Employee Benefits Newsletter

Employee Benefits
Newsletter

March 2008

PDF Version

OFFERING CONTINUED HEALTH PLAN COVERAGE TO DEPARTING EMPLOYEES WITH COBRA PORTABILITY PROVISION

An important federal law imposes certain obligations on many employers to continue providing health care coverage to an employee and dependents, if applicable, in the event of a change of employment or job status.

This law is often referred to as “COBRA” - The Consolidated Omnibus Budget Reconciliation Act of 1985. According to COBRA, if an employer provides health care benefits to an employee and there is a change in that employee’s job status, the employer must afford the ability to continue coverage under their employer’s group health plan, at the employee’s expense. The COBRA continuation requirements apply to all of the “core benefits” provided under any group health plan that furnishes medical benefits to employees and their dependents, regardless of whether the plan is insured or self-funded. COBRA does not apply to employers who have less than 20 employees.

COBRA was designed to address concerns about Health insurance portability during periods of unemployment and labor force withdrawal and in situations in which a worker leaves, or would like to leave a job. Under the rules, employers have important obligations to both apprise the covered employees and other qualified beneficiaries of their rights and to continue to supply the Health insurance coverage upon payment of the appropriate premium amount. The continued coverage must, in most cases, be supplied after the occurrence of a “qualifying event.” The premium charged by the employer can be no more than the employer’s actual cost, plus 2%.

An employee and his beneficiaries are eligible to elect COBRA only if they were covered by the employer’s health care plan immediately prior to a “qualifying event.” A “qualifying event” could be any of the following:

Termination of employment
Reduction in work hours
Employee’s death
Employee’s divorce
Loss of dependent status
Medicare entitlement
An employer’s filing of a bankruptcy proceeding (retirees and certain dependents only).

The most common qualifying event is the termination of employment. An employer is obligated to provide an employee with COBRA benefits in case of both voluntary and involuntary termination as well as reduction in work hours. Individuals who were covered by an employer’s group health plan are eligible to elect COBRA upon the occurrence of a qualifying event, no matter how long or short a time they were in the employer’s group health plan.

The time period for which continuation coverage must be offered by the employer varies. In the case of termination of employment or reduction of work hours, the employer is obligated to provide COBRA coverage for 18 months after the qualifying event. In case of the other qualifying events listed above, the coverage has to be provided for 36 months.

To fulfill COBRA obligations, it is the employer’s responsibility to notify the plan administrator (of the group health plan) of a qualifying event within 30 days of the actual event or by the date that the employee will lose their coverage, whichever is later. The employer should then see to it that the plan administrator notifies the beneficiary and his/her dependents, within the next 14 days, of their rights to continued coverage under COBRA. If the employer does not have access to COBRA administration services, the employer must ensure that the employee is provided with written notice of their rights within 44 days from the date of the event. Qualified beneficiaries are given a certain period of time (the “election period”) to elect continued coverage. This period lasts for at least 60 days, and may begin on different dates, depending on when coverage would otherwise be lost and when notices are given.

COBRA coverage is considered advantageous to most workers, as it allows them to continue coverage even after leaving or losing a job. Though they can be required to pay the entire entire premium, they can generally realize significant savings compared with the cost of purchasing equivalent insurance from the private insurance market. This is especially true for older workers, particularly those suffering from pre-existing conditions.

LEARN HOW TO REDUCE MEDICAL CLAIMS PROBLEMS

Is your benefit department routinely tied up responding to complaints about medical claims for your company’s health plan members?

Medical claims problems are frequently the result of poor information and/or poor communication. Try some of the following methods to reduce the confusion, relieve the burden on your staff and improve the satisfaction of your plan members.

Remember, any time your staff works with personal health information, special care must be taken to assure that the information is treated confidentially and in compliance with all applicable HIPAA privacy rules.

Hold orientation sessions about health care benefits for members

It’s human nature to pay less attention to information that is not immediately useful. Consequently, many people who receive new benefit information do not absorb important changes if those changes do not appear to affect them at that time. Consequently, when the need unexpectedly arises, your plan member may not remember, for example, that she must place a call to her primary care physician within 24 hours of an emergency department visit.

