Benefits and Compensation After the Elections

Suppose there was a presidential election this year. Just suppose. And, further, suppose that election had a winner. Just suppose.

It is extremely likely that the winner will be someone nominated by either the Democratic Party or by the Republican Party. And, it is not at all unlikely that the party of the winner will keep or gain control of both houses of Congress.

From the standpoint of tax policy, and by extension, benefits and compensation policy, what will this mean for you, the employer or employee? Should you care?

I don't think we're far enough along to do a candidate-by-candidate analysis, but I do think that we are aided by the fact (at least I think it's a fact) that the remaining viable candidates fall generally into a few small buckets from these standpoints (yes, Carly Fiorina will give us a 3-page tax code (no idea what it might say) and Gary Johnson who has declared for the nomination of the Libertarian Party is a Fair Tax proponent). In fact, I think there are at most four such buckets remaining.

Let's identify them from left to right (that is how we usually read):

• The Democratic Socialist (DS) Bucket whose main component, Senator Bernie Sanders (I-VT, but caucuses with the Democrats and running for the Democratic nomination) has recently told us, "Yes, your taxes will go up."
• The Mainstream Democratic (MD) Bucket whose main component, former Secretary of State Hillary Clinton will, according to her website today (it did say something somewhat different on this topic at the end of last year), lower taxes for the middle class (and by extension the lower class) and raise taxes on the wealthy including big business.
• The Traditional Republican (TD) Bucket that includes the likes of [alphabetically] Chris Christie, governor of New Jersey; John Kasich, governor of Ohio; Marco Rubio, junior Senator from Florida; and Donald Trump (yes he is mainstream for this purpose), businessman from New York, which generally would lower tax brackets and flatten, or make less progressive, the tax code.
• The Conservative Republican (CR) Bucket that includes Ben Carson, retired physician from Maryland, and Ted Cruz, junior Senator from Texas which would replace the current income tax structure with a flat tax.

I'm going to make things a little tougher on you here Rather than reiterating these buckets, I'll comment on how different philosophies might affect things.

We all know the health care debate. Sanders wants to move to a single-payer system. Clinton likes the status quo under the Affordable Care Act (ACA). The Republicans with the exception of Kasich want to repeal the ACA and start over again. Kasich, on the other hand, thinks that this is an impractical solution and would keep some portions of the ACA and change others.

On the pension side, Republicans as a group are in favor of self-reliance. This would tend toward a world of nothing but 401(k) (and similar) plans. Their philosophy is that prudent Americans should be able to save enough for their own retirements, especially with the benefits of an employer match. Of course, many of them will be dismayed WHEN they read my blog to know that I disagree with that.

Clinton is much tougher to figure out on this. But, we can look to her stated tax policy and work our way back. When taxes on high earners and large corporations increase, so does the value of tax deductions. So, under a Clinton presidency, we might expect to see more high earners and profitable corporations accelerate contributions to benefit plans in order to accelerate tax deductions. Could this result in somewhat of a rebirth of defined benefit (DB) plans? Theoretically, it should, but in practice, I would expect that even if that rebirth occurs, it will be very limited.

Sanders would prefer to see a single government-run retirement system for everyone; that is, we would have expanded Social Security and Medicare with smaller benefits and less availability for those who have been the highest earners. In this scenario, although I personally don't see Congress going along with it, the prevalence of employer-provided retirement plans could decline significantly. On the other hand, it would not be antithetical to his philosophy to see a DB requirement in much the same way that the ACA leaves employers with a health care requirement. Could we see pay or play here?

With regard to executive compensation (nobody is saying much about broad-based compensation other than to say that under their Presidency, there will be more and better jobs and pay will increase rapidly), we have another large rift between the candidates. Here, one of the biggest elements is the view of what has probably been President Obama's second signature bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). (Why couldn't they have given the law a short name like Fred so that I don't have to test my typing skills every time I cite the law?) 

Sanders is a huge fan of Dodd-Frank. That said, he doesn't think the law has gone far enough. He has said many times that the reinstatement of Glass-Steagall should have been part of Dodd-Frank. Sanders, much like Senator Warren (D-MA) as well as former Senator Dodd (D-CT) and former Representative Frank (D-MA) believes that one of the most important parts of Dodd-Frank is Title IX, the section on executive compensation. Sanders is a huge proponent of tieing levels of executive compensation to that of the rank and file and of their companies as well as generally limiting executive compensation. Under a Sanders presidency, do not be surprised to see a presidential proposal that would limit CEO compensation for example to a pay ratio as defined in Section 953(b) of Dodd-Frank to something like 10.

