HORAN Magazine January 2021

health.wealth.life.

VOL. 24

2021 JANUARY SPECIAL EDITION PANEL OF EXPERTS Q&A Page 2

Follow-up interview with ken kies Page 7

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SPECIAL EDITION

A BRIEF INTRODUCTION The events of 2020 impacted businesses and individuals in unprecedented ways. The COVID-19 pandemic led to much uncertainty throughout the entire year, but specifically at the start of 2020. Economic turbulence struck early in the year but was followed by a sharp rebound in the third quarter. Many employers grappled with shutdowns, changes in regulations, shifts to work-from-home and return to work and the overall health and safety of their employee population.

As individuals we felt the stress of financial strain; concern for personal and family health; changes at work, school and home; as well as general uncertainty throughout the year.

The year ended as intensely as it started with the highest turnout for an election in American history, COVID-19 vaccine approvals, a new round of stimulus being introduced in the final hours of 2020 and the build up to the Georgia Senate runoff races.

A panel of HORAN experts joined us to break down the impact of last year’s events and provide an outlook for the near future with the Biden Administration, new Congressional composition and the ongoing COVID-19 pandemic.

PANEL OF EXPERTS Valerie Bogdan-Powers President, HORAN Health

Paul Carl Vice President, HORAN Wealth

Andrea Costa Vice President of Financial Planning, HORAN Wealth

Julie Highley President, HORAN Emerging Business Advisors

Greg Hoernschemeyer, CLU Senior Vice President, HORAN Wealth

Heather Bellau Individual Health & Medicare Associate

David Templeton, CFA Principal & Portfolio Manager, HORAN Wealth

Michael Hermes, CFA, CFP ÂŽ Vice President & Wealth Advisor, HORAN Wealth

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Volume 24

SPECIAL EDITION Health Benefits Q: What have been some of the major legislative impacts of COVID-19 on employee benefits in 2020?

(Valerie Bogdan-Powers): A few highlights from 2020 include: March 27: CARES Act was passed bringing relief for individuals and business. For health plans, it most notably addressed telehealth, COVID-19 testing and vaccination coverage as well as relaxed FSA reimbursement restrictions of certain over the counter expenses.

December 11 & 18: Pfizer and Moderna vaccines have received emergency use authorization. The CDC Advisory Committee on Immunization Practices made recommendations that triggered the requirements for non-grandfathered group health plans to cover the vaccines without cost sharing.

December 27: President Trump signed the Consolidated Appropriations Act, 2020, which provides temporary FSA relief related to prospective mid-year election changes, carry overs and extended grace periods which employers can choose to adopt within their plan.

Q: Now that vaccines have received emergency use authorization from the FDA, what should employers be thinking about?

(VBP): Many employers are working with wellness vendors to help their employees get access as soon as it is available publicly. Interested employers can get on waitlists now.

As employers work to protect the health of their employees and workforce, many are also asking if they can require employees to be vaccinated. While most employers can set their own working conditions and safety standards, they must also comply with certain worker protections.

The EEOC issued FAQs on December 16, 2020, addressing relevant considerations.

Legal guidance is recommended if an employer decides to make the vaccine mandatory.

Q: What’s been the biggest surprise or change in utilization?

(VBP): Virtual visit utilization skyrocketed (17.7% of visits were virtual in 2020 compared to 0.7% in 2019¹). Not as surprising, the peak of the shift took place in April while non-essential care was suspended and the country was sheltering in place. During this time, 50% of primary care, specialist, OB/GYN and behavioral health visits occurred virtually. While telehealth utilization increased, office visits overall declined by 60% in the month of April and by 30% overall compared to 2019². Emergency room visits decreased by almost 30% compared to 2019².

Q: How has this year impacted health care budgets and what should employers be thinking about as they build their 2021 strategy?

(VBP): Health care costs have stabilized, but perhaps not for the right reasons.

Employers have benefited from delayed elective procedures, the shift to telemedicine and a reduction in office visits and emergency room utilization. To date, the cost of COVID-19 testing and treatment hasn’t offset the avoided costs from these delayed services.

Moving into 2021, employers should: •

Create engagement plans and/ or incentivize healthy plan utilization, like preventive care and maintenance medication adherence, to avoid future large claims.

•

Implement more immediate, proactive cost savings solutions that will temper the pace at which claims costs return to pre-COVID levels.

• Evaluate appropriate levels of reserves and stay disciplined.

In previously published HORANalytics® Databytes, our data indicated that: • Employees with consistent PCP utilization cost the health plan 11% less (21% difference for spouses).

