Helping Your Employees Get the Most out of Their Health Plans

Every year employees across the country choose the wrong group health plan from their employer because they don’t understand the coverage and what type of plan is best for their circumstances.

This ends up costing them hundreds if not thousands of dollars in unnecessary medical and premium outlays each year. But you can help them avoid leaving money on the table by educating them with helpful materials and a process that lets them find the plan that is best for their life circumstances.

The 2023 “Aflac WorkForces Report” found that while 51% of employees have a solid understanding of their total annual cost for health care coverage and care, just 39% have a full understanding of their health insurance policy. Additionally, 30% of employees say they need more information surrounding their benefits.

To help your staff choose the plan that best fits them requires an educational effort and outreach, but it should not consume all of your time. Sometimes shorter presentations, resources in print and electronic formats, followed by individual assistance in helping staff pick the right plan is the best approach.

By giving your communications strategy a boost, you can improve employee confidence in their benefits decisions and save a lot of money and headaches along the way.

Educating employees

Don’t inundate your staff with educational materials that get bogged down in jargon and that are long and complicated. Often clear and concise materials are best, especially ones that use bullet points and infographics.

Benefits experts caution that human resources personnel should not go too far into the weeds in terms of being technical. Instead, provide bite-sized chunks of information that can help them whittle down their choice to a few plans.

The materials should give different scenarios for workers to help them decide on a plan. The documents can point them towards the right type of plan depending on their life circumstances, like:

  • A 27-year-old single female employee with no health problems, spouse or dependents.
  • A 46-year-old married father of three young kids.
  • A 58-year-old divorced woman with high blood pressure and asthma.

One thing that can really help your employees is an online calculator. Most health plans today offer these tools to help employees figure out which plans being offered best fit their needs. They plug in some simple details and the calculator will evaluate all of the plans on offer and recommend which one works best for them.

The tool compares out-of-pocket expenses, copays, coinsurance and premium costs in order to whittle down the plans. Some will even look for plans with the enrollee’s family doctor.

If the calculator doesn’t include this last feature, the employee should take it upon themselves to check before committing to a plan.

Here are the most important items that your workers should be considering:

Their family doctor(s)

Even if you are offering the same plans as last year, it’s a good idea to tell your employees to check the plan to see if their personal physician or their kids’ pediatricians are on the list of providers. Health plans make changes every year, so it’s important to check.

Getting the financial balance right

This is important as some people end up spending more up front on higher premiums in exchange for lower out-of-pocket maximums and/or deductibles. But for a young, healthy person that rarely visits the doctor, that may not be the best option and they may be unnecessarily spending too much on premiums for overly generous benefits they may not even use.

You should ask your employees to look at the deductible they had in the last year and see if they reached it. Then:

  • If they did not, they should consider reducing their premiums in exchange for a higher deductible.
  • But if they surpassed the deductible or came close, paying more for a plan with a lower deductible might save them money overall. If this is the case, they should also look into the plan’s cost-sharing (copays and coinsurance) rules for medical expenses that kick in beyond the deductible.

Besides that, the deductible levels, copays and coinsurance levels must also be considered. They should understand how much they can be out of pocket.

Worst-case-scenario calculation

It’s important that your employees understand the implications for them if they suffer a medical crisis.

For a full perspective, they can:

  • Calculate the total premium they will pay for the entire year (their monthly premium contribution x 12), and
  • Add the out-of-pocket maximum for the plan.

The total is how much they would have to pay overall if they suffered a medical crisis.

One last thing…

Finally, you should consider offering your workers a package of other voluntary benefits that will help fill any gaps in their main health coverage.

Supplemental plans you should be offering include accident, critical illness, or long-term care coverage should they have an unexpected accident or serious illness.

J&J Sued Over Contracting with PBM that Overcharged Health Plan, Enrollees

A new area of potential liability for employers was recently opened when a class-action suit was filed against Johnson & Johnson, accusing it of mismanaging its pharmacy benefit manager plan, resulting in the health plan and its enrollees overspending millions of dollars on medications.

Health plans contract with PBMs to tamp down pharmaceutical costs, but reports have shown that they often send enrollees to pharmacies they own and which overcharge for medications sometimes by thousands of percent.

PBMs have been drawing increasing flak from states attorneys general as well as Congress and state houses, where multiple measures that would rein them in are in play.

