Unlocking CDHC  October 5, 2011
The Current Environment <ul><li>Higher Co-pays </li></ul><ul><li>Rising Premiums </li></ul><ul><li>A Crumbling Economy </l...
Acronym Overload HRA LTC LTD HMO POS PPO HDHP NAHU FSA HSA PAHU GPAHU MSA HCR ERISA PPACA HIPAA COBRA LOA STD LPFSA CMS CR...
Driving Factors <ul><li>The Failure of Managed Care to Control Costs </li></ul><ul><li>U.S. health plan cost trends will c...
Contributing Factors Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage, ...
Driving Factors <ul><li>Economic Implications </li></ul><ul><li>Healthcare spending is 4.3 times the amount spent on natio...
<ul><li>Continuing to struggle with complex and changing regulatory and compliance issues – Section 125, COBRA </li></ul><...
<ul><li>Demanding innovative solutions from brokers and agents to: </li></ul><ul><ul><li>Control costs </li></ul></ul><ul>...
Contributing Factors Among Firms Offering Health Benefits, Percentage of Firms that Report They Made the Following Changes...
TOP 5   EMPLOYER PRIORITIES Source:  Deloitte Consulting (2006) Copyright © 2006 Deloitte Development LLC. All rights rese...
<ul><li>Spread sheeting and downgrading of plans </li></ul><ul><li>Cost-Shifting to employees </li></ul><ul><li>Broker emp...
<ul><li>Pushing products to meet new business numbers </li></ul><ul><li>Focusing on VB Commission schedules to recruit bro...
<ul><li>The Broker </li></ul><ul><ul><li>Concerned about competition </li></ul></ul><ul><ul><li>Worried about losing their...
TOP 5   EMPLOYER PRIORITIES Source:  Deloitte Consulting (2006) Copyright © 2006 Deloitte Development LLC. All rights rese...
<ul><li>Controls costs by delegating more direct responsibility to consumers (and beneficiaries) of health insurance </li>...
TOOLS •  FSA •  HRA •  HSA •  Voluntary THE The Solution A Consumer-Driven   Benefits   Approach
<ul><li>Offer employees the ability to pay for eligible out-of-pocket medical costs and dependent day care expenses with p...
<ul><li>Employee  –employee contributions to FSAs reduce  Federal and FICA taxable compensation.  Based on 2006 tax rates,...
<ul><li>There are two primary types of FSA plans that can be included under a Section 125 plan </li></ul><ul><ul><li>Healt...
FSA  Win-Win Situation EMPLOYER Enhance  employee benefits Improve  recruitment and retention  Increase  FSA participation...
<ul><li>Internal Revenue Code Section 105 </li></ul><ul><li>100% Employer funded Medical Expense Reimbursement. </li></ul>...
<ul><li>Internal Revenue Code § 213(d) expenses (health, dental , and vision) may be eligible for reimbursement. </li></ul...
<ul><li>Lower overall premium cost by opting for a HDHP. </li></ul><ul><li>Soften the blow of increased medical costs if p...
<ul><li>Who will be eligible? </li></ul><ul><li>What type? </li></ul><ul><li>What expenses will be eligible? </li></ul><ul...
<ul><li>Current and Former Employees and their dependents. </li></ul><ul><li>Retirees. </li></ul><ul><li>Participants in E...
<ul><li>Sole proprietors </li></ul><ul><li>Partners in a partnership </li></ul><ul><li>Members of a LLC </li></ul><ul><li>...
<ul><li>Employer A has 22 Employees on the health plan. </li></ul><ul><li>The deductible is $250 per person and 3- $250 de...
<ul><li>Employer A has 22 Employees on the health plan. </li></ul><ul><li>The deductible is $250 per person and 3- $250 de...
<ul><li>Employer A still has 22 Employees on the health plan. </li></ul><ul><li>Employer A has elected to increase the ded...
<ul><li>The High deductible insurance rates are as follows: </li></ul><ul><li>Rate/Mo Total/Mo Total/Yr  </li></ul><ul><li...
<ul><li>High deductible health plan </li></ul><ul><li>Rates save the Employer as follows: </li></ul><ul><li>Renewal HDHP S...
<ul><li>HRA uses savings generated by HDHP for HRA Claims: </li></ul><ul><li>Max HRA Pay* HDHP Net   </li></ul><ul><li>Sav...
<ul><li>Internal Revenue Code Section 223 </li></ul><ul><li>IRA-type accounts that individuals, covered by high deductible...
<ul><li>REQUIREMENTS </li></ul><ul><li>Must be covered under a  qualified  High Deductible Health Plan (HDHP). </li></ul><...
<ul><li>Annual HSA Contribution Limit: </li></ul><ul><li>Self-only: $3,050 Family: $6,150 </li></ul><ul><li>HDHP Limits: <...
<ul><li>Annual HSA Contribution Limit: </li></ul><ul><li>Self-only: $3,100 Family: $6,250 </li></ul><ul><li>HDHP Limits: <...
<ul><li>HDHP cannot “pay out” on an individual deductible that is embedded, prior to the entire family hitting the $2,400 ...
