Thursday, March 28, 2024

Black Holes

Several prominent scientists recently shared the 2020 Nobel Prize for Physics. They were rewarded for helping to understand the exotic and mysterious phenomena of Black Holes.

  • “The general theory of relativity leads to the formation of black holes.”
  • “That an invisible and extremely heavy object governs the orbits of stars at the center of the galaxy.”

Their research has helped to reveal the darkest secrets of the universe. A black hole creates a gravitational pull that will not even allow light to emerge. The frequent readers of this column already know where this is heading. My partner and I have had numerous reflective conversations concerning our occasional combat fatigue with trying to illuminate the reality of the long term care “insurance” conundrum. Maybe it’s simply our own version of PTSD from the continuing battle to protect as many as possible from the potential financial implosion caused by an extended need for care.

It seems that light cannot escape the gravity of consumer resistance. It sometimes seems no matter how we approach the sale there is lurking in the background powerful calcified negative energy denial. The problem of course is that the war must go on. The reasons for the emotional and fiscal conflagration have not been mitigated. A satisfactory insurance solution that can create sufficient critical mass to make a real difference is still somewhat illusory. Whatever momentum we may have had 15 years ago has been decimated by rate increases and carrier exits. Exactly what happens before matter falls forever back into a black hole in our own Milky Way galaxy is shrouded by a cloud of star dust we have simply not been able to penetrate. In other words, we know what happens and does not happen in terms of a cosmically permanent result. We do not know why.

We keep trying to peer through that cloud to better understand. We try what could best be construed as a process of elimination with perceived consumer awareness and preference. It must be about price. Well, not exactly. It must be about benefits. Well, not exactly. It must be about perceived value. Well, not really. It must be about consumer awareness of the risk. Yes to awareness, no to buying action. We have simply been unable to uncover and free the light of a solution from the gravity of the problem.

The uncertainty of COVID-19 should have lit a beacon in a darkened night sky. Mortality is higher than expected over all; the number I have seen is 20 percent above projected. There is no mystery as to the source nor is there any confusion as to where the virus has hit the hardest. We have witnessed a new and ominous definition of co-morbidity and mortality not present in any actuarial product design. Time to take a deep breath as well concerning the long term effects of today’s decisions. The overall impact on future product design and satisfactory sales results is a giant unknown. While our physical health remains governed by adequate safety protocols, we should recognize the potential future concerns regarding mental health as well. In a recent NAIC article the well known underwriter Hank George suggested the pricing residue of the pandemic could lead to “an unprecedented, self-imposed underwriting apocalypse.” As you can already see frequently in the press there is considerable debate on what the pre-existing condition status will be for COVID survivors.

The pandemic has changed us permanently. The economy will hopefully continue to bounce back. Our approach to the sale, the companies’ approaches to the risk, and the consumer’s willingness to take action, may return to some version of so-called normal. But it will not be the same. Not only product but sales themselves will operate on a hybrid basis—part virtual, part personal. Zoom is here to stay but, when allowed, so is a personal close with a firm handshake or a small hug. Let’s hope that the lessons exposed by the virus can also finally release some light on more Americans willing to take actions now to protect their futures.

The Crusade to avoid the now painfully obvious shortcomings of institutional care and the capricious nature of mortality must now take on a new sense of urgency. This is protection which cannot be marginalized any longer.

Other than that I have no opinion on the subject.

What Is The Latest Technical Jargon For Life Insurtech Point-Of-Sale And Underwriting Solutions?

Have you started reading a book and then come across a word that you do not know the meaning of like, for example, “patulous?” It can be frustrating to look it up and, in some cases, you still may not grasp the full meaning. Software vendors today are marketing their solutions using words like “API,” “No Code,” “Low Code,” and “AI.” You are not exactly sure what they mean especially for life insurance technology. My objective is to help you not only understand the definition of these terms, but also understand how they are being applied to the life insurance point-of-sale tools and underwriting solutions used today by carriers, agencies and agents.

API
An acronym you often hear these days in the technology world is “API.” This stands for Application Programming Interface, which is a software intermediary that allows two applications to talk to each other. Have you ever used PayPal to pay for something you are purchasing online directly within an eCommerce store like BestBuy.com? After you add your item to the virtual shopping cart and go to check-out, you see a payment option button for PayPal. When the user clicks the “Pay with PayPal” button, the application sends an “order” request to the PayPal API, specifying the amount owed and other important details. Then, a pop-up authenticates the user and confirms their purchase. Finally, if the PayPal process is successful, the API sends confirmation of payment back to the application thereby finalizing the payment of the purchased item. In the life insurance world, there are many examples of an API being utilized. If you are a BGA using an agency management system (AMS) to process new business life cases, you may see functionality that allows you to schedule an exam or order other requirements from a paramed vendor like ExamOne. The agency management system is using an API from the paramed vendor to facilitate the requirement order. It is seamless to the user, while the API is doing the work behind the scenes to execute the requirement order.

“Low Code” and “No Code”
Two other popular terms you see today are “Low Code” and “No Code.” I am going to give you the most common business definition as it is being marketed for insurtech applications. Let’s start with “No Code”: A good example in life insurance technology is a “No Code” life insurance eApp platform. When a carrier adds its products to an eApp platform, there are three critical items that need to be setup:

  • Life insurance product rules;
  • Questions asked to complete the life insurance application; and,
  • Mapping the data to all the State-specific forms.

When eApp was first developed decades ago, setting up the three items above required a software developer to program code, then extensive quality assurance testing had to be done, and finally you had to wait for a major release before the carrier’s products were in production ready for agents to submit life business on the eApp platform. This typically was a long process to set up. As the years went by, less programming (hard-coded) was required because of the configuration tools that were developed to help make changes to the software application. Now fast forward to 2020. A No-Code eApp platform means that setting up the life insurance product rules, the questions, and the forms, is completely self-service and does not even need to be administered by a technical person. So, when you see software advertised as “No Code” it usually means you can set it up and configure it on your own.

Low Code is a visual approach to software development. Low Code abstracts and automates every step of the application lifecycle to enable rapid delivery of a variety of software solutions. It breaks the traditional silos of business and IT to promote continuous collaboration. When a software vendor is enhancing their system with new functionality instead of programming raw code, they use a graphic interface drawing workflow and moving objects around. If you are buying software from a vendor who is advertising Low Code, then it simply means speed and ease in releasing enhancements, fixes, and new functionality. In life Insurtech today you will see Low Code for eApp, eDelivery, and Underwriting Workbenches for carriers just to name a few types of Low-Code platforms that are available.