Clinton is also a Dodd-Frank fan. But, there is a big difference here. Secretary Clinton has long had both ties and obligations to the large Wall Street banks. She periodically invokes Glass-Steagall, but knows that its repeal allowed Goldman Sachs, for example, to grow into the financial giant that it has. At the same time, though, Clinton, who I believe is still far more likely than not to be the Democratic nominee, knows that the Democratic platform will be influenced by the likes of Sanders and Warren. Expect that the compromise will be in the form of promises to scale back executive compensation. As broad-based plans in which executives participate tend to be exempt from similar scrutiny, those higher-paid individuals may look to solutions that have been proposed over time in this blog.

On executive compensation, Republicans are fairly united. All, that I am aware, would push for the repeal of Dodd-Frank and for no more (or fewer) restrictions on executive compensation. As free market proponents, they would tell us to let the fair markets determine how top executives should be paid. All that said, proposals like that will be anathema to most (perhaps all) Democrats and unless the GOP were to gain a filibuster-proof majority in the Senate, such proposals are not likely to become law. However, as Republicans without exception are looking to lower the top marginal tax rates as well as corporate tax rates, look for more emphasis on current compensation and perhaps less emphasis on deferral opportunities.

As the 2016 election process matures and there are fewer candidates, we'll be able to dig deeper. In the meantime, you have my opinion. What's yours?

And, if you think my opinions have any merit, let me help you address what will be coming with the 2016 elections.

Why Working With Actuaries is Desirable, In My Humble Opinion

Actuaries often get a bad rap. In my thirtieth year in the profession, I feel like I have heard it all. We are nerds. We are numbers geeks. We can't think outside the proverbial box. We are literal. outgoing actuaries look at YOUR shoes when they talk to you.

Despite all that, there is much to be said that is positive about the profession. An employee (not an actuary) of the US Department of the Treasury once said to me that actuaries were the single most honest and ethical profession that he has dealt with.

Many of us majored in college in something like actuarial science, risk management, math, or economics. Probably, a large number of us thought about a career in academia. I have a number of friends who have remained in academia and that I can think of, every one of them to my knowledge is an honest and ethical person. But, generally, that is because of who they are, not what their professions require them to be. For much of academia, codes of conduct tend to relate to embarrassing the college or university that employs them. In my personal experience, those codes of conduct are not overly stringent, at least not if we compare to the actuarial Professional Code of Conduct.

Recently, much has been in the news, or at the very least, the conservative news of a particular Professor of Economics at MIT, Jonathan Gruber. Dr. Gruber is highly regarded by his peers as one of the preeminent health care economists that we could find. Dr. Gruber also developed many of the econometric models put forth with the Affordable Care Act (ACA, PPACA, ObamaCare). He has been engaged by either or both of the United States Congress or the current presidential administration for his expertise as well as by a number of the states to consult on the economics of the ACA. By his own admission, he helped to deceive the public about the ACA and its costs and sources of revenues. Paraphrasing Dr. Gruber, he justifies this as being for the greater good. That is, he has proclaimed that the ACA was a good and necessary law to pass and that the goodness of the law justifies any deception.

Dr. Gruber may be right about that. Or, he may not be. You may have an opinion on whether he is right. I'm not here to express mine on that particular issue.

There are many actuaries who are qualified, given the appropriate data and choices of assumptions and methods, to project health care costs or the costs of a health care plan or plans. Those who fit that bill have attained initial qualification through examination and maintained it through continuing education. While this process has a different rigor than does the process of attaining a Ph.D., it has created a relatively small community of individuals who work in the field.

Actuaries tend not to be political animals. Part of the reason for that may lie in our Code of Conduct. Quoting directly,

An actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession's responsibility to the public and to uphold the reputation of the actuarial profession. [Precept 1] 

An actuary shall not engage in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on the actuarial profession. [Annotation 1-4]

Those are two strong statements. Actuaries who have failed to abide by the Code of Conduct have been counseled, censured, suspended, or even expelled from the profession. Many of those cases have been for violation of Precept 1 (and its annotations) among others.

So, while jokes have been told about actuaries regarding the variety of answers that we might provide, I suggest it is because ours is not an exact science. We use our experience to make sound professional judgments. But, we have a duty of honesty and of integrity. We have a duty to not misrepresent or deceive.

To me, this is laudable. It makes me proud to be a part of the profession. It's why there would not have been an attempt by actuaries to deceive the public had actuaries been used by the government to model the costs under the Affordable Care Act. It makes it desirable to work with actuaries.

 

Can Anybody Win the ACO Game?