<ul><li>Employee only-direct to the HSA custodian. </li></ul><ul><li>Can be made via salary reduction inside a cafeteria p...
<ul><li>Contributions can be made up until April 15 TH  for the previous calendar year. </li></ul><ul><li>Contributions ma...
<ul><li>Employer contributions to the HSA must be coordinated with any employee contributions.  Annual limit. </li></ul><u...
<ul><li>Employer contributions made outside a cafeteria plan are subject to the HSA comparability rules </li></ul><ul><li>...
<ul><li>No third party claims adjudication requirement.  No claims police </li></ul><ul><li>SHOE BOX RULE:  Taxpayer must ...
<ul><li>Two categories of expenses qualify for tax-free treatment of distributions. </li></ul><ul><li>Out-of-pocket medica...
<ul><li>2. Certain insurance expenses </li></ul><ul><li>Generally, health insurance premiums are not qualified except the ...
<ul><li>HSA can be invested and growth is tax free. </li></ul><ul><li>Balances rollover at the end of each year. </li></ul...
<ul><li>Employer has no control over what the HSA money will be used for. </li></ul><ul><li>Conflict with traditional FSA ...
<ul><li>Make sure you have the appropriate HSA compatible High Deductible Health Plan (HDHP). Not all HDHP are HSA compati...
<ul><li>Caution:  General-Purpose FSA and HRA participation may  disqualify  employees from receiving or contributing amou...
Integration •  FSA •  HRA •  HSA •  Management Technology THE
Card will not work at non-qualified vendors The Emergence of Technology THE SIGNIFICANCE OF SIMPLICITY Debit Cards elimina...
CDHC REQUIRES AN ‘individual consultative sell’ <ul><li>Beyond price, your client may have additional concerns: </li></ul>...
LET CLIENT PROFILE GUIDE PRODUCT SALE Employer Assessment Diagnostic Bear Bull In the zone P&L Outlier  Low-cost commodity...
HSA Diagnostic Completely Unprepared   Ready Now Deal Makers = Motivated Employers Understanding  Healthcare   Employee Te...
A Combined  Broker/VB Benefits Strategy <ul><li>Control and lower costs. </li></ul><ul><li>Deliver a benefits solution tha...
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Colonial Life And Accident Broker Presentation 1011

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  • As we’ve seen in the previous section, you’re selling CDHC, not CDHP. You’re selling more than a plan, and this requires a more consultative approach than usual.
  • As we’ve seen in the previous section, you’re selling CDHC, not CDHP. You’re selling more than a plan, and this requires a more consultative approach than usual.
  • As we’ve seen in the previous section, you’re selling CDHC, not CDHP. You’re selling more than a plan, and this requires a more consultative approach than usual.
  • Colonial Life And Accident Broker Presentation 1011

    1. 1. Unlocking CDHC October 5, 2011
    2. 2. The Current Environment <ul><li>Higher Co-pays </li></ul><ul><li>Rising Premiums </li></ul><ul><li>A Crumbling Economy </li></ul><ul><li>Health Care Reform </li></ul><ul><li>The Perfect Storm is Forming… </li></ul><ul><li>Can you weather it? </li></ul>
    3. 3. Acronym Overload HRA LTC LTD HMO POS PPO HDHP NAHU FSA HSA PAHU GPAHU MSA HCR ERISA PPACA HIPAA COBRA LOA STD LPFSA CMS CRA DCA MERP PHI = CDHC ( C onsumers D on’ t H ave a C lue) CHIP TPA EAP VEBA IRS POP OTC
    4. 4. Driving Factors <ul><li>The Failure of Managed Care to Control Costs </li></ul><ul><li>U.S. health plan cost trends will continue to be more than four times greater than the annual increase in average hourly earnings </li></ul><ul><li>Average health premiums for family coverage is $13,772 in 2010 </li></ul><ul><li>Since 1999, family premiums have risen 119% </li></ul><ul><li>By 2017, it will total nearly $4.3 trillion and will represent 20% of our GDP </li></ul><ul><li>Why? </li></ul><ul><li>Baby boomers and aging population </li></ul><ul><li>Prescription drug explosion </li></ul><ul><li>Increased government intervention creating complex regulatory and compliance environment </li></ul><ul><li>Rising consumer consumption and expectations with continued insulation from costs </li></ul><ul><li>Increasing medical inflation and costly emerging technologies </li></ul>Source: Centers for Medicare and Medicaid Services; 2004 Annual Survey, Employee Health Benefits; The Kaiser Family Foundation; Charting the Cost of Inaction, National Coalition on Health Care, May 2003; MSNBC 2007Study – Centers for Medicare and Medicaid Services
    5. 5. Contributing Factors Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage, 1999-2010 $5,791 $6,438* $7,061* $8,003* $9,068* $9,950* $10,880* $11,480* $12,106* $12,680* $13,375* $13,770* * Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010.
