Monday, April 29, 2013

Retirement cap proposal draws fire

Business groups blast the plan

April 24, 2013

Small-business groups have joined the chorus of retirement professionals upset with President Barack Obama's proposed retirement cap.  

Opposition to the plan emerged almost immediately. The proposed $3 million cap on retirement savings could force small businesses to stop offering workplace retirement plans, the American Society of Pension Professionals & Actuaries said shortly after the president's plan was unveiled earlier this month.

The criticism hasn't stopped.
“Obviously it won’t hurt every small business, but there are a significant number it will hurt,” said Judy Miller, director of retirement policy at ASPPA.
In his budget blueprint, President Obama proposed a $3.4 million cap on how much money individuals can put into retirement accounts. The move would raise about $9 billion for the federal government over the next 10 years. The cap would prohibit taxpayers from taking advantage of the pre-tax deferral into their 401(k) or defined contribution pension plans after they cross that $3 million threshold, which is enough to fund a $205,000 annual annuity for a person wanting to retire at age 62.
According to data from the Employee Benefit Research Institute, a very small percentage of IRA and 401(k) investors would be affected by the cap. In 2011, only 0.06 percent of total IRA account holders had $3 million and only 0.0041 percent of 401(k) accounts had that much money in them at the end of 2012.
Still, the proposal is alarming on two levels, Miller said.
Small-business owners can’t rely on so-called non-qualified deferred compensation like big companies can, so their options are limited, she said. A company-sponsored retirement plan is a small-business owner’s only way to generate tax-deferred savings, unlike executives at large companies, who can “get pretty much anything, no limit,” Miller said.

Non-qualified deferred compensation is money that workers earn in one year but that is paid out in a future year, helping to lower tax liabilities. 
It makes for a very uneven playing field, Miller said. “We really count on the nondiscrimination rules related to contributions to employer-based plans,” Miller said, adding:
"You take away the incentive they previously had to make contributions to other people and you’re going to end up with a lot of people, who are not intended to be the target, losing out under this proposal.”
Paula Calimafde, chair of the Small Business Council of America, doesn't go quite as far but is critical of other components of the proposal.

She doesn’t think that the $3 million cap will hurt the system because, mostly, such a small percentage of individuals would be affected by the cap.
The proposed cap would be preferable to proposals that came out during the fiscal cliff talks at the end of last year that would limit contributions going into a plan to the lesser of 20 percent of earnings or $20,000 per year.
That scenario would “trigger plan terminations or plans being frozen in the small-business sector because with the small-business sector, what makes the retirement plan system work is tax incentives,” she said. “If they are not strong enough to carry the weight of the internal administrative burdens and the cost of running a plan, including the cost of contributions for non-highly compensated employees, the owners will walk away from it.”
She added small business owners are more willing to sponsor a retirement plan and give employee matches or offer profit sharing if they have incentives to do so.
Calimafde pointed out that changes made to the tax incentives in the 1980s forced many small business owners to close or freeze their workplace retirement plans.
Ed Ferrigno, vice president of Washington Affairs for the Plan Sponsor Council of America, pointed out the $3 million cap also would apply to defined benefit plans.

“It complicates the hell out of things, particularly on the defined benefit side," he said.

Specifically, it would make it harder for small businesses to know which of their employees had maxed out their benefits and might be ineligible to set aside additional tax-deferred contributions. Many people have investment accounts outside of their workplace-sponsored retirement plan.  

Both Calimafde and Ferrigno believe another “sleeper” provision in Obama’s proposed budget could have even more far-reaching consequences than the cap.

The proposed elimination of the "stretch" IRA -- which allows the amount remaining in an IRA at an employee’s death to be distributed over the life expectancy of the beneficiaries who inherit it -- would deter employees from fully using IRAs as a means of saving money. 

As part of the president's proposed budget, individuals who save money in an IRA would have a harder time passing that money on to their children or grandchildren because the rules would force these secondary beneficiaries to take all of the money from that plan within five years of the account holder’s death.
The money would be taxed at a much higher rate if the beneficiaries are forced to take a large sum of money out of an IRA immediately, Calimafde said.

“It is important to many individuals who have accumulated funds that they can name their children as beneficiaries. This is why, for most employees, IRAs are a preferable alternative to annuities,” the Small Business Council of America said in comments this month to the House Ways and Means' Working Groups on Pension/Retirement and Small Business.

“With the ‘stretch IRA’ employees can invest in an IRA not only to secure their own retirement future but knowing that any remaining funds can provide their children with a safety net by allowing them to take the funds out of the IRA over their lifetimes rather than being forced to take the funds out in a lump sum as called for in this proposal,” according to the SBCA.