AI
Artificial Intelligence (AI) is sprayed everywhere in vendor solutions and processes. There are an enormous amount of ways that AI is being used in our everyday lives. The obvious example is Alexa from Amazon or Siri from Apple. You can ask Siri to play a specific song, or turn on the lights in your house, or schedule a calendar appointment. But it can do more sophisticated tasks like knowing where you are with your GPS and telling you that you will be late for your appointment because your location is too far away for example. Artificial intelligence is based on the principle that human intelligence can be defined in a way that a machine can easily mimic and execute tasks, from the simplest to those that are even more complex. The goals of artificial intelligence include learning, reasoning, and perception. AI programs require training—meaning the more data you feed it, the more intelligent it becomes. When we see AI being mentioned in the life insurance new business process or in insurtech applications, what do they really mean? A great example is eNoah’s eXtract Plus solution. It uses AI to take a 200 page Attending Physician Statement (APS) and make it a searchable document (extracting vitals, medications and key information) for a life underwriter. eXtract Plus can also render medical records and lab documents with hyperlinks and cover pages. This information can be utilized to create APS summaries or validate that APS summaries are complete and accurate.

Point-of-Sale and Underwriting Solutions
iPipeline offers a transformational Resonant® Point-of-Sale (POS) decision solution that makes the customer experience quick and easy—like buying auto insurance. This enables a carrier and distributor to sell profitable life insurance protection to middle market consumers. Unlike today’s traditional process of quoting teaser rates only to find out the final premium after underwriting, Resonant POS decisioning changes the dynamic so that underwriting is completed at the point of sale. Answers to medical questions are combined with data received from industry leading evidence and predictive model vendors to provide instant decisions with the final premium needed to complete the sale in one sitting. Resonant integrates with iPipeline’s Quote, iGO® e-Application, and DocFast® e-Delivery automated solutions to manage and control the entire underwriting and new business process from simplified issue to fully underwritten complex cases and other lines of business.

Management Research Services, Inc. (MRS) has developed new tools on its no-code sales and new business platform that focus on increasing the speed of issuing insurance policies. MRS has enhanced APS retrieval by integrating with electronic health record (EHR) data partners. Working with the insurance carrier, MRS will integrate an EHR to make an automated decision and issue the insurance policy at the point of sale (similar to how a Rx or MIB integration is used). Additionally, MRS is reimaging the case management and underwriter workbench by providing better tools for the insurance carrier to order requirements. This means that instead of reactively ordering requirements that may add days/weeks to the issuance timeline, the insurance carrier can use MRS’s highly configurable rules engine to write rules that will anticipate ordering requirements needed during the point-of-sale process. This will provide busy underwriters with all the information needed to review and issue the policy, resulting in a much faster and more efficient issuance.

The two solution providers mentioned above are leveraging these technologies (APIs, No Code, Low Code, and/or AI) in their platforms that carriers, agencies and agents use every day. You can see this is much more than connecting systems, it is an integrated process. The value of the entire new business flow, from applying for life insurance to passing into the carrier fulfillment process, is seamless, intelligent, and fast because of these underlying technologies. Each new innovative deployment helps agents provide a better experience for their customers and, as a result, place more business.

Tying Down A 1,200 Pound Horse With A String

I remember as a kid occasionally being forced to watch old western cowboy movies. That is because, like every other household back then, we only had one TV growing up! Crazy, I know! And unfortunately my dad’s choice of what to watch took priority over mine. Anyway, I remember being perplexed as I would watch a cowboy pull up to a bar and get off his horse to merely throw the little leather “horse leash” one time around the post outside of the bar. I thought, “How does that loosely wrapped small leather string keep those big strong horses tied to the post?” Afterall, the slightest effort by the horse to “unleash” itself would show the horse that it can easily run off.

The reason the horses never tried to pull the leash off the post–even though it would be easy to do–is because they have been conditioned to believe that it is a lost cause. Once upon a time that horse was broken by a real leash that was very much tied down to a very solid post. I once worked for an old cowboy neighbor of mine where I would feed his horses and I once helped him “break” a young horse that had never been tied down and never ridden. For this horse who had not yet been “conditioned” to be tied up, he actually ripped the post out of the ground.

There is also a process for horses to get “broken” when it comes to being ridden. Needless to say, horses aren’t born being comfortable with a 200 pound man crawling on their backs. Conditioning a horse (also known as breaking a horse) is the process of getting the horse to realize that pushing back is more of a risk than just conforming.

Although the horse is likely correct by “just conforming,” that mentality of being “broken” rears its ugly head in many areas of a human being’s life, whether it is in our finances, our work, or our personal life.

Being “Conditioned” With Financial Products
Our brains are one of the most complex things on earth. These little three pound organs between our ears have over 100,000 miles of blood vessels in them. We as humans are the smartest species on earth, outside of maybe a dolphin. Paradoxically, because we are so smart, we can be so “not smart” because we tend to overthink things and allow our brains to condition us to believe that the world is different from reality.

For instance, we have all seen the Ibbotson “Stocks, Bonds, Bills, and Inflation” chart. Of course, when many people look at this chart going back to 1926 they conclude that stocks are the way to go. Afterall, this chart is one of the most widely used charts by money management firms that has ever been created. Over the years I have heard many securities focused folks point at this chart as proof that stocks are the way to go. Well, although I do like securities for those with a long-term time horizon, I don’t focus on the top two lines so much as I do the bottom two lines; Treasury Bills and Government Bonds.

What do the bottom two lines tell me? They tell me that our perception of risk versus risk-free can be warped. Those bottom two lines were the only two lines to not keep up with inflation over the long run. Thus, Treasury Bills and Government Bonds were the only two on this chart to lose money (after inflation) over the long run. Yes, at the beginning of the chart during the great depression, stocks were horrible. However, if you had your money in T-Bills or Government Bonds from 1926 to 1980, you lost money after the effects of inflation. But at least the investor “felt safe” right? Perception is not always reality.

The point here is not about stocks versus bonds. The point is, risk is in the eye of the beholder. I’ve included my bar chart for inflation versus the average 5-Year CD rate over the last 10 years. By looking at this bar chart I would say the orange bars represent a fairly risky place to put one’s money! Yet for decades consumers have always looked to CDs and the massive brick and mortar banks that sell them as “safety.” (You can email me to get a copy of this graph.)

Furthermore, today a five-year “Jumbo CD” is yielding .38 percent per FDIC.gov. Thirty-eight basis points! So, if inflation is two percent over the next five years, you would be guaranteeing yourself a loss of 1.62 percent per year. Risk is in the eye of the beholder and consumers have grown accustomed to believing that CDs, Government Bonds, and T-Bills are “safe.”

Consumers need to know that their retirement savings are equivalent to the horse being tied to a flimsy post with a flimsy leather string. There are other options.

