1. Medical technology is amazing…but it’s expensive

As new health care technologies prove to be more effective, expect utilization to increase; in turn driving costs up even more. Spending on health care technology accounts for two-thirds of the growth in spending.

2. Inflation and Economics

Inflation affects all aspects of life, health care included. However, medical inflation is dramatically outpacing general inflation. Why? It is simple economics. As demand for health care services increases, so do prices. An example of this problem: in the US we currently have 350,000 primary care doctors.  It is expected that we will need approximately 400,000 primary care physicians to properly care for our aging population by 2020. What will happen to the cost of these physician’s services if we don’t address the supply issue? Costs will continue to outpace general inflation.

In a normal market, given these conditions, the invisible hand would get to work and natural incentives would avail themselves to medical students (i.e. they would make more money because supply/demand equation is out of balance). In reality, there are very few incentives to become a primary care physician right now given the uncertainty of US health care system.  A primary source of this uncertainty is the Patient Protection and Affordable Care Act.  Combine this uncertainty with burdensome regulations, excessive administrative and compliance costs, and virtually unlimited malpractice risks associated with running a primary care practice, and it is no wonder that a doctor-shortage is imminent.

3. Cost Shifting

The government brags about its ability to control costs by pointing to statistics that show how much less services cost under their Medicare program as compared to services covered by private insurers. The fact that Medicare and other government health care programs limit reimbursements (effectively instituting price controls) does not mean that the true costs of this care just disappears.  These costs are simply shifted elsewhere in the system.  Now let’s follow the trail. These unreimbursed costs get shifted to private insurers. Private insurers in turn tap their primary source of capital…their clients (i.e. you!). The lesson here is this – even if the government says that they are not going to raise your taxes to pay for government health care programs; you will, in fact, be paying for these programs in the form of higher insurance premiums.

4. Compliance Costs

Did you know that health care insurers spend over $340 billion every year to comply with government regulations. Approximately half of this cost is spent covering services that government mandates be covered by insurance (regardless of whether you, as the consumer, wants this additional coverage or not). The other half is spent on regulatory and reporting requirements.

5. Our Lifestyle Decisions

Spending on chronic diseases accounts for 75% of all health care spending. One way that we can help reduce these costs is to take better care of ourselves. Obesity, tobacco use, drug abuse, poor nutrition, and physical inactivity are all risk factors that can lead to chronic diseases…and all of these are controllable! If we, as a nation, are to have any chance of controlling the out of control health care inflation, then we need to look in the mirror and start taking personal responsibility for our own health.

6. Excessive Utilization

It is estimated that one third of all procedures performed in the US have questionable benefits and/or are outright inappropriate. The lesson here – more care does not always mean better care.

7. Health Care Fraud and Abuse

Conservative estimates suggest that health care fraud and abuse accounts for over 3% of the overall cost of health care. This amounts to $68 billion per year (or $180 Million per day).

8. Prescription Drug Costs

Here are some interesting facts about prescription drug use in the US:

• The rate of inflation for prescription is 2.5 times that of the general rate of inflation.
• Some cancer drugs can cost as much as $100,000 per patient for the course of the treatment.
• 50% of all adults in the US take at least one prescription drug per day and 7% take at least five drugs per day.
• Two thirds of patients that enter a physician’s office leave with a prescription.

These eight drivers account for most of the rate of increase in health care spending. You might be thinking to yourself, “but what about all those profits reaped by the health insurance companies? That must be a key driver too!”.  This is a common misconception. In reality, insurance company profits amount to just 3% of your premium investment.  To learn where the rest of your premiums go, check out this article.

Health care costs and health insurance premiums are closely correlated. By understanding the key drivers behind health care inflation, we can start making better decisions personally, and as a nation, in an effort to control these costs and to, hopefully, reduce the rate of premium inflation.

For a free review of you current health insurance options, please call Sage Benefit Advisors at (970) 484-1250.  We are here to serve!

