Aiken & Aiken

Sheila Aiken May 9th, 2008

Today there are a number of tax advantaged vehicles available to employers and employees to help them control the spiraling costs of health care.  With all these acronyms floating around, how does one keep from getting confused by them all?

More importantly, with all these different plans available, how does an employer decide what will work best for its business and employees?  Below is a brief description of these plans.

Health Flexible Spending Arrangement (HFSA)

A Health Flexible Spending Arrangement, sometimes called a Flexible Spending Account, is a plan that allows an employee to set aside amounts from his or her paycheck to be used to pay for qualified medical expenses.  The money that an employee had deducted from his or her paycheck is deducted on a pre-tax basis, resulting in payroll tax savings.  These plans can be offered by employers in conjunction with any type of medical plans offered by the employer.  These plans run on a “plan year” basis, in many cases a calendar year.  One of the drawbacks of these plans is that there is a “use-it-or-lose-it” provision.  This means that if an employee does not use all of the funds in the plan by the end of the plan year (or the time claims must be submitted after then end of the plan year), the unused funds will be forfeited.

Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement, also know as a Health Reimbursement Account, is funded exclusively through employer contributions.  These plans can be used in conjunction with the employer’s medical plans to reimburse qualified medical expenses designated by the employer.  These plans can be used with any type of medical plan.  If allowed by the employer, the funds can be carried over from one plan year to the next.  Additionally, the employer decides how much to contribute the plan and when amounts in the plan will be forfeited.

Health Savings Account (HSA)

Used in conjunction with a High Deductible Health Plan (HDHP), this is a special account which is owned by an individual and is used to pay for current and future medical expenses.  In order to be eligible, an individual must be covered by a HDHP, not covered by other health insurance, not enrolled in Medicare and not able to be claimed as a dependent on someone else’s tax return.  Contributions may be made by the employee, the employer or others on behalf of the individual.  There are maximum amounts that can be contribution to the plan on a yearly basis.  Additionally, for individuals age 55 and older, catch-up contributions may be made.  Unused funds can be rolled over from one year to the next.  As opposed to the other types of plans, funds can be used for any expenses the individual chooses and the employer cannot chose how the funds are to be used.  However, if the individual chooses to use the funds in the plan for non-qualified medical expenses, tax consequences and penalties may apply. 

This information is a just very general and brief overview of these arrangements.  There are many specific rules surrounding each of these plans that can be offered including rules relating to the establishment and administration of the plans and rules on how these plans may interact with other benefit plans.  Employers interested in controlling their health care costs would be well-served to consider these types of plans.  However, because of their complexity, benefit counsel and benefit professionals should be consulted before any decision is made on which plan to implement.  A good understanding of how these plans work and a review of the individual needs of the employer is essential to ensure the right fit for the employer.

• Benefits , ERISA , Health Care
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Sheila Aiken April 29th, 2008

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 provides rights for continuation of health coverage to workers and their qualified beneficiaries for specified periods of time when they lose health coverage under certain defined circumstances.  Administration of this far reaching legislation can be fraught with pitfalls for the unwary employer. 

One of the ways that employers try to manage the administrative burdens which COBRA imposes is to outsource administration to insurers or Third-Party Administrators (TPA).  Sometimes the division of duties between the parties is not always clear - to the parties themselves as well as to the employees.

Some of the notice requirements that must be met are:

• A General Notice of Continuation Coverage - Under this requirement, among other things, notice is required to be provided to every new employee and his or her spouse. Notice must be given within 90 days after the date the individual first becomes eligible for coverage.
• A Notice of Right to Elect Continuation of Coverage to Qualified Beneficiaries - This notice must be provided to a covered employee or qualified beneficiary within 14 days of notice of a qualifying event as defined under COBRA.
• A Notice of Unavailability of Continuation Coverage - Under this requirement, notice must be provided within 14 days of notice of a qualifying event or a second qualifying event where a determination is made that the individual affected by the event is not eligible for the continuation requested. 
• A Notice of Early Termination of Continuation Coverage - This notice must be provided as soon as practicable if the continuation coverage will terminate earlier than the period available under COBRA. The notice must specify the reason for the termination, the date the coverage will end and the rights the individual may have to elect other coverage.

