Benefit Plan Blog

Maryland's new law requiring employers with at least 10,000 employees to spend at least 8% of payroll on health care benefits continues to generate strong opinions - pro and con. Today's Daily Health Care Report published by the Kaiser Family Foundation provides us with recent newspaper editorials that address the new bill - and the health care system in general.

Amid the complaints about Medicare Part D, Joe Padula, in his Managed Care blog explains what, in his opinion, is really wrong with this new government program.

Healthy Concerns Blog keeps us up to date on the Wal-Mart bill.

As new accounting rules for post-retirement benefits sponsored by public employers start to kick in, here is a story reported by Jim Zarroli on National Public Radio's Morning Edition.

Following the 2005 health insurance rate increase of 9.2%, Hewitt Associates is projecting a 9% average increase for employers in 2006. This would be the lowest rate increase since 1999.

Employee Benefit News reports that smoking cessation programs are sparking greater interest among employers. While some employers are making smokers pay a higher price to maintain their habit - higher health insurance premiums or in some cases, their jobs - other employers are using a softer approach.

The publication goes on to say that the International Society of Employee Benefit Specialists ranks smoking cessation programs first among workplace health programs for return on investment.

Yesterday the Maryland General Assembly overrode Gov. Robert Ehrlich's (R) veto of a bill that will require employers with more than 10,000 workers in the state to spend at least 8% of their payroll on employee health care or to pay into a fund for the uninsured. The House voted 88-50 to overturn Ehrlich's veto, and the Senate voted 30-17. The law will take effect in 30 days.

It's called the "Wal-Mart" bill because four companies have 10,000 or more employees in Maryland, but Wal-Mart is the only company that will be affected by the law. Wal-Mart employs about 17,000 people in Maryland.

Here is Law Blogs's interesting take on the bill.

On November 22, 2005, the Treasury Department and the IRS issued a press release and accompanying Notice 2005-86(PDF) which clarifies the interaction of the 2-1/2 month Flexible Spending Arrangement (FSA) grace period (established earlier this year by Notice 2005-42) and eligibility to contribute to Health Savings Accounts (HSAs).

The guidance clarifies that coverage by the FSA grace period disqualifies an individual to contribute to an HSA during the grace period. However, the notice also provides guidance on how an FSA can be amended to enable a covered individual to contribute to an HSA during the grace period. The guidance also clarifies a number of technical questions concerning the grace period.

In a prior posting, I indicated that there were several important due dates for employee benefit plans between now and year end. One of which is the November 15, 2005 due date for the Creditable Coverage Notice that is part of new Medicare Part D prescription drug coverage.

With relatively few exceptions, employers that provide prescription drug coverage to employees or retirees must furnish Part D eligible individuals with a notice that describes whether that coverage is creditable or non-creditable prior to November 15, 2005.

In general, prescription drug coverage is regarded as creditable if the value of coverage under an employer’s plan (regardless of how much is paid by employees or retirees) is, on average, at least as valuable as the coverage required of a Part D plan. The notice is important because Medicare beneficiaries who have creditable coverage may delay enrollment in Part D and not incur a late penalty applicable to their premiums.

The notice must be provided to all individuals who are eligible to enroll in Medicare Part D and prescription drug coverage under an employer’s plan. The notice must be provided to eligible active, as well as retired employees. It must also be provided to Part D eligible dependents. However, notice to an employee will be deemed to notify dependents residing at the same address.

The notice must be provided to Part D eligible individuals before the initial Part D enrollment period begins on November 15 and then on an annual basis. It must be provided in certain situations, such as when an individual first becomes eligible for Part D, when a Part D eligible individual enrolls for the employer’s prescription drug coverage, and when the prescription drug coverage ceases (or begins) to be creditable. It must also be provided on request.