If the lawsuit is successful, it could leave both self-insured and insured employers exposed to lawsuits by disgruntled employees who are forking out significantly more than they should.

 

The case

The class action, filed Feb. 5 in the US District Court for the District of New Jersey, accuses J&J of breaching its fiduciary duty under ERISA when it mismanaged its employee health plan by paying its PBM, Express Scripts Inc., inflated prices for generic specialty drugs that are widely available at a much lower cost.

The employees suing J&J cite a number of examples of how the company’s plan overpaid for prescription drugs. One of the most egregious examples cited in the lawsuit was an instance when the plan paid more than $10,000 for a 90-pill generic drug to treat multiple sclerosis, which can be purchased without insurance on different retail and online pharmacies for $28 and $77.  

“The burden for that massive overpayment falls on Johnson and Johnson’s ERISA plans, which pay most of the agreed amount from plan assets, and on beneficiaries of the plans, who generally pay out-of-pocket for a portion of that inflated price,” the plaintiffs wrote.

“No prudent fiduciary would agree to make its plan and beneficiaries pay a price that is two-hundred-and-fifty times higher than the price available to any individual who just walks into a pharmacy and pays out-of-pocket,” they added.

It further accuses J&J of agreeing to terms under which plan beneficiaries were financially incentivized to obtain their prescriptions from the PBM’s own mail-order pharmacy, even though that pharmacy’s prices are routinely higher than the prices at other pharmacies.

The case accuses the company of:

  • Failing to regularly put PBM services out to bid.
  • Failing to negotiate favorable terms with PBMs and continually supervise PBM’s actions to ensure that the plan is reducing costs and maximizing outcomes for beneficiaries.
  • Failing to periodically attempt to renegotiate PBM contracts.
  • Failure to independently assess the PBM’s formulary placement of each prescription drug and closely supervise PBM’s formulary management to ensure the plan is paying only reasonable amounts for each prescription drug.
  • Improperly steering plan participants towards their PBM’s mail-order pharmacy, even though that pharmacy’s prices were routinely higher than what retail pharmacies charge for the same drugs.

 

The fallout

Legal observers say employers that offer their employees group health insurance that includes one of the nation’s large PBMs, could be targeted.

The driving argument would be that employers have been warned through news reports of how PBMs have been accused of not being transparent about their negotiated prices, and how they often pocket rebates that could be used to lower the plan’s and enrollees’ outlays.

Most at risk are employers that are in self-insured or level-funded plans. It’s not clear yet how much liability insured employers may have, but they too could be accused of choosing health plans for their employees that contracted with PBMs that allegedly overcharge for medications.

Moves Afoot to Improve Prior Authorization Times, Efficiency

The Centers for Medicare and Medicaid Services has proposed new rules aimed at streamlining the prior approval process for most health plans in the U.S.

Under the proposal, starting in 2026, insurers would be required to render a decision within seven days for a non-urgent service or item (compared to the current 14 days), and 72 hours if it is urgent.

It would also require most group and individual health plans, Medicare Advantage, Medicaid managed care and state Medicaid agencies to implement electronic prior authorization systems by 2026 and streamline their processes for approving care.

The rule is aimed at tackling one of the biggest headaches for patients and practitioners alike. Prior authorization can sometimes take time to receive, often delaying much-needed care. Waiting for approval can have serious consequences, with studies finding:

  • It often leads to delays in care for serious conditions like cancer.
  • It often leads to more people being hospitalized as their condition worsens as they wait for care or medicine to be approved.

Prior authorization rules can also be confusing, time-consuming and frustrating for both patients and doctors, with the latter often feeling as if the insurer is questioning their expertise.

Insurers use prior authorization as a cost-containment tool that requires providers to seek approval from them before referring a patient for certain services and prescribing some medications. Studies have found that the number of prior authorization requests has exploded in the last few years, straining the system and delaying care.

The proposed rule

The goal of the rule is to reduce the bureaucracy around prior authorizations and cut wait times for responses that some providers say sometimes take weeks to get approved.

The proposed rule — a revised version of a similar one floated by the Trump administration that was withdrawn due to cost concerns — applies to all Affordable Care Act-qualified health plans, Medicare Advantage plans and state Medicaid programs.

As mentioned above, the time insurers have to approve a prior authorization request would be reduced to seven days, and 72 hours if it is urgent. Additionally, if the insurer denies the request, it would be required to include a specific reason for doing so.