    6. 6. Driving Factors <ul><li>Economic Implications </li></ul><ul><li>Healthcare spending is 4.3 times the amount spent on national defense </li></ul><ul><li>Healthcare spending rose 2 times the rate of inflation between 8/2000 and 8/2010 </li></ul><ul><li>Increasing number of uninsured/underinsured </li></ul><ul><li>In 10 years, health care will account for $1 out of every $5 spent in the U.S. </li></ul><ul><li>Anticipated Results </li></ul><ul><li>Businesses resistant to continued cost increases </li></ul><ul><li>Insurance plans build in cost shifting measures that impact employees </li></ul><ul><li>Unhappy and uneducated consumers sent satisfaction levels plummeting </li></ul><ul><li>Providers continue to feel the squeeze and look to find alternative delivery systems </li></ul><ul><li>Agents and brokers are left to decipher a solution </li></ul>Source: Centers for Medicare and Medicaid Services; 2004 Annual Survey, Employee Health Benefits; The Kaiser Family Foundation; Charting the Cost of Inaction, National Coalition on Health Care, May 2003; MSNBC 2007Study – Centers for Medicare and Medicaid Services; Health Leader’s Media reference to Standard and Poor’s 2010 Study
    7. 7. <ul><li>Continuing to struggle with complex and changing regulatory and compliance issues – Section 125, COBRA </li></ul><ul><li>Unable to absorb continued double-digit increases in order to maintain a fully-funded employer sponsored plan </li></ul><ul><ul><li>Passing premium costs to employees </li></ul></ul><ul><ul><li>The average employee contribution to company-provided health insurance has increased more than 120% since 2000 </li></ul></ul><ul><ul><li>Average out-of-pocket costs for deductibles, co-payments for medications, and co-insurance for physician and hospital visits rose 115 percent during the same period </li></ul></ul><ul><li>Continually downgrading benefits if not dropping them completely </li></ul><ul><ul><li>U.S. has two million more workers than it did in 2000, but two million fewer people with private health insurance* </li></ul></ul>PRIVATE BUSINESS REACTION *Source: Wall Street Journal , April 11, 2006 National Coalition on Health Care, 2009 Report-The Henry J. Kaiser Family Foundation. Employee Health Benefits: 2008 Annual Survey. September 2008
    8. 8. <ul><li>Demanding innovative solutions from brokers and agents to: </li></ul><ul><ul><li>Control costs </li></ul></ul><ul><ul><li>Maintain employee satisfaction </li></ul></ul><ul><ul><li>Communicate Value of Core Benefits (The Hidden Paycheck) </li></ul></ul><ul><ul><li>Address Individual employee needs </li></ul></ul><ul><ul><li>Provide LONG TERM solutions </li></ul></ul>PRIVATE BUSINESS REACTION
    9. 9. Contributing Factors Among Firms Offering Health Benefits, Percentage of Firms that Report They Made the Following Changes as a Result of the Economic Downturn, by Firm Size, 2010 *Estimate is statistically different between All Small Firms and All Large Firms within category (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2010.
    10. 10. TOP 5 EMPLOYER PRIORITIES Source: Deloitte Consulting (2006) Copyright © 2006 Deloitte Development LLC. All rights reserved. Employers’ number one employee benefit priority is to control healthcare costs.
    11. 11. <ul><li>Spread sheeting and downgrading of plans </li></ul><ul><li>Cost-Shifting to employees </li></ul><ul><li>Broker emphasis on new business acquisition and growing block of business </li></ul><ul><li>Searching for value-added services </li></ul><ul><ul><li>Online enrollment </li></ul></ul><ul><ul><li>Enhanced customer-service department </li></ul></ul><ul><ul><li>HR Services </li></ul></ul><ul><ul><li>Developing one-stop shopping for ancillary services </li></ul></ul><ul><li>Consolidating and selling blocks of business to improve competencies </li></ul><ul><li>WHAT ARE YOU DOING? </li></ul>BROKER/AGENT REACTION
    12. 12. <ul><li>Pushing products to meet new business numbers </li></ul><ul><li>Focusing on VB Commission schedules to recruit brokers </li></ul><ul><li>Focusing on product differentiation to drive sales </li></ul><ul><li>Learning core benefits to compete in broker market </li></ul><ul><li>Developing online enrollment capabilities </li></ul><ul><li>Trying to find employee $$ to spend on VB products </li></ul><ul><li>WHAT IS DIFFERENT TODAY? </li></ul>VB AGENT REACTION
    13. 13. <ul><li>The Broker </li></ul><ul><ul><li>Concerned about competition </li></ul></ul><ul><ul><li>Worried about losing their case </li></ul></ul><ul><ul><li>See limited value in VB products </li></ul></ul><ul><ul><li>Don ’t want to threaten their existing relationship with the group </li></ul></ul><ul><ul><li>Believe they can sell products themselves </li></ul></ul>Broker/VB AGENT History The Reluctant Partnership <ul><li>The VB Rep </li></ul><ul><ul><li>Trying to expand market reach by heavily recruiting agents </li></ul></ul><ul><ul><li>Concerned brokers will take lion-share of commission </li></ul></ul><ul><ul><li>Don ’t think they need the broker </li></ul></ul><ul><ul><li>Focus on product differentiation and commission to gain access to brokers </li></ul></ul>What has your relationship been like?