1. Does my small business qualify for the “Small Business Health Care Tax Credit”?

2. How much can I expect to get back as a result of the “Small Business Health Care Tax Credit”?

3. How do I calculate the “Small Business Health Insurance Tax Credit”?

If all you read was the news articles about this tax credit, it sounded pretty simple.   In fact, I had many clients excitedly calling me saying that they heard about this 35% tax credit…and that this was just what the doctor ordered.  Well, not so fast — there are about 13 steps to the calculation to determine if you qualify and, if you do, the percentage is not always a flat 35% of employer paid premiums.

So, in an effort to answer these three questions and to clear up much of the confusion surrounding the “Small Business Health Insurance Coverage Tax Credit”, we have developed this simple and easy to use Small Business Health Insurance Tax Credit Calculator.  Just answer 4 simple questions (rows A-D) and then click “UPDATE”.

Still have questions about the Small Business Health Insurance Reform Tax Credit?

Check out these additional resources:

Determine if you qualify for the Small Business Health Care Tax Credit by following these three simple steps >>

Small Business Health Care Tax Credit: Frequently Asked Questions >>

There are two parts to obtaining an HSA. The first part is a high-deductible Colorado health insurance policy. As of 2009, the IRS defines as high-deductible any health insurance plan with a minimum deductible of $1,150 for single-coverage and $2,300 for a family, as well as a maximum out-of-pocket of $5,800 for single-coverage and $11,600 for family coverage. To get such an insurance plan, just approach a qualified agent or get an online quote from a health insurance website.

Once you have an HSA-qualified policy, you’re eligible for the second part: a health savings account for covering present and future medical expenses. Anyone under 65 may open one with an accredited Colorado health insurance company that offers HSAs.

An HSA can be funded by an employee, an employer, or both. As of 2010, the maximum contribution is $3,050 for single-coverage and $6,150 for families. For seniors 55 years and above, they are allowed to pay “catch up” contributions of up to $1,000 to their accounts. HSAs are open to anyone with a qualified high-deductible plan, including employers of any size, employees, and the self-employed.

You can get a high-deductible health insurance plan without getting an HSA, but as you will see, HSAs have significant advantages that will appeal to the smart buyer:

Numerous tax advantages. First off, all the deposits you make to your HSA are tax-deductible – that is, you can exclude them from your gross taxable income. Second, any interest you earn from your HSA is tax-exempt. Third, when you use your funds to pay HSA-qualified expenses, like doctor’s fees, prescription medicines, and so on, those too are tax-exempt. Lastly, in the event of death, your remaining funds are transferred to your designated beneficiary-tax-free.

Your HSA is a permanent plan. A health savings account endures even when you change your employment status. That is, you get to keep the funds you’ve accumulated even after you leave your job. This applies even if your employer has contributed to your fund.

Your funds may be used as savings. Because of the tax benefit on the interest, you can let your cash grow over the years. Moreover, unlike with a flexible savings account (FSA), any unused funds in your HSA is rolled over to the next year. By the time you reach the age of 65, you can withdraw your funds without penalty and use it however you want. This makes your HSA an excellent means of augmenting your retirement fund, so long as you stay healthy.

Note:You are allowed to withdraw for non-qualified reasons before the age of 65, but this will incur a 10% penalty.

An HSA provides flexibility on the medical services it covers. With HSAs, it’s you, not an insurance company, who decide what you pay for. Your HSA can accomodate medical expenses not covered by the usual health insurance plan, including vision and dental care, medical equipment, related transportation costs, and non-traditional treatments like acupuncture, massage, and chiropractic care. Many kinds of HSA plans also cover prescription medicines.

An HSA is a lucrative option to a traditional Colorado health plan. Rather than paying premiums to an insurance company, your money goes to your own savings account. But not just any account-you’re investing in your own health, which is the wisest investment there is.

Want to learn more about the Small Business Health Care Tax Credit?  Check out these FAQ’s>>

Do you qualify for the Small Business Health Care Tax Credit? Use this easy, 3 step, worksheet to find out>>

If you have questions or want to learn more, we are to help!  Just call 970.484.1250 to speak with a benefit advisor.

UPDATE (5/23/2010) – We just released this Small Business Health Care Tax Credit Calculator to help you determine how much your small business can save with this tax credit.  Give it try!

