The Impact of the Affordable Care Act on Insurance Prices and Enrollment Beyond 2014

The results of this study by professors of health finance from the University of Minnesota are rather startling and project that health insurance cost could continue to escalate despite the fact that the ACA was passed as a law that would bend the cost curve down. Two drivers for these increases appear to be the scheduled termination of the temporary reinsurance and risk corridor programs, which likely has been artificially depressing premiums.

Take a look at the below link which includes the national study as well as a 10 state impact analysis.  Using the 2014 enrollment report data and micro-simulation model funded by the U.S. Department of Health and Human Services, the professors estimate the national and state impact of the ACA on insurance prices and enrollment from 2015-2024.

http://www.washingtonpost.com/blogs/wonkblog/files/2014/05/ParenteAnalysis.pdf

Patrick Duke, Vice President-Employee Benefits

Posted in Benefits, Employee Benefits | Tagged , , , , , , | Leave a comment

Why Would You Place Your Insurance Through a Captive?

written by Michael Fragola, VP Business Development

Reason # 1 – Claim professionals that work for you!

If you currently write checks to an insurance company for Workers’ Compensation, Auto Liability or General Liability, you are supporting their claims unit.  In the event of a claim, the insurance company’s claim unit has some responsibility to protect your interests, but mostly the claims unit exists to protect the insurance company’s welfare.  This is not a slam on them – they’re in the business to make money and retaining the premiums you paid to them results in profit to them.

The captive model is a different world from your insurance carrier based claims experience.  Claims are reported to and managed by a Third Party Administrator (TPA).  The TPA is hired by (and can be fired by) the Captive and they are responsible to settle claims quickly, effectively and, whenever possible, in your favor.  This approach applies to closing out claim reserves (dollar amounts expected to be paid to the claimant in the future) as quickly as possible.  Often, clients of insurance companies have experienced unnecessary delays in closing claims just because of poor communications within the company.   Another reason they may not exhibit a sense of urgency is that the carrier benefits from the tax deduction on the claim reserve until it is paid or closed.  Keep in mind that a delay in closing out a reserve will have an adverse effect on your experience rating – something that occurs on all casualty business – not just Workers’ Compensation.

The “bottom line” is that retaining your own adjuster rather than relying on the insurance carrier’s means you have an advocate in your corner which results in a positive impact for controlling your claim expenses.

Posted in Commercial Insurance | Tagged , , | Leave a comment

HR & Finance Panel Discussion for Non Profits

Where Your Systems Intersect: Benefits, Payroll and HR

I’ve recently been talking with several of my non-profit clients about the day to day operation of their HR and Finance Departments.  We’ve discussed how they work together, how they are one in the same sometimes, and how they are often using and doing the same things but in little different ways.  This got me and my team thinking, why isn’t anybody talking about how these departments and systems intersect?

I’ve reached out to Paycom, a payroll group, I have come to know well over the last two years and Non-Profit HR Solutions, an HR Outsourcing and Resource group, that many of my clients have consulted with over the years.  Together we have put together a panel discussion covering how HR, Payroll and Benefits are coming together in this new environment of PPACA, increased DOL Enforcement and the desire to more greatly involve employees in their day to day interaction with the payroll and benefits systems.

Please join us on 5/14 at the offices of Cresa in DC for what I hope will be a very informative and interactive session. 

Regards,

Paul J. Phelan, CFP

  • Date: Wednesday, May 14, 2014
  • Time: 8:00 a.m.- Reception, 8:30 a.m. – 10 a.m.- Panel Discussion
  • Location: 1800 M Street, NW, Suite # 3505, Washington, DC 20036
  • RSVP: Marlene Stringer at stringermg@ecsinsure.com

Image

Posted in Benefits | Tagged , , , , , , , , | Leave a comment

Always Verify Your Bond!

Recent news has proven that fraudulent surety bonds have become a more frequent occurrence.  It is becoming more important now than ever to verify the authenticity of the bond, a process that takes less than ten minutes and could prevent thousands, even millions, of dollars in losses down the road.  

As an NASBP member, Early, Cassidy and Schilling, Inc., encourages you to be a knowledgeable consumer of surety credit and to verify the authenticity of every contract surety bond before acceptance. You can perform this important task expeditiously by undertaking the two‐step process identified below, which will help you confirm that the surety is licensed in the jurisdiction of the
project and that the bond has been authorized by that surety.

