Clarifying Health

Traditional Defined Benefit Health Insurance vs. New Defined Contribution Health Insurance

Mon, 22 Mar 2010 10:33:09 -0600

Traditional defined health benefit plan: A company provides its employees with a defined healthcare benefit -- doctor visits, hospitalization, pharmacy and so on -- at uncertain annual cost. The benefit is administered through an employer-sponsored group health benefits plan.

New defined contribution health benefit plan: A company provides its employees with a tax-free allowance or "contribution" to spend on their own healthcare -- at an annual cost that the company controls. Employers utilize Defined contribution health benefit plans to reimburse employees tax-free for the premiums on their own individual health insurance policies or to reimburse their out-of-pocket medical expenses.

Health Insurance Agents are Paid Translators of a Foreign Language

Mon, 22 Mar 2010 10:33:09 -0600

A good friend of mine (Konrad) just won the ACC Wrestling Championships for the second year in a row and it got me thinking. Konrad is from Poland and has wrestled for the Polish Olympic Team in years past. When I was a senior and Konrad was a freshman, he invited me to join him in Poland for a few weeks to train with his Olympic team. Anyway, the trip was great, I got tossed around by really tough polish men, and I've never been so sore in my life. However, my inadequate wrestling skills are not the point of the story.

Because the Polish wrestlers spoke zero English, I relied on Konrad for an English translation of every word. Anytime a Polish person spoke, I would turn my head to look at Konrad and he would reluctantly repeat the words in English. At the end of the trip, he pretty much wanted to kill me. I can't really blame him. For three weeks, he had to act as a personal translator for me -- for free!

Like Konrad, a health insurance agent's job is to translate a foreign language to a non-speaking consumer. The language is health insurance and includes words like "deductible", "co-pay", "network" and "out-of-pocket maximum". If Americans did not need a translator, they would buy health insurance similar to the way they go buy a new television: they would go to all the different stores and buy the policy that best fits their needs.

Does this mean that the best insurance agent is the best translator?

2 Ways an Employee Can Contribute to their Health Savings Account (HSA)

Mon, 22 Mar 2010 10:33:09 -0600

Note: None of this should be taken as legal or tax advice.

Last week, we discussed the 2 ways an employer can contribute to an employee's HSA. This week, we're going to talk about the ways an Employee can contribute to his or her Health Savings Account (HSA).

Employees can make contributions to an HSA in two ways:

post-tax contributions that are deducted on the employee's individual tax-return
pre-tax contributions through their Employer's Section 125 Plan

Post-tax contributions that are deducted on the employee's individual tax-return

Employees can make contributions to their HSA on a post-tax basis. They then take an "above-the-line" deduction on their personal tax return to get the taxes back.

Pre-tax contributions through their Employer's Section 125 Plan

When using a Section 125 plan for HSA contributions, the contributions are not subject to individual or employment taxes, and the employee does not need to take the "above-the-line" deduction on their personal tax return.

See IRS Publication 969 for more information

How do you contribute to your HSA?

The 2007 Proposed Section 125 Regulations are Final!

Mon, 22 Mar 2010 10:33:09 -0600

Note: None of this should be taken as legal or tax advice.

Over at ZaneBenefits.com, we are getting ready to release a new product next week that allows an employer to reimburse an employee for the taxes that employee pays on his or individual policy(s). The product is a Section 125 Premium-Only-Plan for individual polices that we have talked a lot about over the last year.

Some health insurance agents and tax-professionals are doubting the finality of the August 2007 Proposed Section 125 Regulations that make this product legal under the Internal Revenue Code.

So, the purpose of today's post is to confirm that the 2007 Proposed Section 125 Regulations are final. Below, I first outline how Proposed Treasury Regulations work and then list the applicable parts of the new Section 125 regulations. If, after reading the below explanation, you remain unconvinced, please contact the IRS.

How it works

All Proposed Treasury Regulations are drafted by the IRS and published in the Federal Register so that taxpayers may submit written comments or speak at hearings (during the "notice and comment period") before final regulations are published in the Code of Federal Regulations. The Proposed Regulations become effective when they are published in the Federal Register. After the notice and comment period (which is defined in the Federal Register publication) the Proposed Regulations become "final".

Applying this to the new Section 125 regulations

The Section 125 Proposed Treasury Regulations were published in the Federal Register on August 6, 2007 (click here to access the Federal Register publication) with an effective date of January 1, 2009.

The notice and comment period for this Federal Register publication ended on November 15, 2007.

The proposed regulations were effective immediately upon their publication in the Federal Register and became final after the note and comment period. While the "final" regulations are currently not available online at the Code of Federal Regulations, they are expected to be made available on April 1st, 2010.

According to the Federal Register publication, the IRS contact person for these new regulations is "Mireille T. Khoury". Mireille can be reached at 202-622-6080.

What is the average rate increase of an individual policy?

Mon, 22 Mar 2010 10:33:09 -0600

Note: None of this should be taken as legal or tax advice

"What is the average rate increase of an individual policy?"