    14. 14. TOP 5 EMPLOYER PRIORITIES Source: Deloitte Consulting (2006) Copyright © 2006 Deloitte Development LLC. All rights reserved. Employers’ number one employee benefit priority is to control healthcare costs.
    15. 15. <ul><li>Controls costs by delegating more direct responsibility to consumers (and beneficiaries) of health insurance </li></ul><ul><li>Institutes higher co-pays, deductibles, co-insurance in an effort to lower premiums </li></ul><ul><li>Designed to use higher out-of-pocket costs as lever to drive consumers to responsible utilization </li></ul><ul><li>Make consumers aware of the true cost of their care </li></ul><ul><li>Only the beginning </li></ul>ENTER CDHC A STEP IN THE RIGHT DIRECTION
    16. 16. TOOLS • FSA • HRA • HSA • Voluntary THE The Solution A Consumer-Driven Benefits Approach
    17. 17. <ul><li>Offer employees the ability to pay for eligible out-of-pocket medical costs and dependent day care expenses with pretax dollars </li></ul><ul><li>In July 1998, the Transportation Equity Act was enacted into law allowing for the pretax of qualified transportation expenses. </li></ul><ul><li>Free up tax dollars to be spent on additional benefits. </li></ul>FSA True Cost Savings FSA AHEAD OF THEIR TIME?
    18. 18. <ul><li>Employee –employee contributions to FSAs reduce Federal and FICA taxable compensation. Based on 2006 tax rates, potential savings range from 17.65% to 35.65% depending on federal tax bracket and state of deduction (varies by state) </li></ul><ul><li>Employer – realizes direct, bottom-line savings in the form of reduced FICA & FUTA taxes, as well as disability and worker’s compensation premiums (varies by state) </li></ul>FSA True Cost Savings FSA
    19. 19. <ul><li>There are two primary types of FSA plans that can be included under a Section 125 plan </li></ul><ul><ul><li>Health (or medical reimbursement) FSA </li></ul></ul><ul><ul><li>Dependent Care Assistance Plan (DCAP) </li></ul></ul><ul><li>Contribution Limits </li></ul><ul><ul><li>FSA – the employer sets the contribution limit* </li></ul></ul><ul><ul><ul><li>Set to change in 2013 to $2500 </li></ul></ul></ul><ul><ul><li>DCA - $5,000 </li></ul></ul><ul><li>Over-the-counter (OTC) medicines and drugs (except insulin) require a prescription </li></ul><ul><ul><li>Other OTC items such as band aids, insulin and contact lens solution are still eligible without a prescription </li></ul></ul>FSA Key Points FSA
    20. 20. FSA Win-Win Situation EMPLOYER Enhance employee benefits Improve recruitment and retention Increase FSA participation Unlock new FICA savings BROKER/VB SPECIALIST FSA options “ free ’ s up ” dollars to spend on voluntary benefits Employee savings help cushion increases in out-of-pocket expenses Offer employers an opportunity to offer enhanced benefits at no additional cost – the more employees that enroll, the greater the savings Help employees take the 1 st step in managing their own healthcare dollars EMPLOYEE Accelerate personal cash flow Manage account via internet Achieve immediate reimbursement End “shoe box” administration Reduce lost and unfiled claims Decrease FSA forfeitures
    21. 21. <ul><li>Internal Revenue Code Section 105 </li></ul><ul><li>100% Employer funded Medical Expense Reimbursement. </li></ul><ul><li>No Employee contributions allowed. </li></ul><ul><li>IRS Notice 2002-45 and Revenue Ruling 2002-41. </li></ul><ul><li>May permit (not required) carryovers of unused amounts and/or spend down of unused balances at termination. </li></ul><ul><li>Also may be known as 105 plans, MERPS, Personal Care Accounts, etc. </li></ul>Health Reimbursement Accounts HRA
    22. 22. <ul><li>Internal Revenue Code § 213(d) expenses (health, dental , and vision) may be eligible for reimbursement. </li></ul><ul><ul><li>HCRC 2011: Dr’s Rx required for OTC medications (except insulin). </li></ul></ul><ul><li>HRA may be limited to certain expenses or certain categories of expenses. </li></ul><ul><li>Restricted by plan design. </li></ul><ul><li>Claims substantiation required. Claims police. </li></ul><ul><li>Unused balances cannot be converted to cash. </li></ul><ul><li>Cannot name a beneficiary. </li></ul><ul><li>Account is not portable. </li></ul>HRA’s Continued HRA
    23. 23. <ul><li>Lower overall premium cost by opting for a HDHP. </li></ul><ul><li>Soften the blow of increased medical costs if paired with HDHP. </li></ul><ul><li>No IRS imposed minimum amount required. Unlike on personal income tax returns where you are required to meet the 7.5% of income threshold (HCRC 10% in 2013). </li></ul><ul><li>Deduct most dental and optical expenses even if you do not have specific insurance coverage. </li></ul><ul><li>Flexibility of providing medical benefits on a tax-free basis with carryovers (claims and balances) and spend downs. </li></ul>HRA Why Have an HRA?