If this provision becomes law, many individuals will only save what they believe they will need in retirement in an IRA and put the rest in more tax-advantaged vehicles, the SBCA stated.
Another proposal that was put forth as part of the so-called fiscal cliff budget discussions was a 28 percent cap on the tax benefit for itemized deductions and exclusions.

According to Brian Graff, CEO and executive director of ASPPA, that proposal means a small business owner with a marginal tax rate of over 28 percent will pay a surcharge on elective deferrals to a 401(k) plan the year the contributions are made, and then pay tax again on the full amountwhen the contributions are paid out at retirement, amove that amounts to double taxation.

All three proposals would amount to a “new type of class warfare,” said Ferrigno.

“If you contribute at a high rate and you are successful in your investments, or worse yet, you have a defined benefit plan and a defined contribution plan, all of a sudden the rules have changed. For management of larger companies, it makes non-qualified investments more attractive. (But) you don’t want key decision-makers to have a disconnect from the benefits of rank and file workers.”

The bottom line is that most people won’t save for retirement without an employer-sponsored retirement plan, Ferrigno said. Low- and middle-income workers would be most hurt by these changes to retirement policy, he said.

“Instead of worrying about someone in a high bracket who is going to benefit (from these incentives), worry about those who could lose out if they are in the lower bracket if you change this policy,” he said.

Today's Datapoint

167% … has been the increase in the number of state health insurance mandates since 1992, to 2,271 nationwide, according to a new report “Health Insurance Mandates in the States, 2012,” released by the Council for Affordable Health Insurance.

Quote of the Day

“There is at least one lesson for everyone [from the $3.8 million jury award to a California doctor who was excluded from the provider network of Anthem Blue Cross] no matter what regulatory scheme is in place. And that is when you determine you are not going to have a provider participate in your [health plan] network, a current one or to begin, you need to think of it as a personnel decision [and be conscious of potential discrimination that may not look good to a jury].

— Mark Rust, managing partner for the Chicago office of the law firm of Barnes & Thornburg, LLP, told AIS’s Health Plan Week.

10 States With the Most Medicaid Fraud Convictions

  1. California — 123
  2. Texas — 118
  3. Ohio — 116
  4. New York — 89
  5. Florida — 85
  6. Louisiana — 76
  7. Arizona — 62
  8. Iowa — 45
  9. Tennessee — 40
  10. Pennsylvania — 38
Source: Becker's Hospital Review

Rate of Uninsured by Age and Year, 2003-2012

Ages 19-25
Ages 26-49
Ages 50-64
Insured now, time uninsured in past year
Uninsured now

Source: Commonwealth Fund Biennial Health Insurance Survey, 2012

Friday, April 26, 2013

Quote of the Day

“The ability [of health plans selling products on exchanges] to cross-sell could be critical, but I don’t see anyone focusing on that. For health insurers [similar to fast-food places that make more money on drinks and fries than hamburgers], dental coverage might be the soft drink and vision, life, and disability coverage the fries. They could be bundled and marketed to add value and increase margins. You might even sell the medical coverage as a loss leader.”

— Joe Wilds, senior vice president of FJA-US, a software vendor that works with insurers, told AIS’s Inside Health Insurance Exchanges.

American Workers Lack Knowledge of Healthcare Coverage Options

According to the 2013 Aflac WorkForces Report (AWR) 53% of American workers fear that they may not adequately manage their healthcare coverage. Not only have they been historically complacent, with 89 percent admitting they choose the same benefits year over year, but many don't understand the options provided to them.

·         32 percent are not very/not at all knowledgeable about health savings accounts (HSA)
·         Three out of four (76 percent) are not very/not at all knowledgeable about federal and state health care exchanges
·         Almost half (49 percent) are not very/not at all knowledgeable about health reimbursement accounts
·         25 percent are not very/not at all knowledgeable about flex spending accounts (FSA)

Source: Aflac

Thursday, April 25, 2013

Visits to a Physician in the Past Twelve Months by Generation

Visit to any Physician
Silent Generation (1937-1945)
Baby Boomers (1946-1964)
Generation X (1965-1976)
Millennials (1977-1992)

