Insurance and Retirement Plans – Page 2 – Setnor Byer Insurance & Risk

Why Your ERISA Fidelity Bond is NOT Enough: The Case for Fiduciary Liability Insurance

A surprising number of employers offering employee benefit plans to their employees, including 401(k) plans, are refusing to purchase fiduciary liability insurance. Despite the dubious wisdom of refusing the insurance, the decision must be accepted if it was made with a complete and accurate understanding of all the facts. However, a significant number of employers may be deciding to forego fiduciary liability insurance because they believe their ERISA fidelity bond provides all the protection they need. Unfortunately, such a belief is wrong.

By virtue of offering an employee benefit plan, employers find themselves within the purview of the Employee Retirement Income Security Act (ERISA), thereby exposing their organization to significant risk. Although many of these risks can be covered by a fiduciary liability insurance policy, confusion and misunderstanding may prevent the employer from making an informed decision about whether to purchase the insurance. As a result, the employer rejects insurance that would otherwise have been accepted if the correct information was known and considered.

Given the significance of refusing such insurance, it is helpful to debunk some of the myths surrounding the meaning, need, and purpose of ERISA fidelity bonds and fiduciary liability insurance, so that those who may be in need of one or both of them, may make an informed decision.

Myth: There is little difference between a fidelity bond under ERISA and a fiduciary liability insurance policy. Fact: Although both may ultimately operate to replace a plan’s assets that were lost due to a wrongful act, any perceived similarities between the two are mostly superficial. The actual differences between the two, in terms of the purpose of the coverage, who is covered, what is covered, and coverage triggers, may render fidelity bonds and fiduciary liability insurance mutually exclusive in some cases.

Myth: Under ERISA, the fiduciary of a 401(k) plan has the option of purchasing a fidelity bond.

Fact: Fidelity bonds are mandatory. ERISA provides that “every fiduciary of an employee benefit plan and every person who handles funds or other property of such plan…shall be bonded.” ERISA generally requires the bond to be in an amount equal to at least 10 percent of the plan’s assets, as determined at the start of each fiscal year. However, the amount of the bond is subject to ERISA’s minimum of $1,000 and maximum of $500,000. [Note: Though not discussed in this article, ERISA does have defined exemptions to the bonding requirement.]

Myth: Every person involved with a plan must be bonded.

Fact: ERISA’s bonding requirement only applies to those described in the statute. If a person does not qualify as a fiduciary of an employee benefit plan or a person who handles funds or other property of the plan, then a bond is not required such person.

Myth: Fiduciary liability insurance is required by ERISA.

Fact: Although ERISA does not prevent a plan, a fiduciary, or an employer from purchasing fiduciary liability insurance, obtaining such insurance is not required by ERISA.

Myth: A fidelity bond protects a plan’s fiduciaries against liability.

Fact: Under ERISA, a fidelity bond must protect “the plan against loss,” not the fiduciaries. Although a fiduciary’s actions may serve as the trigger for coverage under the fidelity bond, the plan itself is the named insured.

Myth: A fidelity bond protects a plan against all losses, regardless of the cause.

Fact: A fidelity bond under ERISA protects the plan against losses caused only by “acts of fraud or dishonesty” on the part of a plan’s fiduciaries. If the cause of a loss is anything other than fraud or dishonesty, it will not be covered by the fidelity bond.

Myth: A fidelity bond protects plan fiduciaries from personal liability.

Fact: Under ERISA, a fidelity bond is limited to protecting only the plan against a loss, not the fiduciaries. This limitation is problematic for plan fiduciaries, since ERISA provides that “any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties…shall be personally liable to make good to such plan, any losses to such plan resulting from each such breach.”

Myth: I am not listed as a plan fiduciary, so I do not need to worry about fiduciary liability.

Fact: Under ERISA, a person may be deemed a fiduciary if that person uses discretion in administering and managing the plan, or controlling the plan’s assets. Indeed, fiduciary status is based on the functions performed for the plan, not just a person’s title with respect to the plan. Those who rely on their title to determine their own status may discover that, for purposes of ERISA liability, they are in fact a fiduciary.