• Managed hypertension is three times less expensive than unmanaged hypertension.

• Every 10% increase in medication adherence results in 2% medical claims savings.

According to Luis Garfias, Financial Consultant at HORAN, if employers have excess health care dollars, they should consider building reserves up to more conservative levels—two or more months of claims.

Health care is not something you put on pause. Without intervention, there is no question that there will be consequences to delaying care and employers need to be prepared for this. As tempting as it is to not set health care dollars aside when the reserves are lofty and the plan keeps running below expected, we know over time that claims trends to revert to the median.

“Virtual visit utilization skyrocketed (17.7% of visits were virtual in 2020 compared to 0.7% in 2019¹). Not as surprising, the peak of the shift took place in April while non-essential care was suspended, and the country was sheltering in place.” ¹Data is from HORAN’s UnitedHealthcare book of business ²Data is from HORAN’s entire book of business

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Q: How are employers investing in or supporting their employees in response to the pandemic?

(VBP): Employers are responding by offering Employee Assistance Programs, promoting virtual behavioral health solutions through their plan or independent resources and providing financial wellness education and evaluating new payroll processes like daily payroll and payroll advances.

Mental health support seems to be the most critical as the National Center for Health Statistics released a study in September 2020 that showed one in three adults reported symptoms of an anxiety disorder (compared to 1 in 12 a year ago).

Data from HORAN’s Mental Health Databyte shows that under normal environmental circumstances, employees receiving psychiatric care are 133% more expensive per year and have 80% more inpatient admissions. In our current environment, small investments and plan modifications to support employee mental health could result in significant cost avoidance by reducing the prevalence of high-frequency, high-cost mental health claims.

Q: There is currently a case before the Supreme Court regarding the constitutionality of the Affordable Care Act. Where does the case currently stand?

(VBP): The Supreme Court heard oral arguments in November 2020. A decision will likely not be released until the end of the Supreme Court term at the end of June 2021.

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SPECIAL EDITION There are four possible outcomes of the case: 1. Court determines states do not have standing 2. Court upholds individual mandate 3. Court finds individual mandate invalid, but severable from other portions 4. Court determines individual mandate unconstitutional and the ACA ends The Supreme Court's final decision is expected to be very close. HORAN will communicate the impact of this decision and will hold education sessions if the need arises.

Individual Health Insurance Q: What changes should be expected for individual health insurance?

(Heather Bellau): In February 2018, 20 states filed a lawsuit against the federal government alleging the Affordable Care Act (ACA) is unconstitutional because of changes to the individual mandate tax by the Tax Cuts and Jobs Act of 2017. The lawsuit does not impact individual health insurance enrollment for 2021.

Individual & Corporate Taxes Q: How will the Biden Administration’s tax plan impact individuals and businesses?

(Andrea Costa): The Biden Administration would seek to reform the tax code in such a way as to raise taxes on individuals with income exceeding $400,000 per year.

These increases would be made to the individual income, capital gains and payroll taxes paid by this group of taxpayers.

In addition, the Biden Administration would also raise taxes on corporations by raising the corporate income tax rate and imposing a corporate minimum book tax.

It is important to note that many companies are not subject to the corporate income tax because they are taxed as pass-through businesses.

Q: How does the outcome of the election impact my income and estate taxes?

(AC): The income tax is the most well-understood tax for most people because most everyone is required to file a personal income tax return on an annual basis. During a client’s lifetime, a revocable trust is ordinarily structured as what is called a “grantor trust” and treated as an extension of the client for tax purposes.

This means the complexity for the client’s personal income tax return is minimal while the client is living.

However, when the client passes away, the revocable trust becomes a “non-grantor” trust. Thus, it may have a higher tax burden because a non-grantor trust reaches the top income tax rate of 37% at only $12,950 of trust income. By comparison, a single individual will not reach this income tax rate until $518,400 of income in 2020, and a married couple will not reach this income tax rate until $622,050 of income in 2020.

This should not deter someone from establishing a revocable trust because typically if the trust is administered appropriately, the income tax each year can be optimized by distributing assets to the beneficiaries to be taxed on the personal income tax return of such beneficiaries.

Volume 24

SPECIAL EDITION The estate tax applies to all assets owned or controlled by a person at his or her death, including life insurance proceeds, and the top rate is presently 40%. Most people are entitled to a $11.58 million exemption in 2020, and married couples can combine their estate tax credits.