On October 28, 2005, the IRS announced the annual dollar limits for health savings accounts (HSAs) for 2006. To establish and contribute to an HSA, an individual must be covered by a high deductible health plan (HDHP) and not covered under any other type. The new limits are as follows:

• The maximum out-of-pocket limit under an HDHP cannot exceed $5,250 for single coverage and $10,500 for family coverage in 2006 (up from $5,000 and $10,000, respectively, in 2005).
• The 2006 monthly limitation on deductions for single coverage in an HDHP is 1/12 of the lesser of the annual deduction or $2,700; for family coverage, it is 1/12 of the lesser of the annual deduction or $5,450.

Attorney Larry Grudzien has just revised his Employer's Guide to HSAs to include the new 2006 amounts.

As the year is rapidly drawing to a close, there are several key deadlines that benefit plan sponsors must meet:

• November 15, 2005 - Creditable Coverage Notice regarding new Medicare Part D prescription drug coverage to all active and retirees covered under the medical plan.
• December 1, 2005 - Safe Harbor Notice for calendar year 401(k) plans to avoid discrimination testing.
• December 31, 2005 - Plan amendment for calendar year retirement plans to implement automatic IRA rollovers for terminated participants with “small accounts”.
• January 1, 2006 - Availability of qualified Roth accounts in 401(k) and 403(b) plans.
• January 1, 2006 - Availability of prescription drug benefits under Medicare Part D.
• January 1, 2006 - Effective date of Treasury and IRS Final 401(k) Regulations.

I will be posting separate, detailed explanations of each as the respective deadlines get closer.

With the Monday, October 31 deadline bearing down on employers who want to take advantage of the new Retiree Drug Subsidy (RDS) program in 2006, there have been the expected delays in responses from the Centers for Medicare and Medicaid (CMS) which administers the program and computer gliches.

However, in a conference call on Friday, October 28, CMS provided affected employers with the following assurances:

• Employers who have started the application process will be able to continue past the October 31st deadline if necessary.
• Because of long delays in connecting with the Call Center, CMS has established a temporary email address, rdsoutreach@vips.com, to answer questions or resolve issues with applicants.
• Delays in getting log-in IDs will not prevent participation in the RDS program.

A recording of the conference call will be available until November 1 by calling (800) 642-1687 and entering the conference ID number: 1989724. Additional information can be found on the RDS Program website.

Expensive gasoline, in part due the economic fallout from Hurricane Katrina, is fueling new interest in transportation benefits, such as qualified transportation expense plans and carpooling arrangements.

Qualified transportation expense plans allow employees to save 30% to 40% on out-of-pocket expenses on certain transit and parking costs associated with their commute to work by paying for those expenses with pre-tax dollars. Commonly used in major cities by commuters who take mass transit, the benefit also is available to workers who use carpools.

Despite rising gas prices over several years, the number of employers with transportation benefits has remained flat. This year, 14% of companies offered a qualified transportation expense plan or transit subsidy, compared to 13% in 2001, according to the Society for Human Resource Management's 2005 benefits survey. The Census Bureau reports that 12% of workers take public transportation and 5% carpool.

New research by GfK Market Measures indicates that Medicare patients remain confused about the new prescription drug benefit included in Part D of the Medicare Prescription Drug Improvement and Modernization Act (MMA), set to go into effect in January 2006. Patients have little knowledge of the structure or specifics of the new benefit with most not even aware of when they need to register. As a result, interest in participating is limited, particularly among affluent seniors who are satisfied with their current coverage and see little incentive for moving to a new system.

"Clearly, patient education will be key in getting Medicare beneficiaries to enroll in Part D and to have realistic expectations of the benefits it will deliver," says Larry Olson, Director of GfK Market Measures' Consumer Health Practice. "In particular, pharmaceutical manufacturers need to let patients know which plans have given their branded drugs preferred formulary status before enrollment begins on November 15. Right now, most patients are unaware that the drugs offered will vary from one plan to another -- and that they will need to review choices carefully to select a plan that covers the brands they want."