    24. 24. <ul><li>Who will be eligible? </li></ul><ul><li>What type? </li></ul><ul><li>What expenses will be eligible? </li></ul><ul><li>What are Maximum limits on Employer contributions? One level or tiered? </li></ul><ul><li>How will HRA be funded? </li></ul><ul><li>Permit Carryovers? </li></ul><ul><li>Permit Spend-downs? </li></ul><ul><li>Ordering Rules. Will HRA pay 1st or 2nd? </li></ul>HRA HRA Design Considerations
    25. 25. <ul><li>Current and Former Employees and their dependents. </li></ul><ul><li>Retirees. </li></ul><ul><li>Participants in Employer-sponsored HDHP. </li></ul><ul><li>Employees without a specific insurance plan. </li></ul><ul><li>Full-time or Part-time Employees. </li></ul><ul><ul><li>Note: Eligibility subject to plan design. </li></ul></ul>HRA Who Can Participate in an HRA?
    26. 26. <ul><li>Sole proprietors </li></ul><ul><li>Partners in a partnership </li></ul><ul><li>Members of a LLC </li></ul><ul><li>2% or greater shareholders of S Corporation </li></ul><ul><ul><li>Note: Unlike sole proprietors, the family members of partners or 2% or more shareholders cannot participate in a cafeteria plan maintained by the partnership or S Corporation due to the stock attribution rules contained in IRS Code § 318. </li></ul></ul>HRA Who Cannot Participate in an HRA?
    27. 27. <ul><li>Employer A has 22 Employees on the health plan. </li></ul><ul><li>The deductible is $250 per person and 3- $250 deductibles per family. There is a $20 office visit co-pay and a drug card with co-pays of $5/$20/$40. </li></ul><ul><li>The insurance rates are as follows: </li></ul><ul><li>Rate/Mo Total/Mo Total/Yr </li></ul><ul><li>12 Single $411.04 $4932.48 $59,189.76 </li></ul><ul><li>5 Ltd Family $842.65 $4213.25 $50,559.00 </li></ul><ul><li>5 Family $1171.52 $5857.60 $70,291.20 </li></ul><ul><li>$15,003.33 $180,039.96 </li></ul>HRA Sample HRA Analysis
    28. 28. <ul><li>Employer A has 22 Employees on the health plan. </li></ul><ul><li>The deductible is $250 per person and 3- $250 deductibles per family. There is a $20 office visit co-pay and a drug card with co-pays of $5/$20/$40. </li></ul><ul><li>The renewal insurance rates are as follows: </li></ul><ul><li>Rate/Mo Total/Mo Total/Yr </li></ul><ul><li>12 Single $485.03 $5820.36 $69,844.32 </li></ul><ul><li>5 Ltd Family $993.33 $4971.65 $59,659.80 </li></ul><ul><li>5 Family $1382.38 $6911.90 $82,942.80 </li></ul><ul><li>$17,703.91 $212,446.92 </li></ul>HRA Sample HRA Analysis
    29. 29. <ul><li>Employer A still has 22 Employees on the health plan. </li></ul><ul><li>Employer A has elected to increase the deductible to $1000 per person and a maximum of 2-$1000 deductibles per family. </li></ul><ul><li>The $20 office visit co-pay and a drug card with co-pays of $5/$20/$40 remains part of the plan design. </li></ul><ul><li>Employer A implements an HRA and will require the Employee to pay the first $250 on each deductible and will then reimburse them the remaining $750 ($251-$1000) per person from the HRA. </li></ul><ul><li>The Employee will be required to submit an Explanation of Benefits (EOB) for reimbursement from the HRA. (Manual vs. Automatic) </li></ul>HRA Sample HRA Analysis (cont.)
    30. 30. <ul><li>The High deductible insurance rates are as follows: </li></ul><ul><li>Rate/Mo Total/Mo Total/Yr </li></ul><ul><li>12 Single $331.21 $3974.92 $47,694.24 </li></ul><ul><li>5 Ltd Family $678.98 $3394.90 $40,738.80 </li></ul><ul><li>5 Family $943.95 $4719.75 $56,637.00 </li></ul><ul><li>$12,089.17 $145,070.04 </li></ul>HRA Sample HRA Analysis Sample HRA Analysis (cont.)
    31. 31. <ul><li>High deductible health plan </li></ul><ul><li>Rates save the Employer as follows: </li></ul><ul><li>Renewal HDHP Savings/Yr </li></ul><ul><li>Rate/Yr Total/Yr </li></ul><ul><li>12 Single $69,844.32 $47,694.24 $22,150.08 </li></ul><ul><li>5 Ltd Family $59,659.80 $40,738.80 $18,921.00 </li></ul><ul><li>5 Family $82,942.80 $56,637.00 $26,305.80 </li></ul><ul><li>$212,446.92 $145,070.04 $67,376.88 </li></ul>HRA Sample HRA Analysis Sample HRA Analysis (cont.)
