Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company1 What is it? The most widespread employee benefit Tax-free form of employee compensation Two types of plans –prepaid –postpaid

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company2 Plan Design Three fundamental types of plan design 1.Basic plan a)inpatient hospital charges b)in-hospital visits by physicians c)surgical fees 2.“Supplemental” major medical plan 3.Comprehensive plan

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company3 Plan Design The new health care law includes a definition of “essential benefits” that will influence plan design. Essential benefits includes: –Ambulatory patient services –Emergency services –Hospitalization’ –Maternity and newborn care –Mental health and substance abuse disorder services –Prescription drugs –Rehabilitative and habilitative services and devices –Laboratory services –Preventive and wellness services and chronic disease management –Pediatric services, including oral and vision care

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company4 Benefit Structure Deductibles Initial expense paid by employee—usually $100-$500 Usually computed annually, may have carryover provision Usually “all causes” but may have “per- cause” per family

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company5 Benefit Structure Coinsurance Plan participant responsible for specified percentage, usually 20%, of covered expenses Plans can place upper dollar limit on participant’s share—usually several $1,000 on annual basis Maximum Coverage Limits “lifetime limit” on amount participant has to pay Starting 2011 under new health care law, employer plans cannot have lifetime limit on essential benefits

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company6 Funding Postpaid-Type Health Plans Commercial health insurance Reimburses employee for expenses for covered medical procedures, often limited to ‘usual, customary, and reasonable’ (UCR) charges for given procedure in given area If 50 or more employees, premiums “experience rated” – insurer keeps track of benefit use and adjusts charges accordingly

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company7 Funding Postpaid-Type Health Plans Premiums reflect 1.Expected benefit payments 2.Administrative expenses 3.Commissions 4.State premium taxes 5.Risk charges 6.Return on insurer’s capital allocated to the contract (profit)

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company8 Funding Postpaid-Type Health Plans Blue Cross / Blue Shield Provides direct payment in full to “participating” hospitals and doctors (i.e., agreed to BC/BS pre- established rates) for medical benefits provided to covered employees Employees using nonparticipating hospitals are paid/reimbursed on usual and customary rate basis

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company9 Funding Postpaid-Type Health Plans Self-funding Employer pays claims and other costs directly either on “pay as you go” basis or from reserve fund Insurance can be used to provide administrative services only Employer can obtain a “stop loss” contract to protect against large unanticipated costs

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company10 Eligibility and Coverage Internal Revenue Code Eligibility and Coverage Requirements for Group Health Insurance: –Tax law provides certain requirements for employer group health plan coverage with penalty for noncompliance –Specific requirements set by the Health Reform Act

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company11 Eligibility and Coverage Broadly, requirements establish –no exclusions for preexisting conditions (beginning 2011 if < age19, otherwise beginning 2014) –conditions for which participants cannot be excluded or charged a higher premium –length of hospital stay for childbirth –benefit limits for mental illness –no discrimination for premiums or benefits due to genetic characteristics

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company12 Eligibility and Coverage Broadly, requirements establish –beginning 2011 a plan sponsor with an insured plan cannot discriminate in favor of highly compensated employees –coverage offered to adult children to age 26 (beginning 2011) –beginning 2014 an insurer in individual and small group market must cover essential benefits

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company13 Eligibility and Coverage COBRA Continuation of Coverage Employee must be given option to continue health plan coverage (incl. dependent coverage) for 36 months after various qualifying events –death or divorce of employee –employee eligible for Medicare –bankruptcy –child ceases to be dependent for plan purposes

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company14 Eligibility and Coverage COBRA Continuation of Coverage (cont’d) Other events are associated with different time frames Health plan coverage must continue for –18 months if terminate employment (except for gross misconduct) or reduce employment hours –29 months if termination is for disability

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company15 Eligibility and Coverage COBRA Continuation of Coverage (cont’d) Continuation coverage can terminate before the 36, 29, or 18 month period if –employer terminates health plan for all employees –beneficiary does not pay own share of premium –beneficiary becomes covered under another health plan, unless a preexisting condition is excluded

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company16 Eligibility and Coverage COBRA Continuation of Coverage (cont’d) Former employee’s or beneficiary’s share of premium under COBRA cannot be more than –102% of premium paid by those without qualifying event –150% of premium after 18 th month of continuation coverage for disabled Fine for noncompliance is $100 per day

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company17 Eligibility and Coverage Continuing Health Coverage for Retirees Current alternatives 1.pay as you go 2.earmarked corporate assets 3.corporate-owned life insurance 4.increase pension benefits 5.incidental benefit in qualified plan 6.VEBA or other trust fund No one best plan exists; employer must weigh advantages, disadvantages, and own situation

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company18 Tax Implications 1.Cost of health insurance premiums tax deductible for employer 2.Limited deduction available to employer for pre- funding medical benefits 3.Employee receives premiums paid and benefits tax- free unless highly compensated in discriminatory plan 4.Employee may be eligible for itemized deduction

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company19 True or False? 1.A basic health insurance plan primarily covers hospitalization. 2.Essential benefits under the Health Reform Act excludes wellness services. 3.Premiums for commercial health insurance include such costs as commissions and state premium taxes.

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company20 True or False? 4.A basic principle of Blue Cross / Blue Shield plans is to offer coverage to any individual who requests it. 5.Employer health insurance plans cover all employees. 6.Corporate owned life insurance is an option for providing continuing health coverage for retirees.

Health Insurance Chapter 45 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company21 Discussion Questions 1.How do employer health and accident benefits fit into a cafeteria plan? 2.Can a self-employed person or S corporation shareholder-employee be covered under his or her own business’s health insurance plan and obtain any tax advantage?