Being “Broken” in Your Career
If you are one of the 30+ million that has recently lost his or her job and has ever contemplated opening your own business, this is for you. Or, if you are a financial professional who is “captive” and has thought about going independent, this is for you. For those of you that have taken this step already, you probably can connect.
Two years ago, October 2018, I decided to leave corporate America after almost 20 years. Some people would have considered me crazy because I had done well in the corporate world and some would have thought of me as a “lifer.” Plus, why would I not continue the corporate route? When you work “for“ somebody you have the comfort of that paycheck that comes in every-other week, right? Conversely, when you work for yourself, you do not have that security blanket.

I would argue that society in America has “conditioned” us to believe that the guarantee of a paycheck is the definition of security and safety in our careers. I would argue that this can be the equivalent to the horse being tied up to a post by a tiny string.

December of 2018 is when I officially created my LLC, CG Financial Group–an Independent Marketing Organization. Around that time I was sitting with a good friend of mine talking about business. Twenty years ago he was an executive for a major transportation company, and he decided that he had enough of what he was doing. He left a comfortable job, a comfortable six-figure income, and started his own agricultural manufacturing business. To say the least, he has done very well from a financial standpoint as well as from a personal standpoint. He has a ton of money, a great family and has been married for a long time.

As we sat in his multi-million-dollar house there was something he told me that I thought was very well articulated. Effectively, he said that we as humans are conditioned to think of risk in certain ways. We are conditioned to think of risk as just uncertainty. We have been conditioned to expect that paycheck every-other week and by not having it we would be fed to the wolves. The “certainty” of a paycheck is the tail that wags the dog. He went on to say the below:

“So many employees go through their careers dealing with the volatility that their employers can subject them to with bad corporate decisions, misguided decision makers, layoffs, pay cuts, etc. All for that guarantee of a paycheck! For those employees that are in debt up to their eyeballs, that paycheck is probably a reasonable security blanket. However, if one has the liquidity, the skills, and the gut feeling that they could make it on their own, it’s a different story. For these folks, to stick with what they have always been “conditioned” to do brings on more risk and less reward than them opening up their own business.”

Of course, I am not suggesting quitting your job today. I am merely saying that this wonderful country we live in has given us luxuries that can skew our perception of risk/reward.

Do you ever wonder why it is that those that came from very little can turn into such a success? Because they have never been “conditioned” or “broken.” One of my best friends is now a very prosperous doctor who grew up in some very rough streets in India where he never experienced the security of a semi-monthly paycheck. Not long ago he came to America and now has several GI clinics across the country. Typically I would say, “He came to America and took risks,” but that would be inaccurate. By him leaving India, where he had no paycheck, to come to America, where he also had no guarantee of a paycheck, was not a “risk” for him because he had not yet been conditioned/broken.

Surprising Everyone In Winter

You know what seem like distant memories? Summer, gardening, and landscaping. It is now Fall heading into Winter.

I am married to an expert gardener. We have a home on a lake in East Tennessee. My wife is someone who plans, arranges, selects, and nurtures plants of intrinsic beauty and compatibility. She plants in sets of three, adequately spaced, and balances each bed so that two sides of the garden separated by a driveway, sidewalk or lawn look identical.

Meanwhile, I let what grows naturally take hold. Truth. I have several areas of our property (not visible from the road) over which my powers to superintend are unchallenged. In these spaces I watch to see what indigenous plants grow and flourish. Plants with thorns, bristles, or noxious oils (poison ivy) are ruthlessly removed. Everything else is welcome. I am open to surprises.

By late Summer, my “garden” area is covered in tall plants bearing either white, yellow, or purple flowers. Here is a sampling of what grows:

  • Giant Ironweed, Vernonia gigantea, as tall as nine feet with prolific purple blooms that attract a variety of pollinators.
  • Showy Goldenrod, Solidago speciosa, a lovely addition adding bright yellow to the autumn landscape.
  • Small-headed Sunflower, Helianthus microcephalus, an attractive woodland yellow sunflower with smooth green or burgundy tinged stems.
  • White Crownbeard, Verbesina virginica, is a late season nectar plant which has hundreds of white blossoms on each plant in heads terminating from several branches arising at the upper leaf axils. They grow as tall as seven feet.

I like these plants because they are impressive in size, color and they attract butterflies, wasps, skippers, and bees. And besides, they are free!

Surprising Everyone in Winter
The first Winter my wife and I spent here we discovered an amazing phenomenon. Frost Flowers.

Long after I have cut down the tall barren stems, when only several inches of the once-glorious stalks remain, the White Crownbeard plant is not done delighting. This wonderful specimen is also known as “Frostweed.”

Frostweed earns its name from the wonderous ice sculptures on its stems upon the first frost, or even subsequent deep frosts. This natural majesty graced us by splitting its stems and producing amazing, delicate ice sculptures. Frost Flowers are airy, fragile constructions that pour out of the plants’ stems like ice meringues.

(None of my wife’s plants can do this. Just saying…)

Question: What does this have to do with independent life insurance distribution? Keep reading.

Winter of Life
Old age and winter of life are semantically related. People will sometimes replace the phrase “Old age” with the “Winter of life.”

I am privileged to know many independent financial professionals who in any other occupation would be retired by now. I am referring to men and women in their seventies and eighties who are still meeting with clients, even prospecting (casually). As you might expect, their clientele is similarly aged.

This article is written for anyone currently in their later years and still in the business. (It is also for anyone who is currently younger but who is anticipating working as an independent financial professional beyond normal retirement age.)

According to J.D. Power, “The average age of financial advisors is about 55, and approximately one-fifth of advisors are 65 or older.”1

Kiplinger claims that “There are more CFP® professionals over the age of 70 than under the age of 30.”2

Are you among these people who are 65 years old or older? Are you still holding onto your licenses, attending CE training, participating in association meetings, and maintaining regular appointments with clients? Beyond these, how are you using your time?

How Not to Prioritize
I came across an article giving suggestions for people for how to pass the time in Winter.3 Check out these suggestions:

  • Try A New Hot Drink Recipe
  • Spike Hot Chocolate
  • Spike Coffee
  • Clean Out Your Wardrobe
  • (And my favorite) Clear Your Browser’s Bookmarks

Seriously?

My Suggestion: Surprise Everyone in the Winter of Your Life
These questions are for you.

1) Your wisdom and knowledge are your treasure for having lived this long. Who in your community needs to draw from this wealth?

a. Undoubtedly, a significant immigrant and refugee population lives in your geographic vicinity. Would you be willing to partner with organizations serving these people by offering financial education for free?

b. Young people entering adulthood have little preparation for financial decisions. Would you consider offering yourself as a financial instructor at a local high school or community college?

2) You no longer need to actively prospect. You have amassed a significant client base. They are connected to all kinds of people. Who is it in their families, neighborhoods, religious organizations, or community groups that they can introduce you to?