• Health Care Reform Overview for Small Employers
• Health Care Reform Overview for Large Employers

Sage Benefit Advisors remains committed to keeping you informed about health reform. Keep in mind that a great deal of uncertainty still surrounds the new health reform law. Over the next few months and years, federal and state governments must develop rules, regulations and guidance on how the law is to be interpreted and implemented. As we learn more, we’ll share it with you.

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning 2010.

The IRS has developed a simple, 3-step worksheet to help employers determine if they may qualify for the Small Business Health Care Tax Credit.

Click here to learn more about the new tax credit and read an FAQ published by the IRS.

Sage Benefit Advisors will keep you up to date on the changes associated with the new health care bill.

Here are five steps that you can take to save money on your health insurance premiums (and/or reduce other health-related expenses):

Step 1
Consider taking a prudent risk by going with a higher deductible health plan. Doing so can save you hundreds (or even thousands) of dollars per year.  Every dollar saved can pay “first dollar” benefits (i.e. co-pays and/or deductibles) if needed.  And, if you don’t need to spend it on health care, it is pure savings.  In addition, the purchasing power of these saved dollars is increased by 40% to 50% if the savings is invested (passes through) a tax advantaged account such as an Health Savings Account (HSA) or a Flexible Spending Account (FSA).

Step 2
Consider participating in your employer’s health insurance plan if you are eligible. As a general rule, employers in Colorado are required to subsidize “employee only” premiums by at least 50%.  This, combined with the fact that you can pay your portion of the premium with pre-tax dollars via payroll deduction, results in a net price that generally can’t be beat in the individual health insurance market.  IMPORTANT NOTE: Always seek out professional advice before ditching your individual health plan for group coverage.  There are some circumstances where the individual coverage may be better for you even if it is more expensive (in the short term).  Also, while it may be cheaper for you to hop on your employer’s plan, many times purchasing individual health insurance for your dependents is a better value.

Step 3
I have already hinted at this twice…make sure that you are being “tax smart” when considering your health insurance options. If you are an individual looking for private insurance, consider an HSA Plan (a less expensive, high deductible plan combined with a tax advantage savings account).  If you get your health insurance through your employer, make sure that you are paying your portion of premiums with pre-tax dollars via payroll deduction. While this doesn’t really save you money on your health insurance premiums directly, it does reduce your tax burden increasing your take home pay.  If your employer does not offer “pre-tax deductions” tell them to call us because these “pre-tax plans” save them money too!

Step 4
If you have maintenance prescriptions, consider buying them through your insurance company’s mail order pharmacy. Most mail order pharmacies will permit you to purchase a 90-day supply of your prescription medications for the same co-pay you would pay for a 30-day supply at a traditional pharmacy. Most doctors are familiar with this process and are more than happy to accommodate you by writing a modified prescription.  In addition, always remember to ask your doctor about generic alternatives (most plans have lower co-pays for generic drugs vs. brand names).

Step 5
If you have a life or limb threatening injury, by all means, go to the emergency room (ER).  But for other milder conditions, avoid the ER if you can.  Most ER docs will tell you that as many as 75% of the cases they see could have been handled by a less expensive urgent care center instead. The co-pays for emergency rooms can be 2-5 times as expensive as an urgent care clinic.  In addition, ERs will always prioritize cases (as they well should) which could mean for long waits for patients with milder conditions.

For more money saving tips and advice, give us a call at 970-484-1250.

Want to check out some health insurance quotes right now?

Group Health Insurance Pros

• Group health premiums are subsidized by the employer. In Colorado, generally, an employer must contribute at least 50% of the “employee only” premium.  As such, if you are the employee, you can likely get a richer health plan for less premium than you would pay in the individual health insurance marketplace.  However, the cost to add your dependents to the employer’s plan, may be cost prohibitive.  In this case, and assuming that your dependents can qualify for individual health insurance, then you may want to put them on an individual/private health insurance plan.

• Group health premiums for large families are the same as for small families; whereas in the individual market, you pay a separate premium for every family member.  So, if you have a large family, you may be able to get a better deal by adding them to your employer’s plan.  As with any health insurance change though, don’t make any changes without consulting with an experienced health insurance advisor in your state (we specialize in Colorado health insurance).

