Profit from the Power of Defined Contribution Healthcare

The Next Benefits Trend

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Agenda 1.  The Problem Today

2.  How History Has Led Us to Defined Contribution

Healthcare

3.  New "Defined Contribution" vs Traditional "Defined

Benefits”

4.  The Future of Employer Health Insurance

5.  Demystifying the Buzz Words

6.  Understanding the Core Problem

7.  How Brokers Can Profit From Defined Contribution Today

8.  How Brokers Can Profit From Defined Contribution Post-2014

Small Business Health Insurance - Today

Less than 50% of small businesses offer group health: •  Cost is too high - 61% •  Firm is too small - 13% •  Turnover is too great - 6% •  Other - 20%

3,000,000 small businesses without group health

How History Has Led us to Defined Contribution Healthcare

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History of U.S. Employer Health Insurance - The Beginning

Creation of “Modern” U.S. Health Care Occurred Post-WWII

•  Limited employer involvement •  Catastrophic health insurance •  Local Blue Cross / Blue Shield •  Individual / family driven

•  Wage & Price Controls (1941-1947)

•  Employer-sponsored healthcare exempted from income taxes

World War II

Pre-WWII Post-WWII

HUGE cost advantage to

employer system

History of U.S. Employer Health Insurance, WW2 - 2002

Tax Advantages - Group vs Individual Coverage

Group policies enjoyed enormous tax advantages over individual: 1.  Employers allowed to pay for group insurance “off the books” 2.  Employees allowed to pay (via salary reduction) for group

insurance "off the books"

History of U.S. Employer Health Insurance, 2002 - Today Federal Government Gives Tax Parity to Individual Policies

2002 - HRAs Health Reimbursement Arrangements for employer tax-free contributions

2009 - PRAs Premium Reimbursement Arrangements for employee tax-free contributions

Defined Contribution Health Benefits

New “Defined Contribution” vs.

Traditional “Defined Benefits”

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"Defined Contribution" vs "Defined Benefit"

No Minimum Contributions Business determines its own contribution strategy

Requires Minimum Contribution Employers must contribute 50-75% of premium

Defined Contribution Healthcare Traditional Group Health Insurance

Requires Minimum Participation 50-75% of employees must participate in the plan

Requires Administrative Work On-going paperwork, dedicated staff and annual renewals

No Administrative Hassle 1-time setup, less than 5 minutes per month, payroll function

No Minimum Participation Business sets its own eligibility requirements

Defined Contribution Overview - Simple

1. Determines contributions

2. Sets eligibility

3. Picks start date

The Employees.... 4. Enrolls employees

6. Reimburses employees for "claims"

The Employer...

1. Purchase individual policies

2. Submit "claims" for reimbursement

5. Sends welcome kits

HUGE Opportunity

How Brokers Benefit from Defined Contribution

1. Purchase individual policies

•  Relationship with employer and employees o  Two Sales - 1) Employer and 2) Employee

•  Employer = lead generator o  Average annual turnover = 50% for small businesses

•  New role - help employees choose vs sell o  Like investment advisor helps employee choose best

401(k) investments

HUGE Opportunity

The Future of Employer Health Insurance

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Future of U.S. Employer Health Insurance - 2014?

Healthcare Reform Favors Defined Contribution

•  Medical Underwriting •  No Federal Subsidies for

Individual Policies •  Employer-Driven

•  No Medical Underwriting •  Federal Subsidies for

Individual Policies •  Individual/Family-Driven

2014 Reform

Pre-2014 Post-2014

HUGE cost advantage to

individual system

McKinsey Study: Health Reform & Defined Contribution

"U.S. health care reform sets in motion the largest change in the post World War II era" 60% of educated employers plan to pursue alternatives to offering health insurance including "defined contribution" Parallels shift to 401ks

Demystifying the Buzzwords

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Demystifying the "Buzz" Words

Defined Contribution Health Plans - The plan or "arrangement” through which the tax-free contributions flow: •  Health Reimbursement Arrangements (HRAs) - "ZaneHRA"