First, check the authority of the surety to issue the surety bond:

  • Contact the state insurance department to determine if the surety is admitted in the jurisdiction of the project. With few exceptions, sureties must possess a certificate of authority from the insurance commissioner in each state in which they conduct surety business. The National Association of Insurance Commissioners provides a map with links to all state insurance departments, which can be found at http://www.naic.org/state_web_map.htm. Some states list admitted sureties on the insurance department web site, but a quick call to the department will ensure the most current and complete information.
  • Consult the U.S. Department of the Treasury Listing of Approved Sureties, Department Circular 570. To provide surety bonds on federal construction contracts, a corporate surety must possess a certificate of authority from the U.S. Treasury Department, which conducts a financial review of the surety and sets a single bond size limit for the surety on federal projects. A listing of certified surety companies approved to provide bonds on federal contracts, known as Department Circular 570 (or the T‐List), is updated twice per year and is posted by the Financial Management Service, Surety Bond Branch of the U.S. Department of Treasury at www.fms.treas.gov/c570/index.html (see Sureties Listing). Department Circular 570 includes the business address and phone number of each listed surety and each state in which the surety is licensed to operate.

Second, verify that the surety actually authorized the issuance of the surety bond:

  • Contact the surety directly to receive verification that the surety bond has been duly authorized. All sureties listed on Circular 570 identify a specific contact phone number. In addition, the Surety & Fidelity Association of America administers a program in which surety companies voluntarily agree to receive inquiries for the purpose of verifying the authenticity of surety bonds. Surety contact information is contained in the SFAA Bond Obligee Guide, which is available at http://www.surety.org/?page=VerifyYourBond. The surety will need specific information, such as the bond number, the name of the principal, the name of the obligee, the amount of the bond, the execution date, description of the project, and the name of the attorney‐in‐fact signing the bond, to verify authenticity.

Additional information, such as financial strength rating and business reputation, may be desirable to gain a broad picture of the capabilities of a particular surety. Financial ratings may be obtained from rating organizations, such as A.M. Best Company at http://www.ambest.com (log‐in required). Please feel free to contact us for additional information about sureties or bond information, but nothing should replace your own exercise of due diligence regarding the authenticity of surety bonds.

This two-step process can be found at www.nasbp.org

Posted in Bonds, Compliance, Construction | Tagged , , , , , , , , | Leave a comment

Can a Business Combine the Benefits of a Cross-Purchase Plan with the Simplicity of a Redemption Plan?

The answer is…. YES, with an Insurance LLC.

  1. An LLC is established, and each of the owners of a business becomes a member of the LLC. 
  2. The individual owners of a business enter into a cross-purchase buy-sell agreement that obligates them to purchase each other’s interests in both the primary business and the insurance LLC following the specified trigger events in their buy-sell agreement.  
  3. The insurance LLC then purchases, owns and is the beneficiary of a life insurance policy covering each owner of the business.  In order to pay policy premiums, the members of a business transfer cash to the insurance LLC as a tax-free capital contribution. This can be accomplished using income tax deductible compensation they receive through an Executive Bonus Plan with a business under IRC § 162. 
  4. Following the death of an owner of the primary business, the death proceeds are paid to insurance LLC income tax-free.
  5. The surviving owners then use the proceeds received to buy the deceased owner’s interests in both the main business and the insurance LLC. 
  6. The surviving business owners will receive an increase in basis to the extent of the interests purchased from the deceased owner’s estate (or trust if the owners want to get into some estate planning).

 What if an owner of a business departs from the business prior to death due to disability or retirement?  His/her life insurance policy can be transferred to him/her as part of the buy-out.  If permanent insurance is used then the departing member has the added luxury of accessing policy cash values (income tax-free) for supplemental retirement income or other lifetime needs. 

The graphic illustrates both death and retirement of a business owner. For more information on the concept, contact Paul J. Phelan, (240)864-9117 or by email at phelanpj@ecsinsure.com.

Image

Posted in Benefits | Tagged , , , , | Leave a comment

Money problems for owner of a dozen D.C.-area contractors

The Alaska native corporation that owns about a dozen government contractors in the Washington area has fallen on hard times, with weak performance forcing the company to rely on creditors to pay its bills, according to a credit rating agency.

Nana Development Corp., which manages about a dozen D.C.-area contractors that fall under its umbrella, including Akima LLC and Sava Solutions LLC in Herndon, saw its corporate credit rating from Moody’s Investor Service dip to “Caa” — deemed of poor standing and subject to very high credit risk.

The company, which reported $1.6 billion in revenue during fiscal 2013, has suffered from weak operating performance and cash flow generation, according to Moody’s, which announced the downgrade Thursday. Nana’s also relied on its asset-based revolver credit to fund $20 million in annual term loan amortization payments — something it will likely need to continue, given the lack of cash flow, according to Moody’s.

Lower-than-expected earnings within Nana’s oilfield and mining support segment, following its 2011 acquisition of Grand Isle Shipyard, didn’t help financials, Moody’s report said. That contributed to a $70 million impairment charge recorded in fiscal 2013.

