Empowering Employees to Make Better Choices

By: Terence L. Horan, CLU, ChFC, President, CEO, Registered Representative

Terry Horan, President and CEO of HORAN, leads an energetic and focused team of professionals to deliver the most current and comprehensive health care and wealth management services.

Recently, I attended a lecture featuring Joseph Piscatella, a noted author and speaker on the subject of healthy lifestyles. He presented compelling information on the subject of healthy food choices to promote a healthy heart and therefore a long and active life.

There are 1,500,000 heart attacks each year in the United States leading to almost 700,000 deaths. This is equivalent to 10 times the deaths of US soldiers in Vietnam. An American’s chance of dying from cardiac disease is about one in three. Mr. Piscatella went on to say that we all know diet and exercise will greatly enhance our chances of living a long and healthy life; but, do we really think about what we are eating each day? The following statistics offered by Piscatella provide a sobering view of the daily food intake of Americans.

• 13 pizzas the size of the Roman coliseum • 47 million hot dogs • 3 million gallons of ice cream • 2,250 head of cattle each day to produce Big Macs • 12 million gallons of liquor • 6 million pounds of chocolate

Employers and employees should be equally interested in these statistics. Why? Because changing dietary habits are possible and the positive results affect both groups. There are companies that are assisting employees with healthy choices and reducing health care costs as a result. Consider the following Ohio success story reported by Bloomberg editor, Ezra Klein, on the very positive health care results the 40,000 employees of the Cleveland Clinic are

VOLUME 48, FOURTH QUARTER 2011

What’s Inside:

Empowering Employees to Make Better Choices

Market Driven By Emotions While Fundamentals Improve

HORAN Focuses on Wellness

Five Factors that Help Lower 401(k) Fees

Welcome New CCO

United Way Campaign Recap

Health Care Reform:A Look Ahead

Visit our website for other newsletter issues and to view our seminar calendar.

www.horanassoc.com

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www.horanassoc .com

Market Driven By Emotions While Fundamentals Improve

By David Templeton, CFAPortfolio Manager & Principal

David Templeton is a senior strategist and advisor at HORAN Capital Advisors. David has extensive experience in

portfolio construction, security selection, development of investment policies and portfolio allocation strategies.

As I write this a few days after the Dow Jones Industrial Average advances higher by nearly 500 points, or 4+%, in just one day, I think back to the concerns raised by investors in recent meetings about the market’s volatility. In August and September, 40% of the trading days in the S&P 500 Index saw daily price swings of 2+%. This level of volatility was last seen in the early 1930s. Increasingly, the market seems to be trading more on emotion than on company fundamentals. The rally at the end of November was fueled by the announcement that central banks around the globe would provide a liquidity back stop for the European debt issues. The European crisis is contributing to investors trading on short-term emotion while they worry about a repeat of the negative performance seen in 2008 and 2009. One can certainly see similarities; however, we believe there are more recognizable and important differences.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab noted in a recent report, “the problems in the eurozone are nothing new: too much debt from eurozone member countries to over-leveraged European financial institutions. Adding to the woes is the lack of global competitiveness among many of the zone’s members, thanks to the tying of 17 vastly different economies and policies to one (too-strong) currency. The lack of a single fiscal authority within the eurozone that is capable of enforcement or supervision has allowed the problems to fester and the can to be continually kicked down the road.”

There are many differences between Europe’s problems now and the subprime crisis in the U.S. in 2008. On the

positive side, much was learned from the crisis in the U.S. and one outcome is that the banks in the U.S. are much better capitalized today. Additionally, the crisis in Europe is one of a top down crisis versus the U.S. crisis which started at the bottom with Lehman Brothers, etc. In short then, European governments have a little more time in crafting a solution.

