© Flex-Plan Services, Inc Flex-Plan Services, Inc. Creative Ways to Manage Employee Benefit Costs Hilarie Aitken

© Flex-Plan Services, Inc Agenda Consumer Driven Health Care overivew Sec 125 POP Plans & FSAs Health Reimbursement Arrangements (HRA) Health Savings Accounts (HSA) Dental & Vision Reimbursement Plans

© Flex-Plan Services, Inc Employee Health Benefits Today Employers can no longer afford the rising financial cost of employee health benefits. -Last 10 years steady increase to premiums -Health Care Reform will not slow the increases anytime soon -Will Employers continue to play? Or will they pay?? BIG question… Employees are not satisfied with paying out more for premiums and receiving a lesser benefit: -Higher deductibles, copays & coinsurance -Restricted networks

Consumers Need to Take a More Active and Informed Role in Health Care Transactions Increased financial responsibility – “Nobody spends someone else’s money as carefully as they spend their own” – EE’s make smarter choices about medical care. Assume a renewed and serious interest in managing one’s own health and well-being – FSAs: help employees to budget and save – HSAs: ee’s can spend or save? – Bridge plan HRAs for deductibles: ee’s responsible first and they see how much utilization costs – HRA funded for Wellness participation

© Flex-Plan Services, Inc Sec 125 Premium Only Plan Provides a tax savings to Employers and Employees – Employer Savings: 7.65% Payroll Taxes (FICA) – Employee Savings: 20-40% (FIT & FICA) ER must have Plan Document in place in order to take employee pre-tax deductions for qualified insurance premiums. Extremely low-cost and simple way to help employees pay for benefits and helps employers save on employee premium cost sharing amounts.

© Flex-Plan Services, Inc Sec 125 FSAs Allows employees to set aside pre-tax dollars to pay for out-of-pocket healthcare expenses. Employees save 20-40% and are engaged in the health care purchasing process, which creates consumer awareness. Copays, dental, vision, chiropractic, ortho etc. “Like” us on Facebook and see daily eligible expenses! Access the FSA with a debit card or by submitting claims ( , online, smart phone, fax and snail mail). Average utilization in an FSA plan is only 22%...VERY under-utilized benefit. EDUCATION IS KEY!! Employers who dedicate resources and engage an active TPA can see increase in participation up to 40% and realize associated cost savings to the organization and to the employees.

© Flex-Plan Services, Inc Show me the MONEY!! Sec 125 POP & Flexible Spending Accounts (FSA) 50 Employee Group – Each participant pays 20% of premiums- approximately $30,000 – Average FSA enrollment- $15,000 – Employer FICA tax savings- $4,200 – Estimated Administration Cost- $1,600 – Net savings- $2,600

© Flex-Plan Services, Inc HRAs Sec. 105 reimbursement plans have been in existence since the late 1970’s – Due to the rich benefit plans of the 80’s and 90’s, the plans were never made popular – Employers are looking for creative ways to provide benefits Account is only funded if used – Unused funds are not subject to Exclusive Benefit Rule under ERISA if funds are held in General Assets. – Huge propensity for savings for employers if they can pair with premium savings on an HDHP Reimburse any expenses under IRC Sec. 213(d) – May be limited to certain expenses- most popular is Deductible HRA.

© Flex-Plan Services, Inc HRAs Plan Design Flexibility- help ERs meet financial goals and employee benefit needs -Deductible Bridge Plans -Standalone -Wellness FPS has grown HRA business 130% for the last 5 years -Bridge plans very popular -Rollover of unused funds not so popular -Cost varies with plan design complexity

Deductible Bridge Plan Plan reimburses expenses subject to the major medical plan’s deductible Often an employer will fund only part of the deductible- bridge plan How does it work?? – Patient sees doctor – Obtains EOB – Submits for reimbursement Major Medical Plan $2,000 deductible Employer pays $1,500 Employee pays $500

© Flex-Plan Services, Inc Current Plan$300 deductible Number of Participants39 Total Premiums Annually$202,989.24

© Flex-Plan Services, Inc #1 Choice $1,500 deductible Number of Participants39 Total Premiums Annually$162, Premiums Savings$40, Max HRA Reimbursement$1, Total HRA Liability (worse case)$46, w/Admin Fees$49, Total Savings-$9, % Utilization$9, w/Admin Fees$12, Total Savings$28, % Utilization$14, w/Admin Fees$17, Total Savings$23, % Utilization (Conservative)$18, w/Admin Fees$21, Total Savings$18,888.08