The Biden Administration proposes to decrease the estate tax credit from $11.7 million scheduled for 2021 to $3.5 million, which would be a significant decrease, but married couples would continue to be able to combine their estate tax credits.

appreciation at the decedent’s death or only on subsequent sale of the asset by the beneficiaries.

It is important to work with your advisory team to determine the likelihood of estate tax or income tax liability for your estate to ensure that the strategies in place are appropriate to your situation as these laws change in coming years.

(Michael Hermes): The Social Security Administration announced an increase to Social Security benefits reflecting a cost-of-living adjustment of 1.3% for 2021. Although the Old-Age, Survivors and Disability Insurance tax will remain at 12.4%, the taxable wage base will increase from $137,700 to $142,800. In addition, the annual earnings test will increase for individuals collecting social security before their full retirement age from $18,240 per year to $18,960 or $48,600 per year to $50,520 in the year full retirement age is reached. With the strain on the economy from the COVID-19 pandemic and forcing early retirement for many, we would expect the 2035 depletion year to occur sooner.

Q: Do you predict any changes to estate and gift tax limits?

(Greg Hoernschemeyer): During President Biden’s campaign, he proposed to expand the estate and gift tax by reducing the federal base exemption to the pre-TCJA (Tax Cuts and Jobs Act) amount of $5 million and potentially further back to the 2009 exemption amount of $3.5 million. In addition to lowering the exemption amount, President Biden has proposed increasing the top tax rate from 40% to 45% for estate, gift and the Generation Skipping Tax.

It will be critical for individuals to work with their legal and tax advisors to put plans in place that address these changes.

Social Security Q: What changes should we expect from Social Security?

Retirement Benefits

Another planning strategy that may be repealed under the proposed tax plan is step-up in basis at death. Currently, when an owner of an asset dies, the basis of those assets transferred to the owner’s beneficiaries is stepped-up (increased) or potentially stepped down to fair market value at death. This essentially eliminates the capital gain (or loss) that has accumulated during the owner’s lifetime.

Does my company need to sign a plan amendment this year for the CARES Act adoptions we made?

President Biden proposes to repeal this income tax planning opportunity, affecting individuals at all income and asset levels.

It remains unclear if the Biden proposal would apply tax on the unrealized

Q: What is the SECURE Act and how could it affect an individual’s plans for retirement?

(Paul Carl): The plan must be amended to comply with any CARES Act provisions by the last day of the first plan year beginning on or after January 1, 2022. For example, a calendar-year plan will have an amendment deadline of December 31, 2022.

distribution (RMD) from age 70½ to age 72. For retirement savings purposes, it also repealed the maximum age to make IRA contributions, which was 70½ and created an opportunity that allows parttime workers, who were generally ineligible to participate in a 401(k) plan due to the number of hours they worked each year, to be given an opportunity to participate in a 401(k) plan if they’ve worked for three or more consecutive years.

Q: When will my company need to include part-time employees in our retirement plan?

(PC): The SECURE Act calls for employers with part-time employees who work less than 1,000 hours per year for three consecutive years to offer retirement plan participation. This provision becomes effective January 1, 2021 which means that employers would not be required to include the part-time employees in their retirement plan until three years later or 2024.

Economic Outlook What are your economic expectations going into the first quarter of 2021?

(David Templeton): After the economic contraction in the first two quarters of 2020 and the sharp rebound in the third quarter, our expectation is the U.S. economy is or has exited a recession and will likely be on a growth path in early 2021. U.S. economic growth (real GDP) in 2021 might be around 5-6%.

Q: Are there signs this growth momentum is now underway?

(DT): The favorable data for retail sales (although seeing some recent weakness) and corporate profits are just two signs the economy is healing and on a growth trajectory.

(PC): The Setting Every Community Up for Retirement Enhancement (SECURE) Act included increasing the required minimum

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• Retail Sales: Many find it surprising that retail and food services sales surpassed their February level in June, a V-shaped rebound. December retail sales total $540 billion up from $412 billion in April.

•

Corporate profits: The GDP report includes a category that reflects business profits, known as NIPA corporate profits. This figure was reported in the third quarter of 2020 at a record level of $2.1 trillion.

Q: What factors might alter this positive view of the economy and market?

(DT): For the most part, data shows that politics do not significantly impact the economy and especially the stock market over a complete four-year presidential cycle. Investors might simply need to adjust the areas they invest in based on policies being pursued by a new Administration. However, one area we are monitoring is changes to any tax laws.