3) Younger independent financial professionals are relying more and more on technology. They can run circles around you in the use of digital tools. On the other hand, they do not know what you know. Would you be willing to mentor someone in the elements of client-building that they cannot learn on-line? Here are a few areas:

a. You learned to serve the clients rather than push products. You may sell insurance, but you first teach people about the value of insurance, what it does, why it enjoys tax advantages, and how it can protect loved ones. You know how to link the benefits to the individual situation. Show a younger professional how to do this.

b. Teach another person how to show gratitude to the clients they are privileged to work with. Examples:

  • Send hand-written notes
  • Remember birthdays with a phone call
  • Celebrate their financial accomplishments
  • Visit them in the hospital
  • Attend funerals of lost loved ones

c. You have learned that the best tools in your repertoire are not answers, but questions. Mentor a younger advisor in the art of knowing which questions result in the client making the best decisions–ones they are proud to make. Examples:

  • Do you have a belief system that drives how you handle money? If so, what specific ideals or priorities do you have?
  • How do values such as frugality, generosity, fairness, corporate responsibility, hard work, innovation, compassion, respect, diversity, faith, integrity, and love influence your financial decisions?
  • What makes you most anxious about the financial preparedness of your children, grandchildren, and others?
  • How do you know that what you believe to be true really are proven financial principles?
  • Who has had the greatest influence on your approach to financial matters?

4) You may have grandchildren or even great-grandchildren. Write them a story about a lonely dollar that finds how to make friends by working hard, being kind, demonstrating discipline, avoiding bad decisions and suddenly discovering the land of Compound Interest!

Wouldn’t you enjoy surprising everyone you know during the Winter of Your Life?

Summary
The White Crownbeard plants in my yard are beautiful in full bloom at the peak of their lives. Yet, more prized than their blossoms are the wonder they provide in the time of Winter. There really is nothing more surprising than to discover Frost Flowers formed from sap.

The Psalmist4 long ago wrote to inspire people in their Winter of Life:

“The righteous flourish like the palm tree and grow like a cedar in Lebanon…
They still bear fruit in old age;
they are ever full of sap and green.”

The oldest bristlecone pine is more than 4,800 years old! The wood is very dense and resinous. (Read that as sappy!) The wood’s extreme durability helps the tree resist invasion by insects, fungi, and other potential pests. Turns out, sap is an essential defense and necessary for full life!

Are your energy and will “sapped?” Or, are you still “full of sap?”

Only one way to prove it. Bear fruit!

References:

  1. https://www.jdpower.com/business/press-releases/2019-us-financial-advisor-satisfaction-study.
  2. https://www.kiplinger.com/article/retirement/t023-c032-s014-what-happens-when-your-financial-advisor-retires.html.
  3. https://www.bustle.com/articles/135530-21-winter-activities-for-adults-to-keep-you-occupied-during-this-drab-and-dreary-season.
  4. Psalm 92:12-14 (English Standard Version).

An Interview With Eugene Cohen

2009 Honoree International DI Society’s W. Harold Petersen Lifetime Achievement Award. 2015 Honoree of NAILBA’s Mooers Award for Excellence.

From time to time we will feature an interview with Eugene Cohen, who has dedicated over 57 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. Disability insurance is one of those products that can change the trajectory of an individual and a family’s life and is crucial for every financial planner and insurance professional to learn about and offer to clients.

This is the first part of our series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care and annuities.

Victor: Let’s start at the very beginning. How did you get started in the disability insurance business?

Eugene: Well, I had graduated from Ohio State University as a business major. I was newly married, looking for work.

I received an introduction from an employment agency to interview with an insurance company. They happened to specialize in offering disability income protection. At first, I was very concerned about working in this industry. I was 23 years old and I knew some people who used to sell insurance. They didn’t make it. That didn’t sound so uplifting. But after my interview at this insurance agency, I was really excited about the need for disability income protection.

Victor: Were you an immediate success?

Eugene: Like anything, it took time…but not too much time. You have to remember, after three months I was working on straight commission. And I had the greatest motivators in the world chasing me every day.

Victor: What’s that?

Eugene: I call it, “The mad dog of daily expenses.” Expenses! Rent, utilities, car payments, food, clothing…that “mad dog” was chasing me.

Victor: What else do you think led to your early success?

Eugene: Besides having a desire to succeed and natural competitiveness, I read many motivational books. And one thing they all had in common—they were all very positive.

When I started training at that first job–in a career shop—I noticed there were negative agents and there were positive agents. In high school I played football and also was a wrestler and I love sports. You’ll notice that there are spectators and the players on the field. The spectators get to judge, scream, play armchair quarterback and be negative. While the players were making it happen on the field. The players have to be motivated, focused, keep a positive attitude…they have to perform or be taken out of the game.

I knew I always wanted to be like the players on the field. Stay focused, stay motivated, keep a positive attitude—because what I was selling could change people’s lives! The game of life is a serious business and disability insurance can save individuals and families from the financial effects of a tragic disability.

I also found out very quickly that, like every business, the insurance business is a relationship business as well.

I also learned back when I started that the phone was one of the best ways to build relationships. Even in today’s world of email and instant messages, the most effective communication is by phone and now by video conferencing systems like Zoom.

Victor: Where did you get your leads?

Eugene: Back then I was using the yellow pages…can you imagine that? Now it’s easy. You have so many focused resources, such as Google, LinkedIn, lead services, etc.

Victor: Who did you focus on calling? Were there certain occupations you felt could use your services more than others?

Eugene: Everyone needs disability insurance, but the product seems to resonate more with certain occupations and income levels. I decided to work with professional people and business owners.

Victor: Why them?

Eugene: Doctors, dentists, attorneys, and all types of business owners…the need for disability income protection is so strong. That need is the same today as it was 57 years ago.

Victor: Did you have a prepared script you’d use when you’d cold call these prospects from the phone book?

Eugene: “Hello Mr. Jones, this is Eugene Cohen speaking. I’m a specialist in disability income protection, which is a policy to provide you with an income if you got sick or hurt and couldn’t work. Do you have anything like that?” That’s all I would say.

Most would say, “No, I don’t have anything like that,” in which case I would say, “I’d like to stop by and talk to you and explain the concept of disability income protection.” I was amazed because I was getting appointments!

In the rare situation when someone would say they already had a policy like that, then I would say, “When is the last time you have had the policy reviewed in comparison with your income? I’d like to stop over and introduce myself to you.” And I’d work on setting up an appointment.

People were willing to talk to me. I was on the phone every single minute.

Victor: What role do you think disability income protection plays in a person’s life?

Eugene: The way I look at disability income protection in my own mind is…this wonderful policy is like a silent partner that’s guarding a portion of my income. Could you imagine not having virus protection on a computer? It’s that silent partner, guarding the computer. Could you imagine driving without car insurance or having a home without homeowner’s insurance?