One way to work around the “relevance/absorption” issue is to make effective use of scenarios during orientation sessions. The group leader should provide fictional examples of situations that illustrate new benefit rules. These examples will cause most people to apply the information to potential situations in their own lives and imprint the correct procedures or generate questions that will clarify information.

Hold orientation sessions about health care benefits for health care providers

This technique will not be practical in large city settings but can be very useful in smaller communities. If your company is introducing a new health plan into the community, everyone will need to incorporate new rules into their work. Invite the office staff of a local physician, hospital admitting and billing staff and others as appropriate to an orientation session with the insurer.

These staff members juggle many sets of health plan rules each day and, expectedly, cannot always keep information straight. They will be much more likely to integrate your new plan rules into their office practice if you have provided an opportunity for them to receive a full briefing and ask questions.

Select health plans that offer interactive Web sites

Medical claim problems often occur because the physician office or hospital admitting department has no way to verify eligibility or ascertain the specific rules related to your company’s plan. Health plans with interactive websites allow providers to go online and check eligibility, determine special rules, note any changes to the policy benefits, etc. This connectivity solves many of the potential medical claim problems.

Establish a regular meeting with the insurer to review medical claim issues

HR staff should keep a log of all medical claim complaints and status. Persistent problems should be turned over to the insurer with direction to resolve. In general, this technique keeps your HR staff as an intermediary so they are aware of problems but provides for the appropriate transfer of those problems to the insurer in a forum that requires follow up and reporting back results.

Data collected during this process, e.g., number of complaints, time to resolution, etc, can be useful evaluative tools. If your communication with the insurer is facilitated by a third party insurance broker, be sure that you have an agreement with the broker that all health information will be handled in compliance with HIPAA privacy rules.

HR as Advocate

Your staff will always play a middleman role for plan members because they are your members’ advocates to the health insurer. However, using these techniques should reduce the referee burden on your benefits group.

HOW INSURERS DETERMINE SMALL GROUP HEALTH INSURANCE RENEWAL RATES

Have you ever wondered how insurers determine small group (2-50 employees) renewal rates? Be assured that it’s not an arbitrary process. Yes, there is a method to this madness! Although there are various formulas used, generally insurers use the following factors to calculate your renewal rates:

General Health Care “Trend”

This is a baseline factor applied to all Group Health insurance renewals. Basically, “trend” refers to the change in cost of health care products and services, and how consumers utilize these products and services. New facilities, technologies, and procedures encourage more people to receive advanced services. The costs of these goods and services are expensive and increasing rapidly.

This component also includes “prescription drug trend.” More drugs are being introduced into the market and aggressively marketed. The costs of advertising and research/development of these drugs are significant. These rising costs, in combination with increasing utilization, all contribute to this baseline factor.

Keep in mind this “trend” also has much to do with your group’s geographic location. Just as home prices differ upon location, so do health care costs. Premiums in certain areas might reflect the higher cost of more people using state-of-the-art, yet expensive, treatments and services.

Group-Specific Medical/Health Factor

When permitted by state regulations, a carrier may adjust renewal rates based on the overall health of the people covered under your health plan. Your premiums may be adjusted to cover expected future claims costs. Depending on your state, certain rate caps might exist which limit the amount an insurer can raise premiums based on your group’s health status alone.

Most carriers use a “prospective” system, meaning that they look at medical conditions and diagnoses, which may affect the group’s claims experience in the coming year. Claims from the past year, which are resolved or if the risk is no longer present, are not taken into account using a prospective rating system.

Your renewal adjustment can also be positively impacted by good claims experience.

Group-Specific Characteristic/Demographic Profile

This component includes:

Age bracket changes (An employee or spouse turns 40, for example, moving them from the 35-39 bracket to the 40-44 bracket.)
Gender and coverage composition changes (The percentage of females and males changes or the mix of single and family contracts changes.)
Changes in the group’s location (Claims costs are geographically-based, so the rates may change if the company moves to a new locale.)

Group-Specific Administrative Expenses

This factor includes the fixed costs needed to administer the plan. The larger the group, the lower the expense load. For example, a two-person group would have a larger expense load, as a percentage of premiums, than a 25-person group.

So, what can you do to influence the costs? Ideas include adjusting your plan design and/or premium contribution to support more efficient utilization, encouraging employees to become smarter health care consumers through communication efforts, and promoting prevention and wellness programs. It’s a start at least.