Benefits April 6, 2016

Health Plan Choices Limited, Post-ACA

Since passage of the ACA, there has been a reduction in health plan designs insurance carriers are selling, says Jim O’Connor with CBIZ.
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The anticipated product expansion following passage of the Patient Protection and Affordable Care Act (ACA) has not come to fruition, says Jim O’Connor, CEO of CBIZ Employee Services Organization in Manasquan, New Jersey.

First, carriers in the health insurance marketplace have continued to consolidate, leaving fewer choices in carriers. O’Connor observes that being bigger matters. When an insurance carrier is larger, with greater market share, it has greater leverage over health care providers in negotiating reimbursements. Likewise, hospital and physician groups are merging because they need scale to negotiate with insurance carriers.

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Further, insurance carriers are selling fewer plan design options. “Plan design flexibility has reduced significantly,” O’Connor tells PLANSPONSOR. He says this is especially true in the small employer marketplace, although the greater-than-100-employee marketplace shows more flexibility.

Plan designs from insurance carriers are getting more restrictive within networks of providers; there are networks within networks. O’Connor explains this is an effort to steer employees to ultra-preferred doctors and facilities with the best contracts and that offer the best quality of care. “Right now, it appears to be very heavily financially-driven, and it can put a burden on employees that live in rural areas,” he says.

But another factor driving the reduction in plan design offerings is the efficiency of managing products. Carriers have bold legacy systems in place, and it can be burdensome and expensive to provide hundreds, if not thousands, of product configurations. “With any manufacturer, if it reduces the number of offerings, it gets better efficiency, and with better streamlined distribution, profitability is enhanced,” O’Connor says. He adds that insurance carriers want to influence purchasing of the type of plans they think will result in lower loss ratios; for example, high-deductible health plans (HDHPs) will result in lower loss ratios than co-pay plans.

NEXT: Employers considering partial self-insurance

O’Connor notes that the HDHP trend started before passage of the ACA, but greater adoption has followed that. This is an ongoing effort to reduce premium costs, but, as far as improving health care consumerism among employees, there still are no solutions in place to help consumers compare costs of providers or procedures, he says, although he believes this will come.

Still, in the smaller and midsize employer space, more employers are adopting HDHPs, not a plan design where they can use health savings accounts (HSAs) but health reimbursement accounts (HRAs), by which the employer will subsidize employee out-of-pocket expenses. O’Connor says these employers are interested in some form of self-insurance. Employers are looking to bear more risk with partial self-insurance, and, in the 100-or-more-employee space, employers are considering true self-insured plans.   

O’Connor believes the market will see insurance companies accommodating employer demand for hybrid self-insured programs, as companies are tired of turning over full premium dollars that are escalating 8% to 10% per year.

According to O’Connor, the explosion in the use of private exchanges never occurred, as anticipated, but employers are offering employees two or three health plan options to provide more choice.

In addition, well-being programs are taking hold in the mid-market space, and it is being proven that well-designed, well-managed such programs do have positive impact on health costs. O’Connor believes all of the trends he mentioned will accelerate at a compounding rate over the next 10 years.

Meanwhile, employers are increasingly interested in voluntary benefits to fill the benefit gaps. Employers cannot fund them, but they can give employees access to quality products. In addition, in the smaller employer market, there is a demand for efficiency. These employers want an easier administrative environment—to get out of paper enrollment and integrate benefits technology.

Compliance April 6, 2016

Service Providers Start Final Fiduciary Rule Analysis

It will be some time still before the fiduciary rule language is fully digested by retirement plan service providers, but first-impression commentary is already pouring in. 

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No doubt about it—it’s a big day in the retirement planning industry, and for financials services more broadly.

Comments are already pouring in on the freshly published final fiduciary rule, billed by the Department of Labor (DOL) as a direct extension of President Barack Obama’s wider goal of promoting stronger consumer protections across the economy, especially in the wake of the 2008 financial crisis.  

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The DOL began the process of formally publishing the rulemaking at 6 a.m. today, the culmination of the better part of a decade of work and two separate proposed versions. On first review, it appears the final version looks a lot like the second version proposed in the Spring of 2015, albeit with some important softening around the edges in response to industry criticism.