Under the proposed rule, insurers will be required to build and maintain a system for electronically approving prior authorizations, known as a fast healthcare interoperability resources application programming interface (FHIR API).  

The FHIR API must be able to ascertain whether a prior authorization request is required and “facilitate the exchange of prior authorization requests and decisions” from the provider’s electronic health records or practice management system.

Some doctor’s groups have said the new rule doesn’t go far enough and that seven days is still too long.

Most Employees Spend Little Time Choosing Their Health Plan

A new study has found that individuals enrolled in high-deductible health plans (HDHPs) are more engaged than their traditional plan counterparts during open enrollment, spending more time on choosing plans and using employer-provided tools to help them make their choices.

Despite their higher engagement though, overall, 72% of group health plan enrollees spent less than an hour on their plan during last year’s open enrollment, according to the “2023 Consumer Engagement in Health Care Survey” by the Employee Benefits Research Institute and Greenwald Research.

Additionally, one in five didn’t spend any time researching or tending to their health plan and were just automatically re-enrolled.

The study’s authors said there are likely a few reasons U.S. workers are not spending a significant amount of time researching health plans during open enrollment, including:

Satisfaction with their plan — The study found that 90% of employees were satisfied or somewhat satisfied with their employer’s open enrollment process. As mentioned, 20% of participants auto-renewed, indicating they are likely satisfied with their plan.

More choices — Employees that have more plans to choose from may find the process of comparing and contrasting plans overwhelming.

Too many obligations — Many employees likely want to spend more time researching plans, but everyday work, family, social and community obligations can get in the way.

HDHP enrollees more engaged

HDHP enrollees on most metrics were more involved in plan selection and research during open enrollment than their traditional plan counterparts.

For example, 29% of HDHP enrollees spent more than an hour researching plans during open enrollment, compared to 23% of those enrolled in traditional plans.

HDHP enrollees were also more likely to have three or more choices of health plans than their traditional plan counterparts. In fact, while 29% of HDHP enrollees had a choice of three plans, only 17% of traditional plan enrollees had three choices. Meanwhile, 36% of those in traditional plans had only one choice, compared to 29% of those in HDHPs

They were also more likely to use employer-provided tools to choose a plan:

  • Annual employee benefits guide from employer: 58% of HDHP enrollees used it, compared to 38% of traditional plan enrollees.
  • Employee benefits online portal: 41% HDHP, 29% traditional plan
  • Online research: 23% HDHP, 32% traditional plan.
  • Employer-provided educational videos: 25% HDHP, 24% traditional plan
  • HR/benefits department consultations: 13 HDHP, 14% traditional plan
  • Insurance carrier/provider website: 11% HDHP, 16% traditional plan

One of the driving factors for plan choice among high-deductible health plan recipients was whether the plan covered preventative care for chronic conditions, pre-deductible.

Nearly one-half (45%) reported that pre-deductible coverage of preventive care for chronic conditions affected their decision to select the HDHP to a great extent. Another 25% reported that it impacted their decision to a minor extent.

Additionally, 25% of traditional plan enrollees said they would be extremely or very likely to select an HDHP if it covered preventative care for chronic conditions before they reach their deductible. Another 39% reported being somewhat likely to select an HDHP if such care were covered pre-deductible.

Despite these numbers, the percentage of workers enrolled in HDHPs has ebbed since 2020, when 34% of U.S. workers were enrolled in them. In 2022, 32% were.

The takeaway

With so few employees spending more than an hour researching plans during open enrollment, some of your workers may be choosing the wrong coverage for their life circumstances.

While open enrollment only happens during the last few months of the year, you can still provide educational resources to your staff during the rest of the year to educate them on their plan choices and how to choose the best one for their life situation.

You can also encourage them to use the resources you and we provide them to help make educated decisions about their coverage.

Is Health Plan Self-Funding Right for Your Firm?

As group health costs continue climbing and more employees struggle with the cost of premiums and out-of-pocket expenses, some employers are starting to take a second look at self-funded, or partially self-funded plans.

These plans give employers more skin in the game and the ability to better address cost drivers and tailor their offerings to fit the needs of their employees.

But while the plans can save both employer and their workers money, they are not for every organization. Plus, there is a degree of risk as a few serious health issues among group participants can blow open claims costs.

