Rising health care costs have long hinted that the employer-provided health insurance model is unsustainable, according to the heads of Zane Benefits, who claim a paradigm shift is moving the benefits industry toward defined contribution employer-funded health care, instead.
Over the next 10 years, 100 million Americans will move from employer-provided to individually purchased insurance, they say. In a new book, The End of Employer-Provided Health Insurance, Zane Benefits founder Paul Zane Pilzer and its president Rick Lindquist lay out a system of defined-contribution employer-funded health care they say benefits everyone, but some advisers and even employers remain skeptical.
With the solutions outlined in the book, Lindquist says, the consumer always buys, picks and pays for their own plan. The employer is never involved in the choice, purchase or payment of that plan. Thats a very key piece, because if the employer gets involved, it oftentimes limits the employee choice and it also creates unnecessary administrative work for the business that distracts them from serving their customers.
The first solution Lindquist outlines is a taxable stipend which is added to the employees paycheck every month.
Its not forwarded to a health insurance company, just added to the paycheck as a stipend and the employee buys their own plan, he says.
Zane benefits will roll out on April 1 a technology solution to help employers administer this approach, Lindquist says, adding that the solution will be called PeopleKeep.
The taxable stipend approach, he adds, doesnt just work for health care, it also works for retirement and other benefits.
Only 15% of small businesses offer 401(k)s and the primary reason is administrative costs, he says.
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The negative aspect of the taxable stipend approach, he says, is that its all taxable to the employee.
If an employer wants to make it tax free, they have to make sure they follow certain rules under the tax code, ERISA, and now the Affordable Care Act to ensure they remain compliant. And thats what we call ZaneHealth. ZaneHealth is a self-insured medical reimbursement plan that the employer uses to reimburse employees for any health insurance premium, including individual, COBRA, Medicaid, dental or vision, says Lindquist.
Compliance check
Many benefits experts have questioned the compliance of these and similar medical reimbursement plans, and the Department of Labor on Nov. 6 issued FAQ Part 22, which directly addresses some recent efforts by employers to reimburse employees for participation in the exchange through Code Section 105, or through some type of other arrangement.
Specifically, the DOL said, These arrangements are problematic for several reasons. First, the arrangements are themselves group health plans and, therefore, employees participating in such arrangements are ineligible for premium tax credits for marketplace coverage. The mere fact that the employer does not get involved with an employees individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan. Second, such arrangements are subject to the market reform provisions of the Affordable Care Act, including prohibition on annual limits and the requirement to provide certain preventive services without cost sharing. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code.
Lindquist says he agrees the ZaneHealth solution is considered a group health plan and Zane Benefits has always taken that approach.
The question is, what does it mean that that self-insured medical reimbursement plan is a health plan? It doesnt mean you cant do it. It means you have to comply with lots of different rules, both in the Internal Revenue Code and ERISA, he says.
Maintaining that compliance is what Zane Benefits software handles, he says, adding that its similar to how consumers use TurboTax to fill out and file taxes online.
Zanes software offers a plan design wizard which allows an employer to define its contribution by job classification and the software takes the data in and constructs legal plan design documents electronically.
Those legal plan documents have all the necessary language and rules to comply with the IRS and many other group health care requirements, he says. For example, the software produces a summary plan description and a summary of benefits and coverage.
The downside of this approach for a large employer is that the medical reimbursement plan does not qualify as minimum essential coverage required by the ACA, so it would not qualify the employer under the employer mandate and would also not excuse the individual from the individual mandate, Lindquist says.
The book, he adds, details the cost analysis small businesses and large businesses should undergo to determine whether the solution is cost-effective for them to offer.
Misunderstood
Zane Benefits and their oft-considered controversial employer-defined contribution solution are widely misunderstood by the benefits industry, Lindquist says.
Thats because, We are promoting an idea that massively shifts how employee benefits are delivered in the U.S., he says. Were saying, Listen, employers, you shouldnt be the middle-man for these employee benefits. Employee benefits are employee benefits. They arent employer benefits offered to employees and you should let that employee self-service their benefit and give them the money to do so.
This doesnt just apply to health insurance benefits, he adds. It applies to retirement, PTO, even cell phones.
The main reason it is misunderstood, he says, is a huge resistance by benefit advisers to understand it because it is a huge threat to their existing business.
Do the cab drivers like Uber? he asks. Many traditional benefit advisers dont like Zane Benefits, because Zane Benefits is coming in and saying, Hey, guys, the way youve been doing it for 20 years isnt right anymore. Thats not the best news to hear if youre running a business.