    32. 32. <ul><li>HRA uses savings generated by HDHP for HRA Claims: </li></ul><ul><li>Max HRA Pay* HDHP Net </li></ul><ul><li>Savings/Yr Savings </li></ul><ul><li>12 Single $9000 ($750 x 12) $22,150.08 $13,150.08 </li></ul><ul><li>5 Ltd Family $7,500 ($1500 x 5) $18,921.00 $11,421.00 </li></ul><ul><li>5 Family $7500 (1500 x 5) $26,305.80 $18,805.80 </li></ul><ul><li>$24,000 $67,376.88 $43,376.88 </li></ul><ul><li>*Worst case scenario: Assumes all participants file maximum claims. </li></ul>HRA Sample HRA Analysis Sample HRA Analysis (cont.)
    33. 33. <ul><li>Internal Revenue Code Section 223 </li></ul><ul><li>IRA-type accounts that individuals, covered by high deductible health plans (HDHP), can establish after January 1, 2004 to pay for medical expenses. </li></ul><ul><li>IRS Code § 223 enacted as part of the Medicare Prescription Drug and Modernization Act (Dec. 8, 2003). </li></ul><ul><li>Replaces the Medical Savings Account (MSA), IRS Code § 220. (Archer MSA pilot project ended 12/31/07.) </li></ul><ul><li>Individually owned HSA accounts are required to rollover unused balances from year to year and may earn interest tax-free. </li></ul>Health Savings Accounts HSA
    34. 34. <ul><li>REQUIREMENTS </li></ul><ul><li>Must be covered under a qualified High Deductible Health Plan (HDHP). </li></ul><ul><li>HSA eligibility is determined on a monthly basis. </li></ul><ul><li>A HSA must be set up in a medical trust . A trustee can be a bank or an insurance company, or any other person or organization approved as a non-bank trustee by the IRS. </li></ul><ul><li>An eligible individual is any taxpayer including sole proprietors, partners, members of LLC, and S Corp shareholders. </li></ul><ul><li>HSA not required to be an employer-sponsored. Note: Employers don’t want to “sponsor” HSA. Sponsorship would make HSA subject to ERISA. </li></ul>Health Savings Accounts Basics HSA
    35. 35. <ul><li>Annual HSA Contribution Limit: </li></ul><ul><li>Self-only: $3,050 Family: $6,150 </li></ul><ul><li>HDHP Limits: </li></ul><ul><li>Minimum Deductible: </li></ul><ul><li>Self-only: $1,200 Family: $2,400 </li></ul><ul><li>Maximum Out-of-pocket: </li></ul><ul><li>Self-only: $5,950 Family: $11,900 </li></ul><ul><li>Catch Up Contribution: $1,000 per year (Individual over the age of 55) </li></ul>HSA Limits 2011 HSA
    36. 36. <ul><li>Annual HSA Contribution Limit: </li></ul><ul><li>Self-only: $3,100 Family: $6,250 </li></ul><ul><li>HDHP Limits: </li></ul><ul><li>Minimum Deductible: </li></ul><ul><li>Self-only: $1,200 Family: $2,400 </li></ul><ul><li>Maximum Out-of-pocket: </li></ul><ul><li>Self-only: $6,050 Family: $12,100 </li></ul><ul><li>Catch Up Contribution: $1,000 per year (Individual over the age of 55) </li></ul>HSA Limits 2012 HSA
    37. 37. <ul><li>HDHP cannot “pay out” on an individual deductible that is embedded, prior to the entire family hitting the $2,400 family deductible. (NOTE: You may need to purchase at least a $2,400 individual deductible and $4,800 per family in 2011 and 2012 to avoid this potential problem.) </li></ul><ul><li>Eligible Individuals cannot be covered by another low or no-deductible plan, including flexible spending accounts, MSA, and HRA plans. (Exception: Coverage for accident, disability, dental, vision, and long-term care, or for specified diseases are permissible.) </li></ul><ul><li>No first dollar coverage (i.e. RX drug plans with co-pays) permitted for anything other than preventative care. Preventative care includes items such as annual physicals and wellness type tests and visits. No Drug Card. </li></ul>HSA: Ineligible Plan Designs
    38. 38. <ul><li>Employee only-direct to the HSA custodian. </li></ul><ul><li>Can be made via salary reduction inside a cafeteria plan*. </li></ul><ul><ul><li>*Avoid HSA comparability rules. </li></ul></ul><ul><ul><li>*Plan Document requirement. </li></ul></ul><ul><ul><li>*Gain FICA and Medicare Tax savings. </li></ul></ul><ul><ul><li>*State Tax savings subject to State Tax rules </li></ul></ul><ul><ul><li>*Not subject to Change of Election Rules. </li></ul></ul><ul><ul><li>*Can change as frequently as once per month. </li></ul></ul><ul><li>Employer contributions (optional) and Employee contributions through the cafeteria plan. </li></ul>HSA: Contributions
    39. 39. <ul><li>Contributions can be made up until April 15 TH for the previous calendar year. </li></ul><ul><li>Contributions may be made in a lump sum or periodically during the year. </li></ul><ul><li>Anyone can contribute to your HSA. </li></ul><ul><li>All contributions to the HSA are tax deductible to the HSA accountholder in the year they are deposited into the HSA, regardless of whether your withdraw the funds or incur medical expenses in that year. </li></ul><ul><li>Contributing more to the HSA than allowed is subject to 6% excise tax penalty plus income tax consequences. </li></ul><ul><li>May have investment options and any growth is tax-free. </li></ul>HSA: Contributions (cont.)
