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HRA Case Study: How you can save 30% on your small business health insurance.

August 11, 2011 By Mike Sheeran

I talk about health reimbursement arrangements all the time so people have started to ask, “are they worth the extra work in getting them set up?”

Absolutely! Let’s take a look at case study of a group we just worked on.

HRA/Health Reimbursement Arrangement Case Study

This is a recent case we worked on where the business found tremendous savings using an HRA. This group had another large increase with their health insurance carrier and they were ready to try something different. Two of the employees rarely use the plan, so they thought they may be wasting money on high premiums. The solution to this was the HRA.

With the HRA, they opted for a high deductible health plan and are going to reimburse employees for their claims as they are incurred. The best part is, it will work great whether the employees have zero claims or extremely high claims. With the change to a high deductible plan, the premiums were cut in half!

HRA Plan Setup

Premium Savings: $33,176 with new high deductible plan.

2 Single employees and 2 families

HRA Fund : $2500 per single and $5,000 per family.

HRA Fund: September through December 31 = $15,000

HRA Fund: Jan 1 through December 31, 2012, $15,000

Total HRA Fund: $30,000

The worst case scenario for this group is that every employee spends through their HRA allowance and it costs the company $30,000. They are guaranteed to save $3,000 but will likely save much more depending on actual claims usage.

Do you think this will work for your company? It works in most cases and can be a better setup for employees too. Just because you are saving thousands, doesn’t mean employees get a bad deal. Call me today and I will share more information on this setup can benefit everyone.

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Should You Buy Your Life Insurance Online?

August 10, 2011 By Mike Sheeran

Like many people, the first place I turn for information is usually the web. Nowadays, we can purchase nearly any type of insurance online with just a few clicks of the mouse. This can be both good and bad, and I think online purchases may have some disadvantages, especially when it comes to life insurance.

I will walk through the process of purchasing a term life insurance policy on the web versus dealing with an independent insurance agent.

I’m an agent, so of course I think agents do a better job then our online counterparts, but please read below and decide for yourself.

Pre-Sales Information Gathering and Advice

When you first decide to purchase life insurance, you will have to do some initial research to help pick the right policy.

A few considerations:

What type of policy? Term, whole life, universal life?
How much insurance do you need?
How long do you need the insurance?
What is your monthly budget? How much can you purchase based on that budget?
What company to choose?

There are more to add to the list, but your initial research will either have to be done solely on the web, or you can speak to your agent for advice. Looking for good advice online can be very time consuming and some things may be overlooked. If you decide to work with an agent, they will help you with all of the questions above and will probably bring up some addtional concerns that you may not have thought of.

Getting Quotes

You’ve done your research and you are now ready to get some quotes. Some think that they will get lower rates by purchasing online because they can cut out the middle man(agent). This is simply not true. Just to be sure, I quoted myself at a major online site and compared it to my own quotes. Same price!

Another way to look at it is this. If your premium for a ten year term is $500 per year, the agent might get 50% commission. So if you average out $250 commission over ten years, that is about $2.08 in commission per month. So even if you could cut the commission, you are saving a whole $2 monthly.

Moving on…

A quote is just a quote so regardless of what the website or your agent says, the actual rate will be determined by the underwriter when they issue the policy. If you are making comparisons, make sure everyone is using the same rate class to be fair.

Online

Online quoting is very easy. You can probably get quotes from 30 carriers in a matter of minutes.

Agent

Some agents will also quote 30 carriers, or they will select a few that they think will work best for you. They probably know of some carriers that are more lenient with underwriting, or some that may consider cigar smoking as non-tobacco or other details that may benefit you.

At Glenn Insurance, we carefully selected a few different carriers that underwrite fairly, and they will almost always be in the top five for lowest price. Typically the top few carriers will only vary by a few dollars per month in the quotes.

Advantage

I think the advantage will be with the agent, because they will know some of your medical conditions ahead of time and can quote appropriately. As long as they use the top companies, this will be your cheapest route.

Underwriting

Insurance carriers have teams of underwriters that will use your personal and medical information to decide how “risky” you are, and assign you to a rate class. The rate classes are usually some variation of this:

Super Preferred – least expensive
Preferred
Select
Standard
Substandard – Rated Policy – most expensive

The underwriters use criteria set by the insurance carrier to place you in one of those categories. Some of these rules are strict, but others may be up to the underwriters discretion. If you are on the border, the underwriter gets to choose based on their professional opinion.

Since underwriters don’t have the chance to meet you in person, they have to rely on the information in your application to base their decision. If you purchase online, they may not be as agressive with thier underwriting decision especially if you are in between classes. This is where the value of an agent can come in. A good agent can write a letter to the underwriter or speak to them directly to help you get a better rate. Sometimes they can get you from Standard to Preferred, which will save you a lot of money in the long run.

