Understanding the Healthcare Reform Bill

Introducing CDHP Solutions for a Successful Renewal

PrimeFlex Administrative Services, LLC 2 Hour Continuing Education Credit

GWAHU October 20, 2010AgendaHealth Care Law UpdateCDHP TrendsReview of CDHP Solutions5 Steps to a Successful RenewalWellness presented by Wellness Corporate Solutions07/01/10The New Health Care Law2010Age 26 Eligibility RulesNon-Discrimination Rules 105(h)2011OTC changesPenalty Increase for Non-qualified Distributions for HSAsSimple Cafeteria PlanW-2 Health Insurance Reporting Requirements2013FSA Limit $2,50007/01/10CDHP TrendsKaiser Foundation Study, 2010Overall, enrollment in HSA/HDHP coverage in the group market rose to 8.0 million in January 2010, up from 6.2 million in January 2009. Average Annual Deductible* $2,329 single / $4,418 familyAverage Annual Out-of-Pocket Limit $2,641 single / $5,064 familyPercentage of Policies with Unlimited Lifetime Maximum Benefit 33% Watson Wyatt, 20094 in 10 employers will raise deductibles, copayments and out-of-pocket expensesMore employers will add ADHP as an option, not full replacement07/01/10 Flexible Spending Accounts An FSA is: (IRC Section 125) A Voluntary, Employee Benefit Program which allows for Pre-Tax Deductions of Qualified Expenses (Un-reimbursed Medical and Dependent Care Expenses) reducing the employees taxable income for a higher bottom line take home pay

Premium Only Plan - POPUn-Reimbursed Medical - HFSADependent Care Account - DCAPremium Reimbursement Account - PRA

07/01/10 FSA, cont.Employee Pre-tax Payroll DeductionEmployer Contribution tax-freeTwo risks you must considerUse it or Lose it Employee RiskIRS rules do not allow unused $$ in the account to be returned to the participant at the end of the Plan yearUniform Coverage Rule Employer RiskRequires the employer to have some risk in order to save on reduced social security taxesRequires the employer to front the employee allocation if a legitimate medical expense occurs

07/01/10 Health Reimbursement AccountHealth Reimbursement Arrangements - HRAA HRA is: (IRC Section 105) Unfunded employer responsibility risk retention Partially/Fully self funding of Section 213 expense Analyze the true value of Health InsuranceOwner decides on plan year exposure

07/01/10 HRA, cont.HRA Maximum Employer FlexibilityNo restriction on Plan Design!!!Choice of covered expenses to reimburse: Premiums and/or Deductibles Uninsured Medical Expenses/section 213d Dental and/or Orthodontics Prescription Drugs and/or Vision

Expenses are only reimbursed when an expense is incurred!

07/01/10Health Savings AccountHealth Savings Accounts originate from the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Medicare Bill) IRA-like accounts providing for tax-deductible contributions, accumulations and distributions for qualified medical expenses The Purpose?To encourage savings for retiree medical costsEncourage growth of Consumer Driven Health Plans

07/01/10 HSA, cont. Employer contributions to HSA are excluded from income can be pre-tax under Section 125 Employee contributions to HSA are 100% deductible above the line HSA account is completely portable Distributions for qualified medical expenses are excluded from incomeDistributions for other than qualified medical expenses are permitted but are included in income and generally subject to an excise tax (exception for excise tax for death, disability or post-65 distribution)

07/01/10 5 Steps to a Successful RenewalStep 1: Basic Guidelines for Proper Plan DesignStep 2: Develop a Big Picture Renewal StrategyStep 3: Deliver the Renewal with Attainable SolutionsStep 4: Combination PlansStep 5: Implementation Common Issues to Avoid

07/01/10 Step 1: Basic GuidelinesProper Plan Design Options:FSA (ER & EE contributions)Least restrictiveMost convenient Annual election is available from 1st dayHRA (ER funded only) Extremely flexible in Plan designLiability defined exposure known upfrontReimbursed when incurredHSA (ER & EE contributions)Most restrictiveTriple-tax exemptRetiree medical account

07/01/10Step 2: The Big PictureWhat is your belief in CDHP?Introduce cost savings ideas with a 3 year strategy in mindDetermine employers goals ask important questionsAlign plan years based on your strategy and future plan implementations

07/01/10 Step 3: Deliver the RenewalAttainable Solutions based on:Behavioral MotivationsFinancial Motivations

Lets Take A Closure Look at Each07/01/10Behaviorally MotivatedSeeking financial relief; and changing how the employees think:HDHP Plans (2nd dollar HRA with FSA)Even Higher HDHP (% split HRA with FSA)QHDHP (HSA)QHDHP (1st dollar HSA with 2nd dollar HRA)Paying employee, not Provider, directly (HRA)

07/01/10Financially MotivatedSeeking the quick fix in premiums with:HDHP Plans (HRA & FSA)Higher copayments (FSA)Adding coinsurance (HRA)Increasing payroll deductions (IRC 125 & FSA)Removal of the group plan or individual medical premiums exist (PRA and/or HRA)

07/01/10 Step 4: Combining PlansFSA & HRA perfect matchOrdering Rules ApplyFSA & HSALtd-use FSA: dental, vision & preventative care onlyHRA & HSALtd-use or Post-deductible HRA FSA, HRA & HSALtd-use FSA/HRA, Post-deductible HRA/FSA

07/01/10 FSA-HRA PlansFSA - Employee is responsible for next $500

HRA - Employer Reimburses 1st $1,500

07/01/10Employer reimburses the first $1,500 of the In-network deductible

Employee is responsible for the next $500

HRA could pick up co-insurance after deductible is met.HRA - HSAThis HRA replaces the ability to contribute to an HSA altogether.A first dollar HRA with QHDHP can start the consumer driven philosophy.

07/01/10QHDHP

HRA for a portion or all of the HSA deductible

Percentage Split HRA with FSA07/01/10

Example is a $2,000 deductible (traditional or QHDHP)ER will reimburse 80% throughout the deductibleFSA can pay employee responsibility of 20%

HSA with Post Deductible HRA$3,000 / $6,000 deductible, 100% co-insurance.HSA must meet the statutory minimum ($1,200/$2,400 for 2010)HRA provides catastrophic coverage after the HSA deductible

07/01/10HRA

Employer Reimburses $1,800

HSA

Employee/Employer Contributions: $1,200

Step 5: ImplementationEmployer, do you have an FSA or HRA?Does your FSA/HRA renew at the same as your health plan renewal?Did you amend your Section 125 plan to include the HSA language?Will you fund the EEs accounts right away or through payroll? Consequences?Will the owners be able to participate with pre-tax contributions?Do your employees have a spouse that has other coverage, like an FSA?How can we best communicate our message to the employees?Would the employer like to adopt a new or more comprehensive wellness initiative?

07/01/10For More Information:Lisa Collins | Area Sales Manager, Benefit ServicesPrimePay | 14150 Parkeast Circle, Suite 140 | Chantilly, VA 20151Phone: 703-286-1831 Cell: 703-220-8750 | Fax: 484.323.1531lcollins@primepay.com | www.primepay.com

07/01/10Chart12080

Deductible

Sheet1DeductibleERSeries 3EE20802ER804.42Category 33.51.83Category 44.52.85To resize chart data range, drag lower right corner of range.