Suppose you invented a game that ultimately, nobody could win. Do you think it would be popular? I don't. Game players get frustrated at losing. Either they give up or they try to get better, but eventually, if their improvement doesn't lead to some more wins, they stop playing the game.

I know that accountable care organizations (ACOs) are not a game. For the uninitiated, they are healthcare organizations that choose to operate under a model in which they are rewarded for meeting metrics related to quality of care and total cost of care (TCC). Under the Affordable Care Act (ACA), those reimbursements are tied significantly to an ACO's trend in TCC being meaningfully less than the norm.

That sounds like a really good idea, in theory. The system is providing an incentive (no, I will not say it is incentivizing) to ACOs to reduce medical inflation. For an ACO to do that, however, costs money. The ACO will likely have to add to its infrastructure both from the standpoints of technology and people. Each has a cost.

Simply put then, the game is won when reimbursements (incentive payments) exceed the essentially required investment in the business. The game is lost when the converse is true.

I think we can establish that each of these points is almost necessarily true:

1. Each ACO will try to reduce its own contribution to medical inflation.
2. There are practical limits to how much that medical inflation can be reduced.
3. When many organizations are simultaneously working to control TCC, the average increase in TCC will come down.
4. If 2. and 3. above are true, then it will become virtually impossible to achieve the financial goals necessary to have reimbursements large enough that an ACO gets a positive return on their investment (ROI).

You don't agree with the fourth point:? Think about it. If the target TCC increase gets low enough (because the average does) and a particular ACO has already gotten to the asymptotic point of its efficiency, then they have likely reached the point where they cannot win anymore. Because the competition had enough room to improve and that one ACO had reached the point where it didn't have enough room for improvement, it will have lost its chance to win (at least for a while).

There are presumably good things that will happen out of this model. Notice that the game breaks down because each organization is striving to reduce TCC. That's a good thing. But, at some point, ACOs that can no longer win may just stop playing the game. When they do that, what will happen to their TCC?

Can anybody win the game?

Anther Application of Modern Portfolio Theory

Modern portfolio theory deals largely with the allocation of assets between asset classes in a portfolio. The field, grown predominantly from Markowitz's concept of the efficient frontier has been a hot topic among both investment professionals and more casual investors alike during my time in the workforce (no, that doesn't take us back to prehistoric times, just close).

Essentially, the most significant outgrowth of this concept is that there exists a continuum of allocations that maximize expected return for a given level of risk, or conversely, that minimize risk for a given expected return. All of this, of course, is based on a large set of assumptions, in this case, capital market assumptions. Oversimplifying somewhat, what Markowitz, and after him others, discovered was that you can reduce risk in a portfolio while sometime even increasing longer-term expected return.

That's pretty cool. Part of what we learned is the value of populating a portfolio with uncorrelated and inversely correlated assets. Okay, John, what does that mean?

Consider a two-holding portfolio. Suppose each holding has an expected return of 8% per year and that their returns are well correlated. In other words, when one goes up, the other is expected to go up by a similar percentage. And, when one goes down, the other is expected to go down by a similar percentage. Essentially, your diversification is not. You're not getting any additional benefit from the second holding.

Suppose instead, your tow holdings are somewhat inversely correlated. In other words, they are neither expected to perform particularly well nor particularly poorly at the same time as each other. The expected return of each holding doesn't change. But, by decreasing the overall risk of the portfolio, you are able to increase the long-term expected return of the total portfolio by decreasing volatility.

Now that we've got that straight, let's change our portfolio. Instead of looking at financial assets, let's consider the insured lives of a health insurance company. While less is known about correlations of costs among diverse populations, it seems clear to me that a homogeneous population carries with it a higher risk to the insurer than one that is not.

As an example, consider a population consisting of 100 insured lives, all of them men between the ages of 65 and 75. Without doing any research to get the correct percentage, my past reading tells me that a meaningful percentage of them are going to get prostate cancer over the next 10 years. That's a largely unavoidable occurrence, or so I read, and the claims could all come at the same time.

How would an insurer manage that risk (other than reinsuring or hedging in some other way)? Suppose they cut their population of insured age 65-75 males from 100 to 10 and added in 90 other insureds. Some of them might be of the type that represent a very low risk, say 20-30 year-old males. Some might be women in their 40s, mostly past the age that they will be in the maternity ward.

What it seems that we will find is that the more diversification that our insurer has in its portfolio, the less volatility in claims it will have over time. This is good for them.