Data Source: Truven Health Analytics
Publication Source: HealthLeaders Media

Consumers unprepared for health care reform

April 25, 2013

Health care reform is designed to bring consumers more health care options, but many are not necessarily prepared to take more control and lack the proper education to make these choices. 
Those are the major findings of the 2013 Aflac WorkForces Report, which reveals that 72 percent of workers have never heard the term "consumer-driven health care," and that 54 percent of workers do not want more control over their health care because they do not have the time or knowledge to manage these decisions.
Furthermore, 75 percent of consumer respondents believe their employers should provide education regarding changes to their health care coverage under the Patient Protection and Affordable Care Act; however, only 13 percent of employer respondents consider this important to their companies.  
“It may be referred to as ‘consumer-driven health care,’ but in actuality, consumers aren’t the ones driving these changes, so it’s no surprise that many feel unprepared,” said Audrey Boone Tillman, executive vice president of Corporate Services at Aflac. “The bottom line is if consumers aren’t educated about the full scope of their options, they risk making costly mistakes without a financial back-up plan.”
Consumer respondents even find the idea of more health care decisions intimidating, the study found, with 53 percent saying they are worried about properly managing coverage, which could result in fewer protections for their families. 
Another 89 percent said they choose the same health care coverage each year but fail to understand their options.  
When it comes to health savings accounts, 32 percent of consumer respondents admit lacking knowledge. 
Seventy-six percent of consumer respondents say they are not well-versed in federal and state health exchanges, while 49 percent of consumer respondents say they are not knowledgeable about health reimbursement accounts. 
Flexible spending accounts are also challenging for consumer respondents, with 25 percent saying they lack an understanding.
Despite the knowledge gap, employers are moving forward with placing more responsibility on employees. 

The study finds that 53 percent of employer respondents report bringing in high-deductible health plans in the last three years. But employees are still behind the trend, with 55 percent saying they have yet to prepare for the potential changes to the health care system.
Only 23 percent report increasing their savings to battle possible higher medical costs, and 46 percent of consumer respondents say they have less than $1,000 in savings designated for out-of-pocket expenses that come with unexpected illnesses or accidents. Twenty-five percent of consumer respondents say they have less than $500 for those costs.
“It’s time for consumers to face reality,” Tillman said. “Ready or not, they are being put in control of their health insurance decisions — and that means having to make choices that could have a big impact on personal finances. If employers aren’t offering guidance to workers on how to make crucial benefits decisions, the responsibility lies in the hands of consumers to educate themselves.”

Medication waste came to $418 billion in '12

April 23, 2013

Talk about a dose of bad medicine: The United States wasted $418 billion in 2012 based on bad medication-related decisions, and the impact was most deeply felt in those states that could least afford it.
According to research from pharmacy-benefit manager Express Scripts, while these costly decisions impact the entire nation, they have a disproportionate effect on the poorest states.
Mississippi, which has the lowest median household income in the country, had the most wasteful spending, totaling $1,622.76 per resident, according to Express Scripts.

The other low-income states that top the list in unnecessary pharmacy-related costs include Louisiana, Arkansas, Alabama, Kentucky, Tennessee, South Carolina, New Mexico and Oklahoma. Those states with high levels of waste were primarily located in the South, an area also associated with higher rates of chronic disease.
Vermont wasted the least amount per capita among all states, at an average of $1,004.39 in unnecessary costs per resident, Express Scripts found.

“Our nation pays a huge price for bad medication-related decisions, and it’s clear that the price is even more costly for those at the lowest end of the economic spectrum,” said Steve Miller, chief medical officer at Express Scripts. “The good news is that our country can save billions of dollars for patients, employers and the government— and achieve healthier outcomes — simply by driving better decisions within the pharmacy benefit.”
Waste was defined as medication-related spending that provided no additional clinical benefit. This includes the use of high-priced prescription drugs and pharmacies when clinically equivalent or superior alternatives existed, as well as unnecessary medical expenses that could have been avoided by patients adhering to their medication therapies.
Breaking the numbers down, Express Scripts found:
•$55.8 billion was spent unnecessarily on higher-priced medications when more affordable, clinically equivalent alternatives were available.
•$93.1 billion could have been saved if patients would have used the most cost-effective and clinically appropriate pharmacies, including home delivery and specialty. This savings includes $33.5 billion in lower drug costs, as well as $59.6 billion in avoided medical costs attributed to the higher adherence rates associated with home delivery and specialty pharmacies.
•An additional $269.4 billion was spent on avoidable medical and pharmacy expenses as a result of patients not remaining adherent to their medication treatments. This total does not include the $59.6 billion in adherence savings directly associated with better pharmacy choices.
“It’s hard to believe, but when we consider associated medical expenses, bad pharmacy-related decisions waste more money than what the country spends in total on prescription drugs,” Miller said.
Part of the solution? Miller said patients need to make better drug, pharmacy and health choices.