Some states have additional requirements that must be met.  In general, the employer has the duty to provide the notice, but the regulations allow the responsibility to be outsourced.  When an employer does outsource administrative responsibilities, the employer then has a requirement to provide notice to the administrator within 30 days of qualifying events such as:

• Termination of an employee,
• A reduction in the work hours of an employee,
• Death of an employee,
• An employee becoming entitled to Medicare, or
• Bankruptcy of the employer (to retired employees)

In a recent Nevada case, one of the issues the court considered was whether the TPA could escape liability for not notifying an insurer to continue an individual’s benefits after the individual made a timely notification under COBRA.  In Hecht v. Summerlin Life and Health Ins. Co., the TPA argued that they did not have a duty to notify the Insurer “because only employees, employers, beneficiaries, group health plans, administrators, and sponsors have notification responsibilities” under COBRA. 

The TPA argued that due they should therefore be dismissed from the case.  However, the court did not allow the dismissal, finding that there were sufficient allegations by the insurer that the TPA was an agent of the employer and could have had an obligation to provide the notice to the insurer.

While there is no final resolution of this case yet, employers, insurers and TPAs should continue to watch how this and other decisions evolve.  COBRA administration can be very labor-intensive for employers, so outsourcing the process can be very appealing.  If an employer chooses to outsource the administration of the COBRA process, the responsibilities of both the employer and the TPA/insurer need to be clearly defined. 

Generally, liability for COBRA compliance will fall on the employer as the plan sponsor, so the service contract should specifically address each party’s responsibilities for notification of continuation rights.  Additionally, employers should ensure that anyone to whom they delegate authority has appropriate procedures in place and that there are safeguards in place so that proper notice is provided.  Benefits counsel can assist employers in making certain that their contracts with benefits service providers clearly divide and define responsibilities for the employer’s maximum protection.

• Benefits , COBRA , ERISA , Health Care
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Michele Aiken March 27th, 2008

Plan document requests seem like a simple matter.  A participant requests a copy of a plan document from the plan sponsor and the plan sponsor provides it, right?  Not always.

Recently, a federal judge awarded a penalty of $50 per day to a pension plan participant because she was not given the plan document she requested.  Additionally, the ex-wife of the plan trustee was the person against whom the penalty was awarded.

ERISA provides a maximum penalty of $110 per day for each day the requested document is not provided.  Plan administrators generally have 30 days from the date of the request to get the document to the requestor. 

Additionally, courts have found that the burden of complying with the request is on the plan administrator.  For instance, even where the participant does not specifically request the plan document, the plan administrator is responsible for providing it when the information that the participant has requested would be found in the document.

In the recent case, the ex-wife of a pension participant asked for the plan documents in mid-1996 after she was awarded $50,000 from her ex-husband’s pension plan in their divorce.  The plan failed to comply with the request and never send the actual plan document. 

U.S. District Judge Oliver W. Wanger of the U.S. District Court for the Eastern District of California rejected the plaintiff’s claim for the $110 per day penalty stating that some documents had been provided.  However, because the plan document had not been provided, he awarded her a $50 per day penalty from June 6, 1996, to September 25, 2005 - a total of $160,310.

This case is just a reminder for employers to ensure that their plan administrators comply with requests for plan documents from participants within the 30 days specified under ERISA.  Additionally, if plan documents are not up-to-date, employers should work with their benefits counsel to get the documents in compliance with current law so they will be ready to respond to requests.  As shown by this recent case, failure to comply can be very costly for employers.

• Benefits , Health Care , Pension
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Sheila Aiken March 12th, 2008

With the ever increasing costs of health care plans, many employers are turning to what are called “consumer-driven health plans”.  Plans that are considered consumer-driven include health savings accounts (HSA) and health reimbursement accounts/health reimbursement arrangements (HRA).  

A HSA is a medical savings account that has tax advantages and is used in conjunction with a High Deductible Health Plan (HDHP).  Funds contributed to an HSA are not subject to federal income tax when they are deposited and may be used to pay for qualified medical expenses without federal tax liability.  Additionally, withdrawals can be made for non-medical expenses.  However, when a withdrawal is made for non-medical expenses, it is treated similarly to an IRA in that there may be tax advantages if the funds are taken after retirement age and penalties if they are taken earlier.

