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Member of the AICPA faculty of
teaching professionals. AICPA author,
instructor & national speaker National
Society of Accountants.Speaker of the
Year. Writes financial articles for over
50 national publications.
Could We Have This Debate Before It Is Too Late?
Call (516) 938-5007
Is the use of fully insured group health insurance products as stop-loss coverage for group health plans going
to remain a viable solution?
The obvious question that follows is: Are State Departments of Insurance Compelled by the Affordable Care Act
(ACA) To Limit Fully Insured Health Products to Minimum Essential Benefits?
Short answer is a resounding No. This is an intriguing question which is being hashed out across our land
and I am sad to say that most DOIs are getting it wrong. Section 1301, Paragraph (b), 1, A, the ACA is very clear
in its definition of a health plan:
1) Health Plans—
(A) In General.—the term ‘‘health plan’’ means health insurance coverage and a group health plan.
Did that come through? “And a group health plan”.
One of the things that came out of the ACA, which I only hear complaining about, is the Medical Loss Ratio
(MLR) mandate; 80% of small group (99 and under) and 85% of large group premium dollars must go to fund
patient care. This puts fully insured products in the strange position of being underpriced as a stop-loss
Fully insured as a stop-loss is underpriced for a couple reasons.
1. Traditional stop-loss runs at a Medical Loss Ratio somewhere around 60%. The difference of 20% - 25%
should jump off the page when you think about this.
2. The risk. Specific deductibles of $20K - $50K or more turn into standard deductibles of $5 - $25K. The
biggest thing about this is that we are working with “standard” deductibles which limit deductible count to one
or two per family and I am not speaking of aggregate v. embedded, I am truly speaking of one or two
deductibles per family.
Just when this is dawning on the market and employers are finding ways to offer truly affordable benefits to
their people, some state departments of insurance have disallowed High Deductible Health Plan (HDHPs)
from existing legally in their state. Instead they might consider requiring health plans to comply with the ACA
and keep offerings as diverse as possible to allow the market to function and keep prices down.
Let’s do a quick mental exercise to illustrate my point. Track with me on premium costs for a moment:
Premiums rise exponentially as deductibles go down. If the desired effects are lower costs, then it makes
sense to raise my deductible… But what if I raise only MY deductible and leave my employees with the same
rich benefits that are currently in place? This lowers costs while staying within the bounds of the ACA because I
am doing it all under a “group health plan.” Add to this logic some actuarial data: If 25%-35% of premium costs
are associated with Rx copays and 20%-30% of premium costs are attributable to office visit copays, then I can
lower premium costs by 45%-65% merely by removing them from the insurance and putting them back in as a
“plan” item. My employee enjoys the same benefit and I get to keep what is not spent. This is as much of a win-
win as the market has seen for some time.
This powerful strategy brought to the market by companies like Benefit Plus Plan works and will be much more
difficult to implement when HDHPs are taken away.
This brings us back to the point of this article; the question: is the use of fully insured group health insurance
products as stop-loss coverage for group health plans going to remain a viable solution?
Could we have a debate on this before it is too late?
ABOUT THE AUTHOR: Lance Wallach - Michael J. Meyer
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of
teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international
tax, and estate planning.
Copyright Lance Wallach, CLU, CHFC
US health insurance trusts
Published: July 1, 15:05 | Last updated:
As their finances deteriorated, Detroit’s automakers earned the moniker “HMOs on wheels” for crippling
employee healthcare liabilities (Health Maintenance Organisations are a type of insurer). This was worrisome
not only for the companies but also some 850,000 active and retired beneficiaries who feared, with justification,
that carmakers might one day go bust and shed these liabilities. That spurred the United Auto Workers union to
agree in 2007 to Voluntary Employee Beneficiary Associations (VEBA) to absorb these liabilities. When the trusts
were originally negotiated, the carmakers pledged cash contributions of nearly $60bn, somewhat less than their
actual healthcare liabilities. As the crisis hit, they supplanted promised payments with their own equity and debt.
The UAW had little choice, but this partly defeated the purpose of creating the trusts. Not surprisingly, the trusts
have tried to diversify quickly, most recently accepting around $4bn in cash from Ford, a slight discount for notes
receivable, after redeeming stock warrants for $1.8bn earlier this year. General Motors retirees’ healthcare is
backed by $13bn in cash plus $9bn in GM liabilities and up to a fifth of the automakers’ equity. That could fetch
an additional $10bn once a public market exists. Chrysler’s employees are most exposed with only $2bn in
cash plus $4.6bn in notes and up to 68 per cent of illiquid shares in Detroit’s weakest carmaker. Independent
accountant Lance Wallach reckons these assets can never cover an estimated 80 years of full benefits.
But, by shedding exposure to Detroit and giving themselves the option of trimming benefits to conserve assets,
UAW trustees are effectively creating a less-risky defined contribution plan. Beneficiaries may squeal, but
something is better than nothing. America’s car industry might have fared better if only unions had let carmakers
manage their liabilities with similar flexibility.