Health Insurance Actuaries In the Hot Seat On ‘Rate Shock’

KHN Staff Writer
Apr 18, 2013
This KHN story was produced in collaboration with
Few aspects of the Affordable Care Act are more critical to its success than affordability, but in recent weeks experts have predicted costs for some health plans could soar next year.
Now health law supporters are pushing back, noting close ties between the actuaries making the forecasts and an insurance industry that has been complaining about taxes and other factors it says will lead to rate shock for consumers.
"Most actuaries in this country -- what percentage are employed by insurance companies?" Sen. Al Franken, a Minnesota Democrat, asked an actuary last week at a hearing of the Committee on Health, Education, Labor and Pensions.
The committee was discussing a study published last month by the Society of Actuaries (SOA) predicting that, thanks to sicker patients joining the coverage pool, medical claims per member will rise 32 percent in the individual plans expected to dominate the ACA exchanges next year. In some states costs will rise as much as 80 percent, the report said.
The witness was unable to answer Franken's question, but the senator made his point. Insurance is why actuaries exist. The industry and the profession are hard to separate. 
Using predictive math, actuaries try to make sure insurers of all kinds don’t run out of money to pay claims. Many actuaries also work for consultants whose clients include insurance companies.
Undisclosed in the SOA report was the fact that about half the people who oversaw it work for the health insurance industry that is warning about rate shock. The chairman of society committee supervising the project was Kenny Kan, chief actuary at Maryland-based CareFirst BlueCross BlueShield.
Others on the committee work for firms with insurer clients. The report included committee members’ names but not their affiliations.
The SOA "portray themselves as this nonpartisan think tank when in fact everything about the study is by people who have a vested interest in the outcome of the study," said Birny Birnbaum, executive director of the Center for Economic Justice, a Texas group that advocates on behalf of financial and utility consumers.
To perform the research, the society hired Optum, sister company of UnitedHealthcare, the country’s biggest private health insurer.
Society spokeswoman Kim McKeown said the project was overseen by credentialed actuaries "from a cross-section of industry organizations" and was "exposed for review and comment to the broad health care actuarial community."
Even supporters of the health act worry about premium increases next year, when many of its provisions take effect. But the debate fits into a larger discussion about actuaries’ public role. Actuaries are self-regulated, which some say makes them unaccountable.
Their associations set conduct standards and investigate malpractice in confidential proceedings. During the previous two decades the Actuarial Board for Counseling and Discipline, which works with the Society of Actuaries, has recommended public disciplinary measures for fewer than two people a year, according to its annual report.
Yet actuaries play many public roles. By calculating the adequacy of employer pension contributions they affect the retirement of millions. And they’ll act as virtual referees for important aspects of implementing the health act.  
"I have a great deal of respect for actuaries," said Timothy Jost, a law professor at Washington and Lee University and health law expert. "But I do think they often end up in … situations where the interests of the public and of their employers might be in conflict."
While the Obama administration has developed a calculator plans must use for determining whether insurance plans meet the health act’s standards for benefits and value, recently finalized regulations give insurer-employed actuaries the power to override it by substituting one benefit for another.
Insurance company actuaries calculate rates when plans file with states, which act as the industry’s primary regulators. Charged with making sure the prices are justified, state insurance departments often have far less actuarial expertise at their disposal than the insurers.
The Vermont Department of Financial regulation "does not have actuaries on staff," a spokeswoman said. "We outsource our review of rate filings."
The situation in 2011 was the same in a dozen other states, according to information compiled by the National Association of Insurance Commissioners.
Health-act supporters complained that that the actuary society's study predicting a 32 percent increase in claims didn't account for key factors, including the potential for competition to lower prices, the subsidies people will receive to buy the coverage and the fact that next year’s plans will be more generous than this year's.
Often actuaries' predictions are not significantly better than, say, those of the Weather Channel. Recent premium increases of 50 percent and higher for nursing home insurance reflect a previous under-calculation of costs by actuaries. Actuarial models didn't work especially well at calculating subprime mortgage risk a few years ago, either.
A settlement in New York last month revealed cases in which actuaries overestimated liabilities and a mortgage insurer paid out as little as 20 percent of collected premiums in claims.
Jost and Birnbaum want representatives of consumers and state insurance departments to be included on the actuaries’ discipline board. In proceedings at the insurance commissioners’ group, consumer advocates also want the board to state that actuaries' first duty is to the public whenever they furnish calculations to state or federal regulators and to tighten conflict-of-interest standards for firms producing work relied on by both insurers and regulators.
"There is always room for improvement in everything," said Karen Terry, an actuary for State Farm and the vice president of professionalism at the American Academy of Actuaries, an umbrella group that works with the discipline board and groups such as the SOA that represent professional subspecialties such as health or pension actuaries. "We're open to that dialogue."