Myth: It is unlikely that the fiduciary of a plan will ever breach the standards of conduct required by ERISA, so a fiduciary liability insurance policy is not necessary.

Fact: Since the responsibilities and loyalties of a fiduciary are strict and demanding, the chances of experiencing a breach cannot be fairly categorized as unlikely. The nature of the relationship requires that a fiduciary discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. For more information about the nature of a fiduciary’s obligations, read An Employer’s Liability under ERISA for 401(k) and Other Employee Benefit Plans.

Myth: Since the greatest risks to a plan’s assets always involve fraud or dishonesty, a fidelity bond is usually all that is needed to cover any losses.

Fact: While fraud and dishonesty pose a real threat to a plan’s assets, they are by no means the only threats. Breaches of the fiduciary duty can come in many forms which do not involve fraud or dishonesty, including: negligent errors and omissions; improper disclosures to plan participants; remiss investment advice; imprudent choice of outside service provider (OSP); faulty advice of counsel; and improper amendments to plan documents. None of these examples would be covered by a plan’s fidelity bond.

In addition to clearing up any confusion caused by the foregoing myths, these facts reveal that fiduciary liability insurance is necessary to maximize the level protection enjoyed by the plan’s fiduciaries, as well as the plan’s assets. The frequency of ERISA litigation involving employee benefit plans continues to increase as the economy remains sour. Expenses associated with defending these lawsuits, regardless of whether the plan breached its duties, can deplete critical assets. Moreover, in the event of litigation, plans electing to observe the statutory cap for fidelity bonds may discover the unfortunate fact that $500,000 is not nearly enough to protect the plan’s assets.

While the benefits associated with a fidelity bond should not be minimized, they should also not be exaggerated to justify a risk management profile that relies solely on the fidelity bond. In today’s financial climate, it is likely that a plan’s investments will decrease experience a decrease in value, with the predictable result being litigation. By combining a fiduciary liability insurance policy with any required ERISA fidelity bonds, two of the most significant vulnerabilities to the plan, fraud/dishonesty and a breach of fiduciary duty, have been addressed, so the plan’s fiduciaries are free to focus on increasing the value of the assets.

An Employer’s Liability under ERISA for 401(k) and Other Employee Benefit Plans

Employers offering 401(k) plans to their employees assume significant responsibilities under the Employee Retirement Income Security Act. As the federal law designed to protect employee retirement plans, ERISA imposes strict standards of care upon those who establish and administer such plans. Unfortunately, many employers fail to understand the true scope of their obligations, as well as the consequences for failing to live up to them. Since wrongful acts can result in significant liability, employers must understand precisely what the law requires and what the law prohibits.

Employers looking for additional motivation to take their obligations seriously need only consider that ERISA violations may result in personal liability. Specifically, ERISA provides that “any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties…shall be personally liable to make good to such plan, any losses to such plan resulting from each such breach.

In addition to covering 401(k) plans, ERISA’s broad definition of “employee benefit plan” means that many different types of employee plans may be covered by ERISA, including various health plans, short- and long-term disability plans, deferred contribution plans, SIMPLE plans, TOP HAT plans, pension and profit sharing plans, employee stock ownership plans, and flexible benefit plans. Given ERISA’s broad applicability, employers offering various employee benefit plans must confirm ERISA’s applicability to such plans.

It is important to establish ERISA’s applicability, whether to a 401(k) plan or some other covered employee benefit plan, because of the strict standards of care imposed upon those deemed “fiduciaries” of the plan. Although a plan must have at least one named fiduciary, if a person uses discretion in administering and managing the plan, or controlling the plan’s assets, then that person may be deemed a fiduciary of the plan by virtue of taking control of the plan. Indeed, fiduciary status is based on the functions performed for the plan, not just a person’s title with respect to the plan.