It really is very simple. If I couldn’t work due to a long and extended accident or sickness, I would need help paying my bills or risk wiping out my savings or at least taking a good chunk out of it.

Victor: So, even while becoming a top producer, there had to be times when a prospect didn’t end up buying the insurance. How did you handle that? The disappointment.

Eugene: As a new agent, when I didn’t make the sale, I would try to understand why and try to learn why someone wouldn’t buy. It’s all in the perspective you take and I learned that every time someone said “no,” it became a positive learning experience in that regard. And that’s when I discovered and started fully understanding the four objections that anyone who sells a product will hear at one time or another and how to overcome them. Those four objections are the same today as they were back then.

Victor: What are they?

Eugene: If someone does not proceed with purchasing a product or service, it’s usually due to one or more of four basic objections, regardless of whether the objection is real or just a delay. No Need. No Money. No Hurry. No Confidence. I believe these are universally true, regardless of the product or service you are presenting. It could be an insurance policy, a house, a business, even a TV or washer and dryer. It’s important for the person making the presentation to know how to address each objection in order to get to the root of the true issue and be able to adjust in order to move forward.

Victor: We’ll continue this conversation in our next interview. Thank you so much for sharing your experience, knowledge and love of this business.

IRS Provides Limited Relief For Health Coverage Information Reporting

On October 2, 2020, the Internal Revenue Service (IRS) released an advance version of Notice 2020-761 which extends the deadline under sections 6055 and 6066 of the Internal Revenue Code for insurers, self-insuring employers, applicable large employers (ALEs), and certain other providers of minimum essential coverage to furnish to individuals the 2020 Form 1095-B: Health Coverage2 and 2020 Form 1095-C: Employer-Provided Health Insurance Offer and Coverage.3

Generally, such entities must provide these forms by January 31 of the year following the applicable ACA reporting year. For ACA reporting year 2020, however, the deadline for these entities to furnish information returns to employees and beneficiaries has been delayed from January 31, 2021, to March 2, 2021.

By way of background, Section 6055 requires health insurance issuers, self-insuring employers, government agencies, and other providers of minimum essential coverage to file and furnish annual information returns to the IRS and furnish statements to individuals regarding coverage provided. Form 1095-B generally contains enrollment information; ALEs report enrollment information for employees enrolled in their self-insured health plans on Part III of Form 1095-C.

Section 6056 requires applicable large employers (which are generally those with 50 or more full-time employees, including full-time equivalent employees, in the previous year) to file and furnish annual information returns and statements relating to the health insurance, if any, that the employer offers to its full-time employees.

According to Notice 2020-76, the IRS and Treasury Department have determined that a “substantial number of employers, insurers, and other providers of minimum essential coverage need additional time” to complete the 2020 Forms 1095-B and 1095-C that are to be furnished to individuals.

Notice 2020-76 cautions that it does not extend the due date for filing Forms 1094-B, 1095-B, 1094-C or 1095-C with the IRS for 2020. The deadlines for these will be March 1, 2021, for paper filings (as February 28, 2021, will fall on a Sunday) and—for electronic filings—March 31, 2021. Notice 2020-76 does not affect the provisions regarding an automatic extension of time for filing information returns; the automatic extension remains available under the normal rules for employers and other coverage providers that submit a Form 8809 on or before the due date, and does not affect the provisions regarding additional extensions of time to file.

Notice 2020-76 also provides that the IRS will not impose a penalty under section 6722 for failures to furnish a Form 1095-B to responsible individuals and also provides a final extension of transitional good-faith relief from section 6721 and 6722 penalties to the 2020 information reporting requirements under sections 6055 and 6056. No penalties will be imposed on entities that report incorrect or incomplete information (either on statements provided to individuals or to returns filed with the IRS) if good-faith efforts are made to comply with these reporting requirements. This relief is not available to entities that fail to furnish statements or file returns, miss an applicable deadline, or are otherwise not making good-faith efforts to comply. Evidence of these efforts may include gathering necessary data and transmitting it to a third-party to prepare the necessary reports, or testing the ability to transmit data to the IRS. Notice 2020-76 provides that 2020 is the last year the IRS intends to provide this good-faith relief from penalties for incorrect or incomplete information returns.

In addition, for 2020, the IRS will not assess penalties against reporting entities that fail to furnish Forms 1095-B automatically to individuals provided: 1) a Form 1095-B is furnished within 30 days after an individual’s request is received; and, 2) a notice with information about requesting Form 1095-B is posted prominently on the reporting entity’s website. Similar relief is afforded to ALEs that fail to furnish Forms 1095-C automatically to employees who were not full-time for any month in 2020, provided the form is furnished by request and website notice is provided.

With this notice, the IRS and Treasury Department are requesting comments as to whether and how the reporting requirements under section 6055 may need to change, if at all, for future years. Comments are requested by February 1, 2021.

References:

  1. https://www.irs.gov/pub/irs-drop/n-20-76.pdf.
  2. https://www.irs.gov/pub/irs-pdf/f1095b.pdf.
  3. https://www.irs.gov/pub/irs-pdf/f1095c.pdf.

This general summary is intended to educate employers and plan sponsors on the potential effects of recent government guidance on employee benefit plans. This summary is not and should not be construed as legal or tax advice. The government’s guidance is complex and very fact specific. As always, we strongly encourage employers and plan sponsors to consult competent legal or benefits counsel for all guidance on how the actions apply in their circumstances.

Nothing in this communication is intended as legal, tax, financial or medical advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations. Always consult a professional when making life-changing decisions.

Nomenclature

Alright, I admit I’m confused—but dear friends I am not alone. The only significant sign of life in life insurance sales are those products that lay claim to some level of contingent long term care planning. We certainly have a plethora (I love the way that word rolls off your tongue) of product options to accomplish a reduction in long term care risk. The problem is we have made a mess of trying to differentiate between the product choices.

The current inventory of named categories may unfortunately represent nothing more than hitting the synonym button on your computer. Let’s begin by reviewing the plain vanilla definitions of the most prevalent choices:

  • Combination: “A merging of different parts—where the individual elements are individually distinct.”
  • Hybrid: “A thing made combining two elements.”
  • Linked: “To make, form or suggest a connection.”

What should strike you is that all the visible market options of life insurance product distinctions with 7702B or 101g ADBRs and/or EOBRs fit all the definitions. Meaning whatever preconceived notions we bring to attempting to understand the various product choices just adds to the cognitive confusion.

Nomenclature then becomes a process, defined as “the devising or choosing of names,” that becomes a “system of names in a particular field.” As usual this potential for mental disarray is substantially compounded by the 80+ companies and myriad distribution marketing sources each trying to distinguish consumer product options based on need and motivation to buy. So now let’s try to glean what we can from the literature.

