Introducing CDHP Solutions for a Successful Renewal PrimeFlex Administrative Services, LLC 2 Hour Continuing Education Credit GWAHU October 20, 2010

Agenda Health Care Law Update CDHP Trends Review of CDHP Solutions 5 Steps to a Successful Renewal Wellness – presented by Wellness Corporate Solutions 07/01/10

The New Health Care Law 2010 – Age 26 Eligibility Rules – Non-Discrimination Rules – 105(h) 2011 – OTC changes – Penalty Increase for Non-qualified Distributions for HSAs – Simple Cafeteria Plan – W-2 Health Insurance Reporting Requirements 2013 – FSA Limit $2,500 07/01/10

CDHP Trends Kaiser Foundation Study, 2010 Overall, enrollment in HSA/HDHP coverage in the group market rose to 8.0 million in January 2010, up from 6.2 million in January Average Annual Deductible* $2,329 single / $4,418 family Average Annual Out-of-Pocket Limit $2,641 single / $5,064 family Percentage of Policies with Unlimited Lifetime Maximum Benefit 33% Watson Wyatt, in 10 employers will raise deductibles, copayments and out-of-pocket expenses More employers will add ADHP as an option, not full replacement 07/01/10

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 employee’s taxable income for a higher bottom line take home pay – Premium Only Plan - POP – Un-Reimbursed Medical - HFSA – Dependent Care Account - DCA – Premium Reimbursement Account - PRA 07/01/10

FSA, cont. Employee Pre-tax Payroll Deduction Employer Contribution – tax-free Two risks you must consider – Use it or Lose it – Employee Risk IRS rules do not allow unused $$ in the account to be returned to the participant at the end of the Plan year – Uniform Coverage Rule – Employer Risk Requires the employer to have some risk in order to save on reduced social security taxes Requires the employer to front the employee allocation if a legitimate medical expense occurs 07/01/10

Health Reimbursement Account Health Reimbursement Arrangements - HRA A HRA is: (IRC Section 105) → Unfunded employer responsibility – risk retention → Partially/Fully self funding of Section 213 expense → Analyze the ‘true’ value of Health Insurance →Owner decides on plan year exposure 07/01/10

HRA, cont. HRA Maximum Employer Flexibility No 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! 07/01/10

Health Savings Account Health 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 costs Encourage 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 income Distributions 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 Renewal Step 1: Basic Guidelines for Proper Plan Design Step 2: Develop a “Big Picture” Renewal Strategy Step 3: Deliver the Renewal with Attainable Solutions Step 4: Combination Plans Step 5: Implementation – Common Issues to Avoid 07/01/10

Step 1: Basic Guidelines Proper Plan Design Options: FSA (ER & EE contributions) – Least restrictive – Most convenient – Annual election is available from 1 st day HRA (ER funded only) – Extremely flexible in Plan design – Liability defined – exposure known upfront – Reimbursed when incurred HSA (ER & EE contributions) – Most restrictive – Triple-tax exempt – Retiree medical account 07/01/10

Step 2: The Big Picture What is your belief in CDHP? Introduce cost savings ideas with a 3 year strategy in mind Determine employers goals – ask important questions Align plan years based on your strategy and future plan implementations 07/01/10

Step 3: Deliver the Renewal Attainable Solutions based on: Behavioral Motivations Financial Motivations Let’s Take A Closure Look at Each… 07/01/10

Behaviorally Motivated Seeking financial relief; and changing how the employees think: – HDHP Plans (2 nd dollar HRA with FSA) – Even Higher HDHP (% split HRA with FSA) – QHDHP (HSA) – QHDHP (1 st dollar HSA with 2 nd dollar HRA) – Paying employee, not Provider, directly (HRA) 07/01/10

Financially Motivated Seeking 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 Plans FSA & HRA – perfect match – Ordering Rules Apply FSA & HSA – Ltd-use FSA: dental, vision & preventative care only HRA & HSA – Ltd-use or Post-deductible HRA FSA, HRA & HSA – Ltd-use FSA/HRA, Post-deductible HRA/FSA 07/01/10

FSA-HRA Plans FSA - Employee is responsible for next $500 HRA - Employer Reimburses 1 st $1,500 07/01/10 Employer 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 - HSA This HRA replaces the ability to contribute to an HSA altogether. A first dollar HRA with QHDHP can start the “consumer driven” philosophy. 07/01/10 QHDHP – HRA for a portion or all of the HSA deductible

Percentage Split HRA with FSA 07/01/10 Example is a $2,000 deductible (traditional or QHDHP) ER will reimburse 80% throughout the deductible FSA 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 07/01/10 HRA – Employer Reimburses $1,800 HSA – Employee/Employer Contributions: $1,200

Step 5: Implementation Employer, 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? 07/01/10

For More Information: Lisa Collins | Area Sales Manager, Benefit Services PrimePay | Parkeast Circle, Suite 140 | Chantilly, VA Phone: Cell: | Fax: | 07/01/10