    40. 40. <ul><li>Employer contributions to the HSA must be coordinated with any employee contributions. Annual limit. </li></ul><ul><li>Carefully consider the frequency of the Employer contributions to the HSA. </li></ul><ul><li>Once an Employer contribution is made it CANNOT be reversed. </li></ul><ul><ul><li>Only 2 exceptions (HSA Grab Bag Guidance 2008): </li></ul></ul><ul><ul><ul><li>Contribution was for someone who was NEVER eligible. </li></ul></ul></ul><ul><ul><ul><li>Contribution made exceeds statutory max for the year. </li></ul></ul></ul>Employer Contributions To The HSA
    41. 41. <ul><li>Employer contributions made outside a cafeteria plan are subject to the HSA comparability rules </li></ul><ul><li>Permissible contribution methods: </li></ul><ul><ul><li>Same dollar amount or same percentage of the HDHP deductible. </li></ul></ul><ul><ul><li>Permit differences based upon tiers of coverage as long as everyone in the tier is treated the same. </li></ul></ul><ul><ul><li>Exclude collectively bargained employees. </li></ul></ul><ul><ul><li>Permit more generous treatment of Non- HCE </li></ul></ul>Employer Contributions To The HSA
    42. 42. <ul><li>No third party claims adjudication requirement. No claims police </li></ul><ul><li>SHOE BOX RULE: Taxpayer must retain all records to prove tax deductible status of withdrawals in the event of an IRS audit. </li></ul><ul><li>Withdrawals are tax-free for qualified medical expenses. </li></ul><ul><li>Any use of HSA funds in a non-qualified way are subject to 20% penalty in 2011 and years after and will be considered taxable income in the year it is withdrawn. </li></ul>Rules For Using Your HSA
    43. 43. <ul><li>Two categories of expenses qualify for tax-free treatment of distributions. </li></ul><ul><li>Out-of-pocket medical expenses </li></ul><ul><ul><li>Amounts paid for medical care as defined in Code § 213(d). HCRC 2011: Dr’s Rx for OTC medications (except insulin). </li></ul></ul><ul><ul><li>Amounts must be incurred after the HSA is established. </li></ul></ul><ul><ul><li>Once the HSA exists, tax-free distributions can be used for qualified medical expenses even after the HSA account holder is no longer eligible to make contributions. </li></ul></ul>Qualified HSA Distributions
    44. 44. <ul><li>2. Certain insurance expenses </li></ul><ul><li>Generally, health insurance premiums are not qualified except the following categories: </li></ul><ul><ul><li>COBRA coverage </li></ul></ul><ul><ul><li>Health Insurance while receiving unemployment </li></ul></ul><ul><ul><li>Qualified Long-Term Care Contracts </li></ul></ul><ul><ul><li>For Individuals age 65 and over (still HSA eligible) </li></ul></ul><ul><ul><ul><li>Any health insurance other than a Medicare Supplement </li></ul></ul></ul><ul><ul><ul><li>Medicare premiums  Premiums for individual health insurance policies(not Medigap policies) </li></ul></ul></ul><ul><ul><ul><li>Retiree medical premiums under an employer plan </li></ul></ul></ul>Qualified HSA Distributions (cont.)
    45. 45. <ul><li>HSA can be invested and growth is tax free. </li></ul><ul><li>Balances rollover at the end of each year. </li></ul><ul><li>Portable because they are individually owned accounts. </li></ul><ul><li>Not subject to ERISA and COBRA. </li></ul><ul><li>No claims police. Self adjudicated. </li></ul><ul><li>Accumulated balances could be used for non- medical reasons (subject to tax penalties). </li></ul><ul><li>Both Employer and Employee can contribute. </li></ul>HSA Advantages
    46. 46. <ul><li>Employer has no control over what the HSA money will be used for. </li></ul><ul><li>Conflict with traditional FSA and HRA models that may exist at time of implementation. </li></ul><ul><li>Need qualified HDHP to establish a HSA. </li></ul><ul><li>Incompatible with some disease management programs and some on-site medical clinics. </li></ul><ul><li>Bank fees often charged for account set up and maintenance. </li></ul>HSA Disadvantages
    47. 47. <ul><li>Make sure you have the appropriate HSA compatible High Deductible Health Plan (HDHP). Not all HDHP are HSA compatible. </li></ul><ul><ul><li>Spousal benefit plans (including Health FSA) may disqualify you! </li></ul></ul><ul><li>Make sure employees understand that there is no first dollar coverage on office visits and Rx. All expenses go towards satisfying the HDHP deductible. </li></ul><ul><li>Note: Paying your current HDHP medical premiums pre-tax through a cafeteria plan DOES NOT effect HSA eligibility. </li></ul>How To Avoid HSA Headaches
    48. 48. <ul><li>Caution: General-Purpose FSA and HRA participation may disqualify employees from receiving or contributing amounts to the HSA. </li></ul><ul><li>Work Around: </li></ul><ul><ul><li>Limited-Purpose Medical FSA (dental, vision, preventative care) </li></ul></ul><ul><ul><li>Post Minimum HDHP Deductible Medical FSA (expenses limited to dental, vision, preventative care until the minimum required HDHP deductible has been satisfied, then general expenses are eligible.) </li></ul></ul><ul><ul><li>Possible to suspend HRA coverage. </li></ul></ul><ul><ul><li>Individuals cannot individually elect to convert to Limited-Purpose Medical FSA mid-plan year. Possible to convert entire plan via employer amendment. </li></ul></ul>How To Avoid HSA Headaches (cont.)