GfK Market Measures is a leading supplier of primary research to the healthcare community. The Company is one of the GfK US Healthcare Companies, part of The GfK Group-one of the world's top-three market research organizations.

The IRS is encouraging employers to establish Hurricane Katrina Relief leave donation programs and is providing special tax treatment to support such programs. Under a leave donation program, employees can elect to forgo their vacation, sick or personal leave in exchange for the employer making cash payments to a qualified tax-exempt organization providing relief for victims of Hurricane Katrina.

Employers may deduct cash payments to a qualified tax-exempt organization as charitable contribution deductions. If they do so, any existing percentage limitations will apply. Alternatively, they may deduct the cash payments as business expense deductions. Because of the long-term consequences of this extraordinary disaster, the IRS will continue the favorable tax treatment for payments made through Dec. 31, 2006.

Further information on the leave donation program can be found on the IRS website.

NorthStar Financial Services Group LLC, the parent company of CLS Investment Firm and Gemini Fund Services, has introduced an Employee Gas Assistance Program. The program will subsidize gas costs of the daily commute to work for all of its employees. The amount each employee receives is based on several factors including the distance of the commute, a baseline gas price (currently set at $1.80 per gallon), and the current price of gasoline. The company plans to offer the program at least through the end of 2005.

Source: PLANSPONSOR.com

An earlier posting mentioned that the deadline was extended for employers filing the Medicare Part D application for the subsidy - originally due September 30, 2005 and now due October 31, 2005.

But that is not the only notice requirement. What was not extended was the due date for the notice that employers must furnish before November 15, 2005 to certain individuals who are eligible to participate in the Medicare Part D program whether or not they seek the subsidy. Important: This notice is required of all employers who provide prescription drug coverage to active or retired employees, whether or not the employer seeks the government subsidy

A new weekly column prepared by the Kaiser Family Foundation and distributed by Knight Ridder/Tribune will answer questions from readers related to the new Medicare prescription drug benefit. The first column addresses the question, "Should I enroll in a Medicare prescription drug plan?" and provides information about enrollment and the benefit that beneficiaries should consider.

Answer: the cost of health care for their employees.

It has been widely reported that the cost of health care for General Motors employees last year was more than it spent on steel. Now comes a report that Starbucks will spend more on health insurance for its employees this year than on raw materials needed to brew its coffee.

Something to think about as you drive your Trailblazer over to Starbucks for a Venti No Foam Caramel Macchiato.

Source: MSNBC as reported by Blue Cross Blue Shield.

The Center for Medicare & Medicaid Services (CMS) has extended the deadline for employers to submit applications to receive the retiree drug subsidy from Sept. 30 to October 31. CMS has decided to grant the one-time extension for all plan sponsors, and no action is required on the part of employers.

The subsidy, part of the 2003 Medicare Modernization Act that adds a drug benefit to the Medicare program, is available to employers who retain retiree prescription drug coverage at least equal to what Medicare will provide. Employers eligible for the subsidy will receive a tax-free payment from the government equal to 28% of their retiree prescription drug claim costs between $250 and $5,000.

In addition to applying for the subsidy, employers have two other options. They may:

• Provide coverage that supplements Part D. Employers may provide prescription drug coverage that is secondary to Part D coverage. This coverage would assume that Medicare-eligible retirees enroll in Part D coverage and reimburse only certain expenses not covered by Part D. Employers who choose this option may consider whether to subsidize some or all of the Part D premium.
• Provide coverage through an approved plan. Some employers with large retiree populations have determined that they might generate more savings by establishing their own Medicare-qualified prescription drug plan. However, timing considerations, the status of existing guidance, and the need for further analysis have convinced a number of interested employers to delay implementation until at least 2007. Employers may also consider purchasing federally approved prescription drug coverage for Medicare-eligible individuals that certain vendors may make available.

Further information on the Part D subsidy can be found on the CMS website.

An earlier posting discussed the IRS change that now allows employers who sponsor Flexible Spending Arrangement (FSAs) to extend the deadline for reimbursement of health and dependent care expenses up to 2 ½ months after the end of the plan year.