The significance of being a fiduciary comes from the responsibilities and standards of conduct associated with the designation. Fiduciaries are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. Under ERISA, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

In the context of serving a plan, a fiduciary’s responsibilities include:

Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
Carrying out their duties prudently;
Following the plan documents (unless inconsistent with ERISA);
Diversifying plan investments; and
Paying only reasonable plan expenses.

Although all of a fiduciary’s responsibilities must be observed, the duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions.

Diversification—another key fiduciary duty—helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, a fiduciary will want to document their evaluation and investment decisions.

In addition to establishing minimum standards of behavior, fiduciary obligations also prohibit specific behavior. For example, fiduciaries are prohibited from engaging in self-dealing and must avoid conflicts of interest that could harm the plan. Moreover, ERISA prohibits specific parties (parties-in-interest) from doing business with the plan, such as employers, unions, plan fiduciaries, and service providers. Some prohibited transactions are:

A sale, exchange, or lease between the plan and a party-in-interest;
Lending money or other extension of credit between the plan and a party-in-interest; and
Furnishing goods, services, or facilities between the plan and a party-in-interest.

As previously mentioned, fiduciaries may face personal liability to restore any losses to the plan, or restore any profits made through improper use of the plan’s assets. So, fiduciaries should limit their liability exposure wherever possible. One way fiduciaries can control liability is by demonstrating that they have carried out their responsibilities properly by documenting the processes used to carry out their fiduciary obligations.

Another way to limit potential liability is by giving plan participants control over the investments in their accounts. Importantly, this option does not eliminate a fiduciary’s duties, it only limits the scope. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under the Department of Labor’s regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. Additionally, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is extremely volatile.

If an employer sets up their plan in this manner, a fiduciary’s liability is limited for the investment decisions made by participants. However, a fiduciary retains the responsibility for selecting the providers of the investment options, the options themselves, and monitoring their performance.

A fiduciary can also hire a third-party administrator, or service provider, to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions. If an employer appoints an investment manager that is a bank, insurance company, or registered investment advisor, the employer is responsible for the selection of the manager, but is not liable for the individual investment decisions of that manager. However, an employer is required to monitor the manger periodically to assure that it is handling the plan’s investments prudently.

It is important to specifically address an employer’s potential liability as a fiduciary when a third-party administrator is retained to handle an employer’s plan. Many employers believe that retaining a third-party administrator absolves the employer of any fiduciary obligations. This is wrong. Although retaining a third-party administrator may limit the scope of an employer’s fiduciary obligations, it does not eliminate them.

Hiring a third-party administrator is in and of itself a fiduciary function, so an employer must exercise appropriate care in its selection. A reasonable number of candidates must be interviewed and the entire process must be documented. At a minimum, the following information should be requested from each potential third-party plan administrator:

Information about the firm itself, including the financial condition and experience with retirement plans of similar size and complexity;
Information about the quality of the firm’s services, including the identity, experience, and qualifications of professionals who will be handling the plan’s account, any recent litigation or enforcement action that has been taken against the firm, and the firm’s experience and performance records;
Information about business practices, including how the plan’s assets will be invested and how participant investment directions will be handled, the proposed fee structure, and whether the firm has fiduciary liability insurance.

An employer’s fiduciary responsibilities extend beyond the selection of a third-party administrator, and include the duty to monitor the performance of a third-party administrator. This scenario provides yet another example in which an employer can face a breach of its fiduciary responsibilities even though a third-party administrator was retained.

Compliance with the duty to monitor a third-party administrator requires, at a minimum, formal reviews at reasonable intervals to decide whether to retain the third-party administrator or look for a replacement. Monitoring efforts should include:

Reviewing the third-party administrator’s performance;
Reading any reports they provide;
Checking actual fees charged;
Asking about policies and practices (such as trading, investment turnover, and proxy voting); and
Following up on participant complaints.

In addition to complying with all fiduciary obligations, a plan is required to obtain a fidelity bond to protect the plan’s assets. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. Such bonds do not typically protect the fiduciary from personal liability; rather, it only protects the assets of the plan.

