HSA

Catastrophic Health Insurance – Did You Make This Mistake With Your Small Business Health Insurance?

April 9, 2012 By Mike Sheeran

Another year of steadily rising insurance premiums for your business and you are faced with a major dilemma… make employees contribute more towards their insurance or drastically cut the the insurance benefits to make it more affordable for your business.

It’s definitely a bad situation for everyone involved, but it doesn’t have to be. Don’t make the mistake of reacting too quickly and not choosing one of the best tools at your disposal.

Catastrophic Health Insurance in New Jersey

A properly set up and administered Catastrophic Health Insurance Plan will solve these key issues for your business:

Cut your premiums by up to 50%. Yes 50%!
Allow for more flexibility in your insurance plan design
Allow you to set up an HSA or HRA. See my post on HRA’s vs HSA’s.
Save your employees money on their payroll deduction
Allow you to continue the health plan without sacrificing benefits for everyone.

Catastrophic Health Insurance – How does it work?

In NJ you will generally use a qualified high deductible health plan as your catastrophic health insurance.

Upfront Deductible

Almost all of the catastrophic health insurance plans in NJ will have $2,500 single deductible and a $5,000 family deductible. With these plans, all services are subject to the deductible before anything is covered. You do pay lower negotiated rates for your services though.

Maximum out of Pocket

The other key feature of NJ Catastrophic Health Insurance is that they all have a maximum out of pocket. This is the annual limit on how much you will have to pay for your covered services. This figure is usually $5,000 per single employee and $10,000 per family.

Catastrophic Health Insurance To Save the Day – Putting it All Together

Since you are using a qualified high deductible health insurance plan, you have two options at your disposal.

Health Savings Accounts
Health Reimbursement Arrangements

We are going to focus on health reimbursement arrangements because this is where employers will save the most money.

Under the new high deductible plan, the HRA will allow you to reimburse your employees for their medical expenses up to whatever dollar amount you choose. You are going to fund no more that what you can afford and it will be based on your premium savings.

Plan Design

Your 10 employee company had an annual premium $60,000. $500 per employee per month.

Your new high deductible plan has an annual premium of $30,000 per year. $250 per employee per month.

Annual Savings of $30,000.

HRA Fund

Based on your proposed savings of $30,000, you will agree to fund the full $2,500 deductible for each employee.

This will total $25,000. If all employees use their reimbursement money, you will still have saved $5,000.

But they won’t……

They will likely use somewhere in the neighborhood of half the money.

End Result:

Old premium:$60,000

New premium + HRA(half usage) = $37,500

Savings:$22,500

That is an almost 40% reduction in your overall premium for the year.

Catastrophic Health Insurance Summary

I showed you a quick example of how a small business can save nearly 40% on their medical insurance premiums. Don’t make the mistake that many do in ignoring catastrophic health insurance as the answer their insurance premium woes.

I would love the opportunity to earn your business. Please contact me for your small business health insurance quote.

HRA vs HSA – Health Reimbursement Arrangement Vs Health Savings Account

March 5, 2012 By Mike Sheeran

Smart business owners who are looking to save money will quickly be rushed into the world of HRA’s and HSA’s (Health Reimbursement Arrangements and Health Savings Accounts). The two can a bit confusing at first so I’d like to discuss the differences between the two.

In this article, I’ll discuss what a HRA and an HSA are, how they are are used and how they can help save you or your business some premium dollars.

HRA Vs HSA

HRA Definition: An HRA is plan that is set up under IRS code section 105H and is established for the purpose of reimubursing employees for qualified medical expenses.

HRA’s are employer funded only
Money can be rolled over year to year if the employer chooses
Funds deposited and dispursed are tax deductible to the business and tax free for the employee
No limit on how much can be reimbursed
Any qualified medical expense can be reimbursed

HSA Definition: An HSA is often used in two different contexts. The first is the actual savings account and the second is referring to the health plan you are to be covered under.

HSA Savings Account – this an account that can be funded by an employer or employee for the purpose of paying for medical expenses.
Limits on how much money can be put into the account each year.
Money rolls over year to year.
Funds are completely employee owned
Can be used to pay for any qualified medical expense on a tax free basis
Must be covered by a HSA Qualified Health plan to make deposits into the savings account.
You can read more about HSA Rules for 2012 here.

HRA VS HSA In the real world

When I am working with new and renewing groups, using one of these great strategies is usually first in my list of options. Each one has their pros and cons so lets look at how each one would work for a company.

ACME LLC – has a 100% HMO where the employer pays 100% of the premium and they just a got another 20% increase. They are comparing an HRA vs an HSA to save money. They have decided on purchasing a HSA qualified health plan but now need to pick the funding arrangement.

The company will be saving about 40% in premiums using the high deductible health plan and don’t want employees to have any large medical bills.

Option 1: HRA – The employer has decided to refund employees their full medical deductible. As employees use the plan, the employer will reimburse them dollar for dollar up to the set limit. Any unused money is retained by the employer

Option 2: HSA – The employer does not want to bother with claims and wants to give the employees money to pay for their claims. The employer makes monthly deposits into each employees Health Savings Account until he has paid an amount equal to their medical deductible.

Under Option 1, the employer has the chance for much greater savings but there is a little more work involved in reimburseing everyone. Option 2 is a bit easier and more flexible, but once the money is given to the employee, it is gone. If an employee quits, they keep the money.

If you own a business and are weighing HRA vs an HSA, please call me for a health insurance quote or to hear how these strategies can help with your bottom line.

High Deductible Health Plan Pros and Cons

March 5, 2012 By Mike Sheeran

Insurance companies in NJ have been raising their premium rates tremendously over the las few years, so many small business and employees are considering the switch to a high deductible health plan. It is important to evaluate all of the different options and to weigh the pros and cons of having a high deductible health plan so you can make the best choice for your family.