  • Combination—appears to be the most inclusive named category creating the largest product tent from a cornucopia of “living benefits” to the weakest chronic illness rider definition. In truth any historical additional options added to a base life plan has created a combination product.
  • Hybrid—seems to have the clearest definition as any describing a life plan plus a long term care 7702B health rider. This would then include life plus an ADBR 7702B long term care rider and any asset-based products with a separate extension of benefits LTCI rider. Hybrids would not include life with chronic illness ADBRs.
  • Linked benefit products—again creates an all encompassing product option “catch all” with two specific subcategories: 1) Asset-based with EOBRs; and, 2) Life plus a long term care or chronic illness rider. This would then break down into three SubPhyla to include life plus LTCI and life with chronic illness, where you pay for the additional benefit cost which then creates a clear definition of benefits paid at the time of claim, and life plus chronic illness ADBR sold with no current premium utilizing the “rear end” load with the lien or discount method. Technically you could have an LTCI ADBR with no up-front premium as well. And it too would then be considered all the above as a linked, or hybrid or combo product that cost you nothing unless you actually tried to use it.

Are you adequately confused yet? Welcome to the crowd. If we have trouble talking in terms which represent common definitional ground, how many brain cells are we scrambling in our customers? Please explain how we direct traffic in a particular product direction if we are lost before we begin?

Best advice is to follow the money to keep things straight in your head.

There are basically four long term care sales planning choices. And to be perfectly clear yet again, all of them should be on tap when you begin a sales conversation.

  1. Traditional stand-alone TQ individual LTCI.
  2. Life with a chronic illness or LTCI ADBR that has no upfront premium cost. You pay one way or the other only at the time of claim. Forgive my impudence here but I’m not sure you can call this a sale when you gave it away.
  3. Life with a chronic illness or LTCI ADBR where the customer pays for the benefit as they go—either included in the premium or as a rider option. By paying upfront they most clearly define the actual benefits that will be paid when needed.
  4. Life with an extension of benefits third pool of LTCI funding leveraging risk dollars for more affluent consumers.

And I have not forgotten annuity combos or enhanced payout options. I am also not ignoring short term LTCI health products which are also gaining popularity. They are just alternate cans of worms reserved for another discussion.

Try to keep it as simple as you can. Initial long term care planning conversation will continue to begin with insurability issues and progress rapidly to an evaluation of individual needs coupled with a combination of the willingness to link appropriate action now with the ability to pay for a hybrid solution.

Other than that, I have no opinion on the subject.

The Mission Of Ark House

The Mission of Ark House is to provide low cost temporary housing for out of town patients and their families while undergoing extended medical treatment in the Dallas area.

After a battery of tests at your local hospital, your doctor informs you that you will need to travel to Dallas for additional tests and very likely a series of treatments lasting several months. There are dozens of decisions to be made…all under the duress of a life threatening illness. You and your spouse will need a place to stay. You cannot afford the daily rate for a Dallas area hotel not to mention the cost of meals at Dallas restaurants. Besides, the doctors have advised that a special diet may be in order.

You and your spouse take extended leaves from your jobs and travel the 200 miles to Dallas. The journey has just begun…..

Ark House was begun in December, 1985 by The Ark Sunday School class of First United Methodist Church of Richardson. The idea was born from the need of one of its members whose two-and-a-half year battle with Hodgkin’s disease meant staying near his treating hospital in Houston for much of his therapy. The vision of providing temporary housing for hospitalized and extended care patients and their families in Dallas became reality through the efforts of this class.

The members of the class maintained the project for several years but Ark House grew beyond their capabilities. The Ark House Board of Directors is now the administrative body. This diverse group of individuals runs the entire project. Ark House has no paid staff; all money collected goes directly into the project.

Although most Ark House occupants come from small towns across Texas, some have traveled from Europe, Canada and the Near East to receive treatment at Dallas area hospitals. Different religions, races, genders and ages are represented. Approximately 30 percent of the patients are children whose parents need to be by their side. Patients and their families are referred to Ark House by hospital social workers that are in a position to determine financial need. Baylor, Presbyterian, Parkland, UT Southwestern and Medical City routinely refer patients to Ark House.

In 1995 NAIFA-Dallas (then the Dallas Association of Life Underwriters) planned to sponsor a golf tournament but was in need of finding a charity to be the beneficiary. After interviewing several very worthwhile charities, we realized that Ark House was an ideal fit. As members of the life and health insurance industry we were quite aware of the fact that Ark House provided something crucial to the well-being of people with serious medical conditions and living in the bottom strata of economic security. Although in most cases the patients coming to Dallas have their most significant medical costs covered by health insurance (or in some cases charity) there is still the prospect of having to pay living expenses while in Dallas—not to mention that the mortgage, utilities and other expenses back home still have to be paid. We decided that what Ark House provided was something few traditional forms of health insurance provided. We could fill that need by raising money for Ark House. Several members of the insurance community have and continue to serve in various Ark House positions.

A few years later, recognizing that if Ark House were to establish a non-profit 501(c)(3) we would be able to open more doors and offer more opportunities for donors to give, as a result we could help Ark House expand by adding more apartments. At our encouragement Ark House established The Ark House Foundation and within a few years we had grown from nine apartments to 21. We had more than doubled our capacity to help people. About 10 years ago we were able to consolidate all Ark House apartments at one centrally located complex convenient to Dallas hospitals. These one bedroom apartments are each fully furnished including living room, dining and bedroom furniture, linens, cooking utensils, dishes, cable TV, high speed internet, etc. Pictures and wall hangings, along with a few magazines and books, give the apartments a homey atmosphere conducive to the healing process.

The all volunteer Ark House Board is made up of people from various walks of life, that in many cases do Ark House work unrelated to their career skills. We have to have somebody to answer the phone and engage with the prospective tenant to check availability. We have a “make ready” person to clean an apartment prior to the arrival of a new patient and “checkers” that at least weekly check on the resident. Apartment furnishings from furniture to bed sheets have to be updated and replaced.

In addition to providing a place to stay, Ark House also assigns a volunteer (a shepherd) to provide a liaison to the occupants by answering questions, advising of the locations of stores, etc., or just being someone to listen. This adds a personal touch while they are in Dallas and quite often relieves some of the anxiety of staying in a big city so far away from home.

Several years ago I served as a shepherd to an Ark House patient. Jerry was a retired Metropolitan Life agent from a small town outside of Houston. Having worked for Met in the early days of my career we had a lot to talk about. Jerry was needing to be nearby his treating hospital waiting for a double lung transplant. Over the course of several months we communicated regularly. Several times he would call all excited that a match had been found, only to be disappointed. He ultimately got his transplant but it didn’t go well. He called and left a voicemail to let me know that he was going home. I instinctively knew he didn’t mean to his home outside of Houston.