Small employer considerations

While medium-sized and large organization are more apt to self-fund due to their resources, 21% of employers with three to 199 plan participants were self-funded in 2021, according to a study by the Kaiser Family Foundation. That’s compared to employers with:

  • 200 to 999 plan participants: 63%
  • 1,000 to 4,999 plan participants: 86%
  • 5,000 and more plan participants: 87%

Recently, insurers have been trying to address small and mid-sized employers’ concerns about risk and costs by rolling out “level-funded” plans. These vehicles provide a lower level of self-funding with a stop-loss insurance program that has lower attachment points than typical plans.

For level-funded plans, the insurer estimates the employer’s expected monthly expenses, which include:

  • A portion of the estimated annual cost for benefits,
  • The stop-loss protection premium, and
  • An administrative fee.

The employer pays the above to the insurer every month. If, at the end of the year, claims were significantly higher or lower than expected, there will be financial reconciliation between the employer and the carrier.

These level-funded plans differ from fully self-funded plans, where the employer assumes direct financial responsibility for the costs of enrollees’ medical claims. The employer will usually contract with a third party administrator or insurer to handle claims and provide administrative services for the plan.

Employers may purchase stop-loss coverage to protect against catastrophic claims.

Stop-loss basics

While these plans are called self-funded, there is still a portion of the costs that is insured to protect against catastrophic claims or unexpectedly high utilization.

There are different types of stop-loss insurance that pay the cost of claims at a certain attachment point, when plan, individual or claims spending exceeds a designated value:

Specific stop-loss coverage — This policy provides protection for the employer against a high claim on any one individual. This is protection against abnormal severity of a single claim, rather than abnormal frequency of claims in total.

Aggregate stop-loss coverage — This policy may limit the total amount the plan sponsor must pay for all claims over the plan year.

The benefits

Customization — Self-funded plans let employers customize their plan to meet the needs of their workforce.

Cost control — Self-funded plans only pay the actual costs, as opposed to fully insured plans where the premium goes towards the expected health care costs the insurer has forecast, plus its overhead, reserves, profit margin, and more.

Access to claims data — The employer gets detailed access to claims costs, so they can see what claims are driving costs. By looking at claims and plan participant needs, the employer can better decide which benefits to provide, enhance or remove if they are not being used.

Disadvantages

Compliance — Since the employer will be paying for the claims, they will be responsible for fiduciary and compliance issues.

Cash flow — The plan will need to have sufficient money going into its accounts regularly to pay for claims as they arise.

Volatility — Medical outlays can be unpredictable. A spate of high-cost claims can wipe out any potential savings.

The takeaway

If you’re fed up with rising group health plan premiums, talk to us about self-funding. We can review your current insurance arrangement and your plan costs to help you decide if it’s right for you.

Time to Comply with Health Plan Transparency Rules

July 1 was the deadline for health plans to make public their in-network negotiated rates, out-of-network billed charges, and more.

While health plans will be required to post this information, employers who sponsor their group health insurance for their employees will need to take steps to ensure that their plans comply with the law, if they have not already done so.

The transparency rules taking effect were ushered in by the Consolidated Appropriations Act of 2021 and rulemaking from the 2020 Transparency in Coverage Rules by the Centers for Medicare and Medicaid Services.

The rules require that non-grandfathered insured and self-insured group health plans post machine-readable files on a public website no later than July 1, 2022. A public website, under the rules, is one that does not require a log-in or password to access.

The machine-readable files should include:

  • In-network rates for each item or service provided by in-network providers, including any negotiated rates, fee schedule rates used to determine cost-sharing, or derived amounts — whichever rate is applicable to the plan.
    If a rate is percentage-based, include the calculated dollar amount, or the calculated dollar amount for each National Provider Identifier-identified provider if rates differ by providers or tiers. Bundled items and services must be identified by relevant code.
  • Out-of-network allowed amounts and billed charges with respect to covered items or services, furnished by out-of-network providers during the 90-day period starting 180 days prior to the machine-readable file publication date.

