10 ways to fine-tune benefit design and improve ROI
Recently, during an enjoyable lunch overlooking Charm City’s inner harbor, I explained to my client why the PACE Act made all of changes she made last September to her company’s group health plan obsolete. My client choked a bit on her calamari, and asked, “Wait, Zack; are you telling me that almost six years after passing the Affordable Care Act, Congress finally decided that the expansion of small group was a bad idea, but it waited until all of us had overhauled our health plans, changed carriers and altered the funding mechanism of our plans to finally come to this conclusion?”
“Yes, that’s exactly what happened,” I replied.
My client gazed out the window for a long moment. She then turned to me and asked, inquisitively, “Zack, what are you going to do with all your obsolete ACA knowledge?”
Realizing that she wasn’t kidding, I sought clarification: “Do you mean, what am I going to actually do with the knowledge?”
I chuckled and replied, “Nothing. Except for useful fodder at a cocktail party, it’s all useless information at this point.”
Congratulations, after six long years, the epic journey through the ACA employer requirements is just about complete. Aside from the Cadillac tax, which seems to be on the ropes, and the seemingly stalled- out nondiscrimination regulations, all of the major deadlines have passed.
For me, the lack of any impending ACA deadlines is an awfully strange feeling. I suddenly have about an extra hour of productive time each work day. How about for you?
I’ve been using those hours to help my clients fine-tune key areas of their benefit programs that were placed on the back-burner during the height of the ACA related deadlines. If you’re interested in doing the same, the following 10 questions will quickly flush out possible areas of focus:
1. Is your dental plan self-funded?
Because most dental plans have an annual benefit maximum of around $1,000-$2,000 per participant, dental benefits essentially have built-in individual stop loss-like coverage. With the exception of voluntary (100% employee paid) dental programs and capitated arrangements, most employers will save over the long-term by self-funding this benefit. Ask your broker or consultant to run the math.
If you have more than 99 participants on the plan, your current dental insurer will likely be more than happy to continue administering your plan and billing an administrative fee and the resulting dental claims. If you have between 50-100 participants, there are likely quality vendors in your marketplace that will provide this arrangement.
2. If your dental plan is already self-funded, does it include aggregate stop loss insurance?
Because of the per participant plan maximums, it’s difficult to make a financially-based argument for purchasing aggregate stop loss coverage on the dental plan. Take a look. If you come to the same conclusion, you may be able to drop the aggregate stop loss coverage mid-year.
3. Does your self-funded medical plan’s individual stop loss coverage cover prescription drugs?
Speaking of stop loss, as my colleague Michael Zucarelli, PharmD, and I advised last autumn, now’s the perfect time to double-check that your group medical stop loss contract covers prescription drugs.
4. Is your short-term disability benefit self-funded?
Because of the claims volatility of fully insured short-term disability programs, the target loss ratio (claims ÷ premium) of insurers is low, relatively speaking. Thus, for employers that are willing to weather a high claims year now and then, there’s significant opportunity to save via self-funding over a 3-5 year time period.
As with dental, your current short-term disability insurer is likely willing to charge a nominal administrative fee to provide advice-to-pay services, or a little more to provide full administration services. Ask your broker or consultant to run the math and provide recommendations.
Alternatively, the short-term disability plan could be restructured as salary continuation. Ask your attorney for the details.
5. Does your self-funded medical plan provide disease management services?
If so, evaluate the cost of this service and the vendor’s performance, including engagement rates. Run a financial litmus test by dividing the annual cost of this program by the number of fully engaged individuals. If your review reveals vendor underperformance, ask the vendor for explanation and recommendations, explore other vendor options, and/or build a better mousetrap. For example, one of my clients that historically saw poor engagement rates decided to scale back the program and back-fill through a new enhanced outreach program provided by their Third Party Administrator (TPA).
6. How is your self-funded medical plan’s case management vendor performing?
Now’s also a great time to ensure that the professionals managing your emerging and large claimants are charging reasonable fees, producing high engagement rates, and creating significant ROI. Open the hood and take a look.
7. Speaking of nurses, are you paying for a nurse line?
Twenty years ago, offering a nurse line via a health insurer or TPA was an efficient, cost-effective way to provide plan participants with access to timely professional medical advice. Nowadays, with many physicians providing on-call services, employers providing telemedicine and advocacy programs, and individuals having online access to much more information, nurse line usage rates seem to be ebbing.
Run a financial litmus test by dividing the annual cost of the nurse line by the annual number of calls. Does the cost per call seem high? It was awfully high for one my clients. They decided to drop the nurse line and introduce a new telemedicine service offered by their TPA. Interestingly, while this TPA charged for the nurse line, it offered the new telemedicine service at no additional charge.
8. When’s the last time you audited your voluntary benefit menu for overlap and compliance?
Voluntary benefit menus are like vegetable gardens. If you neglect them, all sorts of chaos can ensue. With all of the voluntary benefit programs available nowadays, it’s not uncommon for significant product overlap to develop and for individuals to pay double or triple to insure the same risk. Take a look at your program, consider the recent ACA proposed regulatory changes and ensure that each benefit serves a unique risk management purpose, does not overlap with other voluntary or employer paid offerings, and remains compliant.
And, by all means, if supplemental medical plans are flowing through the Section 125 plan, please ensure that your company understands the implications and risks.
9. Are disability and life limits keeping place with salary inflation?
The time to realize that disability limits are too low is not when a key employee goes out on disability. Now’s a great time to double-check that the limits in place remain in synch with your total compensation strategy, especially regarding highly compensated employees. Take two minutes and run the math. For example, if the long-term disability benefit is 60% to a $6,000 monthly maximum, the formula to determine the equivalent salary ceiling is $6,000 ÷ 60% = $10,000 x 12 months = $120,000. Thus, all individuals earning more than $120,000 are capped at $6,000 per month.
Meanwhile, if this $6,000 benefit is structured to be taxable, explore how the benefit can be structured to become tax advantaged. Talk with you benefits adviser, accountant and attorney.
Finally, take a minute to recall the age reduction schedules on the group life benefit and consider if your employees remain knowledgeable about the provision’s impact. We all seem to be getting a little older.
10. Is your health plan taking advantage of the easy button federal poverty line (FPL) affordability safe harbor?
As we shared earlier this year, the administrative advantages of using the FPL affordability safe harbor are numerous. For example, if you prepared the Form 1095-C reporting using the W-2 or Rate of Pay safe harbor, consider how much easier the process would have been using the FPL safe harbor. Next, consider how much easier ACA employer shared responsibility compliance becomes using this safe harbor. In a nutshell, employers can simply offer a health plan that meets minimum value, meets the FPL safe harbor, and is offered to those working 30 hours or more.
If you’d like me to provide a deeper dive into one or more of the above topics in a future EBN column, please let me know via the below comments section or via Twitter: @zpace_benefits.