Today the IRS in Notice 2005-61 has now clarified the Form W-2 reporting requirements when an employer has amended a cafeteria plan document to provide a grace period for qualified dependent care assistance immediately following the end of a cafeteria plan year. An employer that amends its cafeteria plan to provide a grace period for dependent care assistance may continue to report in Box 10 of Form W-2 the salary reduction amount elected by the employee for the year for dependent care assistance (plus any employer matching contributions attributable thereto). Here is an example:

An employer amends its calendar year cafeteria plan to permit a grace period for dependent care assistance until March 15 of the subsequent year. An employee elects salary reduction of $5,000 for dependent care assistance for the 2005 calendar year and elects an additional $5,000 salary reduction for dependent care assistance for the 2006 calendar year. The employee has $500 of dependent care contributions remaining unused at the end of the 2005 plan year, which is available to reimburse dependent care expenses incurred during the grace period. For the 2005 calendar year, the employer may report in Box 10 of Form W-2 the $5,000 salary reduction amount elected by the employee for dependent care assistance in 2005. Similarly, for the 2006 calendar year, the employer may report in Box 10 of Form W-2 the $5,000 salary reduction amount elected by the employee for dependent care assistance in 2006.

Here is the full text of the Notice.

According to the July/August Kaiser Health Poll Report tracking survey, Americans rank health care (22%) behind only war and foreign policy issues (28%) and just ahead of the economy (20%) as the most important problem for the government to address. Fewer people name terrorism (9%), tax and budget issues (6%), education (5%), and crime (3%) as the most important problem. The Kaiser Health Poll Report provides ongoing tracking of public opinion in three key areas: health care worries, health care priorities and attention to health news.

In an earlier posting about older employees, I indicated that employers concerned about a shrinking labor pool are trying to keep employees on the job for as long as possible.

Now a recent telephone survey of human resource managers and executives in Illinois, Indiana, Iowa, Wisconsin, and Missouri conducted in the spring of 2005 by the American Association of Retired Persons (AARP) tells us why. The survey was designed to understand employer perceptions of 50-plus workers and identify what, if anything, employers in these states have started to do to attract and retain these workers.

The results of this Midwestern employer survey are largely consistent with findings from AARP's earlier nationwide employer surveys. For example, Midwestern employers, like employers nationally, give older workers high marks in areas such as loyalty and dedication, commitment to doing quality work, dependability in a crisis, and ability to get along well with coworkers. Similarly, both groups rate older workers somewhat lower on issues such as flexibility about doing different tasks and willingness to learn and use technology.

Yesterday's Daily Healthcare Policy Report published by The Kaiser Family Family Foundation pointed to an article in USA Today about the effect of health insurance costs on business start-ups:

Some "would-be entrepreneurs" are "reluctant to quit Corporate America and its blue-chip benefits to start businesses" in part because of increasing health care costs, USA Today reports.

Here is the full Report.

Matthew Holt, publisher of The Health Care Blog, today posted an interesting article on Medicare Part D:

And you thought that Medicare Part D was a big giveaway to the drug companies and PBMs....

Well this article in AISHealth.com's Managed Care Week suggests that Part D sponsors are gearing up for intense price competition to recruit seniors and that the PDPs (participating drug plans) who will do best are those health plans that understand how to take risk.

That's a little odd as my understanding of the PDPs' role in part D for the first couple of years was that if they lost money the government would make up the shortfall. Of course if that's not the case and they do lose money we could see a repeat of the stampede out of Managed Medicare of the late 1990s --not something the Administration would like to see given how confusing the Part D benefit is in the first place. To be fair I can't find any references to who's really at risk, and whether losses by plans will be covered if participants drug costs exceed their premium income.

Here is the link to the article Mr. Holt referenced.

How have employers responded to the recent IRS announcement easing the "use-it-or-lose-it rule"?