Service Issues and Questions

Life insurance does not require much service once the policy is delivered, but things do come up at times. Things like beneficiary changes, billing issues, address changes, etc… If you do not have an agent, you will be calling the 800 number and will be responsible for all follow up. If you do have an agent, you can make one quick call, tell them what you want to do, and they will take care of the rest.

Claims

No one wants to even think about this, but remember why you bought the policy. Should anything ever happen to you, you want your loved ones paid quickly and correctly so they can get their financial situation in order.

If you purchase online, your beneficiaries will be responsible for contacting the insurance company and getting the proper forms in order. If there is any holdup with payment, they will be responsible for all followup.

If you are working with an agent, this is something they can be a huge help with. With someone passing, the last thing a claimant wants to do is to fill out forms and deal with the insurance company. Your agent will walk everyone through the process and make sure everything is done timely and correctly.

Summary

I tried my best to be fair to both sides and let you decide if purchasing online is right for you. I encourage a litte shopping online but in the end, I think your best bet is to find an agent you trust. Having someone help out when needed is worth a lot more than the perceived convenience of online shopping. Life insurance claims are filed at the worst possible moment for your family. Should something happen, do you want your loved ones dealing with an 800 number or a trusted advisor?

7 Disadvantages of Using a Health Reimbursement Account – HRA

August 7, 2011 By Mike Sheeran

I often talk about the many advantages of using a HRA for your business because of the potential savings and flexibility. Today, I want to mention a few potential disadvantages of using health reimbursement accounts. I still have no reservations in recommending these setups, but to be fair, I will go over some things that can come up with these types of plans.

As a reminder, a HRA is a strategy that employers can use to reimburse employees, tax free, for chosen medical services. The usual setup is to purchase a high deductible health plan and then reimburse employees for their services. The funding levels are very flexible and you can design the reimbursement levels almost any way you wish. Potential savings can be up to 30%.

Potential Disadvantages to Using Health Reimbursement Account

1)HRA Plan Setup

The first potential issue is actually setting up the HRA plan properly. I don’t recommend any small company doing this on their own so you must seek out a third party administrator to handle claims and handle the plan document setup. The typical charge for these services may be around $1,000 – $2,000 per year for a small business. That being said, if you only have 2-3 employees, the extra cost may wash away any potential savings. (I will be doing a future post on why you should not self administer)

The administrator will handle plan documents, non-discrimination testing and all other services to make sure your plan is set up properly according to the IRS.

2)Substantiation Requirements

The IRS has strict rules regarding anything that has potential tax savings, so you must substantiate every claim that gets reimbursed. That means you must have a receipt and/or EOB for every claim to prove it was a qualified medical expense. If you cannot provide proof, you are setting yourself up for a lot of problems should you ever be audited.

3)Additional paperwork and ID Cards

This goes along with number 2 and adds a little. Since this is essentially another health plan, we have extra enrollment forms and possibly debit cards that can be used to pay for services(TPA’s will often issue debit cards that employees can use to pay for their medical services). More forms and cards mean a little more work for everyone, but nothing to be too concerned about.

4)First year claims exposure

HRA plans run calendar year regardless of what your underlying health insurance is.

-Health Plan renews every July 1 for your company – you also decide to start the HRA July 1 this year

-HRA year 1, will run July 1 to Dec 31 .

-HRA year 2, will run Jan 1 to Jan 31.

Why this matters is this. You pledge that you will pay the full deductible for all of your employees. This first year you could potentially pay the deductible for everyone between July and December and then be on the hook again to pay it again next year from Jan 1 to Dec 31.

***HRA Plans can be discontinued under a worst case scenario

For the possible first year claims issue, you have be careful how much you pledge, especially if your plan renews late in the year. Also, depending on your initial premium savings, this may or may not be an issue. It may end up meaning you don’t save quite as much as initially planned. (If you save $60,000 and you pledge up to $30,000, then the worst case scenario is you save $0)

5) Cash Flow Issues

If you have decided to fund an employee’s full deductible or pay the first $1,000 or whatever the amount is, you have to make sure the money will be available when needed. If you start the plan on July 1, there is always the chance that three of your employees are going to need the money right away. If you have more employees or want to fund a larger amount, the amount needed can grow pretty quickly.

***Once you get through the first few months, you will have a good buffer from your premium savings to pay for claims.

6)Employee Complaints

Using an HRA will be a different experience for everyone so you are bound to get some complaints. This is normal for almost all plans, but anytime you ask an employee to do more paperwork, there is always the potential for some pushback. The HRA is usually a much better setup for the employees any way though, so once they get over the reimbursement process, they will love the plan.

7)Eligible Employees

Unfortunately, self employed business owners, partners in partnerships, members of LLC’s and 2% shareholders of S-Corporations may not participate in the HRA. ****At least on a tax free basis – speak to your accountant for specific rules.

