InsurancePickle.com Articles

It is a case of the left hand not knowing what the right hand is doing. The health insurance broker comes in and explains how a QHDHP (Qualified High Deductible Health Plan) with an HSA (Health Savings Account) works, the employer likes what they hear, and implements the plan. And, either the employer, the employee or both of them start to contribute to the HSA and enjoy the tax savings that the accounts can offer. To be eligible to make a contribution to the HSA, you can only have the one health plan and that plan must be a QHDHP. If have a plan that is not a QHDHP or if you have more than one health plan, then you are not eligible to make contributions.

At a later date, an Aflac rep. (one of the hundred that have knocked on the door) comes in and, along with other benefits, sells hospitalization plans to the employees. And, more often than not (in our experience), these plans are not HSA compatible plans, so they end up “counting” as a second health plan and nullifying the eligibility to make qualified contributions to the HSAs. And, that would be absolutely fine if the employer and employee were made aware that they needed to stop making contributions. But, they usually are not or they usually do not pay attention to the warning – which is a problem. If they (employer or employee) ever get audited, they could be faced with taxes and fines for making contributions that they are not eligible to make – a risk not worth taking.

Make sure you are working with brokers that have a better handle on how to incorporate all of the benefits – including the voluntary benefits. Voluntary benefits sold as a tertiary item or a side bar do not work in the same manner that well-integrated ones would. Also, if YOU are the owner the business, then this is YOUR responsibility. We recently met with a doctor’s office who had a very inexperienced person handling their benefits, and she was not concerned that they were doing exactly what I described above. Also, to be clear, there are hospitalization plans that you can own with an QHDHP, but few people buy those because the benefits are very limited.

Every industry has their shining stars and rotten apples. And, as a company that works with and trains brokers, it is just very disappointing when a broker chooses a product that is not in the client’s best interest. Sure, if two products are more or less identical, but one gives the broker an added perk, then that is absolutely fine. But, when a broker claims to “represent 30 carriers in this space,” but consistently only sells the one or two companies that pay him (or her) the most, then that is just sad. It is sadder still when their client does not see through it. It is ok to have favorites, but have favorites because the carrier excels in product, price and service.

When your broker only has experience in one discipline, they can make recommendations that they may feel are the correct ones even when they do not make any sense.  We recently had a former client hire a consulting firm who recommended a new broker to them.  To put it in perspective, this same consultant recommended that they hire a CFO at twice the going rate as well (oddly the consultant’s associate…go figure).

At any rate, we had each of the employees in the company set up on a group health plan that covered all primary care visits, lab, xrays, diagnostics (MRIs, CT Scans, etc..), and generic drugs for free.  If they needed mental health services, surgery or hospitalization, the employee then had a $1500 deductible.

The new broker put in the same plan with the same company, network, benefits, etc…except that, because that is what they knew, they put in the HRA version of the plan.  So, instead of only seeing the deductible for hospitalization and surgery, the employee now was faced with a $1500 deductible for ALL services.  The employer took on that risk of the first $1,000 (of the $1500), which with 40 employees is $40,000 of risk.  And, since all services are now subject to the deductible, the employer is now paying for ALL ailments and medications that the employees have.  The cost difference between this plan and the plan they had….$1 per month.  The broker also told them that the plan was better, because they would get a bigger tax deduction.  Yes, if you needlessly spend money, then you get a bigger tax deduction.

Lastly, we had layered in a hospital/surgical plan that paid for the deductible which only cost the employer $13/month per employee.  The broker told them that they were wasting their money on that plan (mostly because they were unfamiliar with that type of plan).  The truth is that the plan paid out to the employees twice as much as the company laid out in premiums in the previous year. While you never know what is going to happen each year (the point of insurance), that same scenario this year would cost them twice as much. And, that’s just for the surgeries and hospitalizations…not all of the other services that the employer is now responsible for.

One can only shake their head in disbelief.  But, the takeaway is a few fold.  Do not assume that just because you are paying for advice that it is going to be qualified advice.  And, if you do get a recommendation, at least take the time to compare.  Had we been given the opportunity to show them what they were signing up for, it would have been as easy as it was for you to determine the better course of action.

Insurance is about transferring risks, and clearly if you can transfer $60,000 of risk ($40,000 for the employer and $20,000 for the employees) for $1 per month, then you would hope that would be a no brainer.