For investors, we recommend focusing on the fundamentals both economically and at the company level. Economically in the U.S., the data continues to come in better than expected. The November ISM manufacturing index report was stronger than expected (52.7 vs. 51.8) and joins a growing list of indicators that suggest moderate economic growth in the fourth quarter of around three %. Retail sales on Black Friday exceeded expectations and cyber Monday sales were up a better than expected 24%. The labor market continues to show improvement as can be seen in the below charts: ADP’s Private Employment change for November continues to show improvement and announced corporate layoffs continue to decline.

At the company level, valuations for U.S. equities continue to look more attractive. The chart on page 3 represents a broader market P/E measure. The NIPA P/E ratio measures earnings from the GDP calculation and divides it into the S&P 500 Index. Using this measure, valuations are at levels last seen in the early 1980s. In addition to attractive P/E valuations, corporate balance sheets have record levels of cash. This cash is being returned to shareholders in the form of higher dividend payments and stock buybacks. What does all this mean? The economic data continue to

experiencing. The Clinic made the decision to become active in employee health care management because they realized, according to the Centers for Disease Control and Prevention, 70% of all medical costs are related to smoking, physical inactivity, food choices and portion size or stress. Cut smoking, increase physical activity, persuade people to make better dietary decisions, help them manage their stress and you can reduce health care costs before an employee ever steps into a hospital. The Clinic first eliminated the opportunity to smoke anywhere on campus. Next, they removed nearly all sugared drinks and trans fats from their campus. In addition, they reduced premiums for individuals that stuck to a rigorous exercise program. By making it harder and more expensive to be unhealthy, employees lost weight, stopped smoking and became more active. Certainly, one of the benefits of this work was health insurance premiums stabilized. More importantly, employees will feel better, get healthier and be more empowered to make better choices.

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come in better than expected and stock valuations are attractive. Certainly, the news coming out of Europe is going to be market moving, and volatility will likely remain high. However, in the longer term, company fundamentals will be the ultimate guiding force for future equity, valuations and those fundamentals look strong.

HORAN Focuses on Wellness

By Valerie Bogdan-PowersVice President, Group Operations

Valerie Bogdan-Powers leads HORAN’s employee benefits team, developing customized solutions to meet the business goals and benefit objectives of our clients.

Wellness has been a focus area for HORAN. We can’t ignore the research. A new study by the Kaiser Family Foundation shows that the average annual premium for family coverage through an employer reached $15,073 in 2011, an increase of 9% over the previous year. The study also indicates the cost of family coverage has about doubled since 2001, when premiums averaged $7,061, compared with a 34% gain in wages over the same period.

The combination of these rises in medical costs and claims with the significant increases in chronic diseases and obesity is having a negative impact on many of our clients. As our clients are striving to battle this trend, we have continued to bring our expertise in wellness as a part of the long term solution.

HORAN continually reviews each of our clients’ plans and results to analyze what is working and what needs improvement. We assess the broader marketplace to evaluate industry best practices and bring them to our clients.

From the research and experience with clients in 2011, the HORAN Health Management Way emerged as a platform and process to help guide our clients through the planning of wellness.

Key Learnings of the HORAN Health Management Way

It is hard to get startedWe know the hardest part for most employers is just getting started. The key is having support from senior management who can make it happen. The support is both financial and cultural. Having key managers accountable for the results and role models during the process drives significant success.

It’s never too late to startBased on culture, readiness, resources, motivation and other factors, each employer is in their own unique place in terms of wellness. The HORAN Health Management continuum outlines four key segments to help clients identify where they are on the continuum. By understanding where they are on the continuum, an employer can better maximize what should be done, both short term and long term, and thus design the right plans to get there.

One time events don’t workThough usually well intended, sporadic executions of wellness activities have only a short term impact, if any at all. No matter the scope of resources and budget, it is important to create an integrated plan that is consistent. The plans should prioritize the biggest areas of cost to the employer and maintain focus on those throughout the year.