In the early days of Ark House we charged the residents five dollars per day. That amount has gone up to $28. Without the charity of organizations such as the NAILBA Charitable Foundation the rate would be much higher. NAILBA has made generous contributions to Ark House over the last several years, the most recent being in 2019. That contribution was not only significant in size but due to COVID-19 it was quite timely. Elective surgeries all but stopped in the early days of the pandemic, so our occupancy rate dropped from about 85 percent to less than 50 percent. As a result we reduced the number of apartments from 21 down to 16. The NAILBA contribution was a difference maker in our cash flow.

Ark House has more than survived over the last 35 years. Ark House has grown due to the efforts of many caring people and the generosity of donors that recognize the value in the Ark House mission. Our needs are quite simple: In order to continue to provide low-cost, safe, and convenient extended care housing, it is imperative that we raise sufficient funding to enable Ark House to charge only $28 per night. Charging a greater amount would be beyond the means of Ark House clientele.

To learn more about Ark House or hopefully to make a donation visit ArkHouseDallas.org. To learn more about the work of the NAILBA Charitable Foundation, or to make a donation, please visit nailbacharitablefoundation.org.

The Latest In Sales Illustrations, Paramed Exams And Client Engagement

There has been a lot reported on the impact of COVID-19 to the life insurance industry. I wanted to research this from a different perspective. Starting with sales illustration vendors from changes to carrier projects to how BGAs and agents are engaging with their clients. Next, I was curious about the truth regarding paramed exams. You will be surprised at what the paramed vendors revealed. Also, there is a growing trend for life insurance carriers using solution platforms to remotely engage with their policy owners.

Sales Illustrations
Let’s take a look at two types of illustration vendors to see how their businesses have changed since COVID-19. The first is illustrate inc. who works with carriers. They have modular point of sales solutions that run quotes, illustrations and eApps on both mobile and desktop devices for life insurance agents and consumers. illustrate inc. works on carrier digital point of sales projects customizing their solutions to integrate in the life insurance sales experience. The second type of illustration vendor is Ensight who focuses on the distribution side. Ensight has a modern multi-carrier intelligent quoting platform with a presentation solution used by BGAs for case design and analyzing permanent products like index universal life to visually help the agent explain the benefits of the UL product to their clients.

The feedback we received from illustrate inc. is that their business continued uninterrupted due to COVID-19, however they did see an impact on short term projects with some life insurance carriers as they shifted their immediate attention towards their own operations. Carriers recognize the impact COVID-19 has had on their distribution channels, clients, and operations, which has led them to start to reevaluate and review their current digital strategies to ensure that they’re aligned with the new business environment. Lyndon Edwards, president of illustrate inc., stated, “We’ve experienced a significant increase in conversations, largely due to COVID-19, with carriers who are ramping up their digital capabilities. This ranges from those just starting to look for a practical solution to those who see this as an opportunity to expand on their existing capabilities, as the pandemic has reinforced the need for automated and digital services from both a sales and business continuity perspective. Vendors, like us at illustrate inc., must be flexible, nimble, and innovative to deal with the changing requirements, immediate needs, and long-term scalability and sustainability of our solutions in order to support carriers and provide continuous value.”

From the onset of the COVID-19 pandemic, Ensight has seen a dramatic shift to the remote sales engagement model on virtual meetings such as Zoom and Go To Meeting-whether it is BGA case designers and wholesalers virtually supporting producers and financial professionals on key cases or providing product training, or life and annuity producers engaging with prospects over the Zoom to help fulfill the increased demand driven by the pandemic, or financial advisors, almost 50 percent of whom were already moving to a virtual client engagement model, interactively walking clients through the benefits of life insurance. Bill Unrue, CEO of Ensight, commented, “At Ensight, we have seen a dramatic shift towards the virtual sales experience with growth of 155 percent in just the last three months. We have also been supporting hundreds of wholesalers and financial professionals on a weekly basis via webinars and interactive training sessions to enable interactive client engagements on remote meetings. The pandemic has acted as an accelerant in the march toward digital transformation for the life and annuity sector. The rapid and agile response over the last seven months to COVID-19 bodes well for returning the sector to long-term growth and wider financial protection in society.”

Paramed Exams
APPS Paramedical Services has been able to not only “make it through” the initial stages of the COVID-19 crisis, APPS has seen significant paramedical exam order volume increases, and completions that are exceeding year over year projections. Joe Klein, SVP of National Accounts at APPS, was eager to provide some details, “As we entered mid-March, Coronavirus and uncertainty were at an all-time height in the U.S. Markets were shaken, neighborhoods were rocked, and many people hunkered down in isolation. Life insurance sales fell sharply, and paramedical exam orders were only half of what was expected. Fortunately, APPS responded by pulling together non-N95 masks and other PPE. Exam services continued, albeit slower, but fortunately in line with the speed of sales. Only four to six weeks later Americans were back in the saddle. The paramedical exam orders were flowing full force. Sure, some carriers deferred exams in lieu of higher rating offers, but those that saw their applicants’ continued desire to be fully medically underwritten had their exams completed and completed safely. Thus far into the pandemic the number of exams completed by APPS eclipses half a million. Paramedical exams are getting completed safely every day in the privacy of applicants’ homes. APPS is proud to not only help more Americans secure the financial security of their families, we are proud to serve our underwriting customers as they ensure the correct decisions are being made.”

As some actuaries are predicting, the mortality impact of COVID-19 will stretch far past the missed doctors’ appointments for preventative health and skyrocketing binge drinking. Just take a read of the newly published Hank George article titled Dire Diagnosis-COVID-19, the Great Recession, and the coming underwriting apocalypse. You will find it a sobering reminder that right now, more than ever, the value of fluids results cannot be replaced.

I spoke with a second paramedical service provider, MediPro Direct. Ryan Janeway, president, and CEO stated, “The impact of the SARS-CoV2 virus (COVID-19) on the insurance industry is significant. As a paramedical service provider, we experienced an immediate decline in exams being performed due to state and community shutdowns, economic uncertainty, and an increase by carriers in the policy amount required for these exams. We also experienced the demise of one of our largest competitors due directly to the impact of this virus on their business. As an organization MediPro Direct was well-positioned to respond to these market shifts, having already established a virtual office environment for our entire national team and utilizing secure and redundant cloud services for our case management systems. Setting up a virtual office offered a flexible workspace with the required space and technology, and also the company does not have to bear the traditional lease expense. You might find it unconventional when big companies like MediPro Direct choose a virtual workspace, but you should click here and see the benefits of adopting a virtual office in times like these. Our multifaceted business meant we were also able to hire some of the top talent made available by the sudden shut-down of our competitor, further increasing our ability to exceed client expectations.” In addition to operational consistency and data security, MediPro Direct was able to provide its field examiners with immediate access to PPE, as well as PCR and antigen testing through MediPro Direct’s genetic and clinical lab. This meant the safety for examiners and the applicants they service was never in question. Ryan continued optimistically, “Looking forward, we see the future of the insurance industry requiring a more data-conscious and capable paramedical network, including access to data on the health of the examiners in the field. With one the largest examiner networks in the nation, real-time reporting through our Quality First system, and examiner health tracking, MediPro Direct is ready to lead the way.”