One factor benefiting the U.S. economy is the lower corporate tax rate compared to other countries. This has resulted in what one strategist we follow, Nancy Lazar at Cornerstone Macro, calls onshoring, that is, companies moving business and manufacturing back to the U.S. partly due to favorable U.S. tax structure along with a more favorable trade & tariff position.

Lazar cites over 200 companies that have moved business back to the U.S. in 2020.

Also, a higher corporate tax rate could lower the level of corporate profits which will likely result in a downward adjustment to stock prices.

Life & Disability Insurance Q: Will my life insurance and disability insurance cover loss due to COVID-19?

(Greg Hoernschemeyer): Today, insurance companies have no exclusion on paying a death or disability claim due to COVID-19.

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SPECIAL EDITION If an individual is attempting to purchase insurance, we do see some companies postpone offering coverage due to COVID-19. If you currently have a policy in-force, COVID-19 is not an exclusion for claim.

Q: Do you see accelerated underwriting continuing as a trend? If so, is this something people should be taking advantage of now?

(GH): Life insurance companies introduced accelerated underwriting as a tool to make the underwriting of a life insurance policy more efficient and consumer friendly.

The COVID-19 pandemic changed the way we view accelerated underwriting—no longer as a trend, but the way in which life insurance will be underwritten in the future.

Insurance companies are traditionally slow to change; however, the pandemic has brought light to the idea that consumers want a more efficient and convenient process to purchase life insurance.

Q: What should small and emerging businesses consider implementing or changing in 2021?

(JH): First, comprehensively review all solutions in the health insurance market, both from the traditional insurance sense as well as new and innovative products, to determine if there are ways to shave costs off the bottom line or even assist employees with their out-of-pocket exposure. Next, look at how you are administering your benefits program to see if there is an opportunity to go paperless.

Finally, build a network of trustworthy and reliable partners to share resources and exchange best practices.

Q: Many small businesses have expressed concern on how to cope with their budget and revenue. What advice do you give them?

(JH): Tony Schweier from Clark Shaefer Hackett participated in a seminar we hosted in the fall and gave the following advice...

1. Get out of the weeds and into strategy

Small & Emerging Business

2. Have a clear sense of liquidity for existing and reserve cash

Q: What do small businesses have to look forward to in a Biden Administration?

3.

Consider quarterly budgets instead of annual

(Julie Highley): Below are several key initiatives the Biden Administration plans to focus on to help small businesses recover.

• Create New Paycheck Protection Program Regulations for Businesses Under 50 Employees • Distribute PPP Funding by Qualification Instead of Budget • Redefine the PPP Loan Structure to Be More Flexible to Cover Payroll & Fixed Costs • Student Debt Relief to Encourage Future Formation of Small Businesses

4. Simplify the business and eliminate clutter.

Visit www.horanassoc.com for more insights like this and to learn about our upcoming education sessions for employers and individuals throughout the year.

Volume 24

SPECIAL EDITION

Q & A INTERVIEW WITH KEN KIES Q: There were 165 million voters in the 2020 Election—the most of any election in history of the United States. What does this historic election turnout say about the current state of politics in America?

(Ken Kies): When you look at where the votes were cast and who won the election, the United States is the most polarized politically it’s been since perhaps the Civil War. The 165 million voter turnout indicates an intense interest in this election. If you’re President Trump, you lost the election having received 74 million votes, the second highest number of votes received by a presidential candidate.

It’s kind of like being in the final game of the NBA playoffs, scoring 130 points, the second highest number of points ever scored in an NBA game, but unfortunately you lose to the other team because they scored 140 points. This election is going to be one that people are going to study for a long time.

Q: What is the significance of the Georgia runoffs? How do the results impact the composition of Congress?

(KK): There have never been two Senate races go to runoffs in the same state. The Democratic wins have resulted in a 50-50 split, which means that Vice President Kamala Harris will be the tiebreaking vote. Democrats now control the Senate and have all the Senate committee chairmanships.

Legislative policy is going to be dramatically different now that the Democrats control the Senate. It is important to underscore how difficult it will still be for the Biden Administration to pass major initiatives such as COVID-19 relief and any tax legislation because they will still need 60 votes unless they resort to budget reconciliation which is not always quick. The Biden Administration has been very transparent about the tax policies they want to pursue.

First-term presidents tend to enact their big policy initiatives in their first year in office. With Democrats winning the two runoffs, and the obstacles that remain with a 50-50 Senate split, we could be looking at a very substantial tax bill enacted into law by August 2021.

Q: How will the 2022 election impact the Biden Administration’s policy initiatives?