•  Health Reimbursement Accounts (HRAs) •  Medical Expense Reimbursement Plans (MERPs) •  Medical Expense Reimbursement Accounts (MERAs) •  Health Reimbursement Plans (HRPs) •  Section 105 plans

•  Premium Reimbursement Arrangements (PRA) - "ZanePRA"

•  Premium Reimbursement Accounts (PRAs) •  Premium Reimbursement Plans (PRPs) •  Premium only Plans (POPs) •  Section 125 plans

Demystifying the "Buzz" Words

Private Health Exchanges - The broker's insurance offering to employees

•  In-Person Meetings •  Online Quote Engines & Comparison Tools

o  Norvax o  Quote It o  EHealth.com o  etc.

•  Telesales & Call-Centers

Keep it simple with small businesses!

Understanding the Core Problem

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Solving a Big Problem Usually = Huge Opportunity

COSTS TOO MUCH! Remember, employers offer insurance for recruiting & retention b/c:

1.  It is tax deductible to the business

2.  Employees get the benefit 100% tax-free

3.  Individual health insurance is not guaranteed-issue in most states (MORAL OBLIGATION)

The IDEAL solution must address #1, #2, #3 & reduce or fix employer's cost.

Core Problem? Employer Health Insurance....

How Defined Contribution Healthcare Addresses the Problem

Today - 2013: Defined Contribution addresses #1 and #2; #3 is addressed via: •  Medicaid/Medicare/CHIP •  State Risk Pools •  PCIP

2014 - beyond: Defined Contribution addresses #1, #2 and #3, & ACA provides:

•  Massive federal subsidies available only in the Public Individual Exchange •  Individuals must purchase health insurance, or else pay a tax •  No penalty for companies with <50 FTEs •  Minimal Penalty for companies with >50 FTEs

Employers offer group health today for recruiting & retention because: 1.  It is tax deductible to the business 2.  Employees get the benefit 100% tax-free 3.  Individual health insurance is not guaranteed-issue in most states

How Brokers can Profit from Defined Contribution Today

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How to Profit from Defined Contribution Today

Today's Opportunity: Help the 3 million (and growing) businesses without group health insurance recruit and retain key employees via two step process: •  Help the business establish an IRS/HIPAA/ERISA/ACA-compliant

defined contribution health plan. •  Help the insurable employees (both existing and future) select

individual policies based on personal needs/budget and their defined contribution.

•  Help the uninsurable employees (both existing and future) secure coverage via Medicaid, Medicare, CHIP, State Risk Pools, PCIP, etc.

How Brokers Can Profit From Defined Contribution Post-2014

1.  Recurring compensation on defined contribution administration fees

2.  Recurring compensation on individual policy sales

3.  Up/Cross-selling opportunity for voluntary/auto/life/etc

4.  Loyal employer client that turns over 50% of employees (on average)

annually

5.  Practice servicing defined contribution plans and individual employees in

preparation for 2014

What's in it for the Broker?

How to Get Started Today

Step 1: Decide How You are Going to Service Individual Health Plans Tip: Whatever you decide, call it <Your Brand> Private Health Exchange

Step 2: Pick and Contract with a Defined Contribution (DC) Software Provider Tip: Use Zane Benefits

Step 3: Integrate Your Private Health Exchange into the DC Software Tip: Make sure your brand and/or insurance services are front & center

Step 4: Create Customized Marketing Materials Tip: Your defined contribution provider should provide you with templates

Step 5: Find a Business without Group Health Insurance or Canceling Tip: If the company is not offering due to "cost", you can help

Step 6: Implement Your first DC Solution Tip: Always set up the DC plan first, and sell health insurance second

Step 7: When the Company Hires New Employees, Help Them Too Tip: The average 10 ee firm will turnover 5 ees per year

How to Profit from Defined Contribution 2014 and Beyond

2014 and Beyond Opportunity: Help businesses evaluate ALL options and, if "best" option, help the business transition to defined contribution: •  Evaluate all options with associated employer/employee costs based on

company size. •  If defined contribution is ideal solution, help the business establish an IRS/

HIPAA/ERISA/ACA-compliant defined contribution health plan. •  Help the employees (both existing and future) select individual policies based

on personal needs/budget and their defined contribution through the State Individual Health Exchange.