I reached out to IMS-Insurance Medical Services to see if there was a change in the number of examiners being recruited. IMS offers a full array of services to assist with the pre-underwriting process such as paramedical examinations, attending physician statements, criminal background checks and motor vehicle reports. IMS is open 24 hours a day and 7 days a week. They have a national network of over 5,000 paramedical examiners nationwide. Bilal Saeed, VP of Operations at IMS, Paramed Inc. responded, “In spite of COVID-19, we have observed our business has grown due to increased awareness of life insurance and in result we have fully prepared our field staff to wear complete personal protective equipment (PPE) at all times during all examinations in the field. Our recruiting efforts of field examiners has doubled to meet the demands of the life insurance industry.”

Life Insurance Consumer Engagement Platforms
Sureify, a leader in digital enablement in the life insurance arena, has spent the past several years preparing carriers for a moment such as this. The pandemic has illuminated blind spots in the industry, especially reliance on disjointed, disconnected legacy systems that are proving wholly ineffective for remote selling, service and engagement. The Lifetime Platform is focused on helping carriers sell, engage and service with one enterprise platform that was developed to empower insurers and their agents to act, interact, and react in real time-via digital means. Sureify’s LifetimeEngage uses a collection of data and analytics to create robust engagement programs (financial education, health and lifestyle) that foster a life-long relationship with policyholders, while LifetimeAcquire drives placement rates via quoting, e-application, automated underwriting and new business transmission, and LifetimeService offers in-force customers a comprehensive self-service portal and native applications. CEO Dustin Yoder says that, “Sureify has seen significant growth as traditional insurers come to realize the positives (cost savings, functional improvement, and the enhanced ability to meet policyholder expectations) that come with the new digital landscape.”

As expected, the initial month of COVID-19 stalled businesses across the industry. Soon after, digital point of sales projects with carriers picked right up. Vendors used innovation to adapt sales illustration solutions to help agents virtually sell to their clients. Paramed exams, contrary to what many believe, are busier than ever today, and life carriers are looking to consumer engaging platforms to service their policyholders.

2021 San Francisco Health Care Expenditure Rates Released

The San Francisco Office of Labor Standards Enforcement recently released updated Health Care Security Ordinance (HCSO)1 required health expenditure rates for 2021.

Background
The HCSO provides individuals who work in San Francisco and qualify as employees entitled to minimum wage with access to affordable healthcare through a Health Access Program. The HCSO requires “Covered Employers” to spend a minimum amount of money each quarter towards the healthcare of their “Covered Employees.”

For purposes of the HCSO, a Covered Employer employs one or more workers within the geographic boundaries of the city and county of San Francisco, are required to obtain a valid San Francisco business registration certificate,2 and employ at least 20 employees (or at least 50 for a nonprofit organization) worldwide. To determine workforce size, employers must count all employees irrespective of where they work or reside. The expenditure, however, applies only for hours worked in San Francisco.

Covered Employees are defined by the HCSO as having been employed by the employer for at least 90 days, have performed at least eight hours of work in San Francisco, and are not employees who:

  • Have signed a waiver form3 voluntarily waiving their right to have employers make health care expenditures for their respective benefit;
  • Qualify as managers, supervisors, or confidential employees4 and earn more than the applicable salary exemption amount ($104,761 in 2020; the 2021 salary exemption amount has not been announced);
  • Are covered by Medicare or TRICARE;
  • Are employed by a non-profit corporation as a trainee in bona fide training; or,
  • Receive health care benefits pursuant to the San Francisco Health Care Accountability Ordinance.5

Remote Employees
As the COVID-19 outbreak continues, many employees are engaging in telework. Covered Employers will not be required to make health care expenditures for any employees who work outside of San Francisco exclusively during the quarter (as they will not have worked at least eight hours per week in San Francisco). Employees whose home offices are within San Francisco (and for whom none of the exemptions listed above apply), however, would still qualify as Covered Employees for whom expenditures would still be required.

Updated Rates
The 2021 Health Care Expenditure rates—and previous years’ rate history—are shown in Table 1.

Oct2020GippleTable1

Irrevocable Expenditures
On June 17, 2014, the San Francisco Board of Supervisors amended the HCSO to phase in, over a three year period, a requirement that all health care expenditures made by Covered Employers on behalf of their Covered Employees be made “irrevocably.” Employers previously had the option to make health care expenditures on behalf of their Covered Employees either with irrevocable expenditures, such as insurance premium payments, or with revocable expenditures, such as allocations to Health Reimbursement Arrangements (HRAs) where unspent funds can be returned to the employer.

The three year “phase-in” required that 60 percent of the employer expenditure in 2015 be irrevocable; 80 percent be irrevocable in 2016; and all employer health care expenditures be irrevocable on and after January 1, 2017. The amended Ordinance also permits employees to voluntarily waive the unused balance of revocable expenditures made on their respective behalf for hours worked prior to January 1, 2014.

The Ordinance explains the benefits available for employees of employers that contribute to the SF City Option program. Based on their eligibility, employees will be offered one of three health benefits through the employer SF City Option program:

  • SF Covered Medical Reimbursement Accounts,
  • Healthy San Francisco, or
  • SF Medical Reimbursement Accounts.

The Administrative Guidance for the HCSO is available with sections concerning “Revocable and Irrevocable Health Care Expenditures,” “Calculating Required Health Care Expenditures,” and “Contributing to the SF City Option.” For details about these and other requirements, Frequently Asked Questions, or other resources, please visit the San Francisco government website.6

The preceding general summary is intended to educate employers and plan sponsors on the potential effects of recent government guidance on employee benefit plans. This summary is not and should not be construed as legal or tax advice. The government’s guidance is complex and very fact specific. As always, we strongly encourage employers and plan sponsors to consult competent legal or benefits counsel for all guidance on how the actions apply in their circumstances.

Nothing in this communication is intended as legal, tax, financial or medical advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations. Always consult a professional when making life-changing decisions.

References:

  1. https://sfgov.org/olse/health-care-security-ordinance-hcso.
  2. http://sftreasurer.org/registration.
  3. http://sfgov.org/olse/sites/default/files/Document/HCSO%20Files/Employee%20Voluntary%20Waiver%20Form%20-%2011.01%20Final.pdf.
  4. https://sfgov.org/olse/C-COVERED-employees#managersupervisor.
  5. https://sfgov.org/olse/health-care-accountability-ordinance-hcao.
  6. http://.sfgov.org/olse/hcso.

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