Defined Contribution

Training

Part 1: Understanding the Defined Contribution Concept

The Revolution in Employee

Benefits

Private Exchanges and

Uninsured Employees

Goals of Today’s Training

1. Understand the current market trend in health insurance

2. Discuss how this is being Impacted by ACA

3. Explore how Defined Contribution HP and private exchanges are shaping the future

4. Talk about the needs of producers to help their clients through this paradigm shift

How American’s Get Health Insurance

Group ER Personal Policies

Medicare Medicaid

Uninsured

1. Group Employer – 145 million (incl. dependents)

2. Personal Policies – 40 million (up from 12 million in 2002)

3. Medicare – 47 million (incl. 12 million in MA)

4. Medicaid – 45 million (incl. 8 million over 65 or disabled

5. Uninsured – 40 million (PC #, closer to 10 million)

Percentage of Firms Offering Health Benefits, By Size 2010-2011

Firm Size 2010 2011

3-9 workers 59% 48%

10-24 workers 76% 71%

25-49 workers 92% 85%

50-199 workers 95% 93%

All Small (3-199) 68% 59%

All Large (200+) 99% 99%

All Firms 69% 60%

-9%

A Trend That Will Continue

Increased Cost Sharing

HDHP/Consumer Driven

Individual Purchase Defined

Contribution

Pension Plan401 K

Defined Contribution

Post WWII wage and price and controlsHuge tax advantage for Group Plans

“Traditional” plan design – low deductibles and copays, less RX & tech kept costs lower

Brief History

1945 1970

Prior to WWII -Limited employer involvement, catastrophic plan designs, local BC/BS, individual/family driven

Mostly GI, carriers profited most from Group plans –personal plans cost twice as much as group

State and Federal mandates heavier burden on group plans (maternity) than personal plans

Plan designs with CDHP’s include:• Spending

accounts (FSA,HSA, HRA)

• Gap/suppinsurance

Brief History

Medical UW – 45 states dropped GI for personal policiesPersonal coverage in those states now costs ½ (on avg) the cost of group

Evolution of CDHP

Higher deductibles and out of pocket costs

1970 2011

Increased migration of healthier population aided by internet and availability of info

2002 – Health Reimbursement Arrangements (HRA) (105)2009 – Premium only Plans(POP) (125)

Some state small group rules conflict

Brief History

Small group GI within state-regulated medical-rating bandsHealthier employees leave group for personal plans

Federal Tax advantages of group extended to personal coverage (2002-2009)

1970 2011

Affordable Care Act (ACA)

Set minimum levels of coverage for all policiesCreating “generic” national health insuranceWhen government sets minimums…

Mandated Benefits

Mandated Purchase

Mandated GI

For all Americans – SCOTUS reviewingFor Employers – “Affordable” coverage

For all policies including personal policiesChildren in 2010All in 2014

Affordable Care Act (ACA)

Set minimum levels of coverage for all policiesCreating “generic” national health insuranceWhen government sets minimums…

Mandated Benefits

Mandated Purchase

Mandated GI

For all Americans – SCOTUS reviewingFor Employers – “Affordable” coverage

For all policies including personal policiesChildren in 2010All in 2014

What will be the affect on health insurance premiums?

• Mandated benefits drive up premium costs

• Individual Mandate – tax penalty (effective subsidized cost of bronze plan)

• Subsidies through State Exchanges

Employee with family of 4 (see kff.org)

How ACA Affects Employees an Employers

Income Annual Premium Expected Total CostGov’t or ER

Premium

Subsidy

$20,000 $0 (Medicaid) $20,000 $20,000

$40,000 $2,160 (5.4%) $20,000 $17,840

$80,000 $7,600 (9.5%) $20,000 $12,400

• Increase EE portion of premium

• Eliminate classes of eligible’s

• Increase deductibles or reduce coverage (by class)

• Eliminating Employer Sponsored group plans

• Informed Employers putting DC or PRA in place

Employers at Renewal 2012, 2013

Future of Defined Contribution

ACA stays

More personal policies

State ExchangesPrivate

Exchanges

2012 will determine a lot

EHealth-Led Exchanges Eye $4 Billion Market in Health Law

• EHealth Inc. and an array of online insurance brokers are eying a possible $4 billion-a-year market, after the Obama administration’s surprise decision to let them sell government-subsidized coverage under the health overhaul.

• If the 2010 health-care law survives a Supreme Court review, private brokers can offer the plans starting in 2014, via websites that let consumers compare coverage among a variety of plans the way Expedia users weigh costs and benefits among airlines. That may give the brokers access to as many as 22 million uninsured Americans.

Future of Defined Contribution

ACA stays

More personal policies

State ExchangesPrivate

Exchanges

Republican Plans

More personal policies

Tax creditsMedicare/Medicaid

2012 will determine a lot

What will Romney come up with to replace Obamacare?