    49. 49. Integration • FSA • HRA • HSA • Management Technology THE
    50. 50. Card will not work at non-qualified vendors The Emergence of Technology THE SIGNIFICANCE OF SIMPLICITY Debit Cards eliminate the hassle of traditional FSA/HRA/HSAs IIAS Abilities Ease of use and understanding = satisfaction with the plan Single platform for multiple accounts FSA/HRA/HSA payment connectivity
    51. 51. CDHC REQUIRES AN ‘individual consultative sell’ <ul><li>Beyond price, your client may have additional concerns: </li></ul><ul><li>“ Is CDHC right for my company?” </li></ul><ul><li>“ Are my employees ready for a consumer-driven plan?” </li></ul><ul><li>“ We’ll have a learning curve here. We’ll need solid communications to get our workers up to speed on CDHC.” </li></ul><ul><li>Even when the price is right, a CDHP requires that you communicate to your employees on an individual level. </li></ul>
    52. 52. LET CLIENT PROFILE GUIDE PRODUCT SALE Employer Assessment Diagnostic Bear Bull In the zone P&L Outlier Low-cost commodity Core to the business Conservative Innovative <ul><li>Satisfied with Existing Desperate for New Solutions </li></ul><ul><li>Financially healthy </li></ul><ul><li>Health benefit trend in line with company </li></ul><ul><li>Paternalistic </li></ul><ul><li>Scarce labor market </li></ul>Financial Benefit Labor Culture Picture Spending <ul><li>Profitability </li></ul><ul><li>Growth </li></ul><ul><li>Capital </li></ul><ul><li>Valuation </li></ul><ul><li>Competitor cost structure </li></ul><ul><li>Global markets </li></ul><ul><li>Dollars per employee </li></ul><ul><li>Medical trend </li></ul><ul><li>Percent of total compensation </li></ul><ul><li>Supply and demand </li></ul><ul><li>Commodity or strategic </li></ul><ul><li>Percent of expense base </li></ul><ul><li>Union climate </li></ul><ul><li>Paternalism </li></ul><ul><li>Risk attitude </li></ul><ul><li>Social role </li></ul><ul><li>Community/ political affairs </li></ul>Deal Makers = Motivated Employers <ul><li>Health costs outstripping financial capacity </li></ul><ul><li>Slow growth and/or eroding margins </li></ul><ul><li>Workforce less resistant </li></ul>
    53. 53. HSA Diagnostic Completely Unprepared Ready Now Deal Makers = Motivated Employers Understanding Healthcare Employee Technology Financial of health benefits status expectations savvy capacity Source: 2004 ChapterHouse LLC LET CLIENT PROFILE GUIDE PRODUCT SALE Employee Assessment <ul><li>What ’s covered </li></ul><ul><li>Copays and deductibles </li></ul><ul><li>Affordability of selected health plan options </li></ul><ul><li>Generally healthy </li></ul><ul><li>Chronic diseases </li></ul><ul><li>Attitudes toward health care benefits (who pays) </li></ul><ul><li>Awareness of the macro problems </li></ul><ul><li>Provider preference and perception </li></ul><ul><li>Comfort with Web tools </li></ul><ul><li>Trust in using Web tools for personal information </li></ul><ul><li>Workforce pay scale </li></ul><ul><li>Socioeconomics </li></ul>Ignorant Expert Ill Healthy Right Privilege Technophobe Technophile Low Wage High Income <ul><li>Deserve it all for free </li></ul><ul><li>Minimum wage </li></ul><ul><li>Unionized </li></ul><ul><li>Sophisticated employee base </li></ul><ul><li>Sensitive to health care challenges – shared concern for consequences </li></ul><ul><li>Familiar with Web-based tools </li></ul>Deal Breakers = Apprehensive employees with deeply rooted behaviors
    54. 54. A Combined Broker/VB Benefits Strategy <ul><li>Control and lower costs. </li></ul><ul><li>Deliver a benefits solution that satisfies both </li></ul><ul><li>ER and EE needs. </li></ul><ul><li>Empower clients with options that enable them to control costs. </li></ul><ul><li>Fill the gaps inherent in a consumer-driven </li></ul><ul><li>health care plan. </li></ul><ul><li>Free up employee dollars through tax-advantage savings plans </li></ul><ul><li>Tap in to employee needs through individual communication that addresses family and socio-economic concerns </li></ul>
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