What you need to do

Plan sponsors:

  • Must update the machine-readable files at least monthly. So, you should establish processes to coordinate regularly with the carrier in an insured plan, and with the third party administrator in a self-funded plan. You should confirm the date your insurer will make available the machine-readable files each month.
  • Should check with your insurance company if they will be hosting on their public-facing websites the machine-readable files, or if the insurer expects the employer to post the machine-readable files on their own public site.
  • Should Identify the plan or plans you sponsor and retrieve the links to the machine-readable files for each plan.
  • Should post the machine-readable files on your public-facing website if the insurance company has decided to delegate this responsibility to the employer.
  • Should post a link on your website to the insurance carrier’s website if the insurance company plans to publish the machine-readable files on its site. However, if the group health plan contract states that the insurer is fully responsible for posting these files, this may not be necessary.

Many Employees Choosing the Wrong Health Plans

A new study  has found that many people in employer-sponsored health plans are enrolling in plans that are costing them more than they ought to be paying.

Many employees choose pricey plans with low deductibles, which force them to spend more up front on premiums to save just a few hundred dollars on their deductible.

As result, many employees are spending hundreds, if not thousands of dollars more on their health care/health coverage than they need to.

Study 1: The deductible angle

A study by Benjamin Handel, a U.C. Berkeley economics professor, found that the majority of employees at one company he studied were in the highest-premium, lowest-deductible plan ($250 a year) their employer offered.

This resulted in them spending about $4,500 a year on health care, compared to only $2,032 had they gone with the cheaper plan (which had a $500 annual deductible) and received exactly the same care.

Study 2: Too many choices?

Additionally, the research paper “Choose to Lose: Health Plan Choices from a Menu with Dominated Options,” published in the Quarterly Journal of Economics, found that more choices also didn’t yield more savings for individuals in employer-sponsored plans.

The study examined the health plan choices that 23,894 employees at one large U.S. employer made. They were able to choose from 48 different combinations of deductibles, pharmaceutical copayments, co-insurance and maximum out-of-pocket expenses. All of the plans offered the same network of doctors and hospitals.

As a result, workers paid an extra $528 in premiums for the year to keep their deductible at $750 instead of $1,000. In other words, they paid $528 to save $250.

For nearly every plan with a deductible of $1,000 (the highest deductible available for those seeking single coverage), the additional premiums required to reduce the deductible, with all other plan attributes fixed, exceeded the maximum possible out-of-pocket savings provided by the lower deductible.

The study also found that the lowest-paid workers were significantly more likely to choose dominated plans (the most expensive).

Both of the studies above looked at plan options with relatively low deductibles when compared with high-deductible health plans, which have become more popular with time.

In 2018, the minimum deductible for an HDHP is $1,350 for an individual and $2,700 for a family. But, under current regulations, total out-of-pocket expenses are limited to $6,650 for an individual and $13,300 for a family with a HDHP.

While these plans have gotten a bad rap lately, a study published by the National Bureau of Economic Research found they are often cheaper for employees, as well.

The authors, both from the University of Wisconsin-Madison, found in a study of 331 companies, that at firms offering both a HDHP and a low-deductible plan, selecting the HDHP typically saves more than $500 a year.

Strategies

To help offset the cost of a HDHP, you can offer your staff health savings accounts (HSAs), which offer a tax-advantaged way to save for health care costs. While there are annual contribution limits, HSAs allow your employees to roll over their balance from year to year. The funds they contribute to their HSA are pre-tax, so the savings are significant.

The Wisconsin-Madison authors surmised that many people choose the costlier health plan for two reasons:

  • Inertia – It’s easier for consumers to stick with their old plan rather than crunch the numbers to see if a new plan may be more appropriate.
  • Deductible aversion – When employees see a low-deductible plan they may associate it with better quality care, even though the network and coverage may be the same.

The best strategy to guide your staff to the plan that best suits them is to educate them. You should have workshops for your staff prior to open enrollment, to help them understand why the higher-deductible plan may often be the best choice for them if they want to save money on their overall premium and out-of-pocket expenses.

Ideally, you could encourage them to set aside the same amount of money in their HSA that would be enough to cover their deductible. This way, your employees would not feel burdened by health expenses they may have to pay for during the year.

Few Health Plan Enrollees Know About New Price Transparency Rules

Despite a new law requiring hospitals to post detailed pricing information for their treatments and procedures online, fewer than 10% of U.S. adults are aware of the requirement.

That’s a problem considering that a growing number of Americans have high-deductible health plans, which come with up-front lower premiums but with higher out-of-pocket expenses.

