Company Meeting Title

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2009 Best Practices Conference on School
Operations, Finance and Business Leadership
The Advantages to Educators of 125 Plans and
Alternative Benefit Programs
Presented by Lisa Duquette Tracy Mungeam
September 24 25, 2009
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Topics For Discussion

• Section 125 Plans
• Alternative Benefit Programs
• Consumer Driven Health Plans
• HRA vs. HSA
• Healthy Choice Plans

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Internal Revenue Code Section 125 provides for
pre-tax treatment of thefollowing expenses

• Employer Sponsored Insurance Premium
  Contributions
• Medical, Dental, Vision
• Group Term Life Insurance less than 50,000 in
  coverage
• Short Term Long Term Disability
• Health Care Reimbursement Account
• Used to reimburse employees for their familys
  out-of-pocket medical expenses that are not
  reimbursed by insurance or any other source.
• Dependent Care Reimbursement Account
• Used to reimburse employees for the dependent
  daycare expenses incurred which allows the
  employee and their spouse (if married) to be
  gainfully employed.

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Pre-Tax Treatment Opportunity for Employees to
Save

• When employees pay their eligible expenses using
  Pre-Tax dollars, they SAVE MONEY!
• The savings are
• Federal Income Tax (15 - 33)
• State Income Tax (if applicable)
• FICA/Medicare Tax (7.65)
• Total tax savings is anywhere from 22.65 to 35
  or more depending on the employees federal tax
  bracket!

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Opportunity for Employers to Save Too

• Every dollar that goes through the Plan is NOT
  subject to FICA or Medicare Tax.
• Employers tax savings is 7.65 of all pre-tax
  contributions through the plan

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Section 125 Flexible Benefit Plan Requirements

• Plan must be in writing (Plan Documents) and be
  kept current with latest IRS regulations.
• Summary Plan Descriptions must be distributed to
  Plan participants.
• Plan must be administered on a plan year that is
  best made coincident with your medical insurance
  plan year. (July 1 to June 30)
• Elections once made cannot change during the plan
  year unless there is a qualifying event.

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Flexible Spending Accounts

• Health Care
• Reimbursement Account
• Pre-tax treatment for out-of- pocket medical
  expenses.
• Election must be made annually and is locked in
  for the balance of the plan year.
• Uniform reimbursement total election must be
  made available at start of plan year.
• Use it or lose it funds must be spent during
  plan year or be forfeited.
• 2 ½ month extension possible

• Dependent Care
• Reimbursement Account
• Pre-tax treatment for child care expenses.
• Election must be made annually and is locked in
  for the balance of the plan year.
• Claims are reimbursed based on the cash currently
  credited to the account.
• Use it or lose it funds must be spent during
  plan year or be forfeited.
• 2 ½ month extension does not apply

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Flexible Spending Accounts Election Limits
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Health Care Reimbursement AccountExpenses
Eligible for Reimbursement

• Medical Fees and Expenses
• Deductibles or co-insurance
• Co-payments
• Ambulance
• Laboratory fees
• Physicals
• Hospitalization
• Sterilization
• Transplants
• Vaccinations and immunizations

• Dental Care
• Cleanings/fillings/x-rays,etc
• Dental expense balance after insurance coverage
  payment
• Deductibles or co-insurance
• Orthodontia
• Durable Medical Equipment
• Hearing aids and batteries
• Wheelchair/crutches
• Orthotics
• Syringes, needles and injections

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Eligible Healthcare Expenses Continued

• Treatment, Therapy
• Wellness Programs
• Chiropractors
• Hypnosis for treatment of an illness
• Mental health care
• Therapy by licensed therapists
• Psychoanalysis
• Acupuncture by a licensed practitioner
• Alcoholism/drug dependency treatment
• Weight Loss Programs
• Massage therapy

Prescription drugs Co-payments Birth control
pills Vision care Lasik eye surgery Contact
lenses, supplies and solutions Eye exams and
eyeglasses Prescription sunglasses
Must be medically necessary-meaning you have a
qualified medical diagnosis and a recommended
treatment plan from a health care professional.
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Additional Eligible Healthcare ExpensesOver the
Counter (OTC) Medications/Supplies