Speaking with reporters on Tuesday, Labor Secretary Thomas Perez stressed that the final version of the fiduciary rule is the result of years of collaboration and discussion between government regulators and the financial services industry, especially recordkeepers and advisory firms concerned about what the rulemaking will do to their compensation models. As one has probably come to expect in this contentious political and regulatory environment, some of the industry response was positive, some negative. Given that the rule is only a few hours old, most of the commentary was pretty cautious.  

Among the first comments to reach PLANSPONSOR was one from the Financial Services Institute, which clearly is in the skeptical camp. According to FSI President and CEO Dale Brown, “The Department of Labor’s two earlier proposals were complex and unworkable. As we have said since day one, there is no compelling evidence this rule is necessary to achieve a uniform fiduciary standard, and DOL’s own analysis fails to make the case.” He says FSI will spend the coming days “thoroughly analyzing this rule to determine if it protects Main Street investors by preserving their access to affordable, objective financial advice delivered by their chosen financial adviser.”

NEXT: Comments from across the industry 

Another early commentator was the Financial Planning Coalition (FPC), composed of the Certified Financial Planner Board of Standards Inc. (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). The group issued the following statement regarding the rule, which they argue will “require fiduciary-level advice for all Americans’ retirement assets under the Employee Retirement Income Security Act (ERISA).”

“The Financial Planning Coalition applauds the Department of Labor for its commitment to American investors and retirement savers,” the group writes. “Based on our initial review, this rule, achieved through an inclusive, comprehensive review process, carefully balances needed consumer protections with preserved access to retirement advice. The end result is a rule that will help bring millions of Americans much closer to a secure, dignified retirement. We urge Congress not to harm American investors and retirement savers by dismantling this important consumer protection.”

TIAA also had a statement ready to go, quickly following the rule’s release, from Roger W. Ferguson Jr., the firm’s president and CEO, who pointed out the big impact the final rule will likely have on the individual retirement account (IRA) market, not just within employer-sponsored ERISA plans.

“Putting the customer first is a core TIAA value, and we believe adhering to a best interest standard under the department’s new regulation is an important way to help more people build financial well-being,” he says. “IRAs are a key part of creating retirement security, so we agree with the requirement that distribution advice be subject to the same fiduciary standard as all other investment advice. This will ensure that rollover discussions, including whether to roll over from an employer-sponsored plan to an IRA, are always in employees’ and retirees’ best interest. Based on our preliminary analysis, it appears the department has gone a long way toward making the best interest standard the industry standard. TIAA supports this direction, and we look forward to reviewing the full rule.”

NEXT: One RIA’s analysis  

Robert C. Lawton, president of Lawton Retirement Plan Consultants and an occasional source of commentary for PLANSPONSOR, feels much of the final rule language is “aimed specifically at brokers who provide investment advice to clients under the ‘suitability’ requirement, which exempted brokers from being fiduciaries.”

He adds that the stance taken by the final rule is that “a fiduciary’s responsibilities are both ethical and legal. They are required to provide advice that is in the best interests of their clients rather than themselves and cannot benefit personally from advice shared. Fiduciaries must adhere to the prudent person rule, which states that advisers should act with skill, care, diligence and use good professional judgment. Additionally, fiduciaries should never mislead clients, always provide full and fair disclosure of all important facts and avoid conflicts of interest.”

Like Perez and other supporters of the DOL, Lawton says the final structure of the rule “seems reasonable.”

“Investment advisers working for registered investment advisory (RIA) firms are required to be fiduciaries, providing investment advice that keeps their client’s best interests first and foremost. Full disclosure here, my firm is a RIA and I believe in being a fiduciary to my clients,” he says, adding that the impact on plan sponsors is “going to be nearly all positive.”

“Most retirement plan sponsors have a hazy understanding about what a fiduciary is and if their adviser is acting as one,” he concludes. “Plan sponsors working with advisers who haven’t been acting as fiduciaries will be approached by these advisers as they begin to define a new working relationship. They are likely to outline relationships that feature higher costs. There will also be additional paperwork to sign, which describes their fiduciary limitations.”

He predicts there will be renewed competition between RIAs as different firms feel different fee pressures and respond in different ways. He says the message from Perez and the DOL to sponsors is, “Don’t feel that you have to work with a broker who views his new responsibilities as a burden. These regulations benefit you, the plan sponsor. Any adviser who whines and complains about taking your best interests into account when providing investment advice is not worth working with.”

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