there is another coffee shop just down the street. If his service is too slow, there are numerous sandwich shops nearby.

The trick with employee engagement is to get every employee from the loading dock to the C-Suite to act and behave as if it were their personal business. One trucking firm had the names of the designated driver and mechanic painted on the side of the trucks. A paper products company held an annual truck rodeo where families were invited to watch drivers and mechanics “wrangle” their trucks through obstacle courses. Utility companies have held similar “rodeos” where power lineman and others demonstrated their ability to climb poles, hang wire, and make corrections. One utility company holds a rodeo where the main event is locating underground pipes and cables using remote sensing devices.

Sometimes simple is better!

What Is Behind 3 Percent Merit Budgets?

Monday, July 07, 2010

Indications are that 2010 and may be even 2011 will be another couple of years with 3% +/- merit budgets. Why 3%, isn’t the economy is turning around, well yes on some days and on others, well no one is sure where it is going. What is keeping budgets so depressed?

Many organizations are still concerned about upping pay since there is a possible that new lay-offs may be forth coming. Holding back on anything other than a minimal increase is the conservative nature of businesses, large and small. With many organizations seeing only modest increases in orders for goods and services it makes more sense to park any extra cash to hedge against any possible future double-dip or unforeseen events.

Consider that with national unemployment at 9.5%, many employees see little need to up wages while there is still a significant supply of unemployed labor available. Some employers may be tempted to us the continuing high unemployment levels to “motivate” their current workers to work just a little harder. Some workers may even be reluctant to ask for increases for fear as “getting’ on the bosses radar”. A number of organizations in an effort to side step lay-offs reduced their workers’ hours, so before wages are increased, workers’ hours will have to return to “normal”.

Since the “Great Recession” also cut back on the availability of loans for many small companies, there just may not be the cash flow to support any wage increases or at most 2%-3% for a few. As organizations struggle with low levels or sales and orders, many banks continue to be unwilling to lead to even their better customers. Companies with significant credit worthiness issues are often just flat lack the credit ability to consider borrowing to meet anything other than their daily operations. In such situations, owners have to keep the decision to keep the lights on of give Bob a $25 a week pay raise.

It is hard for most business owners of small companies to ignore the financial plight of their employees. Many of their employees may have worked for them for a number of years, helped to start the business or be a key person in the business operations. In an economy it would not be unssal for the employee’s spouse to be laid off or have their hours reduced. Many owners have themselves made sacrifices to keep workers on and employed in the face of the loss of sales and orders.

The best that can be said of those employees who stick these times out for their employers is that when times do get better; use that as the opportunity to address pay issues. In the meantime, business managers need to do what they can to recognize and reward with what little they may have at their disposal.

Direct Rx Reimbursement

Friday, July 2, 2010

Prescribed drug costs are becoming an increasingly larger proportion of the over costs of individual, private (employer sponsored), and public healthcare plans. As with healthcare in general, the driving force behind the increase in prescribed drug costs is aligned with three factors: (1) Increased usage, (2) Direct consumer marketing by pharmaceutical manufacturers, and (3) Greater patent protection.

According to a report published by The Kaiser Family Foundation on National Health Expenditures data from The Centers for Medicare and Medicaid Services, US drug costs rose a total of 142 percentage points from 1996 to 2008. Thus, a drug that costs $100.00 in 1996 was $381.03 (compounded) in 2006.

As with healthcare in general, organizations look for ways to make their Rx dollar go as far as possible while providing value for their active employees and retirees. Some techniques include the use of preferred pharmacy networks with carrots and sticks to use in-network pharmacies and not use out-of-network pharmacies. Another approach is to maintain a list of preferred (formulary) and non-preferred (non-formulary) drugs for which the organization’s Rx plan will or will not pay. A third technique is for the organization to engage a Pharmacy Benefit Manager (PBM), these vendors negotiate with drug manufacturers and pharmacy chains to deliver discounted drugs to the organization’s insured members. Of course, an organization could choose to reimburse its employees directly for prescribed drug costs through a process known, obliviously, as Direct Reimbursement.

Prescribed drug Direct Reimbursement (also used for dental expenses) at its simplest level works life any other reimbursement payment process, e.g., employee travel. The employee goes to the doctor, gets a script, takes the script to the Rx, pays for the script, presents the payment receipt to the employer, and the employer writes a check to the employee. There are no claim forms, no insurance company, no networks, no formularies, and of course, no controls other than the employee has to have a valid prescription from a licensed medical doctor. Variations in this process includes adding deductibles, co-pays, con-insurance, networks, formularies, incentives for generic drug use, mail order for maintenance drugs, .. etc. Funding of the benefit may look just like any other self or fully insured arrangement, employees and employers may both contribute. Programs may incorporate pre-tax features of Flexible Spending Accounts (FSA). However, at some point Direct Reimbursement becomes so complicated that organizations need a Third Party Administer (TPA) to run the program and any cost savings may be eliminated by administrative service fees. So why should an organization consider a Prescribed Drug Direct Reimbursement program?

Some organizations, most notably school systems, city, county, state governments, and unions (pharmacists support them) have been using Prescribed Drug Direct Reimbursement for some time. Organizations with a workforce concentrated in a very well defined geographical area, i.e., school systems, city, county, state governments, and unions are able limit their exposure to unpredictable costs due to the restricted pharmacies available to their members. They may even be able to obtain special pricing with local pharmacies though contracting, i.e., networking. Clearly, organizations with dispersed workforces in multiple states would not be likely candidates for Direct Reimbursement. Such organizations would also find it difficult or impossible to build such arrangements without the support of employee benefit brokers since compensating those brokers could prove to be problematic, at best.