Those seeking to protect against the personal liability of fiduciaries may obtain fiduciary liability insurance. Fiduciary liability insurance generally covers the discretionary decisions made by fiduciaries which may be the source of litigation. Since retirement plans are often targets for litigation, fidelity liability insurance is a necessity in today’s environment, especially considering that the frequency and costs of such claims are increasing at a staggering pace.

Given the importance of 401(k) and other employee benefit plans in today’s workplace, it is unlikely that employers will stop making such plans available to their workforce. As a result, employers will continue having to deal with ERISA’s obligations and liabilities. This means that the risks associated with being a fiduciary must be considered and controlled. Otherwise, significant personal liability could result.

Setnor Byer Insurance & Risk’s 401(k) Division is available for a complimentary ERISA compliance assessment. If you would like to take advantage of this benefit, please contact Katie Grimmer.

The average premium for a mid-sized fiduciary liability bond is $1,000. Download anERISA Fiduciary Bond application.

Health Care Reform Installment – Making Sense of the Affordable Care Act

President Barack Obama signed into law on March 23 the most sweeping reform of the United States health care system in the last 50 years. Combined, the Patient Protection and Affordable Care Act and the Reconciliation Act of 2010, now referred to collectively as the Affordable Care Act, dedicates more than $900 billion in new federal funding over the next decade to provide as many as 32 million of the 46 million uninsured people with access to affordable health insurance. This 32 million comprises approximately 11% of our population of residents.

The Affordable Care Act made its way through Congress and to our President’s desk in order to deal with the uninsured who are: ineligible for public programs, and are unable to afford private insurance, do not qualify for private insurance
or those that are eligible for public programs but have not enrolled.

By 2019, the government reports that the Affordable Care Act will result in 94 percent of Americans being covered, up from the 85% percent today.

The Whitehouse suggests that the Affordable Care Act puts our budget and economy on a more stable path by reducing the deficit by more than $100 billion over the next ten years — and more than $1 trillion over the second decade, through cuts to government overspending and reining in waste, fraud and abuse. The deficit decrease in no way suggests that there won’t be considerable tax increases to all citizens who can afford to pay, including small businesses, who are on tap for a significant increase in their costs of doing business.

Today, our healthcare spending is estimated at 15% of Gross National Product, with projection for the percentage to reach 19% by 2018. These numbers are often used to alarm the public, suggesting that our healthcare dollars are being squandered. When one looks at Canada’s 10.1 or England’s 8.4 or Japan’s 7.9, one must realize that our numbers include the profits derived from a largely private system and increases in administrative costs due to a complex multiple payer system. In other words, the dollars we spend on direct care, are not the as alarming as reported. It should also be noted that the overhead associated with our healthcare distribution finds its way back into the system through spending in other sectors, thereby producing a greater GNP than our peer nations — a clear marker for economic health. The US economy is typically ranked in the top 3% for economic vibrancy.

This is all not to suggest that our current system is not flawed, which might explain, fully, the success of this legislation.
There are over 2000 pages of laws and documents that address 4 key areas:

Coverage access, along with coverage improvements
Financing of future healthcare
Mechanisms to reduce costs
Solutions for Long Term Care

The expansion of healthcare to some of the 32 million people, along with the mandated coverage improvements are already in place, with the Department of Health and Human Services ready to bind coverage for high-risk individuals as early as August 1st. The high-risk pool is available for individuals with pre-existing conditions who have not been insured by creditable coverage for the 6 month period preceding the application for coverage. To prevent the current insurance market from ‘dumping’ high-risk insureds into this new marketplace, there is a specific reference in the law for reimbursements from such insurers who take such action.

This high-risk pool is intended to remain in place until replaced by Insurance Exchanges in 2014, which will be an alternative marketplace for Qualified Health plans for the uninsured, self-employed, and small groups regardless of health status. These exchanges will subsidize those with incomes between 133 percent and 400 percent of poverty level. The Government has funded the high-risk pool, to subsidize premiums, with 5 billion dollars. Unfortunately, it is expected that this funding will have to increase to 15 billion by 2013. This pre-existing insurance plan (PCIP) will charge based on age, sex, and territory. Premiums in Florida can be as high as $675 a month for a 50 year male with medical conditions.