(KK): Looking towards the 2022 election, Republicans are defending 23 seats in the Senate and the margin in the House is only about 10-12 seats. The 2022 election will be hotly contested and will have everything to do with what will or will not be accomplished by the Biden Administration in 2023.

Q: What are the economic and tax implications on the horizon with a Biden Administration?

(KK): The favorable outcome of the Senate runoff elections for Democrats determined that the Biden Administration has a chance to push through its ambitious tax plan. When Democrats won the two Senate runoff elections in Georgia, the Biden Administration’s prospects went from complete gridlock to relatively open roads, not only with tax policy but also health care, labor, etc.

Q: Should we expect to see another round of stimulus in 2021?

(KK): In late December, Congress passed another round of stimulus that provided $600 payments to individuals to the tune of $908 billion dollars. That has taken a bite out of the urgency of the situation for most Republicans in Congress. Senator Joe Manchin is already pushing back on Biden’s desire for another round of stimulus that would include $1,400 payments. Manchin will be a Senator to watch as he will hold a great deal of sway over what types of bills will be considered in the Senate. Another factor is the country's status in terms of the pandemic and economic outlook by March or April. It’s going to be dependent on how well the vaccine distribution goes and the state of the economy as to whether or not another round of stimulus will be necessary.

Kenneth J. (Ken) Kies is Managing Director of the Federal Policy Group (FPG). FPG provides sophisticated strategic and technical tax advice on tax policy matters before the Congress, the U.S. Treasury Department, the Internal Revenue Service and the Organization of Economic Cooperation and Development.

Prior to the acquisition of the Federal Policy Group by Clark Consulting in February 2002, Mr. Kies was Co-Managing Partner of the Washington National Tax Services office of PricewaterhouseCoopers LLP. He also led international delegations and held numerous bilateral discussions in Washington with a wide variety of tax officials representing other foreign countries. www.horanassoc.com

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Join Us for Upcoming Events Kenneth J. (Ken) Kies is Managing Director of the Federal Policy Group (FPG). FPG provides How to Avoid Wasting Your Employee's Hard Earned Dollars sophisticated strategic and technical tax advice on tax policy matters before the Congress, the you, U.S. HORAN Treasurysees Department, Internal emerge RevenueinService and themarketplace Organization of Economic Like many newthesolutions the benefits claiming to be Cooperation and Development. the next hot thing. Join us Thursday, January 21 from 12:00 PM - 1:00 PM as HORAN partners with Amy Hollis, Owner at Hollis Consulting, to educate leaders like you about a new concept that Prior to the acquisition of the Federal Policy Group by Clark Consulting in February 2002, allows employers with over 2,500 employees to receive unused voluntary employee premiums Mr. Kies was Co-Managing Partner of the Washington National Tax Services office of and reinvest dollars back into their voluntary benefits captive.

PricewaterhouseCoopers LLP. He benefits also led package—a internationalrevolutionary, delegations and held numerous bilateral discussions in Washington with a wide variety of tax officials representing other foreign countries.

Navigating Medicare & Social Security Join us on Thursday, January 21 from 12:00 PM - 1:30 PM for a webinar to help individuals better understand and make decisions pertaining to Medicare and Social Security. This webinar is also available on March 18 and May 20.

Employee Benefits Updates for Small Businesses Join us on Wednesday, January 27 from 2:00 PM - 3:00 PM for an exclusive webinar presented by James Slotnick, Sun Life's AVP of Government Relations. He will cover the impact of the additional $248.5 billion to the Paycheck Protection Program which provides small businesses with an additional round of forgivable loans.

HORAN Emerging Business Advisors GROW Series: Risky Business Join HORAN Emerging Business Advisors on Thursday, February 11 from 12:00 PM - 1:00 PM for the GROW Series as we leverage our network of best-in-class strategic partners to help small and emerging businesses thrive and grow. We are committed to providing you with actionable insights and continually sourcing timely, valuable information to create agile learning.

Horan Securities, Inc. (Horan Wealth Management) is dually registered as a Registered Broker/Dealer and as a SEC Registered Investment Advisor, member FINRA/SIPC. Horan Capital Advisors, an affiliate of Horan Securities, is also a SEC Registered Investment Advisor. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness.

Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results. Market conditions can vary widely over time and there is always the potential of losing money when investing in securities. Investors should always review the history of any broker-dealer representative with FINRA at: https://brokercheck.finra.org/. Investors can also check information regarding any Registered Investment Advisor by obtaining a copy of Form ADV or Form CRS. Investors should also review SEC investor resources at: https://www.investor.gov/.

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