One factor that Moody’s said contributed to Nana’s financial challenges is its statutory requirements as an Alaska native corporation. It’s among 12 such corporations established to foster economic development for Alaska natives, as part of the 1971 Alaska Native Claims Settlement Act championed by the late Sen. Ted Stevens, R-Ala. In exchange for getting an advantage in contracting competitions, Alaska native corporations are required to make dividend payments (dependent on a formula based on net income levels) that help support social needs of a native community in Alaska.

That said, reports indicate those dividends don’t always add up to a huge amount. One from the Government Accountability Office found that in 2010, Nana paid $21.71 million in dividends — or 53 percent of net income.

Posted in Construction | Tagged | Leave a comment

What Can You Expect from Your Surety in 2014?

Written by: Lynne Cook, Senior Vice President of Surety

Do we really know where the Mid Atlantic construction market will be by year end 2014? The more I read about it, the more I doubt anyone really knows. However, I can tell you what the surety executives are saying and offer a few observations that may help you make wiser business decisions as respects your surety program and risk management…

The Economy

It appears the economy is improving slowly and the fact we have a budget for the first time in many years should help the situation.

But I offer a few caveats:

  1. Construction spending is still less than in 2007.
  2. This region will continue to feel the impact of federal budget cuts.
  3. Margins are still thin.
  4. Payments from owners/general contractors are slower. If the old norm was 45-60 days, the new normal is 90-120 days.

Surety Results

The Surety and Fidelity Association of America’s results for the last six quarters have shown a steady increase in the loss ratio, but with overall acceptable results from a return on capital perspective. Claim activity is definitely up for the same period and continues on that trend. Historical data tells us that construction firms are three times as likely to fail during the economic recovery versus on the way down, so the expectation is that loss trends will continue upward. Some Sureties have reassessed prior year reserves and accounted for a repayment which has a positive affect on loss ratios. A number of the regional Sureties have experienced significant loss ratio increases, but the long anticipated slaughter of the industry has not occurred.

The surety executives I have spoken with are still cautious and attribute the better than expected results to underwriting discipline. A reasonable person would expect the surety companies to maintain this discipline. Sureties have maintained their basic underwriting; the three C’s; Capital, Capacity and Character.

Capital 

There is a noticeable trend toward “continuous underwriting” as compared to only on an annual or semiannual basis. If your company uses its surety line, it is not unusual for the carrier to expect quarterly and possibly monthly financial statements along with a current work in progress schedule and an aging of accounts receivable in order to stay very current with your capital levels.

Sureties rely upon the quality of your internal accounting and cost controls to make credit decisions so they need credible numbers and reports. While software for cost accounting and the capabilities of your internal accountant are critical, another aspect of information credibility is the relationship between the field and the office and the quality of the information exchange. How frequently are costs updated? Do your folks review the labor and materials budget to actual costs incurred weekly? Do your PM’s understand that they need to bill for at least all costs incurred in particular period? Are your estimators accurately reflecting “overhead burden” in their bidding?

Capacity

What does your business want to accomplish this year and the next two? Sharing your business plan with your surety for feedback and hopefully concurrence will enhance the confidence in your management and the partnership that underwriters appreciate.

Character

The third “c” character is a bit more subjective. Initially the underwriter relies on the agent’s word and their market intelligence of your reputation as a good and fair business person. However, while your relationship develops, the most effective way to prove yourself to your surety partner is to be honest, conduct open communications, and follow through on commitments. If you agreed to add money to your company, make sure it is done within the allotted timeframe. If you told them you are cutting overhead in order to be more profitable, cut your overhead. You may have heard that Sureties do not like surprises, well, I’d like to reiterate that statement one more time. Sureties do not like surprises!

Underwriters can handle most situations as long as they are expecting it, so if you know a job is going bad; tell your agent and underwriter. If there is a claim situation brewing, warn them about it and be transparent providing all information that is relevant. Former positive experiences with your surety go a long way toward mitigating a situation in the future.

Right now there is a robust market available to small contractors, $10 million in revenue or less. Many of the carriers have embraced underwriting tools such as escrow accounts and collateral to more effectively secure their position and give contractors bonds that may not have been available without the additional security. While these tools can help a company in the short term to get work and hopefully strengthen the financial condition of the company, the surety is looking for the company to develop into a firm for which bonds can be provided without the need for additional security. Working with a professional surety agent, a construction oriented CPA, and having a bank line will enhance your presentation and credibility to a surety while the additional profits will improve the financial situation.

So what can you expect from the surety industry in 2014? Overall, there is plenty of capacity available. Construction companies that are well financed have a reasonable business plan, and the operational experiences to execute the plan have many options available to them. Because Sureties are still concerned the worst is not over yet, in order to make the most of your surety relationship, be prepared for diligent financial analysis and questions concerning your choices. Open communication, current credible financial information, and reasonable expectations, are key elements to creating or maintaining a successful relationship with your surety.

Posted in Bonds | Tagged , , , , , , , | Leave a comment