So there you have it. Those are the six “big” issues in setting up and maintaining a HRA for your business. It may be a little extra work for everyone, but if you can save 30% on your premiums I think it is well worth it.

We have seen companies save nearly $30,000 with only 10 employees enrolled in the health plan. If you are an insurance/tax/legal professional and can add anything to the list, I welcome any information and will gladly update the post.

New Jersey Small Business Health Insurance -Top Five Ways To Get the Best Deal

August 6, 2011 By Mike Sheeran

For most New Jersey small businesses, health insurance can be one of the largest expenses they incur, second to employee payroll. It is also the one expense that seems to go up every year, without fault of the employer or its employees. Because of this, the most common question I get is, how can we get the price down?

Top Five Ways New Jersey Businesses Can Lower Their Medical Insurance Premiums

The first and easy answer is to shop around. This one is obvious, but make sure your broker quotes your insurance coverage with all of the major carriers. Insurance carriers will take a snapshot of your group about 60-90 days before your renewal, and base renewal rates on those demographics. If your census changes during that time period, you may find a much better deal by moving the coverage. As an example, a 64 year old employee turns 65 one month before the renewal and comes off the plan at renewal. Your current carrier won’t re-rate your group but another carrier may end up being 10% cheaper.
Network considerations – In NJ, most of the carriers sell a managed care network and some sort of PPO network or national network. Decide if you really need the national coverage and maybe consider the managed care(HMO network). In most cases the smaller network really isn’t small at all and you will have access to all the same doctors and hospitals as before. Savings can be anywhere from at least 4% to probably 20%. If you are eliminating out of network coverage, the savings are closer to the 20%. Keep in mind that emergencies are covered regardless of the network so that should not be a concern.
Deductibles and co-pays – This is usually one of first options for getting the cost down. Raise the deductible and raise the co-pays. Many times you can add a $1,000 deductible and have premium savings well over $1,000. A $2500 deductible may save you $3,000. The reason for this is that the insurance companies know that for every increase in deductible, there will be less claims.
Health Reimbursement Accounts – To piggyback on option 3, I think every small business should at least consider a health reimbursement acccount(HRA). Your business will purchase a very high deductible plan and than use the premium savings to reimburse employees for their services. Premium savings can be 50% or more and after reimbursing employees, your savings can still be up to 30% over your current rates. The HRA funds are tax deductible to the business and tax free to employees. *** Extra plan documents need to be created a third party administrator should be used.
Health Savings Accounts(HSA)- Along the same lines as the HRA, your business will purchase a high deductible, HSA plan, and see premium savings up to 50% in some cases. You have the option of funding each employees account and the employee may use the funds for anything they see fit. If it is for a qualified medical expense, like prescriptions, dental work etc… the money will come out tax free for the employee.

If you are a New Jersey small business and your insurance premiums have gone out of control, I guarantee you will see cost savings by using the techniques above. We have seen employers with 10 employees save over $30,000 with options 4 and 5.

Please contact me here for your New Jersey Small Business Health Insurance. Contact – NJ Health Insurance Quote

Getting Dental Insurance for Your Business? Why and how the UCR and MAC affect your premium rates

August 3, 2011 By Mike Sheeran

If you have started the process of getting dental insurance quotes for your business, you know that it can be tough to determine the best plan option with all of the moving parts involved. There is price, network, in an and out of network coverage considerations and more!

One of the important pieces to understand, that many people(including brokers) seem to overlook is comparing the differences of UCR and MAC payments. When looking over your many quotes you will notice that they will say UCR at 90th percentile, or UCR at 80th percentile or MAC, or maybe something totally different. These are important numbers which I will explain below.

First a quick definition:

UCR stands for usual, customary and reasonable – The insurance company will take the average price for a given service in your geographical area and base their reimbursements on these numbers. Let’s say in your area, 80 percent of dentists charge $1,000 for a root canal. $1,000 is the UCR for a root canal in your area.

Maximum Allowable Charge – The maximum allowable charge is based on what the insurance carriers in-network dentists charge for a given service. In-network dentists will typically accept a lower payment for services so for the same root canal as above, the MAC for a root canal may be $650

Why All this Matters?

You have no doubt noticed the certain plans may be cheaper than others. Here is where the UCR and MAC kick in.

Let’s compare the options in a few real world scenarios.

Example 1: UCR at 90th Percentile

Plan covers 50% of the charge on out of network services. Payment is based on 90th percentile of the UCR.

Your dentist charges $1,000 for the root canal and the UCR is $1,000.

Your insurance company pays at the 90th percentile so they will pay 50% of the $900 or $450.

You pay the remaining $550 to your dentist and go on your way.

Example 2: UCR at 80th Percentile

Plan covers 50% of the charge on out of network services. Payment is based on 80th percentile of the UCR.