One of the driving forces behind HDHPs is that they give the enrollee more “skin in the game,” by incentivizing them to shop around for care since they will have to pay for it themselves up to their deductible.

But if people are not aware they can find pricing for medical services on providers’ websites, they may not know how to begin comparing prices.

A new study by the Kaiser Family Foundation found that only 9% of those surveyed were aware that hospitals are required to publish the prices for their services online, in line with new price transparency regulations that took effect Jan. 1, 2021.

The price transparency rule, implemented by the Trump administration, requires hospitals to post on their websites:

  • A plain language description of each shoppable service and item.
  • A description of charges, including:
    • Payer-specific negotiated charge, or the price a third party payer such as a health insurance company would pay.
    • Discounted cash price, or the price a patient would pay without insurance.
    • Gross charge, or the charge absent any discounts.
    • De-identified maximum and minimum negotiated charges for each.
  • Any primary code used by the hospital for purposes of accounting or billing.

Here’s what the survey found:

  • 69% of respondents were unsure whether hospitals are required to disclose the prices of treatments and procedures.
  • 22% believed hospitals are not required to disclose this information.
  • 9% were aware hospitals are required to disclose the prices of treatments and procedures on their websites.
  • 14% said that they or a family member had gone online in the past six months to research the price of a treatment at a hospital.
  • Younger adults (ages 18 to 49) were more likely to say they or a family member had searched for the price of care online.

Educating your staff

Employers with HDHPs should inform their staff about the price transparency rule so that they can research pricing ahead of any procedures they may have. Most health system websites should be posting their pricing by now, but it may take some digging to find them. 

If they have been ordered to get a certain procedure, they can start by going to each provider available to them through their health insurance and researching the pricing on their website. If they can’t find the information, they should call the provider to get the information. They will need the negotiated price between their health plan and the provider.

Prices can vary dramatically between providers, and your staff need to make sure they are comparing the exact same service between them.

They should also consider calling the providers and inquiring about the cash price for the services. In some instances, the cash price may end up being even less than their deductible or copay.

One problem: Many hospitals have not published their rates and there has been a lack of consistency between providers in terms of how they are providing the information.

This has prompted the CMS to audit hospitals’ websites and complaints, and it recently started sending out notices to hundreds of hospitals that are not complying with the transparency regulations.

Finally, many insurance carriers offer searchable online databases for their enrollees where people can research the approximate cost of certain procedures among all the providers available to them.

Health Plan Rebates in 2021 to Be Second Highest on Record

Group health plan insurers are expected to pay out $618 million in rebates to plan sponsors for the 2020 policy year after seeing use of health care services plummet during the COVID-19 pandemic.

That’s according to a Kaiser Family Foundation estimate in April, which also projects that insurers will pay out $1.5 billion in rebates to enrollees in the individual market. 

The total $2.1 billion estimated payout this year is second only to the $2.5 billion insurers paid out in 2020 since the Affordable Care Act took effect and started requiring these rebates.  Small and large group health plans received $689 million in rebates in 2020.

The ACA requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on health care claims and quality improvement, leaving the remaining 20% for administration, marketing and profit. If they spend less than 80%, the shortfall has to be returned to policyholders in the form of a rebate.

The threshold for large group health plans is 85%. This threshold is called the medical loss ratio (MLR). 

The rebates that will be paid in 2021 are based on a three-year MLR average loss ratio (2020, 2019 and 2018). Rebates this year will be paid to sponsors who had group health policies in effect in 2020, and only to those who were in plans that failed to spend enough on medical services. Many plans spend more than the MLR cap on medical services and do not have to pay.

There are two main drivers of larger rebates this year:

There was a significant drop in health care utilization in 2020 — The pandemic depressed the use of medical services as many people who would normally have gone to the doctor for ailments chose to stay home to avoid the risk of contracting COVID-19.

Also, hospitals cancelled elective care early in the pandemic and when COVID-19 cases were cresting, so that they could free up resources for coronavirus patients and reduce the virus’s likelihood of transmission. In fact, an analysis by the Peterson-KFF Health System Tracker found that health care spending fell slightly in 2020, making it the first year on record to see spending decline.

Insurers in the individual market had record profits in 2018 and 2019 — The Kaiser Family Foundation earlier reported that individual market insurers were very profitable in 2018 and 2019, even though the individual mandate penalty was eliminated in 2018 and insurers had been reducing their rates the previous few years.