Under the Affordable Care Act (ACA), again somewhat oversimplified, health insurers must pay out at least 85% of their premium dollars in medical claims. Suppose they develop a set of premiums whereby they expect to pay out, on average, 90% of their claims. Further suppose that the 90% average has a standard deviation of either 5% or 15%. If I am doing my math correctly, then in the case where the standard deviation is 5%, our insurer will only have to pay rebates in about 16% of all years. In the 15% standard deviation case, however, they will pay rebates in 37% of all years.

In a nutshell, here is what this means. Our hero, if you choose, the insurance company will keep its full profit in either 84% (100%-16%) of all years or in 63% of all years. Before rebates, their long-term profits will be identical, but managing their portfolio for lower risk allows them to actually keep more of their profits.

Another application of modern portfolio theory?

If You Like Your Plan, You Can Have Something

Perhaps my mind is easily boggled, but it boggles the mind. The Department of Health and Human Services has once again, this time by Bulletin, reinvented the Affordable Care Act (ACA, PPACA, ObamaCare). This time, Health and Human Services (HHS) Secretary Kathleen Sebelius disclosed through a letter to six senators that HHS had issued a Bulletin modifying enforcement.

According to the Bulletin and letter, "If you have been notified that your individual market policy will not be renewed, you will be eligible for a hardship exemption and will be able to enroll in catastrophic coverage."

Call me a cynic. You wouldn't be the first person to do so. But, here is the way I view the last three-plus years in the evolution of the ACA. First, the bill was getting very close to having enough support to pass. Then, Scott Brown (R-MA) was elected to fill the senate seat vacated by the death of Ted Kennedy (D-MA). This gave the Republicans 41 seats, enough to stop the Democrats from invoking cloture. The Democrats outmaneuvered the Republicans in working around the rules of the Senate and the bill was passed and signed into law. It was trumpeted as we all know quite famously that it would expand coverage, reduce the cost of coverage for most, and if you like your health plan, you can keep your health plan, PERIOD. Then came a website rollout so atrocious that even many of the most ardent supporters of the Obama Administration criticized it. Enrollment deadlines were delayed and insurers were told to reinstate policies for which they had already provided cancellation notices.

Somebody never worked in the insurance industry. Reinstatement is not that easy. And, there is also state insurance law to deal with here. So, many who wanted insurance were left without it. Yes, some number of previously uninsured had found their way to "get covered" as the Administration likes to say, but many who had been covered were left out in the cold.

Now, according to the HHS Bulletin, these same people can go on to the exchange and buy catastrophic coverage. This is the type of coverage that has been labeled as a substandard policy by some in the Administration.

Yes, my mind is boggled.

I was not one of those people who had said that health care did not need reforming. I always thought that it did and I still do. But, this is a perfect example of what happens when debate is cut off and 535 people who between them have little cumulative expertise on a subject (yes, I know there are some physicians in the Senate and the House) and who don't read the bill go ahead and vote on it anyway. Agencies are then left the unenviable task of regulating it and it always seems that, at the very least, a sizable minority of the people don't like the regulations.

So, enforcement apparently will be done as the HHS Secretary, presumably speaking for the President (this is entirely my guess), sees fit.

Silly me, I thought it was a law.

When You Know a New Tax is Bad

It seems that every year, there is a new tax that I or someone that I know has to pay or a new tax credit or both. Oftentimes, it can be taken care of on Form 1040 or some form that I already file in one line item, even if it feels like a random number generator fills in the amount that I get to send to my good friends at the Treasury Department.

As all my readers know, the Affordable Care Act (ACA, PPACA, ObamaCare) wasn't just any old law. And, since even the most optimistic of all proponents of the law knew that it would cost a lot of money, new taxes were needed to pay for it. These aren't just any old taxes. I'm talking about two in particular -- the 3.8% Medicare surtax on investment income for those individuals earning over $200,000 and for couples filing jointly earning over $250,000, and the 0.9% additional Medicare tax on earned income in excess of those same thresholds. (By the way, just like perhaps the worst structured tax in history -- the Alternative Minimum Tax -- those thresholds are not indexed.)

I looked at many of the personal taxes in the Internal Revenue Code. Almost without exception, when taxes apply to individuals or to couples filing jointly, the dual threshold is either twice the individual threshold, or at least meaningfully (50% or more) higher.

But, these are not your ordinary taxes.

All you lucky people (maybe you are just hard-working and it's not just luck) who will be subject to these taxes get to fill out not just one new form, but two new forms. That's right, you have to fill out Form 8959 to determine if you (and your employer) paid enough Medicare tax for you [and your spouse]. And, you need to fill out Form 8960 to determine if you were both a lucky earner and a lucky investor for the year.

I'd link you to the forms, but they are only available as drafts right now. And, I'm sure you don't really want to see them anyway.