You don’t get what you don’t measureMeasures need to be in place and consistently reviewed. Whether it is sophisticated measures linked to claims and productivity data, benchmark data from surveys or participation data, the only way to gauge progress is to measure results. Importantly, the analysis of the measures is key to shaping and determining ongoing wellness executions.

HORAN is prepared to help you promote and create a healthy culture for your workforce. If your goal is to increase employee productivity, reduce absentism, increase retention, reduce claim trend or improve employee morale, HORAN can be your partner in the journey.

To learn more about HORAN wellness, email valerieb@horanassoc.com

The 2011 United Way Campaign Began with Games and Ended with a Splash.

Employees competed in several weeks of cornhole, putt-putt, and ping-pong for prizes and bragging rights. The campaign ended with leadership from Anthem, Humana, Superior Dental, Assurant, UnitedHealthcare and HORAN in the dunk tank. Employees bid on a shot at ‘dunking the boss’ in a live auction.

The dunking booth raised over $6,000 for United Way, nearly tripling the amount raised in 2010. “The Campaign was a great success,” said Terry Horan. “We exceeded our goal and had a great time in the process.”

Five Factors that Help Lower 401(k) Fees It is important to remember per-participant fee disclosure for 401(k) plans goes into effect in 2012. As that occurs, plan sponsors will find themselves under increased pressure to either reduce fees or justify higher expenses. In a study released last summer, the Investment Company Institute analyzed the ins and outs of 401(k) plan fees and expenses, revealing five areas that help lower per-participant fees. Chris Carosa, CFTA, president of Carosa Stanton Asset Management in Mendon, NY, cited the five in a recent online article for Pandamensional Solutions, Inc. They are: • Competition among all investment products, including mutual funds, to offer 401(k) participants service and performance.

• The decision by plan sponsors to pay for at least some portion of the costs of 401(k) plans, which allows them to select cheaper funds from unbundled platforms.

• 401(k) plans have economies-of-scale advantages, permitting them to purchase lower cost share classes.

• The commitment of 401(k) plan sponsors to make cost-conscious and performance-conscious decisions.

• The fact that 401(k) plans have greater allowance for a more limited role of professional investment advisors. At HORAN, David Lohre notes, “But remember - the easiest way to cut costs is always to cut services and benefits. So be wary. While it is true that it costs something to hire an investment advisor, the far greater cost may be to forego the advisor . . . and make poor decisions as a result.” As Chris Carosa points out, in 2006, Congress passed the Pension Protection Act, partly to dissuade 401(k) investors from placing too many of their assets in low-return vehicles. The temptation, of course, is that low-return vehicles generally have lower fees. You can invest in them and cut your costs . . . but you may sell yourself short in the process. Says David Lohre, “With investing, above all, don’t be cautious with small costs and careless with bigger issues.”

HORAN Proudly Welcomes Michael Tragesser, CSCP as Chief Compliance Officer “Mike’s role is a crucial one,” states Terry Horan, President and CEO. “He will maintain, and revise key compliance policies and procedures. Operating in a heavily regulated industry, compliance is a critical

component of our operations and Michael’s role will be responsible for leading this function to ensure HORAN continues to provide excellent care to our clients.”

“This is an important time to be joining HORAN,” Tragesser said. “This company has the financial resources, management talent and vision to deliver significant growth. I’m excited to join the team.”

At HORAN, corporate conduct is inseparable from the conduct of individual employees in the performance of their work. We are committed to the highest standards of compliance, ethics and integrity in all our business dealings. We treat our customers, partners and fellow employees with respect, honesty and integrity at all times and expect the same in return. To build on our values, HORAN became a Founding Member of The American College Center for Ethics. This affiliation gives HORAN clients an additional level of security. It ensures they have access to objective and ethical professionals who are keeping pace with the highest standards in the industry.

Michael earned his Bachelor of Arts degree in Economics from The Ohio State University and is a designated Certified Public Accountant. Prior to joining HORAN, Michael worked at Western & Southern Financial Group.

Michael and his wife Ania live in Batavia, Ohio.