© Flex-Plan Services, Inc #2 Choice $2,000 deductible Number of Participants39 Total Premiums Annually$152, Premiums Savings$50, Max HRA Reimbursement$1, Total HRA Liability (worse case)$66, w/Admin Fees$69, Total Savings - $18, % Utilization$13, w/Admin Fees$16, Total Savings$34, % Utilization$19, w/Admin Fees$22, Total Savings$27, % Utilization (Conservative)$26, w/Admin Fees$29, Total Savings$21,236.24

Creative…or Old Fashioned? Defined Contribution Health Plans Under Sec 125 employers can offer a “cafeteria” style plan with a defined contribution that employees can allocate to their benefits. – ER sponsored benefits (medical, dental, supplemental) – FSA or HSA – Premium Reimbursement Accounts- individually owned policies Under Sec 105 an employer could provide for a standalone HRA that employees could use to buy benefits. – Individually owned policies or any out of pocket – HIPAA nondiscrimination for both standalone PRA & HRA?? Health Care Reform implications – Will the coverage meet the Pay or Play provisions? In some cases it could be cost effective to “pay” and still provide one of the above. – Some HRAs are subject to 1) prohibition on lifetime limits, 2) CER fees, 3) SBC requirements.

© Flex-Plan Services, Inc HSAs The only tax-favored health benefit truly supported by the HCR bill. HSA Eligibility – In order to have contributions to the HSA employee must be covered by a HDHP, and have NO non- HDHP coverage (including spouse’s FSA) High Deductible Health Plan – $1,200 individual & $2,400 for family – OOP cannot exceed $6,050 for individual or $12,100 for family Contributions – Can be combination of employee and employer contributions (note employee HSA contributions are made pre-tax under Employer’s 125 plan) – Employee Only: $3,100 – Employee Family: $6,250 Distributions – All Sec 213(d) expenses – Non-qualified expenses assessed an excise tax (up to 20% due to PPACA) Accounts – Balances rollover – Individually owned – Administered FPS through Healthcare Bank

HSA vs HRA HSAs are a true consumer driven health care vehicle – HSA owned by the employee – Good for S-Corps, Partnerships & LLCs – Lower paid employee populations may struggle w/ the Rx benefit in the HDHP, especially if not ER funded. HRAs enable employers to create plan designs that meets benefit objectives and financial goals. – HRA can be paired with any medical plan – HRA requires claim substantiation – HRA funds remain “employer” funds until benefits are paid

Dental/Vision Reimbursement Plans Employer funded with a defined contribution Employee pre-tax contributions (Sec 125) are allowed Annual maximum benefit determined by employer. Flexible plan designs

Why?? On average, 65% of employees utilize their dental benefits. – Employer is paying premiums for employee’s not using the benefit. Employers are looking for a way to save money while still offering comprehensive benefits. A great way to ease employees into Consumer Driven Health Care.

Continued… All dental/vision services within the scope of Sec. 213d are allowable No UCR, pre-authorizations or balance billing Employees have freedom to choose provider 90% of funds goes to treatment Account is only funded when used

Sample Plan Design Plan will reimburse employee’s as follows: 100% of the first $300 80% of the next $500 50% of the next $1,600 Annual Maximum Benefit: $1,500 **Note that benefit is paid on dollars spent opposed to services rendered**

How It Works Patient visits Dentist. Obtains bill or receipt. Submits bill or receipt to Flex-Plan. Flex-Plan can either pay Dentist, or pay participant.

© Flex-Plan Services, Inc The Future of Employee Benefits…? We will see a bigger shift to “consumer driven healthcare” -Last 10 years steady increase to premiums -Health Care Reform will not slow the increases anytime soon -Consumer Driven Health Care is seemingly the only way to curb costs -Will Employers continue to play? Or will they pay?? BIG question… Will employers exit the benefit marketplace?? -Employers may decide to pay the penalty -Economic growth = Employer sponsored benefits (attract & retain EEs)

© Flex-Plan Services, Inc Questions??? Hilarie Aitken Flex-Plan Services, Inc.