Tuesday, February 15, 2005

An interesting challenge - Part II...

Well, I have my answer [see Update below].

Okay, actually, the client has indicated his preference, and I agree with his conclusion.

We have decided to go with individual medical plans. We can write them on a list-bill basis, which means that the employer will receive one bill which includes all 5 policies. The way this works is that he will deduct the appropriate amount from each employee's paycheck, and forward this as a lump sum to the insurer each month.

The benefits here are:

1) Simplicity: We won't have to worry that a carrier will either enforce or change their participation requirements, triggering the kind of frustration we've just experienced.

2) Each employee will have some choices regarding their coverage; that is, if Employee A wants a $500 deductible, he can have it, and if Employee B wants the $1,000 deductible, he can choose that, and save some shekels.

3) Individual plans are portable, which means that, if an employee leaves, he doesn't automatically lose his insurance coverage.

4) The employer will enjoy an immediate cost savings of approximately 40% (but there are trade-offs to this savings, as noted below)

We also discussed the disadvantages of going this route:

1) There is no maternity coverage, which means that young couples will need to plan accordingly.

2) The plans are medically underwritten, which means that unhealthy employees and/or their dependents may not qualify, or their benefits may be limited.

3) There are potential tax implications if the employer continues to subsidize the premium: with a group plan, such subsidies (e.g. the employer pays 1/2 the premium) are not taxable to the employee, and are deductible to the employer. In this arrangement, such subsidies are still deductible to the employer, but the employee will need to claim that subsidy as compensation. (I'm not an accountant, and I don't play one on TV. Please see your tax advisor for details)

BTW, I have STILL not heard from Company S whether or not they would have written this case. Guess they're not hurting for business.
UPDATE: Well, this is an interesting twist. I just spoke with Carrier S, and they ARE willing to write this case, after all. Their participation requirements are actually kind of interesting: A minimum of 75% of all eligible employees, not counting those employees who waive coverage because they are covered under another insurance plan [ed: like spouses or Medicare], needs to participate. If the 75% participation is met and if the participating employees are below the 50% of all eligible employees [ed: as it does in this case], then (the carrier) will write the group if everyone fills out the medical questionnaires.
Cutting to the chase, though, the employer has decided to go ahead with individual plans, primarily because of Advantage #1 above.
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