How to handle rebates

Health insurers may pay MLR rebates either in the form of a premium credit (for employers that are still using the insurer) or as a lump-sum payment. More than 90% of group plan rebates come as a lump sum.

Once an employer receives this money, it is their responsibility to distribute the rebate to plan beneficiaries appropriately within 90 days, or risk triggering ERISA trust issues.

How the employer distributes the check will depend on how much their employees contribute to the plan, if at all. Here are the basic rules for employers handling their MLR rebate checks:

  • If you paid 100% of the premiums, the rebate is not a plan asset and you can retain the entire rebate amount and use it as you wish.
  • If the premiums were paid partly by you and partly by the participants, the percentage of the rebate equal to the percentage of the cost paid by participants must be distributed to the employees.

If you have to distribute funds to the plan participants, the Department of Labor provides a few options (if the plan document or policy does not already prescribe how they should be distributed):

  • The funds can be used to reduce your portion of the annual premium for the subsequent policy year for all staff who were covered by all of your group health plans.
  • The funds can be used to reduce your portion of the annual premium for the subsequent policy year for only those workers covered by the group health policy on which the rebate was based.
  • You can provide a cash refund to subscribers who were covered by the group health policy on which the rebate is based.

COVID-19 Changes to Health Plans Must Be Documented, Circulated

A number of plan sponsors have made changes to their group health plans in response to the COVID-19 pandemic, such as covering testing and sometimes treatment without any cost-sharing by the plan enrollee.

But any changes that are made must be followed up by amending the plan and communicating the changes to the enrollees.

Under the Employee Retirement Income Security Act, all health plans are required to deliver a Summary Plan Description (SPD) to enrollees to inform them of the full spectrum of coverage and their rights under the plan.

Whenever a plan sponsor makes a material modification to the terms of the plan or the information required to be in an SPD, they must amend the plan and let participants know about the change through a Summary of Material Modification (SMM).

Material changes

To qualify as “material,” a change must be important to plan enrollees. Examples include adding or eliminating a benefit, changing insurance companies, or changing rules for dependent eligibility.

Plan changes related to the COVID-19 pandemic that would have to be included in the SMM and SPD could include:

  • Offering continuing coverage to staff who would otherwise lose coverage due to a furlough, layoff or reduction of hours.
  • Changing eligibility terms to allow workers who may not have been eligible for coverage before to secure coverage (this could include part-time workers).
  • Covering a larger portion of an employee’s premium share.
  • Adding an employee assistance program to provide counseling for workers who may be undergoing unusual stress.
  • Adding telemedicine coverage.
  • Using funds in health savings accounts (HSAs) and flexible spending accounts (FSAs) to purchase over-the-counter medications.
  • Covering COVID-19 testing with no cost-sharing. 
  • Covering COVID-19 treatment without cost-sharing.

Some of the above changes are required by new laws and health plans must respond accordingly by changing their SMMs and SPDs. For example, the Families First Coronavirus Response Act requires that group health insurance and individual health insurance plans cover coronavirus testing with zero cost-sharing.

And the Coronavirus Aid, Recover and Economic Stabilization Act reverses an Affordable Care Act rule that barred policyholders from using funds in HSAs and FSAs to pay for over-the-counter medications. 

When the plan sponsor adopts these changes, it must also amend its plan summaries.

And SMMs must be delivered to plan participants within 60 days after a change has been adopted. You can deliver the SMM by mail, e-mail or posting it on your company’s intranet site. It’s recommended at this time that you opt for e-mail delivery.

One of the issues that may come up with any changes implemented in response to the COVID-19 outbreak is that some of the changes may be temporary. 

If that’s the case, the plan needs to include the termination date of any benefits that are adopted on a temporary basis.

However, if you don’t know how long the temporary benefits will be in effect, their temporary nature must be communicated in the SMM. Employers need to issue another SMM when the temporary benefit or coverage term ends.

The takeaway

This is an unusual time and unusual times call for unusual measures. It’s unusual for changes to be made to a plan in the middle of a plan year but because of the way the pandemic crash-landed, many plan sponsors have had to make changes. 

That said, you should work with us and your carrier on ensuring that the amended documents are sent out to staff.

As the employer, you should be aware of all the changes that have been made in response to COVID-19 so you can discuss them with any employees that have concerns or questions.