• Analgesics Pedialyte for a sick child
• Antacids Smoking cessation products
• Anti-diarrhea medicine Sinus medications
• Bug bite medicine Hemorrhoid creams
  suppositories
• Calamine lotion Wart Removal products
• Cold/flu medicines Non prescription birth
  control
• Contact lens solution Thermometers
• Cough drops Nasal Strips
• Diaper rash ointment First aid kits (including
  band-aid
• Motion sickness pills gauze, bandages, cold-
  hot packs,
• Menstrual pain cramp relief rubbing alcohol)
• Sleeping aids Reading glasses
• Must be purchased in a reasonable quantity

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Dependent Care ReimbursementAccounts

• Expenses are eligible only if they allow a single
  parent or both spouses to be gainfully employed,
  or attend school full time.
• Expenses must be for a dependent who can be
  claimed on your income tax return, who is under
  age 13, or physically or mentally incapable of
  caring for him or herself. This may include
  adults.
• The dependent must live in your home at least 8
  hours per day.
• Eligible day care providers include
• Day care center, nursery school, summer day camp
  or before/after school program that meets state
  and local requirements. Overnight camps and
  kindergartens are NOT eligible.
• Babysitters inside or outside the home as long as
  they are not your legal dependents.
• Please Note The participant will be required
  to furnish the tax ID or Social Security number
  of all providers to the IRS.

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Consumer Driven Health Plans(CDHPs)

• Almost every employer is offering a consumer
  driven health plan as an option
• Only about 6 of employers make CDHPs their sole
  health plan.
• 60 of CDHPs have HSAs, while 40 have HRAs.
• HSA linked CDHP enrollment reached 8 million
  lives at the beginning of 2009.
• Business Insurance, July 27, 2009, CDHP
  Enrollment Growing Quickly

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Consumer Driven Health Plans Sample Design
Fund Amount Deductible Coinsurance
OOP Maximum
750 1,500 90 2,000
500
750
750
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Consumer Driven Health Plans - Savings

• Studies indicate savings from implementing CDHPs
• Companies with a CDHP experienced a two-year cost
  increase trend of 5.5 versus 7 for companies
  without a CDHP1
• Milliman analysis shows when offered a new choice
  CDHPs deliver 1.5 in savings beyond non-CDHPs
  based on a typical risk and benefit adjustment
  factors2
• Aetna study indicates that employers who offer
  their CDHP as an option experience annualized
  cost trend that is 1.7 lower than PPO trend3
• CIGNA study indicates medical cost trend for CDHP
  was lower in both first and renewal plan years
  with approximate savings of 2 annually in
  renewal years4
• 1 Watson Wyatt/National Business Group on Health
  Survey March 13, 2008
• 2 Managed Healthcare Executive May 1, 2008
• 3 Managed Healthcare Executive July 13, 2009
• 4 CIGNA Choice Fund Experience Study January
  2009

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HRA vs. HSA Comparison Chart
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HRA vs. HSA Comparison Chart
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HRA vs. HSA Comparison Chart
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HRA vs. HSA Comparison Chart
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HRA vs. HSA Comparison Chart
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Healthy Choice Plans
Employee Enrollment
Healthy Choice Plan Richer Benefit Schedule
Traditional Choice Lower Benefits
Yes
No
Complete HRA
HRA results prompt eligibility for appropriate
health interventions
Health Improvement Programs are Available
Must enroll and participate in one
intervention based on individual need
Low Risk
Moderate Risk
High Risk
Chronic Disease
Low Risk
Moderate Risk
High Risk
Chronic Disease

• Target areas
• Physical activity
• Nutrition
• Healthy decisions
• Web-based lifestyle behavior maintenance programs
• Health action programs

• Targeted risk factors
• Smoking
• Physical Inactivity
• Overweight
• Stress
• Six-month phone-based lifestyle behavior change
  programs
• Web-based lifestyle behavior change programs

• Targeted risk factors
• Smoking
• Physical Inactivity
• Overweight/Obesity
• Stress
• High blood pressure
• High cholesterol
• 12-month phone-based lifestyle behavior change
  programs
• Web-based lifestyle behavior change programs

• Disease management program
• Treatment and drug compliance
• Behavioral focus
• Lifestyle behavior modification
• Psychosocial support
• Self-management skill development

Must be actively participating or completed
appropriate intervention to stay in the healthy
choice plan the following year.
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