Suffice it to say that as of now, Form 8960 looks like an easy one, but Form 8959 must have been jointly produced by the makers of Tylenol, Advil, and Aleve. You will have to have your Form W-2(s) in front of you while you suffer through the calculations and the eventual answer. Then if you are really lucky, you get to attach these two forms to your Form 1040 and send more money.

My conclusion? A tax (I know, it's really two taxes, but it looks like one to me) that requires two new forms can't be a good tax. Let's just get rid of it. I want to go back to the original income tax provisions -- pay 1% of your income in excess of $3,000. I'll even accept that the $3,000 is not indexed.

The Curious Tale of Prescription Drugs and The Affordable Care Act

Much has been written about the Affordable Care Act (ACA, PPACA, ObamaCare) with regard to keeping your plan and keeping your doctor. For many enrollees, one of the most critical and little-known elements in choosing your ACA plan may be the prescription drugs they take.

Consider this. If you enroll in a Bronze plan (the cheapest alternative considering only premium costs), you will have the highest deductible and highest out-of-pocket limits. On the other hand, if you enroll in a Platinum plan (highest premiums), you will have the lowest deductible and the lowest out-of-pocket limits.

Simple enough so far, isn't it?

So, as a plan member, you would assume that you can continue to take your standard medications. And, since it's all part of a government-mandated benefit program, you would also assume that the same prescription drugs would be available under each plan.

You would be wrong.

An ACA plan's treatment of a particular drug is a function of whether or not that drug is in the plan's formulary. For people who prefer simpler terminology, each plan's formulary is the listing of drugs that are covered by the plan. If a drug is covered by your plan, you will get discounted (think in-network) rates and your payment for that prescription will count against your deductible and out-of-pocket maximum. If it's not covered, however, then your payments will be full retail (not discounted) and will not count against your deductible or out-of-pocket maximum.

If prescription drugs are a significant part of your annual health care costs, then that leaves you with an easy solution in choosing a plan, doesn't it? You will simply look at the plan's drug formulary, compare it to what you are taking and consider how that will affect your annual cost.

Not so fast.

I actually know something about this law. My online search capabilities are as good as the next person's. I've been to the websites of several plans that can be found on the "marketplace" and in only one case thus far have I been able to find the formulary.

Suppose I find the formulary for every plan for which I am eligible. Then, of course, I can make an intelligent buying decision, can't I?

Think again. Even if you know the formulary, there is no data that I could find telling me what the discounts are under the various plans. But, I heard from someone who said he spoke with a pharmacy benefit manager (PBM) on this topic. He said he was told that pricing may vary wildly under ACA marketplace plans..

So, you tell me. Do you now know how to make your ACA buying decisions? I don't.

Politics Doesn't Fix Health Care

It doesn't matter which party is making the decision. Politics doesn't fix health care.

It seemed clear to me that President Obama's November 14 decision to allow insurers to renew certain cancelled policies for 2014 was done entirely for political expediency. I have not yet found anyone who disagrees with me. So, now everything is fixed and everyone who had a policy that they liked in 2013 can keep that for 2014, right?

Wrong!

First, state regulators have to grant approval for this to happen. In a number of states, regulators have already said that they will not allow these sub-standard, non-compliant policies to be renewed.

Second, there have been increases in health care costs over the last year. The natural extension of this is that premiums must increase. This requires actuarial calculations to determine the correct increase. Actuarial work takes time. And, the actuaries who would do this may have other priorities right now. That some politicians(s) thought something was a good idea does not create more hours in the day, more days in the week, or more weeks in the year for any actuaries that I know, and I know a lot of actuaries.

Third, health insurance plans require administration. In the 21st century, plan administration requires software. Software requires time to be created or updated. And, it needs to be checked for glitches (see, for example, healthcare.gov). That some politicians(s) thought something was a good idea does not create more hours in the day, more days in the week, or more weeks in the year for any programmers that I know.

And, then there is the business decision that insurers must make. Despite a general public hatred of insurance companies, people tend to be somewhat loyal to their policies if not their insurers. Suppose you have a policy with, for example, Aetna and they decide to not reinstate it, but your friend who has a policy with, say, Kaiser, gets theirs reinstated, how will that make you feel about Aetna? On the other hand, if you find out that the Kaiser policy got reinstated with a large increase in premiums, you might feel even worse about Kaiser. It creates a frankly unhealthy guessing game.

But, wait, there's more.

According to the guidance we have received, these reinstated policies are simply a one-year fix. They will not be grandfathered, or so it seems. So, even if your policy is reinstated, come this time or thereabout, in 2014, you will be facing the same dilemma of trying to work out your health insurance arrangement for 2015. Well, at least healthcare.gov may be working properly by then.

