Good things come in small packages. That’s the mantra
now being chanted by a cadre of benefits consultants and
brokers looking to add value in the employer health care arena
as rising premiums and increasingly complex administrative
requirements cause many businesses to shy away from offering
health care benefits.
Rather than counsel employers to control costs by tweaking
an existing group health care benefits package, some brokers
are advocating changing the health benefit delivery model. The
emphasis is moving from group to employer-engineered individual
policies.
There are three models taking shape. One involves offering
individual insurance policies through affinity groups and
compensating employees for the premiums by paying a higher
salary. Another involves using Health Reimbursement Accounts to
fund premiums for individual insurance policies. And the third
involves providing access to either individual or limited
benefit plans on a national basis. All three models are
particularly germane to small-business owners and employers
with part-time workers, contractors or consultants.
“We are doing a significant amount of business in
employer individual policies, especially in the small employer
market,” says Michael Paschke, executive vice president
of Brown & Brown. “In a group plan, 10% of the people
typically use 90% of the health benefits. A group policy gets
weighted down by the costs of that 10%. Take them out of the
equation and costs come down considerably.” Moreover,
small employers in particular are not set up to deal with the
administrative headache group health plans entail. Directing
employees toward their own individual policies takes them out
of that cycle. “The trend is toward saying, ‘Secure
your own. We will give you a raise to cover the
costs,’” says Paschke.
This approach is particularly effective in the affinity
market, where professional groups can offer policies to
individual members at negotiated rates. “We tell realtor
groups, medical groups, alumni groups that we will hook them up
with the affinity discount,” Paschke says. “Their
employees will get the bill at home taking the employer out of
the administrative loop.”
Brown & Brown has used its clout to negotiate with Blue
Cross/Blue Shield for discount rates with various affinity
groups, Paschke reports. Members compensate their employees for
the policies with higher salaries.
How does this work for the broker? “We sell the
individual policies and collect the commissions,” he
says. “And the commissions on individual policies are
generally higher than group.”
Re-engineering
Utah-based Zane Benefits has taken this model one step
further with ZaneHRA—a platform that uses health
reimbursement accounts as a tool to allow employees to choose
their own health insurance policies and pay for those policies
with HRA dollars. An HRA is a defined-contribution plan vehicle
created by the IRS to allow employers to reimburse their
employees for qualified medical expenses that are typically not
covered under most health insurance plans. HRAs are sometimes
referred to as Section 105 plans after the section in the U.S.
tax code that governs them.
These plans are akin to Health Savings Accounts (HSAs), but
they are different in a key way. Both plans are sometimes used
by large employers that offer comprehensive benefits and want
to supplement them by giving employees tax-free dollars for
non-covered medical costs. An HRA, however, is funded solely by
the employer; it cannot be funded by employee dollars.
Employers can write off the expense for tax purposes, similar
to more traditional health benefits, while the money does not
count as taxable income for employees. And HRAs can be designed
as a standalone benefit or coupled with a health plan. HSAs, by
contrast, are controlled by the employee rather than the
employer. Both employees and employers can contribute to an
HSA. They also differ in that employees can use the money in an
HRA, but generally not an HSA, to buy health insurance. This is
key to the Zane Benefits approach.
The ZaneHRA platform includes two distinct products:
SimpleHRA and GroupHRA. SimpleHRA is designed for employers
that do not offer group major medical coverage. GroupHRA is
essentially a high-deductible, consumer-directed health
plan.
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Both platforms are broker-friendly. “The carrier is of
no consequence to us. We do not sell the insurance; we provide
the platform that enables the broker to provide this option to
his or her clients,” explains Paul Zane Pilzer, the
company founder. Zane makes its money with a $6 to $12 fee per
account. Employers that sign on can establish an HRA for each
employee and make a fixed, monthly, tax-free contribution
(e.g., $200/month) to that account for each employee to
purchase his or her own individual/family health insurance.
Employers get online administration, real-time reimbursement
and a plan document. Employees are given access to a Web site
where they can review individual insurance options. That Web
site can be linked to a benefit broker’s Web site, or
employees can get advice from Zane’s 200-person call
center of non-commissioned agents. Either way, the delivering
broker gets the sales commissions.
The Zane Benefits’ approach is controversial. Some
experts question whether this approach violates a federal law
requiring that employers offer coverage to everybody or nobody.
The state of Texas has thrown up some barriers that have caused
Zane to stop marketing HRA reimbursement for health insurance
there. Others question the ethics of promoting a solution that
is centered on cutting less healthy people out of the pool.
They argue that the concept violates the fundamental principle
of health insurance: that the healthy help to pay for the
coverage of the sick.
But Pilzer is undeterred. He reports that 45 states now
allow carriers to sell individual and family policies to
healthy people for one-third the price of a typical employer
group plan—often from the same carrier—and that at
least 34 states have a high-risk pool for people who
can’t get insurance because of illness. He also notes
that so far there has been no IRS or federal government
pushback.
“With individual plans, once accepted, premiums cannot
generally be increased or coverage dropped for future illness.
Under a group plan, workers who lose coverage when they are
laid off or lose jobs may not be able to replace it,”
says Pilzer. Faced with a gradually declining group insurance
market, some carriers are paying attention. Case in
point? UnitedHealth has given the Zane approach its support by
encouraging its agents to consider this approach.
Revolution Engineering
Extend Health is another innovator offering a turnkey
approach to individual health insurance policies for employees.
The company is partially owned by Revolution Health—the
free consumer health and medical Web site founded by AOL
co-founder Steve Case. Its market niche is delivering access to
a nationwide marketplace of health plans through two programs:
ExtendAccess and ExtendRetiree.
“These products allow employers of any size to offer
health insurance options to their employees, particularly
employers with populations of contract or part-time
workers,” says Brian Tenner, senior vice president of
Extend Health. The firm’s roster of clients runs the
gamut from small employers to FedEx, Avon, IBM, Walgreen and
GE. The products are also offered to members of affinity
groups, such as Sam’s Club, adds Tenner.
ExtendAccess provides affordable medical plan options to
employees and independent contractors who are ineligible for
company sponsored group health plans. It is for employers that
would like to provide all or a portion of their active
employees access to Extend Health’s health care
marketplace but will not be providing a financial contribution.
Employees get access to hundreds of health plans offered by
leading national insurance carriers. They can go online or
speak to health plan advisors to choose the plan that best fits
their needs and budget. In addition, ExtendAccess provides
communications materials for employers to distribute to
employees about purchasing a health plan. “What is key
here is that we provide service on a national basis. So
companies with multi-state locations can offer their employees
advice and access tailored to their locations,” adds
Tenner. And if an employer is looking at a limited-benefit plan
strategy, ExtendAccess also provides negotiated rates.
Typically, Extend Health sells directly to the employer without
the involvement of a broker. “But, if a broker has a
relatively sizeable affinity group, we’d like to talk to
him,” says Tenner.
ExtendRetiree allows employers to replace legacy group
retirement plans for those 65 and older with a
defined-contribution alternative. “Retirees may use these
funds to pay for medical expenses. In certain states, they may
use the funds to pay for individual Medigap, Medicare Advantage
and Medicare Part D plans,” says Tenner. ExtendRetiree
also allows corporations, union and government entities to
comply with recent accounting directives regarding retiree
health care obligations. Tenner reports they have built a team
of 180 insurance agents to serve retirees at Fortune 500
companies with individual health accounts. “We expect to
have about six large clients, including Ford and Chrysler,
offering retiree health accounts next year,” he
says. “Then we aim to triple that number in
2008.”
Hart is a contributing editor. Molly.Hart@LeadersEdgeMagazine.com