According to a survey conducted by Deloitte & Touche USA L.L.P. and the ERISA Industry Committee ("ERIC"):

• Only 34 percent of surveyed employers plan to give participants in their health and dependent care FSAs the newly permissible 2 ½ month grace period to spend unused balances.
• 16% plan to offer the grace period to participants in health FSAs only.
• 70% said they would not offer the grace period to dependent care FSA participants because they felt dependent care expenses are more predictable than health care expenses, so a grace period to avoid forfeitures was unnecessary.

Click here for a copy of the FSA Grace Period Survey.

The Kaiser Family Foundation and Consumers Union just released an updated guide to help consumers through the process of resolving disputes with Preferred Provider Organizations (PPOs), Health Maintenance Organizations (HMOs) and other types of managed care organizations. The guide is available free on the Kaiser Foundation's website.

The Segal Company's ninth annual health plan cost trend survey forecasts continued declines in trends in 2006 as compared to 2005 for almost every coverage surveyed.

"Trend" is the forecast change in health plans' per capita claims cost costs determined by managed care organizations, health insurers, pharmacy benefit managers and third party administrators.

John Drummond's July 15, 2005 posting on his HIPAA Blog contained what he called some "interesting nuggets":

A group of employee benefits lawyers from the American Bar Association recently met with HHS to discuss the many problems facing employers and their self-insured health plans due the the convolution of the HIPAA regs (anyone who has much to do with HIPAA realizes that HHS didn't really understand the employee benefits field when it drafted the HIPAA regs). Well, as lawyers are want (er, I mean "wont") to do, the ABA group has issued a report on its meetings. What's most interesting is the side-talk, of things like the number of complaints (13,000) and number of investigators (200) working at HHS on HIPAA. Sort of a peek behind Oz's curtain. (Hat tip: John Barlament)

The meeting to which Mr. Drummond referred was the Technical Session between the Department of Human Services and the American Bar Association's Joint Committee on Employee Benefits held on May 17, 2005. Click here for a copy of the ABA report.

While Health Savings Accounts (HSAs) are becoming more common, their costs among providers vary widely. A survey published this week by Information Strategies, Inc. focused on account set-up charges, maintenance fees and transaction charges at 97 banks or other institutions offering HSAs. Click here to read the survey results.

Larry Grudzien, an ERISA attorney, with whom I provide continuing education programs, has just updated his Employer's Guide To Health Savings Accounts. He has written it in easy to understand question and answer format and includes a chart comparing Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) with HSAs. Click here to download a copy.

Public sector employers, like employers in the private sector, will soon have to start accruing the promise to provide retiree medical benefits during the working years of employees and recognize it as a financial obligation of the employer as mandated by the Governmental Accounting Standards Board (GASB).

These new accounting requirements apply to the financial reports of most public employers which include state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities.

The credit implications of the new accounting rules are discussed in a new report issued by Fitch Ratings, the international ratings agency. Click here to download a copy of Fitch's Report.

A new study by researchers at the Commonwealth Fund, a private foundation that supports independent research on health and social issues, finds that the largest part of medical costs for uninsured workers is paid for by other employers who spend an estimated $31 billion to cover these workers through dependent coverage.

The Fund's Sara R. Collins, Ph.D., Karen Davis, Ph.D., and Alice Ho explore the characteristics of workers who do not receive coverage from their own firms; examine how health care costs are spread across workers, employers, and the government; and recommend policy options to expand and strengthen employer-sponsored coverage in A Shared Responsibility: U.S. Employers and the Provision of Health Insurance to Employees (Inquiry, Spring 2005).

Click here for a summary of the study.

The IRS recently allowed employers who sponsor Flexible Spending Arrangement (FSAs) to extend the deadline for reimbursement of health and dependent care expenses up to 2 ½ months after the end of the plan year. Under the old rule, an employee would forfeit any funds not spent by year end. Click here to view IRS Notice 2005-42 which provides the details.