Executive Compensation – Is It Out of Line? Part #3

Wednesday, June 30, 2010

So how much compensation is executive compensation? The worth of an executive is in the eye of the beholder, who, it this case is the board of directors. Like the owner of an MLB team looking for a winning manager, the board of directors is winning to pay some pretty big bucks to ensure their company makes it to the World Series. However, even if a manager has taken his last 10 teams to the World Series does not guarantee he will take your team there. After all, this is just one man and that is often the argument used my many to support their position that executive pay is out of control.

As reported in CNN Money by Jennifer Liberto, a senior writer with CNN, 4 bank CEO’s admitted to Congress on January 13, 2010 that their banks had taken on too much risk. Lloyd Blankfein (Goldman Sachs), Jamie Dimon (JPMorgan Chase), John Mack (Morgan Stanley), and Brian Moynihan (Bank of America) testified before the congressional Financial Crisis Inquiry Commission. Commission was looking into who knew what and when was it known.

These 4 CEO’s received more or less $60,000,000,000 out of an estimated $204,808,576,320 for all banks, that is almost 30% just to these 4 banks. This “loan” was to be used to stabilize these and other banks to avoid a catastrophic melt down of the worldwide and US banking system. Whether or not you want to admit it, you do not get to be the head of any of these 4 banks unless you are damn smart. Moreover, you have a cadre of staff that are may be even smarter that you to keep you out of the swamp. So how is it that these 4 men and their small army of staffers failed to see the risks associated with the investment schemes that triggered the Great Recession?

On Tuesday, May 18, 2010, The New York Times published compensation data supplied by Equilar, the executive compensation research firm, for these 4 CEO’s.
                                                  ------------ 2009 --------------   ------------- 2008 ------------

Name -------------------------- Bank ----- Base Pay ------ Total Pay Base Pay ----- Total Pay
Lloyd Blankfein  (Goldman Sachs),     $600,000     $900,000*    $600,000   $40,900,000*
Jamie Dimon     (JPMorgan Chase), $1,000,000  $1,300,000* $1,000,000   $35,700,000*
John Mack        (Morgan Stanley),   Not Listed
Brian Moynihan (Bank of America)   Not Listed
*Various stock options

It may be many years before we learn what these 4 CEO’s where thinking when they signed off on such risky speculation as investing in mortgage loans from homeowners whose incomes and assets had not been verified. I stand to repeat myself, “The worth of an executive is in the eye of the beholder, who, it this case is the board of directors.”

Executive Compensation – Is It Out of Line? Part #2

Monday, June 28, 2010

So who or what determines, sets, approves, and authorizes executive compensation?

In the case of publicly held organizations, those companies whose stock is publicly available for sale through one or more of the stock exchanges, generally there is a subcommittee (Compensation Committee) of the board of directors who reviews and sets pay for the “officers” of the corporation. Typical officers include the Chief Executive Officer, the Chief Financial Officer, the Chief Operations Officer, and may include other “chiefs” in areas of IT/IS, HR, Marketing, Legal … etc. This subcommittee is composed of anywhere from 3 to 7 board members whose job it is to review current executive pay and make recommendations to the full board on what, if any, actions to take. When new “chiefs” are hired, it is also their job to formulate an offer and get it approved by the board.

The Compensation Committee is often advised by internal and external consultants in the areas of executive pay and legal practices. In the case of hiring a new executive, the candidate may even have their own executive pay and legal consultants advising them on how to negotiate pay and benefits. If the Compensation Committee is reviewing current executive’s, they may also employ consultants in executive pay, and legal practices to advise them what can and cannot be done. It is common for the organization to have a compensation philosophy stating how executive pay is to be set, e.g., “the 50th percentile of similarly sized companies in the same industry”. The determination of what constitutes the 50th percentile of similarly sized companies in the same industry often falls to an executive compensation consultant who has access to detailed information on the pay and benefits of executives in other organizations.

Executive compensation packages may include pay, benefits, retirement plans, stock options, performance bonuses, non-performance bonuses, severance packages (Golden Parachutes), personal vehicle(s), use of the company plane(s), boat, apartment(s), first class travel, miscellaneous reimbursement accounts, … etc. This, you will remember, may be the strategic leader of a worldwide organization with billions in sales, thousands of employees, and hundreds of operational locations. Some executives have the ability to turn a failing company into an industry leader, saving the company, shareholders, and yes, even employee jobs. I once worked with an executive who was hired to turn around large organization. In return, he was rewarded for his efforts; however, he had to demonstrate that the turnaround was real so his reward was deferred for 10 years. Most employees I know would not wait 10 years for their bonus check!

Executive compensation has outpaced compensation for rank and file employees of the last two decades. Equilar, a provider of executive compensation data and research, reported on January 20, 2010 that executive salary reinstatements are on the rise, incentive compensation is changing, and companies are getting creative with equity compensation. The full report is available by contacting Equilar.

A special report published on October 13, 2009, by Bloomberg Businessweek quotes Don Delves and Hewitt Associates’ head of the North American compensation consulting practice Ken Abosch on executive compensation trends in the midst of the Great Recession.

While I am a firm believer in paying an employee for what they are worth and for what they can produce, it does beg the question how Michael Jefferies, CEO of Abercrombie and Fitch, can take home more, when their business is under performing, their stock is down, and they laid off employees?

Part #3, tomorrow.