What's in it for the Broker?

1.  Recurring compensation on defined contribution administration fees 2.  One-time and/or recurring compensation on individual policy sales???? 3.  Up/Cross-selling opportunity for voluntary/auto/life/etc 4.  Loyal employer client that turns over 50% of employees (on average) annually 5.  Ability to charge employers one-time and/or recurring consulting fees

(flat fee per employer or pepm) for "Navigator Services"

How to Prepare for 2014

Step 1: Get Started Today (Follow Steps on Slide 22) Tip: Your future competition is not waiting, why should you?

Step 2: Become an Expert on Healthcare Reform as it Pertains to Employers Tip: Expertise & experience will allow you to charge "navigator fees”

Step 3: Develop an Employer Health Benefits "Balance Sheet" Tip: This should allow you to enter all variables to evaluate all options

Step 4: Contract with State Health Insurance Exchanges Tip: You should contract with the state exchanges regardless of comp.

Step 5: Contract with Individual Carriers for Voluntary Plans Tip: Voluntary plans will allow you to fill GAPs in coverage on Bronze Plan

Step 6: Assist Existing Clients First Tip: Work with existing clients initially to give you time to perfect processes

Step 7: Re-evaluate the "Balance Sheet" Annually Tip: Charge a fee for this

"Balance Sheet" Input Variables for Employers

The Key Employer Variables Include: •  Employer Tax Penalty for Not Offering "Qualified" Group Health

o  Not applicable for employers with less than 50 FTEs o  $2,000 penalty per full-time employee (minus 30 employee credit)****

•  Employer Tax Credit for Offering "Qualified" Group Health

o  Not applicable for employers with more than 24 FTEs o  Not applicable for employers with average annual wages over

$49,999.99

•  Employer Tax Penalty for Offering "Qualified" That is Not "Affordable" o  Not applicable for employers with less than 50 FTEs o  $3000 per employee receiving subsidy

•  "Qualified" Group Health Insurance Costs

o  Likely higher than today's group health insurance costs

"Balance Sheet" Input Variables for Employees

The Key Employee Variables Include: •  Out-of-pocket Employee Costs (minus subsidies) on Individual

Market o  Subsidies are based on Employee's Income and Household size

•  Out-of-pocket Employee Costs on Group Market o  Based on Employer contribution percentage/amount

•  Employee Tax Penalty for NOT Purchasing "Qualified" Health Insurance o  Based on Employee's Income and Household size

"Balance Sheet" Output Variables The Key Outputs Should Project:

1.  Employer and Employee Costs for Offering "Qualified" and "Affordable" Group Health Insurance

2.  Employer and Employee Costs for Offering "Qualified", but not "Affordable" Health Insurance

3.  Employer and Employee Costs for Not Offering Health Insurance at All

4.  Employer and Employee Costs at Different Defined Contribution Levels

#4 should factor in key features of defined contribution (e.g. expected utilization rates and employee class design options)

Summary / Next Steps

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Summary •  The Core Problem is that Employer Health Insurance Costs Too Much

•  Employer Health Insurance Exists Today Because of 60 years of Cost-

Advantages for Employer Market (i.e. tax deductibility)

•  In 2002, Defined Contribution (HRA) plans leveled the tax "playing field"

for individual plans

•  In 2014, ACA creates Major Cost-Advantages for Individual Health

Insurance (i.e. tax subsidies)

1.  Paul Zane Pilzer Webinar on September 11 - bit.ly/convert-webinar 2.  Free Defined Contribution Kit for Affiliates - bit.ly/dc-kit

Subscribe to ‘Clarifying Health’: www.zanebenefits.com/blog

Thank You!

The Future of Health Benefits is Now. What are You Waiting for?

DISCLAIMER The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state. www.ZaneBenefits.com

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