….The solution in each of these areas is to move away from defined-benefit models and toward defined-contribution systems. Under a reformed approach, the government would make a defined contribution to the health-care security of every American, rather than continue to offer open-ended, well-intentioned, but ultimately empty promises.

Jennifer Rubin 3/30/12

DC Model for Health BenefitsNew private health exchanges offer large companies cost control.

While state insurance exchanges are mandated by healthcare reform to be up and running by 2014, some private health insurance exchanges that target corporations are already doing business, suggesting that healthcare benefits may follow retirement benefits’ shift to a defined-contribution model.

Susan KellyApril 2, 2012

High Level Overview of Defined Contribution

with Personal Health Plans

• Selling individual products in a group setting on a pre-tax basis

• Marketing to groups that are underserved – No small group insurance offered

• 60% of employers with 50 or fewer employees offer no benefits

• Defined contribution is good for employers, employees and brokers

• Future will see greater increase in demand for DC

Defined Contribution Platform

Employer

HRA (105) / PRA (125)

Fixed dollar contribution

Employee Elections

EmployeeEE Contributions

Employee ChoicesGroup Products•Indemnity plans•Dental/Vision•Supplemental

Individual Products•H.S.A. plans

•Traditional Copay Plans•GI plans - 2014

Spending Accounts•Health Savings Account

•Flexible Spending Account

Employee Education and Decision

Support

•Education on insurance basics and products•Personal consultation on which plan is right for employee•Plan enrollment and ongoing support•H.S.A. savings calculator and education•Cafeteria plan explanation and guidance

Keys to a Proper DC/PRA Plan with

Personal Policies

Employees pay premiums out of

their own checking account

Employer not a part of the

decision making process

Employer does NOT offer small group insurance

Challenges to Implementation

• TPA expenses have eaten too much of savings

– One pilot program charged $17/pepm to all EE’s

– Most TPA’s now charge much less

– Online Platforms – Zane Benefits

• Uninsurables

– New PCIP plan, better state options and a multitude of scheduled benefits plans

• Complexity

– Team approach gives you the ability to just focus on what you do best

• Attract and Retain Good Employees

• Give a “raise” to employees at no cost

• Premium Savings and HSA Contributions for Owners

• FICA and FUTA Savings on Cafeteria Plans

Benefits for the Employer

Note – FICA savings far exceed TPA costs

• Affordable Benefit Options

• More take home pay through tax and/or premium savings 20-40%

• Avg. savings of $50/month for single, $150/month for family

• Individually tailored plan to insure financial stability

• Personal consultation and education on benefits

Benefits for the Employee

Benefits of DC for the Broker

• Increase production and reach an untapped market

• Be on the front end of a nationwide shift in how health insurance is delivered

• Tremendous cross-selling opportunity

• Build large, renewable revenue source

• Multiple carrier venue for health policies (can include other types of insurance)

• New technology lets every state, organization, company or producer offer their own branded private health exchange

• Being driven by Defined Contribution model

What is a “Private Exchange”?

Customizable Private Exchange Online Shopping Portal

Agency Site Includes Employer Page

Agency Site Includes Employee DC Explanation Page

Your CRM

Sends you leads on the products you want to sell yourselves.

Completely customizable to also generate leads for any product you want

to promote

100% of commission – your appts

Call Center

Sells the individual products that you cant or don’t want to sell.

Can turn on or off for each opportunity.Can make outbound calls for fulfillment.

% of commission

You have the ability to customize the buttons as well as the content for the pages after the buttons are selected

The Revolution in Employee

Benefits

• Experts will help EVERYONE find a plan regardless of their pre-existing conditions or their budget

• Experts will look for the right plan in 4 different markets1. Personal health plans – all the major carriers, medically

underwritten

2. Short Term Medical – fewer UW requirements, less expensive

3. Limited benefit plans – low cost options, guaranteed issue

4. State and Federal Risk pools – must qualify, guaranteed issue

• Plans they can take with them regardless of their job situation

Health Insurance Options

• Basic understanding of:– The tax and legal structure

– The right prospects for now and in the future

– The sales, communication and implementation process

• Administration Partner/s– Premium Reimbursement (EE $ only)

– ER contributions

– Other spending accounts (FSA,HSA etc..)

• Communication and Fulfillment – Technology

– Fulfillment/product sales

What Brokers Need to Capitalize on DC

• The way we purchase health insurance is changing –shift toward personal policies not tied to employers

• Shift will be magnified by legislation – regardless of the party in power

• Brokers/Agents can capitalize on the trend and offer a win/win/win outcome

• HPA has the training, tools, and technology to give you a turn key solution

Summary