A HRA is an arrangement with tax advantages that allows an employer to reimburse medical expenses paid by participating employees.  Reimbursement may only be made for expenses for those items, such as co-pays, coinsurance, deductibles and services, which are not covered by the company’s health insurance plan and have been agreed to by the employer.  However, any employer sponsored health plan may qualify, not just a HDHP.

According to survey data from the American Association of Preferred Provider Organizations (AAPPO), about 7% of employers now offer consumer-health care plans.  Additionally, the number of employers who offer these plans are expected to increase since 11% of employers who do not offer these plans say they will probably begin offering them this year. 

Large corporations have been leading the charge in offering these plans.  Indeed, 41% of employers with more than 20,000 employees now offer either a HSA or a HRA.  According to the survey data, these employers say the main reason driving this change is the need to lower the organization’s benefit costs. 

The data that Mercer, who conducted the survey for the AAPPO, collected showed the on average a HSA cost the employer $5,679 per employee as compared to $6,644 per employee for a PPO with a high deductible.  This can be a significant savings for an employer. 

Employers looking to control rising health care plan costs should consider exploring what consumer-driven health care plans offer and deciding if they will work for their company.  Working with their employee benefits attorney they can review their current plans, discuss various consumer-driven health plans and implement any changes that make sense.

• Benefits , Health Care
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Sheila Aiken March 7th, 2008

Employers all over the U.S. are facing the hard realities of rising healthcare costs and their impact on the bottom line.  This is not breaking news for employers - they have been struggling with this reality for the last several years. 

In 2007, healthcare costs continued to rise.  According to the National Coalition on Healthcare total spending was $2.3 TRILLION in 2007.  This equates to $7600 per person and 16% of the gross domestic product (GDP).  Employer premiums for their health plans saw an increase of 6.1% and the cost of healthcare premiums for an employer-sponsored plan averaged almost $12,200 for family coverage and $4,400 for single coverage.

These numbers can be staggering for many employers.  As the nation faces a downturn in the economy and the increase in healthcare costs show no sign of slowing down, employers are looking for ways to control their health plan costs. 

One of the solutions many employers are trying is establishing wellness programs for their employees.  These programs can range anywhere from programs that provide a reduction in employee premiums for participation in a health screening program to programs that encourage “healthy behavior” such as programs for smoking cessation programs, weight management programs and company sponsored walking groups.

According the Center for Disease Control and Prevention, 75% of the U.S.’s annual medical costs are directly related to chronic diseases.  A majority of chronic diseases are linked, directly or indirectly, to lifestyle choices, which can be impacted by wellness plans.  

Although there are few statistics available on the actual reduction in health care expenses obtained by employers who have implemented wellness initiatives, experts believe results will be seen in the long run.  Kaiser Permanente believes that although these programs will not reduce claims in the short-term, there will be long-term benefits and believes there will be a reduction in health issues such as diabetes and heart disease. 

And regardless of the statistics available, some employers believe that encouraging healthy behaviors is the right thing to do for their employees.  They say that they are helping their employees lead healthier and happier lives, which in turn makes for a happier and more productive employee.

Additionally, some employers say they have seen to reduction in absenteeism, on-the-job injuries and workers’ compensation costs, and as well as a reduction in disability-management costs.  In a study of a wellness program at Providence General Medical Center, per-capita workers’ comp costs were reduced 83% and as well as savings in reduced sick leave, which was attributed to implementation of a wellness program.

While most of the evidence for wellness programs is anecdotal, employers would be well advised to consider these programs as they evaluate their overall employee benefits programs to determine whether they would be right for their company and employees.  There are many resources available on the internet to help an employer get started setting up a wellness program.  However, there are numerous pitfalls that employers should be wary of when implementing any change in their benefit offerings.  Any program addition, change, or deletion that an employer contemplates should be reviewed with their employee benefits attorney to ensure that the benefit plan changes are in compliance with all current legal requirements.

• Health Care
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