The Exchanges will cover a broad range of health benefits, including primary and specialty care, hospital care, and prescription drugs. All covered benefits are available for you, even if it’s to treat a preexisting condition. In addition to monthly premiums, you will pay other costs. You will pay a $2,500 deductible for covered benefits (except for preventive services) before the plan starts to pay. After you pay the deductible, you will pay a $25 copayment for doctor visits, $4 to $30 for most prescription drugs, and 20% of the costs of any other covered benefits you get. Your out-of-pocket costs cannot be more than $5,950 per year. These costs may be higher, if you go outside the plan’s network.
Some of the provisions within the Affordable Care Act apply to all plans, individual and group, while others apply exclusively to new plans, leaving so called grandfathered plans alone.

Grandfathered can be defined as plans that do not change substantially. The following plan changes will result in the “cessation of grandfather status:”

The elimination of all or substantially all benefits to diagnose or treat a particular condition.
Any increase, measured from March 23, 2010, in a percentage cost-sharing requirement (such as an individual’s coinsurance requirement).
Any increase in a fixed-amount cost-sharing requirement other than a co-payment (for example, a deductible or out-of-pocket limit), determined as of the effective date of the increase, that exceeds medical inflation plus 15%.
Any increase in a fixed-amount co-payment that exceeds the greater of $5 (increased by medical inflation), or medical inflation plus 15%.
A decrease in employer contribution rate by more than 5% or the addition of a new annual limit, when one didn’t previously exist, or a decrease in annual limits.

As of September 23rd, children under the age of 19 cannot be denied coverage for their pre-existing conditions; however, the law does not prohibit insurers from denying to insure the children, which is in the process of being remedied. It seems that the regulations were not drafted to require insurers to issue policies to these children.
As of September 23rd, insurers cannot rescind coverage on any health plan, new and grandfathered, except for fraud or intentional misrepresentation.
As of September 23rd, insurers cannot impose lifetime dollar limits on any, new and grandfathered, plan for essential benefits, like:

Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn Care
Mental health and substance use disorder services
Prescription drugs
Rehabilitative services and devices
Laboratory services
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care

It should be noted that regulations impose a good faith requirement with respect to the interpretation of the term, essential health benefits. Additionally all insurers, but for grandfathered individual insurers, must provide no less than specified annual limits defined by law for essential benefits as previously defined. In 2010, the maximum annual benefit is set at $750,000, increasing to a maximum of 2 million prior to 2014 when limits are removed completely.

As of September 23rd, all new plans, or existing plans that change substantially, not grandfathered plans, must cover, with absolutely no charge to the patient, certain preventive services such as children immunizations, tobacco counseling for pregnant women, mammograms, colonoscopies, hepatitis B screening, depression screening, HIV screening for high-risk adults and obesity screening and counseling for adults and children. The non-grandfathered plans must also provide patient protections such as access to OB-GYNs and pediatricians without a referral by a separate primary care provider; and greater freedom for patients to obtain certain emergency treatment without certain plan restrictions.

As of September 23rd, dependents under 26 are extended coverage on a parents plan. This applies to all plans.
In 2014, the law finally prohibits insurers from engaging in discriminatory practices that enable them to refuse to sell or renew policies or limit benefits due to health status, nor can health status be used in setting premiums.

While the Congressional Budget Office found that the law would have little impact on premiums for employer’ sponsored coverage, there remains debate as to the laws possible impact on the cost of health insurance premiums. The extension of preventive care alone, along with the elimination of annual and lifetime benefits as well as what will be pre-existing coverage for children under 19, the new taxes to health insurers and healthcare providers, additional cost-shifting due to changes in Medicare reimbursements, and the weaknesses in reform which still permit the healthy to remain uninsured, could raise premiums an average of 40% through 2013. Without these changes, premiums were expected to increase 26% through that same period, with the greatest impact hitting individuals and small groups.