• Group health insurance in most states (Colorado included) is guaranteed issue — meaning that you can’t be turned down because of pre-existing health conditions.  This is a real blessing if you or a family member has a medical condition that prevents you from qualifying for a individual health insurance plan.  But, this is a double-edged sword.  While being guaranteed issue is a huge benefit for those with pre-existing medical conditions, it does come at a price.  This one feature alone accounts for most of the disparity between group and individual health insurance premiums.  Yes, that is right — in Colorado,  individual health insurance premiums are almost always less expensive than group health premiums.

• Most group health insurance plans cover maternity. So, if you are planning on having more children, you should definitely consider hopping on to a group health insurance plan.  While you can add a “maternity rider” to individual health insurance plans, these riders tend to be expensive, restrictive, and otherwise provide less value than the coverage you can get in a group health plan.  That being said, if you are considering having more children, we recommend that you contact a health insurance advisor in your state for advice about what is best for your family.  The right answer is different for each unique family.

• Economies of scale can benefit employees of large employers. It is true that the larger the group, the larger the risk pool is in which to share the risk which CAN result in lower premiums than are available in the individual health insurance market.  However, the guaranteed issue “issue” CAN wreak havoc on this type of plan.  For example, a large employer with good benefits tends to retain employees for long periods of time.  Eventually, the average age of the group starts to creep up and so do premiums.  In addition, people with large medical needs (expensive medical conditions) tend to be attracted to large plans because they are guaranteed issue with good coverage.  And so, over time, not only is the group’s average age increasing, but the group is also attracting employees with large expected health costs.  This is the dilemma that we see with large health plans like the U.S. auto-makers and even government health insurance plans.  Eventually, those with lots of medical needs begin to outnumber those with little or no needs and so premiums are driven higher and higher.

Group Health Insurance Cons

• Group health insurance can be more expensive than individual health insurance. You can see this for yourself, by checking out individual health insurance quotes for you and/or your family.

• What happens if your employment is terminated (by you or your employer)? Yes, you will likely have some benefit continuation rights (through COBRA or state continuation programs), but these benefits can be very expensive and the term limited.  So, eventually, you either have to secure another job with benefits, an individual health insurance plan (assuming you are insurable), or possibly join a government health insurance program for the uninsured (if you are not insurable).  Let me emphasize, that you should NEVER be without some form of major medical health insurance.  Being without health insurance puts you and your family in serious financial jeopardy.  In fact, a recent Harvard University study found that 50 percent of all bankruptcy filings were partly the result of medical expenses.¹  To the same point,  every 30 seconds in the United States,  someone files for bankruptcy in the aftermath of a serious health problem.  Don’t let this happen to you.

• Group health insurance premiums are rising faster than individual health insurance premiums. Why? Because most group health insurance plans are guaranteed issue and since they accept “all comers”, they tend to attract those with high medical costs.  On the other hand, most individual health insurance plans are medically underwritten.  This means that the insurance company can say “no thanks” to any application that it deems to not be in its interest.  Put yourself in their shoes — would sign a contract to provide $30,000 in annual benefits to someone that was only going to pay $3,000 in premiums (for a net loss of $27,000)  if you didn’t have to?  Hmm…let me me think about that one.  The answer is a resounding “NO!”.  Because of this underwriting process for individual health insurance, insurance companies can control their risk and more effectively manage their profitability, resulting in more stable prices.

Now that you have a better understanding of the pros and cons of group health insurance; next, let’s explore the pros and cons of individual health insurance (coming soon). Until then, please don’t hesitate to call us at 970-484-1250 for a free health insurance consultation.  Our health insurance advisors are well versed on both group and individual health insurance options, and they will take the time to understand your unique circumstances in order to recommend the most appropriate and best value solution for you and/or your family.

In addition, if you are an employer that would like to learn more about Sage Benefit Advisors’ services including group health insurance and other employee benefits, please give us a call or otherwise contact us.  We would be happy to provide a free benefit plan review to ensure that you are getting the best value for your premium dollars and to ensure that your benefit plan is optimized for recruiting and retaining the best employees possible.

¹Himmelstein, D, E. Warren, D. Thorne, and S. Woolhander, “Illness and Injury as Contributors to Bankruptcy, “ Health Affairs Web Exclusive W5-63, 02 February , 2005.