ObamaCare Economics -- You Shouldn't Be Surprised

This may look like it's going to be a highly political post, but it's not. Instead, it's more of a primer for the ordinary consumer of health care and health insurance.

We're hearing these days about those people who have made it far enough through the Affordable Care Act enrollment website to learn their options. Remember, if you are going to enroll in an ACA exchange health insurance program, you have the choice of a Bronze, Silver, Gold or Platinum plan. They are designed to provide the consumer some choice in the matter. That's a good thing.

The big difference among the plans is the percentage of costs that they are expected to cover. While designs will vary from state to state, Bronze plans are expected to cover 60% of health care costs, Silver plans 70%, Gold plans 80% and Platinum plans 90%. Among the ways that Platinum plans will get to that threshold are by having lower deductibles, lower out-of-pocket maximums and lower co-pays. In other words, the Platinum is a more generous (and more expensive) plan.

Each plan, regardless of its associated metal must cover essential health benefits. If you get really excited by reading this kind of stuff, you can go to Section 1302 of the Affordable Care Act. But, most of my readers have better things to do with their time. So, you can find a summary here:

• Ambulatory patient services (generally outpatient services such as routine doctor visits)
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health services
• Substance use disorder services 
• Prescription drug coverage
• Rehabilitative and habilitative services and devices (in plainer English, these are things like relearning a physical skill, e.g. walking, or learning a physical skill, e.g., speaking if you were born with a speech impediment)
• Lab tests and services
• Preventive and wellness services including chronic disease management
• Pediatric services including oral and vision care

Thus far, I have heard lots of complaints that the Affordable Care Act is not affordable. This should have been obvious to anyone who bothered to think about it. 

Why?

Suppose you as a consumer went out to buy private health insurance coverage pre-2014. Let's further suppose that you are a healthy late 20s single male who does not engage in any particularly dangerous activities (think skydiving, mixed martial arts, motorcycle racing, etc.). You don't require any prescription drugs. You are not a substance abuser and you are fortunate to have not been born with or gotten any severe disabilities.

Now, suppose you went out and bought a health insurance plan for yourself. You wouldn't pay for lots of these required coverages. Certainly, you wouldn't get maternity coverage. You would likely leave out prescription drug coverage and rehabilitative and habilitative coverage. You wouldn't get substance abuse coverage. 

And, you wouldn't pay for them. 

But, under the ACA, you have to have them. You don't get a choice. 

Further, under the various metal-type plans, the design is such that the "average" (not really an average, but perhaps typical) person will pay 60%, 70%, 80%, or 90% of their health care costs. 

Here are two more facts. 1) All of these coverages cost money. 2) Insurance companies are in business to make money (contrary to popular belief, they do not exist for the sole purpose of losing money so that you, dear reader, can have great and inexpensive health care coverage).

What this means is that healthier people who are less likely to require health services need to subsidize coverage for those more likely to require health services. Further, since people should make intelligent choices, heavy users of these benefits should opt into plans that provide more (and better) coverages and light users should elect the plans that are least expensive. This phenomenon is an example of antiselection and antiselection increases costs.

Don't get me wrong. I think it's great that children under the age of 26 should be able to covered by their parents' plans. I have kids who have made use of it. I think it's great pre-existing conditions cannot be excluded from coverage by insurers. But, you know what? One of the ways that insurers have kept premiums down is by excluding pre-existing conditions.

Think about it. If an insurer is required to provide you with chemotherapy, it is unlikely that they can be charging you enough to make up for the cost of your treatments. Therefore, they have to spread the costs among others who are not receiving chemotherapy.

It's just math.

I also think it's great that there are no lifetime maximums under the Affordable Care Act. If you don't know, many health plans have historically had lifetime maximums of $1 million or $2 million. This means that once the plan has paid out that much on your behalf, they stop paying. Why do they have these provisions? They have them to that the insurer can limit its downside risk. It's good business practice. But they can't do it anymore. Since they are in business to make money (there's that nasty word again), they will spread the costs of not being able to impose lifetime maximums across all their customers. 

Again, it's just math.

Anyone who thought that the government could provide more and better insurance coverage for less money was either 1) delusional, 2) dreaming, or 3) not very smart. 

It's just math, and you, dear reader, should not be surprised.