For more information about financing the Affordable Care Act, as well as cost containment measures and Long Term Care provisions, contact the author.

The Health Care Reform Act: Unintended Consequences?

The health care reform act is officially upon us. On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, and on March 30th the President signed the Health Care & Education Reconciliation Act. Together, these two bills make up the highly-publicized health care reform act.

At the outset, it is significant to note that the Act does not necessarily address the cost of health care by establishing guidelines or limits. Rather, the Act addresses access to health care. The Act generally operates to require all individuals not covered by Medicare or Medicaid to either obtain health insurance or pay a penalty.

The Act, which consists of over 2,500 pages of text and which is soon to be supplemented by thousands of pages of guidance and regulations, has been the subject of countless media discussions and debates. The fanfare, information, and disinformation have made it difficult for the average person to understand precisely how the Act will impact them. Unfortunately, much of how the Act will impact the health insurance landscape is yet to be determined. Nevertheless, here are some of the Act’s general provisions, some of which are effective immediately, with others having delayed effective dates:

Prohibition of lifetime benefits limits based on dollar amounts.
Prohibition of coverage rescissions or cancellations, except in cases of fraud or intentional misrepresentation.
Mandating that dependent insurance coverage up to the age of 26.
Prohibition of pre-existing condition exclusions for dependent children under the age of 19.
Requirement that employers report the value of health care benefits on employee’s W-2 tax statements.
Limitation on medical expense contributions to flexible spending accounts to $2,500 per year.
Establishment by each state of an insurance exchange where individuals who are not covered under their employer’s health insurance plan can shop for health insurance at competitive rates.

While many of the Act’s provisions appear straightforward, some of the provisions may bring about unintended consequences. For example, the Act provides that effective 2014, employers with more than 50 employees must provide health insurance or pay a fine of $2,000 per worker each year if any worker receives federal subsidies to purchase health insurance.

Clearly, the Act’s intent is to encourage such employers to provide health insurance to their workforce. However, employers focusing on the bottom line may discover that it is cheaper to pay the fine than it is to provide health insurance. In such cases, employees may be left without insurance coverage and employers may end up benefitting financially despite the fine.

Another possible avenue for manipulation involves the manner in which the Act deals with tax credits for small employers. Since the amount of the tax is dependent on the size of the employer and the average annual wage of its workforce, it is possible that some employers may let the tax credit dictate its hiring activities and the manner in which the employer determines the wages of its workforce. Since some of the tax credits are based in part on the average annual wage of an employer’s workforce, employers may choose to keep salaries within the range in order to preserve the tax credit. Moreover, employers may elect to use the services of independent contractors, rather than employees, in order to preserve the maximum tax credit.

Additionally, the Act includes an excise tax on employer sponsored health insurance plans that offer policies with generous levels of coverage. This so-called “Cadillac tax,” which becomes effective in 2018, imposes a 40% tax for any health insurance plan with an annual premium in excess of an inflation adjusted $10,200 for individuals and $27,500 for families. Unfortunately, the practical consequence of this tax may be the elimination of higher quality insurance for executive or key employees.

Regardless of one’s views of the Act’s provisions or the manner in which an employer may elect to operate in light of its terms, it is important for businesses to maneuver through the new law and stay ahead of any changes. By understanding the Act’s implications, it is possible to ensure future success under the new health insurance landscape.

At Setnor Byer Insurance & Risk, we are committed to helping our clients navigate the coming changes and to provide our clients with complimentary answers to their questions. If any of our clients have any questions regarding the Act, contact us.

Alternative Group Benefits: Another Option for Employers Coping with Rising Healthcare Costs

Every American is painfully aware of the impact of skyrocketing health insurance costs. Rising premiums, higher deductibles, larger co-pays, reduced benefits – both employers and employees are feeling the pinch as they look for plans that are affordable for everyone.