Before I get started into the pros and cons of having a high deductible health plan, lets make sure everyone is talking about the same thing. In this case, a high deductible plan, HDHP for short is a plan that has a higher deductible than most other plans and also has a out of pocket dollar maximum that a participant may have to pay throughout the year. So one example may be a plan with a $2500 single deductible and a $5,000 maximum out of pocket. These plans are usually HSA Qualified but that is not necessary for the purpose of this post.

High Deductible Health Plan Pros and Cons

High Deductible Health Plan Pros

Significantly lower health insurance premiums. In some cases, companies and individuals can slash their premiums by as much as 50% by changing to a high deductible health plan.
Self funded employers will see much lower claims usage when moving from a rich plan design to a higher deductible option. Lower claims equals lower renewal and more savings.
Employees also benefit with lower renewal rates because the price increases won’t be passed to them in the form of higher payroll deductions.
If the high deductible health plan is HSA Qualified, there are significant tax advantages. Also see ( HSA Rules for 2012)
For employees leaving the company, another pro of a high deductible plan will be lower COBRA premiums. Don’t forget that when you leave, you now are paying 102% of the full monthly insurance premium.

High Deductible Health Plan Cons

High Deductible in the beginning of the year. This is obvious, but worth mentioning. If you have any scheduled visits shortly after enrolling in new plan, you must be prepared to pay much larger fee for your service.
High deductible at the end of the calendar year. Most plans run calendar year so if you start the high deductible plan in November, the deductible will reset in January. You now have the potentional to pay the full deductible in November and December only to have it reset in a January.
More paperwork. Since you are now paying instead of the insurance company, expect to be getting a lot of different bills. Luckily the larger claims aren’t that frequent, so your paperwork should be fairly limited.
Will you avoid care? Even when the premium savings are there, some people will outright avoid proper medical care for fear of the potential bill. I can certainly understand this but you should focus on the total maximum out of pocket and consider the worst case scenario. My personal plan had a $5,000 maximum out of pocket. I knew that under the worst case scenario, I would be paying about $400 per month if I manage to max the plan out. Not too bad if I had a $1,000,000 claim.

Now that we reviewed some of the pros and cons of a high deductible health plan, lets look at how to evaluate options.

How to evaluate different high deductible health plan options

Step 1 – get the monthly premium for the different plan options and convert them to annual

Step 2 – add the annual maximum out of pocket for each of the plans to the annual premiums

Step 3 – evaluate

Example:

Plan 1 Annual Premium is $5,000 with a $5,000 maximum out of pocket.

Plan 2 Annual Premium is $9,000 with a $3,000 maximum out of pocket

Plan 3 Annual premium is $13,000 with everything covered 100%

In this example you have the potential to pay up to $10,000 in plan 1, up to $12,000 in plan 2 or a guaranteed $13,000 in Plan 3. So despite having a higher deductible, plan 1 would be the best choice in my opinion. The other benefit is that if you don’t use the plan at all, you have the potential to save $8,000 in premium compared to plan 3.

If you have any questions on evaluating the pros and cons of a high deductible health plan, please contact Mike Sheeran for more information.

Disadvantages of Having A High Deductible Health Plan

August 12, 2011 By Mike Sheeran

In my opinion, high deductible health plans are one of the best options available to small businesses and individuals looking to save some premium dollars. They certainly aren’t perfect though so I will give you a an idea of what to expect before you take the plunge.

I have personally been covered by a high deductible health plan for the past three years. I have probably saved over $10,000 in premiums over those three years compared to having a premium plan option. Of the $10,000 I’ve saved, I have had about $6,000 in claims so I am still way ahead of the game. Knock on wood!

First off, what is a high deductible health plan?

For the purposes of this post, we are assuming it is a HSA qualified plan, so it will have a minimum single deductible of $1,200 and a minimum family deductible of $2,400.

These plans also have no first dollar coverage so you pay for all services, except for preventive care until you meet your deductible. After the deductible is met, you then pay according to the plan. It may be a fixed copayment for services, a cost sharing or a combination of the two.

On With The Disadvantages

Premium Savings – Before you go all in with an HSA/high deductible plan, you need to evaluate how much you are saving in premium for how much you are going to risk. If your particular plan has a $2,500 deductible and it is only $500 cheaper than a much better plan, it may not be a good buy. Your broker should be able to help with this analysis.
Upfront claims exposure – you do your homework and the HSA is the way to go with savings of $200 per month and a $2500 deductible. Sounds great right? Maybe not. If you have a large claim in the first month, you will have to pay for that service right away before you have had a chance to save the money. You may be able to get a payment plan from the hospital or provider, but it does provide another potential issue.
Claims Paperwork – you will be self administering a lot of your claims, so you must do your due diligence to make sure all claims are paid correctly and on time. With an HSA, your provider will bill the insurance carrier and then you pay based on the approved amounts.
Receipts – the IRS requires that you save all receipts in case you ever need to substantiate a purchase. Good bookkeeping is a must!
Short plan years – this goes along with the upfront claims exposure. Most health insurance plans have a calendar year deductible, so the first year can be tricky. If your plan has a $2500 deductible and starts in November, you could potentially pay out $2500 in December and then another $2500 in January.

Those are the main disadvantages that I have come across personally since I have had my HSA. As long as the premium savings are there, most of the issues aren’t that big of an issue and you just have be able to do proper bookkeeping. Once you get the hang of it, these plans are no more work than anything else.

If you can think of anything I may have missed, or that you have personally run into, please send me a note so I can update the list.

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.