John's Adventures at Healthcare.Gov

Chapter 1 -- Down the Sign-Up Hole

It all started on an October afternoon. I wanted to see for myself what all the ruckus was about. Surely, finding out what it would cost to sign my family up for the Affordable Care Act (ACA, PPACA, ObamaCare) could not be too hard. After all, I am reasonably computer savvy. I understand health care and health insurance better than the average person. My IQ tests to which I was subjected in childhood and early adulthood suggest that I am at least as intelligent as the average American.

My first task was to select a username and password. That I recall, each was required to be between 6 and 70 characters -- quite a range, I would say. I chose a pretty unique username of 20 characters containing an assortment of letters, numbers, and the dreaded special characters. The system told me that this username was already taken. I tried another one of 21 characters. The system told me that one was already taken. I tried one of 34 characters created randomly by banging on the keyboard of my laptop with my eyes closed until I was satisfied. This one, too, was already taken.

At this point, I screamed that word that one screams when one does not believe what has happened. You know the word. It starts with a B and ends with a T and has a total of 8 letters. Assuming that my characters were chosen fairly well at random, the odds of this username being a duplicate were approximately 1 in 36 raised to the 34th power. Excel tells me that this is a 53 digit number.

A few minutes passed and my e-mail inbox greeted me. The Health Insurance Marketplace informed me that my username and password had been accepted. The key question was which one.

Chapter 2 -- My Own Pool of Tears

I wanted to cry. I'm not sure if they were tears of joy or frustration. Finally, I decided they were tears of laughter. I clicked on the verification link and there it was: healthcare.gov was instructing me to log in. And, believe it or not, one of my log-ins was working.

I began to enter data. I chose Georgia, this having been my state of residence for more than 25 years now. I told the system some stuff about me.

I'm curious. Why does it ask if I am of Hispanic, Latino, or Spanish heritage? The question after that asks me for my race. Why not save a question and just ask my race? Obviously, I am missing something. And, in order to insure me, why does healthcare.gov need to know my race anyway?

Chapter 3 -- Chasing My Tale

The system asked me for my Social Security Number and for the name on my Social Security card. I typed it in.

Wrong, you idiot.

The system said there is no such person.

Well, I was looking at my Social Security Card while doing this. I held one next to the other and I was not wrong. So I tried again. Failure. Alas, the third time was a charm. I guess whoever said it was correct. Try, try, and try again.

Then I had to do the same things for my other family members. Just out of curiosity, what happens if you don't have some of this information handy?

Finally, all of the required information was entered for all of my family members. As you must after each tidbit of information that you enter, I clicked on "Save and Continue."

Success?

No, of course not. I clicked again ... and again ... and again. No luck.

So, I logged out and logged back in. And, I had the same problem. And, I tried it another day. And, again I had the same problem. So, I cannot tell you yet what will happen in Chapter 4 -- Obamacare Sends a Bill.

Populating Your Web Site

So, you're in a business related to benefits and or compensation. You have this really nice website. It's pretty glossy and glitzy, but you don't have enough substance on it. You need some technical or opinion articles, but either you don't have the time or you just don't like to write.

Have you ever considered specifying what you want on there and have someone else write it for you? You're here reading my blog. You know that I write on a wide variety of topics.

So, have me do it for you.  Contact me and we'll work out the details.

IRS HDHP Notice that Had to Be

Yesterday, the IRS published Notice 2013-57 confirming that a High Deductible Health Plan (HDHP) can, in fact, still be an HDHP if it offers preventive health care without being subject to the deductible. The IRS got this one very right, despite Congress having missed a few technical details.

Here's the rub. The Affordable Care Act (ACA, PPACA, or ObamaCare) clearly contemplates HDHPs and health savings accounts (HSAs). The law tells us all of the following:

• For an individual to make (or for the individual's employer to make on the individual's behalf) tax-favored contributions to an HSA, the individual must participate in an HDHP.
• Further, the HDHP must not pay any benefits to the individual until the [high] deductible is satisfied.
• The ACA requires that a health plan must provide first dollar coverage for certain preventive care services.

Thankfully, the IRS made a completely reasonable decision. It determined that those benefits that must be provided should not preclude the use of an HSA. IRS went further by saying that anything that is preventive care under Notices 2004-23 or 2004-50 is preventive care for this purpose whether or not it is specified as preventive care under the ACA.

Phew! And, you were worried that this little glitch was going to blow up ObamaCare.

The Need For Honest Debate

It's that time again, it's time for a rant. But, I hope that it will be instructional as well. I'm going to talk about our need for honest debate in our legislative process. And, because this is a blog that, at least in theory, deals with benefits and compensation, I'll use benefits and compensation issues to illustrate my point.