That’s why HRAs – Health Reimbursement Arrangements – are a welcome addition to the range of options that employers can offer their workforce. HRAs allow employers to give tax-free dollars to their employees, who then can use the money to purchase their own health insurance as well as pay for other eligible medical expenses. While HRA plans may not be the panacea for all the “ills” of the health insurance dilemma, they represent significant progress from the point where we were even just a few years ago when I first began to tackle this problem.

Then, in January 2002, fresh out of college, I was hired to administer a group health plan for my parents’ company. Though I knew little about health insurance, I learned quickly that the premiums we were paying were too expensive for both the company and our employees. After doing extensive research and reading numerous Internal Revenue Service (IRS) publications relating to health care, I uncovered one solution for the family business: a High Deductible Health Care (HDHC) plan. The high deductible encourages employees to make healthier lifestyle choices and spend their medical dollars more prudently while also allowing them to save for future medical expenses in their Health Savings Account (HSA), funds that they can take with them if they change jobs. The HDHC is good for employers also: Under the plan, our premiums were reduced by about half.

Not stopping there, we also began to offer HRAs as an alternative to our HDHC Group plan. Our hybrid benefits package gave employees a choice: Those who felt more comfortable remaining on the traditional HDHC group plan did so, while employees who wanted greater economy, portability, and freedom of choice opted for the HRA. We structured the packages so that employees choosing either plan received the same amount in benefits. The plans’ common denominator is that both increase employees’ awareness of how they spend their health dollars, thus encouraging them to live a healthier lifestyle because, quite simply, it saves them money to do so.

In 2007 The Wall Street Journal took note of our success and wrote a cover story on our creative benefits packages. Increasingly, employers asked me to assist them in designing an HRA or a hybrid plan for their businesses, even though I was not then an insurance agent. But after years of administering (and participating in) an HRA/Group Plan hybrid, I decided to change my career path and obtained a health insurance license, allowing me to use what I had learned to assist other small businesses.

However, finding an agency that provided both group and individual health insurance and that was sufficiently forward-thinking to consider these newer options was more difficult than I had anticipated. Surprisingly, I found that many agents in the mainstream insurance industry know little about HRAs, particularly those plans in which employees can access a broad range of products from different providers.

After pitching dozens of insurance agencies on employer-based hybrid health care plans, I finally found an agency willing and able to offer these cutting-edge health insurance solutions: Setnor Byer Insurance & Risk, which recognized the advantages of hybrid plans and was excited about offering their clients and prospects an even fuller range of cost-saving options.

Setnor Byer, with almost 30 years of experience in the insurance industry, can help employers expand their benefits offerings, promote wellness in their workforce, and reduce health insurance costs for both the company and its employees. With dozens of plan structures available, Setnor Byer’s insurance professionals will help you choose the right one so that your employees – and your business – remain healthy.

Here’s to wellness.

For more information about these and other types of healthcare insurance policies, contact the professionals at Setnor Byer Insurance & Risk or visit the Employee Benefits page.

Long Term Care: A Major Concern for Today’s Baby Boomers

As the large numbers of Baby Boomers start to turn 60, many of them assume incorrectly that Medicare, Medicaid, supplemental policies or standard health insurance policies will cover their long-term health care expenses and needs. Consequently, many people do not plan ahead financially to provide for their care in the event of infirmity or extended illness.

Costs of services provided by a nursing home in Florida (based on 2004 numbers) can exceed $60,000 annually, or more than $5,000 per month. Costs for residing in an assisted living facility or nursing home continue to rise every year. The cost of quality “in home health care” is already approaching that of a nursing home.

A New England Journal of Medicine study stated that 43% of all people age 65 would either have to enter a nursing home or require long term care in their home. Another study by the Health Insurance Association of America has shown that more than 50% of all Americans will need some form of long term care during their lives whether in their home, at a day care facility or in a nursing home.

Based on the above numbers, it is easy to see how a retirement nest egg can be depleted when one major illness strikes an individual, spouse or family. How to pay for this potential expense is, and should be, a major concern for our ageing society.

There are five basic options available on how to finance the cost of care:

Pay for the Cost out of Savings- This option is usually chosen by the extremely wealthy. If this is the option you are considering, you must ask yourself if you will have enough resources to pay this expense and continue to maintain your desired standard of living.