If you sell individual health insurance, you probably get this question all the time. You probably respond similar to this:

The price of an individual health policy is based on your age and your health at the time of application—but once insured, your premium cannot be increased because you become ill. Your renewal premium will increase when you enter a higher age band (typically every 5 years) or with general medical inflation—based on the claims of a very large group of people in your state who purchased similar personal policies. Some states set limits on annual increases regardless of medical inflation. Depending on your state, you should expect your premium to increase 5% to 15% each year from an initial price much lower than group coverage. If you are healthy and don't like your proposed annual renewal premium, you can always shop around for a new policy just like you do with auto or homeowners insurance. Nationally, more than 300 different carriers, including 76 Blue Cross Blue Shield companies, offer personal polices.

Most consumers are happy with this explanation. It answers the question directly and sufficiently.

But (if you're like me), you want to see the numbers behind the explanation. So, for you agents (and consumers) out there who want a data-driven answer to the "What is the average rate increase of an individual policy?" question, keep on reading.....

Before you read on, you should understand where I am getting this data. Since 2003, eHealth, Inc (which owns eHealthInsurance.com) has been providing research and advice based on the individual health insurance policies purchased by its customers (exceeding 2 million in 2009). On their www.ready2connect.org website, eHealth makes available numerous studies and customer surveys on individual health insurance each year. Thank you, eHealth. Below, I have merely pulled the pertinent data from the eHealth studies. For example:

According to the 2009 study, "average monthly premiums being paid" for individual health insurance policies increased 1.1% from February 2008 to February 2009, while the average deductible increased from $2,084 to $2,326 in the same year.

The annual increase in the average monthly premium paid is actually more significant than the average annual rate increase in monthly premium because healthy consumers do not absorb large rate increases -- when a healthy individual gets a large rate increase, they go buy a different policy from a different carrier for a better price. When examining the average monthly premium actually paid, you should also keep in mind that some consumers will increase the deductible on their insurance plan to reduce the monthly premium.

MY POINT: Due to consumerism, the annual increase in average monthly premium actually paid for an individual policy is always going to be lower than the average annual rate increase.

Anyway, I have listed the average monthly premium paid by eHealth customers in each state from 2005-2007. On the right-side of the table, I show the annual increase in the average monthly premiums. Some states are left off due to insufficient data.

What do you think?

Average Monthly Premium Paid for Individual Insurance Polices by State from 2005-2007

State	2007 Average Monthly Premium Paid¹	2006 Average Monthly Premium Paid²	2005 Average Monthly Premium Paid³	Change in Average Monthly Premium Paid from 2006-2007	Change in Average Monthly Premium Paid from 2005-2006
Alaska	$175	$170	$157	3%	8%
Alabama	$122	$125	$180	-2%	-31%
Arkansas	$124	$123	$123	1%	0%
Arizona	$132	$126	$122	5%	3%
California	$151	$139	$130	9%	7%
Colorado	$141	$135	$124	4%	9%
Connecticut	$161	$156	$161	3%	-3%
District of Columbia	$155	$156	$191	-1%	-18%
Delaware	$151	$131	$150	15%	-13%
Florida	$163	$154	$162	6%	-5%
Georgia	$170	$161	$134	6%	20%
Iowa	$97	$98	$100	-1%	-2%
Idaho	$101	$107	$140	-6%	-24%
Illinois	$142	$134	$130	6%	3%
Indiana	$131	$127	$125	3%	2%
Kansas	$119	$116	$120	3%	-3%
Kentucky	$120	$115	$122	4%	-6%
Louisiana	$136	$134	$178	1%	-25%
Maryland	$147	$142	$175	4%	-19%
Michigan	$121	$106	$98	14%	8%
Minnesota	$137	$130	$154	5%	-16%
Missouri	$121	$120	$108	1%	11%
Mississippi	$153	$152	$142	1%	7%
Montana	$137	$132	$135	4%	-2%
North Carolina	$142	$142	$200	0%	-29%
Nebraska	$120	$120	$108	0%	11%
New Jersey	$288	$277	$245	4%	13%
New Mexico	$145	$145	$145	0%	0%
Nevada	$172	$168	$156	2%	8%
New York	$388	$338	$379	15%	-11%
Ohio	$128	$124	$128	3%	-3%
Oklahoma	$131	$125	$129	5%	-3%
Oregon	$147	$144	$157	2%	-8%
Pennsylvania	$167	$148	$153	13%	-3%
South Carolina	$150	$148	$141	1%	5%
Tennessee	$150	$145	$128	3%	13%
Texas	$153	$133	$121	15%	10%
Utah	$131	$116	$102	13%	14%
Virginia	$158	$148	$149	7%	-1%
Washington	$168	$145	$218	16%	-33%
Wisconsin	$127	$120	$124	6%	-3%
Wyoming	$130	$125	$107	4%	17%
United States	$158	$148	$144	7%	3%

¹ Cost and Benefit 2008 (18)

² Cost and Benefit 2008 (19)

³ Cost and Benefit 2005 (15)