Health Care Reform: A Look Ahead

Health Care Reform has kept employee benefits professionals on their toes since its passage in 2012. It will continue to do so with its numerous provisions and multiyear implementation timeline. Since its passage, portions of the Patient Protection and Affordable Care Act (PPACA) have been eliminated or delayed and the volume of regulations issued by the Departments of Labor, Health and Human Services, and Treasury has slowed. So, what can employers expect in 2012?

Supreme Court Will Hear Legal Challenges to Individual Mandate

The Supreme Court agreed to hear arguments on the constitutionality of the individual mandate. This is the portion of the law that would require the majority of U.S. citizens to have health insurance coverage or pay a penalty. Arguments are expected to be heard in March with a decision possibly issued in June. Two separate federal appeals courts reviewed challenges to the mandate this fall with opposing rulings.

Uniform Summary of Benefits and Coverage

Originally, the requirement to distribute a four-page summary of plan benefits was scheduled to take effect on March 23, 2010. Proposed regulations and sample templates to comply with the provision were issued in August. However, in an FAQ posted on the Department of Labor website in mid-November, the Departments of Labor, Health and Human Services, and Treasury indicated that health plans and health plan issuers need not comply until final regulations are issued. The DOL intends to issue regulations as soon as possible and therefore group health plans and health insurance issuers will have sufficient time to comply. This could mean that the provision will still take effect in 2012, but it is more likely that the requirement will be delayed until 2013.

W-2 Reporting

Beginning with the 2012 tax year, employers issuing more than 250 Forms W-2 must report the aggregate cost of applicable employer-sponsored coverage on employee W-2s. Employers should coordinate internally with their payroll departments or payroll providers to verify that they have the appropriate systems in place to accurately report the value. While the first W-2s will not be issued until January 2013, it is important to begin collecting and tracking the required information beginning in January 2012. This reporting is informational only and benefits are not taxable. Employers should include medical plan costs (including dental and vision if those benefits are considered bundled) and employer contributions to flexible spending accounts. Employers should exclude health reimbursement arrangements, flexible spending account salary reduction elections, and stand-alone dental and vision plans. Additional guidance is available in IRS Notice 2011-28.

Women’s Preventive Services

Non-grandfathered health plans whose plan year begins on or after August 1, 2012, will be required to expand coverage of preventive services. Additional rules were issued in August to include a list of women’s preventive services that must be covered with no cost-sharing. Calendar year plans will be required to comply on January 1, 2013. These services include well-woman exams, screenings and counseling services related to sexually transmitted diseases and gestational diabetes, contraception, and other services. While there is a faith-based exemption to coverage of contraception, employers must have a purpose to instill religious values, primarily employ and serve persons who share the same religious tenets, and satisfy the Internal Revenue Code filing exemptions for religious entities.

Medical Loss Ratio

This year may see the first premium rebates issued by insurance carriers whose aggregated market book of business does not meet minimum medical loss ratio requirements under PPACA. Large group health plans (101+) must pay at least 85% of the premium dollar for medical care and small group health plans (fewer than 100) must pay at least 80% of the premium dollar for medical care. Health insurers not meeting minimum guidelines are required to pay rebates to consumers. Rebates must be paid by August 1st of each year. To simplify the rebate distribution process for group insurance, the revised rules call for rebates to be paid to the group policyholder. The corresponding fact sheet from the Center for Consumer Information & Insurance Oversight indicates rebates should be paid in the form of lower premiums or “other ways that are not taxable”. It will be the employer’s responsibility to “ensure that the rebate is used for the benefit of subscribers.”

It is HORAN’s goal to continue to keep you up to date with meaningful, actionable information. In addition to these topics, HORAN can assist with strategies around the impact of the employer mandate on your organization, minimum essential coverage requirements, the potential impact of automatic enrollment for plans with more than 200 employees and assessment of non-discrimination provisions currently under non-enforcement.

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