Depend on Medicare/Medicaid – Medicare pays a limited amount, and it only pays under certain circumstances. Medicaid is designed for only the poorest individuals.

Other Medical Insurance – Most medical insurance plans do not pay for long term care expenses.

Depend on Family – This type of care and expense is physically and emotionally demanding- is this what you want for your family?

Long-Term Care Insurance – This insurance is most likely your best choice. A quality Long Term Care Policy will help you pay for the expenses associated with long term care, while helping protect your family and your assets.

If after reviewing the five options above you decide that Long Term Care Insurance is the option you want to pursue, it is important to understand the following:

What is Long-Term Care Assistance?

Long term care is the everyday assistance needed when a person suffers from a cognitive impairment-such as Alzheimer’s disease- or can no longer perform activities of daily living due to age or illness.

Long-Term Care Insurance provides assistance for the following activities of daily living:

Bathing
Dressing
Eating
Toileting
Continence
Transferring

What options exist as to where this assistance can be provided?

Assistance can be provided:

In your home
In the community (Adult Day Care Facility)
In an Assisted Living Facility
In a nursing home

What factors need to be considered if applying for Long Term Care Insurance?

The cost of a Long Term Care Insurance Policy is determined by many factors: your age at the time of application, your general health, medications you are taking, your prior medical history and the benefit options you select. The two factors that have the greatest effect on your ability to obtain a Long Term Care Policy at a lower rate are based on your age and overall state of health. The younger and healthier you are when you apply, and ultimately purchase a Long Term Care Policy, will have the greatest effect on your final annual premium.

The number of insurance companies offering Long Term Care products has continually grown as the product demand has increased. Selecting the correct company is now as important as selecting the correct coverage. Many companies that came into the marketplace priced their product too low and are now increasing premiums on a regular basis.

When selecting a company, the following questions should be asked:

How long has the company been selling the Long Term Care product?
Have they ever had rate increases, and if so, how frequently?
Does the company guarantee that the policy can never be cancelled (except for non payment of premium)?
What is the insurance company’s rating by A.M. Best Company? (A.M. Best is recognized as the premier Insurance Rating Service Company. Other premier rating companies to look at are Fitch, Moody’s Standard & Poor’s and Weiss. The higher the rating, the more financially secure the company.)
What percentage of the Long Term Care market do they write? (The larger the number of policies they write, the more likely the company is to know the business.)

How To Get Started.

The best place to start is to contact your local insurance agent and have their Long Term Care Specialist contact you. You should try to locate an agent who deals with Long Term Care as his primary product. The Long Term Care market is very complex and dealing with an agent who has limited access to various markets or has limited knowledge of the product is not a path to take. Have the agent educate you on the Long Term Care product(s) he is recommending and options open to you regarding the various coverages, riders or options open to you.

After you have spent time with the agent discussing the various factors that affect Long Term Care Insurance Coverage, decide on the basic factors you want included in your policy.

The major items to be considered are: the amount of coverage (daily or monthly), duration of benefits, deductible periods and inflation protection. It is also important to remember that there are significant discounts offered by all companies if both a husband and wife apply for and purchase Long Term Care Insurance at the same time. Once these basic factors are determined, the agent will be able to present you with an initial quote.

Once a final program and company have been selected, the next step will be to complete the company application. The agent will complete the application with you. All companies require that a portion of the annual premium accompany the application. Depending on the applicant’s medical condition, the processing of the application can take up to six to eight weeks for approval. Many companies require that a company representative personally interview each applicant and detailed reports from the applicant’s doctors may also be required.

Once the application is approved, a policy will be issued. The premium originally quoted by the agent may be different than that on the final policy. The insurance company’s underwriters determine the final premium based on the applicant’s final health condition. The agent will deliver the policy directly to you and will be responsible for collecting any additional premium that is due. You will have thirty days to review the policy. If during that time you decide not to keep the policy, it should be returned to the agent and a full refund will be issued.