Ever since Obamacare reared its ugly little head my blood has been boiling at the idea that our federal government is involved in the dispensing of health care.
I am not sure that this responsibility was ever designated to the federal government by the people that crafted the Constitution.
While there may be some hope that the new individual coverage health reimbursement arrangement (IHRA) regulations could lead to good things for brokers, I believe the new ICHRA regulations are anything but good news for brokers.
News articles suggesting that the regulations could be good for brokers are either very naive or deliberately rosy.
The first question to be asked is…why is the federal government suddenly pushing ICHRA plans?
The answer is pretty simple: By allowing and encouraging a tax deductible employer contribution of $1,800, the federal government could be potentially reducing the huge loss of taxes that it currently sustains for a 100% tax deductible premium an employer pays on behalf of an employee for group health insurance.
Benefits and taxes
Ever since George Bush 1 uttered the words, “Read my lips: NO NEW TAXES!,” politicians on both sides of the political world have been wrestling with a dilemma…
Raising taxes is never popular with the electorate, and there is just so much fat in the federal budget to be trimmed and redirected to other priorities before unintended consequences start to show their face.
For example if you cut funding for police, there is very likely to be an increase in crime. Cut funding for the military and some other country might be tempted to test us in a way we do not want to be tested.
So, while raising funds is difficult, and requires unpopular methods to do so, if you want to fund and grow government programs, you have to figure out clever and sometimes shady methods of doing so.
For many years the wonks in Washington have focused on the 100% tax-deductible group health premiums paid by businesses as a potential loophole to be plugged or at least reduced greatly. The fact is, of the roughly 325 million people in this country, roughly 155 million people are covered under some form of employer paid health insurance plan. This represents a lot of votes.
Under Obamacare the wonks in Washington created a “Cadillac tax” on plans the Obama administration deemed to be too rich.
(Related: Kleinbard to Congress: The Cows Must Die)
As you know, the Cadillac plan tax was met with lots of anger. Ultimately, the government went away with its tail between its legs.
Amazingly, it was the unions with their very rich benefit plans that screamed the most about the Cadillac plan tax, and not the uber wealthy attorneys; stock brokers; or other high-wage earners that complained about the Cadillac plan tax. It was the carpenter; police officer; fireman; and teacher that protested.
These union benefit plans were fought for years ago. They make up a significant part of employee compensation.
At the time, the folks from government were trying to make it sound like the high-wage earning strata were benefiting from very rich health insurance plans that were being paid for by 100% tax deductible business funds.
In fact, the people that benefited most from the ultra plush health insurance plans were middle income earners.
An employer has a choice – raise a person’s salary (with tax deductible compensation) and say to the employee, “Now, you go out and do what you want, but we are shutting our health insurance plan,” and accept the possibility that the employee might choose to buy health insurance or do something else in a responsible manner, or that the employee might blow the extra earnings on toys and parties.
Now, a short time later, the government suddenly creates a new “flexible” set of HRA rules that (to the untrained eye) give the impression that the federal government is trying to encourage employers that don’t currently provide plans to offer employees up to $1,800, so that the individual employee can go shopping for their own individual coverage.
The HRA v. theTraditional Health Coverage
The fact is, in the downstate New York state area, the average monthly premium for a gold-level individual plan would eat up $1,300 of the annual $1,800 in cash payments.
The $1,800 is a drop in the ocean.
But offering that $1,800 gives an employer the means to shut down a group health insurance plan, for which the employer is receiving a 100% tax deduction. The employer can deposit $1,800 in an employee HRA account, look the employee in the face, and say, “Look at what I am doing for you.”
The employer gets out from under paperwork and reporting requirements; gets out of shopping for the best deal at renewal time; and stops having to devote staff time to explaining benefits and the responsibilities of plan selection every year.
On the flip side, employees who may now be covered under a group plan with a decent network will now be pushed into the skimpy networks that insurance companies love to offer on individual plans.
Oh, and while I am on insurance companies let’s talk about the commissions, or lack thereof, on individual plans in a major market like downstate New York state.
So far as I know, there is only one company paying broker commissions on off-exchange individual plans in that area. That company could decide to stop if the other companies are permitted to not pay brokers.
I don’t know what the situation is with the plans sold through the Obamacare exchange program, as I have chosen not to be involved with the bureaucracy of dealing with a state agency but I have a feeling that, even if the issuers compensate the brokers, the amount paid is not worth the hassle or the potential for liability exposure, if the individual suddenly decides to point a finger at the broker.
Employee benefit brokers and doctors allowed the government to get its paws on health insurance in New York state back in 1990, when then Gov. Mario Cuomo pushed community rating on all health plans sold in the state.
The major impact of this law was to discourage many health insurers from staying in the business. The law helped a few giant companies dominate the market.
Then along came Obamacare. I can say, without surprise, that billions of dollars of tax payer money was squandered trying to create new insurance companies, or CO-OPs, that would offers products designed for the Obamacare world.
Of all of the Obamacare CO-OP companies that received government funding, just a few are in operation at this time. No one is talking about all of the money that was wasted in the attempt.
Insurance brokers should be compensated. We help citizens buy products that protect them against financial ruin.
Doctors long ago abdicated their role as the providers of health services to insurance company bean counters.
The HMO system of providing care really did not exist in 1986, when I first entered into the insurance business.
With premiums on indemnity plans rising, and no end in sight, insurance companies began pushing doctors and employers to adopt “network plans.” Plans with provider networks were good for doctors: Doctors were assured of getting a steady stream of patients, without needing to advertise or promote themselves.
HMOs were OK, in the beginning, because insurance companies had control over their costs. Insurers would use the network contracts to dictate what they would pay for a given health care service.
So, far as I am concerned, the doctors sold out. Now many are complaining about their diminished incomes and the control that insurance companies have over them.
Doctors began to accept the story being told by hospital bean counters, that the doctor’s only chance of survival was to become a hospital employee. Insurance companies faced stiff negotiations to keep their networks viable and stay competitive.
And on and on the battle goes.
There is a lot of history to this HRA story, and very little of it has anything to do with helping citizens receive coverage.
It’s about tax dollars and business.
There bottom line is that there is way more to the HRA story than recent news coverage suggests. To believe otherwise is wishful thinking.
Jerry Cohen is a broker in the life, health and Medicare supplement insurance markets. His office is in Port Jefferson Station, New York.