For those who are wondering, the antagonists here are the large part of the 535 (that's the usual number) elected officials who in combination are the voting members of Congress. The protagonists, if there are any are the other 315 million or so of us who get to live by what the 535 come up with.

Let's start with nearly everyone's favorite whipping boy, the Affordable Care Act (PPACA, ACA, or ObamaCare). We all know what happened. President Obama really wanted to reform the US health care system. At various times, he indicated that he wanted to move toward a single payer system. Many of his fellow Democrats among the 535 also wanted a single payer system, but knowing that was unlikely to get enough support to become law, they settled for a bill that eventually became PPACA. The Republicans banded together to vote against it, unanimously. My distinct impression is that most didn't care what was in it. It was to be a landmark piece of Democrat-sponsored legislation and Republicans were voting against it. My distinct impression was also that most Democrats didn't care what was in it either. It was going to be a win against Republicans, so Democrats voted for it. As Nancy Pelosi (D-CA) famously said (and I am going to include the whole quote so that it is not taken out of context):

You've heard about the controversies within the bill, the process about the bill, one or the other. But I don't know if you have heard that it is legislation for the future, not just about health care for America, but about a healthier America, where preventive care is not something you have to pay a deductible for or out of pocket. Prevention, prevention, prevention -- it's about diet, not diabetes. It's going to be very, very exciting. But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.

Did Ms. Pelosi know what was in the bill when she voted for it? She probably had a general idea, but didn't know the specifics. How about the other 534? I'd wager that most of them had neither read more than a page or two, at most, of the legislation and had not been briefed on it by anyone who had read it.

Where was the debate? Where was the opportunity for individual members of Congress to discuss the good parts and the bad? Even among the most ardent Republicans who voted against the bill, I suspect it would be difficult to find many who think that mandatory preventive coverage and coverage of kids up to age 26 are bad things. On the other hand, the medical device tax that was inserted deep in the bill's bowels as a revenue raiser would probably not get support today from more than a few Democrats who voted for the bill.

Suppose the bill had truly been debated. Suppose the good parts had been picked out as the foundation for a bill that might have gotten some bipartisan support. Suppose the parts that virtually all of us can agree don't make sense had been left out. What would debate have taught us? It would have confirmed that our health care system needed some reform. It would have confirmed that providing health care coverage to millions of uninsured costs money. It's not budget neutral. It's certainly not helpful to the budget. But, we didn't have good, honest debate and we eventually have learned what was in the bill.

Dodd-Frank was another bill that was passed without a whole lot of what I might refer to as crossover voting. That is, a few Republicans voted in favor and a few Democrats voted against. But, to call it bipartisan is a bit of a stretch. The bill was massive. Many who voted for or against had a pet little provision in there that triggered their votes.

The bill was supposed to clean up Wall Street and protect consumers. I know this to be true because of the full name: The Dodd-Frank Wall Street Reform and Consumer Protection Act. Names of laws don't lie, do they? Say it ain't so.

Somehow, it became important to get Title IX in there -- the part on executive compensation. And, Senator Robert Melendez (D-NJ) managed to sneak in what regular readers know to be my personal favorite, the pay ratio provisions in Section 953(b).

I've communicated with a few people who follow Capitol Hill closely, Congressional reporters. None of them are sure how this provision actually got into the bill. They all agree that it was not debated. What happened?

Implementation of Section 953(b) will require some simple mathematics, or arithmetic if you prefer. Senator Menendez, the purported author of the section was a political science major before attending law school He was also a member of a Latin fraternity. He first entered politics at the ripe old age of 20.

I looked hard. I cannot find any evidence of Senator Menendez' mathematical prowess or of his knowledge of executive compensation. Perhaps that is why Section 953(b) is so incredibly messed up -- bad enough that I have written about it enough times to finally learn how to type the word ratio without placing an n at the end of it even though my fingers seem to prefer to type ration.

To the credit of the 535, Dodd-Frank was debated ... as a bill. But, it's tough when you have a bill that, at least in one printing, contains about 3200 pages to debate every provision. Section 953(b) escaped debate. It became part of the law.

It is bad law. Despite what the AFL-CIO says, Section 953(b) is bad law. There, I said it. Perhaps it should have been debated. Perhaps Ms. Pelosi should have said that [we] have to debate the bill so that we can put useful provisions in it. Perhaps I am dreaming.

Getting Around Code Section 162(m)(6)

This is an article that I wrote that was published by Bloomberg/BNA. They have the exclusive copyright. You may print an article for your own use. You may not distribute it physically or electronically without the express written consent of Bloomberg/BNA.


I am working to remember how to embed it in this blog, but in the meantime, you can go to it by clicking on this link.