Your dentist charges $1,000 for the root canal and the UCR is $1,000.

Your insurance company pays at the 80th percentile so they will pay 50% of the $800 or $400.

You pay the remaining $600 to your dentist and go on your way.

Example 3 – MAC – Maximum Allowable Charge

Plan covers 50% of the charge on out of network services. Payment is based on the Maximum Allowable charge.

Your dentist charges $1,000 for the root canal but their network dentists have negotiated a payment of $650.

Your insurance company pays based on the MAC so they will pay 50% of the $650 or $325.

You pay the remaining $675to your dentist and go on your way.

Summary:

When looking at the three options, the potential out of pocket can range from $550 to $675 for a root canal. This may not be a big deal but it is useful information to use if you are trying to upgrade your plan (go for a higher UCR) or downgrade and save some premium dollars(MAC) plan. It is also good to know if you have many employees who will use mostly out of network services compared to in-network so you can tailor the plan to fit your demographics.

Out of network based on MAC – Good (lower premiums, higher out of pocket)

Out of network based on UCR 80th percentile – Better

Out of network based on UCR 90th Percentile – Best (higher premiums, lower out of pocket)

If you need assistance quoting dental insurance for your company or would like me to review your plan, please contact me here.

Flexible Spending Accounts-FSA : Frequently Asked Questions

July 28, 2011 By Mike Sheeran

In an earlier post about getting the most bang for your buck with your health care expenses, I mentioned FSA’s as one of your first tools to save some tax dollars.

If you have already started the process of setting up an FSA or are just not sure about them yet, here are some of frequently asked questions that may help clear anything up.

Flexible Spending Account Frequently Asked Questions

I am not a tax professional, or legal counsel, so please consult with your advisor before acting on any tax advice.

1)What is a flexible spending account(FSA)?

A flexible spending account is a voluntary plan that provides the opportunity to convert part of your salary into tax-free benefits.

The spending account will allow you to set aside pre-tax dollars from your paychecks to cover eligible health care expenses for medical, dental, vision and more.

2)If I put part of my salary into a FSA, won’t I make less money?

Your spendable income may actually increase by using an FSA. Lets look at an example.

Without FSA:

Taxable income of $50,000

FSA Contribution: $0

Subtract Federal and Social Security Taxes: $13,697

Health expenses: $2,000

Spendable income: $34,303

With FSA

Taxable income of $50,000

FSA Contribution: $2,000

Taxable income is now: $48,000

Subtract Federal and Social Security Taxes: $12,983

Spendable income: $35,017

SAVINGS of $714

****This is just an example of typical tax savings. Actual results may differ depending on your exact situation.

3)Why should I bother with the FSA when I can just take a deduction on my medical expenses on my tax return?

Medical expenses have to exceed 7.5% of your Adjusted Gross Income to be deducted on your tax form. FSA’s do not have to exceed that level. If your AGI is $50,000, than your expenses have to exceed $3750.

***As mentioned above, speak to your accountant to see how this will impact your overall situation.

4)Does a flexible spending account replace my existing insurance plan?

No, the FSA is meant to supplement those plans and provide a way for you to pay for any uncovered expenses on a pre-tax basis.

Always submit your claims to your primary insurance carrier and any out of pocket costs you may be paid for by your FSA.

5) Does that mean the FSA will pay my doctors for me?

No, you will have your own checkbook or debit card and you will need to make payment to the provider.

6) Are expenses that I paid with my FSA deductible on my tax return?

No, you get a deduction for what you deposit into the account so you cannot deduct it again.

7)How long is the FSA in effect for?

FSA’s will run calendar year and you must enroll every year and decide how much you will contribute to the plan. Your contributions generally cannot be changed during the year except in the instances below.

In the event of divorce or death of a spouse, you have the option to change your contribution at that time also.

8)What if I don’t spend all the money in the account? Can I use it next year?

No, unfortunately any unused money does not rollover into the next year. For this reason, you must be careful not to put too much into the account so you don’t waste any money.

9)I have unused money in my account. Where did it go?

If you did not spend your money before the end of the plan year, the money gets forfeited to your employer and is under strict regulation by the IRS.

10) What else am I missing?

In addition to the use it or lose it rule, keep in mind that since your contributions are going in pre-tax, your future social security benefits may be affected.

11)Exactly what expenses can I reimburse myself for?

The IRS has a nice guide on FSA’s and what is eligible. I recommend reading through the guide. Additionally, they have removed some expenses from the eligibility list like over the counter prescriptions.

Publication 502 Medical and Dental Expenses

Publication 969 Health Savings Acccounts and Other Tax-Favored Health Plans

Information on changes to the FSA in 2011

The list below was taken from Publication 502 and will link directly the the IRS webiste.